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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-23705
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AUTOMOTIVE PERFORMANCE GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 86-0850090
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1207 N. MILLER ROAD, TEMPE ARIZONA 85281
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER: (602) 449-3125
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK $.0001
PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,687,026
The aggregate market value of voting stock held by nonaffiliates of the
registrant's common stock, as of April 9, 1999 was approximately $3,750,000
(based on the last sale price of such stock as reported by NASDAQ OTC Stock
Market).
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 5(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: On April 9, 1999, the
registrant had 6,239,956 outstanding shares of common stock per value $.0001.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form-10-KSB (e.g., Part I, Part II, etc.) into
which the documents incorporated: (1) any annual report to security holders; (2)
any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification Transitional Small
Business Disclosure Format (Check one): Yes [ ] No [X]
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ITEM 1. BUSINESS
GENERAL
Automotive Performance Group, Incorporated ("APG" or the "Company") was
formed to be the parent company for high performance automotive-and specialty
chemical-related operating subsidiaries. The objective of the Company is to
develop and successfully market a spectrum of integrated mutually supportive
brands of products and services for the high-performance automotive and
specialty chemicals industries. Specialty chemicals comprise an important part
of the overall automotive market as well as certain non-automotive market
niches.
APG has developed a strategy to assemble a portfolio of high margin brands
and products in the high-performance automotive and specialty chemicals markets
that leverage the Company's strengths in brand management, product marketing,
and channel access under one corporate umbrella. Within each of these sectors,
APG seeks out those products that have high potential profitability, premium
quality, and market leadership in their respective markets.
The Company believes that the core market targets benefits from either (1)
its premium product positioning or (2) the unique product attributes for
specific applications where efficacy and application are the primary
determinants to the purchasing decision. Premium product positioning is most
commonly associated within the lubricants, car care, and image target markets.
Product efficacy and suitability to the applications define specialty chemicals.
APG's primary business is conducted through its operating subsidiary Royal
Purple Motor Oil, Inc. ("Royal Purple Motor Oil" or "RPMO"), which markets and
distributes a product line of high performance synthetic oils and lubricants for
the motorcycle, streetcar, and racing segments of the automotive industry under
the Royal Purple(TM) brand name. RPMO is the exclusive worldwide distributor in
those segments for Royal Purple, Inc., a non-affiliate, which manufactures such
oils and lubricants.
APG is also the parent of Klein Engines and Competition Components, Inc.
("Klein Engines" or "Klein"), a builder of high performance engines and
components for motor sports and specialty applications.
RECENT DEVELOPMENTS
In February 1999, the Company entered into a letter of intent with Loctite
Corporation to acquire Loctite's North American Automotive Aftermarket Division
("AAD"), which manufactures and markets a number of well established automotive
chemical products, including Permatex(TM) and Fast Orange(TM). AAD's revenues
for the year ended December 31, 1998 were approximately $120 million.
In February 1999, APG entered into an agreement giving APG an option to
acquire Advanced Chemicals & Technology, Inc. ("AC Tech"). AC Tech develops,
manufactures and markets aircraft sealant, specialty packaging materials and
packaging services to the aircraft OEM and maintenance markets. The agreement
provides for the current shareholders of AC Tech to receive shares of APG stock
in exchange for their interest in AC Tech. The transaction is conditioned on APG
completing its proposed acquisition of Loctite's Automotive Aftermarket
Division.
In April 1999, APG acquired the Boyds Wheels and Hot Rods by Boyd
businesses out of bankruptcy protection for a cash purchase price of $1.6
million. The Company believes that the acquisition of these businesses will
strengthen the Company's position in the hard-parts segments of the automotive
market.
The Loctite and AC Tech transactions are expected to be completed by the
second quarter of 1999. However, these transactions are not subject to binding
agreements and there can be no assurance that they will be consummated.
PRODUCTS
Royal Purple. Revenues for RPMO continue to grow at an accelerated rate.
RPMO's current product lines for the automotive, motorcycle and marine markets
include a variety of engine oils for gasoline and diesel
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engines, power steering fluids, transmission oils and suspension and bearing
lubricants which are carried by retail stores and are available for order by
telephone. During 1998, RPMO added additional sales employees and expanded its
relationships with traditional auto parts distributors.
RPMO products are particularly appealing to the performance oriented
consumer as well as for use in racing applications such as midgets, sprint cars,
late models, road racing, dragsters, boats and motorcycles.
Klein. Klein's engine building focuses exclusively on the Sprint Car,
World of Outlaw Sprint Car and the Indy Racing League ("IRL") series. Klein
provides high quality, high performance engines and additionally, the
maintenance and rebuilding ("freshening") services they require.
MARKETING
Royal Purple. RPMO markets and distributes a premium synthetic oil and
lubricant line of engine care products that are sold throughout the United
States through distributors, retailers and direct sales. RPMO markets 31
different petroleum products in 88 different packaging styles that can be
purchased directly, or through retail outlets or distributors in 28 states.
RPMO's largest retail customer is the NAPA chain. This purchaser accounts for
approximately 30% of RPMO's total sales in 1998.
Klein. Klein markets its products direct and sells them nationwide, with
some sales overseas, predominantly in Japan. Most buyers are professional
racers, including teams in the World of Outlaw, IRL and Sprint series, who
purchase multiple engines over the span of a year. Since each engine is unique
to one degree or another and is primarily marketed to racing teams, broad-based
media generated marketing efforts are costly and not especially effective. For
Klein, success on the racetrack is the best marketing.
COMPETITION
RPMO competes in the marketplace against dominant international oil
companies such as Mobil, Castrol, Pennzoil and Valvoline. The synthetic oil and
lubricant market makes up 20% or $800 million of the total $4 billion domestic
motor oil market. RPMO's share is less than 1% while Mobil and Castrol account
for 52% and 42% of the synthetic oil market, respectively. Within the
non-synthetic market segment, low price is the determining basis of competition.
In the synthetic oil market, a premium price and performance are the key
factors.
Klein participates in both the national Sprint Car/World of Outlaw market
and the IRL market. The Sprint/World of Outlaw market is fragmented and has
numerous competitors, making competition for sales intense and spread out
amongst custom engine builders throughout the US. The largest producers of these
engines are Gaerte Engines and Shaver Engines, accounting for approximately 30%
of the market. Klein currently supplies engines to 4 of approximately 17 World
of Outlaw teams traveling in the nationwide circuit. The IRL market has fewer
competitors due to the performance and endurance demands placed upon IRL
engines, however, competition for sales is also intense, but focused between
approximately 8 producers nationwide. Of these, Roush Industries, Comptech
Engines and Brayton Engineering dominate US production with about 80% of all IRL
engines. In 1998, Klein had 2 out of an estimated 30 IRL teams as clients. In
1999, Klein supplies 1 IRL team and expects to add a second in time for the Indy
500 in May 1999.
Typically, Sprint/Outlaw and IRL teams choose one builder to supply all of
their engine building and freshening needs for a given season.
MANUFACTURING AND SUPPLIERS
Royal Purple. Royal Purple, Inc. (a non-affiliate) in Houston, Texas is
the sole manufacturer of lubricants for RPMO. Substantial increases in sales by
RPMO may exceed the capacity available at Royal Purple, Inc. RPMO and Royal
Purple, Inc. are discussing potential arrangements to meet the potential
additional demand. MacMillan Blowdell Containers is the principal supplier of
packaging to RPMO, while Curtis 1000 is the principal supplier of labels,
although there are many alternative sources for both.
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Klein. Klein procures new parts from a number of producers that focus on
high performance applications. Klein typically re-machines off-the-shelf parts
to extremely high tolerances. Generally, more than one supplier of each type of
part exists, especially in the Outlaw market, which uses Chevrolet-based
engines. The number of suppliers of IRL parts is much more limited since the
basis of the engine design is the Oldsmobile Aurora engine. Key component
suppliers for the IRL business include General Motors, Crower Cams & Equipment,
Dyers, Rodeck, JE Pistons, and CVP Products. While the Sprint Car/Outlaw parts
can be procured either off the shelf or with a wait of two to three weeks, the
more complex and less available IRL parts can take four to six weeks or more to
arrive. Klein purchases certain Outlaw/Sprint Car parts and certain IRL parts
from a few preferred suppliers, as does the rest of the industry.
GOVERNMENT REGULATION
The market for APG's products is characterized by the need to meet a
significant number of hazardous waste disposal regulations and standards, some
of which are evolving. APG's products must comply with various regulations
defined in Federal, and in some cases, state environmental protection agencies.
The failure of APG's products to comply, or delays in compliance, with the
various existing and evolving industry standards could delay introduction of
APG's products which could have a material adverse effect on APG's business,
financial condition, and results of operations. In addition, government
regulatory policies are likely to continue to have a major impact on the pricing
of existing as well as new products and therefore are expected to affect public
demand for these products.
PERSONNEL
As of December 31, 1998, APG employed 27 employees of which 11 were
employed by RPMO and 10 by Klein. The additional 6 were corporate employees of
APG.
BACKLOG
As of December 31, 1998, Klein had a backlog of $90,000. RPMO had a backlog
of $5,000.
RESEARCH AND DEVELOPMENT
All research and development for RPMO is conducted by its key supplier,
Royal Purple, Inc., a non-affiliate.
Klein's research and development work focuses on new parts combinations, as
well as new manufacturing techniques on engines, but does not attempt to
trademark or patent the results, but, rather, holds that information as a trade
secret.
ITEM 2. PROPERTIES
Klein owns a facility in Tempe, Arizona, consisting of approximately 16,700
square feet on a 1.4-acre site. Klein uses approximately 14,300 square feet for
its engine assembly, component manufacturing, machine shop, and engine testing
operations. Approximately 1,500 square feet is used for warehouse space and 900
square feet is used for offices. As of December 31, 1998, the mortgage on the
property was $746,825. The building loan is with Norwest Bank through their
Small Business Administration ("SBA") loan office. Norwest has informed APG that
they believe the ownership structure of APG is contrary to SBA guidelines and
that the building should be sold or refinanced by mid-1999. Klein is actively
pursuing a sale-leaseback of the facility potentially to satisfy the lender and
realize the increase in value of the property in the current commercial building
market. A former employee of APG and former President of Klein has personally
guaranteed the SBA loan on the building in Tempe. Klein's monthly mortgage
payment on its building is $6,931. APG believes that the property and building
is adequately insured.
RPMO moved from Palo Alto, California to unused office space in the Klein
building in mid-1998. In February 1999, RPMO moved its headquarters and
administration to Houston, Texas, which is where Royal Purple, Inc., a
non-affiliate, manufactures the product and from where RPMO has the products
bottled,
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boxed, and shipped. The new RPMO headquarters in Houston is approximately three
thousand square feet in a modern office building located in a business park.
RPMO is paying an annual rent of $43,300 for the first twelve months, $46,500
for the second twelve months, and $48,700 for the third year for this facility.
The lease has a term of thirty-six months. The building is believed to be
adequately insured.
ITEM 3. LEGAL PROCEEDINGS
APG or its subsidiaries are involved in various minor legal matters. After
consultation with its attorneys, no legal matters are believed by Management to
involve claims for damages against APG or its subsidiaries of more than 10% of
APG's assets. Management has not made any contingency allowance for an
unfavorable outcome. No APG companies are the subject of any known or potential
environmental litigation.
ITEM 4. SUBMISSIONS OF MATTER TO VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 1998.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
APG's common stock is traded publicly on the OTC bulletin board, which is
maintained by NASDAQ, under the symbol "RACG". The following table sets forth
the range of high and low closing bid information for the common stock during
the periods indicated. Quotations reflect inter-dealer bids, without retail
markup, markdown, or commissions, and may not reflect actual transactions.
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HIGH(1) LOW(1)
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YEAR ENDED DECEMBER 31, 1998
First Quarter........................................... $18.75 $ 5.00
Second Quarter.......................................... $18.75 $ 2.50
Third Quarter........................................... $ 5.00 $ 1.50
Fourth Quarter.......................................... $ 5.00 $ 1.50
YEAR ENDED DECEMBER 31, 1997
First Quarter........................................... $47.50 $35.00
Second Quarter.......................................... $50.00 $32.50
Third Quarter........................................... $38.75 $10.00
Fourth Quarter.......................................... $32.50 $ 7.50
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(1) These sums are adjusted to reflect the 20-1 reverse split that occurred in
1998.
APG issued options to certain APG directors for their services on behalf of
APG. Each director received 40,000 options, exercisable at $2.00 per share,
which expire on May 22, 2008.
As of December 31, 1998, there were three hundred seventy-three record
holders of APG's common stock. APG has not paid dividends on its common stock
and does not expect to pay cash dividends for the foreseeable future. APG's
current policy is to retain any earnings to finance operations.
From December 1998 to March 1999, the Company sold 3,100,000 shares of its
Series A Preferred Stock at $2.50 per share, raising approximately $7,800,000 in
aggregate proceeds. The Series A Preferred Stock was sold to accredited
investors in a private placement in reliance on the exemptions provided by
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
APG was formed through the merger of Klein Engines & Competition
Components, Inc. and International Motor Sports Group, Inc. ("IMSG"), which
subsequently changed its name to Automotive Specialty Chemicals Group, Inc.
("ASCG"). The merger was effective April 17, 1998. IMSG exchanged
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108,930,887 shares of its common stock and Klein exchanged 7,833,902 shares of
its common stock for equal numbers of APG common stock. These transactions
resulted in IMSG being the accounting acquirer in the transaction. The
acquisition has been accounted for under the purchase method of accounting.
Subsequent to the merger, common shares underwent a twenty-to-one reverse split.
Prior to the merger, IMSG had two operating subsidiaries, Royal Purple Motor
Oil, Inc. and Team Scandia, Inc., which fielded teams in the Indy Racing League
and the National Hot Rod Association ("NHRA") Top Fuel Dragster segments. IMSG
also had interests in three joint ventures in the race and race promotion
business: Scandia Bodine Racing, LLC, Cristen Powell Enterprises, LLC and Jimmy
Kite Enterprises, LLC.
In mid-1998, APG began restructuring its operations and determined that it
would exit entirely the race and race promotion businesses and focus on its
Klein and RPMO activities as well as pursue acquisition opportunities in the
specialty chemicals sector. To this end, Team Scandia stopped competing in the
Indy Racing League after the Indy 500 in May 1998 and Team Scandia's NHRA
efforts ended at the close of the racing season in November 1998. In December
1998, APG sold its 50% stake in Scandia Bodine for $2,000,000 to Brett Bodine,
who was Team Scandia's joint-venture partner in Scandia Bodine. Additionally,
the operations of Cristen Powell Enterprises and Jimmy Kite Enterprises were
wound up. In December 1998, the Company sold its interest in Team Scandia,
completing its exit from the racing business.
APG's remaining operating subsidiaries, Klein and RPMO, are involved in the
building of racecar engines in targeted segments and the distribution of
synthetic oils and lubricants, respectively.
RESULTS OF OPERATIONS
APG posted a net loss of approximately $13.9 million, compared to a net
loss of approximately $16 million in 1997 for APG's predecessor company, IMSG.
The loss from continuing operations in 1998 was approximately $7.9 million,
while the continuing operations loss for 1997 was nearly $4.3 million. The 1998
loss from discontinued operations was approximately $6.2 million, while the loss
from discontinued operations in 1997 was approximately $12.3 million. Revenues
from continuing operations increased significantly from about $550,000 to
approximately $2.7 million.
In direct cost of goods sold, APG experienced significant expenses for
Klein, RPMO and Team Scandia. Klein's business model and strategy has been
changed, as discussed below, in an effort to increase its gross margin by
increases in prices charged to customers. RPMO's ratio of direct expenses to
revenue showed a slight improvement from 1997 to 1998. Team Scandia's ratio of
direct expenses to revenue slightly worsened from 1997 to 1998.
Due to significant, but necessary additional support for both private
placements and various acquisition negotiations, legal and other professional
expenses grew to $2.6 million. Included in this number are the costs of
pursuing, defending and settling various lawsuits.
Klein contributed significantly to APG's overall Selling, General &
Administrative expenses ("SG&A"), which is discussed below. RPMO held steady its
SG&A between 1997 and 1998 as a ratio.
As part of the restructuring of APG's business, Klein's business model was
changed from one of a high-volume producer of a wide range of engines at a
relatively low gross margin to one of a specialty producer manufacturing small
numbers of higher margin Sprint car and IRL engines. In connection with this
restructuring of the Klein business, staff was reduced by sixty percent to ten
full-time employees; inventory was reduced by 75% through write-offs, product
returns, obsolescence, and reduction in volume. The restructuring resulted in
significant one-time charges and write-offs at Klein, which were primarily
recorded as selling, general and administrative expenses.
Also in the second quarter of 1998, RPMO moved from its Palo Alto,
California offices to APG's corporate offices in Tempe, Arizona. The office in
Tempe also houses Klein. Early in 1999, RPMO moved from Tempe to Houston, Texas,
placing it closer to suppliers. RPMO increased its sales and support staff to
position the company for a nationwide roll-out throughout the NAPA chain
beginning in 1998 and continuing into 1999 and 2000.
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In the third quarter, APG decided to exit its racing activities. APG sold
its 50% interest in Scandia Bodine for $2 million in December 1998 to Brett
Bodine, who already owned the other 50%. APG recorded a gain on the sale of
Scandia Bodine of approximately $1.1 million. Team Scandia's ventures into NHRA
Top Fuel Dragster were terminated in the fourth quarter and its IRL activities
were curtailed in the second quarter and were also terminated by year-end. Team
Scandia, which had substantial racing activities in 1998, was sold to management
on December 31, 1998. APG recorded a loss of approximately $1 million on its
disposition. With the sale of Scandia Bodine and Team Scandia, as well as the
winding-down of Cristen Powell Enterprises and Jimmy Kite enterprises, APG has
exited the racing industry entirely as a team owner, manager and competitor.
LIQUIDITY AND CAPITAL RESOURCES
APG has financed its business primarily through private placements of
preferred stock and debt financing agreements with lending institutions.
APG experienced negative cash flow from operations of approximately $8.2
million for the 1998 fiscal year, compared with approximately $16.4 million used
in operating activities for the same period in 1997. The 1998 negative operating
cash flow resulted primarily from the net loss for the period, affected by
non-cash depreciation and amortization of approximately $2 million, loss on the
disposition of subsidiaries of approximately $925,000, gain on sale of affiliate
of approximately $1.1 million, and write down of impaired intangibles of
approximately $2.1 million. APG also recorded a write-off of notes receivable of
approximately $530,000. Additionally, inventories increased approximately
$317,000 while accounts receivable decreased approximately $300,000. Accounts
payable increased approximately $735,000. APG issued stock and warrants in
payment for professional services rendered and financial guarantees provided of
approximately $637,000.
Capital expenditures during 1998 were approximately $270,000, representing
improvements in property and equipment. APG does not expect major new capital
expenditures in 1999 for its current operating subsidiaries, as they are
presently structured.
APG is currently evaluating the sale and leaseback of the remaining real
property held by Klein Engines. Net book value at December 31, 1998 for this
real property was approximately $879,000.
In December 1998, APG sold its fifty-percent ownership stake in Scandia
Bodine for $2 million. In addition, APG raised approximately $2.1 million from
the sale of Team Scandia's assets to fund operating activities prior to the sale
of Team Scandia at year-end.
In May 1998, APG obtained two $500,000 credit facilities, which were
guaranteed by a former member of the Board of Directors. As of December 31,
1998, both lines of credit were repaid in full and cancelled.
In November 1998, APG obtained a $1 million revolving credit facility,
which is guaranteed by a former member of the Board of Directors. Available
credit at year-end 1998 was approximately $125,000. This revolving credit
facility matures in May 1999 and carries an interest rate of 6.65%.
Additionally, the same former board member guaranteed a $720,000 equipment
loan. The balance bears interest at a rate of 6.35% and is to be paid in 18
monthly installments of approximately $40,000. As of December 31, 1998, the
balance on this equipment loan was approximately $680,000.
During the third quarter of 1998, APG completed a $3.3 million private
placement of Series A Preferred stock priced at $2.00 per share. The net
proceeds to APG of approximately $3 million were used primarily for operations,
Royal Purple inventory purchases, settlement of Klein Engines and Team Scandia
accounts payable, outstanding debt reduction, and legal settlements.
From December 1998 to March 1999 APG sold additional shares of Series A
Preferred Stock priced at $2.50 per share, raising net proceeds of $6.8 million.
APG has used and expects to use the net proceeds of this private placement for
working capital, to finance the expansion of the Royal Purple business, to
finance the acquisition of Boyds Wheels and Hot Rods by Boyd, for general
corporate purposes, and for future acquisitions, including the acquisitions
described below.
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APG has entered into a letter of intent to acquire Loctite's AAD (see
"Recent Developments"), which required APG to make a $2 million deposit, and an
option agreement to acquire Advanced Chemistry & Technology, Inc., which cost
APG $1 million. The letter of intent and option agreement are non-binding and
there can be no assurance that APG will enter definitive agreements with the
parties listed above or that these potential acquisitions will ultimately be
consummated.
These deposits were from the funds raised in the second private placement.
APG expects to invest up to an additional $2 million in both Boyds companies. To
fund these acquisitions, APG expects to rely upon substantial additional debt
and equity funds from third parties. The Company may not be successful in
raising such funds in sufficient amounts on acceptable terms.
APG expects to fund its non-acquisition related liquidity needs through
cash generated from operations, its unused credit facility and the issuance of
additional preferred shares. At present, APG does not have any covenants that
would restrict its ability to transfer funds among the parent company and its
subsidiaries.
SEASONALITY
Sales of many of APG's products are affected by seasonal patterns in the
racing industry. The season for the racing circuits primarily runs from January
through October. Revenues realized in the first, second, and third quarters tend
to be higher than revenues in the fourth quarter. The consumer market for Royal
Purple is seasonally tied to warmer weather when more do-it-yourself buyers of
its oils change their oil. Consequently, a colder and longer winter usually
negatively impacts RPMO and motor oil sales industry-wide.
YEAR 2000
State of Readiness. Many existing electronic systems, including computer
systems, use only the last two digits to refer to a year. Therefore, these
systems may recognize a date using "00" as 1900 rather than the year 2000. If
not corrected, many computer and other electronic applications and systems could
fail or create erroneous results when addressing dates on and after January 1,
2000. Our products do not address or utilize dates in their operation, and,
accordingly, our products should not fail due to the year 2000 problem. However,
we use and depend on information technology systems (including business
information computer systems) and other machinery and equipment that include
embedded date sensitive technology. We also depend on the proper functioning of
date sensitive electronic systems of third parties, such as suppliers. APG is
currently in the process of surveying and gathering information from the vendors
of these information technology systems as well as its suppliers, but APG has
not received affirmative documentation that these systems are Year 2000
compliant. The failure of any of these systems to appropriately interpret the
year 2000 could have a material adverse effect on our business, financial
condition and results of operations.
Costs. To date, APG's costs for conducting its assessment have not been
material. APG does not expect that such costs will be material in the future,
but it is unable to predict to what extent its business may be affected if its
internal systems or the systems of its suppliers experience a material Year 2000
failure.
Contingency Plans. APG does not have a contingency plan to remediate any
Year 2000 problems that may arise and affect its internal systems in the future.
If such problems arise, APG will need to make the necessary expenditures to
assess and remedy such problems. The nature, timing and extent of such
expenditures cannot be estimated.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Matters discussed herein contain forward-looking statements. APG's actual
results may differ significantly from results indicated by forward-looking
statements. Factors that might cause some differences include, but are not
limited to, changes in the public's interest in racing, and shifts in leisure
time pursuit preferences; changes in government regulations affecting racing,
sponsors, customers, APG, or its subsidiaries; risks generally involved in the
high performance automotive business including, but not limited to, product
liability risk as a result of high performance engines and certain specialty
chemicals which are intended to improve automotive performance, sometimes in
extreme or severe conditions; the ability of APG to continue
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to produce quality products at competitive prices in markets which are
historically intensely competitive; the ability of APG's supplier of Royal
Purple Motor Oil to continue to meet increasing demand; the ability of APG to
attract new teams to contract with Klein Engines; APG's ability to raise
sufficient debt and equity capital to meet increased operating and acquisition
requirements; APG's ability to recruit and retain key personnel; unfavorable
results in litigation which APG is currently involved in, or may become subject
to; the ability to effectively integrate the personnel and operations of
acquired companies; compliance with hazardous waste disposal regulations and
standards; and APG's history of operating losses and limited operating history.
Additional factors that may affect the Company's operating results are set forth
below.
WE HAVE A LIMITED OPERATING HISTORY
APG was incorporated in March 1998. Accordingly, we have a limited
operating history upon which investors may evaluate our business and prospects.
APG's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development. To address these risks, among other things, we must:
- maintain existing and develop new relationships in the automotive and
specialty chemical industries;
- implement and successfully execute our business and marketing strategy;
- continue to develop and upgrade our products;
- provide superior customer service and order fulfillment;
- respond to competitive developments; and
- attract, retain and motivate qualified personnel.
We cannot be certain that we will successfully address any of these risks.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of our growth strategy, we intend to pursue the acquisition of
other companies that either complement or expand our existing business. We have
entered into several preliminary agreements to acquire companies or specific
businesses, several of which are significantly larger in terms of employees and
revenues than APG. Additionally, we continually evaluate other potential
acquisition opportunities, which may be material in size and scope. Acquisitions
involve a number of risks and difficulties, including:
- the expansion into new markets and business areas;
- the diversion of management's attention to the assimilation of the
operations and personnel of the acquired companies;
- the integration of the acquired companies' management information and
other systems with those of APG;
- potential adverse short-term effects on our operating results;
- the amortization of acquired intangible assets; and
- the need to present a unified corporate image.
In addition, we may need to expend substantial amounts of cash or incur
substantial amounts of debt in order to complete acquisitions. We may not be
successful in identifying acquisition candidates, or planned acquisitions may
not be consummated due to inadequate resources or other reasons. If any
acquisitions do occur, they may not be successful in enhancing our business and
results of operations, or could even adversely affect our business.
8
<PAGE> 10
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
APG, together with its predecessors, has incurred significant losses and as
of December 31, 1998, we had an accumulated deficit of approximately $36.5
million. We intend to expend significant financial and management resources on
the development of additional services, sales and marketing, technology and
operations to support larger-scale operations and greater service offerings. As
a result, we expect to incur additional losses and continued negative cash flow
from current operations until at least the third quarter of 1999. We cannot
assure you that our sales will increase or even continue at their current level
or that APG will achieve or maintain profitability or generate cash from
operations in future periods.
WE HAVE SIGNIFICANT FUTURE CAPITAL NEEDS, WHICH MAY REQUIRE ADDITIONAL FINANCING
We require substantial working capital to fund our business. Our capital
requirements depend on several factors, including the rate of market acceptance,
the ability to expand our client base, the level of expansion of sales and
marketing and other factors. If capital requirements vary materially from those
currently planned; we may require additional financing sooner than anticipated.
We have recently raised funds through the issuance of shares of Series A
Preferred Stock. Although the Series A Preferred Stock is convertible into
shares of common stock, the holders of the Series A Preferred Stock are also
entitled to certain rights, preferences or privileges, including dividend and
liquidation preferences, that are senior to those of the holders of our common
stock. If we raise additional funds through the further issuance of equity
securities, the percentage ownership of the stockholders of APG will be reduced,
stockholders may experience additional dilution, or such equity securities may
also have rights, preferences or privileges senior to those of the holders of
our common stock.
WE CANNOT BE CERTAIN THAT WE WILL RECEIVE ADDITIONAL FINANCING
We cannot be certain that additional financing will be available when
needed on terms favorable to APG or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or enhance
our services, take advantage of future opportunities or respond to competitive
pressures, which could adversely affect our business.
WE DEPEND ON A SINGLE SUPPLIER
Our primary business and product line of motor oils and lubricants is
currently purchased only from Royal Purple, Inc., a non-affiliate. Qualifying
additional suppliers is time consuming and expensive. Any interruption in the
supply of any of these components, or our inability to procure these components
from alternate sources at acceptable prices and within a reasonable time, could
result in higher prices for our products and could adversely affect our
business. We have in the past experienced shortages of available motor oil and
lubricants. We cannot be certain that such shortages will not occur in the
future. See "Manufacturing and Suppliers."
WE FACE SIGNIFICANT PRODUCT LIABILITY RISKS
Certain of our products, particularly our high performance engines and
certain of our specialty chemicals, are intended to improve automotive
performance, sometimes in extreme or severe conditions. As a result they are
subject to stresses which may increase our product liability risks. Purchasers
of our products rely on the integrity and durability of such products. However,
we cannot be certain that our products will provide the intended protection or
functionality. Although we have not been subject to any significant product
liability claims to date, we could incur liabilities for product liability
claims in the future that could adversely impact our business. APG has Directors
and Officers liability insurance, which includes Errors and Omissions.
WE FACE SIGNIFICANT COMPETITION
The high-performance automotive and specialty chemicals industries are
intensely competitive, and we expect competition to increase in the future.
These industries are characterized by frequent introductions of new or enhanced
products, price competition, continued emergence of new industry standards, and
regulatory
9
<PAGE> 11
developments. Many of our current and potential competitors, such as Mobil and
Valvoline in the motor oil market and Gaerte in engines, have longer operating
histories and substantially greater financial, technical, sales, marketing and
other resources, as well as greater name recognition and a larger customer base
than APG. As a result, these competitors may be able to devote greater resources
to the development, promotion, sale and support of their products than APG.
Although we believe that we are competitive on product quality, competitors with
a larger customer base may have a competitive advantage over us when selling
similar products to such customers. Additionally, our Royal Purple synthetic
motor oil requires extensive marketing, and faces intense marketing efforts by
competitors that have far greater financial resources. See "Competition."
WE MUST COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS
Our products must comply with a significant number of federal and state
hazardous waste disposal regulations and standards, some of which are evolving.
Distribution of our products, or introduction of new products, could be delayed
if they fail to comply with these regulations and standards in a timely fashion,
or at all, which would adversely affect our business. In addition, government
regulatory policies are likely to continue to have a major impact on the pricing
of existing as well as new products and therefore are expected to affect demand
for such products.
THERE IS A LIMITED AND VOLATILE PUBLIC MARKET FOR OUR COMMON STOCK
Our Common Stock is currently traded solely on the OTC Bulletin Board,
which is characterized by low trading volumes and high volatility. We cannot
assure you that a broader or more stable market will develop. The investment
community could show little or no interest in APG in the future. As a result,
persons receiving our securities may have difficulty in reselling such
securities should they desire to do so. We intend to apply for a listing on the
American Stock Exchange. However, we cannot be certain that a listing on the
American Stock Exchange will be obtained, or if it is obtained, that such
listing will be maintained.
WE DEPEND ON KEY PERSONNEL
Our future success will depend to a significant degree upon the continued
contributions of our key management. In particular, we believe that our future
success is highly dependent on the following individuals:
- Dean Willard, Chairman of the Board of Directors and Chief Executive
Officer;
- James Dunn, Chief Operating Officer; and,
- James Martin, the President and Chief Operating Officer of Royal Purple
Motor Oil.
We do not have employment contracts with, and do not currently maintain key
man life insurance, covering our key personnel. Management of APG is dependent
to a great degree upon the services of Dean Willard for overall administration
and financial management as well as the management and growth of the specialty
chemicals business, James Dunn for operations and reintroduction of the Boyds
product lines, and James Martin for management of Royal Purple Motor Oil. The
loss of the services of one of them could adversely affect our business. See
"Directors and Officers."
We believe that our future success will also depend in large part upon our
ability to attract and retain highly skilled management, sales and marketing,
finance and manufacturing personnel. Competition for such personnel is intense,
and we cannot assure you that we will be successful in attracting and retaining
such personnel. If we lose the services of any of our key personnel, or are
unable to attract or retain qualified personnel or face delays in hiring
required personnel, particularly engineers and sales personnel, our business
could be adversely impacted.
OUR VOTING STOCK IS CONTROLLED BY A MAJORITY SHAREHOLDER
Our former President and affiliated entities together beneficially own a
majority of the voting control of our capital stock. As a result, these
stockholders, acting together, will be able to influence significantly and
10
<PAGE> 12
control most matters requiring shareholder approval, and thereby, our management
and affairs. Matters that typically require shareholder approval include:
- election of directors;
- merger or consolidation; and
- sale of all or substantially all our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change in control of APG, which in turn could reduce the market
price of our Common Stock. See "Item 11."
OUR ARTICLES OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER
Certain provisions of our articles of incorporation and our bylaws and
Delaware law could make it more difficult for a third party to obtain control of
APG.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included (with an index listing all such
statements) in a separate section at the end of this filing.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The executive officers and directors of APG as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dean M. Willard...................... 52 Chairman of the Board, Chief Executive Officer of APG
James E. Dunn........................ 53 Chief Operating Officer of APG, Director
James M. Martin...................... 51 President, Chief Operating Officer of RPMO, Director
Carl Walker.......................... 34 Chief Financial Officer of APG
Jennifer Burns....................... 28 Vice President of Marketing
Joe M. Marenda....................... 32 Vice President of Business Development
James R. Medley...................... 57 Director
Thomas H. Carmody.................... 51 Director
Ronnie Lott.......................... 39 Director
Terry E. Nish........................ 60 Director
William H. Tempero................... 54 Director
</TABLE>
DEAN M. WILLARD: Mr. Willard was elected as Chairman of the Board in
September 1998. Mr. Willard joined APG as Chief Executive Officer in November
1998. In 1997 Mr. Willard founded Advanced Chemistry & Technology, Inc., which
manufactures and markets aircraft sealant to airframe manufacturers worldwide.
Prior to his tenure at AC Tech, Mr. Willard served as President and Chief
Executive Officer of Courtaulds Aerospace, Inc. which at the time employed 2,000
employees and had annual revenues of $300 million. Courtaulds Aerospace was
formed in 1989 following the acquisition of Products Research & Chemicals
Corporation ("PRC"), a New York Stock Exchange Company. From 1972 to 1989, Mr.
Willard held various positions with PRC, including President and later Chief
Executive Officer. Mr. Willard served as Vice Chairman of Courtaulds Aerospace
until 1995. From 1995 to until founding AC Tech, Mr. Willard was President and
CEO of Willard Associates. Mr. Willard is a Certified Public Accountant with a
BS degree from California State University, Long Beach.
11
<PAGE> 13
JAMES E. DUNN: Mr. Dunn has been a Director of APG since May 1998 and
Chief Operating Officer since 1997. Mr. Dunn is responsible for the development
and executions of APG's plans to advance a variety of high-performance
automotive businesses including the introduction of the RPMO product line and
the reintroduction of the Boyds product lines. From 1996 to 1997 he served as a
Principal of Dominion Income Management Corporation, an investment firm. From
1988-1996 he held several senior positions at Apple Computer, serving as Power
Macintosh Brand Manager and most recently as a Director of Business Marketing.
He has a degree in Aeronautical Engineering from San Jose State University and
an MBA from St. Mary's College of California.
JAMES M. MARTIN: Mr. Martin has been a Director of APG and COO of RPMO
since May 1998. From 1997-1998, Mr. Martin served as President of Martin
Consulting. Martin Consulting is a lubricant industry marketing firm. Prior to
founding Martin Consulting, Mr. Martin was the Vice President and Director of
Business Development from 1993 to 1997 for the Pennzoil Products Company, which
he joined in 1964. Joining Pennzoil in 1964, Mr. Martin was involved in
manufacturing, distribution and marketing operations. As Pennzoil's Director of
Business Development, Mr. Martin was responsible for leading the firm's
acquisition efforts including the acquisitions of Armorall, Octane Boost and the
Viscosity Oil Company. Mr. Martin was also responsible for running Pennzoil's
entire racing program in IRL, CART, NASCAR and NHRA. Mr. Martin holds an MBA in
Finance and Marketing from the University of Houston.
CARL WALKER: Mr. Walker has held various financial management positions in
public companies over the last five years. Most recently, Mr. Walker was Vice
President Finance for CFP Holdings, Inc., a $200 million-plus value-added meat
processor from 1997 to January 1999, when he joined APG. He also has recent
experience in the automotive and aerospace industries. From 1995 to 1996 Mr.
Walker was the Corporate Controller for Wedgestone Automotive Corp and from 1990
to 1995, Mr. Walker was Division Finance and MIS Manager for Courtaulds
Aerospace. Mr. Walker received his BS degree in Business Administration from
California State, Los Angeles. Mr. Walker is a Certified Public Accountant
(CPA), a Certified Management Accountant (CMA), and is Certified in Financial
Management (CFM).
JENNIFER BURNS: Ms. Burns attended Dekalb College from 1988 to 1990 and
the University of California, Los Angeles from 1995 to 1996 studying Business
and Production in Film and Television. While attending college, Ms. Burns
accepted a position with Christian Dior as their National Spokesperson in 1989.
She then moved into the position of Marketing Director for the Southeast region.
From 1989 to 1992, she launched many of Christian Dior's successful marketing
campaigns. Ms. Burns accepted a position with Walt Disney Studios in the Film
and Television division in Los Angeles in 1995. She oversaw corporate dealings
and strategic partnerships for many film and television projects. In 1997 she
joined International Motor Sports Group, now APG, as Vice-President of
Marketing.
JOE M. MARENDA: Mr. Marenda graduated from the University of Southern
California in 1988 with a Bachelor of Arts and from Yale University in 1989 with
a Master of Arts. After Yale, Mr. Marenda joined a consulting firm advising
international corporations on overseas investments. Mr. Marenda graduated with
an MBA from the University of Virginia's Darden School of Business in 1995.
After Darden, Mr. Marenda co-founded Renewable Oxygenates, where he was
responsible for operations management and APG's financial activities from 1995
to 1997. Subsequently in 1997 until joining Dominion and APG, Mr. Marenda worked
with an investment bank specializing in middle-market companies. Mr. Marenda
joined Dominion Income Management Corp. as an associate and APG as Vice
President of Business Development in 1998. Presently, Mr. Marenda is a full-time
employee of APG.
JAMES R. MEDLEY: Mr. Medley has served as a Director of APG since April
1998. Since March 1976, Mr. Medley has served as President of Laux Medley
Norris, Inc., an SEC registered Investment Advisor, which provides investment
advise and business counsel.
THOMAS H. CARMODY: Mr. Carmody has served as a Director of APG since April
1998. Mr. Carmody currently serves as President and CEO of Continental Sports
Group, a sports marketing firm. From 1989 to 1998, Mr. Carmody was a Senior Vice
President and General Manager of Operations of Reebok International, Ltd. where
he had management responsibility for Reebok's North American operations
including sales,
12
<PAGE> 14
marketing and distribution. Prior to joining Reebok, Mr. Carmody served as a
Director of Marketing for Nike and a Deputy District Attorney for Santa Clara
County, California.
RONNIE LOTT: Mr. Lott has served as a Director of APG since April 1998.
Since 1991, Mr. Lott has served as CEO of RML Enterprises, a sports management
firm. Mr. Lott, a four-time Super Bowl Champion as a member of the San Francisco
49ers, has recently joined the FOX NFL SUNDAY program team. Mr. Lott also owns
and operates DreamSports, a sports marketing and promotions company. He is the
founder of Stars Helping Kids, a non-profit charity to raise funds for youth
organizations. In 1991, Mr. Lott's book Total Impact (co-written with Jill
Lieber of USA Today) was a New York Times bestseller for two months.
TERRY NISH: Mr. Nish has served as a Director of APG since its inception
and as a Director of Klein since December 1997. Mr. Nish currently serves as
President of Servi-Tech, Inc., a manufacturer and supplier of machinery and
parts to the beverage industry that he founded in 1969. Mr. Nish is an owner and
driver of the VESCO/NISH Streamliner, which powered by a 480 cubic inch small
block Chevy built by Klein, currently holds the world record for its category of
344.561 miles per hour.
WILLIAM H. TEMPERO: Mr. Tempero has served as a Director of APG since its
inception and as a Director of Klein since May 1996. Since 1987, Mr. Tempero has
owned and operated Bill Tempero's High Performance Center in Fort Collins,
Colorado. Mr. Tempero is a founder and President of the American Indy Car Series
and a four-time champion of the Series.
On or about March 29, 1999, Messrs. Dunn, Martin, Medley, Lott, Nish, and
Tempero resigned from the Board of APG. Messrs. Walker and George Barraza were
added to the Board of Directors of APG.
GEORGE BARRAZA: Mr. Barraza was named as a Director of APG in March 1999.
Since December 1997, Mr. Barraza has been the Chief Financial Officer of
Advanced Chemistry and Technology, Inc., which manufactures and distributes
sealant and adhesives for the aircraft industry. From June 1997 to December
1997, he served as Chief Financial Officer of JAMS/Endispute, Inc., a national
provider of arbitration and mediation services. From 1994 to 1997, Mr. Barraza
was the Chief Financial Officer for the law firm of Christensen, Miller, Fink,
Jacobs, Glaser, Weil and Shapiro, LLP. Prior to 1994 Mr. Barraza held other
senior financial positions including, nine years at Courtaulds Aerospace, Inc.
where he served as Vice President and Corporate Controller. Mr. Barraza received
his BS degree in Business Administration from California State University, Los
Angeles.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION:
The following tables set forth certain summary information concerning the
compensation awarded to, earned by, or paid to the CEO and the executive
officers of APG whose combined salary and bonus for 1998 exceeded $100,000
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE-ANNUAL COMPENSATION 1998
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME POSITION SALARY BONUS COMPENSATION STOCK AWARD OPTIONS COMPENSATION
- ---- -------- ------ ----- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean M. Willard.......... Chairman, CEO $ 26,667 $0 $0 $ 0 40,000 $0
Andrew L. Evans(1)....... Former Chairman and CEO None $0 $0 $ 0 0 $0
James E. Dunn............ COO of APG, Director $104,166 $0 $0 $ 5,934 100,000 $0
James M. Martin.......... President, COO of RPMO,
Director $ 89,308 $0 $0 $12,154 75,000 $0
Jennifer Burns........... Vice President of
Marketing $107,749 $0 $0 $ 0 60,000 $0
Thomas Klein(2).......... Former Klein President,
APG Chairman $ 57,272 $0 $0 $ 0 50,000 $0
</TABLE>
- ---------------
(1) Mr. Evans resigned as Chairman of the Board in September 1998, as CEO in
November 1998, and as a Director in February 1999.
(2) Mr. Klein resigned from APG in June 1998.
13
<PAGE> 15
WARRANTS:
The following warrants for common shares have been issued to Officers,
Directors, or significant shareholders.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
NAME POSITION WARRANTS VESTED PRICE TERM
- ---- -------- --------- ------ -------- ----
<S> <C> <C> <C> <C> <C>
Andrew L. Evans(1)......................... Former Chairman and CEO 272,000 Yes $0.01 5 years
Maritime Capital Partners(2)............... Affiliate of Mr. Evans 20,000 Yes $2.00 10 years
Ronnie Lott(3)............................. Director 1,250 Yes $4.00 5 years
Director, former
James R. Medley(4)......................... Treasurer 6,666 Yes $2.00 5 years
</TABLE>
- ---------------
(1) Mr. Evans received these warrants for personal financial guarantees provided
on behalf of APG and its subsidiaries during 1998. Warrants were offered to
any person who was acceptable and willing as a guarantor. Mr. Evans
exercised these warrants in 1998.
(2) Maritime Capital Partners is an affiliate of Mr. Evans and received these
warrants, adjusted for later share offerings, for financial accommodations
made to IMSG in 1997.
(3) Mr. Lott received his warrants for previous service to IMSG. Warrants
migrated up to APG in the merger with IMSG.
(4) Mr. Medley received these warrants in lieu of salary for services as
Treasurer of APG during May and June 1998. See Item 12 "Certain
Relationships and Related Transactions".
OPTION GRANTS:
The following table sets forth certain information with respect to options
to purchase common stock granted during the year ended December 31, 1998 to each
of the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL OPTIONS EXERCISABLE
UNDERLYING GRANTED TO EMPLOYEES PRICE PER EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR SHARE DATE
- ---- --------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Dean M. Willard.................... 40,000 4.4% $2.90 09/21/08
Andrew L. Evans.................... -- -- -- --
James E. Dunn...................... 100,000 11.1% $2.00 05/21/08
James M. Martin.................... 75,000 8.3% $2.00 05/22/08
Jennifer Burns..................... 60,000 6.6% $2.00 05/21/08
Thomas Klein....................... 50,000 5.5% $2.00 04/01/08
</TABLE>
OPTIONS PREVIOUSLY ISSUED
<TABLE>
<CAPTION>
VESTED(#) EXERCISE
NUMBER OF AS OF PRICE PER
NAME POSITION OPTIONS 12/31/98 SHARE EXERCISED
- ---- -------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Thomas Carmody................. Director 17,500 5,250 $20.00 0
Jennifer Burns................. Vice President, Marketing 10,000 3,000 $ 4.00 0
</TABLE>
14
<PAGE> 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES:
The following tables set forth information concerning the exercise of stock
options by each person named in the "Summary Compensation Table" above during
the year ended December 31, 1998 and the value of all exercisable and
unexercisable options at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------------- ------------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE UNEXERCISABLE(1)
- ---- ----------- -------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dean M. Willard............ 0 $0 0 40,000 $ 0 $ 0
Andrew L. Evans............ 0 $0 0 0 $ 0 $ 0
James E. Dunn.............. 0 $0 25,000 75,000 $12,500 $37,500
James M. Martin............ 0 $0 0 75,000 $ 0 $37,500
Jennifer Burns............. 0 $0 0 60,000 $ 0 $30,000
Thomas Klein............... 0 $0 50,000 0 $25,000 $ 0
</TABLE>
- ---------------
(1) Value of unexercised in-the-money options equals fair market value of the
shares underlying such options at December 31, 1998, which was $2.50 per
share, less the exercise price, times the number of in-the-money options
outstanding.
Compensation of Directors
Directors received no cash compensation for their efforts on behalf of APG.
Certain directors, with the exception of Andrew Evans, received 40,000 options
exercisable at $2.00 per share, which expire on May 22, 2008 for their efforts
on behalf of APG. These grants are reflected above for those named executive
officers who also serve on the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(ITEM 403 OF REGULATION S-B)
The following tables set forth, as of the record date shown, certain
information with respect to beneficial ownership by the directors, officers, and
named executives individually, by all directors, officers, and named executives
as a group, and by all persons known to management to own more than 5% of APG's
outstanding Common and Preferred Shares, both of which have voting rights.
Except as otherwise indicated, the shareholders listed as follows have sole
investment and voting power with respect to their shares.
BENEFICIAL OWNERSHIP AS OF MARCH 15, 1999(1)
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY % OF
SHAREHOLDER OWNED TOTAL ADDRESS
- ----------- ------------ ----- -------
<S> <C> <C> <C>
James E. Dunn(2)....................... 27,967 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
James M. Martin........................ 6,077 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
Thomas H. Carmody(3)................... 12,428 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
Ronnie Lott(4)......................... 1,250 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
James Medley(5)........................ 6,666 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
Terry E. Nish.......................... 10,750 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
William H. Tempero(6).................. 500 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
Other APG officers(7).................. 3,000 * APG, 1207 N. Miller Rd., Tempe, AZ 85281
Total Directors & Officers.... 68,638 0.60%
Andrew Evans & Affiliates(8)........... 6,002,600 52.11% 15302 25th Dr SE, Mill Creek, WA 98012
Lancer Fund & Affiliates(9)............ 2,000,000 17.36% 980 Post Road East, Westport, CT 06880
Founders Equity Group &
Affiliates(10)....................... 640,000 5.56% 2602 McKinney, Suite 220, Dallas, TX 75204
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY % OF
SHAREHOLDER OWNED TOTAL ADDRESS
- ----------- ------------ ----- -------
<S> <C> <C> <C>
Thomas Klein, former Director(11)...... 200,910 1.74% 2632 W. Laughlin Dr., Chandler, AZ 85224
All other warrants(12)................. 363,450 3.16%
All other options(13).................. 2,500 *
All other common stock(14)............. 2,240,599 19.45%
Total Non-Directors &
Officers.................... 11,450,059 99.40%
Total Common.................. 11,518,697 100%
</TABLE>
- ---------------
"*" Less than 1% of APG's outstanding Common Stock.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 6,239,956 common shares outstanding, 30,000
common shares to be issued as partial payment to and investment banking
firm, KSH Investment Group, Inc., 479,741 warrants and options presently
exercisable or exercisable within 60 days of March 15, 1999, and 4,769,000
Series A Preferred shares on an as-converted basis as of March 15,1999 for
a total of 11,518,697. Beneficial Ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to such shares. All shares of
Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days after March 15, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding such options
or warrant for the purposes of computing the number of shares beneficially
owned and the percentage ownership of such person but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage ownership of any other person.
(2) Includes 2,967 common shares owned and 25,000 options vested but not
exercised at a strike price of $2 per share.
(3) Includes 4,553 common shares owned and 7,875 options vested but not
exercised at a strike price of $20 per share.
(4) Includes 1,250 warrants previously issued for past services to APG's
predecessor, IMSG. The warrants migrated up to APG in the merger is IMSG.
(5) Includes 6,666 warrants received in lieu of salary for services as
Treasurer to APG during, May and June 1998. He also received a salary of
$5,000 per month. See Item 12, Certain Relationships and Related
Transactions.
(6) Includes 500 shares beneficially owned by Bill Tempero, an APG Director.
(7) Includes 3,000 vested options with a strike price of $4 per share issued to
Jennifer Burns, APG's Vice President of Marketing and an Officer of APG.
(8) Includes 455,000 shares held by Andrew Evans personally, plus 2,539,459
shares held by Dominion Income Management Corp., an affiliate of which Mr.
Evans is President, 580,522 shares held by Dominion Income Management
Profit Sharing Plan, an affiliate of which Mr. Evans is Trustee, 1,907,619
shares held by Maritime Capital Partners LP, an affiliate of Mr. Evans of
which Mr. Evans is General Partner, 500,000 shares of convertible Series A
Preferred stock held by Matrix Capital Management Ltd., an affiliate
controlled by Mr. Evans, as well as 20,000 vested warrants with a strike
price of $2.00 per share held by Maritime Capital Partners LP, an affiliate
of which Mr. Evans is General Partner.
(9) Includes 2,000,000 shares of Series A Preferred, assumed to be converted
into common stock for this table, held by various Lancer funds and their
affiliates: 1,050,000 shares held by Lancer Offshore Inc., 525,000 shares
held by Lancer Partners LP, 300,000 shares held by Lancer Voyager Fund, and
125,000 shares held by affiliates of the Lancer Group.
(10) Includes 640,000 shares of Series A Preferred, assumed to be converted into
common stock for this table, held by various Founders investment funds and
their affiliates: 160,000 shares held by Founders
16
<PAGE> 18
Equity Group, Inc., 100,000 shares held by Founders Mezzanine III, and
380,000 shares held by affiliates of the Founders Group.
(11) Includes 150,910 common shares and 50,000 options at a strike price of
$2.00 per share, which are already vested and become exercisable in April
1999, held by a former Director and former Officer of APG.
(12) Includes 213,450 warrants issued or to be issued to the investment bank
(KSH Investment Group, Inc. of Great Neck, New York) and their designees
managing both Preferred Share Private Placements and 150,000 warrants to be
issued to Olympia Partners LLC of New York City for their efforts on behalf
of APG within 60 days of March 15, 1999. Olympia Partners LLC also owns
150,000 shares of Series A Preferred Stock.
(13) Includes 2,500 options to be issued to an employee of APG within 60 days of
March 15, 1999.
(14) Includes 681,599 shares of outstanding common stock, 30,000 shares of
common stock to be issued to KSH Investment Group, Inc. of Great Neck, New
York for their efforts on the first and second Preferred Stock Private
Placements, and 1,529,000 shares of Series A Preferred Stock assumed to be
converted into common stock for this table.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Team Scandia, a former subsidiary of APG sold in December 1998, was
acquired from Andrew Evans in exchange for 8,000,000 shares of IMSG (exchanged
into 400,000 shares of APG in the merger). There was no competitive bid or other
valuation of this transaction, which occurred prior to the formation of APG (see
"Financial Statements: Notes"). Team Scandia and its racing activities, except
for Scandia Bodine, are housed in a fully-equipped 40,000 square foot facility
that is owned by an affiliate of APG's largest shareholder and a former member
of the Board. Until its sale in December 1998, Team Scandia paid rent of $20,000
per month for use of its facility. However, Team Scandia's rent was in arrears.
In full payment of the past-due rent, Team Scandia gave Mr. Evans six showcars,
prior to Team Scandia's sale to its management.
Two of the Directors, Bill Tempero and Terry Nish, have had and may
continue to have various transactions with Klein as both are engaged in
racing-related activities. These may include exchange of services for engines or
service of engines, or sponsorships or promotions, such as RPMO. Either or both
may provide consulting services on a compensated or non-compensated basis. Klein
provided engine building and servicing to Mr. Tempero and Mr. Nish. These
engines and services are believed to have been billed at similar rates to those
of Klein's other customers. In 1997, Mr. Nish ordered and paid for approximately
$47,700 worth of engines and engine parts. In 1997, Mr. Tempero ordered and paid
for approximately $6,350 worth of engines and engine parts. In 1998, Mr. Nish
ordered and paid for approximately $20,000 in engines and engine parts. In 1998,
Mr. Tempero ordered and paid for approximately $14,000 worth of engines and
engine parts.
In 1998, Terry Nish was granted 10,000 shares of APG common stock as
compensation for his promotion of Royal Purple Motor Oil on his world record
breaking Streamliner. In 1999, Bill Tempero is expected to receive 10,000 shares
of APG as compensation for his promotion of Royal Purple Motor Oil in the
American Indy Car Series.
James R. Medley, Director, has provided consulting services for IMSG, and
subsequently for APG, which he billed at his normal rates. The amount varied but
was as much as $8,000 per month during early-1998 when he devoted a greater
amount of his time. Mr. Medley is the principal of an SEC-registered Investment
Advisor and he provides business and financial advisory services as an
occupation. Mr. Medley received warrants in APG as part of his compensation as
Treasurer during May and June 1998, and a salary for two months of $5,000 per
month. The total amount paid to Mr. Medley in 1998 was $41,477. Mr. Medley is a
principal of a Securities and Exchange Commission registered investment advisory
firm.
Ronnie Lott received warrants to purchase 1,250 common shares of IMSG,
which have since been converted into warrants to purchase 1,250 shares of APG
common stock, for services previously provided to IMSG.
17
<PAGE> 19
Other Directors, Officers, or employees may have dealings with APG, which
may include cross marketing, promotion, or sponsorship. It is the policy of the
Board to have such arrangement, which are believed to be beneficial to APG,
disclosed and reviewed from time to time by independent Board members or a
committee thereof.
The Klein-IMSG merger exchange ratios were not based on an independent
valuation of the companies. Thomas Klein, CEO of Klein Engines and APG prior to
the merger, was the majority shareholder of Klein prior to the merger and in a
position to effect and did effect the merger arrangements for APG. He received
certain benefits in that transaction, such as 50,000 vested option shares at
$2.00 per share, an Employment Agreement at $125,000 per year, and certain
registration rights that were not received by the other shareholders of Klein
Engines. Mr. Klein resigned in June 1998 at which time his annual compensation
under his Employment Agreement with APG ceased. Mr. Klein was the founder of
Klein Engines and the number of shares he received therein was not based on any
independent valuation vis-a-vis other shareholders who may have purchased shares
later; persons subsequently purchasing or receiving shares in Klein Engines made
purchases on the basis of a thin-trading market which Mr. Klein may have been in
a position to influence due to his majority shareholder position. Various
Directors of Klein Engines, including Mr. Tempero and Mr. Nish, may have
received promotional shares of Klein Engines.
Affiliates of Mr. Evans purchased 15,271,980 shares of IMSG (exchanged into
763,599 shares of APG) at $4.00 per common share (adjusted for the 20-1 reverse
split). Mr. Evans received warrants to purchase 100,000 Common Shares of APG in
May 1998, as consideration for guaranteeing two credit lines of subsidiaries of
$500,000 each. In November 1998, Mr. Evans received warrants to purchase 172,000
Common Shares of APG at an exercise price of $0.01 per share, as consideration
for guaranteeing a $720,000 equipment loan to Team Scandia and a $1,000,000
credit line of Automotive Specialty Chemicals Group (formerly IMSG). Affiliates
of Mr. Evans control a significant portion of the Common Shares (see "Item 11");
this may affect the ability of APG management to be independent.
In 1997, the IMSG subsidiary entered into transactions with three drivers:
Brett Bodine, Jimmy Kite, and Cristen Powell, in which 50% interests were
acquired in exchange for cash and commitments (see "Financial Statements:
Notes"). Various non-cash-investing activities occurred in 1997 in IMSG (see
"Financial Statement: Notes").
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
<TABLE>
<C> <S>
2.1. APG-IMSG Plan of Merger****
3.1. Certificate of Incorporation of APG***
3.2. Certificate of Amendment to Certificate of Incorporation***
3.3. Bylaws of Registrant***
4.1. Certificate of Designation with respect to Series A
Preferred Stock of APG
10.1. Loan and Options Agreement dated as of September 16, 1997,
among International Motor Sports Group, Inc., Andrew L.
Evans, Klein Engines & Competition Components, Inc., and
Thomas G. Klein**
10.2. Form of Promissory Note to International Motor Sports Group,
Inc.**
10.3. Registration Rights Agreement dated as of ,
1998, between Klein Engines & Competition Components, Inc.
and Thomas G. Klein**
10.4. Deed of Trust dated November 29, 1996 between Klein
Engineered Competition Components, Inc. and Bank of
Arizona**
10.5. Note dated November 29, 1996 from Klein Engineered
Competition Components, Inc., as borrower, to Bank of
Arizona as lender**
10.6. Commercial Security Agreement dated November 29, 1996
between Klein Engineered Competition Components, Inc. and
Bank of Arizona**
10.7. Guaranty of Thomas G. Klein dated November 29, 1996**
</TABLE>
18
<PAGE> 20
<TABLE>
<C> <S>
10.8. Deed of Trust dated June 30, 1997 between Klein Engines &
Competition Components, Inc. and Century Bank**
10.9. Promissory Note dated June 30, 1997, from Klein Engines &
Competition Components, Inc., as borrower, to Century Bank,
as lender**
10.10 Business Loan Agreement dated June 30, 1997 between Klein
Engines & Competition Components, Inc., and Century bank**
10.11 Commercial Guaranty of Thomas G. Klein dated June 30, 1997**
10.12 License Agreement date July 29, 1997, between Fueling
Advanced Technologies, Inc. and Klein Engines & Competition
Components, Inc.**
10.13 Loan Agreement for Royal Purple Motor Oil, Inc.*
10.14 $1,000,000 Loan Agreement for Automotive Specialty Chemicals
Group, Inc. (formerly International Motor Sports Group,
Inc.) with First Capital Bank of Arizona dated November 4,
1998
10.15 $720,000 Commercial Installment Note for Team Scandia with
National City Bank of Indiana dated November 19, 1998
10.16 Boyds Agreement
16.1. Letter on Change in Certified Accountant****
21.0. Subsidiaries of APG
27.1. Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the Quarterly Report on Form 10-QSB filed by
APG on August 14, 1998.
** Incorporated by reference to the Registration Statement on Form 10-SB filed
by Klein Engines & Competition Components, Inc. (predecessor to APG) on
February 2, 1998.
*** Incorporated by reference to the Registration Statement on Form SB-2 filed
by APG on December 16, 1998.
**** Incorporated by reference to the current report on Form 8-K/A filed by APG
on July 1, 1998.
b. REPORTS ON FORM 8-K:
The Company filed no reports on Form 8-K during the fiscal quarter ended
December 31, 1998.
19
<PAGE> 21
AUTOMOTIVE PERFORMANCE GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................. F-1
Consolidated Balance Sheet as of December 31, 1998........ F-2
Consolidated Statements of Operations for the years ended
December 31, 1998
and 1997............................................... F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1998
and 1997............................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997............................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
20
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Automotive Performance Group, Inc.
We have audited the accompanying consolidated balance sheet of Automotive
Performance Group, Inc. and Subsidiaries as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Automotive
Performance Group, Inc. and Subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP[s]
Seattle, Washington
February 12, 1999
F-1
<PAGE> 23
AUTOMOTIVE PERFORMANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 1,828,692
Restricted cash........................................... 500,000
Accounts receivable, net of allowance for doubtful
accounts of $19,107.................................... 327,048
Inventories............................................... 906,707
Prepaid expenses and other................................ 374,248
Notes receivable.......................................... 600,000
------------
Total current assets.............................. 4,536,695
PROPERTY, PLANT and EQUIPMENT, net.......................... 1,710,162
OTHER ASSETS................................................ 20,468
------------
$ 6,267,325
============
LIABILITIES
CURRENT LIABILITIES
Line of credit............................................ $ 875,750
Current maturities of long-term obligations............... 495,551
Current maturities of capital lease obligations........... 105,542
Accounts payable.......................................... 1,440,380
Accrued liabilities....................................... 239,632
------------
Total current liabilities......................... 3,156,855
LONG TERM OBLIGATIONS, less current maturities.............. 944,060
LONG TERM CAPITAL LEASE OBLIGATIONS, less current
maturities................................................ 179,281
COMMITMENTS AND CONTINGENCIES............................... --
STOCKHOLDERS' EQUITY
Preferred stock -- authorized 13,000,000 shares of $.0001
par value.............................................. 220
Common Stock -- authorized 130,000,000 shares of $.0001
par value.............................................. 624
Additional contributed capital............................ 38,418,430
Accumulated other comprehensive income.................... 27,658
Accumulated deficit....................................... (36,459,803)
------------
1,987,129
------------
$ 6,267,325
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE> 24
AUTOMOTIVE PERFORMANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
PREDECESSOR
IMSG & SUBS
1998 1997
------------ ------------
<S> <C> <C>
Revenues.................................................... $ 2,687,026 $ 549,366
Expenses
Direct expenses........................................... 2,461,484 393,503
Selling, general and administrative....................... 4,550,924 1,616,663
Salaries, payroll taxes and benefits...................... 1,307,631 704,305
Professional expenses..................................... 2,619,835 765,082
Depreciation and amortization............................. 119,351 129,557
Loss on investments in affiliates......................... 78,586 932,894
------------ ------------
11,137,811 4,542,004
------------ ------------
Operating loss......................................... (8,450,785) (3,992,638)
Other income (expense)
Interest expense.......................................... (696,322) (277,162)
Interest income........................................... 72,057 1,002
Gain on sale of affiliate................................. 1,122,403 --
Other income.............................................. 18,120 8,548
------------ ------------
516,258 (267,612)
------------ ------------
Loss on continuing operations before income taxes...... (7,934,527) (4,260,250)
Income Taxes................................................ -- --
------------ ------------
Loss from continuing operations before discontinued
operations and extraordinary item.................... (7,934,527) (4,260,250)
Discontinued operations
Loss from operations of discontinued venue division and
subsidiary............................................. (339,386) (2,049,801)
Gain on disposal of venue division and subsidiary
including provision of $40,000 for operating losses
during phase-out period................................ -- 1,582,832
Loss from operations of discontinued race sanctioning
subsidiary............................................. -- (3,502,602)
Loss from disposal of race sanctioning subsidiary......... -- (1,875,120)
Loss from operations of discontined race team
subsidiary............................................. (4,923,774) (6,459,417)
Loss from disposal of race team subsidiary................ (924,655) --
------------ ------------
Loss from discontinued operations...................... (6,187,815) (12,304,108)
------------ ------------
Loss before extraordinary item......................... (14,122,342) (16,564,358)
Extraordinary item
Gain from extinguishment of debt.......................... 258,608 517,168
------------ ------------
NET LOSS............................................... $(13,863,734) $(16,047,190)
============ ============
Loss per common share basic and diluted
Loss before discontinued operations and extraordinary
item................................................... $ (1.60) $ (3.44)
Discontinued operations................................... (1.25) (9.94)
Extraordinary item........................................ 0.05 0.42
------------ ------------
$ (2.80) $ (12.96)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 25
AUTOMOTIVE PERFORMANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
---------------------- ------------------ CONTRIBUTED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT TOTAL
-------- ----------- --------- ------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996................... 257,250 $ 1,000,000 171,500 $ 17 $ 183 $ -- $ (6,548,879) $(5,548,679)
Issuance of common stock
for convertible notes
and associated
interest............... -- -- 1,204,639 120 5,105,892 -- -- 5,106,012
Issuance of common stock
for convertible
preferred stock........ (257,250) (1,000,000) 257,250 26 999,974 -- -- --
Issuance of common stock
for services rendered
at fair value.......... -- -- 38,303 4 153,208 -- -- 153,212
Issuance of common stock
for purchase of APEX
and Jim Epler Racing... -- -- 50,000 5 199,995 -- -- 200,000
Issuance of common stock
for purchase of Team
Scandia at cost,
assumes pooling as of
January 1, 1996
(including capital
contributions of
$968,824 in 1997 and
$5,363,306 in 1996 by
controlling
shareholder)........... -- -- 400,000 40 8,197,368 -- -- 8,197,408
Foreign currency
translation
adjustment............. -- -- -- -- -- (116,504) -- (116,504)
Net loss for the year.... -- -- -- -- -- -- (16,047,190) (16,047,190)
-------- ----------- --------- ---- ----------- --------- ------------ -----------
BALANCE AT DECEMBER 31,
1997................... -- $ -- 2,121,692 $212 $14,656,620 $(116,504) $(22,596,069) $(8,055,741)
======== =========== ========= ==== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 26
AUTOMOTIVE PERFORMANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
---------------------- ------------------ CONTRIBUTED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME DEFICIT TOTAL
-------- ----------- --------- ------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1997................... -- $ -- 2,121,692 $212 $14,656,620 $(116,504) $(22,596,069) $(8,055,741)
Related party notes
payable and accrued
interest converted into
common stock........... -- -- 3,359,334 336 16,723,923 -- -- 16,724,259
Issuance of common stock
in conjunction with the
acquisition of Klein
Engines and Competition
Components, Inc........ -- -- 391,695 39 1,958,437 -- -- 1,958,476
Issuance of common stock
for services rendered
at fair value.......... -- -- 83,048 9 163,225 -- -- 163,234
Issuance of stock options
for settlement of
lawsuit................ -- -- 12,187 1 24,373 -- -- 24,374
Issuance of warrants for
financing
arrangement............ -- -- 272,000 27 630,614 -- -- 630,641
Issuance of stock options
for consulting
services............... -- -- -- -- 176,437 -- -- 176,437
Issuance of preferred
stock in conjunction
with the 1998 Private
Placement
Memorandums............ 2,195,000 220 -- -- 4,084,801 -- -- 4,085,021
Foreign currency
translation
adjustment............. -- -- -- -- -- 144,162 -- 144,162
Net loss for the year.... -- -- -- -- -- -- (13,863,734) (13,863,734)
-------- ----------- --------- ---- ----------- --------- ------------ -----------
BALANCE AT DECEMBER 31,
1998................... 2,195,000 $ 220 6,239,956 $624 $38,418,430 $ 27,658 $(36,459,803) $ 1,987,129
======== =========== ========= ==== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 27
AUTOMOTIVE PERFORMANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
PREDECESSOR
IMSG & SUBS
1998 1997
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net loss.................................................. $(13,863,734) $(16,047,190)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 2,002,538 2,716,081
Impairment of intangibles............................... 2,123,439 --
Deferred revenue........................................ 4,192 (637,833)
Forgiveness of debt..................................... (258,608) (517,168)
Equity in losses from affiliates........................ 78,586 932,894
(Gain) loss on disposal of assets....................... (212,052) 72,503
Loss on disposition of subsidiaries..................... 924,655 252,288
Common stock issued for services received............... 339,671 153,212
Common stock issued for settlement of lawsuit........... 24,374 --
Interest expense on notes payable converted to common
stock.................................................. 318,759 --
Warrants issued for financing arrangement............... 297,268 --
Write-off of notes receivable........................... 532,812 --
Gain on sale of affiliate............................... (1,122,403) --
Changes in assets and liabilities:
Accounts receivable................................... 299,368 (654,353)
Notes receivable...................................... -- (1,632,812)
Inventories........................................... (316,707) --
Prepaid expenses and other............................ 123,746 (110,223)
Accounts payable...................................... 734,455 (1,129,147)
Accrued liabilities................................... (258,478) 218,080
------------ ------------
Net cash used in operating activities.............. (8,228,119) (16,383,668)
Cash flows from investing activities:
Purchase of equipment..................................... (269,454) (2,217,522)
Proceeds from sale of subsidiary.......................... -- 3,500,000
Proceeds from sale of investment in affiliate............. 2,000,000 --
Proceeds from the disposition of equipment................ 2,112,367 85,666
Deposit on future acquisition............................. (500,000) --
Investment in subsidiaries, less cash received of $112,134
and $1,384, respectively................................ (250,366) (1,875,784)
Investment in affiliates.................................. (332,818) (1,076,727)
------------ ------------
Net cash provided by (used in) investing
activities....................................... 2,759,729 (1,584,367)
Cash flows from financing activities:
Payments on long-term obligations......................... (1,346,800) (1,384,029)
Proceeds from long-term obligations....................... -- 969,866
Payments on capital leases................................ (71,588) --
Proceeds from notes payable to affiliate, net............. -- 287,907
Proceeds from issuance of preferred stock................. 4,085,021 --
Proceeds from line of credit, net......................... 875,750 --
Capital contributions to subsidiaries..................... -- 968,824
Proceeds from related party notes payable, net............ 100,000 19,745,500
------------ ------------
Net cash provided by financing activities.......... 3,642,383 20,588,068
Effect of exchange rate on cash............................. 144,162 (116,504)
------------ ------------
Net decrease in cash........................................ (1,681,845) 2,503,529
Cash at beginning of period................................. 3,510,537 1,007,008
------------ ------------
Cash at end of period....................................... $ 1,828,692 $ 3,510,537
============ ============
Cash paid during the period for interest.................... $ 274,265 $ 238,273
============ ============
Noncash investing and financing activities see note Q
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 28
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
Automotive Performance Group, Inc. (the Company) was formed to be the
parent company for several high-performance automotive and specialty chemical
related operating subsidiaries. The Company's wholly-owned subsidiaries include:
(1) Klein Engines and Competition Components, Inc., which manufactures high
performance engines and components, (2) Automotive Specialty Chemicals Group,
formally International Motor Sports Group, Inc, which is a holding company for
investments in motor sports related businesses, (3) Royal Purple Motor Oil,
Inc., which markets and sells a line of high-performance lubricants, (4) D3
Design Works, Inc., a designing agency, and (5) IMSG Properties, which operated
Mosport park, a multi-purpose entertainment facility located outside Toronto,
Ontario prior to its sale. The Company holds a 50% ownership interest in Cristen
Powell Enterprises, LLC, which is a racecar driver entity.
A summary of significant accounting polices consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. Investments in 20% to 50% owned affiliates in which
management has the ability to exercise significant influence are included based
on the equity method of accounting. All significant intercompany balances and
transactions have been eliminated.
2. Comprehensive Income
All balance sheet accounts of foreign operations are translated into US
dollars at the year-end rate of exchange, and statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses from other foreign currency transactions,
such as those resulting from the settlement of foreign receivables or payables,
are included in the Consolidated Statement of Operations.
3. Inventories
Inventories are stated at the lower of cost or market, cost is determined
using the first-in, first-out method.
4. Property, Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis. Estimated
service lives of property, plant and equipment are as follows:
<TABLE>
<S> <C>
Office and computer equipment............................... 3 to 7 years
Furniture and fixtures...................................... 3 to 7 years
Equipment................................................... 3 to 10 years
Building and building improvements.......................... 39 years
</TABLE>
The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes.
F-7
<PAGE> 29
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. Revenue Recognition
Revenue from the sale of merchandise and other goods is recognized at the
time of shipment. Event related revenues and expenses are recognized upon
completion of an event. Revenues derived from the promotion of the sponsors'
businesses are recorded in the racing season to which they relate based on the
number of sponsored races that have occurred.
6. Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
approximately $164,000 and $53,700 for the years ended December 31, 1998 and
1997.
7. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to timing
from those deducted for tax purposes; these relate primarily to accelerated
depreciation. The tax effects of these differences are recorded as deferred
income taxes.
8. Goodwill
Intangible assets represent the excess costs of acquiring subsidiaries over
the fair value of net assets acquired at the date of acquisition, which are
amortized using the straight-line method primarily over a 10-year period. The
Company periodically reviews goodwill to assess recoverability. Impairment is
recognized in operating results if expected future operating undiscounted cash
flows of the acquired business is less than the carrying value of goodwill. As
of December 31, 1998, management determined that there had been an impairment in
the carrying value of the remaining unamortized balance of goodwill totaling
approximately $2,123,439 related to the acquisition of Klein Engines and
Competition Components, Inc., described in note B, and D3 Design Works, Inc. The
impairment loss is reported in selling, general and administrative expenses in
the Consolidated Statement of Operations.
9. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
10. Fair Value of Financial Instruments
The carrying amount of all significant financial instruments approximates
fair value under the requirements of Statement of Financial Accounting Standards
No. 107 -- Disclosure About Fair Value of Financial Instruments.
11. Loss Per Share
Loss per share is based on the weighted average number of shares
outstanding during each period. The weighted average number of common shares
outstanding was 4,949,893 and 1,237,155 for the years ended December 31, 1998
and 1997, respectively. The computation for loss per share assuming dilution for
the years ended December 31, 1998 and 1997 was anti-dilutive; and therefore, is
not included.
F-8
<PAGE> 30
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. Stock Split
On March 30, 1998, the shareholders increased the number of authorized
shares of common stock from 50,000,000 to 130,000,000 and the number of
authorized shares of preferred stock from 5,145,000 to 13,000,000. The
shareholders also approved a 20-for-1 reverse stock split effective April 17,
1998, the effective date of the business combination described in note B. As a
result of the transaction, the par value of the common stock was decreased from
$.01 to $.0001. All per share losses and references to common stock, warrants
and options have been retroactively restated to reflect the decreased number of
common shares outstanding.
13. Reclassifications
Certain reclassifications have been made to the 1997 presentation in order
to conform to the 1998 presentation.
NOTE B -- BUSINESS COMBINATION
Effective April 17, 1998, through a series of mergers, International Motor
Sports Group, Inc. (IMSG) exchanged 108,930,887 shares of its common stock for
an equal number of shares of Automotive Performance Group, Inc.'s (APGI and the
Company) common stock and Klein Engines and Competition Components, Inc. (Klein
Engines) exchanged 7,833,902 shares of its common stock for an equal number of
shares of APGI. These transactions resulted in IMSG being the acquirer in the
transaction. APGI is engaged as a holding company for the operating subsidiaries
and Klein Engines is engaged in the manufacture of high performance engines and
components for use in the Indianapolis Racing League, American Sprint Car
Series, and World of Outlaws sprint cars. The combination is accounted for under
the purchase method of accounting. The excess of the total acquisition cost over
the fair value of net assets acquired in the amount of $2,040,656 was written
off as the expected future operating undiscounted cash flows of the acquired
business are less than the carrying value of goodwill as of December 31, 1998.
The Consolidated Statement of Operations includes the results of operations of
Klein Engines from April 1, 1998.
Effective June 28, 1997, the Company purchased Team Scandia, Inc., from the
then current Chairman of the Board of the Company who had acquired it in 1995.
The acquisition was accomplished by the exchange of 8,000,000 shares of the
Company's common stock for all of the stock of Team Scandia, Inc. The
transaction was accounted for as an exchange between enterprises under common
control and has been accounted for in a manner similar to a pooling of
interests. Therefore, the net assets and liabilities were accounted for at
historical cost, which totaled $937,671. The Consolidated Statement of
Operations includes the results of operations of Team Scandia, Inc. from January
1, 1997.
NOTE C -- MANAGEMENT PLANS
The Company's current strategy is to pursue strategic acquisitions of
specialty chemical businesses primarily in the automotive aftermarket and
aerospace industries.
Based on that strategy, the Company's most significant recent action was to
sign a letter of intent on February 5, 1999 to acquire the North American
operations of the Automotive Aftermarket Division of Loctite Corporation (AAD)
for $125 million. Management believes that this acquisition is expected to
generate earnings and cash flow and provide a platform to fund and promote
further development of existing businesses as well as to pursue subsequent
acquisitions in the consolidating specialty chemicals industry. Further, the
funds needed to complete the acquisition of AAD have been guaranteed by a
combination of a related party and the investment banker sponsoring the
transaction.
As a result of the recent progress made in pursuing its strategy,
management does not believe it has an issue with continuing its operations into
the future. The issue that could occur is that during the due diligence
F-9
<PAGE> 31
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the transaction, matters may be discovered which could lead to the
acquisition not being completed. If that were the case, it would be management's
plan to raise more capital through an additional equity or debt offering or
scale back the Company's operations, primarily Royal Purple Motor Oil, Inc., to
a level that could be maintained for at least a year as management continues
with its strategy of identifying and pursuing strategic acquisitions in the
specialty aerospace and automotive chemicals industries.
NOTE D -- TRANSACTIONS WITH AFFILIATES
In December 1998, the Company sold its 50% interest in Scandia Bodine
Racing, LLC, (SBR) a NASCAR Winston Cup Team to veteran NASCAR driver Brett
Bodine for $2,000,000. The Company recorded a gain on the sale of SBR of
$1,122,403 and recorded operating losses of approximately $216,000 and $880,000
for the years ended December 31, 1998 and 1997, respectively. In connection with
the sale, promissory notes and advances of $500,000 were paid off.
In 1997, the Company acquired 50% interests in two separate race car
drivers' enterprises for $76,000 in cash and a commitment to provide up to a
total of $600,000. In December 1998, the Company terminated its 50% interest in
Jimmy Kite Enterprises, LLC, a racecar driver entity.
NOTE E -- INVENTORIES
Inventories consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Finished goods.............................................. $704,117
Raw materials............................................... 202,590
--------
$906,707
========
</TABLE>
NOTE F -- NOTES RECEIVABLE
At December 31, 1998, the Company has a note receivable totaling $600,000
in conjunction with the sale of its subsidiary, SportsCar Racing, Inc. Interest
is accrued annually at 10% and is due May 1999 (see note O2).
NOTE G -- PROPERTY, PLANT AND EQUIPMENT -- AT COST
Property, plant and equipment consist of the following at December 31,
1998:
<TABLE>
<S> <C>
Office and computer equipment............................... $ 143,170
Furniture and fixtures...................................... 25,953
Equipment
Purchased................................................. 340,046
Capital leases............................................ 386,582
Building and building improvements.......................... 928,524
----------
1,824,275
Less accumulated depreciation and amortization.............. 114,113
----------
$1,710,162
==========
</TABLE>
NOTE H -- LINE OF CREDIT
The Company's subsidiary, IMSG, has a revolving line of credit agreement
with a bank for amounts up to $1,000,000 available for working capital. As of
December 31, 1998, the outstanding balance on the line of
F-10
<PAGE> 32
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit totaled $875,750. The line is secured by a certificate of deposit
totaling $1,000,000, which was assigned and guaranteed by a related party. The
line of credit bears interest at 6.65% and expires May 1999.
NOTE I -- CONVERSION OF RELATED PARTY NOTES PAYABLE
In 1998, the Company converted unsecured demand notes payable to related
parties into shares of common stock. The demand notes of $16,038,000 plus
imputed interest of $686,259 were converted into 3,359,334 shares of common
stock.
NOTE J -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank in monthly installments of $40,000
plus interest at 6.35%; final payment due May 2000;
guaranteed by related party............................... $ 679,733
Mortgage payable to a bank in monthly installments of
$6,931, plus interest at prime plus 1.75% (9.5%); final
payment due November 2021; collateralized by building..... 746,825
Note payable to a bank in monthly installments of $652, plus
interest at 10.75%; final payment due October 2000;
collateralized by equipment............................... 13,053
----------
1,439,611
Less current maturities................................ 495,551
----------
$ 944,060
==========
</TABLE>
Aggregate maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999................................... $ 495,551
2000................................... 215,900
2001................................... 10,900
2002................................... 12,100
2003................................... 13,400
Thereafter............................. 691,760
----------
$1,439,611
==========
</TABLE>
NOTE K -- COMMITMENTS AND CONTINGENCIES
1. Operating Lease Obligation
The Company conducts a portion of its operations in a leased facility
classified as an operating lease. Future minimum lease payments under
noncancelable operating leases as of December 31, 1998 are approximately as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999.................................... $ 47,900
2000.................................... 46,200
2001.................................... 48,500
2002.................................... 4,100
--------
$146,700
========
</TABLE>
F-11
<PAGE> 33
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for leased facilities totaled approximately $244,100 and
$586,000 for the year ended December 31, 1998 and 1997, respectively.
2. Capital Lease Obligations
The Company conducts a portion of its operations utilizing certain
equipment under capital leases expiring through 2002.
Future minimum lease payments under capital lease agreements are as follows
at December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999.............................................. $136,306
2000.............................................. 121,200
2001.............................................. 70,400
2002.............................................. 6,894
--------
Future minimum lease payments............................... 334,800
Less amount representing interest........................... 49,977
--------
Present value of net minimum lease payments................. $284,823
========
Current portion............................................. $105,542
Non-current portion......................................... 179,281
--------
$284,823
========
</TABLE>
3. Legal Matters
In 1998, the Company was engaged in various lawsuits, either as plaintiff
or defendant, involving alleged breaches of contract, related primarily to
sponsorship agreements and racecar drivers associated with its subsidiary, Team
Scandia, Inc, which was sold on December 31, 1998. Certain drivers had alleged
breach of employment contracts, additional prize money earned and punitive
damages. A majority of the lawsuits were settled in 1998.
In the opinion of management, based upon advice of legal counsel, the
ultimate outcome of the remaining claims and arbitration proceedings will not
have a material impact on the Company's consolidated financial statements.
4. Commitments
In February 1997, the Company formed Royal Purple Motor Oil, Inc. (Royal
Purple), in which 100 shares of Royal Purple's common stock was issued to the
Company at par value of $.01. In April 1997, IMSG acquired exclusive retail
distribution rights to market and sell a line of high performance lubricants
under the Royal Purple(TM) brand name through Royal Purple. In consideration of
the rights granted to the Company, the Company granted the seller the option to
purchase 800,000 shares of Royal Purple's common stock that at the time of
exercise, if any, will represent 20% of Royal Purple's common stock deemed
outstanding, after giving effect to such exercise. The aggregate exercise price
will be $1,000,000. Additionally, the agreement states that the Company or its
affiliates shall invest $5,000,000 in Royal Purple over the period April 1997
through March 1999. The Company and its affiliates have contributed cash and
sponsorship fees of approximately $5,451,400 through December 31, 1998.
Also, the Company has issued 270,000 options to employees to purchase stock
in Royal Purple for $1.25 per share. These options vest 20% per year and will be
fully vested by June 2002.
F-12
<PAGE> 34
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. Employee Benefit Plan
The Company has a defined contribution 401(k) plan. All employees are
eligible for this plan upon completion of six months of service and attainment
of age 21. The Company has the option to make discretionary contributions at
year-end. The Company did not make any contributions to the plan for 1998 and
1997.
NOTE L -- CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue up to 13,000,000 shares of preferred
stock, $.0001 par value. The holder of a share of preferred stock is entitled to
convert such share into one share of common stock prior to June 30, 1999. In the
event that holders of 51% of the preferred shares notify the Company of an
election to convert, all holders of preferred shares will be notified and be
required to convert as well. In addition, unless previously converted to common
stock at the option of the holder, preferred shares may be converted by the
Company after June 30, 1999, or sooner if certain requirements are met.
During the second quarter of fiscal 1997, all of the then outstanding
shares of the Company's preferred stock were converted into common stock at the
ratio of one common share for each share of preferred stock. Common shares
issued in the conversion were 257,250 shares.
NOTE M -- WARRANTS
The Company had the following warrants outstanding to purchase common
shares at December 31, 1998:
<TABLE>
<S> <C>
Warrants issued to a consultant whereby one warrant entitles
the holder to purchase one common share at $3.00. The
warrants were fully vested as of December 31, 1998 and
expire in 2001............................................ 150,000
Warrants issued to an investment company for raising capital
through various private placements, whereby one warrant
entitles the holder to purchase one common share at a
price ranging from $2.00 to $2.50. The warrants fully vest
in 1999 and expire in 2003 and 2004....................... 84,750
Warrants issued to shareholders and directors whereby one
warrant entitles the holder to purchase one common share
at price ranging from $2.00 to $4.00. The warrants are
exercisable over a five to ten-year term and expire in
2003 and 2008............................................. 27,916
-------
262,666
=======
</TABLE>
The Company also granted 272,000 common stock warrants to a shareholder to
purchase one share of common stock at a grant price of $.01 per share for
obtaining and guaranteeing three lines of credit held during the year and
guaranteeing an equipment loan for $720,000. The warrants fully vested at the
time of issue and were exercised in 1998. Financing expense of $297,268 was
recognized during the year ended December 31, 1998 and financing costs of
$330,653 have been deferred and are being amortized over the life of the
remaining loans guaranteed.
In order to prevent dilution, the exercise price is subject to adjustment
based upon recent common stock sales as defined in the warrant agreement. The
exercise price adjustments are calculated differently based upon whether the
adjustment occurs in the first eighteen months of the exercise period or
thereafter.
NOTE N -- STOCK OPTIONS
The Company has a stock option plan accounted for under APB Opinion 25 and
related Interpretations. The plan allows the Company to grant options to
employees for up to 4,000,000 shares of common stock. Options currently
outstanding vest over a three to four-year period. The options are exercisable
at not less than the market value of the Company's common stock on the date of
grant. Accordingly, no compensation cost
F-13
<PAGE> 35
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has been recognized for the plan. Had compensation cost for the plan been
determined based on the fair value of the options at the grant dates consistent
with the method required by Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company's net loss would
have been increased to the pro forma amounts indicated below for the year ended
December 31, 1998. The effect on the Company's net loss for the year ended
December 31, 1997 would have been immaterial. The fair value of option grants is
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1998: expected volatility of
47.78%; risk free interest rate of 5.375%; expected life of five years (one year
beyond the most common date of full vesting, options expire in 10 years); and a
zero percent dividend yield.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998:
------------------
<S> <C>
Net loss:
As reported............................................... $(13,863,734)
Pro forma................................................. $(13,933,581)
Net loss per common share:
As reported............................................... $ (2.80)
Pro forma................................................. $ (2.82)
</TABLE>
A summary of the Company's stock option plan's activity is as follows:
<TABLE>
<CAPTION>
1998
-----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of year................. 550,000 $ .71
Granted.......................................... 920,000 $2.11
Forfeited........................................ (662,500) $1.08
--------- -----
Outstanding at end of year....................... 807,500 $2.46
========= =====
Options exercisable at end of year............... 84,000 $3.55
========= =====
Weighted-average fair value of options granted
during the year................................ $ 1.03
=========
</TABLE>
The following is a summary of stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED-AVERAGE NUMBER OF
NUMBER REMAINING OPTIONS
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- -------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ 2.00 740,000 9.4 years 75,000
$ 2.90 40,000 9.75 years --
$ 4.00 10,000 6.08 years 2,000
$20.00 17,500 6.25 years 7,000
</TABLE>
NOTE O -- DISCONTINUED OPERATIONS
The operations for certain subsidiaries for the year ended December 31,
1998 and 1997 are reflected as discontinued operations in the Company's
Consolidated Statement of Operations. During 1997, the Company decided to sell
its racing venue and race sanctioning operations and in 1998 its race team
operation was sold. Accordingly as of December 31, 1998 and 1997, these
operations were considered discontinued and sold or offered for sale.
F-14
<PAGE> 36
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. Venue Operations
In December 1997, the Company sold its wholly owned subsidiary, Sebring
International Raceway (Sebring), which controlled a venue, Sebring Raceway, and
the world-renowned event, the "12 Hours of Sebring" for $3,500,000. The Company
recorded a loss from Sebring's operations for the year ended December 31, 1997
of $700,206. The gain on the sale of Sebring totaled approximately $1,623,000.
In connection with the sale, a $1,500,000 face value promissory note was
cancelled in exchange for $600,000 in cash. This resulted in the forgiveness of
debt totaling $517,168, of which $77,168 represented accrued interest. This has
been reflected in the Consolidated Statements of Operations as an extraordinary
gain.
In May 1997, the Company formed IMSG Properties, a wholly owned Canadian
subsidiary, to enter into a long-term lease for a multi-purpose entertainment
facility known as Mosport Park. In conjunction with the Company's decision to
sell its venue operations, the Company entered into an option agreement with an
outside party to take an assignment of the Mosport Park lease. The Company
received $100,000 as an option fee in 1997 and received an additional $200,000
upon the exercising of the option in May 1998. IMSG Properties had a demand note
payable to a related party totaling $258,608, which was forgiven in 1998. This
has been reflected in the Consolidated Statement of Operations as an
extraordinary gain. In 1997, a provision of $40,000 for operating losses for
1998 had been recorded in the Company's financial statements as an offset to the
gain on the sale of the venue division. The loss incurred related to Mosport
Park totaled $339,386 and $1,349,595, for the year ended December 31, 1998 and
1997, respectively, and has been reported in the Consolidated Statements of
Operations as discontinued operations.
2. Sanctioning Operation
In December 1997, the Company sold its wholly owned subsidiary,
Professional SportsCar Racing, Inc. (SportsCar), a sanctioning body for
professional sports car racing in North America.
The Company received a note for $600,000 in exchange for all the
intercompany amounts owed to the Company. The Company recorded a loss from
SportsCar's operations for the year ended December 31, 1997 of $3,502,602. The
loss on the sale of SportsCar totaled approximately $1,875,000.
3. Race Team Operation
In December 31, 1998, the Company sold all of the outstanding shares of
capital stock of its wholly owned subsidiary, Team Scandia, a motor sports race
team that competes in the Indianapolis Racing League and National Hot Rod
Association's Top Fuel Series, in exchange for 20% of Team Scandia's
consolidated annual net profit from operations for the period January 1, 1999
through December 31, 2003. The Company recorded a loss on the sale of Team
Scandia totaling $924,655 and recorded a loss from its operations of $4,923,774
and $6,459,417 for the years ended December 31, 1998 and 1997, respectively.
NOTE P -- CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances in financial institutions, which at
times, may exceed federally insured limits. Accounts at each financial
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash.
NOTE Q -- NONCASH INVESTING AND FINANCING ACTIVITIES
In 1998, the Company converted $16,038,000 of related party notes payable
plus imputed interest of $686,259 into 3,359,334 shares of common stock.
F-15
<PAGE> 37
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the Company converted $5,000,000 of convertible debt plus $106,012
of related interest into 1,204,639 shares of common stock. Additionally,
$1,000,000 of preferred stock was converted into 257,250 shares of common stock.
In 1997, the Company acquired the assets and liabilities of Apex Communications
and Jim Epler Racing, Inc. in exchange for $200,000 of its common stock. In
conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................... $ 500,946
Fair value of the Company's common stock exchanged.......... (200,000)
---------
Liabilities assumed......................................... $ 300,946
=========
</TABLE>
In 1997, the Company sold its subsidiary, SportCar, in exchange for a
$600,000 note receivable.
NOTE R -- INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109).
The income tax provision reconciled to the tax computed at the statutory
federal rate was:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Tax benefit at statutory rate............................. $(4,714,000) $(5,456,000)
Non-deductible losses in affiliates....................... -- 317,000
Non-deductible losses of subsidiaries sold................ -- 1,987,000
Pre-acquisition losses of subsidiary accounted for as a
pooling................................................. -- 543,000
Non-deductible meals and entertainment.................... 30,000 51,000
Goodwill written off...................................... 440,000 --
Valuation allowance....................................... 4,244,000 2,558,000
----------- -----------
Total................................................ $ -- $ --
=========== ===========
</TABLE>
The components of deferred taxes are as follows at December 31, 1998:
<TABLE>
<S> <C>
Deferred tax asset:
Excess of book over tax depreciation.................... $ 194,000
Capital loss carryforwards.............................. 1,878,000
Net operating loss carryforwards from continuing
operations........................................... 2,989,000
Net operating loss carry forwards from discontinued
operations........................................... 1,845,000
Other deferred assets................................... 138,000
Valuation allowance..................................... (7,044,000)
-----------
$ --
===========
</TABLE>
The Company has established a valuation allowance of $7,044,000 and
$2,775,000 as of December 31, 1998 and 1997, respectively, due to the
uncertainty of future utilization. The valuation allowance was increased by
$4,269,000 and $2,752,000 during the years ended December 31, 1998 and 1997,
respectively. At December 31, 1998, the Company had net operating loss
carryforwards for federal income tax reporting purposes of approximately
$14,218,000, which expire in 2011, 2012, and 2018. Of this, $5,428,000 relates
to losses from continuing operations and $8,790,000 relates to losses from
discontinued operations. However, due to potential limitations under Section 382
of the Internal Revenue Code, some of the net operating losses may not be
available and any subsequent changes in ownership may result in further
limitations.
F-16
<PAGE> 38
AUTOMOTIVE PERFORMANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also at December 31, 1998, the Company had capital loss carryforwards for
federal income tax reporting purposes of approximately $5,853,000, which expire
in 2003. The utilization of the capital loss carryforwards are uncertain as they
can only be offset by capital gain income and may also be subject to limitations
in the case of a change in ownership.
NOTE S -- SIGNIFICANT RISKS AND UNCERTAINTIES
In 1998, the Company's subsidiary Royal Purple Motor Oil derived
approximately 30% of its revenues from one customer and receives its product
from one supplier.
F-17
<PAGE> 39
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DEAN WILLARD Chairman of the Board, April 13, 1999
- ----------------------------------------- Chief Executive Officer & Director
Dean Willard (Principal Executive Officer)
/s/ JAMES DUNN Chief Operating Officer April 13, 1999
- -----------------------------------------
James Dunn
/s/ CARL WALKER Chief Financial Officer and Director April 13, 1999
- -----------------------------------------
Carl Walker
/s/ THOMAS CARMODY Director April 13, 1999
- -----------------------------------------
Thomas Carmody
/s/ GEORGE BARRAZA Director April 13, 1999
- -----------------------------------------
George Barraza
</TABLE>
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1.. APG-IMSG Plan of Merger****
3.1.. Certificate of Incorporation of APG***
3.2.. Certificate of Amendment to Certificate of Incorporation***
3.3 Bylaws of Registrant***
4.1.. Certificate of Designation with respect to Series A
Preferred Stock of APG
10.1.. Loan and Options Agreement dated as of September 16, 1997,
among International Motor Sports Group, Inc., Andrew L.
Evans, Klein Engines & Competition Components, Inc., and
Thomas G. Klein**
10.2.. Form of Promissory Note to International Motor Sports Group,
Inc.**
10.3.. Registration Rights Agreement dated as of ,
1998, between Klein Engines & Competition Components, Inc.
and Thomas G. Klein**
10.4.. Deed of Trust dated November 29, 1996 between Klein
Engineered Competition Components, Inc. and Bank of
Arizona**
10.5.. Note dated November 29, 1996 from Klein Engineered
Competition Components, Inc., as borrower, to Bank of
Arizona as lender**
10.6.. Commercial Security Agreement dated November 29, 1996
between Klein Engineered Competition Components, Inc. and
Bank of Arizona**
10.7.. Guaranty of Thomas G. Klein dated November 29, 1996**
10.8.. Deed of Trust dated June 30, 1997 between Klein Engines &
Competition Components, Inc. and Century Bank**
10.9.. Promissory Note dated June 30, 1997, from Klein Engines &
Competition Components, Inc., as borrower, to Century Bank,
as lender**
10.10.. Business Loan Agreement dated June 30, 1997 between Klein
Engines & Competition Components, Inc., and Century bank**
10.11.. Commercial Guaranty of Thomas G. Klein dated June 30, 1997**
10.12.. License Agreement date July 29, 1997, between Fueling
Advanced Technologies, Inc. and Klein Engines & Competition
Components, Inc.**
10.13.. Loan Agreement for Royal Purple Motor Oil, Inc.*
10.14.. $1,000,000 Loan Agreement for Automotive Specialty Chemicals
Group, Inc. (formerly International Motor Sports Group,
Inc.) with First Capital Bank of Arizona dated November 4,
1998
10.15.. $720,000 Commercial Installment Note for Team Scandia with
National City Bank of Indiana dated November 19, 1998
10.16.. Boyds Agreement
16.1.. Letter on Change in Certified Accountant****
21.0.. Subsidiaries of APG
27.1.. Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the Quarterly Report on Form 10-QSB filed by
APG on August 14, 1998.
** Incorporated by reference to the Registration Statement on Form 10-SB filed
by Klein Engines & Competition Components, Inc. (predecessor to APG) on
February 2, 1998.
*** Incorporated by reference to the Registration Statement on Form SB-2 filed
by APG on December 16, 1998.
**** Incorporated by reference to the current report on Form 8-K/A filed by APG
on July 1, 1998.
<PAGE> 1
Exhibit 4.1
[Stock Certificate]
RESTRICTED STOCK
[APG LOGO]
NUMBER SHARES
APCA (sample) XXX
AUTOMOTIVE
PERFORMANCE
GROUP, INC.
SERIES A SERIES A
PREFERRED STOCK PREFERRED STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF DELAWARE DEFINITIONS
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF SERIES A PREFERRED STOCK, PAR VALUE
$.0001 PER SHARE, OF
------------AUTOMOTIVE PERFORMANCE GROUP, INC.------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ James E. Dunn /s/ Andrew L. Evans
- ------------------ -------------------
Secretary President
TRANSFER AGENT AND REGISTRAR
COLONIAL STOCK TRANSFER
SALT LAKE CITY, UTAH 84111
COUNTERSIGNED AND REGISTERED
BY /s/ KC
------
AUTHORIZED SIGNATURE
<PAGE> 2
AUTOMOTIVE PERFORMANCE GROUP, INC.
Automotive Performance Group, Inc. will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-________ Custodian________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
UNIF TRF MIN ACT-_________ Custodian (until age _____) _________
(Cust) (Minor)
under Uniform Transfers to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ SHARES
OF THE SERIES A PREFERRED STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO
HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
_______________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE SHARE REGISTRAR OF THE WITHIN CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
Dated ________________________________
________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SHARE OF STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS A COMPLIANCE WITH THE
Signature(s) Guaranteed: REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE
OR UNLESS AVAILABILITY OF AN EXEMPTION FROM SUCH
REGISTRATION PROVISIONS HAS BEEN ESTABLISHED, OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
By_____________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,000,000.00 11-04-1998 05-03-1999 1110003585 CD 1110003585 WCK
- -------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------------------------------------
BORROWER: AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. LENDER: FIRST CAPITAL BANK OF ARIZONA
1207 N. MILLER ROAD 2700 NORTH CENTRAL #210
TEMPE, AZ 85234 PHOENIX, AZ 85004
=============================================================================================================
PRINCIPAL AMOUNT: $1,000,000.00 INTEREST RATE: 6.650% DATE OF NOTE: NOVEMBER 4, 1998
</TABLE>
PROMISE TO PAY. AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. ("BORROWER") PROMISES
TO PAY TO FIRST CAPITAL BANK OF ARIZONA ("LENDER"), OR ORDER, IN LAWFUL MONEY
OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION & 00/100
DOLLARS ($1,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST AT THE RATE OF 6.650% PER ANNUM ON THE UNPAID OUTSTANDING PRINCIPAL
BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH
ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 3, 1999. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED INTEREST BEGINNING
DECEMBER 3, 1998, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY
OF EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/365 simple
interest basis; that is, by applying the ratio of the annual interest rate over
the number of days in a year, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 11 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate on this Note 2.000 percentage
points. The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER
IN THE STATE OF ARIZONA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF MARICOPA COUNTY, THE
STATE OF ARIZONA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ARIZONA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: DEAN M. WILLARD,
PRESIDENT; AND TAMMY POWERS, SECRETARY. Borrower agrees to be liable for all
sums either: (a) advanced in accordance with the instructions of an authorized
person or (b) credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized
by Lender; or (e) Lender in good faith deems itself insecure under this Note or
any other agreement between Lender and Borrower.
<PAGE> 2
11-04-1998 PROMISSORY NOTE Page 2
(Continued)
================================================================================
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
EFFECTIVE RATE. Borrower agrees to an effective rate of interest that is the
rate specified in this Note plus any additional rate resulting from any other
charges in the nature of interest paid or to be paid in connection with this
Note.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
AUTOMOTIVE SPECIALITY CHEMICAL GROUP, INC.
BY: /s/ Dean M. Willard
---------------------------------------
Dean M. Willard, President
================================================================================
Fixed Rate. Line of Credit. Laser Pro, Reg. U.S. Pat. & T.M. off., Ver. 3.26a
(c) 1998 CFI ProServices, Inc. All rights reserved. [AZ-D20F.3.2611103585.LN]
<PAGE> 3
CORPORATE RESOLUTION TO BORROW
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$1,000,000.00 11-04-1998 05-03-1999 1110003585 CD 1110003585 WCK
References in the shaded area are for Lender's use only and do not limit the applicability of this document to
any particular loan or item.
Borrower; AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC. Lender: First Capital Bank of Arizona
1207 N. MILLER ROAD 2700 North Central #210
TEMPE, AZ 85234 Phoenix, AZ 85004
</TABLE>
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF AUTOMOTIVE SPECIALTY
CHEMICAL GROUP, INC. (THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware
as a corporation for profit, with its principal office at 1207 N. MILLER ROAD,
TEMPE, AZ 85234, and is duly authorized to transact business in the State of
Arizona.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held ON NOVEMBER 1, 1998, at which a quorum was present and voting,
or by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
DEAN M. WILLARD PRESIDENT /s/ Dean M. Willard
TAMMY POWERS SECRETARY /s/ Tammy Powers
acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from First Capital Bank of
Arizona ("Lender"), on such terms as may be agreed upon between the
Corporation and Lender, such sum or sums of money as in their judgment
should be borrowed; however, not exceeding at any one time the amount of
ONE MILLION & 00/100 DOLLARS ($1,000,000.00), in addition to such sum or
sums of money as may be currently borrowed by the Corporation from Lender.
EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accommodations.
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or
in which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
they may in their discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.
DEPOSIT ACCOUNTS. To open one or more depository accounts in the
Corporation's name and sign and deliver all documents or items required to
fulfill the conditions of all banking business, including without
limitation the initiation of wire transfers, until authority is revoked by
action of the Corporation on written notice to Lender.
NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and things,
to pay any and all fees and costs, and to execute and deliver such other
documents and agreements as they may in their discretion deem reasonably
necessary or proper in order to carry into effect the provisions of these
Resolutions. The following person or persons currently are authorized to
request advances and authorize payments under the line of credit until
Lender receives written notice of revocation of their authority: DEAN M.
WILLARD, PRESIDENT; and TAMMY POWERS, SECRETARY.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect
at the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever. The Corporation has no corporate seal, and
therefore, no seal is affixed to this certificate.
<PAGE> 4
11-04-1998 CORPORATE RESOLUTION TO BORROW Page 2
(Continued)
================================================================================
IN TESTIMONY WHEREOF, I have hereunto set my hand on November 4, 1998 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ Dean M. Willard
---------------------------
X /s/ Tammy Powers
---------------------------
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26a (c) 1998 CFI ProServices Inc.
All rights reserved. [AZ-CIO F3.26 11103585.LN]
<PAGE> 5
ASSIGNMENT OF DEPOSIT ACCOUNT
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,000,000.00 11-04-1998 05-03-1999 1110003585 CD 1110003585 WCK
- -----------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
</TABLE>
BORROWER: AUTOMOTIVE SPECIALTY CHEMICAL GROUP, INC.
1207 N. MILLER ROAD
TEMPE, AZ 85234
LENDER: FIRST CAPITAL BANK OF ARIZONA
2700 NORTH CENTRAL #210
PHOENIX, AZ 85004
GRANTOR: DOMINION INCOME MANAGEMENT CORP.
15302 25TH DRIVE S.E.
MILL CREEK, WA 98012
===============================================================================
THIS ASSIGNMENT OF DEPOSIT ACCOUNT IS ENTERED INTO AMONG AUTOMOTIVE SPECIALTY
CHEMICAL GROUP, INC. (REFERRED TO BELOW AS "BORROWER"); DOMINION INCOME
MANAGEMENT CORP. (REFERRED TO BELOW AS "GRANTOR"); AND FIRST CAPITAL BANK OF
ARIZONA (REFERRED TO BELOW AS "LENDER").
ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a
security interest in the Collateral, including without limitation the deposit
accounts described below, to secure the indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
ACCOUNT. The word "Account" means the deposit account described below in
the definition for "Collateral."
AGREEMENT. The word "Agreement" means this Assignment of Deposit Account,
as this Assignment of Deposit Account may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Assignment of Deposit Account from time to time.
BORROWER. The word "Borrower" means each and every person or entity
signing the Note, including without limitation AUTOMOTIVE SPECIALTY
CHEMICAL GROUP, INC.
COLLATERAL. The word "Collateral" means the following described deposit
account:
TIME CERTIFICATE DEPOSIT ACCOUNT #27119 ISSUED BY FIRST CAPITAL BANK
OF ARIZONA ISSUED BY LENDER IN AN AMOUNT NOT LESS THAN $1,000,000.00
together with (a) all interest, whether now accrued or hereafter accruing;
(b) all additional deposits hereafter made to the Account; (c) any and all
proceeds from the Account; and (d) all renewals, replacements and
substitutions for any of the foregoing.
In addition, the word "Collateral" includes all property of Grantor
(however owned if owned by more than one person), in the possession of
Lender (or in the possession of a third party subject to the control of
Lender), whether existing now or later and whether tangible or intangible
in character, including without limitation each and all of the following:
(a) All property to which Lender acquires title or documents of title.
(b) All property assigned to Lender.
(c) All promissory notes, bills of exchange, stock certificates,
bonds, savings passbooks, time certificates of deposit, insurance
policies, and all other instruments and evidences of an obligation.
(d) All records, relating to any of the property described in this
Collateral section, whether in the form of writing, microfilm,
microfiche, or electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
filed "Events of Default."
GRANTOR. The word "Grantor" means DOMINION INCOME MANAGEMENT CORP. Any
Grantor who signs this Agreement, but does not sign the Note, is signing
this Agreement only to grant a security interest in Grantor's interest in
the Collateral to Lender and is not personally liable under the Note except
as otherwise provided by contract or law (e.g., personal liability under a
guaranty or as a surety).
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor or Borrower is
responsible under this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means First Capital Bank of Arizona, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated November 4,
1998, in the principal amount of $1,000,000.00 from Borrower to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (a) Borrower agrees that Lender need not tell
Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (c) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (d) Lender
<PAGE> 6
ASSIGNMENT OF DEPOSIT ACCOUNT PAGE 2
11-04-1998 (CONTINUED)
===============================================================================
has made no representation to Grantor about Borrower or Borrower's
creditworthiness.
GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other
party to the Indebtedness or the Collateral. Lender may do any of the following
with respect to any obligation of any Borrower, without first obtaining the
consent of Grantor: (a) grant any extension of time for any payment, (b) grant
any renewal, (c) permit any modification of payment terms or other terms, or (d)
exchange or release any Collateral or other security. No such act or failure to
act shall affect Lender's rights against Grantor or the Collateral.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and warrants to Lender that:
OWNERSHIP. Grantor is the lawful owner of the Collateral free and clear of
all loans, liens, encumbrances, and claims except as disclosed to and
accepted by Lender in writing.
RIGHT TO GRANT SECURITY INTEREST. Grantor has the full right, power, and
authority to enter into this Agreement and to assign the Collateral to
Lender.
NO FURTHER TRANSFER. Grantor will not sell, assign, encumber, or otherwise
dispose of any of Grantor's rights in the Collateral except as provided in
this Agreement.
NO DEFAULTS. There are no defaults relating to the Collateral, and there
are no offsets or counterclaims to the same. Grantor will strictly and
promptly do everything required of Grantor under the terms, conditions,
promises, and agreements contained in or relating to the Collateral.
PROCEEDS. Any and all replacement or renewal certificates, instruments, or
other benefits or proceeds related to the Collateral that are received by
Grantor shall be held by Grantor in trust for Lender and immediately shall
be delivered by Grantor to Lender to be held as part of the Collateral.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this
Agreement is in effect, Lender may retain the rights to possession of the
Collateral, together with any and all evidence of the Collateral, such as
certificates or passbooks. This Agreement will remain in effect until (a) there
no longer is any Indebtedness owing to Lender; (b) all other obligations secured
by this Agreement have been fulfilled; and (c) Grantor, in writing, has
requested from Lender a release of this Agreement.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of any certificate or passbook for the
Collateral but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility (a) for the collection or protection of any income on the
Collateral; (b) for the preservation of rights against Issuers of the Collateral
or against third persons; (c) for ascertaining any maturities, conversions,
exchanges, offers, tenders, or similar matters relating to the Collateral; nor
(d) for informing the Grantor about any of the above, whether or not Lender has
or is deemed to have knowledge of such matters.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor or Borrower to comply with or to perform
any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or failure of Borrower to
comply with or to perform any term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor or Borrower under this
Agreement, the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor or Borrower's
existence as a going business, the insolvency of Grantor or Borrower, the
appointment of a receiver for any part of Grantor or Borrower's property,
any assignment for the benefit of creditors, any type of creditor workout,
or the commencement of any proceeding under any bankruptcy or insolvency
laws by or against Grantor or Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or Borrower or
by any governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any Grantor or
Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or
at any time thereafter, Lender may exercise any one or more of the following
rights and remedies. In addition to any rights or remedies that may be available
at law, in equity, or otherwise:
ACCELERATE INDEBTEDNESS. Lender may declare all Indebtedness of Borrower to
Lender immediately due and payable, without notice of any kind to Grantor
or Borrower.
APPLICATION OF ACCOUNT PROCEEDS. Lender may obtain all funds in the Account
from the Issuer of the Account and apply them to the Indebtedness in the
same manner as if the Account had been issued by Lender. If the Account is
subject to an early withdrawal penalty, that penalty shall be deducted from
the Account before its application to the Indebtedness, whether the Account
is with Lender or some other institution. Any excess funds remaining after
application of the Account proceeds to the Indebtedness will be paid to
Grantor or Borrower as the interests of Grantor or Borrower may appear.
Borrower agrees, to the extent permitted by law, to pay any deficiency
after application of the proceeds of the Account to the Indebtedness.
Lender also shall have all the rights of a secured party under the Arizona
Uniform Commercial Code, even if the Account is not otherwise subject to
such Code concerning security interests, and the parties to this Agreement
agree that the
<PAGE> 7
11-04-1998 ASSIGNMENT OF DEPOSIT ACCOUNT Page 3
(Continued)
===============================================================================
provisions of the Code giving rights to a secured party shall nonetheless
be a part of this Agreement.
COLLECT THE COLLATERAL. Lender may collect any of the Collateral and, at
Lender's option and to the extent permitted by applicable law, may retain
possession of the Collateral while suing on the indebtedness.
SELL THE COLLATERAL. Lender may sell the Collateral, at Lender's
discretion, as a unit or in parcels, at one or more public or private
sales. Unless the Collateral is perishable or threatens to decline speedily
in value, Lender shall give or mail to Grantor or Borrower, or any of them,
notice at least ten (10) days in advance of the time and place of public
sale, or of the date after which private sale may be made. Grantor and
Borrower agree that any requirement of reasonable notice is satisfied if
Lender mails notice by ordinary mail addressed to Grantor or Borrower, or
any of them, at the last address Grantor or Borrower has given Lender in
writing. If public sale is held, there shall be sufficient compliance with
all requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief description
of the property to be sold. Lender may be a purchaser at any public sale.
REGISTER SECURITIES. Lender may register any securities included in the
Collateral in Lender's name and exercise any rights normally incident to
the ownership of securities.
SELL SECURITIES. Lender may sell any securities included in the Collateral
in a manner consistent with applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is unable
to sell the securities in an open market transaction, Grantor and Borrower
agree that (a) Lender shall have no obligation to delay sale until the
securities can be registered, (b) Lender may make a private sale to a
single person or restricted group of persons, even though such sale may
result in a price that is less favorable than might be obtained in an open
market transaction, and (c) such a sale shall be considered commercially
reasonable. If any securities held as Collateral are "restricted
securities" as defined in the Rules of the Securities and Exchange
Commission (such as Regulation D or Rule 144) or state securities
department under state "Blue Sky" laws, or if Grantor or Borrower, or any
of them (if more than one), is an affiliate of the issuer of the
securities, Grantor and Borrower agree that Grantor or Borrower will
neither sell nor dispose of any securities of such Issuer without obtaining
Lender's prior written consent.
TRANSFER TITLE. Lender may effect transfer of title upon sale of all or
part of the Collateral. For this purpose, Grantor irrevocably appoints
Lender as its attorney-in-fact to execute endorsements, assignments and
instruments in the name of Grantor and each of them (if more than one) as
shall be necessary or reasonable.
APPLICATION OF PROCEEDS. Lender may apply any cash which is part of the
Collateral, or which is received from the collection or sale of the
Collateral, to (a) reimbursement of any expenses,including any costs of
any securities registration, commissions incurred in connection with a
sale, attorney fees as provided below and court costs, whether or not there
is a lawsuit and including any fees on appeal, incurred by Lender in
connection with the collection and sale of such Collateral, and (b) to the
payment of the indebtedness of Borrower to Lender, with any excess funds to
be paid to Grantor as the Interests of Grantor may appear.
OTHER RIGHTS AND REMEDIES. Lender shall have and may exercise any or all of
the rights and remedies of a secured creditor under the provisions of the
Arizona Uniform Commercial Code, at law, in equity, or otherwise.
DEFICIENCY JUDGMENT. If permitted by applicable law, Lender may obtain a
judgment for any deficiency remaining in the indebtedness due to Lender
after application of all amounts received from the exercise of the rights
provided in this section.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to
make expenditures or to take action to perform an obligation of Grantor or
Borrower under this Agreement, after Grantor or Borrower's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Arizona. If there is a lawsuit, Grantor and Borrower
agree upon Lender's request to submit to the jurisdiction of the courts of
Maricopa County, State of Arizona. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona.
ATTORNEY'S FEES; EXPENSES. Grantor and Borrower agree to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and Lender's
legal expense, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement, and
Grantor and Borrower shall pay the costs and expenses of such enforcement.
Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor and Borrower also shall pay all
court costs and such additional fees as may be directed by the court.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor and
Borrower under this Agreement shall be joint and several, and all
references to Borrower shall mean each and every Borrower, and all
references to Grantor shall mean each and every Grantor. This means that
each of the persons signing below is responsible for all obligations in
this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor or Borrower, notice to any Grantor or
Borrower will constitute notice to all Grantor and Borrowers. For notice
purposes, Grantor and Borrower will keep Lender informed at all times of
Grantor and Borrower's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral; and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such
<PAGE> 8
11-04-1998 ASSIGNMENT OF DEPOSIT ACCOUNT Page 4
(Continued)
================================================================================
offending provision shall be deemed to be modified to be within the limits
of enforceability or validity; however, if the offending provision cannot
be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever, the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED
NOVEMBER 4, 1998.
BORROWER:
AUTOMOTIVE SPECIALITY CHEMICAL GROUP, INC.
By: /s/ Tammy M. Powers, CFO
----------------------------------------
Tammy M. Powers, CFO
Chief Financial Officer
GRANTOR:
DOMINION INCOME MANAGEMENT CORP.
By: /s/ Andrew L. Evans
----------------------------------------
ANDREW L. EVANS, PRESIDENT
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26a (c) 1998 CFI ProServices Inc.
All rights reserved. (AZ-F90 F3.26 11103585.LN)
<PAGE> 1
Exhibits 10.15
COMMERCIAL INSTALLMENT NOTE FOR BANK USE ONLY
Borrower Name: TEAM SCANDIA, INC.
Borrower #
Obligation #
Office: 101 W. Washington St.
Amount: City, State: Date:
$719,732.80 Indianapolis, IN November 19, 1998
FOR VALUE RECEIVED, the undersigned promises to pay to the order of NATIONAL
CITY BANK OF INDIANA ("Bank"), which has its principal place of business at One
National City Center, Indianapolis, Indiana 46255, Seven Hundred Nineteen
Thousand Seven Hundred Thirty-Two and 80/100 Dollars ($719,732.80) in lawful
money of the United States together with interest, in eighteen (18) consecutive
monthly installments of principal, each in the amount of Forty Thousand and
No/100 Dollars ($40,000.00) (except for the final installment) plus accrued
interest, commencing on December 16, 1998 and continuing on the same day of
each month thereafter until May 16, 2000, when a final payment of the total
outstanding balance of unpaid principal, and interest shall become due and
payable.
This Note refinances the principal balance of and replaces a Commercial Note in
the principal amount of One Million One Hundred Fifty-Four Thousand Two Hundred
Fifty and No/100 Dollars ($1,154,250.00), dated October 28, 1996 and a
Commercial Note in the principal amount of Nine Hundred Twenty-Nine Thousand
Two Hundred Fifty and No/100 Dollars ($929,250.00), dated March 11, 1997. This
Note is secured pursuant to the terms of a Security Agreement, dated October
28, 1996, a Security Agreement, dated March 11, 1997, and a Cash Collateral
Account Assignment, of even date herewith, under which Dominion Income
Management Corp. has pledged to Bank a $720,000 Certificate of Deposit (the
"CD").
Prior to maturity, principal and any overdue interest shall bear interest
computed daily (on the basis of a 360-day year and actual days elapsed) at a
fixed rate which is equal to six and 35/100 percent (6.35%). The interest rate
of this Note will be adjusted by Bank on each date that Borrower's CD is
renewed at a fixed rate which is equal to two percent (2%) above the then
effective CD rate.
Concurrently with any prepayment of the principal of this note, Borrower shall
pay the unpaid interest accrued on the principal being prepaid, and each
prepayment shall be applied to the outstanding installments of this note in the
inverse order of their respective due dates.
If Borrower fails to pay an installment in full within ten (10) days after its
due date, Borrower, in each case, will incur and shall pay a late fee equal to
the greater of twenty dollars ($20.00) or five percent (5%) of the unpaid
amount. The payment of a late charge will not cure or constitute a waiver of
any Event of Default under this note.
Except as otherwise agreed in writing, payments will be applied first to
installments in the order of their respective due dates and then to late
charges in the order of their respective due dates; provided, however, that if
a payment so applied would pay the principal of this note in full, but leave
late
1
<PAGE> 2
charges outstanding, such payment will instead be applied to late charges prior
to being applied to the principal portion of the final installment. Each payment
of an installment shall be applied first to accrued but unpaid interest and then
to principal.
In its discretion, Bank may, from time to time, unilaterally change any
provision for the application of payments and installments by mailing a written
notice to Borrower of the change. The notice shall be mailed to the address
indicated herein or such other address that Borrower may furnish in writing to
an appropriate officer of Bank and shall be mailed not less than fifteen (15)
days prior to the effective date of such change.
If this note is not paid in full at maturity (whether by lapse of time,
acceleration of maturity or otherwise); the interest rate otherwise in effect
hereunder shall be increased by three percent (3%) per annum, provided that in
no event shall the principal of and interest on this note bear interest after
maturity at a rate less than the interest rate actually in effect hereunder
immediately after maturity.
The occurrence of any of the following shall constitute an EVENT OF DEFAULT
hereunder; (a) Borrower's Bank Debt or any part thereof shall not be paid in
full promptly when due (whether by lapse of time, acceleration of maturity or
otherwise); (b) any Obligor shall die or be dissolved; (c) any representation or
warranty made by an Obligor in this note or any Related Writing shall be false
or erroneous in any material respect; (d) any Obligor shall fail or omit to
perform or observe any agreement made by that Obligor in this note or any
Related Writing; (e) a judgment shall be entered against any Obligor in any
court of record; (f) any deposit account of any Obligor is attached or levied
upon; (g) any voluntary petition by or involuntary petition against any Obligor
shall be filed pursuant to any chapter of any bankruptcy code or any Obligor
shall make an assignment for the benefit of creditors, or there shall be any
other marshalling of the assets and liabilities of any Obligor for the benefit
of the Obligor's creditors; (h) any Obligor enters into any merger or
consolidation or sells, leases or otherwise disposes of all or substantially all
of such Obligor's assets in any manner other than in the ordinary course of
business; or (i) any Obligor's Bank Debt or any part thereof shall not be paid
in full immediately when due (whether by lapse of time, acceleration of maturity
or otherwise). Upon the occurrence of an Event of Default, the holder of this
note may, in its sole discretion, declare this note to be due and payable, and
the principal of and interest on this note shall thereupon become immediately
payable in full, without any presentment, demand or notice of any kind, which
Borrower hereby waives. Borrower will pay to Bank all costs and expenses of
collection of this note, including, without limitation attorneys' fees.
In this note, (a) BANK DEBT means Debt payable to Bank, whether initially
payable to Bank or acquired by Bank by purchase, pledge or otherwise and whether
assigned to or participated to or from Bank in whole or in part; (b) BUSINESS
DAY means a day on which Bank's main office is open to the public for carrying
on substantially all of its banking functions, but shall not include Saturdays,
Sundays or legal holidays; (c) DEBT means, collectively, all monetary
liabilities, and any charges or expenses incurred in connection therewith, now
or hereafter owing by the Person or Persons in question, including, without
limitation, every such liability whether owing by such Person or one (1) of such
Persons alone or jointly, severally or jointly and severally, whether owing
absolutely or contingently, or directly or indirectly, and whether created by
loan, overdraft, guaranty or other contract or by quasi-contract, tort, statute
or other operation of law; (d) OBLIGOR means any
2
<PAGE> 3
Person who is or shall become obligated or whose property is or shall serve as
collateral for the payment Borrower's Bank Debt or any part thereof in any
manner and, in addition to Borrower, includes, without limitation, any maker,
endorser, guarantor, subordinating creditor, assignor, pledgor, mortgagor or
hypothecator of property; (e) PERSON means a natural person or entity of any
kind, including, without limitation, any corporation, partnership, trust,
governmental body or any other form or kind of entity; (f) PRIME RATE means the
fluctuating rate of interest which is publicly announced from time to time by
Bank at its principal place of business as being its "prime rate" or "base
rate" thereafter in effect, with each change in the Prime Rate automatically,
immediately and without notice changing the fluctuating interest rate
thereafter applicable hereunder, it being agreed that the Prime Rate is not
necessarily the lowest rate of interest then available from Bank on fluctuating
rate loans; (g) REINVESTMENT RATE means a rate of interest equal to the "bond
equivalent yield" for the most actively traded issues of U.S. Treasury Bills,
U.S. Treasury Notes or U.S. Treasury Bonds for a term similar to the period
from the date of prepayment to the due date of the final installment of this
note and in a principal amount comparable to the principal amount being
prepaid, all as reasonably determined by Bank; and (h) RELATED WRITING means a
writing of any form or substance signed by any Obligor (whether as principal or
agent) or by any attorney, accountant or other representative of any Obligor
and received by Bank in respect of Borrower's Bank Debt or any part thereof,
including, without limitation, any credit application, credit agreement,
reimbursement agreement, financial statement, promissory note, guaranty,
indenture, mortgage, security agreement, authorization, subordination
agreement, certificate, opinion or any similar writing, but shall not include
any commitment letter issued by Bank, without regard to whether Borrower or any
other Person signed or acknowledged receipt thereof; and.
Borrower hereby authorizes Bank to share all credit and financial information
relating to Borrower, with Bank's parent company, and with any subsidiary or
affiliate company of Bank or of Bank's parent company.
In no event shall the interest rate in effect on this note exceed the maximum
rate permissible under the law governing this note.
If Borrower consists of more than one Person, Borrower shall be jointly and
severally liable on this note.
Any holder's delay or omission in the exercise of any right under this note
shall not operate as a waiver of that right or of any other right under this
note.
If any provision of this note is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that determination shall
not affect any other provision of this note, and each such other provision
shall be construed and enforced as if the invalid, illegal or unenforceable
provision were not contained herein.
This note and the Related Writings set forth the entire agreement between the
parties regarding the transactions contemplated hereby, and supersede all prior
agreements, commitments, discussions, representations and understandings,
whether written or oral, and any and all contemporaneous oral
3
<PAGE> 4
agreements, commitments, discussions, representations and understandings between
the parties relating to the subject matter hereof.
No amendment, modification or supplement to this note or any Related Writing
shall be binding unless executed in writing by all parties thereto, and this
provision shall not be subject to waiver by any party and shall be strictly
enforced.
This note shall be governed by the internal laws of the State of Indiana
without regard to conflict of laws provisions.
IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE, BANK, BY ITS ACCEPTANCE OF THIS
NOTE, AND BORROWER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED
WRITING OR ANY AMENDMENT THERETO, WHETHER NOW EXISTING OR HEREINAFTER ARISING
AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, AND EACH PARTY HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND A COPY OF THIS NOTE MAY BE FILED
WITH ANY COURT AS EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.
"BORROWER"
Address: 15302 25th Drive SE TEAM SCANDIA, INC.
Mill Creek, Washington 98012 an Delaware corporation
Telephone #: (425) 742-2276 By: /s/ Andrew L. Evans
_______________________
Andrew L. Evans
IN #: 35-1979074 Chief Executive Officer
State of Washington
SS:
County of Snohomish
Before me, the undersigned, a Notary Public, in and for said County
and State, this 19th day of November, 1998, personally appeared Andrew L.
Evans, as Chief Executive Officer, of TEAM SCANDIA, INC., a Delaware
corporation, and acknowledged the execution of the foregoing Commercial
Installment Note to be his voluntary act and deed on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal.
My commission expires: /s/ Maryjane Miller
2-28-2001 ____________________
Notary Public
_____________________
Residing in said county: /s/ Maryjane Miller
Snohomish ____________________
Printed Name
______________________
[NOTARY PUBLIC SEAL]
<PAGE> 5
CONFIRMATION OF GUARANTOR
-------------------------
COMES NOW, ANDREW L. EVANS, as a Guarantor of the indebtedness of TEAM
SCANDIA, INC., to NATIONAL CITY BANK OF INDIANA, pursuant to the terms of his
Continuing Guaranty, dated March 10, 1997, and hereby acknowledges this Note
and confirms that his Guaranty is valid and binding and continuing in full
force and effect.
CONFIRMED this 19 day of November, 1998.
"GUARANTOR"
/s/ Andrew L. Evans
----------------------------------
Andrew L. Evans
5
<PAGE> 6
CASH COLLATERAL ASSIGNMENT
--------------------------
In consideration of credit which NATIONAL CITY BANK OF INDIANA, a national
banking association ("Bank") has extended or may from time to time extend to
TEAM SCANDIA, INC., a Delaware corporation ("Team Scandia"), and for other good
and valuable consideration the sufficiency of which is hereby acknowledged,
DOMINION INCOME MANAGEMENT CORP., a Washington (hereinafter referred to as
"Assignor"), Assignor hereby assigns to Bank, its successors and assigns, all
the right, title and interest in and to the following certificate of deposit
(the "CD"), together with all sums now or hereafter payable under the terms
thereof:
DEPOSITORY
TITLE ACCOUNT NO. INSTITUTION
----- ----------- -----------
NATIONAL CITY BANK #6031042947 NATIONAL CITY BANK OF
OF INDIANA, for Dominion INDIANA
Income Management Corp.
and all renewals, replacements or substitutions thereof (the "Collateral"). The
Collateral shall be held in Bank's name, subject to Bank's complete control, to
secure all present and future obligations of TEAM SCANDIA to Bank, including,
but not limited to, those obligations under a Commercial Installment Note in the
principal amount of Seven Hundred Nineteen Thousand Seven Hundred Thirty-Two and
80/100 Dollars ($719,732.80), of even date herewith, and all renewals,
extensions, amendments or replacements thereof (the "Obligations"). Upon an
Event of Default, as such is defined under documents evidencing the Obligations,
Bank may at its option and discretion, without further notice or consent,
liquidate the Collateral and apply the proceeds thereof to the unpaid balance of
the Obligations and retain any excess to secure any unpaid Obligations, or if
all Obligations are paid in full to the satisfaction of the Bank, then promptly
remit the balance of the Collateral proceeds to Assignor at its address below.
The Assignor represents and warrants to Bank that the above-referenced CD
is owned by Assignor free and clear of all liens or encumbrances, and
acknowledges that there shall be no right of withdrawal by the Assignor until
the Obligations secured hereby are paid in full to the satisfaction of the Bank.
The Assignment and the security interest and pledge to Bank shall continue
until payment in full of all Obligations in accordance with the terms and
conditions of such Obligations and all extensions, renewals, amendments or
replacements thereof, whether evidenced by promissory notes or otherwise.
This Assignment is executed under and shall be construed in accordance with
the laws of the State of Indiana. In addition to all rights and remedies of Bank
hereunder, Bank shall have all rights of a duly perfected secured creditor under
Indiana Law. Notice of acceptance by Bank is hereby waived by the Assignor. This
Assignment shall constitute an authorization to Bank to exercise its rights and
remedies hereunder irregardless of any time requirements or penalties for the
withdrawal of Collateral funds and to execute any and all instruments required
for withdrawal under the terms applicable thereto for and on behalf of and
without notice to the Assignor.
1
<PAGE> 7
The Assignor hereby irrevocably and unconditionally: (a) submits for the
Assignor and the Assignor's property in any legal action or proceeding
commenced by Bank relating to the enforcement of this Agreement, or for
recognition and enforcement of any judgment in respect thereof, to the
exclusive general jurisdiction of the courts of the State of Indiana, the
courts of the United States of America for the Southern District of Indiana,
and appellate courts from any thereof; (b) consents that any such action or
proceeding may be brought in such courts, and waives any objection that the
Assignor may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same; (c) agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the Assignor at its address set
forth below or at such other address of which Bank shall have been notified in
writing; and (d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
THE ASSIGNOR, AND BANK WITHOUT FURTHER ACCEPTANCE, HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR
TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT. THIS PROVISION MAY NOT BE WAIVED, CONDITIONED OR MODIFIED EXCEPT IN
WRITING SIGNED BY THE DULY AUTHORIZED OFFICERS OF BANK AND ASSIGNOR.
Executed this 19th day of November, 1998.
"ASSIGNOR"
DOMINION INCOME MANAGEMENT CORP.
By: /s/ Andrew L. Evans
----------------------------------
Name:
Title:
TIN #: 91-1500766
State of Washington )
) SS:
County of Snohomish )
Before me, the undersigned, a Notary Public, in and for said County and
State, this __ day of November, 1998, personally appeared Andrew L. Evans, as
President, of DOMINION INCOME MANAGEMENT CORP., a Washington Corp., and
acknowledged the execution of the foregoing Cash Collateral Assignment Note to
be his voluntary act and deed on behalf of said entity.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal.
My commission expires: /s/ Maryjane Miller [NOTARY
2-28-2001 --------------------------- PUBLIC
Residing in said county: Notary Public SEAL]
Snohomish Maryjane Miller
---------------------------
Printed Name
2
<PAGE> 8
CONTINUING GUARANTY
In consideration of credit which NATIONAL CITY BANK OF INDIANA, a national
banking association ("Bank"), may from time to time extend to TEAM SCANDIA,
INC., a Delaware corporation ("Borrower"), the undersigned hereby individually,
jointly and severally, and unconditionally guarantees to Bank, its successors
and assigns, the payment when due, whether by acceleration or otherwise, without
presentment or demand, protest, notice of dishonor, or diligence in collection
and with a right of set-off against the undersigned, together with costs of
collection and reasonable attorneys' fees and without relief from valuation or
appraisement laws, all present and future indebtedness or obligations of
Borrower to Bank, including but not limited to, those under a Commercial
Installment Note in the principal amount of Seven Hundred Nineteen Thousand
Seven Hundred Thirty-Two and 80/100 Dollars ($719,732.80), of even date
herewith, all in accordance with the terms and conditions of such indebtedness
or obligations and all extensions, renewals, amendments or replacements thereof,
whether joint or several, direct or indirect, absolute or contingent, and
evidenced by promissory notes, checks, drafts, letters of credit, bills,
overdrafts, open accounts or otherwise.
Bank may from time to time without notice to the undersigned: (a) release
any collateral which is security for the indebtedness or obligations of Borrower
or any other obligor or substitute or exchange any such collateral, (b) release
any maker, co-maker, endorser or guarantor of the indebtedness or obligations of
Borrower, (c) release, modify or compromise any liability of Borrower or any
other obligor, including the undersigned, or the terms thereof, and (d) apply
any amounts paid to it in such order of application and with such marshalling of
security as it may, in its sole discretion, determine appropriate; all without
the consent of or notice to the undersigned. The liability of the undersigned
shall not be released in part or in whole by reason of the foregoing, the
addition of co-makers, endorsers, guarantors or sureties, or a failure to
perfect any security interest or lien in any collateral securing indebtedness or
obligations of Borrower or any other obligor.
Notice of the acceptance of this Guaranty by Bank and notice to the
undersigned by Bank as to the existence or creation of indebtedness or
obligations by Borrower to Bank are hereby waived by the undersigned. This
Guaranty may be terminated by the undersigned only as to future indebtedness or
obligations of Borrower to Bank after the date of receipt by Bank at their
principal banking offices of a written notice to such effect. The undersigned
hereby waives any and all claims, rights or remedies which the undersigned may
now have or hereafter acquire against the Borrower that arises from the
undersigned's performance under this Guaranty or is in any way related hereto,
including but not limited to, any claim of subrogation, reimbursement,
contribution, or indemnification, whether direct or indirect or arising by
contract, law, equity or otherwise. Further, the undersigned shall have no
right of contribution against other guarantors or right to pursue collection of
other indebtedness or obligations of Borrower to the undersigned or security
therefore, unless and until Bank shall have received payment in full of all
indebtedness and obligations of Borrower.
The undersigned further agrees that, to the extent that the Borrower makes
a payment to Bank, or Bank receives any proceeds of collateral, which payment
or payments or any part
1
<PAGE> 9
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or otherwise is required to be repaid to Borrower, its
estate, trustee, receiver or any other party, including without limitation,
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such payment or repayment, the obligation or part thereof
which has been paid, reduced or satisfied by such amount shall be reinstated
and continued in full force and effect as of the date such initial payment,
reduction or satisfaction occurred (said payments or repayments being
hereinafter referred to as "Recovered Payments"). The undersigned shall defend
and indemnify Bank of and from any claim or loss under this paragraph
including, without limitation, Bank's attorneys' fees and expenses in the
defense of any such action or suit. This Guaranty shall remain in full force
and effect until all Borrower's indebtedness has been repaid to Bank; provided
however, in the event there are Recovered Payments, this Guaranty shall be
reinstated (1) in the amount of the Recovered Payments, interest thereon at the
past due rate under the Note accruing from the date of Bank's payment of the
Recovered Payments, all costs of Bank's defense to the Recovered Payments and
all costs and expenses of collection and enforcement of this Guaranty,
including reasonable attorneys' fees; and (2) until any issue or controversy
regarding any Recovered Payments is judicially concluded and no right of appeal
remains.
This Guaranty is executed under and shall be construed in accordance with
the laws of the State of Indiana, without regard to any conflict of laws
provisions, and shall inure to the benefit of Bank and its successors or
assigns and shall be binding upon the undersigned and the undersigned's
respective heirs, successors, assigns and legal representatives.
The undersigned hereby irrevocably and unconditionally: (a) submits for
the undersigned and the undersigned's property in any legal action or
proceeding commenced by Bank relating to the enforcement of this Guaranty, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of Indiana, the
courts of the United States of America for the Southern District of Indiana,
and appellate courts from any thereof; (b) consents that any such action or
proceeding may be brought in such courts, and waives any objection that the
undersigned may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same; (c) agrees
that services of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the undersigned at the undersigned's
address set forth below or at such other address of which Bank shall have
been notified in writing; and (d) agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE, BANK, BY ITS ACCEPTANCE OF
THIS AGREEMENT, AND THE UNDERSIGNED EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY RELATED WRITING OR ANY AMENDMENT THERETO,
2
<PAGE> 10
WHETHER NOW EXISTING OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE, AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL
WITHOUT A JURY, AND A COPY OF THIS AGREEMENT MAY BE FILED WITH ANY COURT AS
EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE WAIVER OF ITS
RIGHT TO TRIAL BY JURY.
In WITNESS WHEREOF, the undersigned has executed this Guaranty on this
20th day of November, 1998.
"UNDERSIGNED"
AUTOMOTIVE PERFORMANCE GROUP,
INCORPORATED
a(n) Delaware corporation
By: /s/ Tammy M. Powers
------------------------------
Name: Tammy M. Powers
Title: Chief Financial Officer
TIN #:
------------------------
Address: 1207 N. Miller Road
Tempe, Arizona 85281
State of Arizona )
) SS:
County of Maricopa)
Before me, the undersigned, a Notary Public, in and for said County and
State, this 20th day of November, 1998, personally appeared Tammy M. Powers, as
Chief Financial Officer, of AUTOMOTIVE PERFORMANCE GROUP, INCORPORATED, a(n)
Delaware corporation, and acknowledged the execution of the foregoing
Continuing Guaranty to be their voluntary act and deed on behalf of said
corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal.
My commission expires: /s/ Maryanne M. Livingston
June 30, 2001 --------------------------
Notary Public
Residing in said county:
Maricopa /s/ Maryanne M. Livingston
--------------------------
Printed Name
OFFICIAL SEAL
MARYANNE M. LIVINGSTON
Notary Public - State of Arizona
MARICOPA COUNTY
<PAGE> 1
Richard A. Marshack - Bar No. 107291 EXHIBIT 10.16
James C. Bastian, Jr. - Bar No. 175415
Mark E. Bradshaw - Bar. No. 192540
MARSHACK SHULMAN & HODGES LLP
8001 Irvine Center Drive, Suite 900
Irvine, California 92618-2921
Telephone: (949) 864-0400
Facsimile: (949) 864-0444
Attorneys for the Official Committee of Unsecured Creditors for the bankruptcy
estate of Boyds Wheels, Inc.
Jeffrey I. Golden - Bar No. 133040
Evan D. Smiley - Bar No. 161812
ALBERT, WEILAND & GOLDEN, LLP
650 Town Center Drive, Suite 1350
Costa Mesa, California 92626
Telephone: (714) 966-1000
Facsimile: (714) 966-1002
Attorneys for the Debtors and Debtors in Possession
Boyds Wheels, Inc. and Hot Rods by Boyd
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA, SANTA ANA DIVISION
In re ) Case No. SA 98-11545 RA
) Case No. SA 98-11547 RA
BOYDS WHEELS, INC. ) Chapter 11 Cases
A CALIFORNIA CORPORATION, )
) COMMITTEE'S FIRST AMENDED CHAPTER 11 PLAN OF
Debtor and Debtor in ) REORGANIZATION AS MODIFIED PURSUANT TO
Possession. ) HEARINGS ON NOVEMBER 12-13, 1998, WITH
_____________________________ ) DEBTORS IN POSSESSION AS CO-PROPONENTS
)
In re ) Disclosure Statement Hearing
) Date: November 12, 1998
HOT RODS BY BOYD, ) Time: 4:00 p.m.
A CALIFORNIA CORPORATION, ) Place: Courtroom 604
) 34 Civic Center Plaza
Debtor and Debtor in ) Santa Ana, CA 92701
Possession. )
) Plan Confirmation Hearing
-------------------------
) [See Disclosure Statement for Voting and
) Objection Procedures]
) Date: January 6, 1999
) Time: 11:30 a.m.
) Place: Courtroom 604
) 34 Civic Center Plaza
) Santa Ana, CA 92701
- -----------------------------
<PAGE> 2
TABLE OF CONTENTS
I. DEFINITIONS, INTERPRETATIONS AND RULES OF CONSTRUCTION.......... 1
A. Defined Terms................................................... 1
1. Administrative Claim................................... 1
2. Allowed Claim or Interest.............................. 1
3. Allowed Secured Claim.................................. 1
4. Allowed Unsecured Claim................................ 2
5. Allowed Priority Tax Claim............................. 2
6. APG.................................................... 2
7. APG Stock.............................................. 2
8. Ballot................................................. 2
9. Bankruptcy Case........................................ 2
10. Bankruptcy Code........................................ 2
11. Bankruptcy Court....................................... 2
12. Bankruptcy Rules....................................... 3
13. Bar Date............................................... 3
14. Boyds.................................................. 3
15. Boyds Stock............................................ 3
16. Business Day........................................... 3
17. Claims................................................. 3
18. Class.................................................. 3
19. CNB.................................................... 3
20. Code................................................... 3
21. Committee.............................................. 3
22. Committee Plan......................................... 3
23. Confirmation........................................... 3
24. Confirmation Date...................................... 4
25. Confirmation Order..................................... 4
26. Creditors.............................................. 4
27. Dale Street Property................................... 4
28. Debtors................................................ 4
29. Debtors in Possession.................................. 4
30. Disallowed Claim....................................... 4
31. Disbursing Agent....................................... 4
32. Disputed Claim or Disputed Interest.................... 4
33. Effective Date......................................... 4
34. Estate................................................. 4
35. File or Filed.......................................... 4
36. Final Order............................................ 5
37. HRBB................................................... 5
38. Net Operating Income................................... 5
39. New Stock.............................................. 5
40. New Value Fund......................................... 5
41. Non-Accepting.......................................... 6
42. Order.................................................. 6
43. PDI.................................................... 6
44. Person................................................. 6
45. Petition Date.......................................... 6
46. Post-Confirmation Committee............................ 6
47. Post-Petition Earnings................................. 6
48. Pro-Rata Distribution.................................. 6
49. Property of Reorganized Debtors........................ 6
50. Reorganized Debtors.................................... 6
i
<PAGE> 3
51. Rules.................................................. 6
52. Secured Creditors...................................... 6
53. Unsecured Claims....................................... 6
B. INTERPRETATIONS, COMPUTATION OF TIME AND GOVERNING LAW.......... 7
1. Undefined Terms........................................ 7
2. Rules of Interpretation................................ 7
3. Time Periods........................................... 8
4. Section Numbers........................................ 8
II. INTRODUCTION.................................................... 8
III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS........... 10
A. General Overview............................................... 10
B. Unclassified Claims............................................ 12
1. Administrative Expenses............................... 12
2. Court Approval of Fees Required....................... 13
3. Priority Tax Claims................................... 14
C. Classified Claims and Interests................................ 15
1. Classes of Secured Claims............................. 15
2. Classes of Priority Unsecured Claims.................. 17
3. Class of General Unsecured Claims..................... 18
4. Classes Of Interest Holders........................... 21
D. Means Of Effectuating The Committee Plan....................... 23
1. Funding For The Committee Plan............... 23
2. Post-Confirmation Management................. 29
3. Disbursing Agent............................. 30
IV. TREATMENT OF MISCELLANEOUS ITEMS............................... 31
A. Executory Contracts and Unexpired Leases....................... 31
1. Assumptions........................................... 31
2. Rejections............................................ 32
B. Changes In Rates Subject To Regulatory Commission Approval..... 32
C. Retention of Jurisdiction...................................... 33
V. EFFECT OF CONFIRMATION OF THE COMMITTEE PLAN................... 33
A. Substantive Consolidation...................................... 33
B. Discharge...................................................... 33
C. Revesting Of Property In Reorganized Debtor.................... 33
D. Modification Of The Plan....................................... 33
E. Post-Confirmation Status Report................................ 34
F. Post-Confirmation Conversion/Dismissal......................... 34
ii
<PAGE> 4
G. Claims Objections.............................................. 34
H. Post-Confirmation Committee.................................... 35
I. Final Decree................................................... 36
EXHIBIT "1"
UNEXPIRED LEASES TO BE ASSUMED................................. 37
EXHIBIT "2"
EXECUTORY CONTRACTS TO BE ASSUMED.............................. 38
iii
<PAGE> 5
I.
DEFINITIONS, INTERPRETATIONS AND RULES OF CONSTRUCTION
A. DEFINED TERMS
1. ADMINISTRATIVE CLAIM: a Claim, or right to payment, for the costs
and expenses of administration of this Chapter 11 case allowed under Bankruptcy
Code Section 503(b) and referred to in Bankruptcy Code Section 507(a)(a),
including without limitation:
a. the actual and necessary costs and expenses incurred after the
Petition Date of preserving the Estate and operating Debtor's business (such as
wages, salaries or commissions for services);
b. compensation for legal, financial advisory, accounting and other
services and reimbursement of expenses awarded or allowed under Bankruptcy Code
Sections 330(a) or 331; and
c. all fees and charges assessed against the Estate under 28 U.S.C.
Section 1930.
2. ALLOWED CLAIM OR INTEREST: claim against, or equity security
interest in Debtor:
a. With respect to which a proof of such claim or interest was:
b. timely filed; (ii) deemed filed pursuant to the Bankruptcy Code
Section (a); or (iii) filed late with leave of Court; and
c. which (i) is not a Disputed Claim; or (ii) which is allowed (and
only to the extent allowed) by a Final Order.
3. ALLOWED SECURED CLAIM: an allowed Claim secured by a lien, security
interest, or other charge against property in which this estate has an interest,
or which is subject to set off under Section 553 of the Bankruptcy Code, to the
extent that the value, determined by Bankruptcy Code Section 506(a) as of the
Effective Date, of the interest of the holder of such secured Claim in the
estate's interest in such property, or to the extent of the amount subject to
any set off, as the case may be. Allowance of post-petition interest on an
Allowed Secured Claim is governed by Bankruptcy Code Section 506.
4. ALLOWED UNSECURED CLAIM: an unsecured Claim against Debtor:
a. with respect to which a proof of claim has been timely filed
with the
1
<PAGE> 6
Bankruptcy Court by the bar date, or, with leave of the Bankruptcy Court and
with objection by any party-in-interest, late-filed, and as to which the Claim
is allowed by a Final Order, including any unsecured deficiency claim of City
National Bank; or
b. scheduled in the list of creditors, as may be amended, prepared,
and filed with the Court pursuant to Bankruptcy Code Section 521(1) and Rule
1007(b) and not listed as disputed, contingent, or unliquidated as to amount, as
to which no objection to the allowance thereof has been interposed, or as to
which any such objection has been determined by a Final Order or judgment. This
category includes all Claims deemed unsecured pursuant to Bankruptcy Code
Section 506(a).
5. ALLOWED PRIORITY TAX CLAIM: means as specifically defined herein and
generally defined as any Allowed Claim provided for by Section 507(a)(8) of the
Bankruptcy Code for which a claim was filed prior to the Bar Date.
6. APG: Automotive Performance Group, Inc.
7. APG STOCK: 200,0000 shares of stock in APG to be issued under this
Plan.
8. BALLOT: the form distributed to holders of claims and interests on
which is to be stated an acceptance or rejection of this Plan.
9. BANKRUPTCY CASE: the Chapter 11 cases filed by Debtors on January
30, 1998.
10. BANKRUPTCY CODE: Title 11 of the United States Code.
11. BANKRUPTCY COURt: United States Bankruptcy Court for the Central
District of California, the Honorable Robert W. Alberts, Bankruptcy Judge
presiding over this Chapter 11 case and such successor court or duly authorized
tribunal.
12. BANKRUPTCY RULES: collectively refers to:
a. the Federal Rules of Bankruptcy Procedure; and
b. the Local Bankruptcy Rules for the United States Bankruptcy
Court for the Central District of California, as now in effect or hereafter
amended.
13. BAR DATE: the last date for filing Claims which has been
established by the Court as July 3, 1998.
2
<PAGE> 7
14. BOYDS: Boyds Wheels, Inc., a California corporation.
15. BOYDS STOCK: the stock of Boyds prior to the Petition Date.
16. BUSINESS DAY: the day in which banks are open to carry on their
ordinary commercial banking business in Orange County, California.
17. CLAIMS: right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, legal, equitable, secured, or unsecured; or right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right is an equitable remedy reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed, secured or
unsecured.
18. CLASS: a category of holders of Claims or interests which are
substantially similar to the other Claims or interests in such Class.
19. CNB: City National Bank.
20. CODE: the Bankruptcy Code found in Title 11 of the United States
Code.
21. COMMITTEE: the Official Committee of Unsecured Creditors for the
Bankruptcy Estate of Boyds.
22. COMMITTEE PLAN: the Committee's Plan of Reorganization as set forth
herein in its entirety, and all addenda, exhibits, schedules, releases, and
other attachments thereto as may be amended or supplemented from time to time.
23. CONFIRMATION: the entry by the Clerk of the Bankruptcy Court of an
order confirming this Plan.
24. CONFIRMATION DATE: the date upon which an order of the Bankruptcy
Court is entered on the Bankruptcy Court's docket confirming this Committee Plan
pursuant to Bankruptcy Code Section 1129.
25. CONFIRMATION ORDER: the order, as entered by the Bankruptcy Court
confirming this Committee Plan under Bankruptcy Code Section 1129.
26. CREDITORS: all Creditors of Debtor holding Claims for unsecured
debts, by demands or Claims of any character whatsoever.
3
<PAGE> 8
27. DALE STREET PROPERTY: real property located at 11121 and 11081 Dale
Street, Stanton, California.
28. DEBTORS: means Boyds and HRBB collectively.
29. DEBTORS IN POSSESSION: Debtors, when acting in the capacity of
representative of the Estate in Debtors' Reorganization Cases.
30. DISALLOWED CLAIM: a Claim against Debtor, which claim is disallowed
pursuant to an order of the Bankruptcy Court as to which eleven (11) calendar
days have passed following entry of such order and no stay pending an appeal of
such order is obtained during such period.
31. DISBURSING AGENT: Chuck Klaus of Credit Managers Association.
32. DISPUTED CLAIM OR DISPUTED INTEREST: a claim against or equity
security interest in Debtor,
a. which has been included in the schedules as disputed, contingent,
or unliquidated, or
b. as to which an objection has been filed or is hereafter filed and
which objection is not the subject of a Final Order or has not been
withdrawn.
33. EFFECTIVE DATE: the date sixty (60) business days following entry
of the order of the Bankruptcy Court confirming this Committee Plan, or if the
60th day falls on a Saturday, Sunday or holiday, then the next business day.
34. ESTATE: the estate created pursuant to Bankruptcy Code Section
541(a).
35. FILE OR FILED: filed with the Bankruptcy Court in the Bankruptcy
Case.
36. FINAL ORDER: an order of the Bankruptcy Court as to which,
a. an appeal as been resolved,
b. the time for appeal has expired, or
c. the requirements of subparagraphs a. and b. hereof have been
waived.
37. HRBB: Hot Rods by Boyd, a California corporation.
38. NET OPERATING INCOME: means all of Debtor's operating income which
shall consist of all revenues minus all operating expenses. The following shall
be deducted in computing Net Operating Income (or loss): depreciation, interest
expense, domestic or foreign income taxes,
4
<PAGE> 9
payments pursuant to this Committee Plan to creditors holding Allowed Priority
Claims and Allowed Secured Claims.
39. NEW STOCK: stock in Reorganized Debtor under this Committee Plan.
40. NEW VALUE FUND: APG shall contribute up to $2,000,000 to
Reorganized Debtor to meet the projections set forth in the Disclosure
Statement. In addition to this amount, APG has agreed to provide a
non-refundable cash deposit in the amount of five hundred thousand dollars
($500,000) to be paid into a segregated interest bearing account held in trust
by Marshack Shulman & Hodges LLP (the "Deposit"). The Deposit will be returned
to APG only in the event this Committee Plan, or a plan which provides terms
that are substantially similar to this Committee Plan, is not confirmed on or
before January 30, 1999, through no fault of APG. This amount is in addition to
the funds to be paid by APG, if necessary, for payment of Allowed Secured and
Administrative Claims. Finally, APG has agreed to provide $50,000 to the
Committee to pursue and litigate potentially valuable claims against recipients
of preferential and fraudulent transfers, other than claims against members of
the Committee and El Dorado Bank and claims against Boyd Coddington in his
capacity as an officer and director of Boyds and/or HRBB. However, APG shall be
reimbursed for any funds advanced for legal fees and costs from the first
recoveries of such actions.
41. NON-ACCEPTING: means a Class of Creditors who has not accepted the
treatment provided its Class under this Committee Plan.
42. ORDER: an order entered in this case by the United States
Bankruptcy Court.
43. PDI: Performance Distribution, Incorporated.
44. PERSON: any individual, corporation, and/or partnership, joint
venture, trust, estate, unincorporated organization or government or any agency
or political subdivision.
45. PETITION DATE: January 30, 1998.
46. POST-CONFIRMATION COMMITTEE: The committee that as of the Effective
Date shall have standing to employ professionals, object to claims and bring
actions or litigation as may be necessary.
5
<PAGE> 10
47. POST-PETITION EARNINGS: any funds received by Debtor since filing
of the Chapter 11 petition.
48. PRO-RATA DISTRIBUTION: whereby the total amount of funds is
distributed to each holder of an unsecured Claim in the proportion which the
value of that Claim bears to the sum total of all Claims.
49. PROPERTY OF REORGANIZED DEBTORS: all assets, of whatever kind, of
Reorganized Debtor.
50. REORGANIZED DEBTORS: Reorganized estates of Debtors in accordance
with this Committee Plan.
51. RULES: See, definition of Bankruptcy Rules.
52. SECURED CREDITORS: refers to all Creditors who hold a lien,
security interest or other encumbrance which has been perfected as required by
law with respect to property owned by Debtor.
53. UNSECURED CLAIMS: the Allowed amount of those Claims against Debtor
for which there are no assets of Debtor serving as security, but excluding the
unsecured portion of the Claims of any unsecured claimant in the event any such
unsecured claimant does not make an effective election under Bankruptcy Code
Section 1111(b), and not including any priority Claims.
B. INTERPRETATIONS, COMPUTATION OF TIME AND GOVERNING LAW
1. UNDEFINED TERMS: any term used in this Committee Plan that is not
defined in this Committee Plan, either in Section I. A. (Definitions) or
elsewhere, but that is used in the Bankruptcy Code or the Bankruptcy Rules has
the meaning assigned to that term in the Bankruptcy Code or the Bankruptcy
Rules.
2. RULES OF INTERPRETATION: for purposes of this Committee Plan:
a. whenever, from the context, it is appropriate, each term, whether
stated in the singular or the plural, shall include both the singular and the
plural;
b. any reference in this Committee Plan to a contract, instrument,
release or other agreement or document being in a particular form or on
particular terms and conditions means that such document shall be substantially
in such form or substantially on such terms and conditions;
6
<PAGE> 11
c. any reference in this Committee Plan to an existing document or
Exhibit Filed or to be Filed means such document or Exhibit, as it may have been
or may be amended, modified for supplemented:
d. unless otherwise specified in a particular reference, all
references in this Committee Plan to Sections, Articles or Exhibits are
references to Sections, Articles and Exhibits of or to this Committee Plan;
e. the words "herein," "hereof," "hereto," "hereunder," and others
of similar import refer to this Committee Plan in its entirety rather than only
to particular portion of this Committee Plan:
f. captions and headings to Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretation of this Committee Plan;
g. rules of construction set forth in Bankruptcy Code Section 102
shall apply.
3. TIME PERIODS: in computing any period of time prescribed or allowed
by this Committee Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
4. SECTION NUMBERS: references in this Committee Plan and Disclosure
Statement to a Code section are references to the United States Bankruptcy Code
(Title 11 of the United States Code) except as otherwise indicated.
II.
INTRODUCTION
Boyds and HRBB are debtors and debtors in possession in Chapter 11
bankruptcy cases. (Boyd and HRBB are collectively referred to herein as
"Debtors"). On January 30, 1998, Debtors commenced their bankruptcy cases by
filing a voluntary Chapter 11 petition under the United States Bankruptcy Code
("Code"), 11 U.S.C. Section 101 et seq. This document is the Chapter 11 Plan
proposed by the Committee (the "Plan Proponent"). Sent to you in the same
enveloped as this document is the Disclosure Statement which has been approved
by the Court, and which is provided to help you understand this Committee Plan.
This Committee Plan provides for substantive consolidation of Debtors.
Upon such
7
<PAGE> 12
consolidation, the intercompany claims among the entities are eliminated, and
all of the assets of, and all of the claims against, each of the debtor entities
are treated as assets of, or claims against, the consolidated entity. Under this
Committee Plan, Boyds and HRBB will be substantively consolidated resulting in
one (1) consolidated entity. Debtors' assets and claims will be pooled, Debtors'
liabilities satisfied from a common fund and intercompany claims among Debtors
eliminated. This is a reorganizing plan. This Committee Plan seeks to:
(1) provide payment in full of the allowed secured claim of El
Dorado Bank through the proceeds of the sale of the Dale Street
Property, which Boyds is currently marketing for sale. El Dorado Bank
shall be paid on the earlier of the sale date of the Dale Street
Property or thirty (30) months after the Effective Date. If El Dorado
Bank has not been paid in full on the earlier of the sale date or
thirty (30) months after the Effective Date, then El Dorado Bank shall
have the right to exercise all of its rights and remedies under
applicable law.
(2) provide payment in full of the secured claims of CNB
through a contribution of capital from APG in the amount of $500,000,
the receipt of Boyds' tax refund believed to be approximately $350,000,
and payment of additional amounts as set forth herein.
(3) provide payment of all Allowed Administrative Claims from
the proceeds of the sale of Debtors' unencumbered assets, and to the
extent that funds generated from the sale of unencumbered assets are
insufficient, APG will provide sufficient cash so that the maximum
amount of $1,100,000 may be applied pro rata toward the payment of
Allowed Administrative Claims as estimated on November 13, 1998, on the
condition that all Allowed Administrative Claims held on account of
court approved professional fees will be subordinated to Allowed
Administrative Claims of non-professionals.
(4) provide holders of Allowed Unsecured Claims with 200,000
shares of APG Stock and 17% of the New Stock, on a pro-rata basis based
on the amount of their Allowed Unsecured Claims. The New Stock of
Reorganized Debtor will be issued pursuant to Section 1145. The Boyds
Stock (defined as the stock of Boyds prior to the Petition Date) will
remain in effect and will be diluted to 3% of the outstanding stock in
Reorganized Debtor. APG
8
<PAGE> 13
intends to list the New Stock on a public exchange. APG is a publicly traded
company, ticker symbol RACG. A full description of APG's business is provided in
the reports provided in EXHIBIT "2" attached to the Disclosure Statement. Under
this Committee Plan, Debtors and their remaining assets will be reorganized
under the management and control of the APG (the "Reorganized Debtor") As of
November 10, 1998, the APG Stock was trading at $2.84 per share. In order to
adequately capitalize Reorganized Debtor, APG has agreed to pledge up to
$2,000,000 to Reorganized Debtor to meet the projections set forth herein in
addition to the funds to be paid by APG, if necessary, for payment of Allowed
Secured and Allowed Administrative Claims subject to the limitations set forth
above. APG has represented that it has sufficient cash resources to contribute
$2,000,000 to the Reorganized Debtor and has represented that this funding is
not contingent upon its incurrence of debt to raise such funds. Finally, APG
shall provide $50,000 to the Committee to pursue and litigate potentially
valuable claims against recipients of preferential and fraudulent transfers and
Boyds' officers and directors (described in Section II.F.3. of the Disclosure
Statement). Proceeds from such claims will be distributed to holders of allowed
general unsecured claims on a pro-rata basis. The Effective Date of this
Committee Plan is the date (60) days following entry of the order of the
Bankruptcy Court confirming this Committee Plan, or if the 60th day falls on a
Saturday, Sunday or holiday, then the next business day.
III.
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
A. GENERAL OVERVIEW
As required by the Bankruptcy Code, this Committee Plan classifies
claims and interests in various classes according to their right to priority of
payments as provided in the Bankruptcy Code. This Committee Plan states whether
each class of claim or interests is impaired or unimpaired. This Committee Plan
provides the treatment each class will receive under this Committee Plan.
On November 5, APG provided a deposit in the amount of $500,000 (the
"Deposit") on the
9
<PAGE> 14
terms and conditions described herein. This sum shall be the sole deposit of
funds by APG in connection with this Committee Plan. The Deposit will be
returned to APG only if: (1) this Committee Plan is not confirmed by an order of
the Bankruptcy Court filed on or before January 30, 1999, through no fault of
APG; (2) this Committee Plan prior thereto is further altered, amended or
modified to affect APG's rights and obligations without APG's consent, which
consent it shall have no obligation whatsoever to give; or (3) prior thereto the
support of Debtors, the Committee or CNB for this Committee Plan is withdrawn.
APG may extend this deadline in writing, but it shall have no obligation
whatsoever to do so. The Deposit will be held in a blocked interest bearing
account maintained in trust by the Committee's counsel. The Deposit shall not be
subject to any security interest, right of set-off or recoupment or other claim
by any party, including CNB. If the conditions described in (1), (2) or (3)
above occur, then the Committee shall cause the Deposit to be refunded to APG
forthwith. Neither a request by APG nor an order of the Bankruptcy Court shall
be required for the Committee to effect the refund.
If this Committee Plan is confirmed by the deadline set forth in the
immediately preceding paragraph, then not later than the Effective Date of this
Committee Plan, APG shall:
a. authorize on its behalf the release to the Disbursing agent of
$500,000 of the Deposit provided for in the immediately preceding paragraph, to
be paid to CNB as provided in Section III.C.1. herein;
b. provide the 200,000 shares of APG stock to the Disbursing Agent
for distribution to holders of Allowed Unsecured Claims on a pro-rata basis in
accordance with Section III.C.3. herein;
c. provide $50,000 cash to the Disbursing Agent for use by the
Committee to litigate claims of the estate, including, but not limited to claims
avoidance actions, in accordance with Section III.D.1.f. herein. This fund shall
not be subject to any lien of any creditor and shall be held in trust.
Furthermore, APG shall be entitled to a refund of any unused portion of the
funds no later than three (3) years after the Effective Date of this Committee
Plan;
d. provide sufficient cash to the Disbursing Agent as is necessary,
to the extent that funds generated from the sale of unencumbered assets is
insufficient, so that a
10
<PAGE> 15
maximum amount of $1,100,000 may be applied pro rata toward the payment of
Allowed Administrative Claims as estimated on November 13, 1998, on the
condition that all Allowed Administrative Claims held on account of court
approved professional fees will be subordinated to Allowed Administrative Claims
of non-professionals. In addition, APG will provide such additional funds as may
be necessary to pay reasonable professional fees and costs incurred by Debtors'
estates after November 13, 1998, subject to court approval of such fees and
costs;
e. allocate seventeen percent (17%) of the stock in Reorganized
Debtor to be transferred to holders of Allowed Unsecured Claims, including any
allowed unsecured deficiency claim of CNB in accordance with Section III.C.3.
herein.
B. UNCLASSIFIED CLAIMS
Certain types of claims are not placed into voting classes; instead
they are unclassified. They are not considered impaired and they do not vote on
this Committee Plan because they are automatically entitled to specific
treatment provided for them in the Bankruptcy Code. As such, the Plan Proponent
has not placed the following claims in a class. The treatment of these claims is
provided below.
1. ADMINISTRATIVE EXPENSES
Administrative expenses are claims for costs or expenses of
administrating Debtors' Chapter 11 cases which are allowed under Section
507(a)(1). The Bankruptcy Code requires that all administrative claims be paid
on the Effective Date of this Committee Plan, unless a particular claimant
agrees to a different treatment.
The following chart lists all of Debtors' Section 507(a)(1)
administrative claims approximately owed as of the date referenced below,
subject to Court approval, and their treatment under this Committee Plan.
11
<PAGE> 16
<TABLE>
<CAPTION>
NAME AMOUNT OWED TREATMENT
- ---- ----------- ---------
<S> <C> <C>
Albert, Weiland & Golden LLP $430,000.00 Paid pursuant to
(Debtors' General Bankruptcy agreement with APG as set
Counsel) forth in Section III.A.d.
Squar, Milner & Reehl $105,000.00(1) Paid pursuant to
(Debtors' Accountants) agreement with APG as set
forth in Section III.A.d.
McKenna & Cuneo (Debtors' $80,000.00 Paid pursuant to
Trademark Counsel) agreement with APG as set
forth in Section III.A.d.
Higham, McConnell & Dunning $115,908.00 Paid pursuant to
(Debtors' Corporate Counsel) agreement with APG as set
forth in Section III.A.d.
Marshack Shulman & Hodges LLP $220,000.00 Paid pursuant to
(the Committee's Counsel) agreement with APG as set
forth in Section III.A.d.
Harrow & Associates $70,000.00 Paid pursuant to
(the Committee's Financial agreement with APG as set
Consultant) forth in Section III.A.d.
Clerk's Office Fee $250.00 Paid in full on the
Effective Date
Office of the U.S. Trustee Fees $1,750.00 Paid in full on the
Effective Date
Administrative Rent Claim of $26,519.22 Paid in full on the
Carole Logsdon for the HRBB Effective Date
Building
Administrative Trade Creditor $290,276.02 Paid in full on the
Claims Effective Date
Total $1,339,703.24
</TABLE>
2. COURT APPROVAL OF FEES REQUIRED:
The Court must approve all professional fees listed in this chart. For
all fees except the Clerk's Office fee and the United States Trustee's fees, the
professional in question must file and serve a fee application, provide
appropriate notice of the hearing on such fee application and the Court must
rule on the application. Only the amount of fees allowed by the Court will be
required to be paid under this Committee Plan. All professionals have
acknowledged that $37,500 from the total award to all professionals shall be
withheld, pro-rata, from such award and then paid directly by the Disbursing
Agent to CNB.
- ----------
(1) Pursuant to an agreement between the Debtors and CNB, CNB has
agreed to satisfy that portion of the fees incurred by Squar, Milner & Reehl
related to preparing tax returns and recovering a tax refund.
12
<PAGE> 17
3. PRIORITY TAX CLAIMS
Priority tax claims are certain unsecured income, employment and other
taxes described by Section 507(a)(8). The Bankruptcy Code requires that each
holder of such a Section 507(a)(8) priority tax claim receive the present value
of such claim in deferred cash payments, over a period not exceeding six (6)
years from the date of assessment of such tax plus interest at the statutory
rate.
The following chart lists all of Debtors' Section 507(a)(8) priority
tax claims and their treatment under this Committee Plan:(2)
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT OWED TREATMENT
- ----------- ----------- ---------
<S> <C> <C>
Name: Internal Revenue $.00 Pymt Interval: Once
Service Est pymt amt/interval: To be
Type of Tax: federal taxes, paid in full on the
proof of claim filed in Effective Date
Boyds bankruptcy case on Total payout amount: 100%
April 28, 1998, Claim No. $.00
96
Date Tax Assessed: Treated
for Plan purposes as the
date the claim was filed.
Name: Internal Revenue $.00 Pymt Interval: Once
Service Est pymt amt/interval: To be
Type of Tax: federal taxes, paid in full on the
proof of claim filed in Effective Date
HRBB bankruptcy case on Total payout amount: 100%
July 21, 1998, Claim No. 30 $.00
Date Tax Assessed: Treated
for Plan purposes as the
date the claims was filed.
Name: Internal Revenue $.00 Pymt Interval: Once
Service Est pymt amt/interval: To be
Type of Tax: federal taxes, paid in full on the
proof of claim filed in Effective Date
HRBB bankruptcy case on Total payout amount: 100%
July 21, 1998, Claim No. 31 $.00
Date Tax Assessed: Treated
for Plan purposes as the
date the claim was filed.
Name: California Employment $.00 Pymt Interval: Once
Development Department Est pymt amt/interval: To be
Type of Tax: payrolls paid in full on the
taxes, proof of claim filed Effective Date
in HRBB bankruptcy case on Total payout amount: 100%
July 17, 1998, Claim No. 29 $.00
Date Tax Assessed: Treated
for Plan purposes as the
date the claim was filed.
</TABLE>
- --------
(2) Debtors' accountants, Squar, Milner & Reehl, believe that there is
no priority income tax liability. There may be $15,000 of priority payroll tax
liability which will be determined prior to confirmation. If such liability
exists, it will be paid in full on the Effective Date.
13
<PAGE> 18
C. CLASSIFIED CLAIMS AND INTERESTS
1. CLASSES OF SECURED CLAIMS
Secured claims are claims secured by liens on property of the estate.
The following chart lists all classes containing Debtor's secured pre-petition
claims and their treatment under this Plan:
14
<PAGE> 19
<TABLE>
<CAPTION>
CLASS NO. DESCRIPTION INSIDERS IMPAIRED TREATMENT
- --------- ----------- -------- -------- ---------
(Y/N) (Y/N)
<S> <C> <C> <C> <C>
1 Secured claim of CNB in the N Y CNB shall receive a total of $537,500
Boyds case in cash on the Effective Date.
Impaired; $500,000 shall be paid by APG. $37,500
Collateral description = claims in shall be contributed, pro-rata, from
UCC-1 Financing Statement and this the awards provided to professionals in
Security Interest on all class are these cases, but paid to CNB in a lump
intellectual property, entitled to sum by Disbursing Agent upon court
equipment, accounts vote on the approval of such professional's first
receivable, cash received from Committee fee applications. CNB shall release
sale of collateral Plan its security interest in all of
Reorganized Debtor's assets including
Collateral value = $450,000 the Ultra Violet Trademark and
associated licensing agreements, and
Priority of security in the the public shell of Boyds, all of which
amount of = First will be retained by Reorganized
Principal owed = Debtor. CNB's unsecured deficiency
Approximately $3.5 million claim shall be treated with other
after payment of the proceeds general Unsecured Claims in Class 4
from the Auction Sale. This below. In addition, CNB shall receive
will be reduced as CNB the proceeds of an IRS tax refund
continues to liquidate estimated to be in the approximate
receivables and receives cash amount of $350,000(1)
as provided herein.
Under prior stipulations between CNB,
the Debtors and the Committee, the
Pre-pet. arrearage amount = $8 automatic stay has been modified so as
million to allow CNB to proceed to collect all
outstanding accounts receivables which
Post-pet. arrearage amount = are subject to its security interest
none and to receive the undisputed portion
of proceeds (see, discussion below
regarding claim of Apex Machine Works,
Inc.) derived from the auction sale of
Debtors' hard assets.
Under this Committee Plan, releases by
and between the Debtor, Committee and
CNB shall be provided including releases
from any and all 11 U.S.C. Section 506(c)
claims that could be asserted by Debtor,
HRBB and/or the Committee against CNB,
as well as any and all 11 U.S.C. Section
507(b) claims that could be asserted by CNB
in Debtors' bankruptcy estates.
</TABLE>
- ----------
(1) The tax refund is likely subject to CNB's security interest, however,
rather than further litigating the issues regarding the tax refund, such refund
will be provided in full to CNB.
15
<PAGE> 20
<TABLE>
<CAPTION>
CLASS NO. DESCRIPTION INSIDERS IMPAIRED TREATMENT
- --------- ----------- -------- -------- ---------
(Y/N) (Y/N)
<S> <C> <C> <C> <C>
2 Secured claim N Y El Dorado Bank shall be paid on
of El Dorado Bank the earlier of the sale date of
the Dale Street Property or
Collateral description = Impaired; thirty (30) months after the
First Trust Deed on real claims Effective Date. If El Dorado Bank
property located at in this has not been paid in full on the
11121 and 11081 Dale class are earlier of the sale date or
Street, Stanton CA entitled to thirty (30) months after the
(Boyds Distribution vote on this Effective Date, then El Dorado
Center) Committee Bank shall have the right to
Plan exercise all of its rights and
remedies under applicable law.
Collateral value = During the time that the
$1,750,000.00 Dale Street Property is
Principal owed = being marketed until the
$1,280,000.00 sale is closed, interest
on this obligation shall
continue to accrue at
the non-default rate and
shall paid upon
consummation of the
sale.
2a. Secured Claim of N Y Apex Machine Works,
Apex Machine Works, Inc. Inc., claims to hold a
Impaired; valid security interest
Collateral description = claims in in $31,259.34 of
portion of the Auction this class proceeds generated from
Sale proceeds under are entitled Debtors' Auction Sale
California Civil to vote on plus attorneys fees and
Code Section 3051. this costs based upon its
Committee claim that it is
Principal owed = Plan entitled to a statutory
$31,259.34 plus lien on a portion of the
attorneys fees and costs auction proceeds under California
Civil Code Section 3051. CNB
claims that it is entitled to the
auction proceeds by virtue of its
alleged first priority UCC-1
Financing Statement. The Committee
and Debtors take no position on
Apex' claim to these proceeds and
believe that this dispute is
between Apex and CNB. As a result,
under this Committee Plan, $50,000
of the auction proceeds may be
interpled with the Bankruptcy
Court pending final resolution of
this issue. The estate's only
obligation, if any, shall be to
interplead these funds.
</TABLE>
2. CLASSES OF PRIORITY UNSECURED CLAIMS
Certain priority claims that are referred to in Sections 507(a)(3),
(4), (5), (6), and (7) are required to be placed in classes. These types of
claims are entitled to priority treatment as follows: the Bankruptcy Code
requires that each holder of such a claim receive cash on the Effective Date
equal to the allowed amount of such claim. However, a class of unsecured
priority claim holders may vote to accept deferred cash payments of a value,
as of the Effective Date, equal to the allowed amount of such claims.
The following chart lists all classes containing Debtors' 507(a)(3),
(a)(4), (a)(5), (a)(6) and
16
<PAGE> 21
(a)(7) priority unsecured claims and their treatment under this Committee Plan:
Debtors are not aware of any Section 507(a)(3), (a)(4), (a)(5), (a)(6) nor
(a)(7) priority unsecured claims against their estates. The Committee believes
there are no 507(a)(3), (a)(4), (a)(5), (a)(6) and (a)(7) priority unsecured
claims.
<TABLE>
<CAPTION>
CLASS NO. DESCRIPTION IMPAIRED TREATMENT
- --------- ----------- -------- ---------
(Y/N)
<S> <C> <C> <C>
3 Priority unsecured N Paid in full on or before
claims pursuant to the Effective Date
priority wage Not Impaired;
claimants of claims in this
employees of Boyds class are not
and HRBB entitled to
vote on this
Total amt of Committee Plan,
claims = $0 class is deemed
(Approximately to have
$121,000 was paid accepted
during the first Committee Plan
week of this case
pursuant to an
order of the Court
authorizing pre-
petition payroll
to be disbursed.
</TABLE>
3. CLASS OF GENERAL UNSECURED CLAIMS
General Unsecured Claims are unsecured claims not entitled to priority
under Section 507(a). The following chart identifies this Committee Plan's
treatment of the class containing all of Debtors' general Unsecured Claims:
17
<PAGE> 22
<TABLE>
<CAPTION>
CLASS NO. DESCRIPTION IMPAIRED TREATMENT
- --------- ----------- -------- ---------
(Y/N)
<S> <C> <C> <C>
4 General Y Holders of Allowed Unsecured Class 4 Claims,
unsecured which includes the unsecured deficiency claim
claims of Impaired; of CNB, together with holders of Allowed
Boyds claims in Unsecured Claims classified in Class 5, shall
this receive their pro-rata share of 17% of the
Approx class are New Stock in Reorganized Debtor issued
total amt entitled pursuant to Bankruptcy Code Section 1145.
of claims to vote The New Stock will be traded in accordance
= on this with Bankruptcy Code Section 1145. The Boyds
$7 million Committee Stock will remain in effect and will be
Plan diluted to 3% of the outstanding New Stock.
(See, Class 6 below).
Additionally, holders of
Allowed Unsecured Class 4
Claims together with holders of
Allowed Unsecured Class 5
Claims, shall receive their
pro-rata share of 200,000
shares of APG's Stock (RACG).
APG is a publicly traded, fully
reporting company. As of
November 10, 1998, the APG
Stock was trading at $2.84 per
share.
Proceeds from pursuit and
litigation of preference,
fraudulent transfer and other
claims, including, claims
against the officers and
directors of Boyds, shall be
collected by the Disbursing
Agent and distributed on a
pro-rata basis to holders of
Allowed Class 4 and Class 5
claims, on a quarterly basis
after reimbursement of all
legal fees and expenses
advanced by APG to prosecute
such actions and payment of
Allowed Administrative Claims
not paid in full on the
Effective Date.
CNB has asserted a security interest in any
proceeds derived from claims
against the officers and
directors of Boyds, including
insurance proceeds. The
Committee disputes this
asserted security interest.
This dispute will be resolved
either by stipulation or order
of the Bankruptcy Court. Such
resolution may not occur until
after the Effective Date of
this Committee Plan and may not
be favorable to unsecured
creditors. As such, Class 4 and
Class 5 claim holders should
not assume any additional
recovery will be received from
proceeds of claims against
officers and directors of Boyds
in deciding whether or not to
accept this Committee Plan.
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
CLASS DESCRIPTION IMPAIRED TREATMENT
NO. (Y/N)
<S> <C> <C> <C>
5 General Y Holders of Allowed Unsecured Class 5 Claims
unsecured together with holders of Allowed Unsecured
claims of Impaired; Claims classified in Class 4, shall receive
HRBB claims in their pro-rata share of 17% of the New Stock
this in Reorganized Debtor issued pursuant to
- Total class are Bankruptcy Code Section 1145. The New Stock
amt of entitled will be traded in accordance with Bankruptcy
claims = to vote Code Section 1145. The Boyds Stock will
Approximately on this remain in effect and will be diluted to 3% of
$100,000 Committee the outstanding New Stock. (See, Class 6
Plan below)
Additionally, holders of
Allowed Unsecured Class 5
Claims together with holders of
Allowed Unsecured Class 4
Claims, shall receive their
pro-rata share of 200,000
shares of APG's Stock (RACG).
APG is a publicly traded, fully
reporting company. As of
November 10, 1998, the APG
Stock was trading at $2.84 per
share.
Proceeds from pursuit and
litigation of preference,
fraudulent transfer and other
claims, including claims
against the officers and
directors of Boyds, shall be
collected by the Disbursing
Agent and distributed on a
pro-rata basis to holders of
Allowed Class 4 and Class 5
claims, on a quarterly basis
after reimbursement of all
legal fees and expenses
advanced by APG to prosecute
such actions and payment of
Allowed Administrative Claims
not paid in full on the
Effective Date.
CNB has asserted a security interest in any
proceeds derived from claims
against the officers and
directors of Boyds, including
insurance proceeds. The
Committee disputes this
asserted security interest.
This dispute will be resolved
either by stipulation or order
of the Bankruptcy Court. Such
resolution may not occur until
after the Effective Date of
this Committee Plan and may not
be favorable to unsecured
creditors. As such, Class 4 and
Class 5 claim holders should
not assume any additional
recovery will be received from
proceeds of claims against
officers and directors of Boyds
in deciding whether or not to
accept this Committee Plan.
</TABLE>
ADDITIONAL INFORMATION REGARDING TREATMENT OF CLASSES 4 AND 5: Under
this Committee Plan: (a) Class 4 and Class 5 General Unsecured Creditors
receiving New Stock and shares of APG Stock (the "Plan Shares") shall not,
without the prior written consent of APG (which consent, if any, shall be
applicable pro rata for all holders of Plan Shares), during the period ending
one (1) year after the date of the Effective Date (the "Lock-Up Period"), (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any Plan
Shares or any securities convertible into or exercisable or exchangeable for
Plan Shares, or (2) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Plan Shares, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Plan Shares or such other securities, in cash or otherwise,
provided,
19
<PAGE> 24
however, that the legend shall permit the holders of the Plan Shares to dispose
of them in accordance with subparagraph (b) below; notwithstanding the
foregoing, Plan Shares may be released prior to the end of the Lock-Up Period to
the extent underwriters or investment advisors of APG reasonably determine that
market conditions are sufficiently favorable that such release of Plan Shares
prior to the end of the Lock-Up Period will not have a significantly adverse
effect on the market for or price of any class of Plan Shares; (b) the Plan
shall contain a first right of refusal to participate and/or purchase additional
equity in the form of common stock, preferred stock or convertible debentures in
the event that new stock in the Reorganized Debtor or APG is issued for purposes
of raising capital to allow the unsecured classes of creditors who receive Plan
Shares to maintain their relative ownership position in the Reorganized Debtor
and APG. In addition, during the first year following the Effective Date of this
Plan, the Reorganized Debtor shall not issue more than seven percent (7%) of
then outstanding stock to Insiders (as defined in the Bankruptcy Code and
applicable securities law) as compensation, incentive, bonus or other benefit
without the written consent of the majority of Plan Shares issued under Section
III.C.3. of this Plan; (c) the Plan Shares are issued in accordance with
Bankruptcy Code section 1145 and shall require no further legend or transfer
restriction other than that provided for in subparagraph (a) above; and (d) CNB
shall not be deemed an "underwriter" or an "affiliate" of the Reorganized Debtor
or APG as defined in Bankruptcy Code Section 1145, the Securities Act of 1933 or
similar statute.
4. CLASSES OF INTEREST HOLDERS
Interest holders are the parties who hold an ownership interest (i.e.,
equity interest) in Debtor. If a debtor is a corporation, entities holding
preferred or common stock in such debtor are the interest holders. If a debtor
is a partnership, the interest holders include both general and limited
partners. If a debtor is an individual, such debtor is the interest holder.
Under this Committee Plan, Reorganized Debtor hopes and intends to take
steps necessary to have its stock (BYDSQ) relisted on the NASDAQ exchange.
Currently, the stock is trading on the Bulletin Board. A NASDAQ listing will be
beneficial to the stockholders and capital structure of Reorganized Debtor. In
order to achieve such a listing, however, various requirements must be met,
including capital requirements, the amount of share issued to prior equity
holders, etc.
20
<PAGE> 25
Since APG is making a substantial new value contribution, it reserves
the right to reallocate as much as 80% of Reorganized Debtor's stock so long as
it doesn't affect or dilute the 17% interest given to Classes 4 and 5 above.
The following chart identifies this Committee Plan's treatment of the
class of interest holders.
<TABLE>
<CAPTION>
CLASS NO. DESCRIPTION IMPAIRED TREATMENT
- --------- ----------- -------- ---------
(Y/N)
<S> <C> <C> <C>
6 Existing Y APG will make a new value
Shareholders of contribution, the New Value
Boyds Impaired; Fund, of up to $2,000,000 which
claims in is in addition to the $500,000
this class which will go to CNB as provided
are entitled above and the 200,000 shares of
to vote on APG stock provided to holders of
this Allowed Class 4 and 5 claims.
Committee Existing equity will be diluted
Plan to own at least 3% interest of
Reorganized Debtor. However,
APG reserves the right to
substantially increase this
percentage if it so chooses.
Reorganized Debtor contemplates
a reverse stock split.
7 Existing N Existing equity of HRBB will be
Shareholders of retained by Reorganized Debtor
HRBB Not Impaired; pursuant to contribution of the
claims in New Value Fund.
this class
are not
entitled to
vote on this
Plan, class
is deemed to
have accepted
Plan
</TABLE>
D. MEANS OF EFFECTUATING THE COMMITTEE PLAN
1. FUNDING FOR THE COMMITTEE PLAN
This Plan will be funded by the following:
a. The New Value Fund.
b. Proceeds From the Auction Sale and New Value Capital
Contribution. As discussed above, Debtors have estimated that an undetermined
amount of unencumbered cash will be available for administrative claims from the
Auction Sale. To the extent that funds generated from the sale of unencumbered
assets is insufficient, APG will provide sufficient cash so that the
21
<PAGE> 26
maximum amount of $1,100,000 may be applied toward the payment of Allowed
Administrative Claims as estimated on November 13, 1998 on the condition that
all Allowed Administrative Claims held on account of court approved professional
fees will be subordinated to Allowed Administrative Claims of non-professionals.
In addition to the contribution of funds set forth above, APG has agreed to
contribute such additional funds as may be necessary to pay reasonable
professional fees and costs incurred by Debtors' estates after November 13,
1998, subject to court approval of such fees and costs. In addition, CNB shall
receive $37,500 from the professional fees and costs awarded in these cases by
such professionals making a pro-rata contribution of this amount. Finally, APG
has agreed to allocate up to an additional $2,000,000 to capitalize Reorganized
Debtor as well as up to $50,000 to fund the litigation described in Section
II.F.3. of the Disclosure Statement.
c. Sale of Dale Street Property. The Dale Street Property has been
marketed for sale. A motion to sell the Dale Street Property was set for hearing
on September 18, 1998. This motion was withdrawn without prejudice; however,
after the proposed buyer expressed reservations regarding the proposed sale. As
a result, Boyds will continue to market the Dale Street Property and is hopeful
that it will be sold prior to confirmation of this Committee Plan. The secured
claim of El Dorado Bank and all outstanding real property taxes will be paid
through this sale. Reorganized Debtor shall retain the net proceeds from the
sale of the Dale Street Property to pay the Allowed Administrative Claims
subject to the provisions of subsection b. above. If such sale occurs after the
Effective Date, the Reorganized Debtor shall retain the net proceeds from the
sale of the Date Street Property to reimburse APG for its payment of Allowed
Administrative Claims.
El Dorado Bank shall be paid on the earlier of the sale date of the
Dale Street Property or thirty (30) months after the Effective Date. If El
Dorado Bank has not been paid in full on the earlier of the sale date or thirty
(30) months after the Effective Date, then El Dorado Bank shall have the right
to exercise all of its rights and remedies under applicable law.
d. Issuance of New Stock. Under this Committee Plan, holders of
Allowed Unsecured Claims of Debtors, shall receive their pro-rata share of 17%
of the New Stock in
22
<PAGE> 27
Reorganized Debtor. The New Stock of Reorganized Debtor will be issued pursuant
to Bankruptcy Code Section 1145(a)(1) which exempts "the offer or sale under a
plan or security of the debtor, of an affiliate participating in a joint plan
with the debtor, or a successor to the debtor under the plan". The Committee
believes that APG qualifies both as an affiliate of Debtor as well as a
successor to the debtor under this Committee Plan. The old stock of Boyds (the
"Boyds Stock") will remain in effect and shall be diluted to 3% of the
outstanding stock in Reorganized Debtor. Reorganized Debtor intends to list the
New Stock on a public exchange.
Under this Plan: (a) Class 4 and Class 5 General Unsecured Creditors
receiving New Stock and shares of APG Stock (the "Plan Shares") shall not,
without the prior written consent of APG (which consent, if any, shall be
applicable pro rata for all holders of Plan Shares), during the period ending
one (1) year after the date of the Effective Time (the "Lock-Up Period"), (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any Plan
Shares or any securities convertible into or exercisable or exchangeable for
Plan Shares, or (2) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Plan Shares, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Plan Shares or such other securities, in cash or otherwise,
provided, however, that the legend shall permit the holders of the Plan Shares
to dispose of them in accordance with subparagraph (b) below; notwithstanding
the foregoing, Plan Shares may be released prior to the end of the Lock-Up
Period to the extent underwriters or investment advisors of APG reasonably
determine that market conditions are sufficiently favorable that such release of
Plan Shares prior to the end of the Lock-Up Period will not have a significantly
adverse effect on the market for or price of any class of Plan Shares; (b) the
Plan shall contain a first right of refusal to participate and/or purchase
additional equity in the form of common stock, preferred stock or convertible
debentures in the event that new stock in the Reorganized Debtor or APG is
issued for purposes of raising capital to allow the unsecured classes of
creditors who receive Plan Shares to maintain their relative ownership position
in the Reorganized Debtor and APG. In addition, during the first year following
the Effective Date of the Plan, the Reorganized Debtor shall
23
<PAGE> 28
not issue more than seven percent (7%) of then outstanding stock to Insiders (as
defined in the Bankruptcy Code and applicable securities law) as compensation,
incentive, bonus or other benefit without the written consent of the majority of
Plan Shares issued under Section III.C.3. of this Plan; (c) the Plan Shares are
issued in accordance with Bankruptcy Code section 1145 and shall require no
further legend or transfer restriction other than that provided for in
subparagraph (a) above; and (d) CNB shall not be deemed an "underwriter" or an
"affiliate" of the Reorganized Debtor or APG as defined in Bankruptcy Code
Section 1145, the Securities Act of 1933 or similar statute.
Bankruptcy Code Section 1145 provides for certain exemptions from
registration under federal, state and local law of common stock issued to
creditors and shareholders pursuant to a Joint Plan of Reorganization.
Therefore, common stock can be resold by the recipient without registration
under the Securities Act of 1933 and other laws, unless the recipient is an
"underwriter" or a significant holder of newly issued equity interests.
Section 1145(b) defines four types of underwriters: (a) a person who
purchases a claim against, interest in, or claim for an administrative expense
in the case with a view to distributing any security received in exchange for
that claim or interest; (b) a person who offers to sell securities offered or
sold under a plan for the holders of those securities; (c) a person who offers
to buy securities offered or sold under a plan from the holders of those
securities if the offer is (i) made with a view to distribution of the
securities, and (ii) made under an agreement made in connection with the plan,
the consummation of the plan, or the offer or sale of securities under the plan;
and (d) a person who is an issuer with respect to the securities, as defined in
section 2(11) of the Securities Act of 1933.
Section 2(11) of the Securities Act of 1933 defines "issuer" to include
control persons. These are persons who directly or indirectly control or are
controlled by the Debtor (as the issuer) or any person under direct or indirect
common control with the Debtor (i.e., an affiliate). Whether a person is an
affiliate, and therefore an "underwriter" for purposes of Section 1145(b)
depends on the following factors: (a) the person's equity interest in the
Debtor; (b) the distribution and concentration of other equity interests in the
Debtor; (c) whether the person is an officer or director of the Debtor; (d)
whether the person, either alone or acting in concert with others, has
24
<PAGE> 29
a contractual or other relationship giving that person power over management
policies and decisions of the Debtor; and (e) whether the person actually has
that power notwithstanding the absence of formal indicia of control. The
Committee believes that APG qualifies as an affiliate of the Debtor.
To the extent that a person deemed to be an "underwriter" receives
securities, any resales by that person may not be exempted by Section 1145 from
registration requirements contained in the Securities Act of 1933. As an
"underwriter," APG will not qualify for the exemption from registration
requirements contained in section 4(1) of the Securities Act of 1933. However,
Rules 144 and 144A of the Securities Act of 1933 provide a safe harbor for the
offer and sale of an issuer's stock by statutory underwriters.
Rule 144 defines persons deemed not to be engaged in a distribution.
Compliance with Rule 144 provides a seller with assurance that it will not be
deemed to have engaged in a distribution, and therefore will not be treated as
an underwriter for purposes of section 4(1). Rule 144 permits public sales of
securities received pursuant to a plan by statutory underwriters subject to
certain volume limitations, manner of sale, notice requirements, and
availability of public information about the issuer. The Committee believes
that, pursuant to Code Section 1145 and Rule 144, the New Stock will qualify as
an unrestricted security.
The Committee also believes that the stock received by APG will qualify
under section 4(2) of the Securities Act of 1933 regarding transactions by an
issuer not involving any public offering.
All stock issued to CNB and holders of other Allowed Unsecured Claims
shall be without legend or other transfer restrictions, except as noted herein.
CNB shall not be deemed an "underwriter" or an "affiliate" of Reorganized Debtor
or APG as those terms are defined in Bankruptcy Code Section 1145, the
Securities Act of 1933 or similar statute.
Because of the complex, subjective nature of the question of whether a
particular holder may be an underwriter, the Committee makes no representation
concerning the ability of any person to dispose of the New Stock. The Committee
recommends that recipients of the New Stock under the plan consult with their
own counsel concerning the limitations on their ability to dispose of the New
Stock under federal and state securities law.
25
<PAGE> 30
e. APG Stock. Under this Committee Plan, holders of Allowed
Unsecured Claims shall also receive their pro-rata share of 200,000 shares of
the APG Stock. The Committee believes that the APG Stock is exempt pursuant to
Section 1145(a)(1). APG is a publicly traded company. As of November 10, 1998,
the APG Stock was trading at $2.84 per share. (Included in EXHIBIT "2" attached
to the Disclosure Statement is a copy of a report showing the recent trading
activity of APG Stock.)
f. Recovery From Preferential, Fraudulent Transfer, and Other
Claims. APG has agreed to provide up to $50,000 to the Committee to pursue and
litigate potentially valuable claims against recipients of preferential and
fraudulent transfers and Boyds' officers and directors. Proceeds derived from
such preferential, fraudulent and other claims (the "Litigation Claims"), after
reimbursement to APG for the funds advanced pay legal fees and costs, will be
distributed to holders of Allowed Unsecured claims on a pro-rata basis.
Marshack Shulman & Hodges LLP shall represent the Post-Confirmation
Committee in prosecuting: (a) claims against Boyd Coddington in his capacity as
an officer and director of Boyds and/or HRBB; (b) objections to claims; and (c)
any claims for avoidance and recovery of preferential transfers under Section
547 or fraudulent transfer actions under Code Section 548, other than claims
against members of the Committee and El Dorado Bank. APG shall advance up to
$50,000 for payment of legal fees and costs incurred by Marshack Shulman &
Hodges LLP in prosecuting these actions. Marshack Shulman & Hodges LLP will be
retained to pursue such claims objections on an hourly fee basis, plus costs and
shall pursue any litigation on blended hourly contingency fee basis, plus costs,
with hourly rates capped at $100.00 per hour and contingency fee capped at
twenty percent (20%) of any recovery. APG shall be reimbursed for such advanced
legal fees from the first moneys recovered from such litigation.
Any claims for avoidance and recovery of preferential transfers under
Section 547 or fraudulent transfer actions under Code Section 548 against
members of the Committee and El Dorado Bank shall be prosecuted by Albert,
Weiland & Golden. Albert Weiland & Golden shall be compensated on a contingency
basis equal to thirty-five percent (35%) of any recovery received as a result of
this litigation, plus costs.
26
<PAGE> 31
Claims, if any, against officers and directors other than Boyd
Coddington shall be prosecuted by counsel to be named by the Disbursing Agent.
Such counsel shall be compensated on a contingency basis equal to thirty-five
percent (35%) of any recovery received as a result of this litigation, plus
costs.
CNB asserts that it has a perfected security interest in any proceeds
from claims against the directors and officers, including proceeds of insurance
available to cover claims against directors and officers. The Committee disputes
CNB's assertion of such security interest. All parties shall reserve any and all
rights they have with respect to these issues to be determined by agreement or
by order of the Bankruptcy Court at a later date. However, any lien CNB may have
on such proceeds shall not apply to the first $50,000 of recovery that must be
paid to APG.
g. Tax Loss Carry Forwards. APG projects that Reorganized Debtor may be
able to use substantial tax loss carry forwards which resulted from Debtors'
operating losses incurred prior to the Petition Date. The ability to use these
net loss carry forwards could have a significant and positive effect on
Reorganized Debtor's operations as it could significantly reduce its income tax
liability as Reorganized Debtor projects to make significant net income. The
Committee notes that there is a risk that the Reorganized Debtor may not be able
to use the loss carry forwards due to the change in control contemplated by the
Plan. The projections attached hereto as EXHIBIT "2" do not depend on or presume
the ability of the Reorganized Debtor to use any tax loss carry forwards or
account for any benefit derived from them.
2. POST-CONFIRMATION MANAGEMENT
Reorganized Debtor will remain in possession of its property and the
management of its financial affairs after the confirmation of the Plan under the
following management:
<TABLE>
<CAPTION>
Name Title Annual Compensation
- ---- ----- -------------------
<S> <C> <C>
To be named President $125,000 - 175,000, plus
expenses
Michael Hendricks Controller Salary and expenses to be
paid by APG
</TABLE>
APG will place the foregoing President and Controller and the remaining
general and administrative management and all compensation and benefits, other
than those paid to or for the
27
<PAGE> 32
benefit of the President, shall be the sole obligation of APG. Reorganized
Debtor will benefit from the business professionals, existing facilities and
management structure and resources of APG.
3. DISBURSING AGENT
On or before the hearing on confirmation of this Committee Plan, the
Committee shall designate Chuck Klaus of Credit Managers Association of
California as Disbursing Agent (the "Disbursing Agent") for the purpose of
making all distributions provided for under this Committee Plan. The Disbursing
Agent shall serve with bond and shall receive compensation at the rate of five
percent (5%) of cash distributions to Class 4 and Class 5 claim holders only
from recoveries on account of the Litigation Claims, plus costs for distribution
services rendered and expenses incurred pursuant to this Committee Plan, except
that the Disbursing Agent shall not receive percentage compensation and shall
only be reimbursed for out of pocket costs related to disbursements for
professional fees. The Disbursing Agent shall be responsible for preparing and
filing the Post-Confirmation Status Reports to the Office of the United States
Trustee. The Disbursing Agent shall also be responsible for paying all
post-confirmation quarterly fees of the Office of the United States Trustee
until the bankruptcy case is dismissed or a final decree has been entered,
whichever occurs first. Funds for payment of post-confirmation quarterly fees
and costs incurred by the Disbursing Agent shall be provided by the Reorganized
Debtor.
The Disbursing Agent shall be responsible for the transfer of the stock
as to Class 4 and 5 creditors as well as disbursement to Class 4 and Class 5
creditors of net proceeds resulting from claims prosecuted by Marshack Shulman &
Hodges LLP and Albert Weiland & Golden. APG shall be responsible for payments to
Marshack Shulman & Hodges LLP in prosecution of the litigation set forth in
Section III.D.1.f. herein.
The Disbursing Agent shall also be responsible for oversight of the
Litigation Claims, and shall have the authority, with the prior approval of the
Post-Confirmation Committee, to settle the Litigation Claims.
IV.
TREATMENT OF MISCELLANEOUS ITEMS
A. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
28
<PAGE> 33
1. ASSUMPTIONS
The following are the unexpired leases and executory contracts to be
assumed as obligations of Reorganized Debtor under this Committee Plan. (See,
EXHIBIT "1" for more detailed information on unexpired leases to be assumed and
EXHIBIT "2" for more detailed information on executory contracts to be
assumed):
<TABLE>
<CAPTION>
UNEXPIRED LEASE DESCRIPTION IDENTIFICATION OF LESSOR
- --------------------------- ------------------------
<S> <C>
None
</TABLE>
<TABLE>
<CAPTION>
EXECUTORY CONTRACT DESCRIPTION IDENTIFICATION OF OTHER PARTY
- ------------------------------ -----------------------------
TO THE CONTRACT
---------------
<S> <C>
PDI Licensing Agreement related to the PDI
Ultra Violet Trademark. This contract
relates to a distribution agreement with
PDI for distribution of various car care
products bearing the Boyds name. This
contract produces significant revenue to
Boyds. APG does not believe that there are
any monetary defaults and intends to cure
any technical defaults on or before the
Effective Date.
Sponsorship Agreement for exclusive right Franklin Mint
to produce and sell via direct response
marketing, die-cast replica cars. Non-
exclusive right to use the name, photograph
and symbol of the sponsor and the likeness
of Boyd Coddington. APG does not believe
that there are any monetary defaults and
intends to cure any technical defaults on
or before the Effective Date.
License Agreement for exclusive right to Testor Corporation
use the names "Hot Rods by Boyd",
"ChaZoom", "Mr. Gasket", and "Aluma Coupe"
in connection with the manufacture, sales
and distribution of all scale model kits
throughout the world. APG does not believe
that there are any monetary defaults and
intends to cure any technical defaults on
or before the Effective Date.
</TABLE>
On the Effective Date, each of the unexpired leases and executory
contracts listed above shall be assumed as obligations of Reorganized Debtor.
The Order of the Court confirming this Committee Plan shall constitute an Order
approving the assumption of each lease and contract listed above. If you are a
party to a lease or contract to be assumed and you object to the assumption of
your lease or contract, you must file and serve your objection to this Committee
Plan within the deadline for objecting to the confirmation of this Committee
Plan. (See, Section I.B.3. of the Disclosure Statement for the specific date.)
2. REJECTIONS
On the Effective Date, the following executory contracts and
unexpired leases will
29
<PAGE> 34
be rejected: On the Effective Date, all executory contracts and unexpired leases
existing as of the Petition Date not mentioned above are rejected. This includes
but is not limited to the consulting and separation agreement between Boyd
Coddington and Debtors.
THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM ARISING FROM
THE REJECTION OF LEASE OR CONTRACT IS THIRTY (30) DAYS FROM THE CONFIRMATION
DATE OF THE COMMITTEE PLAN. Any claim based on the rejection of a contract or
lease will be barred if the proof of claim is not timely filed, unless the Court
later orders otherwise.
B. CHANGES IN RATES SUBJECT TO REGULATORY COMMISSION APPROVAL
Debtors are not subject to governmental regulatory commission approval
of its rates. Debtors are not regulated by a governmental commission.
C. RETENTION OF JURISDICTION
The Court will retain jurisdiction to the extent provided by law.
V.
EFFECT OF CONFIRMATION OF THE COMMITTEE PLAN
A. SUBSTANTIVE CONSOLIDATION
On the Effective Date, the Debtors will be substantially consolidated.
Upon such consolidation, the intercompany claims among the entities are
eliminated, and all of the assets of, and all of the claims against, each of the
debtor entities are treated as assets of, or claims against, the consolidated
entity. Under this Committee Plan, Boyds and HRBB will be substantively
consolidated resulting in one (1) consolidated entity. Debtors' assets and
claims will be pooled, Debtors' liabilities satisfied from a common fund and
intercompany claims among Debtors eliminated.
B. DISCHARGE
This Committee Plan provides that upon confirmation, Reorganized
Debtors shall be discharged of liability for payment of debts incurred before
confirmation of this Committee Plan to the extent specified in Section 1141 of
the Bankruptcy Code. However, any liability imposed by this Committee Plan will
not be discharged.
C. REVESTING OF PROPERTY IN REORGANIZED DEBTOR
30
<PAGE> 35
Except as provided in Section V.E. and except as provided elsewhere in
this Plan, the confirmation of this Committee Plan revests all of the property
of the bankruptcy estate in Reorganized Debtor.
D. MODIFICATION OF THE PLAN
The Plan Proponent may modify this Committee Plan at any time before
confirmation. However, the Court may require a new disclosure statement and/or
re-voting on this Committee Plan if the Plan Proponent modifies this Committee
Plan before confirmation.
The Plan Proponent may also seek to modify this Committee Plan at any
time after confirmation so long as: (1) this Committee Plan has not been
substantially consummated; and (2) the Bankruptcy Court authorizes the proposed
modifications after notice and a hearing.
E. POST-CONFIRMATION STATUS REPORT
Within one hundred twenty (120) days of the entry of the Confirmation
Order, Reorganized Debtor shall file a status report with the Court explaining
what progress has been made toward consummation of the confirmed Committee Plan.
The status report shall be served on the Office of the United States Trustee,
the twenty (20) largest unsecured creditors, and those parties who have
requested special notice. Further status reports shall be filed every one
hundred twenty (120) days and served on the same entities.
F. POST-CONFIRMATION CONVERSION/DISMISSAL
A creditor or party in interest may bring a motion to convert or
dismiss the case under Section 1112(b), after this Committee Plan is confirmed,
if there is a default in performing this Committee Plan. If the Court Orders the
case converted to Chapter 7 after this Committee Plan is confirmed, then all
property that had been property of the Chapter 11 estate, and that has not been
disbursed pursuant to this Committee Plan, will revest in the Chapter 7 estate.
The automatic stay will be reimposed upon the revested property, but only to the
extent that relief from stay was not previously granted by the Court during this
case.
31
<PAGE> 36
G. CLAIMS OBJECTIONS
The amount of pro rata distributions to holders of Allowed Claims shall
be computed as though Disputed Claims were allowed Claims. Reorganized Debtor
will deposit amounts that would be distributed to a holder of a Disputed Claim
in pro rata distribution as if such Claim were an Allowed Claim in a segregated
reserve account maintained by the Disbursing Agent until such Claim is no longer
a Disputed Claim. Upon the disallowance of a Disputed Claim by a Final Order,
any amounts not distributed previously to holders of Allowed Claims on account
of such Claim being a Disputed Claim, shall be distributed pro rata among
holders of such Allowed Claims at the time of the next pro rata distribution to
such holders under this Committee Plan.
As of the Effective Date, only the Post-Confirmation Committee shall
have the right and standing to object to and contest the allowance of any Claim
by means of filing objections to Claims with the Court and serving such
objections upon the holder of the contested Claim, whether or not such Claim is
listed in Debtors' bankruptcy schedules as disputed, contingent or unliquidated.
As of the Effective Date only the Post-Confirmation Committee shall have the
right and standing to compromise and settle objections to Disputed Claims. The
Bankruptcy Court order confirming this Committee Plan shall set the first
business day one hundred twenty (120) days from the Effective Date as the final
date for Reorganized Debtor to file objections to any Claims.
H. POST-CONFIRMATION COMMITTEE
The Post-Confirmation Committee shall continue in existence after the
confirmation of this Committee Plan until all the disbursements required to be
made by this Committee Plan have been made. The Post-Confirmation Committee
shall have standing to employ professionals, object to Claims and bring such
actions or litigation as may be necessary to pursue all avoidance actions and
claims against third parties as set forth in this Committee Plan.
32
<PAGE> 37
I. FINAL DECREE
Once the estate has been fully administered as referred to in Federal
Rule of Bankruptcy Procedure 3022, the Plan Proponent, or such other party as
the Court shall designate in the Committee Plan Confirmation Order, shall file a
motion with the Court to obtain a final decree to close the case.
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS
BY: GOLD COAST REFRACTOR
CO-CHAIRPERSON FOR THE COMMITTEE
Dated: November __, 1998 By: ________________________
Robert Black
BOYDS WHEELS, INC.,
A CALIFORNIA CORPORATION
HOT RODS BY BOYD,
A CALIFORNIA CORPORATION
Dated: November __, 1998 By: ________________________
Jack Karkoski
President
Presented by:
MARSHACK SHULMAN & HODGES LLP
By: ___________________________________
James C. Bastian, Jr.
Attorneys for the Official Committee
of Unsecured Creditors of Boyds
Wheels, Inc.
ALBERT WEILAND & GOLDEN LLP
By: ____________________________________
Evan D. Smiley
Attorneys for the Debtors and
Debtors in Possession
33
<PAGE> 38
EXHIBIT "1"
UNEXPIRED LEASES TO BE ASSUMED
<TABLE>
<CAPTION>
LEASES ARREARAGES/DAMAGES METHODS OF CURE
- ------ ------------------ ---------------
<S> <C> <C>
NONE
</TABLE>
34
<PAGE> 39
EXHIBIT "2"
EXECUTORY CONTRACTS TO BE ASSUMED
<TABLE>
<CAPTION>
CONTRACT DEFAULTS/DAMAGES METHODS OF CURE
- -------- ---------------- ---------------
<S> <C> <C>
Contract Description: Default Amount: Method of curing
PDI") Licensing $.00 default and loss: APG
Agreement related to the does not believe that
Ultra Violet Trademark. Actual Pecuniary Loss: there are any monetary
This contract relates to $.00 defaults and intends
PDI distribution to cure any technical
agreement of various car defaults on or before
care products bearing the Effective Date.
the Boyds name. This
contract produces Means of assuring
significant revenue to performance: Post-
Boyds. Petition Earnings
Contracting Parties:
PDI and Boyds
Contract Description: Default Amount: Method of curing
Sponsorship Agreement $.00 default and loss: APG
for exclusive right to does not believe that
produce and sell via Actual Pecuniary Loss: there are any monetary
direct response $.00 defaults and intends
marketing, die-cast to cure any technical
replica cars. Non- defaults on or before
exclusive right to use the Effective Date.
the name, photograph and
symbol of the sponsor Means of assuring
and the likeness of Boyd performance: Post-
Coddington. APG does Petition Earnings
not believe that there
are any monetary
defaults and intends to
cure any technical
defaults on or before
the Effective Date.
Contracting Parties:
Franklin Mint and Boyds
Contract Description: Default Amount: Method of curing
License Agreement for $.00 default and loss: APG
exclusive right to use does not believe that
the names "Hot Rods by Actual Pecuniary Loss: there are any monetary
Boyd", "ChaZoom", "Mr. $.00 defaults and intends
Gasket", and "Aluma to cure any technical
Coupe" in connection defaults on or before
with the manufacture, the Effective Date.
sales and distribution
of all scale model kits Means of assuring
throughout the world. performance: Post-
APG does not believe Petition Earnings
that there are any
monetary defaults and
intends to cure any
technical defaults on or
before the Effective
Date.
Contracting Parties:
Testor Corporation and
Boyds
</TABLE>
35
<PAGE> 40
PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF ORANGE
I am employed in the City of Irvine, County of Orange, State of California. I am
over the age of 18 years and not a party to the within action. My business
address is 8001 Irvine Center Drive, Suite 900, Irvine, California 92618-2921.
On NOVEMBER __, 1998, I served the documents named below on the parties in this
Action as follows:
DOCUMENT(S) COMMITTEE'S FIRST AMENDED CHAPTER 11 PLAN OF
SERVED: REORGANIZATION AS MODIFIED PURSUANT TO HEARINGS
ON NOVEMBER 12-13, 1998, WITH DEBTORS IN
POSSESSION AS CO-PROPONENTS
SERVED UPON: SEE THE ATTACHED SERVICE LIST
[X] (BY MAIL) I caused each such envelope, with postage thereon fully
prepaid, to be placed in the United States mail at Irvine, California.
I am readily familiar with the practice of Marshack Shulman & Hodges
LLP collection and processing of correspondence for mailing, said
practice being that in the ordinary course of business, mail is
deposited in the United States Postal Service the same day as it is
placed for collection.
[ ] (BY FACSIMILE) The above-referenced document was transmitted by
facsimile transmission and the transmission was reported as completed
and without error. Pursuant to C.R.C. 2009(i), I either caused, or had
someone cause, the transmitting machine to properly transmit the
attached documents to the facsimile numbers shown on the service list.
[ ] (BY FEDERAL EXPRESS) I am readily familiar with the practice of
Marshack Shulman & Hodges LLP for collection and processing of
documents for overnight delivery and know that the document(s)
described herein will be deposited in a box or other facility regularly
maintained by Federal Express for overnight delivery.
[ ] (BY PERSONAL SERVICE) I delivered to an authorized courier or driver
authorized by O.C. Corporate Courier to receive documents to be
delivered on the same date. A proof of service signed by the authorized
courier will be filed forthwith.
[ ] (STATE) I declare under penalty of perjury under the laws of the State
of California that the above is true and correct.
[X] (FEDERAL) I declare that I am employed in the office of a member of the
bar of this court, at whose direction this service was made.
Executed on NOVEMBER __, 1998, at Irvine, California.
__________________________
Erlanna L. Lohayza
36
<PAGE> 41
SERVICE LIST
INTERESTED PARTY
United States Trustee
600 West Santa Ana Boulevard
Suite 501
Santa Ana, California 92701
INTERESTED PARTY
Sarah D. Moyed, Bankruptcy Counsel
US Securities and Exchange Commission
Pacific Regional Office
5670 Wilshire Boulevard 11th Floor
Los Angeles, CA 90035-3848
INTERESTED PARTY
Securities & Exchange Commission
450 5th Street, N.W.
Washington D.C. 20549
ATTORNEYS FOR DEBTOR
Evan D. Smiley, Esq.
Albert, Weiland & Golden, LLP
650 Town Center Dr., Ste. 1350
Costa Mesa, CA 92626
DEBTOR
Boyds Wheels, Inc.
8380 Cerritos Avenue
Stanton, CA 90680
CO-CHAIRPERSON
Goldcoast Refractory Service
Robert Black, President
9630 Santa Fe Springs Rd.
Santa Fe Springs, CA 90670
CO-CHAIRPERSON
Maurice Taylor, President
Cheri Holley, General Counsel
2701 Spruce St.
Quincy, IL 62301
COMMITTEE MEMBER
Production Mold, Inc.
% Anderson Pattern, Inc.
Jim Brickley, Chief Financial Officer
500 W. Sherman Blvd.
P.O. Box 1088
Muskegon, MI 49443-1088
COMMITTEE MEMBER
Metal Exchange Corporation
Daryl Coleman
111 W. Port Plaza, Ste. 704
St. Louis, MO 63195
COMMITTEE MEMBER
Spence Electroplating
Fred Harris, President
1001 Chetnut St.
Burbank, CA 9506
COMMITTEE MEMBER
Speciality Blanks, Inc.
Rudolph Stakeman, President
Post Office Box 3480
Terre Haute, IN 47803-0480
COMMITTEE MEMBER
Richard Caruso
Chief Operations Officer
1233 Main St., Ste. 4000
Wheeling, WV 26003
COMMITTEE MEMBER
Metal Center, Inc.
Peggy Braunz
12034 Greenstone Ave.
Santa Fe Springs, CA 90670
REQUEST FOR SPECIAL NOTICE
A&P Leasing Company
c/o Stephen C. Duringer
Todd A. Brisco
Law Offices of Stephen C. Duringer
& Assoc.
18002 Cowan - First Floor
Irvine, CA 92614
REQUEST FOR SPECIAL NOTICE
City National Bank c/o
Pillsbury Madison & Sutro LLP
Attn: Craig A. Barbarosh, Esq.
650 Town Center Drive, 7th Floor
Costa Mesa, CA 92626
<PAGE> 42
REQUEST FOR SPECIAL NOTICE
Custom Pipe & Coupling Co.
c/o Debra Grassgreen, Esq.
Pachulski, Stang, Ziehl & Young P.C.
10100 Santa Monica Blvd., Suite 1100
Los Angeles, CA 90067
Remove per letter dated 11/11/98
REQUEST FOR SPECIAL NOTICE
Automation Specialties, Inc
c/o Robin J. Hoff, Esq.
Law Offices of Robin J. Hoff
14211 S. Yorba Street, Suite 100
Tustin, CA 92780
REQUEST FOR SPECIAL NOTICE
Christopher Beard, Esq.
Beard & Beard
4601 North Park Avenue
Chevy Chase, MD 20815
REQUEST FOR SPECIAL NOTICE
Peter A. Chapman
24 Perdicaris Place
Trenton, NJ 08618
REQUEST FOR SPECIAL NOTICE
Jeffrey D. Rubin, Esq.
Barnett & Rubin
2 Park Plaza, Suite 980
Irvine, CA 92614
REQUEST FOR SPECIAL NOTICE
Timothy McCandless
Law Offices of Timothy McCandless
1800 E. Garry Street, Suite 213
Santa Ana, CA 92705
REQUEST FOR SPECIAL NOTICE
Alan H. Ickowitz
Donna M. Balbin
Nossaman, Guthner, Knox & Elliot, LLP
445 South Figueroa Street, 31st Floor
Los Angeles, CA 90071
REQUEST FOR SPECIAL NOTICE
Cynthia B. Schaldenbard
Carla Lynn Crochet
Freeburg, Judy & Nettels
440 West First Street, Suite 102
Tustin, CA 92780-3047
REQUEST FOR SPECIAL NOTICE
David J. Naftzinger
Theresa J. Pulley Radwan
Thompson Hine & Flory LLP
3900 Key Tower
127 Public Square
Cleveland, OH 44114-1216
REQUEST FOR SPECIAL NOTICE
Law Offices of Louis J. Khoury
1801 Century Park East, Suite 2400
Los Angeles, CA 90067
REQUEST FOR SPECIAL NOTICE
Adam Reich
Hackman Capital
11111 Santa Monica Blvd., Suite 1100
Los Angeles, CA 90025
REQUEST FOR SPECIAL NOTICE
Apex Machine Works, Inc.
c/o Joseph H. Lowther
12301 Wilshire Boulevard, Suite 600
Los Angeles, CA 90025
REQUEST FOR SPECIAL NOTICE
Sullivans, Inc.
c/o James O. Johnston
Stutman, Treister & Glatt
3699 Wilshire Blvd., Suite 900
Los Angeles, CA 90010
REQUEST FOR SPECIAL NOTICE
Debt Acquisition Company of America
Attn: Nathan E. Jones
2120 West Washington Street
San Diego, CA 92110
REQUEST FOR SPECIAL NOTICE
American Express Travel
c/o Becket & Lee, LLP
P.O. Box 3001, Dept. AC
Malvern, PA 19355-0701
REQUEST FOR SPECIAL NOTICE
Mikel Keifer
New England Investment Companies
66 Chiswick Road, #22
Brookline, MA 02146
<PAGE> 43
REQUEST FOR SPECIAL NOTICE
Michael W. Binning
Fields, Israel & Binning, LLP
115 Pine Ave., Suite 300
Long Beach, CA 90802-4446
REQUEST FOR SPECIAL NOTICE
Eldorado Bank
c/o Lawrence H. Miller
Cooksey, Howard, Martin & Toolen
535 Anton Boulevard, 10th Floor
Costa Mesa, CA 92626
REQUEST FOR SPECIAL NOTICE
Carole Logsdon
c/o Susan R. Medwied, Esq.
23046 Avenida de la Carlota, Suite 600
Laguna Hills, CA 92653
REQUEST FOR SPECIAL NOTICE
Gerald R. Kilroy, Esq.
Office of the General Counsel
400 N. Roxbury Drive, 5th Floor
Beverly Hills, CA 90210-5021
REQUEST FOR SPECIAL NOTICE
El Dorado Bank
Tustin Office
17752 E. 17th Street
Tustin, CA 92680
El Dorado Bank
Note Department
Post Office Box 12299
Orange, CA 92859-8299
REQUEST FOR SPECIAL NOTICE
Stephen C. Duringer, Esq.
Todd A. Brisco, Esq.
Law Offices of
Stephen C. Duringer & Assoc.
18002 Cowan, 1st Floor
Irvine, CA 92614
REQUEST FOR SPECIAL NOTICE
City National Bank
Special Assets Dept.
Attn: Rick Sawyer
606 S. Olive Street, Suite 2000
Los Angeles, CA 90014
REQUEST FOR SPECIAL NOTICE
Karen Rinehart, Esq.
McKenna & Cuneo, LLP
444 South Flower Street, 8th Floor
Los Angeles, CA 90071-2901
REQUEST FOR SPECIAL NOTICE
Apex Machine Works, Inc.
c/o Barry R. Gore, Esq.
Clarkson, Gore & Marsella
3424 Carson Street, Suite 350
Torrance, CA 90503
ATTORNEYS FOR APG
Adam Lewis
Morrison & Foerster
425 Market St
San Francisco, CA 94105-2482
ATTORNEYS FOR
PERFORMANCE DISTRIBUTIONS, INC.
Janice M. Murray
Murray & Murray
3030 Hansen Way Suite 200
Palo Alto, CA 94304-1009
ATTORNEYS FOR ARROW SECURITY DESIGN
Scott B. Cohen
Sacks Tierney P.A.
2929 North Central Avenue
Fourteenth Floor
Phoenix, AZ 85012-2742
<PAGE> 44
Richard A. Marshack - Bar No. 107291
James C. Bastian, Jr. - Bar No. 175415
Mark E. Bradshaw - Bar. No. 192540
MARSHACK SHULMAN & HODGES LLP ENTERED 1/28/99
8001 Irvine Center Drive, Suite 900
Irvine, California 92618-2921
Telephone: (949) 864-0400
Facsimile: (949) 864-0444
Attorneys for the Official Committee of Unsecured Creditors for the bankruptcy
estate of Boyds Wheels, Inc.
Jeffrey I. Golden - Bar No. 133040
Evan D. Smiley - Bar No. 161812
ALBERT, WEILAND & GOLDEN, LLP
650 Town Center Drive, Suite 1350
Costa Mesa, California 92626
Telephone: (714) 966-1000
Facsimile: (714) 966-1002
Attorneys for the Debtors and Debtors in Possession
Boyds Wheels, Inc. and Hot Rods by Boyd
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA, SANTA ANA DIVISION
In re ) Case No. SA 98-11545 RA
) Case No. SA 98-11547 RA
BOYDS WHEELS, INC. ) Chapter 11 Cases
A CALIFORNIA CORPORATION, )
) ORDER CONFIRMING THE COMMITTEE'S
Debtor and Debtor in ) FIRST AMENDED CHAPTER 11 PLAN OF
Possession. ) REORGANIZATION AS MODIFIED
_________________________________ ) PURSUANT TO HEARINGS ON
) NOVEMBER 12-13, 1998, WITH
In re ) DEBTORS IN POSSESSION AS CO-
) PROPONENTS
HOT RODS BY BOYD, )
A CALIFORNIA CORPORATION, ) Plan Confirmation Hearing
) Date: January 6, 1999
Debtor and Debtor in ) Time: 11:30 a.m.
Possession. ) Place: Courtroom 606
) 34 Civic Center Plaza
) Santa Ana, CA 92701
)
) Continued Hearing
) Date: January 11, 1999
) Time: 10:30 a.m.
) Place: Courtroom 606
) 34 Civic Center Plaza
) Santa Ana, CA 92701
- ----------------------------------
1
<PAGE> 45
The hearing to consider the confirmation of the First Amended Chapter
11 Plan of Reorganization as Modified Pursuant to Hearings on November 12-13,
1998, with Debtors in Possession as Co-Proponents (the "Plan") filed by the
Official Committee of Unsecured Creditors (the "Committee") for the bankruptcy
estate of Boyds Wheels, Inc. ("Boyds"), Boyds and Hot Rods by Boyd ("HRBB")
(Boyds and HRBB are collectively referred to herein as "Debtors"), was held upon
appropriate notice on January 6, 1999 at 11:30 a.m., the Honorable John E. Ryan,
United States Bankruptcy Judge presiding in the absence of the Honorable Robert
W. Alberts (the "Confirmation Hearing"). The Court continued the Confirmation
Hearing to January 11, 1999 at 10:30 a.m. (the "Continued Confirmation
Hearing").
At the Confirmation Hearing, James C. Bastian, Jr. of Marshack Shulman
& Hodges LLP appeared on behalf of the Committee. The Debtors appeared by and
through their counsel, Albert, Weiland & Golden, LLP, by Evan D. Smiley.
Automotive Performance Group, Inc. ("APG") appeared by and through its counsel,
Morrison & Foerster LLP, by Adam Lewis. City National Bank appeared by and
through its counsel, Pillsbury Madison & Sutro LLP, by William B. Freeman.
Credit Managers Association of California, Tauber Arons, and Hackman Reich
appeared by and through their counsel, Morgan, Lewis & Bockius LLP, by Barry V.
Freeman. All other appearances were reflected on the Court's record.
At the Continued Confirmation Hearing, James C. Bastian, Jr. of
Marshack Shulman & Hodges LLP appeared on behalf of the Committee. The Debtors
appeared by and through their counsel, Albert, Weiland & Golden, LLP, by Evan D.
Smiley. Eldorado Bank appeared by and through its counsel, Cooksey, Howard,
Martin & Toolen by Lawrence H. Miller, Esq. All other appearances were reflected
on the Court's record.
The Court, after consideration of: (1) the Plan; (2) the Committee's
First Amended Disclosure Statement as Modified Pursuant to Hearings on November
12-13, 1998, Describing the Committee's First Amended Chapter 11 Plan of
Reorganization with Debtors in Possession as Co-Proponents (the "Disclosure
Statement"); (3) the Committee's Memorandum in Support of Confirmation of the
Plan; (4) the Declarations of James E. Dunn, Robert Black and Jack Karkosky
filed in support of confirmation; (5) the Declaration of James C. Bastian, Jr.
Regarding Ballot
2
<PAGE> 46
Analysis; (6) the Declaration of James C. Bastian, Jr. Regarding Analysis of
Ballots Cast by Shareholders and Received by ADP Proxy Services; (7) the
Declaration of Erlanna L. Lohayza re Service of Plan Packages by First Class
Mail; (8) the conditional objection of Performance Distribution Incorporated and
the Committee's reply thereto; (9) the Committee's and the Debtors' Motion for
Order Approving Non-Material Modifications to the Plan (the "Modification
Motion"); (10) the Committee's and the Debtors' Motion for Order Excusing
Compliance With Order Entered November 16, 1998 and for Nunc Pro Tunc Order
Shortening Time for Transmission of Ballots (the "Compliance Motion"); (11) the
request of counsel for the Committee to modify the definition of the term
"Effective Date(1)"; (12) the evidence and testimony presented at the
Evidentiary Hearing; and (13) the records and files in this Chapter 11 case,
hereby makes the following findings:
1. The hearing on confirmation of the Plan was held on adequate and proper
notice to parties in interest;
2. The Plan, the Disclosure Statement and ballots were duly transmitted to all
creditors and parties-in-interest in accordance with Bankruptcy Code
Section 1125;
3. All payments made or promised by the Debtors for services or costs and
expenses incurred in, or in connection with, the Plan and incident to the
case, have been fully disclosed to the Court and are reasonable, or, if to
be fixed after confirmation of the Plan, will be subject to the approval of
the Court;
///
4. The Plan satisfies all of the requirements for confirmation set forth in
Bankruptcy Code Section 1129 and complies with all other applicable
provisions of the Bankruptcy Code, including but not limited to the
following;
a. The Plan has been proposed in good faith and not by any means
forbidden by law;
b. Each holder of a claim or interest has accepted the Plan or will
receive or
- --------
1 The capitalized terms herein shall have the same meaning as those
terms defined and used in the Plan and the Disclosure Statement.
3
<PAGE> 47
retain under the Plan property of value as of the Effective Date, that is not
less than the amount that such holder would receive or retain if Debtors were
liquidated under Chapter 7 of the Bankruptcy Code on such date;
c. Five (5) classes of claims (Classes 1, 2a, 4, 5 and 6) that
are impaired under the Plan have accepted the Plan, determined without including
any acceptance of the Plan by any insider;
d. The Plan does not discriminate unfairly and is fair and
equitable, with respect to all Classes that are impaired thereunder;
e. With respect to the holder of the claim in Class 2,
Eldorado Bank, who did not originally vote on the Plan, provided that the
treatment for the Class 2 Claim of Eldorado Bank is modified as set forth below,
Eldorado Bank has represented that it supports the Plan;
f. The Committee and the Debtors, as co-proponents of the
Plan, have made all required disclosures under the Bankruptcy Code;
g. Confirmation of the Plan is not likely to be followed by
the liquidation or the need for further financial reorganization of the Debtors
under the Plan; and
h. The requirements of Bankruptcy Code Section 1129(b) have
been satisfied.
5. The modifications as set forth in the Modification Motion and on the
record in open Court are non-material and are approved as set forth in
a separate order to be lodged herein, and as set forth herein below;
6. The delay of the transmission of the Plan Packages(2) to the estates'
creditors and equity security holders was caused by factors outside of
the control of the Committee and the Debtors and as a result, caused no
harm herein;
7. The notice given of the hearing on the confirmation of the Plan was
sufficient under the circumstances of this case; and
- --------
2 The term "Plan Packages" refers to the following documents:
1. Disclosure Statement
2. Plan of Reorganization
3. Ballot
4. Notice of Hearing
5. Orders Approving Disclosure Statement
4
<PAGE> 48
8. Good cause exists for confirming the Plan.
NOW, THEREFORE, the Court being in all things duly advised and based
upon the foregoing findings and good cause appearing therefor,
IT IS HEREBY ORDERED as follows:
1. The Plan, filed with the Court on December 29, 1998, a copy of which is
attached hereto as EXHIBIT "1" and incorporated herein by this
reference, is confirmed with the following modifications:
a. page 9, line 10, "$1,100,000" shall now read "$950,000";
b. page 11, line 27, "$1,100,000" shall now read "$950,000";
c. page 23, line 10, "$1,100,000" shall now read "$950,000";
d. the box describing the treatment of Class 6, found at page
22, lines 14 through 20, is modified to read as follows:
<TABLE>
<CAPTION>
- -------------- ----------------------- -------------------- ---------------------------------------
CLASS NO. DESCRIPTION IMPAIRED TREATMENT
(Y/N)
- -------------- ----------------------- -------------------- ---------------------------------------
<S> <C> <C> <C>
6 Existing Y APG will make a new value contribution,
Shareholders of the New Value Fund, of up to $2,000,000
Boyds Impaired; claims which is in addition to the $500,000
in this class which will go to CNB as provided above
are entitled to and the 200,000 shares of APG stock
vote on this provided to holders of Allowed Class 4
Committee Plan and 5 claims. Existing equity will be
diluted to own at least 3% interest of
Reorganized Debtor. However, APG
reserves the right to substantially
increase this percentage only after the
Effective Date and subject to the first
right of refusal held by Classes 4 and 5
provided on page 21, lines 9 through 19
above if it so chooses. Reorganized
Debtor contemplates a reverse stock
split.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
e. page 21, line 9 through line 10, the words "the Plan shall
contain" shall be replaced with "Class 4 and 5 Creditors shall have";
f. page 32, lines 7-14 shall be modified to read as follows:
On the Effective Date, each of the unexpired leases and
executory contracts listed above, as amended, shall be
assumed as obligations of Reorganized
5
<PAGE> 49
Debtor. The Order of the Court confirming this Committee
Plan shall constitute an Order approving the assumption of
each lease and contract listed above, as amended. If you are
a party to a lease or contract to be assumed and you object
to the assumption of your lease or contract, you must file
and serve your objection to this Committee Plan within the
deadline for objecting to the confirmation of this Committee
Plan. (See, Section I.B.3. of the Disclosure Statement for
the specific date.)
g. Exhibit "2" attached to the Plan as it relates to the
assumption of the PDI Licensing Agreement shall be modified as follows:
6
<PAGE> 50
<TABLE>
<CAPTION>
- ---------------------------------- --------------------------- -------------------------------------------------
CONTRACT DEFAULTS/DAMAGES METHODS OF CURE
- ---------------------------------- --------------------------- -------------------------------------------------
<S> <C> <C>
Contract Description: Default Amount: Method of curing default and loss: APG
PDI Licensing Agreement $.00 does not believe that there are any
related to the Ultra monetary defaults and intends to cure
Violet Trademark. This Actual Pecuniary Loss: any technical defaults on or before the
contract relates to PDI $.00 Effective Date. Dominion Income
distribution agreement of Management Corp. ("Dominion") has made
various car care products a loan to PDI secured by certain assets
bearing the Boyds name of PDI. Dominion is the controlling
This contract produces shareholder of APG. Pursuant to a
significant revenue to provision of the security agreement
Boyds. between Dominion and PDI, Dominion has
agreed (on APG's behalf) that in the
Contracting Parties: event that the acquisition of Boyds is
accomplished (the "Boyds Purchase"),
PDI and Boyds the following, in essence, shall occur:
(a) the quarterly royalty payment (as defined in the
Boyds license) during the period
commencing on the date on which APG
completes the Boyds Purchase and ending
on the date that is the third
anniversary of the effective date (as
defined in the Boyds license), but not
for any other period, shall, in lieu of
all quarterly royalty payments required
with respect to such period [including,
without limitation, the minimum (as
defined in the Boyds license)], equal
five percent (5%) of net sales of the
products (as defined in the Boyds
license) sold by PDI during the
corresponding quarter, (b) PDI's
obligations under section 1(d) of the
Boyds license shall be modified such
that, in lieu of the $200,000 annual
payment payable to the licensor
referenced therein, PDI shall spend,
each year, not less than 5% of the
value of PDI's annual net sales to
advertise products, (c) any failure by
PDI to make the required quarterly
royalty payment for the first and
second quarters of PDI's 1998 fiscal year shall
be waived, and (d) minimum
royalty levels shall no longer be
required during the entire term of the
Boyds license. All other provisions of
the Boyds license shall continue in
full force unmodified. In the event of
the Boyds Purchase, PDI and APG shall enter into
an appropriate amendment to the Boyds
license reflecting the foregoing. With respect
to PDI's obligations under clause (b) above,
PDI, APG, and Dominion shall agree to customary
provisions for audit rights and APG's and
Dominion's rights to approve the form of
advertising and PDI's use of the trademark in
its advertising media. The foregoing
provisions shall survive the repayment of the
note from PDI to Dominion.
Means of assuring performance: Post-Petition Earnings
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
h. the box describing the treatment of Class 1, found
at page 16, lines 1 through 24, is modified to
read as follows:
7
<PAGE> 51
<TABLE>
<CAPTION>
- --------- ------------------------ ---------- ---------- ---------------------------------------------------
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
NO. (Y/N) (Y/N)
- --------- ------------------------ ---------- ---------- ---------------------------------------------------
<S> <C> <C> <C> <C>
1 Secured claim of CNB N Y CNB shall receive a total of $537,500 in
in the Boyds case cash on the Effective Date. $500,000
Impaired; shall be paid by APG. $37,500 shall be
Collateral claims contributed, pro-rata, from the awards
description = in this provided to professionals in these cases,
UCC-1 Financing class but paid to CNB in a lump sum by
Statement and are Disbursing Agent upon court approval of
Security Interest on entitled such professional's first fee
all intellectual to vote applications. CNB shall release its
property, equipment, on the security interest in all of Reorganized
accounts receivable, Committee Debtor's assets including the Ultra
cash received from Plan Violet Trademark (the "Trademark") and
sale of collateral associated licensing agreements, and the
public shell of Boyds, all of which will
Collateral value = be retained by Reorganized Debtor. The
$450,000 Reorganized Debtor shall retain, free and
clear of any claim or interest
Priority of (including, but not limited to, the
security in the security interest of CNB), the Trademark,
amount of = First any licensing agreements associated with
the Trademark (including the PDI
Principal owed = Agreement), and any receivables related
Approximately $3.5 to and arising from all licensing
million after agreements associated with the Trademark
payment of the (including any receivable allegedly due
proceeds from the and owing the Debtors from PDI). CNB's
Auction Sale. This unsecured deficiency claim shall be
will be reduced as CNB treated with other general Unsecured
continues to Claims in Class 4 below. In addition, CNB shall
liquidate receive the proceeds of an IRS
receivables and tax refund estimated to be in the
receives cash as approximate amount of $350,000.(1)
provided herein.
Under prior stipulations between CNB, the
Pre-pet. arrearage Debtors and the Committee, the automatic
amount = $8 million stay has been modified so as to allow CNB
to proceed to collect all outstanding
Post-pet. arrearage accounts receivables which are subject to
amount = none its security interest and to receive the
undisputed portion of proceeds (see,
discussion below regarding claim of Apex
Machine Works, Inc.) derived from the
auction sale of Debtors' hard assets.
Under this Committee Plan, releases by and
between the Debtor, Committee and CNB shall
be provided including releases from any and
all 11 U.S.C. Section 506(c) claims that
could be asserted by Debtor, HRBB and/or the
Committee against CNB, as well as any and all
11 U.S.C. Section 507(b) claims that could be
asserted by CNB in Debtors' bankruptcy
estates.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
i. The definition for the term "Effective Date" as found on
page 4, lines 24 through 26 of the Plan, and as used in the Plan and Disclosure
Statement, shall be modified to read as follows: "the date not later than sixty
(60) calendar days following entry of the order of the Bankruptcy Court
confirming this Committee Plan, or if the 60th day falls on a Saturday, Sunday
or holiday, then the next business day on the condition that the Court has
entered a Final
- ----------------------
1. The tax refund is likely subject to CNB's security interest,
however, rather than further litigating the issues regarding the tax refund,
such refund will be provided in full to CNB.
8
<PAGE> 52
Order approving the settlement resolving the adversary proceeding commenced by
Seldon Investments (Adversary Case No. SA 98-1498 RA)."
j. The treatment afforded the Class 2 creditor, Eldorado Bank,
shall be modified as follows:
9
<PAGE> 53
<TABLE>
<CAPTION>
- ------------ ------------------------------ --------- ----------- -----------------------------------------
CLASS DESCRIPTION INSIDERS IMPAIRED TREATMENT
NO. (Y/N) (Y/N)
- ------------ ------------------------------ --------- ----------- -----------------------------------------
<S> <C> <C> <C> <C>
2 Secured claim of Eldorado N Y The obligation owing to Eldorado
Bank Bank, $1,329,134.74 (which
Impaired; includes interest through
Collateral description = claims in January 11, 1999, plus
First Trust Deed on real this reasonable attorney's fees and
property located at 11121 class are costs incurred by Eldorado Bank
and 11081 Dale Street, entitled through January 12, 1999) plus
Stanton CA (Boyds to vote any additional, reasonable
Distribution Center) on this attorney's fees and costs, proof
Committee of which shall be provided by Eldorado
Collateral value = Plan Bank prior to the
$1,750,000.00 Effective Date, shall be
Principal owed = satisfied as follows:
$1,280,000.00
The obligation shall accrue
interest at the rate of $301.31 per
day until the date twelve (12)
months following the Confirmation
Date. No payments shall be made to
Eldorado Bank during this twelve
(12) month period. Beginning the
first business day of the
thirteenth (13th) month following
the Confirmation Date, monthly
interest only payments (calculated
at the rate of $301.31 per day)
shall be made to Eldorado Bank by
the Reorganized Debtor up to and
including the thirtieth (30th)
month following the Confirmation
Date. If Eldorado Bank has not been
paid in full on the earlier of the
sale date of the Dale Street
Property or one hundred twenty
(120) days prior to the end of the
thirtieth (30th) month following
the Confirmation Date, Eldorado
Bank may record a notice of default
against the Dale Street Property.
If the total amount of the
obligation owing to Eldorado Bank,
including accrued and unpaid
interest, has not been paid by the
end of the thirtieth (30th) month
following the Confirmation Date,
then Eldorado Bank shall have the
right to exercise all of its rights
and remedies under applicable law.
This Plan shall modify the payment
obligations under the original Note
and Deed of Trust in favor of
Eldorado Bank as set forth
hereinabove. All other obligations
under the original Note and Deed of
Trust in favor of Eldorado Bank
shall be satisfied by the
Reorganized Debtor except to the
extent such obligations are
inconsistent with the treatment set
forth herein
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
2. On the Effective Date of the Plan, the Debtors will be substantively
consolidated. Ownership and control of the Debtors shall be transferred to
APG subject to the terms and conditions of the Plan (the Debtors, under the
management and control of APG, shall collectively be
10
<PAGE> 54
referred to as the "Reorganized Debtor"). Upon such consolidation, the
intercompany claims among the Debtors shall be eliminated, and all of
the assets of, and all of the claims against, each of the debtor
entities will be treated as assets of, or claims against, the
Reorganized Debtor.
3. The Reorganized Debtor is hereby authorized, empowered and directed to
carry out the provisions of the Plan, and to perform such other acts
and execute other documents as are necessary or appropriate in
connection with the Plan, and this order confirming the Plan (the
"Confirmation Order"), without the necessity of further actions by the
Reorganized Debtor, and all such actions shall be deemed to be duly
authorized.
4. As a result of confirmation of the Plan, the Debtors' previous
obligations to creditors are modified and the terms of repayment of
said claims shall be controlled by the Plan.
5. After the Effective Date, costs and fees incurred by or to be paid by
the Reorganized Debtor shall be paid in the ordinary course of
business without this Court's review and approval, with the exception
of any costs and fees of professionals seeking reimbursement for
services rendered prior to the Confirmation Date.
6. This Court shall retain jurisdiction over this case to ensure that the
purposes and intent of the Plan are carried out. Without limiting the
generality of the foregoing, this Court shall retain jurisdiction over
this case for all of the purposes set in Section IV. the Plan.
7. Except as provided in the Plan to the contrary, all property
distributed under the Plan shall be distributed free and clear of all
Claims of all claimants, parties-in-interest and other entities.
8. The transactions contemplated by the Plan, as implemented herein, are
in compliance with and satisfy all applicable provisions of the
Bankruptcy Code; and that the terms and conditions of the Plan
approved by this Order are fair and reasonable.
9. The terms and provisions of this Order, as well as all provisions of
the Plan, shall be binding in all respects upon the Reorganized
Debtor and each Creditor and interest holder, whether or not the
Claim or interest of such Creditor or interest holder is impaired
under the Plan, and whether
11
<PAGE> 55
or not such Creditor or interest holder has accepted the Plan.
10. As of the Effective Date, all property of the Estate shall remain vested in
the Reorganized Debtor's estate and Reorganized Debtor shall have the right
and the obligation to otherwise dispose of property of the Estate in
accordance with the terms of the Plan.
11. Except as otherwise provided in the Plan, as of the Effective Date, the
property dealt with by the Plan shall be free and clear of all Claims of
claimants.
12. The date of the entry of this Order shall be established as the "record
date" to determine the interest holders and/or holders of stock in Boyds
for the purposes of distribution under the Plan as provided in Federal Rule
of Bankruptcy Procedure 3021.
13. In accordance with the provisions of Local Bankruptcy Rule 3020-1, within
one hundred and twenty (120) days of the entry of this Order, Reorganized
Debtor shall file a status report (the "Report") explaining what progress
has been made toward consummation of the Plan. The initial Report shall be
served on the Office of the United States Trustee, the twenty (20) largest
unsecured creditors and those parties who have requested special notice.
Further Reports shall be filed every one hundred and twenty (120) days
thereafter and served on the same entities, unless otherwise ordered by the
Court. The Report shall include at least the following information:
a. A schedule listing each debt and each Class of Claims; the
total amount required to be paid under the Plan; the amount required to be paid
as of the date of the Report; the amount actually paid as of the date of the
Report; and the deficiency, if any, in required payments;
b. A schedule of any and all post-confirmation tax
liabilities that have accrued or come due, and a detailed explanation of
payments thereon;
c. Reorganized Debtor's projections as to its continuing
ability to comply with the terms of the Plan.
d. An estimate of the date for Plan consummation and
application for final decree; and
e. Any other pertinent information needed to explain the
progress toward
12
<PAGE> 56
completion of the confirmed Plan.
14. If the Reorganized Debtor's case is converted to one under Chapter 7, the
property that had been the property of the Chapter 11 estate, and that
property that has not been disbursed pursuant to the Plan, shall be
revested in the chapter 7 estate.
13
<PAGE> 57
15. Once the estate has been fully administered as referred to in Federal Rule
of Bankruptcy Procedure 3022, the Reorganized Debtor shall file a motion
with the Bankruptcy Court to obtain a final decree to close the case.
Dated: ____________________________________
JOHN E. RYAN
UNITED STATES BANKRUPTCY JUDGE
Submitted by:
MARSHACK SHULMAN & HODGES LLP
By: _________________________________________
James C. Bastian, Jr.
Attorneys for the Official Committee of
Unsecured Creditors
ALBERT, WEILAND & GOLDEN, LLP
By: _________________________________________
Evan D. Smiley
Attorneys for Boyds Wheels, Inc. and Hot
Rods by Boyd, Debtors and Debtors in
Possession
14
<PAGE> 58
APPROVED AS TO FORM AND CONTENT.
MURRAY & MURRAY
By: _____________________________________
Janice Murray
Attorneys for Performance Distribution
Incorporated
MORRISON & FOERSTER LLP
By: _____________________________________
Adam A. Lewis
Attorneys for Automotive Performance
Group, Inc.
PILLSBURY MADISON & SUTRO LLP
By: _____________________________________
William B. Freeman
Attorneys for City National Bank
COOKSEY, HOWARD, MARTIN & TOOLEN
By: _____________________________________
Lawrence H. Miller
Attorneys for Eldorado Bank
MORGAN, LEWIS & BROCKIUS LLP
By: _____________________________________
Barry V. Freeman
Attorneys for Credit Managers Association
of California, Tauber Arons and Hackman
Reich
15
<PAGE> 59
CERTIFICATE RE NOTICE
The undersigned Attorney hereby certifies that:
1. The entities served as set forth in the annexed Proof of Service are all of
the entities required by applicable law to be served with the pleading
referred to therein; and
2. The names and addresses of such entities set forth in the annexed Proof of
Service are their correct names and addresses according to the records of
the United States Bankruptcy Court for the case specified below in which
such Proof of Service is to be filed.
The undersigned hereby acknowledges that this Certificate Re Notice is filed in
compliance with Federal Rule of Bankruptcy Procedure 9011(a) and may be relied
upon by the Bankruptcy Court for the purpose of determining whether each
pleading which is subject of such Proof of Service has been properly served.
MARSHACK SHULMAN & HODGES LLP
Dated: January 15, 1999 By:
_______________________________
James C. Bastian, Jr.
Attorneys for the Official Committee of
Unsecured Creditors of the bankruptcy
estate of Boyds Wheels, Inc.
Case Name: In re Boyds Wheels, Inc. and In re Hot Rods by Boyd
Case No.: SA 98-11545 RA and SA 98-11547 RA
Adversary No.: n/a
Date and Time of Hearing: n/a
16
<PAGE> 60
PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF ORANGE
I am employed in the City of Irvine, County of Orange, State of California. I am
over the age of 18 years and not a party to the within action. My business
address is 8001 Irvine Center Drive, Suite 900, Irvine, California 92618-2921.
On JANUARY ___, 1999, I served the documents named below on the parties in this
Action as follows:
DOCUMENT(S) SERVED: ORDER CONFIRMING THE COMMITTEE'S FIRST AMENDED CHAPTER 11
PLAN OF REORGANIZATION AS MODIFIED PURSUANT TO HEARINGS
ON NOVEMBER 12-13, 1998, WITH DEBTORS IN POSSESSION AS CO-
PROPONENTS
SERVED UPON: SEE THE ATTACHED SERVICE LIST
[X] (BY MAIL) I caused each such envelope, with postage thereon fully prepaid,
to be placed in the United States mail at Irvine, California. I am readily
familiar with the practice of Marshack Shulman & Hodges LLP for collection
and processing of correspondence for mailing, said practice being that in
the ordinary course of business, mail is deposited in the United States
Postal Service the same day as it is placed for collection.
[ ] (BY FACSIMILE) The above-referenced document was transmitted by facsimile
transmission and the transmission was reported as completed and without
error. Pursuant to C.R.C. 2009(i), I either caused, or had someone cause,
the transmitting machine to properly transmit the attached documents to the
facsimile numbers shown on the service list.
[ ] (BY OVERNIGHT DELIVERY) I am readily familiar with the practice of
Marshack Shulman & Hodges LLP for collection and processing of documents
for overnight delivery and know that the document(s) described herein will
be deposited in a box or other facility regularly maintained by Federal
Express for overnight delivery or for overnight delivery by Express Mail
via the United States Postal Service.
[ ] (BY PERSONAL SERVICE) I delivered to an authorized courier or driver
authorized by O.C. Corporate Services, Inc. to receive documents to be
delivered on the same date. A proof of service signed by the authorized
courier shall be filed upon receipt from O.C. Corporate Services, Inc.
[ ] (STATE) I declare under penalty of perjury under the laws of the State of
California that the above is true and correct.
[X] (FEDERAL) I declare that I am employed in the office of a member of the bar
of this court, at whose direction this service was made.
Executed on JANUARY ___, 1999, at Irvine, California.
_____________________________________
Erlanna L. Lohayza
<PAGE> 61
- -----------------------------------------------------------------------------
In re (SHORT TITLE) CHAPTER 11 CASE NUMBER:
BOYDS WHEELS, INC., A CALIFORNIA CORPORATION, SA 98-11545 RA
Debtor.
- -----------------------------------------------------------------------------
NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING
TO ALL PARTIES IN INTEREST ON THE ATTACHED SERVICE LIST:
You are hereby notified, pursuant to Local Bankruptcy
Rule 9021-1, that a judgment* or order entitled
(specify):
ORDER CONFIRMING THE COMMITTEE'S FIRST AMENDED CHAPTER 11 PLAN OF REORGANIZATION
AS MODIFIED PURSUANT TO HEARINGS ON NOVEMBER 12-13, 1998, WITH DEBTORS IN
POSSESSION AS CO-PROPONENTS
was entered on (specify date): __________________________.
I hereby certify that I mailed a copy of this notice
and a true copy of the order or judgment to the persons
and entities on the attached service list on (specify
date): __________________________.
Dated: JON D. CERETTO
CLERK OF THE BANKRUPTCY COURT
By: _____________________________________
Deputy Clerk
<PAGE> 62
SERVICE LIST
ATTORNEYS FOR THE COMMITTEE
James C. Bastian, Jr.
Marshack Shulman & Hodges LLP
8001 Irvine Center Drive, Suite 900
Irvine, CA 92818-2921
INTERESTED PARTY
Office of the United States Trustee
Ronald Reagan Federal Building and
United States Courthouse
411 W. Fourth Street, Suite 9041
Santa Ana, CA 92701-8000
ATTORNEYS FOR DEBTOR
Jeffrey I. Golden, Esq.
Evan D. Smiley, Esq.
Albert, Weiland & Golden, LLP
650 Town Center Dr., Ste. 1350
Costa Mesa, CA 92626
ATTORNEYS FOR CITY NATIONAL BANK
William B. Freeman, Esq.
Pillsbury Madison & Sutro LLP
725 S. Figueroa St., Suite 1200
Los Angeles, CA 90017-5443
ATTORNEYS FOR APG
Adam A. Lewis, Esq.
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105-2482
ATTORNEYS FOR ELDORADO BANK
Lawrence H. Miller, Esq.
Cooksey, Howard, Martin & Toolen
535 Anton Boulevard, 10th Floor
Costa Mesa, CA 92626
ATTORNEYS FOR PERFORMANCE DISTRIBUTION INCORPORATED
Janice M. Murray, Esq.
Patrick M. Costello, Esq.
Murray & Murray
3030 Hansen Way, Suite 200
Palo Alto, CA 94304-1009
ATTORNEYS FOR CREDIT MANAGERS ASSOCIATION OF CALIFORNIA,
TAUBER ARONS AND HACKMAN REICH
Barry V. Freeman, Esq.
Morgan, Lewis & Brockius LLP
300 South Grand Avenue - Twenty Second Floor
Los Angeles, CA 90071-3132
<PAGE> 1
EXHIBIT 21, SUBSIDIARIES OF REGISTRANT
AUTOMOTIVE PERFORMANCE GROUP, INC. ("APG")
- International Motor Sports Group, Inc., a Delaware corporation
Name changed to Automotive Specialty Chemicals Group, Inc. (ASCG)
a subsidiary of APG
- Royal Purple Motor Oil, Inc., a Delaware corporation
a subsidiary of ASCG
- D3, a Washington State corporation
a subsidiary of APG
- Klein Engines & Competition Components, Inc., a Delaware corporation
a subsidiary of APG
- IMSG Properties, a Canadian corporation
a non-operating subsidiary of APG
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements dated December 31, 1998 and Consolidated
Statement of Operations dated December 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 2,328,692 0
<SECURITIES> 0 0
<RECEIVABLES> 946,155 0
<ALLOWANCES> 19,107 0
<INVENTORY> 906,707 0
<CURRENT-ASSETS> 4,536,695 0
<PP&E> 1,824,275 0
<DEPRECIATION> 114,113 0
<TOTAL-ASSETS> 6,267,325 0
<CURRENT-LIABILITIES> 3,156,855 0
<BONDS> 746,825 0
0 0
220 0
<COMMON> 624 0
<OTHER-SE> 1,986,285 0
<TOTAL-LIABILITY-AND-EQUITY> 6,267,325 0
<SALES> 2,687,026 549,366
<TOTAL-REVENUES> 2,687,026 549,366
<CGS> 2,461,484 393,503
<TOTAL-COSTS> 2,461,484 393,503
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 696,322 277,162
<INCOME-PRETAX> (7,934,527) (4,260,250)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,934,527) (4,260,250)
<DISCONTINUED> (6,187,815) (12,304,108)
<EXTRAORDINARY> 258,608 517,168
<CHANGES> 0 0
<NET-INCOME> (13,863,734) (16,047,190)
<EPS-PRIMARY> (2.80) (12.96)
<EPS-DILUTED> (2.80) (12.96)
</TABLE>
