SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: August 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-5940
TEMTEX INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1321869
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 650, Dallas, Texas 75234
(Address of principal executive offices) Zip Code
Company's telephone number, including area code: 214/484-1845
Securities Registered Pursuant to Section 12(b) of the act:
None
Securities Registered Pursuant to Section 12(g) of the act:
Common Stock, par value $0.20 per share
(Title of Class)
Indicate by check mark whether the registrant (a) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
As of November 15, 1995, the aggregate market value of the voting
stock held by nonaffiliates of Temtex Industries, Inc. was
$9,767,839.
As of August 31, 1995 there were 3,464,141 shares of common stock,
par value $0.20 per share, of Temtex Industries, Inc. outstanding.
-1-
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Company is a major producer of metal fireplace products
(woodburning and gas) and face brick products used in the
residential and commercial building markets. The Company
manufactures woodburning metal fireplaces as well as those
utilizing natural gas and liquified petroleum products. The
Company in 1992, introduced its Temco American Dream (Trademark
Symbol) ventfree gas log product line. The ventfree fireplace
units provide heat from glowing artificial logs without the use of
a vent, flue or similar device. The Company also manufactures and
markets a line of face brick products in varying styles, textures,
sizes and colors. The Company was organized in 1969 under the name
Monnfield Industries, Inc. and in 1971 changed its name to Temtex
Industries, Inc. In August 1971, the Company merged with Texas
Clay Industries, Inc., thereby acquiring several businesses,
including its face brick business.
NARRATIVE DESCRIPTION OF BUSINESS
Fireplace Products
Through its wholly owned subsidiary, Temco Fireplace Products, Inc.
("TFPI"), formerly Temtex Products, Inc., the Company manufactures
and distributes zero clearance metal fireplace units and gas
fireplace equipment. For the fiscal year ended August 31, 1995,
the Company had aggregate sales of fireplace products of
approximately $34.5 million.
Zero Clearance Metal Fireplace Products. A zero clearance metal
fireplace is similar in function to a masonry fireplace, except
that the firebox and flue pipe chimney are fabricated from
stainless and coated steels and shipped as a unit to the purchaser
or construction site. The inside of the firebox of a zero
clearance metal fireplace is completely lined with an embossed
brick pattern refractory, giving the appearance of a masonry
surface. The inner pipe of the flue is made from stainless steel.
Because zero clearance metal fireplaces are prefabricated,
contractors can install them more easily and at lower cost than is
the case with traditional masonry fireplaces. In addition, because
zero clearance metal fireplaces utilize a metal flue instead of a
masonry chimney, they offer enhanced placement flexibility. The
Company manufactures and distributes zero clearance fireplaces in
a full range of prices for each of the common fuel categories
(i.e., wood logs, natural gas and liquified petroleum products).
In addition, the Company either manufactures or purchases from
others for use in conjunction with its fireplace products certain
essential components or optional enhancements such as glass doors,
blower kits, outside air kits, screens and grates. These items are
incorporated into the zero clearance metal fireplace units during
the assembly process or shipped in conjunction with a fireplace
unit for subsequent assembly, depending upon customer
specifications. The Company does not currently manufacture
accessories for fireplace units manufactured by third parties or
for existing masonry fireplaces.
Ventfree Gas Logs and Ventfree Fireplaces. During fiscal 1992, the
Company introduced its American Dream (Trademark Symbol) ventfree
gas log and a related ventfree fireplace unit. The American Dream
(Trademark Symbol) ventfree gas log is a simulated wood log and
burner set assembly utilizing a patented design licensed to the
Company. This design permits the burning of natural gas or
liquefied petroleum products, such as propane, to provide heat
without the necessity of venting carbon monoxide from the
combustion area. The simulated wood logs utilized in the American
Dream (Trademark Symbol) ventfree gas log set are made of a soft
ceramic material to resemble wood logs and the embers produced by
the burning of wood logs. As the soft ceramic material is heated
by the burner set, it radiates heat and produces a red glow
resembling that produced by wood logs in a masonry fireplace. The
Company also markets its ventfree gas logs as the Firetech 2000
(Registration Symbol) ventfree gas log, depending upon the
customer. Unlike vented fireplaces, which must be located where
outside venting can be effected, the Company's ventfree gas logs
may be placed in any
-2-
<PAGE>
location where a heat source is desired, including existing
fireplaces. Existing fireplaces can be modified to accommodate the
use of the Company's ventfree gas logs at a nominal cost.
The Company markets ventfree gas log products, which consists of a
36-inch ventfree fireplace and a 24-inch gas log set among other
several different size ventfree gas log sets and ventfree gas
heaters and fireplace unit. The current fireplace products are
marketed under either the American Dream (Trademark Symbol)
ventfree name or the Firetech 2000 (Registration Symbol) ventfree
name, depending upon the customer. Sales of the combined ventfree
gas log and fireplace unit have been primarily to new home
contractors, while significant quantities of the ventfree gas log
sets not associated with a zero clearance fireplace unit have been
sold to independent distributors and contractors serving the
remodeling and retrofit markets.
Marketing and Distribution. The Company sells its fireplaces,
ventfree gas logs and related accessories nationwide through its
own sales force and through third party sales representatives
primarily to contractors, wholesale distributors and retailers. A
majority of the Company's fireplaces are ultimately purchased by
home builders and others engaged in the construction of new housing
or remodeling of existing homes. The Company has distributors in
all regions of the country serving builders and remodelers. The
Company's fireplace products are used by many of the country's best
known builders.
Although the Company ships its fireplace products nationwide, its
sales tend to be somewhat concentrated in the states where housing
construction is active. Because the Company typically produces its
products to meet specific orders by contractors, large distributors
or retailers, it does not maintain material amounts of inventories
in excess of anticipated short-term demand. The raw materials for
the Company's fireplace products are readily available from a
variety of sources. During fiscal ended August 31, 1995, no single
customer for fireplace products accounted for more than 10% of the
Company's consolidated sales during such period. A material
portion of the Company's fireplace products are currently being
sold to several of the nation's largest home center retailers.
Manufacturing. The Company currently fabricates its zero clearance
fireplace units from stainless and coated steels acquired from
vendors and brick pattern refractory of its own manufacture.
During the fabrication process, the Company adds components and
other hardware purchased from vendors. Glass doors, fan kits and
blowers designed for the Company's zero clearance fireplace units
are usually shipped separately. The Company produces a variety of
sizes and styles of zero clearance fireplace units for both the
single family and multi-family markets. In the case of the
ventfree gas log units, the Company incorporates an oxygen
depletion sensor and a pilot light and valve acquired from vendors.
The ventfree gas log units are then further assembled and placed
under an arrangement of soft ceramic simulated wood logs. The
Company, during fiscal year 1995, began manufacturing the simulated
wood logs at the Manchester facility.
Competition; Patents. There are a number of manufacturers
producing zero clearance metal fireplaces and related accessories
similar to the products of the Company and the market for these
products is very competitive. The Company believes that it is
among the larger producers of such products and that it markets a
full range of zero clearance fireplace units at competitive prices.
The Company's ventfree gas log products utilize a patented design,
which is currently being licensed by the Company from the holder of
the applicable patent. Under the terms of this license, the
Company has the exclusive right to manufacture and distribute
ventfree gas logs in the United States and Mexico in conjunction
with a prefabricated fireplace unit or other burn chamber, and the
non-exclusive right to produce and sell ventfree gas logs
independently of fireplace units. Although the patented design of
the Company's ventfree gas log product cannot be utilized by other
manufacturers marketing fireplace units employing gas burning logs,
there can be no assurance that a competitive product employing a
different method to achieve the same or similar results could not
be developed in the future. The Company knows of one other entity
which is licensed by the patent holder to produce separate ventfree
gas logs. Other companies have introduced products which compete
with the Company's ventfree log sets, but the Company does not
believe that they are using the patented concept which provides
glowing logs and embers. There can be no assurance that the holder
of the patent will not license such non-exclusive rights to
additional parties, thereby increasing the competition for the
Company's
-3-
<PAGE>
ventfree gas logs sold separately.
Face Brick Products
The Company manufactures a broad line of face brick in a variety of
styles, textures, sizes and colors. The Company's face brick
products are manufactured in Malakoff, Texas (approximately 75
miles southeast of Dallas, Texas), through its Texas Clay Division.
Manufacturing. Approximately 90% of the clay deposits presently
utilized in the manufacturing of face brick products by the Company
are located within twelve miles of its Malakoff operating
facilities. The Company owns approximately 552 acres of land, most
of which the Company believes have clay deposits, and leases an
aggregate of approximately 460 additional acres which it also
believes to contain clay deposits. Generally, the leases will
continue so long as clay is mined in paying quantities or minimum
royalties are paid. Royalties under the leases range from $0.25 to
$0.35 per cubic yard of merchantable clay removed. The Company
normally maintains at least a 120 day supply of raw clay at its
operating facilities. Historically, Texas Clay has obtained
approximately 25% of its raw clay requirements from its own land
and the remaining 75% from leased land. The Company believes that
its clay reserves necessary for making face bricks are adequate for
the foreseeable future, although the Company does not have
sufficient engineering data to permit it to predict the extent of
such reserves with accuracy. Additionally, the Company believes
that there is an abundance of clay deposits located near its
Malakoff operating facility which would be available to the Company
on acceptable terms if additional clay deposits are needed.
The Malakoff operating facility includes two plants that are
capable of producing approximately 55 million bricks annually
operating one shift per day, five days a week. For energy
efficiency reasons, three of the Company's kilns are operated 24
hours a day, notwithstanding staffing of other production
facilities. In the manufacture of face brick, the raw clay is
mined on the surface of the ground by open pit. The principal type
of clay mined by the Company is a highly refractory type of
material. A variety of clay pits are worked by the Company at any
given time since the type and grade of clay determine the
characteristics and color of finished brick. After the raw clay is
mined, it is crushed, screened and blended, warmed and tempered
into an amorphous mass which is extruded through a die and cut to
size automatically. The brick is then dried to reduce the moisture
content, burned at heat ranging up to 2200 degrees Fahrenheit, and
gathered and packaged for shipment in bundles of the same shade or
color or of mixed shades or colors. The Company utilizes a
grinding system which permits it to automatically mix ingredients,
thereby producing more consistency in color.
Marketing and Distribution. The face brick products manufactured
by the Company are distributed primarily in Texas and adjacent
states to commercial and residential contractors, architects and
interior and commercial decorators. The Company markets its face
brick products primarily through independent distributors. In
addition, the Company currently employs one full-time salesperson.
Sales made to the residential market generally produce higher
profit margins than sales made to the commercial markets. During
the fiscal year ended August 31, 1995, no single face brick
customer accounted for more than 10% of the Company's consolidated
net sales during such period.
Fuel Requirements. In order to manufacture the Company's face
brick products, significant quantities of natural gas must be
obtained from the local public utility or from private parties.
The Company historically has obtained most of its natural gas
requirements from the local public utility, but has obtained, and
currently continues to obtain, a significant portion of its gas
supply from one or more private parties.
The Company's manufacturing operations have, from time to time,
experienced minor disruptions resulting primarily from the
imposition by the local public utility of allocations during peak
usage periods, but such disruptions have not had and are not
expected in the foreseeable future to have, a material adverse
effect on the Company's operations. However, since the cost of
natural gas historically has constituted the largest single
component of the Company's face brick manufacturing operating costs
-4-
<PAGE>
(other than labor and maintenance parts) and is expected in the
foreseeable future to continue to be material, any significant
increase in the cost of natural gas without an accompanying price
increase in the products sold by the Company could adversely affect
its operating results. The Company purchases all of its natural
gas at prevailing rates and does not have any long-term supply
agreements.
Inventories and Payment Terms
As a general rule, the Company's customers are not permitted to
return fireplace units or face brick products, nor are they granted
extended payment terms on any of these products. As a result, the
Company's working capital needs are less than would be the case if
it carried significant amounts of inventory, accepted returns of
merchandise or granted extended payment terms.
Patents and Trademarks
The Company does not own any material patents, but does own a
variety of trademarks and trade names. The consumer products
manufactured by the Company are sold primarily under the trademark
or trade names of Temco (Registration Symbol), Amberlight
(Registration Symbol), Temco American Dream (Trademark Symbol) and
Firetech 2000 (Registration Symbol). The Company believes that its
trademarks and trade names as a whole have significant value.
However, the Company does not consider any one or group of its
trademarks or trade names or any licenses granted to or by it to be
material to its business as a whole, except for the patent license
(the "Patent License") relating to its ventfree fireplace products.
The Patent License provides for an initial term of four years,
commencing April 1, 1992 and expiring on March 31, 1996, subject to
termination in the event of default by the Company. The Company
has the option to extend the initial term of the Patent License for
an additional four year term, expiring on March 31, 2000. During
fiscal 1995, the Patent License was extended for an additional two
years term, expiring on March 31, 2002.
-5-
<PAGE>
Backlog
The table set forth below gives certain information with respect to
the approximate backlog of the Company by business segment.
<TABLE>
<CAPTION>
Face Fireplace
Brick Products Products Total
-------------- --------- -----
(In Thousands)
<S> <C> <C> <C>
Balance at
8/31/94 $1,766 $3,307 $5,073
Balance at
8/31/95 $1,453 $2,034 $3,487
</TABLE>
As of August 31, 1995, the amount of backlog of orders shown above
is believed to be firm and the orders are expected to be filled
during 1996. The Company does not consider backlog amounts to be
significant due to the nature of the customer's order patterns.
Government Regulations
The Company does not anticipate that compliance with Federal, State
and local provisions which have been enacted or adopted regulating
the discharge of materials into the environment, or otherwise
relating to the protection of the environment, will have any
material effect upon capital expenditures or earnings and will not
affect the competitive position of the Company and its subsidiaries
in any of the Company's segments of business.
Employees
As of August 31, 1995, the Company employed approximately 602
persons (including employees of wholly-owned subsidiaries) of whom
approximately 135 were salaried and 467 were hourly employees.
-6-
<PAGE>
ITEM 2. PROPERTIES
Corporate Office
The executive offices of the Company are located at 3010 LBJ
Freeway, Suite 650, Dallas, Texas, 75234. Such offices consist of
a small office suite which is leased under a five year lease
expiring on July 31, 1996. The current monthly rental is $2,883.
Fireplace Products
The Company manufactures and assembles its fireplace products in
its facilities at Manchester, Tennessee, Perris, California and
Mexicali, Baja California, Mexico. Management of the Company
believes the availability of two plants located in different
geographic areas of the United States allows it to ship products
nationwide at a lower average freight cost than many of its
competitors operating out of a single plant.
The Company's Manchester facility contains approximately 127,000
square feet and includes a main building of metal construction and
three adjacent smaller buildings, generally of metal construction.
The Manchester facility is currently being leased by the Company
from HUTCO, a California partnership of which Mr. James E. Upfield
(Chairman of the Board of the Company) and a former director of the
Company are the general partners. The lease provides for a twenty-
five year term, expiring in 2014 and a monthly rental of $13,020,
subject to certain scheduled rental escalations based upon
increases in the consumer price index. During fiscal 1994, the
Company entered into a new lease agreement with HUTCO whereby HUTCO
expanded the Manchester facility by 30,000 square feet to a total
of approximately 157,000 square feet. The monthly rental beginning
January, 1995 increased to $21,500 and is subject to certain
scheduled rent escalations based upon increases in the consumer
price index. The new lease provides a twenty-five year term,
expiring in 2020. In the opinion of the management of the Company,
the leases from HUTCO were consummated on terms and conditions as
favorable to the Company as terms and conditions obtainable from
non-affiliated parties.
The Company's manufacturing facility in Perris is located on ten
acres of land and contains approximately 78,000 square feet. The
facility is currently being leased by the Company from a former
director of the Company under a long-term lease expiring in 1999.
The current monthly rental rate is $6,368. During fiscal 1995, the
Company exercised a ten year option extending the lease through
September 30, 2008. The monthly rental remained $6,368. In the
opinion of the management of the Company, the Perris lease was
consummated on terms and conditions as favorable to the Company as
terms and conditions obtainable from non-affiliated parties.
The Company's Mexicali, Mexico facility contains approximately
13,000 square feet. The lease for this facility commenced on
August 1, 1993, provides for monthly rental of $3,410 (U.S.) and
terminates in July 1998. During the current fiscal year, the
Company entered into a second lease for an additional 7,250 square
feet with a monthly rental of $2,100 (U.S.) and the lease
terminates in July 1998. This facility manufactures fireplace
component parts for use by the Company's Manchester and Perris
plants.
Face Brick Products
The Company's face brick products are manufactured in Malakoff,
Texas through its Texas Clay division. The Company owns and
operates office and manufacturing facilities on a seventy-six acre
tract of land at this location, consisting of multiple buildings
constructed on steel frames with sheet metal siding and roofs which
contain approximately 268,000 square feet of floor space. The
Company's facilities house manufacturing equipment, three active
kilns, storage areas for raw materials and finished products and
loading areas for trucks.
-7-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are legal actions in which the Company is a party, however,
in the opinion of management, the Company's ultimate loss, if any,
will not be significant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED STOCK-HOLDER MATTERS
The following table summarizes the high and low sales prices of the
Common Stock provided to the Company by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). The
Company's Common Stock trades on the NASDAQ market under the symbol
TMTX.
<TABLE>
<CAPTION>
Price (1)
---------
High Low
---- ---
<S> <C> <C>
FISCAL 1994
-----------
First Quarter 10.00 7.50
Second Quarter 13.00 7.38
Third Quarter 13.63 9.75
Fourth Quarter 13.13 9.25
FISCAL 1995
-----------
First Quarter 12.13 9.50
Second Quarter 10.38 7.75
Third Quarter 8.50 6.00
Fourth Quarter 6.41 4.13
<FN>
(1) The prices shown represent quotations between dealers and do
not include mark-ups, mark-downs or commissions, and may not
represent actual transactions.
The number of shareholders of record and beneficial shareholders of
the Company as of November 15, 1995 was approximately 1,740. The
only stock of the Company outstanding is Common Stock par value
$0.20 per share.
No cash dividends were declared or paid during fiscal 1994 or 1995.
The Company currently intends to reinvest its earnings for use in
its business and to finance future growth. Accordingly, the
Company does not anticipate paying dividends in the foreseeable
future.
</FN>
</TABLE>
-8-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended August 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Net Sales
Fireplace products $ 34,504 $ 35,324 $ 26,371 $ 19,708 $ 16,215
Face brick products 8,400 8,611 7,736 6,698 5,397
---------- ---------- ---------- ---------- ----------
Total net sales 42,904 43,935 34,107 26,406 21,612
Cost of goods sold 30,962 29,391 23,657 19,913 16,182
---------- ---------- ---------- ---------- ----------
Gross profit 11,942 14,544 10,450 6,493 5,430
Selling, general and administrative
expenses 10,782 10,291 7,735 5,875 4,703
Interest expense 424 526 903 985 1,107
Other income (122) (71) (45) (256) (570)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes 858 3,798 1,857 (111) 190
Income tax expense (benefit) 369 (280) 713 28 24
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before extraordinary item 489 4,078 1,144 (139) 166
Loss from discontinued operations,
less applicable federal taxes -- -- (87) (226) (163)
Extraordinary gain from utilization of
operating loss carryforward -- -- 530 -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 489 $ 4,078 $ 1,587 $ (365) $ 3
========== ========== ========== ========== ==========
Income (loss) per common share:
Income (loss) from continuing operations,
before extraordinary item $ .14 $ 1.25 $ .45 $ (.06) $ .07
Loss from discontinued operations -- -- (.03) (.09) (.07)
---------- ---------- ---------- ---------- ----------
Extraordinary item -- -- .21 -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share $ .14 $ 1.25 $ .63 $ (.15) $ --
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 3,502,887 3,272,568 2,520,189 2,456,641 2,456,641
========== ========== ========== ========== ==========
Cash Dividends Declared Per Common Share $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
August 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Selected Balance Sheet Data:
Working capital $ 9,014 $10,189 $ 1,582 $ 766 $ 1,301
Total assets (1) 27,116 23,643 16,903 13,482 13,045
Short-term debt (2) 2,770 595 4,969 4,530 4,474
Long-term debt, excluding current
maturities (3) 3,099 1,346 2,166 2,687 2,939
Stockholders' equity 15,416 14,916 4,309 2,722 3,087
________________________
<FN>
(1) Excludes assets related to discontinued operations.
(2) Includes amounts borrowed under a revolving credit agreement and debt payable within one year,
including capitalized lease obligations to related parties.
(3) Includes capitalized lease obligations to related parties.
</FN>
</TABLE>
-9-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a producer of metal fireplace products and face
brick products used in the residential and commercial building and
remodeling markets. The Company manufactures and distributes its
fireplace products through Temco Fireplace Products, Inc., a wholly
owned subsidiary of the Company, and its face brick products
through its Texas Clay division. The Company's fireplace products
are sold nationwide to a network of contractors, distributors and
retailers, and its face brick products are sold to contractors and
distributors principally in Texas and surrounding states.
The Company provides products to contractors and others engaged in
the construction and remodeling markets which usually are more
active in the summer and fall months. The Company's sales are
affected by this seasonality since contractors and other users do
not maintain inventories of products for construction purposes. In
addition, the Company provides goods to the building products
industry which is cyclical in nature and can be affected by changes
in consumer credit, interest rates and general economic conditions.
During fiscal 1995, the Company's net sales followed the downward
trend established by new housing starts.
The expansion of the fireplace manufacturing facility in
Manchester, Tennessee was completed during fiscal year 1995.
Production capacity was increased with the expansion of the
building and the addition of new equipment.
Construction of a new office building at the Texas Clay brick
manufacturing facility was also completed early in fiscal 1995.
The building replaces one that was destroyed by fire in 1991.
During fiscal 1995, the Company purchased approximately 80 acres of
land near the brick manufacturing facility containing an estimated
400,000 cubic yards of clay to be used in the production of face
brick.
-10-
<PAGE>
Fiscal Year 1995 Compared to Fiscal Year 1994
Net Sales
Fireplace Products. Net sales decreased $0.8 million or 2% in
fiscal 1995 compared with fiscal 1994. The Company shipped
approximately the same quantity of fireplaces and ventfree gas log
sets in 1995 compared with 1994. A change in the mix of products
shipped was primarily responsible for the reduction in sales.
Face Brick Products. Net sales decreased $0.2 million or 2% in
fiscal 1995 compared with fiscal 1994. The reduction in the
quantity of face brick shipped in 1995 was partially offset by an
increase in sales price which the Company received for its product.
Gross Profit
Fireplace Products. Gross profit decreased approximately 22% in
fiscal 1995 compared with fiscal 1994. A portion of the decrease
is attributable to the decrease in sales. Also adding to the
increase in cost of goods sold was the increase in depreciation
expense resulting from the greater than normal expenditures for
capital items in fiscal 1995. In addition, costs related to
changes for product improvement as well as packaging changes to
prevent product damage in shipment also added to the cost without
a corresponding increase in sales price to the customers.
Face Brick Products. Gross profit decreased approximately 2% in
fiscal 1995 compared with fiscal 1994. The decrease was a direct
result of the reduction in sales.
Selling, General and Administrative Expenses
Selling expenses increased 15% in fiscal 1995 compared with fiscal
1994. As a percentage of sales, the increase was 2.4% between the
two years. The increase was due primarily to an increase in
advertising expenses related to the Company's gas fireplace and gas
log products.
General and administrative expenses decreased approximately 9% in
fiscal 1995 compared with fiscal 1994. As a percentage of sales,
expenses decreased by 0.7%. The major portion of the decrease was
attributed to the decrease in management bonuses accrued at fiscal
1995 year end.
Interest Expense
Interest expense decreased approximately $102,000 or 19% in fiscal
1995 compared with fiscal 1994. Although indebtedness increased
significantly in the third and fourth quarters of fiscal 1995, the
average indebtedness of the Company throughout the entire year was
slightly less than the average for fiscal 1994. The reduction in
interest expense is the direct result of the decrease in the
average indebtedness.
Other Income
Other income for both fiscal 1995 and 1994 includes small amounts
from various sources.
Income Taxes
Income tax expense, both current and deferred, decreased from
$1,394,000 in fiscal 1994 (before change in valuation allowance),
to $369,000 in fiscal 1995, due to diminished operating results.
In fiscal 1995, income tax expense consisted of $296,000 in federal
income taxes and $73,000 in state income taxes. The Company
utilized all of its net operating loss and investment tax credit
carryforwards in fiscal 1994.
-11-
<PAGE>
Fiscal Year 1994 Compared to Fiscal Year 1993
Net Sales
Fireplace Products. Net sales increased $9.0 million or 34% in
fiscal 1994 compared with fiscal 1993. The Company recorded an
overall increase of approximately 36% in the number of fireplaces
and ventfree gas log sets sold in 1994 compared with 1993. Net
sales apparently were favorably influenced by the 15% increase in
nationwide housing starts between 1993 and 1994.
Face Brick Products. Net sales increased $0.9 million or 11% in
fiscal 1994 compared with fiscal 1993 as a result of an overall
increase in the sales price which the Company received for its face
brick products. The quantity of face brick shipped in fiscal 1994
was slightly less than the quantity shipped in fiscal 1993. The
actual reduction was less than 1% from the previous year.
Gross Profit
Fireplace Products. Gross profit increased approximately 41% in
fiscal 1994 compared with fiscal 1993. The increase was mainly due
to the increase in sales. The increase in sales allowed additional
absorption of fixed manufacturing costs.
Face Brick Products. Gross profit increased approximately 33% in
fiscal 1994 compared with fiscal 1993. The increase was due mainly
to the increase in sale prices without a corresponding increase in
manufacturing costs. Fixed costs constitute a high percentage of
total manufacturing costs of the face brick product which results
in an increase in gross profit as sales increase.
Selling, General and Administrative Expenses
Selling expenses increased 47% in fiscal 1994 compared with fiscal
1993. As a percentage of sales, the increase was only 1.7% between
the two years. Selling expenses are generally variable and
increase as sales increase. The increase in selling expense as a
percentage of sales in fiscal 1994 over fiscal 1993 was due
primarily to increases in selling commissions, advertising and
promotions. Additionally, royalties payable to the holder of the
design patent on the Company's ventfree gas log products increased
due to increased sales of the product.
General and administrative expenses increased 18% in fiscal 1994
compared with fiscal 1993. As a percentage of sales, general and
administrative expenses decreased by 0.9%. Increases were recorded
for payroll and related fringe benefits, allowance for bad debts,
management bonuses and consulting fees.
Interest Expense
Interest expense decreased $377,000 or 42% in fiscal 1994 compared
with fiscal 1993. The Company used a portion of the net proceeds
it received from the sale of 1,000,000 shares of common stock in
December, 1993 to pay in full the outstanding balance under the
Company's revolving line of credit and two long-term debt
obligations. The reduction in interest expense was the direct
result of the reduction in the Company's debt.
Other Income
Other income for both fiscal 1994 and 1993 includes insignificant
amounts from miscellaneous sources.
Income Taxes
Income tax expense increased from $691,000 in fiscal 1993 to
$1,394,000 in fiscal 1994 (before change in valuation allowance),
due to the significant improvement in operating results and the
utilization of all of its net operating loss carryforwards in
fiscal 1994. In fiscal 1993, income tax expense consisted of (i)
state income taxes of $130,000, (ii) federal alternative minimum
taxes (subject to net operating loss carryforward limitations) of
-12-
<PAGE>
$31,000, and (iii) the provision in lieu of federal income taxes of
$530,000. The provision in lieu of income taxes was offset by the
utilization of operating loss carryforwards, which is reflected as
an extraordinary gain in the Company's consolidated statements of
operations. The required adoption of the Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
("SFAS 109") in fiscal 1994 combined with fiscal 1994 operating
results and anticipated future results of operations allowed the
Company to recognize all of its net deferred tax asset at August
31, 1994. As a result of the $1,674,000 reduction in the valuation
allowance in 1994, the Company had a tax benefit of $280,000 and
the valuation allowance established at the time of adoption of SFAS
109 was eliminated.
Liquidity and Capital Resources
Net cash provided by operating activities was $1,358,000, $341,000
and $1,357,000 in fiscal 1995, 1994 and 1993, respectively.
Although there was an increase in cash flow from operations in
fiscal 1995, working capital decreased by $1,175,000 mainly due to
a decrease in accounts receivable and an increase in notes payable
and current maturities of long term obligations. The reduction in
cash flow from operations in fiscal 1994 was primarily due to
changes in working capital, principally increases in accounts
receivable and inventories.
Capital expenditures and capitalized lease obligations for
fireplace and face brick products totalled $5,294,000 ($4,030,000
for fireplace products and $1,264,000 for face brick products),
$1,997,000 ($1,561,000 for fireplace products and $436,000 for face
brick products) and $1,307,000 ($973,000 for fireplace products and
$334,000 for face brick products) in fiscal 1995, 1994 and 1993,
respectively. The majority of expenditures in each of the years
was for tooling, replacement items and major repairs to
manufacturing equipment. Included in the expenditures for face
brick products is the purchase of approximately 80 acres of land
containing an estimated 400,000 cubic feet of clay. In addition,
equipment was purchased for the Tennessee location which was
expanded during fiscal 1995 to increase its fireplace manufacturing
capacity. The Company entered into a new lease agreement for the
Tennessee facility in consideration of the expansion of the
facility which was financed by the partnership which owns the
facility. The Company also exercised its option to extend its
lease of the fireplace manufacturing facility in California. Since
both of the fireplace manufacturing sites are accounted for as
capital leases, the lease changes increased the book value and long
term obligations. Construction of a new office building at the
Texas Clay manufacturing facility was completed early in fiscal
1995. In fiscal 1994, the Company added a gas log assembly line at
the California plant which required the purchase of additional
equipment.
In December, 1993, the Company completed a secondary offering in
which 1,000,000 shares of common stock were sold that provided the
Company with approximately $6,529,000, net of expenses. A portion
of the proceeds was used to retire debt with the remainder being
used for working capital purposes.
In May, 1994, the Company entered into a two-year credit agreement
with a bank whereby the Company may borrow a maximum of $3,000,000
under a revolving credit facility. The amount available under the
revolving credit facility is subject to limitations based on
specified percentages of the Company's eligible outstanding
receivables and inventory. The outstanding principal balance may
bear interest at a variable or fixed rate, at the Company's option,
at the time funds are requested. Interest is payable quarterly and
also at the end of the borrowing period if borrowing at a fixed
rate. In fiscal 1995, the loan agreement was amended whereby a
promissory term note in the amount of $1,212,000 was added with a
maturity date of March 1998. The term note requires quarterly
payments of principal and interest. At August 31, 1995, $2,000,000
was outstanding under the revolving credit note and $1,084,000 was
outstanding under the term note. The credit facility requires the
Company to maintain certain minimum financial ratios. The Company
was in compliance with all debt covenants at August 31, 1995.
In fiscal 1995, borrowings under the credit facility combined with
cash on hand, were used to purchase various items of tooling,
manufacturing equipment and land.
The Company anticipates that cash flow from operations together
with funds available from the revolving credit facility should
provide the Company with adequate funds to meet its working capital
requirements as well as requirements for capital expenditures for
at least the next twelve months.
-13-
<PAGE>
Effects of Inflation
The Company believes that the effects of inflation on its
operations have not been material during the past three fiscal
years. However, inflation could adversely affect the Company if
inflation results in higher interest rates or a substantial
weakness in economic conditions that could adversely affect the new
housing market.
Earnings Per Share
In December 1993, the Company completed a secondary stock offering
in which an additional 1,000,000 shares of common stock were
issued.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
-14-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) DIRECTORS OF THE COMPANY
The names of the directors and nominees for the office of director
and information about them, as furnished by the directors and
nominees themselves, are set forth below:
<TABLE>
<CAPTION>
Positions and Offices
with Company, Business
First Experience During Past
Became a Five Years and Other
Name Age Director in Directorships
- ---- --- ----------- ----------------------
<S> <C> <C> <C>
James E. Upfield 75 1969 Chairman of the Board of the Company for more than
the past five years; also Chairman of the Board of
Temco Fireplace Products, Inc., a wholly-owned
subsidiary of the Company; serves as a director of
Hunter Resources, Inc. which is engaged in the sale
of oil, gas and oilfield services.
E. R. Buford 60 1973 President of the Company for more than five years
and was elected Chief Executive Officer of the
Company in February, 1986; President and a director
of Temco Fireplace Products, Inc., a wholly-owned
subsidiary of the Company, for more than the past
five years.
Joseph V. Mariner,
Jr. 75 1979 Retired as Chairman and Chief Executive Officer of
Hydro-Metals, Inc., when it was acquired by Wallace
Murray Corporation, a manufacturer of plumbing ware
and cutting tools; serves as a director of Peerless
Mfg. Co., a manufacturer of separators and filters
used for removing liquids and solids from gases and
air; the Dyson-Kissner-Moran Corporation, a New
York based privately owned investment company;
Kearney National, Inc., a manufacturer of
electrical power distribution products; El Chico
Restaurants, Inc., a Mexican restaurant chain;
Renters Choice, Inc., operates Rent-To-Own Stores;
and Industrial Flexible Materials, Inc., a
manufacturer of crumbs rubber from recycled tires.
Larry J. Parsons 66 1989 Retired in 1988 as partner of Ernst & Young LLP, an
international public accounting firm. Mr. Parsons
was a partner for more than five years before his
retirement and holds no other directorships.
Scott K. Upfield 36 1992 President, Treasurer and a director of Insurance
Technologies Corporation, a company principally
engaged in developing and marketing software to the
insurance industry for more than the past five
years.
-15-
<PAGE>
Richard W. Griner 57 1995 Director, President and Chief Operating Officer of
The Hart Group, a privately owned company which
supplies managerial services to privately owned
Rmax, Inc., a manufacturer and distributor of
insulation wall board; director and President of HC
Industries, Inc. and of HC Industries NV., Inc.
subsidiaries of Rmax and director of Axon, Inc., a
multifaceted contracting and service company. Mr.
Griner is also a director and President of Rmax.
</TABLE>
Each of the above named nominees is a member of the present Board
of Directors and was elected to such office at the Annual Meeting
of Stockholders held March 7, 1995, except for Mr. Griner who was
elected to the board at a regular scheduled board meeting on June
7, 1995. There are no family relationships among any of the
directors or among any of the directors and any officers of the
Company except Messrs. James E. Upfield and Scott K. Upfield who
are father and son.
(b) EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Offices with Company
- ---- --- --------------------
<S> <C> <C>
James E. Upfield 75 Chairman of the Board and a director
E. R. Buford 60 President, Chief Executive Officer and a director
R. N. Stivers 59 Vice President-Finance, Secretary, Treasurer, Chief Financial Officer
and Chief Accounting Officer
</TABLE>
Each of the officers has served in their respective capacity for
more than the past five years. There are no family relationships
between any of the executive officers, nor any arrangement of
understanding between any officer and any other person pursuant to
which the officer was selected. Officers are appointed annually by
the Board of Directors immediately following the annual meeting of
shareholders.
-16-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain disclosure of all
compensation awarded to, earned by or paid to the chief executive
officer of the Company and to each of the Company's four most
highly compensated executive officers (other than the chief
executive officer) whose total salary and bonus exceed $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Securities All
Annual Restricted Underlying LTIP Other
Name and Compen- Stock Options/ Pay- Compen-
Principal Fiscal Salary Bonus sation Awards SARs outs sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------- ------ ------ ----- ------- ---------- ---------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E.R.Buford 1993 185,000 65,000 N/A -0- -0- -0- N/A
Chief 1994 195,800 150,000 N/A -0- -0- -0- N/A
Executive 1995 205,300 -0- N/A -0- -0- -0- N/A
Officer and
President
________________________________________________________________________________________________________________
J. E. Upfield 1993 135,000 -0- N/A -0- -0- -0- N/A
Chairman of 1994 145,000 25,000 N/A -0- -0- -0- N/A
the Board 1995 150,000 -0- N/A -0- -0- -0- N/A
________________________________________________________________________________________________________________
R. N. Stivers 1993 97,500 25,000 N/A -0- -0- -0- N/A
Chief Financial1994 102,500 30,000 N/A -0- -0- -0- N/A
Officer/Vice 1995 107,800 -0- N/A -0- -0- -0- N/A
President-Finance
________________________________________________________________________________________________________________
Other annual compensation did not exceed the lesser of either $50,000 or 10% of total salary as disclosed in
the summary compensation table.
</TABLE>
-17-
<PAGE>
Employment Contract Agreements
The Company entered into three-year employment contracts with Mr.
E. R. Buford and Mr. R. N. Stivers (the "Executives") as of June 7,
1994. Under the terms of the agreements, Mr. Buford receives an
annual base salary of at least $201,300 and Mr. Stivers receives a
base salary of at least $105,000. During the term of the
agreements, the Company may increase the base salary of the
Executives. The Executives will also be eligible to participate in
the regular employee benefit program now or hereafter established
by the Company.
On each anniversary of these agreements, the term shall be extended
for an additional period of one year unless the Board of Directors
elects, at the directors' meeting following the annual
stockholders' meeting, not to extend the agreements.
The agreements may be terminated by the Company without cause upon
thirty days prior written notice. In the event of termination
without cause, the Company shall for a period of two and one-half
years continue to pay Mr. Buford and for a period of one year
continue to pay Mr. Stivers their base salaries effective at the
time of termination.
If the Executives are involuntarily terminated, other than for
cause, in contemplation of, or within three years following, a
change of control, the Company shall pay the Executives (i) a lump
sum severance payment equal to two and one-half times the
Executives base salary in effect at the time of involuntary
termination, payable as a lump sum, and (ii) continuation of all
employee benefits, executive benefits and perquisites or benefits
reasonably equivalent thereto, for a period of two and one-half
years.
Select Management Employee Security Plan
Except for the Company's Select Management Employee Security Plan,
the Company does not have any plans that could be deemed long-term
incentive plans or defined benefit or actuarial plans under which
benefits are determined primarily by reference to final
compensation. The Select Management Employee Security Plan (the
"Security Plan") provides certain death and retirement benefits to
key employees of the Company. During the fiscal year ended August
31, 1995, ten (10) employees were participating in the Security
Plan (including the three named executive officers in the Summary
Compensation Table above). The Company's Compensation Committee
has discretion to select additional employees (not more frequently
than annually) to participate in the Security Plan.
The Security Plan provides for benefits to be paid to each
participant for a period of ten (10) years after retirement (or to
the beneficiary or estate of a participant for a period of ten (10)
years following the date of death of a participant) in an amount
during each such year equal to approximately 50% of the
participant's salary at the date of retirement or death. All
required benefit payments are provided by individual life
insurance, retirement insurance or annuity type policies which the
Company's Compensation Committee has deemed appropriate. Pursuant
to the Security Plan, the Company makes all contributions to fund
the aggregate amount of insurance premiums required to purchase and
maintain all applicable insurance or annuity type policies.
Any participant in the Security Plan who ceases to be an employee
of the Company prior to attaining the age of fifty (50) and ten
(10) years of employment and before normal retirement date may
elect to purchase his insurance policy for one-third of its cash
value on the date of termination. Any participant who ceases to be
employed after attaining age fifty (50) and ten (10) years of
service but before normal retirement will be assigned his insurance
policy without any payment being required.
-18-
<PAGE>
Stock Option Plan for Key Employees
In 1990, the Company adopted the 1990 Stock Plan for Key Employees
of Temtex Industries, Inc. and its Subsidiaries (the "1990 Plan").
The 1990 Plan provides for the grant of stock options, including
"incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986 and "non-qualified stock options"
which do not constitute incentive stock options, the grant of stock
appreciation rights in connection therewith, and the allotment of
shares of restricted stock, to key employees of the Company.
The 1990 Plan is intended to attract, retain and provide incentives
for eligible key employees. The 1990 Plan is administered by a
committee of the Board of Directors not eligible to receive awards
under the 1990 Plan. Presently the Compensation Committee
administers the Plan. Such committee has authority, in its
discretion, to determine the individuals to whom, and the time or
times at which restricted stock will be allotted or options or
stock appreciation rights will be granted, the number of shares to
be subject to each allotment of restricted stock, stock options and
appreciation rights, the option price for the duration of each
option and other matters in connection with the administration of
the 1990 Plan and the grant of awards thereunder. The exercise
price of any option granted under the 1990 Plan may not be less
than the fair market value of the Common Stock at the date of
grant. Options and stock appreciation rights may be granted and
restricted stock allotted under the 1990 Plan from time to time
until December 31, 1999, on which date such 1990 Plan will
terminate, unless it is sooner terminated as provided therein.
The stockholders at the annual meeting held March 7, 1995, approved
a proposal increasing the shares eligible for issuance pursuant to
the 1990 Plan from 95,000 shares to 195,000 shares of Common Stock
and the aggregate number of options (including stock appreciation
rights) or shares of restricted stock which may be issued to any
one employee in any fiscal year shall not exceed 25,000.
-19-
<PAGE>
Option Grants During 1995 Fiscal Year
The following table specifies the grants of stock options made
during the last completed fiscal year to each of the Company's
executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
----------------- -------------------
Number of % of Total
Securities Options/
Underlying SARS
Options/ Granted to Exercise
SARS Employees or Base
Granted in Fiscal Price Expiration
Name # Year ($/Sh) Date 5% (2) 10% (3)
- ---- ---------- ---------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
E. R. Buford 20,000 28.6% $4.94 7/1/05 $62,200 $157,600
James E. Upfield -0- -0- -0- -0- -0- -0-
R. N. Stivers 10,000 14.3% $4.94 7/1/05 $31,100 $78,800
<FN>
(1) The values shown are based on the indicated assumed annual rates of appreciation compounded annually.
Actual gains realized, if any, on stock option exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall stock market conditions. There can be no assurance
that the values shown in this table will be achieved.
(2) Represents an assumed market price per share of Common Stock of $8.05.
(3) Represents an assumed market price per share of Common Stock of $12.82.
</FN>
</TABLE>
________________________________________________________________
The following table includes the number of shares received upon
exercise, or if no shares were received, the number of securities
with respect to which the options were exercised, the aggregate
dollar value realized upon exercise and the total value of
unexercised options held at the end of the last completed fiscal
year for each of the Company's executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Value of
Number of Securities Unexercised In-
Underlying the-Money
Unexercised Options/SARs at
Options/SARs at FY- FY-End ($)
End (#)
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---- ------------ -------------- -------------------- ---------------
<S> <C> <C> <C> <C>
E. R. Buford -0- -0- Exercisable 50,000 $175,000
Unexercisable 20,000 -0- (1)
J. E. Upfield -0- -0- -0- -0-
R. N. Stivers -0- -0- Exercisable 10,000 $ 35,000
Unexercisable 10,000 -0- (1)
<FN>
(1) The Company's stock price at August 31, 1995 was below the option price.
</FN>
</TABLE>
__________________________________________________________________
-20-
<PAGE>
Stock Option Plan for Outside Directors
In 1990, the Company also adopted the Outside Director Stock Option
Plan (the "Outside Director Plan"). The Outside Director Plan is
intended to encourage more extensive ownership of the Common Stock,
to provide incentives and to attract and retain eligible outside
directors of the Company. Under the Outside Director Plan, 30,000
shares of Common Stock were reserved. The Outside Director Plan is
presently administered by the Board of Directors. The Board of
Directors has authority, in its discretion, to determine the
outside directors to whom, and the time or times in which, options
will be granted, the number of shares to be subject to each option,
and the purchase price of the shares covered by each option. The
exercise price of any option granted under the Outside Director
Plan may not be less than the fair market value of the Common Stock
at the date of the grant. Options granted under the Outside
Director Plan are non-qualified options for federal income tax
purposes.
The following table shows stock options granted and presently
exercisable to outside directors from May 23, 1990 to August 31,
1995:
<TABLE>
<CAPTION>
Options
Granted and Value of Unexercised
Presently Option In-The-Money Options
Name of Director Exercisable Price At Fiscal Year End
- ---------------- ----------- ------ --------------------
<S> <C> <C> <C>
Joseph V. Mariner, Jr. 2,500 $2.00 $ 6,725
2,500 $1.44 8,125
----- -------
5,000 $14,850
===== =======
Larry J. Parsons 2,500 $2.00 $ 6,725
2,500 $1.44 8,125
----- -------
5,000 $14,850
===== =======
Scott K. Upfield 2,500 $1.44 $ 8,125
===== =======
Richard W. Griner 2,500 $4.81 $-0- (1)
=====
<FN>
(1) The Company's stock price at August 31, 1995 was below the option price.
</FN>
</TABLE>
Directors' Remuneration
Those directors who are salaried employees of the Company receive
no additional compensation for their services as directors or as
members of committees of the Board. Cash compensation currently
payable to the other directors for services in that capacity
consists of a retainer of $2,500 per year and a fee of $750 (in
addition to travel expenses) for each day of each meeting of the
Board of Directors attended. No additional retainers are paid for
serving on a committee; however, if one or more committee meetings
are held on a day other than one on which a Board meeting is held,
committee members are paid a fee of $750 (in addition to travel
expenses) for each day of such meeting or meetings.
Directors who are not regular salaried officers or employees who
render services to the Company in a capacity or capacities other
than that of a director (for example, as consultants or attorneys)
may be compensated for such other services, and such compensation
for other services shall not, except insofar as may be specified by
the Company in particular cases, affect the cash compensation
payable to such directors in their capacities as directors and
members of committees of the Board of Directors.
-21-
<PAGE>
Compensation Committee Interlocks and Insider Participation
James E. Upfield was, during the fiscal year, an officer of the
Company and a member of the Compensation Committee of the Board of
Directors. Mr. Upfield has engaged in certain transactions with
the Company described under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS".
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors consists of
Mr. Mariner (Chairman), Mr. Parsons, Mr. James E. Upfield and Mr.
Scott K. Upfield. The Compensation Committee's primary function is
to review the compensation awarded to the executive officers of the
Company.
In determining executive compensation, the Compensation Committee
reviews the performance of the specific executive, the operating
performance of the Company, the compensation of executives of
companies which are comparable to the Company and the performance
of the Company's Common Stock. Particular emphasis is given to the
operating results of the Company. The Company's Compensation
Committee has access to, and review reports of, independent
financial consultants who assimilate and evaluate the compensation
of executive officers employed by companies which are generally
comparable to the Company. The cumulative weight of all such
factors is then generally considered to determine whether or not a
particular executive should receive an increase in compensation, an
incentive bonus under the Company's Executive Bonus Plan, a stock
option or stock grant under the Company's Stock Option Plan for Key
Employees, or any other compensation benefits.
The Compensation Committee believes that in order for the Company
to succeed, it must attract and retain qualified executives who can
not only perform satisfactorily on an individual basis but who can
also retain and manage a quality staff of other executive officers
and key employees. Thus, in addition to applying the criteria
generally applicable to all executive officers, in determining the
compensation of the chief executive officer the Compensation
Committee may also be influenced to a significant extent by the
overall performance of the Company's other executives and key
employees. After a review of all of such factors and with the
advice of independent compensation consultants, the Compensation
Committee recommended in 1994 that the Company enter into a three
year employment agreement with Mr. E. R. Buford (the Chief
Executive Officer), which provided for, among other things, a base
compensation of $201,300 per annum. Upon review of a report of
independent financial consultants dated February 24, 1995 which
opined that a base salary of $208,000 and total cash compensation
of $299,700 for the Chief Executive Officer would be "competitive",
the Compensation Committee recommended that the Chief Executive's
base salary be increased to $208,000 per annum but did not
recommend that any bonus be paid for fiscal 1995.
Mr. Joseph V. Mariner, Jr.
Mr. James E. Upfield
Mr. Scott K. Upfield
Mr. Larry J. Parsons
-22-
<PAGE>
Performance Graph
The following table compares the performance of the Company's
Common Stock with certain comparable indices:
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE
RETURN AMONG TEMTEX INDUSTRIES, INC.,
DOW JONES INDUSTRIAL AND
DOW JONES FURNISHINGS & APPLIANCES
<CAPTION>
Company/Index 1990 1991 1992 1993 1994 1995
- ------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TEMTEX INDUSTRIES, INC. $100.00 $ 60.10 $ 66.48 $571.80 $571.80 $249.46
Dow Jones Industrial $100.00 $127.45 $142.40 $159.31 $176.98 $226.58
Dow Jones Furnishings
& Appliances $100.00 $160.35 $176.48 $282.36 $241.77 $277.41
</TABLE>
-23-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The Company knows of no person owning beneficially more
than 5% of the Company's Common Stock, except for the following
person who owned, as of November 15, 1995, the number of shares of
Common Stock of the Company set forth opposite his name in the
table below:
<TABLE>
<CAPTION>
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership (1) of Class
- -------- ------------------- ----------------- --------
<S> <C> <C> <C>
Common Stock James E. Upfield 1,017,850 (2) 29.4%
3010 LBJ Freeway
Suite 650
Dallas, Texas 75234
Common Stock Kalmar Investments, Inc. 218,725 6.3%
1300 Market Street
Suite 500
Wilmington, Delaware 19801
Common Stock Kennedy Capital Manage., Inc. 197,400 5.7%
425 N. New Ballas Road
Suite 181
St. Louis, Missouri 63141-6821
_______________
<FN>
(1) The nature of the beneficial ownership of the shares is sole voting and investment power unless
indicated otherwise.
(2) Includes 24,750 shares of Common Stock held of record by HUTCO, a partnership comprised of Mr.
Upfield and a former director of the Company. Mr. James E. Upfield has shared voting and
investment power with respect to such shares of Common Stock.
</FN>
</TABLE>
-24-
<PAGE>
(b) The following table sets forth the beneficial ownership
(as defined by the rules of the Securities and Exchange Commission)
of Common Stock of the Company by the incumbent directors, nominees
for director and all directors and officers as a group, together
with the percentage of the outstanding shares which such ownership
represents. Information is stated as of November 15, 1995.
<TABLE>
<CAPTION>
Amount and
Title of Name or Identity Nature of Bene- Percent of
Class of Group ficial Ownership (1) Class
- -------- ---------------- -------------------- ----------
<S> <C> <C> <C>
Common Stock James E. Upfield 1,017,850(2) 29.4%
Common Stock E. R. Buford 89,062(3) 2.6%
Common Stock Joseph V. Mariner, Jr. 5,225(4) *
Common Stock Larry J. Parsons 5,500(4) *
Common Stock Scott K. Upfield 28,000(5) *
Common Stock Richard W. Griner 3,000(5) *
Common Stock R. N. Stivers 22,543(6) *
--------- ----
1,171,180 33.8%
__________
<FN>
* Denotes less than 1%.
(1) The nature of the beneficial ownership of the shares by the respective persons or group is sole
voting and investment power unless otherwise indicated.
(2) Includes 24,750 shares of Common Stock over which Mr. James E. Upfield has shared voting and
investment power owned by HUTCO, a partnership comprised of Mr. James E. Upfield and a former
director of the Company.
(3) Includes 50,000 shares of Common Stock exercisable under the 1990 Plan.
(4) Includes 5,000 shares of Common Stock exercisable under the Outside Director Plan.
(5) Includes 2,500 shares of Common Stock exercisable under the Outside Director Plan.
(6) Includes 10,000 shares of Common Stock exercisable under the 1990 Plan.
</FN>
</TABLE>
-25-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the Annual Meeting of Stockholders of the Company held December
21, 1976, the Company's stockholders approved a Share Purchase
Agreement ("Agreement") among the Company, Mr. James E. Upfield and
RepublicBank Dallas, (succeeded by NationsBank of Texas, N.A.) as
trustee (the "Trustee"), pursuant to which the Company may
purchase, or may be required, following the death of Mr. Upfield,
to purchase from the estate of Mr. Upfield (the "Estate") up to
that maximum number of shares of Common Stock whose aggregate
purchase price does not exceed the lesser of (a) the sum of (i) the
estate, inheritance, legacy and succession taxes (including any
interest collected as a part of such taxes) imposed because of Mr.
Upfield's death and (ii) the amount of funeral and administrative
expenses allowable as deductions in computing the taxable estate of
Mr. Upfield under Section 2053 of the Code, or (b) the amount paid
to the Trustee pursuant to the Agreement upon and by reason of the
death of Mr. Upfield pursuant to a life insurance policy in the
amount of $500,000 carried by the Company on the life of Mr.
Upfield.
The purpose of the Agreement is to provide an orderly means for the
Estate to raise funds to pay all estate and inheritance taxes and
funeral and administrative expenses without necessitating the sale
of a large number of shares of Common Stock in the over-the-counter
market, an event which, in the opinion of the Company, would have,
primarily because of the limited volume of trading in such shares,
a potentially serious adverse effect on the price of the Common
Stock.
The purchase price of a share of Common Stock under the Agreement
is an amount equal to 90% of the mean between the highest and
lowest quoted selling price for a share of Common Stock in any
public securities exchange or market, if available, or otherwise
the mean between the bona fide closing bid and asked prices
therefore in said exchange or market, on the date of death of Mr.
Upfield, or if no such sales or bid and asked prices are available
on such date, then the weighted average of the mean between the
highest and lowest selling prices, or bona fide bid and asked
prices, as the case may be, for a share of Common Stock on the
nearest trading date before and the nearest trading date after the
date of death of Mr. Upfield (such average to be weighted inversely
by the respective number of trading dates between the selling dates
or the price quotation dates and such date of death in the same
manner used in determining the valuation of stock for federal
estate tax purposes as set forth in Treasury Regulation Section
20.2031-2(d) promulgated by the Commissioner of Internal Revenue under
Section 2031 of the Code). Such purchase price would have been
$4.06, if computed as of November 15, 1995.
The Estate will not be obligated to sell any shares of Common Stock
under the Agreement unless prior to the closing of such sale the
Estate has obtained a ruling from the Internal Revenue Service, or
an opinion of counsel satisfactory in form and content to the
Estate, to the effect that the purchase by the Company will be
treated as a distribution in full payment and exchange therefor
under Section 302(b) of the Code. The Company will not be required
to purchase any shares of Common Stock under the Agreement if and
to the extent that such a purchase would result in an impairment of
its capital or would otherwise be in violation of applicable state
law relative to the Company's purchase of its shares of Common
Stock.
The Company, pursuant to the Agreement, has transferred to the
Trustee, as beneficiary, an existing life insurance policy on the
life of Mr. Upfield in the amount of $500,000. The Company is the
owner of such insurance policy; however, under certain conditions
described below, Mr. Upfield will have the right to purchase all,
or any part, of such policy. The premium payable by the Company
for such insurance policy is $21,049 per year. The premiums paid
by the Company are not deductible by it for federal income tax
purposes, and the proceeds of the policy when paid to the Trustee
and used to purchase the shares of Common Stock under the Agreement
or transferred to the Company will not constitute income to the
Company for federal income tax purposes.
The Trustee is to hold in its custody until the death of Mr.
Upfield or termination of the Agreement (in which event it is to
return to the Company) the insurance policy on the life of Mr.
Upfield. Upon and after the death of Mr. Upfield, the Trustee is
to make claim for, collect, hold, deposit or invest, and pay over
the proceeds of the insurance policy on the life of Mr. Upfield and
any deposits or investments thereof and interest earned thereon
-26-
<PAGE>
for the account of the Company. In the event the proceeds from
such insurance policy are greater than the amount required to
purchase the shares of Common Stock from the Estate, such excess
will be paid to the Company. The Company will reimburse the Trustee
for its expenses in carrying out the provisions of the Agreement
and will pay reasonable and customary compensation.
The Agreement may be terminated (a) upon the determination of
bankruptcy or the dissolution of the Company, (b) upon the
cessation of regular business of the Company, (c) at the option of
the Company, in the event the purchase price thereunder exceeds
200% of the book value of a share of Common Stock, determined as of
the end of the fiscal quarter immediately preceding the date of Mr.
Upfield's death, (d) at the option of the Estate, in the event the
purchase price thereunder is less than 75% of the book value of a
share of Common Stock, determined as of the end of the fiscal
quarter immediately preceding the date of Mr. Upfield's death or
(e) by the mutual written consent of Mr. Upfield or the Estate and
the Company. In addition, if Mr. Upfield disposes, during his
lifetime, of all of the Common Stock he now owns, the Agreement
will be terminated.
The Agreement provides that if it is terminated during Mr.
Upfield's life, he will have the right to purchase from the Company
any part or all of the insurance policy on his life subject to the
Agreement. The purchase price of such insurance policy will be
equal to its cash surrender value, net of any policy indebtedness,
plus any unearned premium thereon at the date of purchase.
The manufacturing plant and related real property in Manchester,
Tennessee is leased by TFPI from HUTCO, a California partnership of
which Mr. James E. Upfield and a former director are the general
partners. The Manchester facility, which was originally subject to
a five-year lease with an option to purchase between TFPI and the
former owner, was acquired by HUTCO upon the assignment to it of
TFPI's option to purchase following TFPI's inability to secure
financing upon acceptable terms. The lease between TFPI and HUTCO
is for a twenty-five year term commencing November 15, 1989 and
provides for monthly rental payments of $13,020 (subject to certain
scheduled rent escalations based upon increases in the consumer
price index). During the 1994 fiscal year, the Company entered
into a new twenty-five year lease agreement with HUTCO. The new
lease agreement provides for a 30,000 square foot expansion to the
facility with monthly rental payments of $21,500 commencing January
1, 1995. The new lease is subject to certain scheduled rent
escalations based upon increases in the consumer price index.
In the opinion of management of the Company, the leases of the TFPI
manufacturing facility from HUTCO have been consummated on terms
and conditions as favorable to the Company as terms and conditions
obtainable from non-affiliated parties.
In 1994, the Company entered into employment agreements with
Messrs. E. R. Buford and R. N. Stivers. The employment agreements
are described under the caption "Executive Compensation-Employment
Contract Agreements."
-27-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) and (2) The response to this portion of Item 14
is submitted as a separate section of
this report.
(3) Listing of Exhibits: The response to
this portion is presented in Item (c).
(b) During the fourth quarter of the period covered by this
report, there were no reports filed on Form 8-K.
(c) Exhibits:
(3) Articles of Incorporation and Bylaws.
3.1 Amended and Restated Certificate of
Incorporation. *
3.2 Amended and Restated Bylaws. *
(10) Material Contracts
10.10 1990 Stock Option Plan for Key
Employees of Temtex Industries,
Inc. and its subsidiaries. *
10.11 Outside Directors Stock Option
Plan of Temtex Industries,
Inc. *
10.12 Share Purchase Agreement
between the Registrant and Mr.
James E. Upfield effective
December 21, 1976. *
10.13 Lease Agreement between the
Registrant and Mr. John D.
Howard, a former Director of
the Registrant, dated October
1, 1973 (the "Howard Lease
Agreement"). *
10.14 Second Amendment to the Howard
Lease Agreement dated August
22, 1983. *
10.15 Lease Agreement between HUTCO
and the Registrant, dated
September 7, 1989. *
10.16 Lease Agreement between HUTCO
and the Registrant, dated April
25, 1994. **
10.17 Loan Agreement between
NationsBank of Texas, N.A. and
the Registrant dated May 3,
1994. **
10.18 Employment contract between E.
R. Buford and the Registrant
dated June 7, 1994. **
-28-
<PAGE>
10.19 Employment contract between R.
N. Stivers and the Registrant
dated June 7, 1994. **
10.20 First amendment to the loan
agreement between NationsBank
of Texas, N.A. and the
Registrant dated May 3,
1994.***
10.21 Second amendment to the loan
agreement between NationsBank
of Texas, N.A. and the
Registrant dated May 3,
1994.***
(21) Subsidiaries of the Registrant.
21.1 Subsidiaries of the
Registrant. *
(23) Consents of Experts and Counsel.
23.1 Consent of Independent Auditors ***
(27) Financial Data Schedule
27.1 Financial Data Schedule ***
(d) Financial Statement Schedules -- The response to this
portion of Item 14 is submitted as a separate section of
this report.
* Filed as an exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993, and incorporated
by reference herein.
** Filed as an exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1994, and incorporated
by reference herein.
*** Filed herewith.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TEMTEX INDUSTRIES, INC.
/s/ James E. Upfield
________________________
James E. Upfield
Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ James E. Upfield
____________________ Director, Chairman of the Board 11/21/95
James E. Upfield
/s/ E. R. Buford
____________________ Director, President and Chief
E. R. Buford Executive Officer 11/21/95
/s/ R. N. Stivers
____________________ Vice President-Finance,
R. N. Stivers Chief Financial Officer and
Chief Accounting Officer 11/21/95
/s/Larry J. Parsons
_____________________ Director 11/21/95
Larry J. Parsons
</TABLE>
-30-
<PAGE>
FORM 10-K -- ITEM 8 AND ITEM 14(a)(1) and (2)
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Report of Ernst & Young, Independent Auditors
Consolidated balance sheets -- August 31, 1995 and 1994
Consolidated statements of operations -- Years ended August
31, 1995, 1994 and 1993
Consolidated statements of stockholders' equity -- Years ended
August 31, 1995, 1994 and 1993
Consolidated statements of cash flows -- Years ended August
1995, 1994 and 1993
Notes to consolidated financial statements -- August 31, 1995
Financial statement schedules:
II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and, therefore have been omitted.
Individual financial statements of the Company have been omitted as
the Company is primarily an operating company, and the subsidiaries
included in the consolidated financial statements, filed, in the
aggregate, do not have minority equity interests and/or
indebtedness to any person other than the Company in amounts which
together (excepting indebtedness incurred in the ordinary course of
business which is not overdue and matures within one year from the
date of its creation, whether or not evidenced by securities)
exceed five percent of the total assets as shown by the most recent
year-ended consolidated balance sheet.
<PAGE>
Ernst & Young LLP
Dallas, Texas
Report of Independent Auditors
Board of Directors
Temtex Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Temtex Industries, Inc. and subsidiaries as of August 31, 1995 and
1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in
the period ended August 31, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 mistatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Temtex Industries, Inc. and subsidiaries at
August 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of three years in the period
ended August 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst & Young LLP
October 13, 1995
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
August 31,
1995 1994
-------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 736 $ 627
Accounts receivable, less allowance for
doubtful accounts: 1995--$541,000
and 1994--$522,000--Note D 7,011 7,729
Inventories--Notes C and D 8,773 8,784
Prepaid expenses and other assets 401 442
Income taxes recoverable--Note H 443 --
Deferred taxes--Note H 350 93
------- -------
TOTAL CURRENT ASSETS 17,714 17,675
DEFERRED TAXES--Note H 530 871
OTHER ASSETS 366 370
ASSETS RELATED TO DISCONTINUED OPERATIONS--Note I 99 105
PROPERTY, PLANT AND EQUIPMENT--Notes D and G
Land and clay deposits 325 120
Buildings and improvements 3,496 2,320
Machinery, equipment, furniture and
fixtures 21,448 18,082
Leasehold improvements 742 613
------- -------
26,011 21,135
Less allowances for depreciation,
depletion and amortization 17,505 16,408
------- -------
8,506 4,727
------- -------
$27,215 $23,748
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
August 31,
1995 1994
-------------------
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable--Note D $ 2,000 $ 375
Accounts payable 4,144 4,819
Accrued expenses--Note E 1,786 2,069
Income taxes payable--Note H -- 3
Current maturities of indebtedness
to related parties--Notes D and G 7 7
Current maturities of long-term obliga-
tions--Note D 763 213
------- -------
TOTAL CURRENT LIABILITIES 8,700 7,486
INDEBTEDNESS TO RELATED PARTIES,
less current maturities--Notes D and G 1,621 947
LONG-TERM OBLIGATIONS, less current
maturities--Note D 1,478 399
COMMITMENTS AND CONTINGENCIES--Notes G and M
STOCKHOLDERS' EQUITY--Notes B, F and L
Preferred stock--$1 par value; 1,000,000
shares authorized, none issued -- --
Common stock--$.20 par value; 10,000,000
shares authorized, 5,265,625 shares
issued at 8/31/95 and 5,258,125 shares
issued at 8/31/94 715 714
Additional capital 9,225 9,215
Retained earnings 5,803 5,314
------- -------
15,743 15,243
Less:
Treasury stock:
At cost--113,696 shares 327 327
At no cost--1,687,788 shares -- --
------- -------
15,416 14,916
------- -------
$27,215 $23,748
======= =======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993
----------------------------------
(in thousands except share data)
<S> <C> <C> <C>
Net sales $ 42,904 $ 43,935 $ 34,107
Cost of goods sold 30,962 29,391 23,657
---------- ---------- ----------
11,942 14,544 10,450
Costs and expenses:
Selling, general and administrative 10,782 10,291 7,735
Interest 424 526 903
Other income--Note B (122) (71) (45)
---------- ---------- ----------
11,084 10,746 8,593
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 858 3,798 1,857
State and federal income
taxes--Note H:
Provision (benefit) 369 (280) 183
Provision in lieu of income taxes -- -- 530
---------- ---------- ----------
369 (280) 713
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 489 4,078 1,144
Loss from discontinued
operations, less applicable federal
tax benefit of $22,000 in
1993--Note I -- -- (87)
Extraordinary gain from
utilization of operating loss
carryforward--Note H -- -- 530
---------- ---------- ----------
NET INCOME $ 489 $ 4,078 $ 1,587
========== ========== ==========
Income per common share:
Income from continuing
operations before extraordinary
item $ .14 $ 1.25 $ .45
Loss from discontinued operations -- -- (.03)
Extraordinary item -- -- .21
---------- ---------- ----------
NET INCOME $ .14 $ 1.25 $ .63
========== ========== ==========
Weighted average common and common
equivalent shares outstanding 3,502,887 3,272,568 2,520,189
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Retained Cost of
Outstanding Additional Earnings Treasury
Shares Amount Capital (Deficit) Stock
------ ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1992 2,456,641 $514 $2,886 $ (351) $327
Net income 1,587
--------- ---- ------ ------ ----
BALANCE AT AUGUST 31, 1993 2,456,641 514 2,886 1,236 327
Stock offering 1,000,000 200 6,329
Net income 4,078
--------- ---- ------ ------ ----
BALANCE AT AUGUST 31, 1994 3,456,641 714 9,215 5,314 327
Exercise of stock options 7,500 1 10
Net income 489
--------- ---- ------ ------ ----
BALANCE AT AUGUST 31, 1995 3,464,141 $715 $9,225 $5,803 $327
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993
------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 489 $4,078 $1,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,509 1,074 842
Provision in lieu of income taxes -- -- 530
Deferred taxes 84 (940) --
Extraordinary gain from utilization of operating
loss carryforward -- -- (530)
Gain on disposition of buildings and equipment (94) (24) (23)
Provision for doubtful accounts 186 402 197
Provision for losses on assets related
to discontinued operations -- 16 75
Changes in operating assets and liabilities:
Accounts receivable 532 (2,754) (1,569)
Inventories 11 (2,497) (1,304)
Prepaid expenses and other assets 45 180 (231)
Accounts payable and accrued expenses (958) 1,046 1,647
Income taxes payable (446) (240) 136
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,358 341 1,357
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,254) (1,978) (1,173)
Expenditures on assets related to discontinued
operations -- (333) --
Proceeds from disposition of property, plant
and equipment 99 34 45
Proceeds from disposition of assets and other
receipts related to discontinued operations 6 839 58
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (4,149) (1,438) (1,070)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term borrowings 3,893 485 469
Principal payments on revolving line of
credit, long-term obligations and indebtedness
to related parties (1,004) (5,700) (691)
Proceeds from issuance of common stock 11 6,529 --
------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,900 1,314 (222)
------ ------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 109 217 65
Cash and cash equivalents at beginning of year 627 410 345
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 736 $ 627 $ 410
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Capital lease obligations $1,040 $ 20 $ 140
Charges to allowance for doubtful accounts $ 173 $ 290 $ 165
Interest added to outstanding line of credit
balance $ -- $ -- $ 427
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
August 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of Temtex Industries, Inc. (the Company) and
its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Inventories: Raw materials and supplies are stated at the lower of
cost or replacement value. Work in process and finished goods are
stated at the lower of cost or net realizable value, which is less
than replacement value.
Property, Plant and Equipment: Property, plant and equipment are
carried at cost. Capitalized leases are carried at the present
value of the net fixed minimum lease commitments, as explained in
Note G. Depreciation on buildings and equipment is provided using
principally accelerated methods. Depletion of clay deposits and
amortization of leasehold improvements and capitalized leases are
computed using the straight-line method. The estimated useful
lives used in computing depreciation, depletion, and amortization
are:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Clay deposits 10-20
Buildings and improvements 5-30
Machinery, equipment, furniture and fixtures 3-15
Leasehold improvements Life of lease
</TABLE>
Expenditures for maintenance and repairs are charged to operations;
betterments are capitalized.
Federal Income Taxes: The Company and its wholly-owned
subsidiaries file a consolidated federal income tax return.
Income Per Common Share: Income per common share is based upon the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents
include options granted to key employees and outside directors (see
Note F). The number of common stock equivalents was based on the
number of shares issuable on the exercise of options reduced by the
number of common shares that are assumed to have been purchased at
the average price of the common stock during the year with the
proceeds from the exercise of the options. Fully diluted income
per common share is not presented because dilution is not
significant.
On December 17, 1993, the Company completed the sale of 1,000,000
shares of its common stock in a public offering. A portion of the
proceeds of the sale were used to repay borrowings under the
Company's revolving credit agreement and long-term debt. If the
common stock offering had occurred on September 1, 1993, the effect
on earnings per share in fiscal 1994 would not be significant.
Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased
to be cash equivalents.
<PAGE>
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--Continued
Concentration of Credit Risk: The Company manufactures and sells
fireplace and brick products to companies in the construction
industry. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require
collateral. Receivables generally are due within 30 days. Credit
losses consistently have been within management's expectations.
NOTE B--PUBLIC OFFERING AND NONRECURRING ITEMS
During 1994, the Company settled a lawsuit that arose in a prior
year. The proceeds of the settlement were used to offset related
legal expenses and assets related to discontinued operations.
In December 1993, the Company completed a secondary stock offering
in which 1,000,000 shares of common stock were issued which
provided the Company with approximately $6,529,000, net of
expenses.
NOTE C--INVENTORIES
Inventories by costing method are summarized below:
<TABLE>
<CAPTION>
First-in Average
First-out Cost Total
--------- ------- -----
(in thousands)
<S> <C> <C> <C>
August 31, 1995:
Finished goods $2,527 $ 643 $3,170
Work in process 706 93 799
Raw materials and supplies 4,281 523 4,804
------ ------ ------
$7,514 $1,259 $8,773
====== ====== ======
August 31, 1994:
Finished goods $2,963 $ 441 $3,404
Work in process 704 95 799
Raw materials and supplies 4,105 476 4,581
------ ------ ------
$7,772 $1,012 $8,784
====== ====== ======
</TABLE>
NOTE D--NOTES PAYABLE AND LONG-TERM DEBT
In May, 1994, the Company entered into a two year credit agreement
with a bank whereby the Company may borrow a maximum of $3,000,000
under a revolving credit note. The amount available under the
credit agreement is subject to limitations based on specified
percentages of the Company's outstanding eligible receivables and
inventory. At the option of the Company, borrowings under the
demand note may bear interest at the lending bank's prime
commercial interest rate or a match funded rate option at the
London Interbank Offered Rate ("LIBOR") plus 2%. Interest is
payable on a quarterly basis. The weighted average interest rate
on the outstanding balance of the revolving credit note was 7.9%
and 6.9% at August 31, 1995 and August 31, 1994, respectively. In
fiscal 1995, the loan agreement was amended whereby a promissory
note in the amount $1,212,000 was added with the same options for
calculation of interest charges as in the revolving credit note.
The term note requires quarterly payments of principal and interest
with the final payment due in March, 1998. At August 31, 1995,
<PAGE>
$2,000,000 was outstanding under the revolving credit note and
$1,084,000 was outstanding under the term note. The loan agreement
contains covenants that require the maintenance of a specified
ratio of total liabilities to tangible net worth, as defined, and
a fixed charge flow coverage ratio, as defined, on the basis of the
most recent four quarters.
In December, 1993, the Company completed a secondary offering of
one million shares of common stock. The offering provided the
Company with approximately $6,529,000, net of expenses. A portion
of the proceeds was used to retire debt outstanding at that time
with the remaining portion being used for working capital purposes.
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
August 31,
1995 1994
--------------
(in thousands)
<S> <C> <C>
Long-term obligations:
Term loan, due in quarterly
installments of $98,545 through March 1998 $1,084 $ --
Capitalized lease obligations, with interest
at 8.8% to 16.7%--Note G 2,209 1,289
Equipment notes with interest at 8.0%
to 9.8%, due in monthly installments
ending in 1999 576 277
______ ______
3,869 1,566
Less current maturities 770 220
------ ------
$3,099 $1,346
====== ======
</TABLE>
Annual maturities of long-term obligations for each of the five
succeeding fiscal years and thereafter are $770,000, $587,000,
$429,000, $58,000, $41,000, and $1,984,000.
The Company made interest payments in 1995, 1994 and 1993,
respectively, of $363,000, $580,000 and $460,000.
NOTE E--ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
August 31,
1995 1994
-------------
(in thousands)
<S> <C> <C>
Employee compensation $ 483 $ 825
Taxes, other than taxes on income 130 152
Interest 157 96
Other 1,016 996
------ ------
$1,786 $2,069
</TABLE>
<PAGE>
NOTE F--STOCK OPTIONS
In 1990, the Company adopted a stock option plan for key employees
to replace a prior plan that expired on August 31, 1989. Options
may include "incentive stock options" within the meaning of Section
422A of the internal Revenue Code of 1986 or "non-qualified stock
options." Options and SARs may be granted to key employees at
prices not less than the market value at the date of grant for
terms not to exceed ten years in the case of incentive stock
options and ten years and one month in the case of non-qualified
stock options. Under the original plan, 95,000 shares of common
stock were reserved for future issuance. The plan was amended in
1995 in which the number of shares eligible for issuance was
increased to 195,000 and the aggregate number of options which may
be awarded to any one employee in any fiscal year will not exceed
25,000.
In 1990, the Company adopted a stock option plan for directors of
the Company who are not employees of the Company. Options may be
granted at prices not less than the market value of the stock at
the time of the grant for terms not to exceed ten years from the
date of the grant. The maximum number of shares for which options
may be granted to any outside director during a calendar year is
2,500. Under this plan, 30,000 shares of common stock were
reserved for future issuance.
The following table indicates the number of options granted and
exercised for each plan:
<TABLE>
<CAPTION>
Key Outside
Employee Director
Plan Plan
-------- --------
<S> <C> <C>
Options outstanding at September 1, 1993 90,000 12,500
Granted -- --
Exercised -- --
------- ------
Options outstanding at August 31, 1994 90,000 12,500
Granted 70,000 2,500
Exercised 7,500 --
------- ------
Options outstanding at August 31, 1995 152,500 15,000
======= ======
Options exercisable at August 31, 1995 82,500 15,000
======= ======
</TABLE>
Option prices range from $1.19 to $4.94 per share and expire
between 1999 and 2005.
NOTE G--LEASE COMMITMENTS
Two plant facilities leased from a former director are accounted
for as a capitalized lease. The leased properties were capitalized
at the initial value of $635,000. In 1995, the Company exercised
its option to renew the lease which increased the term of the lease
by ten years and added to the value of the lease. The leased
properties have a combined net book value of $423,000 and $111,000
at August 31, 1995 and 1994, respectively.
A third manufacturing facility, accounted for as a capitalized
lease, is leased from a partnership consisting of the Company's
Chairman and a former director. This facility was capitalized at
the initial value of $976,000. During 1995, the facility was
expanded, at the expense of the partnership, and the original lease
canceled. The new twenty-five year lease negotiated by the Company
has basically the same provisions as the original, with an increase
in the lease payments in consideration of the expense incurred in
the expansion. The facility has a net book value of $1,428,000 and
$801,000
<PAGE>
at August 31, 1995 and 1994, respectively. This lease obligation
is classified as "Indebtedness to Related Parties".
Other plant and office facilities are leased under operating lease
agreements which expire at various dates through fiscal 1998. The
capitalized leases expire in fiscal 2009 and fiscal 2019.
Future minimum payments, by year and in the aggregate, under
capital leases and noncancelable operating leases, consisted of the
following at August 31, 1995:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
Fiscal Year:
1996 $ 373 $ 187
1997 352 148
1998 345 120
1999 334 107
2000 334 96
Thereafter 5,516 46
------ ------
Total minimum lease payments 7,254 $ 704
======
Amount representing interest 5,045
------
Present value of net minimum
lease payments $2,209
======
</TABLE>
Rental expense for operating leases was $265,000, $255,000 and
$180,000 in 1995, 1994 and 1993, respectively.
NOTE H--INCOME TAXES
Significant components of the provision (benefit) for income taxes
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1995 August 31, 1994
--------------- ---------------
(in thousands)
<S> <C> <C>
Current:
Federal $173 $ 570
State 112 90
---- ------
Total current 285 660
Deferred:
Federal 123 677
State (39) 57
---- ------
Total deferred 84 734
Change in valuation allowance -- (1,674)
---- ------
Total income tax $369 $ (280)
==== ======
</TABLE>
The Company utilized all of its net operating loss and investment
tax credit carryforwards of $997,000 and $459,000, respectively, in
1994.
<PAGE>
NOTE H--INCOME TAXES (continued)
The differences between the provision for income taxes and income
taxes computed using the federal statutory income tax rate are as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1995 August 31, 1994
--------------- ---------------
(in thousands)
<S> <C> <C>
Federal income tax
provision at statutory rate $292 $1,291
Additional statutory percentage
depletion (55) (52)
State income taxes, net of federal
tax benefit 49 129
Other 83 26
Change in valuation allowance -- (1,674)
---- -------
Total income taxes $369 $ (280)
==== =======
</TABLE>
Deferred income taxes are recognized using the liability method and
reflect the tax impact of temporary differences between the amount
of assets and liabilities for financial purposes and such amounts
as measured by tax laws and regulations. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
August 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowance $233 $198
Capital lease obligation 85 95
Book over tax depreciation 232 539
Other 393 158
---- ----
Total deferred tax assets 943 990
Deferred tax liabilities (63) (26)
---- ----
Net deferred tax assets $880 $964
==== ====
</TABLE>
The Company made income tax payments in 1995, 1994 and 1993,
respectively, of $735,000, $857,000 and $39,000.
NOTE I--DISCONTINUED OPERATIONS
In 1993, management of the Company decided to discontinue the
Company's contract products segment. In fiscal 1993, a charge to
cost of goods sold of approximately $109,000 is included in the
Consolidated Statements of Operations under the caption "loss for
discontinued operations".
The manufacturing facility and remaining equipment are on the
market to be sold.
At August 31, 1995 assets related to the discontinued contract
products operations were stated at estimated realizable values and
consisted of land, building and equipment.
NOTE J--EMPLOYEE BENEFIT PLAN
During 1992, the Company adopted a defined contribution pension
plan covering substantially all of its employees. The Company
contribution is .25 for each $1.00 contributed by an employee (up
to 4% of eligible wages).
<PAGE>
The total expense for Company contributions was $35,000, $45,000
and $40,000 in 1995, 1994 and 1993, respectively.
NOTE K--BUSINESS SEGMENTS
The following financial information is presented for the Company's
business segments:
<TABLE>
<CAPTION>
Face Brick Fireplace
Products Products Total
---------- --------- -----
(in thousands)
<S> <C> <C> <C>
1995:
Net sales $8,400 $34,504 $42,904
====== ======= =======
Operating profit $1,241 $ 1,089 $ 2,330
====== =======
Unallocated corporate
expense, net (1,170)
Interest expense (424)
Other income 122
-------
Income from continuing
operations before income taxes $ 858
=======
Identifiable assets $4,053 $20,611 $24,664
====== =======
Corporate assets 2,452
Assets related to
discontinued operations 99
-------
Total assets $27,215
=======
Depreciation, depletion
and amortization $ 345 $ 1,163
====== =======
Capital expenditures $1,264 $ 4,030
====== =======
</TABLE>
<PAGE>
NOTE K--BUSINESS SEGMENTS--Continued
<TABLE>
<CAPTION>
Face Brick Fireplace
Products Products Total
---------- ---------- ------
(in thousands)
<S> <C> <C> <C>
1994:
Net sales $8,611 $35,324 $43,935
====== ======= =======
Operating profit $1,544 $ 4,315 $ 5,859
====== =======
Unallocated corporate
expense, net (1,606)
Interest expense (526)
Other income 71
-------
Income from continuing
operations before income taxes $ 3,798
=======
Identifiable assets $3,321 $18,387 $21,708
====== =======
Corporate assets 1,935
Assets related to
discontinued operations 105
-------
Total assets $23,748
=======
Depreciation, depletion
and amortization $ 301 $ 781
====== =======
Capital expenditures $ 436 $ 1,561
====== =======
</TABLE>
<PAGE>
NOTE K--BUSINESS SEGMENTS--Continued
<TABLE>
<CAPTION>
Face Brick Fireplace
Products Products Total
---------- --------- -----
in thousands)
<S> <C> <C> <C>
1993:
Net sales $7,736 $26,371 $34,107
====== ======= =======
Operating profit $1,086 $ 2,807 $ 3,893
====== =======
Unallocated corporate
expense, net (1,178)
Interest expense (903)
Other income 45
-------
Income from continuing operations
before income taxes $ 1,857
=======
Identifiable assets $3,015 $12,936 $15,951
====== =======
Corporate assets 952
Assets related to
discontinued operations 627
-------
Total assets $17,530
=======
Depreciation, depletion
and amortization $ 272 $ 566
====== =======
Capital expenditures $ 334 $ 973
====== =======
</TABLE>
Operating profit is net sales less operating expenses. In
computing segment operating profit, the following items are
excluded: general corporate revenues and expenses, interest
expense, other income, and income taxes. There are no sales
between segments.
Identifiable assets are those assets used in either segment.
Corporate assets are principally cash and deferred taxes.
Sales to one customer in the Fireplace Products Segment were
$3,978,000, $4,550,000, and $3,675,000 in 1995, 1994 and 1993,
respectively.
<PAGE>
NOTE L--Share Repurchase Agreement
On December 21, 1976, the stockholders approved a Share Repurchase
Agreement (the "Agreement") among the Company, the Chairman of the
Board of Directors (the "Chairman"), and a trustee under which the
Company may be required to purchase a number of shares of common
stock from the Chairman's estate upon his death. The purchase
price of a share of common stock under this Agreement is to be 90%
of the quoted market value at the date of the Chairman's death.
The aggregate purchase price may not exceed the lesser of certain
taxes and expenses associated with his death or the benefits under
a certain life insurance policy on the life of the Chairman. This
policy, purchased by the Company at an annual premium of $21,000,
has been transferred to the Trustee under this Agreement.
The Company is not required to purchase any shares of common stock
under the Agreement if such purchase would result in an impairment
of its capital or would violate state laws in effect at that date.
NOTE M--CONTINGENCIES
Due to the complexity of the Company's operations, disagreements
occasionally occur.
In the opinion of management, the Company's ultimate loss from such
disagreements and potential resulting legal action, if any, will
not be significant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTE N--QUARTERLY RESULTS (UNAUDITED)
Summary data relating to the results of operations for each quarter
of the years ended August 31, 1995 and 1994 follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
November 30 February 28 May 31 August 31 Total
----------- ----------- ------ --------- -----
<S> <C> <C> <C> <C> <C>
Fiscal year 1995:
Net sales $14,167 $10,213 $ 8,581 $ 9,943 $42,904
Gross profit 4,851 2,665 1,809 2,617 11,942
Income (loss) from
continuing operations 1,029 146 (619) (67) 489
Net income (loss) 1,029 146 (619) (67) 489
Per share:
Continuing operations $ .29 $ .04 $ (.18) $ (.02) $ .14
Net income (loss) .29 .04 (.18) (.02) .14
Fiscal year 1994:
Net sales $11,586 $10,758 $10,234 $11,357 $43,935
Gross profit 3,952 3,326 3,160 4,106 14,544
Income from continuing
operations 992 504 812 1,770 4,078
Net income 992 504 812 1,770 4,078
Per share:
Continuing operations $ .39 $ .15 $ .23 $ .50 $ 1.25
Net income .39 .15 .23 .50 1.25
</TABLE>
Income from continuing operations for the third and fourth quarters
of 1994, respectively, includes the effect of a reduction in the
valuation allowance for the net deferred tax asset of $675,000 and
$999,000.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
For the Years Ended August 31, 1993, 1994 and 1995
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
Description Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts- Deductions- at End
of Period Expenses Describe Describe of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1993
Reserve, deducted from related
asset:
Allowance for doubtful accounts $377 $197 $ 2 (1) $167 (2) $409
==== ==== ==== ==== ====
Year ended August 31, 1994
Reserve, deducted from related
asset:
Allowance for doubtful accounts $409 $402 $ 1 (1) $290 (2) $522
==== ==== ==== ==== ====
Year ended August 31, 1995
Reserve, deducted from related
asset:
Allowance for doubtful accounts $522 $186 $ 6 (1) $173 (2) $541
==== ==== ==== ==== ====
<FN>
(1) Other additions represent collections on receivables previously written off.
(2) Amount charged against reserve.
</FN>
</TABLE>
<PAGE>
Exhibit 10.20
FIRST AMENDMENT TO
LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is
entered into and effective as of the 29th day of September, 1994 by
and among TEMTEX INDUSTRIES, INC., a Delaware corporation, with its
principal office at 3010 LBJ Freeway, Suite 650, Dallas, Texas
75234 ("Borrower"), TEMCO FIREPLACE PRODUCTS, INC., a Texas
corporation (formerly known as Temtex Products, Inc.) with its
principal office at 3010 LBJ Freeway, Suite 650, Dallas, Texas
75234 ("Guarantor") and NATIONSBANK OF TEXAS, N.A., a national
banking association, with offices at 901 Main Street, 7th Floor,
Dallas, Texas 75202 ("Lender").
RECITALS
A. Borrower and Lender entered into that certain Loan
Agreement, dated as of May 3, 1994 (as heretofore amended, the
"Loan Agreement"), pursuant to which Lender agreed to make loans
and advances to Borrower in accordance with the terms thereof. The
loans and advances to Borrower under the Loan Agreement are
guaranteed by Guarantor pursuant to the terms of that certain
Continuing and Unconditional Guaranty, dated May 3, 1994, by and
between Guarantor and Bank (as heretofore amended, the "Guaranty").
B. Borrower and Guarantor have requested Lender to make
certain amendments to the Loan Agreement and Guaranty, and Lender
at the request of Borrower and Guarantor, for good and valuable
consideration, is willing to enter into this Amendment upon the
terms and conditions as hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, agree as follows:
ARTICLE I
Definitions
1.01 Capitalized terms used in this Amendment are defined in
the Loan Agreement, as amended hereby, unless otherwise stated.
-1-
<PAGE>
ARTICLE II
Amendments to Loan Agreement
2.01 Amendment to Section 2(A). Section 2(A) of the Loan
Agreement is hereby amended by deleting such Section in its
entirety and inserting the following in lieu thereof:
"A. Loan. Bank hereby agrees to make loans to
Borrower in the aggregate principal amount of $3,512,000.
The obligation to repay the loans is evidenced by (i) a
promissory note dated May 3, 1994 in the principal amount
of $3,000,000 (the "Revolving Note"), having a maturity
date, repayment terms and interest rates as set forth
therein, and (ii) a promissory note dated September 29,
1994 in the principal amount of $512,000 (the "Term
Note"), having a maturity date, repayment terms and
interest rates as set forth therein (the Revolving Note
and the Term Note, together with any. other promissory
notes heretofore or hereafter executed pursuant to this
Agreement by Borrower in favor of Bank and any and all
renewals, extensions or rearrangements thereof being
hereafter collectively referred to as the "Note")."
ARTICLE III
Amendments to Guaranty
3.01 Amendments to Guaranty. The Guaranty is hereby amended by
deleting all references to the name "Temtex Products, Inc."
therefrom in their entirety and inserting the name "Temco Fireplace
Products, Inc." in lieu thereof.
ARTICLE IV
Conditions Precedent
4.01 Conditions Precedent. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions
precedent, unless specifically waived in writing by Lender:
(a) Lender shall have received (i) this Amendment, duly
executed by Borrower and Guarantor, (ii) the Term Note, duly
executed by Borrower, (iii) such additional documents, instruments
and information as Lender or its legal counsel may request, and
(iv) a closing fee for the Term Loan equal to 0.5% ($2,560) in
immediately available funds;
(b) The representations and warranties contained herein
and in the Loan Agreement, as amended hereby, and the other Loan
Documents, shall be true and correct as of the date hereof, as if
made on the date hereof;
-2-
<PAGE>
(c) No default or event of default under the Loan
Agreement or other Loan Documents shall have occurred and be
continuing, unless such default or event of default has been
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE V
No Waiver
5.01 Nothing contained herein shall be construed as a waiver
by Lender of any covenant or provision of the Loan Agreement, the
Guaranty or any other Loan Document, this Amendment, or of any
other contract or instrument between Borrower and/or Guarantor and
Lender, and Lender's failure at any time or times hereafter to
require strict performance by Borrower or Guarantor of any
provision thereof shall not waive, affect or diminish any right of
Lender to thereafter demand strict compliance therewith. Lender
hereby reserves all rights granted under the Loan Agreement, the
Guaranty, the other Loan Documents, this Amendment and any other
contract or instrument between Borrower and/or Guarantor and
Lender.
ARTICLE VI
Ratifications, Representations and Warranties
6.01 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Loan Agreement, the Guaranty and the
other Loan Documents, and, except as expressly modified and
superseded by this Amendment, the terms and provisions of the Loan
Agreement, the Guaranty and the other Loan Documents are ratified
and confirmed and shall continue in full force and effect.
Borrower, Guarantor and Lender agree that the Loan Agreement, the
Guaranty, as each is amended hereby, and the other Loan Documents
shall continue to be legal, valid, binding and enforceable in
accordance with their respective terms. Guarantor hereby ratifies
and confirms that the indebtedness and obligations evidenced by the
Term Note are "Liabilities" as defined in the GuarantY.
6.02 Representations and Warranties of Borrower. Borrower
hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment, the Term Note and any
and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate
action on the part of Borrower and will not violate the Certificate
of Incorporation or Bylaws of Borrower; (b) attached hereto as
Exhibit A is a true, correct
-3-
<PAGE>
and complete copy of presently effective resolutions of Borrower's
board of directors authorizing the execution, delivery and
performance of this Amendment, the Term Note and any and all other
Loan Documents executed and/or delivered by Borrower in connection
herewith, certified by the Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as
amended hereby, and any other Loan Documents are true and correct
on and as of the date hereof and on and as of the date of execution
hereof as though made on and as of each such date; (d) no default
or event of default under the Loan Agreement, as amended hereby, or
any other Loan Document has occurred and is continuing, unless such
default or event of default has been specifically waived in writing
by Lender; (e) Borrower is in full compliance with all covenants
and agreements contained in the Loan Agreement and the other Loan
Documents; and (f) Borrower has not amended its Certificate of
Incorporation or its Bylaws since May 3, 1994, except for such
amendments, if any, which are attached hereto as Exhibit B.
6.03 Representations and Warranties of Guarantor. Guarantor
hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment and any and all other
Loan Documents executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the part
of Guarantor and will not violate the Articles of Incorporation or
Bylaws of Guarantor; (b) attached hereto as Exhibit C is a true,
correct and complete copy of presently effective resolutions of
Guarantor's board of directors authorizing the execution, delivery
and performance of this Amendment and any and all other Loan
Documents executed and/or delivered by Guarantor in connection
herewith, certified by the Secretary of Guarantor; (c) Guarantor is
in full compliance with all covenants and agreements contained in
the Guaranty and the other Loan Documents to which it is a party;
and (d) Guarantor has not amended its Articles of Incorporation or
its Bylaws since May 3, 1994, except for such amendments which are
attached hereto as Exhibit D.
ARTICLE VII
Miscellaneous Provisions
7.01 Survival of Representations and Warranties. All
representations and warranties made in the Loan Agreement or any
other Loan Document, including, without limitation, any document
furnished in connection with this Amendment, shall survive the
execution and delivery of this Amendment and the Term Note, and no
investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon
them.
-4-
<PAGE>
7.02 References. Each of the Loan Agreement, the Guaranty and
the other Loan Documents, and any and all other agreements,
documents or instruments now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that (a) any
reference in the Loan Agreement, the Guaranty and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan
Agreement as amended hereby, and (b) any reference in the Loan
Agreement, the Guaranty and such other Loan Documents to the
Guaranty shall mean a reference to the Guaranty as amended hereby.
7.03 Expenses of Lender. As provided in Section 9 of the Loan
Agreement, Borrower agrees to pay on demand all costs and expenses
incurred by Lender in connection with the preparation, negotiation
and execution of this Amendment, the Term Note and the other Loan
Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all
costs and expenses incurred by Lender in connection with the
enforcement or preservation of any rights under the Loan Agreement,
as amended hereby, or any other Loan Documents, including, without
limitation, the costs and fees of Lender's legal counsel.
7.04 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable
shall not impair or invalidate the remainder of this Amendment and
the effect thereof shall be confined to the provision so held to be
invalid or unenforceable.
7.05 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Lender, Borrower, Guarantor and
their respective successors and assigns, except neither Borrower
nor Guarantor may assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
7.06 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed
to be an original, but all of which when taken together shall
constitute one and the same instrument.
7.07 Effect of Waiver. No consent or waiver, express or
implied, by Lender to or for any breach of or deviation from any
covenant or condition by Borrower or Guarantor shall be deemed a
consent to or waiver of any other breach of the same or any other
covenant, condition or duty.
7.08 Headings. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
-5-
<PAGE>
7.09 Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been
made and to be performable in and shall be governed by and
construed in accordance with the laws of the State of Texas.
7.10 Final Agreement. THE LOAN AGREEMENT, THE GUARANTY, EACH
AS AMENDED HEREBY, AND THE OTHER LOAN DOCUMENTS REPRESENT THE
ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER
HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN AGREEMENT,
THE GUARANTY, AS AMENDED HEREBY, AND THE OTHER LOAN DOCUMENTS MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT
SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER,
GUARANTOR AND LENDER.
7.11 Release. EACH OF BORROWER AND GUARANTOR HEREBY
ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET,
CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER
THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY ANY AMOUNTS DUE AND OWING UNDER THE LOAN
DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR
NATURE FROM LENDER. EACH OF BORROWER AND GUARANTOR HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER,
ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM
ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FILED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN
WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED,
WHICH THE BORROWER AND/OR GUARANTOR MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE
OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY LOANS, INCLUDING, WITHOUT
LIMITATION, ANY CONTRACTING FOR, CHARGING, TAXING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL
RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AMENDMENT.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Loan Documents on the date first written above.
BORROWER:
TEMTEX INDUSTRIES, INC.
By: _______________________________
Name: R. N. Stivers
Title: Vice President
GUARANTOR:
TEMCO FIREPLACE PRODUCTS, INC.
By: _______________________________
Name: R. N. Stivers
Title: Vice President
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: _______________________________
Name: John B. Cowden
Title: Assistant Vice President
EXHIBITS:
A - Certified Resolutions of Borrower's Board of Directors
B - Amendments to Certificate of Incorporation and/or Bylaws of
Borrower
C - Certified Resolutions of Guarantor's Board of Directors
D - Amendments to Articles of Incorporation and/or Bylaws of
Guarantor
-7-
<PAGE>
EXHIBIT "A"
Certified Resolutions
of
Temtex Industries. Inc.'s Board of Directors
RESOLVED: That any officer of Temtex Industries, Inc., a
Delaware corporation (the "Corporation"), acting alone, by his
signature be, and the same hereby is, authorized and directed, in
the name of and on behalf of the Corporation (a) to amend the
Corporation's existing Loan Agreement with NationsBank of Texas,
N.A. ("Lender"), (b) to execute and deliver to Lender, with such
changes in the terms and provisions thereof as the officer
executing same shall, in his sole discretion, deem advisable, (i)
a certain proposed First Amendment to Loan Documents, a draft of
which has been reviewed and discussed by the Board of Directors of
the Corporation, (ii) a certain proposed promissory note in the
amount of $512,000 in favor of Lender, a draft of which has been
reviewed and discussed by the Board of Directors of the Corporation
and (iii) such other agreements, instruments, statements and
writings as the officer or officers executing the same may deem
desirable or necessary in connection therewith, and (c) to perform
such other acts as the officer or officers performing such acts on
behalf of the Corporation may deem desirable or necessary in
connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the
Corporation, both directly and indirectly, and are in the best
interests of the Corporation; and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by
any officer of the Corporation shall be presumed conclusively to be
the instruments, the execution of which is authorized by these
resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and
the same hereby are, authorized and directed to execute, in the
name of and on behalf of the Corporation, promissory notes,
security agreements, financing statements, assignments, collateral
reports, loan statements, confirmations of delivery, lien
statements, pledge certificates, release certificates, removal
reports, guaranties, cross-collateralization agreements and such
other writings and to take such other actions as are necessary in
their dealings with Lender, and any such papers executed and any
such actions taken by any of them prior to this time are approved,
ratified and confirmed; and be it
-1-
<PAGE>
FURTHER RESOLVED: That the Secretary of the Corporation, by
his signature, is, and hereby is, authorized and directed to attest
the execution by the Corporation of the papers signed pursuant to
these resolutions, to affix the seal of the Corporation thereto, if
required by Lender, and to certify to Lender the adoption of these
resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without
modification, and that the person signing the within and foregoing
amendment and Promissory Note on behalf of the Corporation is the
duly elected officer stated below his name, that he is authorized
to sign such amendment and Promissory Note, and that his signature
thereon is genuine.
DATED: September 29, 1994.
___________________________________
R. N. Stivers,
Secretary of the Corporation
-2-
<PAGE>
EXHIBIT "B"
Amendments to Certificate of
Incorporation and/or Bylaws
If "none", so state
See Articles of Amendment to the Articles of Incorporation of
Temtex Products, Inc. dated May 3, 1994 changing name to Temco
Fireplace Products, Inc.
<PAGE>
EXHIBIT "C"
CERTIFIED RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
TEMCO FIREPLACE PRODUCTS, INC.
"RESOLVED, that this Corporation guarantee the payment and
performance of the indebtedness, obligations and liabilities of
Temtex Industries, Inc., a Delaware corporation ("the Borrower"),
to NationsBank of Texas, N.A., a national banking association (the
"Bank"), including, without limitation, the obligations evidenced
by that certain Term Note in the principal amount of $512,000,
dated as of September 29, 1994, bearing interest before and after
maturity as therein specified, and containing certain accelerating,
maturity, attorney's fees and costs of collection clauses, as
specified therein and all renewals, extensions and rearrangements
of such indebtedness;
"FURTHER RESOLVED, that the President or any Vice President of
this Corporation, is hereby authorized and empowered to agree upon
with the Bank the terms and provisions of and execute and deliver
for and on behalf of this corporation an instrument of guaranty,
which guaranty may be absolute and primary and extend to principal
and interest on such indebtedness, obligations and liabilities and
with such agreement to the terms and provisions of such instrument
of guaranty to be conclusively evidenced by any of said officers
execution and delivery of such instrument of guaranty;
"FURTHER RESOLVED, that the guaranty of this corporation
authorized by these resolutions may reasonably be expected to
benefit, directly or indirectly, this Corporation;
"FURTHER RESOLVED, that any of said officers are authorized
and empowered to do or cause to be done all such acts or things and
to sign and deliver, or cause to be signed and delivered, all such
documents, instruments and certificates (including without
limitation any and all notices and certificates required or
permitted to be given or made to the Bank under the terms of any of
the instruments executed on behalf of this Corporation in
connection with the guaranty of this Corporation as authorized by
these resolutions), in the name and on behalf of this Corporation
or otherwise, as any of such officers, in their discretion, may
deem necessary, advisable or appropriate to effectuate or carry out
the purposes and intent of the foregoing resolutions and to perform
the obligations of this Corporation under all instruments and
agreements executed on behalf of this Corporation in connection
with the guaranty of this Corporation as authorized by these
resolutions.
"FURTHER RESOLVED, that the execution by any of said officers
of any document authorized by the foregoing resolution, or any
document executed
-1-
<PAGE>
in the accomplishment of any action or actions so authorized, is
(or shall become upon delivery) the enforceable and binding act and
obligation of this Corporation, without the necessity of the
signature or attestation of any other officer of this Corporation
or the affixing of the corporate seal;
"FURTHER RESOLVED, that all acts, transactions, or agreements
undertaken prior to the adoption of these resolutions by any of the
officers or representatives of this Corporation in its name and for
its account with the Bank in connection with the foregoing matters
are hereby ratified, confirmed and adopted by this Corporation;
"FURTHER RESOLVED, that the Secretary or Assistant Secretary
of this Corporation is hereby authorized and directed to certify
these resolutions to the Bank: and
"FURTHER RESOLVED, that the Bank be promptly notified in
writing by the Secretary or any other officer of this Corporation
of any change in these resolutions, and until it has actually
received such notice in writing, the Bank is authorized to act in
pursuance of these resolutions.
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without
modification, and that the person signing the within and foregoing
guaranty on behalf of the Corporation is the duly elected officer
stated below his name, that he is authorized to sign such guaranty,
and that his signature thereon is genuine.
Dated: September 29, 1994.
___________________________________
R. N. Stivers, Secretary of
Temco Fireplace Products, Inc.
-2-
<PAGE>
EXHIBIT "D"
Amendments to Articles of
Incorporation and/or Bylaws
<PAGE>
Exhibit 10.21
SECOND AMENDMENT TO
LOAN DOCUMENTS
THIS SECOND AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is
entered into to be effective as of the 30th day of June, 1995 by
and among TEMTEX INDUSTRIES, INC., a Delaware corporation, with its
principal office at 3010 LBJ Freeway, Suite 650, Dallas, Texas
75234 ("Borrower"), TEMCO FIREPLACE PRODUCTS, INC., a Texas
corporation (formerly known as Temtex Products, Inc.) with its
principal office at 3010 LBJ Freeway, Suite 650, Dallas, Texas
75234 ("Guarantor") and NATIONSBANK OF TEXAS, N.A., a national
banking association, with offices at 901 Main Street, 7th Floor,
Dallas, Texas 75202 ("Lender").
R E C I T A L S
A. Borrower and Lender entered into that certain Loan
Agreement, dated as of May 3, 1994, as amended by that certain
First Amendment to Loan Documents, dated as of September 29, 1994,
by and among Borrower, Guarantor and Lender (the "First Amendment")
(as amended, the "Loan Agreement"), pursuant to which Lender agreed
to make loans and advances to Borrower in accordance with the terms
thereof. The loans and advances to BolTower under the Loan
Agreement are guaranteed by Guarantor pursuant to the terms of that
certain Continuing and Unconditional Guaranty, dated May 3, 1994,
by and between Guarantor and Bank, as amended by the First
Amendment (as amended, the "Guaranty").
B. Borrower and Guarantor have requested Lender to increase
the loans made to Borrower and to make certain other amendments to
the Loan Agreement, and Lender at the request of Borrower and
Guarantor, for good and valuable consideration, is willing to enter
into this Amendment upon the terms and conditions as hereinafter
set forth.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, agree as follows:
ARTICLE 1
Definitions
1.1 Capitalized terms used in this Amendment are defined in
the Loan Agreement, as amended hereby, unless otherwise stated.
-1-
<PAGE>
ARTICLE 2
Amendments to Loan Agreement
2.1 Amendment to Section 2(A). Section 2(A) of the Loan
Agreement is hereby amended by deleting such Section in its
entirety and inserting the following in lieu thereof:
"A. Loan. Bank hereby agrees to make loans to
Borrower in the aggregate principal amount of $4,084,000. The
obligation to repay the loans is evidenced by (i) a promissory
note dated May 3, 1994 in the principal amount of $3,000,000
(the "Revolving Note"), having a maturity date, repayment
terms and interest rates as set forth therein, and (ii) an
amended and restated promissory note dated June 30, 1995 in
the principal amount of $1,084,000 (the "Term Note"), having
a maturity date, repayment terms and interest rates as set
forth therein (the Revolving Note and the Term Note, together
with any other promissory notes heretofore or hereafter
executed pursuant to this Agreement by Borrower in favor of
Bank and any and all renewals, extensions or rearrangements
thereof being hereafter collectively referred to as the
"Note")."
2.2 Amendment to Section 8. Section 8 of the Loan Agreement
is hereby amended by deleting the reference to "Mr. John B. Cowden"
therein in its entirety and inserting "Ms. Lynn Carnes" in lieu
thereof.
ARTICLE 3
Amendments to Borrowing Base Agreement
3.11 Amendments to Borrowing Base Agreement. Section (ii) of
the Borrowing Base Agreement, which is attached to the Loan
Agreement as Exhibit "A", is hereby amended by deleting such
Section in its entirety and inserting the following in lieu
thereof:
"(ii) Borrowing Base Certificate. Not later than 30 days
after and as of the end of each month, a completed Borrowing
Base Certificate in the form of Exhibit 1 attached hereto."
ARTICLE 4
Conditions Precedent
4.1 Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of the following
conditions precedent, unless specifically waived in writing by
Lender:
(a) Lender shall have received (i) this Amendment, duly
executed by Borrower and Guarantor, (ii) the Term Note, duly
executed by Borrower, (iii) such additional documents, instruments
and information as Lender or its legal counsel may request, and
(iv) a closing fee for the Term Loan equal to $3,500 in immediately
available funds, which fee shall be deemed fully earned and
nonrefundable upon execution of the Term Note;
-2-
<PAGE>
(b) The representations and warranties contained herein
and in the Loan Agreement, as amended hereby, and the other Loan
Documents, shall be true and correct as of the date hereof, as if
made on the date hereof;
(c) No default or event of default under the Loan
Agreement or other Loan Documents shall have occurred and be
continuing, unless such default or event of default has been
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
ARTICLE 5
No Waiver
5.1 Nothing contained herein shall be construed as a waiver
by Lender of any covenant or provision of the Loan Agreement, this
Amendment or any other Loan Document or of any other contract or
instrument between Borrower and/or Guarantor and Lender, and
Lender's failure at any time or times hereafter to require strict
performance by Borrower or Guarantor of any provision thereof shall
not waive, affect or diminish any right of Lender to thereafter
demand strict compliance therewith. Lender hereby reserves all
rights granted under the Loan Agreement, the Guaranty, the other
Loan Documents, this Amendment and any other contract or instrument
between Borrower and/or Guarantor and Lender.
ARTICLE 6
Ratifications, Representations and Warranties
6.1 Ratifications. The terms and provisions set forth in
this Amendment shall modify and supersede all inconsistent terms
and provisions set forth in the Loan Agreement, the Guaranty and
the other Loan Documents, and, except as expressly modified and
superseded by this Amendment, the terms and provisions of the Loan
Agreement, the Guaranty and the other Loan Documents are ratified
and confirmed and shall continue in full force and effect.
Borrower, Guarantor and Lender agree that the Loan Agreement, as
amended hereby, and the other Loan Documents shall continue to be
legal, valid, binding and enforceable in accordance with their
respective terms. Guarantor hereby ratifies and confirms that the
indebtedness and obligations evidenced by the Term Note are
"Liabilities" as defined in the Guaranty.
6.2 Representations and Warranties of Borrower. Borrower
hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment, the Term Note and any
and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate
action on the part of Borrower and will not violate the Certificate
of Incorporation or the Bylaws of Borrower; (b) attached hereto as
Exhibit A is a true, correct and complete copy of presently
effective resolutions of Borrower's board of directors authorizing
the execution, delivery and performance of this Amendment, the Term
Note and any and all other Loan Documents executed and/or delivered
by Borrower in
-3-
<PAGE>
connection herewith, certified by the Secretary of Borrower; (c)
the representations and warranties contained in the Loan Agreement,
as amended hereby, and any other Loan Documents are true and
correct on and as of the date hereof and on and as of the date of
execution hereof as though made on and as of each such date; (d) no
default or event of default under the Loan Agreement, as amended
hereby, or any other Loan Document has occurred and is continuing,
unless such default or event of default has been specifically
waived in writing by Lender; (e) Borrower is in full compliance
with all covenants and agreements contained in the Loan Agreement
and the other Loan Documents; and (f) Borrower has not amended its
Certificate of Incorporation or its Bylaws since September 29,
1994, except for such amendments, if any, which are attached hereto
as Exhibit B.
6.3 Representations and Warranties of Guarantor. Guarantor
hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment and any and all other
Loan Documents executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the part
of Guarantor and will not violate the Articles of Incorporation or
the Bylaws of Guarantor; (b) attached hereto as Exhibit C is a
true, correct and complete copy of presently effective resolutions
of Guarantor's board of directors authorizing the execution,
delivery and performance of this Amendment and any and all other
Loan Documents executed and/or delivered by Guarantor in connection
herewith, certified by the Secretary of Guarantor; (c) Guarantor is
in full compliance with all covenants and agreements contained in
the Guaranty and the other Loan Documents to which it is a party;
and (d) Guarantor has not amended its Articles of Incorporation or
its Bylaws since September 29, 1994, except for such amendments
which are attached hereto as Exhibit D.
ARTICLE 7
Miscellaneous Provisions
7.1 Survival of Representations and Warranties. All
representations and warranties made in the Loan Agreement or any
other Loan Document, including, without limitation, any document
furnished in connection with this Amendment, shall survive the
execution and delivery of this Amendment and the Term Note, and no
investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon
them.
7.2 References. Each of the Loan Agreement, the Guaranty and
the other Loan Documents, and any and all other agreements,
documents or instruments now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that (a) any
reference in the Loan Agreement, the Guaranty and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan
Agreement as amended hereby, and (b) any reference in the Loan
Agreement, the Guaranty and such other Loan Documents to the
Borrowing Base Agreement shall mean a reference to the Borrowing
Base Agreement as amended hereby.
7.3 Expenses of Lender. As provided in Section 9 of the Loan
Agreement, Borrower agrees to pay on demand all costs and expenses
incurred by Lender in connection with the
-4-
<PAGE>
preparation, negotiation and execution of this Amendment, the Term
Note and the other Loan Documents executed pursuant hereto and any
and all amendments, modifications, and supplements thereto,
including, without limitation, the costs and fees of Lender's legal
counsel, and all costs and expenses incurred by Lender in
connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents,
including, without limitation, the costs and fees of Lender's legal
counsel.
7.4 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable
shall not impair or invalidate the remainder of this Amendment and
the effect thereof shall be confined to the provision so held to be
invalid or unenforceable.
7.5 Successors and Assigns. This Amendment is binding upon
and shall inure to the benefit of Lender, Borrower, Guarantor and
their respective successors and assigns, except neither Borrower
nor Guarantor may assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
7.6 Counterparts. This Amendment may be executed in one or
more counterparts, each of which when so executed shall be deemed
to be an original, but all of which when taken together shall
constitute one and the same instrument.
7.7 Effect of Waiver. No consent or waiver, express or
implied, by Lender to or for any breach of or deviation from any
covenant or condition by Borrower or Guarantor shall be deemed a
consent to or waiver of any other breach of the same or any other
covenant, condition or duty.
7.8 Headings. The headings, captions, and arrangements used
in this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
7.9 Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been
made and to be performable in and shall be governed by and
construed in accordance with the laws of the State of Texas.
7.10 Final Agreement. THE LOAN AGREEMENT, THE BORROWING BASE
AGREEMENT, EACH AS AMENDED HEREBY, AND THE OTHER LOAN DOCUMENTS
REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT, THE BORROWING BASE AGREEMENT, EACH AS AMENDED
HEREBY, AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT
OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A
WRITTEN AGREEMENT SIGNED BY BORROWER, GUARANTOR AND LENDER.
-5-
<PAGE>
7.11 Release. EACH OF BORROWER AND GUARANTOR HEREBY
ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET,
CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER
THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY ANY AMOUNTS DUE AND OWING UNDER THE LOAN
DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR
NATURE FROM LENDER. EACH OF BORROWER AND GUARANTOR HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER,
ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM
ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN
WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED,
WHICH THE BORROWER AND/OR GUARANTOR MAY NOW OR HEREAFTER HAVE
AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE
OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY LOANS, INCLUDING, WITHOUT
LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL
RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AMENDMENT.
IN WITNESS WHEREOF, the parties have executed this Second
Amendment to Loan Documents to be effective as of the date first
written above.
BORROWER:
TEMTEX INDUSTRIES INC.
By: ___________________________________
Name: R. N. Stivers
Title: Vice President
-6-
<PAGE>
GUARANTOR:
TEMCO FIREPLACE PRODUCTS, INC.
By: ___________________________________
Name: R. N. Stivers
Title: Vice President
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: ___________________________________
Name: Lynn Carnes
Title: Vice President
EXHIBITS:
A - Certified Resolutions of Borrower's Board of Directors
B - Amendments to Certificate of Incorporation and/or Bylaws of
Borrower
C - Certified Resolutions of Guarantor's Board of Directors
D - Amendments to Articles of Incorporation and/or Bylaws of
Guarantor
-7-
<PAGE>
EXHIBIT "A"
Certified Resolutions
of
Temtex Industries, Inc.'s Board of Directors
RESOLVED: That any officer of Temtex Industries, Inc., a
Delaware corporation (the "Corporation"), acting alone, by his
signature be, and the same hereby is, authorized and directed, in
the name of and on behalf of the Corporation (a) to amend the
Corporation's existing Loan Agreement with NationsBank of Texas,
N.A. ("Lender"), (b) to execute and deliver to Lender, with such
changes in the terms and provisions thereof as the officer
executing same shall, in his sole discretion, deem advisable, (i)
a certain proposed Second Amendment to Loan Documents, a draft of
which has been reviewed and discussed by the Board of Directors of
the Corporation, (ii) a certain proposed amended and restated
promissory note in the amount of $1,084,000 in favor of Lender, a
draft of which has been reviewed and discussed by the Board of
Directors of the Corporation, and (iii) such other agreements,
instruments, statements and writings as the officer or officers
executing the same may deem desirable or necessary in connection
therewith, and (c) to perform such other acts as the officer or
officers performing such acts on behalf of the Corporation may deem
desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said promissory notes and agreements
will benefit the Corporation, both directly and indirectly, and are
in the best interests of the Corporation; and be it
FURTHER RESOLVED: That said agreements, promissory notes and
other statements in writing executed in the name and on behalf of
the Corporation by any officer of the Corporation shall be presumed
conclusively to be the instruments, the execution of which is
authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be,
and the same hereby are, authorized and directed to execute, in the
name of and on behalf of the Corporation, promissory notes,
security agreements, financing statements, assignments, collateral
reports, loan statements, confirmations of delivery, lien
statements, pledge certificates, release certificates, removal
reports, guaranties, cross-collateralization agreements and such
other writings and to take such other actions as are necessary in
their dealings with Lender, and any such papers executed and any
such actions taken by any of them prior to this time are approved,
ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary of the Corporation, by
his signature, is, and hereby is, authorized and directed to attest
the execution by the Corporation of the papers signed pursuant to
these resolutions, to affix the seal of the Corporation thereto, if
required by Lender, and to certify to Lender the adoption of these
resolutions.
-1-
<PAGE>
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without
modification, and that the person signing the within and foregoing
amendment and promissory note on behalf of the Corporation is the
duly elected officer stated below his name, that he is authorized
to sign such amendment and promissory note, and that his signature
thereon is genuine.
DATED: June 30, 1995.
________________________________________
R. N. Stivers, Secretary
-2-
<PAGE>
EXHIBIT "B"
Amendments to Certificate of
Incorporation and/or Bylaws
If"none", so state
<PAGE>
EXHIBIT "C"
Certified Resolutions
of
Temco Fireplace Products, Inc.'s Board of Directors
RESOLVED: That any officer of Temco Fireplace Products, Inc.,
a Texas corporation (the "Corporation"), acting alone, by his
signature be, and the same hereby is, authorized and directed, in
the name of and on behalf of the Corporation (a) to execute and
deliver to Lender, with such changes in the terms and provisions
thereof as the officer executing same shall, in his sole
discretion, deem advisable, (i) a certain proposed Second Amendment
to Loan Documents, a draft of each of which has been reviewed and
discussed by the Board of Directors of the Corporation, and (ii)
such other agreements, instruments, statements and writings as the
officer of officers executing the same may deem desirable or
necessary in connection therewith, and (b) to perform such other
acts as the officer or officers performing such acts on behalf of
the Corporation may deem desirable or necessary in connection
therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the
Corporation, both directly and indirectly, and are in the best
interests of the Corporation; and be it
FURTHER RESOLVED: That said agreements and other statements
in writing executed in the name and on behalf of the Corporation by
any officer of the Corporation shall be presumed conclusively to be
the instruments, the execution of which is authorized by these
resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be,
and the same hereby are, authorized and directed to execute, in the
name of and on behalf of the Corporation, security agreements,
financing statements, assignments, collateral reports, loan
statements, confirmations of delivery, lien statements, pledge
certificates, release certificates, removal reports, guaranties,
cross-collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with
Lender, and any such papers executed and any such actions taken by
any of them prior to this time are approved, ratified and
confirmed; and be it
FURTHER RESOLVED: That the Secretary of the Corporation, by
his signature, is, and hereby is, authorized and directed to attest
the execution by the Corporation of the papers signed pursuant to
these resolutions, to affix the seal of the Corporation thereto, if
required by Lender, and to certify to Lender the adoption of these
resolutions.
-1-
<PAGE>
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without
modification, and that the person signing the within and foregoing
amendment on behalf of the Corporation is the duly elected officer
stated below his name, that he is authorized to sign such
amendment, and that his signature thereon is genuine.
DATED: June 30, 1995.
________________________________________
R. N. Stivers, Secretary
-2-
<PAGE>
EXHIBIT "D"
Amendments to Articles of
Incorporation and/or Bylaws
<PAGE>
ADDENDUM TO AMENDED AND RESTATED PROMISSORY NOTE
A. LIBOR Borrowing Provisions.
1. The following terms shall have the following meanings for
purposes of this Amended and Restated Promissory Note:
"Business Day" means a dav on which the commercial banks
in the State of Texas are open for business and not required by law
to be closed.
"Highest Lawful Rate" means the maximum rate allowed by
law.
"Interest Notice" means the written or verbal notice
given by Borrower to Bank of the interest options selected
hereunder. Each Interest Notice shall specify the amount of the
principal to bear interest at the rate selected and the length of
the Interest Period, if applicable.
"Interest Period" means, with respect to any LIBOR Loan,
a period commencing: (i) on any date upon which, pursuant to an
Interest Notice or otherwise pursuant to the provisions of this
Note, the principal amount of such LIBOR Loan begins to accrue
interest at the LIBOR Rate, or (ii) on the last day of the
immediately preceding Interest Period, in the case of a Readvance
to a successive Interest Period, and ending thirty (30) days, sixty
(60) days, ninety (90) days, one hundred twenty (120) days, one
hundred eighty (180) days or three hundred sixty (360) days
thereafter as Borrower shall elect in accordance with the
provisions of Section 2 below; provided, that any Interest Period
which would otherwise end on a day which is not a LIBOR Business
Day shall be extended to the next succeeding LIBOR Business Day.
"LIBOR Business Day" means a Business Day on which
dealings in United States currency are carried out in the London
Inter-Bank Eurocurrency market.
"LIBOR Loan" means a Loan bearing interest at the LIBOR
Rate.
"LIBOR Rate" as applied to any Loan made by Bank
hereunder, shall mean the sum of two percent (2.00%), plus the
quotient of (i) the "London Interbank Offered Rate" for the
applicable Interest Period offered to Bank on the Business Day
immediately preceding the date of advance or as otherwise
determined by Bank divided by (ii) the remainder of (A) 1.00 minus
(B) the LIBOR Reserve Percentage applicable to such Loan. The
determination by Bank of the LIBOR Rate shall, in the absence of
manifest error, be conclusive.
"LIBOR Reserve Percentage" means, with respect to each
Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentages in
effect on each day of such Interest Period, as prescribed by; the
-1-
<PAGE>
Board of Governors of the Federal Reserve System (or any
successor), for determining reserve requirements applicable to
"eurocurrency liabilities" pursuant to Regulation D or any other
then applicable regulation of the Board of Governors (or any
successor) which prescribes reserve requirements applicable to
"eurocurrency liabilities," as presently defined in Regulation D,
or any eurocurrency funding.
"Loan" means a designated portion of the unpaid principal
balance of amounts loaned by Bank to Borrower under this Amended
and Restated Promissory Note.
"Maturity Date" means March 31, 1998.
"Prime Rate Loan" means a Loan bearing interest at the
Prime Rate.
"Readvance" means a LIBOR Loan, the proceeds of which are
used to repay any then existing LIBOR Loan upon the expiration of
the Interest Period with respect to such then existing LIBOR Loan.
2. (a) Interest Rate Options.
(i) General. Subject to the provisions of
this Section 2(a)(1), Borrower shall have the option to have any
Loan bear interest at the LIBOR Rate; provided, however, that there
shall not exist, at any time during the term of this Amended and
Restated Promissory Note, more than five (5) LIBOR Loans in the
aggregate. Each change in a LIBOR Loan made pursuant to this
Section 2(a) shall be deemed a Readvance (notwithstanding that the
aggregate unpaid principal amount of the LIBOR Loan is not thereby
changed) of a LIBOR Loan made on the date of such change. The
LIBOR Rate interest options shall be selected in the manner
provided in Subsections 2(a)(2) and (3) below. Unless otherwise
directed by Borrower pursuant to the terms hereof, all Loans shall
be Prime Rate Loans.
(1) At Expiration of Interest Periods. Prior to
the termination of each Interest Period, Borrower shall give Bank
an Interest Notice specifying the interest option which shall be
applicable to such LIBOR Loan upon the expiration of such Interest
Period. The Interest Notice shall be given to Bank at least two
(2) LIBOR Business Days prior to the termination of such Interest
Period. Such Interest Notice shall also specify the length of the
succeeding Interest Period (subject to the provisions of the
definitions of such terms) selected by Borrower with respect to
such LIBOR Loan; provided, however, no Interest Period shall be
selected that terminates after the Maturity Date and no Interest
Period may be selected that extends beyond a date on which Borrower
is required to make a scheduled payment of principal under this
Amended and Restated Promissory Note, unless the sum of Prime Rate
Loans equals or exceeds the principal amount required to be paid on
such date. Each Interest Notice shall be irrevocable and effective
upon notification thereof to Bank. Notwithstanding the foregoing,
if the Interest Notice is not given by Borrower or if the required
Interest Notice is not
-2-
<PAGE>
timely received by Bank. Borrower shall be deemed automatically to
have requested that the Bank make a Prime Rate Loan on the last day
of the Interest Period applicable to any LIBOR Loan in an amount
necessary to pay the principal of the LIBOR Loan maturing on such
date.
(2) Upon Notice that it is Unlawful or Impossible
for Bank to make or Maintain a Loan. If the adoption of any
applicable laws or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank
with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for Bank to make or maintain a LIBOR
Loan, Bank shall so notify Borrower. Upon receipt of such notice,
such LIBOR Loan shall convert (i.e., the entirety of such LIBOR
Loan) to a Prime Rate Loan on either (i) the last day of the then
current Interest Period applicable to such LIBOR Loan if Bank may
lawfully continue to maintain and fund such LIBOR Loan to such day,
or (ii) immediately, if Bank may not lawfully continue to maintain
such LIBOR Loan to such day.
(b) Procedure for Loans.
(1) Loans to be made on Date Hereof. Subject to
the terms and conditions of this Amended and Restated Promissory
Note and the other Loan Documents, the Bank will make a Loan on the
date hereof in the principal amount of $1,084,000. If Borrower
desires such Loan, or a part thereof, to be a LIBOR Loan, Borrower
shall give proper timely notice that such Loan, or part thereof,
shall bear interest at the LIBOR Rate (which notice must also
specify the length of the Interest Period, subject to the
provisions of the definitions of such terms contained in this
Agreement).
(2) Notice of New Loan. Thereafter, Borrower shall
give Bank prior written notice of each new Loan hereunder by
delivery to Bank of an Interest Notice specifying (i) the amount of
such Loan, and (ii) the requested date of such Loan. Such Interest
Notice shall also specify the length of the Interest Period
selected by Borrower for such LIBOR Loan; provided, however, no
Interest Period shall end after the Maturity Date, and no Interest
Period shall extend beyond a date on which Borrower is required to
make a scheduled payment of principal hereunder, unless the sum of
Prime Rate Loans equals or exceeds the principal amount required to
be paid hereunder on such date. The Borrower shall give Bank the
Interest Notice no later than 10:30 a.m. (Central Standard Time) at
least two (2) LIBOR Business Days prior to the requested date of
the making of any LIBOR Loan and no later than 10:30 a.m. (Central
Standard Time) at least one ( l) Business Day prior to the making
of any Prime Rate Loan.
-3-
<PAGE>
(3) Notice Irrevocable. An Interest Notice shall
be irrevocable and binding on Borrower and Borrower shall indemnify
the Bank against any loss or expense incurred by the Bank as a
result of any failure by Borrower to fulfill, on or before the date
specified in such Interest Notice, the applicable conditions
precedent set forth in this Note or the Loan Documents including,
without limitation, the conditions precedent with respect to the
initial Loan hereunder and with respect to subsequent LIBOR Loans
and Readvances, and including, without limitation, any loss due to
sums paid or payable to fund the LIBOR Loan when such LIBOR Loan,
as a result of such failure or otherwise, is not made on such date.
(4) Readvances. Borrower may, pursuant to the
proper giving of the appropriate Interest Notice pursuant to and
otherwise in accordance with the provisions of Section 2(a)(2)
hereof, request that the Bank, upon the last day of the Interest
Period applicable to any LIBOR Loan, make a Readvance on such day
in the amount necessary to pay the principal of such LIBOR Loan,
such Readvance to bear interest according to the interest option
specified in such Interest Notice, whereupon, assuming Borrower is
in compliance with the terms and provisions of this Amended and
Restated Promissor,v Note and the Loan Documents, Bank shall make
such requested Readvance, the proceeds of which shall be applied to
the payment of principal of the LIBOR Loan to be repaid.
Notwithstanding the foregoing, Borrower hereby agrees that if Bank
has not timely received, pursuant to Section 2(a)(2) hereof, the
relevant Interest Notice regarding a LIBOR Loan, as of the last day
of the Interest Period applicable to such LIBOR Loan Borrower shall
be deemed automatically to have requested that the Bank make a
Prime Rate Loan in the principal amount necessary to pay the
principal of the LIBOR Loan maturing on such day, whereupon,
assuming Borrower is in compliance with the terms and provisions of
this Amended and Restated Promissory Note and the Loan Documents,
Bank shall make such requested Loan in the form of a Prime Rate
Loan, the proceeds of such Loan to be applied to the payment of
principal of the LIBOR Loan to be repaid.
(c) Payments of Principal and Interest.
(1) Principal. Borrower shall pay the outstanding
principal amount under this Amended and Restated Promissory Note in
quarterly installments of $98,545.46 each, commencing on September
30, 1995 and continuing on the last day of each successive calendar
quarter thereafter, with a final payment of all unpaid principal
due on the Maturity Date.
(2) Interest.
(i) Each LIBOR Loan shall bear interest on the
outstanding principal amount thereof, for each Interest Period
applicable thereto, at a rate per annum which shall from day to day
outstanding be equal to the lesser of (i) the Highest Lawful Rate
or (ii) the LIBOR Rate applicable to such LIBOR Loan. Interest
shall be due and payable by Borrower to the Bank on the last day
-4-
<PAGE>
of each thirty (30), sixty (60), ninety (90), one hundred twenty
(120), one hundred eighty (180) and three hundred sixty (360) day
Interest Period (commencing with the day that is the first day of
such Interest Period), and interest shall additionally be due and
payable quarterly in arrears, commencing on September 30, 1995 and
continuing regularly and quarterly on the last day of each calendar
quarter, and on the Maturity Date. Any overdue principal of any
LIBOR Loan and, to the extent permitted by law, overdue interest
thereon, shall bear interest, payable on demand, for each day from
and including the date payment thereof was due to, but excluding,
the date of actual payment, at a rate per annum equal to the
Highest Lawful Rate.
(ii) Each Prime Rate Loan shall bear interest
on the outstanding principal amount thereof at a rate per annum
which shall from day to day outstanding be equal to the lesser of
(i) the Highest Lawful Rate or (ii) the Prime Rate in effect on
such day. Interest shall be due and payable by Borrower to the
Bank on the last day of each quarter, in arrears, commencing on
September 30, 1995 and continuing regularly and quarterly on the
last day of each calendar quarter, and on the Maturity Date. Any
overdue principal of any Prime Rate Loan and, to the extent
permitted by law, overdue interest thereon, shall bear interest,
payable on demand, for each day from and including the date payment
thereof was due to, but excluding, the date of actual payment, at
a rate per annum equal to the Highest Lawful Rate.
(3) Computation of Interest and Fees. Interest
based on the LIBOR Rate and the Prime Rate and fees shall be
calculated on the basis of actual days elapsed, but computed as if
each calendar month consisted of thirty (30) days, each calendar
quarter consisted of ninety (90) days and each calendar year
consisted of three hundred sixty (360) days, subject to limitations
of the Highest Lawful Rate. Each determination by Bank of the
LIBOR Rate or Prime Rate, as the case may be, shall, in the absence
of manifest error, be conclusive and binding.
(4) Recapture of Interest Lost as a Result of
Interest Limitations. If at any time the rate of interest
applicable to any Loan exceeds the Highest Lawful Rate, the rate of
interest which such Loan bears shall be limited to the Highest
Lawful Rate, but, notwithstanding any subsequent reductions in the
applicable rate of interest, the rate of interest which such Loan
bears shall not thereafter be reduced below the Highest Lawful Rate
until such time as the total amount of interest accrued on such
Loan equals the amount of interest which would have accrued if the
applicable rate had at all times been in effect.
(d) Prepayments of Loans. Borrower shall not have the
right to repay any portion of any LIBOR Loan, for any reason, on a
date which is prior to the maturity (last day of a respective
Interest Period) of such LIBOR Loan. The Bank, however, has the
right to demand repayment of any portion of any LIBOR Loan, in
accordance with
-5-
<PAGE>
Section 4 below if an event of default occurs, and Section 2(a)(3)
above on a date which is prior to the maturity of such LIBOR Loan,
and Borrower shall indemnify the Bank against, and will pay
directly to Bank. Any loss or expense suffered by Bank as a result
of such early repayment, including, without limitation, (i) any
loss or expense suffered by Bank during the period from the date of
receipt of such early repayment to the maturity of such LIBOR Loan,
if the rate of interest obtainable by Bank upon the redeployment of
an amount of funds so repaid early is less than the LIBOR Rate or
(ii) any loss or expense suffered by Bank in liquidating prior to
maturity Eurodollar Deposits which correspond to the LIBOR Loan.
For the purposes of calculating the amounts owed only, it shall be
assumed that Bank actually funded or committed to fund the LIBOR
Loan through the purchase of an underlying deposit in an amount and
for a term comparable to the LIBOR Loan, and such determination by
Bank shall be conclusive, absent a manifest error in computation.
Prepayments may be made in whole or in part at any
time on any Prime Rate Loan. All prepayments of principal shall be
applied in the inverse order of maturity, or in such other order as
Bank shall determine in its sole discretion.
(1) Indemnity as to LIBOR Loans. If, at any time,
Bank shall determine in good faith that any law, treaty, regulation
or guideline or any change in any existing law, treaty, regulation
or guideline or the interpretation thereof by any governmental
authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority having
jurisdiction over Bank or any LIBOR Loan contemplated to be made by
Bank pursuant to this Agreement (whether or not having the force of
law) shall:
(i) impose, modify or deem applicable any
reserve or special deposit requirement against or in respect of
assets held by, or deposits with or for the account of, or credit
advances by, Bank; or
(ii) subject Bank to any tax (including without
limitation any United States interest equalization or similar tax,
however named, but excluding United States federal and state income
taxes imposed on the overall net income of the Bank), duty, charge,
fee, deduction or withholding with respect to this Agreement or
such Loan;
and the result of the foregoing is to increase the cost (whether by
incurring a cost or adding to a cost) to Bank of making or
maintaining hereunder such LIBOR Loan or to reduce the amount of
the LIBOR Loan taken or interest received or receivable by Bank
with respect to such LIBOR Loan, then Bank shall give Borrower
written notice thereof in a reasonably prompt fashion and, upon
demand by Bank to Borrower, Borrower shall pay to Bank, from time
to time, as specified by Bank, additional amounts which shall
compensate and indemnify Bank for such increased cost or reduced
amount from the date of such notice. A certificate as to the
increased cost or reduced amount as a result of any event mentioned
in this Section 2(e) shall be promptly (after any demand by Bank)
submitted by Bank to Borrower and shall be rebuttably presumptive
evidence of the
-6-
<PAGE>
amount thereof. After any such demand for compensation or
indemnity by Bank (or if Borrower shall be subject to any
withholding tax by reason of any payment on account of such LIBOR
Loan), Borrower may, upon at least three Business Days' prior
written notice to Bank, prepay such LIBOR Loan in full subject to
Section 2(d) hereof. Notwithstanding anything to the contrary
contained in this Section above, Borrower shall not be obligated to
indemnify Bank for any such increased costs to Bank (i) accruing
prior to Bank's notifying Borrower of the nature of such costs or
(ii) relating to any LIBOR Loan in existence on the date of such
notification.
Bank agrees that it will use reasonable efforts in order to
avoid or to minimize, as the case may be, the payment by Borrower
of any additional amount under this Section and that it will, as
promptly as practicable, notify Borrower of the existence of any
event which will require the payment by Borrower of any such
additional amount, provided that the foregoing shall not in any way
affect the rights of Bank or the Banks or the obligations of
Borrower under this Section 2(e).
Borrower shall indemnify the Bank against any loss or expense
which Bank may incur as a consequence of Borrower s failure to make
a payment of any of the LIBOR Loans or interest on the due dates
thereof. A certificate of Bank as to the amount of any such loss
or expense and specifying the basis upon which such loss or expense
is computed shall be rebuttably presumed to be correct.
B. Amendment and Restatement. This Amended and Restated
Promissory Note is given in renewal and extension (and not in
extinguishment or novation) of that certain Promissory Note, dated
September 29, 1994, in the stated principal amount of $512,000
executed by Borrower and payable to the order of Bank.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the 1990 Stock Plan for Key
Employees of Temtex Industries, Inc. and its Subsidiaries and the
Outside Directors Stock Option Plan of Temtex Industries, Inc. of
our report dated October 13, 1995, with respect to the consolidated
financial statements and schedule of Temtex Industries, Inc.
included in the Annual Report (Form 10-K) for the year ended August
31, 1995.
ERNST & YOUNG
November 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE TEMTEX INDUSTRIES,
INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED AUGUST
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMETNS.
</LEGEND>
<CIK> 0000110740
<NAME> TEMTEX INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 736
<SECURITIES> 0
<RECEIVABLES> 7,552
<ALLOWANCES> 541
<INVENTORY> 8,773
<CURRENT-ASSETS> 17,714
<PP&E> 26,011
<DEPRECIATION> 17,505
<TOTAL-ASSETS> 27,215
<CURRENT-LIABILITIES> 8,700
<BONDS> 0
<COMMON> 715
0
0
<OTHER-SE> 14,701
<TOTAL-LIABILITY-AND-EQUITY> 27,215
<SALES> 42,904
<TOTAL-REVENUES> 43,026
<CGS> 30,962
<TOTAL-COSTS> 41,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 186
<INTEREST-EXPENSE> 424
<INCOME-PRETAX> 858
<INCOME-TAX> 369
<INCOME-CONTINUING> 489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
