SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-7117
General Housewares Corp.
(Exact name of Registrant as specified in its Charter)
Delaware 41-0919772
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1536 Beech Street 47804
Terre Haute, Indiana (Zip Code)
(Address of principal executive offices)
Registrant' telephone number, including area code (812) 232-1000
Indicate by check mark whether the Registrant (1) 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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at November --, 1997
$.33-1/3 Par Value ----------
PART I FINANCIAL INFORMATION
GENERAL HOUSEARES CORP. & SUBSIDIARIES
(Dollars in thousands except per share amounts)
Consolidated Condensed Statement of Operations and Retained Earnings
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
1997 1996 1997 1996
Net sales $29,215 $26,406 $73,505 $72,621
Cost of goods sold 16,519 16,708 43,637 48,709
------- ------- ------- -------
Gross profit 12,696 9,698 29,868 23,912
Selling, general and
administrative expenses 10,180 8,729 27,946 28,462
------- ------- ------- -------
Operating income 2,516 969 1,922 (4,550)
Interest expense, net 721 692 1,967 2,050
------- ------- ------- -------
Income (loss)from
operations
before income taxes 1,795 277 (45) (6,600)
Income taxes 863 217 208 (2,257)
------- ------- ------- -------
Net income (loss) for
the period 932 60 (253) (4,343)
Retained earnings,
beginning of period 25,485 26,115 27,279 31,119
Less: Dividends ($.08
per common share in
1997 and 1996) 305 302 914 903
------- ------- ------- -------
Retained earnings,
end of period $26,112 $25,873 $26,112 $25,873
------- ------- ------- -------
------- ------- ------- -------
Earnings per common share:
Net income (loss) $0.24 $0.02 ($0.07) ($1.15)
------- ------- ------- -------
------- ------- ------- -------
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED BALANCE SHEET
As of
September 30, December 31,
1997 1996
(Unaudited)
------------ ------------
ASSETS
Current assets:
Cash $ 1,201 $ 1,981
Accounts receivable, less allowances
of $2,579 ($3,575 in 1996) 16,745 15,823
Inventories 25,778 18,513
Deferred tax asset 3,866 3,831
Other current assets 1,002 932
Income taxes refundable 100 -
-------- --------
Total current assets 48,692 41,080
Notes receivable 2,527 2,707
Property, plant & equipment, net 12,708 13,420
Other assets 5,643 6,479
Patents and other intangible assets 3,877 4,195
Cost in excess of net assets
acquired 27,267 27,398
-------- --------
$100,714 $ 95,279
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt $ 1,482 $ 2,190
Notes payable - -
Accounts payable 3,710 3,932
Salaries, wages and related benefits 1,641 1,671
Accrued liabilities 3,741 3,288
Income taxes payable - 379
-------- --------
Total current liabilities 10,574 11,460
Long-term debt 38,190 30,575
Deferred liabilities 4,511 4,754
Stockholders' equity:
Preferred stock - $1.00 par value:
Authorized - 1,000,000 shares
Common stock - $.33-1/3 par value:
Authorized - 10,000,000 shares
Outstanding - 1997 - 4,092,860
and 1996 - 4,080,736 shares 1,364 1,361
Capital in excess of par value 24,119 23,976
Treasury stock at cost - 1997 and
1996 - 277,760 shares (3,649) (3,649)
Retained earnings 26,112 27,279
Cumulative translation adjustment (125) (95)
Minimum pension liability (382) (382)
-------- --------
Total stockholders' equity 47,439 48,490
-------- --------
$100,714 $ 95,279
-------- --------
-------- --------
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months
ended September 30,
1997 1996
-----------------------
OPERATING ACTIVITIES:
Net loss ($ 253) ($ 4,343)
Adjustments to reconcile net
loss to net cash (used for)
provided by operating activities -
Depreciation and amortization 4,452 3,903
Loss on sale of assets - 2,292
Foreign exchange loss (5) (7)
Compensation related to stock awards 52 81
(Increase) decrease
in deferred taxes (371) 40
(Increase) decrease in operating assets:
Accounts receivable (909) 1,919
Inventory (7,193) 741
Other assets (3) (161)
(Decrease) increase in operating liabilities:
Accounts payable (219) 370
Salaries, wages and related benefits,
accrued and deferred liabilities 487 2,209
Income taxes payable (refundable) (448) (3,600)
-------- --------
Net cash (used for) provided by
operating activities: (4,410) 3,444
-------- --------
INVESTING ACTIVITIES:
Additions to property, plant and
equipment, net (2,015) (3,421)
Proceeds from sale of asset - 1,785
Payments for acquisitions (991) -
-------- --------
Net cash used for
investing
activities (3,006) (1,636)
-------- --------
FINANCING ACTIVITIES:
(Increase) decrease in
notes receivable 550 (370)
Long-term debt borrowing
(repayment) 6,912 (3,554)
Proceeds from stock options and
employee purchases 94 218
Dividends paid (914) (903)
-------- --------
Net cash provided by (used for)
financing activities 6,642 (4,609)
-------- --------
Net decrease in cash
and cash equivalents (774) (2,801)
Cash and cash equivalents at
beginning of period 1,981 3,414
Effect of exchange rate on cash (6) 6
Cash and cash equivalents at end -------- --------
of period $ 1,201 $ 619
-------- --------
-------- --------
See notes to consolidated condensed financial statements.
NOTES TO CONSOLIDATED CONSENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - GENERAL
The accompanying interim Consolidated Condensed Financial Statements have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
In the opinion of management, the financial statements included herein reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial information for the periods presented. The
Consolidated Condensed Financial Statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
September 30, December 31,
1997 1996
Raw materials $ 4,060 $ 2,873
Work in process 937 953
Finished goods 21,430 15,629
-------- --------
26,427 19,455
LIFO Reserve (649) (942)
-------- --------
Total, net $ 25,778 $ 18,513
-------- --------
-------- --------
NOTE 3 - PROPERTIES
September 30, December 31,
1997 1996
---------- -----------
Land $ 648 $ 648
Buildings 6,480 6,890
Equipment 24,881 23,519
-------- --------
Total 32,009 31,057
Accumulated depreciation (19,301) (17,637)
-------- --------
Total, net $ 12,708 $ 13,420
-------- --------
-------- --------
NOTE 4 - LOAN COVENANTS
Terms of the Company's Bank Credit Agreement and Senior Note Agreement require
that the Company maintain certain minimum financial ratios. The Bank Credit
Agreement was amended effective September 30, 1997. The Company was in
compliance with all of the financial covenants included in the amended Bank
Credit Agreement. Had the amendments to the Bank Credit Agreement not been
effective as of September 30, 1997, the Company would not have complied with
the previous fixed charges coverage ratio and leverage ratio. Management
expects to comply with the amended Bank Credit Agreement financial covenants
in the future. As of September 30, 1997, the Company was in compliance with
all Senior Note Agreement covenants. The Company anticipates that it will not
be in compliance with the fixed charges coverage ratio and permitted dividend
payments limitation provided for in the Senior Note Agreement as of the next
measurement date. The Company expects that it will be able to obtain waivers
for non-compliance with those provisions.
NOTE 5 - SUBSEQUENT EVENT
The Company will incur approximately $500 of severance related wages and
benefits in the fourth quarter of 1997 as a result of two significant cost
reduction activities initiated in October 1997. One activity consisted of the
elimination of 18 positions which had supported a variety of selling, general
and administrative functions, and the other anticipates reduction in headcount
associated with the planned first quarter 1998 relocation of the Company's
primary distribution activities from Terre Haute to Indianapolis, Indiana.
Substantially all of the payments related to this fourth quarter charge will
be completed by March 31, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands)
FINANCIAL CONDITION
Referring to the Company's financial condition as of September 30, 1997 as
contrasted with December 31, 1996, inventories, accounts receivable and
borrowings increased. The increases are consistent with the seasonality of
the Company's business which spurs inventory build and provides increased
sales (and related increases in accounts receivable) in the third and fourth
quarters.
RESULTS OF OPERATIONS
The Company sold the assets of its cast iron and cast aluminum cookware
division (Sidney Division) effective August 1, 1996. The following discussion
and analysis includes the operating results of the Sidney Division in 1996 to
the date of disposition.
NET SALES
Net sales for the three-month period ended September 30, 1997 were $29,215, an
increase of 10.6% as compared to sales of $26,406 for the same period in 1996.
Net sales for the nine-month period ended September 30, 1997 were $73,505, an
increase of 1.2% as compared to net sales of $72,621 for the same period in
1996. The increase in sales for both the quarter and nine-month period was
driven primarily by growth (new distribution and new product introduction) in
the kitchen/household tools line. Offsetting this growth were declines in
the Company's cookware product line, which resulted primarily from the
divestiture of the Sidney Division. Sidney Division net sales were $324 and
$4,163 for the three-month period and nine-month period ended September 30,
1996, respectively.
GROSS PROFIT
Third quarter 1997 gross profit increased $2,998 from the comparable period in
1996 while gross profit for the first nine months of 1997 increased $5,956
over the first nine months of 1996. The quarter and year-to-date gross margin
amounts were favorably impacted by the change in sales mix from low margin
Sidney Division products to higher margin kitchen/household tools products.
Because of the favorable change in sales mix, the Gross Profit as a percentage
of net sales rose (i) to 43.5% for the three-month period ended September 30,
1997, from 36.7% for the comparable period last year, and (ii) to 40.6% for
the nine-month period ended September 30, 1997, from 32.9% for the comparable
period in 1996.
In addition, the Company experienced more favorable production variances in
the three-month and nine-month periods ended September 30, 1997 than those
experienced in comparable periods of 1996. The more favorable production
variances resulted primarily from the operation of the Sidney Division at
reduced capacity during 1996 and the operation of the Company's other
manufacturing facilities at reduced levels in 1996 (geared to the Company's
1996 inventory reduction program) as compared to 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the three-month period ended
September 30, 1997 were $10,180 as compared to $8,729 for the same period in
1996. Of this increase, approximately $400 was related to increased warehouse
costs which resulted primarily from increased volume of product shipped in
addition to an acceleration of depreciation expense as a result of the
Company's planned move to a new distribution facility by April 1, 1998.
Severance expense of approximately $300 was recorded in the three months ended
September 30, 1997 as a result of the elimination of ten positions on July 1,
1997. Other significant increases in the administrative area came from the
Company's emphasis on customer service initiatives which include significant
investments in computerized information systems (electronic data interchange,
logistics and warehouse related software and hardware, etc.) as compared to
1996. Selling, general and administrative expenses for the first nine months
of 1997 were $27,946 as compared to $28,462 for the same period in 1996. A
non-operating charge directly related to the divestiture of the Sidney
Division in the amount of $2,275 is included in 1996 expense for the first
nine months. Excluding that charge, year-to-date expenses have increased by
$1,759 (approximating the third quarter 1997 increase over the comparable
period in 1996).
OPERATING INCOME
Operating income for the three-month period ended September 30, 1997 was
$2,516 as compared to $969 for the three months ended September 30, 1996.
Operating income for the first nine months of 1997 was $1,922 as compared to
an operating loss of $4,550 for the comparable nine-month period in 1996.
Interest expense for the three months ended September 30, 1997 was $721 as
compared to $692 for the same period in 1996. For the nine months ended
September 30, 1997, interest expense was $1,967 as compared to $2,050 for the
first nine months of 1996. Net income of $932 for the third quarter of 1997
and the net loss of $253 for the first nine months of 1997 compares to net
income of $60 and a net loss of $4,343 in respective 1996 periods. Related
quarterly and year-to-date earnings (loss) per share improved from $0.02 and
($1.15) in 1996 to $0.24 and ($0.07) in 1997, respectively.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
11a. Primary Earnings Per Share
Reports on Form 8-K - there were no reports on Form 8-K filed for
the three months ended September 30, 1997.
EXHIBITS
EX-11 Computation of Primary Earnings Per Share
EX-27 Financial Data Schedule
EX-10.1 Services Agreement
EX-10.2 Amended Credit Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL HOUSEWARES CORP.
Dated: November --, 1997 By /s/ Mark S. Scales
Mark S. Scales
Vice President
Finance and Treasurer
Chief Financial Officer
By /s/ Brad A. Kelsheimer
Brad A. Kelsheimer
Corporate Controller
Chief Accounting Officer
SERVICES AGREEMENT
This Agreement is made as of October 6, 1997, between General Housewares
Corp., 1536 Beech Street, Terre Haute, Indiana 47804 ("GHC"), and Owen
Distribution Company, 450 Lillard Drive, Sparks, Nevada 89434 ("Owen").
GHC and Owen agree as follows:
1. Services: GHC hereby retains Owen and Owen hereby agrees to be retained
by GHC for the purpose of providing the services described in the attached
Addendum 1, "Scope of Work", which is hereby incorporated into this Agreement
by reference. The services to be provided are referred to in this Agreement
as the "Work". The Work may include other services as may be requested by GHC
from time-to-time and which shall be set forth in amendments to Addendum 1,
which the parties shall append to Addendum 1 and which shall also become a
part of the terms of this Agreement. The Work shall be accomplished in
accordance with the mutually agreed upon performance standards which are
specified in Addendum 1 (the "Performance Standards"). These Performance
Standards are the same as those used by GHC at all of its distributing
locations. The Performance Standards attached may be revised by GHC., subject
to Owen's approval which shall not be unreasonably withheld.
2. Liaisons:
(a) GHC and Owen shall each designate in writing an employee liaison who
shall work together to coordinate the parties' activities in performing the
Work. Either party may change its designated liaison at any time upon written
notice to the other, but both agree not to change their designated liaisons
more than is necessary to achieve prompt and consistent performance of the
Work.
(b) The two (2) liaisons designated by the parties shall meet regularly, to
set priorities for the Work and, as needed, to deal with issues that arise
with regard to Owen's day-to-day performance of the Work. Owen and GHC each
agree to act in a reasonable manner so that the two (2) liaisons may
satisfactorily resolve any issues which may arise during the term of this
Agreement. In the event that the two (2) liaisons are unable to resolve any
matters between them, then the matter shall be resolved in accordance with the
procedures set forth in Paragraph 25.
(c) The liaisons are empowered to:
(i) develop the first drafts of the annual capital budget and expense budget
(the "Budget") in preparation for the annual meeting, described in Paragraph
16;
(ii) develop a proposed Operating Procedures Manual for approval by the
parties;
(iii) update the Operating Procedures Manual with regard to minor changes;
(iv) recommend to their respective management substantive changes to the
Operating Procedures Manual and to any other manual, schedule, exhibit, or
procedure under or pursuant to which the parties are operating; and
(v) undertake any other action provided for in this Agreement.
3. Machinery and Equipment: GHC shall acquire and make available to Owen new
machinery and equipment (the "Machinery and Equipment") for its use in
performing the Work. This "Machinery and Equipment" is listed on Addendum 2,
which list shall be agreed to by the parties when the specific machinery and
equipment have been identified. Addendum 2 shall be updated as equipment or
machinery is updated or added. All such Machinery and Equipment shall at all
times be labeled as the property of GHC. Owen shall be responsible for the
operation, maintenance, and repair of the Machinery and Equipment. Owen shall
maintain the Machinery in good repair, ordinary wear and tear excepted. The
cost of routine maintenance, repair, and replacement shall be reimbursed to
Owen by GHC in accordance with Paragraph 7. It is understood that the
equipment may have an ordinary useful period of use that will cause the
equipment to become unusable, nonfunctional, or non-operational during the
term of this Agreement. In such event, GHC shall promptly provide replacement
equipment and GHC shall pay for the cost of said replacement equipment. The
Machinery and Equipment supplied by GHC shall be used for performance of the
Work and for no other purpose. A capital equipment budget shall, when
necessary, be established for the provision of additional or replacement
equipment at the same time as the annual expense budget is prepared and
submitted for approval.
4. Supplies: GHC, in its discretion, reserves the right to directly provide
any supplies reasonably required by Owen. If GHC does not provide such
supplies, all supplies reasonably required for Owen's performance of the Work
shall be furnished by Owen in accordance with the Budget. If Owen purchases
any such items, GHC shall reimburse it for its cost as described in Paragraph
7 below as long as they do not exceed the Budget. The liaisons shall consult
and coordinate regarding provision of supplies and make them a part of the
Budget.
5. Physical Facilities:
(a) Initially, Owen shall set aside approximately 131,000 square feet of
space at its facility located in the Airwest Industrial Park, Plainfield,
Indiana for performance of the Work (the "Space"). The location of the Space
is shown on the plat of the building attached hereto as Addendum 3. The Work
provided for by this Service Agreement shall be performed at such facility.
GHC agrees that the Space so set aside shall be the minimum square footage on
which the square footage charge provided for in Paragraph 7(b) of this
Agreement will be computed. The Space shall be secured, and kept in a clean,
orderly, and sanitary condition in accordance with the mutually agreed upon
GHC Performance Standards contained in Addendum 1.
(b) Owen shall, upon GHC's written request, provide GHC additional square
feet of space in Owen's facility. This additional space shall be referred to
for purposes of this Agreement as "the Expansion Space". The Expansion Space
must be requested in 10,000 square feet increments only and Owen shall not be
required to provide the Expansion Space in any other area or configuration
unless the parties otherwise agree in writing. Notice of GHC's intent to
request the Expansion Space must be supplied to Owen no less than three (3)
months in advance of expansion. The square footage charge applicable to the
Expansion Space shall be the base rate applicable to the Space . In the event
that GHC should wish to exercise the option for the Expansion Space under this
subparagraph during the second five (5) years of the initial term, then the
term of this Agreement shall be extended by five (5) years from the date of
the expansion.
(c) Upon thirty (30) days written notice from GHC, Owen agrees to provide
short-term overflow space to GHC in 2,000 square foot increments on an as-
needed basis up to a maximum of 10,000 square feet (the "Short Term Space").
This Space shall be made available in the Owen facility in which the Space is
located. Short Term Space may be made available provided that there is space
available in the Owen facility in which the Space provided for by this
Agreement is located or in any then existing adjacent Owen facilities. Any
such Space in the same facility in which GHC is located shall be charged to
GHC at the Base Rent rate plus operating expenses provided for in this
Agreement. Should GHC require more than 10,000 square feet and Owen has such
space available in another facility, then the rental rate shall be mutually
agreed to by the parties in advance.
(d) In the event that GHC identifies that it will not be utilizing a portion
of the Space or Expansion Space GHC may notify Owen, in writing, of such fact
and request Owen to use reasonable efforts to rent such Space to other
warehousing customers. Provided, however, that:
(i) GHC must give Owen ninety (90) days advance notice of the non-use of the
Space and its intent to vacate the Space;
(ii) GHC must specify in the written notice the minimum time period during
which it will not utilize the Space;
(iii) the Space so identified may only be rented to compatible use customers,
subject to GHC's prior written approval; and
(iv) such a request may only be made with regard to a minimum block of 25,000
square feet of space or any other size to which the parties mutually agree,
but in no instance shall the leased Space during the term fall below 100,000
square feet.
If Owen is unsuccessful in filling the unused Space for which GHC has given
notice, GHC shall continue to be fully responsible for such Space under the
terms and conditions of this Agreement for a period not to exceed nine (9)
months from date of written advance notice of the non-use of and intent to
vacate the Space. Should Owen, with GHC's approval, lease the space at a rate
lower than the rate being charged to GHC, then GHC shall receive an offset of
any rate so collected by Owen from the third party until the nine-month notice
period is expired, at which time GHC will no longer be responsible for leasing
the vacant space for the remainder of the term.
6. Facility Overhead Expenses and Provisions of Utilities:
(a) To the extent they are not separately metered or otherwise paid by GHC,
GHC shall reimburse Owen for overhead expenses incurred for GHC operations
("Overhead Expenses"), as well as routine maintenance charges ("CAM Charges").
Such Overhead Expense charges shall be paid on the first day of each month
without the necessity of invoice. Overhead Expenses shall include utilities,
gas, electric (GHC will pay an additional charge for electricity separately
metered to operate power conveyor and sortation equipment), water, heat, sewer
expenses and trash removal, central station alarm/guards, and security.
Overhead Expenses will be calculated on the anniversary date of the
commencement date of the initial Space utilization by GHC. The calculation of
the Overhead Expense will be based on a review, reconciliation, and
adjustment of the preceding twelve (12) months' actual Overhead Expenses, if
any. In the event that the utilities for the GHC portion of the facility
cannot be individually metered and/or the other costs which make up the
facility overhead expense cannot be individually assigned or identified to the
GHC portion of the facility, and other users have operations similar to GHC's,
then a pro rata approach will be utilized for purposes of the annual
calculation of the Overhead Expense. GHC's pro rata share shall be based on
the number of square feet allocated to GHC, under Paragraph 5, compared to the
number of total square feet in the facility as a whole, which total square
footage is 413,350. In the event that other users have dissimilar operations,
the parties shall agree to an equitable division of the overhead expense in
writing, in advance, as part of the budget process. The CAM expenses shall be
limited to landscaping/grounds maintenance, trash sweeping, snow removal,
interior sanitation, janitorial, lighting and door/leveler repairs. The CAM
expenses shall be passed on to GHC on a pro rata share basis as set forth
above, but is agreed not to exceed $0.01 per square foot per month the first
year and are subject to an increase equal to the change in the CPI the
previous year for each year thereafter until the expiration of the term.
(b) In addition to the Overhead Expense, GHC shall reimburse Owen for GHC's
telephone charges related to the Work and shall pay an equitable share of the
line costs based on usage, if any.
(c) Owen shall supply GHC with utilities to serve the Space provided,
including trash removal, water, sewage use, electricity, and gas service to
the warehouse and office space. Utilities serving the GHC equipment shall, if
reasonable possible, be separately metered.
(d) All expenses referred to in this Paragraph 6 shall be verified by Owen in
writing if so requested by GHC.
7. Compensation: As compensation for the Work, GHC shall pay Owen as
follows:
(a) GHC shall pay to Owen a fixed management fee of $180,000.00 per year due
and payable in twelve (12) equal monthly installments beginning on the
Commencement Date, as defined in Paragraph 11(a), of the contract and annually
thereafter on the anniversary date of the Commencement Date. The fee shall
remain fixed throughout the entire initial term of this Agreement.
(b) GHC shall pay for storage service $0.27 per square foot per month (gross)
due in advance on the first of each month (the "Base Rent"). The Base Rent
shall be applied against the Space or Expansion Space (if any). The Base
Rental includes base year (1997) taxes, building fire insurance, roof
maintenance and structural building maintenance. In the event the
Commencement Date of this Agreement does not fall on the first day of a month,
the initial and final month square footage charge shall be pro rated
accordingly.
(c) GHC shall reimburse Owen its reasonable direct costs for:
(i) Labor, including wages, payroll taxes (state and federal), Indiana worker
compensation, health, dental, life insurance benefits, and retirement/profit
sharing contribution all related to performing the Work. Owen agrees that
wage scales/compensation to its employees, for which GHC is obligated to
reimburse it, shall not exceed the local market rates for like positions in
the Indianapolis area.
(ii) GHC shall reimburse Owen for all administrative and operational forms
and supplies provided by Owen needed to perform the work at cost plus five
percent (5%); and
(iii) GHC shall reimburse Owen for maintenance, repair and replacement of
Machinery and Equipment in accordance with Paragraph 3.
The items in (a) and (b) above shall be paid on the first of each month,
without the necessity of an invoice. Each month Owen shall invoice GHC for
the amounts payable to Owen as set forth in (c) above, detailing each of the
charges contained therein. GHC shall pay Owen's invoices within fifteen (15)
business days of receipt.
8. Waste Disposal: After written approval from GHC, Owen agrees to remove
and dispose of any quantities of damaged products, whether damaged in
performance of the Work or whether damaged in transit to the Work location.
Owen shall account for in writing all damaged or waste products so disposed of
as well as the location and method of disposal. Owen shall not use, reuse,
sell, or otherwise dispose of any of GHC's products for its account.
Provided, however, that in the event that any product directed by GHC to be
disposed of will require special handling or considerations under any federal
or state environmental statute or regulation, GHC shall be responsible for
providing directions for disposal and for all cost associated with such
disposal, and GHC shall hold Owen harmless from any future damage or expense
arising out of such disposal, provided that the disposal was conducted
pursuant to GHC's directions.
9. Quality Control: Owen warrants that all Work performed by it under this
Agreement shall be performed in accordance with GHC's approved processes and
procedures included in the mutually agreed upon Performance Standards. A
reward incentive program (see Reward Incentive Program) will be formulated to
provide for a gain-sharing incentive should the parties achieve the
performance standards while operating at below budget plan levels, then the
savings would be split on a 50/50 basis.
10. Product Losses: Owen shall be responsible for proper handling and secure
storage of products delivered to it for performance of the Work. Owen shall
not be liable for any loss or injury to goods stored, however caused, unless
such loss or injury resulted from the failure to exercise such care in regard
to them as a reasonably careful person would exercise under like
circumstances.
11. Term:
(a) The term of this Agreement shall be five (5) years with an option to
extend the term for an additional five (5) years and shall become effective on
the later of the date of execution of this Agreement or the date the Space
has been set aside, cleared, and is available for use by GHC (the
"Commencement Date"). The parties shall sign a commencement certificate
acknowledging the actual Commencement Date. Owen shall give written notice to
GHC of the fact that the Space has been set aside, cleared, and is available
for use by GHC. The commencement date shall occur no later than five (5) days
from the date of notice from Owen to GHC that the Space has been set aside,
cleared, and is available for use by GHC.
GHC shall have the option, upon giving a six (6) month advance written notice,
to extend the term of this contract for an additional five (5) years. This
subsequent period of five (5) years shall hereafter be referred to as the
Extended Term. Should GHC elect to exercise this option to extend the term,
the storage service fee as stipulated in Paragraph 7(b) herein shall be
subject to an increase on the first day of the 61st month of the term equal to
$0.027 per square foot per month. The adjusted rent of $0.297 per square foot
per month would remain fixed throughout the Extended Term until the expiration
thereof.
The management fee provided for in Paragraph 7(a), $180,000 per year, provided
GHC elects to exercise its option to extend the term of this contract, will be
subject to an increase equal to $18,000 per year paid monthly beginning the
first day of the 61st month. The new management fee of $198,000 per year
shall remain fixed throughout the Extended Term until the expiration thereof.
All the other terms and conditions of this contract shall remain unchanged
throughout the Extended Term unless modifications are mutually agreed to in
writing as provided for in Paragraph 21.
(b) Notwithstanding anything herein to the contrary, either party may
terminate this Agreement upon thirty (30) days written notice to the other in
the event of the other's material breach of or material default under this
Agreement. If, however, the party in material breach or material default
cures the breach or default to the other's reasonable satisfaction within that
thirty (30) days notice period, or such longer curative period as may
reasonably be required, then the notice of termination shall be deemed to be
null and void and of no effect. For purposes of this Agreement, a "material
breach" is defined to be a breach which, if uncorrected, would deprive the
non-breaching party of the benefit of the contract either wholly or in some
vital aspect. The parties specifically agree that any one of the following
actions constitute a material breach of this Agreement:
(i) the filing of a voluntary or involuntary petition for relief under the
bankruptcy laws of the United States;
(ii) appointment of a receiver over a party's assets;
(iii) being placed on a "cash only" basis by creditors;
(iv) inability to meet financial obligations as they become due;
(v) violation of the confidentiality provisions of this Agreement, or
(vi) ceasing to do business as a going concern.
(vii) Owen fails to correct, after written notice from GHC repeated failure,
(three (3) times in six (6) months) by Owen to meet the Quality Standard.
A pattern of material breaches even if all such breaches are cured following
notice, shall be grounds for termination of this Agreement.
Should the termination be caused by a material breach by Owen, GHC shall have
the option to continue to operate from the Space or Expansion Space with its
own work force. Regardless of whether GHC chooses to utilize the Space or
Expansion Space, it is expressly understood that the Base Rent and utility
portion of the Overhead Expense charges provided for in Paragraph 7(b) (water,
gas, electric, etc.) will continue unless otherwise agreed to in writing by
the parties.
(c) If GHC chooses to vacate the Space, Owen agrees to use its best efforts
to attempt to obtain new warehouse customers under either similar services
agreements or general public warehouse services for purposes of utilization of
the Space vacated by GHC provided that it is expressly understood and agreed
that nothing contained herein shall require Owen to attempt to fill any said
Space if Owen has other unfilled Space available in its facility. If Owen is
successful in filling any or all of the Space vacated by GHC at a rate equal
to or greater than the total rate then being charged to GHC, GHC shall not be
charged for said Space during such time as the Space is utilized for the third
party customer. Should Owen, with GHC's approval, lease the Space at a rate
lower than the rate being charged to GHC, then GHC shall receive an offset of
any rate so collected by Owen from the third party and shall be responsible
for the difference between the rate paid by the third party customer and the
then applicable rate to GHC. It is expressly understood that if during the
term of this Agreement or any extensions hereof, such third party should
vacate the Space so leased, GHC shall continue to be fully responsible for
such Space under the terms of this Paragraph 11(c). GHC shall also be
responsible for said Space under the terms of this paragraph, if the Space is
leased and the third party customer fails to pay its account. In the event
that Owen is unable to obtain other warehouse customers to fill the Space
vacated by GHC at a rate equal to GHC's then current rate, or in the event
that Owen could not obtain a compatible tenant for the Space, then GHC may
retain a commercial real estate broker to rent the Space under a general
warehousing agreement or a similar service agreement to this Agreement,
subject to Owen's prior written approval which shall not be unreasonably
withheld.
Should Owen be in material breach of this Agreement with the end result being
the termination of this Service Agreement and GHC desires to continue
operating from the facility with its own employed workforce, then the parties
do hereby agree to split the costs of dividing the space equally on a 50/50
basis. These costs would include the building of a dividing wall (or some
other barrier for which specifications are mutually agreeable) and the
provision of separate offices the size of which do not exceed 4,200 square
feet.
(d) After the termination of this Agreement under this provision, the only
obligations contained in this Agreement which will survive termination are
those set forth in this paragraph and in Paragraphs 8, 10, 11, 14, 15, 17, 18,
25, and 26.
12. Minimum Quantity of Work: Nothing herein shall obligate GHC to provide
Owen with any minimum quantity of Work. However, GHC will be obligated to pay
Owen a minimum Base Rent, based on the minimum square footage of 100,000
square feet specified in Paragraph 5 and calculated as established by
Paragraph 7(b).
13. Independent Contractor: Owen is an independent contractor and unless
otherwise specifically set forth in this Agreement, is not an agent or
representative of or joint venturer with GHC for any purpose. Neither party
shall have any right or authority to assume or create an obligation,
commitment or responsibility for or on behalf of the other except as the other
may expressly authorize in writing. Except as otherwise specifically set
forth in this Agreement, Owen shall be free to perform the Work in any manner
it deems reasonably necessary free from supervision by GHC. It is
specifically understood and agreed that the employees of Owen are not
employees of GHC and that Owen shall be responsible for and hold GHC harmless
from all liabilities with the exception of liabilities arising from the
negligence of GHC, its agents or employees, costs, taxes, and other expenses
or obligations with respect to its employees.
14. Confidentiality: Owen agrees that all information about GHC's business
which is disclosed to it or otherwise comes into its possession, directly or
indirectly, as a result of the services to be provided hereunder, including,
but not limited to, information as to GHC's customers, suppliers,
specifications, manufacturing methods and procedures, software programs, plans
and objectives, shall be kept strictly confidential and shall not be disclosed
to any third party nor used for Owen's own benefit without GHC's advance
written approval.
15. Indemnification: Owen agrees to hold GHC harmless and to indemnify it
against any claims for liabilities, costs or expense including legal fees
arising out of or in connection with personal injury, death, or property
damage arising as a result of the negligence or claimed negligence or
intentional act of Owen, its agents or employees. Owen agrees to hold GHC
harmless and to indemnify it against any claims for worker's compensation,
employment discrimination, wrongful termination, or other employment-related
claims.
GHC, for its part, agrees to hold Owen harmless and indemnify it against any
claims for liabilities, costs or expense including legal fees arising out of
or in connection with personal injury, death, or property damage arising as a
result of the negligence or claimed negligence or intentional act of GHC, its
agent (other than Owen if it should be deemed to be an agent of GHC) or
employees in connection with the performance of the Work.
16. Total Quality Management:
(a) The parties agree that it is to their mutual advantage to maximize the
quality of service provided to GHC's customers. To that end, the parties
agree to cooperate with each other to continuously improve GHC's service to
its customers through seeking out and implementing efficiencies which may be
implemented by GHC to assist in Owen's performance of the Work.
(b) Should Owen fail to meet the mutually agreed upon Performance Standards
contained in Addendum 1, the liaisons shall review the reasons for such
failure and attempt to resolve the reasons for the failure. If the liaisons
are unable to agree on a solution to prevent the recurrence of the failure, or
if the failure recurs for whatever reason, the matter shall be referred to
arbitration in accordance with Paragraph 25 below.
(c) Representatives of management from each party with authority to bind each
party shall meet not less than annually to revise, as necessary, the
Performance Standards, the Capital Budget and Expense Plan. Any revisions to
the Performance Standards shall be subject to the mutual agreement of the
parties.
17. Insurance: Owen and GHC shall be responsible for obtaining their own
respective property insurance covering their own property on a 100%
replacement cost basis and on an all risk basis. Owen will also be
responsible for obtaining statutorily required worker's compensation insurance
as required by the applicable worker's compensation or occupational disease
act, comprehensive general liability insurance with not less than
$2,000,000.00 combined single limit bodily injury and property damage
coverage, and automobile liability insurance with limits of liability of not
less than $1,000,000.00 combined single limit for bodily injury and property
damage. Owen shall arrange for GHC to be listed as an additional insured on
its general liability policy and shall provide GHC with current proof of
insurance at the inception of this Agreement and not less than annually
thereafter. Owen's policy shall provide that it may not be canceled nor may
coverage be reduced without thirty (30) days prior written notice to GHC.
18. Access/Record Keeping:
(a) Owen agrees to give GHC reasonable access during normal working hours to
the facilities in which the Work is performed for purposes of inspecting any
repackaged product and for observing the Work.
(b) Owen shall keep accurate and separate books of account and records
covering all transactions and matters relating to this Agreement. GHC and its
duly authorized representatives shall have the right, at all reasonable hours
of the day, upon 24 hours' notice, to an examination of Owen's records
relating to this Agreement. GHC shall have full and free access to the above-
mentioned records for this purpose and for the purpose of making extracts
thereof. All books of account and records shall be kept available for at
least six (6) years after the termination or expiration of this Agreement.
Any over or undercharges found to be due as a result of the examination shall
be immediately paid by the party found to be owing such charges.
(c) GHC shall have access to the facilities at any time to investigate their
cleanliness and Owen's compliance with sanitation procedures contained in the
Performance Standards. Owen shall provide GHC with copies of Owen's internal
sanitation inspection reports. Owen shall provide GHC with notice of any
inspection of the facility by governmental agencies as well as any reports
generated as a result of those inspections in the event that such inspections
relate to the quality and safety of GHC's products.
19. Effect of Uncontrollable Events: Neither party shall be liable to the
other for any loss, injury, delay, damage, or other casualty suffered or
incurred due to acts of nature, strikes, riots, war, fire, explosion,
governmental action, or other cause beyond the reasonable control of either
party and any failure or delay by either party in the performance of any of
its obligations due to one of the foregoing causes shall not be a breach of
this Agreement. The party affected by any such event shall immediately notify
the other of the occurrence of such event.
20. Damage to Space. If the Space cannot be used because of fire or other
damage and if any dangerous or defective condition exists on the Space, GHC is
not required to pay the Base Rent or pro rated Overhead Expense for the time
that the Space is unusable. If only a part of the Space cannot be used
because of fire or other damage, GHC shall pay Base Rent and pro rated
Overhead Expense for the usable part thereof. GHC shall have the sole right
to determine whether and which portion of the Space is usable. Owen shall
repair the damaged portion of the Space. GHC shall have the right to
terminate this Agreement if the damaged portion is not made usable by Owen
within ninety (90) days of the date the damage or destruction occurred.
21. Notices: Notices to be given to either party under this Agreement may be
delivered by hand or by certified or registered mail, return receipt
requested, mailed to the address for that party designated below or by
overnight delivery service directed to that address. The date of notice shall
be deemed to be the date notice is received in the case of notices delivered
by hand, by overnight delivery service and four (4) days after posting in the
case of notices delivered by certified or registered mail. Either party may
change its address for receipt of notices by providing the other with notice
of such change.
If by mail or hand-delivery:
NOTICE TO GHC: General Housewares Corp.
1536 Beech Street
Terre Haute, IN 47804
ATTN: Mr. William V. Higdon
cc: Raymond J. Kulla
General Counsel
NOTICE TO OWEN: Owen Distribution Company
450 Lillard Drive
Sparks, NV 89434
Attn: Gary Owen
cc: Michael McCabe
22. Entire Agreement: This Agreement constitutes the entire agreement
between GHC and Owen concerning the Work and supersedes all prior
communications, representations, agreements and understandings, whether oral
or written, made by either of them concerning the subject hereof. This
Agreement may not be modified or amended except by written instrument duly
executed by an authorized representative or officer of the party to be bound.
23. Compliance with Laws: Owen agrees that in the performance of the Work,
including, but not limited to, the disposal of any waste materials resulting
from the Work, it will comply with all applicable laws, rules, and regulations
of governmental authorities in connection therewith.
24. Authority: The parties hereby represent that they have full power and
authority to enter into and perform this Agreement and the parties know of no
contract, agreement, promises or undertakings which would prevent full
execution and performance of this Agreement.
25. Arbitration: The parties will attempt in good faith to promptly resolve
any controversy or claim, whether sounding in contract, tort, or otherwise,
arising out of or relating to this Agreement by negotiations between senior
executives of the parties who have authority to settle the controversy. The
disputing party shall give the other party written notice of the dispute.
Within twenty (20) days after receipt of said notice, the receiving party
shall submit to the other a written response. The notice and response shall
include (a) a statement of each party's position and a summary of the evidence
and arguments supporting its position, and (b) the name and title of the
executive who will represent that party. The executives shall meet at a
mutually acceptable time and place within thirty (30) days of the date of the
disputing party's notice and thereafter as often as they reasonably deem
necessary to exchange relevant information and to attempt to resolve the
dispute.
If the matter has not been resolved within sixty (60) days of the disputing
party's notice, or if the party receiving said notice will not meet within
thirty (30) days, the parties hereby agree that such claim or controversy
shall be resolved by submission to arbitration in accordance with the
arbitration provisions of the Indiana statutes.
The parties hereby agree that an arbitrator shall be selected from a list
provided by the American Arbitration Association, unless the parties
specifically agree in writing otherwise. Any arbitration will be conducted
according to the Commercial Arbitration Rules of the American Arbitration
Association, provided that the discovery rules of the Indiana Rules of Civil
Procedure shall be applicable and available to the parties. In the event of
any inconsistency between the Commercial Arbitration Rules of the American
Arbitration Association and this Agreement, the terms of this Agreement shall
control. All statutes of limitations which would otherwise be applicable
shall apply to the arbitration proceeding commenced under this Agreement.
Judgment upon any award rendered by an arbitrator may be entered in any court
having jurisdiction and may be enforced as any judgment rendered by a court of
competent jurisdiction.
The parties hereby specifically waive their right to file any action at law or
in equity arising from any implementation or interpretation of this Agreement
or the underlying transactions which gave rise to this Agreement except as
specifically provided herein. This provision requiring arbitration does not
affect any right of either party to exercise self-help remedies or take any
other action provided for under the Uniform Commercial Code, as adopted in
Nevada or Indiana, such as set-off, or to obtain provisional or ancillary
remedies such as injunctive relief or the appointment of a receiver, from a
court having jurisdiction, before, during or after the pendency of any
arbitration. The institution and maintenance of an action for judicial relief
for the pursuit of any provisional or ancillary remedies, such as injunctive
relief or declaratory judgment, or the exercise of self-help remedies which
are provided for herein, shall not constitute a waiver of the requirements of
arbitration created by this Agreement. This provision requiring arbitration
does not constitute a specific waiver of the right to trial by jury or to
proceed in any Indiana or Federal District Court or in the courts of any other
State, with the exceptions of the right to seek judicial assistance as
provided above, and the right to seek enforcement of or compliance with this
paragraph.
26. Effect of Expiration or Termination:
(a) Upon expiration or termination of this Agreement, the parties shall take
the following actions:
(i) Owen shall immediately cease, and cause its subcontractors to cease,
performing the Work; and
(ii) Owen shall cooperate with GHC so that within thirty (30) days of the
expiration or termination of this Agreement, GHC may make arrangements to ship
its products to a different location at GHC's expense.
(iii) Owen shall invoice GHC, and GHC shall pay Owen, for the Work performed
by Owen prior to the date of expiration or termination but after the date of
Owen's last invoice, in accordance with Paragraph 7 above.
(b) The terms of Paragraphs 8, 10, 11, 14, 15, 17, 18, 24, and this Paragraph
25 shall survive the expiration or termination of this Agreement.
27. Attorney's Fees and Costs: Should either party to this Agreement be
required to retain the services of an attorney to enforce any term or
provision of this Agreement, and prevail, then such party shall be entitled to
recover any reasonable attorney's fees and costs so incurred.
28. Governing Law: This Agreement shall be governed, interpreted and
enforced in accordance with the laws of the State of Indiana.
29. Warranty. Owen hereby warrants that the Space is now in compliance with
all laws including but not limited to environmental and OSHA as well as local
or municipal rules or regulations and all insurance requirements.
By signing below, the parties agree to all of the above.
GENERAL HOUSEWARES CORP. OWEN DISTRIBUTION COMPANY
By:/s/ William V. Higdon By:/s/ Gary N. Owen
William V. Higdon Its: President
Its: Vice President
Chief Information Officer
By:/s/ Raymond J. Kulla
Raymond J. Kulla
Its: Vice President, General Counsel
SCOPE OF WORK AND SERVICES
ADDENDUM I
I. General
A. Communications regarding order processing and inventory activity are
intended to be communicated electronically pursuant to the Services Agreement.
B. Hours of warehouse operations will be scheduled by Owen to permit
compliance with the requirements of this Agreement. Typical hours of
operation are Monday through Friday, 7:00 a.m. to 4:00 p.m., excepting
scheduled holidays.
C. Owen is encouraged to participate in General Housewares Corp.'s ("GHC")
methods, systems, and product packaging and to provide feedback for
improvements that will enhance GHC's competitive position.
D. Owen Distributing Company agrees to perform upon GHC's request certain
display assembly, packaging, shrink-wrapping, kiting, etc. on an independent
work order basis. Compensation to Owen for such co-packer functions will be
determined by pre-performance bid submittals and subject to the written
approval of the GHC liaison. Specifications and instructions will be provided
to Owen by GHC and the GHC liaison will have the right to inspect the co-
packer operations to verify GHC quality standards are maintained in accordance
with the bid specifications. Payment for such co-packing functions shall be
in accordance with said bid.
II. Performance Standards. With respect to the physical receipt and shipment
of GHC products ("Products").
A. Normal order processing (in stock position) Owen shall ship and confirm
to GHC within three (3) workdays of receipt of order or ship on an order's
designated ship date.
B. Emergency orders (those with less than 48 hours notice from GHC) Owen
shall ship as soon as possible, but no later than twenty-four (24) hours after
receipt of order.
C. Normal receipt processing Owen shall receive and confirm receipt within
twenty-four (24) hours.
D. Owen will be responsible for meeting the customer's specific instructions
as provided in writing by GHC (for example, but not limited to the items set
forth in II A., B. and C. above, specific order instructions, customer route
guides, etc. (hereinafter referred to as the "Customer Specifications"). Owen
guarantees and warrants that it will meet or exceed Customer Specifications at
least ninety-eight percentage (98%) for each one (1) month period (the
"Quality Standard").
III. Clerical Order Processing and Other Clerical Duties Owen shall:
A. Receive daily orders from GHC.
B. Allow GHC electronic access to information regarding orders to facilitate
retrieving orders based on age or priority basis as required by GHC Customer
Service.
C. Maintain a perpetual inventory of products on Logistics Pro to provide
current information on Product availability, and transmit inventory status
reports to GHC daily.
D. Maintain necessary manual files on various documents, including receipt
reports, orders, bills of lading, information needed to reconcile
discrepancies, and other documents as directed by GHC.
E. Receive notification of inbound shipment of Products via Stock Transfer
Shipment Advice through Logistic Pro.
F. Prepare necessary shipping papers through Logistics Pro, but not limited
to, picking tickets, packing lists and bills of lading as well as those
documents required by order documents.
G. Provide necessary documentation to resolve customer deductions and/or
traffic claims.
H. Prepare and distribute month-end operational reports generated within
three (3) working days of the end of each calendar month. The monthly reports
shall include, but not be limited to: number of on-time shipped orders,
parcel service cost per hundred weight, and warehouse space utilization.
I. Provide special reports or analysis on a timely basis as requested by GHC.
IV. Receiving Operations. With respect to the physical receipt of shipments
of Products, Owen shall:
A. Receive and unload trucks or ocean container of Products daily, as
authorized by GHC.
B. Schedule the receipt of trucks of containers of Products so as to minimize
detention and demurrage.
C. Handle customer returns as authorized by GHC Customer Service.
D. Shipments should be checked for over, short and damage. Over, short, and
damage shipments shall be noted and reported to GHC and resolved with the
shipping location as soon as possible.
E. Products must be put away to facilitate FIFO controls and be available for
prompt order picking to minimize order exceptions.
F. Perform Quality checking as specified by GHC.
V. Inventory Management. With respect to the management of inventory, Owen
is responsible for the management and accuracy of inventory and shall:
A. Maintain housekeeping standards to provide a safe, efficient work
environment.
B. Cycle count locations and verify the accuracy of the inventory control
system.
C. Cycle count Products to ensure accurate available-to-ship information.
D. Upon GHC's request, cycle count selected Products and report results as
soon as possible, but no later than four (4) working hours.
E. Re-warehouse as required to utilize space efficiently.
F. Maintain FIFO controls.
VI. Order Picking/Shipping. With respect to orders picking and shipping,
Owen shall:
A. Pick and stage orders in conformance with Performance Standards to meet
scheduled ship dates. Perform checking operations to ensure order accuracy.
Follow FIFO controls established under V. F. above. Check Products for
obvious damage.
B. Mark Products with customer information as required by the order and the
carrier.
C. Inspect the carrier's equipment as required by the Performance Standards.
D. Provide void fillers, dunnage, and bracing as required for appropriate
protection of Products on truckload or intermodal shipments.
E. Insure that shipments comply with weight carrying restrictions.
F. Perform retail ticketing services as specified by GHC.
MACHINERY AND EQUIPMENT
ADDENDUM 2
Addendum 2, Machinery and Equipment, is to be submitted as an attachment to
this Services Agreement and become a part hereof at the time the machinery and
equipment is shipped to GHC.
PLAT OF AREA
ADDENDUM 3
Addendum 3, Plat of Area is to be submitted as an attachment by Owen to this
Services Agreement and become a part hereof.
COMMENCEMENT CERTIFICATE
General Housewares Corp. and Owen Distribution Company hereby sign this
Commencement Certificate in compliance with Paragraph 11(a) of the Services
Agreement between the parties applicable to the Plainfield, Indiana facility.
The signatures on this Commencement Certificate constitute acknowledgment by
General Housewares Corp. that Owen Distribution Company has given appropriate
written notice that the Space called for under the Services Agreement dated
October 6, 1997, has been cleared and is available for General Housewares
Corp.'s occupancy. It is understood by the parties that the signatures on
this Commencement Certificate constitute December 1, 1997 as the beginning of
the term of the Services Agreement.
This Commencement Certificate is effective as of the date December 1, 1997.
GENERAL HOUSEWARES CORP. OWEN DISTRIBUTION COMPANY
By:/s/ William V. Higdon By:/s/ Gary N. Owen
William V. Higdon Its: President
Its: Vice President,
Chief Information Officer
By:/s/ Raymond J. Kulla
Raymond J. Kulla
Its: Vice President,
General Counsel
Date: October 10, 1997 Date: October 6, 1997
First Amendment to Credit Agreement
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of November 5, 1997, by and
among General Housewares Corp., a Delaware Corporation, Harris Trust and
Savings Bank, in its capacity as agent (the "Agent") for the Banks and the
Banks party to the Credit Agreement (as hereinafter defined). Terms which are
defined in the Credit Agreement shall have the same meaning herein as defined
in the Credit Agreement.
Witnesseth that:
WHEREAS, the Borrower, the Agent and the Banks are party to that certain Credit
Agreement dated as of November 13, 1996 (together with all exhibits,
schedules, attachments and appendices thereto, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that certain provisions of the Credit
Agreement be amended and the Banks and the Agent are agreeable to so amending
the Credit Agreement on the terms and subject to the conditions hereof;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Borrower, the Agent and the Banks hereby
agree as follows:
1. Section 1.1(c)(iv)(a) of the Credit Agreement is hereby amended in its
entirety to be and to read as follows :
(a) in the case of a draft payable in U.S. Dollars, at the rate per annum
determined by adding 2% to the sum of the Domestic Rate as from time to time
in effect and the Applicable Domestic Rate Margin for Domestic Rate Loans
under the Revolving Credit and
2. Section 2.1(a) of the Credit Agreement is hereby amended in its entirety
to be and to read as follows:
(a) Domestic Rate Loans. Each Domestic Rate Loan made by a Bank (including
Loans made pursuant to Section 1.1(c) hereof) shall bear interest (computed on
the basis of a year of 360 days and actual days elapsed) on the unpaid
principal amount thereof from the date such Loan is made until maturity
(whether by acceleration or otherwise) at a rate per annum equal to the sum of
the Applicable Domestic Rate Margin plus the Domestic Rate from time to time
in effect, payable on the last day of the applicable Interest Period and at
maturity (whether by acceleration or otherwise).
"Domestic Rate" means for any day the greater of:
(i) the rate of interest announced by the Agent from time to time as its
prime commercial rate, or equivalent, with any change in the Domestic Rate
resulting from a change in said prime commercial rate to be effective as of
the date of the relevant change in said prime commercial rate; and
(ii) the sum of (x) the rate for that day set forth opposite the caption
"Federal Fund (Effective)" in the daily statistical release designated as
"Composite 3:30 P.M. Quotations for U.S. Government Securities", or any
successor publication, published by the Federal Reserve Bank of New York or,
if such publication shall be suspended or terminated, the arithmetic average
of the rates quoted to the Agent as the prevailing rates per annum (rounded
upward, if necessary, to the next higher 1/100 of 1%) bid at approximately
10:00 A.M. (Chicago time) (or as soon thereafter as is practicable) on such
day by two or more New York or Chicago Federal funds dealers of recognized
standing selected by the Agent for the purchase at face value of Federal funds
in the secondary market in an amount comparable to the principal amount owed
to the Banks for which such rate is being determined, plus (y)1/2 of 1%
(0.50%).
"Domestic Rate Margin" means 0% subject to adjustment as provided in Section
2.11 hereof.
3. Section 2.7(a) and (b) of the Credit Agreement are hereby amended in their
entirety to be and to read as follows :
(a) with respect to any Domestic Rate Loan, the sum of two percent (2%) plus
the Applicable Domestic Rate Margin plus the Domestic Rate from time to time
in effect;
(b) with respect to any Eurocurrency Loan denominated in U.S. Dollars the sum
of two percent (2%) plus the rate of interest in effect thereon at the time of
such default until the end of the Interest Period applicable thereto and,
thereafter, at a rate per annum equal to the sum of two percent (2%) plus the
Applicable Domestic Rate Margin plus the Domestic Rate from time to time in
effect; and
4. Section 2.11 of the Credit Agreement is hereby amended in its entirety to
be and to read as follows:
Section 2.11. Margin Adjustments. The applicable Eurocurrency Margin and the
applicable Domestic Rate Margin shall be subject to quarterly adjustment based
upon the ratio of (a) average monthly Consolidated Funded Debt for the
immediately preceding four fiscal quarters ended on each such fiscal quarter
end to (b) Consolidated Income Before Interest, Taxes and Depreciation for the
immediately preceding four fiscal quarters ended on each such fiscal quarter
end (the "Cash Flow Ratio") as follows (the margins from time to time
applicable to the Eurocurrency Loans being hereinafter referred to as the
"Applicable Eurocurrency Margin" and the margins from time to time applicable
to the Domestic Rate Loans being hereinafter referred to as the "Applicable
Domestic Rate Margin"), provided that from the date of the First Amendment
until the Agent's first determination subsequent to the date of the First
Amendment of the Cash Flow Ratio pursuant to the last paragraph of this
Section 2.11, the Applicable Eurocurrency Margin shall be 1.75% and the
Applicable Domestic Rate Margin shall be 0.25%:
If as of the last day of any fiscal
quarter:
The Applicable
Eurocurrency Margin
Shall Be:
The Applicable
Domestic Rate
Margin Shall Be:
LEVEL VI:
Cash Flow Ratio is equal to or greater
than 3.50 to 1.00
2.00%
0.50%
LEVEL V:
Cash Flow Ratio is equal to or greater
than 3.00 to 1.00 but less than to 3.50 to
1.00
1.75%
0.25%
LEVEL IV:
Cash Flow Ratio is equal to or greater
than 2.50 to 1.00 but less than to 3.00 to
1.00
1.50%
0%
LEVEL III:
Cash Flow Ratio is equal to or greater
than 2.00 to 1.00 but less than to 2.50 to
1.00
1.00%
0%
LEVEL II:
Cash Flow Ratio is equal to or greater
than 1.50 to 1.00 but less than to 2.00 to
1.00
0.75%
0%
LEVEL I:
Cash Flow Ratio is less than 1.50 to 1.00
0.625%
0%
Not later than five Business Days after receipt by the Agent of the financial
statements and the compliance certificate called for by Section 8.5 hereof for
the applicable quarter, the Agent shall determine the Cash Flow Ratio for the
applicable period based on the information contained in such financial
statements and compliance certificate and shall promptly notify the Borrower
and the Banks of such determination and of any change in the Applicable
Eurocurrency Margin and/or the Applicable Domestic Rate Margin resulting
therefrom, any such change in the Applicable Eurocurrency Margin and/or the
Applicable Domestic Rate Margin to be effective as of the date the Agent so
notifies the Borrower, with such new Applicable Eurocurrency Margin and/or
Applicable Domestic Rate Margin to continue in effect until the effective date
of the next quarterly redetermination in accordance with the foregoing. Each
determination of the Cash Flow Ratio, the Applicable Eurocurrency Margin and
the Applicable Domestic Rate Margin by the Agent in accordance with this
Section shall be conclusive and binding on the Borrower and the Banks absent
manifest error. The foregoing to the contrary notwithstanding, in the event
the Borrower shall have failed to deliver the financial statements for the
applicable quarter within the times provided by Section 8.5 hereof, the
highest applicable margins shall apply until delivery of such financial
statements.
5. Section 3.1 of the Credit Agreement is hereby amended in its entirety to
be and to read as follows:
Section 3.1. Commitment Fee. The Borrower shall pay to the Agent for the
ratable account of the Banks a commitment fee at the rate of one-fourth of one
percent (0.25%) per annum (computed on the basis of a year of 360 days and the
actual number of days elapsed) on the average daily Unused Amount of the
Revolving Credit Commitments hereunder, provided however, that for the period
from the date of the First Amendment until the Agents first determination
subsequent to the date of the First Amendment of the Cash Flow Ratio pursuant
to the last paragraph of Section 2.11 hereof, the rate of the commitment fee
payable pursuant hereto shall be three-eighths of one percent (.375%) computed
as aforesaid, and thereafter (i) at all times during which Level I, II or III
pricing is in effect pursuant to Section 2.11 hereof, the rate of the
commitment fee payable pursuant hereto shall be one-quarter of one percent
(.25%) per annum computed as aforesaid, (ii) at all times during which Level
IV or V pricing is in effect pursuant to Section 2.11 hereof, the rate of the
commitment fee payable pursuant hereto shall be three-eighths of one percent
(.375%) per annum computed as aforesaid and (iii) at all times during which
Level VI pricing is in effect pursuant to Section 2.11 hereof (including the
times provided for by the last sentence of such Section), the rate of the
commitment fee payable pursuant hereto shall be one-half of one percent (.50%)
per annum computed as aforesaid. Such commitment fee is payable in arrears on
the last day of each March, June, September and December occurring after the
date hereof and on the Termination Date, unless the Revolving Credit
Commitments are terminated in whole on an earlier date, in which event the
fees for the period to the date of such termination in whole shall be paid on
the date of such termination.
6. Clause (1) of the definition of "Permitted Investments" in Section 5.1 of
the Credit Agreement is hereby amended in its entirety to be and to read as
follows:
(1) Existing Investments in foreign Consolidated Subsidiaries, other
Investments existing as of December 31, 1993 and disclosed on the audited
financial statements herefore delivered to the Banks, Investments in domestic
Consolidated Subsidiaries and Investments in any Person which concurrently
with such Investment becomes a Consolidated Subsidiary, provided, that (i)
prior to making any such Investment during the period from the date of the
First Amendment through September 30, 1998 the Borrower (x) delivers pro forma
financial statements (prepared in accordance with Agreement Accounting
Principles) demonstrating that after giving effect to such Investment the
Borrower will be in compliance with all the provisions of this Credit
Agreement and no Default or Event of Default will exist and (y) can
demonstrate to the reasonable satisfaction of the Required Banks that at the
time such Investment is made the Borrower will, after giving effect to the
total amount of consideration paid by the Borrower and its Subsidiaries in
making such Investment plus the aggregate projected working capital needs of
such Person for the twelve months following the making of such Investment,
have unused availability under this Credit Agreement immediately following
such Investment of at least $7,000,000 and (ii) from the period from the date
of the First Amendment through September 30, 1998 the aggregate amount of such
Investments may not exceed $5,000,000 and;
7. The definition of "Funded Debt" appearing in Section 5.1 of the Credit
Agreement is hereby amended by deleting the phrase "(a) all Indebtedness of
such Person for borrowed money" appearing in such definition and replacing it
with the phrase ", without duplication, (a) all Indebtedness of such Person".
8. The following definitions in Section 5.1 of the Credit Agreement are
hereby deleted in their entirety: "Earnings Available For Fixed Charges",
"Fixed Charge Coverage Ratio" and "Fixed Charges".
9. The following definitions are hereby inserted into Section 5.1 of the
Credit Agreement in their proper alphabetical order:
"Applicable Domestic Rate Margin" is defined in Section 2.11 hereof.
"Domestic Rate Margin" is defined in Section 2.1(a) hereof.
"First Amendment" means that certain First Amendment to Credit Agreement dated
as of October 30, 1997 among the Borrower, the Agent and the Banks.
10. Section 8.7 of the Credit Agreement is hereby amended by deleting the
ratio ".45 to 1.0" at the end of such Section and replacing it with the ratio
".50 to 1.0".
11. Section 8.8 of the Credit Agreement is hereby amended in its entirety to
be and to read as follows:
Section 8.8. Funded Debt Coverage Ratio. As of the end of each fiscal
quarter of the Borrower, the Borrower will maintain a ratio of Consolidated
Funded Debt as of the last day of such fiscal quarter to Consolidated Income
Before Interest, Taxes and Depreciation for the four fiscal quarters ending on
the last day of such quarter (taken as a single accounting period) (the
"Funded Debt Coverage Ratio") equal to or less than the ratio set forth next
to the last day of such fiscal quarter in the chart below:
September 30, 1997 4.00 to 1.00
December 31, 1997 4.00 to 1.00
March 31, 1998 4.50 to 1.00
June 30, 1998 4.00 to 1.00
September 30, 1998 3.50 to 1.00
December 31, 1998 and the last
day of each fiscal quarter thereafter 3.00 to 1.00
12. Section 8.10 of the Credit Agreement is hereby amended in its entirety to
be and to read as follows:
Section 8.10. Distributions. The Borrower will not, except as hereinafter
provided:
(a) declare or pay any dividends, either in cash or property on any class of
its stock (except dividends payable solely in common stock of the Borrower);
or
(b) directly or indirectly, or through any Subsidiary, purchase, redeem or
retire any of its stock or any warrants, rights or options to purchase or
otherwise acquire any shares of its stock (other than payments to any officer
of the Borrower in connection with the exercise of such officers stock
appreciation rights granted pursuant to stock purchase plans of the Borrower
to the extent such payments are required to be deducted in the calculation of
Consolidated Net Earnings and so long as a Default or Event of Default shall
not have occurred and be continuing at the time of any such payment or would
occur as a result thereof, the Borrower acknowledging and agreeing that all
agreements relating to any such payments shall provide that the Borrowers
obligation to make such payments shall be subject to satisfaction of the
foregoing conditions); or
(c) make any other distribution, either directly or indirectly or through any
Subsidiary, in respect of its stock;
(such declarations and payments of dividends (computed without duplication),
purchases, redemptions or retirements of stock, warrants, rights or options
and all such other distributions being herein collectively called
"Distributions"), if after giving effect to any such Distribution, the
aggregate amount of Distributions declared or made outstanding (x) during any
fiscal quarter ending on or prior to June 30, 1998 would exceed the lesser of
(i) 8 cents per share or (ii) $320,000 and (y) during the period from and
after July 1, 1998 to and including the date of the declaration or making of
the Distribution would exceed 50% of Consolidated Net Earnings from and after
April 1, 1998 (or, if such Consolidated Net Earnings is a deficit figure,
then minus 100% of such deficit) for such period computed on a cumulative
basis for said entire period.
The Borrower will not declare any dividend payable more than 90 days after the
date of the declaration thereof and will not declare or make any Distribution
if a Default has occurred and is continuing or if, on the date thereof and
after giving effect thereto the payment would create a Default or Event of
Default.
For the purposes of this Section 8.10 the amount of any Distribution declared
or paid or distributed in property shall be deemed to be the greater of book
or fair market value as determined in good faith by the board of directors of
the Borrower (in each case after deducting any liabilities relating thereto,
which are, concurrently with the receipt of such Distribution, assumed by the
recipient thereof), of such property at the time of the making of the
Distribution in question.
13. Each reference in the Credit Agreement to "Consolidated Income Before
Interest, Taxes and Depreciation" (including the definition set forth in
Section 5.1 of the Credit Agreement) is hereby amended to be a reference to
"Consolidated Income Before Interest, Taxes, Depreciation and Amortization"
and each reference in the Credit Agreement to "Consolidated Income Before
Interest, Taxes, Depreciation and Rentals" (including the definition set forth
in Section 5.1 of the Credit Agreement) is hereby amended to be a reference to
"Consolidated Income Before Interest, Taxes, Depreciation, Amortization and
Rentals".
14. Schedule I of Exhibit D of the Credit Agreement is hereby amended in its
entirety to be and to read the same as Schedule I attached hereto.
The amendment to the Credit Agreement specified in Section 6, 10, 11 and 12
above shall for all purposes be deemed to be effective as of September 29,
1997. All other amendments contained herein shall be effective as of the
Closing Date (as hereinafter defined).
Except as expressly amended hereby, the Credit Agreement and all other
documents executed in connection therewith shall remain in full force and
effect. The Credit Agreement, as amended hereby, and all rights and powers
created thereby and thereunder or under such other documents are in all
respects ratified and confirmed. From and after the date hereof, the Credit
Agreement shall be deemed to be amended and modified as herein provided, but,
except as so amended and modified, the Credit Agreement shall continue in full
force and effect and the Credit Agreement and this Amendment shall be read,
taken and construed as one and the same instrument. On and after the date
hereof the term "Agreement" as used in the Credit Agreement and all other
references to the Credit Agreement in the Credit Agreement, the Loan Documents
and the other documents executed in connection therewith and/or herewith or
any other instrument, document or writing executed by the Borrower or any
other person or furnished to the Agent or the Banks by the Borrower, or any
other person in connection herewith or therewith shall mean the Credit
Agreement as hereby amended.
On and as of the date hereof (the "Closing Date") (i) the Borrower represents
and warrants to the Agent and the Banks that (x) this Amendment has been duly
authorized, executed and delivered on its behalf, and both the Credit
Agreement, both before being amended and supplemented hereby and as amended
and supplemented hereby, and this Amendment constitutes its legal, valid and
binding obligation enforceable against it in accordance with its terms, except
to the extent that a remedy or default may be determined by a court of
competent jurisdiction to constitute a penalty and except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights or by general
principles of equity and (y) since June 30, 1997 there has been no material
adverse change in the condition, financial or otherwise, or business prospects
of the Borrower and the Consolidated Subsidiaries taken as a whole and (ii)
the Borrower shall cause to be delivered an opinion of counsel opining on the
due authorization and execution of this Amendment by the Borrower and is
validity and enforceability against the Borrower, subject to customary opinion
exceptions.
The Borrower hereby agrees to pay on the Closing Date to the Agent, for the
ratable account of the Banks based upon their share of the Commitments in
effect on the Closing Date, an amendment fee in an amount equal to one-fourth
of one percent (0.25%) of such Commitments.
This Amendment may be signed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
Except as otherwise specified herein, this Amendment embodies the entire
agreement and understanding between the Borrower, the Agent and the Banks with
respect to the subject matter hereof and supersedes all prior agreements,
consents and understandings relating to such subject matter.
This Amendment shall be binding upon and inure to the benefit of the Agent and
the Banks and their successors and assigns and the Borrower and its permitted
successors and assigns.
Except as herein specifically set forth, the Credit Agreement shall be
unaffected hereby and remain in full force and effect as hereby amended and
any reference to the Credit Agreement after the date hereof shall mean the
Credit Agreement as amended hereby.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Borrower, the Agent and the Banks have caused this
Amendment to be duly executed as of the date first hereinabove written.
GENERAL HOUSEWARES CORP.
By Raymond J. Kulla
Its Vice President
HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent
By Peter Krawchuck
Its Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By Stephen C. Pine
Its Vice President
THE NORTHERN TRUST COMPANY
By Candelario Martinez
Its Second Vice President
Schedule I
General Housewares Corp.
COMPLIANCE CALCULATIONS FOR CREDIT AGREEMENT
DATED AS OF NOVEMBER13, 1996
CALCULATIONS AS OF , 19
A. Leverage Ratio (Section 8.7)
1. Obligations for Borrowed Money $
2. Conditional Sale Obligations
3. Guaranties
4. Take or pay (and similar) contract obligations
5. Debt (to the extent not otherwise included
above) secured by liens or security
interests
6. Capitalized Lease Obligations (to the extent
not otherwise included above)
7. Obligations with respect to letters of credit and
bankers acceptances
8. Add Lines 1 through 7 (Total Indebtedness)
9. Short term Indebtedness (other than current
maturities of long term Indebtedness) and
Indebtedness with respect to commercial L/Cs
10. Line 8 minus Line 9
(Consolidated Adjusted Funded Debt)
11. Total Stockholders Equity (Consolidated
Net Worth)
12. Consolidated Adjusted Funded Debt (Line 9 above)
13. Add Line 11 and Line 12 (or subtract Line 11
from Line 12 if Line 12 is a negative
number)
14. Ratio of Line 10 to Line 13 : 1.0
15. Line 14 ratio must not be in an amount greater
than: .50:1.0
B. Consolidated Net Worth (Section 8.6).
1. Consolidated Net Worth
(Line A.11. above) $
2. Line 1 must not be less than $45,000,000 (to be
increased as provided in Section 8.6)
C. Current Ratio (Section 8.9).
1. Consolidated current assets $
2. Consolidated current liabilities $
3. Ratio of Line 1 to Line 2 : 1.0
4. Line 3 ratio must not be in an
amount less than 1.5 : 1.0
D. Funded Debt Coverage Ratio (Section 8.8).
1. Obligations for Borrowed Money $
2. Conditional Sale Obligations
3. Guaranties
4. Take or pay (and similar) contract obligations
5. Debt (to the extent not otherwise included
above) secured by liens or security
interests
6. Capitalized Lease Obligations (to the extent
not otherwise included above)
7. Obligations with respect to letters of credit and
bankers acceptances
8. Add Lines 1 through 7 (Total Indebtedness)
9. Short term Indebtedness (other than current
maturities of long term Indebtedness)
10. Line 8 minus Line 9
(Consolidated Funded Debt)
11. Consolidated Net Earnings (including non-
operating losses to the extent cash is reduced
and excluding non-operating gains) $
12. Consolidated Interest Expense $
13. Federal, state and local income taxes $
14. Depreciation for fixed assets $
15. Amortization of Intangible Assets $
16. Add Lines 11 through 15 (EBITDA) $
17. Ratio of Line 10 to Line 16 : 1.0
18. Is Line 17 ratio equal to or less than
applicable ratio specified in Section 8.8? Yes/No
EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER SHARE
For the nine months
ended September 30,
1997 1996
-------- --------
Net (loss) income ($ 253) $ (4,343)
Shares:
Weighted average number of shares of
common stock outstanding 3,807,683 3,769,777
Shares assumed issued (less shares
assumed purchased for treasury) on
stock option agreements 992 8,844
Rounding 325 379
--------- ---------
3,809,000 3,779,000
--------- ---------
--------- ---------
Net (loss) income per Common Share ($ 0.07) ($ 1.15)
--------- ---------
--------- ---------
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-30-1997
<PERIOD-END> SEP-30-1997
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<CASH> 1,201
<SECURITIES> 0
<RECEIVABLES> 19,324
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<PP&E> 32,009
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<TOTAL-ASSETS> 100,714
<CURRENT-LIABILITIES> 10,574
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0
0
<COMMON> 1,364
<OTHER-SE> 46,075
<TOTAL-LIABILITY-AND-EQUITY> 100,714
<SALES> 29,215
<TOTAL-REVENUES> 29,215
<CGS> 16,519
<TOTAL-COSTS> 16,519
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<INTEREST-EXPENSE> 721
<INCOME-PRETAX> 1,795
<INCOME-TAX> 863
<INCOME-CONTINUING> 932
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