<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997 Commission File No. 0-13147
LESCO, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-0904517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20005 Lake Road, 44116
Rocky River, Ohio (Zip Code)
(Address of principal executive offices)
(440) 333-9250
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange on
Title of each class which registered
None Not Applicable
------------------- --------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
--------------------------------
(Title of class)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) 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. [ ]
Aggregate market value of Common Shares held by nonaffiliates on March 20, 1998:
approximately $155,500,000.
Number of Common Shares outstanding on March 20, 1998: 8,287,062.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report are incorporated by reference in
Parts II, III and IV and portions of the Registrant's Proxy Statement for the
Annual Meeting of Shareholders to be held in 1998 (the "Proxy Statement") are
incorporated by reference in Part III.
<PAGE> 2
PART I
Item 1. Business
--------
General
- -------
The Registrant was incorporated in 1962 under the laws of the State of
Ohio. As used in this report, the terms "Company," "LESCO" and "Registrant"
refer to LESCO, Inc.
The Company is engaged in the manufacture and sale of an extensive
array of golf course and lawn care products which are marketed throughout the
United States, primarily under the LESCO name. These products include
fertilizers, turf protection products, grass seed, turf care equipment and
replacement parts and golf course accessories. The Company's customers include
golf courses, lawn care companies, landscapers, municipalities, theme parks and
industrial concerns. Products are marketed directly through the Company's sales
organization, which includes localized service centers and a fleet of LESCO
tractor trailers operated by salesmen trained in turf care management. The
Company's operations constitute a single industry segment.
Products
- --------
The Company manufactures and sells to the green industry an extensive
array of turf care products, comprising two major lines: (1) consumable goods,
including turf control products, fertilizer and grass seed, and (2) hard goods,
including equipment, accessories and other related products such as irrigation
equipment, protective gear and hand tools. These products are marketed under the
names "LESCOO," "LESCO Products" and "Pro-Lawn Products." In addition, the
Company sells a diverse line of turf products under the manufacturer's brand
name.
Sales by product line for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------------
(Net sales in thousands)
1997 1996 1995
---------------------- ---------------------- ----------------------
Net Sales Percent Net Sales Percent Net Sales Percent
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consumable goods $290,502 81.4% $247,454 79.3% $184,545 76.4%
Hard goods 66,339 18.6% 64,577 20.7% 57,122 23.6%
-------- -------- -------- -------- -------- --------
Total $356,841 100.0% $312,031 100.0% $241,667 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
Consumable Goods
- ----------------
TURF CONTROL PRODUCTS. The Company offers a full line of turf control
products including herbicides, insecticides and fungicides. These products
control weed growth, insect infestation and fungal diseases of turf, trees,
shrubs and landscape beds. The Company's turf control products include its LESCO
BioChoiceO alternative product line. In addition, in order to offer its
customers a more complete product line, the Company sells turf control products
produced by other major manufacturers.
FERTILIZER. The Company sells a broad assortment of standard
fertilizers, including combination products that combine fertilizer with turf
control products. The Company also custom-blends fertilizer according to its
customers' specifications. The Company's fertilizers include specialized
products for golf course applications including greens, tees and fairways,
products for use in the lawn care industry, and products for trees, shrubs and
landscape beds. Fertilizers are generally sold in a granular form, although
specialized liquid formulations are also available.
The majority of the fertilizers sold by the Company are formulated with
sulfur-coated urea fertilizer. The Company is one of a few manufacturers of
these products in the world. Sulfur coating produces a gradual release of
nutrients over time, which reduces the number of required applications and the
risk of overfertilization.
-2-
<PAGE> 3
ELITE(R) is the Company's premium brand sulfur-coated urea fertilizer, specially
sized and formulated for low-cut turf on golf course greens, tees and fairways.
TURFGRASS SEED. The Company markets LESCO and other brands of turfgrass
seed, most of which are certified by authorities of various states to guarantee
the varietal purity of the seed. The Company contracts for the production of
turfgrass seed with growers in the Pacific Northwest and Western Canada for cool
season grasses and in California for warm season grasses. The Company has more
than 35,000 production acres under contract in these regions. The Company's seed
line includes 34 proprietary varieties as well as 28 standard blends and
mixtures.
Hard Goods
- ----------
EQUIPMENT AND ACCESSORIES. The Company purchases a broad assortment of
equipment including rotary mowers, spreaders, sprayers, aerators, renovation
equipment and aftermarket replacement parts from Commercial Turf Products, Ltd.
the Company's 50-50 joint venture. The Company believes that the LESCO spreader,
first introduced in 1982, is an industry leader in sales to the professional
sector of the market. In addition, the Company offers a broad assortment of
handheld power tools and a variety of golf course accessories including ball
washers, tee markers, sand trap rakes, putting green cups and flagpoles.
Equipment sales are supported by field equipment specialists, a toll-free
hotline staffed by trained technicians and repair facilities in the Service
Centers. Parts support is fully computerized, and the Company is generally able
to provide overnight parts delivery nationwide.
OTHER. The Company offers underground irrigation equipment and systems,
protective gear such as goggles, masks and gloves, and hand tools such as tree
pruners, shovels and rakes. These products are produced for the Company by third
parties.
Product Improvement and Development
- -----------------------------------
The Company's research and development efforts focus on improvements to
and development of new turf control products and fertilizers, turf care
equipment and golf course accessories and new grass seed varieties. The Company
also has a number of agreements with state universities which test turf control
products, grass seed and fertilizers for the Company.
Marketing and Distribution
- --------------------------
LESCO SERVICE CENTERS(R). The Company operates Service Centers which
enable the Company to market its products on a localized basis. The Service
Centers are generally established in easily accessible industrial parks which
allow for sales directly to commercial users. The Company opened 20 new Service
Centers in 1997, and had 215 Service Centers in operation as of December 31,
1997. The Company plans to open 20 Service Centers in 1998. The Service Centers
market products principally to smaller lawn care companies, landscapers,
nurseries, municipalities, churches and condominium associations.
LESCO STORES-ON-WHEELS(R). The Company markets its products to private
and public golf courses and other customers having large turf areas through
salesmen who operate a fleet of Stores-on-Wheels consisting of 66 tractor
trailers. These trucks are well-stocked with a wide variety of turf care
products, all of which are sold directly from the trucks.
CONVENTIONAL SALES FORCE. The Company's conventional sales
representatives are strategically located in the various markets served by the
Company and sell to large customers such as national and regional lawn care
companies. Sales through this distribution channel, which typically generate
lower gross margins than the Service Centers and Stores-on-Wheels, have declined
as a percentage of total net sales as the number of Service Centers and
Stores-on-Wheels has increased.
OTHER. The Company also markets its products by mail order catalog and
participates in national and regional lawn care and golf course trade shows. A
telemarketing sales group calls on inactive accounts and contacts customers not
currently serviced by the Company's outside sales forces. The Company
distributes selected
-3-
<PAGE> 4
products through Home Depot stores in the South, Mid-Atlantic and Northeast
areas of the country. In addition, the Company markets its products
internationally principally through foreign distributors.
TECHNICAL EXPERIENCE OF SALES PERSONNEL. Most of the Company's
salespersons are agronomists or horticultural specialists or have had prior
experience with lawn care companies or golf courses. The Company believes that
the training and experience of its salespersons have helped promote customer
reliance on the Company's technical expertise with respect to existing turf care
products and new product development in the turf care industry.
Manufacturing and Suppliers
- ---------------------------
FERTILIZERS AND COMBINATION PRODUCTS. Poly Plus(R) sulfur-coated
fertilizers are manufactured by spraying dry fertilizers first with sulfur, then
with a polymer sealant to seal the sulfur and retard the release of nutrients.
Uncoated fertilizers are blended in accordance with Company or customer
specifications. Combination products are processed by impregnating fertilizers
with technical grade herbicides, insecticides or fungicides. Raw materials used
in the manufacture of fertilizer are nitrogen, phosphorus, potash and sulfur.
TURF PROTECTION PRODUCTS. In producing both liquid and granular turf
protection products, the Company purchases technical-grade or highly
concentrated chemicals and blends them with various solvents, emulsifiers and
surfactants purchased from various suppliers.
TURF CARE EQUIPMENT, REPLACEMENT PARTS AND GOLF COURSE ACCESSORIES. In
October 1996, the Company announced the formation of a 50-50 joint venture,
Commercial Turf Products, Ltd. (CTP), with MTD Products Inc for the manufacture
of commercial equipment. Located in Streetsboro, Ohio, the joint venture
manufactures commercial lawn care equipment to be sold to both partners. The
joint venture commenced operations in May 1997, and began to manufacture
equipment in the second half of 1997. As a result, the Company transitioned its
equipment manufacturing operations from Sebring, Florida to the joint venture,
and transferred much of its manufacturing equipment, parts, and work in process
to the joint venture during the second half of 1997. The remainder of the
Company's equipment manufacturing assets not transferred to the joint venture
are expected to be liquidated in the first half of 1998.
The joint venture manufactures and assembles certain turf care
equipment and related replacement parts in its Streetsboro location. CTP
purchases metal components and performs manufacturing processes such as
stamping, cutting, bending, welding, grinding, and punching of many component
parts. Using these manufactured components, together with some components
purchased from a variety of third party suppliers, CTP assembles rotary mowers,
spreaders, sprayers, aerators, and turf renovators for sale to each partner. The
Company distributes and sells commercial equipment supplied by CTP under the
LESCO name primarily through its LESCO Service Centers.
The Company also sells golf course accessories which are manufactured
by various contractors with tooling, dies, and molds owned by the Company.
SOURCES OF SUPPLY. It is the Company's policy to have multiple sources
of supply or acceptable substitutes for all raw materials and metal components
which the Company uses in manufacturing or assembling its products. The only
exception to this policy is the Company's purchase of proprietary products.
COMPETITION
- -----------
The Company competes with a number of companies within each of its
product lines including national, regional and local distributors, turf care
product manufacturers and retailers such as mass merchandisers, local nurseries
and hardware stores. Some of these national competitors have greater name brand
recognition than the Company. The Company's principal competitors for its turf
control, fertilizer and grass seed product lines include Andersons, Lebanon,
Scott's, Terra, United Horticultural Supply and Vigoro. The Company's principal
competitors for equipment are Jacobsen, John Deere, Ransomes, Scag and Toro. The
Company, however, believes that it is the only national company that supplies a
full range of products and sells directly to the commercial user. The Company
competes primarily on the basis of service to customers and product quality,
selection and price.
-4-
<PAGE> 5
Seasonality and Backlog
- -----------------------
The Company's business is seasonal because the customers in northern
states do not have the same year-round requirements for products as do customers
in southern states. Demand for the Company's products is generally greatest
during the second quarter of its fiscal year.
The Company offers an early order program to lessen the second quarter
demand on its manufacturing and distribution facilities. This program allows the
Company to schedule manufacturing and distribution of products prior to the time
when customers need such products. This has reduced variations in sales and
earnings from quarter to quarter. The Company's backlog as of December 31, 1997
and 1996 was $7,186,000 and $5,315,000, respectively.
Employees
- ---------
As of December 31, 1997, the Company had 1,157 full-time employees, of
which 306 were involved in manufacturing, assembly and warehouse operations, 562
in sales-related activities and 289 in management and administration. Of the
total number of full-time employees, 746 are salaried and 411 are hourly
employees. At the Company's Martins Ferry facility, 111 employees are
represented by a union. The Company has not experienced any strikes or work
stoppages by employees and generally considers its employee relations to be
good.
Environmental Matters
- ---------------------
Turf control products sold by the Company are subject to registration
by the Environmental Protection Agency (the "EPA") and similar regulatory
authorities in various states. The process of obtaining such registration may be
lengthy and expensive. The labeling and advertising of turf control products are
also subject to EPA regulation. While the Company's turf control product labels
and advertising materials are consistent with EPA and state guidelines, there
can be no assurance that EPA or state regulations or interpretations may not
change in the future or that the EPA or any state will not challenge the
Company's advertising materials.
Fertilizer products are currently regulated by individual state
departments of agriculture and must generally be registered or licensed in most
states in which they are sold. There can be no assurance that the state
regulations or interpretations of those regulations will not change in the
future or that the Company's registration in any state will not be challenged.
The Company is also required to obtain permits from a number of governmental
agencies in order to conduct various aspects of its business. These permits are
subject to modification and revocation, which could impair the Company's ability
to conduct its business in the manner in which and at the places at which it is
presently conducted.
Because of the nature of the Company's business, the Company is subject
to various environmental laws and regulations and incurs routine costs in
complying with these laws and regulations. It is the Company's policy to provide
for nonroutine costs relating to environmental matters when a loss is probable
and the amount of the loss can be reasonably estimated. There are no such
reserves for environmental matters at December 31, 1997.
Insurance
- ---------
The Company maintains comprehensive general liability insurance
coverage (which includes product liability insurance coverage) at levels which
the Company believes are prudent and most cost-effective. The Company's
insurance program includes significant deductible amounts with respect to such
coverages. Certain coverages, including environmental pollution, are restricted
or have been excluded under current policies. The level of coverage and
deductible maintained generally reflects trends in the liability insurance
industry and is not unique to the Company. The Company regularly evaluates the
cost-effectiveness as compared to the risks assumed in determining its insurance
program.
-5-
<PAGE> 6
Item 2. Properties
----------
The Company owns its principal executive office building and owns or
leases its warehouse and manufacturing facilities. The Company believes these
facilities are well-maintained, adequately insured and adequate and suitable for
their present and intended uses. In addition, the Company leases facilities for
temporary storage of inventory products during its peak seasonal demand. The
Company maintains sales offices at each of the following locations, except its
executive offices. Detail by location as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Location (1) Principal Use Square Feet Status
- ------------ ------------- ----------- ------
<S> <C> <C> <C>
Rocky River, OH Executive offices 41,000 Owned
Avon Lake, OH Blending of grass seed and distribution center 139,000 Owned
Charlotte, NC Distribution center for various products 57,600 Leased(2)
Lawrenceville, NJ Distribution center for various products 100,500 Leased(3)
Martins Ferry, OH Manufacturing facility and distribution center for 234,000 Owned(4)
fertilizers, including sulfur-coated fertilizers, and
turf control products
Pittsburgh, PA Distribution center for various products 131,000 Leased(5)
Sebring, FL Manufacturing facility for fertilizers and distribution 277,000 Leased(6)
center for principal products
Stockton, CA Manufacturing facility and distribution center for 19,503 Owned/
fertilizers and turf control products Leased(7)
Silverton, OR Blending of grass seed and distribution center 66,200 Leased(8)
Wellington, OH Manufacturing facility for turf control products and 60,000 Owned
distribution center for principal products
Windsor, NJ Distribution center for principal products 37,000 Owned(9)
<FN>
(1) Does not include Service Centers or Stores-on-Wheels. As of December 31, 1997, the Company operated
Service Centers in 215 facilities of which three are owned, and 212 are leased, by the Company. These
facilities range in size from 2,500 to 7,200 square feet. The Company owns or leases 66
tractor-trailers for its Stores-on-Wheels.
(2) This facility is subject to a lease expiring in October 31, 1998. The Company has an option to renew
the lease for an additional three-year term.
(3) This facility is subject to a lease which expired December 31, 1997. The Company moved to a new
facility in Hamilton, New Jersey in January 1998.
(4) These facilities are subject to mortgages in the aggregate amount of $6,470,000 as of December 31,
1997.
(5) This facility is subject to a lease expiring in 2001. The Company has two five-year renewal options.
(6) These facilities consist of nine buildings subject to leases expiring in 1998, 2000 and 2001. It is the
Company's intent to renew these leases upon their expiration.
(7) These facilities consist of three buildings which are owned by the Company. The land is subject to
leases which expire in 2011. The Company has one five year renewal option.
</FN>
</TABLE>
-6-
<PAGE> 7
(8) This facility is subject to a lease which expires in 2009. The lease
includes an option to purchase.
(9) The facility is subject to a mortgage in the amount of $84,000 as of
December 31, 1997.
In January 1996, the Company completed the purchase of certain assets of the
Pro-Lawn Division of Agway, Inc. The Company distributes Pro-Lawn products from
five Agway distribution centers which were used by Pro-Lawn prior to the
acquisition and which total approximately 100,000 square feet.
In January 1998, the Company completed the purchase of certain assets of
Agriturf, Inc. and Cadwell & Jones, Inc. The Company manufactures and
distributes fertilizer and turf seed from the acquired facility which includes
three buildings totaling approximately 77,000 square feet.
Item 3. Legal Proceedings
-----------------
No legal proceedings are pending to which the Company is a party or to
which any of its property is subject other than litigation incidental to the
conduct of its business and which in the aggregate is not material to the
operations of the Company as a whole.
Item 4. Submission Of Matters To A Vote Of Security Holders
---------------------------------------------------
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers, including their respective positions with the
Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William A. Foley 50 Chairman of the Board, President and Chief Executive Officer
John M. Freise 51 Vice President, Sales
Philip R. Gardner 54 Vice President, International and Key Accounts
Ware H. Grove 47 Vice President, Chief Financial Officer
C. Thomas Smith 49 Vice President, Operations
Kenneth S. Sekley 39 Vice President, Marketing
Michael A. Sotak 42 Vice President, Marketing
</TABLE>
William A. Foley joined the Company in July 1993 as President, Chief
Executive Officer and a director. He was elected Chairman of the Board of
Directors in October 1994 following the death of James I. FitzGibbon. Mr. Foley
was President and Chief Executive Officer of Imperial Wallcoverings, Inc., a
wallpaper producer and a subsidiary of Collins & Aikman, Inc., from October 1990
until February 1993. From January 1988 to October 1990, Mr. Foley was Vice
President and General Manager of The Scotts Company Consumer Business Group, a
producer and marketer of turf care products. Mr. Foley was Vice President and
General Manager of Rubbermaid Specialty Products Division from 1984 to 1988, and
was Vice President - Sales and Marketing for Anchor Hocking Corporation from
1970 to 1984, a producer of glass products. Mr. Foley is also a director of
Alltrista Corporation, a consumer and industrial products manufacturing company,
and Libbey, Inc., a producer of glass products.
John M. Freise was employed by the Company from October 27, 1995 to
December 12, 1997 as Vice President, Sales. From 1991 to 1995, Mr. Freise was a
Regional Vice President Store Operations and Vice President/General
Merchandise/Hardlines for Roses Stores, a regional discount store chain. Mr.
Freise was District Manager (Director Level) from 1990 to 1991, and from 1987 to
1990 was District Manager of Target Stores, a national discount retailer.
-7-
<PAGE> 8
Philip R. Gardner is Vice President Lawn, International and Key
Accounts. He served as Executive Vice President, Sales of the Company from March
1991 until February 1995, and as Vice President-Sales from January 1985 until
March 1991. Mr. Gardner joined the Company in September 1976, was promoted to
Regional Sales Manager in 1979 and Southeast Sales Manager in 1983.
Ware H. Grove joined the Company in June 1996 as Vice President, Chief
Financial Officer. From 1994 to 1996, Mr. Grove was Vice President and Treasurer
at Revco D.S. Inc., a national drugstore chain. From 1991 to 1994, Mr. Grove was
Vice President and Treasurer at Vanstar (formerly Computerland Corporation), a
global distributor and reseller of personal computers and related products. From
1983 to 1991, Mr. Grove was the Assistant to the President at Manville
Corporation, a global building materials manufacturing company; and from 1977 to
1983, Mr. Grove was Cash Manager at The Upjohn Company, a multinational
pharmaceutical company.
C. Thomas Smith joined the Company is 1994 as Vice President,
Operations. From 1979 to 1994, Mr. Smith was Group Director, Advanced
Manufacturing at Frigidaire Co., a manufacturer of household major appliances.
From 1978 to 1979, Mr. Smith was Manager, Materials and Production at Anderson
IBEC, a manufacturer of food processing equipment. From 1970 to 1977, Mr. Smith
was a Senior Buyer, Mfg. & Capital Equipment at Babcock & Wilcox Co., a
manufacturer of power operation equipment.
Kenneth S. Sekley joined the Company in December 1997 as Vice
President, Marketing. Just prior to his employment with the Company, Mr. Sekley
was General Manager/Vice President, U.S. Crop Protection for American Cyanamid
Company, a $2.5 billion subsidiary of American Home Products, which is a leading
manufacturer of crop protection and lawn-and-garden chemicals. From 1990 to
1997, Mr. Sekley held the following positions with American Cyanamid: from 1995
to 1997, Vice President of Marketing; from 1994 to 1995, Business Manager,
Retail Distribution/Database Marketing; from 1993, District Sales Manager; from
1991 to 1993, Product Manager; and from 1990 to 1991, Manager, Business
Development. Prior to his employment with American Cyanamid, from 1980 to 1990,
Mr. Sekley held positions with Quantum Associates, Alliance Consulting, and
Exxon Corporation.
Michael A. Sotak was employed by the Company from March 1994 to January
9, 1997 as Vice President, Marketing. From 1991 to 1993, Mr. Sotak was a
Director of Marketing at Pitman-Moore, Inc., now known as Mallinckrodt
Veterinary, Inc., Division of Mallinckrodt, Inc. Mr. Sotak also held the
following positions with Pitman-Moore, Inc.: 1989 to 1991, Director of Business
Management; 1988 to 1989, Director, International Marketing; and, 1987 to 1988,
National Sales Manager. From 1978 to 1987, Mr. Sotak was Senior Product Manager
of Schering-Plough Corporation, a pharmaceutical manufacturer and marketer.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
---------------------------------------------------------------------
The Company's Common Shares are traded in the National Market System
over-the-counter market under the NASDAQ symbol "LSCO." The following are high
and low market prices by quarter:
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
March 31 17-1/2 15-7/8 15-3/4 12
June 30 18-5/8 14 18-5/8 13-3/4
September 30 23-1/2 18-1/4 19-3/4 14-1/2
December 31 25-1/2 20 18 14-1/2
</TABLE>
The Company paid an annual dividend of $.12 per Common Share in 1997
and $.11 in 1996. Certain provisions of the principal credit agreement of the
Company restrict the right of the Company to pay dividends. See Note 4 of Notes
to Financial Statements.
As of March 3, 1998 there were 1,265 holders of record of the Company's
Common Shares.
-8-
<PAGE> 9
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Five Year Summary
(Amounts in Thousands Except Per Share Data)
Year Ended December 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operating Data:
Net sales $356,841 $312,031 $241,667 $204,523 $166,203
Cost of sales 238,392 211,825 160,576 133,826 108,703
Other cost of sales -- 6,771 -- -- --
-------------------------------------------------------------------
Gross Profit on Sales 118,449 93,435 81,091 70,697 57,500
Selling, general and
administrative expenses 101,548 91,065 71,635 60,175 47,868
Other expenses 818 4,745 1,035 1,071 1,918
-------------------------------------------------------------------
Income (loss) from Operations 16,083 (2,375) 8,421 9,451 7,714
Other deductions-net 1,943 1,177 585 71 189
-------------------------------------------------------------------
Income (loss) before Income Taxes
and cumulative effect of
change in accounting principle 14,140 (3,552) 7,836 9,380 7,525
Income tax (benefit) expense 5,515 (1,203) 3,009 3,608 2,765
-------------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting
principle 8,625 (2,349) 4,827 5,772 4,760
Cumulative effect on prior years of
changing the method of capitalizing
certain inventory costs -- -- -- 1,149 --
-------------------------------------------------------------------
Net Income (Loss) $ 8,625 $ (2,349) $ 4,827 $ 6,921 $ 4,760
-------------------------------------------------------------------
Earnings (Loss) Per Share:
Income (loss) before cumulative effect
of change in accounting principle
Basic $ 1.06 ($ .29) $ .61 $ .74 $ .70
Diluted $ 1.02 ($ .29) $ .59 $ .72 $ .68
Cumulative effect on prior years of
changing the method of
capitalizing certain
inventory costs
Basic -- -- -- .15 --
-------------------------------------------------------------------
Diluted -- -- -- .14 --
-------------------------------------------------------------------
Earnings (Loss) Per Share:
Basic $ 1.06 ($ .29) $ .61 $ .89 $ .70
==================================================================
Diluted $ 1.02 ($ .29) $ .59 $ .86 $ .68
==================================================================
Cash dividends declared and paid
per common share $ .12 $ .11 $ .10 $ .09 $ .08
</TABLE>
-9-
<PAGE> 10
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 117,711 $ 99,904 $ 85,950 $ 70,839 $ 65,414
Total assets $ 200,318 $164,673 $137,821 $114,612 $104,471
Long-term debt, net
of current portion $ 83,353 $ 64,704 $ 43,258 $ 29,542 $ 33,122
Shareholders' equity $ 72,293 $ 61,699 $ 63,878 $ 58,175 $ 50,883
</TABLE>
Note:
A. Effective January 1, 1994, the Company changed its method of
accounting for inventory costs to include the capitalization
of certain warehousing, transportation and procurement costs
which were previously expensed.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Incorporated by reference to pages 15 and 16 of the Registrant's 1997
Annual Report.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Incorporated by reference to pages 18 through 24 of the Registrant's
1997 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
-10-
<PAGE> 11
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Reference is made to the information set forth under the captions
"Election of Directors" and "Business Experience of Directors and Nominees" in
the Proxy Statement, which information is incorporated herein by reference.
The information required with respect to executive officers is set
forth in Part I of this Form 10-K under the heading "Executive Officers of the
Registrant." All officers serve at the discretion of the Board of Directors.
Item 11. Executive Compensation
----------------------
Reference is made to the information set forth under the caption
"Executive Compensation" in the Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Reference is made to the information set forth under the caption
"Certain Transactions" in the Proxy Statement, which information is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)(1) and (2). Financial Statements and Financial Statement Schedule.
The following financial statements of LESCO, Inc. included in the
Registrant's 1997 Annual Report are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Operations--Years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity--Years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
The following financial statement schedule is included herewith:
Schedule II--Valuation and Qualifying Accounts--December 31, 1997
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.
(3) See Exhibit Index.
(b) The Registrant has not filed any current report on Form 8-K during the
quarter ended December 31, 1997.
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report.
-11-
<PAGE> 12
(d) Financial Statement Schedule
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
LESCO, INC.
DECEMBER 31, 1997
<TABLE>
<CAPTION>
================================================================================================================================
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
DESCRIPTION BALANCE AT DEDUCTIONS BALANCE AT
BEGINNING OF ------------------------------------------------------ END OF PERIOD
PERIOD
CHARGED TO COSTS CHARGED TO OTHER COSTS INCURRED
AND EXPENSES ACCOUNTS--DESCRIBE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from assets accounts-
Reserve for inventory obsolescence $7,134,000 $ 457,000 ($3,342,000) (1) $4,249,000
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996:
Deducted from assets accounts-
Reserve for inventory obsolescence $ 250,000 $6,884,000 $7,134,000
================================================================================================================================
</TABLE>
(1) Reserves relieved as obsolete inventory is sold or is otherwise disposed.
-12-
<PAGE> 13
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
LESCO, Inc.
By /s/ William A. Foley
---------------------
William A. Foley
Date: March 25, 1998
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William A. Foley President, Chairman, Chief March 25, 1998
- ------------------------------ Executive Officer and Director
William A. Foley
/s/ Ware H. Grove Chief Financial Officer March 25, 1998
- ------------------------------
Ware H. Grove
/s/ Ronald Best Director March 25, 1998
- ------------------------------
Ronald Best
/s/ Drexel Bunch Director March 25, 1998
- ------------------------------
Drexel Bunch
/s/ Robert F. Burkhardt Director March 25, 1998
- ------------------------------
Robert F. Burkhardt
/s/ Paul H. Carleton Director March 25, 1998
- ------------------------------
Paul H. Carleton
/s/ David H. Clark Director March 25, 1998
- ------------------------------
David H. Clark
/s/ J. Martin Erbaugh Director March 25, 1998
- ------------------------------
J. Martin Erbaugh
/s/ Stanley M. Fisher Director March 25, 1998
- ------------------------------
Stanley M. Fisher
/s/ Michael FitzGibbon Director March 25, 1998
- ------------------------------
Michael FitzGibbon
/s/ F. Leon Herron Director March 25, 1998
- ------------------------------
F. Leon Herron
/s/ Lee Howley Director March 25, 1998
- ------------------------------
Lee Howley
</TABLE>
<PAGE> 14
LESCO, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Of Document
- ------ -----------------------
<C> <S>
3(a) (1) Amended Articles of Incorporation of the Registrant.
3(b) (1) Amended Code of Regulations of the Registrant.
4(a) (2) Specimen certificate for the Registrant's Common Shares.
4(c) (3) Reimbursement Agreement dated March 1, 1993, between Pittsburgh National Bank and the Registrant.
4(d) (1) Loan Agreement dated as of January 1, 1988 between County of Belmont, Ohio, and the Registrant ($5,875,000 County of
Belmont, Ohio Industrial Development Revenue Bonds).
4(e) (1) Loan Agreement dated as of January 28, 1988 between the Director of Development of the State of Ohio and the
Registrant.
4(f) Amended Articles of Incorporation of the Registrant (appears as Exhibit 3(a) above).
4(g) Amended Code of Regulations of the Registrant (appears as Exhibit 3(b) above).
4(h) (8) Loan Agreement dated as of November 1, 1997 between Highlands County Industrial Development Authority and the
Registrant.
10(a) (4) LESCO, Inc. Stock Investment and Salary Savings Plan and Trust, as amended and restated.
10(e) (3) Reimbursement Agreement dated March 1, 1993, between Pittsburgh National Bank and the Registrant (appears as Exhibit
4(c) above).
10(g) (1) Loan Agreement dated as of January 28, 1988 between the Director of Development of the State of Ohio and the
Registrant (appears as Exhibit 4(e) above).
10(k) (3) 1992 Stock Incentive Plan.
10(l) (5) Stock Bonus Plan (appears as Exhibit 4(d) to Registrant's Form S-8).
10(o) (1) Loan Agreement dated as of January 1, 1988 between County of Belmont, Ohio, and the Registrant ($5,875,000 County of
Belmont, Ohio Industrial Development Revenue Bonds) (appears as Exhibit 4(d) to Registrant's Form 10-K for fiscal
year 1987).
10(p) (6) Employment Agreement by and between the Registrant and William A. Foley.
10(q) (7) Second Amendment to the Credit Agreement dated November 1, 1996.
10(r)(1) (4) Credit Agreement dated September 30, 1994 among National City Bank, PNC Bank, National Association, NBD Bank, N.A.,
National City Bank, as agent, and the Registrant (the "Credit Agreement")(appears as Exhibit 10(r) to Registrant's
Form 10-K for fiscal year 1994).
10(r)(2) (8) Third amendment to the Credit Agreement dated February 14, 1997
10(r)(3) (8) Fourth amendment to the Credit Agreement dated August 1, 1997
10(r)(4) (8) Fifth Amendment to the Credit Agreement dated January 28, 1998
</TABLE>
-14-
<PAGE> 15
<TABLE>
<C> <S>
10(s) (4) Consulting Agreement by and between the Registrant and Robert F. Burkhardt (appears as Exhibit 10(s) to Registrant's
Form 10-K for fiscal year 1994).
10(t) (8) Letter of Credit Agreement dated as of November 1, 1997 between PNC Bank, National Association and the Registrant
13 (8) The following portions of the 1997 Annual Report: Financial Review, Consolidated Financial Statements, Report of
Ernst & Young LLP, Independent Auditors and Notes to Consolidated Financial Statements
21 (8) Subsidiaries of the registrant
23 (8) Consent of Ernst & Young LLP, Independent Auditors.
27(a) (8) Financial Data Schedule for 1997.
27(b) (8) Restated Financial Data Schedule for 1997.
27(c) (8) Restated Financial Data Schedule for 1996.
27(d) (8) Restated Financial Data Schedule for 1995.
</TABLE>
-15-
<PAGE> 16
Exhibit
- -------
<TABLE>
<S> <C> <C>
1 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending November 30, 1987 (File No. 0-13147).
2 Incorporated by reference to exhibits, with the corresponding exhibit numbers, filed by Registrant with its Registration
Statement on Form S-l (File No. 2-90900).
3 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending December 31, 1992.
4 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Annual Report on Form 10-K for the year ending December 31, 1994.
5 Incorporated by reference to exhibits, with the corresponding exhibit numbers unless otherwise indicated, filed by
Registrant with its Registration Statement on Form S-8 (File No. 33-22685).
6 Incorporated by reference to exhibits, with the corresponding exhibit numbers, filed by Registrant with its Registration
Statement on Form S-2 (File No. 33-67348).
7 Filed as an exhibit with the 1996 Form 10-K.
8 Filed herewith.
</TABLE>
-16-
<PAGE> 17
EXECUTIVE COMPENSATION PLANS
AND ARRANGEMENTS
----------------------------
Exhibits 10(a), 10(k), 10(1) and 10(p) are compensation plans in which
executive officers participate.
Exhibit 21 Subsidiaries Of The Registrant
------------------------------
Tri Delta Fertilizer, Inc.
-17-
<PAGE> 1
Exhibit: 4(h)
- --------------------------------------------------------------------------------
HIGHLANDS COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
AND
LESCO, INC.
------------------------------------
LOAN AGREEMENT
------------------------------------
Dated as of November 1, 1997
- --------------------------------------------------------------------------------
The interest of the Highlands County Industrial Development
Authority (the "Issuer") in this Loan Agreement has been assigned (except for
amounts payable under Sections 4.2(b), 7.2 and 8.4 hereof) pursuant to the
Indenture of Trust dated as of the date hereof from the Issuer to PNC Bank,
N.A., as trustee (the "Trustee"), and is subject to the security interest of the
Trustee thereunder.
<PAGE> 2
LOAN AGREEMENT
TABLE OF CONTENTS
(This Table of Contents is not a part of the Loan Agreement and is only
for convenience of reference.)
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
-----------
PAGE
----
<S> <C> <C>
Section 1.1. DEFINITIONS..................................................................... 1
Section 1.2. USES OF PHRASES................................................................. 3
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
-----------------------------------------
Section 2.1. AGREEMENTS OF THE PARTIES....................................................... 4
Section 2.2. REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE ISSUER............................................................................ 4
Section 2.3. REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE COMPANY........................................................................... 5
Section 2.4. NOTICE OF DETERMINATION OF TAXABILITY........................................... 12
ARTICLE III
ACQUISITION AND CONSTRUCTION OF THE
PROJECT; ISSUANCE OF THE BONDS
------------------------------
Section 3.1. AGREEMENT TO ACQUIRE, CONSTRUCT, IMPROVE
AND EQUIP THE PROJECT.................................................................... 12
Section 3.2. AGREEMENT TO ISSUE THE BONDS; APPLICATION
OF BOND PROCEEDS......................................................................... 12
Section 3.3. DISBURSEMENTS FROM THE CONSTRUCTION FUND........................................ 12
Section 3.4. FURNISHING DOCUMENTS TO THE TRUSTEE............................................. 13
Section 3.5. ESTABLISHMENT OF COMPLETION DATE................................................ 13
Section 3.6. COMPANY REQUIRED TO PAY IN EVENT
CONSTRUCTION FUND INSUFFICIENT........................................................... 14
Section 3.7. ARBITRAGE; PRESERVATION OF TAX-EXEMPTION........................................ 14
Section 3.8. CERTAIN COVENANTS WITH RESPECT TO
COMPLIANCE WITH ARBITRAGE REQUIREMENTS FOR
INVESTMENTS IN NONPURPOSE INVESTMENTS AND REBATE TO
THE UNITED STATES OF AMERICA............................................................. 15
Section 3.9. COVENANTS AS TO USE OF BOND PROCEEDS AND
OTHER MATTERS, PAYBACK PROVISION......................................................... 15
Section 3.10. DAMAGE, DESTRUCTION OR LOSS OF PROPERTY;
OBLIGATION TO REBUILD; USE OF INSURANCE PROCEEDS
AND CONDEMNATION AWARDS.................................................................. 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.11. PURSUIT OF REMEDIES AGAINST CONTRACTORS,
SUBCONTRACTORS AND SURETIES.............................................................. 17
Section 3.12. ............................................................................... 17
SECTION 3.13. SALE OF PROJECT OR PORTIONS THEREOF............................................ 17
ARTICLE IV
LOAN PROVISIONS; SUBSTITUTE LETTER OF CREDIT
--------------------------------------------
Section 4.1. LOAN OF PROCEEDS................................................................ 17
Section 4.2. AMOUNTS PAYABLE................................................................. 18
Section 4.3. OBLIGATIONS OF COMPANY UNCONDITIONAL............................................ 19
Section 4.4. SUBSTITUTE LETTER OF CREDIT..................................................... 20
ARTICLE V
PREPAYMENT AND REDEMPTION
-------------------------
Section 5.1. PREPAYMENT AND REDEMPTION....................................................... 20
ARTICLE VI
SPECIAL COVENANTS
-----------------
Section 6.1. NO WARRANTY OF CONDITION OR SUITABILITY BY
ISSUER................................................................................... 21
Section 6.2. ACCESS TO THE PROJECT........................................................... 21
Section 6.3. FURTHER ASSURANCES AND CORRECTIVE
INSTRUMENTS.............................................................................. 21
Section 6.4. ISSUER AND COMPANY REPRESENTATIVES.............................................. 21
Section 6.5. FINANCIAL REPORTS............................................................... 21
Section 6.6. FINANCING STATEMENTS............................................................ 22
Section 6.7. MAINTENANCE OF PROJECT.......................................................... 22
Section 6.8. UNDERTAKING TO PROVIDE ONGOING
DISCLOSURE............................................................................... 22
ARTICLE VII
ASSIGNMENT, SELLING, LEASING;
INDEMNIFICATION; REDEMPTION
---------------------------
Section 7.1. ASSIGNMENT, SELLING AND LEASING................................................. 27
Section 7.2. RELEASE AND INDEMNIFICATION COVENANTS........................................... 27
Section 7.3. ISSUER TO GRANT SECURITY INTEREST TO
TRUSTEE.................................................................................. 28
Section 7.4. INDEMNIFICATION OF TRUSTEE...................................................... 28
ARTICLE VIII
DEFAULTS AND REMEDIES
---------------------
Section 8.1. DEFAULTS DEFINED................................................................ 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.2. REMEDIES ON DEFAULT............................................................. 29
Section 8.3. NO REMEDY EXCLUSIVE............................................................. 30
Section 8.4. AGREEMENT TO PAY ATTORNEYS' FEES AND
EXPENSES................................................................................. 30
Section 8.5. NO ADDITIONAL WAIVER IMPLIED BY ONE
WAIVER................................................................................... 31
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. TERM OF AGREEMENT............................................................... 31
Section 9.2. NOTICES......................................................................... 31
Section 9.3. BINDING EFFECT.................................................................. 32
Section 9.4. SEVERABILITY.................................................................... 32
Section 9.5. AMOUNTS REMAINING IN FUNDS...................................................... 32
Section 9.6. AMENDMENTS, CHANGES AND MODIFICATIONS........................................... 33
Section 9.7. EXECUTION IN COUNTERPARTS....................................................... 33
Section 9.8. APPLICABLE LAW.................................................................. 33
Section 9.9. CAPTIONS........................................................................ 33
</TABLE>
EXHIBIT "A" Project Facilities
EXHIBIT "B" Form of Requisition
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of November 1, 1997, between the
HIGHLANDS COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a public body corporate and
politic of the State of Florida (the "Issuer") and LESCO, INC., an Ohio
corporation qualified to do business under the laws of the State of Florida (the
"Company");
W I T N E S S E T H:
That the parties hereto, intending to be legally bound hereby,
and for and in consideration of the premises and the mutual covenants
hereinafter contained, do hereby covenant, agree and bind themselves as follows:
provided, that any obligation of the Issuer created by or arising out of this
Agreement shall never constitute a debt or a pledge of the faith and credit or
the taxing power of the Issuer or any political subdivision or taxing district
of the State of Florida but shall be payable solely out of the Trust Estate (as
defined in the Indenture), anything herein contained to the contrary by
implication or otherwise notwithstanding:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. All capitalized, undefined terms
used herein shall have the same meanings as used in Article I of the hereinafter
defined Indenture. In addition, the following words and phrases shall have the
following meanings:
"Cost" with respect to the Project shall be deemed to include
all items permitted to be financed under the provisions of the Code and the Act.
"Default" means any Default under this Agreement as specified
in and defined by Section 8.1 hereof.
"Indenture" means the Indenture of Trust dated as of this date
between the Issuer and the Trustee, pursuant to which the Bonds are authorized
to be issued, and any amendments and supplements thereto.
"Issuance Costs" shall have the meaning provided in Section
1.150-1(b) of the Income Tax Regulations and means, therefore, costs to the
extent incurred in connection with, and allocable to, the issuance of the Bonds,
including, but not limited to, (a) placement agent's spread (whether realized
directly or derived through purchase of the Bonds at a discount below the price
at which they are expected to be sold to the public); (b) counsel fees
(including bond counsel, placement agent's counsel, Issuer's
<PAGE> 6
counsel, Company counsel, as well as any other specialized counsel fees)
incurred in connection with the issuance of the Bonds; (c) financial advisory
fees incurred in connection with the issuance of the Bonds; (d) rating agency
fees; (e) Trustee fees incurred in connection with the issuance of the Bonds;
(f) paying agent fees; (g) registrar, certification and authentication fees
related to issuance of the Bonds; (h) accounting fees related to the issuance of
the Bonds; (i) printing costs of the Bonds and of the preliminary and final
offering materials; (j) publication costs associated with the financing
proceedings; (k) costs of engineering and feasibility studies necessary to the
issuance of the Bonds; and (l) bond insurance premiums, letter of credit fees,
or other forms of guarantee fees except to the extent such fees are for
qualified guarantees (as defined in Section 1.148-4(f) of the Income Tax
Regulations).
"Local Facilities" shall mean facilities (A) located within
the same corporate municipal or county area as the Project or located outside of
such corporate municipal or county area but contiguous and integrated with the
Project and (B) the principal user (within the meaning of Section 144(a) (2) of
the Code and proposed treasury regulation 1.103-10(h)) of which is or will be a
Principal Project User.
"Net Proceeds" means the proceeds from the sale of the Bonds
reduced by any portion thereof deposited in a debt service reserve fund.
"Plans and Specifications" means the plans and
specifications for the Project submitted to the Bank and the
Trustee.
"Principal Project User" shall mean the Company, any other
principal user (within the meaning of Section 144(a) (2) of the Code and
proposed treasury regulation 1.103-10(h)) of the Project and any related person
(within the meaning of 144(a) (3) of the Code) of the Company or any such
principal user of the Project.
"Project" means the Project Site and the Project
Facilities.
"Project Facilities" means those certain buildings or
improvements to buildings and all other facilities and improvements and any
items of machinery, equipment, or other tangible property forming a part of the
Project to be constructed on the Project Site, all as described generally in
Exhibit "A" hereto and all renewals and replacements thereof and substitutions
therefor.
"Project Site" means the tract of land located at the Sebring
Regional Airport and Industrial Park in Highlands County, Florida, on which the
Project Facilities will be situated, and any other interests in real property,
leasehold interests, easements,
2
<PAGE> 7
licenses, and rights in real property hereafter acquired by the Company with
proceeds of the Bonds for use in connection with the Project.
"Qualified Project Costs" means Costs paid or incurred with
respect to the Project:
(a) for the acquisition, construction, reconstruction, or
improvement (i) of land or (ii) of property that is subject to exhaustion, wear
and tear, or obsolescence, that has a useful life in the hands of the Company of
more than one year, and that is otherwise of a character subject to the
allowance for depreciation under the Code; and
(b) that, under the Code, are chargeable to the Project's
capital account or would be so chargeable either (i) with a proper election by
the Company (for example, under Section 266 of the Code), or (ii) but for a
proper election by the Company to deduct such amounts.
However, Costs paid prior to April 27, 1997, other than "preliminary
expenditures" as defined in Section 1.150-2(f) of the Income Tax Regulations,
are not Qualified Project Costs. Further, neither working capital expenditures
nor the financing of inventory nor Issuance Costs are Qualified Project Costs.
Interest costs accruing during the construction period shall be allocated
between Qualified Project Costs and other Costs to be paid from the proceeds of
the Bonds. Interest costs accruing after the Construction Period are not
Qualified Project Costs.
"Reimbursement Resolution" means the resolution of the Issuer
adopted on June 25, 1997 expressing the interest of the Company to reimburse
itself from the proceeds of tax-exempt bonds for amounts expended by the Company
on the Project.
"Requisition" means a written request for a disbursement from
the Construction Fund, signed by a Company Representative, substantially in the
form attached hereto as Exhibit "B" and satisfactorily completed as contemplated
by said form.
"State" means the State of Florida.
"Substantially All" means ninety-five percent (95%) or more,
unless an opinion of Bond Counsel is rendered indicating that such term, as used
herein, shall have a different meaning.
"Term of Agreement" means the term of this Agreement as
specified in Section 9.1 hereof.
Section 1.2. USES OF PHRASES. Words of the masculine
gender shall be deemed and construed to include correlative words
of the feminine and neuter genders. Unless the context shall
3
<PAGE> 8
otherwise indicate, the words "Bond," "Bondholder," "registered owner" and
"person" shall include the plural as well as the singular number and the word
"person" shall include corporations and associations, including public bodies,
as well as persons. "Herein," "hereby," "hereunder," "hereof," "hereinbefore,"
"hereinafter" and other equivalent words refer to this Agreement and not solely
to the particular portion thereof in which any such word is used. Any percentage
of Bonds, specified herein for any purpose, is to be figured on the unpaid
principal amount thereof then outstanding. All references herein to specific
Sections of the Code refer to such Sections of the Code and all successor or
replacement provisions thereto.
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
-----------------------------------------
Section 2.1. AGREEMENTS OF THE PARTIES. It is hereby agreed by
and between the Issuer and the Company that:
(a) The Company proposes to acquire, construct and equip the
Project. The Issuer proposes to loan money to the Company for the
construction and equipping of the Project pursuant to the terms and
conditions expressed herein, all for the purposes of fostering the
industrial and business development of, and improving living conditions
in, Highlands County, Florida, and otherwise contributing to the
welfare of the State of Florida and its inhabitants.
(b) To finance the Cost of the Project, the Issuer proposes to
issue the Bonds in the original aggregate principal amount of
$7,500,000 and to loan the proceeds of the Bonds to the Company.
(c) All of the Bonds will be issued under the Indenture and
will mature, bear interest, be redeemable and have the other terms and
provisions set forth in the Indenture, pursuant to which the Issuer's
interest in this Agreement and the revenues and receipts thereunder
derived by the Issuer (except for the amounts payable under Sections
4.2(b), 7.2 and 8.4 hereof) will be pledged and conveyed to the Trustee
as security for payment of the principal of, premium, if any, and
interest on the Bonds.
Section 2.2. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE
ISSUER. The Issuer represents, covenants and warrants that:
(a) The Issuer is a public body corporate and politic of the
State of Florida. The Issuer is authorized to enter into the
transactions contemplated by this Agreement, and the Indenture and to
carry out its obligations hereunder and
4
<PAGE> 9
thereunder. The Issuer has been duly authorized to execute
and deliver this Agreement and the Indenture.
(b) The Issuer duly adopted the Reimbursement Resolution on
June 25, 1997.
(c) The Issuer covenants that it will not pledge the amounts
derived from this Agreement other than as contemplated by the
Indenture.
(d) After reasonable public notice given by publication in The
Highlands Today, section of The Tampa Tribune, a newspaper published
and of general circulation in Highlands County, Florida on July 31,
1997, the Issuer held a public hearing on August 14, 1997 concerning
the issuance of the Bonds and the nature and location of the Project.
(e) On August 19, 1997, the Board of County Commissioners of
Highlands County, the elected legislative body of Highlands County,
approved the issuance of the Bonds by a duly adopted resolution at a
duly called and publicly noticed meeting. Highlands County has
jurisdiction over the entire area in which the Project will be located.
Section 2.3. REPRESENTATIONS, COVENANTS AND WARRANTIES OF THE
COMPANY. The Company represents, covenants and warrants that:
(a) The Company is an Ohio corporation duly organized and
validly existing and in good standing under the laws of the State of
Florida, and has full power and authority to enter into and perform
under this Agreement, the Remarketing Agreement, and the Credit
Agreement, and such performance has been properly authorized by proper
corporate action of the Company. The Company is not in violation of any
provision of its Articles of Incorporation, as amended, has the
corporate power to enter into and perform this Agreement, and has duly
authorized by proper corporate action the execution and delivery of
this Agreement, and is qualified to do business and is in good standing
under the laws of the State.
(b) Reserved.
(c) Neither the execution and delivery of this Agreement, the
Remarketing Agreement, or the Credit Agreement, nor the consummation of
the transactions contemplated hereby and thereby, nor the fulfillment
of or compliance with the terms and conditions hereof or thereof
conflicts with or results in a breach of the articles of incorporation
or the regulations of the Company or the terms, conditions, or
provisions of any agreement or instrument to which the Company is now a
party or by which the Company is bound, or
5
<PAGE> 10
constitutes a default under any of the foregoing, or results in the
creation or imposition of any lien, charge or encumbrance whatsoever
upon any of the property or assets of the Company under the terms of
any such instrument or agreement.
(d) There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public
board or body, known to be pending or to the knowledge of the Company
threatened against or affecting the Company or any of its officers, nor
to the best knowledge of the Company is there any basis therefor,
wherein an unfavorable decision, ruling, or finding would materially
adversely affect the transactions contemplated by this Agreement or
which would adversely affect, in any way, the validity or
enforceability of the Bonds, this Agreement, the Credit Agreement, the
Remarketing Agreement, or any agreement or instrument to which the
Company is a party, used or contemplated for use in the consummation of
the transactions contemplated hereby.
(e) The Project is of the type authorized and permitted by the
Act, and its estimated Cost is not less than $7,500,000.
(f) The Project currently constitutes, and until the
expiration of the term hereof and the payment of the Bonds in full,
will constitute an "industrial and manufacturing facility" and a
"project" within the meaning of Section 159.27, Florida Statutes.
(g) The Net Proceeds from the sale of the Bonds will be used
only for payment of Costs of the Project. None of the Net Proceeds from
the sale of the Bonds will be used as working capital or to finance
inventory.
(h) The Project currently constitutes, and until the
expiration of the term hereof and payment of the Bonds in full, will
constitute a manufacturing facility within the meaning of Section
144(a)(12)(C) of the Code.
(i) Except for the Bonds, there are no outstanding obligations
issued by any state, territory or possession of the United States, or
any political subdivision of the foregoing, or of the District of
Columbia, the proceeds of which have been or are to be used primarily
with respect to Local Facilities, and of which the Company or any
Related Person within the meaning of Section 144(a)(3) of the Code is a
"principal user", as that term is used in Section 144(a)(2) of the
Code.
(j) The Company will use due diligence to cause the Project to
be operated in accordance with the laws, rulings,
6
<PAGE> 11
regulations and ordinances of the State and the departments, agencies
and political subdivisions thereof. The Company has obtained or will
cause to be obtained as needed all requisite approvals of the State and
of other federal, state, regional and local governmental bodies for the
acquisition, construction, improving and equipping of the Project.
(k) The Company will fully and faithfully perform all the
duties and obligations which the Issuer has covenanted and agreed in
the Indenture to cause the Company to perform, any duties and
obligations which the Company is required in the Indenture to perform
and any delegable or assignable duties and obligations which the Issuer
is required in the Indenture to perform. The foregoing shall not apply
to any duty or undertaking of the Issuer which by its nature cannot be
delegated or assigned.
(l) Except for any architectural, engineering, surveying, soil
testing, or similar preliminary activities occurring earlier, the
commencement of the acquisition and construction of the Project, and
each of the several components thereof, occurred subsequent to April
27, 1997, which is sixty days prior to the date of adoption by the
Issuer of the Reimbursement Resolution. No proceeds of any Bonds will
be used to reimburse the Company for amounts paid prior to April 27,
1997, other than for "preliminary expenditures" as defined in Section
1.150-2(f) of the Income Tax Regulations.
(m) The Company has entered into various contracts providing
for the acquisition, construction, improvement and equipping of the
Project that collectively create a substantial binding commitment on
the Company's part to expend at least five percent (5%) of the Net
Proceeds of the Bonds on the Project.
(n) The Project consists of land and/or property subject to
the allowance for depreciation under the Code, and Substantially All of
the Net Proceeds of the Bonds, including earnings from the investment
thereof, will be used to pay Qualified Project Costs.
(o) No changes shall be made in the Project and no actions
will be taken by the Company that shall in any way cause interest on
the Bonds to be included in gross income for federal income tax
purposes.
(p) Based on current facts, estimates and circumstances, the
Company currently expects:
(1) that the acquisition, construction and equipping
of the Project and the expenditure of all
7
<PAGE> 12
of the net sale proceeds of the Bonds will be completed by
December 31, 1998;
(2) to proceed with due diligence toward completion
of the Project (the work on which has already commenced) and
the expenditure of the Net Proceeds of the Bonds in connection
with the Project;
(3) the Net Proceeds of the Bonds are needed for the
purpose of paying all or a part of the Cost of the Project;
and
(4) the Project will not be sold or disposed of in a
manner producing sale proceeds which, together with
accumulated proceeds of the Bonds or earnings thereon, would
be sufficient to enable the Company to retire substantially
all of the Bonds prior to the maturity of the Bonds.
(q) As of the date of execution and delivery of this
Agreement, there exists no Default or any condition or event which
would constitute, or with the passage of time or the giving of notice,
or both, would constitute a Default hereunder.
(r) The average maturity of the Bonds does not exceed one
hundred twenty percent (120%) of the average reasonably expected
economic life of the assets being financed or refinanced with the
proceeds of the Bonds, with the average reasonably expected economic
life of each asset being measured from the later of the date of
issuance of the Bonds or the date such asset is reasonably expected to
be, or was, placed in service and by taking into account the respective
cost of each asset being financed. The information furnished by the
Company and used by the Issuer to verify the average reasonably
expected economic life of each asset of the Project to be financed with
the proceeds of the Bonds is true, accurate and complete.
(s) There is no pending, or to the knowledge of the Company,
threatened, actions, suits or proceedings before any court or
administrative agency which are likely in any case or in the aggregate
to materially adversely affect the financial condition or business,
operations, value of the assets or income of the Company, nor is the
Company aware of any facts or circumstances that would give rise to any
such actions or proceedings.
(t) (i) The payment of principal or interest with respect to
the Bonds will not be guaranteed (in whole or in part) by the United
States (or any agency or instrumentality
8
<PAGE> 13
thereof); (ii) less than five percent (5%) of the proceeds of the Bonds
will be (A) used in making loans the payment of principal and interest
with respect to which are to be guaranteed (in whole or in part) by the
United States (or any agency or instrumentality thereof), or (B)
invested (directly or indirectly) in federally insured deposits or
accounts as defined in Section 149(b) of the Code; and (iii) the
payment of principal or interest on the Bonds will not otherwise be
indirectly guaranteed (in whole or in part) by the United States (or
any agency or instrumentality thereof).
The foregoing provisions of this subsection shall not apply to
proceeds of the Bonds being (u) invested for an initial temporary
period until such proceeds are needed for the purpose for which such
issue was issued; (v) held in a bona fide debt service fund; (w) held
in a debt service reserve fund that meets the requirements of Section
148(d) of the Code with respect to reasonably required reserve or
replacement funds; (x) invested in obligations issued by the United
States Treasury; or (y) held in a refunding escrow (I.E., a fund
containing proceeds of a refunding bond issue established to provide
for the payment of principal or interest on one or more prior bond
issues); or (z) invested in other investments permitted under
regulations promulgated pursuant to Section 149(b)(3)(B) of the Code.
(u) Any information that has been or will be supplied by the
Company that has been or will be relied upon by the Issuer, the Trustee
and by Bond Counsel with respect to the eligibility of the Project and
the exclusion from gross income for federal income tax purposes of
interest on the Bonds is true and correct.
(v) All proceeds of the Bonds will be used to pay the "cost"
(within the meaning of Section 159.44(5), Florida Statutes) of the
Project.
(w) The Company shall promptly provide written notice to the
Issuer and the Trustee if the Company becomes aware of a Default as
such term is used in Section 8.1 hereof.
(x) All components of the Project are or will be located
wholly within the boundaries of the Project Site, and the Project Site
is located completely within Highlands County, Florida.
(y) This Agreement constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms.
(z) The Company is duly authorized to operate the Project
under the laws, rulings, regulations and ordinances of
9
<PAGE> 14
the State of Florida and the departments, agencies and political
subdivisions thereof.
(aa) None of the proceeds of the issuance of the Bonds will be
used to provide any airplane, skybox or other private luxury box,
health club facility, any facility primarily used for gambling, or any
store the principal business of which is the sale of alcoholic
beverages for consumption off premises, or land to be used for farming
purposes.
(bb) The commencement of the acquisition and construction of
the Project, and each of the several components thereof, occurred
subsequent to April 27, 1997, the date which is sixty (60) days prior
to adoption by the Issuer of the Reimbursement Resolution. No proceeds
of the Bonds will be used to reimburse the Company for amounts paid
prior to such date other than for "preliminary expenditures" as defined
in Section 1.150-2(f) of the Income Tax Regulations.
(cc) The Project consists entirely of property that is owned,
or is to be owned by the Company. Substantially All of the Net Proceeds
of the Bonds plus interest earnings thereon will be expended for
Qualified Project Costs.
(dd) No capital expenditures as described in Section 144(a)
(4) of the Code ("Capital Expenditures") have been paid or incurred in
the three years preceding the date of the issuance of the Bonds or will
be paid or incurred in the three years after the date of the issuance
of the Bonds with respect to the Project or any Local Facilities, and
of which the Company or any Related Person within the meaning of
Section 144(a) (3) of the Code will be a "principal user," as that term
is used in Section 144(a) (2) of the Code, will exceed $10,000,000 or
such higher amount as may be authorized by the Code as applicable to
the Bonds; provided, however, that to the extent and for the purposes
allowed by Section 144(a) (4) (C) of the Code, certain Capital
Expenditures shall not be taken into account in determining if such
$10,000,000 amount, as computed in accordance with this subsection (g),
has been exceeded.
(ee) the Company has not caused or will not cause the issuance
of private activity bonds, as defined in Section 141 of the Code, on
its behalf in any jurisdiction of the United States during the 30 day
period commencing 15 days prior to the issuance of the Bonds.
(ff) The Company covenants that, if any portion of the
proceeds of the Bonds is to be used for the acquisition of any building
(and the equipment therefore), the rehabilitation expenditures, as
defined in Section 147(d)(3) of the Code, with respect to such building
will equal or exceed fifteen
10
<PAGE> 15
percent (15%) of the cost of such acquisition financed with proceeds of
the Bond.
(gg) Substantially all of the proceeds of the sale of the
Bonds and including investment earnings on proceeds of the Bonds will
be used to pay those items of the Costs of the Project, or portions
thereof, which constitute costs of acquisition, construction,
reconstruction or improvement of land or property of a character
subject to the allowance for depreciation within the meaning of Section
144(a) of the Code and which constitute a manufacturing facility within
the meaning of Section 144(a) (12) (C) of the Code.
(hh) None of the proceeds of the Bond will be used to provide
any private or commercial golf course, country club, massage parlor,
tennis club, skating facility (including roller skating, skateboards
and ice skating), racquet sports facility (including any handball or
racquetball court), hot tub facility, suntan facility, or racetrack.
(ii) The Company, during the term of this Agreement, will
fully comply and require any other principal user (as that term is used
in Section 144(a) (2) of the Code and proposed treasury regulation
1.103-10(h)) to comply with all effective rules, rulings and
regulations promulgated by the Department of the Treasury or the
Internal Revenue Service, with respect to bonds issued under Section
144(a) (4) of the Code so as to maintain the exclusion from gross
income for federal income tax purposes of the interest payable on the
Bond.
(jj) The aggregate authorized face amount of the Bonds when
increased by the outstanding tax-exempt facility-related bonds (as
defined in Section 144(a) (10) (B) (ii) of the Code) with respect to
any issue the proceeds of which are allocated pursuant to Section
144(a) (10) of the Code to the Company or any related person within the
meaning of Section 144(a) (3) of the Code, does not exceed $40,000,000.
(kk) Less than 25% of the proceeds of the Bond will be used
directly or indirectly for the acquisition of land or an interest
therein or to provide a facility the primary purpose of which is either
retail food and beverage services, automobile sales or service, or the
provision of recreation or entertainment. During the life of the Bonds,
the Project will not be used primarily for either retail food and
beverage services, automobile sales or service, or the provision of
recreation or entertainment.
(ll) None of the proceeds of the Bonds are being used to
finance any office space which is not located on the Project Site which
office space is not directly related to the day to
11
<PAGE> 16
day operations of the Project as a manufacturing facility within the
meaning of Section 144(a) (12) (C) of the Code.
(mm) From the proceeds of the Bonds, including investment
earnings thereon, an amount not in excess of two percent (2%) of the
proceeds of the Bonds will be used to pay for, or to provide for the
payment of, the Issuance Costs of the Bonds.
Section 2.4. NOTICE OF DETERMINATION OF TAXABILITY. Promptly
after the Company first becomes aware of any Determination of Taxability, the
Company shall give written notice thereof to the Issuer and the Trustee.
ARTICLE III
ACQUISITION AND CONSTRUCTION OF THE
PROJECT; ISSUANCE OF THE BONDS
------------------------------
Section 3.1. AGREEMENT TO ACQUIRE, CONSTRUCT, IMPROVE AND
EQUIP THE PROJECT. The Company agrees to make all contracts and do all things
necessary for the acquisition, construction, improving, and equipping of the
Project, with or without advertising for bids, and the Company agrees that it
will cause the Project Facilities to be constructed on the Project Site
substantially in accordance with the Plans and Specifications. The Company may
make such change orders as it deems necessary or desirable.
The Company further agrees that it will acquire, construct,
improve, and equip the Project with all reasonable dispatch and use its best
efforts to cause acquisition, construction, improving, equipping, and occupancy
of the Project to be completed by November 4, 2000, or as soon thereafter as may
be practicable, delays caused by FORCE MAJEURE as defined in Section 8.1 hereof
only excepted; but if for any reason such acquisition, construction, improving
and equipping is not completed by said date there shall be no resulting
liability on the part of the Company and no diminution in or postponement of the
payments required in Section 4.2 hereof to be paid by the Company.
Section 3.2. AGREEMENT TO ISSUE THE BONDS; APPLICATION OF BOND
PROCEEDS. In order to provide funds for the payment of the Cost of the Project,
the Issuer, concurrently with the execution of this Agreement, will issue, sell,
and deliver the Bonds and deposit the net proceeds thereof (after payment of the
fees and expenses of the placement agent) with the Trustee in the Construction
Fund.
Section 3.3. DISBURSEMENTS FROM THE CONSTRUCTION FUND. The
Issuer has, in the Indenture, authorized and directed the Trustee to make
disbursements from the Construction Fund to pay the Costs of the Project, or to
reimburse the Company for any Cost of
12
<PAGE> 17
the Project paid by the Company. The Trustee shall not make any disbursement
from the Construction Fund until the Company shall have provided the Trustee
with a Requisition, provided that the Trustee may transfer amounts from the
Construction Fund to the Bond Fund related to the payment of interest on the
Bonds through the Completion Date without a Requisition.
Section 3.4. FURNISHING DOCUMENTS TO THE TRUSTEE. The Company
agrees to cause such Requisitions to be directed to the Trustee as may be
necessary to effect payments out of the Construction Fund in accordance with
Section 3.3 hereof.
Section 3.5. ESTABLISHMENT OF COMPLETION DATE.
(a) The Completion Date as to the Project shall be evidenced
to the Issuer and the Trustee by a certificate signed by a Company
Representative stating that, except for amounts retained by the Trustee at the
Company's direction to pay any Cost of the Project not then due and payable, (i)
construction of the Project has been completed and all costs of labor, services,
materials and supplies used in such construction have been paid, (ii) all
equipment for the Project has been installed, such equipment so installed is
suitable and sufficient for the operation of the Project, and all costs and
expenses incurred in the acquisition and installation of such equipment have
been paid, and (iii) all other facilities necessary in connection with the
Project have been acquired, constructed, improved, and equipped and all costs
and expenses incurred in connection therewith have been paid. Notwithstanding
the foregoing, such certificate shall state that it is given without prejudice
to any rights against third parties which exist at the date of such certificate
or which may subsequently come into being. Forthwith upon completion of the
acquisition, construction, improving, and equipping of the Project, the Company
agrees to cause such a certificate to be furnished to the Issuer and the
Trustee. Upon receipt of such certificate, the Trustee shall retain in the
Construction Fund a sum equal to the amounts necessary for payment of the Costs
of the Project not then due and payable according to such certificate. If any
such amounts so retained are not subsequently used, prior to any transfer of
said amounts to the General Account of the Bond Fund as provided below, the
Trustee shall give notice to the Company of the failure to apply said funds for
payment of the Costs of the Project. Any amount not to be retained in the
Construction Fund for payment of the Costs of the Project, and all amounts so
retained but not subsequently used, shall be transferred by the Trustee into the
General Account of the Bond Fund.
(b) If less than Substantially All of the Net Proceeds of the
Bonds then Outstanding has been used to pay Qualified Project Costs, any amount
(exclusive of amounts retained by the Trustee in the Construction Fund for
payment of Costs of the Project not then due and payable) remaining in the
Construction
13
<PAGE> 18
Fund shall be transferred by the Trustee into the General Account of the Bond
Fund and used by the Trustee (a) to redeem, or to cause the redemption of, Bonds
on the earliest redemption date permitted by the Indenture without a premium,
(b) to purchase Bonds on the open market prior to such redemption date at prices
not in excess of one hundred percent (100%) of the principal amount of such
Bonds, or (c) for any other purpose provided that the Trustee is furnished with
an opinion of Bond Counsel to the effect that such use is lawful under the Act,
if applicable, and will not require that interest on the Bonds be included in
gross income for federal income tax purposes. Until used for one or more of the
foregoing purposes, such segregated amount may be invested as permitted by the
Indenture provided that prior to any such investment, if applicable, the Trustee
is provided with an opinion of Bond Counsel to the effect that such investment
will not cause interest on the Bonds to be included in gross income for federal
income tax purposes.
Section 3.6. COMPANY REQUIRED TO PAY IN EVENT CONSTRUCTION
FUND INSUFFICIENT. In the event the moneys in the Construction Fund available
for payment of the Costs of the Project should not be sufficient to pay the
Costs of the Project in full, the Company agrees to complete the Project and to
pay that portion of the Costs of the Project in excess of the moneys available
therefor in the Construction Fund. The Issuer does not make any warranty, either
express or implied, that the moneys paid into the Construction Fund and
available for payment of the Costs of the Project will be sufficient to pay all
of the Costs of the Project. The Company agrees that if after exhaustion of the
moneys in the Construction Fund, the Company should pay any portion of the Costs
of the Project pursuant to the provisions of this Section, the Company shall not
be entitled to any reimbursement therefor from the Issuer, the Trustee or the
Owners of any of the Bonds, nor shall the Company be entitled to any diminution
of the amounts payable under Section 4.2 hereof.
Section 3.7. ARBITRAGE; PRESERVATION OF TAX-EXEMPTION. The
Issuer and the Company each agree and covenant that neither the proceeds of the
Bonds nor the funds held by the Trustee under the Indenture will be used in such
manner as to cause any Bond to be an "arbitrage bond" within the meaning of
Section 148 of the Code, as amended, as implemented by such proposed, temporary
and final Regulations as have been or may hereafter be adopted by the United
States Treasury Department thereunder. The Company further agrees and covenants
not to take any action, the result of which would cause or be likely to cause
the interest payable with respect to the Bonds not to be excluded from gross
income for federal income tax purposes. The Company will comply with the
applicable requirements of Section 103 and Part IV of Subchapter B of Chapter 1
of the Code to the extent necessary to preserve the exclusion of interest on the
Bonds from gross income of the Bondholders thereof for federal income tax
purposes.
14
<PAGE> 19
Section 3.8. CERTAIN COVENANTS WITH RESPECT TO COMPLIANCE WITH
ARBITRAGE REQUIREMENTS FOR INVESTMENTS IN NON- PURPOSE INVESTMENTS AND REBATE TO
THE UNITED STATES OF AMERICA. Section 148(f) of the Code, as implemented by
Sections 1.148-1 to 1.148-11 of the Income Tax Regulations (the "Rebate
Provisions"), requires that, with certain exceptions, the Issuer pay to the
United States of America the Rebate Amount. The Company hereby assumes and
agrees to make all payments for deposit into the Rebate Fund, in accordance with
the terms of Section 6.13 of the Indenture, to pay the Rebate Amount, consents
to the payment of the Rebate Amount by the Trustee in accordance with the terms
and provisions of Section 6.13 of the Indenture, and agrees to pay any amounts
in addition to the Rebate Amount, including all interest and penalties, if any,
related thereto to the extent that funds available therefor held by the Trustee
under the Indenture are not sufficient for such purpose. The Company agrees to
indemnify, protect and hold harmless the Issuer and the Trustee with respect to
any nonpayment of the Rebate Amount and such interest and penalties, and the
Trustee with respect to the unavailability or insufficiency of funds with which
to make such payments, and with respect to any expenses or costs incurred by the
Trustee in complying with the terms of Section 6.13 of the Indenture. The
Company hereby agrees to fully and timely comply with the requirements of
Section 6.13 of the Indenture.
Section 3.9. COVENANTS AS TO USE OF BOND PROCEEDS AND
OTHER MATTERS, PAYBACK PROVISION. The Company covenants and agrees
that:
(i) Substantially All of the Net Proceeds received from the
sale of the Bonds actually disbursed from the Construction Fund, and
investment earnings thereon, will be used for payment of Qualified
Project Costs;
(ii) (A) until disbursements from the Construction Fund have
been made of all Issuance Costs to be paid from proceeds of the Bonds,
the Company will not submit to the Trustee any requisition for a
disbursement from the Construction Fund unless the expenditure of such
disbursement will either be for Qualified Project Costs or for Issuance
Costs;
(B) after all Issuance Costs to be paid with proceeds of
the Bonds have been requisitioned and until the date on which the
aggregate Qualified Project Costs paid as of that date equals or
exceeds Substantially All of the Costs of the Project paid as of
that date from proceeds of the Bonds, including investment earnings
thereon, the Company will not submit to the Trustee any requisition
for a disbursement from the Construction Fund unless the expenditure
of such disbursement will be for Qualified Project Costs; and
15
<PAGE> 20
(C) after such date, the Company will not submit to
the Trustee any requisition for a disbursement from the Construction
Fund if, after the expenditure of such disbursement, less than
Substantially All of the Net Proceeds of the Bonds and investment
earnings thereon actually disbursed to that time would have been used
to pay Qualified Project Costs;
(iii) the Company will not submit to the Trustee any
requisition for a disbursement from the Construction Fund for Issuance
Costs if, after the expenditure of such disbursement, more than two
percent (2%) of the proceeds of the Bonds would have been used to pay
Issuance Costs;
(iv) in the event a disbursement from the Construction Fund is
made which results in the covenants in paragraphs (i), (ii) or (iii)
above being violated, the Company will promptly repay to the Trustee
for deposit in the Construction Fund such amount as may be necessary
for the Company to again be in compliance with paragraphs (i), (ii) or
(iii) above;
Section 3.10. DAMAGE, DESTRUCTION OR LOSS OF PROPERTY;
OBLIGATION TO REBUILD; USE OF INSURANCE PROCEEDS AND CONDEMNATION AWARDS. If
prior to full payment of all Bonds (or provision for payment thereof having been
made in accordance with the provisions of the Indenture), the Project, or any
part or component of the Project shall be damaged or destroyed, by whatever
cause, or shall be taken by any public authority or entity in the exercise of or
acquired under the threat of the exercise of its power of eminent domain, there
shall be no abatement or reduction in the Loan Installments payable under this
Agreement, and the Company will apply any insurance proceeds or condemnation
awards resulting from claims for such losses or takings as provided in this
Section.
If prior to full payment of all Bonds (or provision for
payment thereof having been made in accordance with the provisions of the
Indenture), the Project, or any part or component of the Project shall be
damaged, destroyed, or the Project or any part or component of the Project shall
be taken by eminent domain or the threat of exercise of eminent domain, the
Company shall promptly give, or cause to be given, written notice thereof to the
Issuer, the Bank and the Trustee. All proceeds received from such property
insurance with respect to the Project and all condemnation awards with respect
to the Project shall be deposited with the Trustee to the credit of the
Construction Fund. Following the occurrence of such an event with respect to the
Project, the Company shall have the option of (1) continuing to pay all amounts
payable hereunder and to the extent permitted below proceeding promptly to
repair, rebuild, restore or replace the property damaged, destroyed or taken,
with such changes, alterations and modifications (including
16
<PAGE> 21
the substitution and addition of other property) as may be desired by the
Company and, with respect to the Project, and as will comply with the
limitations contained in this Agreement, and the Trustee will deposit such
proceeds to the credit of the Construction Fund and make such disbursements
therefrom, in accordance with Section 3.3 hereof, as may be necessary to pay the
cost of such repair, rebuilding or restoration, either on completion thereof or
as the work progresses or (2) requesting the Issuer to cause the Bonds to be
redeemed in accordance with the terms of the Indenture or (3) any combination of
(1) and (2).
Section 3.11. PURSUIT OF REMEDIES AGAINST CONTRACTORS,
SUBCONTRACTORS AND SURETIES. In the event of default of any contractor or
subcontractor, if any, under any contract made by it in connection with the
Project, the Company will promptly proceed, either separately or in conjunction
with others, to the extent commercially reasonable, to exhaust its remedies
against the contractor or subcontractor so in default and against each surety
for the performance of such contract. The Company agrees forthwith to take such
actions as may be necessary or required to protect the interests of all parties
with respect to the Project unless directed to the contrary by the Trustee. Any
amounts recovered by way of damages, refunds, adjustments or otherwise in
connection with the foregoing that are needed to pay a portion of the cost of
the Project shall be paid into the applicable account in the Construction Fund.
Section 3.12. Reserved.
SECTION 3.13. SALE OF PROJECT OR PORTIONS THEREOF. The
Company agrees that it shall not sell the Project or any components thereof
financed with the proceeds of the Bonds, except that, to the extent otherwise
permitted under the terms of this Agreement, the Project and components thereof
may be sold pursuant to a sale or other transfer of components of the Project
if: (i) in the judgment of the Company, such component has become obsolete, worn
out or surplus, provided that any amounts received by the Company upon such
disposition will be applied by the Company to acquire, construct or renovate
property qualified for financing under Section 144 of the Code, or (ii) the
Company delivers to the Trustee, the Bondholders and the Issuer of a written
opinion of Bond Counsel to the effect that any such disposition will not
adversely affect the validity of the Bonds or the exclusion of interest on the
Bonds from gross income for federal income tax purposes.
ARTICLE IV
LOAN PROVISIONS; SUBSTITUTE LETTER OF CREDIT
--------------------------------------------
Section 4.1. LOAN OF PROCEEDS. The Issuer agrees, upon
the terms and conditions contained in this Agreement and the
17
<PAGE> 22
Indenture, to lend to the Company the proceeds received by the Issuer from the
sale of the Bonds. Such proceeds shall be disbursed to or on behalf of the
Company as provided in Section 3.3 hereof.
Section 4.2. AMOUNTS PAYABLE.
(a) The Company hereby covenants and agrees to repay the loan,
as follows: on or before any Interest Payment Date for the Bonds or any other
date that any payment of interest, premium, if any, or principal or Purchase
Price is required to be made in respect of the Bonds pursuant to the Indenture,
until the principal of, premium, if any, and interest on the Bonds or the
Purchase Price of Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture, in immediately
available funds, a sum which, together with any other moneys available for such
payment in any account of the Bond Fund, will enable the Trustee to pay the
amount payable on such date as Purchase Price or principal of (whether at
maturity or upon redemption or acceleration or otherwise), premium, if any, and
interest on the Bonds as provided in the Indenture; provided, however, that the
obligation of the Company to make any payment hereunder shall be deemed
satisfied and discharged to the extent of the corresponding payment made by the
Bank to the Trustee under the Letter of Credit.
It is understood and agreed that all payments payable by the
Company under subsection (a) of this Section 4.2 are assigned by the Issuer to
the Trustee for the benefit of the Owners of the Bonds. The Company assents to
such assignment. The Issuer hereby directs the Company, and the Company hereby
agrees to pay to the Trustee at the Principal Office of the Trustee all payments
payable by the Company pursuant to this subsection.
(b) The Company will also pay the reasonable expenses of the
Issuer related to the issuance of the Bonds and any and all ongoing costs and
expenses for any continuing duties or obligations of the Issuer related in any
respect to the Bonds, this Agreement, the Indenture or any other documents
executed in connection therewith after the issuance of the Bonds.
(c) The Company will also pay the reasonable fees and expenses
of the Trustee under the Indenture and all other amounts which may be payable to
the Trustee under Section 10.02 of the Indenture, such amounts to be paid
directly to the Trustee for the Trustee's own account as and when such amounts
become due and payable.
(d) The Company covenants, for the benefit of the Owners of
the Bonds, to pay or cause to be paid, to the Tender Agent, such amounts as
shall be necessary to enable the Tender Agent to pay the Purchase Price of Bonds
delivered to it for purchase, all as more
18
<PAGE> 23
particularly described in Sections 4.01, 4.02 and 4.04 of the Indenture;
PROVIDED, however, that the obligation of the Company to make any such payment
under this subsection (d) shall be reduced by the amount of moneys available for
such payment described in subsection (i) of Section 4.05 of the Indenture; and
PROVIDED, FURTHER, that the obligation of the Company to make any payment under
this subsection (d) shall be deemed to be satisfied and discharged to the extent
of the corresponding payment made by the Bank under the Letter of Credit.
(e) In the event the Company should fail to make any of the
payments required in this Section 4.2, the item or installment so in default
shall continue as an obligation of the Company until the amount in default shall
have been fully paid, and the Company agrees to pay the same with interest
thereon, to the extent permitted by law, from the date when such payment was
due, at the rate of interest borne by the Bonds.
Section 4.3. OBLIGATIONS OF COMPANY UNCONDITIONAL. The
obligations of the Company to make the payments required in Section 4.2 and to
perform and observe the other agreements contained herein shall be absolute and
unconditional and shall not be subject to any defense or any right of setoff,
counterclaim or recoupment arising out of any breach by the Issuer or the
Trustee of any obligation to the Company, whether hereunder or otherwise, or out
of any indebtedness or liability at any time owing to the Company by the Issuer
or the Trustee, and, until such time as the principal of, premium, if any, and
interest on the Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture, the Company (i)
will not suspend or discontinue any payments provided for in Section 4.2 hereof,
(ii) will perform and observe all other agreements contained in this Agreement
and (iii) except as otherwise provided herein, will not terminate the Term of
Agreement for any cause, including, without limiting the generality of the
foregoing, failure of the Company to complete the acquisition, construction,
improving and equipping of the Project, the occurrence of any acts or
circumstances that may constitute failure of consideration, eviction or
constructive eviction, destruction of or damage to the Project, the taking by
eminent domain of title to or temporary use of any or all of the Project,
commercial frustration of purpose, any change in the tax or other laws of the
United States of America or of the State or any political subdivision of either
thereof or any failure of the Issuer or the Trustee to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation
arising out of or connected with this Agreement. Nothing contained in this
Section shall be construed to release the Issuer from the performance of any of
the agreements on its part herein contained, and in the event the Issuer or the
Trustee should fail to perform any such agreement on its part, the Company may
institute such action against the Issuer or the Trustee as the Company may deem
necessary to compel performance so long as such
19
<PAGE> 24
action does not abrogate the obligations of the Company contained in the first
sentence of this Section.
Section 4.4. SUBSTITUTE LETTER OF CREDIT. The Company may
provide for the delivery to the Trustee of a Substitute Letter of Credit. Any
Substitute Letter of Credit shall be delivered to the Trustee not less than
sixty (60) days prior to the expiration of the Letter of Credit it is being
issued to replace, shall be dated as of a date prior to the expiration date of
the Letter of Credit for which the same is to be substituted (which date may be
subsequent to the date of delivery of such Substitute Letter of Credit, but in
all events such Substitute Letter of Credit shall become effective prior to the
expiration of the Letter of Credit for which it is substituted), and shall
expire on a date which is fifteen days after an Interest Payment Date for the
Bonds. On or before the date of such delivery of a Substitute Letter of Credit
to the Trustee, the Company shall furnish to the Trustee (a) written evidence
from each rating agency by which the Bonds are then rated, to the effect that
such rating agency has reviewed the proposed Substitute Letter of Credit and
that the substitution of the proposed Substitute Letter of Credit will not, by
itself, result in the reduction or withdrawal of the then applicable rating(s)
of the Bonds; (b) a written opinion of Bond Counsel stating that the delivery of
such Substitute Letter of Credit will not adversely affect the exclusion from
gross income of interest on the Bonds for federal income tax purposes; (c) a
written opinion of counsel to the Substitute Bank to the effect that the
Substitute Letter of Credit is a legal, valid, binding and enforceable
obligation of the Substitute Bank in accordance with its terms; and (d) a
written opinion of Bond Counsel or other counsel acceptable to the Trustee
substantially to the effect that payments made by the Trustee of principal and
interest on the Bonds with proceeds of draws on the Substitute Letter of Credit
are not avoidable preference under the federal bankruptcy code.
ARTICLE V
PREPAYMENT AND REDEMPTION
-------------------------
Section 5.1. PREPAYMENT AND REDEMPTION. The Company shall have
the option to prepay its obligations hereunder at the times and in the amounts
as necessary to exercise its option to cause the Bonds to be redeemed as set
forth in the Indenture and in the Bonds. The Issuer, at the request of the
Company, shall forthwith take all steps (other than the payment of the money
required for such redemption) necessary under the applicable redemption
provisions of the Indenture to effect redemption of all or part of the
Outstanding Bonds, as may be specified by the Company, on the date established
for such redemption.
20
<PAGE> 25
ARTICLE VI
SPECIAL COVENANTS
-----------------
Section 6.1. NO WARRANTY OF CONDITION OR SUITABILITY BY
ISSUER. THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
PROJECT OR THE CONDITION THEREOF, OR THAT THE PROJECT WILL BE SUITABLE FOR THE
PURPOSES OR NEEDS OF THE COMPANY. THE ISSUER MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, THAT THE COMPANY WILL HAVE QUIET AND PEACEFUL
POSSESSION OF THE PROJECT. THE ISSUER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, CONDITION OR
WORKMANSHIP OF ANY PART OF THE PROJECT OR ITS SUITABILITY FOR THE COMPANY'S
PURPOSES.
Section 6.2. ACCESS TO THE PROJECT. The Company agrees that
the Issuer, the Bank, the Trustee and their duly authorized agents, attorneys,
experts, engineers, accountants and representatives shall have the right to
inspect the Project at all reasonable times and on reasonable notice. The
Issuer, the Bank, the Trustee and their duly authorized agents shall also be
permitted, at all reasonable times, to examine the books and records of the
Company with respect to the Project.
Section 6.3. FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS.
The Issuer and the Company agree that they will, from time to time, execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such supplements hereto and such further instruments as may reasonably be
required for carrying out the expressed intention of this Agreement.
Section 6.4. ISSUER AND COMPANY REPRESENTATIVES. Whenever
under the provisions of this Agreement the approval of the Issuer or the Company
is required or the Issuer or the Company is required to take some action at the
request of the other, such approval or such request shall be given for the
Issuer by an Issuer Representative and for the Company by a Company
Representative. The Trustee shall be authorized to act on any such approval or
request.
Section 6.5. FINANCIAL REPORTS. After the Conversion Date, so
long as any of the Bonds are Outstanding, the Company shall furnish or cause to
be furnished to the Trustee the following information:
(a) Within one hundred twenty (120) days after the close of
each fiscal year of the Company, a balance sheet of the Company as of the end of
such fiscal year and statements of income and retained earnings of the Company
for such fiscal year, each prepared in accordance with generally accepted
accounting principles consistently applied, in reasonable detail and certified
by certified public accountants of recognized standing.
21
<PAGE> 26
(b) Upon request, copies of all such regular or periodic
reports, which are available for public inspection which the Company may be
required to file with any federal or state department, bureau, commission, or
agency.
(c) Within one hundred twenty (120) days after the end of each
fiscal year, a certificate of a Company Representative stating whether the
Company is in compliance with all covenants and agreements made by the Company
in this Agreement.
Section 6.6. FINANCING STATEMENTS. The Company agrees to
execute and file or cause to be executed and filed any and all financing
statements or amendments thereof or continuation statements necessary to perfect
and continue the perfection of the security interests granted in the Indenture.
The Company shall pay all costs of filing such instruments.
Section 6.7. MAINTENANCE OF PROJECT. The Issuer and the
Company agree that the Company will (i) maintain, repair and operate the
Project; and (ii) pay, as the same respectively come due, all taxes and
governmental charges of any kind whatsoever that may at any time be lawfully
assessed or levied against the Company or the Issuer with respect to the Project
or any portion thereof or with respect to the original issuance of the Bonds,
including, without limiting the generality of the foregoing, any taxes levied
against the Company or the Issuer upon or with respect to the income or profits
of the Issuer from the Project or a charge on the Loan Installments prior to or
on a parity with the charge under the Indenture thereon and the pledge or
assignment thereof to be created and made in the Indenture, and including all ad
valorem taxes lawfully assessed upon the Project, all utility and other charges
incurred in the operation, maintenance, use, occupancy and upkeep of the
Project, all assessments and charges lawfully made by any governmental body
against the Company or the Issuer on the Loan Installments; provided, however,
that nothing in this subsection (ii) shall require the payment of any such tax
or charge or make provision for the payment thereof, so long as the validity
thereof shall be contested in good faith by the Company by appropriate legal or
administrative proceedings, and further provided that, with respect to special
assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the Company shall be obligated to pay only
such installments as are required to be paid during the Agreement Term.
Section 6.8. UNDERTAKING TO PROVIDE ONGOING DISCLOSURE.
(a) This Section 6.8 constitutes the written undertaking for
the benefit of the holders of the Bonds required by Section (b)(5)(i) of
Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange
Act of 1934, as amended (17 CFR Part 240, ss. 240. 15c2-12) (the "Rule"), and
shall apply when and if the Company exercises the Conversion Option. It is the
Company's
22
<PAGE> 27
express intention that this Section 6.8 be assigned pursuant to and in
accordance with the terms of the Indenture to the Trustee for the benefit of the
Bondholders and that the Trustee and each Bondholder be a beneficiary of this
Section 6.8 with the right to enforce this Section 6.8 directly against the
Company. Capitalized terms used in this Section 6.8 and not otherwise defined in
this Agreement shall have the meanings assigned such terms in subsection (d)
hereof.
(b) The Company, as an "obligated person" within the meaning
of the Rule, undertakes to provide the following information as provided in this
Section 6.8:
(1) Annual Financial Information;
(2) Financial Statements, if any; and
(3) Material Event Notices.
(c) (1) Subject to the terms of this Section 6.8, the Company
shall while any Bonds are Outstanding provide the Annual Financial
Information to the Trustee on or before April 1 of each year after the
election of the Conversion Option (the "Submission Date"), and the
Trustee shall provide to the Issuer and to each then existing NRMSIR
and the SID, if any, such Annual Financial Information on or before
April 30 of each year (the "Report Date") while any Bonds are
Outstanding or, if not received by the Trustee by the Submission Date,
then within fifteen (15) Business Days of its receipt by the Trustee.
The Company shall include with each submission of Annual Financial
Information to the Trustee and the Issuer a written representation
addressed to the Trustee and the Issuer to the effect that the Annual
Financial Information is the Annual Financial Information required by
this Section 6.8 and that it complies with the applicable requirements
of this Section 6.8. The Company may adjust the Submission Date and the
Report Date if the Company changes its fiscal year by providing written
notice of the change of fiscal year and the new Submission Date and
Report Date to the Trustee, the Issuer, each then existing NRMSIR and
the SID, if any; provided that the new Report Date shall be one hundred
twenty (120) days after the end of the new fiscal year and the new
Submission Date shall be thirty (30) days prior to the Report Date, and
provided further that the period between the final Report Date relating
to the former fiscal year and the initial Report Date relating to the
new fiscal year shall not exceed one year in duration. It shall be
sufficient if the Company provides to the Trustee and the Issuer and
the Trustee provides to each then existing NRMSIR and the SID, if any,
the Annual Financial Information by specific reference to documents
previously provided to each NRMSIR and the SID, if any, or filed with
the Securities and Exchange Commission and,
23
<PAGE> 28
if such a document is a final official statement within the meaning of
the Rule, available from the Municipal Securities Rulemaking Board.
(2) If not provided as part of the Annual Financial
Information, the Company shall provide Financial Statements to the
Trustee when and if available while Bonds are Outstanding and the
Trustee shall then promptly provide the Issuer, each then existing
NRMSIR and the SID, if any, with such Financial Statements.
(3) (i) If a Material Event occurs while any Bonds are
Outstanding, the Company shall provide a Material Event Notice to the
Trustee in a timely manner and the Trustee shall promptly provide to
the Issuer, the Municipal Securities Rulemaking Board and the SID, if
any, such Material Event Notice. Each Material Event Notice shall be so
captioned and shall prominently state the date, title and CUSIP numbers
of the Bonds.
(ii) The Trustee shall promptly advise the Company whenever,
in the course of performing its duties as Trustee under the Indenture,
the Trustee identifies an occurrence which, if material, would require
the Company to provide a Material Event Notice pursuant to clause
(3)(i); provided that the failure of the Trustee so to advise the
Company shall not constitute a breach by the Trustee of any of its
duties and responsibilities hereunder.
(4) The Trustee shall, without further direction or
instruction from the Company, provide in a timely manner to the
Municipal Securities Rulemaking Board and to the SID, if any, notice of
any failure while any Bonds are Outstanding by the Trustee to provide
to each then existing NRMSIR and the SID, if any, Annual Financial
Information on or before the Report Date (whether caused by failure of
the Company to provide such information to the Trustee by the
Submission Date or for any other reason). For the purposes of
determining whether information received from the Company is Annual
Financial Information, the Trustee shall be entitled conclusively to
rely on the Company's written representation made pursuant to clause
(c)(1) of this Section 6.8.
(5) If the Company provides to the Trustee information
relating to the Company or the Bonds, which information is not
designated as a Material Event Notice, and directs the Trustee to
provide such information to information repositories, the Trustee shall
provide such information in a timely manner to the Issuer, the
Municipal Securities Rulemaking Board and the SID, if any.
24
<PAGE> 29
(d) The following are the definitions of the capitalized terms
used in this Section and not otherwise defined in this Agreement.
(1) "Annual Financial Information" means the financial
information (which shall be based on financial statements prepared in
accordance with generally accepted accounting principles ("GAAP")) or
operating data with respect to the Company, provided at least annually,
of the type included in the official statement or other offering
document utilized in connection with the marketing or remarketing of
Bonds after the Conversion Date, which Annual Financial Information
shall include Financial Statements.
(2) "Financial Statements" means the Company's annual
financial statements, prepared in accordance with GAAP, and if audited,
accompanied by the report of the auditing certified public account.
(3) "Material Event" means any of the following events, if
material, with respect to the Bonds.
(i) Principal and interest payment delinquencies;
(ii) Non-payment related defaults;
(iii) Unscheduled draws on debt service reserves reflecting
financial difficulties;
(iv) Unscheduled draws on credit enhancements reflecting
financial difficulties;
(v) Substitution of credit or liquidity providers, or their
failure to perform;
(vi) Adverse tax opinions or events affecting the tax-exempt
status of the security;
(vii) Modifications to rights of security holders;
(viii) Bond calls;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing
repayment of the securities; and
(xi) Rating changes.
(4) "Material Event Notice" means written or electronic notice
of a Material Event.
25
<PAGE> 30
(5) "NRMSIR" means a nationally recognized municipal
securities information repository, as recognized from time to time by
the Securities and Exchange Commission for the purposes referred to in
the Rule;
(6) "SID" means a state information depository as operated or
designated by the State as such for the purposes referred to in the
Rule.
(e) Unless otherwise required by law and subject to technical
and economic feasibility, the Company and the Trustee shall employ such methods
of information transmission as shall be requested or recommended by the
designated recipients of the Company's information.
(f) The continuing obligation hereunder of the Company to
provide Annual Financial Information and Material Event Notices and the
Trustee's obligations under this Section 6.8 shall terminate immediately once
the Bonds no longer are Outstanding. This Section 6.8, or any provision hereof,
shall be null and void in the event that the Company delivers to the Trustee and
the Issuer an opinion of nationally recognized bond counsel to the effect that
those portions of the Rule which require this Section 6.8, or any such
provisions, are invalid, have been repealed retroactively or otherwise do not
apply to the Bonds; provided that the Trustee shall have provided notice of such
delivery and the cancellation of this Section 6.8 to each then existing NRMSIR
and the SID, if any. This Section 6.8 may be amended without the consent of the
Bondholders, but only upon the delivery by the Company to the Trustee and the
Issuer of the proposed amendment and an opinion of nationally recognized bond
counsel to the effect that such amendment, and giving effect thereto, will not
adversely affect compliance with this Section by the Company and with the Rule;
provided that the Trustee shall have provided notice of such delivery and of the
amendment to each then existing NRMSIR and the SID, if any.
(g) Any failure by the Company to perform in accordance with
this Section 6.8 shall not constitute an "Event of Default" under Article VIII
hereof, and the rights and remedies provided by Article VIII upon the occurrence
of an "Event of Default" shall not apply to any such failure. Neither the Issuer
nor the Trustee shall have any power or duty to enforce this Section 6.8.
(h) The Company shall reimburse the Trustee for any expenses
incurred by the Trustee in complying with the requirements of this Section 6.8.
(i) The Company shall also provide such other information as
shall be reasonably requested by the Issuer and/or as shall be required by law
in connection with any marketing or remarketing of Bonds after the Conversion
Date.
26
<PAGE> 31
ARTICLE VII
ASSIGNMENT, SELLING, LEASING;
INDEMNIFICATION; REDEMPTION
---------------------------
Section 7.1. ASSIGNMENT, SELLING AND LEASING. This Agreement
may be assigned and the Project may be sold or leased, as a whole or in part, as
provided in Section 3.13 hereof or with the prior written consent of the Bank,
but without the necessity of obtaining the consent of either the Issuer or the
Trustee; PROVIDED, however, that no such assignment, sale or lease shall, in the
opinion of Bond Counsel, result in interest on any of the Bonds becoming
includable in gross income for federal income tax purposes, or shall otherwise
violate any provisions of the Act; PROVIDED FURTHER, however, that no such
assignment, sale or lease shall relieve the Company of any of its obligations
under this Agreement and the Company shall remain fully liable thereon.
Section 7.2. RELEASE AND INDEMNIFICATION COVENANTS.
(a) The Company shall and hereby agrees to indemnify and save
the Issuer and the Trustee harmless against and from all claims by or on behalf
of any person, firm, corporation or other legal entity arising from the conduct
or management of, or from any work or thing done on, the Project during the Term
of Agreement, including without limitation, (i) any condition of the Project,
(ii) any breach or default on the part of the Company in the performance of any
of its obligations under this Agreement, (iii) any act or negligence of the
Company or of any of its agents, contractors, servants, employees or licensees
or (iv) any act or negligence of any assignee or lessee of the Company, or of
any agents, contractors, servants, employees or licensees of any assignee or
lessee of the Company. The Company shall indemnify and save the Issuer and the
Trustee harmless from any such claim arising as aforesaid, or in connection with
any action or proceeding brought thereon, and upon notice from the Issuer or the
Trustee, the Company shall defend them or either of them in any such action or
proceeding.
(b) Notwithstanding the fact that it is the intention of the
parties hereto that the Issuer shall not incur any pecuniary liability by reason
of the terms of this Agreement or the undertakings required of the Issuer
hereunder, by reason of the issuance of the Bonds, by reason of the execution of
the Indenture or by reason of the performance of any act requested of the Issuer
by the Company, including all claims, liabilities or losses arising in
connection with the violation of any statutes or regulation pertaining to the
foregoing; nevertheless, if the Issuer should incur any such pecuniary
liability, then in such event the Company shall indemnify and hold the Issuer
harmless against all claims, demands or causes of action whatsoever, by or on
behalf of any
27
<PAGE> 32
person, firm or corporation or other legal entity arising out of the same or out
of any offering statement or lack of offering statement in connection with the
sale or resale of the Bonds and all costs and expenses incurred in connection
with any such claim or in connection with any action or proceeding brought
thereon, and upon notice from the Issuer, the Company shall defend the Issuer in
any such action or proceeding. All references to the Issuer in this Section 7.2
shall be deemed to include its directors, officers, employees, and agents.
Notwithstanding anything to the contrary contained herein, the
Company shall have no liability to indemnify the Issuer against claims or
damages resulting from the Issuer's own gross negligence or willful misconduct.
Section 7.3. ISSUER TO GRANT SECURITY INTEREST TO TRUSTEE. The
parties hereto agree that pursuant to the Indenture, the Issuer shall assign to
the Trustee, in order to secure payment of the Bonds, all of the Issuer's right,
title, and interest in and to this Agreement, except for the Issuer's rights
under Sections 4.2(b), 7.2 and 8.4 hereof.
Section 7.4. INDEMNIFICATION OF TRUSTEE. The Company shall and
hereby agrees to indemnify the Trustee for, and hold the Trustee harmless
against, any loss, liability or expense (including the costs and expenses of
defending against any claim of liability) incurred without negligence or willful
misconduct by the Trustee and arising out of or in connection with its acting as
Trustee under the Indenture.
ARTICLE VIII
DEFAULTS AND REMEDIES
---------------------
Section 8.1. DEFAULTS DEFINED. The following shall be
"Defaults" under this Agreement and the term "Default" shall mean, whenever it
is used in this Agreement, any one or more of the following events:
(a) Failure by the Company to pay any amount required to be
paid under subsection (a) or (d) of Section 4.2 hereof.
(b) Failure by the Company to observe and perform any
covenant, condition or agreement on its part to be observed or performed, other
than as referred to in Section 8.1(a), for a period of thirty (30) days after
written notice specifying such failure and requesting that it be remedied shall
have been given to the Company by the Issuer or the Trustee, unless the Issuer
and the Trustee shall agree in writing to an extension of such time prior to its
expiration; PROVIDED, however, if the failure stated in the notice cannot be
corrected within the applicable period, the Issuer
28
<PAGE> 33
and the Trustee will not unreasonably withhold their consent to an extension of
such time if corrective action is instituted by the Company within the
applicable period and diligently pursued until such failure is corrected.
(c) The dissolution or liquidation of the Company, except as
authorized by Section 2.2 hereof, or the voluntary initiation by the Company of
any proceeding under any federal or state law relating to bankruptcy,
insolvency, arrangement, reorganization, readjustment of debt or any other form
of debtor relief, or the initiation against the Company of any such proceeding
which shall remain undismissed for sixty (60) days, or failure by the Company to
promptly have discharged any execution, garnishment or attachment of such
consequence as would materially impair the ability of the Company to carry on
its operations at the Project, or assignment by the Company for the benefit of
creditors, or the entry by the Company into an agreement of composition with its
creditors or the failure generally by the Company to pay its debts as they
become due.
(d) The occurrence of a Default under the Indenture.
The provisions of subsection (b) of this Section are subject to the following
limitation: if by reason of FORCE MAJEURE the Company is unable in whole or in
part to carry out any of its agreements contained herein (other than its
obligations contained in Article IV hereof), the Company shall not be deemed in
Default during the continuance of such inability. The term "FORCE MAJEURE" as
used herein shall mean, without limitation, the following: acts of God; strikes
or other industrial disturbances; acts of public enemies; orders or restraints
of any kind of the government of the United States of America or of the State or
of any of their departments, agencies or officials, or of any civil or military
authority; insurrections; riots; landslides; earthquakes; fires; storms;
droughts; floods; explosions; breakage or accident to machinery, transmission
pipes or canals; and any other cause or event not reasonably within the control
of the Company. The Company agrees, however, to remedy with all reasonable
dispatch the cause or causes preventing the Company from carrying out its
agreement, provided that the settlement of strikes and other industrial
disturbances shall be entirely within the discretion of the Company and the
Company shall not be required to settle strikes, lockouts and other industrial
disturbances by acceding to the demands of the opposing party or parties when
such course is in the judgment of the Company unfavorable to the Company.
Section 8.2. REMEDIES ON DEFAULT. Whenever any Default
referred to in Section 8.1 hereof shall have happened and be continuing, the
Trustee, or the Issuer with the written consent of the Trustee, may take one or
any combination of the following remedial steps:
29
<PAGE> 34
(a) If the Trustee has declared the Bonds immediately due and
payable pursuant to Section 9.02 of the Indenture, by written notice to the
Company, declare an amount equal to all amounts then due and payable on the
Bonds, whether by acceleration of maturity (as provided in the Indenture) or
otherwise, to be immediately due and payable as liquidated damages under this
Agreement and not as a penalty, whereupon the same shall become immediately due
and payable;
(b) Have reasonable access to and inspect, examine and make
copies of the books and records and any and all accounts, data and income tax
and other tax returns of the Company during regular business hours of the
Company if reasonably necessary in the opinion of the Trustee; or
(c) Take whatever action at law or in equity may appear
necessary or desirable to collect the amounts then due and thereafter to become
due, or to enforce performance and observance of any obligation, agreement or
covenant of the Company under this Agreement.
Any amounts collected pursuant to action taken under this
Section shall be paid into the Bond Fund and applied in accordance with the
provisions of the Indenture.
Section 8.3. NO REMEDY EXCLUSIVE. Subject to Section 9.02 of
the Indenture, no remedy herein conferred upon or reserved to the Issuer or the
Trustee is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Agreement or now or hereafter existing at
law or in equity. No delay or omission to exercise any right or power accruing
upon any Default shall impair any such right or power or shall be construed to
be a waiver thereof, but any such right or power may be exercised from time to
time and as often as may be deemed expedient. In order to entitle the Issuer or
the Trustee to exercise any remedy reserved to it in this Article, it shall not
be necessary to give any notice, other than such notice as may be required in
this Article. Such rights and remedies as are given the Issuer hereunder shall
also extend to the Trustee, and the Trustee and the Owners of the Bonds, subject
to the provisions of the Indenture, shall be entitled to the benefit of all
covenants and agreements herein contained.
Section 8.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In
the event the Company should default under any of the provisions of this
Agreement and the Issuer should employ attorneys or incur other expenses for the
collection of payments required hereunder or the enforcement of performance or
observance of any obligation or agreement on the part of the Company herein
contained, the Company agrees that it will on demand therefor pay
30
<PAGE> 35
to the Issuer the reasonable fee of such attorneys and such other expenses so
incurred by the Issuer.
Section 8.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In
the event any agreement contained in this Agreement should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. TERM OF AGREEMENT. This Agreement shall remain in
full force and effect from the date hereof to and including December 1, 2017 or
until such time as all of the Bonds and the fees and expenses of the Issuer and
the Trustee and all amounts payable to the Bank under the Credit Agreement shall
have been fully paid or provision made for such payments, whichever is later;
PROVIDED, however, that this Agreement may be terminated prior to such date
pursuant to Article V of this Agreement, but in no event before all of the
obligations and duties of the Company hereunder have been fully performed,
including, but not limited to, the payment of all costs and fees mandated
hereunder.
Section 9.2. NOTICES. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
when delivered or mailed by registered mail, postage prepaid, addressed as
follows:
<TABLE>
<S> <C>
If to the Issuer: Highlands County Industrial
Development Authority
2113 U.S. 27 South
Sebring, FL 33870
If to the Trustee: PNC Bank, N.A.
Corporate Trust Administration
One Oliver Plaza, 27th Floor
210 Sixth Avenue
Pittsburgh, PA 15265
If to the Company: LESCO, Inc.
20005 Lake Road
Rocky River, Ohio 44116-1545
Attention: Chief Financial Officer
If to the Bank: PNC Bank, N.A.
1375 East 9th Street, Suite 1250
Cleveland, Ohio 44114
</TABLE>
31
<PAGE> 36
If to the issuer of a Its address designated in
Substitute Letter of Credit: writing to the Trustee
If to the Remarketing Agent: Its Principal Office
If to the Tender Agent: PNC Bank, N.A.
One Oliver Plaza, 27th Floor
210 Sixth Avenue
Pittsburgh, PA 15265
If to Moody's: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Corporate Department,
Structured Finance
Group
If to S&P: Standard & Poor's Corporation
25 Broadway
New York, New York 10004
Attention: Corporate Finance
Department
A duplicate copy of each notice, certificate or other communication given
hereunder by the Issuer or the Company shall also be given to the Trustee and
the Bank. The Issuer, the Company, the Trustee, and the Bank may, by written
notice given hereunder, designate any further or different addresses to which
subsequent notices, certificates or other communications shall be sent.
Section 9.3. BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the Issuer, the Company, the Bank, the
Trustee, the Owners of Bonds and their respective successors and assigns,
subject, however, to the limitations contained in Section 2.3(b) hereof.
Section 9.4. SEVERABILITY. In the event any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 9.5. AMOUNTS REMAINING IN FUNDS. Subject to the
provisions of Section 6.11 of the Indenture, it is agreed by the parties hereto
that any amounts remaining in any account of the Bond Fund, the Construction
Fund, or any other fund (other than the Rebate Fund) created under the Indenture
upon expiration or earlier termination of this Agreement, as provided in this
Agreement, after payment in full of the Bonds (or provision for payment thereof
having been made in accordance with the provisions of the Indenture) and the
fees and expenses of the Trustee in accordance with the Indenture and the fees
and expenses of the Issuer in
32
<PAGE> 37
accordance with this Agreement, shall belong to and be paid to the Company by
the Trustee.
Section 9.6. AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent
to the issuance of Bonds and prior to their payment in full (or provision for
the payment thereof having been made in accordance with the provisions of the
Indenture), and except as otherwise herein expressly provided, this Agreement
may not be effectively amended, changed, modified, altered or terminated without
the written consent of the Trustee and, prior to the Letter of Credit
Termination Date and payment of all amounts payable to the Bank under the Credit
Agreement, the consent of the Bank, in accordance with the provisions of the
Indenture.
Section 9.7. EXECUTION IN COUNTERPARTS. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 9.8. APPLICABLE LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State without reference to
its principles of conflicts of law.
Section 9.9. CAPTIONS. The captions and headings in this
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provisions or Sections of this Agreement.
33
<PAGE> 38
IN WITNESS WHEREOF, the Issuer and the Company have caused
this Agreement to be executed in their respective corporate names and their
respective corporate seals to be hereunto affixed and attested by their duly
authorized officers, all as of the date first above written.
(SEAL) HIGHLANDS COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY
Attest: By: /s/ Tom Koppes
-----------------------------------
Title: Chairman
/s/ C.H. Hands
- ---------------------------
Title: Secretary
By: /s/ Kenneth W. Didion
-----------------------------------
Title: Treasurer
34
<PAGE> 39
EXHIBIT "A"
PROJECT FACILITIES
The construction and equipping of a fertilizer blending, formulating
and bagging facility which facility will be located within the boundaries of the
Sebring Regional Airport and Industrial Park, to the east and south of Sebring
Custom Tanning which is located at 429 Webster Turn Drive.
A-1
<PAGE> 40
EXHIBIT "B"
REQUISITION NO. ___
HIGHLANDS COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
INDUSTRIAL DEVELOPMENT REVENUE BONDS SERIES 1997
(Lesco, Inc. Project),
REQUISITION FOR PAYMENT
-------------------------------------------------
Lesco, Inc., referred to herein and in the Loan Agreement (the
"Agreement") dated as of November 1, 1997, between the Highlands County
Industrial Development Authority (the "Issuer") and Lesco, Inc., as the Company
(the "Company"), does hereby make application to PNC Bank, N.A., as trustee (the
"Trustee") under the Indenture of Trust (the "Indenture") between the Issuer and
the Trustee, dated as of November 1, 1997, for reimbursement or payment of
advances, payments and obligations made or incurred by the Company in connection
with the acquisition, construction and equipping of the Project (as defined in
the Agreement) and the issuance, delivery and sale of the $7,500,000 Highlands
County Industrial Development Authority Industrial Development Revenue Bonds
Series 1997 (Lesco, Inc. Project), as provided for or contemplated in the
Agreement and the Indenture.
All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Agreement and the Indenture.
The Company does hereby request disbursement of the amounts as
set forth on Exhibit "A" attached to this certificate, for reimbursement to the
Company for payments made to, or incurred for, the contractors or payees listed
on Exhibit "A" or for direct payment to the payees listed on Exhibit "A", all as
provided on Exhibit "A".
The undersigned further certifies that:
(i) the obligations described in Exhibit "A" (which
includes a description of the purpose and circumstances of such
obligations in reasonable detail and the name and address of the
persons to whom such obligations are owed and which is accompanied by
bills, invoices, or statements of account for, or other written
evidence of, such obligations) in the stated amounts have been incurred
in connection with the issuance and sale of the Bonds or the financing,
planning, design, acquisition, construction, equipping and/or
installation of the Project;
(ii) such obligations are permitted Costs of the Project,
are proper charges against the account in the Construction Fund noted
on Exhibit "A" hereto and have
B-1
<PAGE> 41
not been the basis for any previous disbursement from any account in
the Construction Fund;
(iii) no item in Exhibit "A" represents any portion of an
obligation which the Company is, as of the date hereof, entitled to
retain under any retained percentage agreement;
(iv) insofar as any obligation described in Exhibit "A" was
incurred for labor, services, materials, supplies or equipment (i) such
labor and services were actually performed in a satisfactory manner in
connection with the acquisition, construction and equipping of the
Project and (ii) such materials, supplies and equipment were actually
used in connection with the acquisition, construction and equipping of
the Project or were delivered to the Project Site (and remain at the
Project Site) for that purpose;
(v) all sums previously advanced by the Trustee have been
or will be used solely for purposes permitted by the Indenture and the
specific items which are the subject of this requisition will be so
used;
(vi) there has not been recorded or filed with or served
upon the Company, notice of any lien, right to lien or attachment upon
or claim affecting the right to receive payment of, any moneys payable
to any of the persons or firms named in this requisition, which has not
been released or will not be released simultaneously with the payment
of such obligation;
(vii) each item in Exhibit "A" is or was appropriate in
connection with the financing, acquisition, construction and equipping
of the Project, as noted in Exhibit "A";
(viii) the use of the disbursements requested hereunder will
not result in the covenants made by the Company in Section 3.9 of the
Agreement being violated. Accordingly, one of the following statements
applies to the requested disbursement:
(a) If all disbursements from the Construction Fund
to be used to pay Issuance Costs have not yet been made, the
disbursement requested hereunder will be used only to pay either
Qualified Project Costs or Issuance Costs.
(b) If all Issuance Costs to be paid with proceeds of
the Bonds have previously been requisitioned but the aggregate
Qualified Project Costs paid with previous disbursements and to be paid
with the disbursement requested hereunder do not equal or exceed
B-2
<PAGE> 42
Substantially All of the Costs of the Project paid (or to be paid) with
the requested and all previous disbursements, the disbursement
requested hereunder will be used only for Qualified Project Costs.
(c) If all Issuance Costs to be paid with proceeds of
the Bonds have previously been requisitioned and the aggregate
Qualified Project Costs paid with previous disbursements equals or
exceeds Substantially All of the Costs of the Project paid with those
previous disbursements, the disbursement requested hereunder, when
added to all disbursements under previous requisitions, will not result
in less than Substantially All of the total of such disbursements
having been used to pay Qualified Project Costs;
(ix) all disbursements related to Issuance Costs of the
Bonds, requested hereunder, when added to all disbursements for such
Issuance Costs under previous requisitions, will not result in more
than two percent (2%) of the proceeds of the Bonds having been drawn
from the Construction Fund or otherwise used to pay such Issuance
Costs;
(x) no Event of Default under the Indenture has occurred
and is continuing and there exists no event or condition which, with
the giving of notice or the passage of time would constitute an Event
of Default under the Indenture; and
(xi) after payment of such disbursement, sufficient amounts
will remain in the Construction Fund, taking into account investment
earnings thereon, to pay all remaining unpaid costs of the Project.
Dated as of ___________, 199__.
LESCO, Inc.
By:_________________________________
Title:______________________________
B-3
<PAGE> 1
Exhibit: 10(r)(2)
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "AMENDMENT") is made as of
February 14, 1997 by and among Lesco, Inc. ("BORROWER"), an Ohio corporation,
National City Bank, NBD Bank, and PNC Bank, National Association (the three
financial institutions hereinbefore mentioned each a "BANK" and, collectively,
the "BANKS") and National City Bank as agent (in that capacity, "NCB-AGENT") of
the banks for the purposes of the Existing Credit Agreement (as defined below),
this Amendment and the related writings:
INTRODUCTION:
WHEREAS, I. Borrower, the Banks and NCB-Agent are parties to a Credit
Agreement (the "EXISTING CREDIT AGREEMENT") made as of September 30, 1994, as
amended by a First Amendment to Credit Agreement made as of January 18, 1996,
and as further amended by a Second Amendment to Credit Agreement made as of
November 1, 1996, setting forth, among other things, the terms and conditions of
each Bank's several agreement (its "REVOLVING COMMITMENT") to make loans (each a
"REVOLVING LOAN") to Borrower until April 30, 2000 (or such later "Expiration
Date", if any, as may be established from time to time pursuant to the Existing
Credit Agreement, subject in each case to certain terms and conditions, one such
condition being that the aggregate unpaid principal balance of the Revolving
Loans shall not at any time exceed an amount equal to eighty million dollars
($80,000,000); and
II. Borrower, the Banks, and NCB-Agent desire, subject to the
terms and conditions of this Amendment, to amend the Existing Credit Agreement
in certain material respects;
THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other valuable considerations, and in the case of the
Banks and NCB-Agent, in reliance on the representations and warranties of
Borrower hereinafter set forth, Borrower, the Banks and NCB-Agent hereby agree
as follows:
A. DEFINED TERMS. Each term used in this Amendment that is defined in
the Existing Credit Agreement shall have the meaning in this Amendment that is
ascribed to that term in the Existing Credit Agreement.
B. AMENDMENT TO SUBSECTION 3B.04 -- INTEREST COVERAGE. Subject to
Borrower's satisfaction of the conditions precedent set forth in paragraph E,
subsection 3D.04 (captioned "INTEREST COVERAGE") of the Existing Credit
Agreement shall be deemed to have been deleted as of December 30, 1996 (the
"RETROACTIVE EFFECTIVE DATE"), and the following subsection 3B.04 shall be
deemed to have been inserted, as of the Retroactive Effective Date, in lieu of
the subsection so deleted:
-page 1 of 5-
<PAGE> 2
"3B.04 INTEREST COVERAGE -- Borrower will not, as of the end of any
period (each such period a FOUR-QUARTER PERIOD) of four consecutive
quarter-annual fiscal periods of Borrower (commencing with the
Four-Quarter Period ending December 31, 1996), suffer or permit the
ratio of the aggregate of
(a) the Adjusted Net Income of the Companies for that
Four-Quarter Period, plus
(b) the aggregate interest expense of the Companies for that
Four-Quarter Period, plus
(c) the aggregate federal, state and local income taxes of the
Companies for that Four-Quarter Period
to the aggregate interest expense of the Companies for that
Four-Quarter Period to be less than one and one-half to one (1.5:1) at
any time, all as determined on a consolidated basis. For purposes of
this subsection 3B.04, the ADJUSTED NET INCOME for any Four-Quarter
Period shall be the Net Income for that Four-Quarter Period, plus in
the case of, but only in the case of, the Four-Quarter Periods ending
December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997,
and December 31, 1997, respectively, an amount, in no case greater than
ten million five hundred thousand dollars ($10,500,000), equal to the
aggregate, if and to the extent subtracted in the computation of Net
Income, of
(i) the amount of plant relocation costs recognized by
Borrower for the quarter-annual fiscal periods of Borrower
ending December 31, 1996 and March 31, 1997, respectively, as
a result of the relocation of Borrower's Sebring, Florida,
manufacturing operations, plus
(ii) the amount of the reduction in the historical cost of
Borrower's inventory recognized by Borrower for the
quarter-annual fiscal periods of Borrower ending December 31,
1996 and March 31, 1997, respectively, as a result of
Borrower's comprehensive product evaluation, plus
(iii) the amount of the incremental valuation reserve
established by Borrower for the quarter-annual fiscal periods
of Borrower ending December 31, 1996 and March 31, 1997,
respectively, as result of Borrower's review of its accounts
receivable in order to evaluate the collectiblity of amounts
outstanding for more than one (1) year,
all as described in Note 9 (captioned "Other Costs and Expenses") of
the February 10, 1997 draft of Borrower's annual audit report for its
fiscal year ending December 31, 1996."
-page 2 of 5-
<PAGE> 3
C. AMENDMENT TO SUBSECTION 3D.02 -- CREDIT EXTENSIONS. Subject to
Borrower's satisfaction of the conditions precedent set forth in paragraph E,
subsection 3D.02 (captioned "CREDIT EXTENSIONS") of the Existing Credit
Agreement is hereby amended, as of the date of this Amendment, by deleting the
word "or" from the end of clause (iv) of that subsection, deleting the period
(".") from the end of clause (v) of that subsection and inserting the expression
", or" in lieu of the period so deleted, and inserting, immediately after clause
(v) of that subsection and immediately before subsection 3D.03 (captioned
"BORROWINGS") of the Existing Credit Agreement the following clause (vi)
"(vi) any Guaranty by Borrower of the obligations of Commercial Turf
Products, Ltd. (COMMERCIAL TURF PRODUCTS), an Ohio limited liability
company, but only if and to the extent that Borrower's aggregate
liability for those obligations (exclusive of Borrower's liability for
interest, premiums, charges, expenses, and fees) under all Guaranties
does not at any one time exceed an aggregate amount equal to twenty
million dollars ($20,000,000)."
D. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks and
NCB-Agent to enter into this Amendment, Borrower hereby represents and warrants
to the Banks and NCB-Agent as follows:
(I) after giving effect to Borrower's satisfaction of the
conditions precedent set forth in paragraph E, no Default Under This
Agreement shall exist, nor will any thereupon begin to exist;
(II) no representation, warranty, or other statement made in
or pursuant to the Existing Credit Agreement or any Related Writing
will be untrue or incomplete in any material respect;
(III) EXHIBIT A to this Amendment sets forth a true and
complete copy of Note 9 (captioned "Other Costs and Expenses") of the
February 10, 1997 draft of Borrower's annual audit report for its
fiscal year ending December 31, 1996; and
(IV) there has not occurred any material adverse change in
Borrower's financial condition, properties or business since the date
of Borrower's Most Recent 4A.04 Financial Statements or in its then
most recent financial statements, if any, furnished to the Banks
pursuant to subsection 3A.01 of the Existing Credit Agreement.
The representations and warranties made in or pursuant to this paragraph D shall
survive the execution and delivery of this Amendment.
E. CONDITIONS PRECEDENT. It is a condition precedent to the
effectiveness of paragraphs B and C that, on or before the date of this
Amendment, Borrower shall have complied with or caused compliance with each of
the following:
-page 3 of 5-
<PAGE> 4
(I) Borrower shall have executed and delivered this Amendment
to NCB-Agent; and
(II) each Bank and NCB-Agent shall have executed and delivered
this Amendment.
F. EXECUTION AND DELIVERY. This Amendment may be executed in one or
more counterparts. Any party to the Existing Credit Agreement may deliver an
executed counterpart of this Amendment by transmitting a facsimile thereof to
NCB-Agent at (216) 575-9396, and any party so delivering a counterpart of this
Amendment party shall be deemed to have executed and delivered that counterpart
with the intent to be bound by this Amendment. Each party to this Amendment
shall, on NCB-Agent's request, deliver to NCB-Agent such number of counterparts
bearing the original signature of that party as NCB-Agent may request in order
that each party may ultimately have a counterpart bearing the original signature
of each party to this Amendment. Each party to this Amendment hereby assents to
the foregoing procedure for executing and delivering this Amendment and agrees
that all such counterparts taken together shall constitute but one agreement,
which agreement constitutes the entire agreement between the parties to this
Amendment in respect of its subject matter.
G. RATIFICATION AND CONFIRMATION. Borrower, the banks and NCB-Agent do
hereby ratify and confirm all of the terms and conditions of the Existing Credit
Agreement not specifically amended by this Amendment and all such terms and
conditions remain in full force and effect.
IN WITNESS WHEREOF, this Amendment is executed and delivered at
Cleveland, Ohio as of the date first hereinabove set forth.
Address: Lesco, Inc.
20005 Road
Rocky River, Ohio 44116 By: /s/ Kenneth W. Didion
-------------------------------
Title: Treasurer
----------------------------
Address: National City Bank, Agent
1900 East Ninth Street
Attn: Multinational Division By: /s/ Timmothy J. Lathe
Cleveland, Ohio 44114-3484 -------------------------------
Title: S V P
----------------------------
-page 4 of 5-
<PAGE> 5
Address: National City Bank
1900 East Ninth Street
Attn: Multinational Division By: /s/ Timmothy J. Lathe
Cleveland, Ohio 44114-3484 -------------------------------
Title: S V P
----------------------------
Address: PNC Bank, National Association
1801 E. 9th St., #715
Cleveland, Ohio 44114-3103 By: /s/ David J. Williams
------------------------------
Title: Vice President
----------------------------
Address: NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226 By /s/ Paul DeMelo
------------------------------
Title: Vice President
----------------------------
-page 5 of 5-
<PAGE> 1
Exhibit: 10(r)(3)
FOURTH AMENDMENT
TO
CREDIT AGREEMENT
This Fourth Amendment to Credit Agreement (this "Amendment"), dated as
of August 1, 1997, is entered into by and among LESCO, INC., an Ohio corporation
("Borrower"), NATIONAL CITY BANK, NBD BANK, and PNC BANK, NATIONAL ASSOCIATION
(together the "Banks") and NATIONAL CITY BANK IN ITS CAPACITY AS AGENT of the
Banks ("Agent") for the purposes of the Credit Agreement referred to below and
the Related Writings.
WITNESSETH:
WHEREAS, the parties have entered into a Credit Agreement dated as of
September 30, 1994 (the "Credit Agreement"; all terms used in the Credit
Agreement being used herein with the same meaning), which sets forth the terms
and conditions upon which Banks have advanced term loans to Borrower and upon
which Borrower may obtain revolving loans from time to time; and
WHEREAS, the parties desire to amend the Credit Agreement to allow for
the acquisition by Borrower of all of the common stock of Tri Delta Fertilizer,
Inc., a California blender and marketer of fertilizer and turf products;
NOW, THEREFORE, in consideration of the premises above and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
SECTION I - AMENDMENT TO CREDIT AGREEMENT
-----------------------------
Subsection 3D.01 of the Credit Agreement is hereby amended to add the
following clause (iv) to the end of the proviso thereto:
"(iv) the purchase of all of the common stock of Tri Delta Fertilizer,
Inc., a California blender and marketer of fertilizer and turf products
from Westside Chemicals Company, Charles Sorensen, Caroline Peck, and
R. Gary Lambdin for a purchase price of approximately $3,500,000."
SECTION II - CONDITIONS PRECEDENT
--------------------
It is a condition precedent to the effectiveness of this Amendment
that, prior to or on the date hereof, the following items shall have been
delivered to Agent (in form and substance acceptable to Agent):
(A) a Certificate, dated as of the date hereof, of the secretary of
Borrower certifying (1) that Borrower's Articles of Incorporation and
Code of Regulations have not been amended since the execution of the
Credit Agreement (or certifying that true, correct and complete copies
of any amendments are attached), (2) that copies of resolutions of the
Board of Directors of Borrower are attached which are broad enough to,
in the reasonable opinion of Bank, cover the approval of this Amendment
and the matters contemplated hereby and authorizing the execution,
delivery and
<PAGE> 2
performance by Borrower of this Amendment and (3) as to the incumbency
and signatures of the officers of Borrower signing this Amendment; and
(B) Such other documents as Agent may request to implement this
Amendment and the transactions contemplated hereby.
If Agent or Banks shall consummate the transactions contemplated hereby prior to
the fulfillment of any of the conditions precedent set forth above, the
consummation of such transactions shall constitute only an extension of time for
the fulfillment of such conditions and not a waiver thereof.
SECTION III - REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to each of the other parties to
this Amendment that
(A) none of the representations and warranties made in the Credit
Agreement has ceased to be true and complete in any material respect as
of the date hereof; and
(B) as of the date hereof no "Default Under This Agreement" has
occurred that is continuing.
SECTION IV - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS
--------------------------------------------
Borrower acknowledges and agrees that, as of the date hereof, all of
Borrower's outstanding loan obligations to Banks are owed without any offset,
deduction, defense, claim or counterclaim of any nature whatsoever. Borrower
authorizes each Bank to share all credit and financial information relating to
Borrower with such Bank's parent company and with any subsidiary or affiliate
company of such Bank or of such Bank's parent company.
SECTION V - REFERENCES
----------
On and after the effective date of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", or words of
like import referring to the Credit Agreement, and each reference in the Subject
Notes or other Related Writings to the "Credit Agreement", "thereof", or words
of like import referring to the Credit Agreement shall mean and refer to the
Credit Agreement as previously amended and as amended hereby. The Credit
Agreement, as previously amended and as amended by this Amendment, is and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of Agent or Banks under
the Credit Agreement or constitute a waiver of any provision of the Credit
Agreement except as specifically set forth herein.
SECTION VI - COUNTERPARTS AND GOVERNING LAW
------------------------------
This Amendment may be executed in any number of counterparts, each
counterpart to be executed by one or more of the parties but, when taken
together, all counterparts shall constitute one agreement. This Amendment, and
the respective rights and obligations of the parties hereto, shall be construed
in accordance with and governed by Ohio law.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower, Agent and the Banks have caused this
Amendment to be executed by their authorized officers as of the date and year
first above written.
Address: LESCO, INC.
20005 Lake Road
Rocky River, Ohio 44116 By: /s/ Kenneth W. Didion
-------------------------------
Printed Name: Kenneth W. Didion
----------------------
Title: Treasurer
-------------------
Address: NATIONAL CITY BANK, AGENT
1900 East Ninth Street
Attn: Multinational Division By: /s/ Terri L. Cable
Cleveland, Ohio 44114-3484 -------------------
Printed Name: Terri L. Cable
Title: Vice President
Address: NATIONAL CITY BANK
1900 East Ninth Street
Attn: Multinational Division By: /s/ Terri L. Cable
Cleveland, Ohio 44114-3484 --------------------------------
Printed Name: Terri L. Cable
Title: Vice President
Address: PNC BANK, NATIONAL ASSOCIATION
1375 East Ninth Street
Suite 1250 By: /s/ David Williams
-------------------------------
Cleveland, Ohio 44114-3103 Printed Name: David Williams
Title: Vice President
Address: NBD BANK
611 Woodward Avenue
Detroit, Michigan 48226 By: /s/ Paul DeMelo
-------------------------------
Printed Name: Paul DeMelo
Title: Vice President
3
<PAGE> 1
Exhibit 10(r)(4)8
FIFTH AMENDMENT
TO
CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement (this "Amendment"), dated as
of January 28, 1998, is entered into by and among LESCO, INC., an Ohio
corporation ("Borrower"), NATIONAL CITY BANK, NBD BANK, and PNC BANK, NATIONAL
ASSOCIATION (together the "Banks") and NATIONAL CITY BANK IN ITS CAPACITY AS
AGENT of the Banks ("Agent") for the purposes of the Credit Agreement referred
to below and the Related Writings.
WITNESSETH:
WHEREAS, the parties have entered into a Credit Agreement originally
dated as of September 30, 1994 (as amended from time to time, the "Credit
Agreement"; all terms used in the Credit Agreement being used herein with the
same meaning), which sets forth the terms and conditions upon which Banks have
advanced term loans to Borrower and upon which Borrower may obtain revolving
loans from time to time; and
WHEREAS, the parties desire to amend the Credit Agreement to allow for
the acquisition by Borrower of specific assets and the assumption of specified
liabilities of Agriturf, Inc. (including certain related entities such as Rumer,
Inc. and Merle and Ruth Taylor) and the acquisition by Borrower of specific
assets of Cadwell and Jones, Inc.;
NOW, THEREFORE, in consideration of the premises above and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
SECTION I - AMENDMENT TO CREDIT AGREEMENT
-----------------------------
Subsection 3D.01 of the Credit Agreement is hereby amended to add the
following clause (v) to the end of the proviso thereto:
"(v) the purchase of specific assets and the assumption of specified
liabilities of Agriturf, Inc. (including certain related entities such
as Rumer, Inc. and Merle and Ruth Taylor) and the purchase of specific
assets of Cadwell and Jones, Inc. for an aggregate purchase price of
approximately $8,700,000, approximately $2,700,000 of which takes the
form of assumed liabilities; all of such transactions shall be
completed in all material respects in accordance with the agreements,
summaries and other information provided by Borrower to Bank in regard
thereto."
SECTION II - CONDITIONS PRECEDENT
--------------------
It is a condition precedent to the effectiveness of this Amendment
that, prior to or on the date hereof, the following items shall have been
delivered to Agent (in form and substance acceptable to Agent):
(A) a Certificate, dated as of the date hereof, of the secretary of
Borrower certifying (1) that Borrower's Articles of Incorporation and
Code of Regulations have not been amended since the execution of the
Credit Agreement (or certifying that true, correct and complete copies
of any amendments are attached), (2) that copies of resolutions of the
Board of Directors of Borrower are attached which are broad enough to,
in the reasonable opinion of Bank, cover the approval of this Amendment
and the matters contemplated hereby and authorizing the execution,
delivery and
<PAGE> 2
performance by Borrower of this Amendment and (3) as to the incumbency
and signatures of the officers of Borrower signing this Amendment; and
(B) Such other documents as Agent may request to implement this
Amendment and the transactions contemplated hereby.
If Agent or Banks shall consummate the transactions contemplated hereby prior to
the fulfillment of any of the conditions precedent set forth above, the
consummation of such transactions shall constitute only an extension of time for
the fulfillment of such conditions and not a waiver thereof.
SECTION III - REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to each of the other parties to
this Amendment that
(A) none of the representations and warranties made in the Credit
Agreement has ceased to be true and complete in any material respect as
of the date hereof; and
(B) as of the date hereof no "Default Under This Agreement" has
occurred that is continuing.
SECTION IV - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS
--------------------------------------------
Borrower acknowledges and agrees that, as of the date hereof, all of
Borrower's outstanding loan obligations to Banks are owed without any offset,
deduction, defense, claim or counterclaim of any nature whatsoever. Borrower
authorizes each Bank to share all credit and financial information relating to
Borrower with such Bank's parent company and with any subsidiary or affiliate
company of such Bank or of such Bank's parent company.
SECTION V - REFERENCES
----------
On and after the effective date of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", or words of
like import referring to the Credit Agreement, and each reference in the Subject
Notes or other Related Writings to the "Credit Agreement", "thereof", or words
of like import referring to the Credit Agreement shall mean and refer to the
Credit Agreement as previously amended and as amended hereby. The Credit
Agreement, as previously amended and as amended by this Amendment, is and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of Agent or Banks under
the Credit Agreement or constitute a waiver of any provision of the Credit
Agreement except as specifically set forth herein.
SECTION VI - COUNTERPARTS AND GOVERNING LAW
------------------------------
This Amendment may be executed in any number of counterparts, each
counterpart to be executed by one or more of the parties but, when taken
together, all counterparts shall constitute one agreement. This Amendment, and
the respective rights and obligations of the parties hereto, shall be construed
in accordance with and governed by Ohio law.
<PAGE> 3
IN WITNESS WHEREOF, the Borrower, Agent and the Banks have caused this
Amendment to be executed by their authorized officers as of the date and year
first above written.
Address: LESCO, INC.
20005 Lake Road
Rocky River, Ohio 44116 By: /s/ Kenneth W. Didion
-------------------------------
Printed Name: Kenneth w. Didion
----------------------
Title: Treasurer
----------------------------
Address: NATIONAL CITY BANK, AGENT
1900 East Ninth Street
Attn: Multinational Division By: /s/ Terri L. Cable
-------------------------------
Cleveland, Ohio 44114-3484 Printed Name: Terri L. Cable
Title: Vice President
Address: NATIONAL CITY BANK
1900 East Ninth Street
Attn: Multinational Division By: /s/ Terri L. Cable
-------------------------------
Cleveland, Ohio 44114-3484 Printed Name: Terri L. Cable
Title: Vice President
Address: PNC BANK, NATIONAL ASSOCIATION
1375 East Ninth Street
Suite 1250 By: /s/ David Williams
-------------------------------
Cleveland, Ohio 44114-3103 Printed Name: David Williams
Title: Vice President
Address: NBD BANK
611 Woodward Avenue
Detroit, Michigan 48226 By: /s/ Paul DeMelo
-------------------------------
Printed Name: Paul DeMelo
Title: Vice President
<PAGE> 1
Exhibit: 10(t)
- --------------------------------------------------------------------------------
LETTER OF CREDIT AGREEMENT
Dated as of November 1, 1997
Between
LESCO, INC.,
an Ohio corporation
and
PNC BANK, NATIONAL ASSOCIATION,
a national banking association
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX
Page
----
RECITALS.................................................................. 1
ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................................ 1
Section 1.02. Rules of Construction; Time of Day......................... 4
ARTICLE II
LETTER OF CREDIT AND REIMBURSEMENT
Section 2.01. Issuance of Letter of Credit............................... 4
Section 2.02. Reimbursement and Other Payments........................... 5
Section 2.03. Transfer; Reduction; Reinstatement......................... 7
Section 2.04. Obligations Absolute....................................... 8
Section 2.05. Indemnification............................................ 8
Section 2.06. Liability of Bank.......................................... 8
Section 2.07. Termination of Letter of Credit............................ 9
Section 2.08. Pledged Bonds............................................. 10
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01. Documentation............................................. 11
Section 3.02. Other Conditions.......................................... 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Organization. ............................................ 12
Section 4.02. Financial Information..................................... 12
Section 4.03. Taxes, etc................................................ 12
Section 4.04. Compliance with ERISA..................................... 12
Section 4.05. No Violation.............................................. 13
Section 4.06. Bond Documents............................................ 13
(i)
<PAGE> 3
Section 4.07. Subsequent Events......................................... 13
Section 4.08. Title to Property......................................... 13
Section 4.09. Litigation................................................ 13
Section 4.10. Authority..................................................14
Section 4.11. No Default................................................ 14
Section 4.12. Tax Exemption............................................. 14
ARTICLE V
GENERAL COVENANTS
Section 5.01. Maintenance of Existence.................................. 14
Section 5.02. Maintenance of Governmental Authorizations............. 14
Section 5.03. Covenants Incorporated by Reference....................... 15
Section 5.04. Compliance with Bond Documents and Other Contracts........ 15
Section 5.05. Consents Under Bond Documents............................. 15
Section 5.06. Amendments to Bond Documents.............................. 15
Section 5.07. Limitation on Optional Calls for Redemption............... 15
Section 5.08. Payment of Debt........................................... 15
Section 5.09. Further Assurances........................................ 15
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. Defaults.................................................. 16
Section 6.02. Remedies.................................................. 16
Section 6.03. Waivers; Consents......................................... 17
Section 6.04. No Waiver; Remedies Cumulative............................ 17
Section 6.05. Set-Off................................................... 17
ARTICLE VII
MISCELLANEOUS
Section 7.01. Notices................................................... 18
Section 7.02. Successors and Assigns.................................... 18
Section 7.03. Survival of Covenants..................................... 18
Section 7.04. Counterparts.............................................. 18
Section 7.05. Costs, Expenses and Taxes................................. 19
Section 7.06. Amendments................................................ 19
Section 7.07. Severability; Interest Limitation......................... 19
Section 7.08. Complete Agreement........................................ 20
Section 7.09. Consent to Jurisdiction; Venue; WAIVER OF JURY TRIAL...... 20
Section 7.10. Governing Law............................................. 20
Section 7.11. Headings.................................................. 20
(ii)
<PAGE> 4
Section 7.12. Participation............................................. 20
Exhibit A -- Form of Irrevocable Letter of Credit
(iii)
<PAGE> 5
LETTER OF CREDIT AGREEMENT
--------------------------
THIS LETTER OF CREDIT AGREEMENT (this "Agreement"), dated as of
November 1, 1997, is entered into between LESCO, INC., a corporation duly
organized and existing under the laws of the State of Ohio (the "Company"), and
PNC BANK, NATIONAL ASSOCIATION, a national banking association duly organized
and existing under the laws of the United States of America (the "Bank"), under
the following circumstances:
RECITALS
--------
A. The Highlands County Industrial Development Authority (the "Issuer") is
issuing its Industrial Development Revenue Bonds, Series 1997 (LESCO,
Inc. Project) (the "Bonds") in the aggregate principal amount of
$7,500,000 pursuant to an Indenture of Trust, dated as of November 1,
1997 (the "Indenture"), between the Issuer and PNC Bank, National
Association, as trustee (the "Trustee").
B. As security for the repayment of the Bonds, the Company is required to
deliver to the Trustee a letter of credit (the "Letter of Credit") upon
which the Trustee will draw, in accordance with the terms thereof and
the terms of the Indenture, to pay the principal of and interest on the
Bonds.
C. The Bonds are being issued to provide financing for a project
consisting generally of the acquisition, construction and equipping of
a fertilizer blending, formulation and bagging facility located at the
Sebring Regional Airport and Industrial Park in Highlands County,
Florida (the "Project").
NOW, THEREFORE, in consideration of the foregoing and the undertakings
herein set forth and intending to be legally bound, the Company and the Bank
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. In this Agreement (except as otherwise
expressly provided for or unless the context otherwise requires), the following
terms have the meanings specified in the foregoing recitals:
Agreement Issuer
Bank Letter of Credit
Bonds Project
Company Trustee
Indenture
- 1 -
<PAGE> 6
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles consistently applied.
In addition, the following capitalized terms shall have the respective meanings
specified in this Section 1.01:
"Bank Interest Rate" shall mean a rate per annum (computed based on a
year of three hundred sixty (360) days and actual days elapsed) equal to the
Prime Rate, from time to time in effect, such rate changing automatically from
time to time effective as of the effective date of each change in the Prime
Rate.
"Bond Counsel" shall have the meaning ascribed to that term in Article
I of the Indenture.
"Bond Documents" means the Bonds, the Indenture, the Loan Agreement,
the Remarketing Agreement and any other agreements or instruments relating
thereto.
"Business Day" shall have the meaning ascribed to that term in Article
I of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Credit Agreement" means that Credit Agreement, dated as of September
30, 1994, by and among the Company, National City Bank, as Agent, and the Bank,
National City Bank and NBD Bank, N.A., as the lenders thereunder, as amended by
the First Amendment to Credit Agreement, dated as of January 18, 1996, the
Second Amendment to Credit Agreement, dated as of November 1, 1996, the Third
Amendment to Credit Agreement, dated as of February 14, 1997, and the Fourth
Amendment to Credit Agreement, dated as of August 1, 1997. References herein to
sections thereof or defined terms therein shall be to those sections or terms as
in effect on the date hereof, which shall be deemed to be incorporated in this
Agreement by reference as though specifically set forth herein and made with
reference hereto (including, where pertinent, the definitions of defined terms
used in such incorporated sections or in relation to such terms), such
provisions to continue in full force and effect with respect to this Agreement
notwithstanding the payment of all indebtedness due under the Credit Agreement,
any amendment thereto or any waiver given in connection therewith, so long as
this Agreement is in effect and until all amounts payable under this Agreement
are paid in full, it being understood that no amendment or waiver with respect
to the Credit Agreement shall be effective as to this Agreement unless and until
specifically agreed to in writing by the Bank with reference to this Agreement.
The terms "this Agreement", "herein", "hereof" and words of similar purport and
the references to "Note" or "Notes" as used in the Credit Agreement shall be
deemed to refer to this Agreement and the obligations of the Company to the Bank
hereunder, respectively; the term "Event of Default" as used in the Credit
Agreement shall be deemed to refer to an Event of Default as defined in this
Agreement.
"Default Interest Rate" shall have the meaning ascribed to such term in
Section 2.02(b).
"Event of Default" shall have the meaning ascribed to such term in
Section 6.01.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
- 2 -
<PAGE> 7
"ERISA Affiliate" means (i) any corporation included with the Company
in a controlled group of corporations within the meaning of Section 414(b) of
the Code, (ii) any trade or business (whether or not incorporated or for-profit)
which is under common control with the Company within the meaning of Section
414(c) of the Code, (iii) any member of an affiliated service group of which the
Company is a member within the meaning of Section 414(m) of the Code, and (iv)
any other entity treated as being under common control with the Company under
Section 414(o) of the Code.
"Fiscal Year" means the annual accounting year of the Company, which
currently begins on January 1 and ends on December 31 in each calendar year.
"Interest Component" shall mean the amount available for payment of
Interest Drawings under the Letter of Credit.
"Interest Drawing" shall mean a "C Drawing" as that term is used in the
Letter of Credit.
"Loan Agreement" means the Loan Agreement, dated as of November 1,
1997, between the Issuer and the Company.
"Outstanding" or "Bonds Outstanding" when applied to the Bonds shall
have the meaning ascribed to such term in Article I of the Indenture.
"Participating Banks" shall have the meaning ascribed to such term in
Section 7.12.
"Person" means any individual, for-profit or not-for-profit
corporation, partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Plan" means any employee pension plan maintained by the Company or any
of its ERISA Affiliates.
"Prime Rate" means the rate of interest publicly announced by the Bank
from time to time as the prime rate of the Bank, adjusted as of the date of any
change in such prime rate. The prime rate is determined from time to time by the
Bank as a means of pricing some loans to its borrowers and neither is tied to
any external rate of interest or index, nor necessarily reflects the lowest rate
of interest actually charged by the Bank to any particular class or category of
customers.
"Principal Component" means the amount available for the payment of
Principal Drawings under the Letter of Credit.
"Principal Drawing" shall mean a "B Drawing" as that term is used in
the Letter of Credit.
"Project Facilities" means the Project, the site of the Project and any
personal property located thereon whether now or in the future.
- 3 -
<PAGE> 8
"Remarketing Agreement" means the Remarketing Agreement, dated as of
November 1, 1997, between PNC Capital Markets, Inc. (the "Remarketing Agent")
and the Company.
"State" means the State of Ohio.
"Stated Amount" means the Stated Amount of the Letter of Credit as
provided in Section 2.01 hereof, which may be reduced from time to time as
provided in Section 2.03(b) hereof or by the terms of the Letter of Credit.
"Tender Draft" shall mean an "A Drawing" as that term is used in the
Letter of Credit.
"Termination Date" means the date on which the Trustee's right to draw
under the Letter of Credit terminates, determined as provided by the Letter of
Credit.
"Unremarketed Tendered Bonds" means Bonds which (a) have been delivered
for purchase pursuant to the provisions of such Bonds and the Indenture and (b)
have not been successfully remarketed by the Remarketing Agent prior to 10:00
a.m. on the required purchase date.
Section 1.02. RULES OF CONSTRUCTION; TIME OF DAY. In this Agreement,
unless otherwise indicated, (i) defined terms may be used in the singular or the
plural and the use of any gender includes all genders, (ii) the words "hereof ",
"herein", "hereto", "hereby" and "hereunder" refer to this entire Agreement, and
(iii) all references to particular Articles or Sections are references to the
Articles or Sections of this Agreement. References to any time of the day in
this Agreement shall refer to Eastern Standard Time or Eastern Daylight Saving
Time, as in effect in Pittsburgh, Pennsylvania on such day.
ARTICLE II
LETTER OF CREDIT AND REIMBURSEMENT
SECTION 2.01. ISSUANCE OF LETTER OF CREDIT. The Company hereby requests
the Bank to issue the Letter of Credit to the Trustee. Subject to the conditions
precedent hereinafter set forth, the Bank will issue to the Trustee pursuant to
the request of the Company, on the date of execution and delivery of this
Agreement, the Letter of Credit substantially in the form attached hereto as
EXHIBIT A and in an aggregate amount, the "Stated Amount", of $7,726,027.40, of
which (a) an amount not exceeding $7,500,000 may be drawn upon with respect to
the payment of the principal portion of the Bonds at their stated maturity, upon
redemption or upon acceleration pursuant to the Indenture, and (b) an amount not
exceeding $226,027.40 may be drawn upon with respect to the payment of up to 110
days' accrued interest on the Bonds, computed as though the Bonds bore interest
at the rate of ten percent (10%) per annum on the basis of a 365/366-day year,
notwithstanding the actual rate borne from time to time by the Bonds. The Letter
of Credit shall expire on the Termination Date of the Letter of Credit.
- 4 -
<PAGE> 9
Section 2.02. Reimbursement and Other Payments.
------------- ---------------------------------
(A) REIMBURSEMENT PAYMENTS AND INTEREST. The Company hereby
agrees to pay or to cause to be paid to the Bank:
(1) a sum equal to each amount drawn under the Letter of
Credit by a Principal Drawing or an Interest Drawing on the same Business Day
that such drawing is honored, but not before the drawing is honored.
(2) a sum equal to each amount drawn against the Principal
Component by a Tender Draft, on or before the first to occur of (i) the date on
which the Bonds purchased with the proceeds of such Tender Draft are remarketed
by the Remarketing Agent, (ii) the date on which the Bonds purchased with the
proceeds of such Tender Draft are redeemed or otherwise paid in full, or (iii)
the Termination Date.
Subject to Section 2.02(b) hereof, all sums payable to the Bank under
Section 2.02(a)(1) or under any other provision of this Agreement shall bear
interest at the Bank Interest Rate, and all sums payable to the Bank under
Section 2.02(a)(2) shall bear interest at the rate and at the times set forth in
the Credit Agreement, until such sums have been paid in full (it being
understood and agreed that any sum paid by the Company to the Bank prior to 3:00
p.m. on a Business Day shall not bear interest for such Business Day and any sum
paid by the Company to the Bank after 3:00 p.m. on a Business Day shall bear
interest as if it was paid at 9:00 a.m. on the next following Business Day).
Except as the Bank may otherwise elect, all payments by or on behalf of the
Company under this Section 2.02(a) shall be applied first to the payment of
interest and then to the payment of principal.
(b) DEFAULT INTEREST RATE; LATE CHARGES. If any sum or interest thereon
is not paid within fifteen (15) days following the date such payment is due and
payable under Section 2.02(a) or any other provision of this Agreement, such sum
or interest thereon shall bear interest at a rate per annum equal to two percent
(2%) above the Bank Interest Rate (the "Default Interest Rate") until such sum
or interest thereon and all other amounts due and payable under this Agreement
are paid in full. In addition, the Company shall, upon demand by the Bank, pay
to the Bank a late payment charge equal to the lesser of $50 or five percent
(5%) of the amount of any payment due and payable under Section 2.02(a), whether
principal, interest or otherwise, or any other payment due and payable under
this Agreement, which is not received within 15 days following the date such
payment is due.
(c) COMMITMENT FEES. The Company shall pay to the Bank an annual,
non-refundable Letter of Credit fee in an amount equal to .75% of the Stated
Amount of the Letter of Credit for the first two years the Letter of Credit is
in effect, and thereafter in an amount equal to the Margin, as defined in and
determined pursuant to Section 2B.12 of the Credit Agreement. Such Letter of
Credit fee shall be payable quarterly in advance, the first such payment to be
made on the date of issuance of the Letter of Credit and quarterly thereafter
through the Termination Date, commencing March 1, 1998. The Letter of Credit fee
shall be computed on the Stated Amount of the Letter of Credit in effect,
including any amounts which are reinstatable on the date the Letter of Credit
fee is payable. If the Termination Date shall occur prior to the stated
- 5 -
<PAGE> 10
Expiration Date set forth in the Letter of Credit, the Company shall have no
obligation to pay a Letter of Credit fee after the Termination Date.
(D) TRANSACTION AND TRANSFER CHARGES AND EXPENSES. The Company shall
pay to the Bank all reasonable transaction charges that the Bank may make for
drawings under the Letter of Credit (which the Bank represents is currently $75
per draw). Such transaction charges shall be payable upon submission to the
Company by the Bank of the Bank's bill therefor. In addition, the Company shall
pay to the Bank on demand any and all reasonable charges and expenses which the
Bank may pay or incur relative to the Letter of Credit. The Company shall pay to
the Bank upon each transfer of the Letter of Credit in accordance with its terms
a transfer fee equal to $1,000, together with any and all out-of-pocket costs
and expenses of the Bank incurred in connection with such transfer.
(E) INCREASED COSTS.
(1) If after the date of this Agreement any enactment,
promulgation or adoption of or change in any applicable foreign or domestic law,
treaty, regulation or rule or in the interpretation or administration thereof by
any court, administrative or governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any guideline, request or directive issued after the date
hereof (whether or not having the force of law) of any such authority, central
bank or comparable agency, or any change in generally accepted accounting
principles, shall either (i) impose, modify or deem applicable any reserve,
special deposit, capital, insurance assessment or similar requirement (including
without limitation a guideline, request or directive which affects the manner in
which the Bank allocates capital resources to its commitments, including its
obligations under this Agreement and the Letter of Credit), (ii) subject the
Bank to any tax, deduction or withholding or change the basis of taxation of the
Bank (other than a change in a rate of tax based on overall net income of the
Bank), (iii) cause or deem letters of credit to be assets held by the Bank
and/or deposits on its books, or (iv) impose on the Bank any other condition
regarding this Agreement or the Letter of Credit, and the result of any event
referred to in clause (i), (ii), (iii) or (iv) of this sentence shall be to
increase the direct or indirect cost to the Bank of issuing or maintaining the
Letter of Credit or the Bank's obligations under this Agreement or to reduce the
amounts receivable by the Bank hereunder or to reduce the rate of return on the
capital of the Bank in connection with this Agreement (which increase in cost,
reduction in amounts receivable or reduction in rate of return shall be
determined by the Bank's reasonable allocation of such cost increase or
reduction in amounts receivable resulting from such event) (in each case, if
applicable, as if there were no Participating Bank), then within 30 calendar
days after demand by the Bank, the Company shall pay to the Bank, from time to
time as specified by the Bank, additional amounts that in the aggregate shall be
sufficient to compensate the Bank for such increased cost, reduction in amounts
receivable or reduction in rate of return. A certificate as to such increased
cost, reduction in amounts receivable or reduction in rate of return by the Bank
submitted by the Bank to the Company shall, if made reasonably and in good
faith, be conclusive and binding for all purposes.
(2) If after the date of this Agreement any enactment,
promulgation or adoption of or change in any applicable law, treaty, regulation,
rule or guideline regarding capital
- 6 -
<PAGE> 11
adequacy, or in the interpretation or administration thereof, by any
administrative or governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank (or any controlling affiliate) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law and whether
or not failure to comply thereunder would be unlawful) of any such authority,
central bank or comparable agency, or any change in generally accepted
accounting principles, affects or would affect the amount of capital required or
expected to be maintained by the Bank (or any controlling affiliate) and the
Bank determines, on the basis of reasonable allocations, that the amount of such
capital is increased by or is based on its issuance or maintenance of the Letter
of Credit or the Bank's obligations under this Agreement, then, within 30
calendar days after demand by the Bank, the Company shall pay to the Bank, from
time to time as specified by the Bank, additional amounts sufficient to
compensate the Bank therefor. A certificate as to such additional amounts
submitted to the Company by the Bank shall, if made reasonably and in good
faith, be conclusive and binding for all purposes.
(f) PLACE OF PAYMENT. All payments by the Company to the Bank under
this Agreement shall be made in lawful currency (or, as applicable, as otherwise
specified in this Section 2.02(f)) of the United States at the Bank's office at
P.O. Box 340777, Pittsburgh, Pennsylvania 15230-7777, Attention: Commercial Loan
Operations, or at such other address and to the attention of such other person
as the Bank may stipulate by written notice to the Company, or by a wire
transfer in immediately available federal funds from the Company to the Bank in
accordance with written wire instructions given to the Company by the Bank. All
payments under Section 2.02(a) shall be made in immediately available federal
funds.
(g) SOURCE OF PAYMENTS. All payments of drafts under the Letter of
Credit will be made from moneys of the Bank and not of any other person.
Section 2.03. TRANSFER; REDUCTION; REINSTATEMENT.
(a) TRANSFER. The Letter of Credit may be transferred in accordance
with terms of the Letter of Credit.
(b) REDUCTION. The Stated Amount of the Letter of Credit and the
Principal Component and Interest Component thereof shall be automatically
reduced as specified in the Letter of Credit.
(c) REINSTATEMENT. If the Trustee shall not have received, within ten
(10) Business Days after any payment in respect of any "C Drawing," as that term
is used in the Letter of Credit, notice from the Bank that the Bank has not been
reimbursed for such drawing or a previous or subsequent drawing in accordance
with this Agreement, or that an Event of Default under this Agreement has
occurred and is continuing, the Interest Component will automatically be
reinstated, as of the close of business on such tenth business day, to an amount
equal to 110 days' interest (computed at the rate of 10 percent per annum and on
the basis of a 365/366-day year, notwithstanding the actual rate borne from time
to time by the Bonds) on the then applicable Principal Component.
- 7 -
<PAGE> 12
Section 2.04. OBLIGATIONS ABSOLUTE. The obligations of the Company
under this Article shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances: (i) any lack of validity or enforceability of the Letter of
Credit, the Bond Documents or any other agreement or document relating thereto;
(ii) any amendment or waiver of or any consent to or departure from the Letter
of Credit, the Bond Documents or any document relating thereto; (iii) the
existence of any claim, set-off, defense or other right which the Company may
have at any time against the Trustee (or any persons or entities for whom the
Trustee may be acting), the Bank or any other person or entity, whether in
connection with this Agreement, the transactions described herein or any
unrelated transaction; or (iv) any of the circumstances contemplated in clauses
(1) through (7), inclusive, of Section 2.06(a). The Company understands and
agrees that no payment by the Company under any other agreement (whether
voluntary or otherwise) shall constitute a defense to its obligations hereunder,
except to the extent that the Bank has been indefeasibly paid in full.
Section 2.05. INDEMNIFICATION. To the extent permitted by applicable
law, the Company hereby indemnifies and holds harmless the Bank (and its
directors, officers, employees and agents) from and against any and all claims,
damages, losses, liabilities, costs or expenses (including reasonable attorneys'
fees or counsel of the Bank's choice) whatsoever which the Bank may incur (or
which may be claimed against the Bank by any person or entity whatsoever) by
reason of or in connection with (a) the issuance or a transfer of, or payment or
failure to pay under, the Letter of Credit, (b) any breach by the Company of any
representation, warranty, covenant, term or condition in, or the occurrence of
any default under, this Agreement or the Bond Documents, including all
reasonable fees or expenses resulting from the settlement or defense of any
claims or liabilities arising as a result of any such breach or default, and (c)
involvement of the Bank in any suit, investigation, proceeding, inquiry or
action as a consequence, direct or indirect, of the Bank's issuance of the
Letter of Credit, its entering into this Agreement or any other event or
transaction contemplated by any of the foregoing; provided the Company shall not
be required to indemnify the Bank for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the Bank or (ii) the Bank's willful
failure to pay under the Letter of Credit after the presentation to the Bank by
the Trustee of a draft and certificate strictly complying with the terms and
conditions of the Letter of Credit, unless the Bank in good faith believes that
it is prohibited by law or other legal authority from making such payment;
provided, further, that the Bank shall not settle any claim without the prior
written consent of the Company, which consent will not be unreasonably withheld.
Nothing in this Section is intended to or shall limit the Company's
reimbursement obligations contained in Section 2.02(a). The obligations of the
Company under this Section shall survive the termination of this Agreement.
Section 2.06. Liability of Bank.
------------------
(a) As between the Company and the Bank, the Company assumes all risks
of the acts or omissions of the Trustee with respect to the Trustee's use of the
Letter of Credit. Neither the Bank nor any of its officers or directors shall be
liable or responsible for: (1) the use which may be made of the Letter of Credit
or for any acts or omissions of the Trustee in connection therewith; (2) the
form, validity, sufficiency, accuracy or genuineness of any documents
- 8 -
<PAGE> 13
(including without limitation any documents presented under the Letter of
Credit), or of any statement therein or endorsement thereon, even if any such
documents, statements or endorsements should in fact prove to be in any or all
respects invalid, insufficient, fraudulent, forged, inaccurate or untrue; (3)
the payment by the Bank to the Trustee against presentation of documents which
do not comply with the terms of the Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of Credit,
or any other failure by the Trustee to comply fully with conditions required in
order to effect a drawing under the Letter of Credit; (4) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign the Letter of Credit or the rights or benefit thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (5) errors, omissions, interruptions, losses or
delays in transmission or delivery of any drafts or any messages by mail, cable,
telegraph, telex, telephone, electronic media or otherwise; (6) any loss or
delay in the transmission or otherwise of any document or draft required in
order to make a drawing under the Letter of Credit; or (7) any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit; except only that the Company shall have a claim against the Bank, and
the Bank shall be liable to the Company, to the extent, but only to the extent,
of any direct, as opposed to consequential, damages suffered by the Company
which the Company proves were caused by (i) the Bank's willful misconduct or
gross negligence or (ii) the Bank's willful failure to pay under the Letter of
Credit after the presentation to it by the Trustee of a draft and certificate
strictly complying with the terms and conditions of the Letter of Credit, unless
the Bank in good faith believes that it is prohibited by law or other legal
authority from making such payment. The Bank shall have no obligation to contest
any such prohibition. In furtherance and not in limitation of the foregoing, the
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
(b) Except for the Bank's obligations under the Letter of Credit, the
Bank shall have no liability to the Company or any other person as a result of
any reduction of the credit rating of the Bank or any deterioration in the
Bank's financial condition and the Company hereby indemnifies and holds harmless
the Bank from any and all claims, damages, losses, liabilities, costs or
expenses relating to the Company or the Bonds which the Bank may incur in
connection therewith. No reduction of the credit rating of the Bank or
deterioration in the Bank's financial condition shall reduce or in any way
diminish the obligations of the Company to the Bank under this Agreement
including, without limitation, the Company's obligation to pay Letter of Credit
commitment fees to the Bank and to reimburse the Bank for any drawing under the
Letter of Credit.
Section 2.07. TERMINATION OF LETTER OF CREDIT. The termination of the
Letter of Credit shall be governed by the terms thereof. In connection with any
termination, the Bank will refund on a pro-rata basis any annual Letter of
Credit fee paid by the Company for the period between the Termination Date and
the stated Expiration Date as set forth in the Letter of Credit or any amendment
or extension thereof. The Bank shall have no obligation to execute or deliver
any document or instrument in connection with the termination of the Letter of
Credit except for assignment(s) of any applicable Bond Document, in a form
reasonably approved by the Bank. The Company will pay the reasonable
out-of-pocket costs and expenses incurred by the Bank in connection with any
such execution and delivery.
- 9 -
<PAGE> 14
Section 2.08 Pledged Bonds.
--------------
(a) PLEDGE. To secure the Company's obligations to the Bank under this
Agreement, the Company hereby pledges and assigns to the Bank, and grants to the
Bank a security interest in, all of the Company's right, title and interest, now
owned or hereafter acquired, in and to any and all Unremarketed Tendered Bonds
(together with all income therefrom and proceeds thereof) purchased pursuant to
the Indenture with the proceeds of a Tender Draft presented under the Letter of
Credit for which neither (i) full reimbursement has been made to the Bank nor
(ii) the Trustee holds sufficient funds which, pursuant to the Indenture, the
Trustee is required to apply on behalf of the Company to reimburse the Bank in
full for such Tender Draft on the date such Tender Draft is paid by the Bank.
Such Unremarketed Tendered Bonds purchased pursuant to the Indenture with the
proceeds of a Tender Draft shall be pledged to the Bank, registered in its name
as pledgee of the Company and delivered to and held by the Trustee, or upon the
written request of the Bank as provided in Section 4.06(b) of the Indenture,
delivered to and held by the Bank. Unremarketed Tendered Bonds which are so
pledged and held by the Trustee, as agent for the Bank , or by the Bank are
herein referred to as "Pledged Bonds".
(b) PLEDGED BOND PAYMENTS. Any principal of, interest and premium on
Pledged Bonds which becomes due and payable shall be paid to the Bank. All sums
of money so paid to the Bank in respect of Pledged Bonds shall be credited
against the obligation of the Company to reimburse the Bank, with interest,
under Section 2.02(a) for the amount drawn with a Tender Draft to fund the
purchase of such Pledged Bonds pursuant to the Indenture.
(c) RELEASE OF PLEDGED BONDS. If the Company pays or causes to be paid
in full its obligation under Section 2.02(a) for the reimbursement of the amount
(or allocable portion thereof) drawn with a Tender Draft to fund the purchase of
Pledged Bonds pursuant to Article IV of the Indenture (or if the Trustee has
received immediately available funds which, pursuant to Section 4.07 of the
Indenture, the Trustee is required to pay over promptly to the Bank in an amount
sufficient to pay the Company's reimbursement obligation under Section 2.02(a)
with respect to the amount drawn with such Tender Draft to fund the purchase of
such Pledged Bonds), and provided no Event of Default has occurred and is
continuing, the Bank will release from the pledge of this Agreement and will
deliver, or cause its agent to deliver, such Pledged Bonds to such person or
persons as the Trustee or the Company may direct. An amount equal to the
principal of, plus accrued interest on, such Pledged Bonds shall be presumed
(absent notice to the contrary) to be an "amount sufficient" for purposes of
this Section 2.08 and, upon receipt of such amount by the Trustee for payment to
the Bank as aforesaid, the Trustee shall be automatically authorized to deliver
such Pledged Bonds as aforesaid free from the pledge of this Agreement, unless
the Trustee has received from the Bank written notice or telephonic notice
(which shall thereafter be confirmed in writing) that an Event of Default has
occurred and is continuing and that such release shall not occur.
- 10 -
<PAGE> 15
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01. DOCUMENTATION. It shall be a condition precedent to the
Bank's issuance of the Letter of Credit that:
(a) The Bank shall have received on or before the date of issuance of
the Letter of Credit the following in form and substance satisfactory to the
Bank:
(i) Opinion of Baker & Hostetler, as counsel to the Company;
(ii) Opinion of Carlton Fields, as Bond Counsel, together with
a reliance letter addressed to the Bank;
(iii) Executed copies of this Agreement;
(iv) Such other documents, instruments, approvals (and, if
required by the Bank, certified duplicates of executed copies thereof)
and opinions as the Bank may request;
(v) Payment in full of the Letter of Credit fee due on the
date of issuance pursuant to Section 2.02(c) hereof and payments for
any costs and expenses incurred by the Bank which are to be reimbursed
pursuant to Section 7.05 hereof; and
(vi) Evidence satisfactory to the Bank that the conditions set
forth in Section 2.06 of the Indenture have been satisfied.
(b) On the date of issuance of the Letter of Credit, this Agreement and
the Bond Documents shall be in full force and effect.
(c) The following statement shall be true and correct on the date of
the issuance of the Letter of Credit and the Bank shall have received a
certificate signed by a duly authorized officer of the Company, stating that:
(i) The representations and warranties contained in Article IV
hereof are correct on and as of the date of the issuance of the Letter
of Credit as though made on and as of such date;
(ii) No Event of Default has occurred or is continuing, or
would result from the issuance of the Letter of Credit or the Company's
execution of this Agreement; and
(iii) No Event of Default has occurred or is continuing under
the Credit Agreement.
- 11 -
<PAGE> 16
Section 3.02. OTHER CONDITIONS. In addition to the conditions set forth
in Section 3.01 hereof, all of the conditions required to be satisfied in the
Closing Checklist of the Bank shall have been satisfied prior to the Bank's
issuance of the Letter of Credit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
Section 4.01. ORGANIZATION. The Company is duly organized, validly
existing and in good standing as a corporation under the laws of the State and
is qualified to do business as a foreign corporation under the laws of the State
of Florida and in any other jurisdiction where the failure to so qualify could
reasonably be expected to have a material adverse effect on the business or
financial condition of the Company.
Section 4.02. FINANCIAL INFORMATION. It has furnished to the Bank (i)
the statement of financial condition of the Company and of such companies as
were then its subsidiaries as of December 31, 1996, and the related statements
of net earnings and retained earnings for the year then ended, accompanied by
the report on examination thereof by the Company's independent certified public
accountants, and (ii) unaudited statements of financial condition of the Company
and of such companies as were then its subsidiaries as of June 30, 1997, and
related statements of net earnings for the periods then ended; said statements
fairly present the financial condition of the Company and the pertinent
subsidiaries and the results of their operations for the respective periods then
ended, subject, in the case of statements dated June 30, 1997, to normal
year-end audit adjustments.
Section 4.03. TAXES, ETC. Except as are being contested in good faith
by appropriate proceedings for which adequate reserves are being maintained in
accordance with generally accepted accounting principles, all material taxes,
assessments, fees and other governmental charges (other than those presently
payable without penalty or interest) upon the Company and its subsidiaries or
upon any property thereof, which are due and payable, have been paid and no
material claims are being asserted with respect to any past due taxes,
assessments, fees or other governmental charges against the Company or any of
its subsidiaries.
Section 4.04. COMPLIANCE WITH ERISA. With respect to each Plan, the
following are true, except where the failure of any representation or warranty
to be true would not have a material adverse effect on the Company's business,
properties, assets or financial condition: Each Plan is in substantial
compliance with ERISA and the Code; no reportable event (as defined in Section
4043 of ERISA) has occurred with respect to a Plan; no Plan is insolvent or in
reorganization; no Plan which is a single-employer plan (as defined in Section
4001(a)(15) of ERISA) has an unfunded current liability; and no Plan has an
accumulated or waived funding deficiency or permitted decreases in its funding
standard account within the meaning of Section 412 of the Code; all
contributions required to be made with respect to a Plan have been timely made;
neither the Company nor any ERISA Affiliate has incurred any liability to or on
- 12 -
<PAGE> 17
account of a Plan pursuant to Section 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or expects to incur any liability (including any contingent or
secondary liability) under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan; no condition exists which presents a risk to the Company or
any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant
to the foregoing provisions of ERISA and the Code; no lien imposed under the
Code or ERISA on the assets of the Company or any ERISA Affiliate exists or is
likely to arise on account of any Plan; and the Company and its ERISA Affiliates
may cease contributions to or terminate any Plan maintained by any of them
without incurring any liability.
Section 4.05. NO VIOLATION. The execution, delivery and performance of
this Agreement and each of the Bond Documents to which the Company is a party
will not violate any provision of applicable law or of the Company's articles of
incorporation or code of regulations and will not result in a breach of any of
the terms and conditions of or result in the imposition of any lien, charge or
encumbrance upon any property of the Company pursuant to, or constitute a
default under, any indenture or other agreement or instrument under which the
Company is a party or is obligated, the Company's articles of incorporation or
code of regulations or any law, order, rule, regulation, writ, injunction or
decree of any government, governmental instrumentality or court having
jurisdiction over the Company or its property. All acts, things and conditions
required by law and by the Company's articles of incorporation or code of
regulations to make this Agreement and each of the Bond Documents to which the
Company is a party, when executed and delivered, the legal, valid and binding
obligation of the Company will have been duly performed and complied with at or
prior to the execution and delivery of this Agreement.
Section 4.06. BOND DOCUMENTS. The Company makes each of the
representations and warranties contained in the Bond Documents to which the
Company is a party to, and for the benefit of, the Bank as if the same were set
forth in full herein.
Section 4.07. SUBSEQUENT EVENTS. Since the date of the financial
statements specified in Section 4.02 above, the Company has not suffered any
damage, destruction or loss which has materially adversely affected its business
or assets, and no event or condition of any character has occurred which has
materially adversely affected its assets, liabilities, business or financial
condition, and the Company has no knowledge of any event or condition which may
reasonably be expected to materially adversely affect the assets, liabilities,
business or financial condition of the Company.
Section 4.08. TITLE TO PROPERTY. The Company has good and marketable
title to the assets reflected on the balance sheet or notes thereon referred to
in Section 4.02 above, free and clear from all liens and encumbrances, except
for current taxes and assessments not yet due and payable, liens and
encumbrances, if any, reflected or noted on said balance sheet or notes and
security interests referred to herein or permitted by the Credit Agreement, and
except for assets disposed of by the Company in the ordinary course of business
since the date of the financial statements specified in Section 4.02 above.
Section 4.09. LITIGATION. As of the date hereof there are no actions,
suits, proceedings or governmental investigations pending or, to the knowledge
of the Company, threatened against
- 13 -
<PAGE> 18
the Company which could reasonably be expected to result in a material adverse
change in the financial condition, business, property or assets of the Company
and there is no basis known to the Company for any such action, suit, proceeding
or investigation.
Section 4.10. AUTHORITY. The Company has full corporate power and
authority to enter into the transactions provided for in this Agreement and has
been duly authorized to do so by appropriate action of its board of directors,
and the Bond Documents and this Agreement, when executed and delivered by the
Company, will constitute the legal, valid and binding obligations of the Company
enforceable in accordance with their terms.
Section 4.11. NO DEFAULT. The Company is not, in any material way, in
noncompliance with, breach of or in default under (a) any applicable law or
administrative regulation of the United States, the State or any other
governmental body or agency or instrumentality thereof or any applicable
judgment, order or decree, that would, individually or in the aggregate, have a
material adverse effect on the Company's business, properties, assets or
financial condition, or (b) the Bond Documents, this Agreement or any other
credit agreement, indenture, mortgage, agreement or other instrument to which it
is a party or otherwise subject, and no event has occurred and is continuing
which, with the passage of time or the giving of notice or both, would
constitute an event of default under any such instrument.
Section 4.12. TAX EXEMPTION. The Company has not taken any action or
omitted to take any action which would cause interest on the Bonds to be
includable in the gross income of any bondholder for federal income tax
purposes.
ARTICLE V
GENERAL COVENANTS
So long as any amount is available under the Letter of Credit or any
amount is due and owing to the Bank hereunder, the Company covenants that,
except to the extent the Bank shall otherwise consent in writing, each of the
following covenants shall be performed and complied with by the Company as
indicated:
Section 5.01. MAINTENANCE OF EXISTENCE. The Company shall maintain its
existence, rights and privileges as a corporation duly organized, validly
existing and in good standing under the laws of the State and will qualify or
remain qualified as a foreign corporation to do business in the State of Florida
and in any other jurisdiction where the failure to so qualify could reasonably
be expected to have a material adverse effect on the Company's business,
operations, properties, assets, condition (financial or otherwise) or prospects.
Section 5.02. MAINTENANCE OF GOVERNMENTAL AUTHORIZATIONS. The Company
will maintain in full force and effect all of its governmental and other
authorizations, approvals, consents, permits, licenses, certifications and
qualifications necessary for the conduct of its business as it is presently
being conducted and the ownership and operation of its facilities as they are
presently being operated where the failure to do so, individually or in the
aggregate,
- 14 -
<PAGE> 19
would have a material adverse effect on the Company's business, properties,
assets or financial condition.
Section 5.03. COVENANTS INCORPORATED BY REFERENCE. The Company
covenants and agrees to comply with all of the covenants set forth in Sections
3A, 3B, 3C and 3D of the Credit Agreement as in effect on the date hereof;
provided, that with respect to any such incorporated covenant that provides for
the delivery of items to any party or provides for the consent of any party or
provides that actions may be taken with the consent of certain parties, all of
such items shall under this Agreement be delivered to the Bank and no such
consent by any party under the Credit Agreement shall be effective to bind the
Bank and any such consent will, under this Agreement, be required to be obtained
from the Bank.
Section 5.04. COMPLIANCE WITH BOND DOCUMENTS AND OTHER CONTRACTS. The
Company (i) will comply with all of its covenants and agreements under the Bond
Documents, as the same may hereafter be amended or supplemented from time to
time, and (ii) will comply with, or cause to be complied with, all requirements
and conditions of all contracts and insurance policies which relate to the
Project Facilities where the failure to so comply could reasonably be expected
to have a material adverse effect on the Company's business, properties, assets
or financial condition.
Section 5.05. CONSENTS UNDER BOND DOCUMENTS. The Company will obtain
the applicable consent whenever the consent of the Trustee or the bondholders is
required to be obtained under the Bond Documents for any action required to be
taken by the Company under this Agreement.
Section 5.06. AMENDMENTS TO BOND DOCUMENTS. The Company will not
consent to or enter into any amendment of or supplement to the Bond Documents,
or take any other action requiring the consent of the Trustee or the
bondholders, without the prior written consent of the Bank, which consent will
not unreasonably be withheld.
Section 5.07. LIMITATION ON OPTIONAL CALLS FOR REDEMPTION. The Company
will not exercise its rights under the Bond Documents to direct the Issuer to
call the Bonds for any optional redemption unless the Company first demonstrates
to the satisfaction of the Bank that at the time of such redemption the Bank
will be fully reimbursed for all drawings on the Letter of Credit in connection
with such redemption.
Section 5.08. PAYMENT OF DEBT. The Company will make full and timely
payment, within any applicable grace periods, of the principal of and interest
on all obligations of the Company under the Credit Agreement or any successor or
replacement revolving credit agreement, whether now existing or hereafter
arising, and comply in all material respects with all covenants and agreements
set forth in agreements evidencing such obligations of the Company.
Section 5.09. FURTHER ASSURANCES. The Company will execute and deliver
from time to time, upon demand by the Bank, such further instruments and take
such further actions as may be required to carry out the purposes and provisions
of this Agreement, as the Bank may reasonably require.
- 15 -
<PAGE> 20
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. DEFAULTS. Each of the following shall constitute an event
of default hereunder (an "Event of Default"):
(a) Failure by the Company to make or cause to be made when due any
payment under Section 2.02(a) on the date when such payment is due and such
payment remains unpaid for five (5) days;
(b) Failure by the Company to make any other payment under this
Agreement when due and such payment remains unpaid for ten (10) days;
(c) Failure by the Company to perform or to comply with any of the
terms or conditions contained in Section 5.05, 5.06 or 5.07 or Sections 3B or
3D.05 of the Credit Agreement, which have been incorporated by reference into
this Agreement pursuant to Section 5.03 hereof;
(d) Any of the representations or warranties of the Company set forth
in this Agreement, the Credit Agreement, the Bond Documents or any other
document furnished to the Bank pursuant to the terms hereof proves to have been
false or misleading in any material respect when made and would result in a
material adverse change in the financial position of the Company, or, subject to
subsection (a) through (c) hereof, the Company shall fail to perform or observe
any term, covenant or agreement contained in this Agreement, and such material
adverse change or failure to perform shall remain in effect for a period of 30
days after the earliest of written notice thereof from the Bank to the Company
or the Company has knowledge that such failure has continued for 30 days;
(e) The occurrence and continuation of an Event of Default under the
Credit Agreement;
(f) Any material provision of this Agreement, or of any of the Bond
Documents, for any reason ceases to be valid and binding on the Company, or is
declared to be null and void, or is violative of any applicable law relating to
a maximum amount of interest permitted to be contracted for, charged or
received, or the validity or enforceability thereof is contested by the Company
or any governmental agency, court or authority, or the Company denies that it
has any or further liability or obligation under this Agreement, or under any of
the Bond Documents; or
(g) The occurrence of an Event of Default as defined in any of the Bond
Documents.
Section 6.02. REMEDIES. If an Event of Default has occurred and is
continuing uncured, the Bank may:
- 16 -
<PAGE> 21
(a) Notify the Trustee of such Event of Default, direct the Trustee to
declare an Event of Default, as defined in the Indenture, to accelerate the
Bonds and to draw on the Letter of Credit, direct the Trustee not to reinstate
any amount under the Letter of Credit as provided thereby, and/or direct the
Trustee to exercise remedies under the Bond Documents;
(b) Declare the Company's obligations hereunder to be, at the option of
the Bank and without demand or notice of any kind (which are hereby expressly
waived), accelerated whereupon the same shall become immediately due and
payable;
(c) By giving written or telegraphic notice to the Company, declare an
amount equal to the maximum amount which may at any time be drawn under the
Letter of Credit (whether or not the Trustee shall have presented, or shall be
entitled at such time to present, the drafts, certificates or other documents
required to draw on the Letter of Credit), together with the other obligations
of the Company to the Bank hereunder to be forthwith due and payable, and the
same shall thereupon become due and payable without demand, presentment, protest
or further notice of any kind, all of which are hereby expressly waived. Such
amounts, when received by the Bank, shall be held by the Bank in an escrow
account, without interest, and the Bank is hereby authorized to apply such
amounts to reimburse itself for amounts drawn on the Letter of Credit, but not
before any such drawing is honored, or to pay any such other obligation of the
Company to the Bank hereunder; or
(d) Exercise, or cause to be exercised, any and all such remedies as it
may have under this Agreement or any other document delivered to the Bank in
respect of the Bonds or otherwise at law or in equity.
Section 6.03. WAIVERS; CONSENTS. No waiver of, or consent with respect
to, any provision of this Agreement shall in any event be effective unless the
same shall be in writing and signed by the Bank, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given.
Section 6.04. NO WAIVER; REMEDIES CUMULATIVE. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; and no single or partial exercise of any right
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies available under any other document or at law or in
equity.
Section 6.05. SET-OFF. During the continuance of any Event of Default,
the Bank is hereby authorized at any time and from time to time without notice
to the Company (any such notice being expressly waived by the Company) and, to
the fullest extent permitted by law, to set-off and to apply any and all
balances, credits, deposits (general or special, time or demand, provisional or
final), accounts or moneys at any time held and other indebtedness at any time
owing by the Bank to or for the account of the Company against any and all of
the obligations of the Company now or hereafter existing under this Agreement or
any other agreement or instrument delivered by the Company to the Bank in
connection therewith, whether or not the Bank shall have made any demand
hereunder or thereunder and although such obligations may be contingent or
unmatured. The rights of the Bank under this Section are in addition to other
rights
- 17 -
<PAGE> 22
and remedies (including, without limitation, other rights of set-off) which the
Bank may have. Following the exercise of any rights or remedies under this
Section 6.05, the Bank shall notify the Company of such exercise; provided,
however, that the failure to so notify the Company shall not affect the exercise
of such rights or remedies or result in any liability on the part of the Bank
whatsoever.
ARTICLE VII
MISCELLANEOUS
Section 7.01. NOTICES. All notices and other communications provided
for hereunder shall be in writing and sent by United States certified or
registered mail, return receipt requested, or by telegraph, telex, telecopier or
private delivery service, addressed as follows:
If to the Bank: PNC Bank, National Association
1375 East Ninth Street, Suite 1250
Cleveland, Ohio 44114
Attention: David J. Williams
If to the Company: LESCO, Inc.
20005 Lake Road
Rocky River, Ohio 44116-1545
Attention: Ware H. Grove, Chief Financial Officer
Any such notice to the Bank shall refer to this Agreement and the then Letter of
Credit by date and by number. Either party hereto may change the address to
which notices to it are to be sent by written notice given to the other persons
listed in this Section. All notices shall, when mailed as aforesaid, be
effective on the date indicated on the return receipt, and all notices given by
other means shall be effective on the Business Day when received.
Section 7.02. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns, including without limitation the Participating Banks.
The Company may not assign its rights under this Agreement without the prior
written consent of the Bank. So long as no Event of Default has occurred and is
continuing, the Bank may not assign its rights under this Agreement (except to
an affiliate of the Bank) without the prior written consent of the Company,
which consent will not unreasonably be withheld. The Company and the Bank intend
that no other person shall have any claim or interest under this Agreement or
right of action hereon or hereunder.
Section 7.03. SURVIVAL OF COVENANTS. All covenants made by the Company
herein and in any document delivered pursuant hereto shall survive the delivery
of this Agreement and the Letter of Credit and any advances under the Letter of
Credit.
Section 7.04. COUNTERPARTS. The execution hereof by each party hereto
shall constitute a contract between them for the uses and purposes herein set
forth, and this Agreement may be
- 18 -
<PAGE> 23
executed in any number of counterparts, with each executed counterpart
constituting an original and all counterparts together constituting one
agreement.
Section 7.05. COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand all reasonable costs and expenses of the Bank in connection with the
preparation, execution, delivery and enforcement of this Agreement, the Letter
of Credit and any other documents that may be delivered in connection with this
Agreement, the Letter of Credit or the Bond Documents or any amendments or
supplements thereto, including, without limitation, the reasonable fees and
expenses of counsel for the Bank with respect thereto and with respect to
advising the Bank as to its rights and responsibilities under this Agreement,
the Letter of Credit and such other documents upon the occurrence of an Event of
Default or a potential Event of Default hereunder. In addition, the Company
shall pay any and all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
Letter of Credit and such other documents, and agrees to indemnify and to hold
the Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees;
provided the Bank promptly notifies the Company of any such taxes and fees.
Notwithstanding anything to the contrary in this Section 7.05, the Company shall
have no obligation to pay the costs and expenses of the Bank or any
Participating Bank, or any such taxes and fees, in connection with the execution
and delivery of any participation agreement referred to in Section 7.12.
Section 7.06. AMENDMENTS. This Agreement may be amended only by an
instrument in writing executed and delivered by the party against whom
enforcement is sought.
Section 7.07. SEVERABILITY; INTEREST LIMITATION. If any provision
hereof is found by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction, it shall be ineffective as to such
jurisdiction only to the extent of such prohibition or unenforceability, and
such prohibition or unenforceability shall not invalidate the balance of such
provision as to such jurisdiction to the extent it is not prohibited or
unenforceable, nor invalidate such provision in any other jurisdiction, nor
invalidate the other provisions hereof, all of which shall be liberally
construed in favor of the Bank in order to effect the provisions of this
Agreement. Notwithstanding anything to the contrary herein contained, the total
liability of the Company for payment of interest pursuant hereto shall not
exceed the maximum amount, if any, of such interest permitted by applicable law
to be contracted for, charged or received, and if any payments by the Company to
the Bank include interest in excess of such a maximum amount, the Bank shall
apply such excess to either any other amount due hereunder, the reduction of the
unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded to the Company; provided that, to the extent permitted by
applicable law, in the event the interest is not collected, applied for
principal or refunded pursuant to this sentence and interest thereafter payable
pursuant hereto shall be less than such maximum amount, then such interest
thereafter so payable shall be increased up to such maximum amount to the extent
necessary to recover the amount of interest, if any, theretofore uncollected,
applied to principal or refunded pursuant to this sentence. Any such application
or refund shall not cure or waive any Event of Default. In determining whether
or not any interest payable under this Agreement exceeds the highest rate
permitted by law, any non-principal payment (except payments specifically stated
in this
- 19 -
<PAGE> 24
Agreement to be "interest") shall be deemed, to the extent permitted by
applicable law, to be an expense, fee, premium or penalty rather than interest.
Section 7.08. COMPLETE AGREEMENT. Taken together with the other
instruments and documents delivered in compliance herewith, this Agreement is a
complete memorandum of the agreement of the Company and the Bank. Waivers or
modifications of any provision hereof must be in writing signed by the party to
be charged with the effect thereof.
Section 7.09. CONSENT TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a)
The Company hereby irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to this Agreement or the Letter of Credit
may be brought in any federal or state court located in Cleveland, Ohio and
consents to the jurisdiction of such court in any such suit, action or
proceeding, (ii) agrees that any suit, action or other legal proceeding by the
Company against the Bank shall be brought solely in a federal or state court
located in Cleveland, Ohio, and (iii) waives any objection which it may have to
the laying of venue of any such suit, action or proceeding in any such court and
any claim that any such suit, action or proceeding has been brought in an
inconvenient forum. The Company hereby irrevocably consents to the service of
any and all process in any such suit, action or proceeding by mailing copies of
such process to the Company at its address provided under or pursuant to Section
7.01. The Company agrees that final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. All mailings under this Section
shall be by certified or registered mail, return receipt requested. Nothing in
this Section shall affect the right of the Bank to serve legal process in any
other manner permitted by law or affect the right of the Bank to bring any suit,
action or proceeding against the Company or its property in the courts of any
other jurisdiction.
(b) JURY WAIVER. THE COMPANY, TO THE EXTENT PERMITTED BY LAW, WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, BETWEEN THE BANK AND THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE COMPANY AND THE BANK IN CONNECTION WITH THIS AGREEMENT, THE LETTER
OF CREDIT OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED
IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO.
Section 7.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State without reference to its
principles of conflicts of law. The Letter of Credit shall be governed and
construed as set forth therein.
Section 7.11. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 7.12. PARTICIPATION. Notwithstanding any other provision of
this Agreement, the Company understands that the Bank may at any time on or
after the date hereof enter into
- 20 -
<PAGE> 25
participation agreements with one or more participating banks ("Participating
Banks") whereby the Bank will allocate to the Participating Banks certain
percentages of the payment obligations of the Company under this Agreement and
the funding obligations of the Bank under the Letter of Credit. The Company
acknowledges, that, for the convenience of all parties, this Agreement is being
entered into with the Bank only and, subject to the limitation set forth in this
Section 7.12, that the Company's obligations under this Agreement are and will
be undertaken for the benefit of, and as an inducement to, the Participating
Banks as well as the Bank. Without limiting the foregoing, the Company
acknowledges that Section 2.05 and the indemnity of the Bank under Section 7.05
are also for the benefit of the Participating Banks as if such sections
specifically referred to the Participating Banks and their participation in the
payment obligations of the Company and the funding obligations of the Bank, and
the Company agrees to make any payments required by such provisions for the
account of any one or more Participating Banks to the Bank on demand of the
Bank. Section 2.02(e) is not for the benefit of the Participating Banks; such
limitation shall not impair or affect the obligations of the Company under
Section 2.02(e) which may be enforced by the Bank and shall be applicable as if
there were no Participating Bank. In the event of any such participation, if
any, the Bank shall remain the issuer of the Letter of Credit.
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement
to be duly executed and delivered as of the date first above written.
LESCO, INC., an Ohio corporation
By: /s/ Kenneth W. Didion
-------------------------------------
Name: Kenneth w. Didion
-------------------------------
Title: Treasurer
-------------------------------
PNC BANK, NATIONAL ASSOCIATION, a
national banking association
By: /s/ David J. Williams
-------------------------------------
David J. Williams
Vice President
<PAGE> 26
EXHIBIT A
---------
Irrevocable Letter of Credit No. A-309645
November 5, 1997
PNC Bank, National Association
One Oliver Plaza, 27th Floor
210 Sixth Avenue
Pittsburgh, Pennsylvania 15265
Attention: Corporate Trust Administration
Mr. Mark Rullo
Ladies and Gentlemen:
At the request and on the instructions of our customer, LESCO,
Inc. (the "Company"), we hereby establish in your favor, as Trustee under the
Indenture of Trust, dated as of November 1, 1997 (the "Indenture"), between the
Highlands County Industrial Development Authority (the "Issuer") and you,
pursuant to which $7,500,000 in aggregate principal amount of the Issuer's
Industrial Development Revenue Bonds, Series 1997 (LESCO, Inc. Project) (the
"Bonds") have been issued, this Irrevocable Letter of Credit in the amount of
$7,726,027.40 (hereinafter, as reduced from time to time in accordance with the
provisions hereof, the "Stated Amount") of which an amount not exceeding
$7,500,000 (as reduced from time to time in accordance with the provisions
hereof, the "Principal Component") may be drawn upon with respect to payment of
the unpaid principal amount or the portion of purchase price corresponding to
principal of the Bonds, and an amount not exceeding $226,027.40 (as reduced from
time to time in accordance with the provisions hereof, the "Interest Component")
may be drawn upon with respect to payment of interest accrued or the portion of
purchase price corresponding to interest accrued on the Bonds on or prior to
their stated maturity date, effective immediately and expiring on March 16,
2000, unless terminated earlier in accordance with the provisions hereof or
unless otherwise extended. All drawings under this Letter of Credit will be paid
with our own funds.
This Letter of Credit expires on March 16, 2000. Upon the
written request of the Company, which request shall be made on or about
September 16 of each year, commencing September 16, 1999, to extend the
expiration date, PNC Bank, National Association (the "Bank") may decide, in its
sole discretion, to extend the expiration date for one year from the
then-current expiration date; provided, however, the expiration date shall not
be extended beyond December 16, 2017. We shall notify the Company in writing of
our decision of whether the expiration date shall be extended no later than
November 16 of each year. The Principal Component of this Letter of Credit shall
automatically decrease upon payment of principal of the Bonds, by redemption or
at stated maturity, by an amount equal to such payment.
Funds under this Letter of Credit will be made available to
you against receipt by us of the following items at the time required below, in
each case accompanied by a photocopy of this Letter of Credit: (A) if the
drawing is being made with respect to payment of the portion
Page 1 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 27
of the purchase price of Bonds delivered to you pursuant to Sections 2.02(c),
4.01, 4.02 or 4.04 of the Indenture corresponding to the principal thereof (an
"A Drawing"), receipt by us of your written certificate in the form of Exhibit A
attached hereto appropriately completed and signed by an Authorized Officer; (B)
if the drawing is being made with respect to principal on the Bonds, by
redemption or at stated maturity (a "B Drawing"), receipt by us of your written
certificate in the form of Exhibit B attached hereto appropriately completed and
signed by an Authorized Officer; and (C) if the drawing is being made with
respect to the payment of interest, or the portion of purchase price
corresponding to interest, on the Bonds (a "C Drawing"), receipt by us of your
written certificate in the form of Exhibit C attached hereto appropriately
completed and signed by an Authorized Officer. Presentation of such
certificate(s), shall be made at our office located at 237 Fifth Avenue,
Pittsburgh, Pennsylvania 15222; Attention: Mary Ann McCarty, or any other office
which may be designated by us by written notice delivered to you, or may be made
by telecopy transmission (telecopier number: (412) 705-0966, confirmed by
telephone (telephone number: (412) 762-2798).
If a drawing is made by you hereunder at or prior to 10:00
a.m., Pittsburgh, Pennsylvania time, on a business day, and provided that such
drawing and the documents and other items presented in connection therewith
conform to the terms and conditions hereof, payment shall be made to you, or to
your designee, of the amount specified, in immediately available funds, not
later than 2:00 p.m., Pittsburgh, Pennsylvania time, on the same business day or
not later than 1:00 p.m., Pittsburgh, Pennsylvania time, on such later business
day as you may specify. If requested by you, payment under this Letter of Credit
will be made by deposit of immediately available funds in accordance with your
instructions. If a demand for payment made by you hereunder does not, in any
instance, conform to the terms and conditions of this Letter of Credit, we shall
give you prompt notice that the demand for payment was not effected in
accordance with the terms and conditions of this Letter of Credit, stating the
reasons therefor and that we will, upon your instructions, hold any documents at
your disposal or return the same to you. Upon being notified that the demand for
payment was not effected in conformity with this Letter of Credit, you may
attempt to correct any such non-conforming demand for payment to the extent that
you are entitled to do so; provided, however, that the revised documentation is
submitted on or before the expiration date of this Letter of Credit.
Demands for payment hereunder honored by us shall not, in the
aggregate, exceed the Stated Amount, as the Stated Amount may have been
reinstated by us as provided in the next paragraph. Subject to the preceding
sentence, each "A Drawing" and each "B Drawing" honored by the Bank hereunder
shall pro tanto reduce the Principal Component, and each "C Drawing" honored by
the Bank hereunder shall pro tanto reduce the Interest Component and any such
reduction shall result in a corresponding reduction in the Stated Amount, it
being understood that after the effectiveness of any such reduction you shall no
longer have any right to make a drawing hereunder in respect of the amount of
such principal and/or interest on the Bonds or the payment of purchase price
corresponding thereto causing or corresponding to such reduction.
Upon release by us of any Pledged Bonds (as defined in the
Letter of Credit Agreement referred to below) delivered in connection with any
"A Drawing," the Principal
Page 2 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 28
Component shall automatically be reinstated by an amount equal to the principal
amount of such Pledged Bonds and the Interest Component shall likewise be
reinstated by an amount equal to 110 days' interest (computed as set forth
below) on the principal amount of such Pledged Bonds. In addition, if you shall
not have received, within ten (10) business days after any payment in respect of
any "C Drawing," notice from us that we have not been reimbursed for such
drawing or a previous or subsequent drawing in accordance with the Letter of
Credit Agreement, dated as of November 1, 1997, between the Company and us, or
that an Event of Default under such Letter of Credit Agreement has occurred and
is continuing, the Interest Component will automatically be reinstated, as of
the close of business on such tenth business day, to an amount equal to 110
days' interest (computed at the rate of 10 percent per annum and on the basis of
a 365/366-day year, notwithstanding the actual rate borne from time to time by
the Bonds) on the then applicable Principal Component.
Only you, as Trustee, may make a drawing under this Letter of
Credit. Upon the payment to you, to your designee or to your account of the
amount demanded hereunder, we shall be fully discharged on our obligation under
this Letter of Credit with respect to such demand for payment and we shall not
thereafter be obligated to make any further payments under this Letter of Credit
in respect of such demand for payment to you or any other person who may have
made to you or makes to you a demand for payment of principal of, purchase price
of, premium, if any, or interest on any Bond. By paying to you an amount
demanded in accordance herewith, we make no representation as to the correctness
of the amount demanded.
This Letter of Credit applies only to the payment of principal
or the portion of purchase price of the Bonds corresponding to principal, and up
to 110 days' interest (computed as aforesaid) accruing on the Bonds on or prior
to the expiration of this Letter of Credit and does not apply to any interest
that may accrue thereon or any principal or premium which may be payable with
respect thereto after such date.
Upon the earliest of (i) the making by you of the final
drawing available to be made hereunder, (ii) receipt of a certificate signed by
an Authorized Officer stating that: "(a) the conditions precedent to the
acceptance of a substitute Credit Facility have been satisfied, (b) the Trustee
has accepted the substitute Credit Facility, and (c) on the effective date of
the substitute Credit Facility, and after receipt by PNC Bank, National
Association, of this certificate, PNC Bank, National Association, Irrevocable
Letter of Credit No. A-309645 shall terminate," (iii) receipt of a certificate
signed by an Authorized Officer stating that no Bonds remain outstanding under
the Indenture, (iv) fifteen days after the date of the conversion of the
interest rate on the Bonds to a fixed non-variable rate of interest, or (v) the
final expiration date hereof, this Letter of Credit shall automatically
terminate and be delivered to us for cancellation.
Communications with respect to this Letter of Credit, other
than a drawing hereunder shall be in writing and shall be addressed to us at PNC
Bank, National Association, One Cleveland Center, 1375 East Ninth Street, Suite
1250, Cleveland, Ohio 44114-1724, Attention: David J. Williams, specifically
referring thereon to this Letter of Credit by number.
Page 3 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 29
This Letter of Credit may not be transferred or assigned,
either in whole or in part except to a successor trustee pursuant to a written
request in the form of Exhibit D attached hereto. We agree to issue a substitute
letter of credit to any such successor trustee (and to successively replace any
such substitute letter of credit) upon the return to us for cancellation of the
original of the letter of credit to be replaced, accompanied by a request
relating to such letter of credit, which (i) shall be substantially in the form
of Exhibit D attached hereto with the blanks appropriately completed, (ii) shall
be signed by an Authorized Officer, (iii) shall specify where indicated therein
the same letter of credit number as the number of the letter of credit to be
replaced, and (iv) shall state the name and address of the successor trustee.
Each substitute letter of credit will be in substantially the form of this
Letter of Credit except for the date.
As used herein (a) "Authorized Officer" shall mean any of your
Vice Presidents, Assistant Vice Presidents, Trust Officers or Assistant Trust
Officers, (b) "purchase price" shall mean the principal amount of, together with
accrued interest on, any Bonds to be purchased in accordance with Sections
2.02(c), 4.01, 4.02 or 4.04 of the Indenture; and (c) "business day" shall mean
any day on which commercial banks located in Pittsburgh, Pennsylvania and
Cleveland, Ohio are required or permitted by law to be open for the purpose of
conducting a commercial banking business.
This Letter of Credit sets forth in full our undertaking, and
such undertaking shall not in any way be modified, amended, amplified or limited
by reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds), except only the certificate(s)
referred to herein; and any such reference shall not be deemed to incorporate
herein by reference any document, instrument or agreement except for such
certificate(s).
This credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By:__________________________
Vice President
By:__________________________
Assistant Vice President
Page 4 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 30
EXHIBIT A
---------
CERTIFICATE FOR "A DRAWING"
PNC Bank, National Association
237 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mary Ann McCarty
Re: Irrevocable Letter of Credit No. A-309645
-----------------------------------------
The undersigned, an Authorized Officer of PNC Bank, National
Association (the "Trustee"), hereby certifies that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter
of Credit in the amount of $________ with respect to the payment of the portion
of the purchase price of the Bonds corresponding to the principal amount
thereof, which Bonds are to be purchased pursuant to Section [2.02(c)] [4.01]
[4.02] [4.04] of the Indenture.
(3) The amount demanded hereby does not exceed the amount available on
the date hereof to be drawn under the above-referenced Letter of Credit in
respect of the portion of the purchase price of Bonds corresponding to the
principal amount thereof.
(4) The amount demanded hereby does not include any amount in respect
of the purchase of any Pledged Bonds.
(5) Upon receipt by the undersigned of the amount demanded hereby, (a)
the undersigned will apply the same directly to the payment when due of the
principal amount owing on account of the purchase of Bonds pursuant to the
Indenture, (b) no portion of said amount shall be applied by the undersigned for
any other purpose, and (c) no portion of said amount shall be commingled with
other funds held by the undersigned.
As used herein, the terms "Authorized Officer," "Indenture," "Bonds,"
"Pledged Bonds" and "purchase price" shall have the respective meanings assigned
to such terms in the above-referenced Letter of Credit.
Page 5 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 31
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of ____________ , ____.
PNC Bank, National Association,
as Trustee
By:_____________________________
Title:
Page 6 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 32
EXHIBIT B
---------
CERTIFICATE FOR "B DRAWING"
PNC Bank, National Association
237 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mary Ann McCarty
Re: Irrevocable Letter of Credit No. A-309645
-----------------------------------------
The undersigned, an Authorized Officer of PNC Bank, National
Association (the "Trustee"), hereby certifies that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter
of Credit in the amount of $__________ with respect to the payment of principal
on the Bonds, which amount has, or will, within five business days, become due
and payable pursuant to the Indenture, upon maturity or as a result of
acceleration or redemption of the Bonds.
(3) The amount demanded hereby does not exceed any amount in respect of
the principal amount of any Pledged Bonds.
(4) The amount demanded hereby, together with the aggregate of all
prior payments made pursuant to "B Drawings" under the above-referenced Letter
of Credit, does not exceed $7,500,000.
(5) The amount demanded hereby does not exceed the amount available on
the date hereof to be drawn under the above-referenced Letter of Credit in
respect of the principal of the Bonds.
(6) Upon receipt by the undersigned of the amount demanded hereby, (a)
the undersigned will apply the same directly to the payment when due of the
principal amount owing on account of the Bonds pursuant to the Indenture, (b) no
portion of said amount shall be applied by the undersigned for any other
purpose, and (c) no portion of said amount shall be commingled with other funds
held by the undersigned.
As used herein, the terms "Authorized Officer," "Indenture," "Bonds,"
"business day," "B Drawing" and "Pledged Bonds," shall have the respective
meanings assigned to such terms in the above-referenced Letter of Credit.
Page 7 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 33
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of __________, ___.
PNC Bank, National Association,
as Trustee
By:_____________________________
Title:
Page 8 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 34
EXHIBIT C
---------
CERTIFICATE FOR "C DRAWING"
PNC Bank, National Association
237 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mary Ann McCarty
Re: Irrevocable Letter of Credit No. A-309645
-----------------------------------------
The undersigned, an Authorized Officer of PNC Bank, National
Association (the "Trustee"), hereby certifies that:
(1) The Trustee is the Trustee under the Indenture for the holders of
the Bonds.
(2) The Trustee is making a drawing under the above-referenced Letter
of Credit in the amount of $_________ with respect to payment of [the portion of
the purchase price of $________ in principal amount of the Bonds corresponding
to the accrued interest thereon, which Bonds are to be purchased pursuant to
Section [2.02(c)] [4.01] [4.02] [4.04] of the Indenture] [accrued interest on
the Bonds], which amount has, or will, within five business days, become due and
payable pursuant to the Indenture.
(3) The amount demanded hereby does not exceed the amount available on
the date hereof to be drawn under the above-referenced Letter of Credit in
respect of interest on the Bonds.
(4) The amount demanded hereby does not include any amount in respect
of the interest on any Pledged Bonds.
(5) Upon receipt by the undersigned of the amount demanded hereby, (a)
the undersigned will apply the same directly to the payment when due of the
[interest owing on account of the Bonds pursuant to the Indenture] [portion of
the purchase price of Bonds pursuant to Section [2.02(c)] [4.01] [4.02] [4.04]
of the Indenture corresponding to accrued interest thereon], (b) no portion of
said amount shall be applied by the undersigned for any other purpose, and (c)
no portion of said amount shall be commingled with other funds held by the
undersigned.
As used herein, the terms "Authorized Officer," "Indenture," "Bonds,"
"business day," "Pledged Bonds" and "purchase price" shall have the respective
meanings assigned to such terms in the above-referenced Letter of Credit.
Page 9 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 35
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of __________ , _____.
PNC Bank, National Association,
as Trustee
By:_____________________________
Title:
Page 10 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 36
EXHIBIT D
---------
INSTRUCTION TO ISSUE SUBSTITUTE LETTER OF CREDIT
------------------------------------------------
TO SUCCESSOR TRUSTEE
--------------------
PNC Bank, National Association
237 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mary Ann McCarty
Re: Irrevocable Letter of Credit No. A-309645
-----------------------------------------
Ladies and Gentlemen:
Reference is made to (i) the above-referenced letter of credit (the "Old Letter
of Credit") and (ii) the Indenture of Trust, dated as of November 1, 1997 (the
"Indenture"), between the Highlands County Industrial Development Authority and
us.
[Name and address of successor trustee] (the "Successor Trustee") has been
appointed successor trustee under the Indenture. You are hereby requested to
issue, in accordance with the terms of the Old Letter of Credit, a new letter of
credit to the Successor Trustee having the same terms and providing for the same
Stated Amount as the Old Letter of Credit.
We submit herewith for cancellation the original of the Old Letter of Credit.
The individual signing below on our behalf hereby represents that he or she is
duly authorized to so sign on our behalf.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION,
as Trustee
By: __________________________
Title: _______________________
Page 11 of 11 of Irrevocable Letter of Credit No. A-309645.
<PAGE> 1
(8)
Exhibit 13
FINANCIAL REVIEW
LESCO, INC.
HIGHLIGHTS For the year ended December 31, 1997, the Company realized record
revenues of $356.8 million, an increase of 14.4% over 1996 and, excluding
non-recurring fourth-quarter charges in 1996, the Company's pre-tax income rose
52% in 1997 compared with 1996.
In August 1997, the Company purchased the outstanding shares of stock of
Tri Delta Fertilizer, Inc., located in Stockton, California, for $3.2 million.
The operations of Tri Delta include granular and liquid fertilizer production
facilities and related warehousing. Tri Delta manufactures, distributes and
sells fertilizer and combination products to both turf and agricultural
customers throughout the western United States. The acquisition of Tri Delta
will provide the Company a base for expanding its business into the western
United States. The acquisition was financed primarily through borrowings under
the Company's credit facilities.
In January 1998, the Company completed the purchase of the turf businesses
of Agriturf, Inc. in Hatfield, Massachusetts, and Cadwell & Jones, Inc. in
Manchester, Connecticut, for $6.0 million in cash, plus the assumption of
approximately $2.1 million of debt. The asset purchase included 11.8 acres of
land, a fertilizer manufacturing facility and related warehousing, working
capital, and other manufacturing equipment and turf business assets located in
Hatfield, Massachusetts. Both companies manufacture, distribute and sell
fertilizer, combination products, turf protection products, turfgrass seed and
other products for the professional, retail and agricultural markets in the
northeastern United States. The acquisition will provide the Company with a
manufacturing and distribution base to more economically serve its customers in
the northeastern United States. The purchase was financed through borrowings
under the Company's credit facilities.
RESULTS OF OPERATIONS Company sales rose to a record $356.8 million in 1997, a
14.4% increase compared with $312.0 million in 1996, which was 29.1% over 1995
sales of $241.7 million. Each of the Company's key sales groups reflected sales
volume growth with Service Centers and Golf Course sales contributing the
largest increase for both years. The increase reflects both the continued growth
in new Service Centers and the maturation of sites already opened. During 1997,
the Company opened 20 new Service Centers so that at the end of the year, the
Company was operating 215 stores in 38 states. During the year, the Company
closed one Service Center when the sales potential was deemed not to meet
Company objectives. At the end of 1996, the Company had 196 sites in operation
compared with 173 stores at the end of 1995. Same-store sales for 1997 increased
15.0% compared with a 13.1% increase in 1996. In 1998, the Company intends to
expand the number of Service Centers by 20 stores, 19 of which are planned for
opening during the first quarter.
The Company recognized diluted net earnings of $1.02 per share in 1997
compared with a loss of $0.29 per share in 1996 and net earnings of $0.59 per
share in 1995. The net loss in 1996 was attributable to $12.9 million of
fourth-quarter pre-tax charges relating to certain non-recurring strategic
activities as follows:
1) the formation of the Company's 50-50 joint venture with MTD Products Inc for
the manufacture of commercial equipment and related relocation of equipment
manufacturing operations from Sebring, Florida, to the joint venture; 2) the
rationalization of the Company's product line and a reserve for the valuation of
slow-moving and discontinued products; 3) the reorganization of the customer
credit function, with an increase in reserves for potential bad debts; 4) the
implementation of Company systems for the improved management of Company
inventories and customer service; and 5) the revaluation of certain other assets
to reflect current values. In connection with the relocation of equipment
manufacturing operations from Sebring, Florida, to the joint venture, the
Company paid $3.1 million of costs in 1997 relating to inventory disposal,
equipment transfer and disposal, employee severance and other costs. The Company
expects the relocation to be completed in 1998 without any material adjustment
to the costs previously accrued.
The Company's gross profit as a percent of sales in 1997 was 33.2% compared
with 29.9% in 1996 and 33.6% in 1995. Excluding the non-recurring fourth-quarter
1996 charges to cost of sales, the gross profit percent in 1996 was 32.1%.
During 1997, the gross profit on the Company's major products such as
fertilizer, combination products, turfgrass seed and turf protection products
increased while gross profit on equipment was unchanged. These gross profit
increases are primarily due to the Company's focus on margin improvements
through refinements in product purchases.
Selling, general and administrative expenses for 1997 were 28.7% of sales
compared with 30.7% of sales in 1996 and 30.1% in 1995. Adjusted for the effects
of fourth-quarter 1996 non-recurring items, selling, general and administrative
expenses for 1996 were 28.8% of sales. A $4.4 million, or 18.9% increase in the
Company's freight and distribution costs accounted for the largest component of
the increase for 1997 compared with 1996. The increase in freight costs during
1997 is attributable primarily to an increased sales volume of granular products
(fertilizer and combination products), which have higher freight costs per
dollar of sales compared with the Company's other product lines. In 1997,
freight and distribution costs were 7.8% of sales compared with 7.5% of sales in
1996 and 7.2% of sales in 1995. Selling expenses of $51.1 million in 1997
increased 7.3% over $47.6 million in 1996, which represented an increase of
25.9% over 1995 selling expenses of $37.8 million. The increase in selling
expenses is attributable primarily to the increase in the number of Service
Centers operated by the Company, from 173 in 1995 to 196 in 1996 to 215 in 1997.
Interest expense increased to $4.7 million from $4.2 million in 1996 and
$2.8 million in 1995. The increase in 1997 is attributable primarily to
additional debt to fund general increases in working capital levels to support
the growth of the business and the purchase of Tri Delta in August. The increase
during 1996 was attributable primarily to additional debt relating to the
purchase of Pro-Lawn in January 1996 and other working capital increases
associated with the growth of the business.
15
<PAGE> 2
FINANCIAL REVIEW
LESCO, INC.
The Company's effective tax rate in 1997 was 39.0% compared with 33.9% in
1996 and 38.4% in 1995. The lower tax rate in 1996 reflects the Company's net
loss for that year and the federal effect of state and local income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997,
total assets of the Company were $200.3 million compared with $164.7 million at
year-end 1996 and $137.8 million at year-end 1995. The increase in assets is
attributable to growth in the business combined with seasonal working capital
increases, capital additions and improvements, and assets acquired in the
Company's purchase of Tri Delta. Funding for the increase in assets was provided
by cash from operations, an increase in accounts payable and additional
borrowing under the Company's credit facilities.
The Company's debt-to-total capitalization ratio was .54 as of December 31,
1997, compared with .51 as of December 31, 1996, and .40 as of December 31,
1995. On November 5, 1997, the Company borrowed $7.5 million under an Industrial
Revenue Bond (IRB) to fund the construction of its new fertilizer plant in
Sebring, Florida. As of December 31, 1997, $4.8 million of the proceeds from
this debt issue were held in a construction fund for the completion of the
Sebring, Florida, fertilizer plant. It is anticipated that this construction
project will be completed during the first half of 1998.
Accounts receivable balances increased $8.4 million at December 31, 1997,
compared with year-end 1996 and $9.7 million in 1996 compared with year-end
1995, an increase of 14.7% and 20.4%, respectively. These increases compare with
sales increases of 14.4% in 1997 and 29.1% in 1996. Inventories increased $14.1
million as of December 31, 1997, compared with year-end 1996 and $7.3 million as
of December 31, 1996, compared with year-end 1995, a 20.7% and 12.1% increase,
respectively. The increase in inventories relates to the increase in the number
of Service Centers and reflects some early purchases the Company made as of
December 31, 1997, on advantageous terms in anticipation of needs for the 1998
season.
During 1997, the Company's expenditures for capital improvements and
additions totaled $12.8 million. Included in that total were an expenditure of
approximately $3.2 million for the acquisition of Tri Delta and capital
improvements subsequent to the purchase date, approximately $2.7 million for the
design and implementation of information systems and technology designed to
improve the Company's management of inventory and its customer service, and
approximately $3.2 million for construction of the Company's fertilizer plant
and improvement of its distribution facilities in Sebring, Florida. The
remaining capital expenditures were primarily for Service Center expansions and
for other improvements in the Company's manufacturing facilities. Capital
improvement programs planned for 1998 include further expansion of the Company's
network of Service Centers, completion of the fertilizer plant construction
project in Sebring, Florida, and improvements to newly acquired operations in
Hatfield, Massachusetts, and Stockton, California. The funding for these
projects will come from operations, the Company's credit facilities or through
specific IRB financing relating to the Sebring, Florida, capital project.
The Company is a 50% owner of Commercial Turf Products, Ltd. (CTP) and
accounts for this investment using the equity method of accounting. CTP, which
began operations in May 1997, manufactures commercial equipment. For the period
May 1997 through December 31, 1997, CTP incurred a net loss of $2.4 million, of
which the Company has recorded its share ($1.2 million) as a reduction of its
initial investment of $700,000. In connection with this joint venture the
Company has also guaranteed 50% of CTP's long-term obligations which total $14.0
million at December 31, 1997.
At December 31, 1997, the Company had $69.5 million of debt outstanding on
its revolving line of credit. The credit facility matures in April 2000, is
unsecured and has no prepayment penalty. Interest is payable at the bank's
prevailing base rate or at alternative rates based on LIBOR or CD options as
elected by the Company. At December 31, 1997, the Company had $10.5 million
available under this line of credit. In January 1998, the Company borrowed $6.4
million under a bank's $10.0 million money market line of credit at a 6.875%
rate of interest. The Company believes the current borrowing capacity is
adequate for the foreseeable future.
YEAR 2000 IMPACT Over the past three years, the Company has broadly implemented
new information systems and technology with respect to production, production
planning, inventory management, order entry, distribution and financial systems.
This broad-based strategic initiative will be completed by the end of 1998. As a
result, it is the Company's assessment that these new systems and technology
either have the capability now, or will by the end of 1998, to adequately
recognize the year 2000. The Company does not currently expect third-party year
2000 compliance issues to have a material impact on its operation. An internal
initiative has been established to continue to evaluate the potential impact of
year 2000 on its operations.
NEW ACCOUNTING PRONOUNCEMENT In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS
No. 131, which becomes effective in 1998, establishes standards for reporting
segment information in annual and interim financial statements including
disclosures about products and services, geographic areas and major customers.
The Company has not yet determined the impact of adopting SFAS No. 131 on its
financial disclosures.
16
<PAGE> 3
SELECTED FINANCIAL DATA, 1997-1993
LESCO, INC.
<TABLE>
<CAPTION>
STATEMENT OF OPERATING DATA
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------------------
(In thousands, except share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $356,841 $312,031 $241,667 $204,523 $166,203
Cost of sales 238,392 211,825 160,576 133,826 108,703
Other cost of sales -- 6,771 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Gross profit on sales 118,449 93,435 81,091 70,697 57,500
Selling, general and administrative expenses 101,548 91,065 71,635 60,175 47,868
Other expenses 818 4,745 1,035 1,071 1,918
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 16,083 (2,375) 8,421 9,451 7,714
Other deductions - net 1,943 1,177 585 71 189
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 14,140 (3,552) 7,836 9,380 7,525
Income tax (benefit) expense 5,515 (1,203) 3,009 3,608 2,765
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
change in accounting principle 8,625 (2,349) 4,827 5,772 4,760
Cumulative effect on prior years of changing the
method of capitalizing certain inventory costs -- -- -- 1,149 --
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 8,625 $ (2,349) $ 4,827 $ 6,921 $ 4,760
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE
<S> <C> <C> <C> <C> <C>
Per share income (loss) before cumulative effect
of change in accounting principle
Basic $ 1.06 $ (0.29) $ 0.61 $ 0.74 $ 0.70
Diluted $ 1.02 $ (0.29) $ 0.59 $ 0.72 $ 0.68
Per share cumulative effect on prior years of
changing the method of
capitalizing certain inventory costs
Basic -- -- -- 0.15 --
Diluted -- -- -- 0.14 --
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ 1.06 $ (0.29) $ 0.61 $ 0.89 $ 0.70
========================================================================================================================
Diluted earnings (loss) per share $ 1.02 $ (0.29) $ 0.59 $ 0.86 $ 0.68
========================================================================================================================
Cash dividends per common share $ 0.12 $ 0.11 $ 0.10 $ 0.09 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
DECEMBER 31
------------------------------------------------------------------
(In thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $117,711 $ 99,904 $ 85,950 $ 70,839 $ 65,414
Total assets 200,318 164,673 137,821 114,612 104,471
Long-term debt, net of current portion 83,353 64,704 43,258 29,542 33,122
Shareholders' equity 72,293 61,699 63,878 58,175 50,883
</TABLE>
Note: Cumulative effect - Effective January 1, 1994, the Company changed its
method of accounting for inventory costs to include the capitalization of
certain warehousing, transportation and procurement costs which were previously
expensed.
17
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
LESCO, INC.
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
(In thousands, except share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $356,841 $312,031 $241,667
Cost of sales 238,392 211,825 160,576
Other cost of sales -- 6,771 --
- -------------------------------------------------------------------------------------------------------------------
Total cost of sales 238,392 218,596 160,576
- -------------------------------------------------------------------------------------------------------------------
GROSS PROFIT ON SALES 118,449 93,435 81,091
Selling, general and administrative expenses 101,548 91,065 71,635
Other expenses 818 4,745 1,035
- -------------------------------------------------------------------------------------------------------------------
102,366 95,810 72,670
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 16,083 (2,375) 8,421
Other deductions (income):
Interest expense 4,749 4,214 2,831
Other - net (2,806) (3,037) (2,246)
- -------------------------------------------------------------------------------------------------------------------
1,943 1,177 585
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 14,140 (3,552) 7,836
Income tax expense (benefit) 5,515 (1,203) 3,009
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,625 $ (2,349) $ 4,827
===================================================================================================================
EARNINGS (LOSS) PER SHARE
BASIC $ 1.06 $ (0.29) $ .61
DILUTED $ 1.02 $ (0.29) $ .59
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
LESCO, Inc.
We have audited the accompanying consolidated balance sheets of LESCO, Inc. as
of December 31, 1997, and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
LESCO, Inc. at December 31, 1997, and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Cleveland, Ohio
February 17, 1998
/s/ ERNST & YOUNG LLP
18
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
LESCO, INC.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
(In thousands, except share data) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,403 $ 1,900
Accounts receivable, less allowance of $3,000 in 1997;
$4,100 in 1996 65,869 57,424
Inventories 82,174 68,090
Deferred federal income taxes 2,680 4,734
Prepaid expenses and other assets 5,989 4,398
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 160,115 136,546
PROPERTY, PLANT AND EQUIPMENT
Land 499 499
Buildings and improvements 18,076 13,521
Machinery and equipment 26,887 24,712
Furniture and fixtures 12,992 9,015
- ----------------------------------------------------------------------------------------------------------------------
58,454 47,747
Less allowance for depreciation and amortization 27,238 24,454
- ----------------------------------------------------------------------------------------------------------------------
31,216 23,293
Bond proceeds held for construction 4,761
- ----------------------------------------------------------------------------------------------------------------------
35,977 23,293
OTHER ASSETS 4,226 4,834
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $200,318 $164,673
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 34,002 $ 26,786
Salaries, wages and profit sharing 2,946 2,642
Other liabilities and accrued expenses 5,256 7,014
Current portion of long-term debt 200 200
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 42,404 36,642
LONG-TERM DEBT 83,353 64,704
DEFERRED INCOME TAXES 2,268 1,628
SHAREHOLDERS' EQUITY
Preferred shares - without par value - 500,000 shares authorized
Common shares - without par value - 19,500,000 shares authorized; 8,256,084
shares issued and 8,250,356 shares outstanding in 1997;
8,067,517 shares issued and 8,064,367 shares outstanding in 1996 825 807
Paid-in capital 29,268 26,549
Retained earnings 42,347 34,694
Less treasury shares (59) (17)
Unearned compensation (88) (334)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 72,293 61,699
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $200,318 $164,673
======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
LESCO, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 8,625 $ (2,349) $ 4,827
Adjustments to reconcile net income (loss) to net cash used by operating
activities:
Depreciation and amortization 4,275 3,728 3,234
Deferred income taxes 2,679 (3,182) 291
Increase in accounts receivable (8,195) (13,094) (10,314)
Provision for uncollectible accounts receivable 818 3,392 1,035
Increase in inventories (10,738) (7,017) (9,097)
Change in inventory and plant relocation reserves (3,587) 8,124
Increase in accounts payable 6,370 3,116 3,003
Change in other current items (2,309) 1,791 (385)
Other 801 (179) 65
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (1,261) (5,670) (7,341)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (9,882) (5,140) (7,609)
Acquisition of businesses (2,949) (11,268)
Bond proceeds held for construction (4,761)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,592) (16,408) (7,609)
FINANCING ACTIVITIES:
Proceeds from borrowings 124,507 110,200 81,400
Reduction of borrowings (105,858) (88,754) (67,684)
Issuance of common shares 2,679 791 1,300
Cash dividends (972) (879) (783)
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,356 21,358 14,233
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,503 (720) (717)
Cash - beginning of the year 1,900 2,620 3,337
- --------------------------------------------------------------------------------------------------------------------
CASH - END OF THE YEAR $ 3,403 $ 1,900 $ 2,620
====================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
LESCO, INC.
<TABLE>
<CAPTION>
COMMON SHARES
----------------------- UNEARNED
PAID-IN RETAINED TREASURY COMPEN-
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES DOLLARS CAPITAL EARNINGS SHARES SATION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 7,798,923 $781 $23,552 $33,878 $(37)
Issuance of common shares 151,065 15 1,645
Dividends paid-- $.10 per share (783)
Net income 4,827
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 7,949,988 796 25,197 37,922 (37)
Issuance of common shares 87,750 9 987
Issuance of restricted common shares 23,029 2 332 $(334)
Issuance of treasury shares 3,600 33 20
Dividends paid-- $.11 per share (879)
Net loss (2,349)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 8,064,367 807 26,549 34,694 (17) (334)
Issuance of common shares 193,295 19 2,787
Forfeiture of restricted common shares (4,728) (1) (68) 69
Amortization of unearned compensation 177
Purchase of shares for treasury (2,578) (42)
Dividends paid-- $.12 per share (972)
Net income 8,625
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 8,250,356 $825 $29,268 $42,347 $(59) $ (88)
=====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LESCO, INC.
NATURE OF BUSINESS The Company is engaged in a single business segment, which is
the manufacture and marketing of turf care products, including turf control
products, fertilizer, grass seed and equipment, to the professional sector of
the green industry. Substantially all of the Company's accounts receivable are
due from companies in the green industry located throughout the United States.
Credit is extended based on an evaluation of each customer's financial condition
and, generally, collateral is not required. Revenue is recognized when goods are
shipped. The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions by management,
and actual results may differ from these estimates.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of LESCO and its wholly owned subsidiary, Tri Delta Fertilizer, Inc.
(Tri Delta). All significant intercompany transactions and balances have been
eliminated in consolidation.
INVENTORIES: Inventories are valued principally at the lower of cost (average
cost method) or market, and consist of $3,037,000 and $1,600,000 in raw
materials and $79,137,000 and $66,490,000 in work in process and finished goods
at December 31, 1997, and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost
and are depreciated using the straight-line method over the estimated useful
lives of the respective assets. Buildings are depreciated over 15 to 20 years,
and machinery, equipment and other depreciable assets over 5 to 12 years.
Expenditures for maintenance and repairs are charged to income as incurred.
Additions and improvements are capitalized.
INTANGIBLE ASSETS: Included in other assets are $4,217,000 and $4,023,000 of
intangible assets at December 31, 1997 and 1996 respectively, consisting
primarily of trademarks, customer lists and other specifically identifiable
assets arising from the Pro-Lawn (see Note 2) and Tri Delta acquisitions. These
assets are being amortized using the straight-line method over periods of 3 to
20 years. Accumulated amortization was $522,000 and $246,000 at December 31,
1997, and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company assesses the recoverability of its
long-lived and intangible assets by determining whether the amortization of the
remaining balance over its remaining useful life can be recovered through
undiscounted future operating cash flows. If impairment exists, the carrying
amount of the related asset is reduced.
EARNINGS (LOSS) PER COMMON SHARE: Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). All per share amounts shown for prior periods have been
restated to conform to the provisions of SFAS No. 128.
FINANCE CHARGES: Other - net in the accompanying statements of operations
includes $3,118,000, $2,643,000 and $2,148,000 in customer finance charges in
1997, 1996 and 1995, respectively.
STOCK OPTIONS: The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, the Company follows the accounting provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," which, if applicable, recognizes as compensation cost the difference
between the fair market value and the exercise price of stock options at the
date of grant.
NEW ACCOUNTING PRONOUNCEMENT: In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS
No. 131, which becomes effective in 1998, establishes standards for reporting
segment information in annual and interim financial statements, including
disclosures about products and services, geographic areas and major customers.
The Company has not yet determined the impact of adopting SFAS No. 131 on its
financial disclosures.
NOTE 2 -- ACQUISITIONS
On August 1, 1997, the Company purchased all of the outstanding shares of
Tri Delta, Stockton, California, for $3,200,000, consisting of $2,949,000 in
cash and the issuance of 12,465 shares of the Company's common stock. The
Company recorded the acquisition using the purchase method of accounting.
During January 1996, the Company completed the purchase of certain assets
of Agway, Inc.'s Pro-Lawn Division. The agreement included acquisition of
Pro-Lawn's sales organization and key administrative personnel, inventories and
certain fixed assets, all Pro-Lawn licenses/trademarks and supply and
distribution agreements for $11,268,000 in cash.
The operating results of the acquired businesses have been included in the
statement of operations since the date of the related acquisitions.
NOTE 3 -- INVESTMENT IN COMMERCIAL TURF PRODUCTS, LTD.
The Company's 50% investment in Commercial Turf
Products, Ltd. (CTP) is accounted for under the equity method of accounting.
Through December 31, 1997, the Company invested $700,000 in CTP. The Company has
also recognized its share of CTP's net loss ($1,219,000) for the period from
commencement of operations (May 1997) through December 31, 1997, which is
included in "Other-net" in the statement of operations. At December 31, 1997,
CTP had total assets of $15,024,000 and total liabilities of $16,063,000. In
addition, the Company has guaranteed 50% of certain liabilities of CTP
aggregating $14,026,000 at December 31, 1997. These liabilities mature through
2002 and bear interest at rates ranging from 3.5% to 8.5%.
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
(In thousands) 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Credit agreement $69,500 $58,200
Industrial revenue bonds 13,375 5,875
Other debt 678 829
-----------------
83,553 64,904
Less current portion 200 200
-----------------
$83,353 $64,704
=================
</TABLE>
The credit agreement, which matures on April 30, 2000, provides for maximum
borrowings of $80,000,000, is unsecured and has no prepayment penalty. Interest
is payable at the bank's prevailing base rate (8.50% at December 31, 1997) as to
$4,500,000 of principal, or at alternative rates elected by the Company as
provided by the agreement (ranging from 6.78% to 6.84% at December 31, 1997) for
the remaining principal due, together with a .125% commitment fee for the unused
portion of the credit line. At December 31, 1997, $10,500,000 is available for
borrowing. In 1998, additional amounts were borrowed principally for the asset
purchases and working capital needs (see Note 11).
21
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LESCO, INC.
The Company has a seven-year, $7,000,000 notional amount interest rate swap
agreement expiring in 2002, which converts existing floating rate debt for
6.335% fixed rate debt. If the Company were to terminate this agreement at
December 31, 1997, the estimated cost would be $103,000.
In November 1997, the Company issued $7,500,000 of industrial revenue bonds
related to a new Sebring, Florida, fertilizer plant. The bonds mature in 2017.
At December 31, 1997, $4,761,000 of the proceeds are restricted for completion
of the Sebring, Florida, fertilizer plant. The Company also has $5,875,000 of
industrial revenue bonds outstanding related to its Martins Ferry, Ohio,
facility, which mature in 2014. Interest is payable quarterly for both bonds at
a rate based on comparable tax-exempt market rates (4.40% at December 31, 1997).
Under certain circumstances, the Company may convert the interest rate to a
fixed rate. The bonds related to the Sebring, Florida, facility are secured by a
$7,726,000 letter of credit. At December 31, 1997, the Company has not drawn any
amounts under the letter of credit. The letter of credit expires in March 2000.
The bonds related to the Martins Ferry, Ohio, facility are secured by mortgages
on property and equipment acquired with the proceeds (net book value of
$7,200,000 at December 31, 1997).
The revolving credit agreement and industrial revenue bonds contain various
restrictive covenants, including limits on additional borrowings, lease payments
and annual dividend payments ($1,500,000); maintenance of certain operating and
financial ratios; and maintenance of minimum net worth ($59,400,000 at December
31, 1997). The carrying amount of the Company's long-term debt approximates fair
value at December 31, 1997, based upon consideration of current market rates.
The annual maturities of long-term debt for the years 1999 through 2002 are
$99,000, $69,600,000, $96,600 and $101,500, respectively. Interest payments were
$4,873,000, $4,121,000 and $2,770,000 in the years ended December 31, 1997, 1996
and 1995, respectively.
NOTE 5 -- LEASES
The Company leases certain operating facilities and equipment. Certain
lease agreements provide for renewal options along with provisions for adjusting
the lease payments. Total rent expense for 1997, 1996 and 1995 was approximately
$13,300,000, $11,400,000 and $8,900,000, respectively. Future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
(In thousands)
YEAR ENDED DECEMBER 31 TOTAL
---------------------------------
<S> <C> <C>
1998 $ 9,631
1999 8,191
2000 7,324
2001 5,853
2002 4,502
2003 and thereafter 11,183
--------
$46,684
========
</TABLE>
NOTE 6 -- INCOME TAXES
The provision for income taxes in the accompanying consolidated statements
of operations consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current $2,836 $ 1,979 $2,784
Deferred (benefit) 2,679 (3,182) 225
-------------------------------
Income tax expense (benefit) $5,515 $(1,203) $3,009
===============================
</TABLE>
The provision (benefit) for income taxes differs from the statutory rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $ 4,808 $(1,208) $ 2,665
State and local income taxes net
of federal income tax benefit 558 (95) 250
Other 149 100 94
--------------------------------------
Income tax expense (benefit) $ 5,515 $(1,203) $ 3,009
======================================
</TABLE>
Income tax payments were $4,687,000, $4,006,000 and $4,562,000 in 1997,
1996 and 1995, respectively.
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
DEFERRED TAX DEFERRED TAX
-------------------------- ------------------------
(In thousands) ASSETS LIABILITIES ASSETS LIABILITIES
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $2,104 $1,607
Allowance for bad
debts $1,020 $1,394
Net operating loss
carryforward 621 97
Inventory reserves 462 684
Accrued compensation 581 667
Reserves for relocation
of equipment manu-
facturing operations 940 2,009
Prepaid expenses 406 355
Other 104 185 349 147
-------------------------- ------------------------
Total 3,728 2,695 5,200 2,109
Valuation allowance (621)
-------------------------- ------------------------
$3,107 $2,695 $5,200 $2,109
========================== =========================
</TABLE>
As of December 31, 1997, the Company has net operating loss carryforwards
of $1,800,000 for federal income tax reporting purposes which expire in varying
amounts, if unused, in years 1999 through 2011. The carryforwards relate to the
acquisition of Tri Delta Fertilizer, Inc. The availability of these
carryforwards is subject to certain limitations including those due to a change
in ownership of more than 50% of the value of Tri Delta's capital stock in a
one-year period. The Company has recorded a valuation allowance due to the
uncertainty of the utilization of the net operating loss carryforwards prior to
their expiration.
NOTE 7 -- CAPITAL STOCK AND STOCK PLANS
STOCK OPTIONS: The Company has stock option plans which provide for the issuance
of incentive stock options, non-qualified stock options, stock appreciation
rights (SARs) either in connection with, or independent of, any option, and
performance and other share awards. The plans provide for the issuance of a
maximum of 1,583,875 common shares to key employees.
Options are exercisable for up to 10 years, at an option price which
approximates the fair market value on the date the option is granted. Additional
paid-in capital includes tax benefits of $429,000, $205,000 and $352,000
relating to the exercise of options in 1997, 1996 and 1995, respectively. The
following table summarizes the changes in the outstanding options for the three
years ended December 31, 1997:
22
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LESCO, INC.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
- ------------------------------------------------------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 811,726 $13.09 635,076 $11.92 656,801 $10.26
Granted 97,850 17.69 272,050 14.56 142,250 15.51
Exercised (176,063) 11.82 (87,750) 9.01 (149,225) 8.60
Canceled/forfeited (10,075) 14.04 (7,650) 15.02 (14,750) 6.31
--------------------------- ---------------------------- ----------------------------
Outstanding - end of year 723,438 $13.86 811,726 $13.09 635,076 $11.92
=========================== ============================ ============================
Option price range at end of year $ 5.67 to $ 5.67 to $ 5.67 to
$21.50 $16.00 $16.00
Exercisable - end of year 596,268 679,726 635,076
Reserved for future grants 290,189 391,825 226,825
Weighted average fair value of
options granted during the year $ 4.55 $ 4.35 $ 4.58
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1997:
<TABLE>
<CAPTION>
RANGE OF OPTIONS OPTIONS WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISABLE EXERCISE PRICE CONTRACTUAL LIFE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.67 to $ 7.00 88,438 88,438 $ 6.47 2.2 years
$11.33 to $15.00 472,550 410,550 14.10 7.0 years
$16.00 to $21.50 162,450 97,280 16.51 7.0 years
------------------------------------------------------------------
723,438 596,268 $13.36 6.3 years
==================================================================
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation expense has been
recognized for the stock option plans as permitted under previously existing
accounting standards. Had compensation cost for the stock option plans been
determined based on the fair value at the grant date in accordance with SFAS No.
123, the Company's net income (loss) and related earnings (loss) per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
(In thousands, except share data) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $8,625 $(2,349) $4,827
Net income (loss) - pro forma $8,346 $(2,751) $4,453
Earnings (loss) per share -
as reported
Basic $ 1.06 $ (.29) $ .61
Diluted $ 1.02 $ (.29) $ .59
Earnings (loss) per share -
pro forma
Basic $ 1.03 $ (.34) $ .57
Diluted $ .98 $ (.34) $ .55
</TABLE>
Included in these pro forma disclosures are stock options issued in 1997,
1996 and 1995 that were 100% vested by the end of the year in which the options
were granted. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model, with the following weighted
average assumptions used for 1997, 1996 and 1995, respectively: dividend yield
of .62%, .69% and .68%; expected stock price volatility of .27, .28 and .29;
risk-free interest rate of 5.70%, 6.00% and 5.35%; and expected lives of four
years. This option valuation model requires input of highly subjective
assumptions and, in management's opinion, does not provide a reliable single
measure of the fair value of its employee stock options.
In 1993, the Company entered into an employment agreement with an executive
officer that provides for the issuance of non-qualified stock options to
purchase up to 300,000 common shares. Such options vest ratably over a five-year
period beginning June 30, 1994, and expire 10 years after each option vests. The
exercise price per share is $9.33 for the first 60,000 common shares and $10.00
for the remaining 240,000 common shares. Options for 270,589 shares were
outstanding and 210,598 shares were exercisable at December 31, 1997.
RIGHTS PLAN: In May 1994, the Company adopted a preferred share purchase rights
plan and declared a distribution of one Preferred Share Purchase Right (Right)
on each outstanding common share. The Rights will become exercisable if a person
or group acquires 20% or more of the Company's common shares, announces a tender
offer for 20% or more of the common shares or is declared an "adverse person" by
the Company's Board of Directors. Each Right entitles shareholders to buy one
one-hundredth of a share of a new series of participating preferred shares at an
exercise price of $75.00.
In addition, if a person or group acquires 20% or more of the Company's
outstanding common shares, each Right will entitle its holder (other than such
person or members of such group) to purchase one of the Company's common shares
(subject to certain adjustments) for a price of $.50 per share. If, after a
person acquires 20% or more of the Company's common shares, the Company is
acquired in a merger or other business combination transaction with such person,
or 50% or more of its assets or earning power are sold, each Right will entitle
its holder to purchase for a price of $.50 per share a specified number of the
acquiring Company's common shares.
Prior to the acquisition by a person or group of 20% or more of the
Company's common shares, the Rights are redeemable for one cent per right at the
option of the Board of Directors. The Rights expire on May 31, 2004.
PERFORMANCE SHARE PLAN: During 1996, the Company established a Long-Term
Performance Plan which grants restricted common stock awards to certain
officers. These officers are entitled to receive common stock of the Company
based upon certain performance criteria over a three-year performance period.
Participants in the plan have the rights of shareholders, including the right to
receive dividends and the right to vote. In 1996, 23,029 shares were granted
with a fair market value of $334,000,
23
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LESCO, INC.
of which 4,728 shares with a fair market value of $69,000 were forfeited in
1997. Compensation expense of $177,000 was recognized in 1997 under this plan,
based upon the probability that certain threshold performance criteria would be
met. This activity is reflected in the shareholders' equity as unearned
compensation and amortization of unearned compensation.
NOTE 8 -- DEFINED CONTRIBUTION RETIREMENT PLAN
The Company maintains a defined contribution retirement plan for its
employees. The Company matches the contributions of participating employees on
the basis of percentages specified in the plan. Company contributions to the
plan were $465,000, $454,000 and $364,000 for 1997, 1996 and 1995, respectively.
NOTE 9 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(In thousands, except share data) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net income (loss) $ 8,625 $ (2,349) $ 4,827
DENOMINATOR:
Denominator for basic
earnings per share -
weighted average
shares 8,136,144 8,007,001 7,878,298
Effect of dilutive
securities:
Employee stock options 341,643 -- 254,428
Performance shares 18,301 -- --
----------------------------------------------------
Dilutive potential
common shares 359,944 -- 254,428
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions 8,496,088 8,007,001 8,132,726
====================================================
EARNINGS (LOSS) PER SHARE
Basic $ 1.06 $ (0.29) $ 0.61
====================================================
Diluted $ 1.02 $ (0.29) $ 0.59
====================================================
</TABLE>
NOTE 10 -- OTHER COSTS AND EXPENSES
A summary of significant items included in the statements of operations is
as follows:
<TABLE>
<CAPTION>
OTHER COST
(In thousands) OF SALES OTHER EXPENSES
- ------------------------------------------- ------------------------------------
FOR THE YEARS ENDED
DECEMBER 31 1996 1997 1996 1995
- ------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Costs related to the
relocation of equipment
manufacturing
operations $4,555 -- $1,353 --
Inventory reserves 2,216 -- -- --
Provisions for
uncollectible
accounts receivable -- $ 818 3,392 $1,035
----------- ------------------------------------
$6,771 $ 818 $4,745 $1,035
=========== ====================================
</TABLE>
In October 1996, the Company entered into an agreement to create a joint
venture to manufacture commercial turf care equipment. In conjunction with this
joint venture, the Company decided to relocate the equipment manufacturing
operations of its Sebring, Florida, plant facility. Accordingly, certain costs
related to this plant relocation were recognized during the fourth quarter of
1996, and consist of inventory valuation reserves of $4,555,000 and other
related plant shutdown costs of $1,353,000. In 1997, the Company began carrying
out its plan to relocate these equipment manufacturing operations. Accordingly,
costs totaling $3,144,000 were paid and charged against the accrual. The Company
anticipates that the shutdown process will be completed in 1998.
During 1996, the Company conducted a comprehensive
product evaluation, which led to the discontinuance of certain
finished goods inventory items. As a result of this evaluation, an inventory
redeployment program was implemented in order to consolidate discontinued and
slow-moving finished goods inventories from the Company's respective Service
Center and golf truck facilities into more centralized locations for
redistribution and liquidation. As a result of this process, the historical cost
of certain inventory items was reduced by $2,216,000 during the fourth quarter
of 1996 to reflect its estimated net realizable value.
Additionally, in the fourth quarter of 1996, the Company revised its
estimated accounts receivable write-off percentages to more closely reflect
current collection trends. The increase in the estimated write-off rates
resulted in a $1,931,000 charge to operations in the fourth quarter of 1996.
The combined effect of these items decreased pre-tax income in the fourth
quarter of 1996 by $10,055,000, and after-tax income by $6,636,000, or $.83 per
share (diluted).
NOTE 11 -- SUBSEQUENT EVENT
On January 30, 1998, the Company completed the purchase of certain assets
of Agriturf, Inc. of Hatfield, Massachusetts, and Cadwell & Jones, Inc. of
Manchester, Connecticut, for $6,000,000 in cash, plus the assumption of
approximately $2,100,000 of debt. The asset purchase included land, a fertilizer
manufacturing facility and related warehouse, working capital and manufacturing
equipment.
NOTE 12 -- QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1997, and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED 1997
(In thousands, -------------------------------------------------------------
except share data) MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 65,267 $111,128 $103,243 $ 77,203
Gross profit 22,251 36,796 33,878 20,738
Net (loss) income (1,009) 6,276 4,445 (1,087)
(Loss) earnings per share:
Basic (.13) .77 .54 (.13)
Diluted (.13) .74 .51 (.13)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1996
-------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 53,533 $104,444 $ 91,316 $ 62,738
Gross profit 17,999 33,093 29,247 13,096
Net (loss) income (1,716) 4,759 3,601 (8,993)
(Loss) earnings per share:
Basic (.21) .60 .45 (1.12)
Diluted (.21) .57 .43 (1.12)
</TABLE>
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, may not equal the amount computed on an annual
basis. During the fourth quarter of 1997, net income decreased by approximately
$316,000 or $.04 per share (diluted) due to changes in prior quarter estimates
relating to inventory adjustments. See Note 10 regarding Other Costs and
Expenses, which decreased 1996 fourth-quarter gross profit by $6,771,000 and
1996 fourth-quarter net income by $6,636,000, or $.83 per share.
24
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of LESCO, Inc. of our report dated February 17, 1998, included in the 1997
Annual Report to Shareholders of LESCO, Inc.
Our audits also included the financial statement schedule of LESCO, Inc. listed
in Item 14(a). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-38118) pertaining to the LESCO, Inc. Stock Investment and
Salary Savings Plan and Trust, in the Registration Statement (Form S-8 No.
33-22685) pertaining to the LESCO, Inc. 1988 Stock Option Plan and Stock Bonus
Plan and in the Registration Statement (Form S-8 No. 33-82490) pertaining to the
LESCO, Inc. 1992 Stock Incentive Plan and the Employment Agreement by and
between LESCO, Inc. and William A. Foley, of our report dated February 17, 1998,
with respect to the financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of LESCO, Inc.
/s/Ernst & Young LLP
Cleveland, Ohio
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,403
<SECURITIES> 0
<RECEIVABLES> 68,869
<ALLOWANCES> 3,000
<INVENTORY> 82,174
<CURRENT-ASSETS> 160,115
<PP&E> 63,215
<DEPRECIATION> 27,238
<TOTAL-ASSETS> 200,318
<CURRENT-LIABILITIES> 42,404
<BONDS> 83,353
0
0
<COMMON> 825
<OTHER-SE> 71,468
<TOTAL-LIABILITY-AND-EQUITY> 200,318
<SALES> 356,841
<TOTAL-REVENUES> 356,841
<CGS> 238,392
<TOTAL-COSTS> 238,392
<OTHER-EXPENSES> (2,806)
<LOSS-PROVISION> 818
<INTEREST-EXPENSE> 4,749
<INCOME-PRETAX> 14,140
<INCOME-TAX> 5,515
<INCOME-CONTINUING> 8,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,625
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 5,828 4,600 2,791
<SECURITIES> 0 0 0
<RECEIVABLES> 79,342 78,022 74,525
<ALLOWANCES> 4,140 5,326 4,648
<INVENTORY> 82,335 86,649 87,806
<CURRENT-ASSETS> 169,947 170,101 172,012
<PP&E> 56,050 50,321 49,264
<DEPRECIATION> 28,638 26,482 25,471
<TOTAL-ASSETS> 202,073 198,919 200,910
<CURRENT-LIABILITIES> 52,684 66,836 59,390
<BONDS> 75,098 63,429 78,967
825 815 809
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 71,839 66,212 60,116
<TOTAL-LIABILITY-AND-EQUITY> 202,073 198,919 200,910
<SALES> 279,638 176,395 65,267
<TOTAL-REVENUES> 279,638 176,395 65,267
<CGS> 186,661 117,347 43,014
<TOTAL-COSTS> 186,661 117,347 43,014
<OTHER-EXPENSES> (2,238) (1,005) (546)
<LOSS-PROVISION> 1,478 1,257 452
<INTEREST-EXPENSE> 3,446 2,324 1,249
<INCOME-PRETAX> 15,919 8,633 (1,654)
<INCOME-TAX> 6,209 3,367 (645)
<INCOME-CONTINUING> 9,710 5,266 (1,009)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 9,710 5,266 (1,009)
<EPS-PRIMARY> 1.19 .65 (.13)
<EPS-DILUTED> 1.14 .63 (.13)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 1,900,254 5,297,933 8,848,162 3,244,998
<SECURITIES> 0 0 0 0
<RECEIVABLES> 61,523,821 73,164,243 74,551,674 62,845,442
<ALLOWANCES> 4,100,000 3,895,000 3,666,000 2,939,000
<INVENTORY> 68,090,226 75,639,717 78,925,751 89,903,077
<CURRENT-ASSETS> 136,546,936 153,243,245 161,356,705 156,252,694
<PP&E> 47,746,663 46,054,028 45,076,331 44,021,331
<DEPRECIATION> 24,454,432 23,737,603 22,868,741 22,165,729
<TOTAL-ASSETS> 164,672,866 180,307,473 188,401,269 182,991,117
<CURRENT-LIABILITIES> 36,642,577 49,439,717 53,092,555 48,136,888
<BONDS> 64,704,132 59,441,222 67,578,074 71,314,691
0 0 0 0
0 0 0 0
<COMMON> 806,752 802,249 801,599 799,283
<OTHER-SE> 60,892,726 69,492,285 65,797,041 61,608,255
<TOTAL-LIABILITY-AND-EQUITY> 164,672,866 180,307,473 188,401,269 182,991,117
<SALES> 312,030,958 249,293,053 157,977,250 53,533,207
<TOTAL-REVENUES> 312,030,958 249,293,053 157,977,250 53,533,207
<CGS> 218,596,162 168,954,196 106,885,032 35,534,381
<TOTAL-COSTS> 218,596,162 168,954,196 106,885,032 35,534,381
<OTHER-EXPENSES> (3,036,854) (2,295,359) (1,313,533) (554,888)
<LOSS-PROVISION> 3,391,780 1,103,742 978,665 351,133
<INTEREST-EXPENSE> 4,213,732 3,089,009 2,076,609 985,172
<INCOME-PRETAX> (3,551,985) 10,893,071 4,988,855 (2,813,064)
<INCOME-TAX> (1,203,000) 4,249,000 1,946,000 (1,097,000)
<INCOME-CONTINUING> (2,348,985) 6,644,071 3,042,855 (1,716,064)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,348,985) 6,644,071 3,042,855 (1,716,064)
<EPS-PRIMARY> (.29) .83 .38 (.21)
<EPS-DILUTED> (.29) .80 .37 (.21)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,619,515
<SECURITIES> 0
<RECEIVABLES> 50,194,739
<ALLOWANCES> 2,500,000
<INVENTORY> 60,773,248
<CURRENT-ASSETS> 115,502,691
<PP&E> 42,871,750
<DEPRECIATION> 21,430,906
<TOTAL-ASSETS> 137,821,223
<CURRENT-LIABILITIES> 29,553,019
<BONDS> 43,257,818
0
0
<COMMON> 795,674
<OTHER-SE> 63,082,712
<TOTAL-LIABILITY-AND-EQUITY> 137,821,223
<SALES> 241,666,554
<TOTAL-REVENUES> 241,666,554
<CGS> 160,575,974
<TOTAL-COSTS> 160,575,974
<OTHER-EXPENSES> (2,245,924)
<LOSS-PROVISION> 1,034,906
<INTEREST-EXPENSE> 2,830,837
<INCOME-PRETAX> 7,835,799
<INCOME-TAX> 3,009,000
<INCOME-CONTINUING> 4,826,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,826,799
<EPS-PRIMARY> .61
<EPS-DILUTED> .59
</TABLE>
