<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 2-98277C
THE COLONEL'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3262264
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
620 SOUTH PLATT ROAD, MILAN, MICHIGAN 48160
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 439-4200
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 Par Value
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 is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
<PAGE>
Number of shares outstanding of the registrant's Common Stock, $0.01 par
value (excluding shares of treasury stock) as of March 20, 1997: 24,177,805
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant based on the closing price on the Nasdaq
SmallCap Market on March 20, 1997: $4,861,440.
===========================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
THE COLONEL'S INTERNATIONAL, INC.
The Colonel's International, Inc. (the "Company") is a publicly held
holding company. It owns all of the stock of three subsidiaries: The
Colonel's, Inc. ("The Colonel's"), Brainerd International Raceway, Inc.
("BIR") and, effective January 1, 1997, The Colonel's Truck Accessories,
Inc. ("CTA").
The Company is the successor to Brainerd International, Inc.
("Brainerd"). Effective December 31, 1995, Brainerd merged with and into
the Company, with the Company being the surviving corporation (the
"Merger"). Pursuant to the Merger, shares of Brainerd common stock were
converted into the same number of shares of the Company's Common Stock.
Also effective December 31, 1995, Brainerd Merger Corporation, a wholly
owned subsidiary of Brainerd, merged with and into The Colonel's. The
Colonel's was the surviving corporation in this merger and, as a result,
became a wholly owned subsidiary of the Company. At the same time,
Brainerd transferred all of its operating assets to BIR, which became the
other subsidiary of the Company. Effective January 1, 1997, The Colonel's
transferred its truck bed liner operations to CTA, which is the third
subsidiary of the Company.
THE COLONEL'S, INC.
GENERAL
The Colonel's is a leading domestic manufacturer of plastic
replacement bumpers and facias for the automotive aftermarket industry in
North America. The Colonel's designs, manufactures and distributes plastic
bumpers, facias, support beams and brackets for application as replacement
collision parts for domestic automobile models. In addition, The Colonel's
purchases and resells plastic replacement bumpers and facias for use as
replacement collision parts on import automobile models and for models
manufactured domestically by foreign-based automobile manufacturers, and
manufactures parts for these models to a limited extent. The Colonel's
manufactures its products through the use of reaction injection molding and
plastic injection molding technology at its manufacturing facility in
Michigan.
The Colonel's distributes its products through warehouses operated
by it or its affiliates located in Michigan, Texas, Arizona, New Jersey,
California and Arkansas. The Colonel's sells its products through a
network of independent distributors located in all fifty states, the
District of Columbia, Puerto Rico, Canada, Mexico and the Bahamas.
2
<PAGE>
The Colonel's strategy is to provide a readily available, high
quality, low cost alternative to original equipment manufacturer ("OEM")
replacement bumpers, facias and other plastic components through The
Colonel's streamlined manufacturing process and extensive distribution
network.
PRODUCTS
The Colonel's designs, manufactures and distributes plastic bumpers,
facias, support beams and brackets for application as replacement collision
parts for current, high volume, domestic automobile models. It also
purchases and resells plastic bumpers and facias for application as
replacement collision parts on current, high volume, import automobile
models, including automobiles manufactured domestically by foreign-based
companies. The products manufactured and sold by The Colonel's are
primarily plastic molded front and rear bumper panels designed for
application to specific automobile makes and models. The Colonel's
products are sold for distribution to collision repair shops, dealers and
others in the automobile aftermarket collision industry and are used for
the replacement of damaged automobile bumpers and related components.
The table set forth below shows The Colonel's sales from 1992 through
1996, divided between products which are manufactured by The Colonel's and
products which are purchased by The Colonel's from other manufacturers and
marketed by The Colonel's:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Manufactured Products 89% 88% 89% 90% 91%
Purchased Products 11% 12% 11% 10% 9%
</TABLE>
Each product manufactured or distributed by The Colonel's is designed
for application to an automobile or truck of a specific make, model and
year. Certain products may have more than one application because
different, but similarly designed, automobile models may have identical
bumpers or plastic molded components or because different years of the same
model automobile may have identical bumpers or plastic molded components.
In selecting products to manufacture and distribute, The Colonel's targets
high volume automobile models and models that statistically incur a higher
frequency of accidents, since these models support a higher volume of
product sales for each dollar invested in production tooling.
A majority of the specified parts manufactured by The Colonel's are
produced to meet the design standards and engineering tolerances of the
3
<PAGE>
Certified Auto Parts Association ("CAPA"), a national standard setting
organization. A sticker acknowledging compliance with these standards and
tolerances is affixed to each certified part manufactured by The Colonel's.
CAPA is an independent association that publishes specifications for high
quality aftermarket automobile body parts and certifies specific products
as equivalent to factory built service and replacement body parts. CAPA
only certifies parts for domestic automobile models. Approximately 71% of
the automotive qualified bumpers manufactured by The Colonel's are examined
and tested by CAPA and are certified as equivalent or superior to
comparable OEM replacement parts in terms of fit, form, function and
material grade. The Colonel's certified products are listed in the
nationally distributed CAPA Directory of Certified Competitive Auto Parts,
and the CAPA certification of The Colonel's bumpers is generally relied
upon throughout the automobile aftermarket industry and the automobile
insurance industry as an assurance of quality and dependability.
As of December 31, 1996, The Colonel's manufactured and distributed
molded plastic replacement components for a total of 420 automotive
applications and purchased and distributed replacement components for
approximately 1,511 automotive applications. The Colonel's anticipates
continuing to manufacture and distribute replacement components for an
equal or greater number of applications in future operations. The
Colonel's plans to manufacture additional types of plastic automotive
replacement components, including OEM bumper recycling. The Colonel's
believes that there are numerous additional automobile applications for its
manufacturing process including doors, hoods, fenders and other body or
interior components and believes that plastic components will continue to
be utilized in an increased number of applications by automobile OEMs.
Only new tooling for the injection presses and certification of new
products need be obtained to add additional applications to existing lines.
Additionally, The Colonel's existing manufacturing facilities have the
capacity to produce an increased volume of products through the addition of
work shifts.
The Colonel's believes it maintains a significant market advantage by
offering its automotive replacement components at lower prices than those
offered by OEMs for comparable replacement components. The Colonel's
believes that its products are equivalent in quality, durability and
function to OEM-manufactured replacement components, but are generally sold
at prices that are less than the OEM suggested list price. Furthermore,
The Colonel's believes its competitive pricing secures a significant market
advantage for its products in the aftermarket collision industry.
Competitive pricing of collision parts is generally believed to be
particularly important to automobile insurance companies which fund the
purchase of a significant percentage of automotive crash replacement parts.
The Colonel's provides a limited lifetime warranty against defects in
material and workmanship and guarantees that its products generally meet or
exceed factory and industry specifications.
4
<PAGE>
MANUFACTURING
The Colonel's uses two distinct chemical processes to manufacture its
plastic products. The production cycle for each process is similar. Raw
materials are introduced into a machine press that contains a machined tool
or mold. Heat and pressure are applied to the raw materials, forcing them
into the shape of the mold. The resulting plastic molded part is then
removed from the molds to an adjacent work station where small amounts of
excess plastic are trimmed from each part. After trimming, the part is
cleaned and placed on a conveyor belt leading to the paint application
room. There, the part is typically painted with a water-based black primer
finish. After the finish is dried in infrared ovens on the conveyor belt,
each part is then labeled and placed in a plastic bag, packaged in a box
and shipped or stored for shipment.
The Colonel's primarily uses custom molding machines manufactured by
Cincinnati Milacron, which management believes are generally recognized as
state-of-the-art for the industry. The tooling is primarily made of zinc
alloy or steel and are built to The Colonel's specifications. The
Colonel's presently maintains over 297 specially designed tools, enabling
production of approximately 420 different automotive applications.
The primary manufacturing process used by The Colonel's is referred
to as Reaction Injection Molding or the "RIM" process. Because the RIM
process is a low-temperature, low-pressure operation, The Colonel's can use
zinc alloy tools for a majority of its manufacturing. Zinc alloy tools are
less expensive to build than conventional steel injection molds.
The raw materials for the RIM process, consisting of polyol and
polyisocyanate, are available from several sources. The materials are
stored in two large closed tanks and are distributed to the presses by a
computer-regulated flow monitoring system. In the RIM process, two
reactive streams (a polyol containing extenders, catalysts and a blowing
agent; and a polyisocyanate) are mixed together under controlled
temperatures and pressures while being injected into the tooling attached
to each press.
The RIM tool is filled to approximately 90% of capacity during the
injection process. A chemical reaction causes the material to heat and
expand, forcing air out through a vent and allowing the material to fill
the mold completely. The result is a microcellular plastic elastomeric or
polyurethane part. The polyurethane part produced is lightweight,
corrosion resistant and will recover its original form after minor impact,
lessening the likelihood of automobile body damage at very low speeds.
An alternative process used by The Colonel's is referred to as
injection molding. In injection molding, small pellets containing reactive
polymers and catalysts are melted through heat and pressure. The melted
5
<PAGE>
material is forced into the mold until it is completely filled. The result
is a thermoplastic olefin polypropylene part. A significant benefit of
this process is that excess plastic can be reused after it has been trimmed
off a completed part. Additionally, a part manufactured using this
injection molding process that is damaged in production or rejected as
scrap for quality-control reasons can be reground into pellets and
completely recycled and used again as raw material. The recycling ability
offered by the injection molding process appears increasingly important
with steadily rising solid waste disposal costs.
At the end of each production run, the tooling and the last part
produced by the tooling are inspected by production personnel. Preventive
maintenance and repair of the tooling are performed on-site by The
Colonel's tool and die personnel in order to minimize waste, reduce down-
time, prolong tooling life and maintain product quality.
DISTRIBUTION AND SALES
The Colonel's products are distributed nationally from its
manufacturing facility and from affiliated warehouse facilities. The
Colonel's manufacturing facility is located in Milan, Michigan. Products
are shipped by The Colonel's directly from its manufacturing facility to
customers or to distribution warehouses operated by The Colonel's or its
distributors. The Colonel's believes that its success has been achieved in
part because of an emphasis on rapid delivery of customer orders. To
accomplish this, it maintains large inventories of the products it
manufactures. In most cases customer orders are shipped within 48 hours.
The Colonel's four sales personnel have responsibility for sales and
distribution of its products, promotion and advertising. The sales staff
is located at the main headquarters in Milan, Michigan.
The Colonel's also operates a warehouse distribution facility in
Houston, Texas. The distribution facility is approximately 25,410 square
feet in size, has four full-time employees and is leased by The Colonel's
pursuant to a lease agreement having a term through July 1998.
The Colonel's operates a second warehouse distribution facility in
Dallas, Texas. This distribution facility is approximately 25,000 square
feet in size, has five full-time employees and is leased by The Colonel's
pursuant to a lease agreement having a term through September 1998.
The Colonel's operates a third warehouse distribution facility in
Phoenix, Arizona. This distribution facility is approximately 52,360
square feet in size, has four full-time employees and is leased by The
Colonel's pursuant to a lease agreement having a term through January 2000.
6
<PAGE>
The Colonel's fourth warehouse distribution facility is in Totowa, New
Jersey. This facility is approximately 23,000 square feet and is leased
through March 1999. The facility employs five full-time employees.
The Colonel's operates a fifth warehouse distribution facility in
Arkansas. This facility is approximately 65,000 square feet and is leased
through September 1998. In addition to acting as a warehouse and
distribution facility, this facility also manufacturers recycled bumpers.
The bumpers are sold through all of The Colonel's distribution warehouses
and to many of the same customers as The Colonel's. Stock is transferred
among warehouses at cost.
The Colonel's maintains a fleet of 17 trucks for the transportation
and distribution of its products. The Colonel's trucks are maintained
pursuant to capital and operating equipment leases and are operated by 21
full-time drivers employed by The Colonel's. Approximately 60% of The
Colonel's products are delivered by The Colonel's trucks. The balance of
The Colonel's products are shipped by common carrier FOB to customer
locations at the customer's expense. The means of delivery utilized by The
Colonel's, in combination with fairly flexible manufacturing processes,
allows orders to be filled on a faster basis than by OEM competitors.
Plastic replacement parts for import model automobiles purchased
internationally for domestic resale are generally transported to
distribution warehouse facilities at The Colonel's expense.
The Colonel's products are principally marketed through independent
distributors and are sold primarily to automobile collision body shops,
automobile aftermarket supply stores and to regional and national chain
stores that sell automobile aftermarket parts. There are approximately 80
independent distributors for The Colonel's products, located in all 50
states, the District of Columbia, Puerto Rico, Canada, Mexico and the
Bahamas. The distributors for The Colonel's are not limited to exclusive
sales of The Colonel's products and The Colonel's does not have any written
agreements with its distributors. Compared with OEMs that generally sell
only their own parts to service departments in a dealership network, The
Colonel's offers a relatively full line of replacement bumpers and facias
for multiple automobile models and sells directly to distributors, body
shops, automobile service centers and retail customers.
The Colonel's participates in industry and automotive trade shows
each year, including Automobile Body Parts Association, Bumper Recyclers
Association of North America and National Automotive Congress Expo, at which
The Colonel's promotes its lines of plastic bumpers, facias, support beams
and brackets. The Colonel's products have been reviewed in national
industry publications such as COLLISION PARTS JOURNAL, BODY LANGUAGE and
VOICE OF THE AUTOMOTIVE BODY PARTS ASSOCIATION and approximately 71% of
The Colonel's manufactured qualified facias are listed in the CAPA
Directory of Aftermarket Body Parts. The Colonel's also promotes its
7
<PAGE>
products through advertisements in specialized trade and consumer
magazines, through distribution of various professionally prepared
product catalogs and brochures and through publication of a quarterly
newsletter distributed to customers. In addition, The Colonel's
sponsors an annual conference with its major customers and suppliers
in order to strengthen customer and supplier relations and facilitate
feedback with respect to product performance, emerging technology and
current market demands.
COMPETITION
The automotive aftermarket for plastic replacement bumpers and facias
is highly competitive. The market is dominated by OEMs such as General
Motors Corporation; Ford Motor Company; Chrysler Corporation; Toyota Motor
Sales, USA, Inc. and Nissan Motor Corp., USA. These OEMs are more
established and have greater financial resources than The Colonel's. These
larger OEMs, however, also generally charge higher prices than The
Colonel's for their products and generally distribute their products
through their own automobile dealership networks rather than through
independent distributors and body shops. Automobile insurance companies
have successfully advocated the use of less expensive parts by body shops,
and OEMs have lost market share in the collision parts market as a result.
This may lead OEMs to reduce their prices or pursue such strategies as
industrial rights litigation against aftermarket parts competitors.
In addition, The Colonel's competes with other non-OEM manufacturers
of plastic bumpers for the automotive aftermarket industry in North
America. The Colonel's believes it is larger and offers a wider selection
of products than any of its non-OEM competitors. Recycling companies and
auto salvage companies also compete with The Colonel's; however, The
Colonel's believes that such competitors are generally small in size,
service only local or regional markets and offer products of varying
quality.
There are also a number of potential competitors to The Colonel's
for the non-OEM market. Certain companies based in Asia manufacture
replacement plastic automobile bumpers and facias for imported and
domestically made foreign automobiles. There can be no assurance that
these foreign companies that manufacture plastic automotive replacement
parts will not enter the domestic replacement bumper and facia market and
directly compete with The Colonel's products.
PLANT FIRE AND INSURANCE SETTLEMENT
On June 1, 1993, The Colonel's manufacturing facility in Owosso,
Michigan, which included its headquarters, sales offices and manufacturing
warehouse, was destroyed by a fire. The fire caused a complete loss of the
280,000 square foot leased facility. It destroyed inventory, severely
damaged equipment and other contents therein. As a result of the fire, The
8
<PAGE>
Colonel's transferred certain of its headquarters personnel and production
to its production facility located in Sarasota, Florida, on an interim
basis, to supplement a portion of the lost production of the Owosso
facility. In November 1993, The Colonel's relocated its principal
operations to Milan, Michigan, and by August 1994, was producing its full
range of products at the Milan facility. Subsequently, all manufacturing
operations in Florida were ceased in 1994.
The Colonel's finalized negotiations with its insurance carrier for
amounts to be received on all policies in effect at the date of the fire.
Total insurance proceeds received for the replacement cost of lost
property, lost profits and other direct costs of the fire were
approximately $31,000,000, of which approximately $6,630,000 was due to a
shareholder as indemnification of damages to the Owosso facility. The
Colonel's recognized as other income a net gain of approximately $9,082,000
and $9,043,000 in 1994 and 1993, respectively, representing the amount by
which its insurance proceeds of $24,370,000 exceeded the sum of the net
book value of the assets destroyed and the liabilities resulting from the
fire.
PROPERTIES
In November 1993, The Colonel's relocated its principal operations and
headquarters to Milan, Michigan and began leasing a 350,000 square foot
facility from a company owned by certain shareholders of The Colonel's.
The address of the Milan facility is 620 South Platt Road, Milan, Michigan
48160. All of The Colonel's manufacturing is now conducted at the Milan
facility. The Colonel's believes the Milan manufacturing facility is
suitable for its requirements and has adequate capacity to accommodate
foreseeable production demands. In addition to The Colonel's single
manufacturing facility located in Milan, a description of all other sales
and distribution facilities used by The Colonel's is contained above under
the heading "Distribution and Sales."
POSSIBLE INDUSTRIAL DESIGN CLAIMS AND LITIGATION
The Colonel's manufactures replacement automobile parts that
substantially resemble original automotive parts manufactured by domestic
and foreign OEMs. The Colonel's marks and packages its products with its
corporate name and distributes its products so as not to lead purchasers to
conclude that they are purchasing OEM-manufactured collision parts.
However, The Colonel's is aware that some potential exists for marketplace
confusion notwithstanding its efforts to avoid product confusion. For
example, defective OEM-manufactured parts are sometimes mistakenly returned
to The Colonel's for replacement under The Colonel's product warranty.
Other companies in the collision parts industry have from time to time
been the subject of claims and lawsuits brought by OEMs based on claims of
9
<PAGE>
intellectual property right infringements. While The Colonel's has not to
date been notified of any such claims or been subjected to any such
litigation, there can be no assurance that future claims will not be made
or that litigation will not be commenced against The Colonel's based on
allegations of infringements of intellectual property rights. There also
can be no assurance that if any such claims are made or litigation
commenced, that such claims or litigation would not adversely affect The
Colonel's operations.
POSSIBLE FEDERAL INDUSTRIAL DESIGN LEGISLATION
Legislation has been introduced in the United States House of
Representatives on a number of occasions that would provide a mechanism for
registration of certain product design features and would expand copyright
protection for designs of replacement parts. If enacted, such legislation
might prohibit The Colonel's from manufacturing and distributing its
products using shapes and designs similar to those of OEMs that register
design features of automobile bumpers or components. Such a prohibition
could require The Colonel's to commit significant additional funds to
analyze the product design of products of its OEM competitors. Even if The
Colonel's were to undertake such additional analysis, there can be no
assurance that The Colonel's product designs would not be subject to
challenge by OEMs. The Colonel's could be required to expend significant
resources for the defense of such challenges, and it could be exposed to
liability if it was found to have violated a valid design registration.
Accordingly, passage of such legislation could effectively preclude The
Colonel's from continuing its operations. It is not possible to predict
whether legislation will, in fact, ever be passed. If such legislation is
enacted, however, it is probable that it would adversely affect The
Colonel's. Industrial design legislation has been opposed by
representatives of the automobile collision repair industry, the automobile
insurance industry and by various consumer organizations. However, there
can be no assurance that such opposition will prevent the passage of
"design-rights" legislation or the passage of compromise legislation that
could extend design rights for OEM automobile parts.
FOREIGN INDUSTRIAL DESIGN PROTECTION LAWS
The Colonel's presently distributes and sells its products in Canada
and Mexico. Such sales represented 4.3% of total sales in 1996. Canadian
law extends protection for a period of up to ten years to registered
industrial designs having novelty in appearance as opposed to novelty of
mechanical construction, physical composition or method of operation.
Mexican law extends protection for a period of up to seven years to
registered designs under ornamentality and novelty standards similar to
Canadian law. The Colonel's management believes that most bumper and facia
designs lack the requisite degree of novelty to qualify for design
registration in Canada or Mexico. The Colonel's has not been the subject
10
<PAGE>
of or threatened with any design right claims under Canadian or Mexican
law; however, there can be no assurance that The Colonel's will not be the
subject of future design rights claims under Canadian or Mexican law or
that Canada or Mexico will not amend existing laws or enact more
restrictive protections for industrial design rights that could adversely
affect sales of The Colonel's products in those countries.
POSSIBLE ADDITION OF INDUSTRIAL DESIGN PROVISIONS TO GENERAL AGREEMENT
ON TARIFFS AND TRADE
Representatives from numerous countries meet periodically to negotiate
changes in the General Agreement on Tariffs and Trade ("GATT"), which was
originally drafted in 1947. GATT determines many of the basic rules for
trade between countries that are signatories to it. In April 1994, 124
countries, including the United States, concluded more than seven years of
talks under the Uruguay Round of GATT. The Uruguay Round Agreement Act was
approved by the U.S. Congress and signed by President Clinton in December
of 1994 and took effect with respect to the United States on January 1,
1995.
As extended in the Uruguay Round, GATT provides greater protection for
intellectual property rights, such as patents, trademarks and copyrights.
Although it was reported that restrictive protections for automotive parts
made by OEMs and possible "industrial design rights" were considered, no
provisions of GATT specifically require signatory nations to extend
industrial design rights protection to any of the replacement products
manufactured by The Colonel's. If restrictive design rights for OEM
automotive parts were ever adopted as a part of GATT, it might have a
significant adverse impact on The Colonel's business. Under the Uruguay
Round, GATT signatory nations are scheduled to reconvene in the year 2000
to consider further terms for market liberalization and trade expansion.
EMPLOYEES
As of December 31, 1996, The Colonel's had approximately 174 full-time
employees (including leased employees as described below), including 14
salaried managerial and administrative employees and 160 hourly employees.
Of the total number of employees, 138 were in manufacturing, and the
balance was in sales, marketing, administrative and executive positions.
The Colonel's considers its employee relations to be good.
Approximately 144 of the hourly workers at the Milan facility are
leased from Human Resource Committee (HRC4), an employment brokerage
service. HRC4 provides paychecks and benefits to these employees and also
pays the workers' compensation insurance and payroll taxes relating to
these employees. The Colonel's pays a service fee to HRC4 in accordance
with the contract between HRC4 and The Colonel's.
11
<PAGE>
ENVIRONMENTAL REMEDIATION
The Colonel's is responsible for the cleanup of hazardous materials
and ground contamination located at the Owosso, Michigan facility as a
result of the fire in June 1993. See "Plant Fire and Insurance
Settlement." In August 1993, the Michigan Department of Natural Resources
required that The Colonel's perform a complete hydrogeological study of
this site to determine the extent of the contamination. The Colonel's will
engage environmental consultants in the summer of 1997 to determine the
extent of the hazardous materials located at this site, if any, and the
cost of any cleanup. The cost of any cleanup that may be required at the
Owosso site is not expected to have a material adverse impact on the
financial position of The Colonel's.
As part of the lease agreement with a related party for the Milan,
Michigan facility, The Colonel's is also responsible for up to $2,000,000
of the costs of remediation of hazardous material, if any, that existed at
this site prior to The Colonel's entering into the lease in June 1993. The
Colonel's has accrued reserves for all estimated cleanup costs based on an
environmental study of the site. The cost of any remediation that may be
required at the Milan facility is not expected to have a material adverse
impact on the financial position of The Colonel's.
THE COLONEL'S TRUCK ACCESSORIES, INC.
GENERAL
In 1995, the Company determined that there was an opportunity within
the new and used vehicle accessories market. This opportunity was
attractive to the Company because many of such accessories are produced
from plastics that are already an integral part of the Company's current
manufacturing capability and because they share like, though not identical,
distribution systems. Further, the Company believed that many of the major
manufacturers in this segment were becoming complacent. These competitors
have not updated their technology for some time and are not providing the
highest quality products and service to their customers, in the Company's
opinion.
As a result of this analysis, the Company formed CTA and launched
the first of what it expects will be several accessory products to be
manufactured and distributed by CTA. This first product line is a truck bed
liner.
Truck bed liners are plastic inserts that are placed into the rear
beds of pickup trucks. Owners purchase these inserts to protect the paint
and structural integrity of their truck beds. Many manufacturer/distributors
of this product are already in the marketplace. Products range in quality
12
<PAGE>
from very poor to excellent. Poor liners have bad fit and finish, may
require special drilling into the vehicle to support mounting attachments
and are of thinner gauge plastic. Excellent products do not have these
deficiencies. Other differentiating features of better products include
side wall reinforcements, drainage channels and other features. In the
Company's opinion, CTA makes an excellent product that is competitive
with the leading manufacturer's best product.
Once the decision to enter this market was made, CTA required only
13 months to bring the manufacturing plant on line. The plant commenced
operations in May 1996 and successfully commenced marketing and
distribution in the last two quarters of that year. Prior to 1997, these
operations were conducted by The Colonel's. Effective January 1, 1997,
however, these operations were transferred to CTA.
PRODUCTS
CTA's accessory product line currently consists of one main product,
a truck bed liner, that is made to fit a number of different models. CTA
produces both under-the-rail and over-the-rail products. In the aggregate,
CTA manufactures approximately 30 different liners. Additional products
within this line will be added if and when sales volume for existing
products increases and as the market demands.
MANUFACTURING
CTA has the very latest in plastic sheet extrusion machines (2) and
rotary vacuum formers (6) to produce liners. Raw materials, supplied by
Phillips Petroleum, are maintained in large vessels in the CTA's Owosso,
Michigan plant. Keeping these materials inside avoids temperature and
humidity changes that affect the extrusion process and the quality of the
plastic sheet. This reduces variations in the quality of CTA's extruded
sheets.
CTA believes that it is unique among all United States liner
manufacturers in the type of equipment and the control of product employed
in this operation. The ability to control every element of production from
raw materials to finished product makes CTA's operation preeminent in the
market, in the Company's opinion.
CTA's extruded plastic sheets are inserted into rotary vacuum formers
in order to produce truck bed liners. After the product is made by the
vacuum formers, it is hand trimmed and checked for quality assurance. The
product is then inventoried against shipment to customers. Inventory is
held within the Owosso plant facility and shipped by the CTA's fleet of
tractors and trailers.
13
<PAGE>
Total annual production capacity in the plant is estimated at over
700,000 units, assuming three shifts of operation. The facility currently
runs one shift per day.
DISTRIBUTION AND SALES
Distribution is made to a highly fragmented network of distributors
and dealers across the United States. Many of The Colonel's distributors
for its collision repair parts may at some time enter this market and allow
CTA to achieve significant efficiencies across its distribution channel.
CTA is also testing retail sales points for its liners coupled with
other accessory products produced by other manufacturers. The test market
for this point is Los Angeles, California, the number one media market in
the United States. The Los Angeles market has the largest number of truck
registrations in the United States. If this model proves successful, it
will be used as a template for sales points in other major markets.
Sales are directed from the Owosso facility through the marketing
manager to a force of four outside salespeople. CTA hopes to expand this
sales department in 1997 to sustain the momentum created by the initial
liner introduction and to penetrate new distribution channels.
MARKET
The market for liners is estimated at approximately 50% of the total
volume of new pickups sold in the United States, both foreign and domestic,
and is estimated to be 1,500,000 units per year. With the percentage of the
total automobile market represented by pickup trucks expected to grow in
the coming years, CTA has the potential to expand this product line.
COMPETITION
CTA estimates that there are some 13 other manufacturers of bed liners
in the United States. The two largest, Durakon Industries, Inc. and PENDA
Corporation, manufacture and sell the majority of all bed liners in the
United States. The ten remaining manufacturers accounted for the remainder
before the CTA's entrance in the market.
EMPLOYEES
At December 31, 1996, The Colonel's employed 47 people in its bed
liner division, including 43 contract employees leased through HRC4.
These persons are now employees of CTA. Management of CTA includes two
former Durakon employees with long experience in this industry sector. John
Carpenter, who is CTA's President, was formerly national sales manager for
Durakon. Dennis Bills was formerly a production manager for Durakon and
holds a similar position in CTA. The experience of these two individuals,
14
<PAGE>
coupled with CTA's other management personnel, combine to form the
management team.
FACILITIES
CTA conducts its operations in a former Johnson Controls plant in
Owosso, Michigan. The plant has 240,000 square feet of space, which CTA
believes is adequate for current operations and planned expansion. CTA's
executive offices are located at 951 Aiken Road, Owosso, Michigan 48867.
BRAINERD INTERNATIONAL RACEWAY, INC.
GENERAL
Brainerd International, Inc. ("Brainerd") was incorporated under the
laws of the State of Minnesota on January 21, 1982. At that time, Brainerd
assumed the business of its predecessor, Brainerd International Raceway,
Inc., a Minnesota corporation. After the Merger (See "Item 1 - THE
COLONEL'S INTERNATIONAL, INC."), BIR assumed the operations previously
conducted by Brainerd. BIR and its predecessors have operated the Brainerd
International Raceway (the "Raceway") since June 1973.
GENERAL OPERATIONS
At the Raceway, BIR organizes and promotes various spectator events
such as road and drag races, including races for sports cars, motorcycles
and go-karts, and derives a substantial portion of its revenues from ticket
sales and spectator attendance. See "Sources of Revenue." In addition,
BIR permits the use of the Raceway by others who organize and promote
racing events, and by individuals or commercial organizations who may use
the Raceway for things such as automobile road testing or filming. All
racing events, whether or not organized by BIR, are conducted over a two to
four-day period, usually encompassing a weekend.
SOURCES OF REVENUE
BIR derives its revenues from four principal sources: (i) ticket
sales; (ii) camping fees, concession sales, and track rentals; (iii) entry
fees; and (iv) sponsorship fees. BIR received sponsorship fees in 1996
from commercial businesses such as Viking Coca-Cola, Inc., Anheuser-Busch
(Budweiser), Dodge & Dodge Truck, Champion Auto Stores and R.J. Reynolds
Company. These companies promote their names and products at and in
connection with the racing events. Sponsorship fees are contracted for and
often paid in whole or in part several months prior to the commencement of
each racing season. Entry fees are received from race participants.
BIR permits overnight camping during racing events within the area
surrounded by the Raceway, which will accommodate tents, trailers and
15
<PAGE>
motorhomes. In 1996, BIR charged from $10 per person to $16 per person for
each weekend, or from $5 per person to $10 per person for one day, for use
of the camping facilities. Material revenues from camping were received by
BIR with respect to only five spectator events in 1996. A local non-profit
organization managed the camping activities on a commission basis for BIR
in 1996 and is expected to do so again in 1997.
Beer, soft drinks, candy and fast food items such as hot dogs,
barbecued chicken and ribs are served at concession stands at various
locations around the Raceway, but principally near the grandstand area.
BIR allowed both for-profit and nonprofit organizations to operate the
concession stands for the five principal spectator events in 1996. BIR
receives a percentage of the gross sales of all concessions, but neither
BIR nor any affiliate of BIR operates any of the concession stands. BIR
currently plans to continue its practice of allowing independent for-profit
and non-profit organizations to operate the concession stands.
BIR rents the Raceway to other organizations to conduct races, hold
driving schools or to test or film motor vehicle operations. BIR has also
rented the Raceway for use as the site of a camping convention. The fee
charged for such use varies and is negotiated in each case.
For the calendar years 1992 through 1996, the approximate percentage
of revenues derived from BIR's various revenue sources were as follows:
<TABLE>
<CAPTION>
ACTIVITY 1996 1995 1994 1993 1992
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ticket Sales 70% 70% 71% 70% 66%
Track Rentals, Concessions and
Camping Fees 17% 14% 11% 13% 14%
Entry Fees 8% 11% 8% 9% 11%
Sponsorship Fees 5% 5% 10% 8% 9%
</TABLE>
EVENTS AND ACTIVITIES
During 1996, BIR organized and promoted several major spectator
events, including two drag races (the "Winston Drag Racing Series" and the
NHRA "Champion Auto Stores Nationals"), two special events (the "Champion
Auto Stores Show & Go" and the "Champion Auto Stores Muscle Car Shoot-
Out"), one motorcycle race (the "Suzuki Classic") and one "Cruisin' to
Lakes" hot rod custom car show.
The Winston Drag Racing series, held on June 1 and 2, 1996, was a drag
racing event sponsored nationally by R.J. Reynolds Tobacco Company of
16
<PAGE>
Winston-Salem, North Carolina. A drag race is generally conducted between
two vehicles from a standing start over a one-quarter mile track, using
sophisticated starting and timing systems. The Winston Drag Racing Series
was sanctioned by the National Hot Rod Association (the "NHRA") and was one
of a series of five events in the Central States Division of the NHRA. See
"Sanctioning Organizations." The Winston Drag Racing series was organized
and promoted jointly by BIR and the NHRA, and included both professional
and amateur drivers who paid BIR an entry fee. A similarly sponsored event
has been held at the Raceway annually since 1977, with the exception of
1984, when there was a scheduling conflict. The Sponsorship Agreement with
R.J. Reynolds Tobacco Company for this event expired in December 1996.
Sponsorship for this event starting with the 1997 racing season is with
Federal Mogul Corp. This contract expires in 2002. This event drew
approximately 3,700 paid spectators in 1994, as compared to approximately
4,000 in 1995 and 3,300 in 1994. In 1997 this event will be replaced by
the Federal Mogul Paints meet, which will be similar. It is scheduled for
June 3 & 4, 1997.
The Champion Auto Stores Show & Go event, held on July 6 and 7, 1996,
was sponsored by Champion Auto Stores under an agreement which extends
through 1998. This event featured "street rods," "street machines,"
antiques and other classic cars that participated in both a car show and
drag races emphasizing a "back-to-the-fifties" style. The drag racing
portion of the event was sanctioned by the NHRA. The event had
approximately 7,100 paid spectators in 1996 and 7,000 and 7,300 in 1995 and
1994, respectively. The event is scheduled for July 5 and 6, 1997.
The Champion Auto Stores Muscle Car Shoot-Out was held on August 3 and
4, 1996. As with the Show & Go event, this event is both a car show and a
drag race. The Muscle Car Shoot-Out involves 1974 to 1996 model year
vehicles. The event is subject to the same sponsorship agreement as the
Champion Auto Stores Show & Go event. The event had approximately 5,700
paid spectators in 1996 and 6,600 and 6,200 paid spectators in 1995 and
1994, respectively. The event scheduled for July 26 and 27, 1997.
The Suzuki Classic, held on July 12, 13 and 14, 1996, was one of a
series of nine races conducted throughout the United States pursuant to the
sanction of the American Motorcyclist Association (the "AMA"). The event
featured six races of motorcycles operating on the road course. The races
involved motorcycles of 250cc, 600cc, 750cc and the Harley Davidson Twin
Sport and Superbike classes. The event had approximately 7,800 paid
spectators in 1996, compared to approximately 8,000 in 1995 and 9,200 in
1994. This event is scheduled this year for June 27, 28 and 29, 1997.
The Champion Auto Stores Nationals event, held on August 15, 16, 17
and 18, 1996, was sponsored by Champion Auto Stores under an agreement with
the NHRA. This event features all professional drivers, most of whom have
national reputations, and was one of a series of 19 drag races conducted
17
<PAGE>
throughout the United States in 1996 under the national sponsorship of the
R.J. Reynolds Tobacco Company and the sanction of the NHRA. The four-day
event features a series of drag races in the following classes: Top Pull
Dragster, Funny Car, Pro Stock, Pro Truck, Pro Stock Motorcycle, Alcohol
Drag, Alcohol Funny, all Sportsman's categories and Muscle Sled Snowmobile
Drags. The Champion Auto Stores Nationals are organized and promoted by
the NHRA. The NHRA leases the Raceway from BIR for a rental equal to one-
half of the net profit of this event, as defined in the lease agreement.
Such profit is earned primarily through the receipt of promotional fees and
ticket sales. BIR's responsibilities in this event are, among other
things, to provide the Raceway, ticket sellers and takers and security
personnel, and to assist in the management and operation of the event. The
lease agreement with the NHRA has been extended through the 2001 racing
season. Under the lease agreement, BIR is not permitted to conduct any
drag races at the Raceway that are not sanctioned by the NHRA. Until 1991,
the event was sponsored by Quaker State Oil Refining Company. Champion
Auto Stores has agreed to sponsor the event through the 2001 racing season.
The Champion Auto Stores Nationals drew approximately 50,100 paid
spectators in 1996. The event, which has been held at the Raceway since
1982, drew approximately 49,000 and 44,500 paid spectators in each of 1995
and 1994, respectively. The event is scheduled for August 14 through 17,
1996.
BIR also organized and sponsored four weekend drag racing "bracket"
events in 1996, primarily for non-professional drivers from Minnesota and
surrounding states. In bracket racing, each driver attempts to predict his
car's performance; whether he wins or loses a particular race will depend
partially on how much his actual time over a one-quarter mile distance
exceeds his predicted time. While spectators are encouraged to attend
these drag racing events and BIR receives revenues from ticket sales,
camping fees and concessions, they are not highly promoted. BIR has
scheduled four bracket races for 1997.
In addition to the spectator events and the bracket races discussed
above, there are racing events conducted on approximately 20 other weekends
that are primarily for nonprofessional drivers and are often organized and
sponsored by local and regional racing clubs, some of which may be members
of or affiliated with national sanctioning organizations. While spectators
attend these events, BIR does not receive any revenues from ticket sales or
engage in any significant promotion of these events.
In 1996, two weekend events involved sports car racing and were
sponsored by the "Land O' Lakes" regional affiliate of The Sports Car Club
of America (the "SCCA"), which sanctions these events. In addition, in
1994, four motorcycle racing events were held, each of which was sponsored
by the Central Roadracing Association, a club located in the
Minneapolis/St. Paul, Minnesota area and associated with the AMA. During
1994, the Northland Region Karting Association, affiliated with the World
18
<PAGE>
Karting Association, (the "WKA"), organized and sponsored 14 go-kart racing
events, and the Nord Stern Regional Club of the Porsche Club of America
organized four weekend racing events for Porsche cars. A similar schedule
has been established for 1997.
BIR will rent the Raceway to various individuals or organizations for
their own unsanctioned events. Chrysler Corporation currently uses the
track for winter cold weather testing, driving schools and to test or film
the operation of various motor vehicles.
In addition to attempting to continue to schedule the events discussed
above, BIR is also seeking to establish additional revenue producing uses
for the Raceway. Events under consideration include additional spectator
racing events and music festivals.
SANCTIONING ORGANIZATIONS
Most racing events conducted at the Raceway, including the five
principal spectator events held by BIR in 1996, are sanctioned by an
organization which establishes, publishes and enforces rules relating to a
specific class or type of participating vehicle. These rules generally
relate to the specifications which each class of car or other vehicle must
meet in order to be eligible to race, and to driver conduct and other
racing matters. BIR enters into agreements annually with the various
applicable sanctioning bodies with respect to each race it organizes and
promotes. These agreements provide that the appropriate sanctioning
organization will sanction the race and provide personnel to interpret and
enforce its rules. The sanctioning bodies include the SCCA (governing
sports cars), the NHRA (governing drag racing), the AMA (governing
motorcycles) and the WKA (governing go-karts).
PROMOTION AND TICKET SALES
BIR promotes its principal spectator events (discussed under "Events
and Activities" above) primarily through radio and television advertising
in Minnesota, through mailings made to selected potential spectators from a
list developed by BIR and through racing posters placed in service stations
and auto parts and accessory stores. BIR personnel also attend seven auto
shows in Minnesota, where they promote all of BIR's events. In a few
instances, sponsoring organizations may also promote these events. When
undertaken, such sponsor promotion is generally through newspaper or
point-of-sale advertising.
Ticket sales are made at various locations by ticket agents, at BIR's
offices primarily by mail and at the Raceway. BIR sells three types of
tickets: a Sunday only ticket, a weekend ticket and a Super Weekend ticket
that includes all days of each event plus pit passes and camping. Ticket
agents are located throughout Minnesota and include the retail outlets of
19
<PAGE>
Champion Auto Stores. Most ticket agents receive a commission equal to 9%
of the ticket prices. Ticket prices for the five principal racing events
scheduled for 1997 will range from $8 to $90 per ticket, depending
primarily on the event and the number of days the event is held.
BIR estimates that over 78% of its ticket sales are made to residents
of the Minneapolis/St. Paul, Minnesota metropolitan area and that
approximately 40% of its ticket sales are by mail. Advance sales of
tickets represent approximately 45% of all ticket sales.
COMPETITION
The closest comparable race track which conducts road racing events
similar to those conducted by BIR is located at Elkhart Lake, Wisconsin,
which is approximately 75 miles northwest of Milwaukee, Wisconsin,
approximately 475 miles from the Raceway and approximately 350 miles from
Minneapolis/St. Paul, Minnesota. While there are drag race strips in
Fargo, North Dakota, and Eau Claire, Wisconsin, the closest drag race
strips that own equipment and conduct major drag race events comparable
with that owned or conducted by BIR are located in Indianapolis, Indiana
and Denver, Colorado. While other regional race tracks are not generally
considered competitive with BIR, other events in BIR's market area, such as
sporting events, festivals and concerts, may tend to attract persons who
might otherwise attend BIR's racing events. BIR does not generally
consider the schedules of other spectator events when scheduling its own
events.
SEASONAL BUSINESS/WEATHER
Substantially all of BIR's revenues arise from operation of the
Raceway during the period of April through October of each year. BIR's
revenues are derived primarily from ticket sales for racing events, and
adverse weather could materially diminish the revenues that might otherwise
be received by BIR. While sports car, stock car and motorcycle races may
be conducted in nearly all weather conditions, spectator attendance is
significantly reduced when it rains. A drag racing event cannot be held in
rain and adverse weather could require the rescheduling of such events or
the cancellation of the event and the return of ticket sale proceeds to
ticket purchasers. A substantial majority of BIR's revenues arise from
drag racing events. In 1993, four of the six spectator events were
materially and adversely affected by rain and unseasonably cool weather.
In addition to adversely affecting attendance and concession sales, the
weather required the rescheduling of portions of three events which
resulted in increased operating costs for the events. For example, the
Brainerd 200 snowmobile race, held over the 1994-1995 New Years' weekend,
was adversely affected by limited snowfall occurring prior to the event
which reduced the number of snowmobile riders who traditionally visit the
Brainerd area during that weekend. Bad weather was not a significant
factor in 1996.
20
<PAGE>
GOVERNMENT REGULATIONS
The operation of the Brainerd International Raceway is subject to
various zoning, land use and health laws and regulations. BIR's management
believes that it is and will continue to be in compliance with such laws
and regulations.
LIABILITY INSURANCE
BIR requires that each race participant expressly waive any claim
against BIR that may arise from a racing accident; however, actions
alleging BIR's or its predecessors' negligence can and have been brought
based upon the occurrence of such accidents. BIR, its officers, and
sponsors, and certain participants in the racing events, are insured for up
to $5,000,000 against liability for personal injury and property damage to
any spectator or racing event participant incurred at any racing event as
the result of the negligence of any named insured. The insurance is
increased to $10,000,000 for the NHRA National. This insurance policy must
be renewed annually and there is no assurance that such insurance will
continue to be available to BIR at affordable rates. In addition, BIR
requires each participating or sanctioning organization that uses the
Raceway to acquire insurance which provides accidental death, dismemberment
and medical benefits for participants in each racing event. The amount of
coverage under such insurance varies from $3,000 to $20,000 per incident.
EMPLOYEES
BIR employs four full-time employees, including Richard L. Roe, BIR's
Vice President and Operations Manager. From April through October, BIR
employs four full-time grounds and track maintenance personnel. In
addition, BIR engages various independent contractors to handle matters
such as public relations, drag racing events, perimeter and grounds
security, ticket sales and ticket handling, emergency medical service,
concessions and camping. None of the independent contractors engaged by
BIR are affiliated with BIR as an officer, director or principal
shareholder.
PROPERTIES
BIR owns and operates a three-mile race track, including a one-quarter
mile drag strip, located approximately six miles northwest of Brainerd,
Minnesota. The Raceway was initially constructed and first utilized for
competitive racing in 1968. The site of the Raceway consists of
approximately 611 acres. The terrain of the site is slightly rolling and
partially wooded. The track and various access roads are composed of
blacktop.
21
<PAGE>
The Raceway is enclosed by a five-foot chain link fence. The site
provides camping facilities and parking for approximately 15,000 vehicles.
The Raceway contains several buildings, including a four-story tower
containing eleven executive viewing suites, a control tower, three enclosed
racing maintenance buildings divided into stalls for participant repairs
and various single story buildings containing concession stands, restrooms
and storage and service facilities located throughout the property. The
buildings are concrete or wood frame construction. Grandstand bleachers
for approximately 20,000 spectators are primarily located along the
dragstrip.
BIR made substantial improvements to the Raceway during past two
years. In connection with the drag racing facility, BIR expended
approximately $25,000 on the following: (i) three additional grandstand
bleachers for 4,000 spectators on the north side of the dragstrip; (ii) a
new press room on top of the new grandstand; (iii) a new return road and
pit lane; (iv) a maintenance garage and conference room; (v) a relocated
scoreboard; (vi) new track surface; (vii) new burnout pits; (viii) new
bathrooms and (ix) and various improvements to the main entrance.
BIR's executive offices are located at 17113 Minnetonka Boulevard,
Suite 214, Minnetonka, Minnesota 55345, where BIR leases approximately
1,100 square feet of office space. The lease term expires in February
1998.
ITEM 2. PROPERTIES
The Company is a holding company with no operations of its own. The
properties of the Company's three wholly owned subsidiaries, which are The
Colonel's, CTA and BIR, are addressed below.
THE COLONEL'S. The properties of The Colonel's are discussed in "Item
1--THE COLONEL'S, INC.--Properties."
CTA. The properties of CTA are discussed in "Item 1--THE COLONEL'S
TRUCK ACCESSORIES, INC.--Facilities."
BIR. The properties of BIR are discussed in "Item 1--BRAINERD
INTERNATIONAL RACEWAY, INC.--Properties."
ITEM 3. LEGAL PROCEEDINGS
The Company has reserved a total of $820,000 against claims asserted
by opposing parties in various unrelated lawsuits:
The Colonel's is a defendant and counter-plaintiff in a suit filed
December 5, 1991, in the United States District Court, Eastern District of
22
<PAGE>
Michigan, Flint, Michigan, in a private action seeking damages under the
federal anti-trust statutes. The Colonel's settled this case for $150,000
in cash and $350,000 in merchandise paid over time through December 1997.
The Colonel's is a plaintiff and counter-defendant in a suit filed on
February 14, 1994, in the United States District Court, Eastern District of
Michigan, Detroit, Michigan. The underlying controversy arose because a
machine, as delivered, did not have the capacities promised at the time
that The Colonel's issued a purchase order for it. The trial court has
issued an interim ruling that The Colonel's cannot introduce evidence
regarding those promises unless they were incorporated in a writing signed
by the defendant. The defendant sold the rejected machine to another buyer
for more money than The Colonel's purchase order required it to pay, but
has filed a counterclaim seeking its costs for finding another buyer and
for lost profits. The Colonel's believes the vendor will be found not to
be entitled to damages. The Colonel's cannot appeal the trial court's
ruling regarding its damages until the case has been completely resolved at
the trial level.
The Company has been served with three lawsuits pertaining to a class
action suit arising from the production of bed liners. The suits allege
that the liners insulate a gas can when filled in the back of a truck which
may allow a static charge that may result in a fire. Although the class
action suit targets bed liner manufacturers, the Company feels that other
organizations should also be involved, such as the service stations, gas
can manufacturers, gas pump manufacturers, etc. This problem could result
from a can sitting in the trunk of a car where no bed liner is used. The
Company has formed a coalition with the other bed liner manufacturers to
defend this class action suit. The Company did not produce liners at the
time of the alleged incidents, but has elected to stay in the class action
suit.
The Company has been served with a lawsuit filed in Federal District
Court for the Western District of Wisconsin by a competitor pertaining to
a possible infringement of their patent associated with their bed liner
products. The Company has recently received its patent from the United
States Patent office and believes that the patent was issued after the
Office's strict due diligence. The Company believes that is it not
infringing upon the competitor's patent. In addition, the Company has
filed a separate suit in Federal District Court for the Eastern District of
Michigan alleging the same competitor is infringing on the Company's bed
liner patent.
The Company is involved in various other legal proceedings which have
arisen in the normal course of its operations. While the results of such
proceedings and those discussed in the preceding paragraphs cannot be
predicted with certainty, management believes that any amounts that may be
required resulting from the final outcome of such matters, in addition to
23
<PAGE>
amounts presently accrued, will not have a material adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock has been traded on the Nasdaq SmallCap
Market since January 2, 1996. The number of holders of record of Common
Stock in the Company on March 27, 1997 was 244.
Prior to the Merger, the common stock of Brainerd International, Inc.
was traded on the Nasdaq SmallCap Market. Effective January 2, 1996,
Brainerd common stock was delisted from the Nasdaq SmallCap Market. The
table below sets forth the high and low transaction prices by calendar
quarter for 1996 for the Company's common stock and by calendar quarter for
1995 of Brainerd common stock, prior to its delisting. Such prices reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and
may not necessarily represent actual transactions. Because of the Merger,
the prices of Brainerd common stock in 1995 set forth below may not reflect
the value of a share of Common Stock in the Company.
<TABLE>
<CAPTION>
1996 1995
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
January-March $7.50 $5.00 $12.00 $6.00
April-June $9.00 $6.25 $ 8.50 $6.50
July-September $9.00 $5.50 $ 6.00 $6.00
October-December $8.00 $3.00 $10.50 $4.50
</TABLE>
During 1996, the Company did not pay any dividends on its Common
Stock. During 1995, Brainerd did not pay any dividends on its common stock.
The Company does not anticipate paying any dividends in the near future.
Management intends to apply earnings, if any, to the development of the
business of its subsidiaries.
The Company made no sales of unregistered securities during fiscal
1996.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data shown below for the Company for each of
the five years in the period ended December 31, 1996 has been derived from
the consolidated financial statements of the Company, which have been
audited by the Company's independent auditors, Deloitte & Touche LLP.
The following data should be read in conjunction with the consolidated
financial statements and related notes thereto and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Form 10-K.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS<F2>:
- --------------
Operating revenues $40,263,082 $28,503,726 $28,492,013 $25,174,656 $25,835,683
Net Income (loss) from
continuing operations $ 5,191,303 4,970,770 2,401,905 (541,052) 3,716,198
Net Income $ 2,521,986 1,862,474 10,887,714 7,762,206 2,145,098
Primary earnings per
share $ 0.10
Pro forma earnings
per share <F1> $ 0.11
FINANCIAL CONDITION:
Current Assets $13,638,100 $11,483,401 14,399,543 15,455,926 6,857,796
Current Liabilities $16,659,846 15,026,023 15,886,485 19,339,356 9,411,218
Total Assets $42,610,295 38,243,986 31,529,883 32,349,317 21,556,349
Long term obligations $ 6,321,175 6,064,705 1,366,615 3,176,218 5,129,296
______________________
<FN>
<F1> The pro forma earnings per share has been derived from the income
statement of the Company for the year ended December 31, 1995, adjusted to
give effect to the change in tax status of The Colonel's as if such change
had occurred at the beginning of the period.
<F2> The Merger pursuant to which The Colonel's became a subsidiary of the
Company was effective December 31, 1995. Therefore, the selected financial
data for the year ended December 31, 1995 and prior reflect only the
results of operations of The Colonel's, the accounting acquiror. Refer to
"Note 3 - Business Combination" in the Notes to the Financial Statements
for proforma results of operations as if the Company and The Colonel's had
been combined for 1995 and 1994.
</FN>
</TABLE>
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's historical results of
operation and of its liquidity and capital resources should be read in
conjunction with the Consolidated Financial Statements and the notes
thereto.
THE COLONEL'S INTERNATIONAL, INC.
The Company is a holding company for three subsidiaries: The
Colonel's, BIR and CTA.
BACKGROUND
Effective December 31, 1995, Brainerd merged with and into the
Company. The Company was the surviving corporation in the Merger. Prior
to the Merger, Brainerd had 677,830 shares of its common stock outstanding
and traded on the Nasdaq SmallCap Market (symbol BIRI). Pursuant to the
Merger, these shares were converted into the same number of shares of
Common Stock in the Company.
Also effective December 31, 1995, Brainerd Merger Corporation, a
Michigan corporation and a wholly owned subsidiary of Brainerd, merged with
and into The Colonel's. The Colonel's was the surviving corporation in this
merger. In consideration of this merger, the Company issued 23,500,000
shares of its Common Stock to Donald J. Williamson and Patsy L. Williamson,
who were the sole shareholders in The Colonel's. In addition, Brainerd
transferred all of its operating assets to its newly formed subsidiary,
BIR.
As a result of these transactions, the Company now has two wholly
owned subsidiaries: The Colonel's and BIR. (The Company's third wholly-
owned subsidiary, CTA, was incorporated in 1997.)
For accounting purposes, the transaction was treated as a
recapitalization of the Company with it as the acquirer (a reverse
acquisition). The effective date of the Merger was December 31, 1995;
therefore, the assets acquired and liabilities assumed are included in the
Company's balance sheet at December 31, 1995. The historical financial
statements prior to December 31, 1995 are those of The Colonel's only and
do not include any operating results of BIR. Refer to "Note 3 - Business
Combination" in the Notes to the Consolidated Financial Statements for
proforma selected financial information.
THE COLONEL'S, INC.
The Colonel's was organized in 1982 and began producing and selling
plastic bumpers and facias in 1983. By the start of 1996, it had grown
26
<PAGE>
through acquisitions, joint ventures and normal expansion to two
manufacturing plants, four distribution warehouses and a network of
independent distributors that sell The Colonel's products throughout the
United States, Canada, Mexico, Puerto Rico, the Bahamas and the District of
Columbia. The start up of a new truck accessory division (CTA) that
manufactures and sells pickup truck bed liners and tail gate covers, and
the formation of BIR as a subsidiary of the Company, represent efforts by
the Company to begin to diversify into other areas outside the automotive
collision parts industry.
The Colonel's designs, manufactures and distributes plastic bumpers,
facias, support beams and brackets for the automotive collision parts
industry. It also purchases and resells replacement steel and chrome
bumpers, facias, header panels, steel bumpers, rebars, step bumpers, paint
and body shop repair supplies through its distributors as replacement
collision parts for most domestic and imported automobiles and light
trucks.
The Colonel's is a leading domestic manufacturer of plastic
replacement bumpers and facias for the automotive and light truck
aftermarket industry. It competes with original equipment manufacturers
("OEMs"), other domestic and import manufacturers for the aftermarket who
offer new replacement bumpers and the recycled and junk yard industry which
repairs and resells previously damaged or salvaged automotive parts.
THE COLONEL'S TRUCK ACCESSORIES, INC.
The Colonel's bed liner division began operations in 1996. These
operations were later transferred to CTA, which was incorporated and began
operating as a separate subsidiary of the Company effective January 1,
1997. CTA sells new pickup truck bed liners, tail gate covers, trim pieces
and other items and will compete in the growing pickup truck and sport
utility liner market. Newly installed custom built equipment will make
CTA's Owosso manufacturing facility one of the world's most modern bed
liner production plants. CTA believes that it can effectively compete in
the market because it has the ability to manufacture its own plastic sheet
stock instead of purchasing the stock from outside vendors, and it has
specialized tooling with a dedicated mold for each part. CTA registered
two patents on this specialized tooling, which required extensive
development. The products of CTA will be sold through a worldwide
distributor network.
BRAINERD INTERNATIONAL RACEWAY, INC.
From the time of its formation in 1982, BIR has operated a motor
sports facility located approximately six miles northwest of Brainerd,
Minnesota. As of January 1, 1996, this facility is now operated by BIR, a
subsidiary of the Company. Substantially all of BIR's revenues are
27
<PAGE>
obtained from motor sports racing events at the raceway. Historically, BIR
has scheduled racing and other events to be held at the racetrack during
weekends in the months of May through September each year.
While BIR schedules approximately 35 events during each season, a
limited number of the major spectator events provide a substantial portion
of BIR's revenues with one event, the Champion Auto Stores Nationals,
having provided approximately 56% of BIR's operating revenue for the past
three years. Revenues from the major spectator events were from the sale
of admissions to the event, the sale of concessions and fees paid by the
spectators and participants for camping access on the grounds of BIR. The
receipt of such revenues is affected by weather conditions. Even if an
event in not canceled due to rain or other adverse conditions, poor weather
will reduce the attendance and the sale of concessions.
In addition to spectator-related revenues, BIR receives: (i)
sponsorship fees from businesses which promote their products and services
at the Raceway; (ii) entry fees from participants in the races and other
events; and (iii) rent for use of the track for private racing events,
driving schools and the testing or filming of motor vehicle operations.
MAJOR FIRE LOSS AND INSURANCE CLAIM
The Colonel's suffered the loss of its former Owosso manufacturing
plant on June 1, 1993 due to a fire that totally consumed the building, the
finished inventory stored in its warehouse area, a significant percentage
of the plant's machinery and equipment and many of The Colonel's production
molds. The Colonel's settled the resulting insurance claim for all insured
losses caused by the fire and recognized a net gain of approximately
$9,082,000 and $9,043,000 in 1994 and 1993, respectively. Those gains
represent the amount by which The Colonel's portion of insurance proceeds
of $24,370,000 exceeded the sum of the net book value of assets destroyed
by the fire. The Colonel's paid $6,630,000 for the building's loss to the
landlord, a related party. The Colonel's secured short term bridge loans
from its primary lender to enable it to begin the rebuilding process. After
consulting with government investigators and conducting its own private
investigation, The Colonel's insurer unconditionally accepted coverage for
the fire on November 11, 1993. Once the insurance company began paying
partial claims, the bridge loans were repaid.
Immediately after the fire, The Colonel's increased the output of its
Sarasota, Florida manufacturing facility to minimize any loss of sales and
income. Sarasota's production was increased to and kept at near capacity
while salvageable machinery and equipment from Owosso were moved to a newly
leased facility in Milan, Michigan. By August 1994, the Milan plant was
producing The Colonel's pre-fire full line of products and inventory levels
had been rebuilt to a point where The Colonel's could resume full truckload
deliveries to its customers.
28
<PAGE>
Given that the combination of the new and restored presses, as well as
the improved layout at the Milan manufacturing facility, afforded The
Colonel's more production capacity than it had enjoyed at the Owosso
facility, management decided in October 1994 to reduce manufacturing
overhead by closing the Sarasota facility, which had been leased on a
month-to-month basis. Sarasota's inventory was reduced through normal sales
and the remaining units of inventory were shipped to Milan. Sarasota's
machinery and equipment was either sold or moved to another facility. The
equipment designated for sale was reclassified as "assets held for sale"
and valued at its estimated net realizable value at the end of 1994. All
of the production molds at the Sarasota facility were acquired as part of
The Colonel's 1991 purchase of the assets of a competitor, Nupar, Inc. That
purchase resulted in some duplicate molds. These duplicate molds, with a
total net book value of $1,034,000, were written off in 1994 and scrapped
as a result of the close of the Sarasota facility.
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended December 31, 1996, the Company has funded
its working capital and capital expenditure requirements using cash flows
from operations and bank borrowings under revolving lines of credit and
bank notes.
The Company's consolidated current assets increased from $11,483,000
at December 31, 1995 to $13,638,000 at December 31, 1996. This increase
primarily relates to the $1,540,000 increase in inventory and the
$1,313,000 increase in accounts receivable. See below for further
discussion of these changes. The Company's consolidated current
liabilities increased from $15,026,000 at December 31, 1995 to $16,660,000
at December 31, 1996. This increase primarily relates to a $600,000
increase in accounts payable due to the addition of the Owosso facility and
the warehouse in New Jersey, additional short-term borrowings of
$1,000,000, and a $1,000,000 increase in income taxes payable due to a
change in tax status from an "S" corporation to a "C" corporation, which
are offset by a $1,500,000 decrease in the current portion of long-term
obligations.
Accounts receivable increased by approximately $1,313,000 due to
increased sales and the addition of the bed liner plant in Owosso, Michigan
and the factory warehouse in Totowa, New Jersey. The Company's
subsidiaries continue to offer early payment discounts and incentives for
prompt payments to their customers.
Inventories increased by approximately $1,540,000 due to the start-up
of the bed liner plant, the new warehouse in Totowa, New Jersey and the
introduction of 17 new bumper lines. Tools to produce the bed liners are
located in Owosso, Michigan. The tools to produce the large inventory of
bumpers are located in the Company's Milan, Michigan facility.
29
<PAGE>
As a result of the Merger, the Company's tax status was changed from
an "S" corporation to a "C" corporation to conform with the Internal
Revenue Code. The $3,097,000 in net deferred taxes at December 31, 1995
represents the effect of temporary differences between book and tax bases
as a result of this change in tax status and the acquisition of BIR. The
effect of changing the Company's tax status was a $2,333,000 charge to
income in 1995, primarily resulting from temporary differences in
depreciation methods. The deferred tax liability assumed in the acquisition
of BIR was primarily due to differences between the book and tax bases of
the assets acquired. See "Note 10 - Income Taxes" in the Notes to the
Consolidated Financial Statements. Net deferred taxes at December 31, 1996
were $2,904,000.
Plant, property and equipment increased by approximately $6,152,000
from December 31, 1995 to December 31, 1996 primarily due to the
acquisition of tools for CTA. These tools are financed by two capital
leases in the amount of $2,404,000 and $1,341,000. Approximately $1,600,000
of this new tooling pertains to molds for use in the production of steel
bumpers. These tools were built and remain overseas, and given that these
tools are out of The Colonel's direct control, some degree of risk is
associated with these tools.
Notes receivable at December 31, 1995 have been eliminated at December
31, 1996 due to the repayment of all related party notes and all other
third party notes. During 1995, The Colonel's purchased the existing
inventory and one building from The Colonel's Factory Outlet of Arkansas,
Inc., a related party, in exchange for the forgiveness of debt due to The
Colonel's. The purchase reduced the related party notes receivable to The
Colonel's. See "Note 13 - Related Party Transactions" in the notes to the
Consolidated Financial Statements.
Deposits on tools and machinery decreased by approximately $3,700,000
during 1996 as various equipment for CTA's bed liner plant was placed in
service. The Company separately classifies deposits made toward tools and
machinery from its regular assets until the equipment has been delivered,
made operational and placed in service. At December 31, 1996, approximately
$1,156,000 remains in deposits for tools currently under construction.
As a result of the Merger, the value paid for BIR exceeded the value
of its assets by $425,000. This excess was recorded as goodwill, and the
Company is amortizing the goodwill over a seven-year period. The balance in
goodwill at December 31, 1996 was $366,000.
OUTSTANDING LOANS
The Colonel's has a $4,500,000 line of credit that expires on May 1,
1997 and that is secured by accounts receivable and inventory. The
Colonel's expects to negotiate a renewal with the current lending
30
<PAGE>
institution. Interest is paid at prime on a monthly basis. The outstanding
balance on the line of credit was $4,450,000 at December 31, 1996. BIR has
a $300,000 line of credit which is secured by all of its assets, of which
zero was outstanding at year end.
The Colonel's received new financing of $6,000,000 in April 1995 under
a facility which calls for monthly payments of $200,000 in principal plus
interest calculated at 0.5 percent over prime on the outstanding balance.
The money received from this loan partially funded the purchase of the new
equipment at the Milan, Michigan facility and paid off all other
outstanding term loans. The loan is secured by machinery and equipment and
had a balance of $2,600,000 at December 31, 1996. Should the need arise in
the future, the Company believes it could obtain additional financing using
these assets as collateral.
BIR has a term loan in the amount of $400,000 which is secured by
property. The loan requires quarterly interest payments at 2 percent above
prime and a single principal payment of $50,000 per year through 2004.
The former Owosso manufacturing facility was encumbered by a real
estate mortgage in the amount of approximately $1,800,000 at the time of
the fire. That mortgage included a pre-payment penalty that would have been
triggered if the insurance proceeds had retired it in 1994. The penalty
could have been The Colonel's responsibility due to loss indemnification
provisions in the lease. The landlord paid The Colonel's an amount equal to
the balance of the mortgage and The Colonel's assumed the mortgage. The
Colonel's used the cash paid from the landlord to reduce indebtedness
having a shorter maturity than the mortgage, thereby automatically
extending the repayment of needed capital. The mortgage is cross
collateralized by essentially all the assets, as are all the loans with the
primary lender. The mortgage will be paid in full by 1998. The balance of
this mortgage at December 31, 1996 was $797,000.
The Colonel's entered into a capital lease to finance equipment for
the new Owosso, Michigan bed liner plant. In 1995, The Colonel's leased
$2,689,000 worth of equipment under a six-year agreement that calls for
monthly payments of $41,000 and includes an option for the Company to
purchase the equipment for $1.00 upon expiration of the lease term. That
amount represents principal and interest at rates between 7.5 and 8.5
percent. The lease is collateralized by the machinery. In 1996, The
Colonel's leased additional equipment in the amount of $3,744,000,
structured in the same manner as noted above.
The lending institutions of both BIR and The Colonel's consented to
the Merger and related transactions and allowed assignments of the loans to
entities under the new structure. The Company's subsidiaries made all their
scheduled debt payments in 1996.
31
<PAGE>
The Company believes that it will be able to satisfy ongoing cash
requirements for the next 12 months and thereafter with cash flows from
operations, supplemented as necessary by borrowings under its bank credit
arrangements.
RESULTS OF OPERATIONS
The comparative financial statements contain only the results of
operations of The Colonel's and do not include any results of operations of
Brainerd for the years ended December 31, 1994 and 1995 (as the Merger was
not effective until December 31, 1995). Refer to "Note 3 - Business
Combination" in the Notes to the Consolidated Financial Statements for
proforma selected financial information. For the year ended December 31,
1996, the consolidated financial statements contain the results of
operations for both entities.
Revenues for the Company were $40,263,000, $28,504,000, and
$28,492,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The $12,000,000 growth in 1996 was primarily due to the
addition of income for the first time from BIR as well as from the new bed
liner division and the new factory warehouse in New Jersey in the amount of
$2,737,000, $3,719,000, and $1,033,000, respectively. Existing operations
contributed an additional $4,500,000 in growth during 1996. The increase
in revenue in 1995 was due to normal operations.
In prior years, The Colonel's offered free freight for full-truck
purchases. This policy was begun in 1993 in an effort to attract the
customers who had left after the fire in June 1993. This policy will no
longer be in place beginning in 1997. However, The Colonel's continues to
aggressively market its products through improved quality, services and
delivery.
Cost of sales have consistently been approximately 70% of sales during
the three-year period ended December 31, 1996. Although general economic
increases in the cost of supplies and labor have occurred over the past
three years, The Colonel's has been able to offset these increases by
operating more efficiently. Also included in cost of sales for 1996 are
start-up costs for the bed liner operation and the New Jersey factory
outlet. Gross profits from 1994 to 1996 remained steady at approximately
30% of sales.
Selling, general and administrative expenses significantly decreased
from $5,101,000 in 1994 to $3,535,000 in 1995. These expenses represented
18 and 12.4 percent of sales in 1994 and 1995, respectively. This decrease
was primarily due to the closing of the Sarasota plant in late 1994 and the
consolidation of all sales functions to the Milan facility in 1995. These
expenses increased to $6,931,000 or 17 percent of sales in 1996 due to the
addition of the warehouse in New Jersey and the addition of the bed liner
plant in Owosso, Michigan.
32
<PAGE>
The one-time charge of $1,389,000 in 1994 was for costs pertaining to
the closing of the Sarasota manufacturing facility. This charge includes
the write-off of duplicated tools and equipment that were scrapped and the
cost of dismantling, moving and closing the plant.
Interest expense rose from $786,000 in 1994 to $972,000 in 1995 and
$1,214,000 in 1996. This increase is due to the additional debt which was
used to finance the new equipment for the bed liner manufacturing facility.
Interest income increased in 1995 by $13,000 but decreased in 1996 by
$48,000. During 1994 and 1995, as The Colonel's received insurance
proceeds from the Owosso fire, The Colonel's invested the money until it
was needed, resulting in increased interest income. Additional interest
income is generated by assessing customer finance charges.
The gain on insurance settlement of $9,082,000 in 1994 represents the
excess of insurance proceeds over the carrying value of the underlying
property. See "Major Fire Loss and Insurance Claim."
The Company's net income before income taxes was $4,070,000 or 10
percent of sales in 1996, compared to $4,195,000 or 15 percent of sales in
1995. After removing the insurance proceeds from the 1994 figures for
comparative purposes, net income before income taxes in 1994 was
$1,806,000, or 6 percent of sales.
The Company operated as an "S" corporation until the Merger and
related transactions took place on December 31, 1995. As a result of the
Merger, the Company changed its status to a "C" corporation. This status
change resulted in a charge to income of $2,333,000, which represents the
net amount of deferred taxes recorded at December 31, 1995.
SUBSEQUENT EVENTS
On February 20, 1997, the Company's founder and Chairman of the Board,
Donald J. Williamson, resigned from the Board and retired from the
Company's business operations. In addition, Gary Moore and Lisa Alexander
also resigned from the Board of Directors. Michael J. McCloskey was
appointed the new CEO and added to the Board of Directors. Patsy Lou
Williamson was elected Chairwoman of the Board, and Mark Stevens was
elected President and added to the Board. Three new directors, John Darcy,
Donald Gorman, and Ben Parr, were also added to the Board.
In 1997, the bed liner division of The Colonel's was incorporated as
The Colonel's Truck Accessories, Inc. (previously referred to herein as
"CTA") and became the third wholly owned subsidiary of the Company. The
other two subsidiaries are The Colonel's and BIR.
In February, 1997, the Company purchased out of bankruptcy the assets
of Truckware, a retail truck accessory store in the Los Angeles, California
33
<PAGE>
area, for $45,000. With these assets, the Company established a new
business called The Colonel's Truckware, a division of CTA. This business
will sell CTA's manufactured bed liners and other truck accessories.
In January 1997, the Company made the final payment for a July 1995
litigation settlement with Nupar, Inc. See "Item 3 - Legal Proceedings."
EFFECTS OF INFLATION
The Company believes that the relatively moderate inflation rate over
the last few years has not had a significant impact on the Company's
revenues or profitability. The Company does not expect inflation to have
any near-term material effect on the sales of its products, although there
can be no assurance that such an effect will not occur in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required under Item 8
are set forth in Appendix A to this Report on Form 10-K and are here
incorporated by reference. The supplementary financial information
required under Item 8 is set forth below.
The following tabulation presents the Company's unaudited quarterly
results of operations for 1996 and 1995. Pro forma per share data is
calculated using the current number of shares outstanding (24,177,805) as
if that number of shares were outstanding during 1996 and 1995.
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales 9,900,074 8,544,230 11,210,682 10,608,096
Gross Profit 2,891,168 2,160,617 2,884,066 4,187,165
Net Income 901,802 391,750 307,950 920,484
Pro forma Earnings
Per Share $ 0.04 $ 0.02 $ 0.01 $ 0.03
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $7,819,252 $6,831,901 $7,062,036 $6,790,537
Gross Profit $2,567,592 $2,276,186 $1,586,113 $2,075,525
Net Income $1,345,324 $1,055,696 $ 409,065 $ (101,705)
Earnings
Per Share $ 0.06 $ 0.04 $ 0.02 $ (0.00)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
BOARD OF DIRECTORS. The Company's Board of Directors currently
consists of the following persons: Michael J. McCloskey, Mark D. Stevens,
John M. Darcy, J. Daniel Frisina, Ben C. Parr, Patsy L. Williamson, Donald
R. Gorman and Ted M. Gans.
MICHAEL J. MCCLOSKEY (45). On February 20, 1997, Michael J. McCloskey
was appointed a Director, the Vice-Chairman of the Board and the Chief
Executive Officer of the Company. Mr. McCloskey was a founding partner of
Stone Pine Capital, a merchant bank involved in the acquisition and
operation of operating and financial services businesses. Prior to
founding Stone Pine Capital, and from 1988 to 1994, Mr. McCloskey was a
Senior Vice President and the Director of the Private Finance Group of
Paine Webber, Inc. From 1983 to 1988, Mr. McCloskey was a Vice President
with E.F. Hutton. Mr. McCloskey has experience with turn-around
situations, bankruptcy proceedings and other work-out environments, as well
as experience in creating new business units from concept to
implementation. Prior to joining E.F. Hutton, Mr. McCloskey was a
practicing attorney specializing in corporate, tax and securities law. Mr.
McCloskey serves on the Executive Committee and the Nominating Committee of
the Board of Directors.
MARK D. STEVENS (54). On February 20, 1997, Mark D. Stevens was
appointed a Director and the President of the Company. Mr. Stevens is
35
<PAGE>
currently the General Manager of Patsy L. Williamson Buick-GMC, Inc., an
automotive dealership company wholly owned by Patsy L. Williamson (who is
also standing for reelection to the Board of Directors), a position he has
held since 1993. From 1986 to 1996, Mr. Stevens served as the Sales
Manager for Blain Buick-GMC Truck, Inc. Mr. Stevens also serves as the
Secretary of various automotive dealerships owned by Patsy L. Williamson.
Mr. Stevens serves on the Executive Committee and the Nominating Committee
of the Board of Directors.
JOHN M. DARCY (51). On February 21, 1997, John M. Darcy was appointed
a Director of the Company. Mr. Darcy was a Group General Manager and
Corporate Vice President at Carnation/Nestle, where he was responsible for
three operating divisions representing $1.8 billion in revenue, eight
manufacturing facilities and 1,400 employees. Prior to that, Mr. Darcy was
the chief marketing officer of Pillsbury's grocery products businesses.
Additionally, Mr. Darcy was President and Chief Operating Officer of Avis
Enterprises, an investment company with interests in automobile dealerships
and rental agencies, sporting goods, electronics and real estate. Most
recently, Mr. Darcy built two successful start-up companies in the
agricultural and specialty food chemical arenas. Mr. Darcy serves on the
Executive Committee and the Compensation Committee of the Board of
Directors.
J. DANIEL FRISINA (48). Mr. Frisina is a Director of the Company, a
Director of The Colonel's and a Director of BIR. Mr. Frisina's principal
occupation is Director of Global Development for Cheng Hong Legion Co.,
Ltd. where he has previously served as a consultant (since 1992). He is
also the Chairman of the Board of the Autobody Parts Association, a
consulting group retained by various Taiwanese manufacturing companies. He
served as President of The Colonel's from 1989 through 1991. Prior to the
Merger, he served as Treasurer and Chief Financial Officer of Brainerd, the
Company's predecessor, during 1995. Mr. Frisina serves on the Company's
Audit Committee.
BEN C. PARR (66). On February 20, 1997, Ben C. Parr was appointed a
Director of the Company. Mr. Parr was formerly the Director of Research
for the State Farm Insurance Companies and was a motivating party in the
creation of the Certified Automotive Part Association, which is a nonprofit
organization established in 1987 to develop and oversee a testing and
inspection program certifying the quality of parts used for automobile body
repairs. Mr. Parr serves on the Nominating Committee, the Compensation
Committee and the Audit Committee of the Board of Directors.
PATSY L. WILLIAMSON (64). On February 20, 1997, Patsy L. Williamson
was appointed a Director and the Chairwoman of the Board of the Company.
Mrs. Williamson's principal occupation is as the owner and operator of
several automobile dealerships in Michigan. Mrs. Williamson is the wife of
Donald J. Williamson, who, until February 20, 1997, was the Chairman,
36
<PAGE>
President and Chief Executive Officer of the Company. Mrs. Williamson is
also a significant shareholder of the Company. See "Ownership of Common
Stock."
DONALD R. GORMAN (65). On February 20, 1997, Mr. Gorman was appointed
as a Director of the Company. Mr. Gorman is the owner and President of
P.G. Products, Inc., of Cincinnati, Ohio, which is one of the Company's
major customers. Mr. Gorman serves on the Audit Committee of the Board of
Directors.
TED M. GANS (61). Mr. Gans is a Director of the Company. He serves
on the Compensation Committee of the Board of Directors. Mr. Gans's
principal occupation since 1965 has been as the President and Director of
Ted M. Gans, P.C., a law firm in Bloomfield Hills, Michigan of which he is
the sole owner. Mr. Gans also serves as a Director of Williamson Lincoln
Mercury, Inc.; Williamson Chrysler Plymouth Dodge, Inc.; Blain Buick-GMC
Truck, Inc.; and Williamson Chevrolet-Geo Cadillac, Inc. All four of these
companies are 100-percent owned by Patsy L. Williamson, a nominee for
re-election to the Board. Mr. Gans's term as a Director of the Company
expires in 1998.
EXECUTIVE OFFICERS. As mentioned above, Mr. McCloskey is the Chief
Executive Officer of the Company, and Mr. Stevens is the President of the
Company. Mr. McCloskey also serves as the Vice-Chairman of the Board.
Patsy L. Williamson serves as Chairwoman of the Board. Three additional
executive officers of the Company are:
RICHARD S. SCHOENFELDT (41). Mr. Schoenfeldt is Vice President-
Finance, Chief Financial Officer, Treasurer and Assistant Secretary of the
Company. Since 1994, he has served as controller and Chief Financial
Officer of The Colonel's. From 1991 through 1994, he was Controller of The
Colonel's and from 1987 through 1991 he was Operations Manager of The
Colonel's Plastics Division. From 1980 to 1986, he served as the
Director of Operations for Alcolite Products, Inc., an OEM plastic
injection molding, blow molding and thermoforming manufacturer.
WILLIAM SINGLETERRY (52). Mr. Singleterry is the Vice President of
Development of the Company. He also serves as President of The Colonel's.
Since 1991, Mr. Singleterry has served as the Director of Operations for
the Bumper Division of The Colonel's. Prior to that, he was the Regional
Sales Manager. From 1982 to 1989, he served as General Manager for Auto
Body Connection, a bumper manufacturer and distributor.
GARY MOORE (47). Mr. Moore is the Secretary of the Company, a
position to which he was appointed on February 20, 1997. Mr. Moore was a
Director of the Company, but resigned that position on the same date. Mr.
Moore also serves as a Director of BIR, as Director of Operations for the
Raceway, and as a sales consultant for The Colonel's. From 1987 until
1996, Mr. Moore's principal occupation was the position of National Sales &
37
<PAGE>
Accounts Manager for Tremco Division of B.F. Goodrich. From April through
November 1995, Mr. Moore served as Chairman of the Board and Chief
Executive Officer of Brainerd International, Inc., the Company's
predecessor.
INVOLVEMENT OF DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS IN CERTAIN LEGAL PROCEEDINGS.
The Company does not believe that any of its directors, executive
officers, promoters or control persons are involved in legal proceedings
within the meaning of Item 401(f) of SEC Regulation S-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more
than 10% of the Company's Common Stock, to file reports of ownership and
changes in ownership with the SEC and Nasdaq. Directors, officers and
greater than 10% beneficial owners are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, no director, officer or
beneficial owner of more than 10% of the Company's outstanding Common Stock
failed to file on a timely basis any report required by Section 16(a) of
the Securities Exchange Act with respect to the year ended December 31,
1996.
ITEM 11. EXECUTIVE COMPENSATION.
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<CAPTION>
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Donald J. Williamson 1996 $510,000<F1> $ 0<F1> $6,841<F1>
Chairman of the Board, 1995 $520,000<F1> $ 0<F1> $3,478<F1>
President, Chief Executive 1994 $526,550<F2> $200,000<F2> $3,731<F2>
Officer and Director<F3>
____________________________
<FN>
<F1> Amounts reported include amounts paid by the Company for Mr.
Williamson's services as President and Chief Executive Officer, as
well as by The Colonel's for Mr. Williamson's services as Chairman of
38
<PAGE>
the Board, Chief Executive Officer, Treasurer and Secretary and by BIR
for Mr. Williamson's services as Chairman of the Board, Secretary and
Treasurer.
<F2> Amounts reported as Mr. Williamson's compensation for the 1994 fiscal
year only cover amounts for his services as an executive officer and
Director of The Colonel's, then wholly owned by Mr. Williamson and his
wife. Mr. Williamson was paid no compensation by Brainerd (as
predecessor of the Company) during 1994.
<F3> Mr. Williamson served in these positions during fiscal 1996, but
resigned from them effective February 20, 1997.
____________________________
</FN>
</TABLE>
LONG-TERM INCENTIVE AWARDS
Pursuant to the Company's 1995 Long-Term Incentive Plan (the "LTIP"),
the Company may award cash and shares of restricted stock to plan
participants conditioned upon the achievement of certain corporate
performance goals over a three-year performance period. During fiscal
1996, Messrs. Frisina and Gans, as non-employee Directors of the Company,
received automatic stock option grants of covering a total of 1,075 shares
of Common Stock each. No other Directors or executive officers of the
Company received awards under the LTIP during fiscal 1996.
PENSION PLAN
The Company does not have a pension plan, a defined benefit plan or an
actuarial plan.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company does not have any employment agreements, termination-of-
employment agreement or change-in-control agreements with any executive
officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, Messrs. Frisina and Gans were the members of
the Compensation Committee of the Board of Directors. No other Directors
or executive officers of the Company took part in deliberations concerning
the compensation of executive officers of the Company during fiscal 1996.
Neither Mr. Frisina nor Mr. Gans has any employment relationship with the
Company or any of its subsidiaries. Mr. Gans is a Director of the Company
and practices law with Ted M. Gans, P.C. During the past year, the Company
39
<PAGE>
and The Colonel's retained Ted M. Gans, P.C. for certain legal services and
it is anticipated that the Company and/or The Colonel's may retain Ted M.
Gans, P.C. to render certain legal services during the current year.
COMPENSATION OF DIRECTORS
No Directors of the Company received compensation from the Company
solely for their services as Directors, except as discussed above (see
"Long-Term Incentive Plan") for Messrs. Frisina and Gans.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table contains information with respect to ownership of
Common Stock by all directors, all nominees for election as directors,
executive officers, all directors and executive officers as a group, and by
each person known to the Company to own beneficially more than 5 percent of
the Company's outstanding Common Stock. The content of this table is based
upon information supplied by the Company's officers, directors and nominees
for election as directors, and represents the Company's understanding of
circumstances in existence as of March 20, 1997. The business addresses of
all persons set forth in the following table are the same as the Company's
address: 620 South Platt Road, Milan, Michigan 48160.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES OWNED PERCENT OF CLASS
- ---------------- ------------ ----------------
<S> <C> <C>
Donald J. Williamson <F1> 23,567,080 97.47%
Patsy L. Williamson <F1> 23,567,080 97.47%
Michael J. McCloskey <F2> 0 <F*>
Mark D. Stevens 700 <F*>
Ben C. Parr <F3> 0 <F*>
Donald R. Gorman <F3> 2,150 <F*>
John M. Darcy <F3> 0 <F*>
J. Daniel Frisina <F3>, <F4> 1,075 <F*>
Ted M. Gans <F3>, <F4> 1,075 <F*>
Richard L. Roe <F5> 195 <F*>
Richard S. Schoenfeldt <F6> 0 <F*>
William H. Singleterry <F6> 0 <F*>
Gary Moore <F6> 0 <F*>
Directors and Officers as 23,570,125 97.49%
a Group <F7>
<FN>
_______________________________________
<F*> Does not exceed 1%.
40
<PAGE>
<F1> In the mergers by which Brainerd merged with and into the Company and
by which The Colonel's became a wholly owned subsidiary of the
Company, a total of 23,500,000 shares of Common Stock in the Company
were issued to Donald J. Williamson and Patsy L. Williamson
proportionate to their ownership of shares of common stock of The
Colonel's. Because they are married, each is deemed to be the
beneficial owner of all of the stock owned by both of them. Mrs.
Williamson also has options to acquire 6,130 shares of Common Stock.
However, because these options are not exercisable within 60 days of
the date of this Proxy Statement, these 5,580 shares are not deemed
"beneficially owned" by her at this time.
<F2> Mr. McCloskey has been granted options to acquire up to 1,000,000
shares of Common Stock, as more fully described below. See "Executive
Compensation --Long-Term Incentive Awards." However, because these
stock options are not exercisable by Mr. McCloskey within 60 days of
the date of this Report on Form 10-K, these shares are not considered
"beneficially owned" by Mr. McCloskey at the present time.
<F3> In February 1997, the Company's Board of Directors granted each non-
employee Director of the Company (Mrs. Williamson, Mr. Parr, Mr.
Gorman, Mr. Darcy, Mr. Frisina and Mr. Gans) options to acquire up to
5,000 shares of Common Stock, as more fully described below. See
"Executive Compensation--Long-Term Incentive Awards." However,
because these stock options are not exercisable by these persons
within 60 days of the date of this Report on Form 10-K, these shares
are not considered "beneficially owned" by these persons at the
present time.
<F4> Under the Company's 1995 Long-Term Incentive Plan, Messrs. Frisina and
Gans were automatically granted options to acquire shares of Common
Stock on March 1, 1996 (525 shares each), September 1, 1996 (550
shares each), and March 1, 1997 (580 shares each). Messrs. Gans and
Frisina would only be able to exercise these options with respect to
1,075 shares of Common Stock each, as of the date of this Report on
Form 10-K or within 60 days thereafter. Automatic grants were also
made on March 1, 1997 for 580 shares each to the Company's other
nonemployee directors: Mr. Darcy, Mr. Parr, Mr. Gorman and Mrs.
Williamson. Furthermore, Messrs. Darcy, Parr, Gorman and Mrs.
Williamson received options to purchase 550 shares of Common Stock
upon their appointment as Directors.
<F5> Mr. Roe resigned as a Director of the Company effective October 11,
1996. Mr. Roe continues to work as a Director and the Vice President
of BIR, a subsidiary of the Company.
<F6> On February 21, 1997, Messrs. Schoenfeldt and Singleterry were each
granted options to acquire up to 5,000 shares of Common Stock and Mr.
41
<PAGE>
Moore was granted options to acquire up to 2,000 shares of Common
Stock. However, because these stock options are not exercisable
within 60 days of the date of this Report on Form 10-K, these shares
are not considered "beneficially owned" by these persons at the
present time.
<F7> Excludes the currently-exercisable options held by Messrs. Frisina
and Gans. See note 4 above.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company and its subsidiaries are parties to certain transactions
with related parties which are summarized below.
LEASE OF MILAN, MICHIGAN FACILITY AND OWOSSO, MICHIGAN FACILITY. In
June of 1993, The Colonel's, Inc. began leasing its Milan, Michigan,
facility from 620 Platt Road, LLC. Donald J. Williamson and Patsy L.
Williamson are the sole members of 620 Platt Road, LLC. Rent expense to
The Colonel's, Inc. for the Milan facility was $840,000 for the year ending
December 31, 1996. CTA leases its Owosso, Michigan facility from 620 Platt
Road, LLC. Rent expense on this lease was $160,000 for the year ending
December 31, 1996.
WILLIAMSON BUICK-GMC, INC. Patsy L. Williamson owns all of the
outstanding capital stock of Williamson Buick-GMC, Inc. (formerly Blain
Buick-GMC Truck, Inc.) ("Buick"). Buick is an automobile dealership
located in Flint, Michigan. The Colonel's, Inc. engages in certain
transactions with Buick, including the purchase of automobiles, parts, and
automotive service and the lease of certain property from which rental
income is earned. During 1996, purchases of automobiles, parts, and
services by The Colonel's, Inc. from Buick were in the amount of $280,310.
The Company collected $15,598 in interest from a note that was paid off in
1996. The Truck Accessory Division of The Colonel's sold $51,198 worth of
bed liners to Buick in 1996.
TRANSACTIONS WITH DIRECTORS. Ted M. Gans is a Director of the Company
and practices law with Ted M. Gans, P.C. During the past year, The
Colonel's, Inc. retained Ted M. Gans, P.C. for certain legal services and
it is anticipated that the Company and/or The Colonel's, Inc. may retain
Ted M. Gans, P.C. to render certain legal services during the current year.
J. Daniel Frisina is Director of Global Development for Cheng Hong Legion
Co., Ltd., which sells among other products, automotive body replacement
parts to The Colonel's, Inc. as well as to other customers in the
automotive crash parts industry.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
ITEM 14(A)(1). FINANCIAL STATEMENTS. Attached as Appendix A.
The following consolidated financial statements of The Colonel's
International, Inc. and subsidiaries are filed as a part of this report:
* Auditors' Report
* Consolidated Balance Sheets as of December 31, 1996 and 1995
* Consolidated Statements of Income for years ended December
31, 1996, 1995 and 1994
* Consolidated Statements of Stockholders' Equity for years
ended December 31, 1996, 1995 and 1994
* Consolidated Statements of Cash Flows for years ended
December 31, 1996, 1995 and 1994
* Notes to Consolidated Financial Statements for years ended
December 31, 1996, 1995 and 1994
* Independent Auditors' Report on Schedule II
* Schedule II - Valuation and Qualifying Accounts
* Quarterly Financial Data
ITEM 14(A)(2). FINANCIAL STATEMENT SCHEDULES. Financial statement
schedules have not been filed because such schedules are either not
applicable or full disclosure has been made in the financial statements
and notes thereto.
ITEM 14(A)(3). EXHIBITS. The following exhibits are filed as part of
this report.
EXHIBIT
NUMBER
2.1 Agreement and Plan of Merger between The Colonel's, Inc. and
Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to
the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
2.2 Agreement and Plan of Reorganization among Brainerd
International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
43
<PAGE>
3.1 Articles of Incorporation of the Company, as amended.
Incorporated by reference from Exhibit E to the Proxy Statement
of Brainerd International, Inc. for the Annual Meeting of
Shareholders of Brainerd International, Inc. held on November 21,
1995.
3.2 Certificate of Amendment to the Articles of Incorporation
changing name from "The Colonel's Holdings, Inc." to "The
Colonel's International, Inc." Incorporated by reference from
Exhibit 3.2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995.
3.3 Bylaws of the Company. Incorporated by reference from Exhibit F
to the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
10.1 The Company's 1995 Long-Term Incentive Plan. Incorporated by
reference from Exhibit G to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
10.2 Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
10.3 Form of Non-Statutory Stock Option Agreement used under the
Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
10.4 Form of Incentive Stock Option Agreement used under the Incentive
Stock Option Plan. Incorporated by reference from the Annual
Report on Form 10-K of Brainerd International Inc. for the fiscal
year ended December 31, 1987.
10.5 Office Lease Agreement dated January 23, 1991 between Brainerd
International, Inc. and Woodland Office Partnership.
Incorporated by reference from the Annual Report on Form 10-K of
Brainerd International Inc. for the fiscal year ended December
31, 1990.
10.6 Amendment dated December 11-12, 1991 to Office Lease Agreement
(see Exhibit 10(e) above) between Brainerd International, Inc.
and Woodland Office Partnership. Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
44
<PAGE>
10.7 $404,700 Promissory Note dated January 1, 1992, from Brainerd
International, Inc. payable to Gene Snow and James W. Littlejohn.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
10.8 Lease Agreement between Issuer and National Hot Rod Association,
Inc. consisting of March 17, 1984 Lease Agreement; April 28, 1986
letter extending term to 1991; March 12, 1987 Letter of
Amendment; and April 7, 1992 letter extending term to 1996 and
amending agreement. Incorporated by reference from Brainerd
International, Inc.'s Registration Statement on Form S-1
(Registration No. 33-055876).
10.9 November 8, 1988 Sponsorship Agreement between Champion Auto
Stores, Inc. and National Hot Rod Association, Inc. Incorporated
by reference from Brainerd International, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-055876).
10.10 June 22, 1992 Title Rights Sponsorship Agreement between Champion
Auto Stores, Inc. and National Hot Rod Association, Inc.
Incorporated by reference from Brainerd International, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-055876).
10.11 February 16, 1994 Loan Agreement with American National Bank of
Brainerd; $550,000 Promissory Note; and $300,000 Line of Credit
Note. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.12 December 21, 1993 Agreement among Issuer, Motor Stadium, Inc. and
Gene M. Snow providing for termination of March 23, 1993
Financing Agreement, dissolution of Motor Sports Stadium, Inc.
and grant of interest by Mr. Snow in potential future project.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993.
10.13 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10(e) and 10(f)). Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993.
10.14 September 1994 Stock Purchase Agreement among Gene M. Snow, James
W. Littlejohn and Donald J. Williamson. Incorporated by
reference from Brainerd International, Inc.'s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993.
45
<PAGE>
10.15 December 1994 Letter of Intent between Issuer and The Colonel's,
Inc. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.16 Addendum to Lease dated December 16, 1994. Incorporated by
reference from Brainerd International, Inc.'s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993.
10.17 Variable Rate-Installment Note ($6,000,000) between The Colonel's
and Comerica Bank dated April 14, 1995. Incorporated by reference
from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.18 Master Revolving Note ($4,500,000) between The Colonel's and
Comerica Bank dated May 1, 1995. Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.19 Security Agreement between The Colonel's and Comerica Bank (f/k/a
Manufacturers National Bank of Detroit) dated December 4, 1991.
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.20 Amended and Restated Security Agreement between The Colonel's and
Comerica Bank (f/k/a Manufacturers National Bank of Detroit)
dated December 4, 1991. Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.21 Amended and Restated Guaranty between Donald and Patsy Williamson
and Comerica Bank dated October 8, 1992. Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.22 Lease Agreement between 620 Platt Road, Inc. and The Colonel's
dated June 18, 1993 (for Milan, Michigan manufacturing facility).
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.23 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's dated June 16,
1995. Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
46
<PAGE>
10.24 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's dated August 1, 1993 (for
Houston, Texas warehouse distribution facility). Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.25 Lease Agreement between Industrial Properties Corporation and The
Colonel's dated September 15, 1992 (for Dallas, Texas warehouse
distribution facility). Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.26 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's dated February 5, 1993 (for Phoenix (Glendale), Arizona
warehouse distribution facility). Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.27 Interim Equipment Lease Schedule ($2,729,370) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.28 Interim Equipment Lease Schedule ($2,044,000) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.29 Interim Equipment Lease Schedule ($383,468) between The Colonel's
and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.30 Lease Schedule ($3,464,557) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.30 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.31 Interim Lease Schedule ($960,000) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.31 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
47
<PAGE>
10.32 Interim Lease Schedule ($542,811) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.32 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.33 Interim Lease Schedule ($85,800) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.33 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.34 Interim Lease Schedule ($52,556) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.34 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.35 Interim Lease Schedule ($584,250) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.35 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.36 Interim Lease Schedule ($364,650) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.36 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.37 Interim Lease Schedule ($178,200) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.37 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.38 Lease Schedule between The Colonel's, Inc. and Comerica Leasing
Corporation dated May 31, 1996. Incorporated by reference from
Exhibit 10.38 to the Registrant's Report on Form 10-Q for the
period ended September 30, 1996.
10.39 Lease Agreement between The Colonel's, Inc. and Gamma Realty Co.
for lease of premises in Totowa, New Jersey. Incorporated by
reference from Exhibit 10.39 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
10.40 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated June 17, 1996. Incorporated by
reference from Exhibit 10.40 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
10.41 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated August 30, 1996. Incorporated by
reference from Exhibit 10.38 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
48
<PAGE>
10.42 Client Services Agreement between HRC4 and The Colonel's, Inc.
dated September 28, 1995.
10.43 Lese Agreement between 620 South Platt Road, Inc. and The
Colonel's, Inc. dated October 1, 1995.
10.44 Master Revolving Note between Comerica Bank and The Colonel's
International, Inc. and subsidiaries dated May 1, 1996.
10.45 Supply Agreement between The Colonel's, Inc. and The Dow
Chemical Company dated January 1, 1996.
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Auditors
24.1 Powers of Attorney
27.1 Financial Data Schedule
ITEM 14(B). REPORTS ON FORM 8-K.
Not applicable.
49
<PAGE>
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.
THE COLONEL'S INTERNATIONAL, INC.
Dated: March 28, 1997 By: /S/ MICHAEL J. MCCLOSKEY
Michael J. McCloskey
Chief Executive Officer and Director
(Principal Executive Officer)
By: /S/ RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer)
50
<PAGE>
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.
SIGNATURE TITLE DATE
/S/MICHAEL J. MCCLOSKEY Chief Executive Officer, March 28, 1997
Michael J. McCloskey Vice-Chairman and Director
*/S/MARK D. STEVENS President and Director March 27, 1997
Mark D. Stevens
*/S/PATSY L. WILLIAMSON Chairperson of the Board March 27, 1997
Patsy L. Williamson and Director
*/S/JOHN M. DARCY Director March 27, 1997
John M. Darcy
*/S/J. DANIEL FRISINA Director March 28, 1997
J. Daniel Frisina
*/S/TED M. GANS Director March 27, 1997
Ted M. Gans
______________________ Director March __, 1997
Ben C. Parr
*/S/DONALD GORMAN Director March 27, 1997
Donald Gorman
*By /S/ MICHAEL J. MCCLOSKEY
Michael J. McCloskey
Attorney-in-fact
51
<PAGE>
APPENDIX A
52
<PAGE>
---------------------------------------------
THE COLONEL'S
INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994, AND INDEPENDENT AUDITORS' REPORT
53
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
The Colonel's International, Inc.
Milan, Michigan
We have audited the accompanying consolidated balance sheets of The
Colonel's International, Inc. (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
March 14, 1997
54
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 321,486 $ 634,290
Accounts receivable:
Trade (net of allowance for doubtful accounts of
$575,000 and $401,000 at December 31, 1996
and 1995, respectively) (Note 7) 3,605,281 2,292,112
Inventories (Notes 4 and 7) 8,347,663 6,805,906
Prepaid expenses 226,670 164,692
Notes receivable (Note 6) 542,401
Deferred taxes - current (Note 10) 1,045,000 917,000
Current portion of deferred compensation (Note 11) 52,000 52,000
Other 40,000 75,000
----------- -----------
Total current assets 13,638,100 11,483,401
PROPERTY, PLANT AND EQUIPMENT - Net
(Notes 5, 8 and 11) 27,028,350 20,876,669
OTHER ASSETS:
Notes receivable:
Related party (Notes 6 and 13) 250,000
Long-term portion of deferred compensation (Note 11) 236,787 266,163
Deposits 1,156,868 4,757,342
Goodwill 366,497 425,609
Other 183,693 184,802
----------- -----------
Total other assets 1,943,845 5,883,916
----------- -----------
TOTAL ASSETS (Note 8) $42,610,295 $38,243,986
=========== ===========
</TABLE>
See Notes to consolidated financial statements.
55
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable (Note 7) $ 5,450,000 $ 4,180,000
Current portion of long-term obligations (Note 8) 3,868,733 5,424,455
Accounts payable - trade 3,532,752 2,938,494
Accrued expenses (Note 9) 2,561,361 2,431,074
Current portion of deferred compensation (Note 11) 52,000 52,000
Income taxes payable 1,195,000
----------- -----------
Total current liabilities 16,659,846 15,026,023
LONG-TERM OBLIGATIONS, NET OF CURRENT
PORTION (Note 8) 6,321,175 6,064,705
LONG-TERM PORTION OF DEFERRED
COMPENSATION (Note 11) 236,787 266,163
DEFERRED TAXES - LONG TERM (Note 10) 3,949,000 4,014,000
STOCKHOLDERS' EQUITY:
Common stock; 35,000,000 shares authorized at
$.01 par value, 24,177,805 shares issued and
outstanding (Note 3) 241,778 241,778
Additional paid-in capital 5,606,239 5,557,833
Retained earnings 9,595,470 7,073,484
----------- -----------
Total stockholders' equity 15,443,487 12,873,095
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $42,610,295 $38,243,986
=========== ===========
</TABLE>
See notes to consolidated financial statements.
56
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SALES (Note 13) $40,263,082 $28,503,726 $28,492,013
COST OF SALES (Note 13) 28,140,066 19,998,308 19,599,470
----------- ----------- -----------
GROSS PROFIT 12,123,016 8,505,418 8,892,543
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,931,713 3,534,648 5,101,270
PLANT CLOSING COSTS (Note 15) 1,389,368
----------- ----------- -----------
Income from operations 5,191,303 4,970,770 2,401,905
OTHER INCOME (EXPENSE):
Interest expense (1,214,400) (971,623) (785,969)
Interest income (Note 13) 71,730 119,628 106,773
Gain on insurance settlement (Note 14) 9,081,662
Rental income (Note 13) 60,000 71,000 73,000
Other (37,647) 5,699 10,343
----------- ----------- -----------
Other income (expense), net (1,120,317) (775,296) 8,485,809
----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 4,070,986 4,195,474 10,887,714
PROVISION FOR INCOME TAXES (Note 10) 1,549,000 2,333,000
----------- ----------- -----------
NET INCOME (1994 - Note 14) $ 2,521,986 $ 1,862,474 $10,887,714
EARNINGS PER SHARE (Note 2) $ 0.10
===========
PROFORMA EARNINGS PER SHARE (Note 2) $ 0.11
===========
</TABLE>
See notes to consolidated financial statements.
57
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK ADDITIONAL NOTE
-------------------- PAID IN RECEIVABLE - RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 6,021,000 $602,100 $1,244,511 $(3,000,000) $ 7,680,800 $ 6,527,411
Net income 10,887,714 10,887,714
Transactions with stockholders
(Note 13) 3,000,000 (6,927,171) (3,927,171)
---------- -------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 6,021,000 602,100 1,244,511 None 11,641,343 13,487,954
Net income 1,862,474 1,862,474
Transactions with stockholders
(Note 13) (6,430,333) (6,430,333)
Change in par value from
$.10 to $.01 (596,079) 596,079
Exchange of common shares to
affect merger (Note 3) 18,156,805 235,757 3,717,243 3,953,000
---------- -------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 24,177,805 241,778 5,557,833 7,073,484 12,873,095
Net income 2,521,986 2,521,986
Transactions with stockholders
(Note 13) 48,406 48,406
---------- -------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 24,177,805 $241,778 $5,606,239 None $ 9,595,470 $15,443,487
========== ======== ========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 2,521,986 $ 1,862,474 $10,887,714
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 3,751,121 2,673,758 3,075,351
Deferred tax provision (193,000) 2,333,000
Provision for impairment of assets held for sale 1,109,368
(Gain) loss on sale of property, plant
and equipment (24,041) 22,573 1,584
Changes in assets and liabilities that provided
(used) cash, net of effects from the
1995 acquisition:
Accounts receivable:
Trade (1,313,169) 182,453 (875,598)
Related parties 173,400
Insurance 4,352,239 (53,036)
Inventories (1,541,757) (683,346) (2,457,547)
Prepaid expenses (61,978) 90,998 85,342
Accounts payable 594,258 71,600 (1,131,386)
Accrued expenses 130,287 (2,855,361) 24,414
Income taxes payable 1,195,000
----------- ----------- -----------
Net cash provided by operating activities 5,058,707 8,050,388 10,839,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired 277,237
Expenditures for property, plant and equipment (3,214,198) (2,734,576) (5,905,381)
Proceeds from sale of property, plant and
equipment 99,326 8,964 2,802
Net change in deposits (principally for tooling
and equipment) (1,632,215) (1,540,845) 1,384,885
Additions to notes receivable - related party (1,243,291) (886,369)
Payments received on notes receivable -
related party 490,000 1,205,117 35,604
Payments received on notes receivable - other 302,401 237,209 237,663
Proceeds from sale of assets held for sale 35,000 275,000
----------- ----------- -----------
Net cash used in investing activities (3,919,686) (3,515,185) (5,130,796)
</TABLE>
59
<PAGE>
(continued)
THE COLONEL'S INTERNATIONAL, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable $ 1,270,000 $(1,820,000)
Proceeds from long-term obligations 580,015 6,000,062
Principal payments on long-term debt (3,028,821) (2,956,790) $(5,993,777)
Principal payment on obligations under
capital leases (273,019) (126,218) (173,995)
Distributions paid to stockholders (5,162,253) (1,810,047)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,451,825) (4,065,199) (7,977,819)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (312,804) 470,004 (2,269,009)
CASH, BEGINNING OF YEAR 634,290 164,286 2,433,295
----------- ----------- -----------
CASH, END OF YEAR $ 321,486 $ 634,290 $ 164,286
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - Cash paid during
the year for interest $ 1,145,817 $ 910,706 $ 901,327
=========== =========== ===========
Cash paid during the year for income taxes $ 350,000
===========
SUPPLEMENTAL SCHEDULES OF
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Property additions from issuance of capital leases $ 3,483,673 $ 2,689,007
=========== ===========
Increase in deposits from noncash interim financing $ 1,396,611 $ 2,087,061
=========== ===========
60
<PAGE>
Transfer of deposits to property, plant and equipment
relating to property placed in service $ 3,171,589
===========
Stockholder contribution of deposit on land $ 48,406
===========
Reclassification of note receivable as
stockholder distribution $ 1,482,024 $ 3,000,000
=========== ===========
Property received as payment on note
receivable $ 473,477
===========
Inventory received as payment on note
receivable $ 425,976
===========
Stockholder contribution of note receivable $ 213,944
===========
Note payable received on sale of property $ 60,000
===========
Assumption of mortgage $ 2,117,124
===========
</TABLE>
See notes to consolidated financial statements.
61
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------
1. ORGANIZATION
The Colonel's International, Inc. ("CII") is a holding company for
three wholly-owned subsidiaries, The Colonel's, Inc. ("The
Colonel's"), The Colonel's Truck Accessories, Inc. ("CTA") and
Brainerd International Raceway, Inc. ("BIRI"). The Colonel's was
incorporated in Michigan in 1982 and principally designs, manufactures
and distributes plastic automotive bumper fascias and miscellaneous
reinforcement beams and brackets, as replacement collision parts to
the automotive aftermarket industry in North America. The Colonel's
manufactures its products using reaction injection molding and plastic
injection molding technology and sells its products through warehouses
and a network of distributors. CTA began operations on January 1,
1996, and was subsequently incorporated in Michigan in 1997. CTA
produces truck bed liners for sale to new vehicle dealers and the
automotive aftermarket. BIRI was incorporated in Minnesota in 1982
and operates a multi-purpose motor sports facility in Brainerd,
Minnesota. BIRI organizes and promotes various spectator events
relating to road and drag races.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
accounts of CII and its subsidiaries, The Colonel's and BIRI, from the
date of acquisition. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES are stated at the lower of cost or market, cost determined
by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT is stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets as follows:
62
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Track 7 years
Buildings 15
Leasehold improvements 10-25
Equipment 5-10
Bleachers and fencing 5
Furniture and fixtures 3-10
Vehicles 3-7
Tooling 5-7
</TABLE>
Leasehold improvements are amortized over the shorter of the life of
the lease or their estimated useful life of 10-25 years.
Expenditures for major renewals and betterments that extend the useful
life of the related asset are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. When
properties are retired or sold, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss on
disposition is recognized.
REVENUE RECOGNITION - Sales and trade accounts receivable are
recognized at the time the product is shipped to customers.
GOODWILL - Goodwill is being amortized using the straight-line method
over 7 years.
ACCRUED LEGAL FEES - Anticipated legal and other professional fees are
accrued in the same period that the related matters are accrued.
ACCRUED ENVIRONMENTAL COSTS - CII accounts for environmental costs
when environmental assessments or remedial efforts are probable, and
the costs can be reasonably estimated. Generally, the timing of these
accruals coincide with the earlier of a feasibility study or CII's
commitment to a plan of action based on the known facts. Accruals are
recorded based on existing technology available, presently enacted
laws and regulations, and without giving effect to insurance proceeds.
Such accruals are not discounted. As assessments and cleanups
proceed, environmental accruals are periodically reviewed and adjusted
as additional information becomes available as to the nature or extent
of contamination, methods of remediation required, and other actions
by governmental agencies or private parties.
INCOME TAX - CII provides for deferred income taxes under the asset
and liability method, whereby deferred income taxes result from
temporary differences between the tax bases of assets and liabilities
and their reported amounts in the financial statements.
63
<PAGE>
Effective December 31, 1995, The Colonel's changed its tax status from
an S Corporation to a C Corporation for federal income tax purposes.
Prior to December 31, 1995, The Colonel's income was not taxable to
the company and was passed through to its shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of accounts
and notes receivable, accounts and notes payable and long-term debt
are a reasonable estimate of their fair value.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the operating period.
Actual results could differ from those estimates.
NET INCOME PER SHARE - Primary net income per share for 1996 was
computed by dividing net income by the weighted average common shares
outstanding (24,177,805) and the weighted average dilutive effect of
CII's incentive stock options (229) under the treasury stock method
(Note 12).
Pro forma net income per share for 1995 was computed by dividing net
income, adjusted to give effect to the change in tax status of The
Colonel's as if such change and the acquisition had occurred at the
beginning of the period, by the weighted average common shares
outstanding (24,177,805).
RECLASSIFICATIONS - Certain 1995 and 1994 amounts have been
reclassified to conform to the 1996 presentation.
3. BUSINESS COMBINATION
Effective December 31, 1995, CII completed its merger with The
Colonel's. CII issued 23,500,000 shares of its common stock in
exchange for all of the outstanding common stock of The Colonel's.
For accounting purposes, the acquisition has been treated as a
recapitalization of The Colonel's with The Colonel's as the acquirer
("reverse acquisition"). The historical financial statements prior to
December 31, 1995 are those of The Colonel's. In addition, the
weighted average common shares outstanding for purposes of calculating
the earnings per share have been retroactively restated to give effect
to the recapitalization.
The purchase price of $3,953,000 was allocated to the assets acquired
and liabilities assumed based on the estimated fair values at the date
of acquisition. The excess of the purchase price over the estimated
64
<PAGE>
fair values of the net assets acquired has been recorded as goodwill,
and is being amortized over 7 years. The estimated fair value of
assets acquired and liabilities assumed are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash $ 277,237
Property and equipment 4,682,400
Goodwill 425,609
Other 25,556
Accrued liabilities (83,810)
Accrued federal income tax (66,000)
Debt (543,992)
Deferred tax liability (764,000)
----------
Total $3,953,000
==========
</TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition had occurred at the
beginning of the period presented, giving effect to certain
adjustments for the amortization of goodwill and the effect of income
taxes. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made at the beginning of the period
presented or of results that may occur in the future.
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
---- ----
<S> <C> <C> <C>
Revenue $31,382 $30,942
======= =======
Income before taxes $ 4,385 $10,886
======= =======
Net income $ 2,915 $ 7,126
======= =======
Earnings per share (1994 - See
Note 14) $ 0.12 $ 0.29
======= =======
65
<PAGE>
4. INVENTORIES
Inventories at December 31 are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Finished products $7,213,704 $6,168,440
Raw materials 1,133,959 637,466
---------- ----------
Total inventories $8,347,663 $6,805,906
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized by major
classifications as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and improvements $ 3,619,717 $ 2,269,400
Track 1,533,760 1,537,800
Buildings 793,990 622,000
Leasehold improvements 707,076 707,076
Bleachers and fencing 731,886 432,200
Equipment (including equipment under
capital lease) 14,316,710 10,460,954
Transportation equipment (including equipment
under capital lease) 1,000,690 609,097
Furniture and fixtures 611,510 537,230
Tooling 23,229,532 19,658,447
------------ ------------
Total 46,544,871 36,834,204
Less accumulated depreciation and amortization (19,516,521) (15,957,535)
------------ ------------
Net property, plant and equipment $ 27,028,350 $ 20,876,669
============ ============
</TABLE>
Included above are trucks and equipment under capital leases with a
net book value of $6,112,653 and $2,666,598 at December 31, 1996 and
1995, respectively.
66
<PAGE>
6. NOTES RECEIVABLE
Notes receivable at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Notes receivable from a company affiliated through common control,
due on demand, bearing interest at the prime rate, collateralized by
property and assets, paid in May 1996 $ 490,000
Notes receivable from customer, aggregate monthly installments of
$20,629 including interest at 7%, commencing February 1, 1993,
secured by shares of common stock of a company, paid in
July 1996 28,457
Mortgage receivable, monthly interest payments at 8% per annum,
principal due November 15, 1998, collateralized by land, paid in
March 1996 213,944
Land contract receivable, due in monthly installments of $650,
including interest at 9% per annum, collateralized by land, paid
in March 1996 60,000
---------
Total 792,401
Less current portion (542,401)
---------
Long-term $ 250,000
=========
</TABLE>
7. NOTES PAYABLE
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Line of credit with a bank, interest is due
monthly at the bank's prime rate (8.25%
at December 31, 1996) $4,450,000 $4,180,000
Bridge note payable to a bank, interest is
due monthly at the bank's prime rate
plus 1/2%, due May 1997 1,000,000
---------- ----------
Total $5,450,000 $4,180,000
========== ==========
</TABLE>
67
<PAGE>
CII's has a line of credit with a bank which provides for maximum
borrowings of $4,500,000, based upon eligible accounts receivable and
inventories. Remaining availability under the line at December 31,
1996 was $50,000. The line of credit expires May 1, 1997.
The above notes payable are with the same bank as the term note (Note
8) and are secured by the same collateral. The weighted average
interest rate on the notes payable were 8.31% and 8.81% in 1996 and
1995, respectively.
The bridge note payable from a bank represents amounts advanced to CII
for the purchase of land in Florida.
8. LONG-TERM OBLIGATIONS
Long-term obligations at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Term note payable to a bank, monthly principal
payments of $200,000 plus interest at the
bank's prime rate plus 1/2% (effective rate of
8.75% at December 31, 1996) through
November 1997 $ 2,600,000 $ 4,800,000
Mortgage payable to bank, interest at 9.25%,
payable in monthly installments of $52,000
through May 1998, and secured by
underlying property 796,908 1,326,825
Mortgage payable to a bank, interest at the bank's
prime rate plus 2% (effective rate of 10.25% at
December 31, 1996), annual principal payments
of $50,000 plus interest due quarterly, through
September 2004. Secured by underlying property 400,000 450,000
Capital lease obligations through December 2002;
monthly installments of $62,771 including
interest at rates between 7.5% and 8.75%,
collateralized by the related machinery and
equipment (see Note 11) 5,967,897 2,689,007
Bridge financing from a bank for future equipment
leases, interest due monthly at the bank's prime
rate (effective rate of 8.5% at December 31, 1995) 2,087,065
Vehicle financing 231,365
Other 193,738 136,263
----------- -----------
Total 10,189,908 11,489,160
Less current portion (3,868,733) (5,424,455)
----------- -----------
68
<PAGE>
Long-term $ 6,321,175 $ 6,064,705
=========== ===========
</TABLE>
The term note is part of a bank loan agreement that includes CII's
lines of credit (Note 7). This bank loan agreement is guaranteed by
certain stockholders of CII and collateralized by a first priority
security interest in substantially all CII's assets and all of CII's
issued and outstanding shares of common stock and contains certain
covenants which require CII to maintain minimum levels of net worth
and not to exceed certain debt ratios.
The bridge financing from a bank represents amounts advanced to CII
for the purchase of tooling and machinery that CII refinanced as
capital leases on a long-term basis.
The scheduled future repayments of long-term obligations at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $ 3,868,733
1998 1,382,272
1999 1,024,213
2000 1,036,610
2001 1,201,990
Thereafter 1,676,090
-----------
Total $10,189,908
===========
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
69
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Accrued legal (Note 16) $1,136,516 $ 349,331
Accrued compensation for NuPar
(Note 16) 100,000 900,000
Accrued environmental costs
(Note 17) 598,717 598,717
Accrued taxes 417,165 276,619
Other 308,963 306,407
---------- ----------
Total $2,561,361 $2,431,074
========== ==========
</TABLE>
10. INCOME TAXES
Effective December 31, 1995, The Colonel's changed its tax status from
a non-taxable entity to a taxable entity. As a result of this change,
The Colonel's recorded a $2,333,000 provision to reflect the tax
consequences of the difference between the financial statements and
the tax bases of assets and liabilities at that date.
For the year ended December 31, 1996, the Colonel's provision for
income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Current:
Federal $1,592,000
State 150,000
----------
Total current 1,742,000
Deferred:
Federal (182,000)
State (11,000)
----------
Total deferred (193,000)
----------
Total provision for income taxes $1,549,000
==========
</TABLE>
70
<PAGE>
The temporary difference which gives rise to deferred tax assets and
liabilities at December 31, including amounts acquired in the
acquisition (Note 3) are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Allowance for doubtful accounts $ 213,000 $ 140,000
Inventory 115,000 124,300
Accrued legal 458,000 462,000
Accrued environmental cleanup 222,000 222,000
Other 37,000 (31,300)
----------- -----------
Total 1,045,000 917,000
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards 367,000 433,000
Fixed assets (3,483,000) (3,494,000)
Other (372,000) (443,000)
----------- -----------
Total (3,488,000) (3,504,000)
Valuation allowance (461,000) (510,000)
----------- -----------
Total $(3,949,000) $(4,014,000)
=========== ===========
</TABLE>
The consolidated income tax provision differs from the amount computed
on pretax income using the U.S. statutory income tax rate for the year
ended December 31, 1996, for the following reasons:
<TABLE>
<CAPTION>
<S> <C> <C>
Federal income tax at statutory rate $1,385,000
State taxes 122,000
Other 42,000
----------
Provision for income taxes $1,549,000
==========
Effective tax rate 38%
==
</TABLE>
71
<PAGE>
At December 31, 1996, CII has net operating loss and net capital loss
carryforwards for tax purposes as follows:
<TABLE>
<CAPTION>
NET NET
OPERATING CAPITAL
EXPIRATION LOSS LOSS
DATE CARRYFORWARDS CARRYFORWARDS
<S> <C> <C> <C>
2004 $252,000
2005 599,000
2008 332,000 $275,000
</TABLE>
CII has put a valuation allowance on 100% of these amounts because
management believes it is more likely than not that the net operating
loss and net capital loss carryforwards will not be utilized due to
limitations in existing tax laws on their use.
72
<PAGE>
11. COMMITMENTS
CII leases trucks and equipment under capital leases (see Notes 5 and
8). CII also leases warehouse space under noncancelable operating
lease agreements. The warehouse leases require that CII pay the
taxes, insurance and maintenance expense related to the leased
property. Minimum future lease payments under noncancelable leases at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
<S> <C> <C> <C>
Years ending December 31:
1997 $1,202,605 $1,951,463
1998 1,202,605 1,536,194
1999 1,202,605 1,321,485
2000 1,202,605 1,097,129
2001 1,202,605 940,000
Thereafter 1,621,891 2,940,000
---------- ----------
Total 7,634,916 $9,786,271
Less amount representing interest 1,667,019 ==========
----------
Present value of minimum lease
payments 5,967,897
Less current maturities 753,257
----------
Long-term portion of capital lease obligations $5,214,640
==========
</TABLE>
Rent expense, including month to month rentals, was approximately
$1,364,000, $1,447,000 and $2,242,000 for the years ended December 31,
1996, 1995 and 1994, respectively. Included in rent expense are
amounts paid to the related parties of CII for rental of its principal
operating facilities (Note 13).
CII entered into a ten-year consulting agreement beginning January 1,
1994, with the former president of the Company. The agreement
guarantees him $52,000 per year. CII may terminate this agreement,
but is obligated to pay the remaining compensation due under the terms
of the agreement. CII recorded a liability and related deferred costs
for the remaining compensation due under the terms of the agreement
73
<PAGE>
based upon the net present value of such payments. The deferred cost
amount is being amortized to operations over the term of the
agreement.
CII has purchase commitments totaling $799,000 representing 6 tools to
be received in 1997.
12. STOCK OPTIONS
CII has an incentive stock option plan that provides for up to
3,000,000 shares of common stock options to key employees, executive
officers and outside directors, and also permits the grant or award of
restricted stock, stock appreciation rights or stock awards. The term
of the option cannot exceed 10 years from the grant date. The vesting
period for the options is 6 months.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" which was effective for CII beginning January 1, 1996.
Statement No. 123 encourages compensation cost to be measured based on
the fair value of the equity instrument awarded. In accordance with
this statement, CII has elected to continue the application of
Accounting Principles Board Opinion No. 25 which recognizes
compensation cost based on the intrinsic value of the equity
instrument award. If compensation costs had been determined in
accordance with Statement No. 123, net income and net income per share
would not have been significantly affected.
During 1996, CII granted options aggregating 1,000 shares to outside
directors at an option price of $5.50 per share and options
aggregating 1,050 shares at an option price of $6.50 per share. No
options were exercised during 1996. At December 31, 1996, 1,000
shares had vested.
13. RELATED PARTY TRANSACTIONS
The primary parties related to the CII are as follows:
- The majority stockholders, with whom various transactions are
made.
- 620 Platt Road, Inc. ("Platt"), a company affiliated through
common ownership, to which rental payments are made for the Milan
facility and the Owosso facility.
- The Colonel's Factory Outlet of Arkansas, Inc. ("Arkansas"), a
company affiliated through common ownership, with which various
transactions are made, including sales and purchases of
74
<PAGE>
inventory, and payment for and reimbursement of Arkansas'
expenses. This company was a related party through June of 1996.
- Williamson Buick - GMC, Inc. ("Williamson," formerly Blain Buick
- GMC, Inc.), a company affiliated through common ownership, from
which automobiles, parts, and service are purchased and sold, and
rental income is earned.
A summary of transactions with these related parties as of and for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Majority Stockholder:
Short-term advances to stockholders $5,162,753 $ 13,802,190
Cash payments on short-term advances (500) (11,992,143)
Reduction of note receivable 1,482,024 3,000,000
Assumption of land contract receivable (213,944)
---------- ------------
Assumption of mortgage 2,117,124
Shareholder distributions 6,430,333 6,927,171
Rental expense 280,000
Platt - rental expense $1,000,000 840,000 840,000
Capital contribution 48,406
Arkansas:
Sales of inventory 346,000 309,500
Purchases of inventory 744,600 224,300
Inventory in satisfaction of note receivable 425,976
Property, plant and equipment in
satisfaction of note receivable 473,477
Cash in satisfaction of note receivable 1,000,000
Blain:
Purchases of automobiles, parts and service 280,310 73,500 147,000
Rental income 11,000 12,000
Interest income on note receivable 15,598 43,400 48,000
Sales of bedliners 51,198
</TABLE>
14. PLANT FIRE
In 1993, CII's leased facility in Owosso, Michigan which included its
headquarters, sales offices and the principal manufacturing and
warehouse facilities, was destroyed by a fire. The fire resulted in
75
<PAGE>
damaged inventory, equipment and other contents therein. In late
1993, CII relocated its principal operations and headquarters to
Milan, Michigan and is leasing a 350,000 square foot facility from a
company owned by certain stockholders of CII.
In 1994, total insurance proceeds for the replacement cost of lost
property, lost profits and other direct costs of the fire received was
approximately $31,000,000, of which approximately $6,630,000 was due
to a stockholder as indemnification of damages to the Owosso facility.
CII has recognized in other income a net gain of approximately
$9,082,000 and $9,043,000 in 1994 and 1993, respectively, which
represents the amount by which CII's insurance proceeds of $24,381,000
exceeded the sum of the net book value of the assets destroyed and the
liabilities resulting from the fire.
15. PLANT CLOSING
In 1994, CII closed its Florida facility. At December 31, 1994, CII
accrued estimated costs required to close the facility which include
approximately $1,034,000 for the write down of assets to their net
realizable value and $355,000 for costs of the storage, dismantling
and disposing of the equipment, and other related expenses.
16. LITIGATION
In connection with the acquisition of a facility in Florida (known as
"NuPar"), CII signed employment agreements with the former NuPar
shareholders for the three year period beginning December 1991. In
1994, the former NuPar shareholders filed a lawsuit against CII for
$1,800,000 claiming they had met the conditions of the agreements and
are therefore entitled to the payments thereunder. In July 1995, CII
settled these actions for $1.4 million, payable in installments
through January 1997, and with outstanding balance of $100,000 and
$900,000 at December 31, 1996 and 1995, respectively.
CII was both a defendant and counter-plaintiff in a suit filed
December 5, 1991, in the United States District Court, Eastern
District of Michigan, Flint, Michigan, in a private action seeking
damages under the federal anti-trust statutes. The Colonel's settled
this case for cash and merchandise deliverable through December 1997.
CII has been served with three lawsuits pertaining to a class action
suit arising from the production of bedliners. The suits allege that
the liners insulate a gas can when filled which may cause a static
charge that could result in a fire. Although the class action suit
targets bedliner manufacturers, CII believes that other organizations
such as service stations, can producers, and gas pump manufacturers
should be involved. CII has formed a coalition with the other
76
<PAGE>
bedliner manufactures to defend this class action suit. CII did
not produce liners at the time of the alleged incidents, but has
elected to participate in the class action.
CII has been served with a lawsuit filed in Federal District Court
Western District of Wisconsin by a competitor pertaining to a possible
infringement of their patent associated with their bedliner. CII has
recently received its patent from the U.S. Patent office and believes
that the patent was issued after the office's strict due diligence.
CII believes that it is not infringing upon the competitor's patent.
In addition, CII has filed a separate suit in Federal District Court
Eastern District of Michigan alleging the same competitor is
infringing on CII's bedliner patent.
CII is involved in various other legal proceedings which have arisen
in the normal course of its operations. CII has accrued its best
estimate of the cost of litigation based on known facts. It is
possible that this estimate may change in the near term as the
lawsuits progress. Although the final resolution of any such matters
could have a material effect on CII's operating results for the
particular reporting period in which an adjustment of the estimated
liability is recorded, CII believes that any resulting liability
should not materially affect its financial position.
17. ENVIRONMENTAL REMEDIATION
CII is responsible for the remediation of hazardous materials and
ground contamination located at the Owosso facility as a result of the
fire (see Note 14). In August 1993, the Michigan Department of
Natural Resources required that CII perform a complete hydrogeological
study of this site to determine the extent of the contamination. CII
plans to engage environmental consultants in the summer of 1997 to
determine the extent of the hazardous materials located at this site,
if any, and the cost of any remediation. CII has accrued its best
estimate of the cost of remediation based on known facts. It is
possible that this estimate may change in the near term as the project
progresses. Although the final resolution of any such matters could
have a material effect on CII's operating results for the particular
reporting period in which an adjustment of the estimated liability is
recorded, CII believes that any resulting liability should not
materially affect its financial position.
As part of the lease agreement with a related party for the Milan,
Michigan facility, CII is also responsible for the remediation of
hazardous material, up to an amount of $2,000,000, which existed at
this site prior to CII entering into the lease in June 1993. CII has
accrued for estimated remediation costs based on an environmental
study of the site. CII has accrued its best estimate of the cost of
77
<PAGE>
remediation based on known facts. It is possible that this estimate
may change in the near term as the project progresses. Although the
final resolution of any such matters could have a material effect on
CII's operating results for the particular reporting period in which
an adjustment of the estimated liability is recorded, CII believes
that any resulting liability should not materially affect its
financial position.
18. SEGMENTS OF BUSINESS
CII operates in two industry segments: manufacture of automotive
bumpers, bedliners and other miscellaneous reinforcement beams and
brackets at the two manufacturing plants in Michigan
("Manufacturing"), and operation of a multi-purpose motor sports
facility in Brainerd, Minnesota ("Raceway").
Financial information below is listed by industry segment. Historical
data prior to December 31, 1995 are those of The Colonel's. There are
no operating results of BIRI as of December 31, 1995 as the date of
acquisition was December 31, 1995. Operating profit is total revenues
less operating expenses and excludes interest expense and income
taxes. Identifiable assets are those assets identified with
operations in each industry segment.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES:
Manufacturing $37,497,844 $28,503,726 $28,492,013
Raceway 2,765,238
----------- ----------- -----------
Total $40,263,082 $28,503,726 $28,492,013
=========== =========== ===========
OPERATING PROFIT:
Manufacturing $ 4,873,244 $ 4,970,770 $ 2,401,905
Raceway 318,059
----------- ----------- -----------
Total $ 5,191,303 $ 4,970,770 $ 2,401,905
=========== =========== ===========
IDENTIFIABLE ASSETS:
Manufacturing $37,048,830 $32,833,184 $31,529,883
Raceway 5,561,465 5,410,802
----------- ----------- -----------
78
<PAGE>
Total $42,610,295 $38,243,986 $31,529,883
=========== =========== ===========
</TABLE>
The Colonel's had sales of over 10% to one customer in 1996.
19. SUBSEQUENT EVENT
On March 20, 1997, CII entered into a letter of intent regarding
the acquisition of four new and one used car dealerships owned
and controlled by Patsy Lou Williamson, a related party through
common ownership. As contemplated in the letter of intent, CII
will purchase 100% of the stock of the dealerships and certain
related assets employed by the dealerships, but owned by the seller
and/or her affiliates, for a purchase price equal to $60 million less
any agreed upon indebtedness or other liabilities assumed by CII.
However, no definitive terms have been established by the parties,
and no party to the letter of intent is bound to buy or sell the
dealerships unless all appropriate parties have executed and
delivered a definitive agreement mutually acceptable to each party
and their counsel and, in the case of CII, to the independent
members of its Board of Directors.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents CII's quarterly results:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues $9,900,074 $8,544,230 $11,210,682 $10,608,096
Gross Profit 2,891,168 2,160,617 2,884,066 4,187,165
Net income 901,802 391,750 307,950 920,484
Net income per share $0.04 $0.02 $0.01 $0.03
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Sales $7,819,252 $6,831,901 $ 7,062,036 $ 6,790,537
Gross Profit 2,567,592 2,276,186 1,586,113 2,075,525
Net income 1,345,324 1,055,696 409,065 (101,705)
Pro forma earnings per share $0.06 $0.04 $0.02 $0.00
</TABLE>
******
80
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
The Colonel's International, Inc.
Milan, Michigan
We have audited the consolidated financial statement of The Colonel's
International, Inc. (the "Company) as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, and have
issued our report therein dated March 14, 1997; such report is included
elsewhere in this Form 10-K. Our audits also included the financial
statement schedule of The Colonel's International, Inc., listed in Item 14.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, based on our audits, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
BDO Seidman, LLP
March 14, 1997
81
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------- DEDUCTIONS-
CHARGED TO CHARGED WRITE-OFFS
BALANCE COSTS AND TO OTHER AND BALANCE
JANUARY 1 EXPENSES ACCOUNTS DISPOSALS DECEMBER 31
<S> <C> <C> <C> <C> <C>
DOUBTFUL ACCOUNTS RESERVES
For the year ended December 31:
1996 $401,200 $172,895 - $ (95) $574,000
1995 345,900 143,018 - (87,718) 401,200
1994 337,900 220,953 - (212,953) 345,900
INVENTORY RESERVES
For the year ended December 31:
1996 146,658 - - - 146,658
1995 - 146,658 - - 146,658
1994 - - - -
TAX VALUATION ALLOWANCE
For the year ended December 31:
1996 510,000 - - (49,000) 461,000
1995 - 510,000 - - 510,000
1994 - - - -
</TABLE>
82
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
2.1 Agreement and Plan of Merger between The Colonel's, Inc. and
Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to
the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
2.2 Agreement and Plan of Reorganization among Brainerd
International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
3.1 Articles of Incorporation of the Company, as amended.
Incorporated by reference from Exhibit E to the Proxy Statement
of Brainerd International, Inc. for the Annual Meeting of
Shareholders of Brainerd International, Inc. held on November 21,
1995.
3.2 Certificate of Amendment to the Articles of Incorporation
changing name from "The Colonel's Holdings, Inc." to "The
Colonel's International, Inc." Incorporated by reference from
Exhibit 3.2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995.
3.3 Bylaws of the Company. Incorporated by reference from Exhibit F
to the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
10.1 The Company's 1995 Long-Term Incentive Plan. Incorporated by
reference from Exhibit G to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
10.2 Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
83
<PAGE>
10.3 Form of Non-Statutory Stock Option Agreement used under the
Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
10.4 Form of Incentive Stock Option Agreement used under the Incentive
Stock Option Plan. Incorporated by reference from the Annual
Report on Form 10-K of Brainerd International Inc. for the fiscal
year ended December 31, 1987.
10.5 Office Lease Agreement dated January 23, 1991 between Brainerd
International, Inc. and Woodland Office Partnership.
Incorporated by reference from the Annual Report on Form 10-K of
Brainerd International Inc. for the fiscal year ended December
31, 1990.
10.6 Amendment dated December 11-12, 1991 to Office Lease Agreement
(see Exhibit 10(e) above) between Brainerd International, Inc.
and Woodland Office Partnership. Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10.7 $404,700 Promissory Note dated January 1, 1992, from Brainerd
International, Inc. payable to Gene Snow and James W. Littlejohn.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
10.8 Lease Agreement between Issuer and National Hot Rod Association,
Inc. consisting of March 17, 1984 Lease Agreement; April 28, 1986
letter extending term to 1991; March 12, 1987 Letter of
Amendment; and April 7, 1992 letter extending term to 1996 and
amending agreement. Incorporated by reference from Brainerd
International, Inc.'s Registration Statement on Form S-1
(Registration No. 33-055876).
10.9 November 8, 1988 Sponsorship Agreement between Champion Auto
Stores, Inc. and National Hot Rod Association, Inc. Incorporated
by reference from Brainerd International, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-055876).
10.10 June 22, 1992 Title Rights Sponsorship Agreement between Champion
Auto Stores, Inc. and National Hot Rod Association, Inc.
Incorporated by reference from Brainerd International, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-055876).
84
<PAGE>
10.11 February 16, 1994 Loan Agreement with American National Bank of
Brainerd; $550,000 Promissory Note; and $300,000 Line of Credit
Note. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.12 December 21, 1993 Agreement among Issuer, Motor Stadium, Inc. and
Gene M. Snow providing for termination of March 23, 1993
Financing Agreement, dissolution of Motor Sports Stadium, Inc.
and grant of interest by Mr. Snow in potential future project.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993.
10.13 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10(e) and 10(f)). Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993.
10.14 September 1994 Stock Purchase Agreement among Gene M. Snow, James
W. Littlejohn and Donald J. Williamson. Incorporated by
reference from Brainerd International, Inc.'s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993.
10.15 December 1994 Letter of Intent between Issuer and The Colonel's,
Inc. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.16 Addendum to Lease dated December 16, 1994. Incorporated by
reference from Brainerd International, Inc.'s Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1993.
10.17 Variable Rate-Installment Note ($6,000,000) between The Colonel's
and Comerica Bank dated April 14, 1995. Incorporated by reference
from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.18 Master Revolving Note ($4,500,000) between The Colonel's and
Comerica Bank dated May 1, 1995. Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.19 Security Agreement between The Colonel's and Comerica Bank (f/k/a
Manufacturers National Bank of Detroit) dated December 4, 1991.
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
85
<PAGE>
10.20 Amended and Restated Security Agreement between The Colonel's and
Comerica Bank (f/k/a Manufacturers National Bank of Detroit)
dated December 4, 1991. Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.21 Amended and Restated Guaranty between Donald and Patsy Williamson
and Comerica Bank dated October 8, 1992. Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.22 Lease Agreement between 620 Platt Road, Inc. and The Colonel's
dated June 18, 1993 (for Milan, Michigan manufacturing facility).
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.23 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's dated June 16,
1995. Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.24 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's dated August 1, 1993 (for
Houston, Texas warehouse distribution facility). Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.25 Lease Agreement between Industrial Properties Corporation and The
Colonel's dated September 15, 1992 (for Dallas, Texas warehouse
distribution facility). Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.26 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's dated February 5, 1993 (for Phoenix (Glendale), Arizona
warehouse distribution facility). Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.27 Interim Equipment Lease Schedule ($2,729,370) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
86
<PAGE>
10.28 Interim Equipment Lease Schedule ($2,044,000) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.29 Interim Equipment Lease Schedule ($383,468) between The Colonel's
and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.30 Lease Schedule ($3,464,557) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.30 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.31 Interim Lease Schedule ($960,000) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.31 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.32 Interim Lease Schedule ($542,811) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.32 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.33 Interim Lease Schedule ($85,800) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.33 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.34 Interim Lease Schedule ($52,556) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.34 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.35 Interim Lease Schedule ($584,250) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.35 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.36 Interim Lease Schedule ($364,650) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.36 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
87
<PAGE>
10.37 Interim Lease Schedule ($178,200) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.37 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.38 Lease Schedule between The Colonel's, Inc. and Comerica Leasing
Corporation dated May 31, 1996. Incorporated by reference from
Exhibit 10.38 to the Registrant's Report on Form 10-Q for the
period ended September 30, 1996.
10.39 Lease Agreement between The Colonel's, Inc. and Gamma Realty Co.
for lease of premises in Totowa, New Jersey. Incorporated by
reference from Exhibit 10.39 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
10.40 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated June 17, 1996. Incorporated by
reference from Exhibit 10.40 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
10.41 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated August 30, 1996. Incorporated by
reference from Exhibit 10.38 to the Registrant's Report on Form
10-Q for the period ended September 30, 1996.
10.42 Client Services Agreement between HRC4 and The Colonel's, Inc.
dated September 28, 1995.
10.43 Lese Agreement between 620 South Platt Road, Inc. and The
Colonel's, Inc. dated October 1, 1995.
10.44 Master Revolving Note between Comerica Bank and The Colonel's
International, Inc. and subsidiaries dated May 1, 1996.
10.45 Supply Agreement between The Colonel's, Inc. and The Dow
Chemical Company dated January 1, 1996.
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Auditors
24.1 Powers of Attorney
27.1 Financial Data Schedule
88
<PAGE>
EXHIBIT 10.42
CLIENT SERVICES AGREEMENT
This Client Services Agreement (the "Agreement") is made September 28, 1995
(the "Effective Date"), between HRC4, Inc., a Michigan Corporation having
its principal place of business at 31700 Middlebelt Road, Suite 140,
Farmington Hills, Michigan 48334 ("EMPLOYER") and THE COLONEL'S, INC., of
620 S. PLATT-ROAD, MILAN, MICHIGAN 48160 ("CLIENT").
RECITALS
A. EMPLOYER is a Professional Employer Organization ("PEO") and is
an Accredited Member of the National Association of Professional Employer
Organizations ("NAPEO"),
B. CLIENT desires to enter into an employee leasing relationship
with EMPLOYER, in order to fill its human resource requirements, and,
C. EMPLOYER desires to provide to CLIENT the human resources CLIENT
needs to properly perform CLIENT's business.
Therefore, in consideration of the Recitals above, and the mutual convents
set forth below, the parties agree as follows:
I. SECTION 1. - STAFFING AND SUPERVISION OF EMPLOYER'S EMPLOYEES.
A. STAFFING. Except as otherwise agreed, EMPLOYER shall supply
employees to CLIENT to fill Job Function Positions as requested by CLIENT.
B. OPERATION OF CLIENT'S BUSINESS. CLIENT shall supervise and
determine the procedures to be followed in CLIENT's business by covered
employees regarding time, location and performance of duties.
C. SUITABILITY. EMPLOYER shall provide employees who are duly
qualified and skilled in the area in which their services are to be
utilized. EMPLOYER shall not be obligated to hire or retain CLIENT's
former staff members. EMPLOYER will consult with CLIENT in filling its Job
Function Positions, but EMPLOYER shall retain the sole and exclusive right
to determine which of EMPLOYER's employees shall be designated to fill
CLIENT's Job Function Positions. CLIENT has no right to approve such
determination, but nonetheless possesses the right to reject, at any time,
any employee so furnished and, if dissatisfied with such employee's
qualifications and/or performance. If any EMPLOYER employee is rejected by
CLIENT, EMPLOYER agrees to furnish a suitable replacement within a
reasonable time and if one cannot be found within a reasonable time,
EMPLOYER will provide temporary personnel. The CLIENT agrees to pay for
such temporary help costs directly at the prevailing rates for temporary
personnel.
<PAGE>
D. PERSONNEL MATTERS. EMPLOYER shall have the sole responsibility
of hiring, evaluating, disciplining and firing individuals assigned to fill
CLIENT's Job Function Positions. Under no circumstances shall CLIENT have
the right to terminate an EMPLOYER employee. It is understood and agreed
that EMPLOYER shall retain full control over all personnel decisions.
CLIENT agrees to comply with all EMPLOYER directives, both general and
specific, regarding the layoff, suspension or terminations of EMPLOYER
employees.
E. DESIGNATION OF EMPLOYEES. The employees listed on Exhibit B will
be considered for employment by EMPLOYER and assignment to CLIENT's
business. Additions and substitutions to the Exhibit B list will be made
pursuant to this Agreement.
II. SECTION 2. - TERM.
A. TERM. This Agreement shall commence on the Effective Date and
shall continue for a one (1) year (the "Initial Term"). CLIENT may
terminate this Agreement, however, after ONE HUNDRED EIGHTY (180) DAYS by
giving sixty (60) days written notice to EMPLOYER. Following expiration of
the Initial Term, this Agreement shall remain in full force and effect for
additional one-year terms until terminated by either party by giving sixty
(60) days written notice to the other party.
B. MATERIAL BREACH. Notwithstanding the foregoing, EMPLOYER may, at
any time, terminate this Agreement for CLIENT's material breach of this
Agreement and a termination due to such material breach shall be effective
immediately upon EMPLOYER giving notice to CLIENT. The following, without
limitation, shall constitute a material breach of this Agreement by CLIENT:
1. Failure to pay any charges or fees when due;
2. Failure to comply with any directive from EMPLOYER or any
governmental authority, including but not limited to any directive
regarding health, safety or personnel decisions;
3. Committing any act that usurps EMPLOYER's rights as the
EMPLOYER of EMPLOYER employees;
4. Failure to provide and maintain any insurance required under
this Agreement;
5. Failure by CLIENT to fully disclose any unemployment or
worker's compensation problems or risks, or potential problems or risks of
which CLIENT has knowledge or failure to completely and accurately disclose
recent employment histories of CLIENT's current employees; or
6. Failure of CLIENT or CLIENT's present employees to fully
disclose, to the best of their knowledge, any and all health problems or
-2-
<PAGE>
conditions, past or present, existing in the individuals listed on the
Census Sheet attached as Exhibit B, including but not limited to: heart
conditions, circulatory disorders, high blood pressure, nervous disorders,
epilepsy, hernias, hemorrhoids, amputation, diabetes, cancer, tumors,
respiratory, digestive, urinary or bone disorders or AIDS.
C. AUTOMATIC TERMINATION. This Agreement shall terminate
automatically, without notice, in the event of:
1. the CLIENT's failure to pay any charges or fees when due; or
2. the bankruptcy, dissolution, receivership or cessation of
CLIENT's business.
D. EFFECT OF TERMINATION. Termination of this Agreement for any
reason shall not relieve CLIENT from any of its liabilities or obligations
to EMPLOYER pursuant to the terms of this Agreement, including, but not
limited to, payment of any fees or charges, or reimbursement of any health
insurance, worker's compensation or unemployment claims or liabilities
incurred by EMPLOYER which are the responsibility of CLIENT pursuant to the
terms hereof.
E. REINSTATEMENT. CLIENT may reinstate this Agreement, if it has
been automatically terminated pursuant to Section II.C.1. above, by paying
all past due charges and fees, all charges and fees due for the post
automatic termination period and also posting an (additional) security
deposit, equal to 125% of all the total amount of the defaulted invoice
prior to the expiration of the first payroll period subsequent to the
automatic termination.
III. SECTION 3. - FEES AND CHARGES.
A. SERVICE FEE. CLIENT shall pay EMPLOYER a service fee as
described in the Rate Sheet attached as Exhibit A, as same may be amended
from time to time.
B. OTHER CHARGES. In addition to those fees due per Exhibit A,
CLIENT shall pay all costs of insurances set forth in Exhibit B, as same
may be amended from time to time.
C. SECTION 414(n). To the extent that any of EMPLOYER's employees
are treated as employees of the CLIENT for the purposes of the requirements
set forth in Section 414(n) of the Internal Revenue Code (relating to
certain employee benefits), CLIENT shall, at its own expense, comply with
all mandatory IRS requirements in regard to those employees.
D. BILLING. CLIENT shall be billed by EMPLOYER on a weekly basis,
-3-
<PAGE>
unless otherwise agreed. All fees and charges are due and payable on
presentation of invoice by EMPLOYER.
E. LATE PAYMENT CHARGE. In addition to the other remedies provided
in this Agreement, if the payment by CLIENT of any amounts due to EMPLOYER
are not made, CLIENT shall pay a late fee equal to four percent (4%) of the
amount due and a service charge equal to two (2%) percent per month (24%
Annual Percentage Rate) on any of the unpaid balance until paid in full.
F. FEE ADJUSTMENT. During the Initial Term, EMPLOYER may not adjust
the Service Fee rate. EMPLOYER may adjust charges to accommodate statutory
tax increases, health insurance or workers compensation insurance cost
increases, or changes in the Job Function Positions required by CLIENT.
After the Initial Term, EMPLOYER may adjust its charges for any reason,
upon thirty (30) days written notice, except as otherwise provided in this
Agreement.
G. EFFECTIVE DATE OF INCREASE. Any increase in the fee rate shall
be effective thirty (30) days from the date of notification from EMPLOYER
to CLIENT, excepting all increases in health insurance costs, worker's
compensation insurance costs and any other insurance costs, if applicable,
which shall be payable at the time such increases are billed to EMPLOYER by
its insurance provider and payable when invoiced by EMPLOYER.
H. VERIFICATION BY CLIENT. CLIENT agrees to verify all time
submissions to EMPLOYER.
I. BILLING ERRORS. If CLIENT believes that any billing or other
communication between CLIENT and EMPLOYER is in error, CLIENT shall
immediately notify EMPLOYER. Until verified, CLIENT shall not deduct any
amount from a current invoice as a credit or set-off. Upon verification,
if an error has occurred, EMPLOYER shall reflect any appropriate adjustment
on the next invoice to CLIENT. In no event shall EMPLOYER take more than
twenty (20) days to respond to CLIENT's inquiry.
J. 1. SET-UP FEE. CLIENT agrees to pay to EMPLOYER for each
employee a non-refundable, one time set up fee in the amount specified on
Exhibit A.
K. EARLY TERMINATION CHARGES. In the event CLIENT terminates this
Agreement without providing EMPLOYER sixty (60) days notice, or in the
event EMPLOYER terminates this Agreement pursuant to Section 2, Paragraph B
or C above, CLIENT shall continue to be responsible for any health
insurance, worker's compensation, if applicable, or unemployment
liabilities and other charges and fees incurred by EMPLOYER with respect to
CLIENT's employees at the time of such early termination. Such charges
shall be paid by CLIENT to EMPLOYER upon receipt of an invoice for such
amounts.
-4-
<PAGE>
L. PROFESSIONAL FEES AND EXPENSES. In addition to any other
charges, CLIENT shall reimburse EMPLOYER for all damages, fines, reasonable
professional fees and expenses incurred in regard to human resource and
labor relations matters, including by way of example and not limitation,
sexual harassment, job discrimination, ADA matters, wrongful termination,
grievance and arbitration proceedings pursuant to any applicable collective
bargaining relationship, the negotiation of future collective bargaining
agreements, if applicable, and any claims or charges brought before any
state or federal courts or administrative agencies, which are a result of
the actions taken by CLIENT in the course of exercising day to day control
over the employee and which are not a result of actions taken by CLIENT in
response to EMPLOYER's directions to CLIENT.
[SECTION 4 OMITTED IN ORIGINAL AGREEMENT]
V. SECTION 5 - STATUS OF EMPLOYER AS AN INDEPENDENT CONTRACTOR AND
EMPLOYER.
A. EMPLOYER AS THE EMPLOYER. All CLIENT personnel are and shall
remain the employees of EMPLOYER. EMPLOYER is and shall remain responsible
for such administrative employment matters as the payment of payroll and
all associated federal, state and local employment taxes, provision of
worker's compensation coverage and agreed upon fringe benefits, provided
that EMPLOYER may fulfill part of its obligation by using CLIENT's current
worker's compensation insurance as well as non-obligatory fringe benefit
programs for its employees.
B. INDEPENDENT CONTRACTOR. The parties agree and acknowledge that
EMPLOYER shall provide services to CLIENT under this Agreement as
independent contractor and the provision of such services shall not be
construed to create an EMPLOYER-employee or agency relationship between
CLIENT and EMPLOYER. Except as expressly provided in this Agreement,
neither party has the right or authority to assume or create any
obligation, liability or responsibility on behalf of the other party or to
hold itself out as an agent or representative of the other in performance
of this Agreement.
VI. SECTION 6 - INSURANCE.
A. WORKER'S COMPENSATION INSURANCE. EMPLOYER shall furnish and keep
in full force and effect, at all times during the term of this Agreement,
Worker's Compensation Insurance covering all EMPLOYER employees leased to
CLIENT under the terms of this Agreement. Upon CLIENT's request, EMPLOYER
shall issue or caused to be issued a certificate of insurance naming CLIENT
as an additional named insured.
B. LIABILITY INSURANCE - CLIENT'S RESPONSIBILITY. Client shall be
responsible for having and maintaining liability or lose insurance for any
-5-
<PAGE>
acts or activities of the employees assigned to CLIENT. Coverage shall
meet the standards required by law, if applicable, or sufficient amount to
protect the employees, CLIENT and EMPLOYER.
1. LIMITS. CLIENT shall furnish and keep in full force and
effect at all times during the term of this Agreement, comprehensive
general liability insurance on its entire business operation and
comprehensive vehicles insurance liability insurance covering all
automobiles used in CLIENT's business, including non-owned vehicles. The
comprehensive general liability insurance shall insure bodily injury and
property damage for a minimum combined single limit of One Million
($1,000,000.00) Dollars. The automobile liability insurance shall also
include uninsured motorist insurance with a minimum combined single limit
of Sixty Thousand ($60,000.00) Dollars. In states where "no fault" laws
apply, equivalent personal injury and property damage coverage shall be
included.
2. ADDITIONAL NAMED INSURED. CLIENT shall cause its insurer to
name EMPLOYER as an additional named insured and shall issue a certificate
of insurance to EMPLOYER within thirty (30) days of the Effective Date.
Said policies shall provide at least thirty (30) days advance notice to
EMPLOYER of any suspension or cancellation or of any material change in
policy limits, benefits or coverages.
C. WAIVER OF SUBROGATION. Each party releases and discharges the
other party, and any officer, agent, employee or representative of such
party, from any liability whatsoever arising from loss, damage or injury,
for any reason, for which insurance is carried by the insured party at the
time of such loss, damage or injury to the extent of any recovery by the
insured party.
VII. SECTION 7 - WORK ENVIRONMENT.
A. CLIENT'S RESPONSIBILITY. CLIENT agrees to provide a safe work
environment for EMPLOYER's personnel which shall be free of unreasonable
risks and to warn EMPLOYER of all risks which are not discernable by
inspection, including, but not limited to, the potential exposure of
EMPLOYER personnel to nuclear or toxic wastes.
B. COMPLIANCE WITH ALL HEALTH AND SAFETY AND NON-DISCRIMINATION AND
SEXUAL HARASSMENT LAWS. CLIENT agrees that at its own expense CLIENT will
comply with all applicable federal, state and local health and safety laws,
regulations, ordinances, directives and rules as well as all statutes and
regulations pertaining to sexual harassment and discrimination. CLIENT
shall reimburse EMPLOYER for all costs incurred by EMPLOYER as a result of
CLIENT's failure to comply with this provision.
C. COMPLIANCE WITH EMPLOYMENT LAWS. CLIENT agrees to conduct
-6-
<PAGE>
itself, at its own expense, in such a manner that it complies with all
current federal, state and local employment laws, including but not limited
to wage and hour, overtime, discrimination laws, and/or local ordinances,
so as not to place EMPLOYER in violation of such federal or state
employment laws or local ordinances.
D. COMPLIANCE WITH EMPLOYER DIRECTIVES. CLIENT agrees to cooperate
and comply with specific directives from EMPLOYER relating to applicable
health and safety laws, although EMPLOYER shall have no duty to give such
directives.
E. INSPECTION. EMPLOYER's representatives or agents and its
worker's compensation insurer shall have the right to inspect CLIENT's
premises during normal business hours and at such other times as agreed
with CLIENT.
F. NOTICE OF INJURY. CLIENT agrees that it will immediately report
all accidents and injuries to EMPLOYER employees to EMPLOYER.
VIII. SECTION 8 - CLIENT'S REPRESENTATIVES AND WARRANTIES.
CLIENT warrants and represents to EMPLOYER the following:
A. That, prior to the commencement of the Initial Term, all
compensation due and payable to all CLIENT's employees, including but not
limited to regular salaries and wages, overtime, bonuses, vacation pay and
severance pay have been paid for any period prior to such employees
becoming EMPLOYER's employees.
B. That no separate agreements or arrangements exist that would
obligate EMPLOYER, except as specified in this Agreement.
C. That, in the opinion of counsel for CLIENT, all of CLIENT's
pension and profit-sharing plans in existence at the time of this Agreement
are current and in compliance with applicable law and this Agreement shall
not be deemed a breach under the terms of those plans. That all data
applicable to former employees of CLIENT which become EMPLOYER employees,
submitted as part of the CLIENT Census, is true and correct to the best of
CLIENT's knowledge and belief. In the event that such data is found to be
untrue, EMPLOYER has the option of terminating this Agreement or revising
it to exclude the employee(s) to which such untrue data related. CLIENT
shall reimburse EMPLOYER for any and all costs or expenses incurred by
EMPLOYER as a result of such untrue data being submitted, which CLIENT knew
or should have known to be untrue.
-7-
<PAGE>
IX. SECTION 9 - INDEMNIFICATION AND COOPERATION.
A. EMPLOYER agrees to indemnify, hold harmless, protect and defend
CLIENT, its directors, officers and shareholders from any claims, expenses
and liabilities or failure of EMPLOYER to withhold and pay taxes and
applicable benefits, to conduct itself in accordance with applicable
federal and state law. This indemnification includes but is not limited to
reasonable attorney fees and other costs and expenses of litigation.
However, EMPLOYER shall not be liable in any event of CLIENT's loss of
profits, business goodwill or other consequential, or incidental damages.
B. Except as covered by insurance, CLIENT agrees to indemnify,
defend and hold harmless EMPLOYER from any and all liability, expense,
including court costs and attorney fees and claims for damages or injury of
any nature whatsoever, whether known or unknown, which the other may incur,
suffer, become liable for or which may be asserted or claimed against one
of them as a result of the acts, errors, or omissions, including without
limitation any violation or breach of Section 7 above, and any claim for
damages due to sexual harassment or sexual discrimination by CLIENT. This
indemnification includes but is not limited to reasonable attorney fees and
other costs and expenses of litigation. However, CLIENT shall not be
liable in any event of EMPLOYER's loss of profits, business goodwill or
other consequential or incidental damages.
C. In the event that any action (litigation or arbitration) is
brought by either party to this Agreement as a result of a breach or
default in any provision of this Agreement or to enforce the terms of this
Agreement, the prevailing party in such action shall be awarded reasonable
attorney fees and costs, in addition to any other relief to which the party
may be entitled.
D. Either party to this Agreement may elect to have any dispute
which arises between the parties submitted to binding arbitration, in
accordance with the rules and regulations of the American Arbitration
Association, provided that the costs of any arbitration shall be borne by
parties in the same proportion as the liability assessed to the parties by
the arbitrating panel. A judgment upon the arbitration award may be
rendered in any court of competent jurisdiction.
E. COOPERATION IN DEFENSE OF EMPLOYMENT CLAIMS, LITIGATION AND,
WHERE APPLICABLE, GRIEVANCES AND ARBITRATION. CLIENT agrees to cooperate
fully when required to assist EMPLOYER in defending itself against relating
to employees, unemployment claims or litigation resulting from personnel
decisions or job actions relating to an EMPLOYER's employee's performance
or failure to perform. CLIENT's cooperation shall include, but not be
limited to, the completion of reports, if requested, participation in
meetings, attendance at referee hearings as a witness, answering of
questions or interrogatories under oath or otherwise and providing access
to any compilation of CLIENT's documents relating to EMPLOYER employees.
-8-
<PAGE>
X. SECTION 10 - GENERAL.
A. ASSIGNMENT. CLIENT may not assign its rights and duties hereunder or
any interest in this Agreement, without prior written consent of the EMPLOYER.
B. INTEGRATION. This Agreement and the Exhibits to it constitute
the entire agreement between the parties with regard to the subject matter
and no other agreement, statement, promise or practice between the parties
relating to the subject matter shall be binding on the parties. The
Exhibits are incorporated by reference.
C. MODIFICATION OR AMENDMENT. This Agreement and the Exhibits
attached may be altered, modified, or amended only by a written memorandum
signed by both the parties to this Agreement.
D. WAIVER. Failure by either party at any time to require
performance by the other party or to claim a breach of any provision of
this Agreement will not be construed as a waiver of any subsequent breach
nor affect the effectiveness of this Agreement, nor any part hereof, nor
prejudice either party as regarding any subsequent action.
E. NOTICES. Any notice to be given under this Agreement shall be
deemed given if in writing and sent by certified mail, return receipt
requested, to the addressee party's address as set forth above.
F. SEVERABILITY. Should any term, warrant, covenant, condition or
provision of this Agreement be held to be invalid or unenforceable, the
balance of this Agreement shall remain in full force and effect and shall
stand as if the unenforceable part or provision did not exist.
G. VALIDITY. This Agreement shall be valid and enforceable only
after it has been signed by both an authorized executive officer of CLIENT
and the C.E.O. or President of EMPLOYER.
H. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Michigan.
Signed on the day first written above.
"Employer"
HRC4, INC.
By ______________________________
Fred L. Goldenberg, President
"CLIENT"
THE COLONEL'S, INC.
By ______________________________
Richard S. Schoenfeldt, Controller
-9-
<PAGE>
EXHIBIT A
THE COLONEL'S, INC.
SET UP FEE PER EMPLOYEE: TEN DOLLARS ($10.00) PER EMPLOYEE OF INITIAL
GROUP AND TEN DOLLARS ($10.00) PER ADDITIONAL
EMPLOYEE, AS ADDED.
WORKER'S COMPENSATION
DEPOSIT: ONE QUARTER'S PREMIUM, IN ADVANCE, TO BE
ADJUSTED FOR EMPLOYEES ADDED AFTER EFFECTIVE
DATE.
ADMINISTRATIVE FEE PER
EMPLOYEE PER WEEKLY PAY
PERIOD: TEN AND 38/100THS DOLLARS ($10.38).
HEALTH INSURANCE DEPOSIT: ONE MONTH'S PREMIUM PER PARTICIPATING
EMPLOYEE, IN ADVANCE, TO BE ADJUSTED FOR
EMPLOYEES ADDED AFTER EFFECTIVE DATE.
ON SITE REPRESENTATIVE: JANIS DONELSON, VICE-PRESIDENT.
<PAGE>
EXHIBIT B
WORKER'S COMPENSATION RATES
EMPLOYEES CODE RATE
TO BE PROVIDED
HEALTH INSURANCE RATES
TO BE PROVIDED
<PAGE>
EXHIBIT 10.43
LEASE
THIS LEASE, executed this 1st day of October, 1995, by and between
620 Platt Road, Inc. (hereinafter referred to as the "Lessor"), and
THE COLONEL'S, INC., a Michigan corporation, of 620 S. Platt Road, Milan,
Michigan (hereinafter referred to as the "Lessee").
WITNESSETH
WHEREAS, the Lessor desires to lease to the Lessee and the Lessee
desires to lease from the Lessor the real property and improvements
commonly known as 951 Aiken Road, Michigan, and further identified by its
legal description in Exhibit A; and
WHEREAS, the parties hereto wish to set forth other terms and
conditions relative to their business agreements;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and each and every act to be performed hereunder by either
of the parties, such parties enter in to the following Agreement:
ARTICLE I
The Demised Premises and the Term
SECTION 1.01. THE PROPERTY LEASED. The Lessor hereby lets and
demises to the Lessee, and the Lessee hereby leases from the Lessor, the
real property with all improvements and appurtenances described on Exhibit
A. The said real property and improvements and appurtenances to be leased
pursuant to this Agreement is sometimes hereinafter referred to as the
"Demised Premises".
SECTION 1.02. THE DEMISED TERM. To have and to hold the Demised
premises with the rights, privileges, easements and appurtenances thereto
attaching and belonging, to the Lessee, its successors and assigns, with a
quiet and undisturbed possession to Lessee, for a term beginning on October
1, 1995 and extending for 24 months from such date to and including
September 30, 2005 (such period being hereinafter referred to as the
"Demised Term").
ARTICLE II
The Demised Premises and the Term
SECTION 2.01. COVENANT. The Lessee covenants that it will pay the
rental set forth below for the Demised premises to the Lessor, at 3425
Parkside Drive, Flint, MI 48503, or at such other address that the Lessor
may specify from time to time.
<PAGE>
SECTION 2.02. RENTAL. For the Demised Term the Lessee will pay to
the Lessor a rental of a monthly rent (hereinafter "Monthly Rent") of
$20,000 Dollars per month plus such other amounts as are set forth herein
on the first (1st) day of each month of the Demised term, except that the
$20,000 a month payment shall not commence until July 1, 1996.
ARTICLE III
Possession
SECTION 3.01. EFFECT OF HOLDING OVER. If Lessee remains in
possession of all or any part of the Demised Premises after the expiration
of the Demised Term, with the express or implied consent of Lessor, such
tenancy shall be month-to-month only and shall not constitute a renewal or
extension for any further term. If Lessor remains in possession either
with or without Lessor's consent, Monthly Rent shall be increased to an
amount equal to One Hundred Twenty-Five (125%) percent of the Monthly Rent
payable during the last month of the Demised Term, and any other sums due
under this Lease shall be payable in the amount and at the times specified
in this Lease. Such month-to-month tenancy shall be subject to every other
term, condition, and covenant contained herein. If Lessee remains in
possession without Lessor's consent, Lessee shall indemnify, defend and
hold Lessor harmless from all claims, costs and liabilities including
attorneys' fees and costs, arising from or in connection with Lessee
remaining in possession.
SECTION 3.02. QUIET ENJOYMENT. Lessor covenants that Lessee, upon
performing the terms, conditions and covenants of this Lease, shall have
quiet and peaceful possession of the Demised Premises as against any person
claiming the same by, through or under Lessor.
ARTICLE IV
Use of Demised Premises
SECTION 4.01. WASTE AND CONFORMANCE WITH LAWS. No waste or damage
shall be committed upon or to the Demised Premises. The Demised Premises
shall not be used for any unlawful purpose, and no violations of law shall
be committed thereon by Lessee or its employees. The Lessee shall at its
own cost and expense promptly comply with all laws, rules, orders,
ordinances and regulations of the federal, state and city governments and
any and all of their departments and bureaus and those of any other
competent authority relating to the use of the Demised Premises or to the
condition of the portion thereof which the Lessee is required to maintain.
SECTION 4.02. LESSEE'S USE. Lessee shall use the Demised Premises
solely for industrial use including warehouse and related office uses and
shall not use the Demised Premises for any other purpose without obtaining
the prior written consent of the Lessor.
SECTION 4.03. COMPLIANCE. Lessee shall not commit any public or
-2-
<PAGE>
private nuisance or any other act of thing which might or would disturb the
quiet enjoyment of any other tenant or any occupant of nearby property.
Lessee shall place no loads upon the floors, walls or ceilings in excess of
the maximum designed load determined by Lessor or which endanger the
structure of the Demised Premises nor place any harmful liquids in the
drainage systems nor pump or store waste materials or refuse or allow such
to remain outside the building property, except in the enclosed trash areas
provided. Lessee shall not store or permit to be stored or otherwise place
any other material of any nature whatsoever outside the building.
(a) "Hazardous Material" shall mean any substance or material
which is capable of posing a risk of injury to health, safety or
property, including all of those materials and substances designated
as hazardous or toxic by any federal, state or local law, ordinance,
rule, regulation or policy.
(b) Lessee shall not introduce any Hazardous Material in, on or
adjacent to the Demised Premises without complying with all applicable
federal, state and local laws, ordinances, rules, regulations, and
policies relating to the release, storage, use, disposal,
transportation or clean-up of Hazardous Materials, including, but not
limited to, the obtaining of proper permits. Lessee shall immediately
notify Lessor of any release or contamination or any inquiry, test,
investigation, or enforcement proceeding by or against Lessee or the
Demised Premises concerning a Hazardous Material of which Lessee has
knowledge. If Lessee's release, storage, use disposal or
transportation of any Hazardous Material in, on or adjacent to the
Demised Premises results in any contamination of the Demised Premises,
or the sole, or surface or groundwater in or about the Demised
Premises, Lessee shall clean up all such contamination at its expense.
Lessee shall indemnify, defend and hold Lessor harmless from and
against any claims, suits, causes of action, costs, fees, including
attorneys' fees and costs, arising out of or in connection with (i)
any such contamination to the extent caused by the acts or omissions
of Lessee, its agents, employees, contractors, invitees or Subtenants,
(ii) any clean-up work, inquiry or enforcement proceeding arising out
of or in connection with such contamination, (iii) any Hazardous
Materials released, stored, used, disposed of, or transported by
Lessee or its agents, employees, contractors or invitees, or (iv) any
loss or damage to persons or property resulting from items (i) through
(iii) above. Lessee's obligations under this subparagraph shall
survive the termination of this Lease.
SECTION 4.04. EXISTING CONDITIONS. Tenant shall be responsible for
any remediation required for conditions which did or may have existed on
the premises before the term of this lease, as if those conditions were
ones caused or permitted by the Tenant under Section 4.03, except that
Tenant's liability under this sub-section (4.04) shall not exceed an
aggregate amount of $1,000,000.
-3-
<PAGE>
ARTICLE V
Taxes
SECTION 5.01. TAXES AND ASSESSMENTS. Lessee shall be responsible for
and shall pay for all Michigan Single Business taxes, and all real and/or
personal property taxes assessed or due by any governmental authority for
the respective taxes assessed or due on the Demised Premises. Lessee shall
also pay prior to delinquency all real property taxes which are defined as:
Any form of assessment, license, fee, rent tax, levy, penalty (if a result
of Lessee's delinquency); or tax (other than net income, estate,
succession, inheritance, transferor franchise taxes), imposed by any
authority having the direct or indirect power to tax, or by any city,
county, state or federal government or any improvement or other district or
division thereof, whether such tax is: (i) determined by the area of the
Demised Premises, the rent or other sums payable hereunder by Lessee or by
other sub-lessees, including, but not limited to, any gross income or
excise tax levied by any of the foregoing authorities with respect to
receipt of such rent or other sums due under this Lease; (ii) imposed upon
any legal or equitable interest of Lessor in the Demised Premises or any
part thereof; (iii) imposed upon this transaction or any document to which
Lessee is a party creating or transferring any interest in the Demised
Premises; (iv) levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes against the Demised Premises
whether or not now customary or within the contemplation of the parties;
(v) imposed as a special assessment for such purposes as fire protection,
street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services; or (vi) imposed as a result of
any transfer of any interest in the Demised Premises by Lessor or the
construction of any improvements thereon or thereto.
SECTION 5.02. PERSONAL PROPERTY TAXES. Lessee shall also pay prior
to delinquency all taxes assessed or levied against Lessee's personal
property in, on or about the Demised Premises or elsewhere. When possible,
Lessee shall cause its personal property to be assessed and billed
separately from the real or personal property of Lessor.
ARTICLE VI
Care of Demised Premises
SECTION 6.01. INJURY TO BUILDINGS. The Lessee shall not perform any
acts or carry on any practices which may injure the buildings and shall
keep the Demised Premises under its control, including the walkways on the
premises and any loading areas, clean and free from refuse at all times,
and shall store all refuse in appropriate containers within the Demised
Premises and arrange for the regular pick-up of such refuse at the Lessee's
expense. The Lessee shall not burn any refuse of any kind in or about the
buildings.
-4-
<PAGE>
ARTICLE VII
SECTION 7.01. FACILITIES PROVIDED BY LESSOR. The Lessor shall
provide the Demised Premises on Exhibit A in an "as is" condition at the
commencement of the Lease, which the Lessee agrees to accept.
SECTION 7.02. PAYMENT FOR ELECTRICITY AND ALL UTILITIES BY LESSEE.
Payment for electricity and all utilities used by Lessee used upon or in
connection with the Demised Premises shall be made by the Lessee promptly
when due.
SECTION 7.03. NON-LIABILITY OF LESSOR. The Lessor shall not be
liable in damages or otherwise, should the furnishing of any service by it
to the Demised Premises by interrupted by fire, accident, riot, strike,
acts of God, or the making of necessary repairs or improvements or other
causes beyond the control of the Lessor.
ARTICLE VIII
Maintenance of Building
SECTION 8.01. OBLIGATIONS OF LESSEE. The Lessee shall keep the
entire buildings and parking lots and all parts of the Demised Premises,
including the roof, foundations, structures, parking lots, lights, the
outer and inner walls (including all doors, glass windows and door and
window frames), gutters, down spouts, electrical and refrigeration
equipment roofs, all plumbing, electrical wiring, all improvements,
interiors and all equipment related to the Demised premises in good repair
and condition. The Lessor shall not be obligated to make any improvements
or repairs of any kind upon the Demised Premises, and all other portions of
the Demised Premises shall at all times be kept in good order, operating
condition and repair by the Lessee, and shall also be kept in an clean,
sanitary and safe condition, in accordance with all directions, rules and
regulations of the Health Officers, Fire Marshall, Building Inspector, or
other proper officers of the governmental agencies having jurisdiction, at
the sole cost and expense of the Lessee.
The Lessee shall permit no injury to the Demised Premises, and the
Lessee shall, at its own cost and expense, replace any windows, doors,
frames and accessory parts thereof, on the Demised Premises which may be
broken or damaged. At the expiration of the Demised Term, the Lessee shall
surrender the premises, and each portion thereof, in as good condition as
the same is on the Commencement Date, reasonable wear and tear and loss by
fire and other unavoidable casualty excepted.
ARTICLE IX
Signs, Alterations and Renovations
SECTION 9.01. The location, size, design, color and other physical
aspects of the Lessee identification sign shall be subject to the Lessor's
-5-
<PAGE>
written approval prior to installation, which shall not be unreasonably
withheld, any appropriate municipal or other governmental approvals. The
cost of the sign, its installation, maintenance and removal expense shall
be Lessee's sole expense. If Lessee fails to maintain its sign, or, if
Lessee fails to remove its sign upon termination of this Lease, Lessor may
do so at Lessee's expense and Lessee's reimbursement to Lessor for such
amounts shall be deemed additional rent.
SECTION 9.02. OWNERSHIP OF IMPROVEMENTS. All alterations, additions,
improvements and fixtures, including lighting fixtures, ducts, controls,
filters, or other equipment for distribution of heating or cooling, other
than trade fixtures, which may be made or installed by either of the
parties hereto upon the Demised Premises, and which in any manner are
attached to the floors, walls or ceilings, shall become the property of the
Lessor at the termination of this lease and shall remain upon and be
surrendered with the Demised Premises as a party thereof, without
disturbance, molestation or injury. Any linoleum, carpeting, or floor
covering of similar character, which may be affixed to the floor of the
Demised Premises shall be and become the property of the Lessor absolutely
upon the termination of this lease.
SECTION 9.03. ALTERATIONS. Lessee shall not make or permit any
alterations in, on or about the Demised Premises, except for nonstructural
alterations not exceeding Twenty-Five Thousand ($25,000.00) Dollars in cost
per calendar year, without the prior written consent of the Lessor, and
according to plans and specifications approved in writing by Lessor, which
consent shall not be unreasonably withheld. With regard to alterations not
requiring Lessor's consent, Lessee shall provide Lessor with copies of all
plans and specifications therefor prior to the construction thereof.
Notwithstanding the foregoing, Lessee shall not, without prior written
consent of the Lessor, make any:
(i) Alterations to the structure or exterior of the Building;
(ii) Alterations to and penetrations of the roof of the Buildings and
(iii) Alterations visible from outside the Demised Premises to
which Lessor may withhold Lessor's consent on wholly
aesthetic grounds.
All alterations shall be installed at Lessee's sole expense, in
compliance with all applicable laws and regulations, by a licensed
contractor, shall be done in a good and workmanlike manner conforming in
quality and design with the Demised Premises existing as of the
commencement date hereof, and shall not diminish the value of either the
building or the Demised Premises. All alterations made by Lessee shall be
and become the property of Lessor upon installation and shall not be deemed
Lessee's personal property; provided, however, that Lessor shall at the
time consent for the alterations is requested, notify Lessee whether Lessee
must at the expiration or earlier termination of the Demised Term, remove,
at Lessee's expense, any or all alterations installed by the Lessee and
-6-
<PAGE>
return the Demised Premises to their condition prior to the installation of
such alterations, normal wear and tear excepted. Notwithstanding any other
provision of this Lease, Lessee shall be solely responsible for the
maintenance and repair of any and all alterations made by it to the Demised
Premises. Lessee shall give Lessor written notice of Lessee's intention to
perform work on the Demised Premises, whether or not Lessor's consent is
required, at least twenty (20) days prior to the commencement of such work
to enable Lessor to post and record a Notice of Nonresponsibility or other
notice deemed proper before the commencement of any such work, Lessor, at
Lessor's option at the expiration or earlier termination of the Demised
Term, may require Lessee to remove some or all of any alterations installed
without Lessor's consent.
ARTICLE X
Indemnification
SECTION 10.01. LESSEE'S OBLIGATION. Lessee will indemnify Lessor and
save Lessor harmless from and against any and all claims, actions, damages,
liability and expense in connection with death or injury to person(s) or
loss or damage to property occurring in, on or about, or arising out of the
Demised Premises or adjacent areas, the use of occupancy thereof or the
conduct or operation of Lessee's business or occasioned wholly or in part
by any act or omission of Lessee, Lessee's agents, contractors, customers
or employees. All property kept, stored, or maintained in or on the
Demised Premises shall be so kept, stored or maintained at the sole risk of
the Lessee. The Lessee shall not willfully allow the filing of any
mechanic's liens against the Demised Premises.
ARTICLE XI
Insurance
SECTION 11.01. LESSEE SHALL INSURE THE DEMISED PREMISES. Lessee
shall, at its expense, insure the Demised Premises and cause to be paid
insurance premiums at Lessee's expense with suitable insurance companies
and in such amount as is satisfactory to Lessor and shall name Lessor as an
insured to the extent of Lessor's interest. The Lessee shall not carry any
stock or lease to any subtenant, or do anything in or about the Demised
Premises which will in any way tend to increase the insurance rates on the
Demised Premises or the building of which they are a part. The Lessee shall
promptly pay when due, as additional rental, any premiums for insurance
against loss by fire or other casualty which may be charged during the
Demised Term on the amount of insurance to be carried by the Lessor at
Lessor's discretion but not to exceed replacement cost on the Demised
Premises and/or the building of which they are a part, and shall name the
Lessor as a named insured. If the Lessee installs any electrical equipment
which overloads the lines in the Demised Premises, the Lessee shall, at its
own expense, make such changes as are necessary to comply with the
requirements of the insurance underwriters and governmental authorities
having jurisdiction.
-7-
<PAGE>
SECTION 11.02. LESSEE'S INSURANCE. Lessee agrees to maintain in
full force and effect at all times during the Demised Term, at its own
expense, for the protection of Lessee and Lessor, as their interests may
appear, policies of insurance issued by a responsible carrier or carriers
acceptable to Lessor which afford the following coverages:
Business interruption insurance in an amount not less than Seven
Million and no/100 ($7,000,000) Dollars, which includes coverage for the
Lessee's rent obligations to Lessor, among other continuing expenses.
Comprehensive general liability insurance in an amount not less than
Three Million and no/100 ($3,000,000) Dollars combined single limit for
both bodily injury and property damage which includes blanket contractual
liability broad form property damage, personal injury, completed operations
and products liability, naming Lessor and its agents as additional
insureds.
"All Risk" property insurance (including, without limitation,
vandalism, malicious mischief, inflation endorsement, and sprinkler leakage
endorsement) on Lessee's personal property located on or in the Demised
Premises. Such insurance shall be in the full amount of the replacement
cost, as the same may from time to time increase as a result of inflations
or otherwise, and shall be in a form providing coverage comparable to the
coverage provided in the standard ISO All-Risk form. As long as this Lease
is in effect, the proceeds of such policy shall be used for the repair and
replacement of such items so insured. Lessor shall have no interest in the
insurance proceeds on Lessee's personal property.
Said insurance shall be in the form and with companies satisfactory to
Lessor and shall provide that such insurance shall not be subject to
cancellations, termination or change except after at least thirty (30) days
prior written notice to Lessor. All policies, or duly executed certificate
or certificates for the same, together with satisfactory evidence of the
payment of the premiums thereof, shall be deposited with Lessor not less
than ten (10) days prior to the date Lessor delivers possession of the
premises to Lessee, upon renewals of such policies not less than thirty
(30) days prior to the expiration of the term of such coverage. If Lessee
fails to comply with such requirements, Lessor may, but shall not be
obligated to, obtain such insurance and keep the same in effect and Lessee
shall pay Lessor the premium cost thereof upon demand. The Lessee shall,
continually during the Demised Term, keep in full force and effect policies
of public liability insurance with respect to the Demised Premises and the
business operated by the Lessee and/or any subtenants of the Lessee in the
Demised Premises, in which both the Lessor and the Lessee shall be named as
parties covered thereby, and in which public liability insurance limits of
liability shall not be less than set forth in this Section.
The Lessee shall furnish the Lessor with a certificate of insurance or
other acceptable evidence that such insurance is in force and the premium
paid. Upon demand, Lessee shall provide Lessor, at Lessee's expense, with
-8-
<PAGE>
such increased amount of existing insurance, and such other insurance as
Lessor or Lessor's lender may reasonably require to afford Lessor and
Lessor's lender adequate protection. If, on account of the failure of
Lessee to comply with the foregoing provisions, Lessor is adjudged a co-insurer
by its insurance carrier, then, any loss or damage Lessor shall
sustain by reason thereof, including attorneys' fees and costs, shall be
borne by Lessee and shall be immediately paid by Lessee upon receipt of a
bill therefor and evidence of such loss.
ARTICLE XII
Assignment and Liens
SECTION 12.01. CONSENT TO ASSIGNMENT. The Lessee agrees not to
assign or transfer this lease or any estate or interest herein, without the
previous written consent of the Lessor, which consent shall not be
unreasonably withheld. Consent by the Lessor to one or more assignments of
this lease, or one or more sublettings of the premises, shall not operate
to extinguish the Lessor's rights under this Article, nor to release Lessee
or any subsequent assignor of liability for performance of the terms of
this lease.
SECTION 12.02 ASSIGNMENT AND SUBLETTING--LESSOR'S CONSENT. Lessee
shall not enter into a subleasing arrangement without Lessor's prior
written consent, which consent shall not be unreasonably withheld. Any
attempted or purported sublet without Lessor's prior written consent shall
be void and confer no rights upon any third person and, at Lessor's
election, shall terminate this Lease. Each subtenant shall agree in
writing, for the benefit of the Lessor, to assume, to be bound by, and to
perform the terms, conditions and covenants of this Lease to be performed
by Lessee. Notwithstanding anything contained herein, Lessee shall not be
released from personal liability for the performance of each term,
condition, and covenant of this Lease by reason of Lessor's consent to a
sublease unless Lessor specifically grants such release in writing.
SECTION 12.03. INFORMATION TO BE FURNISHED. If Lessee desires at any
time to sublet the Demised Premises or any portion thereof, it shall first
notify Lessor of its desire to do so and shall submit in writing to Lessor:
(i) the name and identity of the proposed sub-lessee; (ii) the nature of
the proposed sublessee's business to be carried on in the Demised Premises;
(iii) the terms and provisions of the proposed Sublet form containing a
description of the subject premises; and (iv) such financial information,
including financial statements, as Lessor may reasonably request concerning
the proposed sub-lessee.
SECTION 12.04. EXEMPT SUBLETS. Notwithstanding the above, Lessor's
prior written consent shall not be required for an assignment of this Lease
to a subsidiary, affiliate or parent corporation of Lessee, or a
corporation into which Lessee merges or consolidates, if Lessee gives
Lessor prior written notice of the name of any such assignee, and if the
-9-
<PAGE>
assignee assumes, in writing, for the benefit of Lessor all of Lessee's
obligations under the Lease. An assignment or other transfer of this Lease
to a purchaser of all or substantially all of the assets of Lessee shall be
deemed a sublet requiring Lessor's prior written consent.
SECTION 12.05. LIENS. Lessee shall keep the Demised Premises free
from any liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Lessee and shall indemnify, defend
and hold Lessor and its agents harmless from all claims, costs and
liabilities, including attorneys' fees and costs, in connection with or
arising out of any such lien or claim of lien. Lessee shall cause any such
lien imposed to be released of record by payment or posing of a proper bond
acceptable to Lessor within ten (10) days after written request by Lessor.
Lessee shall give Lessor written notice of Lessee's intention to perform
work on the Demised Premises which might result in any claim of lien at
least twenty (20) days prior to the commencement of such work to enable
Lessor to post and record a Notice of Non-responsibility. If Lessee fails
to so remove any such lien within the prescribed twenty (20) day period,
then Lessor may do so at Lessee's expense and Lessee shall reimburse Lessor
for such amounts upon demand. Such reimbursement shall include all costs
incurred by Lessor including Lessor's reasonable attorneys' fees with
interest thereon.
ARTICLE XIII
Access to Demised Premises
SECTION 13.01. BY LESSOR. The Lessor shall have the right to enter
upon the Demised Premises at all reasonable hours for the purpose of
exhibiting or inspecting the same or of making repairs, additions or
alterations to the Demised Premises. If the Lessor deems any repairs
required to be made by the Lessee necessary, it may demand that the Lessee
make the same forthwith, and if the Lessee refuses or neglects to commence
such repairs and to complete the same with reasonable dispatch, the Lessor
may make or cause such repairs to be made and shall not be responsible to
the Lessee for any loss or damage that may accrue to its stock or business
by reason thereof; and if the lessor makes or causes such repairs to be
made, the Lessee shall forthwith on demand pay to the Lessor the cost
thereof plus a ten (10%) percent charge for service and overhead, with
interest at ten (10%) percent per annum, and if it shall default in such
payment, the Lessor shall have all remedies provided herein.
ARTICLE XIV
Damage
SECTION 14.01. LESSOR'S OBLIGATION TO REBUILD. If the Demised
Premises are damaged or destroyed by fire or casualty, Lessor shall
promptly and diligently repair the same unless either Lessor or Lessee has
the right to terminate this Lease as provided herein and either party has
elected to so terminate.
-10-
<PAGE>
SECTION 14.02. RIGHT TO TERMINATE. Lessor shall have the right to
terminate this Lease in the event of any of the following events occurs:
(i) Insurance proceeds are not available to pay one hundred (100%)
percent of the cost of such repair, excluding the deductible for
which Lessee shall be responsible;
(ii) The Demised Premises cannot, with reasonable diligence, be fully
repaired by Lessor within two hundred seventy (270) days after
the date of the damage or destruction or the insurance proceeds
described in (i) have been made available to Lessor, whichever
occurs later; or
(iii) The Demised Premises cannot be safely repaired because of
the presence of hazardous factors, including, but not
limited to, earthquake faults, radiation, chemical waste and
other similar dangers.
If Lessor elects to terminate this Lease, Lessor shall give Lessee
written notice of its election to terminate within thirty (30) days after
such damage or destruction or Landlord's receipt of information that the
insurance proceeds described in (i) are inadequate, and this Lease shall
terminate fifteen (15) days after the date Lessee receives such notice. If
Lessor elects not to terminate the Lease, subject to Lessee's termination
right set forth below, Lessor shall promptly commence the process of
obtaining necessary permits and approvals and repair of the Demised
Premises as soon as practicable, and this Lease will continue in full force
and effect. All insurance proceeds from insurance as provided hereunder,
excluding proceeds for Lessee's personal property, shall be disbursed and
paid to Lessor. Lessee shall be required to pay to Lessor the amount of
any deductibles payable in connection with any insured casualties, Lessee
shall have the right to terminate this lease, if the Demised Premises
cannot, with reasonable diligence and subject to Lessee delays, be fully
repaired within one hundred eighty (180) days from the date of damage or
destruction or the date that the insurance proceeds described in (i) became
available to Lessor, whichever occurs later. The determination of the
estimated repair period shall be made by Lessor in its good faith business
judgment within thirty (30) days after such damage or destruction. Lessor
shall deliver written notice of the repair period to Lessee after such
determination has been made and after the insurance proceeds have become
available to Lessor and Lessee shall exercise its right to terminate this
Lease, if at all, within ten (10) days of receipt of such notice from
Lessor.
SECTION 14.03. LIMITED OBLIGATION TO REPAIR. Lessor's obligation,
should it elect or be obligated to repair or rebuild, shall be limited to
the Demised Premises, and the Lessee improvements, as the case may be, as
any or all of the same existed immediately prior the casualty, excluding,
however, any additional alterations or improvements made by Lessee.
-11-
<PAGE>
SECTION 14.04. NON-ABATEMENT OF RENT. Rent shall not abate during
any period when, by reason of such damage or destruction, Lessee's
enjoyment of the Demised Premises has been interfered with or interrupted.
Lessee shall, however, not be in default of its obligations to timely pay
rent under Section 15.01 if Lessee tenders the rental obligations covered
by Lessee's business interruption insurance coverage by the first (1st) day
of the month following receipt of those monies by the Lessee.
SECTION 14.05. DAMAGE NEAR END OF DEMISED TERM. Anything herein to
the contrary notwithstanding, if the Demised Premises are destroyed or
damaged during the last twelve (12) months of the Demised Term, then Lessor
or Lessee may, at their respective option, cancel and terminate this Lease
as of the date of the occurrence of such damage. If neither Lessor nor
Lessee elects to so terminate this Lease, the repair of such damage shall
be governed by Article XIV herein.
ARTICLE XV
Default and Remedies of the Lessor
SECTION 15.01. LESSEE'S DEFAULT. A default under this Lease by
Lessee shall exist if any of the following occurs:
(i) If Lessee fails to pay Monthly Rent or any other sum required to
be paid hereunder when due;
(ii) If Lessee fails to perform any term, covenant or condition of
this Lease, except those requiring the payment of money, and
Lessee fails to cure such breach within fifteen (15) days after
written notice from Lessor where such breach could be reasonably
cured within such fifteen (15) day period; provided, however,
that where such failure could not reasonably be cured within the
fifteen (15) days period, that Lessee shall not be in default if
it commences such cure within the fifteen (15) day period and
thereafter diligently prosecutes same to completion, which
completion shall occur not later than sixty (60) days from the
date of receipt of written notice of Lessors;
(iii) If Lessee assigns its assets for the benefit of its
creditors;
(iv) If the sequestration or attachment of or execution on any
material part of Lessee's personal property essential to the
conduct of Lessee's business occurs, and Lessee fails to obtain a
return or release of such personal property within thirty (30)
days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier;
(v) If Lessee fails to continuously or uninterruptedly conduct its
business in the Demised Premises, or shall have abandoned or
vacated the Demised Premises; or
-12-
<PAGE>
(vi) If a court makes or enters any decree or order other than under
the bankruptcy laws of the United States adjudging Lessee to be
insolvent; or approving as properly filed a petition seeking
reorganization of Lessee; or directing the winding up or
liquidation of Lessee and such decree or order shall have
continued for a period of thirty (30) days.
SECTION 15.02. REMEDIES. Upon a default, Lessor shall have the
following remedies, in addition to all other rights and remedies provided
by law or otherwise provided in this Lease, to which Lessor may resort
cumulatively or in the alternative:
(i) Lessor may continue this Lease in full force and effect, and this
Lease shall continue in full force and effect as long as Lessor
does not terminate this Lease, and Lessor shall have the right to
collect Monthly Rent when due.
(ii) Lessor may terminate Lessee's right to possession of the Demised
Premises at any time by giving written notice to that effect, and
relet the Demised Premises or any part thereof.
Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Demised Premises or any part thereof, including
without limitation, broker's commissions, expenses of cleaning and
redecorating the Demised Premises required by the reletting and like costs.
Reletting may be for a period shorter or longer than the remaining term of
this Lease. No act by Lessor other than giving written notice to Lessee
shall terminate this Lease. Acts of maintenance, efforts to relet the
Demised Premises or the appointment of a receiver on Lessor's initiative to
protect Lessor's interest under this Lease shall not constitute a
termination of Lessee's right to possession. On termination, Lessor has
the right to remove all Lessee's personal property and store same at
Lessee's cost and to recover from Lessee as damages:
(a) The worth at the time of aware of unpaid Rent and other sums
due and payable which had been earned at the time of termination plus
(b) The worth at the time of award of the amount by which the
unpaid Monthly Rent for the balance of the Lease, and other sums due
and payable which would have been payable after termination until the
time of award exceeds the amount of such Monthly Rent loss that Lessee
proves could have been reasonably avoided: plus
(c) The worth at the time of award of the amount by which the
unpaid Monthly Rent and other sums due and payable for the balance of
the Demised Term after the time of award exceeds the amount of such
Monthly Rent loss that Lessee proves could be reasonably avoided plus
(d) Any other amount necessary which is to compensate Lessor for
-13-
<PAGE>
all the detriment proximately caused by Lessee's failure to perform
Lessee's obligations under this Lease, or which, in the ordinary
course of things, would be likely to result therefrom, including,
without limitation, any costs or expenses incurred by Lessor
(1) in retaking possession of the Demised Premises:
(2) in maintaining, repairing preserving, restoring,
replacing, cleaning, altering or rehabilitating the
Demised Premises or any portion thereof, including such
acts for reletting to a new lessee or lessees:
(3) for leasing commissions or
(4) for any other costs necessary or appropriate to relet
the Demised Premises plus
(e) At Lessor's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the
laws of the State of Michigan.
The "worth at the time of award" of the amounts referred to in
Paragraphs (a) and (b) above is computed by allowing interest at the
interest rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at time of award"
of the amount referred to in Paragraph (c) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of Detroit at
the time of award plus one percent (1%). Lessee waives redemption or
relief from forfeiture hereunder in accordance with Michigan law, in the
event Lessee is evicted or Lessor takes possession of the Demised Premises
by reason of any default of Lessee hereunder.
(iii) Lessor may, with or without terminating this Lease, re-enter the
Demised Premises and remove all persons and property from the Demised
Premises: such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Lessee. No re-entry or
taking possession of the Demised Premises of Lessor pursuant to this
paragraph shall be construed as an election to terminate this Lease unless
a written notice of such intention is given to Lessee.
SECTION 15.03. LESSOR'S DEFAULT. Lessor shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice from Lessee to Lessor
specifying the nature of such defaults provided, however, that if the
nature of the Lessor's obligation is such that more than thirty (30) days
are required for its performance, then Lessor shall not be deemed to be in
default if it shall commence such performance within such thirty (30) day
period and thereafter diligently prosecute the same to completion.
-14-
<PAGE>
ARTICLE XVI
Eminent Domain
SECTION 16.01. TOTAL CONDEMNATION. If the whole of the Demised
Premises shall be acquired or condemned by eminent domain for any public or
quasi-public purpose, then the term of this lease shall cease and terminate
as of the date of title vesting in such proceeding and all rentals shall be
paid up to that date and the Lessee shall have no claim against Lessor for
the value of any unexpired term of this lease.
SECTION 16.02. PARTIAL COMPENSATION. If any part if the Demised
Premises shall be acquired or condemned by eminent domain for any public or
quasi-public purpose, and in the event that such partial taking or
condemnation shall render the balance of the Demised Premises unsuitable
for the business of the Lessee, then the term of this lease shall cease and
terminate as of the date of title vesting in such proceeding and Lessee
shall have no claim against Lessor for the value of any unexpired term of
this lease. In the event of a partial taking of condemnation which is not
extensive enough to render the premises unsuitable for the business of the
Lessee, then Lessor shall promptly restore the Demised Premises to a
condition comparable to its condition at the time of such condemnation less
the portion lost in the taking, and this lease shall continue in full force
and effect.
ARTICLE XVII
Subordination
SECTION 17.01. SUBORDINATION. This Lease is subject and subordinate
to any mortgages (collectively "Encumbrances") which may now affect the
Demised Premises and to all renewals, modifications, consolidations,
replacements and extensions thereof provided, however, if the holder or
holders of any such Encumbrance ("Holder") shall require that this Lease be
prior and superior thereto, Lessee shall, within seven (7) days after
written request from Lessor, execute, have acknowledged and deliver any and
all reasonable documents or instruments, which Lessor or Holder deems
necessary or desirable for such purposes, Lessor shall have the right to
cause this Lease to be and become and remain subject and subordinate to any
and all Encumbrances which are now or may hereafter be executed covering
the Demised Premises or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances
made or to be made thereunder and without full regard to the time or
character of such advances, together with interest thereon and subject to
all the terms and provisions thereof provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage
or deed of trust, so long as Lessee is not in default, Holder agrees to
recognize Lessee's rights under this Lease as long as Lessee shall pay the
Monthly Rent and observe and perform all the provisions of this Lease to be
observed and performed by Lessee. Lessor shall obtain a nondisturbance
agreement from the Holder of any Encumbrance which provides for such
-15-
<PAGE>
recognition of Lessee's rights under this Lease. Within ten (103 days
after Lessor's written request, Lessee shall execute any and all documents
required by Lessor or the Holder required to make this Lease subordinate to
any lien of the Encumbrance. If Lessee fails to do so, it shall be deemed
that this Lease is subordinated. Notwithstanding anything to the contrary
set forth in this paragraph, Lessee hereby attorns and agrees to attorn to
any entity purchasing or otherwise acquiring the Demised Premises at any
sale or other proceeding or pursuant to the exercise of any other rights,
powers or remedies under such Encumbrance.
ARTICLE XVIII
Notices
SECTION 18.01. MANNER OF GIVING. All notices to be given hereunder
shall be deemed to be properly given if, in the case of notices by the
Lessor to the Lessee, they are addressed to Lessee at 620 South Platt Road,
Milan, Michigan 48160, or such other address as the Lessee may from time to
time furnish to the Lessor in writing for such purpose: and, in the case of
notices by the Lessee to the Lessor, if they are addressed to Lessor at
3425 Parkside Drive, Flint, MI 48503, or such other address as the Lessor
may from time to time furnish to the Lessee in writing for such purpose.
All notices shall be in writing and shall be mailed by certified or
registered mail, with return receipt requested, in an envelope addressed as
above described, no later than the date upon which notice is required to be
given pursuant to the terms of this lease. All such notice shall be
deemed given when so certified or registered and deposited in the United
States' mail, postage prepaid.
ARTICLE XIX
Construction
SECTION 19.01. RELATIONSHIP OF PARTIES AND CONSTRUCTION OF AMENDMENT.
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal
and agent, or of being agreed that neither any provision named herein, nor
any acts of the parties herein, shall be deemed to create any relationship
between' the parties hereto other than the relationship of landlord and
tenant. Whenever herein the singular number is used, the same shall
include the plural, and the masculine gender shall include the feminine and
neuter genders. This Agreement shall be construed without reference to
titles of Articles and Sections, which are inserted for convenience of
reference only.
ARTICLE XX
Consent Not Unreasonably Withheld: Non-Waiver
SECTION 20.01. LESSOR'S CONSENT. The Lessor agrees that whenever
under this Agreement provision is made for the Lessee securing the written
consent of the Lessor, such written consent shall not be unreasonably
-16-
<PAGE>
withheld Section 20.02. No Implied Waiver. No Waiver of condition or
covenant of this lease by either party hereto shall be deemed to imply or
constitute a further waiver by such party of the same or any other
condition or covenant.
ARTICLE XXI
Miscellaneous Terms and Provisions
SECTION 21.01. SUPERSEDES ALL PRIOR AGREEMENTS. This Agreement
supersedes and replaces all prior agreements between the parties hereto
pertaining to the subject matter herein.
SECTION 21.02. GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Michigan.
SECTION 21.03. INVALID PROVISIONS. The invalidity or unenforceability
of any particular provision of this Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as
if such invalid or unenforceable provision were omitted.
SECTION 21.04. BINDING EFFECT. This Agreement shall be binding upon
the parties hereto, their respective heirs, legal representatives,
executors, administrators, successors and assigns. Any right given or duty
imposed upon the estate of the deceased party shall inure to the benefit of
and be binding upon the fiduciary of such decedent's estate, his or its
fiduciary capacity
SECTION 21.05. RIGHT OF FIRST REFUSAL. The Lessor hereby agrees to
give to the Lessee a right of first refusal with respect to the sale of the
Demised Premises in accordance with the further terms and conditions
contained herein. This covenant shall require that in the event the Lessor
desires to sell the Demised Premises, then the Lessor shall first offer
such property for sale to the Lessee stating the terms and conditions and
allowing the Lessee fifteen (15) days in which to elect to purchase the
said property in accordance with said terms and conditions or to decline.
If the Lessee fails to accept or reject the offer within the fifteen (15)
day' period, it shall be to be rejected. The offer may be accepted if the
Lessee delivers in writing to the Lessor the Lessee's intent to accept the
offer and delivers a deposit equal to Twenty-Five (25%) percent of the
purchase price.
SECTION 21.06. ATTORNEYS' FEES. If either party brings any action or
legal proceeding for damages for an alleged breach of any provision of this
Lease, to recover rent, or other sums due, to terminate the tenancy of the
Demised Premises or to enforce, protect or establish any term, condition or
covenant of this Lease or right of either party, the prevailing party shall
be entitled to recover as a part of such action or proceedings, or in a
separate action brought for that purpose, reasonable attorneys' fees and
costs.
-17-
<PAGE>
SECTION 21.07. LATE PAYMENT CHARGES. Lessee acknowledges that late
payment by Lessee to Lessor of Rent and other charges provided for under
this Lease will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of such costs being extremely difficult or impracticable
to fix. Therefore, if any installment of Rent or any other charge due from
Lessee is not received by Lessor when due, Lessee shall pay to Lessor an
additional sum equal to ten (10%) percent of the amount overdue as a late
charge for every month or portion thereof that the Rent or other charges
remain unpaid. The parties agree that this late charge represents a fair
and reasonable estimate of the costs that Lessor will incur by reason of
the late payment by Lessee.
SECTION 21.09. ESTOPPEL CERTIFICATES. Lessee shall within ten (10)
days following written request by Lessor:
(i) Execute and deliver to Lessor any documents, including estoppel
certificates, in the form prepared by Lessor (a) certifying that
this Lease is unmodified and in full force and effect, or if
modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect, and
the date to which the Monthly Rent and other charges are paid in
advance, if any, and (b) acknowledging that there are not, to
Lessee's knowledge, any uncured defaults on the part of Lessor,
or, if there are uncured defaults on the part of Lessor, stating
the nature of such uncured defaults and (c) evidencing the status
of the Lease as may be required either by a lender making a loan
to Lessor to be secured by deed of trust or mortgage covering the
Demised Premises or a purchaser of the Demised Premises from
Lessors Lessee's failure to deliver an estoppel certificate
within ten (10) days after delivery of Lessor's written request
therefor shall be conclusive upon Lessee (a) that this Lease is
in full force and effect, without modification except as may be
represented by Lessor, (b) that there are now no uncured defaults
in Lessor's performance and (c) that no Monthly Rent has been
paid in advance. If Lessee fails to so deliver a requested
estoppel certificate within the prescribed time, it shall be
conclusively presumed that the Lease is unmodified and in full
force and effect except as represented by Lessor.
(ii) Deliver to Lessor the current financial statements of Lessee, and
financial statements of the two (2) years prior to the current
financial statements year, with an opinion of a certified public
accountant, including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in
accordance with generally accepted accounting principles
consistently applied.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above written.
In the Presence of: LESSOR:
620 Platt Road, Inc.
_____________________________ ___________________________________
By: Donald J. Williamson
_____________________________
LESSEE:
The Colonel's, Inc.
_____________________________ By: _______________________________
_____________________________ Its __________________________
-19-
<PAGE>
EXHIBIT 10.44
MASTER REVOLVING NOTE
VARIABLE RATE-MATURITY DATE
<TABLE>
<CAPTION>
OBLIGOR # NOTE # TAX IDENTIFICATION NO.
<S> <C> <C> <C>
AMOUNT NOTE DATE MATURITY DATE
$4,500,000 DETROIT, MI MAY 1, 1996 MAY 1, 1997
</TABLE>
On the Maturity Date, as stated above, for value received, the
undersigned promise(s) to pay to the order of Comerica Bank ("Bank"), at
any office of the Bank in the State of Michigan, Four Million Five Hundred
Thousand Dollars (U.S.) (or that portion of it advanced by the Bank and not
repaid as later provided) with interest until maturity, whether by
acceleration or otherwise, or an Event of Default, as later defined, at a
per annum rate equal to the Bank's prime rate from time to time in effect
and after that at a rate equal to the rate of interest otherwise prevailing
under this Note plus 3% per annum (but in no event in excess of the maximum
rate permitted by law). The Bank's "prime rate" is that annual rate of
interest so designated by the Bank and which is changed by the Bank from
time to time. Interest rate changes will be effective for interest
computation purposes as and when the Bank's prime rate changes. Interest
shall be calculated for the actual number of days the principal is
outstanding on the basis of a 360-day year if this Note evidences a
business or commercial loan or a 365/366-day year if a consumer loan.
Accrued interest on this Note shall be due and payable on the first day of
each month commencing June 1, 1996, until the Maturity Date when all
amounts outstanding under this Note shall be due and payable in full. If
the frequency of interest payments is not otherwise specified, accrued
interest on this Note shall be payable monthly on the first day of each
month. If any payment of principal or interest under this Note shall be
payable on a day other than a day on which the Bank is open for business,
this payment shall be extended to the next succeeding business day and
interest shall be payable at the rate specified in this Note during this
extension. A late payment change equal to 5% of each late payment may be
charged on any payment not received by the Bank within 10 calendar days
after the payment due date, but acceptance of payment of this charge shall
not waive any Default under this Note.
The principal amount payable under this Note shall be the sum of all
advances made by the Bank to or at the request of the undersigned, less
principal payments actually received in cash by the Bank. The books and
records of the Bank shall be the best evidence of the principal amount and
the unpaid interest amount owing at any time under this Note and shall be
conclusive absent manifest error. No interest shall accrue under this Note
<PAGE>
until the date of the first advance made by the Bank; after that interest
on all advances shall accrue and be computed on the principal balance
outstanding from time to time under this Note until the same is paid in
full. At no time shall the Bank be under any obligation to make any
advances to the undersigned pursuant to this Note (notwithstanding anything
expressed or implied in this Note or elsewhere to the contrary, including
without limit if the Bank supplies the undersigned with a borrowing
formula) and the Bank, at any time and from time to time, without notice,
and in its sole discretion, may refuse to make advances to the undersigned
without incurring any liability due to this refusal and without affecting
the undersigned's liability under this Note for any and all amounts
advanced.
This Note and any other indebtedness and liabilities of any kind of
the undersigned (or any or them) to the Bank, and any and all
modifications, renewals or extensions of it, whether joint or several,
contingent or absolute, now existing or later arising, and however
evidenced (collectively "Indebtedness") are secured by and the Bank is
granted a security interest in all items deposited in any account of any of
the undersigned with the Bank and by all proceeds of these items (cash or
otherwise), all account balances of any of the undersigned from time to
time with the Bank, by all property of any of the undersigned from time to
time in the possession of the Bank and by any other collateral, rights and
properties described in each and every mortgage, security agreement,
pledge, assignment and other security or collateral agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any
mortgage on or other security interest in the undersigned's principal
dwelling which is not a purchase money security interest as to that
portion, unless not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty
of all or part of the Indebtedness ("guarantor") (a) fail(s) to pay any of
the Indebtedness when due, by maturity, acceleration or otherwise, or
fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement
between the undersigned (or any of them) or any such guarantor and the
Bank; or (c) become(s) insolvent or the subject of a voluntary or
involuntary proceeding in bankruptcy, or a reorganization, arrangement or
creditor composition proceeding, (if a business entity) cease(s) doing
business as a going concern, (if a natural person) die(s) or become(s)
incompetent, (if a partnership) dissolve(s) or any general partner of it
dies, becomes incompetent or becomes the subject of a bankruptcy proceeding
or (if a corporation) is the subject of a dissolution, merger or
consolidation; or (d) if any warranty or representation made by any of the
undersigned or any guarantor in connection with this Note or any of the
-2-
<PAGE>
Indebtedness shall be discovered to be untrue or incomplete; or (e) if
there is any termination, notice of termination, or breach of any guaranty,
pledge, collateral assignment or subordination agreement relating to all or
any part of the Indebtedness; or (f) if there is any failure by any of the
undersigned or any guarantor to pay when due any of its indebtedness (other
than to the Bank) or in the observance or performance of any term, covenant
or condition in any document evidencing, securing or relating to such
indebtedness; or (g) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or
shall fear deterioration, removal or waste of any of the Collateral; or (h)
if there is filed or issued a levy or writ of attachment or garnishment or
other like judicial process upon the undersigned (or any of them) or any
guarantor or any of the Collateral, including without limit, any accounts
of the undersigned (or any of them) or any guarantor with the Bank, then
the Bank, upon the occurrence of any of these events (each a "Default"),
may at its option and without prior notice to the undersigned (or any of
them), declare any or all of the Indebtedness to be immediately due and
payable (notwithstanding any provisions contained in the evidence of it to
the contrary), sell or liquidate all or any portion of the Collateral, set
off against the Indebtedness any amounts owing by the Bank to the
undersigned (or any of them), charge interest at the default rate provided
in the document evidencing the relevant Indebtedness and exercise any one
or more of the rights and remedies granted to the Bank by any agreement
with the undersigned ( or any of them) or given to it under applicable law.
All payments under this Note shall be in immediately available United
States funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as
makers or by one or more as an accommodation party or otherwise), the
obligations and undertakings under this Note shall be that of all and any
two or more jointly and also of each severally. This Note shall bind the
undersigned, and the undersigned's respective heirs, personal
representatives, successors and assigns.
The undersigned waive(s) presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or
intent to accelerate, and all other notices and agree(s) that no extension
or indulgence to the undersigned (or any of them) or release, substitution
or nonenforcement of any security, or release or substitution or
nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without
notice, shall affect the obligations of any of the undersigned. The
undersigned waive(s) all defenses or right to discharge available under
Section 3-606 of the Uniform Commercial Code and waive(s) all other
suretyship defenses or right to discharge. The undersigned agree(s) that
the Bank has the right to sell, assign, or grant participation, or any
interest, in any or all of the Indebtedness, and that, in connection with
this right, but without limiting its ability to make other disclosures to
the full extent allowable, the Bank may disclose all documents and
-3-
<PAGE>
information which the Bank now or later has relating to the undersigned or
the Indebtedness.
The undersigned agree(s) to reimburse the holder or owner of this Note
for any and all costs and expenses (including without limit, court costs,
legal expenses and reasonable attorney fees, wether inside or outside
counsel is used, whether or not suit is instituted and, if suit is
instituted, whether at the trial court level, appellate level, in a
bankruptcy, probate or administrative proceeding or otherwise) incurred in
collecting or attempting to collect this Note or incurred in any other
matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are not
contrary agreements, oral or written, establishing a term of this Note and
agree(s) that the terms and conditions of this Note may not be amended,
waived or modified except in a writing signed by an officer of the Bank
expressly stating that the writing constitutes an amendment, waiver or
modification of the terms of this Note. As used in this Note, the word
"undersigned" means, individually and collectively, each maker,
accommodation party, endorser and other party signing this Note in a
similar capacity. If any provision of this Note is unenforceable in whole
or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MICHIGAN.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25%, OR THE HIGHEST
APPLICABLE USURY CEILING, WHICHEVER IS LESS.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OR, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THE COLONEL'S, INC.
Address: By:__________________________________
P.O. Box 130 Signature of
Milan, Michigan 48160
Its:_________________________________
Title
-4-
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
By:__________________________________
Signature of
Its:_________________________________
Title
BRAINERD INTERNATIONAL RACEWAY,
INC.
By:__________________________________
Signature of
Its:_________________________________
Title
-5-
<PAGE>
EXHIBIT 10.45
THE COLONEL'S/DOW CHEMICAL
SUPPLY AGREEMENT
QUANTITY OBLIGATIONS
The agreement shall be from January 1, 1996, through December 31, 1997.
For the term of this agreement, The Colonel agrees to purchase and Dow
agrees to supply 100% of its consumption of RIM, TPU and TPO from Dow
provided these products are equivalent and available.
<TABLE>
<CAPTION>
PRODUCT ESTIMATED ANNUAL VOLUME
<S> <C> <C>
SPECTRIM* 50A reaction moldable product 2,100,000 pounds
SPECTRIM 50BS 2,100,000 pounds
PREVAIL* XU72547.00 thermoplastic resin 480,000 pounds
TPO 750,000 pounds
Total 5,430,000 pounds
</TABLE>
The Colonel's commits to provide annual forecasts to Dow 30 days prior to
beginning of each calendar year. Any increase in product demand, which
exceeds 110% of the agreed upon annual forecast, will require a written
request by the Colonel's to Dow. Dow will respond, in writing, concerning
their ability to meet the increased volume requirement(s).
In the event that a competitor's material provides significant performance
improvement over the Dow product being supplied to The Colonel's for a
particular application, Dow will be given an opportunity to trial
alternative Dow materials at The Colonel's facility. If, after trialing
the available Dow product(s) for the particular application, Dow is unable
to match the performance of the competitor's material at a competitive
price, The Colonel's shall be excused from its remaining contractual
obligations for the product for that particular application. However, if
at any time during the remaining term of this contract, Dow develops a new
product which provides performance characteristics comparable to the
competitor's material, The Colonel's agrees to use its best faith efforts
to qualify the new Dow product for the particular application.
PRICING
Prices are firm from January 1, 1996, through June 30, 1996. Firm is
defined as: no increases or decreases to be requested by The Colonel's or
Dow. Price increases/decreases for the remainder of the agreement will be
negotiated/implemented by The Colonel's and Dow in six month intervals with
at least 30 days written notice prior to the next six month period. The
schedule for price adjustments is as follows: July 1, 1996, through
December 31, 1996; January 1, 1997, through June 30, 1997; July 1, 1997,
<PAGE>
through December 31, 1997. Pricing negotiated and agreed upon for each six
month period is firm. Should Dow and The Colonel's not be able to
negotiate an agreement acceptable to both parties, this contract can be
terminated with 30 days written notice by either party.
*Trademark of The Dow Chemical Company
From January 1, 1996, through June 30, 1996, pricing from RIM, TPU and TPO
products shall be as follows:
PRODUCT T/L PRICE
SPECTRIM 50A $1.36 per pound
SPECTRIM 50BS $1.36 per pound
PREVAIL XU72547.00 $1.65 per pound
TPO** $0.97-$1.00 per pound
**Excludes reacter grade materials
PROMOTIONAL ALLOWANCE
Dow will issue three annual material credit(s) totaling the price of three
truck loads of SPECTRIM product (estimated at $183,600). A material credit
for one truck loan of SPECTRIM product will be issued during the months of
January, May and September. This credit is to be used in support of The
Colonel's annual golf tournament, other promotional events and continued
growth.
THE COLONEL'S, INC. THE DOW CHEMICAL COMPANY
By ________________________________ By __________________________________
Name_______________________________ Name_________________________________
Title______________________________ Title________________________________
-2-
<PAGE>
EXHIBIT 11.1
STATEMENT OF PER-SHARE EARNINGS
A statement regarding the computation of per-share earnings of the
Company appears in "Item 6--Selected Financial Data" and in Note 2 to the
consolidated financial statements attached as Appendix A to this Report on
Form 10-K.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
The Company's subsidiaries are: (1) The Colonel's, Inc., a Michigan
corporation; (2) The Colonel's Truck Accessories, Inc., a Michigan
corporation; and (3) Brainerd International Raceway, Inc., a Minnesota
corporation. All of these companies conduct business under their official
names.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-10527 of The Colonel's International, Inc. on Form S-8 of our report
dated March 14, 1997, appearing in this Annual Report on Form 10-K of The
Colonel's International, Inc. for the year ended December 31, 1996.
/s/ BDO Seidman, LLP
Detroit, Michigan
March 28, 1997
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ MARK D. STEVENS
Print Name: /S/ MARK D. STEVENS
Title: PRESIDENT AND DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ PATSY L. WILLIAMSON
Print Name: /S/ PATSY L. WILLIAMSON
Title: CHAIRPERSON OF THE BOARD AND
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ JOHN M. DARCY
Print Name: /S/ JOHN M. DARCY
Title: DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ J. DANIEL FRISINA
Print Name: /S/ J. DANIEL FRISINA
Title: DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ TED M. GANS
Print Name: /S/ TED M. GANS
Title: DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Michael J. McCloskey and
Richard S. Schoenfeldt, and each of them, such individual's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such individual and in his or her name, place and
stead, in any and all capacities, to sign the Form 10-K of The Colonel's
International, Inc. for the year ended December 31, 1996, together with any
and all amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission or other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature: /S/ DONALD GORMAN
Print Name: /S/ DONALD GORMAN
Title: DIRECTOR
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED
STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH
FLOWS, OF THE COLONEL'S AND ITS SUBSIDIARIES AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 321,486
<SECURITIES> 0
<RECEIVABLES> 3,605,281
<ALLOWANCES> (575,000)
<INVENTORY> 8,347,663
<CURRENT-ASSETS> 13,638,100
<PP&E> 46,544,871
<DEPRECIATION> (19,516,521)
<TOTAL-ASSETS> 42,610,295
<CURRENT-LIABILITIES> 16,659,846
<BONDS> 0
<COMMON> 241,778
0
0
<OTHER-SE> 15,251,709
<TOTAL-LIABILITY-AND-EQUITY> 42,610,295
<SALES> 40,263,082
<TOTAL-REVENUES> 40,263,082
<CGS> 28,140,066
<TOTAL-COSTS> 28,140,066
<OTHER-EXPENSES> 6,931,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,214,400
<INCOME-PRETAX> 4,070,986
<INCOME-TAX> 1,549,000
<INCOME-CONTINUING> 2,521,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,521,986
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0
</TABLE>
