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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, 1997
[ ] 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: (734) 439-4200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $0.01 par value Nasdaq SmallCap Market
Securities registered pursuant to Section 12(g) of the Act: None
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__
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Number of shares outstanding of the registrant's Common Stock, $0.01 par
value (excluding shares of treasury stock) as of April 6, 1998: 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 April 6, 1998: $5,534,659.
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PART I
ITEM 1. BUSINESS
THE COLONEL'S INTERNATIONAL, INC.
The Colonel's International, Inc. (the "Company") is a publicly held
holding company. The Company has three wholly owned subsidiaries: The
Colonel's, Inc. ("The Colonel's"), Brainerd International Raceway, Inc.
("BIR") and The Colonel's Truck Accessories, Inc. ("CTA"). In March 1998,
the Company formed a fourth subsidiary, The Colonel's Rugged Liner, Inc., a
Pennsylvania corporation, in connection with a currently pending
acquisition. This subsidiary is inactive as of the date of this Annual
Report on Form 10-K.
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.
The truck accessory division of The Colonel's was incorporated under
Michigan law as The Colonel's Truck Accessories, Inc. Effective January 1,
1997, The Colonel's transferred its truck bedliner operations to CTA.
The Company operates in three industry segments: manufacture of
automotive bumpers and other miscellaneous reinforcement beams and
brackets, manufacture of bedliners and sale of these bedliners and other
truck accessories at retail stores throughout the country, and operation of
a multi-purpose motor sports facility. See Note 16 to Consolidated
Financial Statements included in Appendix A.
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
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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 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.
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 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 1993 through
1997, 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>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Manufactured Products 88% 89% 88% 89% 90%
Purchased Products 12% 11% 12% 11% 10%
</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.
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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
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 68% 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, 1997, The Colonel's manufactured and distributed
molded plastic replacement components for a total of 418 automotive
applications and purchased and distributed replacement components for
approximately 1,863 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 plan is 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
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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.
MANUFACTURING - MILAN
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 305 specially designed tools, enabling
production of approximately 418 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
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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
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 at 620 South Platt Road, 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 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 at 401
West Crosstimbers, 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.
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The Colonel's operates a second warehouse distribution facility at
2928 Irving Blvd., 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 at 5010
West Pasadena Ave., Glendale, 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.
The Colonel's fourth warehouse distribution facility is at 40 Vreeland
Ave., 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 at 110
East Jefferson Street, West Memphis, Arkansas. This facility is
approximately 65,000 square feet and is owned by the Company. 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 14
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 that are 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
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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 ("ABPA"), Bumper
Recyclers Association of North America ("BRANA") and National Automotive
Congress Expo ("NACE"), 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 68% of The Colonel's manufactured
qualified facias are listed in the CAPA Directory of Aftermarket Body
Parts. The Colonel's also promotes its 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
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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.
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 bumper and auto collision parts manufacturing
is 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.
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
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
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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 4.1% of total sales in 1997. 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
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
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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, 1997, The Colonel's had approximately 157 full-time
employees (including leased employees as described below), of which 10 were
salaried managerial and administrative employees and approximately 147 were
hourly employees. Of the total number of employees, 129 were in
manufacturing, and the balance was in sales, marketing, administrative and
executive positions. The Colonel's considers its employee relations to be
satisfactory.
Approximately 147 of the hourly workers at the Milan facility are
leased from Simplified Employment Services ("SES"), an employment brokerage
service. SES 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 SES in accordance
with the contract between SES and The Colonel's.
ENVIRONMENTAL REMEDIATION
As part of the lease agreement with a related party for the Milan,
Michigan facility (described under "Properties" above), 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. However to date, the
Company has not spent any monies and does not have any knowledge of any
hazard areas that would require clean up. The Colonel's has accrued
reserves for cleanup costs based on the above lease obligation. 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.
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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.
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
bedliner. CTA has also started manufacturing shells and tonneau covers.
Truck bedliners 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 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 a highly competitive product.
Shells are caps, made of fiberglass, that enclose the pickup truck
bed. Shells are usually as high as the cab. Tonneau covers are flat
fiberglass covers that cover the truck bed box at the rail level. Both the
shells and tonneau covers are generally custom painted to match the color
of the vehicle. Because these products are usually special ordered, the
products are sold before they are manufactured.
Once the decision to enter this market was made, CTA required only 13
months to bring the manufacturing plant on line. The plant began 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 truck accessory division. Effective January 1,
1997, however, The Colonel's transferred its truck bedliner operations to
CTA.
PRODUCTS
CTA's accessory product line currently consists mainly of truck
bedliners that are made to fit a number of different models. CTA produces
both under-the-rail and over-the-rail products. CTA manufactures
approximately 47 different liners and also manufactures fiberglass tonneau
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covers for all makes and models of pickup trucks, as well as shells and
caps. Additional products, such as tool boxes, running boards, tires,
wheels, mats, bug shields, visors, grill covers, light covers, trim pieces,
running lights and racks, are currently purchased by CTA for distribution
through retail sales and distribution stores. However, CTA plans to
manufacture many of these products in the future.
MANUFACTURING
CTA uses 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 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 Company believes that CTA's ability to control every
element of production, from raw materials to finished product, makes CTA's
operation highly competitive.
CTA's extruded plastic sheets are inserted into rotary vacuum formers
in order to produce truck bedliners. 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 CTA's fleet of
tractors and trailers.
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.
Shells and tonneau covers are manufactured in Riverside, California.
This modern fiberglass plant uses traditional hand laid up fiberglass
molding techniques to produce highly polished fiberglass surfaces. The
four station paint line preparation, painting, baking and drying allow the
products to be custom painted to match each truck color.
Because of their size, shells and tonneau covers are transported to
customers on specially designed trailers that carry a maximum of 24 shells.
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.
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CTA is also testing retail sales points for its liners coupled with
other accessory products produced by other manufacturers. The test market
for retail sales is Los Angeles, California, one of the largest markets 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 retail sales operations in other major
markets.
Sales are directed from the Owosso facility through the marketing
manager to a force of four outside salespeople. CTA expanded this sales
department in 1997 to sustain the momentum created by the initial liner
introduction and to penetrate new distribution channels.
During 1997, CTA expanded distribution in areas where distributors
were weak. In February, 1997, CTA purchased certain of the assets of
Truckware, Inc. in Baldwin Park, California. This purchase was the first
in a series of purchases that allow CTA increased access to distribution
channels to facilitate retail sales of its manufactured products.
In December, 1997, CTA purchased certain assets of Eastern Off-Road
Equipment, Inc. ("Eastern"), which has sales outlets in Pennsylvania,
Maryland, Virginia and West Virginia. Eastern is an established truck
accessories outlet chain that has been in the marketplace for over 20
years.
By the end of 1997, CTA purchased three additional retail/wholesale
stores in California and started its own distribution warehouse in North
Carolina.
Since year end, CTA has added retail stores in Flint, Michigan;
Nashville, Tennessee; St. Louis, Missouri; and Thousand Oaks, California.
CTA plans to continue their expansion in 1998.
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. The pickup truck and
sport utility vehicle market, which makes up a substantial percentage of
all vehicles sold, continues to grow. As this market expands, so does the
auxiliary equipment market. CTA's truck accessories sold at retail targets
this market. In addition, CTA has the ability to install all of the
products that it manufactures at each of its sales/retail outlet stores.
COMPETITION
CTA estimates that there are approximately 12 other manufacturers of
bedliners in the United States. The two largest, Durakon Industries, Inc.
14
<PAGE>
and PENDA Corporation, manufacture and sell the majority of all bedliners
in the United States. The ten remaining manufacturers accounted for the
remainder before CTA's entrance in the market. CTA estimates that it is
currently the third largest manufacturer in this market.
EMPLOYEES
CTA employs approximately 214 people, including approximately 210
contract employees leased through SES. In connection with the transfer of
the bedliner division from The Colonel's to CTA, these employees 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 Company believes that these two individuals, along with CTA's
other management personnel, bring a strong background to CTA's management
team.
PROPERTIES
CTA manufactures bedliners in its Owosso, Michigan plant. The plant
has 240,000 square feet of space, which CTA believes is adequate for
current operations and planned expansion, and has 85 full-time employees.
CTA's executive offices are located at 951 Aiken Road, Owosso, Michigan
48867.
The Baldwin Park, California facility serves the west coast as the
main retail sales point and warehouse facility. It also serves as the
offices of the west coast sales manager and has seven full-time employees.
The warehouse is 24,000 square feet and is located at 12907 Garney.
Baldwin Park is in north central Los Angeles.
The Riverside, California manufacturing facility is 40,440 square feet
on 2.87 acres and is located at 6727 Columbus Avenue. Riverside is on the
southwest side of Los Angeles. The Riverside plant manufactures shells and
tonneau covers and employs 47 full-time employees.
The Charlotte, North Carolina facility is 15,500 square feet and acts
as the southwestern regional warehouse. It operates as a wholesale
warehouse and retail sales and installation center. It is located at 2116
Wilkinson Boulevard and has five full-time employees.
The Flint, Michigan facility serves as CTA's home retail store.
Located adjacent to the area's largest mall and car dealership complex,
this old Firestone tire store of 14,000 square feet will allow for
installation of all products that the store sells. This facility has six
employees and is located at 30993 Linden Road.
15
<PAGE>
The Upland, California facility, located northeast of Los Angeles,
operates under the name CTA-Wild Bills and performs installation from bay
doors located at the rear of the facility. Its 1,940 square feet serve
mainly as a retail sales outlet. It has four full-time employees and is
located at 567 Central Avenue. It is supplied by the Baldwin Park
warehouse.
The Los Angeles, California facility operates under the name CTA-
Bedliner Kingdom and is located in the warehouse district in downtown Los
Angeles. This facility mainly stocks and installs liners and bed mats.
This 4,600 square feet facility, located at 1907 E. 7th Street, acts as a
retail sales point. It employs two full-time employees.
The Pomona, California facility, located at 4187 E. Mission Boulevard,
operates under the name CTA-Southland Shell. This 2.4 acre open air corner
lot houses outside displays of bedliners, caps, shells and tonneau covers.
The offices are housed in a trailer. The facility employs one part time
and two full-time employees.
The Uniontown Central Warehouse, located on Route 119 in Uniontown,
Pennsylvania, is a 20,000 square foot leased facility that acts as a
central warehouse for all the CTA-Eastern Off Road Retail Outlets. It acts
as a central shipping and receiving point. It employs three full-time
warehouse employees.
Uniontown, Pennsylvania, is a CTA-Eastern Off Road retail sales point
of 5,000 square feet, located on Route 40. The facility employs five full-
time employees.
The Robinson Township, Pennsylvania CTA-Eastern Off Road retail sales
store is 2,400 square feet, and is located on Route 60 and Moon Run on the
outskirts of Pittsburgh. It employs 3 full-time employees.
The Greensburg, Pennsylvania facility, a CTA-Eastern Off Road retail
store, consists of 3,500 square feet and is located on Route 3. It employs
two full-time employees.
The Morgantown, West Virginia facility is a CTA-Eastern Off Road
retail sales point of 2,350 square feet, located at 57 S. University
Avenue. It employs three full-time employees.
The Glen Bernie, Maryland facility is a CTA-Eastern Off Road retail
sales point of 2,400 square feet, located at 706 N. Cran Highway and Dorsey
Road. It employs three full-time employees.
The Wexford, Pennsylvania facility is a CTA-Eastern Off Road retail
sales point of 2,000 square feet, located on Route 19 at Route 910. It
employs two full-time employees.
16
<PAGE>
The Norfolk, Virginia facility is a CTA-Eastern Off Road retail sales
point of 6,000 square feet, located at 6320 Virginia Beach Boulevard. It
employs three full-time employees.
The Thousand Oaks, California facility was purchased in 1998. This
3,500 square feet facility operates under the name CTA-Road N Truck. It is
a full retail sales and installation facility located approximately 80
miles north of Los Angeles. The facility employs four full-time employees
and is located at 3234 E. Thousand Oaks Boulevard.
The Nashville, Tennessee store was acquired in 1998. This 13,000
square feet facility, located at 85 Cleveland Street, acts as both
wholesale warehouse and retail sales point for the Nashville area.
Installations are performed in an installation facility adjacent to the
newly constructed retail sales center. The facility employs nine full-time
employees.
The Collinsville, Illinois facility was purchased in 1998. It is
located approximately 30 minutes from downtown St. Louis, Missouri, and
operates under the banner of CTA-Dealer's Choice. This 15,000 square feet,
newly renovated facility serves as a wholesale distribution point and
retail sales store for the St. Louis area. Located on Route 159 at 775 W.
Morrison Avenue, it employs 19 full-time employees.
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.
17
<PAGE>
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 1997
from commercial businesses such as Viking Coca-Cola, Inc., Anheuser-Busch
(Budweiser), Dodge & Dodge Truck, Champion Auto Stores, Federal Mogul 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
motorhomes. In 1997, BIR charged from $10 per person to $20 per person for
each weekend, or from $5 per person to $15 per person for one day, for use
of the camping facilities. Camping revenues were received by BIR for only
five spectator events in 1997. A local non-profit organization managed the
camping activities on a commission basis for BIR in 1997 and is expected to
do so again in 1998.
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 1997. 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 1993 through 1997, the approximate percentage
of revenues derived from BIR's various revenue sources were as follows:
18
<PAGE>
<TABLE>
<CAPTION>
ACTIVITY 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ticket Sales 69% 70% 70% 71% 70%
Track Rentals, Concessions and
Camping Fees 17% 17% 14% 11% 13%
Entry Fees 9% 8% 11% 8% 9%
Sponsorship Fees 5% 5% 5% 10% 8%
</TABLE>
EVENTS AND ACTIVITIES
During 1997, BIR organized and promoted several major spectator
events, including two drag races (the "Federal - Mogul 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 Champion Auto Stores Federal Mogul Drag Racing series, held on
June 7 and 8, 1997, was a drag racing event sponsored nationally by Federal
- - Mogul Drag Racing Series. 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 Champion Auto Stores
Federal Mogul 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 Champion Auto Stores Federal Mogul 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. Previously known as the Winston Drag
Series, the new Sponsorship Agreement with Federal - Mogul Company for this
event will expire in 2002. This event drew approximately 4,100 spectators in
1997, as compared to approximately 3,700 in 1996 and 4,000 in 1995. It is
scheduled for June 6 & 7, 1998.
The Champion Auto Stores Show & Go event, held on July 5 and 7, 1997,
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
19
<PAGE>
portion of the event was sanctioned by the NHRA. The event had
approximately 7,200 paid spectators in 1997 and 7,100 and 7,000 in 1996 and
1995, respectively. The event is scheduled for July 4 and 5, 1998.
The Champion Auto Stores Muscle Car Shoot-Out was held on July 26 and
27, 1997. As with the Show & Go event, this event is both a car show and a
drag race. The Muscle Car Shoot-Out involves 1955 to 1974 model year
vehicles. The event is subject to the same sponsorship agreement as the
Champion Auto Stores Show & Go event. The event had approximately 5,800
paid spectators in 1997 and 5,700 and 6,600 paid spectators in 1996 and
1995, respectively. The event is scheduled for July 25 and 26, 1998.
The Suzuki Classic co-sponsored by Coca-Cola, held on June 27, 28 and
29, 1997, 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 1997, approximately 7,800 in 1996
and approximately 8,000 in 1995. This event is scheduled this year for
July 31 and August 1 and 2, 1998.
The Champion Auto Stores Nationals event, held on August 14, 15, 16
and 17, 1997, 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 drag races conducted
throughout the United States 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. The
Champion Auto Stores Nationals drew 47,200 paid spectators in 1997. The
event, which has been held at the Raceway since 1982, drew approximately
50,000 and 49,000 paid spectators in each of 1996 and 1995, respectively.
The event is scheduled for August 20 through 23, 1998.
BIR also organized and sponsored four weekend drag racing "bracket"
events in 1997, primarily for non-professional drivers from Minnesota and
20
<PAGE>
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 1998.
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 1997, 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
1997, 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
1997, the Northland Region Karting Association, affiliated with the World
Karting Association (the "WKA"), organized and sponsored several 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 1998.
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 1997, 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
21
<PAGE>
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
Champion Auto Stores. Most ticket agents receive a commission to sell
tickets. Ticket prices for the five principal racing events scheduled for
1998 will range from $10 to $100 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.
22
<PAGE>
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 addition to adversely affecting attendance and
concession sales, the adverse weather requires rescheduling of events,
which results 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 1997.
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 material 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.
23
<PAGE>
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.
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 23,000 spectators are primarily located along the
dragstrip.
BIR made substantial improvements to the Raceway during the past two
years. In connection with the drag racing facility, BIR expended
approximately $100,000 on the following: replacement and upgrading of the
concrete guard rail on straightaway, a new restroom facility in pit area,
new administration building behind the grand stands, additional office
space and renovation of the Winston suites, irrigation and drainage and
paved new roads.
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
2002.
24
<PAGE>
ITEM 2. PROPERTIES
The Company is a holding company with no operations of its own. The
properties of 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" and "Distribution and Sales."
CTA. The properties of CTA are discussed in "Item 1--THE COLONEL'S
TRUCK ACCESSORIES, INC.--Properties."
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 $291,000 against claims asserted
by opposing parties in various unrelated lawsuits:
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 ruled
that The Colonel's could not introduce parol evidence regarding those
promises and granted summary judgment to the defendant on The Colonel's
claims. The defendant sold the rejected machine to another buyer for more
money than The Colonel's purchase order required it to pay, but filed a
counterclaim seeking various costs, lost profits and attorneys' fees. The
trial court awarded the defendant certain costs and interest, but denied
recovery of more substantial costs and interest, and also denied recovery
of lost profits and attorneys' fees. Both parties appealed these rulings
to the Sixth Circuit Court of Appeals. The appeal has not yet been decided.
The Company believes that any resulting liability will not significantly
affect its financial position, results of operations, or cash flows.
The Company 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 in the back of a truck which may
allow a static charge that may result in a fire. Although the class action
suit targets bedliner manufacturers, the Company feels that other organizations
should also be involved, such as the service stations, gas can manufacturers,
gas pump manufacturers, etc. The Company has formed a coalition with the other
bedliner manufacturers to defend this class action suit. As of December 31,
1997, the coalition was in settlement negotiations with the plaintiffs. The
Company believes that any resulting liability will not significantly affect
its financial position, results of operations, or cash flows.
25
<PAGE>
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
amounts presently accrued, will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
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 approximate number of holders of record
of Common Stock in the Company on March 20, 1998 was 242.
The table below sets forth the high and low transaction prices by
calendar quarter for 1997 and 1996 for the Company's common stock. Such
prices reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1997 1996
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
January-March $12.25 $4.50 $7.50 $5.00
April-June $12.00 $4.50 $9.00 $6.25
July-September $ 5.50 $3.25 $9.00 $5.50
October-December $ 9.625 $3.75 $8.00 $3.00
</TABLE>
During 1997 and 1996, the Company 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's loan
agreements prohibit the Company from paying dividends without the prior
consent of the Company's lending institution.
The Company made no sales of unregistered securities during 1997.
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<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, 1997 has been derived from
the Consolidated Financial Statements of the Company. The following data
should be read in conjunction with the Consolidated Financial Statements
and related notes thereto included in Appendix A and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS<F2>:
Operating revenues $46,350,114 $40,263,082 $28,503,726 $28,492,013 $25,174,656
Income (loss) from
continuing operations $ 6,313,915 5,191,303 4,970,770 2,401,905 (541,052)
Net Income<F3> $ 3,408,759 2,521,986 1,862,474 10,887,714 7,762,206
Basic and diluted
earnings per share $ 0.14 $ 0.10
Pro forma earnings
per share<F1> $ 0.11
FINANCIAL CONDITION:
Current Assets $16,267,880 $13,638,100 11,483,401 14,399,543 15,455,926
Current Liabilities $13,160,122 16,659,846 15,026,023 15,886,485 19,339,356
Total Assets $44,940,280 42,610,295 38,243,986 31,529,883 32,349,317
Long term obligations $ 8,844,055 6,321,175 6,064,705 1,366,615 3,176,218
- ----------------------
<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 Consolidated Financial
Statements in Appendix A for pro forma results of operations as if the
Company and The Colonel's had been combined for 1995.
27
<PAGE>
<F3> Effective December 31, 1995, The Colonel's changed its tax status from
an S Corporation to a C Corporation for federal income tax purpose. Prior
to December 31, 1995, The Colonel's income was not taxable to the Company
and was passed through to its stockholders.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's historical results of
operations and of its liquidity and capital resources should be read in
conjunction with the Consolidated Financial Statements and the notes
thereto included in Appendix A.
THE COLONEL'S INTERNATIONAL, INC.
The Company is a holding company with no independent operations of its
own. Its three active subsidiaries are The Colonel's, CTA and BIR.
References to "the Company" in this Item 7 should be read to include the
Company and its subsidiaries as a whole, unless the context otherwise
indicates.
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 of The Colonel's. In addition,
Brainerd transferred all of its operating assets to its newly formed
subsidiary, BIR.
For accounting purposes, the transaction was treated as a
recapitalization of the Company with it as the acquiror (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. Refer to "Note 3 - Business
Combination" in the Notes to the Consolidated Financial Statements in
Appendix A for pro forma selected financial information.
28
<PAGE>
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
through acquisitions 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 formation of
CTA, which manufactures and sells pickup truck bedliners and tailgate
covers, and the acquisition 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 bedliner 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 bedliners, 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 bedliner
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.
CTA expanded its distribution by going directly to the marketplace.
CTA entered the retail sales market during 1997 by purchasing the assets of
Truckware in Baldwin Park, California, followed by the asset purchase of
29
<PAGE>
Bedliner Kingdom in Los Angeles, Southland Shell in Pomona, California,
Wild Bills in Upland, California, and seven retail outlets in Pennsylvania.
It also established a warehouse in Uniontown, Pennsylvania and a retail
sales outlet in Charlotte, North Carolina.
BRAINERD INTERNATIONAL RACEWAY, INC.
From the time of its formation in 1982, Brainerd 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
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 percent 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 sponsorship
fees from businesses which promote their products and services at the
Raceway; entry fees from participants in the races and other events and
rent for use of the track for private racing events, driving schools and
the testing or filming of motor vehicle operations.
EFFECTS OF YEAR 2000
The "year 2000" issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Accordingly, computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This situation could result in a system failure or miscalculations causing
disruptions to operations.
The Company continues to implement changes necessary to assure
accurate date recognition and data processing with respect to the year
2000. Primary internal activities related to this issue are modifications
to existing computer programs and conversions to new programs. These
activities are expected to be complete by mid-summer 1998. Costs related
to this issue, which have been immaterial to date, are being expensed as
incurred and are not expected to have a material impact on the Company's
financial position.
30
<PAGE>
The Company is in the process of initiating formal communications with
significant suppliers and customers to determine the extent to which the
Company may be vulnerable to a failure by any of these third parties to
remediate their own year 2000 issues. The Company has been informed by two
of its significant suppliers that they are year 2000-compliant or will be
in the near future.
The costs of year 2000 modifications and the date on which the Company
believes it will complete the project are based on management's best
estimates, which were derived utilizing numerous assumptions. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended December 31, 1997, 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 $13,638,000
at December 31, 1996 to $16,268,000 at December 31, 1997. This increase
primarily relates to the $1,402,000 increase in cash as a result of the
year end sale of the Boynton Gardens property that the Company held in
Florida, inventory increase of $867,000 as a result of the addition of the
new stores and the $368,000 increase in accounts receivable. See below for
further discussion of these changes. The Company's consolidated current
liabilities decreased from $16,660,000 at December 31, 1996 to $13,160,000
at December 31, 1997. This decrease primarily relates to a $1,695,000
decrease in accounts payable, a decrease of $1,427,000 in accrued expenses
and a reduction of $269,000 in income taxes payable.
Cash increased at year-end 1997 because of the sale of the Boynton
Gardens property. The sale of the land for $1,207,000 was completed on
December 31, 1997. Proceeds were subsequently used to pay down the line of
credit.
Accounts receivable increased by approximately $368,000 as of December
31, 1997 over 1996 due to increased sales and the addition of 12 new
warehouse distribution stores. The Company's subsidiaries continue to
offer early payment discounts and incentives for prompt payments to their
customers.
Inventories increased by approximately $867,000 at the end of 1997 as
compared to year end 1996, primarily due to the new warehouses and
distribution stores.
Prepaid Expenses increased $199,000 between December 31, 1996 and 1997
due to advance payment of rents.
31
<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 in Appendix A. Current deferred tax
asset at December 31, 1997 was $635,000.
Plant, property and equipment net book value decreased from
$27,028,000 as of December 31, 1996 to $26,328,000 at December 31, 1997.
This was due to normal scheduled depreciation of $4,357,000, the sale of the
Florida property and other various items, net of accumulated depreciation,
for $1,128,000 and additions of $4,785,000.
Note receivable of $1,045,000 at December 31, 1997 is from the
majority shareholder of the Company.
Deposits on tools and machinery decreased by approximately $526,000
during 1997 as various equipment and tools were 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, 1997, approximately $630,000 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. Additionally, several of the businesses from
which the Company purchased assets in 1997 resulted in goodwill. Goodwill
is being amortized over a seven-year period and totals $380,000 at
December 31, 1997.
OUTSTANDING LOANS
The Company has a $6,000,000 line of credit that expires on May 1,
1998 that is secured by accounts receivable and inventory. The Company
expects to negotiate a renewal with the current lending institution.
Interest is paid at prime on a monthly basis. Additionally, the Company
routinely borrows within this line of credit on the Eurodollar market at a
rate of about 0.5 below prime. The outstanding balance on the line of
credit was $6,000,000 at December 31, 1997. BIR has a separate $300,000
line of credit which is secured by all of its assets. The BIR line of
credit did not have an outstanding balance at December 31, 1997.
The Colonel's obtained new financing of $7,000,000 in May 1997 under a
credit facility which calls for monthly payments of $167,000 in principal
32
<PAGE>
plus interest calculated at 0.25 percent over prime on the outstanding
balance. The money received from this loan partially paid off all previous
long-term debt and consolidated all outstanding loans into one. The loan
is secured by machinery and equipment and had a balance of $5,831,000 at
December 31, 1997. 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 Colonel's entered into a capital lease to finance equipment for
its Owosso, Michigan bedliner 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 Company continues to pay
on these leases. The balance owed at December 31, 1997 was $5,214,000.
The Company purchased a number of pickup trucks for use in its retail
distribution operations. These vehicles were financed through an auto
credit agency. The balance owed at December 31, 1997 was $227,000.
The lending institutions of both BIR and The Colonel's consented to
the 1995 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 1997.
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 year ended December 31, 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 in
Appendix A for pro forma selected financial information. For the years
ended December 31, 1996 and 1997, the Consolidated Financial Statements
contain the results of operations for both entities.
33
<PAGE>
Revenues for the Company were $46,350,000, $40,263,000, and
$28,504,000, for the years ended December 31, 1997, 1996 and 1995,
respectively. The $6,000,000 growth in 1997 was primarily due to the
addition of revenues from the bedliner plant and acquisitions. The
Colonel's continues to aggressively market its products through improved
quality, services and delivery.
Cost of sales increased to 72 percent of sales in 1997 compared to
approximately 70 percent of sales during both periods ending December 31,
1996 and 1995. 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 many of these increases by operating more efficiently. Start
up costs for the newly acquired Riverside manufacturing facility and other
retail warehouses in North Carolina and Pennsylvania contributed to the
increase. Gross profits for 1997, 1996 and 1995 reflected approximately 28
percent, 30 percent, and 30 percent of sales, respectively.
Selling, general and administrative expenses decreased from $6,931,000
in 1996 to $6,790,000 in 1997. These expenses represented 15 and 17
percent of sales in 1997 and 1996, respectively. This decrease was
primarily due to the installation of a new computer program that allows
information at the warehouse level to transfer automatically to Milan. In
addition, all accounts payable operations were moved to Milan, resulting in
a savings of personnel costs.
Interest expense increased from $972,000 in 1995 to $1,214,000 in 1996
to $1,299,488 in 1997. This increase is due to the additional debt which
was used to finance the new equipment for the bedliner manufacturing
facility and working capital for inventory at the new warehouses.
Interest income decreased in 1996 by $48,000 but increased in 1997 by
$98,000. During 1995, The Colonel's invested surplus money until it was
needed, resulting in increased interest income. Additional interest income
in 1997 was generated by assessing customer finance charges and interest on
loans that the Company made.
The Company's net income before income taxes was $5,355,000 or 12
percent of sales in 1997, compared to $4,071,000 or 10 percent of sales in
1996 and $4,196,000 or 15 percent in 1995.
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.
34
<PAGE>
SUBSEQUENT EVENTS
The Company purchased the assets of Road 'N Truck in Thousand Oaks,
California in February, 1998. Operating under the banner CTA - Road N
Truck, it will serve as a retail sales outlet. Located about 80 Miles
north of Los Angeles, it employs 4 full-time employees.
The Company purchased the assets of Duraliner of Nashville from Fender
& More in February, 1998. Located in Nashville, Tennessee this retail
sales outlet/warehouse will serve the greater Nashville area.
The Company purchased 2/3 of the stock in Dealer's Choice located just
outside of St. Louis in Collinsville, IL. Dealer's Choice sells mainly
wholesale to area dealerships and truck centers. The total of this
acquisition and the two above was approximately $950,000.
The Company opened a retail sales outlet in Flint, Michigan in
January, 1998. This leased facility was formerly a Firestone tire store
and is adjacent to a mall and car dealership complex.
The Company and its newly formed subsidiary The Colonel's Rugged
Liner, Inc., in March 1998 entered into an agreement and plan of merger to
acquire four Pennsylvania corporations (the "Rugged Liner Companies"). In
the transactions, the Company will pay an aggregate of $4,250,000 in cash
and issue an aggregate of $4,250,000 worth of the Company's Common Stock to
the shareholders of the Rugged Liner Companies, subject to adjustment as
set forth in the agreement and plan of merger. This transaction is
scheduled to close in April, 1998.
The Company purchased 28 acres of property located on the outskirts of
Flint, Michigan in March 1998.
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.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997. The statement changes the reporting of certain items
currently reported in the shareowners' equity section of the balance sheet and
establishes standards for reporting of comprehensive income and its components
in a full set of general purpose financial statements. Adoption of this
35
<PAGE>
standard will require additional disclosure only. The Company will adopt this
standard effective January 1, 1998, as required.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This standard requires certain
information regarding segments of a business enterprise to be reported based on
the way management organizes and evaluates segments within the Company. The
standard also requires disclosures regarding products and services, geographical
areas and major customers. Adoption of this standard will require the Company
to include additional detail in its disclosures, including certain disaggregated
operating information. The Company will adopt this standard in 1998, as
required, but is not currently planning to elect early adoption for iterim
financial periods during the year. At this time, management anticipates that
the Company's reported segments will be composed of its three wholly owned
subsidiaries: The Colonel's, BIR and CTA.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
With the exception of historical matters, the matters discussed in
this Item 7 include certain predictions and projections that may be
considered forward-looking statements under securities laws, including, but
not limited to, those statements under the captions "Results of Operations"
and "Liquidity and Capital Resources." These statements are subject to a
number of important risks and uncertainties that could cause actual results
to differ materially including, but not limited to, economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. The Company undertakes no
obligation to update, amend or clarify forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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 1997 and 1996.
36
<PAGE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales 10,937,133 11,119,756 12,271,056 12,022,169
Gross Profit 3,379,739 2,699,379 3,841,466 3,182,642
Net Income 1,030,543 680,451 1,266,616 431,149
Basic and Diluted
Earnings Per Share $ 0.04 $ 0.03 $ 0.05 $ 0.02
<FN>
<F1> Subsequent to the filing of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, management determined that
errors had occurred in the reporting of certain sales in the three-month
period ended September 30, 1997. Accordingly, the amounts reported herein
for that period have been restated from the amounts previously reported.
The effects of the restatement are as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
-------- -----------
<S> <C> <C>
Net sales $12,986,633 $12,271,056
Gross profit 4,557,043 3,841,466
Net income 1,689,079 1,266,616
Basic and diluted earnings
per share $ .07 $ .05
</TABLE>
<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
Basic and Dilute
Earnings Per Share $ 0.04 $ 0.02 $ 0.01 $ 0.03
</TABLE>
37
<PAGE>
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 six members (in alphabetical order): J. Daniel
Frisina, Ted M. Gans, Donald R. Gorman, Ben C. Parr, Mark D. Stevens and
Patsy L. Williamson. During 1997, Michael J. McCloskey and John M. Darcy
resigned from the Board of Directors. No successor was appointed for
either Mr. McCloskey or Mr. Darcy. In addition, Mrs. Williamson, whose
term as a Director ends at the 1998 Annual Meeting of Shareholders, has
declined to stand for reelection.
J. DANIEL FRISINA (49). Mr. Frisina is a Director of the Company and
a Director of BIR. Mr. Frisina's principal occupation is Director of
Global Development for Shyi Tan Enterprises, a Taiwanese manufacturer of
autobody parts. He has previously served as a consultant for Cheng Hong
Legion Co., Ltd. (from 1992 to 1996). He was also the Chairman of the
Board of the Autobody Parts Association, an association that represents the
interests of the distributors, suppliers and manufacturers of alternative
collision replacement parts. He served as President of The Colonel's from
1988 through 1991. He served as Treasurer and Chief Financial Officer of
Brainerd International, Inc., the Company's predecessor, during 1995. Mr.
Frisina serves on the Company's Audit Committee.
TED M. GANS (62). Mr. Gans is a Director of the Company. He serves
on the Executive Committee and the Compensation Committee of the Board of
Directors. Mr. Gans' 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.; Patsy Lou Williamson Buick-
GMC, Inc.; Williamson Chevrolet-Geo Cadillac, Inc.; and Williamson Chrysler
Plymouth Jeep, Inc. All four of these companies are wholly owned by Patsy
L. Williamson, a Director.
DONALD R. GORMAN (66). 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.
BEN C. PARR (67). On February 20, 1997, Ben C. Parr was appointed a
Director of the Company. Mr. Parr is currently the President of Capstone
38
<PAGE>
Bumpers, Inc. Mr. Parr was formerly the Director of Research for the State
Farm Insurance Companies (1980-1997) and was involved 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.
MARK D. STEVENS (55). On February 20, 1997, Mark D. Stevens was
appointed a Director and the President of the Company. Upon
Mr. McCloskey's resignation, Mr. Stevens became the Company's Chief
Executive Officer. Mr. Stevens is currently the General Manager of Patsy
L. Williamson Buick-GMC, Inc., an automotive dealership company wholly
owned by Patsy L. Williamson (a Director), 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. He is also a Director of The Colonel's.
PATSY L. WILLIAMSON (65). 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,
President and Chief Executive Officer of the Company. Mrs. Williamson is
also a significant shareholder of the Company. See Item 12, below.
EXECUTIVE OFFICERS. As mentioned above, Mr. Stevens is the President
and Chief Executive Officer of the Company. Four additional executive
officers of the Company are:
RICHARD S. SCHOENFELDT (42). Mr. Schoenfeldt is the 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. Mr. Schoenfeldt also
serves as a Director of The Colonel's.
WILLIAM SINGLETERRY (53). Mr. Singleterry is the Vice President of
Development of the Company. He also serves as a Director and the 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
time, he was the Regional Sales Manager. From 1982 to 1989, he served as
General Manager for Auto Body Connection, a bumper manufacturer and
distributor.
39
<PAGE>
GARY MOORE (48). 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 from 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 &
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.
JOHN CARPENTER (59). Mr. Carpenter is the President of CTA. He
joined CTA in July 1996. Formerly the National Distributor Sales Manager
of Durakon Industries (1981 to 1986), Mr. Carpenter brings a great deal of
industry experience to the Company. Mr. Carpenter is a member of the Board
of Directors of TCAA (Truck Cap and Accessory Association). He formerly
was the National Marketing Manager for Homestead Products (1987 to 1988).
From 1988 to 1996, Mr. Carpenter was involved in the real estate business.
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 regulations 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,
1997.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION SUMMARY
The following Summary Compensation Table shows certain information
concerning the compensation earned during each of the three fiscal years in
the period ended December 31, 1997, of the Chief Executive Officer of the
40
<PAGE>
Company and each executive officer of the Company whose salary and bonus
for 1997 exceeded $100,000. Three persons served as Chief Executive
Officer of the Company in 1997. First, Mr. Donald J. Williamson served as
Chairman of the Board, President and Chief Executive Officer of the Company
until his resignation on February 20, 1997. Mr. Williamson, however,
continues to work as an employee of the Company. On February 20, 1997,
Michael J. McCloskey was appointed as Chief Executive Officer and Mark D.
Stevens was appointed President. Mr. McCloskey resigned from this position
as of June 30, 1997, at which time Mr. Stevens became Chief Executive
Officer (in addition to his position as President of the Company).
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- ------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Donald J. Williamson 1997 $520,000<F1> $6,000 $ 0 0
Chairman of the Board, 1996 $510,000<F1> $ 0 $6,841 0
President, Chief Executive 1995 $520,000<F1> $ 0 $3,478 0
Officer and Director
Michael J. McCloskey 1997 $ 79,000 $ 0 $ 0 0<F2>
Chief Executive
Officer and Director
Mark D. Stevens 1997 $ 0 $ 0 $ 0 5,000
President, Chief Executive
Officer and Director
William Singleterry 1997 $153,234 $6,000 $ 0 5,000
Vice President of 1996 97,369 0 100 0
Development 1995 85,600 0 0 0
John Carpenter 1997 $112,029 $ 0 $ 0 0
President of CTA 1996 46,629 0 0 0
- ----------------------------
<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,
Inc. for Mr. Williamson's services as Chairman of the Board, Chief Executive
Officer, Treasurer and Secretary and by Brainerd International Raceway, Inc.
for Mr. Williamson's services as Chairman of the Board, Secretary and Treasurer.
41
<PAGE>
<F2> Mr. McCloskey had been granted options to acquire 1,000,000 shares of
Common Stock, subject to certain vesting schedules. However, upon Mr.
McCloskey's resignation, these options were canceled. See "Long-Term
Incentive Awards."
</FN>
</TABLE>
STOCK OPTIONS
The Company's Long-Term Incentive Plan (the "LTIP") permits the grant
of options to acquire shares of Common Stock. In February 1997, Mr.
McCloskey was granted options to acquire up to 1,000,000 shares of Common
Stock. These options were to vest and become exercisable in increments of
200,000 shares of Common Stock on each of the following dates: February
17, 1998; February 17, 1999; February 17, 2000; February 17, 2001; and
February 17, 2002. Upon Mr. McCloskey's resignation, which was effective
as of June 30, 1997, these options were canceled.
Also in February 1997, each Director of the Company received an option
to acquire 5,000 shares of Common Stock at an exercise price of $6.50 per
share. See "Ownership of Common Stock." Furthermore, pursuant to the
automatic grant provisions of the LTIP, Messrs. Frisina and Gans each
received options to purchase a total of 1,185 shares of Common Stock during
1997. Messrs. Parr and Gorman and Mrs. Williamson each received options to
purchase a total of 1,735 shares pursuant to these provisions, including
options to purchase 550 shares upon their appointment to the Board of
Directors in February 1997.
The table set forth below details options granted to each of the
persons set forth in the Summary Compensation Table above:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED POTENTIAL REALIZABLE VALUE AT
NUMBER OF SECURITIES TO EMPLOYEES IN ASSUMED ANNUAL RATES OF STOCK
NAME UNDERLYING OPTIONS FISCAL YEAR<F2> EXERCISE PRICE EXPIRATION DATE PRICE APPRECIATION FOR OPTION TERM
- -------------------- -------------------- ---------------- -------------- --------------- ----------------------------------
0% 5% 10%
-----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald J. Williamson 0 0% N/A N/A N/A N/A N/A
Michael J. McCloskey 1,000,000<F1> 0% N/A N/A N/A N/A N/A
Mark D. Stevens 5,000 15.9% $6.50 2/19/2007 $ 0 $20,439 $51,797
William Singleterry 5,000 15.9% $6.50 2/19/2007 $ 0 $20,439 $51,797
John Carpenter 0 0% $6.50 2/19/2007 N/A N/A N/A
42
<PAGE>
- ------------------------
<FN>
<F1> Upon Mr. McCloskey's resignation, these options were canceled.
<F2> The percentages in this column were calculated based on a total of
31,450 options to acquire shares of Common Stock. This figure
excludes (i) options granted to non-employee directors of the Company,
(ii) options to acquire 600 shares awarded to Mr. Carpenter, which he
declined, and (iii) the options granted to Mr. McCloskey.
</FN>
</TABLE>
<TABLE>
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END <F1>
------------------------------------ --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald J. Williamson 0 0 $ 0 $ 0
Michael J. McCloskey 0 0 $ 0 $ 0
Mark D. Stevens 5,000 0 $1,250 $ 0
William Singleterry 5,000 0 $1,250 $ 0
John Carpenter 0 0 $ 0 $ 0
- ----------------------------
<FN>
<F1> Based on the difference between the market value on February 20, 1998,
the date of grant ($6.50 per share) and the market value of $6.75 per
share on December 31, 1997.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
No compensation was paid to any Director of the Company for services
rendered in such capacity during 1997. Directors who are not full-time
employees may be reimbursed for expenses incurred in attending meetings of
the Board of Directors and committees thereof.
PENSION PLAN
The Company does not have a pension plan, a defined benefit plan or an
actuarial plan.
43
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company does not have any employment agreements, termination-of-
employment agreements or change-in-control agreements with any executive
officer. However, The Colonel's and John Carpenter entered into an
employment agreement dated July 15, 1996. Effective January 1, 1997,
this agreement was transferred to CTA and Mr. Carpenter is now employed
as CTA's President. Under the agreement, which has a five year term, Mr.
Carpenter is paid a $100,000 annual salary in equal weekly installments.
In addition, Mr. Carpenter is paid a bonus of $0.10 for each bedliner sold
by CTA, payable monthly. The agreement may be terminated by either party
for just cause. In addition, CTA could terminate the agreement without
cause, in which case CTA would be required to pay Mr. Carpenter three
months' salary plus any accrued but unpaid salary and bonus as of the date
of termination. The agreement also contains Mr. Carpenter's covenant not
to compete for a period of two years from the date of the termination of
his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1997, Messrs. Gans and Parr 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 1997.
Neither Mr. Gans nor Mr. Parr 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
and 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In April 1996, the Board of Directors appointed Messrs. Frisina and
Gans to the Compensation Committee. However, in February 1997, the Board
appointed Messrs. Parr and Darcy to replace Mr. Frisina on the Compensation
Committee. Mr. Darcy later resigned from his position as a Director of the
Company. The Compensation Committee thus currently consists of Messrs.
Gans and Parr.
The basic compensation philosophy of the Company is to provide
competitive salaries. The Company's executive compensation policies are
designed to achieve two primary objectives:
- Attract and retain well-qualified executives who will lead the
Company and achieve and inspire superior performance;
44
<PAGE>
- Provide incentives for the achievement of long-term financial
goals.
Executive compensation consists primarily of two components: base
salary and benefits; and amounts paid (if any) under the Company's Long-
Term Incentive Plan (the "LTIP"). Each component of compensation is
designed to accomplish one or both of the compensation objectives.
The participation of specific executive officers and other key
employees in the Company's LTIP is recommended by the Board's Compensation
Committee and all recommendations (including the level of participation)
are reviewed, modified (to the extent appropriate) and approved by the
Board.
BASE SALARY
To attract and retain well-qualified executives, it is the
Compensation Committee's policy to establish base salaries at levels and
provide benefit packages that are considered to be competitive. Base
salaries of executive officers are determined by the Board of Directors on
an individual basis. In determining the base salary for an executive
officer, the Compensation Committee will recommend to the full Board for
approval a base salary for the officer determined by the Compensation
Committee taking into consideration factors including: (1) the individual's
performance, (2) the individual's contributions to the Company's success,
(3) the level and scope of the individual's responsibilities, (4) the
individual's tenure with the Company and in his or her position and (5) pay
practices for similar positions by comparable companies.
LONG-TERM INCENTIVE PLAN
The LTIP is used primarily to grant stock options. However, the LTIP
also permits grants of restricted stock, stock awards, stock appreciation
rights and tax benefit rights if determined to be desirable to advance the
purposes of the LTIP. These grants and awards are referred to as
"Incentive Awards." By combining in a single plan many types of incentives
commonly used in long-term incentive compensation programs, the LTIP
provides significant flexibility to the Compensation Committee to tailor
specific long-term incentives that would best promote the objectives of the
LTIP and in turn promote the interests of the Company's shareholders.
Directors, executive officers and other key employees of the Company
and its subsidiaries are eligible to receive Incentive Awards under the
LTIP. A maximum of 4,000,000 shares of Common Stock (subject to certain
antidilution adjustments) are available for Incentive Awards under the LTIP.
Of the 4,000,000 shares authorized for Incentive Awards under the LTIP,
only one-half can be awarded as restricted stock.
The LTIP is administered by the Compensation Committee, which is
comprised of non-employee Directors, none of whom participates or is
45
<PAGE>
eligible to participate in any long-term incentive plan of the Company or
its subsidiaries, except for nondiscretionary stock option grants based
upon a specified formula, and if the Board so determines, each of whom must
be an "outside director" as defined in the rules issued pursuant to Section
162(m) of the Internal Revenue Code. The Compensation Committee makes
determinations, subject to the terms of the LTIP, as to the persons to
receive Incentive Awards, the amount of Incentive Awards to be granted to
each person, the terms of each grant and all other determinations necessary
or advisable for administration of the LTIP.
The LTIP was approved by the shareholders of Brainerd International,
Inc., the Company's predecessor, on November 21, 1995. During fiscal 1997,
Mr. Gans, as a non-employee Director of the Company, received automatic
stock option grants covering a total of 1,185 shares of Common Stock. Mr.
Parr received automatic stock option grants covering a total of 1,735
shares of Common Stock. In addition, in February 1997, the Company's Board
of Directors granted non-employee Directors (which are Mrs. Williamson, Mr.
Parr, Mr. Gorman, Mr. Frisina and Mr. Gans) each options to acquire up to
5,000 shares of the Company's Common Stock. The Board of Directors
believes that these grants were helpful in attracting these persons to
become Directors of the Company. These options vested and became
exercisable on August 20, 1997, and must be exercised (if at all) no later
than February 20, 2007. The option exercise price is $6.50 per share of
Common Stock. (See also notes 3 and 5 to "Security Ownership of Management.")
CHIEF EXECUTIVE OFFICER
Mr. Stevens, the Company's current Chief Executive Officer, did not
draw a salary from the Company during 1997. Mr. McCloskey, who was Chief
Executive Officer of the Company during part of 1997, resigned effective
June 30, 1997. The Company is currently examining possible candidates for
this position. The Compensation of a Chief Executive Officer would
generally be based on the policies described above.
SECTION 162(M)
Section 162(m) of the Code provides that publicly held corporations
may not deduct compensation paid to certain executive officers in excess of
$1 million annually, with certain exemptions. The Company has examined its
executive compensation policies in light of Section 162(m) and the
regulations adopted by the Internal Revenue Service to implement that
section. It is not expected that any portion of the Company's deduction
for employee remuneration will be disallowed in 1998 or in future years by
reason of actions expected to be taken in 1998.
Respectfully submitted,
Ted M. Gans
Ben C. Parr
46
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
on the Company's Common Stock to the NASDAQ Domestic Index and an index of
peer companies that produce automobile replacement parts, assuming an
investment of $100.00 at the beginning of the period indicated. Because
the Company's Common Stock has been traded on the NASDAQ SmallCap Market
only since January 2, 1996, the graph covers only the period from January
2, 1996, to the end of fiscal year 1997.
The NASDAQ Domestic Index is a broad equity market index consisting of
certain domestic companies traded on the NASDAQ Stock Market. The index of
peer companies was constructed by the Company and includes the companies
listed in the footnote to the graph below. In constructing the peer index,
the return of each peer group company was weighted according to its
respective stock market capitalization at the beginning of each period
indicated. Cumulative total stockholder return is measured by dividing:
(i) the sum of (a) the cumulative amount of dividends for the measurement
period, assuming dividend reinvestment, and (b) the difference between the
share price at the end and the beginning of the measurement period; by (ii)
the share price at the beginning of the measurement period.
COMPARISON OF CUMULATIVE
TOTAL STOCKHOLDER RETURN
[GRAPH]
[FN]
<F1> The index of peer companies consists of Boyds Wheels, Inc.; Deflecta-
Shield Corp.; Echlin Inc.; Edelbrock Corporation; Exide Corporation;
Federal Mogul Corp.; Genuine Parts Company; JPE, Inc.; Motorcar Parts
& Accessories, Inc.; OEA, Inc.; R & B Inc.; SPX Corp.; Standard Motor
Products, Inc.; Stant Corp.; and Thompson PBE, Inc.
</FN>
The dollar values for total stockholder return plotted in the graph above
are shown in the table below:
47
<PAGE>
<TABLE>
<CAPTION>
NASDAQ PEER
JANUARY 1, THE COMPANY DOMESTIC INDEX INDEX
---------- ----------- -------------- -----
<S> <C> <C> <C> <C>
1996 100.00 100.00 100.00
1997 69.23 123.00 108.23
1998 103.85 146.71 131.18
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At the close of business on March 20, 1998, 24,177,805 shares of
Common Stock were issued and outstanding. Each share of Common Stock
issued and outstanding on the record date entitles its holder to one vote
in person or by proxy on each matter presented for shareholder action.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons beneficially owned more than five percent
of the outstanding shares of Common Stock as of March 20, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF NATURE OF
OF BENEFICIAL BENEFICIAL BENEFICIAL PERCENT OF
OWNER OF COMMON STOCK OWNERSHIP OWNERSHIP CLASS<F1>
--------------------- --------- --------- ----------
<S> <C> <C> <C>
Donald J. Williamson<F2> 11,934,580 shares Sole voting and investment power 49.23%
620 South Platt Road 11,639,235 shares Shared voting and investment power 48.01%
Milan, MI 48160
Patsy L. Williamson<F2> 11,639,235 shares Sole voting and investment power 48.01%
620 South Platt Road 11,934,580 shares Shared voting and investment power 49.23%
Milan, MI 48160
- -----------------------------------
<FN>
<F1> See note 1 to the following table.
<F2> See note 2 to the following table.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of shares of
Common Stock, held as of March 20, 1998, by each director, each nominee for
48
<PAGE>
election as director, each of the named executive officers (as defined in
the Summary Compensation Table) and by all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF
NAME OF BENEFICIAL NATURE OF PERCENT OF
BENEFICIAL OWNER OWNERSHIP BENEFICIAL OWNERSHIP CLASS<F1>
---------------- --------- -------------------- -----------
<S> <C> <C> <C>
Donald J. Williamson<F2><F3> 11,934,580 Sole voting and investment power 49.23%
11,639,235 Shared voting and investment power 48.01%
Patsy L. Williamson<F2><F3><F4> 11,639,235 Sole voting and investment power 48.01%
11,934,580 Shared voting and investment power 49.23%
Mark D. Stevens<F3> 5,700 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
</TABLE>
<TABLE>
<CAPTION>
AMOUNT OF
NAME OF BENEFICIAL NATURE OF PERCENT OF
BENEFICIAL OWNER OWNERSHIP BENEFICIAL OWNERSHIP CLASS<F1>
---------------- --------- -------------------- -----------
<S> <C> <C> <C>
Michael J. McCloskey<F4> 0 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
Ben C. Parr<F3><F5> 6,735 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
Donald R. Gorman<F3><F5> 6,735 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
J. Daniel Frisina<F3><F5> 7,260 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
Ted M. Gans<F3><F5> 7,260 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
Mark German<F6> 0 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
William Singleterry<F7> 5,000 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
49
<PAGE>
John Carpenter<F7> 0 Sole voting and investment power <F*>
0 Shared voting and investment power <F*>
Directors and Officers 23,612,505 Sole voting and investment power 97.40%
as a group 0 Shared voting and investment power 0.00%
- ---------------------------------------
<FN>
<F*> Does not exceed 1%.
<F1> PERCENTAGES: The percentages set forth in this column were calculated
on the basis of (i) 24,177,805 shares of Common Stock outstanding as
of March 20, 1998 plus (ii) 66,175 shares of Common Stock subject to
options that were exercisable on March 20, 1998 or that will become
exercisable within 60 days after March 20, 1998. Shares subject to
such options are deemed to be outstanding for purposes of this chart.
<F2> THE WILLIAMSONS: In the mergers by which Brainerd International,
Inc., the Company's predecessor, merged with and into the Company and
by which The Colonel's, Inc. 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, Inc. Because they are married, each is deemed to be the
beneficial owner of all of the stock owned by both of them. In
addition, Mrs. Williamson also has options to acquire 6,735 shares of
Common Stock that were exercisable as of March 20, 1998.
<F3> STOCK OPTION GRANTS TO DIRECTORS: Pursuant to the Company's 1995 Long-
Term Incentive Plan (the "LTIP"), the Company's Board of Directors in
February 1997 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. These stock
options were exercisable as of March 20, 1998 and thus the shares
subject to the options were considered "beneficially owned" by these
persons on that date. The Board of Directors also granted Mr. Stevens
options to acquire 5,000 shares of Common Stock, which options were
exercisable as of March 20, 1998.
<F4> MICHAEL J. MCCLOSKEY: Mr. McCloskey resigned as Chief Executive
Officer as of June 30, 1997. Mr. McCloskey had been granted certain
options to acquire Common Stock. However, these options were canceled
upon Mr. McCloskey's resignation. See "Summary Compensation Table."
<F5> AUTOMATIC STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS: Under the
LTIP, each non-employee director of the Company receives an automatic
grant of options in March and September of each year. The number of
options granted started at 500 per grant when the LTIP was inaugurated
in 1996. For each grant after that time, the number of options
50
<PAGE>
granted increases by five percent from the previous grant.
Furthermore, when a new non-employee Director is elected or appointed
to the Board, he or she will immediately receive options in an amount
equal to the last grant. Messrs. Frisina and Gans each received
options to purchase a total of 1,185 shares of Common Stock pursuant
to these automatic grant provisions during 1997. Messrs. Parr and
Gorman and Mrs. Williamson each received options to purchase a total
of 1,735 shares pursuant to these provisions in 1997, import due to
the fact that each of them received options to purchase 550 shares
upon their appointment to the Board of Directors in February 1997. All
of the foregoing options are currently exercisable. Messrs. Frisina,
Gans, Parr and Gorman and Ms. Williamson were each granted options to
purchase 635 shares of Common Stock on March 1, 1998. However, these
options are not yet exercisable.
<F6> MARK GERMAN: As of March 20, 1998, Mr. German, a nominee for Director
at the Company's 1998 Annual Meeting of Shareholders, did not own or
have any beneficial interest in any shares of Common Stock. However,
Mr. German will receive shares of Common Stock in connection with an
acquisition by a wholly owned subsidiary of the Company of four
corporations of which Mr. German is the majority shareholder.
<F7> STOCK OPTION GRANTS TO OFFICERS: In February 1997, Mr. Singleterry was
granted options to acquire up to 5,000 shares of Common Stock. These
stock options are currently exercisable and are considered
beneficially owned by Mr. Singleterry. In February 1997, Mr.
Carpenter was granted options to acquire up to 600 shares of Common
Stock. However, Mr. Carpenter declined these options.
</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 began leasing its Milan, Michigan, facility
from 620 Platt Road, LLC. Donald J. Williamson and Patsy L. Williamson,
the majority shareholders of the Company, are the sole members of 620 Platt
Road, LLC. Rent expense to The Colonel's for the Milan facility was
$1,050,000 for the year ending December 31, 1997, including three months'
worth of prepaid rent expense. CTA leases its Owosso, Michigan facility
from 620 Platt Road, LLC. Rent expense on this lease was $300,000 for the
year ending December 31, 1997, including three months' worth of prepaid
rent expense. Mr. Williamson is a nominee for election as a Director at
the forthcoming 1998 Annual Meeting of Shareholders.
51
<PAGE>
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. Mrs. Williamson is a majority shareholder and
a Director of the Company. The Colonel's 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 1997, purchases of automobiles, parts and services by The
Colonel's from Buick were in the amount of $66,831. CTA sold $110,043
worth of bedliners to Buick in 1997.
PROMISSORY NOTE FROM DONALD J. WILLIAMSON. During 1997, the Company
loaned an aggregate total of $1,044,956 to Donald J. Williamson, a majority
shareholder of the Company and a nominee for election as a Director at the
forthcoming 1998 Annual Meeting of Shareholders, pursuant to two promissory
notes executed in June and September 1997, respectively. These notes bear
interest at 8% and are due in bi-annual installments beginning in September
1998.
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.
MARK GERMAN. Mark German is a nominee for election as a Director at
the forthcoming 1998 Annual Meeting of Shareholders. The Company and its
newly formed subsidiary The Colonel's Rugged Liner, Inc., in March 1998
entered into an agreement and plan of merger to acquire four Pennsylvania
corporations (the "Rugged Liner Companies"), each of which Mr. German is
the majority shareholder. In the transactions, the Company will pay an
aggregate of $4,250,000 in cash and issue an aggregate of $4,250,000 worth
of the Company's Common Stock to the shareholders of the Rugged Liner
Companies, subject to adjustment as set forth in the agreement and plan of
merger. The terms of the transaction were arrived at pursuant to
negotiations between the Company and Mr. German.
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:
52
<PAGE>
* Auditors' Report
* Consolidated Balance Sheets as of December 31, 1997 and 1996
* Consolidated Statements of Income for years ended December
31, 1997, 1996 and 1995
* Consolidated Statements of Stockholders' Equity for years
ended December 31, 1997, 1996 and 1995
* Consolidated Statements of Cash Flows for years ended
December 31, 1997, 1996 and 1995
* Notes to Consolidated Financial Statements for years ended
December 31, 1997, 1996 and 1995
* Independent Auditors' Report on Schedule II
* Schedule II - Valuation and Qualifying Accounts
* Report of Management
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.
3.1 Articles of Incorporation of the Company, as amended.
Incorporated by reference from Exhibit 3.1 to the Company's
Report on Form 10-Q for the period ended March 31, 1997.
3.2 Bylaws, as amended. Incorporated by reference from Exhibit 3.2
to the Company's Report on Form 10-Q for the period ended March
31, 1997.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
4.2 Bylaws. See Exhibit 3.2 above.
53
<PAGE>
10.1 1995 Long-Term Incentive Plan, as amended. Incorporated by
reference from Exhibit A to the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders.<F*>
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.<F*>
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.<F*>
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.<F*>
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 10.5 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 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10.5 and 10.6). Incorporated by reference from Brainerd
International, Inc.'s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993.
10.8 Lease Agreement between Brainerd International, Inc. 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).
54
<PAGE>
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 Lease Agreement between 620 Platt Road, Inc. and The Colonel's, Inc.
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).
10.13 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's, Inc. 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).
10.14 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's, Inc. 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).
10.15 Lease Agreement between Industrial Properties Corporation and The
Colonel's, Inc. 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).
10.16 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's, Inc. 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).
10.17 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
10.18 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated May 31, 1996.
10.19 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated November 15, 1996.
55
<PAGE>
10.20 Lease Agreement between 620 South Platt Road, Inc. and The
Colonel's, Inc. dated October 1, 1995. Incorporated by
reference from Exhibit 10.43 to the Registrant's Report on Form
10-K for the year ended December 31, 1997.
10.21 Loan Agreement between The Colonel's International, Inc. and
subsidiaries and Comerica Bank dated May 28, 1997.
10.22 Master Revolving Note between Comerica Bank and The Colonel's
International, Inc. and subsidiaries dated March 17, 1998.
10.23 Employment Agreement between The Colonel's, Inc. and John
Carpenter dated June 28, 1996.<F*>
10.24 Client Service Agreement between Designed Administrative Resources
Technologies, Inc. and The Colonel's, Inc., dated July 20, 1997.
10.25 Addendum to Lease dated February 20, 1998, between Brainerd
International, Inc., and Woodland Office Partnership (see Exhibits
10.5 - 10.7).
10.26 Sponsorship Agreement between Brainerd International Raceway, Inc.
and Viking Coca-Cola Bottling Company dated February 28, 1998.
10.27 Agreement between Brainerd International Raceway, Inc. and Sports
Marketing Enterprises dated February 25, 1998.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule
The Company has determined that restatement of its quarterly and
annual financial data schedules from December 31, 1995 through
December 31, 1997 is not required.
- --------------------
[FN]
<F*> Management contract or compensatory plan or arrangement.
</FN>
ITEM 14(b). REPORTS ON FORM 8-K.
Not applicable.
56
<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: April 13, 1998 By: */S/ MARK D. STEVENS
Mark D. Stevens
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)
57
<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/MARK D. STEVENS Chief Executive Officer, April 13, 1998
Mark D. Stevens President and Director
*/S/PATSY L. WILLIAMSON Chairperson of the Board April 13, 1998
Patsy L. Williamson and Director
*/S/J. DANIEL FRISINA Director April 13, 1998
J. Daniel Frisina
*/S/TED M. GANS Director April 13, 1998
Ted M. Gans
/S/BEN C. PARR Director April 13, 1998
Ben C. Parr
*/S/DONALD GORMAN Director April 13, 1998
Donald Gorman
*By /S/ RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Attorney-in-fact
58
<PAGE>
APPENDIX A
59
<PAGE>
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, 1997 and
1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Detroit, Michigan
March 24, 1998
60
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,723,652 $ 321,486
Accounts receivable - trade (net of allowance for
doubtful accounts of $493,000 and $575,000 at
December 31, 1997 and 1996, respectively) 3,973,528 3,605,281
Inventories (Note 4) 9,214,557 8,347,663
Prepaid expenses 425,476 226,670
Note receivable - Related party (Notes 6 and 13) 200,000
Deferred taxes - current (Note 10) 635,000 1,045,000
Current portion of deferred compensation (Note 11) 95,667 52,000
Other 40,000
----------- -----------
Total current assets 16,267,880 13,638,100
PROPERTY, PLANT AND EQUIPMENT - Net
(Notes 5, 8 and 11) 26,328,039 27,028,350
OTHER ASSETS:
Note receivable - Related party (Notes 6 and 13) 844,956
Long-term portion of deferred compensation (Note 11) 255,857 236,787
Deposits 630,486 1,156,868
Goodwill 379,816 366,497
Other 233,246 183,693
----------- -----------
Total other assets 2,344,361 1,943,845
----------- -----------
TOTAL ASSETS (Note 8) $44,940,280 $42,610,295
=========== ===========
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Notes payable (Note 7) $ 6,000,000 $ 5,450,000
Current portion of long-term obligations (Note 8) 3,166,741 3,868,733
Accounts payable - trade 1,837,528 3,532,752
Accrued expenses (Note 9) 1,134,637 2,561,361
Current portion of deferred compensation (Note 11) 95,667 52,000
Income taxes payable 925,549 1,195,000
----------- -----------
Total current liabilities 13,160,122 16,659,846
LONG-TERM OBLIGATIONS, NET OF CURRENT
PORTION (Note 8) 8,844,055 6,321,175
LONG-TERM PORTION OF DEFERRED
COMPENSATION (Note 11) 255,857 236,787
DEFERRED TAXES - LONG-TERM (Note 10) 3,828,000 3,949,000
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 5,606,239
Retained earnings 13,004,229 9,595,470
----------- -----------
Total stockholders' equity 18,852,246 15,443,487
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,940,280 $42,610,295
=========== ===========
</TABLE>
See notes to consolidated financial statements.
62
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1996
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SALES (Note 13) $46,350,114 $40,263,082 $28,503,726
COST OF SALES (Note 13) 33,245,888 28,140,066 19,998,308
----------- ----------- -----------
GROSS PROFIT 13,104,226 12,123,016 8,505,418
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,790,311 6,931,713 3,534,648
----------- ----------- -----------
Income from operations 6,313,915 5,191,303 4,970,770
OTHER INCOME (EXPENSE):
Interest expense (1,299,488) (1,214,400) (971,623)
Interest income (Note 13) 170,101 71,730 119,628
Rental income (Note 13) 65,000 60,000 71,000
Other 105,231 (37,647) 5,699
----------- ----------- -----------
Other expense, net (959,156) (1,120,317) (775,296)
----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 5,354,759 4,070,986 4,195,474
PROVISION FOR INCOME TAXES (Note 10) 1,946,000 1,549,000 2,333,000
----------- ----------- -----------
NET INCOME $ 3,408,759 $ 2,521,986 $ 1,862,474
=========== =========== ===========
BASIC AND DILUTED
EARNINGS PER SHARE (Note 2) $ 0.14 $ 0.10
=========== ===========
PROFORMA EARNINGS PER SHARE (Note 2) $ 0.11
===========
</TABLE>
See notes to consolidated financial statements.
63
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 6,021,000 $ 602,100 $ 1,244,511 $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 9,595,470 15,443,487
Net income 3,408,759 3,408,759
---------- --------- ----------- ----------- -----------
BALANCE, DECEMBER 31,1997 24,177,805 $ 241,778 $ 5,606,239 $13,004,229 $18,852,246
========== ========= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
64
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,408,759 $ 2,521,986 $ 1,862,474
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 4,428,877 3,751,121 2,673,758
Deferred tax provision 289,000 (193,000) 2,333,000
(Gain) loss on sale of property, plant
and equipment (85,019) (24,041) 22,573
Changes in assets and liabilities that provided
(used) cash, net of effects from the
1997 and 1995 acquisitions:
Accounts receivable:
Trade (368,247) (1,313,169) 182,453
Insurance 4,352,239
Inventories (866,894) (1,541,757) (683,346)
Prepaid expenses (198,806) (61,978) 90,998
Other Assets (134,662)
Accounts payable (1,695,223) 594,258 71,600
Accrued expenses (1,426,724) 130,287 (2,855,361)
Income taxes payable (269,451) 1,195,000
----------- ----------- -----------
Net cash provided by operating activities 3,081,610 5,058,707 8,050,388
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired 277,237
Expenditures for property, plant and equipment (3,383,578) (3,214,198) (2,734,576)
Proceeds from sale of property, plant and
equipment 1,229,782 99,326 8,964
Net change in deposits (principally for tooling
and equipment) (522,873) (1,632,215) (1,540,845)
Additions to notes receivable - related party (1,044,956) (1,243,291)
Payments received on notes receivable -
related party 490,000 1,205,117
Payments received on notes receivable - other 302,401 237,209
Proceeds from sale of assets held for sale 23,000 35,000 275,000
----------- ----------- -----------
Net cash used in investing activities (3,698,625) (3,919,686) (3,515,185)
65
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable 550,000 1,270,000 (1,820,000)
Proceeds from long-term obligations 7,033,387 580,015 6,000,062
Principal payments on long-term debt (4,686,213) (3,028,821) (2,956,790)
Principal payments on obligations under
capital leases (877,993) (273,019) (126,218)
Distributions paid to stockholders (5,162,253)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 2,019,181 (1,451,825) (4,065,199)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,402,166 (312,804) 470,004
CASH, BEGINNING OF YEAR 321,486 634,290 164,286
----------- ----------- -----------
CASH, END OF YEAR $ 1,723,652 $ 321,486 $ 634,290
=========== =========== ===========
(Continued)
</TABLE>
66
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - Cash paid during
the year for interest $1,308,875 $1,145,817 $ 910,706
========== ========== ==========
Cash paid during the year for income taxes $2,209,268
==========
SUPPLEMENTAL SCHEDULES OF
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Property additions from issuance of capital leases $ 351,705 $3,483,673 $2,689,007
========== ========== ==========
Increase in deposits from noncash interim financing $1,396,611 $2,087,061
========== ==========
Transfer of deposits to property, plant and equipment
relating to property placed in service $1,049,255 $3,171,589
========== ==========
Stockholder contribution of deposit on land $ 48,406
==========
Reclassification of note receivable as
stockholder distribution $1,482,024
==========
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
==========
67
<PAGE>
Note payable received on sale of property $ 60,000
==========
</TABLE>
See notes to consolidated financial statements. (Concluded)
68
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------------------
1. ORGANIZATION
The Colonel's International, Inc. (the "Company") 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. ("BIR"). 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 bedliners for sale to new vehicle dealers and the
automotive aftermarket. CTA also owns several retail stores and sells
manufactured bedliners and other truck accessories. BIR was
incorporated in Minnesota in 1982 and operates a multi-purpose motor
sports facility in Brainerd, Minnesota. BIR 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 the Company and its subsidiaries, The Colonel's, CTA and
BIR, 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:
69
<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 - For sales of product, revenue is recognized at the
time the product is shipped to customers. For service sales, revenue is
recognized when earned.
GOODWILL - Goodwill is being amortized using the straight-line method
over 7 years.
RECOVERABILITY OF ASSETS - The Company evaluates long-lived assets and
certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. When it is probable that undiscounted future
cash flows will not be sufficient to recover an asset's carrying
amount, the asset is written down to its fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount
or fair value less cost to sell.
ACCRUED LEGAL FEES - Anticipated legal and other professional fees are
accrued in the same period that the related matters are accrued.
ACCRUED ENVIRONMENTAL COSTS - The Company 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 the
Company'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
70
<PAGE>
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 - The Company 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.
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 stockholders.
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 - In accordance with SFAS 128, basic earnings per
share for 1997 and 1996 was calculated as net income divided by the
weighted average number of common shares outstanding (24,177,805).
Diluted earnings per share was calculated as net income divided by the
weighted average number of common shares outstanding (24,177,805)
increased by the number of additional common shares that would have
been outstanding if the dilutive shares had been issued (701) and
(160) for 1997 and 1996, respectively. Due to the small number of
additional potentially dilutive shares, there was no material effect
on earnings per share, therefore basic and diluted earnings per share
are the same. (Note 12).
On March 1, 1997, options to purchase 2,900 shares of common stock at
$8.00 per share were issued. These options were not included in the
computation of diluted earnings per share because the exercise price
of the options was greater than the average market price of the common
shares outstanding during 1997. The options, which expire on
February 28, 2007, were still outstanding at the end of 1997.
71
<PAGE>
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). There were no dilutive shares for 1995.
RECLASSIFICATIONS - Certain 1996 and 1995 amounts have been
reclassified to conform to the 1997 presentation.
3. BUSINESS COMBINATION
During 1997, the Company acquired inventory of $904,000, accounts
receivable of $20,000, deposits of $20,000 and fixed assets of
$497,000 in four separate purchases. The total cash paid for the
assets was approximately $1,525,000. The acquisitions have been
accounted for under the purchase method, and accordingly the results
of operations are included in the consolidated operating results since
the date of acquisition. Goodwill of approximately $84,000 has been
recorded as a result of these acquisitions and is being amortized over
seven years. These acquisitions were made for the purpose of
expanding CTA.
Effective December 31, 1995, the Company completed its merger with the
Colonel's. The Company issued 23,500,000 shares of its common stock
in exchange for all of the outstanding common stock of BIR. For
accounting purposes, the acquisition has been treated as a
recapitalization of the Colonel's with the Colonel's as the acquiror
("reverse acquisition"). 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 fair values of the net assets
acquired, totaling $425,609, 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: current
assets of $277,237; property, plant and equipment of $4,682,400; other
assets of $25,556; current liabilities of $243,803; long-term
liabilities of $450,000 and deferred tax liabilities of $764,000.
The following pro forma financial information (unaudited) is presented
for the year ended December 31, 1995, as if the purchase of BIR had
occurred on January 1, 1995.
72
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995
<S> <C> <C>
Revenue $31,382
=======
Income before taxes $ 4,385
=======
Net income $ 2,915
=======
Earnings per share $ 0.12
=======
</TABLE>
4. INVENTORIES
Inventories at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Finished products $8,644,944 $7,213,704
Raw materials 569,613 1,133,959
---------- ----------
Total inventories $9,214,557 $8,347,663
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized as follows:
73
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Land and improvements $ 2,504,400 $ 3,619,717
Track 1,533,760 1,533,760
Buildings 930,393 793,990
Leasehold improvements 1,684,643 707,076
Bleachers and fencing 755,662 731,886
Equipment (including equipment under capital lease) 15,016,019 14,316,710
Transportation equipment 1,090,030 1,000,690
Furniture and fixtures 741,373 611,510
Tooling 25,709,982 23,229,532
Construction in progress 88,956
----------- -----------
Total 50,055,218 46,544,871
Less accumulated depreciation and amortization (23,727,179) (19,516,521)
----------- -----------
Net property, plant and equipment $26,328,039 $27,028,350
=========== ===========
</TABLE>
The gross amount of equipment recorded under capital leases was
$7,709,814 and $7,358,109 at December 31, 1997 and 1996, respectively.
The related accumulated depreciation was $2,181,961 and $1,245,451 at
December 31, 1997 and 1996, respectively.
The Company purchased land in Florida for a total of $1,115,000 in
1996. During 1997, this land was sold for $1,207,000.
6. NOTE RECEIVABLE - RELATED PARTY
The note receivable from the majority stockholder is due in bi-annual
installments beginning September 1, 1998, and bears interest at 8%.
7. LINE OF CREDIT AND NOTE PAYABLE
Notes payable at December 31 consist of the following:
74
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Line of credit with a bank, interest is due monthly
at the bank's prime rate (8.5% at December 31, 1997) $6,000,000 $4,450,000
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 $6,000,000 $5,450,000
========== ==========
</TABLE>
The line of credit with a bank was renegotiated in May 1997, which
increased maximum borrowings from $4,500,000 to $6,000,000. The line
expires in May 1998.
The above line of credit and note payable are with the same bank as
the term notes (Note 8) and are secured by the same collateral. The
weighted average interest rate on the line and note were 8.48% and
8.31% in 1997 and 1996, respectively.
The bridge note payable from a bank represents amounts advanced to the
Company for the purchase of land in Florida which was subsequently
sold. The bridge note was paid in full in May 1997 with proceeds from
a $7,000,000 term note (See Note 8).
8. LONG-TERM OBLIGATIONS
Long-term obligations at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Term note payable to a bank, monthly principal
payments of $167,000 plus interest at the bank's
prime rate plus 1/4% (effective rate of 8.75%
at December 31, 1997) through November 2000,
and secured by the Company's assets $ 5,831,000
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
75
<PAGE>
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
Mortgage payable to a bank, interest at the bank's
prime rate plus 2% (effective rate of 10.50% at
December 31, 1997), annual principal payments
of $50,000 plus interest due quarterly, through
September 2004. Secured by underlying property 350,000 400,000
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) 5,214,866 5,967,897
Capital lease obligation through March 1999;
monthly installments of $15,987 including
interest at 8.5% 226,744
Vehicle financing 212,065 231,365
Other 176,121 193,738
----------- -----------
Total 12,010,796 10,189,908
Less current portion (3,166,741) (3,868,733)
----------- -----------
Long-term $ 8,844,055 $ 6,321,175
=========== ===========
</TABLE>
On May 28, 1997, the Company executed a $7,000,000 term note which
requires monthly principal payments of $167,000 plus interest. The
proceeds from this term note were used to pay the remaining balance
due on the term note obtained in April 1995 which called for payments
of $200,000 plus interest on a monthly basis. The proceeds were also
used to pay the remaining balance due on a mortgage payable, which
required monthly installments of $52,000 through May 1998. The
$7,000,000 term note proceeds were also used to pay a $1,000,000
bridge note payable (see Note 7).
This bank loan agreement is collateralized by all of the Company's
assets and contains certain covenants which require the Company to
maintain minimum levels of net worth and not to exceed certain debt
ratios. The Company was out of compliance with one covenant at
December 31, 1997; however, the Company obtained a waiver from the
bank.
The scheduled future repayments of long-term obligations at December
31, 1997 are as follows:
76
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 3,166,741
1999 3,093,139
2000 2,879,878
2001 1,194,722
2002 1,168,945
Thereafter 507,371
-----------
Total $12,010,796
===========
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Accrued legal (Note 14) $ 513,977 $1,136,516
Accrued compensation for NuPar (Note 14) 100,000
Accrued environmental costs (Note 15) 100,000 598,717
Accrued taxes 55,301 417,165
Other 465,359 308,963
---------- ----------
Total $1,134,637 $2,561,361
========== ==========
</TABLE>
10. INCOME TAXES
Effective December 31, 1995, the Company changed its tax status from a
non-taxable entity to a taxable entity. As a result of this change,
the Company 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 years ended December 31, the Company's provision for income
taxes consists of the following:
77
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Current:
Federal $1,516,000 $1,592,000
State 141,000 150,000
---------- ----------
Total current $1,657,000 $1,742,000
Deferred:
Federal 266,000 (182,000)
State 23,000 (11,000)
---------- ----------
Total deferred $ 289,000 $ (193,000)
---------- ----------
Total provision for income taxes $1,946,000 $1,549,000
========== ==========
</TABLE>
The temporary differences which give rise to deferred tax assets and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts $ 183,000 $ 213,000
Inventory obsolescence 99,000 115,000
Accrued legal 190,000 458,000
Accrued environmental cleanup 37,000 222,000
Other 126,000 37,000
----------- -----------
Total $ 635,000 $ 1,045,000
=========== ===========
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards 347,000 367,000
Depreciation (3,408,000) (3,483,000)
Other (327,000) (372,000)
----------- -----------
Total (3,388,000) (3,488,000)
Valuation allowance (440,000) (461,000)
----------- -----------
Total $(3,828,000) $(3,949,000)
=========== ===========
</TABLE>
78
<PAGE>
The consolidated income tax provisions differs from the amount
computed on pretax income using the U.S. statutory income tax rate for
the years ended December 31, for the following reasons:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Federal income tax at statutory rate $1,820,000 $1,385,000
State taxes 108,000 122,000
Other 18,000 42,000
---------- ----------
Provision for income taxes $1,946,000 $1,549,000
========== ==========
Effective tax rate 36% 38%
=== ===
</TABLE>
At December 31, 1997, the Company has net operating loss and net
capital loss carryforwards for tax purposes as follows:
<TABLE>
<CAPTION>
NET NET
EXPIRATION OPERATING LOSS CAPITAL LOSS
DATE CARRYFORWARDS CARRYFORWARDS
<S> <C> <C> <C>
1998 $275,529
2004 $142,646
2005 598,794
2008 278,040
</TABLE>
The Company has recorded 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.
11. COMMITMENTS
The Company leases trucks and equipment under capital leases (see
Notes 5 and 8). The Company also leases warehouse and retail store
space under noncancelable operating lease agreements. The warehouse
leases require that the Company pay the taxes, insurance and
maintenance expense related to the leased property. Minimum future
lease payments under noncancelable leases at December 31, 1997 are
summarized as follows:
79
<PAGE>
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C> <C>
Years ending December 31:
1998 $1,394,448 $ 1,991,585
1999 1,250,566 1,673,285
2000 1,202,605 1,310,491
2001 1,202,605 1,292,678
2002 1,202,605 1,295,078
Thereafter 420,287 3,479,877
---------- -----------
Total 6,673,116 $11,042,994
-----------
Less amount representing interest 1,231,506
----------
Present value of minimum lease payments 5,441,610
Less current maturities 994,895
----------
Long-term portion of capital lease obligations $4,446,715
==========
</TABLE>
Rent expense, including month to month rentals, was approximately
$1,652,808, $1,364,000, and $1,447,000 for the years ended December
31, 1997, 1996 and 1995, respectively. Included in rent expense are
amounts paid to the related parties of the Company for rental of its
principal operating facilities (Note 13).
The Company 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. The Company may terminate
this agreement, but is obligated to pay the remaining compensation due
under the terms of the agreement. The Company recorded a liability
and related deferred costs for the remaining compensation due under
the terms of the agreement based upon the net present value of such
payments. The deferred cost amount is being amortized to operations
over the term of the agreement.
The Company entered into a three year sales agency agreement beginning
March 1, 1997, and will make guaranteed payments of $102,000 per year.
The Company may terminate this agreement, but is obligated to pay a
portion of the remaining compensation due under the terms of the
agreement. The Company recorded a liability and related deferred
costs for the portion assigned to compensation. The deferred cost
80
<PAGE>
amount is being amortized to operations over the term of the
agreement.
The Company has purchase commitments totaling $895,000 for tooling
equipment to be received in 1998.
12. STOCK OPTIONS
The Company 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 ("SFAS") No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" which was effective for the Company beginning January 1,
1996. This Statement encourages compensation cost to be measured
based on the fair value of the equity instrument awarded. In
accordance with this statement, the Company 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 SFAS No. 123, net income would have decreased by $220,723
from $3,408,759 to $3,188,036 and basic and diluted earnings per share
would have decreased by $0.01 from $0.14 to $0.13.
During 1997, the Company granted options aggregating 32,575 shares to
outside directors. Of the options granted to outside directors, 2,900
shares have an option price of $8.00 per share, 26,650 shares have an
option price of $6.50 per share, and the remaining 3,025 shares have
an option price of $5.00 per share. The Company also granted options
aggregating 32,050 shares to employees at an option price of $6.50 per
share. No options were exercised during 1997 or 1996. At December
31, 1997, and 1996, 62,700 and 1,050 shares had vested, respectively.
13. RELATED PARTY TRANSACTIONS
The primary parties related to the Company are as follows:
- The majority stockholders, with whom various transactions
are made.
- 620 Platt Road LLC ("Platt"), a company affiliated through
common ownership, to which rental payments are made for the
Milan facility and Owosso facility.
81
<PAGE>
- 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 inventory, and payment for and reimbursement of Arkansas'
expenses. This company was a related party through June of
1996.
- Williamson 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>
1997 1996 1995
<S> <C> <C> <C> <C>
Majority Stockholders:
Short-term advances to stockholders $5,162,753
Cash payments on short-term advances (500)
Reduction of note receivable 1,482,024
Assumption of land contract receivable (213,944)
Note receivable from stockholders $1,044,956
Interest income on note receivable 50,663
----------
Shareholder distributions 6,430,333
Platt:
Rental payments 1,350,000 $1,000,000 840,000
Capital contribution 48,406
Arkansas:
Sales of inventory 136,963 346,000
Purchases of inventory 744,600
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
Williamson Buick:
Purchases of automobiles, parts and service 66,831 280,310 73,500
Rental income 11,000
Interest income on note receivable 15,598 43,400
Sales of inventory 110,043 51,198
</TABLE>
82
<PAGE>
14. LITIGATION
In connection with the acquisition of a facility in Florida (known as
"NuPar"), the Company 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 the
Company for $1,800,000 claiming they had met the conditions of the
agreements and are therefore entitled to the payments thereunder. In
July 1995, the Company settled these actions for $1.4 million, payable
in installments through January 1997. In January 1997, the Company
made the final payment toward this settlement.
The Company 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 $100,000 and $1.02 for every bedliner sold in excess of
25,000 in the one-year period beginning December 1997 deliverable
through December 1998.
The Company has been served with various lawsuits pertaining to a
class action suit arising from the production of bedliners. The suits
allege that the bedliners insulate a gas can when filled which may
cause a static charge that could result in a fire. The Company has
formed a coalition with other bedliner manufacturers to defend this
class action suit. Though the Company did not produce bedliners at
the time of the alleged incidents, the Company has elected to
participate in the class action suit. As of December 31, 1997, the
coalition was in settlement negotiations with the plaintiffs in this
case. The Company believes that any resulting liability will not
significantly affect its financial position, results of operations or
cash flows.
The Company and its subsidiaries are involved in various other legal
proceedings which have arisen in the normal course of its operations.
The Company 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 the Company's
operating results for the particular reporting period in which an
adjustment of the estimated liability is recorded, the Company
believes that any resulting liability should not materially affect its
financial position, results of operations or cash flows.
15. ENVIRONMENTAL REMEDIATION
As part of the lease agreement with a related party for the Milan,
Michigan facility, the Company is also responsible for the remediation
83
<PAGE>
of environmental contamination due to hazardous materials, up to an
amount of $2,000,000, which existed at this site prior to the Company
entering into the lease in June 1993. The Company has accrued the
estimated remediation costs based on an environmental study of the
site. The Company 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
the Company's operating results for the particular reporting period in
which an adjustment of the estimated liability is recorded, the
Company believes that any resulting liability should not materially
affects its financial position, results of operations or cash flows.
16. SEGMENTS OF BUSINESS
The Company operates in three industry segments: manufacture of
automotive bumpers and other miscellaneous reinforcement beams and
brackets at the manufacturing plant in Milan, Michigan ("Bumpers"),
manufacture of bedliners at the manufacturing plant in Owosso,
Michigan and sale of these bedliners and other truck accessories at
retail stores throughout the country ("Truck Accessories"), and
operation of a multi-purpose motor sports facility in Brainerd,
Minnesota ("Raceway").
Financial information below is listed by industry segment. There are
no operating results of the Raceway as of December 31, 1995 as the
date of acquisition was December 31, 1995.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C>
SALES
Bumpers $34,832,951 $33,717,282 $28,503,726
Truck Accessories 8,654,776 3,780,562
Raceway 2,871,387 2,765,238
----------- ----------- -----------
TOTAL $46,350,114 $40,263,082 $28,503,726
=========== =========== ===========
INCOME FROM OPERATIONS:
Bumpers $ 7,440,943 $ 5,980,202 $ 4,970,770
Truck Accessories (1,249,241) (1,106,957)
Raceway 122,213 318,059
----------- ----------- -----------
TOTAL $ 6,313,915 $ 5,191,303 $ 4,970,770
=========== =========== ===========
84
<PAGE>
IDENTIFIABLE ASSETS:
Bumpers $28,951,846 $28,920,376 $32,833,184
Truck Accessories 10,416,765 8,128,454
Raceway 5,571,669 5,561,465 5,410,802
----------- ----------- -----------
TOTAL $44,940,280 $42,610,295 $38,243,986
=========== =========== ===========
CAPITAL EXPENDITURES:
Bumpers $ 3,061,303 $ 4,017,274 $ 5,584,083
Truck Accessories 290,173 5,214,081
Raceway 1,433,062 686,511
----------- ----------- -----------
TOTAL $ 4,784,538 $ 9,917,866 $ 5,584,083
=========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Bumpers $ 2,787,601 $ 2,793,190 $ 2,673,758
Truck Accessories 1,129,495 545,951
Raceway 511,781 411,980
----------- ----------- -----------
TOTAL $ 4,428,877 $ 3,751,121 $ 2,673,758
=========== =========== ===========
</TABLE>
The Colonel's had sales of over 23% to one customer in 1997.
17. SUBSEQUENT EVENT
As part of the continued expansion in the CTA lines of business, the
Company, on March 13, 1998, entered into an Agreement and Plan of
Merger to acquire the capital stock of a manufacturer of truck
accessories for $4,250,000 in cash and $4,250,000 worth of the
Company's Common Stock, subject to adjustment as set forth in the
agreement. Additionally, three other acquisitions totaling
approximately $950,000 were made during the first quarter of 1998.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents the Company's quarterly results:
85
<PAGE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER <F1> QUARTER
(AS RESTATED)
<S> <C> <C> <C> <C> <C>
Net revenues $10,937,133 $11,119,756 $12,271,056 $12,022,169
Gross profit 3,379,739 2,699,379 3,841,466 3,182,642
Net income 1,030,543 680,451 1,266,616 431,149
Basic and diluted
earnings per share $ 0.04 $ 0.03 $ 0.05 $ 0.02
<FN>
<F1> Subsequent to the filing of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, management determined
that errors had occurred in the reporting of certain sales in the
three-month period ended September 30, 1997. Accordingly, the amounts
reported herein for that period have been restated from the amounts
previously reported. The effects of the restatement are as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
<S> <C> <C> <C>
Net sales $12,986,633 $12,271,056
Gross profit 4,557,043 3,841,466
Net income 1,689,079 1,266,616
Basic and diluted earnings per share $ .07 $ .05
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER 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
Basic and diluted
earnings per share $ 0.04 $ 0.02 $ 0.01 $ 0.03
</TABLE>
86
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
The Colonel's International, Inc.
Milan, Michigan
We have audited the consolidated financial statements of The Colonel's
International, Inc. (the "Company") as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated March 24, 1998; 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.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 24, 1998
87
<PAGE>
<TABLE>
THE COLONEL'S INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<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:
1997 $574,000 $153,000 -- $(234,000) $493,000
1996 401,200 172,895 -- (95) 574,000
1995 345,900 143,018 -- (87,718) 401,200
INVENTORY RESERVES
For the year ended December 31:
1997 146,658 121,342 -- -- 268,000
1996 146,658 -- -- -- 146,658
1995 -- 146,658 -- -- 146,658
TAX VALUATION ALLOWANCE
For the year ended December 31:
1997 461,000 11,000 -- (32,000) 440,000
1996 510,000 -- -- (49,000) 461,000
1995 -- 510,000 -- -- 510,000
</TABLE>
88
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
REPORT OF MANAGEMENT
The consolidated financial statements of The Colonel's International, Inc.
(the "Company") included in this report on Form 10-K have been prepared by
management and have been audited by the Company's independent auditors,
Deloitte & Touche LLP. Management of the Company is responsible for the
consolidated financial statements, which have been prepared in conformity
with generally accepted accounting principles and include, where applicable,
amounts based on management's judgment.
The Company's management maintains a system of internal controls designed
to reasonably assure the fair presentation of the financial statements.
These controls are also designed to reasonably assure that the Company's
records reflect its transactions in all material respects and to prevent
significant misuse or loss of the Company's assets. Management of the
Company believes that it is essential to conduct its business in accordance
with the highest ethical standards.
The Board of Directors of the Company is responsible for determining that
management of the Company fulfills its responsibility in the preparation
of financial statements and the maintenance of internal controls.
/s/Richard Schoenfeldt
Vice President - Finance and
Chief Financial Officer
89
<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 3.1 to the Company's
Report on Form 10-Q for the period ended March 31, 1997.
3.2 Bylaws, as amended. Incorporated by reference from Exhibit 3.2
to the Company's Report on Form 10-Q for the period ended March
31, 1997.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
4.2 Bylaws. See Exhibit 3.2 above.
10.1 1995 Long-Term Incentive Plan, as amended. Incorporated by
reference from Exhibit A to the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders.<F*>
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.<F*>
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.<F*>
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.<F*>
90
<PAGE>
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 10.5 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 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10.5 and 10.6). Incorporated by reference from Brainerd
International, Inc.'s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993.
10.8 Lease Agreement between Brainerd International, Inc. 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 Lease Agreement between 620 Platt Road, Inc. and The Colonel's, Inc.
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).
91
<PAGE>
10.13 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's, Inc. 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).
10.14 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's, Inc. 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).
10.15 Lease Agreement between Industrial Properties Corporation and The
Colonel's, Inc. 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).
10.16 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's, Inc. 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).
10.17 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
10.18 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated May 31, 1996.
10.19 Lease Schedule and Agreement between The Colonel's, Inc. and
Comerica Leasing Corporation dated November 15, 1996.
10.20 Lease Agreement between 620 South Platt Road, Inc. and The
Colonel's, Inc. dated October 1, 1995. Incorporated by
reference from Exhibit 10.43 to the Registrant's Report on Form
10-K for the year ended December 31, 1997.
10.21 Loan Agreement between The Colonel's International, Inc. and
subsidiaries and Comerica Bank dated May 28, 1997.
10.22 Master Revolving Note between Comerica Bank and The Colonel's
International, Inc. and subsidiaries dated March 17, 1998.
10.23 Employment Agreement between The Colonel's, Inc. and John
Carpenter dated June 28, 1996.<F*>
10.24 Client Service Agreement between Designed Administrative Resources
Technologies, Inc. and The Colonel's, Inc., dated July 20, 1997.
92
<PAGE>
10.25 Addendum to Lease dated February 20, 1998, between Brainerd
International, Inc., and Woodland Office Partnership (see Exhibits
10.5 - 10.7).
10.26 Sponsorship Agreement between Brainerd International Raceway,
Inc. and Viking Coca-Cola Bottling Company dated February 28, 1998.
10.27 Agreement between Brainerd International Raceway, Inc. and Sports
Marketing Enterprises dated February 25, 1998.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule
- --------------------
[FN]
<F*> Management contract or compensatory plan or arrangement.
</FN>
93
<PAGE>
EXHIBIT 10.17
Lease Agreement No. 2885
Dated: December 27, 1995 Schedule No. 013
COMERICA LEASING CORPORATION
LEASE SCHEDULE
1. DESCRIPTION OF LEASE: Lease Agreement dated DECEMBER 21, 1993, by and
between COMERICA LEASING CORPORATION (herein "CLC") as Lessor, and THE
COLONEL'S, INC. as Lessee (herein called "Lease Agreement").
2. DESCRIPTION OF EQUIPMENT: (Describe equipment fully, including make,
kind of unit, serial numbers, and other pertinent information which is
herein called "Equipment"):
Equipment as further described on attached Exhibit "A"
3. LOCATION: The equipment described above shall be located at 951 AIKEN
ROAD, OWOSSO, MICHIGAN 49224.
4. TERM; RENTAL: The Term of the Lease Agreement for the Equipment
described in this Schedule shall be in accordance with the provisions of
the Lease Agreement and shall continue until all rental payments are fully
paid. Lessee agrees to pay CLC as rental payments aggregating
$3,464,557.32 plus any applicable sales and/or use taxes thereon payable in
84 MONTHLY payments of $41,244.73 each, plus any applicable sales and/or
use taxes commencing JANUARY 30, 1996, and on the 30th calendar day of each
succeeding like period until fully paid. THE RENTAL PAYMENTS SHALL BE
REMITTED TO CLC AT P.O. DRAWER 67-042, DETROIT, MICHIGAN 48267, unless CLC
specifies otherwise in writing.
5. INSURANCE: Lessee agrees to maintain adequate property damage
insurance in accordance with the terms of the Lease Agreement, but in any
event not less than the sum of the payments due, protecting CLC as a loss
payee. The minimum amount indicated above shall not be construed to imply
such amount will be or is adequate, but rather as a minimum amount.
6. UCC 2A: In accordance with Section 2A of the Michigan Uniform
Commercial Code (MCLA Section 440.3101 et seq.) ("UCC') Lessee acknowledges
either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by UCC Section 2A-103(i)(y)) covering the Equipment
purchased from the "Supplier" (as defined by UCC Section 2A-103(i)(x))
thereof for lease to Lessee or (b) that Lessor has informed or advised
Lessee, in writing, either previously or by this Lease Schedule of the
following: (i) the identity of the supplier; (ii) that the Lessee may have
rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights lessee may have under the
Supply Contract.
<PAGE>
Lessee acknowledges that Lessee has reviewed and approved the Purchase
Order, Supply Contract or Purchase Agreement covering the Equipment
purchased from the seller or supplier thereof for lease to Lessee.
Lessee's Initials: RLS
7. ADDITIONAL CONDITIONS: At the end of the Lease term, Lessee may
purchase the equipment for $1.00 provided no event of default shall have
occurred and been left unremedied.
The foregoing is hereby approved and agreed to by the undersigned as a
Schedule to and a part of the Lease Agreement, the provisions of which are
hereby incorporated herein by reference and which shall govern,
notwithstanding anything contrary or inconsistent herein.
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
Address: 620 South Platt Road,
Milan, Michigan 48160
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
Lease Agreement No. 2885
Dated: December 27, 1995 Schedule No. 013
COMERICA LEASING CORPORATION
"EXHIBIT A"
Equipment as fully described below:
SERIAL NUMBER
ONE (1) HPM 6.0" MODEL TM111 EXTRUDER INCLUDING; 95211
EXTRUSION LINES N/A
DIES N/A
FORMING LINES N/A
SCREEN CHANGERS N/A
TOOLING N/A
SHEET LINE SYSTEM 95213
OMART SHEET THICKNESS GAUGE 95221
SUPPLEMENTAL DIP TANK N/A
SHEAR 95215
STACKER 95217
SHEET DIE AND STAND 195007
KENICS MIXER 195008
PROCESS CONTROL HPM EPM-11 ALLEN BRADLEY CONTROL SYSTEM 95223
ADAPTOR 195009
TRAINING, SETUP, FREIGHT, RIGGING, AND INSTALLATION 95219
ALL ELECTRICAL, AIR, AND WATER HOOKUPS, AND ALL ACCESSORIES AND
ATTACHMENTS THERETO.
ONE (1) NELMOR S10045 SHREDDER/NELMOR G2056 GRANULATOR 951036961
COMBINATION CONVEYOR SYSTEM INCLUDING; N/A
INFEED CONVEYOR WITH METAL DETECTOR N/A
FAN EVACUATION SYSTEM N/A
EXTRA SET OF SCREENS N/A
ROTOR, BED KNIVES N/A
AND ALL ACCESSORIES AND ATTACHMENTS THERETO.
TWO (2) BROWN R-224-E ROTARY THERMOFORMERS INCLUDING; 13052
13053
TRAINING, SETUP, FREIGHT, RIGGING, AND INSTALLATION N/A
ALL ELECTRICAL, AIR, AND WATER HOOKUPS, AND ALL ACCESSORIES AND
ATTACHMENTS THERETO.
FIVE (5) IMCS SILOS, MODEL #40-6239 AND ALL ACCESSORIES
AND ATTACHMENTS INCLUDING; N/A
ONE (1) LADDER AND SAFETY CAGE, MODEL #40-6063 N/A
FIVE (5) 4" AIR FILL KITS, MODEL #40-6065 N/A
FORTY-FIVE (45) TIERS OF 4" FILL TUBE, MODEL #40-0023 N/A
FOUR (4) 24" LONG CROSSWALKS WITH RAILING, MODEL #40-5098 N/A
FIVE (5) SLIDE GATE AND TRANSITIONS, MODEL #50-5000 N/A
<PAGE>
FIVE (5) VACUUM BOXES, MODEL #50-5050 N/A
TEN (10) 2-1/2" OUTLETS, MODEL #50-5004 N/A
TEN (10) ROTARY LEVEL CONTROLS, MODEL #40-0022 N/A
FIVE (5) ROTARY CONTROL MTG. FLANGE, MODEL #40-5017 N/A
FIVE (5) ROTARY CONTROL MTG. FLANGE, MODEL #40-5054 N/A
ONE (1) HIGH-LOW CONTROL ALARM BOX, MODEL #40-4004 N/A
FOUR (4) CONTROL BOX ADDITIONS, MODEL #40-4005 N/A
FIVE (5) REEL & BOBBER LEVEL INDICATORS, MODEL #40-4001 N/A
ONE (1) REEL & BOBBER CONTROL PANEL, MODEL #40-0020 N/A
Page 1 of 2
<PAGE>
Lease Agreement No. 2885
Dated: December 27, 1995 Schedule No. 013
COMERICA LEASING CORPORATION
"EXHIBIT A"
Equipment as fully described below:
SERIAL NUMBER
ONE (1) H&W SYSTEMS ADVANTAGE PROCESS COOLING SYSTEM INCLUDING;
ONE (1) 135 TON COOLING TOWER 29976
ONE (1) 135 TON WATER PUMP/RECIRCULATION SYSTEM 25872
ONE (1) 45 TON COOLING TOWER 26877
ONE (1) 45 TON WATER PUMP/RECIRCULATION SYSTEM 25875
THIRTY (30) CADET MODEL ADVANTAGE TEMPERATURE CONTROLLERS 25972
WITH FIVE (5) ZONES EACH 25973
25974
25975
25976
25977
TWO (2) HOLDING TANKS N/A
AND ALL PLUMBING, ELECTRICAL, AND ALL ACCESSORIES AND ATTACHMENTS.
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
Page 2 of 2
<PAGE>
COMERICA LEASING CORPORATION
DELIVERY AND ACCEPTANCE CERTIFICATE
TO: COMERICA LEASING CORPORATION
RE: LEASE AGREEMENT NUMBER 2885 DATED AS OF DECEMBER 21, 1993
BETWEEN COMERICA LEASING CORPORATION, LESSOR, AND THE UNDERSIGNED
LESSEE
The undersigned hereby certifies that all of the goods, chattels and
equipment ("Equipment") described in the Schedule Number 013 to that
certain lease referenced above have been furnished to the undersigned at
the location designated in said Schedule, that delivery and installation of
the Equipment have been inspected and accepted by the undersigned as
satisfactory as of the date set forth below.
The undersigned understands that Lessor is relying on this certificate in
its purchase of the Equipment and, to induce Lessor to purchase the
Equipment, the undersigned agrees to settle all claims, set-offs and
counterclaims it may have with the vendor or vendors of the Equipment
directly with such vendor or vendors and will not set-off any thereof
against Lessor; and the undersigned further understands and agrees that the
undersigned's obligations to Lessor under the Lease are absolute, that
Lessor is neither the manufacturer, distributor nor seller of the Equipment
and LESSOR HAS NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY
OR AGREEMENT WITH RESPECT TO THE FITNESS, MERCHANTABILITY, CONDITION,
QUALITY, DURABILITY OR SUITABILITY OF THE EQUIPMENT IN ANY RESPECT
INCLUDING ITS FITNESS FOR THE PURPOSE AND USES OF LESSEE. The
undersigned hereby acknowledges that it has reviewed and approved the
Purchase Order, Supply Contract or Purchase Agreement covering the
Equipment purchased from the vendor(s) or supplier(s) thereof for lease to
the undersigned.
Dated: December 27, 1995
THE COLONEL'S, INC.
(Lessee)
By: /S/ RICHARD SCHOENFELDT
Richard Schoenfeldt
Its: Controller
<PAGE>
December 27, 1995
Craig Hegstrom
Cambridge Underwriters, LTD.
15415 Middlebelt Road
Livonia, MI 48154
Phone Number: (313) 525-0927
RE: PHYSICAL DAMAGE INSURANCE
POLICY #35338463
COMPANY: FEDERAL INSURANCE COMPANY
EXPIRATION: OCTOBER 1, 1996
Dir Sir/Madam:
The undersigned is presently leasing the following equipment from Comerica
Leasing Corporation:
Equipment as further described on attached Exhibit "A"
Cost: $2,689,007.19
We hereby authorize and request that our policies be amended and that
Certificates of Insurance be issued showing Comerica Leasing Corporation as
loss payee for physical damage risks. We also request that 30-day notice
to Comerica Leasing Corporation of cancellation be noted and provided in
the certificates.
Please forward certificates to:
COMERICA LEASING CORPORATION
29201 Telegraph, 2nd Floor
Southfield, MI 48034
We appreciate your cooperation and request this matter be handled
expeditiously.
Very truly yours,
THE COLONEL'S, INC.
By: /S/ RICHARD SCHOENFELDT
Richard Schoenfeldt, Controller
<PAGE>
Lease Agreement No. 2885
Dated: December 27, 1995 Schedule No. 013
COMERICA LEASING CORPORATION
"EXHIBIT A"
Equipment as fully described below:
SERIAL NUMBER
ONE (1) HPM 6.0" MODEL TM111 EXTRUDER INCLUDING; 95211
EXTRUSION LINES N/A
DIES N/A
FORMING LINES N/A
SCREEN CHANGERS N/A
TOOLING N/A
SHEET LINE SYSTEM 95213
OMART SHEET THICKNESS GAUGE 95221
SUPPLEMENTAL DIP TANK N/A
SHEAR 95215
STACKER 95217
SHEET DIE AND STAND 195007
KENICS MIXER 195008
PROCESS CONTROL HPM EPM-11 ALLEN BRADLEY CONTROL SYSTEM 95223
ADAPTOR 195009
TRAINING, SETUP, FREIGHT, RIGGING, AND INSTALLATION 95219
ALL ELECTRICAL, AIR, AND WATER HOOKUPS, AND ALL ACCESSORIES AND
ATTACHMENTS THERETO.
ONE (1) NELMOR S10045 SHREDDER/NELMOR G2056 GRANULATOR 951036961
COMBINATION CONVEYOR SYSTEM INCLUDING; N/A
INFEED CONVEYOR WITH METAL DETECTOR N/A
FAN EVACUATION SYSTEM N/A
EXTRA SET OF SCREENS N/A
ROTOR, BED KNIVES N/A
AND ALL ACCESSORIES AND ATTACHMENTS THERETO.
TWO (2) BROWN R-224-E ROTARY THERMOFORMERS INCLUDING; 13052
13053
TRAINING, SETUP, FREIGHT, RIGGING, AND INSTALLATION N/A
ALL ELECTRICAL, AIR, AND WATER HOOKUPS, AND ALL ACCESSORIES AND
ATTACHMENTS THERETO.
FIVE (5) IMCS SILOS, MODEL #40-6239 AND ALL ACCESSORIES
AND ATTACHMENTS INCLUDING; N/A
ONE (1) LADDER AND SAFETY CAGE, MODEL #40-6063 N/A
FIVE (5) 4" AIR FILL KITS, MODEL #40-6065 N/A
FORTY-FIVE (45) TIERS OF 4" FILL TUBE, MODEL #40-0023 N/A
FOUR (4) 24" LONG CROSSWALKS WITH RAILING, MODEL #40-5098 N/A
FIVE (5) SLIDE GATE AND TRANSITIONS, MODEL #50-5000 N/A
<PAGE>
FIVE (5) VACUUM BOXES, MODEL #50-5050 N/A
TEN (10) 2-1/2" OUTLETS, MODEL #50-5004 N/A
TEN (10) ROTARY LEVEL CONTROLS, MODEL #40-0022 N/A
FIVE (5) ROTARY CONTROL MTG. FLANGE, MODEL #40-5017 N/A
FIVE (5) ROTARY CONTROL MTG. FLANGE, MODEL #40-5054 N/A
ONE (1) HIGH-LOW CONTROL ALARM BOX, MODEL #40-4004 N/A
FOUR (4) CONTROL BOX ADDITIONS, MODEL #40-4005 N/A
FIVE (5) REEL & BOBBER LEVEL INDICATORS, MODEL #40-4001 N/A
ONE (1) REEL & BOBBER CONTROL PANEL, MODEL #40-0020 N/A
Page 1 of 2
<PAGE>
Lease Agreement No. 2885
Dated: December 27, 1995 Schedule No. 013
COMERICA LEASING CORPORATION
"EXHIBIT A"
Equipment as fully described below:
SERIAL NUMBER
ONE (1) H&W SYSTEMS ADVANTAGE PROCESS COOLING SYSTEM INCLUDING;
ONE (1) 135 TON COOLING TOWER 29976
ONE (1) 135 TON WATER PUMP/RECIRCULATION SYSTEM 25872
ONE (1) 45 TON COOLING TOWER 26877
ONE (1) 45 TON WATER PUMP/RECIRCULATION SYSTEM 25875
THIRTY (30) CADET MODEL ADVANTAGE TEMPERATURE CONTROLLERS 25972
WITH FIVE (5) ZONES EACH 25973
25974
25975
25976
25977
TWO (2) HOLDING TANKS N/A
AND ALL PLUMBING, ELECTRICAL, AND ALL ACCESSORIES AND ATTACHMENTS.
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
Page 2 of 2
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCHEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 013
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT PER DATE DOLLAR AMT % OF COST % OF RENT
- --- ---- ---------- --------- --------- --- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1/29/96 2,705,813.48 100.6250 78.0998 37 1/29/99 1,716,476.36 63.8331 49.5439
2 2/28/96 2,681,222.31 99.7105 77.3900 38 2/27/99 1,685,701.83 62.6886 48.6556
3 3/29/96 2,686,477.43 98.7903 76.6758 39 3/29/99 1,654,734.95 61.5370 47.7618
4 4/29/96 2,631,577.90 97.8643 75.9571 40 4/29/99 1,623,574.53 60.3782 46.8624
5 5/29/96 2,606,522.75 96.9325 75.2339 41 5/29/99 1,592,219.36 59.2122 45.9574
6 6/29/96 2,581,311.00 95.9949 74.5062 42 6/29/99 1,560,868.21 58.0388 45.0467
7 7/29/96 2,555,941.68 95.0515 73.7740 43 7/29/99 1,528,819.88 56.8882 44.1303
8 8/29/96 2,530,413.81 94.1022 73.0371 44 8/29/99 1,496,973.11 55.6701 43.2082
9 9/29/96 2,504,726.38 93.1469 72.2957 45 9/29/99 1,464.826.68 54.4746 42.2803
10 10/29/96 2,478,878.40 92.1856 71.5496 46 10/29/99 1,432,479.33 53.2717 41.3467
11 11/29/96 2,452,868.88 91.2184 70.7989 47 11/29/99 1,399,929.81 52.0612 40.4072
12 12/29/96 2,426,696.80 90.2451 70.0435 48 12/29/99 1,367,176.86 50.8432 39.4618
13 1/29/97 2,400,361.14 89.2657 69.2833 49 1/29/ 0 1,334,219.20 49.6175 38.5105
14 2/27/97 2,373,860.88 88.2802 68.5184 50 2/28/ 0 1,301,055.56 48.3842 37.5533
15 3/29/97 2,347,195.00 87.2885 67.7488 51 3/29/ 0 1,267,684.64 47.1432 36.5901
16 4/29/97 2,320,362.45 86.2907 66.9743 52 4/29/ 0 1,234,105.16 45.8945 35.6209
17 5/29/97 2,293,362.21 85.2866 66.1949 53 5/29/ 0 1,200,315.80 44.6379 34.6456
18 6/29/97 2,266,193.21 84.2762 65.4108 54 6/29/ 0 1,166,315.26 43.3735 33.6642
19 7/29/97 2,238,854.40 83.2595 64.6217 55 7/29/ 0 1,132,102.22 42.1011 32.6767
20 8/29/97 2,211,344.73 82.2365 63.8276 56 8/29/ 0 1,097,675.35 40.8208 31.6830
21 9/29/97 2,183,663.12 81.2070 63.0286 57 9/29/ 0 1,063,033.30 39.5326 30.6831
22 10/29/97 2,155,808.50 80.1712 62.2246 58 10/29/ 0 1,028,174.75 38.2362 29.6769
23 11/29/97 2,127,779.79 79.1288 61.4156 59 11/29/ 0 993,098.33 36.9318 28.6645
24 12/29/97 2,099,575.90 78.0800 60.6016 60 12/29/ 0 957,802.68 35.6192 27.6457
25 1/29/98 2,071,195.73 77.0246 59.7824 61 1/29/ 1 922,286.43 34.2984 26.6206
26 2/27/98 2,042,638.19 75.9625 58.9581 62 2/27/ 1 886,548.21 32.9694 25.5891
27 3/29/98 2,013,902.17 74.8939 58.1287 63 3/29/ 1 850,886.62 31.6320 24.5511
28 4/29/98 1,984,986.54 73.8186 57.2941 64 4/29/ 1 814,400.27 30.2863 23.5066
29 5/29/98 1,955,890.20 72.7365 56.4543 65 5/29/ 1 777,987.76 28.9322 22.4556
30 6/29/98 1,926,612.00 71.6477 55.6092 66 6/29/ 1 741,347.67 27.5696 21.3980
31 7/29/98 1,897,150.31 70.5521 54.7588 67 7/29/ 1 704,478.58 26.1985 20.3339
32 8/29/98 1,867,505.49 69.4496 53.9031 68 8/29/ 1 667,379.06 24.8188 19.2630
33 9/29/98 1,837,674.88 68.3403 53.0421 69 9/29/ 1 630,047.66 23.4305 18.1855
34 10/29/98 1,807,657.84 67.2240 52.1757 70 10/29/ 1 592,482.95 22.0335 17.1013
35 11/29/98 1,777,453.18 66.1007 51.3039 71 11/29/ 1 554,683.45 20.6278 16.0102
36 12/29/98 1,747,059.75 64.9704 50.4266 72 12/29/ 1 516,647.71 19.2133 14.9124
</TABLE>
Page 1 of 2
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCHEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 013
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT
--- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
73 1/29/ 2 478,374.24 17.7900 13.8077
74 2/27/ 2 439,861.57 16.3578 12.6960
75 3/29/ 2 401,108.19 14.9166 11.5775
76 4/29/ 2 362,112.60 13.4664 10.4519
77 5/29/ 2 322,873.29 12.0072 9.3193
78 6/29/ 2 283,388.74 10.5388 8.1797
79 7/29/ 2 243,657.40 9.0612 7.0329
80 8/29/ 2 203,677.75 7.5745 5.8789
81 9/29/ 2 163,448.22 6.0784 4.7177
82 10/29/ 2 122,967.26 4.5730 3.5493
83 11/29/ 2 82,233.29 3.0581 2.3736
84 12/29/ 2 41,244.73 1.5338 1.1905
</TABLE>
Note: The date reflects the LAST DAY the Casualty amount is valid.
Percentage of Rent reflects percentage of Gross Rentals
($3,464,557.66).
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
Page 2 of 2
<PAGE>
EXHIBIT 10.18
Lease Agreement No. 2885
Dated: May 31, 1996 Schedule No. 014
COMERICA LEASING CORPORATION
LEASE SCHEDULE
1. DESCRIPTION OF LEASE: Lease Agreement dated DECEMBER 21, 1993, by and
between COMERICA LEASING CORPORATION (herein "CLC") as Lessor, and THE
COLONEL'S, INC. as Lessee (herein called "Lease Agreement").
2. DESCRIPTION OF EQUIPMENT: (Describe equipment fully, including make,
kind of unit, serial numbers, and other pertinent information which is
herein called "Equipment"):
Equipment as further described on attached Exhibit "A"
3. LOCATION: The equipment described above shall be located at 951 AIKEN
ROAD, OWOSSO, MICHIGAN 49224.
4. TERM; RENTAL: The Term of the Lease Agreement for the Equipment
described in this Schedule shall be in accordance with the provisions of
the Lease Agreement and shall continue until all rental payments are fully
paid. Lessee agrees to pay CLC as rental payments aggregating
$3,198,432.72 plus any applicable sales and/or use taxes thereon payable in
84 MONTHLY payments of $38,076.58 each, plus any applicable sales and/or
use taxes commencing JUNE 30, 1996, and on the same calendar day of each
succeeding like period until fully paid. THE RENTAL PAYMENTS SHALL BE
REMITTED TO CLC AT P.O. DRAWER 67-042, DETROIT, MICHIGAN 48267, unless CLC
specifies otherwise in writing.
5. INSURANCE: Lessee agrees to maintain adequate property damage
insurance in accordance with the terms of the Lease Agreement, but in any
event not less than the sum of the payments due, protecting CLC as a loss
payee. The minimum amount indicated above shall not be construed to imply
such amount will be or is adequate, but rather as a minimum amount.
6. UCC 2A: In accordance with Section 2A of the Michigan Uniform
Commercial Code (MCLA Section 440.3101 et seq.) ("UCC") Lessee acknowledges
either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by UCC Section 2A-103(i)(y)) covering the Equipment
purchased from the "Supplier" (as defined by UCC Section 2A-103(i)(x))
thereof for lease to Lessee or (b) that Lessor has informed or advised
Lessee, in writing, either previously or by this Lease Schedule of the
following: (i) the identity of the supplier; (ii) that the Lessee may have
rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights lessee may have under the
Supply Contract.
<PAGE>
Lessee acknowledges that Lessee has reviewed and approved the Purchase
Order, Supply Contract or Purchase Agreement covering the Equipment
purchased from the seller or supplier thereof for lease to Lessee.
Lessee's Initials: _________
7. ADDITIONAL CONDITIONS: At the end of the Lease term, Lessee may
purchase the equipment for $1.00 provided no event of default shall have
occurred and been left unremedied.
The foregoing is hereby approved and agreed to by the undersigned as a
Schedule to and a part of the Lease Agreement, the provisions of which are
hereby incorporated herein by reference and which shall govern,
notwithstanding anything contrary or inconsistent herein.
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
Dated: May 31, 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
LEASE AGREEMENT NO. 2885
SCHEDULE NO. 14
Equipment as fully described below:
Four (4) Brown R-224-E Rotary Thermoformers, Serial Nos. 13054, 13055,
13056, and 13057, including; training, setup, freight, rigging, and
installation, all electrical, air, and water hookups, and all
accessories and attachments thereto.
One (1) Busch Quadruplex Central Vacuum System and all accessories and
attachments including;
Four (4) Busch 25 HP Vacuum Pumps, Model #RC0630
One (1) 400 Gallon Electrical Control Panel
One (1) 8" Vacuum Header with Multiple Lines
One (1) Gardner Denver Refrigerated Air Dryer
One (1) 5 Micron Prefilter
One (1) Automatic Drain
One (1) Conair 10HP Vacuum Pump System and
One (1) Conair Dust Collector System and all accessories and
attachments including attachments for six (6) Thermoformers
One (1) AEC, Inc. Flexible Hose and Tube Conveyor System, including;
One (1) 20 HP TEFC, 6PSI Capacity Motor
One (1) 4" Flexible Hose and Tube
One (1) NEMA-12 Control Enclosure System
One (1) Rotary Valve, Drop-Thru
Two (2) 30 cubic foot full capacity 16" flanged cones
Thirty (30) tubes of various size
One (1) 1/2 HP TEFC Gear Motor: and all accessories and attachments
One (1) Square-D Central Switch Gear & Electrical Circuit Panels and
Breakers, Model #599880C
Cabinet #1-1 Serial #D226966
Cabinet #1-2 Serial #D226965
Cabinet #1-3 Serial #D226963
Cabinet #1-4 Serial #D71350
Cabinet #2-1 Serial #D226960
Cabinet #2-2 Serial #D226961
Cabinet #2-3 Serial #D226962
Cabinet #2-4 Serial #D71351
Cabinet #3-1 Serial #D226968
Cabinet #3-2 Serial #D226964
Cabinet #3-3 Serial #D226825
<PAGE>
Cabinet #3-4 Serial #D226826
Cabinet #3-5 Serial #D226870
Cabinet #4-1 Serial #D226827
Cabinet #4-2 Serial #D226868
Cabinet #4-3 Serial #D71103
Cabinet #4-4 Serial #D226869
Cabinet #4-5 Serial #D226824
One (1) Load Center - Main Cut Off, Switch #17-05999880A
Two (2) Transformers, Serial Nos. 17-05998811A, and 44036-325-50; and
all accessories and attachments
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
COMERICA LEASING CORPORATION
DELIVERY AND ACCEPTANCE CERTIFICATE
TO: COMERICA LEASING CORPORATION
RE: LEASE AGREEMENT NUMBER 2885 DATED AS OF DECEMBER 21, 1993
BETWEEN COMERICA LEASING CORPORATION, LESSOR, AND THE UNDERSIGNED
LESSEE
The undersigned hereby certifies that all of the goods, chattels and
equipment ("Equipment") described in the Schedule Number 014 to that
certain lease referenced above have been furnished to the undersigned at
the location designated in said Schedule, that delivery and installation of
the Equipment have been inspected and accepted by the undersigned as
satisfactory as of the date set forth below.
The undersigned understands that Lessor is relying on this certificate in
its purchase of the Equipment and, to induce Lessor to purchase the
Equipment, the undersigned agrees to settle all claims, set-offs and
counterclaims it may have with the vendor or vendors of the Equipment
directly with such vendor or vendors and will not set-off any thereof
against Lessor; and the undersigned further understands and agrees that the
undersigned's obligations to Lessor under the Lease are absolute, that
Lessor is neither the manufacturer, distributor nor seller of the Equipment
and LESSOR HAS NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY
OR AGREEMENT WITH RESPECT TO THE FITNESS, MERCHANTABILITY, CONDITION,
QUALITY, DURABILITY OR SUITABILITY OF THE EQUIPMENT IN ANY RESPECT
INCLUDING ITS FITNESS FOR THE PURPOSE AND USES OF LESSEE. The undersigned
hereby acknowledges that it has reviewed and approved the Purchase Order,
Supply Contract or Purchase Agreement covering the Equipment purchased from
the vendor(s) or supplier(s) thereof for lease to the undersigned.
Dated: May 31, 1996
THE COLONEL'S, INC.
(Lessee)
By: /S/ RICHARD SCHOENFELDT
Richard Schoenfeldt
Its: Controller
<PAGE>
May 31, 1996
Craig Hegstrom
Cambridge Underwriters, LTD.
15415 Middlebelt Road
Livonia, MI 48154
Phone Number: (313) 525-0927
RE: PHYSICAL DAMAGE INSURANCE
POLICY #35338463
COMPANY: FEDERAL INSURANCE COMPANY
EXPIRATION: OCTOBER 1, 1996
Dir Sir/Madam:
The undersigned is presently leasing the following equipment from Comerica
Leasing Corporation:
Equipment as further described on attached Exhibit "A"
Finance Amount: $2,404,357.75
We hereby authorize and request that our policies be amended and that
Certificates of Insurance be issued showing Comerica Leasing Corporation as
loss payee for physical damage risks. We also request that 30-day notice
to Comerica Leasing Corporation of cancellation be noted and provided in
the certificates.
Please forward certificates to:
COMERICA LEASING CORPORATION
29201 Telegraph, 2nd Floor
Southfield, MI 48034
We appreciate your cooperation and request this matter be handled
expeditiously.
Very truly yours,
THE COLONEL'S, INC.
By: /S/ RICHARD SCHOENFELDT
Richard Schoenfeldt, Controller
<PAGE>
Dated: May 31, 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
LEASE AGREEMENT NO. 2885
SCHEDULE NO. 14
Equipment as fully described below:
Four (4) Brown R-224-E Rotary Thermoformers, Serial Nos. 13054, 13055,
13056, and 13057, including; training, setup, freight, rigging, and
installation, all electrical, air, and water hookups, and all
accessories and attachments thereto.
One (1) Busch Quadruplex Central Vacuum System and all accessories and
attachments including;
Four (4) Busch 25 HP Vacuum Pumps, Model #RC0630
One (1) 400 Gallon Electrical Control Panel
One (1) 8" Vacuum Header with Multiple Lines
One (1) Gardner Denver Refrigerated Air Dryer
One (1) 5 Micron Prefilter
One (1) Automatic Drain
One (1) Conair 10HP Vacuum Pump System and
One (1) Conair Dust Collector System and all accessories and
attachments including attachments for six (6) Thermoformers
One (1) AEC, Inc. Flexible Hose and Tube Conveyor System, including;
One (1) 20 HP TEFC, 6PSI Capacity Motor
One (1) 4" Flexible Hose and Tube
One (1) NEMA-12 Control Enclosure System
One (1) Rotary Valve, Drop-Thru
Two (2) 30 cubic foot full capacity 16" flanged cones
Thirty (30) tubes of various size
One (1) 1/2 HP TEFC Gear Motor: and all accessories and attachments
One (1) Square-D Central Switch Gear & Electrical Circuit Panels and
Breakers, Model #599880C
Cabinet #1-1 Serial #D226966
Cabinet #1-2 Serial #D226965
Cabinet #1-3 Serial #D226963
Cabinet #1-4 Serial #D71350
Cabinet #2-1 Serial #D226960
Cabinet #2-2 Serial #D226961
Cabinet #2-3 Serial #D226962
Cabinet #2-4 Serial #D71351
Cabinet #3-1 Serial #D226968
Cabinet #3-2 Serial #D226964
Cabinet #3-3 Serial #D226825
<PAGE>
Cabinet #3-4 Serial #D226826
Cabinet #3-5 Serial #D226870
Cabinet #4-1 Serial #D226827
Cabinet #4-2 Serial #D226868
Cabinet #4-3 Serial #D71103
Cabinet #4-4 Serial #D226869
Cabinet #4-5 Serial #D226824
One (1) Load Center - Main Cut Off, Switch #17-05999880A
Two (2) Transformers, Serial Nos. 17-05998811A, and 44036-325-50; and
all accessories and attachments
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCBEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 014
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT PER DATE DOLLAR AMT % OF COST % OF RENT
- --- ---- ---------- --------- --------- --- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6/29/96 2,421,388.62 100.7083 75.7055 37 6/29/99 1,555,737.39 64.7049 48.6406
2 7/29/96 2,400,193.84 99.8268 75.0428 38 7/29/99 1,528,410.91 53.5684 47.7862
3 8/29/96 2,378,848.93 98.9391 74.3755 39 8/29/99 1,500,890.87 62.4238 46.9258
4 9/29/96 2,357,352.83 98.0450 73.7034 40 9/29/99 1,473,175.89 61.2711 46.0593
5 10/29/96 2,335,704.46 97.1446 73.0265 41 10/29/99 1,445,264.60 60.1102 45.1867
6 11/29/96 2,313,902.75 96.2379 72.3449 42 11/29/99 1,417,155.61 58.9411 44.3078
7 12/29/96 2,291,946.61 95.3247 71.6584 43 12/29/99 1,388,847.51 57.7638 43.4228
8 1/29/97 2,269,334.95 94.4050 70.9671 44 1/29/ 0 1,360,338.89 56.5781 42.5314
9 2/27/97 2,247,566.66 93.4789 70.2709 45 2/28/ 0 1,331,628.34 55.3840 41.6338
10 3/29/97 2,225,140.64 92.5462 69.5697 46 3/29/ 0 1,302,714.42 54.1814 40.7298
11 4/29/97 2,202,555.77 91.6068 68.8636 47 4/29/ 0 1,273,595.69 52.9703 39.8194
12 5/29/97 2,179,810.93 90.6608 68.1525 48 5/29/ 0 1,244,270.71 51.7506 38.9025
13 6/29/97 2,156,904.97 89.7082 67.4363 49 6/29/ 0 1,214,738.01 50.5223 37.9792
14 7/29/97 2,133,836.76 88.7487 66.7151 50 7/29/ 0 1,184,996.12 49.2853 37.0493
15 8/29/97 2,110,605.16 87.7825 65.9887 51 8/29/ 0 1,155,043.55 48.0396 36.1128
16 9/29/97 2,087,208.99 86.8094 65.2572 52 9/29/ 0 1,124,878.83 46.7850 35.1697
17 10/29/97 2,063,647.10 85.8295 64.5206 53 10/29/ 0 1,094,500.43 45.5215 34.2199
18 11/29/97 2,039,918.32 84.8425 63.7787 54 11/29/ 0 1,063,906.86 44.2491 33,2634
19 12/29/97 2,016,021.46 83.8486 63.0315 55 12/29/ 0 1,033,096.58 42.9677 32.3001
20 1/29/98 1,991,955.32 82.8477 62.2791 56 1/29/ 1 1,002,068.06 41.6772 31.3300
21 2/27/98 1,967,718.72 81.8397 61.5213 57 2/27/ 1 970,819.75 40.3775 30.3530
22 3/29/98 1,943,310.45 80.8245 60.7582 58 3/29/ 1 939,350.10 30.0686 29.3691
23 4/29/98 1,918,729.28 79.8022 59.9897 59 4/29 1 907,657.55 37.7505 28.3782
24 5/29/98 1,893,973.00 78.7726 59.2157 60 5/29/ 1 875,740.50 36.4231 27.3803
25 6/29/98 1,869,043.36 77.7357 58.4362 61 6/29/ 1 843,597.38 35.0862 26.3753
26 7/29/98 1,843,936.13 76.6914 57.6512 62 7/29/ 1 811,226.57 33.7398 25.3633
27 8/29/98 1,818,651.06 75.6398 56.8607 63 8/29/ 1 778,626.47 32.3840 24.3440
28 9/29/98 1,793,186.89 74.5807 56.0645 64 9/29/ 1 745,795.46 31.0185 23.3175
29 10/29/98 1,767,542.34 73.5141 55.2628 65 10/29/ 1 712,731.89 29.6433 22.2838
30 11/29/98 1,741,716.15 72.4400 54.4553 66 11/29/ 1 679,434.12 28.2584 21.2427
31 12/29/98 1,715,707.02 71.3582 53.6421 67 12/29/ 1 645,900.49 26.8637 20.1943
32 1/29/99 1,689,513.66 70.2688 52.8232 68 1/29/ 2 612,129.33 25.4592 19.1384
33 2/27/99 1,663,134.76 69.1717 51.9984 69 2/27/ 2 578,118.96 24.0446 18.0751
34 3/29/99 1,636,569.01 68.0668 51.1678 70 3/29/ 2 543,867.68 22.6201 17.0042
35 4/29/99 1,609,815.09 66.9541 50.3314 71 4/29/ 2 509,373.79 21.1854 15.9257
36 5/29/99 1,582,871.67 65.8335 49.4890 72 5/29/ 2 474,635.56 19.7406 14.8396
</TABLE>
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCHEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 014
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT
--- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
73 6/29/ 2 439,651.28 18.2856 13.7458
74 7/29/ 2 404,419.18 16.8203 12.6443
75 8/29/ 2 368,937.53 15.3445 11.5349
76 9/29/ 2 333,204.55 13.8584 10.4177
77 10/29/ 2 297,218.46 12.3617 9.2926
78 11/29/ 2 260,977.47 10.8544 8.1595
79 12/29/ 2 224,479.77 9.3364 7.0184
80 1/29/ 3 187,723.55 7.8076 5.8692
81 2/27/ 3 150,706.97 6.2681 4,7119
82 3/29/ 3 113,428.19 4.7176 3.5464
83 4/29/ 3 75,885.35 3.1562 2.3726
84 5/29/ 3 38,076.58 1.5836 1.1905
</TABLE>
Note: The date reflects the LAST DAY the Casualty
amount is valid.
Percentage of Rent reflects percentage of Gross
Rentals ($3,198,432.72).
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD S. SCHOENFELDT
Brian M. Ris Richard S. Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
EXHIBIT 10.19
Lease Agreement No. 2885
Dated: November 15, 1996
Schedule No. 015
COMERICA LEASING CORPORATION
LEASE SCHEDULE
1. DESCRIPTION OF LEASE: Lease Agreement dated DECEMBER 21, 1993, by and
between COMERICA LEASING CORPORATION (herein "CLC") as Lessor, and THE
COLONEL'S, INC. as Lessee (herein called "Lease Agreement").
2. DESCRIPTION OF EQUIPMENT: (Describe equipment fully, including make,
kind of unit, serial numbers, and other pertinent information which is
herein called "Equipment"):
"As further described in attached Exhibit A"
3. LOCATION: The equipment described above shall be located at 951 AIKEN
ROAD, OWOSSO, MI 49224.
4. TERM; RENTAL: The Term of the Lease Agreement for the Equipment
described in this Schedule shall be in accordance with the provisions of
the Lease Agreement and shall continue until all rental payments are fully
paid. Lessee agrees to pay CLC as rental payments aggregating
$1,755,280.80 plus any applicable sales and/or use taxes thereon payable in
84 MONTHLY payments of $20,896.20 each, plus any applicable sales and/or
use taxes commencing DECEMBER 30, 1996, and on the same calendar day of
each succeeding like period until fully paid. THE RENTAL PAYMENTS SHALL BE
REMITTED TO CLC AT P.O. DRAWER 67-042, DETROIT, MICHIGAN 48267, unless CLC
specifies otherwise in writing.
5. INSURANCE: Lessee agrees to maintain adequate property damage
insurance in accordance with the terms of the Lease Agreement, but in any
event not less than the sum of the payments due, protecting CLC as a loss
payee. The minimum amount indicated above shall not be construed to imply
such amount will be or is adequate, but rather as a minimum amount.
6. UCC 2A: In accordance with Section 2A of the Michigan Uniform
Commercial Code (MCLA Section 440.3101 et seq.) ("UCC") Lessee acknowledges
either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by UCC Section 2A-103(i)(y)) covering the Equipment
purchased from the "Supplier" (as defined by UCC Section 2A-103(i)(x))
thereof for lease to Lessee or (b) that Lessor has informed or advised
Lessee, in writing, either previously or by this Lease Schedule of the
following: (i) the identity of the supplier; (ii) that the Lessee may have
rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights lessee may have under the
Supply Contract.
<PAGE>
Lessee acknowledges that Lessee has reviewed and approved the Purchase
Order, Supply Contract or Purchase Agreement covering the Equipment
purchased from the seller or supplier thereof for lease to Lessee.
Lessee's Initials: RLS
7. ADDITIONAL CONDITIONS: At the end of the Lease term, Lessee may
purchase the equipment for $1.00 provided no event of default shall have
occurred and been left unremedied.
The foregoing is hereby approved and agreed to by the undersigned as a
Schedule to and a part of the Lease Agreement, the provisions of which are
hereby incorporated herein by reference and which shall govern,
notwithstanding anything contrary or inconsistent herein.
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
Address: 620 South Platt Road,
Milan, MI 48160
By: /S/ BRIAN M. RIS By:/S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
Dated: November 15, 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
LEASE AGREEMENT NO. 2885
SCHEDULE NO. 015
QUANTITY DESCRIPTION SERIAL NO.
1 HM 6.0" Model TM111 Extruder Including: 95212
1 Extrusion Lines, Dies, Forming Lines, Screen
Changers, Tooling NA
1 Sheet Line System 95214
1 Omart Sheet Thickness Gauge 95222
1 Supplemental Dip Tank NA
1 Shear 95216
1 Stacker 95218
1 Sheet Die and Stand 195010
1 Kenics Mixer 195011
1 Process Control HPM EPM-11 Allen Bradley
Control System 95224
1 Adapter 195012
1 Training, Setup, Freight, Rigging, and
Installation 95220
All electrical, air, and water hookups, and
all accessories and attachments thereto
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By:/S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
COMERICA LEASING CORPORATION
DELIVERY AND ACCEPTANCE CERTIFICATE
TO: COMERICA LEASING CORPORATION
RE: LEASE AGREEMENT NUMBER 2885 DATED AS OF DECEMBER 21, 1993
BETWEEN COMERICA LEASING CORPORATION, LESSOR, AND THE UNDERSIGNED
LESSEE
The undersigned hereby certifies that all of the goods, chattels and
equipment ("Equipment") described in the Schedule Number 015 to that
certain lease referenced above have been furnished to the undersigned at
the location designated in said Schedule, that delivery and installation of
the Equipment have been inspected and accepted by the undersigned as
satisfactory as of the date set forth below.
The undersigned understands that Lessor is relying on this certificate in
its purchase of the Equipment and, to induce Lessor to purchase the
Equipment, the undersigned agrees to settle all claims, set-offs and
counterclaims it may have with the vendor or vendors of the Equipment
directly with such vendor or vendors and will not set-off any thereof
against Lessor; and the undersigned further understands and agrees that the
undersigned's obligations to Lessor under the Lease are absolute, that
Lessor is neither the manufacturer, distributor nor seller of the Equipment
and LESSOR HAS NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY
OR AGREEMENT WITH RESPECT TO THE FITNESS, MERCHANTABILITY, CONDITION,
QUALITY, DURABILITY OR SUITABILITY OF THE EQUIPMENT IN ANY RESPECT
INCLUDING ITS FITNESS FOR THE PURPOSE AND USES OF LESSEE. The undersigned
hereby acknowledges that it has reviewed and approved the Purchase Order,
Supply Contract or Purchase Agreement covering the Equipment purchased from
the vendor(s) or supplier(s) thereof for lease to the undersigned.
Dated: November 15, 1996
THE COLONEL'S, INC.
(Lessee)
By: /S/ RICHARD SCHOENFELDT
Richard Schoenfeldt
Its: Controller
<PAGE>
November 15, 1996
Craig Hegstrom
Cambridge Underwriters, LTD.
15415 Middlebelt Road
Livonia, MI 48154
Phone Number: (313) 525-0927
RE: PHYSICAL DAMAGE INSURANCE
POLICY #35338463
COMPANY: FEDERAL INSURANCE COMPANY
EXPIRATION: OCTOBER 1, 1997
Dear Sir/Madam:
The undersigned is presently leasing the following equipment from Comerica
Leasing Corporation:
"As further described in attached Exhibit A"
Cost: $1,340,685.00
We hereby authorize and request that our policies be amended and that
Certificates of Insurance be issued showing Comerica Leasing Corporation as
loss payee for physical damage risks. We also request that 30-day notice
to Comerica Leasing Corporation of cancellation be noted and provided in
the certificates.
Please forward certificates to:
COMERICA LEASING CORPORATION
29201 Telegraph, 2nd Floor
Southfield, MI 48034
We appreciate your cooperation and request this matter be handled
expeditiously.
Very truly yours,
THE COLONEL'S, INC.
By:/S/ RICHARD SCHOENFELDT
Richard Schoenfeldt, Controller
<PAGE>
Dated: November 15. 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
LEASE AGREEMENT NO. 2885
SCHEDULE NO. 015
QUANTITY DESCRIPTION SERIAL NO.
1 HM 6.0" Model TM111 Extruder Including: 95212
1 Extrusion Lines, Dies, Forming Lines, Screen
Changers, Tooling NA
1 Sheet Line System 95214
1 Omart Sheet Thickness Gauge 95222
1 Supplemental Dip Tank NA
1 Shear 95216
1 Stacker 95218
1 Sheet Die and Stand 195010
1 Kenics Mixer 195011
1 Process Control HPM EPM-11 Allen Bradley
Control System 95224
1 Adapter 195012
1 Training, Setup, Freight, Rigging, and
Installation 95220
All electrical, air, and water hookups, and
all accessories and attachments thereto.
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By:/S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCHEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 015
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT PER DATE DOLLAR AMT % OF COST % OF RENT
- --- ---- ---------- --------- --------- --- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12/29/96 1,349,622.89 100.6667 76.3893 37 12/29/99 861,654.74 64.2697 49.0893
2 1/29/97 1,227,584.87 99.7688 76.2035 38 1/29/ 0 846,363.59 63.1292 48.2181
3 2/27/97 1,325,466.58 98.8649 75.5131 39 2/28/ 0 830,970.50 61.9810 47.3412
4 3/29/97 1,313,267.51 97.9550 74.8181 40 3/29/ 0 815,474.80 60.8252 46.4584
5 4/29/97 1,300,987.12 97.0390 74.1185 41 4/21/ 0 799,375.78 59.6617 45.5697
6 5/29/97 1,288,624.85 96.1169 73.4142 42 5/29/ 0 784,172.78 58.4905 44.6751
7 6/29/97 1,276,180.17 95.1887 72.7052 43 6/29/ 0 768,365.08 57.3114 43.7745
8 8/29/97 1,263,652.52 94.2542 71.9915 44 7/29/ 0 752,452.00 56.1244 42.8679
9 8/29/97 1,251,041.36 93.3136 71.2730 45 8/29/ 0 736,432.84 54.9296 41.9553
10 9/29/97 1,238,346.12 92.3667 70.5497 46 9/29/ 0 720,306.88 53.7268 41.0366
11 10/29/97 1,225,566.25 91.4134 69.3217 47 10/29/ 0 704,073.42 52.5159 40.1117
12 11/29/97 1,212,701.17 90.4538 69.0887 48 11/29/ 0 687,731.73 51.2970 39.1807
13 12/29/97 1,199,750.33 89.4879 68.3509 49 12/29/ 0 671,281.09 50.0700 38.2435
14 1/29/98 1,186,713.16 88.5154 67.6082 50 1/29/ 1 654,720.79 48.8348 37.3001
15 2/27/98 1,173,589.06 87.5365 66.8605 51 2/27/ 1 638,050.08 47.5913 36.3503
16 3/29/98 1,160,377.48 86.5511 66.1078 52 3/29/ 1 621,268.24 46.3396 35.3942
17 4/29/98 1,147,077.81 85.5591 65.3501 53 4/29/ 1 604,374.52 45.0795 34.4318
18 5/29/98 1,133,689.49 84.5605 64.5874 54 5/29/ 1 587,368.17 43.8110 33.4629
19 6/29/98 1,120,211.90 83.5552 63.8195 55 6/29/ 1 570,248.45 42.5341 32.4876
20 7/29/98 1,106,644.47 82.5432 63.0466 56 7/29/ 1 553,014.59 41.2487 31.5058
21 8/29/98 1,092,986.56 81.5245 62.2685 57 8/29/ 1 535,665.85 39.9546 30.5174
22 9/29/98 1,079,237.65 80.4990 61.4852 58 9/29/ 1 518,201.44 38.6520 29.5224
23 10/29/98 1,065,397.05 79.4666 60.6967 59 10/29/ 1 500,620.61 37.3407 28.5208
24 11/29/98 1,051,464.19 78.4274 59.9029 60 11/29/ 1 482,922.57 36.0206 27.5126
25 12/29/98 1,037,438.44 77.3812 59.1038 61 12/29/ 1 465,106.54 34.6917 26.4976
26 1/29/99 1,023,319.18 76.3281 582995 62 1/29/ 2 447,171.74 33.3540 25.4758
27 2/27/99 1,099,105.79 75.2679 57.4897 63 2/27/ 2 429,117.38 32.0073 24.4472
28 3/29/99 994,797.65 74.2007 56.6746 64 3/29/ 2 410,942.65 30.6517 23.4118
29 4/29/99 980,394.12 73.1264 55.8540 65 4/29/ 2 392,646.76 29.2870 22.3695
30 5/29/99 965,894.57 72.0449 55.0279 66 5/29/ 2 374,228.89 27.9133 21.3202
31 6/29/99 951,298.36 70.9561 54.1964 67 6/29/ 2 355,688.24 26.5303 20.2639
32 7/29/99 936,604.83 69.8602 53.3593 68 7/29/ 2 337,023.99 25.1382 19.2006
33 8/29/99 921,813.35 68.7569 52.5166 69 8/29/ 2 318,235.30 23.7368 18.1302
34 9/29/99 906,923.26 67.6463 61.6683 70 9/29/ 2 299,321.36 22.3260 17.0526
35 10/29/99 891,933.91 66.5282 50.8143 71 10/29/ 2 280,281.33 20.9058 15.9679
36 11/29/99 876,844.62 65.1027 49.9547 72 11/29/ 2 261,114.36 19.4762 14.8759
</TABLE>
Note: The date reflects the LAST DAY the Casualty amount is valid.
Percentage of Rent reflects percentage of Gross Rentals
($1,755,280.80).
<PAGE>
<TABLE>
COMERICA LEASING CORPORATION
CASUALTY LOSS VALUE SCHEDULE
RE: LEASE NO. 2885, SCHEDULE NO. 015
<CAPTION>
PER DATE DOLLAR AMT % OF COST % OF RENT
--- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
73 12/29/ 2 241,319.62 189.0370 13.7767
74 1/29/ 3 222,396.24 16.5883 12.6701
75 2/27/ 3 202,843.37 15.1298 11.5562
76 3/29/ 3 183,160.15 13.6617 10.4348
77 4/29/ 3 163,345.71 12.1838 9.1060
78 5/29/ 3 143,399.17 10.6960 8.1696
79 6/29/ 3 123,319.60 9.1983 7.0256
80 7/29/ 3 103,106.28 7.6906 5.3741
81 8/29/ 3 82,758.15 6.1728 4.7148
82 9/29/ 3 62,274.36 4.6450 3.5478
83 10/29/ 3 41,654.01 3.1069 2.3731
84 11/29/ 3 20,396.20 1.5586 1.1905
</TABLE>
Note: The date reflects the LAST DAY the Casualty amount is valid.
Percentage of Rent reflects Percentage of Gross Rentals
($1,755,280.80).
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
COMERICA LEASING CORPORATION 5260
Equipment Account
74-478/724
NOVEMBER 15, 1996
PAY
TO THE
ORDER OF **THE COLONEL'S, INC. AND HPM CORPORATION** $380,685.00
THREE HUNDRED EIGHTY THOUSAND SIX HUNDRED EIGHTY-FIVE AND 00/100 DOLLARS
Comerica
Comerica Bank - Ann Arbor, N.A.
Ann Arbor, Michigan 48104
FOR LEASE #2885-015 /S/________________________________
<PAGE>
1. NO. OF ADDITIONAL SHEETS STATE COUNTY STATE BILLING ACCT. NO.
Michigan MO88UC
2. LESSEE(S)/DEBTOR(S) (LAST NAME FIRST) & ADDRESS(ES) 3. LESSOR/SECURED
PARTY(IES) & ADDRESS(ES)
The Colonel's, Inc. Comerica Leasing Corporation
620 South Platt Road 29201 Telegraph Road
Milan, MI 481160 Southfield, MI 48034
Tax I.D. No. 38-2411367 Lease # 2885-015
THIS STATEMENT REFERS TO THE ORIGINAL FINANCING STATEMENT BEARING THE
FOLLOWING FILE NUMBER(S):
Sec. of State - File No. C998626 Liber ________ Page _______________
Date Filed AUGUST 3, 1995 Reg. of Deeds - File No.___________
Date Filed_________________________
4. [ ] Continuation The original financing statement bearing file
number shown above, is still effective.
5. [ ] Termination Secured party no longer claims a security interest
under the financing statement bearing file number
shown above.
6. [ ] Assignment The secured party's right under the financing
statement bearing file number shown above to the
property described in Item 10 has been assigned to
the assignee whose name and address appears in
Item 10.
7. [X] Amendment Financing statement bearing file number shown
above is amended as set forth in Item 10.
8. [ ] Release Secured Party releases the collateral described in
Item 10 from the financing statement bearing file
number shown above.
9. [ ] Other Specify in Item 10.
10. "Equipment as more fully described on attached Exhibit A".
<PAGE>
The Colonel's, Inc. Comerica Leasing Corporation
By: /S/ RICHARD SCHOENFELDT By: /S/ BRIAN M. RIS
SIGNATURE(S) OF LESSEE(S)/DEBTOR(S) SIGNATURE OF LESSOR/SECURED
PARTY OR ASSIGNEE OF RECORD
Its: Richard Schoenfeldt, Controller Its: Brian M. Ris, Lease
Marketing Officer
DEBTOR(S) COPY
<PAGE>
Dated: November 15, 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
LEASE AGREEMENT NO. 2885
SCHEDULE NO. 015
Amended to include Equipment attached to One (1) HPM 6.0" Model TM111
Extruder, Serial Number 95212 as more fully described by
Serial Numbers below:
QUANTITY DESCRIPTION SERIAL NO.
1 Extrusion Lines, Dies, Forming Lines, Screen
Changers, Tooling NA
1 Sheet Line System 95214
1 Omart Sheet Thickness Gauge 95222
1 Supplemental Dip Tank NA
1 Shear 95216
1 Stacker 95218
1 Sheet Die and Stand 195010
1 Kenics Mixer 195011
1 Process Control HPM EPM-11 Allen Bradley
Control System 95224
1 Adapter 195012
1 Training, Setup, Freight, Rigging, and
Installation 95220
All electrical, air, and water hookups, and
all accessories and attachments thereto.
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
1. NO. OF ADDITIONAL SHEETS STATE COUNTY STATE BILLING ACCT. NO.
Michigan MO88UC
2. LESSEE(S)/DEBTOR(S) (LAST NAME FIRST) & ADDRESS(ES) 3. LESSOR/SECURED
PARTY(IES) & ADDRESS(ES)
The Colonel's, Inc. Comerica Leasing Corporation
951 Aiken Road 29201 Telegraph Road
Owosso, MI 49224 Southfield, MI 48034
Tax I.D. No. 38-2411367 Lease # 2885-015
THIS STATEMENT REFERS TO THE ORIGINAL FINANCING STATEMENT BEARING THE
FOLLOWING FILE NUMBER(S):
Sec. of State - File No. C998630 Liber _______ Page_________________
Date Filed AUGUST 3, 1995 Reg. of Deeds - File No.___________
Date Filed_________________________
4. [ ] Continuation The original financing statement bearing file
number shown above, is still effective.
5. [ ] Termination Secured party no longer claims a security interest
under the financing statement bearing file number
shown above.
6. [ ] Assignment The secured party's right under the financing
statement bearing file number shown above to the
property described in Item 10 has been assigned to
the assignee whose name and address appears in
Item 10.
7. [X] Amendment Financing statement bearing file number shown
above is amended as set forth in Item 10.
8. [ ] Release Secured Party releases the collateral described in
Item 10 from the financing statement bearing file
number shown above.
9. [ ] Other Specify in Item 10.
10. "Equipment as more fully described on attached Exhibit A".
<PAGE>
The Colonel's, Inc. Comerica Leasing Corporation
By: /S/ RICHARD SCHOENFELDT By: /S/ BRIAN M. RIS
SIGNATURE(S) OF LESSEE(S)/DEBTOR(S) SIGNATURE OF LESSOR/SECURED
PARTY OR ASSIGNEE OF RECORD
Its: Richard Schoenfeldt, Controller Its: Brian M. Ris, Lease
Marketing Officer
DEBTOR(S) COPY
<PAGE>
Dated: NOVEMBER 15, 1996
COMERICA LEASING CORPORATION
"EXHIBIT A"
Lease Agreement No. 2885
Schedule No. 015
Amended to include Equipment attached to One (1) HPM 6.0" Model TM111
Extruder,
Serial Number 95212 as more fully described by Serial Numbers below:
QUANTITY DESCRIPTION SERIAL NO.
1 Extrusion Lines, Dies, Forming Lines, Screen
Changers, Tooling NA
1 Sheet Line System 95214
1 Omart Sheet Thickness Gauge 95222
1 Supplemental Dip Tank NA
1 Shear 95216
1 Stacker 95218
1 Sheet Die and Stand 195010
1 Kenics Mixer 195011
1 Process Control HPM EPM-11 Allen Bradley
Control System 95224
1 Adapter 195012
1 Training, Setup, Freight, Rigging, and
Installation 95220
All electrical, air, and water hookups, and
all accessories and attachments thereto.
Agreed and Accepted:
COMERICA LEASING CORPORATION THE COLONEL'S, INC.
(Lessor) (Lessee)
By: /S/ BRIAN M. RIS By: /S/ RICHARD SCHOENFELDT
Brian M. Ris Richard Schoenfeldt
Its: Lease Marketing Officer Its: Controller
<PAGE>
EXHIBIT 10.21
EXECUTION COPY
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of the 28th day of May, 1997, by and
among The Colonel's International, Inc., a Michigan corporation
("International"), The Colonel's, Inc., a Michigan Corporation
("Colonel's"), Brainerd International Raceway, Inc., a Minnesota
corporation, and The Colonel's Truck Accessories, Inc., a Michigan
corporation (collectively identified as "Companies" and individually as a
"Company") and COMERICA BANK, a Michigan banking corporation of Detroit,
Michigan (herein called "Bank");
RECITALS:
A. Companies desire to obtain certain credit facilities from Bank.
B. Bank is willing to extend such credit facilities on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, Companies and Bank agree as follows:
WITNESSETH:
1. DEFINITIONS
For the purposes of this Agreement the following terms will have the
following meanings:
"Account" shall mean any right of Companies to payment for goods sold
or leased or for services rendered, whether or not such right to payment
has been earned by performance, excluding all interest and service charges
thereon.
"Account Debtor" shall mean the party who is obligated on any Account.
"Advance" shall mean a borrowing requested by Companies and made by
Bank under Section 2 of this Agreement, including any refunding or
conversions of such borrowings pursuant to Section 2.7 hereof, and shall
include a Eurodollar-based Advance and a Prime-based Advance.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and executive officers of such person), controlled by, or under
direct or indirect common control with such person. A Person shall be
deemed to control a corporation for the purposes of this definition if such
<PAGE>
Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of
directors of such corporation or (ii) to direct or cause the direction of
the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.
"Alternate Base Rate" shall mean for any day a rate per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%) equal to the Federal
Funds Effective Rate in effect on such day plus one percent (1%).
"Applicable Interest Rate" shall mean with respect to Advances, the
Eurodollar-based Rate or the Prime-based Rate, as selected by Companies
from time to time subject to the terms and conditions of this Agreement.
"Business Day" shall mean any day on which commercial banks are open
for domestic and international business (including dealings in foreign
exchange) in Detroit, London and New York.
"Capital Expenditure" shall mean, without duplication, any payment
made directly or indirectly for the purpose of acquiring or constructing
fixed assets, real property or equipment which in accordance with generally
accepted accounting principles would be added as a debit to the fixed asset
account of the person making such expenditure, including, without
limitation, amounts paid or payable under any conditional sale or other
title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment obligations of the
lessee or obligor thereunder would be required by GAAP to be capitalized
and shown as liabilities on the balance sheet of such lessee or obligor.
"Current Assets" shall mean the current assets of International and
its consolidated Subsidiaries, as determined in accordance with GAAP.
"Current Liabilities" shall mean the current liabilities of
International and its consolidated Subsidiaries as determined in accordance
with GAAP.
"Current Ratio" shall mean as of any date of determination, a ratio
the numerator of which is Current Assets as of such date and the
denominator of which is Current Liabilities as of such date.
"EBITDA" shall mean for any date of determination, the sum of (a) Net
Income (or loss) for the four preceding fiscal quarters, plus (b) to the
extent deducted in the computation of Net Income (or loss), the amount of
interest, depreciation and amortization expense and all accrued income
taxes for such period, all as determined in accordance with GAAP.
"Event of Default" shall mean any of the Events of Default specified
in Section 8 hereof.
-2-
<PAGE>
"Eurodollar-based Advance" shall mean an Advance which bears interest
at the Eurodollar-based Rate.
"Eurodollar-based Rate" shall mean a per annum interest rate which is
two and one half percent (2-1/2%) plus the quotient of:
(a) the per annum interest rate at which Bank's Eurodollar Lending
Office offers deposits to prime banks in the eurodollar market in
an amount comparable to the relevant Eurodollar-based Advance
with respect to which the Applicable Interest Rate is the
Eurodollar-based Rate and for a period equal to the relevant
Interest Period at approximately 11:00 A.M. Detroit time two (2)
Business Days prior to the first day of such Interest Period;
divided by
(b) a percentage equal to 100% minus the maximum rate on such date at
which Bank is required to maintain reserves on "Euro-currency
Liabilities" as defined in and pursuant to Regulation D of the
Board of Governors of the Federal Reserve System or, if such
regulation or definition is modified, and as long as Bank is
required to maintain reserves against a category of liabilities
which includes Eurodollar deposits or includes a category of
assets which includes Eurodollar loans, the rate at which such
reserves are required to be maintained on such category.
"Eurodollar Lending office" shall mean Bank's office located at Grand
Cayman, British West Indies or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar Lending office by
notice to Companies.
"Eligible Accounts" shall mean trade Accounts arising in the ordinary
course of the business of Companies which meet the following requirements:
(a) it is not owing more than ninety (90) days after the date of the
original invoice or other writing evidencing such Account;
(b) it is not owing by an Account Debtor who has failed to pay
twenty-five percent (25%) or more of the aggregate amount of its
Accounts owing to any or all of the Companies within ninety (90)
days after the date of the respective invoices or other writings
evidencing such Accounts;
(c) it arises from the sale or lease of goods and such goods have
been shipped or delivered to the Account Debtor under such
Account, or it arises from services rendered and such services
have been performed;
-3-
<PAGE>
(d) it is evidenced by an invoice, dated not later than the date of
shipment or performance, rendered to such Account Debtor or some
other evidence of billing acceptable to Bank;
(e) it is not evidenced by any note, trade acceptance, draft or other
negotiable instrument or by any chattel paper, unless such note
or other document or instrument previously has been endorsed and
delivered by the applicable Company to Bank;
(f) it is a valid, legally enforceable obligation of the Account
Debtor thereunder and is not subject to any counterclaim or other
defense on the part of such Account Debtor or to any claim on the
part of such Account Debtor denying liability thereunder in whole
or in part;
(g) it is not subject to any sale of accounts, any rights of offset,
assignment, lien or security interest whatsoever other than to
Bank;
(h) it is not owing by a subsidiary or affiliate of any of the
Companies, nor by an Account Debtor which (i) does not maintain
its chief executive office in the United States of America, (ii)
is not organized under the laws of Canada or the United States of
America, or any state or province thereof, or (iii) is the
government of any foreign country or sovereign state, or of any
state, province, municipality or other instrumentality thereof;
(i) it is not an account owing by the United States of America or any
state or political subdivision thereof, or by any department,
agency, public body corporate or other instrumentality of any of
the foregoing, unless all necessary steps are taken to comply
with the Federal Assignment of Claims Act of 1940, as amended, or
with any comparable state law, if applicable, and all other
necessary steps are taken to perfect Bank's security interest in
such account;
(j) it is not owing by an Account Debtor for which any of the
Companies has received a notice of (i) the death of the Account
Debtor or any partner of the Account Debtor, (ii) the
dissolution, liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the appointment of
a receiver for any part of the property of the Account Debtor, or
(iv) an assignment for the benefit of creditors, the filing of a
petition in bankruptcy, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against the Account
Debtor;
(k) it is not an account billed in advance, payable on delivery, for
consigned goods, for guaranteed sales, for unbilled sales, for
-4-
<PAGE>
progress billings, payable at a future date in accordance with
its terms, subject to a retainage or holdback by the Account
Debtor or insured by a surety company; and
(1) it is not owing by any Account Debtor whose obligations Bank,
acting in its sole discretion, shall have notified Companies are
not deemed to constitute Eligible Accounts.
"Eligible Inventory" shall be valued at the lesser of cost or present
market value in accordance with generally accepted accounting principles,
consistently applied, and shall mean all of the Inventory of each of the
Companies which is in good and merchantable condition, is not obsolete or
discontinued, and which would properly be classified as "raw materials", or
as "finished goods inventory" under generally accepted accounting
principles, consistently applied, excluding (a) work-in-process, consigned
goods and inventory located outside the United States of America, (b)
inventory covered by or subject to a seller's right to repurchase, or any
consensual or nonconsensual lien or security interest (including without
limitation purchase money security interests) other than in favor of Bank,
whether senior or junior to Bank's security interest, and (c) inventory
that Bank, acting in its reasonable discretion, after having notified
companies, excludes. Inventory which is at any time Eligible Inventory,
but which subsequently fails to meet any of the foregoing requirements,
shall forthwith cease to be Eligible Inventory.
"Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day
on such transactions received by Bank from three Federal funds brokers of
recognized standing selected by it.
"Fixed Charge Coverage Ratio" shall mean as of any date of
determination a ratio, the numerator of which is Net Income for the four
preceding fiscal quarters ending on such date of determination, PLUS, to
the extent deducted in determining Net Income, depreciation, and
amortization during such period, LESS dividends during such period, and the
denominator of which is all payments of principal with respect to
indebtedness of Companies and Capital Leases due during such period, all as
determined in accordance with GAAP.
"Funded Debt" shall mean as of any date of determination, the sum of
(a) the outstanding principal balance of the Term Loan and the commitment
amount of the Line of Credit as of such date, plus (b) the outstanding
balance of all long term and short term indebtedness for borrowed money of
-5-
<PAGE>
Companies as of such date (excluding debt which has been subordinated to
the Bank pursuant to a written subordination agreement satisfactory to the
Bank), plus (c) all outstanding capital lease obligations as of such date.
"Funded Debt/EBITDA Ratio" shall mean as of any date of determination,
a ratio, the numerator of which shall be Funded Debt on such date and the
denominator of which shall be equal to EBITDA for the preceding four fiscal
quarters.
"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied, as in effect
on the date of this Agreement.
"Guarantors" shall mean Donald J. Williamson and Patsy L. Williamson.
"Guaranty" shall mean the Guaranty dated May ___, 1997 from the
Guarantors to Bank in the form attached hereto as Exhibit "A", as the same
may be amended from modified from time to time.
"Indebtedness" shall mean all loans, advances, indebtedness,
obligations and liabilities of Companies (or any of them) to Bank under
this Agreement, together with all other indebtedness, obligations and
liabilities whatsoever of Companies (or any of them) to Bank arising under
or in connection with this Agreement, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent,
joint or several, due or to become due, now existing or hereafter arising.
"Interest Period" shall mean a period as selected by Companies
pursuant to the provisions of this Agreement commencing on the day a
Eurodollar-based Advance is made, or the Eurodollar-based Rate is selected
as the Applicable Interest Rate.
"Inventory" shall have the meaning ascribed to such term in the
Michigan Uniform Commercial Code, as in effect from time to time.
"Leverage Ratio" shall mean as of any date of determination, a ratio
the numerator of which is Debt as of such date and the denominator of which
is Net Worth as of the date.
"Line of Credit Maturity Date" shall mean May 1, 1998.
"Line of Credit Note" shall mean the Note described in Section 2.1
hereof made by Companies to Bank in the form attached to this Agreement as
Exhibit "B".
"Net Income" shall mean for any period of determination, the net
income (or loss) of International and its consolidated Subsidiaries,
excluding extraordinary items for such period, determined in accordance
with GAAP.
-6-
<PAGE>
"Net Worth" shall mean as of any date of determination the
stockholders' equity of International and its consolidated Subsidiaries as
of such date, as determined in accordance with GAAP.
"Notes" shall mean the Line of Credit Note and the Term Note, and
"Note" shall refer to each of them.
"Permitted Acquisitions" shall mean any acquisition by any Company of
all or substantially all of the assets of another Person, or of a division
or line of business of another Person or shares of stock or other ownership
interests of another Person which satisfies and/or is conducted in
accordance with the following requirements:
(i) each such acquisition shall, under GAAP be required to be
consolidated by International, and not treated by International as an
equity investment;
(ii) on the date of any such acquisition, all necessary
governmental, quasi-governmental, agency, regulatory or similar
approvals of applicable jurisdictions (or the respective agencies,
instrumentalities or political subdivisions, as applicable, of such
jurisdictions) and all necessary non-governmental and other third-
party approvals which, in each case, are material to such acquisition
have been obtained and are in effect, and companies are in compliance
thereunder in all material respects, and all necessary declarations,
registrations or other filings with any court, governmental or
regulatory authority, securities exchange or any other person have
been made;
(iii) the acquisition target must have derived more than seventy
five percent (75%) of its revenues during its two (2) immediately
preceding fiscal years from a line of business in which a Company
currently is engaged;
(iv) if an acquisition of stock of an acquisition target, the
acquisition shall have been approved by the Board of Directors or
substantially all of the shareholders of such acquisition target not
later than the date any Request for Advance is delivered to Bank in
connection with an Advance to be used to pay a portion of the
acquisition consideration and as of such date, no claim or challenge
has been asserted or threatened by any shareholder, director, officer
or employee of the acquisition target or by any other person which
might reasonably be expected to have a material adverse effect on the
Companies;
(v) not less than thirty (30) days prior to the date of such
acquisition, the Companies provide to Bank Pro Forma Combined
Projected Financial Information; and
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(vi) both before and after such acquisition, no Default or Event
of Default (whether or not related to such acquisition), has occurred
and is continuing under this Agreement, or any of the other Loan
Documents as evidenced by a certificate of an authorized officer of
Companies.
"Prime-based Advance" shall mean an Advance which bears interest at
the Prime-based Rate.
"Prime-based Rate" shall mean a per annum interest rate which is the
greater of (i) the Prime Rate or (ii) the Alternate Base Rate.
"Prime Rate" shall mean the per annum interest rate established by
Bank as its prime rate for its borrowers as such rate may vary from time to
time, which rate is not necessarily the lowest rate on loans made by Bank
at any such time.
"Pro Forma Combined Projected Financial Information" shall mean, as to
any acquisition, pro forma combined projected financial information for
International and its consolidated Subsidiaries and the acquisition
candidate, consisting of projected consolidated balance sheets as at the
end of at least the next succeeding two (2) fiscal years of International
following the acquisition and projected consolidated statements of income for
each of those years, including sufficient detail to permit calculation
of the amounts and ratios described in Sections 5.11 through 5.15,
inclusive, as projected for those years and accompanied by (i) a statement
setting forth a calculation of the ratios described in Sections 5.11
through 5.15, inclusive, and (ii) a statement in reasonable detail
specifying all material assumptions underlying the projections.
"Request for Advance" shall mean a Request for Advance issued by
Companies under this Agreement in the form attached to this Agreement as
Exhibit "C".
"Subsidiary" shall mean a corporation of which more than fifty percent
(50%) of the outstanding voting stock is owned by International, either
directly or indirectly through one or more intermediaries.
"Term Loan" shall mean the term loan made by Bank to Companies under
Section 2.A of this Agreement.
"Term Loan Maturity Date" shall mean November 1, 2000.
"Term Note" shall mean the term note issued by Companies under Section
2.A.1 of this Agreement in the form annexed to this Agreement as Exhibit
"D".
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"Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial
Code of any applicable state, and, unless specified otherwise the Uniform
Commercial Code as in effect in the State of Michigan.
2. THE INDEBTEDNESS: LINE OF CREDIT
2.1 Bank may make Advances to Companies and Companies jointly and
severally may borrow at any time and from time to time from the effective
date hereof until the Line of Credit Maturity Date, not to exceed Six
Million Dollars ($6,000,000) in aggregate principal amount at any one time
outstanding. All of the Advances under this Section 2 shall be evidenced
by the Line of Credit Note, under which Advances, repayments and readvances
may be made, subject to the terms and conditions of this Agreement;
provided, however, Bank shall not be obligated to make any Advances to
Companies. In addition to direct Advances under the Line of Credit Note to
be provided to Companies by Bank under and pursuant to this Section 2.1,
Bank further agrees to issue, or commit to issue, from time to time,
standby and import letters of credit ("Letters of Credit") for the account
of Companies in aggregate undrawn amounts not to exceed Five Hundred
Thousand Dollars ($500,000) at any one time outstanding; PROVIDED, however,
that the sum of the aggregate amount of Advances under the Line of Credit
Note plus the aggregate undrawn amount of Letters of Credit (and the unpaid
amount of any draws or other demands for payment under any Letters of
Credit) shall not exceed Six Million Dollars ($6,000,000) at any one time;
and PROVIDED further that no Letter of Credit shall, by its terms, have an
expiration date which extends beyond the Line of Credit Maturity Date. In
addition to the terms and conditions of this Agreement, the issuance of any
Letters of Credit shall also be subject to the terms and conditions of any
letter of credit applications and agreements executed and delivered by
Companies to Bank with respect thereto.
2.2 The Line of Credit Note shall mature on the Line of Credit
Maturity Date and each Advance from time to time outstanding thereunder
shall bear interest at its Applicable Interest Rate. The amount and date
of each Advance, its Applicable Interest Rate, its Interest Period, and the
amount and date of any repayment shall be noted on Bank's records, which
records will be conclusive evidence thereof absent demonstrable error in
computation.
2.3 Companies may request an Advance under this Section 2 upon the
delivery to Bank of a Request for Advance executed by an authorized officer
of a Company, subject to the following:
(a) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "C";
(b) each such Request for Advance shall be delivered to Bank by noon
three (3) Business Days prior to the proposed date of Advance,
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except in the case of a Prime-based Advance, for which the
Request for Advance must be delivered by 11 a.m. on such proposed
date;
(c) the principal amount of each Eurodollar-based Advance, plus the
amount of any outstanding indebtedness to be then combined
therewith having the same Interest Period, if any, shall be at
least $500,000;
(d) a Request for Advance, once delivered to Bank, shall not be
revocable by Companies.
2.4 Companies may prepay all or part of the outstanding balance of
the Prime-based Advance(s) under Line of Credit Note at any time. Upon
three (3) Business Days prior notice to Bank, Companies may prepay all or
part of any Eurodollar-based Advance on the last day of the Interest Period
therefor, provided that the amount of any such partial prepayment shall be
at least $500,000 and the unpaid portion of such Advance which is refunded
or converted under Section 2.7 shall be subject to the limitations of
Section 2.3(c) hereof. Any prepayment made in accordance with this Section
shall be without premium, penalty or prejudice to Companies's right to
reborrow under the terms of this Agreement. Any other prepayment shall be
restricted by Section 2.10 hereof.
2.5 The Line of Credit Note and the Advances thereunder shall bear
interest from the date thereof on the unpaid principal balance thereof from
time to time outstanding, at a rate per annum equal to the Prime-based Rate
or the Eurodollar-based Rate, as the Companies may elect subject to the
provisions of this Agreement. Interest shall be payable monthly on the
first Business Day of each month, commencing on the first Business Day of
the month following the month in which such Advance is made, and at
maturity. Notwithstanding the foregoing, from and after the occurrence of
any Event of Default and during the continuation thereof, the Advances
shall bear interest, payable on demand, at a rate per annum equal to: (i)
in the case of Prime-based Advances, three percent (3%) above the Prime-
based Rate; and (ii) in the case of a Eurodollar-based Advance, three
percent (3%) above the rate which would otherwise be applicable under this
Section until the end of the then current Interest Period, at which time
such Advance shall bear interest at the rate provided for in clause (i) of
this Section. Interest on all Advances shall be calculated on the basis of
a 360 day year for the actual number of days elapsed. The interest rate
with respect to any Prime-based Advance shall change on the effective date
of any change in the Prime-based Rate.
2.6 Each Interest Period for a Eurodollar-based Advance shall
commence on the date such Eurodollar-based Advance is made or is converted
from an Advance of another type pursuant to Section 2.7 hereof or on the
last day of the immediately preceding Interest Period for such Eurodollar-
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based Advance, and shall end on the date one, two, three or six months
thereafter, as the Companies may elect as set forth below, subject to the
following:
(i) no Interest Period shall extend beyond the Line of Credit
Maturity Date;
(ii) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding
Business Day unless the next succeeding Business Day falls in another
calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day, and when an Interest Period begins
on a day which has no numerically corresponding day in the calendar
month during which such Interest Period is to end, it shall end on the
last Business Day of such calendar month.
Companies shall elect the initial Interest Period applicable to a
Eurodollar-based Advance by their notice of borrowing given to the Bank
pursuant to Section 2.3 or by their notice of conversion given to the Bank
pursuant to Section 2.7, as the case may be. Provided that no Default or
Event of Default shall have occurred and be continuing, companies may elect
to continue an Advance as a Eurodollar-based Advance by giving irrevocable
written or telephonic notice thereof to the Bank, on or before the last day
of the then current Interest Period applicable to such Eurodollar-based
Advance, specifying the duration of the succeeding Interest Period
therefor. If the Bank does not receive timely notice of the election and
the Interest Period elected by Companies, Companies shall be deemed to have
elected to convert such Eurodollar-based Advance to a Prime-based Advance
at the end of the then current Interest Period. Subject to the terms
hereof, no more than three (3) Interest Periods shall be in effect at any
one time with respect to Line of Credit Note.
2.7 Provided that no Default or Event of Default shall have occurred
and be continuing, Companies may, on any Business Day, convert any
outstanding Advance into an Advance of another type in the same aggregate
principal amount, provided that any conversion of a Eurodollar-based
Advance shall be made only on the last Business Day of the then current
Interest Period applicable to such Advance. If Companies desire to convert
an Advance, they shall give the Bank prior written or telephonic notice,
specifying the date of such conversion, the Advances to be converted, the
type of Advance elected and, if the conversion is into a Eurodollar-based
Advance, the duration of the first Interest Period therefor.
2.8 Bank shall not be obligated to make any Advance if at the time of
such Request for Advance, the sum of (i) the Advances outstanding under
this Section 2 and (ii) the undrawn amount of Letters of Credit added to
the amount requested should exceed the sum of (a) seventy-five (75%) of the
sum of the Companies' Eligible Accounts and (b) the lesser of (i) fifty
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percent (50%) of Companies' Eligible inventory and (ii) $3,500,000. In
addition, the sum of the aggregate principal amount at any one time
outstanding under the Line of Credit Note and the undrawn amount of any
Letters of Credit (and all unpaid reimbursement obligations with respect to
Letters of Credit) shall never exceed the formula set forth in this Section
2.8. Companies shall immediately make all payments necessary to comply
with this provision.
2.9 The proceeds of the initial Advance under Line of Credit Note
shall be used solely for working capital purposes and to refinance
Companies' existing indebtedness to Bank.
2.10 If Companies make any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or
otherwise), or if Companies fail to borrow any Eurodollar-based Advance
after notice has been given by Companies to Bank in accordance with the
terms hereof requesting such Advance, or if Companies fail to make any
payment of principal or interest in respect of a Eurodollar-based Advance
when due, Companies shall reimburse Bank on demand for any resulting loss,
cost or expense incurred by Bank as a result thereof, including, without
limitation, any such loss, cost or expense incurred in obtaining,
liquidating, employing or redeploying deposits from third parties, whether
or not Bank shall have funded or committed to fund such Advance. Such
amount payable by Companies to Bank may include, without limitation, an
amount equal to the excess, if any, of (a) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, refunded
or converted, for the period from the date of such repayment or of such
failure to borrow, refund or convert, through the last day of the relevant
Interest Period, at the applicable rate of interest for said Advance(s)
provided under this Agreement, over (b) the amount of interest (as
reasonably determined by Bank) which would have accrued to Bank on such
amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. Calculation of any
amounts payable to Bank under this paragraph shall be made as though Bank
shall have actually funded or committed to fund the relevant Eurodollar-
based Advance through the purchase of an underlying deposit in an amount
equal to the amount of such Advance and having a maturity comparable to
the relevant Interest Period; PROVIDED, however, that Bank may fund any
Eurodollar-based Advance in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of
amounts payable under this paragraph. Upon the written request of
Companies, Bank shall deliver to Companies a certificate setting forth the
basis for determining such losses, costs and expenses, which certificate
shall be conclusively presumed correct, absent manifest error.
2.11 For any Interest Period for which the Applicable Interest Rate is
the Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending
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Office which maintains books separate from those of the rest of Bank, Bank
shall have the option of maintaining and carrying the relevant Advance on
the books of such Eurodollar Lending Office.
2.12 If with respect to any Interest Period Bank reasonably determines
that, by reason of circumstances affecting the foreign exchange and
interbank markets generally, deposits in Eurodollars in the applicable
amounts are not being offered to the Bank for such Interest Period, then
Bank shall forthwith give notice thereof to Companies. Thereafter, until
Bank notifies Companies that such circumstances no longer exist, the
obligation of Bank to make Eurodollar-based Advances, and the right of
Companies to convert an Advance to or refund an Advance as a Eurodollar-
based Advance shall be suspended and the Applicable Interest Rate will be
the Prime-based Rate; PROVIDED, however, this provision shall not impair
any right of Companies hereunder to prepay an affected Advance.
2.13 If, after the date hereof, the introduction or implementation of,
or any change in, any applicable law, rule or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by
Bank (or its Eurodollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, shall make
it unlawful or impossible for the Bank (or its Eurodollar Lending Office)
to honor its obligations hereunder to make or maintain any Eurodollar-based
Advance, Bank shall forthwith give notice thereof to Companies. Thereafter
(a) the obligations of Bank to make Eurodollar-based Advances and the right
of Companies to convert an Advance or refund an Advance as a Eurodollar-
based Advance shall be suspended and thereafter the Applicable Interest
Rate will be the Prime-based Rate, and (b) if Bank may not lawfully
continue to maintain an Advance to the end of the then current Interest
Period applicable thereto, the Prime-based Rate shall be the Applicable
interest Rate for the remainder of such Interest Period.
2.14 If the adoption or implementation after the date hereof, or any
change after the date hereof in, any applicable law, rule or regulation of
any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not
having the force of law) made by any such authority, central bank or
comparable agency after the date hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any tax,
duty or other charge with respect to any Advance or the Line of
Credit Note or shall change the basis of taxation of payments to
Bank (or its Eurodollar Lending Office) of the principal of or
interest on any Advance or the Line of Credit Note or any other
amounts due under this Agreement in respect thereof (except for
changes in the rate of tax on the overall net income of Bank or
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its Eurodollar Lending Office imposed by the jurisdiction in
which Bank's principal executive office or Eurodollar Lending
office is located); or
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by Bank (or its Eurodollar Lending office) or shall
impose on Bank (or its Eurodollar Lending Office) or the foreign
exchange and interbank markets any other condition affecting any
Advance or the Line of Credit Note;
and the result of any of the foregoing is to increase the costs to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount
of any sum received or receivable by Bank under this Agreement, or under
the Line of Credit Note, by an amount deemed by the Bank to be material,
then Bank shall promptly notify Companies of such fact and demand
compensation therefor and, within fifteen days after demand by Bank,
Companies agrees to pay to Bank such additional amount or amounts as will
compensate Bank for such increased cost or reduction. Bank will promptly
notify Companies of any event of which it has knowledge which will entitle
Bank to compensation pursuant to this Section. A certificate of Bank
setting forth the basis for determining such additional amount or amounts
necessary to compensate Bank shall be conclusively presumed to be correct
save for manifest error.
2.15 In the event that at any time after the date of this Agreement
any change in law such as described in Section 2.14, hereof, shall, in the
reasonable opinion of Bank require that the credit provided under this
Agreement be treated as an asset or otherwise be included for purposes of
calculating the appropriate amount of capital to be maintained by Bank or
any corporation controlling Bank and such change has or would have the
effect of reducing the rate of return on Bank's or Bank's parent's capital
or assets as a consequence of the Bank's obligations hereunder to a level
below that which Bank or Bank's parent would have achieved but for such
change, then Bank shall notify Companies and demand compensation therefor
and, within fifteen days after demand by Bank, Companies agree to pay to
Bank such additional amount or amounts as will compensate Bank for such
reduction. Bank will promptly notify Companies of any event of which it
has knowledge which will entitle Bank to compensation pursuant to this
Section. A certificate of Bank setting forth the basis for determining
such additional amount or amounts necessary to compensate Bank shall be
conclusively presumed to be correct save for manifest error.
2.A. THE INDEBTEDNESS: TERM CREDIT
2.A.1 Bank agrees to loan to Companies and Companies agree to
borrow, upon execution of this Agreement, the sum of Seven Million Dollars
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($7,000,000). At the time of borrowing, companies agree to execute the
Term Note as evidence of the Indebtedness under this Section 2.A.l. The
loan under this Section 2.A.1 shall be subject to the terms and conditions
of this Agreement.
2.A.2 The principal indebtedness represented by the Term Note
shall be payable in monthly installments of One Hundred Sixty Seven
Thousand and 00/100 Dollars ($167,000) each on the first day of each month
commencing June 1, 1997, until the Term Loan Maturity Date, when the entire
unpaid balance of principal and interest thereon shall be due and payable.
Companies shall pay interest on the indebtedness outstanding under the Term
Note from time to time outstanding at a per annum rate equal to one quarter
of one percent (1/4%) above Bank's Prime Rate. Upon the occurrence of any
Event of Default hereunder interest shall accrue on the unpaid principal
balance at a per annum rate of three percent (3%) above the rate otherwise
in effect. Interest shall be computed on a daily basis using a year of 360
days and assessed for the actual number of days elapsed. Interest shall be
payable monthly on the first day of each month, commencing June 1, 1997.
2-A-3 Companies, or any of them, may prepay the Term Note, in
whole or in part without premium or penalty. All prepayments of the Term
Loan shall be applied to payments due under the Term Note in the inverse
order of their maturity.
2-A-4 The proceeds of the Term Note shall be used solely to
refinance Companies existing indebtedness to Bank and shall be applied in
the order and manner as determined by Bank.
3. CONDITIONS AND SECURITY
3.1 Companies agree to furnish Bank, prior to the initial borrowing
hereunder, in form to be satisfactory to Bank, with (i) certified copies of
resolutions of the Board of Directors of each of the companies evidencing
approval of the borrowings hereunder, (ii) certified copies of each of the
Companies' Articles of Incorporation and Bylaws, and (iii) a certificate of
good standing from each jurisdiction in which any company conducts business
or in which any Company's activities require it to be qualified to do
business.
3.2 As security for all indebtedness of Companies to Bank hereunder
and under the Notes as herein provided, Companies agree to furnish, execute
and deliver to Bank or cause to be furnished, executed and delivered to
Bank prior to or simultaneously with the initial borrowing hereunder, in
form to be satisfactory to Bank and supported by appropriate resolution in
certified form, authorizing same, the following:
(a) Security Agreements granting to Bank security interests in all of
each of the Companies, tangible and intangible personal property,
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whether now owned or hereafter acquired, including, without
limitation, all Accounts, equipment, inventory, general
intangibles and chattel paper;
(b) The Guaranty;
(c) Financing Statements required or requested by Bank to perfect all
security interests to be conferred upon Bank under this Agreement
and to accord Bank a perfected security position under the
Uniform Commercial Code.
To the extent that any of the Companies has heretofore given a security
interest to Bank to certain of the foregoing and such documents and
agreements comply with the requirements of this Agreement, it is hereby
agreed that such documents and agreements shall remain in full force and
effect for the purposes of this Agreement, but Bank may, if it deems it
necessary or desirable, require execution of a new agreement or agreements
or amendments to such agreements.
4. REPRESENTATIONS AND WARRANTIES
Each of the Companies represents and warrants and such representations
and warranties shall be deemed to be continuing representations and
warranties during the entire life of this Agreement:
4.1 It is a corporation duly organized and existing in good standing
under the laws of the jurisdiction of its incorporation or formation, as
applicable, and is duly qualified to do business and in good standing in
every jurisdiction in which such qualification is material to its business
and operation or the ownership or lease of its properties; execution,
delivery and performance of this Agreement and other documents and
instruments required under this Agreement, and the issuance of the Notes by
Companies are within its corporate or limited liability company, as
applicable, powers, have been duly authorized, are not in contravention of
law or the terms of its Articles of Incorporation or Bylaws or other
constituent documents, as applicable, and do not require the consent or
approval of any governmental body, agency or authority; and this Agreement
and the other documents and instruments required under this Agreement and
the Notes, when issued and delivered, will be valid and binding in
accordance with their terms.
4.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the
issuance of the Notes by Companies are not in contravention of the unwaived
terms of any indenture, agreement or undertaking to which any Company is a
party or by which any Company is bound.
4.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of its officers is
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threatened against Companies or any Subsidiary of any of the Companies, the
outcome of which could materially impair any of the Companies, or any
Subsidiary's financial condition or their ability to carry on their
businesses taken as a whole.
4.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Companies, or any Subsidiary's assets, except to
Bank, or as permitted in this Agreement.
4.5 None of the Companies nor any Subsidiary maintains or contributes
to any employee pension benefit plan subject to title IV of the "Employee
Retirement Income Security Act of 1974" (herein called "ERISA"). There is
no unfunded past service liability of the pension plan and there is no
accumulated funding deficiency within the meaning of ERISA, or any existing
material liability with respect to any pension plan owed to the Pension
Benefit Guaranty Corporation ("PBGC") or any successor thereto, except any
funding deficiency for which an application to the PBGC for waiver is
pending or for which a waiver has been granted by the PBGC.
4.6 The financial statements of Companies dated December 31, 1996,
previously furnished Bank, are complete and correct in all material
respects and fairly present the financial condition of Companies and their
consolidated Subsidiaries; since said date there has been no material
adverse change in the financial condition of any of the Companies or any of
the Subsidiaries; to the knowledge of its officers, none of the Companies
nor any of the Subsidiaries has any contingent obligations (including any
liability for taxes) not disclosed by or reserved against in said financial
statements and at the present time there are no material unrealized or
anticipated losses from any present commitment of any of the Companies or
Subsidiaries.
4.7 Except as disclosed in attached Schedule 4.7, all tax returns and
tax reports of Companies and each Subsidiary required by law to have been
filed have been duly filed or extensions obtained, and all taxes,
assessments and other governmental charges or levies (other than those
presently payable without penalty and those currently being contested in
good faith for which adequate reserves have been established) upon
Companies or any Subsidiary (or any of its properties) which are due and
payable have been paid for which the failure to pay would materially
adversely affect its business or the value of its property or assets (taken
as a whole). The charges, accruals and reserves on the books of Companies
and the Subsidiaries in respect of the Federal income tax for all periods
are adequate in the opinion of Companies.
4.8 There are no subsidiaries of any Company, except those described
in attached Schedule 4.8.
4.9 Except as set forth in attached Schedule 4.9, each Company and
its Subsidiaries are, in the conduct of their business, in compliance in
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all material respects with all federal, state or local laws, statutes,
ordinances and regulations applicable to any of them, the enforcement of
which, if such Company or any Subsidiary were not in compliance, would
reasonably be expected to materially adversely affect its business or the
value of its property or assets (taken as a whole). Each Company and its
Subsidiaries have all approvals, authorizations, consents, licenses, orders
and other permits of all governmental agencies and authorities, whether
federal, state or local, required to permit the operation of their business
as presently conducted, except such approvals, authorizations, consents,
licenses, orders and other permits with respect to which the failure to
have would reasonably be expected to materially adversely affect its
business or the value of its property or assets (taken as a whole).
4.10 Except as set forth in attached Schedule 4.9, none of the
Companies nor any Subsidiary is party to any litigation or administrative
proceeding, nor so far as is known by it is any litigation or
administrative proceeding threatened against it or any other Company or
Subsidiary, which in either case (A) asserts or alleges that any of the
Companies or any Subsidiary violated Environmental Laws (as defined
herein), (B) asserts or alleges that any of the Companies or any Subsidiary
is required to clean up, remove, or take remedial or other response action
due to the disposal, depositing, discharge, leaking or other release of any
hazardous substances or materials, or (C) asserts or alleges that any of
the Companies or any Subsidiary is required to pay all or a portion of the
cost of any past, present, or future cleanup, removal or remedial or other
response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous substances
or materials by any of the Companies or any Subsidiary.
4.11 Except as set forth in attached Schedule 4.9, to the best of its
knowledge, after due inquiry, except as otherwise previously disclosed in
writing by Companies to Bank, there are no conditions existing currently or
likely to exist during the term of this Agreement which would subject any
of the Companies or any Subsidiary to material damages, penalties,
injunctive relief or cleanup costs under any applicable Environmental Laws
or which require or are likely to require material cleanup, removal,
remedial action or other response pursuant to applicable Environmental Laws
by any of the Companies or any Subsidiary.
4.12 Except as set forth in attached Schedule 4.9, none of the
Companies nor any Subsidiary is subject to any judgment, decree, order or
citation related to or arising out of applicable Environmental Laws and to
the best of its knowledge, after due inquiry, except as otherwise
previously disclosed in writing to the Bank, neither of the Companies nor
any Subsidiary has been named or listed as a potentially responsible party
by any governmental body or agency in a matter arising under any applicable
Environmental Laws.
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4.13 Except as set forth in attached Schedule 4.9, each of the
Companies and the Subsidiaries have all material permits, licenses and
approvals required under applicable Environmental Laws.
4.14 None of the Companies is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. None of the
Companies is engaged principally, or as one of its important activities,
directly or indirectly, in the business of extending credit for the purpose
of purchasing or carrying margin stock, and none of the proceeds of any of
the loans hereunder will be used, directly or indirectly, for any purpose
which would violate the provisions of Regulation U or X of the Board of
Governors of the Federal Reserve System. Terms for which meanings are
provided in Regulation U of the Board of Governors of the Federal Reserve
System or any regulations substituted therefor, as from time to time in
effect, are used in this paragraph with such meanings.
4.15 Each Company has good and valid title to the property pledged,
mortgaged or otherwise encumbered or to be encumbered by it under the loan
documents to which such Company is a party.
5. AFFIRMATIVE COVENANTS
Each of the Companies covenants and agrees that it will, and will
cause each of its Subsidiaries to, so long as any Indebtedness remains
outstanding under this Agreement:
5.1 Preserve and maintain their corporate existence and such of their
rights, licenses and privileges as are material to their business and
operations; and qualify and remain qualified to do business in each
jurisdiction in which such qualification is material to their business and
operations or the ownership of their properties.
5.2 Comply in all material respects with all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with
which could materially and adversely affect the financial condition or
operations of any of the Companies or any Subsidiary.
5.3 Maintain adequate insurance (and increase such insurance coverage
in such manner and to such extent as prudent business judgment and present
practice would dictate) with responsible insurance companies or
associations in such amounts and covering such risks as is customary with
companies engaged in similar businesses and having similar properties
similarly situated. In the case of all insurance policies covering
property mortgaged or pledged to the Bank or property in which the Bank
shall have a security interest, other than those policies protecting
against casualty liability to strangers, all such insurance policies shall
provide that the loss payable thereunder shall be payable to the applicable
Company or Subsidiary and the Bank as their respective interests may
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appear; all said policies or copies thereof, including all endorsements, to
be deposited with the Bank. If any of the Companies or any Subsidiary
shall fail to maintain such insurance, the Bank shall have the option to do
so, and if it so does Companies agree to repay the Bank, with interest at
the Default Interest Rate.
5.4 Permit the Bank, through its authorized attorneys, accountants,
and representatives, to examine each of the Companies' and Subsidiaries'
books, accounts, records, ledgers and assets of every kind and description
at all reasonable times upon oral or written request of the Bank, including
collateral audits, in each case at the expense of the Companies.
5.5 Keep proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets
and business of each of the Companies and Subsidiaries so as to permit each
of the Companies to present financial statements prepared in accordance
with generally accepted accounting principles consistently applied.
5.6 Furnish to the Bank the following:
(a) prompt notification of any condition or event which
constitutes or with the running of time and/or the giving of
notice would constitute an Event of Default under this
Agreement, and promptly inform the Bank of any material
adverse change in any of the Companies, or any Subsidiary's
financial condition;
(b) as soon as available and in any event within 45 days after
the end of each fiscal quarter of International, the
consolidated and consolidating balance sheets and statements
of profit and loss and surplus of International and its
consolidated Subsidiaries at the end of such fiscal quarter,
duly certified (subject to year-end audit adjustments) by
the chief financial officer of each of the Companies as
having been prepared in accordance with GAAP consistent with
those applied in the preparation of the financial statements
referred to in Section 4.6;
(c) as soon as available and in any event within 120 days after
the end of each fiscal year of International, consolidated
and consolidating audited financial statements of
International and its consolidated Subsidiaries for such
year, including a balance sheet as of the close of such
fiscal year, statements of income and retained earnings and
changes in financial position for such year, prepared in
accordance with GAAP and certified by independent certified
public accountants acceptable to the Bank;
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(d) within fifteen (15) days after and as of the end of each
month, a detailed aging of Accounts and accounts payable, an
Inventory report and a borrowing base report each in form
acceptable to Bank, certified by an officer of each of the
Companies; and
(e) promptly, and in form to be satisfactory to Bank, such other
information as Bank may reasonably request from time to
time.
5.7 Pay and discharge all taxes and other governmental charges and
all contractual obligations calling for the payment of money, before the
same shall become overdue, unless and to the extent only that such payment
is being contested in good faith.
5.8 At all times meet the minimum funding requirements of ERISA with
respect to its and its Subsidiaries' employee benefit plans subject to such
Act; as soon as possible and in any event within thirty (30) days after it
knows or has reason to know:
(a) of the occurrence of any event which would constitute a
reportable event under Section 4043(b) of Title IV of ERISA;
(b) that the PBGC or such Company (or any Subsidiary) has
instituted or will institute proceedings under such Title to
terminate an employee pension plan;
(c) of the appointment of a trustee by a United States District
Court to administer an employee pension plan;
(d) of the withdrawal of such Company or any Subsidiary from any
employee pension plan; or
(e) of the failure of such Company's or any Subsidiary's pension
plans to satisfy the minimum funding requirements for any
plan year as established in the Internal Revenue Code of
1986, as amended;
deliver to the Bank a certificate of the chief financial officer of such
Company setting forth details as to such reportable event or events and the
action it (or any Subsidiary) proposes to take with respect thereto,
together with a copy of any notice of such reportable event or events which
may be required to be filed with the PBGC, or any intent to institute such
proceedings, or any notice to the PBGC that the plan is to be terminated,
as the case may be. (For all purposes of this Section, each of Companies
(and each Subsidiary) shall be deemed to have knowledge of all facts
attributable to the plan administrator under such Title); and furnish to
the Bank (or cause the plan administrator to furnish the Bank) a copy of
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the annual return (including all schedules and attachments) for each plan
covered by Title IV, and filed with the Internal Revenue Service by either
of the Companies (or any Subsidiary), not later than ten (10) days after
such report has been so filed.
5.9 Maintain all principal bank accounts with the Bank.
5.10 Furnish to the Bank concurrently with the delivery of each of the
financial statements required by Section 5.6(c) and, within 45 days after
the end of each of Companies' fiscal quarters, a statement in the form of
Exhibit "F" prepared and certified by the chief financial officer of each of
the Companies (or in such officer's absence, a responsible senior officer
of each of the Companies) (a) setting forth all computations necessary to
show compliance, by Companies with each of the financial covenants
contained in Sections 5.11, 5.12, 5.13, 5.14 and 5.15 of this Agreement,
(b) stating that to the best of such officer's knowledge as of the date
thereof, no condition or event which constitutes an Event of Default
hereunder or which with the running of time and/or the giving of notice
would constitute an Event of Default hereunder has occurred and is
continuing or exists, or if such exists, specifying in detail the nature
and period of existence thereof and any action taken with respect thereto
or contemplated to be taken by Companies, and (c) stating that the signers
have personally reviewed this Agreement and that such certificate is based
on an examination sufficient to assure that such certificate is accurate.
5.11 Maintain as of the end of each of International's fiscal quarters
a Net Worth of not less than the base Net Worth. Base Net Worth shall
initially be Fifteen Million Dollars ($15,000,000). On December 31 of each
year (commencing December 31, 1997) base Net Worth shall increase by Two
Million Dollars ($2,000,000).
5.12 Maintain as of the end of each fiscal year of International, a
Funded Debt/EBITDA Ratio of not more than 3.0 to 1.0.
5.13 Maintain as of the end of each fiscal quarter of International, a
Leverage Ratio of not more than 3.0 to 1.0.
5.14 Maintain as of the end of each fiscal quarter of International, a
Current Ratio of not less than .8 to 1.0.
5.15 Maintain as of the end of each fiscal year of International, a
Fixed Charge Coverage Ratio of not less than 1.5 to 1.0.
6. NEGATIVE COVENANTS
Each of the Companies covenants and agrees that, so long as any
Indebtedness remains outstanding under this Agreement, it will not, and
will cause its subsidiaries not to, without the prior written consent of
Bank and until the Term Loan has been paid in full:
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6.1 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except:
(a) to the Bank;
(b) Permitted encumbrances as set forth in Exhibit "E" annexed
hereto; and
(c) purchase money security interests (and interests of lessors
under Capital Leases) in fixed assets to secure the
indebtedness permitted in Section 6.5(c) below to the extent
created substantially contemporaneously with the acquisition
of such fixed assets and the extent encumbering only the
fixed assets so acquired.
6.2 Purchase, acquire or redeem any of its capital stock or make any
material change in its capital structure or general business objects or
purpose.
6.3 Enter into any merger or consolidation or sell, lease, transfer,
or dispose of any part of its assets, except sales of inventory in the
ordinary course of its business.
6.4 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except for the following:
(a) by endorsement for deposit in the ordinary course of
business; and
(b) guaranties to the Bank.
6.5 Become or remain obligated for any indebtedness for borrowed
money, or for any indebtedness incurred in connection with the acquisition
of any property, real or personal, tangible or intangible, except:
(a) current unsecured trade, utility or nonextraordinary
accounts payable arising in the ordinary course of any
Company's or its Subsidiaries' business;
(b) to Bank;
(c) purchase money indebtedness (including obligations under
Capital Leases) for the acquisition of fixed assets in an
amount not to exceed $250,000 (on a combined basis) in the
aggregate during any fiscal year.
6.6 Except for Permitted Acquisitions, purchase or otherwise acquire
or become obligated for the purchase of all or substantially all of the
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assets or business interests of any person, firm or corporation or any
shares of stock of any corporation, trusteeship or association or in any
other manner effectuate or attempt to effectuate an expansion of the
present business by acquisition.
6.7 Declare or pay any dividends on, or make any other distribution
(whether by reduction of capital or otherwise) with respect to any shares
of its capital stock if at the time such dividend is declared or paid or if
after giving effect thereto there shall have occurred and be continuing an
Event of Default.
6.8 Make or allow to remain outstanding any investment (whether such
investment shall be of the character of investment in shares of stock,
evidences of indebtedness or other securities or otherwise) in, or any
loans or advances to, any person, firm, corporation or other entity or
association, except:
(a) advances made for expenses or purchases in the ordinary
course of business; and
(b) loans or advances made to officers, directors, or employees
of any of the Companies, not to exceed in the aggregate One
Hundred Thousand Dollars ($100,000) at any one time
outstanding (determined on a combined basis for Companies).
6.9 Allow any fact, condition or event to occur or exist with respect
to any employee pension and/or profit sharing plan of any of the Companies
or any Subsidiaries, which shall constitute grounds for termination of
such plan by the PBGC or for the appointment by a United States District
Court of a trustee to administer any such plan.
6.10 Sell, assign or confer a security interest in any account,
contract, note, trade acceptance or other receivable, except to Bank.
6.11 Make any Capital Expenditure during any calendar year if, after
giving effect thereto, the aggregate amount of all Capital Expenditures
made by Companies (on a combined basis) during such period would exceed
$5,000,000.
6.12 Enter into any transaction or series of transactions with any
Affiliate other than on terms and conditions as favorable to Companies or
the Subsidiary (as applicable) as would be obtainable in a comparable
arm's-length transaction with a person other than an Affiliate.
7. ENVIRONMENTAL PROVISIONS
7.1 For the purposes of this Agreement the term "Environmental Laws"
shall mean all federal, state and local laws including statutes,
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regulations, ordinances, codes, rules, and other governmental restrictions
and requirements, relating to environmental pollution, contamination or
other impairment of any nature, any hazardous or other toxic substances of
any nature, whether liquid, solid and/or gaseous, including smoke, vapor,
fumes, soot, acids, alkalis, chemicals, wastes, by-products, and recycled
materials. These Environmental Laws shall include but not be limited to
the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization
Act of 1986, regulations of the Environmental Protection Agency,
regulations of the Nuclear Regulatory Agency, regulations of any state
department of natural resources or state environmental protection agency
now or at any time hereafter in effect and local health department
ordinances.
7.2 Each of the Companies shall timely comply in all material
respects with all applicable Environmental Laws.
7.3 Each of the Companies shall provide to the Bank, immediately upon
receipt, copies of any correspondence, notice, pleading, citation,
indictment, complaint, order, decree, or other document from any source
asserting or alleging a circumstance or condition which requires or may
require a financial contribution by any of the Companies or any Subsidiary
or a cleanup, removal, remedial action, or other response by or on the part
of either of the Companies or any Subsidiary under applicable Environmental
Laws or which seeks damages or civil, criminal or punitive penalties from
either Company or any Subsidiary for an alleged violation of Environmental
Laws.
7.4 Each of the Companies shall promptly notify the Bank in writing
as soon as it becomes aware of any condition or circumstance which makes
the environmental warranties contained in this Agreement incomplete or
inaccurate in any material respect as of any date.
7.5 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or
inaccurate in any material respect as of any date, Companies shall, at
their sole expense, if reasonably requested by Bank, retain an
environmental professional consultant, reasonably acceptable to Bank, to
conduct a thorough and complete environmental audit regarding the changed
condition and/or circumstance and any environmental concerns arising from
that changed condition and/or circumstance. A copy of the environmental
consultant's report will be promptly delivered to both Bank and Companies
upon completion.
7.6 At any time either of the Companies, directly or indirectly
through any professional consultant or other representative, determines to
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undertake an environmental audit, assessment or investigation, it shall
promptly provide the Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and intended scope of the
environmental audit. Upon receipt, Companies will promptly provide to the
Bank copies of all final findings and conclusions of any such environmental
investigation. Preliminary findings and conclusions shall be provided if
final reports have not been completed and delivered to the Bank within 60
days following completion of the preliminary findings and conclusions.
7.7 Each of the Companies hereby indemnifies, saves and holds the
Bank and any of its past, present and future officers, directors,
shareholders, employees, representatives and consultants harmless from any
and all loss, damages, suits, penalties, costs, liabilities and expenses
(including but not limited to reasonable investigation, environmental
audit(s), and legal expenses) arising out of any claim, loss or damage of
any property, injuries to or death of persons, contamination of or adverse
affects on the environment, or any violation of any applicable
Environmental Laws, caused by or in any way related to any property owned,
leased or operated by Companies, or due to any acts of either of the
Companies, its officers, directors, shareholders, employees, consultants
and/or representatives. In no event shall either of the Companies be
liable hereunder for any loss, damages, suits, penalties, costs,
liabilities or expenses (i) arising from any act of gross negligence of the
Bank, or its agents or employees or (ii) arising from any action taken by
Bank while it is in sole possession of any such property.
It is expressly understood and agreed that the indemnifications
granted herein are intended to protect the Bank, its past, present and
future officers, directors, shareholders, employees, consultants and
representatives from any claims that may arise by reason of the security
interest, liens and/or mortgages granted to the Bank, or under any other
document or agreement given to secure repayment of any indebtedness from
either of the Companies, whether or not such claims arise before or after
the Bank has foreclosed upon and/or otherwise become the owner of any such
property. All obligations of indemnity as provided hereunder shall be
secured by the collateral documents.
It is expressly agreed and understood that the provisions hereof shall
and are intended to be continuing and shall survive the repayment of any
indebtedness from Companies to the Bank.
7.8 Each of the Companies and its Subsidiaries have and shall
maintain all permits, licenses and approvals required under applicable
Environmental Laws.
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8. DEFAULTS
8.1 Upon non-payment of any installment of the principal or interest
on either Note when due in accordance with the terms thereof, the Notes
shall automatically become immediately due and payable.
8.2 Upon occurrence of any of the following events:
(a) default by any company in the observance or performance of
any of the covenants or agreements of Companies set forth in
Sections 5.3, 5.4, 5.6, 5.10 through 5.15 or Section 6 (in
its entirety);
(b) default in the observance or performance of any of the other
covenants or agreements of any of the Companies herein set
forth, and continuance thereof for thirty (30) days after
notice to Companies by Bank;
(c) any representation or warranty made by any of the Companies
herein, or in any instrument submitted pursuant hereto shall
prove to be incorrect in any material respect;
(d) default by any of the Companies or any Subsidiary in the due
payment, after expiration of any applicable grace period, of
any other amounts owing to Bank from time to time;
(e) default by any of the Companies or any Subsidiary in the due
payment of any of its indebtedness to Bank, or in the
observance or performance of any term, covenant or
condition in any agreement or instrument evidencing,
securing or relating to such indebtedness, and such default
shall be continued for a period sufficient to permit
acceleration of such indebtedness;
(f) default by any of the Companies or any Subsidiary in the due
payment of any of its indebtedness (other than that owed to
Bank) in the principal amount of $10,000.00 or more, or in
the observance or performance of any term, covenant or
condition in any agreement or instrument evidencing,
securing or relating to such indebtedness, and such default
shall be continued for a period sufficient to permit
acceleration of such indebtedness;
(g) default in the observance or performance of any of the
covenants or agreements of any of the Companies or any other
person set forth in any collateral document of security
given to secure the indebtedness hereunder, and continuation
of such default beyond any period of grace specified in any
such document;
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(h) the entry against any of the Companies or any Subsidiary of
one or more judgments or decrees involving an aggregate
liability of $100,000.00 or more, which has or have become
non-appealable and shall remain undischarged, unsatisfied by
insurance and unstayed for more than 30 days, whether or not
consecutive; or the issuance and levy of a writ of
attachment or garnishment against the property of any of the
Companies or any Subsidiary in an action claiming
$100,000.00 or more, and which is not released or appealed
and bonded in a manner satisfactory to Bank;
(i) if any of the Companies or subsidiary shall fail to meet its
minimum funding requirements under ERISA with respect to any
employee benefit plan established or maintained by such
Company (or any appointment of a receiver, or trustee or
custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for
any of its property or assets (otherwise than upon
application or consent of any of the Companies, any
subsidiary, or any Guarantor as applicable) and such
receiver, trustee or custodian so appointed shall not have
been discharged within forty five (45) days after the date
of his appointment, or if an order shall be entered, and
shall not be dismissed or stayed within forty five (45) days
from its entry, approving any petition for reorganization of
any of the Companies, any Subsidiary or any Guarantor; then
the Notes and all indebtedness then outstanding hereunder
shall automatically become immediately due and payable.
8.4 Upon the occurrence and during the continuance of an Event of
Default, unless all of the Indebtedness is then immediately fully paid,
Bank shall have and may exercise any one or more of the rights and remedies
for which provision is made for a secured party under the UCC, under the
Security Agreements or under any other document contemplated hereby or for
which provision is provided by law or in equity, including, without
limitation, the right to take possession and sell, lease or otherwise
dispose of any or all of the collateral and to set off against the
Indebtedness any amount owing by Bank to Companies (or any of them) and/or
any property of Companies (or any of them) in possession of Bank.
Companies agree, upon request of Bank, to assemble the collateral and make
it available to Bank at any place designated by Bank which is reasonably
convenient to Bank and Companies.
8.5 All of the Indebtedness shall constitute one loan secured by
Bank's security interest in the collateral and by all other security
interests, mortgages, liens, claims, and encumbrances now and from time to
time hereafter granted from Companies to Bank. Upon the occurrence and
during the continuance of an Event of Default which is not cured within the
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cure period, if any, provided hereunder, Bank may in its sole discretion
apply the collateral to any portion of the Indebtedness. The proceeds of
any sale or other disposition of the collateral authorized by this
Agreement shall be applied by Bank, first upon all expenses authorized by
the Michigan Uniform Commercial Code (or other applicable law) or otherwise
in connection with the sale and all reasonable attorneys' fees and legal
expenses incurred by Bank; the balance of the proceeds of such sale or
other disposition shall be applied in the payment of the Indebtedness,
first to interest, then to principal, then to other Indebtedness and the
surplus, if any, shall be paid over to Companies or to such other Person or
Persons as may be entitled thereto under applicable law. Companies shall
remain liable for any deficiency, which Companies shall pay to Bank
immediately upon demand.
8.6 The remedies provided for herein are cumulative to the remedies
for collection of the Indebtedness as provided by law, in equity or by any
mortgage, security agreement or other document contemplated hereby.
Nothing herein contained is intended, nor shall it be construed, to
preclude Bank from pursuing any other remedy for the recovery of any other
sum to which Bank may be or become entitled for the breach of this
Agreement by Companies.
8.7 Upon the occurrence and during the continuance of any Event of
Default, Companies shall immediately upon demand by Bank deposit with Bank
cash collateral in the amount equal to the maximum amount available to be
drawn at any time under any Letter of Credit then outstanding.
8.8 A late payment charge equal to 5% of each late payment due under
the Notes may be charged on any payment not received by Bank within fifteen
(15) days after the due date thereof, but acceptance of this charge shall
not be waive any default under this Agreement.
9. MISCELLANEOUS
9.1 When used in this Agreement, the term "Companies" shall mean all
or any of them. The obligations and liabilities of Companies under this
Agreement are joint and several. This Agreement shall be binding upon and
shall inure to the benefit of Companies and Bank and their respective
successors and assigns.
9.2 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further exercise
thereof, or the exercise of any other power, right or privilege. The
rights of Bank under this Agreement are cumulative and not exclusive of any
right or remedies which Bank would otherwise have.
9.3 All notices with respect to this Agreement shall be deemed to be
completed upon mailing by certified mail as follows:
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To Companies:
620 S. Platt
Milan, Michigan 48160
Attention: Richard Schoenfeldt
To Bank:
One Detroit Center
500 Woodward Avenue, 6th Floor
Detroit, Michigan 48226
Attention: Metropolitan Banking A
9.4 Companies shall pay all reasonable closing costs and expenses,
including, by way of description and not limitation, outside attorney fees,
and lien search fees incurred by Bank in connection with the commitment,
consummation and closing of this Agreement. All of said amounts required
to be paid by Companies may, at Bank's option, be charged by Bank as an
advance against the proceeds of the Line of Credit Note. All reasonable
costs, including attorney fees, incurred by Bank in reviewing, revising,
protecting or enforcing any of its or any of the Bank's rights against
Companies or defending Bank from any claims or liabilities by any party or
otherwise incurred by Bank in connection with an Event of Default or the
enforcement of this Agreement or the related documents, including by way of
description and not limitation, such charges in any court or bankruptcy
proceedings or arising out of any or action by any person against Bank
which would not have been asserted were it not for Bank's relationship with
Companies hereunder or otherwise, shall also be paid by Companies.
9.5 This Agreement shall become effective upon the execution hereof
by Bank and each of the Companies.
9.6 On any event of default or default as described in this Agreement
or any default in payment of any liability above mentioned, Bank may,
without notice to anyone, declare the Notes due forthwith, take all action,
remedial and otherwise, as provided herein or in the Security Agreements or
other document, instrument, or agreement of security or of collateral, and
collect, deal with and dispose of all or any part of any security without
notice in any manner permitted or authorized by the Michigan Uniform
Commercial Code or other applicable law. Bank may apply the proceeds and
any deposits or credits in part or full payment of any of said liabilities
(including reasonable attorneys' fees and expenses), whether due or not, in
any manner or other Bank elects.
9.7 No amendments or waiver of any provision of this Agreement nor
consent to any departure by any of the Companies therefrom shall in any
event be effective unless the same shall be in writing and signed by the
Bank, and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No
amendment, waiver or consent with respect to any provision of this
Agreement shall affect any other provision of this Agreement.
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9.8 Where the character or amount of any asset or liability or item
of income or expense is required to be determined or any consolidation or
other accounting computation is required to be made for the purposes of
this Agreement, it shall be done in accordance with GAAP.
9.9 All sums payable by Companies to Bank under this Agreement or the
other documents contemplated hereby shall be paid directly to Bank at its
principal office set forth in Section 9.3 hereof in immediately available
United States funds, without set off, deduction or counterclaim. In its
sole discretion, Bank may charge any and all deposit or other accounts
(including without limit an account evidenced by a certificate of deposit)
of Companies (or any of them) with Bank for all or a part of any
Indebtedness then due; provided, however, that this authorization shall not
affect Companies' obligation to pay, when due, any Indebtedness whether or
not account balances are sufficient to pay amounts due.
9.10 Any payment of the Indebtedness made by mail will be deemed
tendered and received only upon actual receipt by Bank at the address
designated for such payment, whether or not Bank has authorized payment by
mail or any other manner, and shall not be deemed to have been made in a
timely manner unless received on the date due for such payment, time being
of the essence. Companies expressly assume all risks of loss or liability
resulting from nondelivery or delay of delivery of any item bf payment
transmitted by mail or in any other manner. Acceptance by Bank of any
payment in an amount less than the amount then due shall be deemed an
acceptance on account only, and the failure to pay the entire amount then
due shall be and continue to be an Event of Default, and at any time
thereafter and until the entire amount then due has been paid, Bank shall
be entitled to exercise any and all rights conferred upon it herein upon
the occurrence of an Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Companies waive the right to direct the
application of any and all payments at any time or times hereafter received
by Bank from or on behalf of Companies. Upon the occurrence and during the
continuance of an Event of Default, Companies agree that Bank shall have
the continuing exclusive right to apply and to reapply any and all payments
received at any time or times hereafter against the Indebtedness in such
manner as Bank may deem advisable, notwithstanding any entry by Bank upon
any of its books and records. Companies expressly agree that to the extent
that Bank receives any payment or benefit and such payment or benefit, or
any part thereof, is subsequently invalidated, declared to be fraudulent or
preferential, set aside or is required to be repaid to a trustee, receiver,
or any other party under any bankruptcy act, state or federal law, common
law or-equitable cause, then to the extent of such payment or benefit, the
Indebtedness or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not
been made and, further, any such repayment by Bank, to the extent that Bank
did not directly receive a corresponding cash payment, shall be added to
and be additional Indebtedness payable upon demand by Bank.
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9.11 THE COMPANIES AND 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 OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE NOTES.
9.12 Bank agrees that it will not disclose without the prior consent
of Companies (other than to its employees or to its auditors or counsel)
any information with respect to Companies which is furnished pursuant to
this Agreement or any of the Loan Documents and specifically designated in
writing by Companies as confidential information; provided that Bank may
disclose any such information (a) as has become generally available to the
public or has been lawfully obtained by Bank from any third party under no
duty of confidentiality to Companies, (b) as may be required or appropriate
in any report, statement or testimony submitted to, or in respect to any
inquiry, by, any municipal, state or federal regulatory body having or
claiming to have jurisdiction over Bank, including the Board of Governors
of the Federal Reserve Board, the Office of the Comptroller of the Currency
or the Federal Deposit Insurance Corporation or similar organizations
(whether in the United States or elsewhere) or their successors, (c) as may
be required or appropriate in respect to any summons or subpoena or in
connection with any litigation, (d) in order to comply with any law, order,
regulation or ruling applicable to Bank, and (e) to any transferee or
assignee or to any participant of, or with respect to, the Notes.
9.13 This Agreement and the Notes shall be governed by and construed
in accordance with Michigan law, and Companies submit, in any legal
proceeding related to this Agreement or the Notes, to the nonexclusive in
personam jurisdiction of any court of competent jurisdiction sitting the
State of Michigan and agree to a suit being brought in any such court;
waive any objection that it may now have or hereafter have to the venue of
such proceeding in any such court or that such proceeding was brought in an
inconvenient court; agree that service of process and any such legal
proceeding may be made, and shall be conclusively deemed sufficient and
adequate, by mailing of copies thereof (by registered or certified mail, if
practicable) postage prepaid, or by teletransmission to each Company at its
address set forth herein or such other address of which the Bank shall be
notified in writing, in which event, service shall be deemed complete upon
the filing with the court of a copy of the process mailed or sent and an
affidavit attesting the mailing or sending. Companies agree that nothing
herein shall affect the Bank's right to affect service or process in any
other manner permitted by law.
-32-
<PAGE>
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK THE COLONEL'S INTERNATIONAL, INC.
By: /S/ By: /S/ RICHARD SCHOENFELDT
Its Vice President Its: CHIEF FINANCIAL OFFICER
THE COLONEL'S, INC.
By: /S/ RICHARD SCHOENFELDT
Its: CHIEF FINANCIAL OFFICER
BRAINERD INTERNATIONAL RACEWAY,
INC.
By: /S/ RICHARD SCHOENFELDT
Its: CHIEF FINANCIAL OFFICER
THE COLONEL'S TRUCK ACCESSORIES,
INC.
By: /S/ RICHARD SCHOENFELDT
Its: CHIEF FINANCIAL OFFICER
-33-
<PAGE>
EXHIBIT 10.22
COMERICA MASTER REVOLVING NOTE
Variable Rate-Demand - Optional Advances (Business and Commercial
Loans Only)
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION NUMBER
$1,000,000.00 March 17, 1998 ON DEMAND
FOR VALUE RECEIVED, the undersigned promise(s) to pay ON DEMAND to the
order of Comerica Bank ("Bank"), at any OFFICE OF the Bank in the State of
Michigan, ONE MILLION DOLLARS AND NO/100 ---------------------------------
Dollars (U.S.) (or that portion of it advanced by the Bank and not repaid
as later provided) with interest until demand or until Default, as later
defined, at a per annum rate equal to the Bank's prime rate from time to
time in effect plus -0-% per annum 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 on the basis of a
360-day year for the actual number of days the principal is outstanding.
Unless sooner demanded, accrued interest on this Note shall be payable on
the FIRST day of each MONTH commencing MAY 1, 1998. 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, unless sooner
demanded. 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 charge 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
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
<PAGE>
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 of 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 deed of trust, 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, (i) to the extent that any
portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in
any of the undersigned's principal dwelling or in any of the undersigned's
real property which is not a purchase money security interest as to that
portion, unless expressly provided to the contrary in another place, or
(ii) if the undersigned (or any of them) has(have) given or give(s) Bank a
deed of trust or mortgage covering California real property, that deed of
trust or mortgage shall not secure this Note or any other indebtedness of
the undersigned (or any of them), 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") (i) fail(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fails(s)
to pay any Indebtedness owing on a demand basis upon demand; or
(ii) 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 (iii) 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 or a limited liability company) is the subject of a
dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in
connection with this Note or any of the Indebtedness shall be discovered to
be untrue or incomplete; or (b) if there is any termination, notice of
termination, or breach of any guaranty, pledge, collateral assignment or
<PAGE>
subordination agreement relating to all or any part of the Indebtedness; or
(c) 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 (d) 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 (e) 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.
The undersigned acknowledge(s) that this Note matures upon issuance, and
that the Bank, at any time, without notice, and without reason, may demand
that this Note be immediately paid in full. The demand nature of this Note
shall not be deemed modified by reference to a Default in this Note or in
any agreement to a default by the undersigned or to the occurrence of an
event of default (collectively an "Event of Default"). For purposes of
this Note, to the extent there is reference to an Event of Default this
reference is for the purpose of permitting the Bank to accelerate
Indebtedness not on a demand basis and to receive interest at the default
rate provided in the document evidencing the relevant Indebtedness. It is
expressly agreed that the Bank may exercise its demand rights under this
Note whether or not an Event of Default has occurred. The Bank, with or
without reason and without notice, may from time to time make demand for
partial payments under this Note and these demands shall not preclude the
Bank from demanding at any time that this Note be immediately paid in full.
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
<PAGE>
release, 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 3-605 of the Michigan 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
participations 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 information which the Bank now or later has relating to
the undersigned or the Indebtedness. The undersigned agree(s) that the
Bank may provide information relating to this Note or relating to the
undersigned to the Bank's parent, affiliates, subsidiaries and service
providers.
The undersigned agree(s) to reimburse the holder or owner of this Note upon
demand for any and all costs and expenses (including without limit, court
costs, legal expenses and reasonable attorney fees, whether 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 no 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,
indorser 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 IS MADE
IN THE STATE OF MICHIGAN AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM, 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 OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
<PAGE>
THE COLONEL'S, INC. By: /S/RICHARD S. SCHOENFELDT Its: CFO
THE COLONEL'S INTERNATIONAL,
INC. By: /S/RICHARD S. SCHOENFELDT Its: CFO
THE COLONEL'S TRUCKING
ACCESSORIES, INC. By: /S/RICHARD S. SCHOENFELDT Its: CFO
BRAINERD INTERNATIONAL
RACEWAY, INC. By: /S/RICHARD S. SCHOENFELDT Its: CFO
P O BOX 130 MILAN, MI 48160
- -------------------------------------------------------------------------
Street Address City State Zip Code
For Bank Use Only CCAR#
LOAN OFFICER INITIALS LOAN GROUP NAME OBLIGOR NAME The Colonel's,
RMF Metro Loans-D Inc., The Colonel's International,
Inc. The Colonel's Truck
Accessories, Inc., Brainerd
International Raceway, Inc.
LOAN OFFICER ID NO. LOAN GROUP NO. OBLIGOR NO. NOTE NO. AMOUNT
2256 91607 1705368591 $1,000,000.00
<PAGE>
EXHIBIT 10.23
DONALD J. WILLIAMSON
Chairman of the Board
The Colonel's, Inc.
620 South Platt Road
P.O. Box 130
Milan, Michigan 48160
TELEPHONE: (313) 439-4200
Facsimile: (313) 439-0835
June 28, 1996
Mr. John Carpenter
2161 South Oak Road
Davison, Michigan 48423
Re: Employment Agreement
Dear John:
I thought it might be helpful to both you and The Colonel's if I set out
The Colonel's offer to you in writing. If you decide to accept this offer,
please sign in the space provided below my signature. Your signature
combined with mine will make this letter a formal employment contract
between The Colonel's, Inc. and you.
JOB DESCRIPTION
Your title and position at The Colonel's will be "National Sales Manager-
Bedliner Division." In that capacity, you would be responsible for
supervising The Colonel's Bedliner sales force, participating in the
formulation of and then being primarily responsible for executing marketing
plans and campaigns. In order to fully utilize your skills and experience,
The Colonel's would expect you to assume control and have primary oversight
responsibility for the smooth solicitation, receipt, filling and shipping
of customer orders. The people receiving orders, filing them, and
arranging for their shipment would report, directly or ultimately, to you.
Because your position is crucial to the growth and success of the bedliner
division, we have agreed that it will likely be full six-day a week for the
foreseeable future.
The Colonel's would expect that you will work closely with manufacturing,
personnel and finance in coordinating your efforts with theirs, but you
would report directly to me as the Chairman of the Board and Chief
Executive Officer. As you and I have discussed, The Colonel's would like
<PAGE>
Mr. John Carpenter
June 27, 1996
Page 2
its warehouse outlets, bumper sales force, and bedliner sales forces to
work together for the common goal of growing The Colonel's and its product
lines. Each Department and Division head's ability to work with one
another will be an important component of how The Colonel's evaluates each
person's performance and success.
BASE OF OPERATIONS
Your primary base of operations will be located at the Owosso bedliner
plant. We anticipate that you may meet with other Colonel's executives at
its Milan facility, as well.
SALARY AND BENEFITS
Your base salary will be $100,000, payable in equal weekly installments.
In addition, you will receive a bonus equal to 10<Cents> per liner for each
liner sold by The Colonel's. That bonus will be computed and paid monthly
between the 15th and last day of the following month.
You will be entitled to one week's "paid" vacation during your first three
years of service and two weeks a year after that. The Colonel's will
provide you with Blue Cross/Blue Shield (or equivalent) health coverage.
At the present time, The Colonel's does not offer any other retirement or
disability benefits. Your position will entitle you to equally participate
in any programs adopted for management and salaried personnel in the
future.
VEHICLE, TRAVEL AND EXPENSES
The Colonel's will provide you with the use of a pickup truck and
appropriate collision and liability insurance under our fleet coverage, and
needed periodic maintenance. You will be responsible for personal use
gasoline. Your travel costs to conventions, industry meetings, and
specific visits to particular customers will be reimbursed by The
Colonel's. Arrangements regarding travel accommodations, etc., for you
will be uniform with those for the five highest paying positions at The
Colonel's. We anticipate that future special requirements related to your
position will be arranged between you and the CEO or Chairman.
<PAGE>
Mr. John Carpenter
June 27, 1996
Page 3
YOUR AVAILABILITY AND PROPOSED STARTING DATE
You have advised me that you are not under any legal impediment or
noncompete or confidentiality agreement which would prevent you from
starting your employment under this agreement immediately. We have agreed
that you will begin your duties two weeks after you sign this agreement, at
which time your salary and benefits will commence. In the event that your
health coverage does not begin immediately, The Colonel's agrees to
reimburse you for the cost of continuing your present coverage until our
coverage for you becomes effective.
TERM OF AGREEMENT AND SEVERANCE PACKAGE
You have proposed that this employment contract cover the first five years
of your employment, with either party being able to terminate it for just
cause. You have further proposed that The Colonel's have the right to
terminate your employment without any cause by tendering a termination
payment equal to 3 month's salary and your any accrued but unpaid salary
and bonuses earned as of the date of that tender. Under your proposal, you
may terminate this agreement by giving 30 days notice, with all benefits
(not otherwise covered by COBRA) ending when that 30 period expires. Your
proposal is acceptable to The Colonel's and is incorporated herein.
LOYALTY AND GOOD FAITH
In return for the compensation and employment benefits described above, you
agree that you will faithfully perform the duties assigned to you to the
best of your ability, to devote your entire compensated time to The
Colonel's business, and not to engage or become interested in any other
business during this agreement's term that would detract from or conflict
with your responsibilities under this agreement.
COVENANT NOT TO COMPETE
You have proposed, in return for The Colonel's undertakings under this
agreement, that you will agree not to associate with or engage in any
business engaged in the manufacture, distribution or sale of bedliners for
a period of two years from the date of your separation from service. Your
proposal is acceptable to The Colonel's and is incorporated herein
<PAGE>
Mr. John Carpenter
June 27, 1996
Page 4
CONFIDENTIAL AND PROPRIETARY INFORMATION
You agree that all records, papers, information, materials and supplies
distributed to you, assigned to you, collected or prepared by you, or which
otherwise come into your possession during the performance of your duties
during the term of this agreement will be considered The Colonel's property
and will be returned immediately upon our request or the termination of
this agreement by either party.
ARBITRATION
Any and every dispute that may arise between The Colonel's and you
regarding this contract or either party's performance under it will be
resolved by binding arbitration under the rules of the American Arbitration
Association.
ACKNOWLEDGMENT OF OTHER AGREEMENTS
NOT AFFECTING THE COLONEL'S, INC.
You and I have reached agreement on certain other matters to which The
Colonel's, Inc. is not a party. Regardless of whether those matters are
reduced to writing or not, you and I have agreed that The Colonel's, Inc.
is only a party to the terms expressly set out in this agreement and that
this agreement states all of the obligations that you and The Colonel's owe
to one another.
The position that we want you to fill and the abilities that you bring to
The Colonel's can't be fully captured in a single document or snapshot.
There are items or areas that may not be covered by this letter. As to
those terms that are set out in it, The Colonel's and you do agree that
those written terms can only be changed or superseded by terms that are
reduced to writing and signed by both parties.
Yours truly,
Donald J. Williamson
Chairman of the Board and
Chief Executive Officer
The Colonel's, Inc.
<PAGE>
Mr. John Carpenter
June 27, 1996
Page 5
<PAGE>
The terms set out in the preceding 4 pages of this letter, which I have
joined Donald J. Williamson in initialing, accurately state the
understandings that I have reached with The Colonel's and I accept The
Colonel's offer of employment as set out above in this letter.
/S/ JOHN W. CARPENTER
John W. Carpenter
July 15, 1996
<PAGE>
EXHIBIT 10.24
CLIENT SERVICE AGREEMENT
Agreement ("Agreement") made by and between DESIGNED ADMINISTRATIVE
RESOURCES TECHNOLOGIES, INC. ("DART"), a Michigan corporation, and THE
COLONELS, INC. ("Client"), a Michigan corporation.
RECITALS
DART is a professional employer organization engaged in the business
of providing leased employees. Client is engaged in a business which
requires personnel. DART desires to lease to Client, and Client desires to
lease from DART, personnel required in the operation of Client's Business.
In consideration of the mutual promises and benefits contained herein, the
parties agree as follows:
1. SERVICES. DART agrees to lease to Client and Client agrees to
lease from DART the personnel on the list previously supplied by Client to
DART ("Leased Employees") on the terms and conditions herein. DART shall
(a) compile, prepare and file all payroll and employee information and make
all proper payroll deductions, including payments for income and Social
Security tax requirements under local, State and Federal laws for the
Leased Employees (b) assume responsibility for administrative matters and
the provision of contracted fringe benefits relating to compensation of the
Leased Employees and (c) secure and maintain insurance coverage for the
Leased Employees as required in this Agreement. DART shall not be
obligated to retain any Former Client Employee.
2. TERM OF AGREEMENT. This Agreement shall remain in full force and
effect for a period of one (1) year following the commencement date
("Initial Term"). Upon the Renewal Date of the Initial Term, and on each
Renewal Date thereafter, this Agreement shall be renewed for an additional
one (1) year period until: (a) termination by either party thirty (30)
days prior to the Renewal Date, giving written notice to the other; or (b)
Client shall be in default of this Agreement, in which case DART may
immediately terminate this Agreement. Further, in such case, termination
may, at the option of DART, occur retroactive to the date of default.
Termination may also, at the option of DART, occur in the event that the
Client fails to report payroll for the Leased Employees for a period
exceeding thirty (30) days. In the event of termination of this Agreement,
all obligations and responsibilities regarding the Leased Employees shall
revert back to the Client. DART agrees that all rates and fees set forth
at the commencement of this Agreement shall not be adjusted during the
"Initial Term". Following the "Initial Term", and on the Renewal Date for
each succeeding year thereafter, rates and fees shall be subject to an
annual adjustment limited to the rate of increase reflected by the Consumer
Price Index for that period unless the parties hereto agree in writing
otherwise.
<PAGE>
3. PAYMENT AND TERMS.
3.1 INITIAL FEE. Client shall pay to DART a non-refundable,
one-time initial fee in the amount of $0.
3.2 DEPOSIT. Client shall pay to, and maintain with DART a
deposit in the amount of $0. The deposit may be modified by DART
commensurate with a change in the number of Leased Employees assigned to
Client. Should Client fail to pay DART any payments when due, DART may
apply the deposit to the amount due. Should the deposit fall below the
amount required by this Section, Client shall, upon notice, replenish the
deposit amount within seven (7) days of such notice. In the event Client
fails to maintain the required deposit amount, DART may, in addition to any
other remedies, immediately terminate this Agreement without notice and/or
terminate or withdraw all of the Leased Employees from Client's place of
business. DART shall not be obligated to keep such deposit as a separate
fund.
3.3 ADMINISTRATION FEE. Client shall pay to DART an
Administration Fee in the amount of $6.00 per each payroll check received
by such Leased Employee per week. Bonus, separate and/or additional
payroll checks, authorized by the Client, shall be processed/provided by
DART at $3.00 per item/check. During the Initial Term, the Administration
Fee will not be adjusted.
3.4 REIMBURSEMENTS. In accordance with the payment procedures
described herein, Client shall pay to DART all costs incurred by DART in
connection with the Leased Employees including, but not limited to, all:
(a) payroll (inclusive of bonuses and special payments), applicable
Federal, State and local taxes; (b) premiums and contributions in
connection with employee benefits, including (but not limited to) health,
accident and disability insurance; (c) workers' compensation, unemployment
compensation charges; and (d) payments in connection with pension or
retirement plans.
3.5 PAYMENT TERMS.
(a) PAYMENT. Payment is due within twenty-four (24) hours after
receipt of an itemized invoice setting forth all charges
applicable to the Leased Employees for the current pay
period, Client shall deliver to DART payment in full for
such invoice via ACH debit with all funds available by 10:00
A.M. on date of payroll. In the event DART accepts other
forms of payments, DART shall retain the right to require
payment by the method(s) set forth herein.
(b) LATE PAYMENT. All payments not received by DART when due
shall bear interest at the rate of one tenth of one per cent
-2-
<PAGE>
per day. If such interest rates are forbidden by law, the
applicable rate shall be the highest rate permitted by law.
(c) MODIFICATION. Any required adjustment to (i) Federal, State
or local taxes; (ii) insurance premiums (iii) or status of
the Leased Employees shall be assessed on the invoice
according to the "effective date" of the adjustment. If
circumstances warrant, DART may be required to retroactively
invoice the Client for these adjustments. These adjustments
shall be assessed as either a credit or debit. Any costs
debited shall be due by the Client upon receipt of that
invoice.
(d) BILLING DISPUTE. If Client disputes the accuracy of any
invoice delivered pursuant to Section 3.5(a), Client shall,
within twenty-four (24) hours of receipt, deliver its full
payment pursuant to its invoice, along with a written notice
and detailed explanation of such dispute to DART. If notice
is not received within one (1) week, not to exceed seven (7)
calendar days, the accuracy of such invoice shall be assumed
and Client shall have waived any objections to accuracy. If
received timely, DART shall meet with Client to verify the
accuracy of the account within ten (10) business days. Any
errors shall be corrected by a debit or credit to the
Client's next invoice.
3.6 VERIFICATION BY CLIENT. Client shall verify all time
submissions of Leased Employees. If Client believes that there is an error
in the Leased Employees' submitted time or payment, it shall be the
responsibility of Client to communicate and provide written proof of the
error. Until corrected, Client shall not deduct any amount from payment of
its current invoice as a credit or set-off. Errors, upon verification,
shall be corrected by an adjustment on the next invoice to Client.
3.7 EARLY TERMINATION CHARGES. In the event that this Agreement
is terminated early or on less than thirty (30) days notice, by either
party, the Client shall continue to be responsible for any insurance or
employment liabilities prepaid or incurred by DART with respect to the
Leased Employees reporting to Client at termination. Client further agrees
to continue to pay the weekly administration fee for the Leased Employees
until the expiration of the current term of the agreement.
3.8 UNEMPLOYMENT INSURANCE EXPENSE REIMBURSEMENT. In the event
of the sale, dissolution, liquidation, reorganization or permanent closing
of Client's business which causes DART to terminate or lay-off any Leased
Employee assigned to Client under this Agreement, Client agrees to promptly
reimburse DART the actual cost for all unemployment expenses and charges
incurred by DART with respect to such employees, in the event DART is
-3-
<PAGE>
unable to find other employment for such employees and must terminate their
employment for lack of work or any other reason.
4. WORK ENVIRONMENT AND RELATED MATTERS.
4.1 DIRECTION AND CONTROL - LEASED EMPLOYEES. DART and Client
agree that they each have the right to exercise direction and control
relating to the management of safety, risk and labor matters at work site
locations. Accordingly, DART shall consult with Client, and Client shall
have the responsibility to consult with DART; however, DART shall retain
the final decision, after consultation with Client, to: (a) hire, fire,
discipline and direct and regulate and supervise all working conditions and
labor policies; (b) establish all wages, benefits, salaries, bonuses or
advancements; (c) conduct safety inspections of Client's equipment and work
site; and set and administer employment and safety policies, (d) facilitate
collective bargaining relationships between Client and labor unions
representing the Leased Employees and contract administration in connection
therewith.
DART shall be entitled, at its own expense, to install in conspicuous
location(s) bulletin board(s) at Client's work site(s), in order to
effectively communicate with the Leased Employees. Client shall cooperate
with DART in maintaining the integrity of such bulletin board(s) and shall,
upon request, insert or post information for the Leased Employees as
requested or required by DART from time to time.
4.2 COOPERATION IN DEFENSE OF CLAIMS. Client agrees to
cooperate fully when required to assist DART in defending claims or
litigation resulting from personnel decisions or job actions relating to
Leased Employees. Client's cooperation shall include, but not be limited
to, the completion of reports and, if requested, attendance at hearings as
a witness, answering questions or interrogatories under oath or otherwise
and providing access to Client's documents relating to the Leased
Employees. This obligation shall survive the termination of this
Agreement.
4.3 CLIENT RESPONSIBILITIES. Client shall comply with all
health, labor and safety laws, regulations, ordinances and rules of
Federal, State and local government authorities. Client shall comply at
its own expense with any specific directives from DART, DART's workers'
compensation carrier or any government agency having jurisdiction over
Client's place of business or the safety and health of the Leased
Employees. Client shall report all employee accidents and injuries to DART
within twenty-four (24) hours of being reported to management and/or
ownership. DART and its carriers shall have the right to inspect Client's
place of business at all reasonable times to insure compliance with this
Section and the terms of this Agreement.
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Client further agrees to deliver to DART a completed First Report
of Injury Form, as soon as possible, and, in no event, more than five (5)
days after the date of any accident in cases where such a form is required
to be submitted, once the incident is reported to management and/or
ownership. If such Report is not received by DART within five (5) calendar
days, Client agrees to pay DART, as liquidated damages for such failure,
and not as a penalty, an amount equal to one hundred (100%) percent of
DART'S total incurred claim cost in connection with the accident, payable
with the next invoice. This liquidated damage provision is a good faith
attempt by the parties to estimate the total damages incurred by DART
proximately caused by the failure to report accidents in a timely fashion.
Further, Client acknowledges that such amount is based upon a "pass
through" of the costs assessed to DART by its insurance carrier. All such
amounts shall be due and are to be paid by Client when invoiced.
Client agrees to provide DART with a periodic report regarding
the Leased Employees, the hours worked and any other information reasonably
requested by DART (the "Report") on a form and at such schedule as
requested by DART. Client represents and warrants that the information
provided to DART in or in connection with the Report shall be complete and
accurate and that DART may rely upon such information.
5. REPRESENTATIONS AND WARRANTIES OF CLIENT. The representation and
warranties made by Client herein shall survive the term of this Agreement
The representations and warranties in this Section are deemed to be
material and DART is entering into this Agreement relying on such
representations and warranties. Client represents and warrants to DART as
follows:
5.1 AUTHORIZATION. Client has been duly authorized by all
requisite corporate or other action to execute this Agreement. The
execution and performance by Client of this Agreement will not, with or
without the giving of notice or the passage of time or both, (a) violate
the provisions of any law, rule or regulation applicable to Client; (b)
violate any judgment, decree, order or award of any court, governmental
body or arbitrator; or (c) violate the provisions of any separate contract,
agreement or arrangement to which Client is bound.
5.2 CLIENT EMPLOYEE PLANS. Except as communicated to DART in
writing prior to the execution of this Agreement:
(a) LIST AND DESCRIPTIONS OF CLIENT EMPLOYEE PLANS. Client has
supplied DART with a correct and complete list of all
pension, 401(k), benefit, profit-sharing, retirement,
deterred compensation, welfare, insurance disability, bonus,
vacation pay or severance pay, all collective bargaining,
trust, non-competition, employment and consulting
agreements, executive compensation, employee stock option
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and stock purchase, group life, health and accident
insurance and other similar plans, programs, agreements,
memoranda of understanding, arrangements or commitments
relating to the Leased Employees to which the Client is a
party or by which Client is bound. Client has delivered to
DART correct and complete copies of all Client Employee
Plans which have been reduced to writing and written
descriptions, and all Client Employee Plans which have not
been reduced to writing, and all modifications thereto for
each Client Employee Plan communicated.
(b) RETIREE BENEFITS. No Client Employee Plan provides health
or life insurance benefits for retirees.
(c) CLAIMS. To the best of Client's knowledge, there are no
threatened or pending claims, suits or other proceedings by
Former Client Employees, plan participants, beneficiaries or
spouses of any of the above, the IRS, the Pension Benefit
Guaranty Corporation, or any other person or entity
involving any Client Employee Plan, including claims against
the assets of any trust, involving any Client Employee Plan
or any rights or benefits thereunder, other than ordinary
and usual claims for benefits by participants or
beneficiaries including claims pursuant to domestic
relations orders.
(d) CONTROLLED GROUP. Client is a member of a "controlled group
of corporations" as defined in Section 1563(a) of the
Internal Revenue Code of 1986, as amended.
5.3 DISCLOSURES. Client has fully disclosed to DART all
investigations, lawsuits or other adversary proceedings involving Client
for three (3) years preceding the execution of this Agreement.
5.4 EMPLOYMENT HISTORY. All information pertaining to Former
Client Employees and their employment relationship with Client provided to
DART pursuant to this Agreement is accurate and complete.
5.5 WORKERS' COMPENSATION INFORMATION. Client has provided DART
with: (a) insurance policies covering its former employees for a period of
not less than one (1) entire calendar year immediately preceding the
execution of this Agreement and all renewal letters regarding such
policies, whether or not such policies were, in fact, renewed; and, (b)
audits regarding such policies for the same time, whether or not such audit
was conducted or requested during or after the effective dates of such
coverage(s). Further, with respect to such information, Client warrants
that the audit information, classification codes and experience
modification information provided is complete and accurate and that no
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information is omitted that would, by its omission, cause such information
to be misleading. Further, Client acknowledges that, if not provided
hereby, there is no audit or request for audit currently pending or
outstanding. In the event DART incurs any charges or surcharges on behalf
of Client following an audit of DART relating to Client's business, and
whether such charges or surcharges relate to claims experience, employee
classification code changes or otherwise, Client shall be fully responsible
and shall indemnify DART for such charges and/or surcharges attributable to
the Client's business and/or Leased Employees.
5.6 EMPLOYEE RELATIONS.
(a) COMPLIANCE. Client is in compliance with all material
Federal, State and local laws respecting employment
practices, terms and conditions of employment, wages and
hours, and is not engaged in any discriminatory employment
or unfair labor practice and there are no arrears in the
payment of wages, taxes or workers' compensation assessments
or penalties.
(b) LABOR PRACTICES. Except as Client has disclosed in writing
prior to the execution of this Agreement: (i) None of the
Former Client Employees are represented by any labor union;
(ii) There is no pending labor strike, unfair labor practice
complaint or other material labor trouble affecting Client
(including, but not limited to, any organizational campaign)
and, there is no material labor grievance pending against or
affecting Client; (iii) There are no pending arbitration
proceedings arising out of or under any collective
bargaining agreement to which Client is a party, or to the
best knowledge of Client, any basis for which a claim may be
made under any collective bargaining agreement to which
Client is a party affecting Former Client Employees; and
(iv) There is no pending litigation or other proceeding or
basis for an unasserted claim against Client which is based
on claims arising out of any Former Client Employee's
employment relationship with Client, including, but not
limited to, claims for breach of contract, tort,
discrimination, employee benefits, wrongful termination or
any common law or statutory claims.
(c) PAYROLL LIST. Client will provide to DART a correct and
complete list of Client's most recent payroll.
(d) TAXES. Client has deducted and remitted to the relevant
governmental authority all taxes, unemployment insurance
contributions or other amounts which it is required by
statute to deduct or remit to any governmental authority.
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6. PENSION LIABILITY.
6.1 UNFUNDED LIABILITY. Client represents and warrants to DART
that, as of the date this Agreement was executed, its total unfunded and
underfunded liability on pension and retirement plans, whether qualified or
unqualified, ("Prior Unfunded Liability") is $0.
6.2 INDEMNIFICATION. DART shall not be responsible or liable
for the Prior Unfunded Liability at any time during the term or after the
termination of this Agreement. Client shall indemnify and hold DART
harmless from any loss, claim or damages which arises out of or relates to
any Prior Unfunded Liability. This indemnification shall be governed by
Section 11 of this Agreement (except for Sections 11.1(a)(i) and (ii)).
6.3 PAYMENTS. During the term of this Agreement, DART shall
assume the responsibility for making current pension payments which are due
or required on account of the Leased Employees by the terms of this
contract. However, such responsibility shall exist only to the extent that
Client has deposited with DART sufficient funds designated for the purpose
of covering such payment in accordance with Section 3.2 of this Agreement.
If this Agreement shall terminate for any reason, including the expiration
of the Initial Term or extended term under Section 2 of this Agreement, all
of DART'S responsibility and liability for contributions and payments in
connection with any pension or retirement plan for Leased Employees shall
immediately cease, without notice, and shall be immediately assumed by
Client. Client shall thereafter indemnify and hold DART harmless from any
loss, claim or damages which arises out of or relates to such
responsibility or liability pursuant to Section 10 of this Agreement
(except for Sections 10.1(a)(i) and (ii).
7. REPRESENTATIONS AND WARRANTIES OF DART. The representations and
warranties made by DART shall survive the term of this Agreement. This
Agreement contains the legally binding obligations of DART enforceable in
accordance with the respective terms of this Agreement. DART shall, upon
request, supply Client with a correct and complete list of all licenses and
other requirements prescribed by law, if any, in connection with the
consummation by DART of the transactions contemplated by this Agreement.
8. WORKERS' COMPENSATION. DART shall secure workers' compensation
insurance for the Leased Employees in amounts determined by DART as
appropriate and required by law. Such coverage shall be maintained
throughout the term of this Agreement. DART, upon written request, shall
provide documentation evidencing that such insurance is valid and in full
force and effect as of the effective date of this Agreement. DART shall
have the right to change insurance coverages and/or carriers at its
discretion provided such changes shall not cause any interruption or lapse
of coverage to Client.
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DART shall cause to be issued a certificate of Workers' Compensation
Insurance naming Client as an Alternate Employer and shall forward a copy
of such endorsement to Client. Further, it is understood and agreed that,
for the purpose of all applicable Workers' Compensation laws, Client and
DART, are "joint-employers" of all leased employees.
9. INSURANCE. 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 automobile
insurance liability covering all vehicles in Client's business, including
non-owned vehicles. Such coverages shall insure bodily injury and property
damages for a minimum combined single limit of One Million ($1,000,000.00)
Dollars and shall 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. Client shall cause its insurer to name DART as
an additional insured and shall issue a certificate of insurance to DART
within ten (10) days of the Commencement Date. Said policies shall provide
at least thirty (30) days advance notice to DART of any suspension or
cancellation of any material change in policy limits, benefits or
coverages. Each party releases and discharges the other party, and any
officer, agent, employee or representative of such party, from any
liability whatsoever arising from any loss, damage or injury to the extent
of any insurance recovery received by the insured party for such loss,
damage or injury. At all times during the term of the agreement, DART
shall maintain insurance equal to or in excess of $2,000,000.00 combined
single limit general liability and contractual liability coverage.
10. INDEMNIFICATION AND REIMBURSEMENT.
10.1 INDEMNIFICATION OF DART BY CLIENT.
(a) INDEMNIFICATION. Client hereby agrees to indemnify, defend
and hold harmless DART and any parent, subsidiary or
affiliate thereof, and all directors, officers, attorneys,
employees (except the Leased Employees), agents and
consultants of each of the foregoing (collectively "DART")
from and against all demands, claims, actions or causes of
action, assessments, losses, damages, judgments, arbitration
awards, liabilities (whether absolute or accrued, contingent
or otherwise), costs and expenses, including, but not
limited to, interest, penalties and attorney fees and
expenses (collectively "Damages"), asserted against, imposed
upon or incurred by "DART", directly or indirectly, by
reason of or resulting from or relating to any of the
following: (i) Misrepresentation or breach by Client of any
warranty or term made or contained in this Agreement or in
any certificate or other instrument or document furnished or
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to be furnished to DART under this Agreement, including, but
not limited to, failure of Client to cooperate in the
defense of employment claims, litigation, grievances and
arbitration under Paragraph 4.2 herein; (ii) Litigation or
other claims arising from the acts or failures to act of the
Client and/or its employees, agents, former employees or
former agents, in accordance (a) with applicable Federal,
State or local law or (b) with the terms and conditions of
this Agreement or another agreement; (iii) Employment
matters relating to Leased Employees as a result of gross
negligence or intentional misconduct by Client or the
failure of Client to obtain and/or follow specific advice
and direction from DART in matters of employee separation
and/or discipline.
(b) NOTICE AND DEFENSE OF CLAIMS. If "DART" so desires, it may
tender the defense to Client of any matter for which it
believes it is entitled to indemnification pursuant to
Section 10.1(a) of this Agreement in which event Client
shall conduct such defense at its sole cost and, thereafter,
be liable for all damages with respect to such claim or
proceeding. Such notice shall be given in accordance with
Section 12.7 hereof. Client shall conduct such defense or
settlement in a manner to protect fully "DART"; Client and
its counsel will keep "DART" fully advised as to the conduct
of such defense or settlement, and no compromise or
settlement shall be agreed or made without "DART'S" written
consent. In any case "DART" shall have the right to employ
its own counsel and such counsel may participate in such
action, but the reasonable fees and expenses of such counsel
shall be at the expense of "DART" when and as incurred
unless (i) the employment of counsel by "DART" has been
authorized in writing by Client, (ii) "DART" shall have
reasonably concluded, based upon the opinion of Counsel,
that there may be a conflict of interest between Client and
"DART" in the conduct of the defense of such action, or
(iii) Client shall not, in fact, have employed independent
counsel reasonably satisfactory to "DART" to assume the
defense of such action and shall have been so notified by
"DART". If clause (ii) or (iii) of the preceding sentence
shall be applicable, then counsel for "DART" shall have the
right to direct the defense of such claim, action, suit or
proceeding on behalf of "DART" and the reasonable fees and
disbursements of such counsel shall constitute Damages
hereunder.
10.2 INDEMNIFICATION BY DART. DART hereby agrees to indemnify,
defend and hold harmless Client, its directors, officers, attorneys,
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employees, and agents and consultants from and against all demands, claims,
actions, or causes of action, assessments, losses, damages, judgments,
arbitration awards, liabilities (whether absolute or accrued, contingent or
otherwise), costs and expenses asserted against, imposed upon or incurred
by Client, directly or indirectly, by reason of, resulting from or relating
to employee separation and/or discipline by Leased employees, or any claim
or cause of action resulting from Leased Employees performance of services
for Client, up to $100,000 per claim or Leased Employee subject to Section
10.1(a).
10.3 COOPERATION. The parties agree that, except where conflicts
prevent same, they shall render to each other such assistance as may
reasonably be expected and to cooperate in good faith with each other in
order to insure the proper and adequate defense of any claim, action, suit
or proceeding brought by any third party. Where counsel has been selected
pursuant to Section 10.1(a), "DART" shall be entitled to rely on the advice
of such counsel in the conduct of the defense.
10.4 CONFIDENTIALITY. The parties agree to cooperate in such a
manner as to preserve and uphold the confidentiality of all business
records and the attorney-client and work-product privileges.
11. DEFAULT. The Client shall be in "Default" under this Agreement
if: (a) Client fails to pay any sum when due pursuant to this Agreement;
(b) Client breaches any term, condition or obligation of this Agreement;
(c) Client falls to comply with any directive from DART or any governmental
authority, including, but not limited to, any directive regarding health,
safety, or personnel decisions; or (d) Client fails to fully disclose any
information required to be disclosed in this agreement; or (e) any
bankruptcy, receivership or insolvency proceeding is instituted by or
against Client.
12. MISCELLANEOUS.
12.1 INDEPENDENT CONTRACTOR. DART is an independent contractor
of Client and neither party is the agent of the other.
12.2 ABSENCE OF GUARANTEE. Neither DART nor its representatives
have made any representation, warranty or guarantee to Client of growth
forecasts or production increases in Client's Business due to the entry of
Client into this Agreement or the utilization of DART's services.
12.3 ENTIRE AGREEMENT. This constitutes the entire agreement
between the parties with regard to the subject matter herein. No prior
oral or written agreement, practice or course of dealing between the
parties relating to the subject matter herein shall supersede this
Agreement. Any addenda and/or exhibits attached have been for the purpose
of contract construction and performance.
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12.4 ASSIGNMENT/AMENDMENT. Client cannot assign this Agreement
nor any interest herein without prior written consent from DART. None of
the terms and provisions of this Agreement may be modified or amended
except by an instrument in writing executed by each party.
12.5 WAIVER. Failure by either party 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 prejudice
either party with regard to any subsequent action.
12.6 FORMS. Client shall exclusively utilize all forms provided
by DART for Leased Employee applications.
12.7 NOTICES. Any notice or other communication required shall
be sufficiently given if in writing and delivered personally or sent by
confirmed facsimile transmission, overnight air courier (postage prepaid),
registered or certified mail (postage prepaid with return receipt
requested) addressed to:
Client: The Colonels, Inc. DART: Edward W. Fisher, E.V.P.
951 Aiken Road 2851 High Meadow Circle
Owosso, MI 48867 Auburn Hills, MI 48326
12.8 ENFORCEMENT. This Agreement shall be interpreted under
Michigan law. All disputes under $50,000 shall be submitted to the
American Arbitration Association (AAA) in Southfield, Michigan for
resolution pursuant to the Commercial Rules of Arbitration. The parties
agree that an arbitration award may be entered pursuant to such process and
enforced by any court of competent jurisdiction.
12.9 SEVERABILITY. If any one or more of the provisions of this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herewith shall not in any way be affected impaired or prejudiced thereby
and such provision deemed invalid, illegal or unenforceable shall be
construed and enforced to the greatest extent legally possible.
12.10 FORCE MAJEURE. Neither party hereto shall be liable to
the other for any loss or other damages caused by an interruption of this
Agreement where such interruption is due to causes beyond the reasonable
control of DART or Client.
12.11 SECTION HEADINGS AND INTERPRETATION. The Section
Headings of this Agreement are for convenience of the parties only and in
no way alter, modify, amend, limit or restrict contractual obligations of
the parties. This Agreement shall not be construed for or against either
party based upon the drafting of this Agreement.
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THE COLONELS, INC. DESIGNED ADMINISTRATIVE
RESOURCES TECHNOLOGIES, INC.
By: /S/_________________________ By: ____________________________________
Its CEO Its ____________________________________
Date: 7-20-97 Date: __________________________________
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EXHIBIT 10.25
ADDENDUM TO LEASE
THIS AGREEMENT made this 20th day of February, 1998 by and between BRAINERD
INTERNATIONAL, INC., hereinafter referred to as Tenant, and WOODLAND OFFICE
PARTNERSHIP, hereinafter referred to as Lessor.
WHEREAS, WOODLAND OFFICE PARTNERSHIP, and BRAINERD INTERNATIONAL, INC. have
previously entered into a Lease Agreement dated January 10, 1996 for office
space (Suite 214) in the building known as Woodland Office Center, 17113
Minnetonka Blvd., Minnetonka, MN 55345;
NOW, THEREFORE, in consideration of the above recitals and upon the terms
and conditions hereafter set forth, it is agreed and understood as follows:
1. Lessor agrees to extend the Term of this Lease for two (2) years
beginning March 1, 1998 and ending February 28, 2000
2. Tenant's rent shall be a Gross Rent at a rate of $19575.00 annually
payable in monthly installments of $1631.25.
3. Except as set forth above, all other terms and conditions of the Lease
shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Addendum to be executed
the date first above written.
TENANT: LESSOR:
BRAINERD INTERNATIONAL INC. WOODLAND OFFICE PARTNERSHIP
By: /S/ RICHARD L. ROE By: /S/
Its: VICE PRESIDENT Its: _____________________________
<PAGE>
EXHIBIT 10.26
BRAINERD CORPORATE OFFICE
INTERNATIONAL 17113 Minnetonka Blvd., Suite 214, Minnetonka, MN 55345
RACEWAY PHONE: 612-475-1500 FAX: 612-475-2149
--------------------------------------------------------
RACEWAY ADDRESS
4343 Highway 371 North, Brainerd, MN 56401
Phone: 218-829-9836
SPONSORSHIP AGREEMENT
This Agreement, made and entered into this 28 day of February, 1998 by
and between Brainerd International Raceway, Inc., a Minnesota corporation
and Brainerd International Raceway, Inc., a Minnesota corporation both of
which are hereinafter collectively referred to as ("BIR") and Viking Coca-
Cola Bottling Company ("COKE").
WITNESSETH:
WHEREAS, Brainerd International, Inc. is the parent company of
Brainerd International Raceway, Inc. and B.I.R. is engaged in the business
of promoting auto races at a raceway ("Raceway") located in Brainerd,
Minnesota, which races are held at various times during the summer months;
and
WHEREAS, Coke is engaged in the business of selling certain soft
drinks brands, particularly Coca-Cola, and Coke is interested in being a
major sponsor at events promoted by B.I.R. as specified herein.
NOW, THEREFORE, in consideration of the premise and the mutual
covenants of the parties set forth herein, B.I.R. and Coke agree as
follows:
I. TERM OF AGREEMENT: This Agreement shall be for a three year term
commencing on February 28, 1998 and will include the items mentioned
in section 2 of this agreement.
II. SPONSORSHIP FEES:
A. Coke shall pay B.I.R. an advertising fee of $ 33,000 cash per
year, and provide a minimum of $10,000 in promotion advertising
for each year of this Agreement.
[DODGE, COCA COLA, BUDWEISER, CHAMPION AUTO STORES, CROWN AUTO SERVICE
CENTERS, 110 POWER RACING FUEL, AND UNITED PARCEL SERVICE LOGOS]
<PAGE>
B. Breakdown of fee as follows:
1. Official and Exclusive Soft Drink, promoted as such on all
literature $ 7,500
2. V.I.P. Suite for all Major Events $ 7,500
3. Fifty (50) Complimentary Tickets to all Major
Events $ 7,500
4. Program Ads, 4 color $ 2,500
5. Advertising Signage $15,000
6. 8' X 16' sign on Drag Start Line fence area
7. Scoreboard on Turn # 10
8. 4' X 8' Sign on T & S building
9. 4' X 56' Signage on bleachers at Start/Finish
10. 4' X 16' sign on new Suite Tower
11. 4' X 4' sign on Paddock fence
12. Logo on 13'x 50'freeway billboard $ 3,000
Total $43,000
C. Coke will provide a Coke soft drink dispenser in the Press Lounge
for use of the media for the months of May through September at
no charge.
D. The yearly cash sponsorship fee shall be paid in three equal
monthly installments on February 15, March 15, and April 15, of
each respective year.
III. COVENANTS OF B.I.R.
A. B.I.R. agrees to promote the races at the Raceway each summer
during the term of this Agreement. B.I.R. agrees to do or cause
to be done all things necessary or advisable to promote the races
in the manner done in prior years. B.I.R. shall cause the name
"Coca-Cola" to be displayed prominently in all advertising and
publicity. In addition, B.I.R. agrees to substitute in such
advertising, publicity, such other names or product logos as
directed by Coke so long as such substitute contains the words
"Coca-Cola" and the substitution is timely made. Historically,
BIR has hosted five (5) major and eight (8) minor spectator
events, along with 15-20 other minor or private events. In the
event of major catastrophe or other circumstances that cause
cancellation or very marginal anticipation in this annual
schedule (a reduction of 30% or greater), BIR will promptly
compensate Coke a pro-rata portion of the cash payment submitted
by Coke to BIR for the year in question.
B. During the term of the Agreement B.I.R. shall sell or authorize
concessionaires to sell at the Raceway only Coca-Cola soft drinks
or such other soft drinks sold by Coke, at regular wholesale
prices.
<PAGE>
C. B. I. R. grants Coke exclusive advertising rights to the
bleachers located on the north side of the straightaway at the
Raceway, which rights shall be included in the sponsorship fee
set forth in this Agreement.
D. B.I.R. shall provide a hospitality suite for Coke for all major
events held at the Raceway, the cost of which is included in the
sponsorship fee set forth in this Agreement.
E. Without having first obtained the written consent of Coke, B.I.R.
shall not obtain for any race an additional sponsor (s) which is
engaged in the soft drink beverage business.
IV. RELATIONSHIP OF PARTIES. This Agreement shall not create an agency
relationship between B.I.R. and Coke, nor shall the parties be
deemed to be partners or joint venturers by virtue of this
Agreement. Coke shall not be involved in any aspect of the
operation of the Raceway, nor shall Coke have any responsibility
with respect to the award of prizes or prize money in connection
with any races held at the Raceway.
V. EXPENSES. All expenses in any way pertaining to the races shall be
the sole and separate liability of B.I.R., Coke assumes no financial
responsibility of any kind or nature relative to the operation of
the Raceway.
VI. INSURANCE. B.I.R. shall carry a comprehensive general liability
policy covering its operations at the Raceway, which policy shall
name Coke as an additional insured. The policy will provide for
general liability coverage in the amount not less than $3,000,000
combined single limit bodily injury/property damage. The insurance
required hereunder shall be provided by companies rated A XII or
better in "Best's Insurance Guide". B.I.R. shall deliver to Coke
one or more certificates evidencing the existence of such insurance,
showing such insurance to be in force and showing Coke as an
additional insured. Such certificate (s) shall acknowledge that
insurer shall give at least thirty days written notice to Coke prior
to the expiration or cancellation of such policy. All cost
associated with such insurance shall be borne by B.I.R.
VII. INDEMNIFICATION. B.I.R. agrees to indemnify and hold harmless Coke,
and its subsidiaries and related corporations and the losses, costs,
judgments, expenses, liabilities, interest, penalties and reasonable
attorney's fees which in any way related to or arise from the races
or the operation of the Raceway.
VIII. COOPERATION OF PARTIES. B.I.R. and Coke agree to cooperate with
each other to effectuate the terms of this Agreement.
<PAGE>
IX. ASSIGNMENT. This Agreement shall not be assignable by either party,
except that Coke may assign its rights hereunder to one of its
affiliated corporations.
X. RIGHT OF FIRST NEGOTIATION. B.I.R. agrees that it shall extend to
Coke the right of first negotiation with respect to the renewal of
the Sponsorship Agreement for the racing season commencing in 2001.
On March 1, 2000, B.I.R. shall offer to commence negotiations with
Coke with respect to such renewal. B.I.R. agrees to negotiate with
Coke on an exclusive basis and in good faith for a period of 90 days
after said offer to commence negotiations, after which, if the
parties have been unable to reach an agreement, B.I.R. may pursue
negotiations with other parties.
XI. NOTICES. All Notices and communications pertaining to the Agreement
or the transactions contemplated hereby shall be made in person to
an authorized representative of either party or if mailed by First
Class, Registered or Certified mail, Return Receipt Requested,
Postage Prepaid, addressed as follows:
TO BIR: Brainerd International Raceway, Inc.
17113 Minnetonka Blvd, Suite 214
Minnetonka, MN 55345
Attn: Mr. Dick Roe
TO COKE: Viking Coca-Cola Bottling Company
4610 Rusan Street North
St. Cloud, MN 56301
Attn: Mr. Marv Soldner
or to such other address or person with respect to any party as such
party shall notify the other in writing as above provided. All such
notices or communications mailed as set forth above shall be
effective on the date of the deposit in the U.S. Mail.
XII. AMENDMENT OR TERMINATION. Neither this Agreement nor any term or
provision hereof may be changed, waived, discharged or terminated in
any manner other than by an instrument in writing, signed by the
party against which the enforcement of the change, waiver, discharge
or termination is sought.
XIII. WAIVER. Unless agreed in writing, the failure of a party, at any
time, to require performance by another party of any provision
hereunder shall not affect its or his right thereafter to endorse
the same, nor shall a waiver by either party of any breach of any
provision hereof be taken or held to be a waiver of any other
preceding or succeeding breach of any term or provision of this
Agreement. No extension of time for the performance of any
obligation or act shall be deemed to be an extension of time for
the performance of any other obligation or act hereunder.
<PAGE>
XIV. SEVERABILITY. Any term of this Agreement that is illegal or
unenforceable at law or in equity shall be deemed to be void and of
no force and effect to the extent necessary to bring such term
within the provisions of any such applicable law or laws, and such
terms as so modified and the balance of the terms of this Agreement
shall be fully enforceable.
XV. CAPTIONS AND SECTION HEADINGS. Captions and Section Headings used
herein are for convenience only and are not a part of the Agreement,
and shall not be used in construing it.
XVI. GUARANTY OF PAYMENT AND PERFORMANCE. Brainerd International, Inc.
enters into this Agreement to unconditionally guarantee the prompt
payment and performance of the obligations of Brainerd International
Raceway, Inc. pursuant to this Agreement. In the event of default
by Brainerd International Raceway, Inc. under the Agreement, Coke
may proceed directly against one or both of Brainerd International
Raceway, Inc. and/or Brainerd International, Inc.
IN WITNESS HEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
BRAINERD INTERNATIONAL RACEWAY, INC.
By /S/ RICHARD L. ROE
Richard L. Roe
Its VICE PRESIDENT AND GENERAL MANAGER
VIKING COCA-COLA BOTTLING COMPANY
By /S/ MARV SOLDNER
Its CHIEF OPERATING OFFICER AND GENERAL MANAGER
<PAGE>
EXHIBIT 10.27
[SPORTS MARKETING ENTERPRISES LOGO]
EPP CONTRACT
February 25, 1998
Contract No. 8045-00-00
SME's Client: R. J. Reynolds Tobacco Company
Mr. Dick Roe
Brainerd International Raceway
17113 Minnetonka Blvd., Suite 214
Minnetonka, MN 55345
Dear Mr. Roe:
When signed by you, this letter will constitute the Agreement between
Brainerd International Raceway (hereinafter referred to as Track or Event
Site) and Sports Marketing Enterprises, including its client, R. J.
Reynolds Tobacco Company (both hereinafter referred to as SME), concerning
advertising displays and promotional considerations at Brainerd
International Raceway. In consideration of the mutual promises contained
herein, the parties agree as follows:
1. RIGHTS GRANTED TO SME
During the term of this Agreement, Track grants to SME the following
rights:
a. SIGNAGE AND ADVERTISING
1. SME shall have the right to use, erect or cause to be erected
signage at the Event Site as described in and conforming to all
of the specifications in Exhibit A attached hereto and
incorporated herein by reference, including the right to
display advertising copy on said signage during the entire term
hereof. Unless otherwise provided herein, all signage shall be
the property of Track.
2. SME shall have the right to select the location of the above-
referenced signage to the extent the location is not set forth
herein, and SME shall also have the right of first refusal with
respect to all signage locations offered to advertisers other
than SME. In any group of adjacent or contiguous signs,
signage of third parties shall be no larger in surface area
than the adjacent or contiguous SME signage.
P.O. BOX 484 WINSTON NC 27102-0484 (910) 741-5000 FAX (910) 741-2800
<PAGE>
3. SME shall have the right to display advertising on said signage
at all times during all events at the Event Site, and public
view of such advertising shall not be obstructed or diminished,
in whole or in part, at any time or in any manner whatsoever.
4. SME shall have the right to modify or require modification of
advertising on any and all signage or displays covered by this
Agreement at any time.
b. PROMOTIONAL ACTIVITIES
1. SME shall have the right to prominent display space for
temporary point-of-sale materials, exhibits/tents/pavilions,
banners and inflatables to be produced or supplied by SME, the
dimensions, configurations and specifications of which shall be
within the sole discretion of SME.
2. SME shall have the right to distribute sample cigarettes,
coupons and other promotional materials and to engage in other
promotional activities at the Event Site.
3. SME shall have the right to purchase at standard rates prime
space or position for advertising in the official souvenir
magazines or programs and other publicly distributed materials
or literature for SME events (as hereinafter defined).
2. COVENANTS OF TRACK
During the term of this Agreement, Track covenants and agrees as
follows:
a. Track shall not permit any cigarette or tobacco product other than
those manufactured or sold by R. J. Reynolds Tobacco Company, or
products bearing the trademark, brand name or logo of any such
cigarette or tobacco product to be (1) advertised or promoted upon
any medium at the Event Site including without limitation, any
scoreboard, advertising panel, message board, audio system,
publication or concession stand, or (2) distributed by sale
(direct or mail order), gift, sampling, promotion, sweepstakes,
premiums, or any other form of distribution activity. No
advertising or other display, message, or activity shall be
permitted within the Event Site by any means, including without
limitation, any scoreboard, advertising panel, message board,
audio system, presentation, demonstration, leaflet, publication,
or concession stand, that is in conflict with or opposed to the
use or sale of cigarettes or tobacco products.
b. Track shall not enter into any form of promotional, advertising,
or sponsorship agreement with any manufacturer of cigarettes or
2
<PAGE>
tobacco products other than R. J. Reynolds Tobacco Company, or
merchandise related to any cigarette or tobacco product other than
those manufactured or sold by R. J. Reynolds Tobacco Company.
c. No cigarettes other than those sold or manufactured by R. J.
Reynolds Tobacco Company shall be sold or distributed at
concession stands controlled by or under agreement with Track at
any event at the Event Site that is sponsored by SME or that is
part of a series or point fund arrangement sponsored by SME ("SME
Events"). During non-SME events, cigarettes sold or manufactured
by R. J. Reynolds Tobacco Company shall represent no less than 50%
of the cigarettes offered for sale at such concession stands.
3. PROMOTIONAL SUPPORT PROVIDED BY TRACK
During the term of this Agreement, Track shall provide the following
promotional support to SME in connection with all SME Events:
a. Track will make prominent mention of the official event
name/series logo in all press releases.
b. At the request of SME, Track will require all concessionaires and
traffic, maintenance and parking personnel under its control to
wear vests and hats provided by SME displaying R. J. Reynolds
Tobacco Company trademarks.
c. At the request of SME, Track shall use its best efforts to ensure
that concessionaires under its control sell promotional items of
SME's licensee containing or displaying R. J. Reynolds Tobacco
Company trademarks.
d. SME shall have the exclusive right to use and occupy the SME
designated VIP Suites (A&B) for all events at the Event Site.
Track will provide and maintain refrigeration unit, icemaker and
telephone for each designated VIP Suite. Upon SME's request.
Track will provide SME with adequate credentials for entry into
the Event Site and the above-referenced suites.
4. OTHER SERVICES AND OBLIGATIONS OF TRACK
During the term of this Agreement, Track agrees to do or provide the
following:
a. Track will be responsible for the repair and maintenance of the
supporting structures and electrical system for all signage and
advertising displays provided for under this Agreement.
b. Track shall indemnify, defend and hold harmless R.J. Reynolds
Tobacco Company, its parent, affiliates, and their officers,
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<PAGE>
directors, agents and employees, from and against any and all
claims, demands, actions or causes of action for personal injury,
bodily injury (including death), and/or property damage and loss,
cost and expense related thereto, including reasonable attorney
fees, arising from the performance of this Agreement or otherwise
resulting from the work, services, equipment or materials
furnished to or on behalf of SME hereunder, or arising in
connection with any event at the Event Site.
c. Track, its affiliated companies and subsidiaries agree to secure
and maintain during the period of this Agreement the following
insurance coverages:
Workers Compensation (Statutory Limits) and Employer's Liability -
Limits of Employer's Liability of $500,000 per occurrence. Track
will ensure that any subcontractors providing services or
obligations required under this agreement will secure and maintain
like coverage.
Comprehensive General Liability (including Contractual Liability
and Spectator Liability specifically naming the above
indemnification) and Products Completed Operations Liability with
a combined single limit of not less than:
Bodily Injury and
Property Damage $1,000,000 per occurrence
Certificates and/or certified copies of policies of such insurance
shall be filed with SME within ten (10) days of the signing of
this Agreement and such insurance shall be subject to SME approval
as to adequacy of protection within the requirement of this
specification.
Such certificates shall show R.J. Reynolds Tobacco Company as an
"Additional Insured."
Such certificates shall provide that the coverage shall not be
canceled or materially changed to reduce or restrict the coverage
afforded thereon without at least (30) days PRIOR WRITTEN NOTICE
to SME. Required certificates of insurance shall be sent to:
Sports Marketing Enterprises
P.O. Box 484
Winston-Salem, NC 27102-0484
Attention: Rick Hauser
4
<PAGE>
5. COMPENSATION:
For the advertising and other promotional rights granted by Track and
the services to be provided by Track under this Agreement, SME will
pay a total of $40,000.00 per year for each year in which this
Agreement is in effect. Payment of the foregoing amount shall be made
on or before the 15th of July of each Agreement year.
6. GOVERNMENTAL/JUDICIAL INTERFERENCE
In the event of federal, state or local legislative, judicial,
administrative or other governmental action that prohibits, impairs,
inhibits or declares unlawful the advertising and/or promotion of
cigarettes or the sponsorship of sporting, entertainment or other
events by cigarette manufacturers or brands, or that restricts the
activities contemplated hereunder, or that in any way affects or
frustrates advertising or promotional activity under this Agreement,
then, in any such event, SME may terminate this Agreement effective
upon the earlier of (i) 30 days following the delivery of written
notification by SME of such termination or (ii) the effective date of
such legislative, judicial or administrative action. Neither party
shall have liability to the other on account of termination pursuant
to this paragraph. The parties acknowledge that the current FDA
Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco Products to Protect Children and Adolescents (21 CFR
Parts 801, 803, 804, 807, 830, and 897) are such an event of
governmental action under this Paragraph if such Regulations or any of
them affecting the activities under this Agreement are upheld, through
appeal if taken, by a court of competent jurisdiction or are otherwise
allowed to take effect.
7. FORCE MAJEURE
Neither party shall be liable to bear any responsibility for failure
or inability to perform its obligations hereunder due to any
contingency of cause beyond its reasonable control, including, but not
limited to, fires, floods, wars, orders or injunctions, accidents,
labor disputes or shortages, inability to obtain materials, equipment
or transportation, or any similar cause beyond the reasonable control
of such party. In the event either party cannot perform its
obligations under this Agreement because of such contingency or cause,
the duties and obligations of the parties shall be suspended for a
period of time that is reasonable under the circumstances; provided,
however, that if either party shall fail for a period of sixty (60)
days to perform its obligations hereunder as a result of any such
contingency or cause, then either party may, at its option, terminate
this Agreement upon ten (10) days prior written notice, and thereafter
both parties shall be released from all obligations hereunder.
5
<PAGE>
8. CHANGED CIRCUMSTANCES
In the event Track or Event Site no longer conducts SME Events at the
Event Site in any Contract year, SME will have the option to cancel
this Agreement by written notice to Track without further payment or
penalty.
In the event the number of SME Events conducted at Track or Event Site
is reduced (but not completely eliminated) for any reason during any
Contract year, SME and Track shall renegotiate the annual compensation
payable to Track by SME. If after renegotiating SME and Track are
unable to agree upon an annual compensation acceptable to both
parties, SME shall have the right to terminate this Agreement without
further payment or penalty.
This Agreement will automatically terminate concurrent with the
expiration or termination of the SERIES SPONSORSHIP AGREEMENT between
SME and the sanctioning entity of SME Events without further payment
or penalty.
9. DEFAULT AND LIQUIDATED DAMAGE
Either party shall have the right to terminate this Agreement upon
breach thereof by the other, or upon failure of any representation or
condition contained herein.
10. INDEPENDENT CONTRACTORS
Track and SME are and shall remain independent contractor, and nothing
contained herein or done pursuant hereto shall be construed to create
any relationship of principal and agent or employer and employee
between Track and SME or to make them joint venturers. Should Track
contract, hire or retain any employees, independent contractors or
other agents to perform the services or provide the equipment or
materials under this Agreement, the parties intend and Track warrants
that no relationship of principal and agent or employer and employee
is created between SME and the above parties.
11. TERM AND OPTION TO RENEW
The term of this Agreement shall commence on the date hereof and
extend until and including December 31, 1998. SME shall have the
right to renew this Agreement for two additional one year terms under
the same terms and conditions herein. If SME chooses to exercise this
option to renew, SME shall notify Track, in writing, by three months
prior to the expiration date of the existing term, of its intention to
renew.
6
<PAGE>
If this Agreement is terminated due to a default by Track, for a
period of two (2) years after such termination Track shall not agree
or offer to agree with any other entity or party with respect to
signage, advertising, promotion rights or any other arrangement
similar to this Agreement without first offering such arrangement to
SME under the terms and conditions to be offered to the other entity.
12. MISCELLANEOUS
a. Any notices required or permitted to be given under the terms of
this Agreement shall be in writing and shall be deemed to be given
if hand delivered or sent by facsimile transmission or by United
States certified mail, return receipt requested, postage fully
prepaid, to the addresses set forth herein or to such other person
or address as either party may designate by written notice to the
other party as herein provided.
b. North Carolina law shall govern the validity of this Agreement,
the construction of its terms, and the interpretation of the
rights and duties of the parties.
c. The terms of this Agreement shall bind SME and Track and their
respective successors and assigns. However, this Agreement is not
assignable in whole or in part by either party in the absence of
the prior written consent of the other party and any attempt to
assign this Agreement without such consent shall be null and void.
If Track delegates any of its duties or responsibilities under
this Agreement, Track shall remain responsible to SME for the
performance of those duties and responsibilities.
d. This Agreement and its terms shall be kept strictly confidential
by the parties and shall not be revealed in whole or in part to
any third parties.
e. In the event either party becomes insolvent, makes an assignment
for the benefit of creditors, becomes the subject of any
bankruptcy, reorganization or arrangement proceeding or defaults
in any obligation, which default would allow the party to whom the
obligation is owed to attempt to foreclose SME from exercising its
rights or prevent SME from paying its obligations hereunder, then
this Agreement may be terminated by written notice to the
defaulting party.
f. The undersigned representative of Track warrants by his or her
signature that he or she has the right and authority to bind Track
to the terms and conditions of this Agreement.
7
<PAGE>
g. Headings are supplied for convenience only and are not to be
construed as an interpretation of any of the language of this
Agreement.
h. This Agreement contains the entire understanding of the parties
relating to the subject matter contained herein and may not be
changed except by consent of the parties in writing. Failure of
either party to enforce any of the provisions hereof shall not be
construed as a general relinquishment or waiver of that or any
other provision.
i. Time shall be of the essence with respect to matters set forth
herein.
j. This Agreement may be modified, waived or discharged only by a
writing signed by the duly authorized representative of the party
against whom the same is asserted, which writing refers
specifically to this Agreement.
SPORTS MARKETING ENTERPRISES
BY: /S/ GREGORY L. LITTELL
Greg Littell
TITLE: VICE PRESIDENT
DATE: 2/26/98
AGREED TO AND ACCEPTED:
BRAINERD INTERNATIONAL RACEWAY
BY: /S/ RICHARD L. ROE
Dick Roe
TITLE: VICE PRESIDENT
DATE: 3/2/98
8
<PAGE>
EXHIBIT A
1. An 8'x20' win light sign to be located at the finish line of the drag
strip on the "spectator" side of the race track.
2. If and when there is a starter's stand, it shall be painted in a
manner mutually agreed upon by SME and the track.
3. An 8'x40' double-faced sign to be located adjacent to the starting
line on the "pit" side of the race track.
4. A series of four (4) 4'x30' double-faced signs to be located on the
top railings of the first three (3) "spectator" side grandstands. If
and when grandstands are constructed on the pit side of the race
track, a series of four (4) 4'x30' double-faced signs will be located
on the top railings of the first three (3) sections of grandstands.
The bottom edge of the above signs shall be at least six feet above
the top seat.
5. One 2' x 16' sign to be affixed to the guard rail adjacent to the
starting line of the drag strip portion of the race track on the "pit"
side of the race track. The sign shall be mounted in a manner that
allows unobstructed spectator viewing from the side of the race track
opposite their location.
6. Three (3) 4'x20' crowd control fence signs on each side of the drag
strip.
7. Three (3) 3'x20' guard wall signs on each side of the drag strip.
8. One double-faced 10'x60' sign to be affixed to the structure commonly
referred to as the "drag gate" located at the entrance to the drag
racing "pit" area of the race track.
9. A 4'x24' sign to be located in the "turn 10" area of the race track
adjacent to the "scoring stand".
10. A 12'x24' single-faced billboard located behind the first grandstand
on the "spectator" side of the race track.
11. A series of four (4) 4'x20' signs on the "spectator" side of the VIP
building located adjacent to the starting line of the "drag strip"
portion of the race track.
12. Two (2) 4'x40' signs on top of the new pit side VIP building and one
(1) 4'xl2' victory lane sign at the base of the tower.
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<PAGE>
13. A 3'xl0' sign on the "infield" scoreboard located at the end of the
"road racing course" main straight on the infield side of the track.
14. A 12'x24' billboard located in the "turn 4" section of the "road
racing course" with the actual signage space facing the spectator
grandstands on the opposite side of the race track.
15. A 4'x24' sign located "inside" of the "turn 7" section of the "road
racing course" with the actual signage space facing the
"photographer's tower" outside the "turn 8" section of the "road
racing course".
16. A series of 18"xl0' signs to be located on the top of the corner
stations located throughout the "road racing course".
17. Two (2) 4'x30' signs on the main entrance sign. This sign is located
at the main entrance to the race track, adjacent to Highway 371 and
the track office/credentials buildings.
18. SME will have exclusive rights to all signage on the interior and
exterior of the VIP hospitality building now called "BIR 300 Club".
Content and placement of signage is subject to prior SME approval.
For the duration of this Agreement and any and all extensions thereof, SME
shall have sole advertising rights on the above signage. There shall be no
other commercial identification on the signage or supporting structures
other than that specified by SME.
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<PAGE>
EXHIBIT 21
SUBSIDIARIES
The Company's active 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. In addition, in March 1998, the Company incorporated a new
subsidiary, The Colonel's Rugged Liner, Inc., a Pennsylvania corporation.
<PAGE>
EXHIBIT 23
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 reports
dated March 24, 1998, appearing in this Annual Report on Form 10-K of The
Colonel's International, Inc. for the year ended December 31, 1997.
/s/ Deloitte & Touche, LLP
Detroit, Michigan
April 13, 1998
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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 Stevens
Print Name: Mark Stevens
Title: President and CEO
1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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: Patsy L. Williamson
Title: Director and Chairperson
2
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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: Ted. M. Gans
Title: Director
3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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 R. Gorman
Print Name: Donald R. Gorman
Title: Director
4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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: J. Daniel Frisina
Title: Director
5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints MARK D. STEVENS 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, 1997, 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/Ben C. Parr
Print Name: Ben C. Parr
Title: Director
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-K OF THE COLONEL'S INTERNATIONAL, INC., FOR THE
YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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