<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____ to ______
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S><C>
Michigan 38-1792842
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(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
1118 Centennial Way, Lansing, Michigan 48917
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (517) 321-3130
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Common stock Series Three Preferred Stock
------------ ----------------------------
(Title of Class) (Title of Class)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding twelve months and
(2) has been subject to the filing requirements for at least the past 90
days.
Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. /x/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of May 31, 1996: $21,819,000.
At May 31, 1996, there were outstanding 4,227,442 shares of Registrant's
common stock.
Documents Incorporated By Reference
-----------------------------------
Portions of the annual proxy statement for the year ended March 31, 1996
are incorporated by reference into Part III.
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MAXCO, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
1 Business 3
2 Properties 7
3 Legal Proceedings 8
4 Submission of Matters to a Vote of Security Holders 8
5 Market for Registrant's Common Equity and Related Shareholder Matters 8
6 Selected Financial Data 9
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
8 Financial Statements and Supplemental Data 13
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
10 Directors and Executive Officers of the Registrant 14
11 Executive Compensation 14
12 Security Ownership of Certain Beneficial Owners and Management 14
13 Certain Relationships and Related Transactions 14
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14
Signatures 16
List of Financial Statements and Financial Statement Schedules 17
</TABLE>
2
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PART I
ITEM 1 - BUSINESS
Maxco, Inc. is a Michigan corporation incorporated in 1946. At March 31, 1996,
Maxco was primarily involved in three industry segments, distribution,
manufactured products and real estate, through four active subsidiaries and two
divisions. Additionally, Maxco has an equity position in Medar, Inc., and is a
partner in two real estate developments.
An initial public offering of the Common Stock of Maxco's subsidiary,
FinishMaster, Inc., was completed in 1994. FinishMaster's stock is traded on
the Nasdaq Stock Market under the symbol "FMST." FinishMaster sold 1.7 million
shares of common stock at an initial public offering price of $10.50 per share.
The proceeds from the offering were approximately $16.2 million, of which $2.4
million was used to repay indebtedness with the balance available for
FinishMaster to fund acquisitions, finance working capital and for general
corporate purposes. Maxco sold 255,000 additional shares of FinishMaster
common stock to the Underwriters to cover over-allotments. As a result of
these transactions, Maxco's ownership of FinishMaster stock was 67.4% at March
31, 1996.
Subsequent to March 31, 1996, Maxco reached an agreement to sell its interest
in FinishMaster, Inc., and for Maxco to enter into an agreement not to compete
for total consideration of $62.6 million. Consequently, the results of
operations for FinishMaster, previously representing the automotive refinishing
products portion of the distribution segment, are now reported separately as
discontinued operations. This transaction is expected to close July 9, 1996,
contingent on normal review by the FTC.
DISTRIBUTION
The distribution segment consists of two business units operating in the
construction supply industry: Ersco Corporation (a division of Maxco) and
Wisconsin Wire and Steel.
These companies are fabricators of reinforcing steel as well as distributors of
concrete construction products and accessories for road and commercial building
construction. Their products include reinforcing steel rod and mesh, expansion
fiber and concrete curing compounds, as well as custom fabrication of steel
(rod and mesh) and fiber products used in concrete paving and construction.
The geographic market is the Midwest, primarily in Michigan, Indiana, and
Wisconsin. Warehouses are located in Detroit, Grand Rapids, Saginaw and
Traverse City, Michigan; South Bend, Indiana; and Milwaukee, Wisconsin.
Competition is intense and larger project orders are secured on a competitive
bid basis. During the years ended March 31, 1996, 1995, and 1994, net sales of
the construction supplies group were approximately 51%, 51% and 49%,
respectively, of consolidated net sales.
This segment is not dependent on any patents, trademarks, licenses, franchises,
or concessions and is not dependent upon a single or a few customers, the loss
of which would have a significant adverse effect on the segment.
Units of this segment may carry significant amounts of inventory to meet
delivery requirements of customers. Inventories of this segment were
equivalent to 35 days' sales on hand and represented 30% of Maxco's total
inventories. Credit policies have been established that provide for extension
of credit and collection of amounts due. The Company's general policy requires
payment within 30 days of invoice date. Adherence to these policies will mean
that accounts receivable levels will generally change with volume levels.
However, the collection periods may be extended by prior agreement to
accommodate customer cash flows. Where applicable, accounts receivable are
secured by perfected lien rights and performance bonds.
The volume of the construction supplies group in the third and fourth quarters
is generally lower due to reduced construction activity during the winter
months in the unit's market area. Historically, this segment's activities have
generally followed the economic cycles within the respective business unit's
market area.
Generally, within the distribution segment the Company does not enter into
specific long-term contracts with its customers. As such, no backlog exists
for this segment.
3
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MANUFACTURED PRODUCTS
The Manufactured Products segment consists of individual units manufacturing a
wide range of automotive component parts, extruding and converting of
polyethylene film, and formulating and compounding of polyester and epoxy
thermoset plastics. The customers served by these units are primarily
automotive, aerospace, and general manufacturing businesses. This segment's
business is primarily affected by changing consumer demands and the general
condition of the economy. Sales of thermoset plastics to the aerospace
industry are affected by spending on specific airframe manufacturing programs.
The business of this segment is relatively stable within the economic cycle of
industry in general.
Inventory levels of this segment tend to be in proportion to the level of sales
activity. Total inventories of this segment were equivalent to 53 days sales
on hand and represented 70% of Maxco's total inventories at March 31, 1996.
Credit policies are enforced to help insure that increases in accounts
receivable are primarily related to volume.
The Company's response time to its customers' just-in-time inventory
requirements, which may change on a daily basis, does not result in significant
backlog for this segment.
Sales to a single customer were significant to this segment for the years ended
March 31, 1996, 1995, and 1994, but were less than 10% of total consolidated
revenue for these periods. The segment is not dependent on any patents,
trademarks, licenses, franchises or concessions.
Automotive Components
Wright Plastic Products, Inc. and Pacer Tool and Mold, Inc.
Wright Plastic Products, Inc. is a custom plastic injection molder and tool
builder located in Sheridan, Michigan. Wright provides a complete range of
services such as part layout, material selection, cost analysis, prototyping
and production for many types of plastic parts. Products are sold through an
outside sales agency, as well as Wright's own sales personnel, primarily to
automotive companies or automotive suppliers. In January 1995, Wright acquired
the stock of Pacer Tool and Mold, Inc. located near Port Huron, Michigan, for
cash and notes. Pacer is a custom injection molding company with annual
revenues of approximately $3.0 million that produces small, relatively complex
parts for interior and electrical automotive applications. This unit's net
sales and operating profits are directly affected by the spending patterns of
the automotive industry and indirectly by the spending patterns of the
consumer. Wright and Pacer accounted for approximately 21% of consolidated net
sales for the year ended March 31, 1996, 20% for the year ended March 31, 1995,
and 24% for the year ended March 31, 1994.
Industrial Products Group
Pak-Sak Industries, Inc.
Pak-Sak Industries, Inc. extrudes polyethylene film and converts it into a
variety of products--primarily plastic bags. A lesser portion of the business
is the purchase and resale of film products produced by other companies.
Manufactured products are both printed and plain. Products are sold primarily
throughout the Midwest area by its own sales personnel, manufacturers'
representatives and paper jobbers. Manufacturing facilities are located in
Sparta, Michigan.
Akemi, Inc.
Akemi, Inc. formulates and compounds polyester and epoxy thermoset plastics.
Customers are primarily involved in the aerospace, metal forming, flooring,
stone and marble, road and bridge and other construction industries. The
products are sold through direct sales and distributors throughout various
parts of the United States under the name Akemi. Some private labeling is also
performed.
Net sales of the Industrial Products Group represented approximately 28% of
consolidated net sales for the year ended March 31, 1996, 29% for 1995, and 27%
for 1994.
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REAL ESTATE
Maxco Development Company (a division of Maxco)
Maxco Development is involved in the management and development of various real
estate projects. These projects, which also involve partnerships with other
parties, can be long-term in nature. Maxco Development provides management for
these projects through direct involvement with site and construction
activities. Additionally, Maxco Development has provided management for
leasing activities in certain cases. To-date, all projects have been used for
commercial purposes. In 1996, Maxco Development exercised an option to
purchase a site which is being developed as a commercial and retail center.
Maxco is a partner in two partnerships with various individuals (some of whom
are related parties of Maxco). Riverview Associates One Limited Partnership
owns and operates an office building and Maxco retains a two percent limited
partnership interest in this entity. CJF Partnership owns office building
sites for development. Maxco holds a 25 percent general partnership interest in
CJF.
The partnerships' ongoing operations are not significant to Maxco's
consolidated financial position or results of operations. Because of the
nature of this segment's business, revenues can vary dramatically from year to
year.
For additional information regarding the Company's industry segments, see Note
13 to "Notes to Consolidated Financial Statements."
DISCONTINUED BUSINESS
FinishMaster, Inc.
Subsequent to March 31, 1996, Maxco reached an agreement to sell its interest
in FinishMaster and for Maxco to enter into an agreement not to compete. This
transaction is expected to close July 9, 1996, contingent on normal review by
the FTC. Accordingly, the results of operations of FinishMaster have been
restated as a discontinued operation.
FinishMaster is a leading distributor of automotive paints, coatings and
paint-related accessories, and provides its customers with a comprehensive
selection of brand name products supplied by BASF, DuPont, 3M and PPG. In
addition, FinishMaster sells its own FinishMaster PrivateBrand refinishing
accessory products. Products distributed are used in automobile refinishing,
the need for which arises largely as a result of collision repair and, to a
lesser extent, for cosmetic purposes. FinishMaster has over 11,000 customers,
primarily consisting of automotive body repair shops and automobile
dealerships.
FinishMaster's annual revenues have increased rapidly from approximately $32.1
million in fiscal 1991 to $107.5 million in fiscal 1996 due to both
acquisitions and increases in same outlet sales.
As of March 31,1996, Finishmaster operated 50 sales outlets and two
distribution centers in ten states organized into three major geographic
regions; the Great Lakes Region, the Southwest Region and the Eastern Region.
The company operates a 38,500 square foot distribution center in Kentwood and a
10,000 square foot distribution center in Arlington, Texas to service its
product requirements.
OTHER BUSINESSES
Medar is a leading supplier of microprocessor-based process monitoring and
control systems for use in resistance welding and optical disc inspection. The
Company's resistance welding controls are primarily used in automotive
manufacturing and its optical inspection systems are principally used for
in-line inspection of storage media such as Audio Compact Discs ("Audio CDs")
and Compact Disc Read-Only Memory ("CD-ROMs"). At March 31, 1996, Maxco owned
approximately 19.7% of the outstanding common stock of Medar.
RESEARCH AND DEVELOPMENT
Expenditures on research activities related to development or improvement of
products were not significant.
MAJOR CUSTOMERS
No sales to any single customer exceeded 10% of consolidated sales for 1996,
1995 or 1994.
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ENVIRONMENTAL FACTORS
Compliance by Maxco and its subsidiaries with environmental protection laws had
no material effect upon capital expenditures, earnings or competitive position.
EMPLOYEES
As of March 31, 1996, Maxco and its subsidiaries employed approximately 500
full time employees in its continuing operations and 635 at its discontinued
business.
EXPORT SALES AND FOREIGN OPERATIONS
The Company and its subsidiaries had no foreign operations or material export
sales during the years ended March 31, 1996, 1995 or 1994.
6
<PAGE> 7
ITEM 2 - PROPERTIES
The following table provides information relative to the principal properties
owned or leased by the Company and its subsidiaries as of March 31, 1996. The
registrant considers its facilities to be in good operating condition.
<TABLE>
<CAPTION>
OWNED/
LOCATION APPROXIMATE SIZE LEASED USE
- -------- ---------------- ------ ---
DISTRIBUTION
<S> <C> <C> <C>
Ersco Corporation
- ----------------------------
Saginaw, MI 15,000 sq ft Leased Warehouse/distribution
Southfield, MI 24,000 sq ft Leased Warehouse/administration
Mishawaka, IN 21,200 sq ft on 1.3 acres Owned(A) Warehouse/distribution
Traverse City, MI 7,800 sq ft Leased Warehouse/distribution
Wyoming, MI 7,500 sq ft Leased Warehouse/distribution
Wisconsin Wire & Steel, Inc.
- ----------------------------
Brookfield, WI 15,000 sq ft on 1.6 acres Owned(A) Warehouse/administration
Brookfield, WI 5,900 sq ft on .75 acres Owned(A) Held for Sale
<CAPTION>
MANUFACTURED PRODUCTS
<S> <C> <C> <C>
Wright Plastic Products, Inc.
- -----------------------------
Sheridan, MI 70,000 sq ft on 4.7 acres Owned(A) Manufacturing/administration
Pacer Tool and Mold, Inc.
- -----------------------------
Marysville, MI 12,000 sq ft Leased Manufacturing
Akemi, Inc.
- -----------------------------
Eaton Rapids, MI 44,200 sq ft on 5 acres Owned(A) Manufacturing/administration
Eaton Rapids, MI 9,300 sq ft on 1.5 acres Owned Manufacturing
Pak-Sak Industries, Inc.
- -----------------------------
Sparta, MI 78,000 sq ft on 2.5 acres Owned Manufacturing/administration
Sparta, MI 12,000 sq ft Leased Manufacturing
<CAPTION>
REAL ESTATE AND CORPORATE
<S> <C> <C> <C>
Maxco Development Company
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Thornapple Township, MI 150 acres Owned Held for investment
Lansing, MI 6,000 sq ft on 1.0 acre Owned(A) (B) Distribution
Grand Ledge, MI 40 acres Owned Development property
Maxco, Inc.
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Lansing, MI 7,200 sq ft on 1.9 acres Owned(A) Executive offices
</TABLE>
(A) Subject to a mortgage
(B) Leased to FinishMaster, Inc. at market based rents
Expiration dates of leases relative to the Company's principal properties range
from 1996 to 2000. Leases expiring within 12 months are expected to be renewed
at substantially the same terms as the present lease.
All of the owned properties listed above are pledged as collateral for the
Company's indebtedness to its principal lender (see Note 6 to the Consolidated
Financial Statements).
DISCONTINUED BUSINESS
FinishMaster, Inc.
As of March 31, 1996, FinishMaster operated eleven sales outlets and a 38,500
square foot distribution center location in Michigan, five sales outlets in
Illinois, three outlets in Wisconsin, three outlets in Indiana, two outlets in
Ohio, three outlets in Pennsylvania, one outlet in Delaware, seven outlets in
New Jersey, two outlets in Oklahoma, and thirteen outlets and a 10,000 square
foot distribution center in Texas. The Company has 8,000 square feet of
executive offices which are located in Kentwood, Michigan, as part of the
distribution center facilities.
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FinishMaster owns the distribution center and two outlets in Michigan and one
sales outlet in Indiana. The remainder of the sales outlets and the other
distribution center are leased with terms expiring from 1997 to 2006, with
options to renew. FinishMaster typically assumes the lease of the former owner
in acquisitions. The Company believes that all of its leases were at fair
market rates when entered into, that presently no single lease is material to
its operations, and that alternative sites are presently available at market
rates.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Maxco's common stock trades on the Nasdaq Stock Market under the symbol MAXC.
The approximate number of record and beneficial holders of Maxco's common stock
at May 31, 1996 was 1,500.
The range of high and low sales prices for the last two years as reported by
NASDAQ were:
<TABLE>
<CAPTION>
YEAR QUARTER ENDED HIGH LOW
---- ------------- ------- ------
<S> <C> <C> <C>
1994 March 31 11-3/4 7-1/2
June 30 10-3/4 7-1/4
September 30 9-1/4 7-1/2
December 31 9-1/2 7-1/2
1995 March 31 10-3/4 8
June 30 9 7-1/4
September 30 10 7-7/8
December 31 9-1/8 7
1996 March 31 10 6-3/4
</TABLE>
No cash dividends on common stock have been paid during any period. Maxco's
revolving credit agreement provides that Maxco is restricted, without prior
approval of the bank, from declaring dividends on or issuing additional common
stock (with the exception of common stock reserved for issuance).
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<PAGE> 9
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31,
1996 1995 1994 1993 1992
-----------(Restated)--------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net sales $80,168 $75,613 $59,205 $56,443 $53,766
Income (loss) from continuing
operations before equity in
earnings of affiliates(1) (2,982) 1,346 6,558 (454) 961
Equity in earnings of
affiliates, net of deferred tax 438 701 438 228
Income (loss) from continuing
operations (2,982) 1,784 7,259 (16) 1,189
Income from discontinued business(3) 1,790 2,334 2,054 1,383 704
Net income (loss) (1) (1,192) 4,118 9,313 1,367 1,893
Net income (loss) per share: (2)
Continuing operations (.73) .36 1.54 (.06) .23
Discontinued operations .41 .50 .44 .32 .15
Net income (loss) per share (.32) .86 1.98 .26 .38
AT MARCH 31:
Total assets 86,032 68,793 57,110 33,911 29,718
Long-term obligations
(net of current maturities) 28,594 18,927 12,376 14,466 12,688
Working capital 30,554 24,139 25,228 11,224 10,134
</TABLE>
NOTES
(1) Includes $2.0 million or $3.1 million pre-tax and $7.9 million or $12.1
million pre-tax in gains from subsidiary stock transactions for the years
ended March 31, 1995 and 1994, respectively.
(2) Per share amounts reflect primary earnings per share for the years ended
March 31, 1996, 1993 and 1992. Earnings per share for the years ended
March 31, 1995 and 1994 are reported on a fully diluted basis.
(3) See Note 2 for the consolidated financial statements of discontinued
business.
No cash dividends on common stock have been paid during any period.
The above selected financial data should be read in conjunction with the
consolidated financial statements which appear in Part II, Item 8 of this
report.
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ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the major elements relating to Maxco's
financial and operating results for 1996 compared with 1995, and 1995 compared
with 1994. The comments that follow should be read in conjunction with Maxco's
Consolidated Financial Statements and related notes, contained in Part II, Item
8 of this report.
RESULTS OF OPERATIONS
1996 VERSUS 1995
1996 results reflect a loss of $3.0 million from continuing operations compared
to income in 1995 of $1.8 million. Net sales from continuing operations
increased 6% to $80.2 million compared to $75.6 million in 1995. A net loss of
$1.2 million or $.32 per share was reported for 1996 versus net earnings of
$4.1 million or $.86 per share in 1995.
The most significant impact on net income in 1995 was a $3.1 million pre-tax
gain from continuing operations recognized by Maxco as a result of the sale by
Medar of 1.3 million shares of Medar common stock to the public. This gain
represented the net increase in value of Maxco's investment in Medar and the
gain realized on the sale of 145,000 shares of Medar stock owned by Maxco to
cover the over allotments by the underwriter. No comparable event occurred in
1996.
The sales growth in 1996 was primarily attributable to the Construction
Supplies group (Ersco and Wisconsin Wire and Steel) and a full year of sales
included in 1996 for Pacer Tool and Mold, acquired by Wright Plastic Products
on January 1, 1995. Sales increased $2.3 million at Maxco's construction
supplies businesses as a result of strong demand in their market area and
additional value added products being added.
Increased volumes and margins at the Construction Supplies group enabled these
units to generate an increase in operating earnings over the comparable period
in the prior year.
The operating income improvements at the construction supplies group were
offset by operating losses at other units of Maxco. Earnings at Wright
Plastics were more than $800,000 lower in 1996 due to significantly lower sales
to a major customer, and market constraints on margins and manufacturing
inefficiencies at its two facilities. Increased staffing levels to support
anticipated growth, which has not materialized at this point, at Wright as well
as Akemi and Pak-Sak also contributed to lower earnings for the year. Lower
earnings at both Wright and Akemi resulted in operating losses for the year at
both these units.
The increase in interest expense for continuing operations was primarily due to
increased borrowings under the Company's line of credit.
The Company's effective tax (benefit) rate varied from the Company's statutory
rate of 34% due to certain expenses, which are not deductible for tax purposes.
Income from discontinued operations decreased to $1.8 million from $2.3 million
in 1995. Despite an increase in sales of $28.1 million from this unit,
acquisition related costs due to rapid expansion into two new regions, coupled
with flat same outlet sales, caused operating income for this unit to decline
from the 1995 level. Net income for FinishMaster was also affected by a
reduction in investment income as well as additional interest expense in 1996.
Investment income was lower as funds from FinishMaster's IPO were used to fund
continued growth of this business and interest expense for this unit was higher
due to increased borrowings for acquisitions.
1995 VERSUS 1994
Net sales from continuing operations increased 28% in 1995 to $75.6 million
versus $59.2 million in 1994. As a result, operating earnings improved to
approximately $0.5 million level in 1995 compared to a loss of $1.0 million in
1994. Net earnings decreased to $4.1 million in 1995 from $9.3 million in
1994.
10
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A $3.1 million pretax gain was recognized from continuing operations in 1995 by
Maxco as a result of the issuance by Medar of 1.3 million shares of Medar
common stock to the public. This gain represented the net increase in value of
Maxco's investment in Medar and the gain realized on the sale of 145,000 shares
of Medar stock owned by Maxco to cover the over allotments by the underwriter.
The prior year included pre-tax gains of $12.1 million resulting from the
initial public offering of FinishMaster stock and on the sale of 280,000 shares
of Medar stock.
The sales increase in 1995 was primarily attributable to the Construction
Supplies group. Sales also increased over the 1994 level at all of the other
Maxco operations. Sales at Maxco's Construction Supplies group increased $9.2
million or 32% from the 1994 sales level. Sales for this group increased
primarily due to strong demand in the company's market area.
All of Maxco's subsidiaries experienced an increase in operating earnings in
1995 except for Wright Plastics. The Construction Supplies Group (Ersco and
Wisconsin Wire) were the major contributors to this increase.
The improvement in operating earnings resulted from the increased volumes and
an increase in gross margin percentage at the Construction Supplies Group from
12.5% in 1994 to 14.1% of sales in 1995. Gross margin percentage decreased at
Wright Plastics however, due to price concessions required by automobile
manufacturers, higher manufacturing expenses, as well as a change in product
mix.
Interest expense increased by approximately $300,000 in 1995 due to additional
debt incurred in connection with acquisitions made by the Company during the
year.
The Company's effective tax rate for 1995 and 1994 was 35%. This rate varied
from the Company's statutory rate of 34% due to certain expenses, which are not
deductible for tax purposes.
Net income from discontinued operations, net of minority interest increased to
$2.3 million in 1995 from $2.1 million in 1994. Operating earnings in 1995 for
FinishMaster increased from $3.6 million to $5.1 million. This increase in
operating earnings resulted primarily from the increased sales level of $14.7
million for this unit and an increase in gross margin percentage. The increase
in gross margin percentage resulted from truckload discounts on large volume
buying and additional discounts received from accelerated payments to
suppliers. Investment income increased over $600,000 in 1995 due to earnings
on the investment in marketable securities made with the proceeds from
FinishMaster's initial public offering.
11
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SEASONAL AND QUARTERLY FLUCTUATIONS
The following table sets forth consolidated operating data for each of the
eight quarters ended March 31, 1996. The unaudited quarterly information has
been prepared on the same basis as the annual information and, in management's
opinion, includes all adjustments, consisting of only normal recurring entries,
necessary for a fair presentation of the information for the quarters
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
Quarter Ended
Fiscal 1996 Fiscal 1995
------------------------------------------------- ---------------------------------------------
6/30/95 9/30/95 12/31/95 3/31/96 6/30/94 9/30/94 12/31/94 3/31/95
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Net sales $ 23,026 $ 21,951 $ 19,594 $ 15,597 $ 19,734 $ 20,785 $ 18,733 $ 16,361
Gross margin 3,856 3,527 3,480 1,863 3,210 3,356 3,296 3,056
Net income (loss) from
continuing operations (271) (534) (438) (1,739) 2,155 240 (208) (403)
Income from discontinued
business 627 640 520 3 601 622 550 561
Net income (loss) 356 106 82 (1,736) 2,756 862 342 158
Net income (loss) per common
share:
Continuing operations $ (.07) $ (.13) $ (.11) $ (.41) $ .48 $ .04 $ (.06) $ (.10)
Discontinued business .14 .14 .12 .11 .14 .13 .12
-------- -------- -------- -------- ------- ------- ------- -------
Net income (loss) per
common share * $ .07 $ .01 $ .01 $ (.41) $ .59 $ .18 $ .07 $ .02
</TABLE>
* The sum of the quarterly net income per share amounts may not equal the
annual amounts reported. Net income per share is computed independently
for each quarter and the full year and is based on the respective weighted
average common shares outstanding.
Maxco's sales and operating results have varied substantially from quarter to
quarter. Net sales are typically lower in the third and fourth quarters. The
most significant factors affecting these fluctuations are the seasonal buying
patterns of the Company's customers due to inclement weather and the reduced
number of business days during the holiday season. In addition, the timing of
acquisitions or the occasional sale of corporate investments, such as shares of
Medar stock or a real estate division project, may cause substantial
fluctuations of operating results from quarter to quarter. Maxco expects its
net sales and earnings to continue to fluctuate from quarter to quarter.
The quarter ended June 30, 1994 includes a $3.1 million pre-tax gain related to
the sale by Medar of 1.3 million of its shares and the sale of 145,000 shares
of Medar stock owned by Maxco.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents at March 31, 1996 decreased $70,000 from the 1995
level. Maxco's financing activities in the current year allowed the cash level
to remain relatively comparable despite a loss of $3.0 million from continuing
operations and $8.9 million of cash used in investing activities.
12
<PAGE> 13
Cash was used in investing activities on two construction projects consisting
of new office, warehouse and manufacturing facilities for Akemi and Wisconsin
Wire & Steel, which were completed during the year. In addition, $2.8 million
was invested in the development of a site for commercial office and retail use.
Long-term debt issued in conjunction with these three projects, and additional
borrowings under Maxco's revolving line of credit for working capital and other
general corporate purposes, resulted in long-term debt increasing $9.7 million
since March 31, 1995.
Stockholders' equity increased by approximately $3.4 million to $26.1 million
at March 31, 1996, from $22.7 million at March 31, 1995. This increase was due
primarily to the application of FASB 115, Accounting for Certain Investments in
Debt and Equity Securities. Effective April 1, 1995, Maxco changed its method
of accounting for its investment in Medar, Inc. from the equity method to that
of an equity security available for sale. This change was required under the
provisions of FASB 115 due to the reduction of Maxco's ownership of Medar to
less than 20%. Application of this method at March 31, 1996 resulted in an
unrealized gain of approximately $5.3 million, net of tax, being reported as a
separate component of stockholders' equity.
The 1,737,405 shares of Medar common stock which Maxco owns had an aggregate
market value of approximately $15.4 million at March 31, 1996. This investment
represents a substantial source of capital which Maxco has available. The
amount that could ultimately be realized by Maxco on the potential sale of any
Medar shares will be dependent on the amount offered, general market conditions
and various other factors.
Maxco believes that its current financial resources, together with cash
generated from operations and its available resources of $2.2 million under its
$24.0 million line of credit, will be adequate to meet its cash requirements
from continuing operations for the next year.
In addition, on June 5, 1996, Maxco reached an agreement to sell its 67 percent
interest in FinishMaster, Inc. The agreement calls for Maxco to sell its
4,045,000 shares of FinishMaster and for Maxco to enter into an agreement not
to compete for a total consideration of $62.6 million. More than 90 percent of
the total consideration is in cash, including an initial payment on the
non-compete agreement, with the balance payable over the five year term of the
non-compete agreement. The price was negotiated by the parties based on their
evaluation of the intrinsic value of the FinishMaster operation. The
transaction is subject to review by the FTC and presently is expected to close
by July 9, 1996.
Upon consummation, Maxco will report a gain in its second quarter ending
September 30, 1996, of approximately $23 million net of tax or $5.00 per share.
Maxco has not formulated plans for the use of the net proceeds from this
transaction.
Effective April 1, 1996, the Company will adopt FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets carrying amount. This statement also addresses the accounting for
long-lived assets that are expected to be disposed. The Company does not
believe the effect of adopting FASB Statement No. 121 will be material based on
current circumstances.
IMPACT OF INFLATION
Inflation impacts Maxco's costs for materials, labor and related costs of
manufacturing and distribution. To the extent permitted by competition, Maxco
has offset these higher costs through selective price increases.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted in a separate section of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
13
<PAGE> 14
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1996.
ITEM 11 - EXECUTIVE COMPENSATION
Item 11 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1996.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2)--The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
Exhibit
Number
3 Restated Articles of Incorporation and By-laws are hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
4.1 Resolution establishing Series Two Preferred Shares is
hereby incorporated by reference from Form S-4 dated November 4,
1991 (File No. 33-43855).
4.2 Resolution establishing Series Three Preferred Shares is
hereby incorporated by reference from Form S-4 dated November 4,
1991 (File No. 33-43855).
10.1 Incentive stock option plan adopted August 15, 1983,
including the amendment (approved by shareholders August 25, 1987)
to increase the authorized shares on which options may be granted
by two hundred fifty thousand (250,000), up to five hundred
thousand (500,000) shares of the common stock of the company is
hereby incorporated by reference from the registrant's annual
report on Form 10-K for the fiscal year ended March 31, 1988.
10.3 Amended and restated loan agreement between Comerica Bank
and Maxco, Inc. dated as of October 31, 1994, is hereby
incorporated by reference from registrant's Form 10-K dated June
13, 1995.
14
<PAGE> 15
10.4 First amendment to the amended and restated loan agreement between
Comerica Bank and Maxco, Inc., dated as of May 9, 1995, is hereby
incorporated by reference from Form 10-K dated June 13, 1995.
10.5 Second amendment to the amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated as of September 8, 1995, is
hereby incorporated by reference from registrant's Form 10-Q dated
November 10, 1995.
10.6 Third amendment to amended and restated loan agreement dated as of
May 15, 1996.
10.7 Stock Purchase Agreement
11 Statement Re: Computation of Per Share Earnings
22 Subsidiaries of the Registrant
23 Consent of Independent Auditors (Form S-8 filed June 2, 1992 - File
No. 33-48351)
27 Financial Data Schedule
(b) Reports on Form 8-K: None
(c) Exhibits
-Third amendment to amended and restated loan agreement dated as of May
15, 1996.
-Stock Purchase Agreement
-Statement Re: Computation of Per Share Earnings
-Subsidiaries of the Registrant
-Consent of Independent Auditors
-Financial Data Schedule
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section
of this report.
15
<PAGE> 16
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.
Date June 18, 1996 MAXCO, INC.
- ----------------------
By /S/ VINCENT SHUNSKY
--------------------------------------------------------
Vincent Shunsky, Vice President of Finance and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ MAX A. COON 06/14/96 President (Principal Executive Officer) and Director
- -------------------- --------
Max A. Coon Date
/S/ VINCENT SHUNSKY 06/18/96 Vice President of Finance and Treasurer (Principal
- -------------------- -------- Financial and Accounting Officer) and Director
Vincent Shunsky Date
/S/ ERIC L. CROSS 06/14/96 Director
- -------------------- --------
Eric L. Cross Date
/S/CHARLES J. DRAKE 06/14/96 Director
- -------------------- --------
Charles J. Drake Date
/S/JOEL I. FERGUSON 06/17/96 Director
- -------------------- --------
Joel I. Ferguson Date
/S/ RICHARD G. JOHNS 06/14/96 Director
- -------------------- --------
Richard G. Johns Date
/S/J. MICHAEL WARREN 06/17/96 Director
- -------------------- --------
J. Michael Warren Date
/S/JAMES F. WHITE 06/17/96 Director
- ------------------ --------
James F. White Date
/S/ANDREW S. ZYNDA 06/18/96 Director
- ------------------ --------
Andrew S. Zynda Date
</TABLE>
16
<PAGE> 17
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2), (c), AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED MARCH 31, 1996
MAXCO, INC.
LANSING, MICHIGAN
17
<PAGE> 18
FORM 10-K--ITEM 14(a)(1) AND (2)
MAXCO, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Maxco, Inc. and subsidiaries
are included in Item 8:
<TABLE>
<S> <C>
Consolidated balance sheets--March 31, 1996 and 1995 20
Consolidated statements of operations--Years ended March 31, 1996, 1995, and 1994 22
Consolidated statements of stockholders' equity--Years ended March 31, 1996, 1995, and 1994 23
Consolidated statements of cash flows--Years ended March 31, 1996, 1995, and 1994 24
Notes to consolidated financial statements--March 31, 1996 25
The following consolidated financial statement schedule of Maxco, Inc. and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts and reserves 35
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Financial statements of the Registrant's 67.4% majority-owned subsidiary
(FinishMaster, Inc.), are hereby incorporated by reference to the
FinishMaster, Inc. Form 10-K for the year ended March 31, 1996, as filed with
the Securities and Exchange Commission (SEC File Number 000-23222).
Financial statements of the Registrant's significant unconsolidated
affiliate (Medar, Inc.) are hereby incorporated by reference to the Medar,
Inc. Form 10-K for the year ended December 31, 1995, as filed with the
Securities and Exchange Commission (SEC File Number 0-12728).
18
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxco, Inc.
We have audited the consolidated balance sheets of Maxco, Inc. and subsidiaries
as of March 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 1996. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Maxco,
Inc. and subsidiaries at March 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Detroit, Michigan
June 10, 1996
19
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31,
1996 1995
-------------------------
(Restated-
Note 2)
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $819 $891
Accounts and notes receivable, less allowance of
$357,000 in 1996 and $288,000 in 1995 11,498 11,684
Inventories--Note 1 5,309 5,357
Prepaid expenses and other 428 325
Net current assets of discontinued business--Note 2 25,036 17,763
------ ------
TOTAL CURRENT ASSETS 43,090 36,020
MARKETABLE SECURITIES - LONG TERM - NOTES 2 AND 5 15,419
PROPERTY AND EQUIPMENT
Land 497 464
Buildings and improvements 8,892 5,473
Machinery, equipment, and fixtures 15,938 14,157
------ ------
25,327 20,094
Allowances for depreciation (10,837) (9,450)
------ ------
14,490 10,644
OTHER ASSETS
Investments 3,056 7,651
Notes and contracts receivable and other 1,093 850
Intangibles--Note 1 2,255 2,435
Net non-current assets of discontinued business--Note 2 6,629 11,193
------ ------
13,033 22,129
------- -------
$86,032 $68,793
======= =======
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
March 31,
1996 1995
----------------------
(Restated-
Note 2)
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 236 $ 236
Accounts payable 7,444 7,566
Employee compensation 1,087 1,639
Taxes, interest, and other liabilities 942 1,102
Current maturities of long-term obligations 2,827 1,338
------- -------
TOTAL CURRENT LIABILITIES 12,536 11,881
LONG-TERM OBLIGATIONS, less current maturities--Note 6 28,594 18,927
DEFERRED INCOME TAXES--Note 10 8,476 5,808
INTERESTS OF MINORITY HOLDERS IN DISCONTINUED BUSINESS 10,304 9,445
STOCKHOLDERS' EQUITY--Notes 6, 7 and 8
Preferred stock:
Series Two: 12% cumulative redeemable, convertible,
$50 par value; 18,000 shares issued 900 900
Series Three: 10% cumulative redeemable, $60 face value;
16,050 shares issued and outstanding 754 755
Common stock, $1 par value; 10,000,000 shares authorized,
4,227,442 shares (1995--4,289,652 shares) issued and
outstanding 4,227 4,290
Additional paid-in capital 686 1,190
Net unrealized gain (loss) on marketable securities 5,294 (60)
Retained earnings 14,261 15,657
------ ------
26,122 22,732
------ ------
$86,032 $68,793
======= =======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended March 31,
1996 1995 1994
--------------------------------------
(Restated Note 2)
(in thousands except per share data)
<S> <C> <C> <C>
Net sales $80,168 $75,613 $59,205
Costs and expenses:
Cost of sales and operating expenses 67,442 62,695 49,072
Selling, general and administrative 12,843 10,740 9,802
Depreciation and amortization 2,057 1,688 1,343
------- ------- -------
82,342 75,123 60,217
------- ------- -------
OPERATING EARNINGS (LOSS) (2,174) 490 (1,012)
Other income (expense)
Interest income 17 25 39
Interest expense (2,264) (1,526) (1,246)
Gains on subsidiary stock transactions and other
assets--Note 2 3,100 12,148
------- ------- -------
(2,247) 1,599 10,941
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
FEDERAL INCOME TAXES AND EQUITY IN EARNINGS OF
AFFILIATES (4,421) 2,089 9,929
Federal income tax expense (benefit)--Note 10 (1,439) 743 3,371
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EQUITY IN EARNINGS OF AFFILIATES (2,982) 1,346 6,558
Equity in earnings of affiliates, net of deferred
tax--Notes 5 and 10 438 701
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (2,982) 1,784 7,259
Income from discontinued business--Note 2 1,790 2,334 2,054
------- ------- -------
NET INCOME (LOSS) $(1,192) $ 4,118 $ 9,313
------- ------- -------
Less preferred stock dividend and other (204) (232) (230)
------- ------- -------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $(1,396) $ 3,886 $ 9,083
======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE--Primary
Continuing operations $ (.73) $ .35 $ 1.60
Discontinued Business .41 .53 .46
------ ------- -------
$ (.32) $ .88 $ 2.06
======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE--
Fully Diluted
Continuing operations $ (.67) $ .36 $ 1.54
Discontinued Business .39 .50 .44
------ ------- -------
$ (.28) $ .86 $ 1.98
======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON AND COMMON
STOCK EQUIVALENTS OUTSTANDING 4,372 4,426 4,400
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
Additional
Preferred Common Paid-in Net Unrealized Retained
Stock Stock Capital Gain (Loss) Earnings Totals
--------- ------ ---------- -------------- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1993 1,656 4,238 1,590 2,634 10,118
Net income for the year 9,313 9,313
Preferred stock dividend (204) (204)
Exercise of stock options for purchase
of 82,500 shares 82 100 182
Redemption of preferred stock (1) (1)
Acquisition and retirement of 22,000
shares (22) (180) (202)
------ ------ ------ ------- -------
Balances at March 31, 1994 $1,655 $4,298 $1,510 $11,743 $19,206
Net income for the year 4,118 4,118
Net unrealized loss on marketable
securities (60) (60)
Preferred stock dividend (204) (204)
Exercise of stock option for purchase
of 46,500 shares 47 64 111
Acquisition and retirement of 55,320
shares (55) (384) (439)
------ ------ ------ ----- ------- -------
Balances at March 31, 1995 $1,655 $4,290 $1,190 $(60) $15,657 $22,732
Net loss for the year (1,192) (1,192)
Net unrealized gain on marketable
securities 5,354 5,354
Preferred stock dividend (204) (204)
Exercise of stock option for purchase
of 5,500 shares 5 5 10
Redemption of preferred stock (1) (1)
Acquisition and retirement of 67,710
shares (68) (509) (577)
------ ------ ------ ------ ------- -------
BALANCES AT MARCH 31, 1996 $1,654 $4,227 $686 $5,294 $14,261 $26,122
====== ====== ====== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended March 31,
1996 1995 1994
--------------------------
(Restated-Note 2)
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ($1,192) $4,118 $9,313
Income from Discontinued Business (1,790) (2,334) (2,054)
------- ------ ------
Net Income (Loss) from Continuing Operations (2,982) 1,784 7,259
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 1,883 1,601 1,301
Amortization 174 87 42
Equity in earnings of Medar and other (664) (1,065)
Gain on sale of stock and other (3,100) (11,858)
Deferred taxes 38 985 3,602
Changes in operating assets and liabilities:
Accounts receivable 186 (79) (1,584)
Inventories 48 (827) (371)
Prepaid expenses and other (103) (181) 152
Accounts payable and other current liabilities (835) (1,726) 3,704
------- ------ -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,591) (2,120) 1,182
INVESTING ACTIVITIES
Purchases of assets of businesses, net of acquisition debt (1,481)
Purchases of property and equipment (5,815) (3,029) (4,209)
Investment in real estate development (2,777)
Net proceeds from sale of common stock 1,567 5,020
Proceeds from sale of property and equipment 86 21 128
Payments received on notes and contracts receivable 68 148
Other (359) 238 (82)
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (8,865) (2,616) 1,005
FINANCING ACTIVITIES
Proceeds from long-term obligations 13,062 6,452 2,347
Repayments on long-term obligations and notes payable (1,906) (891) (4,358)
Proceeds from exercise of stock options 10 111 182
Acquisition and retirement of common stock (577) (439) (202)
Dividends paid on preferred stock (204) (204) (204)
Redemption of preferred stock (1) (1)
------- ------- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,384 5,029 (2,236)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (72) 293 (49)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 891 598 647
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $819 $891 $598
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
March 31, 1996
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Maxco, Inc. (Maxco) is a Michigan corporation incorporated
in 1946. Maxco is primarily involved in three industry segments; distribution,
manufactured products and real estate, through four active subsidiaries and two
divisions. Additionally, Maxco has a position in Medar, Inc., and is a partner
in two real estate developments.
Principles of Consolidation: The consolidated financial statements include the
accounts of Maxco, Inc. and its majority owned subsidiaries. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated. Investments in Medar, Inc. are accounted for as marketable
securities.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers cash and other highly liquid
investments, including investments in interest bearing repurchase agreements
with less than 90 day maturities, as cash and cash equivalents.
Receivables: Trade accounts receivable represent amounts due from highway and
general construction, automotive, tool-making, and flexible packaging
industries primarily in the mid-western United States. Where applicable,
accounts and notes receivable are collateralized or secured by perfected lien
rights and performance bonds.
Inventories: Inventories are stated at the lower of first-in, first-out cost
or market and at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
Raw materials $1,449 $1,586
Finished goods and work in process 2,281 2,116
Purchased products for resale 1,579 1,655
------- -------
$5,309 $5,357
======= =======
</TABLE>
Marketable Securities:
Marketable securities are classified under FASB 115 as securities available for
sale. Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. The amortized cost of securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other than temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment income.
The fair value of marketable securities is based on quoted market value. The
carrying amount of cash and cash equivalents approximates fair value because of
the short maturity of those instruments.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES-Continued
Properties and Depreciation: Property and equipment are stated on the basis of
cost and include expenditures for new facilities and equipment and those which
materially extend the useful lives of existing facilities and equipment.
Equipment capitalized under lease agreements is not significant.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. Depreciation (and amortization of capitalized leases) for financial
reporting purposes is computed by the straight-line method based on the
estimated useful lives of the assets ranging from 3 to 31 years.
Federal Income Taxes: The Company provides for income taxes in accordance with
statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Intangibles: Intangibles primarily consist of the excess of cost over fair
market value of net assets of acquired businesses. Intangibles, including
non-compete agreements, are amortized on a straight-line basis over periods
ranging from 5 to 20 years. The carrying value of goodwill will be reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of the goodwill will be reduced by the
estimated shortfall of cash flows. Accumulated amortization was $564,000 and
$390,000 at March 31, 1996 and 1995, respectively.
Net Income (Loss) Per Share: The weighted average number of shares of common
stock (and common stock equivalents) utilized in the computation of net income
(loss) per share was 4,372,473 in 1996, 4,426,043 in 1995 and 4,400,270 in
1994. Per share amounts, which were dilutive in 1995 and in 1994, give effect
to preferred stock dividend requirements and dilutive stock options of less
than 50% owned affiliates for the periods. The effect of stock options and
potential conversion of redeemable convertible preferred stock was antidilutive
for the year ended March 31, 1996.
Gain Recognition on Sale of Subsidiary Stock: Company policy is to record
gains from the sale or other issuance of previously unissued stock by its
subsidiaries.
Advertising: Advertising costs are expensed as incurred. The amounts were
immaterial for all years presented.
Recent Accounting Pronouncement: In March 1995, the FASB issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
Effective April 1, 1996 the Company will adopt Statement 121 and, based on
current circumstances, does not believe the effect will be material.
Stock Based Compensation: The Company grants stock options for a fixed number
of shares to employees with an exercise price no less than the fair value of
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued Employees, and
accordingly, recognizes no compensation expense for the stock option grants.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 2 - DISCONTINUED BUSINESS
On June 5, 1996, Maxco reached an agreement to sell its 4,045,000 shares (67
percent interest) of FinishMaster, Inc. and for Maxco to enter into an
agreement not to compete for a total consideration of $62.6 million. More than
90 percent of the total consideration is in cash, including an initial payment
on the non-compete agreement, with the balance payable over the five year term
of the non-compete agreement. The price was negotiated by the parties based on
their evaluation of the intrinsic value of the FinishMaster operation. The
transaction is subject to review by the FTC, and is expected to close by July
9, 1996.
Upon consummation of this transaction, Maxco will report a gain in its second
quarter ending September 30, 1996 of approximately $23 million net of tax or
$5.00 per share. Maxco has not formulated plans for the use of the net
proceeds from this transaction.
As a result of the agreement to sell FinishMaster, the results of operations
for FinishMaster, previously representing the automotive refinishing products
portion of the distribution segment, have been reported separately as
discontinued operations in the consolidated statements of operations. Prior
year consolidated financial statements have been restated to conform to the
current presentation. Selected operating results for FinishMaster are
presented in the following table for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Net Sales $107,511 $79,382 $64,693
Cost and expenses 103,423 74,053 61,393
--------- -------- --------
Income before income taxes 4,088 5,329 3,300
Income tax expense 1,439 1,867 1,155
--------- -------- --------
Net income 2,649 3,462 2,145
Minority interest in net earnings
of discontinued business (859) (1,128) (91)
--------- -------- --------
Total income from discontinued business $1,790 $2,334 $2,054
========= ======== ========
</TABLE>
Net assets of the discontinued business at March 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
Current assets $40,538 $29,297
Current liabilities (15,502) (11,534)
-------- --------
Net current assets 25,036 17,763
Property and equipment 6,249 4,701
Intangible and other 19,985 12,444
Non-current liabilities (19,605) (5,952)
-------- --------
Net non-current assets of 6,629 11,193
discontinued business -------- --------
Net assets $31,665 $28,956
======== ========
</TABLE>
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 2 - DISCONTINUED BUSINESS--Continued
At March 31, 1995, the net assets of Maxco's discontinued business included
marketable securities with an estimated fair value of approximately $6.8
million. The net unrealized loss of approximately $60,000, net of deferred tax
on these marketable securities is reported as part of stockholders equity at
that date.
The following table summarizes the cash flow related to Maxco's discontinued
business for the years ended March 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net income 1,790 2,334 2,054
Minority interest 859 1,128 91
------ ------ ------
2,649 3,462 2,145
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities (3,112) (2,413) (2,239)
------ ------ ------
Net cash provided by
(used in) operating activities (463) 1,049 (94)
Net cash used in investing activities (5,588) (11,706) (1,523)
Net cash provided by
(used in) financing activities 5,022 (1,429) 15,129
------ ------ ------
Increase (decrease) in cash and
cash equivalents (1,029) (12,086) 13,512
====== ======= ======
</TABLE>
NOTE 3--GAINS ON SUBSIDIARY STOCK TRANSACTIONS
On February 23, 1994, Maxco's FinishMaster subsidiary completed the initial
public offering of its common stock on the NASDAQ National Market System under
the trading symbol "FMST." FinishMaster sold 1.7 million shares of common
stock at an initial public offering price of $10.50 per share. The net
proceeds from the offering were approximately $16.2 million, of which $2.4
million was used to repay indebtedness with the balance available for
FinishMaster to fund acquisitions, repay indebtedness, finance working capital
and for general corporate purposes. As a result of the initial public
offering, Maxco recorded an $8.3 million pre-tax gain in 1994 in recognition of
the net increase in value of its investment in FinishMaster. Deferred taxes
have been provided for on the gain recognized.
In connection with the public offering, Maxco sold 255,000 additional shares of
FinishMaster common stock to the Underwriters in 1994 to cover over-allotments.
The net proceeds from the sale of these additional shares amounted to
approximately $2.5 million with a pre-tax gain of approximately $1.4 million
recognized. Maxco's ownership of FinishMaster stock was 67.4% at March 31,
1996.
On May 25, 1994, Medar sold 1.3 million shares of its common stock to the
public at $11.50 a share. As a result of this offering, Maxco recognized a
$3.1 million pre-tax gain representing the net increase in value of its
investment in Medar and the gain realized on the sale of 145,000 shares of
Medar stock owned by Maxco to cover the over-allotments by the underwriter. In
1994, Maxco sold 280,000 shares of Medar stock for approximately $3.0 million
and recognized a pre-tax gain of approximately $2.4 million.
28
<PAGE> 29
NOTE 4--ACQUISITIONS
During 1995, the assets of a distributor of epoxies and polyesters were
acquired effective September 1, 1994 for $670,000. Effective January 1, 1995,
the stock and assets of a custom injection molder for a purchase price of
approximately $1.7 million was also acquired.
The assets acquired, primarily accounts receivable and inventory, were recorded
at their fair market values. In addition, intangible assets related to
covenants not to compete and goodwill, were recorded with the purchases. The
acquisitions were financed by incurring additional debt. The acquisitions made
in 1995 were not significant to reported results of operations, cashflows or
financial position.
The following table sets forth the unaudited pro forma results of continuing
operations for the year ended March 31, 1995, as if these acquisitions were
consummated at the beginning of 1995.
<TABLE>
<CAPTION>
Year Ended March 31, 1995
(in thousands except per share data)
<S> <C>
Net sales $78,802
Income from continuing operations 2,071
Income per common share from continuing operations .42
Weighted average number of common shares 4,658
</TABLE>
With respect to Maxco's discontinued business, FinishMaster acquired various
auto paint distributors during the periods presented. The total purchase price
of these acquisitions were $22.3 million, $8.9 million, and $1.0 million for
the years ended March 31, 1996, 1995 and 1994 respectively.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 5--INVESTMENT IN MEDAR, INC.
At March 31, 1996, Maxco owned 1,737,405 shares of Medar's common stock
(aggregate market value of $15.4 million), representing approximately 19.7% of
Medar's total common stock outstanding.
During 1996, Maxco accounted for its investment in Medar stock as marketable
securities available for sale under FASB 115 because Maxco's ownership of Medar
was reduced during this period to less than 20% of Medar's outstanding shares.
Application of this method resulted in an unrealized gain of approximately $5.4
million, net of deferred tax, reported as part of stockholders' equity at March
31, 1996.
Prior to 1996, Maxco reported the results of operations for Medar under the
equity method. Medar's net earnings for the years ended March 31, 1995 and
1994 were approximately $3.1 million and $3.5 million, respectively.
Accordingly, Maxco's equity share of Medar's net earnings for these years were
$670,000 and $1,070,000 and are recorded net of deferred tax for these periods
in equity earnings from affiliates, along with the equity results of other less
than 50% owned affiliates. For the years ended March 31, 1995 and 1994,
Medar's sales amounted to $39.7 million and $29.4 million, respectively.
NOTE 6--LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
----------------
(in thousands)
Revolving line of credit (interest approximating prime
rate, 8.25% at March 31, 1996) $18,700 $13,000
Akemi tax exempt revenue bonds (variable rate of
interest, 3.5% at March 31, 1996) 2,500
Mortgage notes payable (various interest rates
ranging up to 9.25%) 5,508 3,034
Variable rate notes up to .75% over prime rate
payable to former owners of acquired businesses 767 911
Equipment purchase contracts and capitalized lease
obligations (various interest rates) 3,924 2,753
Other 22 567
------- -------
$31,421 $20,265
Less current maturities 2,827 1,338
------- -------
$28,594 $18,927
======= =======
</TABLE>
Under the revolving credit agreement, Maxco can borrow up to $24.0 million with
limitations based on the value of certain assets. At March 31, 1996, up to
$2.2 million was available under this agreement. The line of credit expires
August 1, 1997. With the exception of the net assets of FinishMaster ($31.7
million at March 31,1996), substantially all the assets of Maxco and its other
consolidated subsidiaries are pledged as collateral under the revolving line of
credit and other debt agreements.
The agreement provides, among other things, that Maxco maintain certain levels
of net current assets and tangible net worth. The agreement further provides
that Maxco is restricted, without prior approval of the bank, from declaring
dividends on or issuing additional common stock (with the exception of common
stock reserved for issuance).
The revolving credit arrangement requires a facility fee of 0.5%, a commitment
fee of 0.5% of the unused line, and compensating balances equal to 5% of
borrowings under this arrangement or the fee equivalent. The fees incurred and
the interest effect of required balances approximated $128,000 for 1996,
$100,000 for 1995 and $102,000 for 1994.
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 6- LONG-TERM OBLIGATIONS--Continued
Notes and contracts payable are generally collateralized by assets purchased
with proceeds of the borrowings. The aggregate principal maturities of
long-term debt from 1998 - 2001 are as follows:
<TABLE>
<S> <C> <C> <C>
1998 1999 2000 2001
---------- ---------- -------- --------
$2,744,000 $1,141,000 $785,000 $506,000
</TABLE>
Interest paid approximates interest expensed for the years presented.
The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable and accounts payable and long-term debt
approximate their fair values. The fair value of the long-term debt is
estimated using discounted cash flow analysis and the Company's current
incremental borrowing rates for similar types of arrangements.
The purchaser of Maxco's discontinued business has agreed to indemnify Maxco
for approximately $7.5 million of FinishMaster's long-term debt which Maxco had
previously guaranteed.
NOTE 7--PREFERRED STOCK
Maxco may issue up to 100,000 shares of preferred stock with terms determined
by Maxco's Board of Directors.
Series Two Preferred Stock is cumulative and non-voting. The stock is callable
at the option of Maxco at any time and each share outstanding is convertible
into approximately 13 shares of Maxco common stock.
Series Three Preferred Stock is voting stock on a par with the common stock,
and has twenty votes per share. Quarterly cumulative dividends will be
provided at the annual rate of 10%, subject to the restrictions of Michigan
corporate law and the discretion of the Maxco Board of Directors. The stock is
callable at the option of the Company, with the call price declining at the
rate of one percent per year to a minimum price after February 1999, equal to
face value ($60 per share).
FinishMaster has also authorized up to 1,000,000 shares of preferred stock for
possible future issuance with terms to be determined by its Board of Directors
at time of issue.
NOTE 8--STOCK OPTIONS
Under the terms of Maxco's incentive common stock option plan, options for the
purchase of up to 500,000 shares of common stock may be granted and options are
exercisable upon grant.
A summary of incentive stock options activity follows for the year ended March
31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Outstanding and exercisable at beginning of period ------- ------- -------
($1.38 to $4.50 per share) 161,000 207,500 289,500
Granted ($1.63 to $8.00 per share) 185,000 500
Exercised ($1.38 to $2.70 per share) (5,500) (46,500) (82,500)
------- -------- --------
Outstanding and exercisable at end of period
($1.38 to $8.00 per share) 340,500 161,000 207,500
======= ======== ========
</TABLE>
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 9--EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan covering substantially all employees.
Maxco contributes $.20 for each $1 contributed by employees up to 6% of their
annual compensation. In addition, Maxco contributes, at the discretion of the
Board of Directors, an additional amount equal to 1% of the employees' annual
compensation. Company contributions charged to continuing operations under the
Plan were approximately $200,000, $177,000 and $158,000 for the years ended
March 31, 1996, 1995 and 1994, respectively.
NOTE 10--FEDERAL INCOME TAXES
The provision for federal income taxes (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current (benefit) $(1,477) $(16) $133
Deferred 38 985 3,602
------- ---- -----
(1,439) 969 3,735
Less deferred amount allocated to equity in
earnings of affiliates 226 364
------- ---- -----
$(1,439) $743 $3,371
======= ==== ======
</TABLE>
The federal income tax expense differs from the amount computed by applying
statutory rates due to certain expenses which are not deductible for tax
purposes. Federal income taxes paid for Maxco's continuing operations was
$275,000 in 1995. No taxes were paid in 1996 or 1994.
Federal income tax expense related to Maxco's discontinued business amounted to
$1,439,000, $1,867,000, and $1,155,000 for the years ended March 31, 1996, 1995
and 1994, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of March 31, are as
follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation $ 714 $ 623
Undistributed gains 8,196 5,467
Other--net 31
------ ------
Total Deferred Tax Liabilities 8,910 6,121
DEFERRED TAX ASSETS:
Allowance for doubtful accounts 241 186
Inventory 257 191
Intangibles 287 229
Other--net 12 32
------ ------
Total Deferred Tax Assets 797 638
Net Deferred Tax Liabilities 8,113 5,483
Deferred tax asset attributable to discontinued business 363 325
------ ------
$8,476 $5,808
====== ======
</TABLE>
The increase in net deferred tax from 1995 is primarily related to the deferred
tax recorded on the unrealized gain on marketable securities.
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 11--INVESTMENT IN PARTNERSHIPS
Maxco is a partner with various individuals (some of whom are related parties
of Maxco) in two real estate development partnerships; a 25% interest in CJF
Partnership (CJF) which owns office building sites for development, and a 2%
limited partnership interest in Riverview Associates One Limited Partnership
(Riverview) which owns and operates an office building.
The ongoing partnerships' operations are not significant to Maxco's
consolidated financial position or results of operations. The partnerships
have invested in real estate which was financed externally in the amount of
approximately $8.5 million. This external financing was jointly and severally
guaranteed by the partners. With respect to Maxco's withdrawal from a 25%
general partnership interest in Riverview during the year ended March 31, 1991,
the remaining general partners agreed to indemnify Maxco for any liability
Maxco may incur related to Riverview (which includes $7.5 million of the above
noted externally financed debt). Maxco's share of the equity in the
partnerships approximated $203,000, $174,000 and $167,000 at March 31, 1996,
1995 and 1994, respectively.
NOTE 12--CONTINGENCIES AND COMMITMENTS
Maxco is involved in various legal actions which have arisen in the normal
course of business. Such actions are usually brought for claims in excess of
possible settlements or awards, if any, that may result. Management, after
consultation with legal counsel, is of the opinion that the outcome of these
actions will not have a material effect on the consolidated financial position
of Maxco.
Maxco and certain subsidiaries occupy facilities and use equipment under
operating lease agreements requiring annual rental payments approximating
$476,000 in 1997, $318,000 in 1998, $211,000 in 1999, $173,000 in 2000,
$108,000 in 2001, and $15,000 thereafter for a total commitment aggregating
$1,301,000. Rent expense charged to operations, including short-term leases,
aggregated $885,000 in 1996, $743,000 in 1995 and $728,000 in 1994.
NOTE 13--INDUSTRY SEGMENT INFORMATION
The following summarizes Maxco's industry segment information:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Net sales:
Distribution $40,600 $38,288 $29,097
Manufactured products:
Automotive components 17,192 15,330 13,956
Industrial products 22,255 21,926 16,065
--------- -------- ---------
Total Manufactured Products 39,447 37,256 30,021
Real estate division and other 121 69 87
--------- -------- ---------
TOTAL NET SALES $80,168 $75,613 $59,205
========= ======== =========
Operating income (loss):
Distribution $1,975 $1,666 $354
Manufactured products:
Automotive components (1,019) (172) 960
Industrial products (1,262) 768 (195)
--------- -------- ---------
Total Manufactured Products (2,281) 596 765
Real estate division (87) (103) (106)
--------- -------- ---------
TOTAL OPERATING INCOME (393) 2,159 1,013
Corporate and interest expense and other (4,028) 594 9,981
--------- -------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES $(4,421) $2,753 $10,994
======== ======= ========
</TABLE>
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 13--INDUSTRY SEGMENT INFORMATION--Continued
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Identifiable assets:
Distribution $ 8,246 $ 6,763 $ 6,487
Manufactured products:
Automotive components 10,827 11,262 9,457
Industrial products 13,306 10,466 7,263
-------- -------- --------
Total Manufactured Products 24,133 21,728 16,720
Real estate division 292 768 237
Corporate 21,446 2,956 3,343
Investments and advances 250 7,622 4,875
Net assets of discontinued business 31,665 28,956 25,554
-------- -------- --------
$86,032 $68,793 $57,216
======== ======== ========
Depreciation and amortization expense:
Distribution $285 $ 229 $ 191
Manufactured products:
Automotive components 1,016 815 630
Industrial products 651 551 427
-------- -------- --------
Total Manufactured Products 1,667 1,366 1,057
Real estate division 17 4
Corporate 88 89 96
-------- -------- --------
$ 2,057 $ 1,688 $ 1,343
======== ======== ========
Capital expenditures:
Distribution $ 1,629 $ 324 $546
Manufactured products:
Automotive components 420 1,497 2,830
Industrial supplies 3,693 1,218 807
-------- -------- --------
Total Manufactured Products 4,113 2,715 3,637
Real estate division 486
Corporate 12 32 23
-------- -------- --------
$ 5,754 $ 3,557 $ 4,206
======== ======== ========
</TABLE>
Identifiable assets are those assets that are used in Maxco's operations in
each industry segment. Corporate assets are principally cash, notes
receivable, investments, and corporate office properties.
Corporate income for the year ended March 31, 1995 and 1994 includes gains of
$3.1 million and $12.1 million respectively, on the sale of common stock.
Maxco has no significant foreign operations, export sales, or inter-segment
sales.
No sales to any single customer exceeded 10% of consolidated sales for 1996,
1995 or 1994.
34
<PAGE> 35
MAXCO, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
ADDITIONS
Balance
Balance at Beginning Charged to Costs Charged to Other at End
DESCRIPTION of Period and Expenses Accounts--Describe Deductions--Describe of Period
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996:
Allowance for doubtful accounts $288 $196 $127(A) $357
Year ended March 31, 1995:
Allowance for doubtful accounts $246 $195 $153(A) $288
Year ended March 31, 1994:
Allowance for doubtful accounts $198 $117 $69(A) $246
</TABLE>
(A) Represents uncollectible accounts written off, less recoveries.
35
<PAGE> 36
MAXCO, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBITS
Exhibit
-------
10.6 Third amendment to amended and restated loan agreement
dated as of May 15, 1996
10.7 Stock Purchase Agreement
11 Statement Re: Computation of Per Share Earnings
22 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (the
"Third Amendment") dated as of the 15th day of May, 1996, by and among Maxco,
Inc., a Michigan Corporation (hereinafter referred to as the "Borrower"), and
Comerica Bank (formerly known as Comerica Bank- Detroit), a Michigan banking
corporation (hereinafter referred to as the "Bank").
W I T N E S S E T H
WHEREAS, Borrower and Bank entered into a certain Amended and Restated
Loan Agreement dated October 31, 1994, as amended by First Amendment to Amended
and Restated Loan Agreement dated May 9th, 1995 (the "Agreement"); as further
amended by Second Amendment to Amended and Restated Loan Agreement dated
September 8, 1995 (the "Agreement");
WHEREAS, Borrower desires to (i) increase the Commitment Amount from
$20,000,000 to $24,000,000; (ii) reduce the amount of credit available for Term
Loans from $1,000,000 to $454,463; (iii) cancel in its entirety the Revolving
Acquisition Loan credit facility of $5,000,000; and (iv) modify other terms and
conditions of the Agreement; and
WHEREAS, the Borrower and the Bank desire to amend certain of the
covenants set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants
herein contained, the Borrower and the Bank hereby agree as follows:
1. In Sub-Section 1.1 of Section 1 of the Agreement, the
following definitions are hereby deleted in their entirety and replaced by the
following or added entirely:
The term "Approved Borrower Acquisition(s)" is hereby deleted.
1
<PAGE> 2
The term "Acquisition Commitment Amount" is hereby deleted.
"Borrowing Base" shall mean the sum of (a) 75 percent of the
aggregate outstanding principal balance of the Borrower's and the
Guarantors' Eligible Accounts, plus (b) the market value of the
capital stock of Finishmaster pledged to the Bank by the Borrower or
any Subsidiary, based on the most recent bid price for the capital
stock of Finishmaster quoted in the NASDAQ OTC Market multiplied by
the Finishmaster Loan Percentage, which market value, for purposes
hereof, shall be capped at a maximum of $13,000,000; and less (c) the
aggregate amounts of Letters of Credit then outstanding.
"Commitment Amount" shall mean $24,000,000 (or such lesser amount
to which the Commitment Amount may be reduced by the Borrower from
time to time under Section 2.8.1 of this Agreement).
"Note" shall mean the Revolving Credit Note or the Term Note and
"Notes" shall mean each of the Revolving Credit Note and the Term
Note.
The term "Revolving Acquisition Note" is hereby deleted.
The term "Revolving Acquisition Loan" is hereby deleted.
"Termination Date" shall mean, as to the Revolving Credit Loan,
August 1, 1997 (or such earlier date on which the Borrower shall
permanently terminate the Bank's commitment under Section 2.8.1 of
this Agreement).
2. The Revolving Credit Note dated October 31, 1994, (the "Note") in
the original face amount of Fourteen Million Dollars ($14,000,000), as amended
by the First Amendment to Amended and Restated Loan Agreement dated May 9th,
1995, as replaced by a Revolving Credit Note dated September 8, 1995 is hereby
amended such that the face amount is Twenty Four Million Dollars ($24,000,000),
and the reference in the first paragraph of the Note is amended to read Twenty
Four Million Dollars ($24,000,000) and the following definitions contained in
the Note are hereby deleted in their entirety and replaced by the following:
"Eurodollar-based Rate" means a per annum interest rate which is equal
to the sum of two hundred forty basis points (2.40%), 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 and for a period equal to the relevant Interest Period
at or about 11:00 a.m. (Detroit, Michigan time) (or as soon
thereafter as practical) two(2) Business Days prior to the first
day of such Interest Period;
2
<PAGE> 3
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.
"Prime-based Rate" shall mean a per annum interest rate which is equal
to the Prime Rate plus fifteen (15) basis points (.15%). Effect shall be
given to any change in the Prime-based Rate as a result of any change in
the Prime Rate on the date of any such change in the Prime Rate.
3. Paragraph 2.1(b) of Sub-Section 2.1 of Section 2 is hereby
deleted in its entirety and replaced by the following:
(b) Subject to the terms and conditions of this Agreement, the Bank
agrees to make term loans for the purchase of machinery and equipment to
the Borrower of such amounts as the Borrower shall request pursuant to
Section 2.2 of this Agreement at any time from the date of this Agreement
until the Termination Date, up to an aggregate principal amount outstanding
at any time not to exceed Four Hundred Fifty-Four Thousand Four Hundred
Sixty-Three Dollars ($454,463.00), at such interest rates, and with such
maturity dates, as the Bank and the Borrower shall from time to time agree
(such agreement to be evidenced by the Borrower's execution and the Bank's
acceptance of, and disbursement against, a Term Note). Those term loans to
the Borrower currently outstanding and described on Schedule 2.1(b) shall
constitute Term Loans under this Agreement and the promissory notes
evidencing such loans shall constitute Term Notes under this Agreement and
the principal amount of such loans shall be taken into account in
determining the aggregate principal amount of term loans outstanding under
this Section 2.1(b).
4. Paragraph 2.1(c) of Sub-Section 2.1 of Section 2 are hereby
deleted in their entirety and replaced by the following:
(c) Subject to the terms and conditions of this Agreement, to the
Borrower's execution and delivery to the Bank of a reimbursement agreement
satisfactory to the Bank in its sole discretion and to the Borrower's
payment of Bank's letter of credit fees, the Bank shall issue standby and
commercial letters of credit on behalf of the Borrower or any Subsidiary in
aggregate amounts not to exceed Six Hundred Twenty-Eight Thousand Six
Hundred Twenty-Four Dollars ($628,624) at any one time outstanding and with
expiration dates not to exceed three hundred sixty five
3
<PAGE> 4
(365) days. The Borrowing Base shall be reduced by the aggregate
amount outstanding under such letters of credit.
5. Paragraph 2.1(d) of Sub-Section 2.1 of Section 2 is hereby deleted
in its entirety.
6. Sub-Sub-Section 2.2.1 of Sub-Section 2.2 of Section 2 is hereby
deleted in its entirety and replaced by the following:
2.2.1 Notice of Request for Loan and Letters of Credit. The
Borrower may with the consent of the Bank request a Revolving Loan,
a Term Loan or a Letter of Credit and make payments thereon by
telephonic authorization to the Bank in accordance with such terms
and procedures as the Bank shall from time to time establish or may
give the Bank at least two Business Days' prior written notice of
the Borrower's desire for a Revolving Loan, a Term Loan or a Letter
of Credit. Such notice shall be signed by an authorized officer of
the Borrower and shall specify the proposed Disbursement Date and
the principal amount of the proposed advance for such Revolving
Loan, Term Loan or the amount of such Letter of Credit.
7. Paragraph 2.2.2(e) of Sub-Sub-Section 2.2.2 of Sub-Section 2.2 of
Section 2 is hereby deleted in its entirety.
8. Paragraph 2.3(c) of Sub-Section 2.3 of Section 2 is hereby deleted in
its entirety.
9. Paragraph 2.4(a) of Sub-Section 2.4 of Section 2 is hereby deleted in
its entirety and replaced by the following:
(a) The Revolving Credit Note shall bear interest on the
outstanding principal balance from time to time outstanding at a rate
equal to the Prime Rate, plus fifteen (15) basis points (.15%), or
the Eurodollar-based Rate, as elected by the Borrower under the terms
of the Revolving Credit Note, until maturity, whether by acceleration
or otherwise, and thereafter at a rate equal to three percent (3%)
per annum plus the rate otherwise prevailing hereunder. Interest
shall be payable in accordance with the terms of the Revolving Credit
Note.
10. Paragraph 2.4(c) of Sub-Section 2.4 of Section 2 is hereby deleted
in its entirety.
11. Sub-Sub-Sub-Section 2.6.1.1 of Sub-Sub-Section 2.6.1 of Sub-Section
2.6 of Section 2 is hereby deleted in its entirety.
12. Sub-Section 2.8 of Section 2 is hereby deleted in its entirety and
replaced by the following:
2.8 Changes in Commitment and Prepayments.
4
<PAGE> 5
2.8.1 Termination or Reduction in Commitment. The Borrower may,
at any time and from time to time, upon at least five (5) Business
Days' prior written notice received by the Bank, permanently terminate
the Bank's commitments under this Agreement or permanently reduce the
Commitment Amount by an integral multiple of $500,000, provided,
however, that the Borrower, on the effective date of such termination
or reduction, (a) shall pay to the Bank, in the case of a termination,
the aggregate unpaid principal amount of all Revolving Loans and Term
Loans (together with, in the case of Term Loans, any prepayment
penalty or premium provided by the Term Notes or otherwise required by
the Bank) and shall deposit with the Bank in cash an amount (adjusted,
as deemed necessary by the Bank, for any applicable reserve or other
requirements) equal to the Bank's maximum liability under all Letters
of Credit then outstanding, or (b) shall pay to the Bank, in the case
of a reduction, the amount, if any, by which the aggregate unpaid
principal amount of all Revolving Loans exceeds the then reduced
Commitment Amount, together in either case with all interest accrued
and unpaid on the principal amounts so prepaid. After any such
reduction, the commitment fee provided under Section 2.6.1 of this
Agreement shall be calculated on the Commitment Amount as so reduced
and the Commitment Amount may not be increased or otherwise reinstated
without the express written agreement of the Bank.
2.8.2 Mandatory Prepayments. In addition to the mandatory
prepayment required under Section 2.8.1 of this Agreement, the
Borrower shall pay to the Bank the amount, if any, by which the
aggregate unpaid principal amount of all Revolving Loans from time to
time exceeds the lesser of the Commitment Amount or the Borrowing
Base, together with all interest accrued and unpaid on the amount of
such excess, but without other premium or penalty. Such prepayment
shall be immediately due and owing upon the occurrence of any such
excess, provided, however, that any mandatory prepayment made under
this Section 2.8.2 shall not reduce the Commitment Amount.
2.8.3 Optional Prepayments. (a) The Borrower may, at any time
and from time to time, upon at least one (1) Business Day's prior
written notice received by the Bank, prepay the unpaid principal
amount of the Revolving Loans for which Borrower has elected the
Prime-based Rate, in whole or in part without premium or penalty,
provided, however, that any such optional prepayment shall be made in
an integral multiple of $10,000 and provided, further, that any
optional prepayment made under this Section 2.8.3 shall not reduce
the Commitment Amount. Prepayments of any Revolving Loans for which
the Borrower has elected the Eurodollar-based Rate shall be governed
by the Note.
(b) The Borrower may prepay the unpaid principal amount of the
Term Loans only if permitted by, and on the terms of, the Term Notes.
5
<PAGE> 6
13. Sub-Section 7.3 of Section 7 is hereby deleted in its
entirety and replaced by the following:
7.3 Stock Acquisition. Purchase, redeem, retire
or otherwise acquire any of the shares of its capital
stock, or make any commitment to do so, except in
connection with the conversion of Borrower's preferred
stock into Borrower's common stock pursuant to the terms
of Borrower's preferred stock, including but not limited
to the repurchase by Borrower of any shares of Borrower's
capital stock.
14. Except as specifically modified hereby, the terms and
conditions of the Agreement and the Notes remain in full force and effect and
the undersigned hereby ratify and agrees to be bound by the terms of the
Agreement as hereby amended.
15. Neither the extension of this Third Amendment by the Bank,
nor any other act or omission by the Bank in connection herewith, shall be
deemed a waiver by the Bank of any default under the Agreement.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Third Amendment to be executed by their duly authorized officers as of the day
and year first written above.
MAXCO, INC.
By /s/ Vincent Shunsky
-------------------------------
Vincent Shunsky
Its Vice President
COMERICA BANK
By /s/ David G. Granthanm
-------------------------------
David G. Grantham
Its Vice President
6
<PAGE> 7
The Undersigned Guarantors hereby acknowledge and consent to the above
Second Amendment.
Akemi Plastics, Inc.
Vincent Shunsky
By -----------------------
Vincent Shunsky
Its Treasurer
Ersco of Michigan, Inc. Pak-Sak Industries, Inc.
Vincent Shunsky Vincent Shunsky
By ------------------------ By -----------------------
Vincent Shunsky Vincent Shunsky
Its Treasurer Its Treasurer
Wisconsin Wire & Steel, Inc. CMC, Inc.
Vincent Shunsky Vincent Shunsky
By ----------------------- By ----------------------
Vincent Shunsky Vincent Shunsky
Its Treasurer Its President
Pacer Tool & Mold, Inc.
Vincent Shunsky
By -----------------------
Vincent Shunsky
Its Treasurer
7
<PAGE> 1
EXHIBIT 10.7
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
MAXCO, INC.
AND
LACY DISTRIBUTION, INC.
AND
LDI, LTD., AS GUARANTOR
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into this 5th
day of June, 1996, by and among Lacy Distribution, Inc., an Indiana corporation
("Buyer"), Maxco, Inc., a Michigan corporation ("Maxco"), which is the owner of
four million forty-five thousand (4,045,000) of the issued and outstanding
shares of common stock, no par value, of FinishMaster, Inc., a Michigan
corporation ("FinishMaster"), and LDI, Ltd., an Indiana limited partnership
("LDI"). FinishMaster and its consolidated subsidiary are sometimes referred
to collectively herein as the "Consolidated Companies."
WHEREAS, Buyer desires to purchase from Maxco, and Maxco desires to sell
to Buyer, all of the issued and outstanding shares of common stock of
FinishMaster owned by Maxco (the "Shares") upon the terms and subject to the
conditions set forth herein and to consummate the other transactions
contemplated hereby (the "Stock Purchase");
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement the following terms shall have the meanings
specified:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section 4.8
hereof.
"ANTITRUST IMPROVEMENTS ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended from time to time, and the rules
promulgated thereunder.
"BLUE SKY LAWS" shall have the meaning set forth in Section 1.3 of Exhibit
A attached hereto.
<PAGE> 3
"CLOSING" shall have the meaning set forth in Section 2.2 hereof.
"CLOSING DATE" shall mean July 9, 1996 or, if the required waiting period
under the Antitrust Improvements Act has not yet expired on that date, a date
which is seven (7) days after the expiration of the waiting period under the
Antitrust Improvements Act, subject to the requirement that in no event may the
Closing Date precede the date as of which all of the conditions in Articles V
and VI have been satisfied or waived.
"CODE" shall mean the Internal Revenue Code of 1986, as amended. All
citations to the Code or to the regulations promulgated thereunder shall
include any amendments or any substitute or successor provisions thereto.
"CONFIDENTIALITY COVENANT" shall have the meaning set forth in Section
4.10 hereof.
"CONSENT" shall mean any approval, consent, ratification, permission,
waiver or other required authorization (including any Governmental
Authorization).
"CONSOLIDATED COMPANIES" shall mean FinishMaster and its consolidated
subsidiary, which subsidiary is identified on Exhibit C.
"CONTRACT" shall mean any agreement, contract, instrument, indenture,
note, bond, mortgage, lease, permit, concession, franchise, license, guaranty,
power of attorney, commitment, promise, assurance, obligation or undertaking,
whether written or oral.
"DAMAGES" shall have the meaning set forth in Section 8.3 hereof.
"EMPLOYEE PLANS" shall have the meaning set forth in Section 1.10 of
Exhibit A attached hereto.
"ENCUMBRANCE" shall mean any lien, pledge, hypothecation, charge,
mortgage, deed of trust, security interest, encumbrance, equity, trust,
equitable interest, right of possession, lease tenancy, license, Order, proxy,
option, right of first refusal or, in the case of any security, any restriction
on the use, voting, transfer, receipt of income or other exercise of any other
attribute of ownership of such security.
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<PAGE> 4
"ENVIRONMENTAL LAWS" include without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), 42 U.S.C.
Section 9601 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1802 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section
9601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; Federal
Insecticide, Fungicide and Rodentcide Act, 7 U.S.C. Section 136 et seq.; Solid
Waste Disposal Act, 42 U.S.C. Section 6901 et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401 et seq., the Federal Water Pollution Control
Act, as amended, 33 U.S.C. Section 1251 et seq.; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. Section 1101 et seq.; and the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq.; all regulations
promulgated under the foregoing statutes; and all other Legal Requirements
relating to the environment or Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time, or any successor law.
"FINISHMASTER PERSONNEL" shall have the meaning set forth in Section
4.1(b)(iii)(A) hereof.
"FINISHMASTER OFFICERS" means Max A. Coon, Ronald P. White, Michael J.
Siereveld, Christopher R. Banner, Roger A. Sorokin, Eric L. Cross and Vincent
Shunsky.
"GOVERNMENTAL AUTHORIZATION" shall mean any permit, license, franchise,
approval, consent, ratification, permission, confirmation, endorsement, waiver,
certification, registration, qualification or other authorization issued,
granted, given or otherwise made available by or under the authority of any
governmental body or pursuant to any Legal Requirement.
"HAZARDOUS MATERIALS" shall mean hazardous wastes, hazardous substances,
hazardous constituents, toxic substances or related materials, whether solids,
liquids or gases, including but not limited to, substances defined as
"hazardous wastes," "hazardous substances," "toxic substances," "pollutants,"
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<PAGE> 5
"contaminants," "radioactive materials" (including, but not limited to,
isotopes), or other similar designations in, or otherwise subject to regulation
under, any Environmental Laws, and any other substances, constituents or wastes
subject to environmental regulation under any applicable Legal Requirement.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth in Section
1.14 of Exhibit A attached hereto.
"INTERCOMPANY AGREEMENT" shall have the meaning set forth in Section 4.7
hereof.
"INTERCOMPANY DEBT" shall mean all debt of the Consolidated Companies to
Maxco or any Maxco Affiliate.
"INTERCOMPANY RECEIVABLES" shall mean all debt of Maxco or any Maxco
Affiliate to the Consolidated Companies.
"LEGAL REQUIREMENT" shall mean any federal, state, local, municipal,
foreign or other law, statute, legislation, bill, act, enactment, constitution,
resolution, proposition, initiative, canon, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
guideline or interpretation issued, enacted, adopted, passed, approved,
ratified, endorsed, promulgated, made, entered, rendered, published or
implemented by or under the authority of any governmental body or by the
eligible voters of any jurisdiction.
"MATERIAL ADVERSE EFFECT" shall mean any change or changes, effect or
effects, event or events, or condition or conditions that, to the extent not
adequately covered by insurance or appropriate reserves previously established
on the books of the Consolidated Companies in the ordinary course of business
in accordance with their normal practice, individually or in the aggregate are
or are reasonably likely to be materially adverse to the business, operations
or financial condition of the Consolidated Companies taken as
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<PAGE> 6
a whole, by a dollar amount in excess of $500,000; provided, however, that
normal recurring seasonal variations in operating results, usual and ordinary
course of business changes recorded in a customary manner on the books and
records of the Consolidated Companies consistent with past practice shall not
be deemed to be such change(s), effect(s) or condition(s).
"MATERIAL ENVIRONMENTAL EVENT" shall mean an event or events, effect or
effects or condition or conditions that, individually or in the aggregate, are
or are reasonably likely to result in the Consolidated Companies incurring
fines, penalties or Damages in the amount of $50,000.00 or more.
"MAXCO AFFILIATE" shall mean any Person, other than the Consolidated
Companies, which controls, is controlled by, or is under common control with,
Maxco.
"MAXCO'S KNOWLEDGE", "to the knowledge of Maxco", "to the best of Maxco's
knowledge", or words of similar import, shall mean the knowledge, assuming
reasonable investigation, of any of the officers of Maxco or any of the
FinishMaster Officers.
"MAXCO GUARANTIES" shall have the meaning set forth in Section 8.5 hereof.
"MAXCO PORTION" shall have the meaning set forth in Section 8.3 hereof.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" mean the financial statements filed
with the annual report on Form 10-K of FinishMaster for the period ended March
31, 1996.
"MULTIPLE EMPLOYER PENSION PLAN" shall have the meaning set forth in
Section 1.10 of Exhibit A attached hereto.
"NON-COMPETITION AGREEMENT" shall have the meaning set forth in Section
4.12 hereof.
"ORDER" shall mean any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, sentence, subpoena, writ or
award issued, made, entered or rendered by
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<PAGE> 7
any court, administrative agency or other governmental body or by any
arbitrator.
"PBGC" shall have the meaning set forth in Section 1.10 of Exhibit
A attached hereto.
"PENSION PLAN" shall have the meaning set forth in Section 1.10 of Exhibit
A attached hereto.
"PERSON" shall mean any individual, corporation or other entity or
governmental body.
"PROCEEDING" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding or any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court,
administrative agency or other governmental body or arbitrator.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.1 hereof.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time, or any successor law.
"SECURITIES DOCUMENTS" shall have the meaning set forth in Section 1.4 of
Exhibit A attached hereto.
"SHARES" shall mean the issued and outstanding shares of common stock, no
par value, of FinishMaster owned beneficially and of record by Maxco.
"SHORT-TERM PAYABLES" shall have the meaning set forth in Section 4.7
hereof.
"STOCK PURCHASE" shall mean the purchase of the Shares at Closing.
"SUBSIDIARY" shall have the meaning set forth in Section 1.1 of Exhibit A
attached hereto.
"SUBSIDIARY SHARES" shall have the meaning set forth in Section 1.1 of
Exhibit A attached hereto.
"TAKEOVER STATUTES" shall mean the Michigan Control Share Acquisition Law
and the Michigan Business Combination Law, codified at Section Section
450.1790 to 450.1799 and Section Section 450.1775 to 450.1783,
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<PAGE> 8
respectively, of the Michigan Business Corporation Act.
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") shall mean
(A) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, fuel, third structure, ad valorem, franchise, profits,
license, lease, use, withholding, payroll, employment, excise, severance,
property, transfer, documentary, mortgage, registration, stamp, occupation,
environmental, premium, customs, duties, or other tax of any kind whatsoever,
including any estimates thereof, together with any interest or any penalty,
addition to tax or additional amount imposed by any domestic or foreign
governmental body, (B) any penalties, interest, or other additions for the
failure to collect, withhold or pay over any of the foregoing, or to accurately
file any return (including without limitation, any information return,
declaration or estimate) with respect to the foregoing, and (C) liability for
the payment of any Tax of an affiliated, consolidated, combined or unitary
group.
"TAX RETURN" shall mean any return (including any information return),
report, statement, declaration, schedule, notice, notification, form,
certificate or other document or information filed with or submitted to, or
required to be filed with or submitted to, any governmental body in connection
with the determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
[remainder of page intentionally left blank]
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<PAGE> 9
ARTICLE II
SALE OF STOCK; CLOSING
SECTION 2.1. PURCHASE AND SALE. On the basis of the representations,
warranties, covenants and agreements and subject to the satisfaction or waiver
of the conditions set forth herein, on the Closing Date, Maxco shall sell and
Buyer shall purchase the Shares. In full payment for the Shares, Buyer will
pay Maxco $11.50 per Share, or an aggregate purchase price of $46,517,500 (the
"Purchase Price"), at the Closing by wire transfer of immediately available
funds to such account as Maxco shall designate in writing on or before the
Closing.
SECTION 2.2. TIME AND PLACE OF CLOSING. The consummation of the Stock
Purchase (the "Closing") shall take place on the Closing Date at 10:00 A.M.,
Indianapolis time, at the offices of Barnes & Thornburg in Indianapolis,
Indiana, or at such other place or time as the parties may agree upon in
writing. The parties agree that if the Closing Date is prior to July 15, 1996,
the consummation of the Stock Purchase will be deemed effective as of July 1,
1996, and if the Closing Date is later than July 15, 1996, the consummation of
the Stock Purchase will be deemed effective as of the end of the month in which
the Closing occurs.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF MAXCO. Maxco represents
and warrants to Buyer the representations and warranties contained in the
attached Exhibit A, which representations and warranties are incorporated
herein by reference.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Maxco
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<PAGE> 10
the representations and warranties contained in Exhibit B, which
representations and warranties are incorporated herein by reference.
ARTICLE IV
COVENANTS OF THE PARTIES
SECTION 4.1. CONDUCT OF MAXCO AND CONSOLIDATED COMPANIES. During the
period from the date of the final signing hereof to the Closing Date:
(a) Operations in the Ordinary Course of Business. Maxco shall cause the
Consolidated Companies to conduct their operations in accordance with their
ordinary and usual course of business, in a manner consistent with past
practice, and to pay their respective obligations as they become due. Maxco
shall cause each of the Consolidated Companies to use all reasonable efforts to
preserve intact its business organization and to maintain its assets and
properties, and all insurance and claims reserves, in a manner consistent with
past practice and in accordance with applicable Legal Requirements.
(b) Forbearances by Maxco and the Consolidated Companies. Except with the
written consent, or at the written request, of Buyer, Maxco shall not cause or
permit either of the Consolidated Companies, directly or indirectly, to:
(i)(A) amend its Articles of Incorporation or Bylaws; (B) declare,
set aside or pay any dividend or other distribution or payment in cash,
stock or property in respect of shares of its capital stock; (C) effect
any split, combination or other similar change in the outstanding shares
of its capital stock, (D) redeem, purchase or otherwise acquire any
shares of capital stock or other securities, or (E) settle or compromise
any Proceeding for an amount in excess of $25,000 to which either of the
Consolidated Companies or its assets is a party;
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<PAGE> 11
(ii)(A) issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of capital
stock of either of the Consolidated Companies; (B) sell, lease or
otherwise dispose of any assets or properties which are material to
either of the Consolidated Companies, provided, that Buyer shall not,
upon receipt of due notice, unreasonably withhold its consent to the
sale, lease or disposition of assets or properties in connection with the
closing, relocation or consolidation of retail stores by the Consolidated
Companies in the ordinary course of business and consistent with past
practice; (C) waive, release, grant or transfer any rights of material
value under, or otherwise modify or change, any material Contract; (D)
further encumber, mortgage or pledge any assets or properties of the
Consolidated Companies, except for any granting of a security interest in
assets acquired in acquisitions of retail stores to secure payment under
promissory notes or other instruments delivered in connection therewith,
consistent with past practice of the Consolidated Companies, provided
that the amounts so secured do not exceed the value or purchase price of
such assets; (E) foreclose on or accept a deed in lieu of foreclosure
with respect to any real property of the Consolidated Companies; (F)
enter into any sale and leaseback transaction; (G) serve as a credit
provider by extending any credit to any Person (other than committed
advances required under existing credit facilities or extensions of
credit to customers in the ordinary course of business and consistent
with past practice), or enter into any new credit agreement with any
Person (other than special credit arrangements with suppliers to effect
preferred buying arrangements in the ordinary course of business and
consistent with past practice), or extend or renew any existing credit
facility with any Person; or (H) utilize current assets or any borrowings
to prepay or retire any form of long-term debt except (i) in accordance
with scheduled debt repayment, and (ii) to repay the amounts outstanding
on the revolving credit facility of the Consolidated Companies.
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<PAGE> 12
(iii)(A) except as provided in Schedule 4.1(b)(iii)(A), grant any
general increase in the compensation of directors or officers of
FinishMaster (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any increase in the
compensation payable to, or to become payable to, any director or officer
of FinishMaster, (B) enter into any collective bargaining agreement, (C)
adopt any new Employee Plan (as defined in Section 1.10 of Exhibit A),
whether formal or informal, or increase in any manner the compensation or
benefits (other than compensation increases in accordance with its
customary compensation practices and related changes in benefits) of any
of its present or former directors, officers or any other persons
employed by or otherwise performing services for either of the
Consolidated Companies (the "FinishMaster Personnel"), or pay or agree to
pay any pension or retirement allowance not required by any existing
employment agreement or Employee Plan to any such present or former
directors, officers, or other members of FinishMaster Personnel (it being
understood that FinishMaster may continue to meet its obligations to
James F. White pursuant to the terms of that certain Deferred
Compensation Agreement dated April 1, 1977 and the Retirement Agreement
described in Schedule 1.12), or commit itself to an employment agreement
or Employee Plan with or for the benefit of any present or former
director, officer, employee, consultant or other Person, or alter, amend,
terminate in whole or in part, or curtail or permanently discontinue any
Employee Plan, (D) make or commit to make (x) any expenditure for any
capital asset or equipment in an individual amount equal to or greater
than $100,000, or (y) any capital expenditures in connection with the
acquisition of retail stores, except as disclosed in Schedule
4.1(b)(iii)(D)(y), or (E) incur or otherwise become liable for any
material indebtedness, other than (i) indebtedness incurred in connection
with the acquisition of retail stores approved pursuant to (D) above and
consistent with past practice of the Consolidated Companies, provided
that such indebtedness does not exceed the purchase price for such
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<PAGE> 13
acquisition and is secured only by a lien on assets acquired therein
or (ii) indebtedness incurred for working capital requirements if done in
the ordinary course of business and consistent with past practice; or
(iv) enter into any agreement or commitment to do or permit any of
the actions described in clauses (i) through (iii) which are prohibited
by or require the prior written consent of Buyer pursuant to this Section
4.1.
SECTION 4.2. OBTAINING, CONSENTS AND CONDITIONS TO CLOSING.
(a) Obtaining Consents. Between the date of the final signing of this
Agreement and the Closing Date, each party shall use its best efforts, and
shall cooperate with the other party in taking all steps necessary, promptly to
(i) make any filing (including a filing under the Antitrust Improvements Act
which requests early termination of the waiting period thereunder) and (ii)
obtain any required Consents necessary for the consummation of the Stock
Purchase, or that may thereafter be reasonably necessary to effect the
transfer, grant or renewal of any other licenses, approvals and Government
Authorizations. Buyer shall pay all filing fees required in connection with
filings of Maxco and Buyer under the Antitrust Improvements Act. All other
expenses incurred by Maxco in connection with filings or Consents made or
obtained by Maxco or the Consolidated Companies shall be borne by Maxco. All
other expenses incurred by Buyer in connection with filings or Consents made or
obtained by Buyer shall be borne by Buyer.
(b) Conditions to Closing. Each of Maxco and Buyer shall use all
reasonable efforts to cause its representations and warranties in this
Agreement to be true and correct as of the Closing Date, and to cause each
condition to Closing which is reasonably within its control to be satisfied.
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<PAGE> 14
SECTION 4.3. TAX PROVISIONS. (a) All Taxes and fees (including any
penalties and interest) incurred by Maxco or the Consolidated Companies in
connection with the sale of the Shares by Maxco shall be paid by Maxco. Maxco
will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes and fees.
(b) Buyer and Maxco agree to cause to be furnished to each other, upon
request, as promptly as practicable, such information (including access to
books and records) and assistance relating to the Consolidated Companies as is
reasonably necessary for the filing of any Tax Return, and for the preparation
for any Proceeding relating to any proposed adjustment. Buyer and Maxco agree
to cause to be retained all books and records pertinent to the Consolidated
Companies until the applicable period for assessment under applicable law
(giving effect to any and all extensions or waivers) has expired, and to abide
by or cause the observance of any record retention agreements entered into with
any governmental body. Buyer and Maxco agree to cause the Consolidated
Companies to give each of them reasonable notice prior to discarding or
destroying any such books and records relating to Tax matters for the
Consolidated Companies and to deliver to each of them, upon request, such books
and records. Buyer and Maxco shall cooperate with each other in the conduct of
any Proceedings involving the Consolidated Companies for any Tax purposes and
each shall execute and deliver such powers of attorney and other documents as
are necessary to carry out the intent of this Section 4.3(b).
SECTION 4.4. TERMINATION OF EXISTING TAX SHARING AGREEMENTS. Any and all
existing Tax sharing agreements between the Consolidated Companies and Maxco
shall be terminated as of the Closing Date. After such date neither the
Consolidated Companies nor Maxco shall have any further rights or liabilities
thereunder.
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<PAGE> 15
SECTION 4.5. ACCESS AND INVESTIGATION. During the period from the date of
the final signing of this Agreement to the Closing Date, Maxco shall, and shall
cause each of the Consolidated Companies and its officers, employees, agents
and representatives to, afford Buyer and its representatives (including legal
counsel, financial and other advisors, consultants and independent accountants)
reasonable access during normal business hours to members of FinishMaster
Personnel, properties (including, but not limited to, the ability to perform
environmental assessments), Contracts, books and records and other documents
and data (including, but not limited to, documents and data maintained by
Maxco) in order to confirm the accuracy of the representations and warranties
contained herein.
SECTION 4.6. FURTHER ASSURANCES. Maxco and Buyer agree that, from time to
time, whether at or after the Closing Date, each of them will execute and
deliver such further instruments of conveyance and transfer and take such other
action as may be reasonably appropriate to carry out the terms of this
Agreement. Maxco and Buyer further agree that they will not take any action
that will materially impede or delay the consummation of the Stock Purchase.
SECTION 4.7. INTERCOMPANY ACCOUNTS. Except as otherwise expressly
provided in this Agreement, Maxco covenants to Buyer that all intercompany
transactions between Maxco and any Maxco Affiliates, on the one hand, and the
Consolidated Companies, on the other hand, including without limitation the
Inter-Company Agreement dated December 31, 1993 (the "Inter-Company Agreement")
and all rights and obligations thereunder, shall terminate no later than the
Closing; provided, however, that amounts which are due and owing to Maxco by
the Consolidated Companies for the portion of shared insurance costs and other
costs accrued as of the Closing Date and attributable to the Consolidated
Companies in the ordinary course
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of business and consistent with past practice (the "Short Term Payables")
shall be paid to Maxco as soon as practicable after the Closing Date, in the
ordinary course of business and consistent with past practice. At or
immediately prior to the Closing, Maxco shall cause the Consolidated Companies
to repay in full all indebtedness owed by them to Maxco, and Maxco Affiliates
(other than the Short-Term Payables), and Maxco and Maxco Affiliates shall
repay in full all indebtedness owed to the Consolidated Companies, so that as
of the Closing Date there shall be no Intercompany Receivables or Intercompany
Debt (other than the Short-Term Payables).
SECTION 4.8. NEGOTIATIONS WITH OTHERS. (a) During the period from the
date of the final signing of this Agreement to the Closing Date, or until such
date as this Agreement may be terminated in accordance with Article VII,
neither Maxco nor any of its directors, officers, agents or associates nor any
investment banking firm or financial advisor retained by or acting on behalf of
Maxco shall, directly or indirectly, solicit or initiate discussions with, or
agree with, any Person (other than Buyer) concerning any possible proposal
regarding a sale or purchase of the Shares or a merger, consolidation, sale or
purchase of assets or other similar transaction directly or indirectly
involving either of the Consolidated Companies or any subsidiary, division or
major asset of either of the Consolidated Companies (each, an "Acquisition
Proposal"). Further, during such period and subject to the fiduciary duties of
the directors of Maxco as set forth in clause (b) below, neither Maxco nor any
of its subsidiaries nor any of their directors, officers, agents or associates
nor any investment banking firm or financial advisor retained by or acting on
behalf of Maxco or any Maxco Affiliate shall, directly or indirectly, without
the prior written consent of Buyer, engage in negotiations with, or provide any
information (other than publicly available information) to, any Person (other
than Buyer) concerning any Acquisition Proposal. In the event that Maxco
receives any request for information or any unsolicited Acquisition Proposal,
Maxco shall promptly notify Buyer and shall furnish
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Buyer a copy of any written communications with respect thereto.
(b) Notwithstanding the foregoing, the Board of Directors of Maxco may
accept a superior Acquisition Proposal which, in its good faith judgment, in
the exercise of its fiduciary duties under applicable law and after
consultation with qualified advisors, affords Maxco's shareholders
substantially more valuable economic benefit than is afforded to them in the
Stock Purchase.
(c) Nothing contained herein or in the Confidentiality Covenant shall be
construed to prohibit Maxco from making any disclosure which, in the judgment
of its Board of Directors, on advice of its counsel, is required by law.
Nothing contained herein or in the Confidentiality Covenant shall be construed
to prohibit Buyer from making any disclosure which, in the judgment of its
Board of Directors, on advice of its counsel, is required by law.
SECTION 4.9. NOTIFICATION AND REMEDIES. Between the date of the final
signing of this Agreement and the Closing Date, each party hereto shall
promptly notify the other party (a) if it becomes aware of any fact or
condition which makes materially untrue any representation, or materially
breaches any warranty, made by the notifying or the notified party in this
Agreement or (b) if it becomes aware of the occurrence after the date
of the final signing of this Agreement, but prior to Closing, of any fact or
condition that would (except as expressly contemplated by this Agreement) make
materially untrue any such representation or materially breach any such
warranty had such representation or warranty been made as of the time of such
occurrence or discovery of such fact or condition. The party making such
representations and warranties shall promptly commence using its best efforts
to remedy any such misrepresentation or breach as soon as possible, and shall
keep the other party apprised of the progress of all remedial actions.
SECTION 4.10. CONFIDENTIALITY. Buyer and Maxco hereby acknowledge that
they are parties to a
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letter of intent dated as of December 15, 1995, paragraph 6 of which contains a
covenant as to the treatment of certain confidential information (the
"Confidentiality Covenant") and a Confidentiality Agreement, dated April 30,
1996. Except as otherwise provided herein, such covenant remains a binding
obligation of each of Buyer and Maxco notwithstanding the execution of this
Agreement.
SECTION 4.11. FILINGS AND OTHER INFORMATION. Maxco has or shall provide
Buyer with true, correct and complete copies of all of the following documents
which relate to any date following, or any periods ending after, the date of
the final signing of this Agreement, through the earlier of Closing or the date
of termination of this Agreement: (i) all filings made by Maxco with the SEC,
(ii) any monthly, quarterly and annual financial statements (including without
limitation balance sheet, income statement and statement of cash flows) for
each of the Consolidated Companies and for the Consolidated Companies on
a consolidated basis, and (iii) all notices and other documents mailed or
otherwise distributed by Maxco or FinishMaster, respectively, to its
shareholders; all within three (3) days after the date of filing, preparation,
mailing or distribution thereof.
SECTION 4.12. NON-COMPETITION AGREEMENT. Maxco and certain individuals
identified in Exhibit D hereto shall, in consideration of an aggregate of
$16,500,000, enter into a Non-Competition Agreement with the Consolidated
Companies, in substantially the form attached hereto as Exhibit D, setting
forth such parties' covenant not to compete with the Consolidated Companies for
a period of five (5) years after the Closing Date. This amount will be paid as
follows: (i) $12,000,000 will be due to Maxco at the Closing by wire transfer
of immediately available funds to such account as Maxco shall designate in
writing on or before the Closing, and (ii) an aggregate of $4,500,000 will be
paid in five (5) equal annual installments commencing on the first anniversary
of the Closing Date and on each of the following four anniversaries of
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the Closing Date.
SECTION 14.3. MAXCO'S NET WORTH. Maxco covenants and agrees that from
the date hereof and for a period of four (4) years after the Closing Date (the
"Net Worth Covenant Period"), it shall maintain a tangible net worth of at
least Ten Million Dollars ($10,000,000). Tangible net worth for this purpose
shall be computed using generally accepted accounting principles, applied on a
consistent basis. Maxco further covenants and agrees not to enter into any
corporate transaction permitting any distribution that would reduce Maxco's
tangible net worth below the required minimum set forth in this Section 14.3.
ARTICLE V
CONDITIONS OF BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the Stock Purchase is subject to the
satisfaction on or prior to the Closing Date of all of the following conditions
(any of which may be waived by Buyer):
SECTION 5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MAXCO. Each of
the representations and warranties of Maxco contained in this Agreement shall
be true in all material respects on and as of the Closing Date with the same
effect (and taking into account standards of materiality, where applicable) as
though such representations and warranties had been made on and as of such
date. Each of the covenants and agreements of Maxco to be performed on or
before the Closing Date shall have been duly performed in all material
respects. Buyer shall have received at the Closing a certificate to that
effect dated the Closing Date and executed on behalf of Maxco by an authorized
officer of Maxco.
SECTION 5.2. FILINGS, CONSENTS, WAITING PERIODS. All Consents, Orders,
filings, applications, notices, transfers, and other actions of any kind
required with or from or any governmental body in
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connection with the consummation of the Stock Purchase shall have been filed,
made or obtained. All applicable waiting periods shall have expired or been
terminated, including but not limited to, any applicable waiting period under
the Antitrust Improvements Act.
SECTION 5.3. NO PENDING OR CERTAIN THREATENED LITIGATION. At the Closing
Date, there shall be no Order of any nature of any court or governmental body
which restrains or prohibits the consummation of the Stock Purchase, and no
governmental body shall be threatening action of a substantial nature to
restrain or prohibit the Stock Purchase.
SECTION 5.4. CASUALTY LOSS. There shall not have occurred from the date
of this Agreement to the Closing Date any damage or destruction or other
casualty loss, if uninsured, with respect to the Consolidated Companies
exceeding $500,000 in the aggregate.
SECTION 5.5. CLOSING DOCUMENTS. In addition to any other documents
required by this Agreement, Maxco shall deliver to Buyer at the Closing:
(a) copies of the Articles of Incorporation of each of the Consolidated
Companies certified as of recent date by the elected or appointed state
official responsible for maintaining corporate records in its jurisdiction of
incorporation;
(b) the By-Laws of each of the Consolidated Companies, certified as of the
Closing Date by their respective secretaries to be true and complete in all
material respects;
(c) certificates for the Shares, duly registered in the name of Buyer or
its nominee by the transfer agent for the Shares;
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(d) all customer lists, books of account, personnel records, Tax Returns,
computer records and other books and records maintained by Maxco in connection
with the business of the Consolidated Companies to the extent they relate to
the business of the Consolidated Companies;
(e) a legal opinion of Warren, Price, Cameron, Faust & Asciutto, P.C.,
counsel to Maxco, dated the Closing Date, in form and substance reasonably
satisfactory to Buyer and its counsel, to the effect that: Maxco has duly
authorized, executed and delivered the Agreement, which is a legal, valid and
binding agreement enforceable in accordance with its terms; and, to its
knowledge, the delivery of the certificate for the Shares to Buyer, against
payment therefor as provided in this Agreement, will pass good and marketable
title to the Shares to Buyer free and clear of all Encumbrances.
(f) the Non-Competition Agreement, duly executed by Maxco and the certain
individuals identified on Exhibit D; and
(g) such documents and other evidence as Buyer shall reasonably request to
verify that the conditions to Closing set forth in this Agreement have been
fulfilled and that the obligations of Maxco required to be performed on or
before the Closing Date have been performed, such documents or evidence to
be reasonably satisfactory to Buyer.
SECTION 5.6. TERMINATION OF GUARANTIES. Any guaranties of any Contracts
or obligations of Maxco or any Maxco Affiliate by either of the Consolidated
Companies, or letters of credit provided by either of the Consolidated
Companies for the benefit of Maxco or any Maxco Affiliate, shall be terminated
and released as of the Closing Date.
SECTION 5.7. FINISHMASTER BOARD ACTION. The Board of Directors of
FinishMaster shall have taken all actions as are necessary to exempt
FinishMaster and the Stock Purchase from the provisions of the
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Takeover Statutes and to ensure that the Stock Purchase may be consummated on
the terms contemplated hereby.
SECTION 5.8 RESIGNATION OF CERTAIN DIRECTORS AND OFFICERS. At least a
majority of the members of the board of directors of the Consolidated Companies
shall have executed and delivered their resignation as directors of the
Consolidated Companies, such resignations to be effective immediately upon the
Closing, and Maxco shall have caused the persons designated by Buyer to be
elected to fill the vacancies created by such resignations. In addition, each
of Max A. Coon, Eric L. Cross, Richard G. Johns and Vincent Shunsky shall have
executed and delivered his resignation as an officer of the Consolidated
Companies, such resignation to be effective immediately upon the Closing.
ARTICLE VI
CONDITIONS TO MAXCO'S OBLIGATION TO CLOSE
The obligation of Maxco to consummate the Stock Purchase is subject to the
satisfaction on or prior to the Closing Date of all of the following conditions
(any of which may be waived by Maxco):
SECTION 6.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the
representations and warranties of Buyer contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same
effect (and taking into account standards of materiality, where applicable) as
though such representations and warranties had been made on and as of such
date. Each of the covenants and agreements of Buyer to be performed on or
before the Closing Date shall have been duly performed in all material
respects. Maxco shall have received at the Closing Date a certificate to that
effect dated the Closing Date and executed on behalf of Buyer by an authorized
officer of Buyer.
SECTION 6.2. FILINGS, CONSENTS, WAITING PERIODS. All Consents, Orders,
filings, applications,
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notices, transfers, and other actions of any kind required with or from any
governmental body in connection with the consummation of the Stock Purchase
shall have been filed, made or obtained. All applicable waiting periods shall
have expired or been terminated, including but not limited to, any applicable
waiting period under the Antitrust Improvements Act.
SECTION 6.3. NO PENDING OR CERTAIN THREATENED LITIGATION. At the Closing
Date, there shall be no Order of any nature of any court or governmental body
which restrains or prohibits the consummation of the Stock Purchase, and no
governmental body shall be threatening action of a substantial nature to
restrain or prohibit the Stock Purchase.
SECTION 6.4. CLOSING DOCUMENTS. In addition to any other documents
required by this Agreement, the Buyer shall deliver to Maxco at the Closing:
(a) the receipt of the funds as required by Section 2.1;
(b) a legal opinion from Barnes & Thornburg, counsel to Buyer, dated the
Closing Date, in form and substance reasonably satisfactory to Maxco and its
counsel, to the effect that: both the Buyer and LDI has duly authorized,
executed and delivered the Agreement, which is a legal, valid and binding
agreement enforceable in accordance with the terms; and
(c) such documents and other evidence as Maxco shall reasonably request to
verify that the conditions to Closing set forth in this Agreement have been
fulfilled and that the obligations of Buyer required to be performed on or
before the Closing Date have been performed, such documents or evidence to be
reasonably satisfactory to Maxco.
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ARTICLE VII
TERMINATION, AMENDMENT AND EXTENSION
SECTION 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written agreement of Maxco and Buyer;
(b) by either Maxco or Buyer if the Closing shall not have occurred on or
before August 1, 1996, unless the party seeking to terminate has been
responsible for delaying the Closing;
(c) by either Maxco or Buyer if the other breaches any of its
representations and warranties or covenants set forth herein, and such breach
has not been remedied to the reasonable satisfaction of non-breaching party
within thirty (30) days after written notice of breach is delivered, or such
breach is not capable of remedy even with breaching party's best efforts;
(d) by Buyer or Maxco, if (i) the Stock Purchase shall violate any
non-appealable final Order of any governmental body having competent
jurisdiction or (ii) there shall be a Legal Requirement which makes the
proposed Stock Purchase illegal or otherwise prohibited;
(e) by Buyer, if there shall have occurred, since March 31, 1996, any
change in or effect on the business of the Consolidated Companies or any
occurrence, development or event of any nature, that has had, or may reasonably
be expected to have, together with all such other changes and effects and any
uncured breaches, a Material Adverse Effect; or
(f) by either party (but if by Maxco, the terms of Section 10.4 shall be
effective) if Maxco or FinishMaster accepts a superior Acquisition Proposal
from any Person (other than Buyer) which in its good faith judgment, in the
exercise of its fiduciary duties under applicable law and after consultation
with qualified advisors, affords Maxco's shareholders substantially more
valuable economic benefit than is afforded to them in the Stock Purchase.
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SECTION 7.2. EFFECT OF TERMINATION. In the event this Agreement is
validly terminated in accordance with the provisions of Section 7.1 hereof, all
further obligations of the parties hereunder (except as set forth below) shall
terminate; provided, however, that if this Agreement is so terminated by a
party because one or more of the conditions to such party's obligations
hereunder is not satisfied as a result of a misrepresentation or breach of
warranty by another party or another party's failure to comply with its
covenants or obligations under this Agreement, the party's right to pursue all
legal remedies for breach of contract or otherwise, including, without
limitation, indemnification for Damages relating thereto, shall survive such
termination unimpaired. Notwithstanding the foregoing provisions of this
Section, the obligations of the parties hereto under the Confidentiality
Covenant and the Confidentiality Agreement, this Section 7.2, Article VIII and
Article X, shall survive the termination of this Agreement.
SECTION 7.3. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of Maxco and Buyer.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. SURVIVAL. All representations, warranties and agreements
contained in this Agreement or in any certificate delivered pursuant to this
Agreement shall survive the Closing notwithstanding any investigation conducted
with respect thereto.
SECTION 8.2. TIME LIMITATIONS. If the Closing occurs, Maxco shall have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or agreement to be performed and complied with prior to the
Closing Date, other than those set forth in Sections 1.2, 1.7 and 1.15 of
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Exhibit A, unless on or before the second anniversary of the Closing Date,
Maxco is given notice asserting a claim with respect thereto and specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer; a claim with respect to Sections 1.2, 1.7 and 1.15 of Exhibit A may be
made at any time. If the Closing occurs, Buyer shall have no liability (for
indemnification or otherwise) with respect to any representation or warranty,
or agreement to be performed and complied with prior to the Closing Date,
unless on or before the second anniversary of the Closing Date, Buyer is given
notice of a claim with respect thereto and specifying the factual basis of that
claim in reasonable detail to the extent then known by Maxco.
SECTION 8.3. INDEMNIFICATION BY MAXCO. Maxco shall indemnify and hold
harmless Buyer, and shall reimburse Buyer for, the Maxco Portion of any loss,
liability, claim, damage, or expense (including, but not limited to, costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a third-party claim (collectively, "Damages") arising from or in
connection with (a) any inaccuracy in or breach of any of the representations
and warranties of Maxco in this Agreement or in any certificate delivered by
Maxco pursuant to this agreement, or any actions, omissions or state of facts
inconsistent with any such representation or warranty; or (b) any failure by
Maxco to perform or comply with any agreement in this Agreement. As used in
this Agreement, with respect to any Damages, the "Maxco Portion" of such
Damages shall be the percentage of such Damages equal to the proportion which
the number of Shares bears to the total number of issued and outstanding shares
of Common Stock of FinishMaster on the Closing Date, provided, however, that
with respect to any Damages arising from or in connection with any breach of or
inaccuracy in the representation and warranty contained in Section 1.7 of
Exhibit A with respect to any period for which Maxco and either or both of the
Consolidated Companies filed a consolidated Tax Return, the Maxco Portion shall
be the total amount of such Damages, without
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regard to Maxco's percentage of Share ownership on the Closing Date.
SECTION 8.4. INDEMNIFICATION BY MAXCO -- ENVIRONMENTAL MATTERS. Maxco
shall indemnify and hold harmless Buyer, and shall reimburse Buyer for, the
Maxco Portion of any Damages (as defined in Section 8.3, and including, but
not limited to, costs of cleanup or other remediation) arising from or in
connection with:
(a) any and all liabilities imposed under any Environmental Law
relating to the ownership, operation or condition on or prior to the
Closing Date of any properties and assets (real, personal and mixed,
tangible and intangible) in which Maxco or either of the Consolidated
Companies has or had an interest that may result in it being responsible
as an owner or operator under any Environmental Law, including but not
limited to any cleanup, removal, containment or other remediation
("Cleanup") required by any applicable Environmental Law (whether or not
such Cleanup has been required or requested by any governmental body or
any other Person);
(b) any and all liabilities imposed under any Environmental Law
arising out of or relating to: (1) the ownership, operation or condition
on or prior to the Closing Date of the properties and assets (real,
personal and mixed, tangible and intangible) in which Maxco or either of
the Consolidated Companies has or had an interest; or (2) any Hazardous
Materials or other contaminants, wherever located, which were, or were
allegedly, generated, transported, stored, treated, released or otherwise
handled on or prior to the Closing Date by Maxco or either of the
Consolidated Companies or by any Person for whose conduct either of the
Consolidated Companies is responsible; and
(c) any bodily injury (including but not limited to illness,
disability or death, and regardless of when any such bodily injury shall
have been incurred or occurred or manifested
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itself), personal injury, property damage (including but not limited to
trespass, nuisance, wrongful eviction or deprivation of the use of real
property) or other damage of or to any Person (including without
limitation any employee or former employee of Maxco or either of the
Consolidated Companies or any Person for whose conduct either of the
Consolidated Companies is responsible), which in any way arises from or
allegedly arises from any Hazardous Substance that was (i) present on or
before the Closing Date on or at any facilities owned, leased or operated
by either of the Consolidated Companies (or present on any other
property, if such Hazardous Substance emanated from any of such
facilities on or prior to the Closing Date) or (ii) released by either of
the Consolidated Companies at any time on or prior to the Closing Date
(it being understood that, for purposes of this Agreement, the "release"
of Hazardous Materials shall not include (i) the handling, sale or
delivery to customers of paints, thinners, solvents, sandpaper and other
products which may contain Hazardous Materials, provided that such
products are handled, sold or delivered in the ordinary course of
business, or (ii) the disposal of: (x) waste generated as a process of
mixing paints or (y) empty paint cans, provided that such waste and cans
are disposed of in the ordinary course of business and in compliance with
all Environmental Laws).
Buyer and Maxco shall use their best efforts to cooperate with respect
to any Cleanup, any related Proceeding, and, except as provided in the
following sentence, any other Proceeding with respect to which indemnity may be
sought under this Section 8.4. The procedure set forth in Section 8.8 shall
apply to any third party claims relating to a matter covered by Section 8.4.
As soon as practicable after Buyer becomes aware of a condition, violation or
other state of facts that Buyer reasonably expects to result in a claim for
indemnity under this Section 8.4 (except as provided in the preceding
sentence), Buyer will give notice to Maxco of such condition, violation or
other state of facts; provided, however, that any failure to so notify Maxco
shall not relieve Maxco of any liability that it may have to Buyer under this
Section 8.4, except to
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the extent Maxco demonstrates that its indemnification liability hereunder is
materially increased as a result of such failure to so notify.
SECTION 8.5. INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold
harmless Maxco, and shall reimburse Maxco for, any Damages arising from or in
connection with (a) any inaccuracy in or breach of any of the representations
and warranties of Buyer in this Agreement or in any certificate delivered by
Buyer pursuant to this Agreement, or any actions, omissions or state of facts
inconsistent with any such representation or warranty, or (b) any failure by
Buyer to perform or comply with any agreement in this Agreement. In addition,
Buyer shall indemnify and hold harmless Maxco from and against any Damages
arising from or in connection with the failure of the Consolidated Companies to
perform their obligations which are guaranteed by Maxco under the guaranties of
debts of the Consolidated Companies by Maxco (the "Maxco Guaranties"), which
Maxco Guaranties guarantee a portion of the debts of the Consolidated Companies
disclosed in Schedule 1.6 in the aggregate principal amount of $7,508,637.04 as
of March 31, 1996.
SECTION 8.6. LIMITATIONS AS TO AMOUNT -- MAXCO. Maxco shall have no
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or clause (b) of Section 8.3, until the total of all
Damages with respect thereto exceeds $500,000 and then only to the extent that
such Damages exceed such sum. However, this Section shall not apply to (i) any
misrepresentation or breach of warranty of which Maxco had knowledge or (ii)
any intentional failure to perform or comply with any agreement in this
Agreement, and Maxco shall be liable for all Damages with respect thereto.
SECTION 8.7. LIMITATIONS AS TO AMOUNT -- BUYER. Buyer shall have no
liability (for
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indemnification or otherwise) with respect to the matters described in clause
(a) or clause (b) of Section 8.5 until the total of all Damages with respect
thereto exceeds $500,000 and then only to the extent that such Damages exceed
such sum. However, this Section shall not apply to (i) any intentional
misrepresentation or breach of warranty of which Buyer had knowledge, (ii) any
intentional failure to perform or comply with any agreement in this Agreement,
or (iii) any obligation of Buyer to indemnify Maxco with respect to the Maxco
Guaranties pursuant to Section 8.5, and Buyer shall be liable for all Damages
with respect thereto.
SECTION 8.8. PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS. Promptly
after receipt by an indemnified party under Section 8.3, Section 8.5 or, to the
extent provided in the second to last sentence of Section 8.4, Section 8.4, of
notice of the commencement of any Proceeding against it, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement thereof, but the failure so to notify the indemnifying party shall
not relieve it of any liability that it may have to any indemnified party
except to the extent the indemnifying party demonstrates that the defense of
such action is prejudiced thereby. In case any such Proceeding shall be
brought against an indemnified party and it shall give notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish (unless
(i) the indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representations would be
inappropriate or (ii) the indemnifying party fails to provide reasonable
assurance to the indemnified party of its financial capacity to defend such
Proceeding and provide indemnification with respect thereto), to assume the
defense thereof with counsel satisfactory to such indemnified party and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such Section for any fees of other counsel or any
other expenses with
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respect to the defense of such Proceeding, in each case subsequently incurred
by such indemnified party in connection with the defense thereof, other than
reasonable costs incurred with respect to third parties in connection with such
investigation during the period for the time prior to the assumption of the
matter by the indemnifying party. If an indemnifying party assumes the defense
of such a Proceeding, (a) no compromise or settlement thereof may be effected
by the indemnifying party without the indemnified party's consent unless (i)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that
may be made against the indemnified party and (ii) the sole relief provided is
monetary damages that are paid in full by the indemnifying party and (b) the
indemnifying party shall have no liability with respect to any compromise or
settlement thereof effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and it does not,
within fifteen (15) days after the indemnified party's notice is given, give
notice to the indemnified party of its election or assume the defense thereof,
the indemnifying party shall be bound by any determination made in such action
or any compromise or settlement thereof effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determines in good faith
that there is a reasonable probability that a Proceeding may adversely affect
it or its affiliates other than as a result of monetary damages, such
indemnified party may, by notice to the indemnifying party, assume the
exclusive right to defend, compromise or settle such Proceeding, but the
indemnifying party shall not be bound by any determination of a Proceeding so
defended or any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld).
SECTION 8.9. RIGHT OF SET-OFF. Upon notice to Maxco specifying in
reasonable detail the basis therefor, Buyer may set off, against amounts
otherwise payable to Maxco under the Non-Competition Agreement, the amount of
any Damages to which Buyer may be entitled under this Article VIII, the basis
of which is reasonably established and the amount of which has been actually
incurred by Buyer or is
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otherwise reasonably ascertainable. Neither the exercise of nor the failure to
exercise such right to give notice of a claim of set-off shall constitute an
election of remedies nor limit Buyer in any manner in the enforcement of any
other remedies that may be available to it.
ARTICLE IX
ALTERNATIVE DISPUTE RESOLUTION
SECTION 9.1. RESOLUTION OF DISPUTES AND ARBITRATION. (a) In the event of
a dispute between or among the parties to this Agreement, the disputing parties
agree to attempt in good faith to resolve any such dispute promptly by
negotiations between senior executives of the disputing parties who have
authority to settle the dispute and, preferably, who do not have direct
involvement in the facts or circumstances of the dispute. If the dispute has
not been resolved by agreement among the disputing parties within sixty (60)
days after written notice of the dispute was given, any party to the dispute
shall have the right to submit the dispute for arbitration under the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "AAA Rules") by a single arbitrator. The AAA Rules are incorporated by
reference into this provision. The arbitrator shall be chosen in accordance
with the AAA Rules. The arbitration shall be conducted in South Bend, Indiana.
Any award of the arbitrator may be enforced by a court of competent
jurisdiction. In deciding the dispute, the arbitrator shall not be empowered
under any circumstances to award consequential, punitive or treble damages,
whether common law or statutory in source. The arbitrator's award shall
include a determination of all the questions submitted to him or her, the
decision of which is necessary in order to determine the controversy.
(b) Except for litigation brought in the United States District Courts for
the Northern or Southern Districts of Indiana to avoid irreparable harm prior
to the decision of the arbitrator, and except for litigation to enforce the
arbitrator's award or this agreement to arbitrate, the parties agree not to
commence litigation or other proceedings in any court or before any
governmental agency to resolve any dispute under
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under this Agreement or between or among them.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party.
SECTION 10.2. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana without reference
to the choice of law principles thereof.
SECTION 10.3. ENTIRE AGREEMENT. This Agreement and the Schedules and
Exhibits hereto, and the Confidentiality Covenant, contain the entire agreement
between the parties and there are no agreements, understandings,
representations or warranties between the parties other than those set forth or
referred to therein or herein.
SECTION 10.4. EXPENSES. Except as otherwise set forth in this Agreement,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid (a) by Maxco,
if incurred by or on behalf of Maxco, Maxco Affiliates or the Consolidated
Companies, (b) by Buyer, if incurred by Buyer. If this Agreement is validly
terminated by Buyer in accordance with the provisions of Section 7.1(f), Maxco
shall promptly pay to Buyer upon demand, in cash, an amount equal to the lesser
of: (i) $3,000,000, or (ii) the sum of (A) all reasonable documented
out-of-pocket expenses and
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fees incurred by Buyer and its affiliates in negotiating, preparing,
executing and performing this Agreement and in preparing for the Stock
Purchase, Plus (B) $2,000,000.
SECTION 10.5. NOTICES. All notices hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally or sent by
registered mail or certified mail, postage prepaid, to the appropriate address
as set forth below. Notice to Maxco or any Maxco Affiliate shall be addressed
to:
Max A. Coon, Chairman, President and CEO
Maxco, Inc.
1118 Centennial Way
Lansing, Michigan 48917
with a copy to:
J. Michael Warren, Esquire
Warren, Price, Cameron, Faust & Asciutto, P.C.
2161 Commons Parkway
Okemos, Michigan 48864
or at such other address and to the attention of such other person as Maxco may
designate by written notice to Buyer. Notices to Buyer or LDI or (after
Closing) to the Consolidated Companies shall be addressed to:
Andre B. Lacy, President, Chairman and CEO
Lacy Distribution, Inc.
251 N. Illinois Street, Suite 1800
Indianapolis, Indiana 46204
with a copy to:
Robert H. Reynolds, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
or to such other address and to the attention of such other person as Buyer may
designate by written notice to Maxco.
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Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of facsimile transmission
being deemed receipt of communication sent by telex, telecopy or other
facsimile means); when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand delivered; when sent by
express courier or delivery service; or when sent by certified or registered
mail, return receipt requested.
SECTION 10.6. SUCCESSORS AND ASSIGNS. The rights and obligations of any
party to this Agreement shall not be assignable by such party on or prior to
the Closing Date without the prior written consent of all other parties to this
Agreement. This Agreement shall inure to the benefit of, and shall be binding
upon, the respective successors and permitted assigns of the parties hereto.
Nothing herein expressed or implied is intended to confer upon any person,
other than to the parties hereto or their respective successors or permitted
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
SECTION 10.7. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall not affect is interpretation.
SECTION 10.8. SEVERABLE. The provisions of this Agreement (its sections
and paragraphs) are severable and the invalidity of any one or more provisions
does not affect or limit the enforceability of the remaining provisions.
SECTION 10.9. GENDER; NUMBER. Whenever in this Agreement any masculine,
feminine or neuter pronoun is used, such pronouns shall also include the other
genders whenever required by the context.
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Whenever in this Agreement any singular noun or pronoun is used, such noun or
pronoun shall also include the plural whenever required by the context.
SECTION 10.10. PUBLIC ANNOUNCEMENT. Prior to Closing, neither Maxco nor
Buyer shall make any announcement or issue any press release relating to this
Agreement or the transactions contemplated hereby without the consent of the
other party to this Agreement; provided, however, that without such consent,
Maxco or Buyer may make any announcement, press release or filing, which
counsel to Maxco or Buyer advises is reasonably required by law.
SECTION 10.11. GUARANTY. LDI hereby unconditionally and irrevocably
guarantees to Maxco the full and punctual payment, performance and discharge of
all of Buyer's obligations hereunder and under each other agreement
contemplated hereby. It is expressly understood and agreed that LDI has become
a party to this Agreement solely for the purpose of guarantying the obligations
of Buyer hereunder and under each other agreement contemplated hereby.
(The balance of this page is intentionally left blank.)
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties as of the day and year first above written.
MAXCO, INC.
Dated: June 5, 1996 By:/s/ Max Coon
------------------------- --------------------------------------
Max Coon, Chairman, President and CEO
ATTEST:
By:/s/ Eric L. Cross
-------------------------
Eric L. Cross, Secretary
LACY DISTRIBUTION, INC.
Dated: By:/s/Andre B. Lacy
------------------------- --------------------------------------
Andre B. Lacy, Chairman, President
and CEO
ATTEST:
By:/s/ Robert H. Reynolds
-------------------------
,Secretary
-------------------------
LDI, LTD.
By: LDI Management, Inc.
Its Corporate General Partner
Dated: By:/s/ Andre B. Lacy
------------------------- --------------------------------------
Andre B. Lacy, Chairman, President
and CEO
ATTEST:
By:/s/Robert H. Reynolds
----------------------
,Secretary
----------------------
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EXHIBIT A
REPRESENTATIONS AND WARRANTIES OF MAXCO
SECTION 1.1. INCORPORATION; AUTHORIZATION, ETC.
(a) FinishMaster is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Michigan. Exhibit C sets
forth, as to each subsidiary of FinishMaster ("Subsidiary"), its name,
jurisdiction of incorporation, other jurisdictions in which it is authorized to
do business, and its capitalization. The Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Consolidated Companies (i) has all
requisite corporate power and authority to own, lease and operate all of its
properties and assets and to carry on its business as it is now being
conducted; and (ii) is duly qualified to do business as a foreign corporation,
and, if applicable, in good standing, and, except for certain licenses to do
business in certain cities in Maryland and Virginia as set forth on Schedule
1.1, is duly licensed, authorized or qualified to transact business in, each
jurisdiction in which the ownership or lease of real property or the conduct of
its business requires it to be so qualified.
(b) Maxco has the corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated on its part
hereby. The execution, delivery and performance by Maxco of this Agreement and
the consummation by Maxco of the transactions contemplated on its part hereby
have been duly authorized and approved by all necessary action of its Board of
Directors. No other corporate or shareholder proceedings on the part of Maxco
or the Consolidated Companies are necessary to authorize the execution and
delivery of this Agreement and the consummation by Maxco of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Maxco and is a legal, valid and binding agreement of Maxco, enforceable against
Maxco in accordance with its terms, except as the
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enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally and except as the
availability of equitable remedies may be limited by equitable principles
of general applicability.
(c) Assuming that all Consents described in Section 1.3 of this Exhibit A have
been obtained and all filings and obligations described in Section 1.3 have
been made, the execution, delivery and performance of this Agreement do not,
and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give to others a
right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or result in the creation of any Encumbrance
upon the Shares or upon any of the properties or assets of either of the
Consolidated Companies under, any provision of (i) the Articles of
Incorporation or By-Laws of either of the Consolidated Companies, (ii) any
Contract applicable to either of the Consolidated Companies or by which either
of them is bound, or (iii) any Order or Legal Requirement applicable to either
of the Consolidated Companies or either of their respective properties or
assets. Upon consummation of the Stock Purchase at the Closing, Buyer will
acquire title to the Shares free arid clear of any Encumbrances or rights of
any third parties.
SECTION 1.2. CAPITALIZATION. The authorized capital stock of FinishMaster
consists of (i) ten million (10,000,000) shares of common stock, no par value,
of which six million (6,000,000) shares are issued and outstanding, and (ii)
one million (1,000,000) shares of preferred stock, without par value, of which
none are outstanding. Maxco owns beneficially and of record all four million
forty-five thousand (4,045,000) of the Shares. The Shares (i) are validly
issued, fully paid and nonassessable, and (ii) except for a lien held by
Comerica Bank, which will be paid at Closing and said lien removed, are owned by
Maxco free and clear of any Encumbrances or rights of any third parties. Except
as set forth in the annual report on
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Form 10-K of FinishMaster for the period ended March 31, 1996, there are no
outstanding obligations, options, warrants or other rights of any kind to
acquire, from Maxco, any Maxco Affiliate, or either of the Consolidated
Companies, shares of capital stock of any class or other equity securities of
either of the Consolidated Companies, or securities convertible into or
exchangeable for such capital stock or other equity securities of either of the
Consolidated Companies. Except for the Subsidiary, FinishMaster has no direct
or indirect equity investment in any corporation, association, partnership,
joint venture or other entity, and all of such investments are owned free and
clear of any Encumbrances or rights of any third parties. All of the issued and
outstanding shares of capital stock or other equity interests of the Subsidiary
("Subsidiary Shares") are validly issued, fully paid and nonassessable. The
Subsidiary Shares are owned, directly or indirectly, by FinishMaster free and
clear of any Encumbrances or rights of any third parties.
SECTION 1.3. CONSENTS. No filing with any governmental body or
Governmental Authorization is required by or with respect to either of the
Consolidated Companies in connection with the execution and delivery of this
Agreement by Maxco or is necessary for the consummation of the Stock Purchase,
except for (i) in connection, or in compliance, with the provisions of the
Antitrust Improvements Act, the Securities Act or the Exchange Act, (ii) such
filings, Governmental Authorizations or Orders, if any, as may be required to
exempt FinishMaster and the Stock Purchase from the applicability of the
Takeover Statutes, (iii) such filings as may be required in connection with
applicable requirements, if any, of state securities laws ("Blue Sky Laws") and
the Nasdaq Stock Market, and (iv) such other Consents, Orders and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on FinishMaster or prevent the
consummation of the Stock Purchase.
SECTION 1.4. SECURITIES DOCUMENTS AND OTHER REPORTS. FinishMaster has
filed all required
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documents with the SEC and with appropriate state securities law authorities
since February 24, 1994 (the "Securities Documents"). As of their respective
dates, the Securities Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act, or applicable Blue Sky
Laws, as the case may be, and, at the respective times they were filed, none of
the Securities Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Maxco has delivered to Buyer a correct and complete copy
of each Securities Document (together with all exhibits and schedules thereto
and as amended to date). The consolidated financial statements (including, in
each case, any notes thereto) of the Consolidated Companies included in the
Securities Documents (or incorporated therein by reference) complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles (except, in the case
of the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto), fairly presented in all material
respects the consolidated financial condition of the Consolidated Companies as
at the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and to any
other adjustments described therein), were correct and complete in all material
respects, and were consistent with the books and records of the Consolidated
Companies. Except as disclosed in the Securities Documents or as required by
generally accepted accounting principles, FinishMaster has not, since February
24, 1994, made any material change in the accounting practices or policies
applied in the preparation of financial statements.
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SECTION 1.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Securities Documents filed with the SEC prior to the date of the final
signing of this Agreement, since March 31, 1996 and in Schedule 1.5, (a) the
Consolidated Companies have not incurred any material liability or obligation
(indirect, direct or contingent), or entered into any material oral or written
agreement or other transaction, that is not in the ordinary course of business
or that would result in a Material Adverse Effect on FinishMaster, except for
any such changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof; (b) the Consolidated Companies
have not sustained any loss or interference with their business or properties
from fire, flood, windstorm, accident or other calamity (not covered by
insurance) that has had a Material Adverse Effect on the either of the
Consolidated Companies; (c) there has been no material change in the
consolidated indebtedness of the Consolidated Companies, and no dividend or
distribution of any kind declared, paid or made by FinishMaster on any class of
its stock; and (d) there has been no event causing a Material Adverse Effect on
the business, financial condition, operations, results of operations or future
prospects of the Consolidated Companies, except for any such changes or effects
resulting from this Agreement, the transactions contemplated hereby or the
announcement thereof.
SECTION 1.6. CONSENTS AND COMPLIANCE. Each of the Consolidated Companies
is in possession of all Consents necessary for it to own, lease and operate
its properties or to carry on its business as it is now being conducted, and, as
of the date of this Agreement, no suspension or cancellation of any of such
Consents is pending or threatened. Neither of the Consolidated Companies is in
violation of (A) its Articles of Incorporation, By-Laws or other organizational
documents, (B) to the best of Maxco's knowledge, any applicable Legal
Requirement, or (C) any Order of any governmental body having jurisdiction over
it.
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Except as disclosed in the Securities Documents filed prior to the date of
this Agreement or as set forth on Schedule 1.6 hereto, as of the date hereof,
there is no Contract entered into on or after March 31, 1995, having a term
extending beyond December 31, 1996 and involving expenditures or sales by the
Consolidated Companies equal to or greater than $100,000 per year that is
material to the business, financial condition or results of operations of the
Consolidated Companies, taken as a whole. Except as set forth in the Securities
Documents, prior to the date of this Agreement, no event of default or event
that, but for the giving of notice or the lapse of time or both, would
constitute an event of default exists or, upon the consummation by Maxco of the
transactions contemplated by this Agreement, will exist under any Contract to
which either of the Consolidated Companies is a party or by which either of them
is bound or to which any of the properties, assets or operations of the
Consolidated Companies is subject, other than any defaults that, individually or
in the aggregate, would not have a Material Adverse Effect on FinishMaster.
SECTION 1.7. TAX MATTERS. The Consolidated Companies have filed all Tax
Returns required to have been filed (or extensions have been duly obtained) and
have paid all Taxes required to have been paid by them, except where failure to
file such Tax Returns or pay such Taxes would not, in the aggregate, have a
Material Adverse Effect on FinishMaster.
SECTION 1.8. ACTIONS AND PROCEEDINGS. Except as set forth in the
Securities Documents, there are no outstanding Orders against or involving
either of the Consolidated Companies, or against or involving any of the
present or former directors, officers, employees, consultants, agents or
shareholders of either of the Consolidated Companies, as such, any of their
properties, assets or business, or any Employee Plan (as hereinafter defined)
that, individually or in the aggregate, would have a Material Adverse Effect on
FinishMaster. Except as set forth in the Securities Documents or as otherwise
disclosed in Schedule 1.8, as
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of the date of this Agreement, there are no Proceedings pending or, to
Maxco's knowledge, threatened against or involving either of the Consolidated
Companies or any of its or their present or former directors, officers,
employees, consultants, agents or shareholders, as such, or any of its or their
properties, assets or business, or any Employee Plan that, individually or in
the aggregate, would have a Material Adverse Effect. As of the date hereof,
there are no Proceedings pending or, to Maxco's knowledge, threatened against or
affecting either of the Consolidated Companies or any of its or their present or
former officers, directors, employees, consultants, agents or shareholders, as
such, or any of its or their properties, assets or business relating to the
Stock Purchase.
SECTION 1.9. CERTAIN AGREEMENTS. Except as set forth in the Securities
Documents and the Most Recent Financial Statements, as of the final signing of
this Agreement, none of the Consolidated Companies is a party to any oral or
written Employee Plan or Contract relating to rights to acquire shares of
FinishMaster, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of the Stock
Purchase. Neither of the Consolidated Companies is a party to any termination
benefits agreement or severance agreement or employment agreement, one
trigger of which would be the consummation of Stock Purchase. Except as set
forth in Schedule 1.9, neither of the Consolidated Companies is a party to any
employment agreement or arrangement with (i) any officer of the Consolidated
Companies or (ii) any employee of the Consolidated Companies whose annual
compensation is equal to or greater than $60,000 per year.
SECTION 1.10. EMPLOYEE BENEFIT PLANS. (a) All pension, retirement,
supplemental retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, medical, disability, workers' compensation, vacation, group insurance,
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severance, employee welfare benefit plans (as defined in ERISA), employee
pension benefit plans (as defined in ERISA) and other material employee benefit,
incentive and welfare policies, contracts, plans and arrangements, and all trust
agreements related thereto, maintained by or contributed to by either of the
Consolidated Companies in respect of any of the present or former directors,
officers, other employees and/or consultants of or to either of the
Consolidated Companies, or in which any of such directors, officers, employees
or consultants participates (each an "Employee Plan") have been maintained and
operated substantially in accordance with both their terms and with the
requirements of all applicable statutes, orders, rules and regulations,
including without limitation ERISA and the Code. All contributions required to
be made to Employee Plans have been made. Maxco has furnished Buyer with the
following documents with respect to each Employee Plan: (i) a true and complete
copy of all written documents comprising each such Employee Plan (including but
not limited to amendments, insurance contracts, and individual agreements
relating thereto) or, if there is no such written document, an accurate and
complete description of the Employee Plan; (ii) the most recent Form 5500 (or
such other applicable Form 5500), including all schedules thereto, if
applicable; (iii) the most recent financial statements and actuarial reports, if
any; (iv) the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent Internal Revenue Service
determination letter, if any.
(b) With respect to each of the Employee Plans which is an employee
pension benefit plan (as defined in Section 3(2) of ERISA) (the "Pension
Plans"), to the best of Maxco's knowledge: (i) each Pension Plan which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined to be so qualified by the Internal Revenue Service and, to the
best of Maxco's knowledge, such determination letter may still be relied upon,
and each related trust is exempt from Taxation under Section 501 (a) of the
Code; provided, however, that no such determination letter has been received in
response to pending requests made under the Tax Reform Act of 1986; (ii) the
present value of all benefits vested and
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all benefits accrued under each Pension Plan which is subject to Title IV of
ERISA, valued using the assumptions in the most recent actuarial report, did
not, in each case, as of the last applicable annual valuation date, exceed the
value of the assets of the Pension Plan allocable to such vested or accrued
benefits; (iii) there has been no "prohibited transaction," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which could subject
any Pension Plan or associated trust, or either of the Consolidated Companies,
to any Tax or penalty; (iv) no Pension Plan or any trust created thereunder has
been terminated, nor have there been any "reportable events" with respect to any
Pension Plan, as that term is defined in Section 4043 of ERISA, which would
require the filing of a notice with the Pension Benefit Guaranty Corporation
("PBGC"); (v) no Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA (whether or not waived), and (vi) no Consolidated Company has incurred any
liability to the PBGC that has not been satisfied, other than liability for
premiums. With respect to each Pension Plan that is referred to in Section
413(c) of the Code (a "Multiple Employer Pension Plan"): (i) none of the
Consolidated Companies would have any liability or obligation to post a bond
under Section 4063 of ERISA if either of the Consolidated Companies were to
withdraw from such Multiple Employer Pension Plan; and (ii) none of the
Consolidated Companies would have any liability under Section 4064 of ERISA if
such Multiple Employer Pension Plan were to terminate.
(c) No Consolidated Company has any liability for any post-retirement
health, medical or similar benefit of any kind whatsoever, except obligations to
James White or as required by Section 4980B of the Internal Revenue Code.
(d) With respect to each Pension Plan, all contributions which are due
(including all employer contributions and employee salary reduction
contributions) have been paid to such Pension Plan, all contributions for prior
plan years which are not yet due and with respect to the current plan year for
the
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period ending on the Closing Date have been (or as of the Closing Date will
be) accrued on the books and records of the Consolidated Companies. With
respect to all other Employee Plans, all premiums and other payments which are
due have been paid.
(e) Neither the execution nor delivery of this Agreement, nor the
consummation of any of the transactions contemplated hereby, will (i) result in
any payment (including without limitation any severance, unemployment
compensation or golden parachute payment) becoming due to any director or
employee of either of the Consolidated Companies from any of such entities, (ii)
increase any benefit otherwise payable under any of the Employee Plans or (iii)
result in the acceleration of the time of payment of any such benefit.
(f) To the best knowledge of Maxco, no Consolidated Company has any
current liability, jointly or otherwise, for any withdrawal liability under
Title IV of ERISA for a complete or partial withdrawal from any Multiemployer
Plan as defined in Section 3(37) of ERISA by any member of a controlled group of
employees (as used in ERISA) or which either of the Consolidated Companies is or
was a member, which liability has not been fully paid as of the date hereof.
(g) To the best knowledge of Maxco, any trust exempt from federal income
Taxation as a Voluntary Employees' Beneficiary Association described in Section
501(c)(9) of the Code (a "VEBA") has qualified at all times and continues to
qualify for exemption from Taxation under Section 501(a) of the Code and at no
time have the deduction limitations described in Section 419 or Section 419A of
the Code been exceeded with respect to the VEBA.
SECTION 1.11. CONTINUED COMPLIANCE. With respect to the properties,
assets and operations of the Consolidated Companies, including any previously
owned, leased or operated properties, assets or operations, to the best of
Maxco's knowledge, there are no past, present or reasonably anticipated future
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events, conditions, circumstances, activities, practices, incidents, actions or
plans of either of the Consolidated Companies that may interfere with or
prevent compliance or continued compliance in all material respects with
applicable Legal Requirements, including without limitation all Environmental
Laws and consumer credit laws, other than any such interference or prevention
as would not, individually or in the aggregate with any such other interference
or prevention, have a Material Adverse Effect.
SECTION 1.12. NO UNDISCLOSED LIABILITIES. To the best of Maxco's
knowledge, neither of the Consolidated Companies has any liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, or due or become due), including without
limitation any liability for Taxes, except for (i) liabilities fully reflected
or reserved against on the face of the Most Recent Balance Sheet, (ii)
liabilities which have arisen after the most recent fiscal quarter end of
FinishMaster in the ordinary course of business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by, any breach of
Contract, breach of warranty, tort, infringement or violation of any Legal
Requirement) and an obligation to James White described in Schedule 1.12.
SECTION 1.13. LABOR MATTERS. Neither of the Consolidated Companies is a
party to any collective bargaining agreement or labor contract. To the best of
Maxco's knowledge, neither of the Consolidated Companies has engaged in any
unfair labor practice with respect to any FinishMaster Personnel. There is no
Proceeding involving an unfair labor practice, complaint or grievance against
either of the Consolidated Companies by the National Labor Relations Board, or
any comparable state agency, pending or threatened in writing with respect to
any FinishMaster Personnel. There is no labor strike, dispute, slowdown or
stoppage pending or, to Maxco's knowledge, threatened against or affecting
either of the Consolidated Companies which may interfere with the respective
business activities of either of the Consolidated
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Companies.
SECTION 1.14. INTELLECTUAL PROPERTY. The Consolidated Companies have all
patents, trademarks, trade names, service marks, trade secrets, copyrights, and
other proprietary intellectual property rights (collectively, the "Intellectual
Property Rights") as are necessary in connection with the business of the
Consolidated Companies, taken as a whole. To the best knowledge of Maxco, none
of the Consolidated Companies has infringed any Intellectual Property Rights of
any third party.
SECTION 1.15. ENVIRONMENTAL MATTERS.
(a) (i) The Consolidated Companies are, and at all times prior to the date
hereof have been, in full compliance with all, and have not been and are not in
violation of or liable under any, Environmental Laws applicable to them or to
the ownership or operation of their assets or the operation of their business,
except to the extent any such violations or liabilities do not, individually or
in the aggregate, constitute a Material Environmental Event, and (ii) Maxco has
no knowledge of or any basis to expect, nor has either of the Consolidated
Companies or any Person for whose conduct either of the Consolidated Companies
is responsible, received, any order, notice or other communication from (x) any
governmental body, including but not limited to those administering or
enforcing any Environmental Law, except as set forth in Schedule 1.15(a), or
(y) the owner of any real property or other facility, of any alleged, actual or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual or potential obligation to undertake or bear the cost of any
environmental, health or safety liabilities with respect to any properties or
assets (real, personal or mixed, tangible or intangible) in which either of the
Consolidated Companies has or had an interest, or with respect to any property
or facility in which the either of the Consolidated Companies has or had an
interest and to which or in which Hazardous Materials have been transported,
treated, stored,
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<PAGE> 50
handled, transferred, disposed, recycled or received.
(b) All Consents required under any Environmental Law to lawfully own,
operate, use and maintain the assets and properties of the Consolidated
Companies and to conduct their business have been obtained, except where the
failure to obtain such Consents does not, individually or in the aggregate,
constitute a Material Environmental Event. The Consolidated Companies have, at
all times prior to Closing, maintained their assets and properties and conducted
their business in full compliance with the terms and conditions of all Consents
issued at any time prior to the Closing by any governmental body and required
under any Environmental Law for the Consolidated Companies to lawfully own,
operate, use and maintain their respective properties and assets and to conduct
their respective businesses, and all required filings and all required
applications with respect to or for renewal thereof have been timely made and
filed, except where the failure to comply with such Consents or to make such
filings does not, individually or in the aggregate, constitute a Material
Environmental Event. All such Consents are in full force and effect and there
are no Proceedings pending or threatened that seek the revocation, cancellation,
suspension or adverse modification thereof.
(c) Neither of the Consolidated Companies, and no Person for whose conduct
either of the Consolidated Companies is responsible, has any environmental,
health or safety liabilities with respect to the assets and properties of the
Consolidated Companies or, with respect to any other properties or assets
(real, personal or mixed, tangible or intangible) in which Maxco or either of
the Consolidated Companies (or any predecessor) has or had an interest, except
for such liabilities which do not, individually or in the aggregate, constitute
a Material Environmental Event.
(d) Except for inventory purchased for resale by the Consolidated
Companies in the ordinary course of their business, (i) there are no Hazardous
Materials on or in the facilities of the Consolidated Companies; and (ii) none
of Maxco or the Consolidated Companies, and no Person for whose conduct either
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<PAGE> 51
of the Consolidated Companies is responsible, has generated, manufactured,
refined, transported, treated, stored, handled, disposed, transferred,
produced, imported, used or processed any Hazardous Materials.
(e) There has been no release or threat of release of any Hazardous
Materials at or from the facilities of the Consolidated Companies, whether by
Maxco or the Consolidated Companies or by any Person for whose conduct either of
the Consolidated Companies is responsible, during the period of ownership or
operation by the Consolidated Companies, except for such releases or threat of
releases that do not, individually or in the aggregate, constitute a Material
Environmental Event (it being understood that, for purposes of this Agreement,
the "release" of Hazardous Materials shall not include (i) the handling, sale or
delivery to customers of paints, thinners, solvents, sandpaper and other
products which may contain Hazardous Materials, provided that such products are
handled, sold or delivered in the ordinary course of business, or (ii) the
disposal of: (x) waste generated as a process of mixing paints or (y) empty
paint cans, provided that such waste and cans are disposed of in the ordinary
course of business and in compliance with all Environmental Laws).
(f) There are no Encumbrances resulting from any environmental, health or
safety liabilities or arising under or pursuant to any Environmental Law, with
respect to or affecting any of the facilities of the Consolidated Companies or
any other properties or assets (real, personal or mixed, tangible or
intangible) in which the Consolidated Companies have an interest.
SECTION 1.16. STATE TAKEOVER STATUTES. As of the date hereof, the Board
of Directors of FinishMaster has taken all necessary actions so that the
provisions of the Takeover Laws are not applicable to FinishMaster and the
Stock Purchase. As of the date hereof, no other state takeover statutes,
including without limitation, any control share acquisition act or business
combination act, are applicable to the Stock Purchase.
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<PAGE> 52
SECTION 1.17. INVESTMENT COMPANY STATUS. Maxco is not an "investment
company" or an entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
SECTION 1.18. BROKERS, FINDERS, ETC. Maxco has not employed, and is not
subject to any claim of, any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission from Buyer or either of the Consolidated
Companies upon the consummation of the transactions contemplated hereby, except
for W.Y. Campbell & Company, for whose fees Maxco will indemnify Buyer.
SECTION 1.19. TITLE TO ASSETS. The Consolidated Companies have good and
marketable title to, or a valid leasehold interest in, the properties and
assets used by them, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all
Encumbrances, except for (i) the properties and assets subject to Encumbrances
as disclosed on Schedule 1.19, and (ii) properties and assets disposed of in
the ordinary course of business since the date of the Most Recent Balance Sheet
consistent with the past practice of the Consolidated Companies.
SECTION 1.20. COMPENSATION. Schedule 1.20 contains a current list
setting forth the compensation of all directors and officers of the
Consolidated Companies and all employees of the Consolidated Companies whose
annual compensation is equal to or greater than $60,000 per year, including
without limitation any awards or grants of bonuses or stock options, paid or
payable in each of fiscal years 1995 and 1996.
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<PAGE> 53
SECTION 1.21. DISCLOSURE. The representations and warranties contained
in this Exhibit A do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements and
information contained in this Exhibit A not misleading.
(The balance of this page intentionally left blank.)
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<PAGE> 54
EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF BUYER AND LDI
SECTION 1.1. ORGANIZATION AND AUTHORIZATION OF BUYER. Buyer (i) is a
corporation duly incorporated and validly existing under the laws of the State
of Indiana, (ii) has all requisite corporate power and authority to own, lease
and operate its property and assets and to carry on its business as it is now
being conducted and (iii) is duly authorized by all necessary corporate action
to execute, deliver and perform its obligations under and to consummate the
transactions contemplated by this Agreement.
SECTION 1.2. ENFORCEABILITY OF AGREEMENT. This Agreement is a legal,
valid and binding agreement of Buyer, enforceable against Buyer in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally and except as the availability of equitable remedies may be
limited by equitable principles of general applicability.
SECTION 1.3. CONSENTS; NO VIOLATION. No filing with any governmental body
or Governmental Authorization is required by or with respect to Buyer in
connection with the execution and delivery of this Agreement by Buyer or is
necessary for the consummation of the Stock Purchase, except for (i) in
connection, or in compliance, with the provisions of the Antitrust Improvements
Act, and (ii) such other Consents, Orders and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on Buyer or prevent the consummation of the Stock
Purchase.
SECTION 1.4. BROKERS, FINDERS, ETC. Neither Buyer nor any of its
affiliates has employed any
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<PAGE> 55
broker, finder, consultant or other intermediary in connection with the
transactions contemplated by this Agreement who might be entitled to a
fee or commission from Maxco or any Maxco Affiliate upon the consummation of the
transactions contemplated hereby, except Smith Barney, for whose fees Buyer will
indemnify Maxco.
SECTION 1.5. INVESTMENT PURPOSES. Buyer is purchasing the Shares for
investment purposes only, for its own account, and not with a view toward
further sale or distribution thereof within the meaning of the Securities Act.
Buyer is an "accredited investor" as such term is defined in Rule 501(a) of
Regulation D promulgated pursuant to the Securities Act. Buyer has been given
the opportunity to ask questions of, and receive answers from, the officers and
personnel of the Consolidated Companies concerning the condition, financial or
otherwise, of the business of the Consolidated Companies, and to obtain any
information it deemed necessary to verify the accuracy of, or better
understand, the information furnished to it by the officers and personnel of
the Consolidated Companies.
SECTION 1.6. ORGANIZATION AND AUTHORIZATION OF LDI. LDI (i) is a limited
partnership duly organized and validly existing under the laws of the State of
Indiana, (ii) has all requisite power and authority to own, lease and operate
its property and assets and to carry on its business as it is now being
conducted and (iii) is duly authorized by all necessary corporate action to
execute, deliver and perform its obligations under and to consummate the
transactions contemplated by this Agreement.
SECTION 1.7. ENFORCEABILITY OF AGREEMENT. This Agreement is a legal,
valid and binding agreement of LDI, enforceable against LDI in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
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<PAGE> 56
generally and except as the availability of equitable remedies may be limited
by equitable principles of general applicability.
SECTION 1.8. CONSENTS; NO VIOLATION. No filing with any governmental body
or Governmental Authorization is required by or with respect to LDI in
connection with the execution and delivery of this Agreement by LDI or is
necessary for the consummation of the Stock Purchase, except for (i) in
connection, or in compliance, with the provisions of the Antitrust Improvements
Act, and (ii) such other Consents, Orders and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on LDI or prevent the consummation of the Stock
Purchase.
(The balance of this page intentionally left blank.)
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<PAGE> 57
EXHIBIT C
FINISHMASTER SUBSIDIARY
Refinishers Warehouse, Inc.
A Michigan Corporation
Capitalization $50,000
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<PAGE> 58
EXHIBIT D
COVENANT NOT TO COMPETE
This Covenant Not to Compete (the "Covenant"), effective July___, 1996, is
made and entered into by and among Lacy Distribution, Inc., an Indiana
corporation with its principal place of business in Indianapolis, Indiana
("Buyer"), on the one hand, and each of Maxco, Inc. ("Maxco"), a Michigan
corporation with its principal place of business in Lansing, Michigan, Max A.
Coon ("Mr. Coon"), Eric L. Cross ("Mr. Cross"), Richard G. Johns ("Mr. Johns")
and Vincent Shunsky ("Mr. Shunsky") (jointly, the "Non-Competition Parties"),
on the other hand.
WHEREAS, Maxco owns 4,045,000 shares of Common Stock of FinishMaster, Inc.
("FinishMaster"), which shares gave it a controlling interest in FinishMaster;
and
WHEREAS, FinishMaster controls a consolidated subsidiary, Refinishers
Warehouse, Inc., (together with FinishMaster, the "Consolidated Companies");
and
WHEREAS, the Consolidated Companies are engaged, inter alia, in the
wholesale and retail distribution of automotive paints, coatings and
paint-related accessories for use in the paint and body after-market; and
WHEREAS, Mr. Coon has been President and Chairman of the Board of
Directors of Maxco since 1969, and has been Chairman of the Board of Directors
of FinishMaster since 1993; and
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<PAGE> 59
WHEREAS, Mr. Cross has been Maxco's Executive Vice President since 1983
and has been FinishMaster's Secretary and a member of the Board of Director of
FinishMaster since 1993; and
WHEREAS, Mr. Johns has been Vice President and a member of the Board of
Directors of Maxco since 1990, and has been a member of the Board of Directors
of FinishMaster since 1993; and
WHEREAS, Mr. Shunsky has been a member of the Board of Directors of Maxco
since 1983, Vice President-Finance of Maxco since 1984, Treasurer of
FinishMaster since 1979, and member of the Board of Directors of FinishMaster
since 1990; and
WHEREAS, the Non-Competition Parties, jointly and individually, possess
trade secret information of the Consolidated Companies and have created
goodwill between the Consolidated Companies and their suppliers and customers,
which trade secrets and goodwill are the property of the Consolidated
Companies; and
WHEREAS, Buyer and Maxco have entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement') whereby Buyer has agreed to purchase all 4,045,000
shares of Common Stock of FinishMaster which are owned by Maxco (the
"Transaction"); and
WHEREAS, the execution and receipt of the covenants not to compete
contained herein is a condition precedent to consummation of the Transaction
and is an integral and valuable part of the consideration bargained for by
Buyer in respect of the Transaction and is necessary to protect the value of
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<PAGE> 60
the business of the Consolidated Companies.
NOW, THEREFORE, in consideration of the premises, the Non-Competition
Parties agree as follows:
1. Beginning this date (the "Closing Date") and for a period of five (5)
years, to and including July ___, 2001, Maxco will not, directly or indirectly,
through its officers, directors, employees or agents:
(a) Compete with the Consolidated Companies in the following
territories:
(i) the United States of America;
(ii) the States of Indiana, Michigan, Illinois, California,
Delaware, Florida, Maryland, New Jersey, Ohio, Oklahoma,
Pennsylvania, Texas, Virginia or Wisconsin; and
(iii) an area within 100 miles of the location of any
location at which the Consolidated Companies currently do business
as of the date hereof.
(b) Engage in, or acquire any interest in, or advise, any business
that sells or distributes automotive paint or other products which
are similar to or which compete with the products sold by the
Consolidated Companies, which business operates, in whole or in
part, in the following territories:
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<PAGE> 61
(i) the United States of America;
(ii) within the States of Indiana, Michigan, Illinois,
California, Delaware, Florida, Maryland, New Jersey, Ohio,
Oklahoma, Pennsylvania, Texas, Virginia or Wisconsin; and
(iii) an area within 100 miles of the location of any
location at which the Consolidated Companies currently do business
as of the date hereof.
(c) Solicit the business of, sell to or offer to sell to any
individual or entity which was a customer of either of the
Consolidated Companies on the Closing Date any automotive paint or
other products which are similar to or which compete with the
products sold by the Consolidated Companies;
(d) Hire, employ or endeavor to employ any person who was, on the
Closing Date or within six (6) months prior to the Closing Date, an
employee of the Consolidated Companies, unless that employee
received pay from either of the Consolidated Companies of no more
than $30,000 in calendar year 1995; or
(e) Request, encourage or cause any person, firm, partnership,
association, corporation or business entity to withdraw, curtail or
cancel a business relationship with either of the Consolidated
Companies.
2. Beginning on the Closing Date and for a period of five (5) years, to
and including July ___, 2001, Mr. Coon, Mr. Cross, Mr. Johns, and Mr. Shunsky
will not, directly or indirectly, individually or as a group:
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<PAGE> 62
(a) Compete with the Consolidated Companies in the following
territories:
(i) the United States of America;
(ii) the States of Indiana, Michigan, Illinois, California,
Delaware, Florida, Maryland, New Jersey, Ohio, Oklahoma,
Pennsylvania, Texas, Virginia or Wisconsin; and
(iii) an area within 100 miles of the location of any
location at which the Consolidated Companies currently do business
as of the date hereof.
(b) Engage in, or acquire any interest in, or advise, any business
that sells or distributes automotive paint or other products which
are similar to or which compete with the products sold by the
Consolidated Companies, which business operates, in whole or in
part, in the following territories:
(i) the United States of America;
(ii) the States of Indiana, Michigan, Illinois, California,
Delaware, Florida, Maryland, New Jersey, Ohio, Oklahoma,
Pennsylvania, Texas, Virginia or Wisconsin; and
(iii) an area within 100 miles of the location of any store
at which the Consolidated Companies currently do business as of the
date hereof.
(c) Solicit the business of, sell to or offer to sell to any
individual or entity which was a customer of either of the
Consolidated Companies on the Closing Date any automotive paint or
other products which are similar to or which compete with the
products sold by the
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<PAGE> 63
Consolidated Companies;
(d) Hire, employ or endeavor to employ any person who was, on the
Closing Date or within six (6) months prior to the Closing Date, an
employee of the Consolidated Companies, unless that employee
received pay from either of the Consolidated Companies of no more
than $30,000 in calendar year 1995; or
(e) Request, encourage or cause any person, firm, partnership,
association, corporation or business entity to withdraw, curtail or
cancel a business relationship with either of the Consolidated
Companies.
3. Notwithstanding Paragraphs 1 and 2, each Non-Competition Party may,
individually, own or acquire up to five percent (5%) of the stock of any public
company that competes with the Consolidated Companies without violating
Paragraphs 1 or 2 of this Covenant.
4. The Non-Competing Parties each agree that the restrictions contained
in this Covenant are fair and reasonable and are reasonably required for
the protection of Buyer and the Consolidated Companies. To this extent, any
portion of this Covenant, or any portion of any provision of this Covenant, is
held to be invalid or unenforceable, it shall be deleted and the remainder of
the provisions or provisions of this Covenant shall be unaffected and shall
continue in full force and effect.
5. The Non-Competing Parties each agree that any violation of this
Covenant will cause Buyer and the Consolidated Companies irreparable harm which
cannot adequately be compensated by an
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<PAGE> 64
award of money damages. As a result, the Non-Competing Parties each agree
that, in addition to any other remedy which Buyer may have, a violation of this
Covenant may be restrained by issuance of an injunction by any court of
competent jurisdiction. The Non-Competing Parties each further agree to accept
service of process by first class or certified United States mail.
6. As consideration for the covenants contained herein, the Buyer hereby
agrees to pay the Non-Competition Parties an aggregate of $16,500,000, of which
amount (i) $12,000,000 is to be paid to Maxco on the Closing Date by wire
transfer or other immediately available funds, and (ii) $4,500,000 is to be
paid to the Non-Competition Parties by wire transfer or other immediately
available funds in five annual installments of $900,000 commencing on July
____, 1997 and on each of the following July ____ to and including July ____,
2001, with each such annual installment to be allocated among the Non-
Competition Parties as follows: (A) $20,000.00 of each annual installment is to
be paid to each Non-Competition Party who is an individual and (B) the balance
of each annual installment is to be paid to Maxco (collectively, the "Covenant
Consideration").
7. The Non-Competing Parties each agree that if one or more of the
Non-Competing Parties violates this Covenant, Buyer is thereafter released from
paying any unpaid installments of the Covenant Consideration. If Buyer chooses
not to pay these further installments, none of the Non-Competing Parties are
released from their obligations under this Covenant, regardless of whether
those Non-Competing Parties violated the Covenant. Moreover, Buyer's choice
not to pay these further installments will not prejudice any other rights which
Buyer may have upon violation of this Covenant, including pursuit of the
injunctive relief identified in Paragraph 5.
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<PAGE> 65
8. Upon notice to Maxco specifying in reasonable detail the basis
therefor, Buyer may set off, against amounts otherwise payable to Maxco under
this Non-Competition Agreement, the amount of any Damages to which Buyer may be
entitled under Article VIII of the Stock Purchase Agreement, the basis of which
is reasonably established and the amount of which has been actually incurred by
Buyer or is otherwise reasonably ascertainable. Neither the exercise of nor
the failure to exercise such right to give notice of a claim of set-off shall
constitute an election of remedies nor limit Buyer in any manner in the
enforcement of any other remedies that may be available to it.
9. The Non-Competing Parties each agree that this Covenant may be assigned
by Buyer to any person, firm or corporation acquiring all or substantially all
of the Common Stock of FinishMaster transferred to Buyer by Maxco, and shall be
effective as between the Non-Competing Parties and that assignee with respect
to all rights and duties under this Covenant.
10. The parties agree that this Covenant supersedes any previous
agreement, oral or written, concerning the subject matter of this Covenant.
11. The Non-Competing Parties each agree that this Covenant will become
effective when executed by Buyer at its principal place of business in
Indianapolis, Indiana. The laws of the State of Indiana, excluding its
conflicts of laws rules which may redirect the adjudication of disputes to
another jurisdiction, will govern the interpretation, validity and effect of
this Covenant. Venue of any disputes arising hereunder shall be in Marion
County, Indiana.
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<PAGE> 66
12. The Non-Competing Parties each agree that, in the event of any
proceeding arising out of or related to this Covenant is brought by Buyer, and
Buyer is the prevailing party in that proceeding (whether or not the proceeding
is prosecuted to judgment), Buyer shall be entitled to recover from the
Non-Competing Parties which were sued all of its costs and expenses incurred in
connection with such proceeding, including court costs and reasonable attorneys
fees.
Acknowledged and Agreed, this ____ day of July, 1996.
LACY DISTRIBUTION, INC.
By:
--------------------------
Its:
--------------------------
MAXCO, INC.
By:
--------------------------
Its:
--------------------------
------------------------------
Max A. Coon
------------------------------
Eric L. Cross
------------------------------
Richard G. Johns
------------------------------
Vincent Shunsky
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<PAGE> 1
MAXCO, INC.
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
Net income (loss) from continuing operations $(2,982,000) $1,784,000 $7,259,000
Net income from discontinued operations 1,790,000 2,334,000 2,054,000
------------ ---------- ----------
Net income (loss) (1,192,000) 4,118,000 9,313,000
Preferred stock series 2 dividend (108,000) (108,000) (108,000)
Preferred stock series 3 dividend (96,000) (96,000) (96,000)
Net effect of minority interest from assumed conversion
of dilutive stock options of subsidiary--based on the
Treasury Stock Method using average market price (28,000) (26,000)
------------ ---------- ----------
Net Income (Loss) Attributable To Common Stock-Primary
Continuing operations $(3,186,000) $1,552,000 $7,029,000
Discontinued operations 1,790,000 2,334,000 2,054,000
------------ ---------- ----------
(1,396,000) 3,886,000 9,083,000
============ ========== ==========
Net Income (Loss) Attributable To Common Stock-Fully Diluted
Continuing operations ($3,078,000) $1,660,000 $7,137,000
Discontinued operations 1,790,000 2,334,000 2,054,000
------------ ---------- ----------
(1,288,000) 3,994,000 9,191,000
============ ========== ==========
PRIMARY
Average shares outstanding 4,250,931 4,301,520 4,254,861
Net effect of dilutive stock options--based on the
Treasury Stock Method using average market price 121,542 124,523 145,409
------------ ---------- ----------
TOTAL 4,372,473 4,426,043 4,400,270
Net income per share:
Continuing operations $ (.73) $ .35 $ 1.60
Discontinued operations .41 .53 .46
------------ ---------- ----------
$ (.32) $ .88 $ 2.06
============ ========== ==========
FULLY DILUTED
Average shares outstanding 4,250,931 4,301,520 4,254,861
Net effect of dilutive stock options--based on the Treasury
Stock Method using the quarter-end market price if
higher than average market price 134,932 124,523 150,669
Assumed conversion of series two 12% cumulative
redeemable convertible preferred stock 231,840 231,840 231,840
------------ ---------- ----------
TOTAL 4,617,703 4,657,883 4,637,370
Net income per share:
Continuing operations $ (.67) $ .36 $ 1.54
Discontinued operations .39 .50 .44
------------ ---------- ----------
$ (.28) $ .86 $ 1.98
============ ========== ==========
</TABLE>
<PAGE> 1
MAXCO, INC. AND SUBSIDIARIES
EXHIBIT 22 - SUBSIDIARIES OF MAXCO, INC.
SUBSIDIARIES OF MAXCO, INC.
State of
Incorporation
Akemi, Inc. Michigan
CMC, Inc. Michigan
Ersco of Michigan, Inc. Michigan
FinishMaster, Inc. Michigan
GUM, Inc. (formerly Ultra-Mag Industries, Inc.) (Inactive) Michigan
JDS Koating, Inc. (Inactive) Michigan
Pacer Tool and Mold, Inc. Michigan
Pak-Sak Industries, Inc. Michigan
Superior Re-Bar Installation, Inc. (Inactive) Michigan
T.H.&P. Corporation (formerly Planet Corporation) (Inactive) Michigan
Wisconsin Wire & Steel, Inc. Wisconsin
Wright Plastic Products, Inc. Michigan
<PAGE> 1
MAXCO, INC. AND SUBSIDIARIES
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement (Form
S-8 No. 33-48351) pertaining to the Maxco, Inc. Incentive Stock Option Plan and
in the related prospectus of our report dated June 10, 1996, with respect to
the consolidated financial statements and schedule of Maxco, Inc. included in
the Annual Report (Form 10-K) for the year ended March 31, 1996.
/S/ERNST & YOUNG LLP
Detroit, Michigan
June 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED MARCH 31, 1996.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 819
<SECURITIES> 0
<RECEIVABLES> 11,855
<ALLOWANCES> (357)
<INVENTORY> 5,309
<CURRENT-ASSETS> 43,090
<PP&E> 25,327
<DEPRECIATION> (10,837)
<TOTAL-ASSETS> 86,032
<CURRENT-LIABILITIES> 12,536
<BONDS> 28,594
0
1,654
<COMMON> 4,227
<OTHER-SE> 20,241
<TOTAL-LIABILITY-AND-EQUITY> 86,032
<SALES> 80,168
<TOTAL-REVENUES> 80,168
<CGS> 67,442
<TOTAL-COSTS> 82,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,264
<INCOME-PRETAX> (4,421)
<INCOME-TAX> 1,439
<INCOME-CONTINUING> (2,982)
<DISCONTINUED> 1,790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,192)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.28)
</TABLE>
