<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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 0-19620
REDDI BRAKE SUPPLY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 84-1152135
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1376 Walter Street
Ventura, California 93003
(Address of principal executive offices, Zip Code)
(805) 644 - 8355
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO _____
As of May 9, 1996, 16,596,996 shares of the registrant's common stock were
outstanding.
Page 1 of 15 pages
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REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
FORM 10-Q
March 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
NUMBER
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and March 31, 1995 and the nine months
ended March 31, 1996 and March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 1,701,955
Accounts receivable, net 5,101,992 4,365,274
Other receivables 5,784 146,160
Inventories 19,735,842 25,178,851
Supplies and prepaid expenses 683,663 100,077
Notes and advances due from stockholders 465,655 641,418
Notes receivable due from Hi/LO 631,676 671,011
----------- -----------
Total current assets 26,624,612 32,804,746
----------- -----------
FACILITIES AND EQUIPMENT 6,416,813 5,760,931
Less-- Accumulated depreciation and amortization (2,172,961) (1,272,020)
----------- -----------
4,243,852 4,488,911
----------- -----------
NOTES RECEIVABLE DUE FROM HI-LO AUTOMOTIVE 1,737,097 2,210,945
UNAMORTIZED DEBT ISSUANCE COSTS 395,873 429,485
DEPOSITS 272,551 273,495
INTANGIBLE ASSETS, net of accumulated amortization 969,066 740,113
----------- -----------
$34,243,051 $40,947,695
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 4,594,379 9,808,209
Short-term borrowings 10,501,767 7,206,235
Current portion of obligations under capital leases 1,016,193 1,069,111
Accrued expenses 1,233,319 878,063
Accrued payroll 509,774 424,568
Current portion of deferred compensation 234,682 221,096
Accrued costs related to discontinued operations 886,608 1,002,830
----------- -----------
Total current liabilities 18,976,722 20,610,112
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 963,113 1,495,257
DEFERRED COMPENSATION, net of current portion 117,994 239,884
DEFERRED INCOME TAX 467,000 467,000
SUBORDINATED CONVERTIBLE DEBT, 9% COUPON 6,900,000 6,900,000
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 1,654 1,641
Additional paid-in capital 29,441,694 29,308,970
Accumulated deficit (22,625,126) (18,075,169)
----------- -----------
Total stockholders' equity 6,818,222 11,235,442
----------- -----------
$34,243,051 $40,947,695
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1996 1995 1996 1995
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 15,417,692 $ 12,251,833 $ 45,321,306 $ 32,197,851
COST OF GOODS SOLD 9,546,321 6,400,524 27,063,819 16,463,182
------------- ------------ ------------- --------------
Gross profit 5,871,371 5,851,309 18,257,487 15,734,669
EXPENSES:
Warehouse operating and selling 5,742,938 4,154,628 15,679,375 10,701,789
New warehouse development - 216,837 - 532,823
General and administrative 1,563,590 1,108,277 5,426,893 2,690,094
Provision for warehouse closures - - 721,794 -
------------- ------------ ------------- --------------
7,306,528 5,479,742 21,828,062 13,924,706
------------- ------------ ------------- --------------
Income (loss) from operations (1,435,157) 371,567 (3,570,575) 1,809,963
INTEREST EXPENSE, net 359,936 156,301 964,382 470,122
------------- ------------ ------------- --------------
Income (loss) before provision for income taxes (1,795,093) 215,266 (4,534,957) 1,339,841
PROVISION FOR INCOME TAXES 0 (54,000) (15,000) (335,000)
------------- ------------ ------------- --------------
NET INCOME (LOSS) $ (1,795,093) $ 161,266 $ (4,549,957) $ 1,004,841
============= ============ ============= =============
NET INCOME (LOSS) PER COMMON SHARE $ (0.11) $ 0.01 $ (0.28) $ 0.06
============= =========== ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 16,530,909 16,467,956 16,521,737 16,362,705
============= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
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REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
(Unaudited)
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<CAPTION>
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,549,957) $ 1,004,841
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,031,865 591,808
Amortization of debt issuance costs 33,612 52,999
Provision for bad debts 141,647 120,000
Write off of employee note receivable 73,073 -
Debt issuance costs - (397,500)
Changes in assets and liabilities associated with
operating activities:
Accounts receivable (878,365) (1,258,296)
Inventories 5,443,009 (14,776,812
Other receivables 140,376 13,595
Supplies and prepaid expenses (583,586) 14,051
Deposits 944 (78,715)
Accounts payable (5,213,830) 3,153,694
Accrued expenses 490,256 188,106
Accrued costs related to discontinued operations (116,222) -
Deferred compensation (108,304) (97,497)
Accrued payroll 85,206 (341,770)
------------ ------------
Total Adjustments 539,681 (12,816,337)
------------ ------------
Net cash used in operating activities (4,010,276) (11,811,496)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Wesco Auto Parts Division - 6,598,695
Increase in intangible assets (359,877) -
Purchases of fixtures, equipment and leaseholds (655,882) (760,943)
Advances to officers 52,927 -
Notes receivable principal payments 513,183 -
------------ ------------
Net cash provided by (used in) investing activities (449,649) 5,837,752
------------ ------------
CASH FLOWS FROM
Advances on short-term borrowings 27,202,212 13,175,000
Payments on short-term borrowings (23,906,680) (13,324,855)
Payments on note payable - (348,713)
Payments on long term debt - (38,221)
Proceeds from exercise of options and warrants - 578,030
Proceeds form the issuance of common stock 47,500 -
Proceeds form the issuance of subordinated debt, net - 6,502,500
Net activity on capital lease obligations (585,062) (382,662)
------------ ------------
Net cash provided by financing activities 2,757,970 6,161,079
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,701,955) 187,335
CASH AND CASH EQUIVALENTS, beginning of period 1,701,955 1,010,818
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 0 $ 1,198,153
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
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REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Reddi Brake Supply Corporation and subsidiary (the "Company") have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal and
recurring accruals) required for a fair presentation have been
included. Operating results for the three and nine months ended March
31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended June 30, 1995.
B. Summary of Significant Accounting Policies
Inventories
The Company's inventories, consisting primarily of finished goods, are
stated at lower of FIFO (first in, first out) cost or market.
During fiscal years 1994 and 1995, the Company received, from certain
suppliers of product, purchase discounts for the initial inventory
purchase of a new warehouse. These purchase discounts have been
recorded as a reduction of cost of goods sold over the Company's
estimated aggregate inventory turn which approximates twelve months.
This monthly reduction in the cost of goods sold produces a result
which is not materially different than the result which would be
obtained if the Company allocated the discount to each particular
stock keeping unit acquired in the initial inventory. Under the
Company's method of accounting for such discounts, inventory, net of
the unamortized discount, is stated at the lower of cost or market
which would approximate that computed in all material respects, by
allocating the discount to each item purchased.
In addition, the Company receives, from certain suppliers of product,
purchase discounts and rebates related to volume purchasing. These
discounts and rebates are recognized as reductions in the cost of
goods sold to the extent the related inventory has been sold, based on
the Company's annualized aggregate inventory turn. Under the
Company's method of accounting for such discounts and rebates, to the
extent that the inventory for which the discounts and rebates relate
has not been sold, inventory net of the unamortized discounts and
rebates is stated at the lower of cost or market which would
approximate that computed in all material respects by allocating the
discounts and rebates to each item purchased.
Income Taxes
The income tax provision as of March 31, 1996 represents alternative
minimum tax for federal purposes, and the minimum tax due for certain
states.
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The Company recorded a provision for income taxes for the three months
ended March 31, 1995 at an annual effective tax rate of 25%, as
compared to a statutory rate of 40%, as a result of tax deductions and
benefits expected to be realized in that year.
In addition, the Company has net operating loss carryforwards of
approximately $3,850,000 which may be available, subject to
limitations, to offset future taxable income through fiscal year 2009.
The Company's 1994, 1993 and 1992 federal income tax returns, and the
1992, 1991 and 1990 federal income tax returns of Reddi Brake Supply
Company Inc., which was acquired by the Company in April 1993, are
being audited by the Internal Revenue Service. The outcome of this
audit is not expected to have a material adverse effect on the
financial position or results of operations of the Company.
Net Income (loss) per Common Share
Net income (loss) per common share is based upon the weighted average
number of common shares outstanding in each period. As the aggregate
dilution of common stock equivalents is either less than three percent
of income per common share or antidultive, the Company is not
reporting both primary and fully diluted income (loss) per share.
Reclassifications
Certain reclassifications have been made to the March 31, 1995
financial statements to conform with the March 31, 1996 presentation.
C. Line of Credit
In November of 1995 (as amended on March 18, 1996), the Company
obtained a working capital line of credit with the CIT Group. The
maximum credit available under the CIT Line is the lesser of (a) $13
million, or (b) the sum of 85% of eligible accounts receivable and 55%
of eligible inventory. Borrowings under the CIT Line bear interest at
a rate equal to the CIT's prime lending rate (8.25% at March 31, 1996)
plus 1.50%. Borrowings are collateralized by the Company's accounts
receivable, notes receivable, inventory, fixtures and equipment.
Under the terms of the CIT Line, the Company must comply with certain
reporting and financial performance covenants. The line expires in
November 1998.
D. Warehouse Closing
As of December 31, 1995 the Company approved a plan to close 13
warehouses and accordingly recorded a provision for estimated costs
amounting to $721,794. The provision consists principally of
estimated losses on leases, the write down of inventories to net
realizable value, and the abandonment of certain assets. During the
third quarter of 1996, the Company determined that 14 warehouses were
to be closed and utilized $440,000 of this reserve in closing these
warehouses. The Company is continuing to incur expenses relating to
these closures.
E. Litigation
On March 15, 1996, the Company settled a lawsuit by issuing 80,000
shares of common stock valued at $1.69 per share. (See Part II "Other
Information" - Item 1 - "Legal Proceedings") In addition, the Company
is involved in two material lawsuits. (See Part II - Item 1. Legal
Proceedings).
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F. Change in Capital
During April and May of 1996, the Company designated 400,000 shares of
its authorized but unissued Preferred Stock as Class A Preferred Stock
and 550,000 shares of its Preferred stock as Class B Preferred Stock.
(See Note G and Part II - 5. "Other Information").
G. Exempt Offerings
In April of 1996, the Company completed a placement of 400,000 shares
of its Class A Preferred Stock pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended
(the "Act") . The net offering proceeds amounted to approximately
$3,519,000, which was used for working capital purposes. The Company
has engaged the same placement agent for a contemplated exempt
offering of its Class B Preferred Stock. However, there can be no
assurance that this placement will be successfully completed.
The shares of Class A and Class B Preferred Stock are entitled to
quarterly dividends at a cumulative annual rate of 4% of the original
issue price of $10.00 per share, and a liquidation preference of
$10.00 per share. Such shares are convertible into shares of the
Company's Common Stock at a conversion price equal to 80% of the
average per share closing price of the Company's Common Stock for the
five consecutive trading days ending two days before such conversion.
With respect to the Class A Shares, the maximum conversion price is
$2.00 per share. With respect to the Class B Shares, (a) the maximum
conversion price is $2.25 per share and (b) the Company has the right
to repurchase Class B Shares at a price of $11.50 per share (subject
to antidilution adjustments) if the average per share closing price of
the Company's common stock is below $1.25 for five consecutive trading
days ending two days before the attempted conversion of such shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED
IN THIS ITEM 2 CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED
BELOW UNDER THE HEADING "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE
IN THIS REPORT ON FORM 10-Q, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY THE COMPANY'S MANAGEMENT.
INTRODUCTION
As of May 10, 1996, the Company operated 85 Reddi Brake (R) warehouses
in 26 states, through which the Company serves as a non- traditional "two-step"
distributor of brake systems, chassis components and other undercar parts
primarily to auto repair shops. As of December 31, 1995, the Company made a
strategic decision to close thirteen underperforming warehouses. During the
third quarter of 1996 the Company closed fourteen warehouses. In addition,
after evaluating the geographic location of the existing Reddi Brake (R)
locations, the Company signed a letter of intent on April 25, 1996 to purchase
two corporations, which operate seven automotive parts warehouses in
Nevada and Orange County, California. For further discussion of these
proposed transactions, see "Item 5 - Other Information".
Effective February 7, 1996, William Leider resigned as Chief Executive
Officer, President and Chief Operating Officer, and from the Company's Board of
Directors. At that time, (1) Gordon Werner resigned as Chairman while
remaining on the Board, and Eric Openshaw was elected Interim Chairman, (2)
Richard McGorrian, who joined the Company as its Vice President-Marketing in
November 1995, was appointed as President and Chief Executive Officer, and
elected to the Board and (3) S. Gerald Birin, who joined the Company as its
Chief Financial Officer in November 1995, was appointed to the additional
position of Executive Vice President, and elected to the Board.
In connection with the second and third quarter losses, the Company's
new management team, in the third quarter of 1996, commenced a restructuring of
its operations. Management has (1) closed 14 underperforming warehouses; (2)
heightened its monitoring of certain other underperforming warehouses; (3)
returned approximately $3.4 million of inventory of the 14 closed warehouses;
(4) modified inventory selection in remaining warehouses, with a particular
focus on customer preferences of local markets; (5) begun to reduce certain
overhead items, such as payroll, payroll benefits and computer charges; and (6)
investigated opportunities to expand into new markets without a significant
outlay of capital. As discussed below under "Factors that May Affect Future
Results", such restructuring plans may be modified, and there can be no
assurance that such restructuring will prove successful.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1996 were $15,417,692,
an increase of $3,165,859, or 25.8%, over the same period for the prior year.
Net sales for the nine months ended March 31, 1996 were $45,321,306, an
increase of $13,123,455, or 40.8%, over the same period for the prior year.
These increases are primarily due to increased sales in maturing warehouses
opened during the nine months ended March 31, 1995. Sales at the Company's 79
comparable Reddi Brake (R) warehouses (based on warehouses opened at
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least 12 full months as of March 31, 1996) increased approximately 19.6% for
the nine months ended March 31, 1996, as compared to the same period last year.
However, sales were generally lower than the Company had expected, particularly
in warehouses outside of the Western region. Further, management believes that
sales were adversely affected by extreme weather conditions in the Midwest and
Eastern regions during the three months ended March 31, 1996.
As a percentage of revenues, gross profit decreased to 38.1% and
40.3%, respectively, for the three months and nine months ended March 31, 1996,
as compared to 47.8% and 48.9% during the same periods of the prior year.
These decreases are primarily due to the Company recognizing less purchase
discounts, as a percentage of sales, for initial inventories as the Company
began its hiatus in opening new Reddi Brake (R) warehouses and, to a lesser
extent, to the Company's establishing inventory reserves and reducing prices on
certain items to meet competitive conditions. For further explanation of such
purchase discounts, see Note B to the Condensed Consolidated Financial
Statements in Item 1 above. During the three and nine month periods ended
March 31, 1996, respectively, the Company amortized $0 and approximately
$1,473,000 of purchase discounts, as compared to $1,300,000 and $3,800,000 for
the same periods last year. As of December 31, 1995, the Company had exhausted
its monthly recognition of such discounts.
As a percentage of revenues, warehouse operating and selling expenses
for the three and nine months ended March 31, 1996 were 37.3% and 34.6%,
respectively, as compared to 33.9% and 33.2% over the same periods of the prior
year. The Company attributes these increases to additional expenses incurred
in opening 17 new Reddi Brake locations from January through May 1995, as fixed
overhead, primarily wages and salaries, was not fully absorbed by the lower
than expected sales. To a lesser extent, this increase also reflects a
reallocation of expense for computer data lines from general and administrative
expenses to warehouse operating and selling expenses.
As a percentage of revenues, for the three and nine months ended March
31, 1996, general and administrative expenses were 10.1% and 12.0%,
respectively, as compared to 9.0% and 8.3% during the same periods of the prior
year. These increases primarily reflect additional purchasing, accounting and
administrative personnel hired to support the Company's opening and operations
of new warehouses, compensation paid to senior management executives hired
since May 1995, charges related to the severance of departing officers,
increased payments of legal fees and increased computer-related overhead. The
increase for the nine months ended March 31, 1996 as compared to the prior
year's comparable period was also due, in part, to $310,000 in reserves
recorded in the second quarter with respect to two lawsuits.
As of December 31, 1995 the Company approved a plan to close 13
warehouses and accordingly recorded a provision for estimated costs amounting
to $721,794. The provision consists principally of estimated losses on leases,
the write down of inventories to net realizable value, and the abandonment of
certain assets. During the third quarter of 1996, the Company determined that
14 warehouses were to be closed and utilized $440,000 of this reserve in
closing these warehouses. The Company is continuing to incur expenses relating
to these closures.
The income tax provision as of March 31, 1996 represents alternative
minimum tax for federal purposes, and the minimum tax due for certain states.
Interest expenses, net, increased to $359,936 and $964,382,
respectively, for the three and nine month periods ended March 31, 1996, as
compared to $156,301 and $470,122 for the same periods last year. The
increases were primarily due to increased borrowings under the Company's
working capital line and an increase in capital lease obligations related to
vehicles for new Reddi Brake warehouses. These borrowings were primarily used
to fund the operations of Reddi Brake (R) warehouses and for the increased
general and administrative expenses.
The Company's business is seasonal in nature, with warehouse sales
historically running higher in the first and fourth quarters (April through
September) of the fiscal year.
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LIQUIDITY AND CAPITAL RESOURCES
In November 1995 (as amended on March 18, 1996) the Company obtained a
new working capital line of credit (the "CIT Line") with the CIT Group. The
maximum credit available under the CIT Line is the lesser of (a) $13 million,
or (b) the sum of 85% of eligible accounts receivable and 55% of eligible
inventory. Borrowings under the CIT Line bear interest at a rate equal to the
CIT's prime lending rate (8.25% at March 31, 1996) plus 1.50%. Borrowings are
collateralized by the Company's accounts receivable, notes receivable,
inventory, fixtures and equipment. Under the terms of the CIT Line, the
Company must comply with certain reporting and financial performance.
The Company's principal sources of funds are cash generated from
operations and borrowings on the CIT Line. The Company's new management team,
in the third quarter of 1996, determined that the Company needed to raise
additional working capital to fund expenditures and service existing trade
payables and debt. In April and May of 1996 the Company raised approximately
$3,519,000 of net proceeds in an exempt placement of 400,000 shares of Class A
Preferred Stock. (See Note G. - Notes to Condensed Consolidated Financial
Statements" and Item 5. "Other Information")
Although the Company is not yet able to resume timely payments to
trade and other creditors, it has made significant payments to major vendors
from the net proceeds of the above discussed exempt placement. Further, the
Company has successfully negotiated the return of approximately $3,400,000 of
inventory from its 14 closed warehouses and has been able to enter into
informal agreements with a majority of its vendors regarding deferred payment
terms. Accordingly, to date, the Company's ability to fill customer orders has
not been adversely affected by cash flow shortages. However, if the Company is
unable to raise additional working capital in the near future, it is
anticipated that the Company's ability to supply inventory to its warehouses
will be adversely affected by restrictions on, or suspension of, the delivery
of parts to the Company.
The Company, has engaged a placement agent for an exempt offering of
its Class B Preferred Stock to provide additional working capital. However,
there can be no assurance that such offering will be successful. Management
believes that if the Company is unable to raise additional capital within the
near future, the Company may be forced to institute additional cost saving
measures.
FACTORS THAT MAY AFFECT FUTURE RESULTS
All forward-looking statements contained in this Item 2 and in Part II
of this Report on Form 10 - Q are subject to, in addition to the other matters
described in this Report on Form 10-Q, a variety of significant risks and
uncertainties. The following discussion highlights some of these risks and
uncertainties. Further, from time to time, information provided by the Company
or statements made by its employees may contain "forward-looking" information.
The Company cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors,
including those discussed below.
Recent Operating Losses. For its nine months ended March 31, 1996,
the Company reported a loss of $4,549,957, primarily due to the factors
discussed above. Although the Company's new management has responded to this
loss with the measures described above, there can be no assurance that these or
any other measures will lead to profitability for the Company in fiscal 1997.
Management Strategy. As discussed above, the Company's new management
has undertaken a restructuring of operations in response to the Company's
recent losses. These measures are based upon new management's current
understanding and assumptions concerning the Company's operations and,
accordingly, management may modify its approach on these measures, or take
additional measures, as it deems appropriate. Further, there can be no
assurance that management's strategy in responding to the Company's losses will
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prove successful. In addition, the restructuring may involve future warehouse
closures, in which event the Company would experience further charges
associated with such future closures.
Need for Additional Capital. As discussed above, the Company is
continuing to experience cash flow difficulties and, accordingly, the Company
is actively seeking additional capital. Management believes that, if the
Company is unable to raise additional capital within the near future, the
Company maybe forced to institute additional cost saving measures.
Expected Decrease in Gross Margin. As discussed above, the Company's
gross margin for the nine months ended March 31, 1996 was 40.3%, as compared to
48.9% during the same period of the prior year. This decrease was primarily
due to the diminishing amortization of past purchase discount, which were
exhausted as of December 31, 1996.
Competition. The Company operates in a highly competitive environment
in the commercial segment of the automotive parts and accessories aftermarket.
The Company's primary competitors include traditional three-step aftermarket
channels, consisting primarily of independent and national warehouse
distributors and associations, such as NAPA and Carquest, and the associated
jobbers to whom they sell; traditional two-step distribution channels,
including original equipment channels through vehicle dealerships, retail parts
stores, specialty distributors and local and regional manufacturers; and APS
Holding Corporation, a national operator of "installer service warehouses".
Many of the Company's current and potential competitors are larger and have
greater financial resources.
Dependence Upon Key Executives. The Company's success will be, to a
large extent, dependent upon the continued services of Richard McGorrian and S.
Gerald Birin, its Chief Executive Officer and Chief Financial Officer,
respectively. The loss of the services of Mr. McGorrian or Mr. Birin for any
reason, without an orderly transition to a qualified successor, would likely
have a material adverse effect on the Company's operations and results.
Messrs. McGorrian and Birin have three-year employment contracts.
Other Factors Affecting Market Price. The market price of the
Company's Common Stock may be adversely affected by a number of other factors,
including future sales of shares covered by a Registration Statement on Form
S-3 (which presently covers approximately 5 million shares), the possible
exercise of various warrants and options which could result in the issuance of
up to approximately 2.3 million additional shares, the conversion of up to $6.9
million of 9.0% Adjustable Convertible Subordinated Notes into a maximum
(subject to anti - dilution adjustments) of 1,971,429 shares, the issuance of
additional shares of Common and Preferred Stock (See "Note G. - Notes to
Condensed Consolidated Financial Statements" and Item 2. "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"),
and fluctuations in response to periodic variations in operating results,
market conditions and general economic conditions and factors external to the
Company.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's Amendment No. 1 to its Report
on Form 10-K for the year ended June 30, 1995, the Company was a defendant in
an action filed by Liviakis Financial Communications, Inc. ("LFC") in the
Superior Court for Los Angeles County, California. The complaint alleged that
the Company breached an oral agreement to file and diligently prosecute to
effectiveness a Registration Statement on Form S-3 covering the resale of
880,000 shares of the Company's Common Stock owned by LFC, and sought damages
in the amount of $5 million. On March 15, 1996, the Company and LFC agreed to
settle this matter through the issuance to LFC of 80,000 shares of the
Company's common stock, in exchange for which the suit was dismissed with
prejudice.
A class action, James P. Delano and Cynthia L. Delano, et al. v. Reddi
Brake Supply Corporation, et al., was filed, on October 31, 1995, against the
Company and Bruce Douglass, Gordon Werner and Michael Cassidy (former officers
of the Company) in the United States District Court for the Central District of
California. The Company has reached a tentative agreement with plaintiffs for
the settlement of this action, under which the total settlement amounts and
attorneys fees to be paid by the Company would not have a material adverse
impact on its results of operations or financial condition. Consummation of
this settlement is subject to the negotiation, execution and delivery of
definitive settlement documents, and there can be no assurance that such
settlement will be consummated.
ITEM 5. OTHER INFORMATION.
In April of 1996, the Company completed a placement of 400,000 shares
of its Class A Preferred Stock pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Act") . The net
offering proceeds amounted to approximately $3,519,000, which was used for
working capital purposes. The Company has engaged the same placement agent for
a contemplated exempt offering of its Class B Preferred Stock. However, there
can be no assurance that this placement will be successfully completed.
The shares of Class A and Class B Preferred Stock are entitled to
quarterly dividends at a cumulative annual rate of 4% of the original issue
price of $10.00 per share, and a liquidation preference of $10.00 per share.
Such shares are convertible into shares of the Company's Common Stock at a
conversion price equal to 80% of the average per share closing price of the
Company's Common Stock for the five consecutive trading days ending two days
before such conversion. With respect to the Class A Shares, the maximum
conversion price is $2.00 per share. With respect to the Class B Shares, (a)
the maximum conversion price is $2.25 per share and (b) the Company has the
right to repurchase Class B Shares at a price of $11.50 per share (subject to
antidilution adjustments) if the average per share closing price of the
Company's common stock is below $1.25 for five consecutive trading days before
the attempted conversion of such shares.
In April 1996, the Company entered into a letter of intent to
purchase all of the outstanding stock of two corporations which own and
operate, respectively, three undercar automotive part supply warehouses in
Nevada and four such stores in Orange County, California. Allen J. Sheerin,
the founder and a principal stockholder of the Company, is the principal
stockholder of these two corporations. Consummation of these transactions is
subject to a number of conditions precedent, including the execution of
definitive purchase agreements. There can be no assurance that these
transactions will be consummated. The Company believes that the addition of
these locations would have a strategic impact on the Company's operations in
the Western Region, primarily in Las Vegas, Nevada and Orange County,
California areas, where the Company currently does not have a presence.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
4(a) Certificate of Designation of Class A Preferred Stock dated March 18, 1996
4(b) Certificate of Amendment of Certificate of Designation of Class A Preferred
Stock dated March 28, 1996.
4(c) Certificate of Designation of Class B Preferred Stock dated March 18, 1996
4(d) Certificate of Amendment of Certificate of Designation of Class B Preferred
Stock dated March 28, 1996.
4(e) Certificate of Amendment of Certificate of Designation of Class B Preferred
Stock dated April 22, 1996.
4(f) Certificate of Amendment of Certificate of Designation of Class B Preferred
Stock dated May 7, 1996.
10(a) Engagement letter dated March 22, 1996 with Baytree Associates, Inc.
10(b) Engagement letter dated May 7, 1996 with Baytree Associates, Inc.
10(c) Amendment dated March 18, 1996 of Loan and Security Agreement between the Company
and the CIT Group/Credit Finance.
</TABLE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K/A#1 dated
February 7, 1996, reporting a change in accountants from Ernst
& Young LLP to KPMG Peat Marwick, LLP.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
REDDI BRAKE SUPPLY CORPORATION
<TABLE>
<S> <C>
Date: May 9, 1996 /s/ RICHARD McGORRIAN
---------------------------------------------------
Richard McGorrian
Chief Executive Officer
President
Date: May 9, 1996 /s/ S. GERALD BIRIN
---------------------------------------------------
S. Gerald Birin
Executive Vice President
Chief Financial Officer
</TABLE>
15
<PAGE> 1
EXHIBIT 4.(A)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF DESIGNATION
OF
CLASS A PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), certify that the
Board of Directors of the Corporation, pursuant to the authority granted in
Article IV of the Corporation's Articles of Incorporation, as amended, has
adopted a resolution establishing a series consisting of 400,000 of the
Corporation's authorized preferred stock designated as Class A Preferred Stock
(the "Class A Preferred Stock") and has prescribed the following voting powers,
designations, preferences, limitations, restrictions and relative rights of the
Class A Preferred Stock:
A. Senior Right to Dividends. The holders of Class A Preferred
Stock shall be entitled to a cumulative annual dividend. Dividends shall accrue
quarterly on the first business day of April, July, October, and January of each
year. Dividends shall be at the rate of four percent of the initial issue price
of $10.00 per share (that is, $0.40 per share per annum or $0.10 per share per
quarter) and shall be cumulative. The Corporation may at its sole election pay
dividends in cash or in shares of the Corporation's Common Stock. For these
purposes, the number of shares of Common Stock to be so distributed in lieu of
cash dividends shall be determined by dividing the amount of the dividend
payment by the average closing price per share of the Corporation's Common Stock
during the twenty consecutive trading days preceding the date of accrual.
Subject to any limitations under the Nevada General Corporation Law (the "GCL")
and except as otherwise provided in Sections B and C below, dividend payments
will be due 30 days after the close of each "Dividend Year". As used herein,
the first "Dividend Year" shall be the period beginning on the date of original
issuance of the particular shares of Class A Preferred Stock and ending on March
31, 1997, and the successive Dividend Years shall be the successive periods
beginning April 1 and ending on March 31 of the next calendar year. Dividends
may be paid in any year to holders of any "Junior Stock," subject to all of the
preferential rights of the holders of the Corporation's authorized preferred
stock designated as Class B Preferred Stock (the "Class B Preferred Stock") and
any other Preferred Stock then outstanding, and only after the Corporation shall
have paid or provided for the payment of dividends on all Class A Preferred
Stock, including any amounts that may have been accumulated but not declared or
not paid for each Dividend Year from the date of issuance to and including the
Dividend Year in question. Dividends may be paid in any year to any holders of
the Class A Preferred Stock only to the extent the Corporation shall have paid
or provided for the equal payment of dividends on all of the Class B Preferred
Stock, including any amounts that may have been accumulated but not declared or
not paid for each Dividend Year from the date of issuance
<PAGE> 2
to and including the Dividend Year in question. The term "Junior Stock" shall
mean shares of the Corporation's Common Stock and each series of Preferred Stock
of the Corporation ranking junior to the Class A Preferred Stock and the Class B
Preferred Stock as to dividends or distribution of assets on liquidation,
dissolution or winding up. Holders of Class A Preferred Stock shall not be
entitled to any cash or other dividend other than as provided in this
Paragraph A.
B. Senior Rights in Dissolution and Distribution of Assets. Upon
liquidation, dissolution, or winding up of the Corporation, holders of Class A
Preferred Stock and Class B Preferred Stock shall be equally entitled to
receive, on a pro rata basis, prior to any distribution to holders of any
Junior Stock, a liquidation preference of $10.00 per share (the "Original Class
A Issue Price") plus all dividends accumulated but unpaid to the date such
payment is made available to such holders of Class A Preferred Stock and Class
B Preferred Stock. Holders of Class A Preferred Stock shall not be entitled to
any further payment as dividends in liquidation or otherwise. After payment to
the holders of the Class A Preferred Stock and the Class B Preferred Stock, the
holders of shares of Common Stock, subject to all of the preferential rights of
the holders of the Preferred Stock, shall be entitled to receive, ratably, all
remaining assets of the Corporation. A consolidation or merger of the
Corporation with or into any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of
this Paragraph B.
C. Conversion. The holders of the Class A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
1. Right to Convert. Each record holder of Class A
Preferred Stock of the Corporation shall be entitled to convert the shares of
Class A Preferred Stock held by such holder, at such holder's option, at any
time beginning 41 days following the date of issuance of such shares and in the
manner specified in Paragraph C(2) below, into that number of fully-paid and
non-assessable shares of the Corporation's Common Stock determined as follows:
Each share of Series A Preferred Stock so surrendered for conversion shall be
converted into that number of shares of Common Stock derived by dividing (a)
the Original Class A Issue Price by (b) the "Conversion Rate". As used herein,
the "Conversion Rate" shall be eighty percent (80%) of the average per share
high closing bid price of the Corporation's Common Stock for the five (5)
consecutive trading days ending two days before the "Conversion Date" (as
defined below), provided, however, that the maximum Conversion Rate shall be
$2.00. Following any such conversion, the Corporation shall, as soon as
reasonably practicable thereafter, make provisions for payment of any dividends
accumulated but unpaid, through the Conversion Date, on any shares of Class A
Preferred Stock so surrendered, provided that such payment may be made, at the
Corporation's sole election, in a number of shares of the Corporation's Common
Stock determined in accordance with the provisions of Paragraph A above.
2. Mechanics of Conversion. In order to convert Class A
Preferred Stock into full shares of Common Stock, the holder shall surrender
the certificate or certificates
-2-
<PAGE> 3
therefor, duly endorsed, by either overnight courier or 2-day courier, to the
office of the Corporation or of any transfer agent for its Common Stock, and
shall give concurrent written notice to the Corporation at such office that he
elects to convert the same, the number of shares of Class A Preferred Stock to
be converted and a calculation of the Conversion Rate (with an advance copy of
the certificate(s) and the notice sent to the Corporation's principal offices
by facsimile); provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless either the certificates evidencing such shares of Class A
Preferred Stock are delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to evidence such loss and to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. No fractional shares of Common Stock shall be issued upon
conversion of Class A Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation shall pay cash to
such holder in an amount equal to such fraction multiplied by the Conversion
Rate then in effect. In the case of a dispute as to the calculation of the
Conversion Rate, the Corporation's calculation shall be deemed conclusive
absent manifest error.
The Corporation shall deliver as soon as reasonably
practicable after delivery to the Corporation of such certificates, or after
such agreement and indemnification, to such holder of Class A Preferred Stock
at the address of the holder on the stock books of the Corporation, a
certificate or certificates for the number of shares of Common Stock to which
the holder shall be entitled as aforesaid. The date on which notice of
conversion is given (the "Conversion Date") shall be deemed to be the date set
forth in such notice of conversion provided that delivery and advance facsimile
notice is made as provided above and that the original shares of Class A
Preferred Stock to be converted are received by the transfer agent or the
Corporation within three (3) business days thereafter, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. If the original shares of Class A
Preferred stock to be converted are not received by the transfer agent or the
Corporation within three (3) business days after the Conversion Date, the
notice of conversion shall be deemed null and void.
3. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Class A Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Class A Preferred Stock, the Corporation shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
-3-
<PAGE> 4
4. Forced Conversion. The Corporation is entitled, at
its sole election, any time commencing one year from the date of the closing of
this subscription, upon fifteen (15) days written notice to the holders of the
Class A Preferred Stock, to require the holders of the Class A Preferred Stock
to convert each share of Class A Preferred Stock into fully-paid and
non-assessable shares of Common Stock at the Conversion Rate then in effect as
provided in Paragraph C(1) above. The Corporation shall notify the holder of
the Corporation's intent to force conversion by giving written notice ("Notice
of Mandatory Conversion") to the holder by facsimile, original to follow by
2-day courier, before midnight, New York City time, on the date of such
mandatory conversion. If the Corporation so elects, all Class A Preferred
Stock shall be automatically converted into Common Stock, as provided in this
Paragraph C(4), as of the date the Notice of Mandatory Conversion has been sent
to the holders of Class A Preferred Stock. Each holder of Class A Preferred
Stock shall hereafter promptly surrender his certificate(s) evidencing such
shares at the principal office of the Corporation or of the transfer agent for
the Corporation's Common Stock, and shall hereupon be entitled to receive
certificates evidencing the number of shares of Common Stock into which such
shares of Class A Preferred Stock are converted and, as of the date the Notice
of Mandatory Conversion has been sent, each holder of Class A Preferred Stock
shall be deemed to be a holder of record of the Common Stock issuable upon such
conversion, notwithstanding that the certificate(s) representing such Class A
Preferred Stock shall not have been surrendered to the Corporation or its
transfer agent or that certificates evidencing such shares of Common Stock
shall not then have been actually delivered to such holder. The Corporation is
not entitled to require conversion under this Paragraph C(4) if the
Corporation makes any planned press release either: (a) on the day it provides
such Notice of Mandatory Conversion to the holder or (b) prior to the close of
trading on the following business day.
5. Automatic Conversion. Each share of Class A
Preferred Stock outstanding on December 31, 1997 automatically shall be
converted into Common Stock on such date at the Conversion Rate then in effect
as provided in Paragraph C(1) above, and December 31, 1997 shall be deemed the
Conversion Date with respect to such Conversion.
D. Corporate Change. The Conversion Rate shall be appropriately
adjusted to reflect, as deemed equitable and appropriate by the Board of
Directors of the Corporation, any stock dividend, stock split or share
combination of the Common Stock or any distribution of a material portion of
the Corporation's assets to the holders of Common Stock. In the event of a
merger, reorganization, recapitalization or similar event of or with respect to
the Corporation (a "Corporate Change") (other than a Corporate Change in which
the Corporation is the surviving entity or in which all or substantially all of
the consideration received by the holders of the Corporation's capital stock
upon such Corporate Change consists of cash or assets other than securities
issued by the acquiring entity or any affiliate thereof), this Class A
Preferred Stock shall be assumed by the acquiring entity and thereafter this
Class A Preferred Stock shall be convertible into such class and type of
securities as the Holder would have received had the Holder converted this
Class A Preferred Stock immediately prior to such Corporate Change.
-4-
<PAGE> 5
E. Voting Rights. Except as otherwise provided by the Nevada
Revised Statutes, the holders of the Class A Preferred Stock shall have no
voting power whatsoever, and no holder of Class A Preferred Stock shall vote or
otherwise participate in any proceeding in which actions shall be taken by the
Corporation or the shareholders thereof or be entitled to notification as to
any meeting of the Board of Directors or the shareholders.
To the extent that under the GCL the vote of the holders of
the Class A Preferred Stock, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of the Class A
Preferred Stock shall constitute the approval of such action by the class. To
the extent that under the GCL the holders of the Class A Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Class A Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of stockholders
as the date as of which the Conversion Rate is calculated. Holders of the
Class A Preferred Stock shall be entitled to notice of all shareholder meetings
or written consents with respect to which they would be entitled to vote, which
notice would be provided pursuant to the Corporation's Bylaws and applicable
statutes.
F. Protective Provisions. So long as shares of Class A Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by voting or written consent, as provided by Nevada law) of the
holders of at least a majority of the then outstanding shares of Class A
Preferred Stock:
1. alter or change the rights, preferences or privileges
of the shares of Class A Preferred Stock so as to affect adversely the Class A
Preferred Stock;
2. create any new class or series of stock having a
preference over the Class A Preferred Stock with respect to Distributions (as
defined in Paragraph B above);
3. do any act or thing not authorized or contemplated by
this Designation which would result in taxation of the holders of shares of the
Class A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
G. Status of Redeemed or Converted Stock. In the event any
shares of Class A Preferred Stock shall be converted pursuant to Paragraph C
hereof, the shares so converted shall be cancelled, shall return to the status
of authorized but unissued Preferred Stock of no designated class or series,
and shall not be issuable by the Corporation as Class A Preferred Stock.
H. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of preferred stock with such preferences as may be determined by
the Board of Directors, in its discretion.
-5-
<PAGE> 6
I. Amendments. Subject to Paragraph F above, the designation,
number of, and voting powers, designations, preferences, limitations,
restrictions and relative rights of the Class A Preferred Stock may be amended
by a resolution of the Board of Directors.
DATED this 18th day of March, 1996.
/s/ RICHARD McGORRIAN
----------------------------------
Richard McGorrian, President
/s/ S. GERALD BIRIN
----------------------------------
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 4.(B)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
CLASS A PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), do hereby certify
that:
1. The original Certificate of Designation (the "Certificate of
Designation") of 400,000 of the Corporation's authorized preferred stock
designated as Class Preferred Stock (the "Class A Preferred Stock") was filed
in the Office of the Nevada Secretary of State on March 25, 1996.
2. The Board of Directors of the Corporation, pursuant to the
authority granted in Article IV of the Corporation's Articles of Incorporation,
as amended, has adopted a resolution amending the Certificate of Designation as
follows: Paragraph C(4) (Forced Conversion) shall be deleted in its entirety
and Paragraph (C)(5) (Automatic Conversion) shall be redesignated as Paragraph
(C)(4).
3. As of the execution of this Certificate of Amendment, no
shares of the Class A Preferred Stock have been issued.
DATED this 28th day of March, 1996.
/s/ RiCHARD McGORRIAN
----------------------------------
Richard McGorrian, President
/s/ S. GERALD BIRIN
----------------------------------
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 4.(C)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF DESIGNATION
OF
CLASS B PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), certify that the
Board of Directors of the Corporation, pursuant to the authority granted in
Article IV of the Corporation's Articles of Incorporation, as amended, has
adopted a resolution establishing a series consisting of 400,000 of the
Corporation's authorized preferred stock designated as Class B Preferred Stock
(the "Class B Preferred Stock") and has prescribed the following voting powers,
designations, preferences, limitations, restrictions and relative rights of the
Class B Preferred Stock:
A. Senior Right to Dividends. The holders of Class B Preferred
Stock shall be entitled to a cumulative annual dividend. Dividends shall
accrue quarterly on the first business day of April, July, October, and January
of each year. Dividends shall be at the rate of four percent of the initial
issue price of $10.00 per share (that is, $0.40 per share per annum or $0.10
per share per quarter) and shall be cumulative. The Corporation may at its
sole election pay dividends in cash or in shares of the Corporation's Common
Stock. For these purposes, the number of shares of Common Stock to be so
distributed in lieu of cash dividends shall be determined by dividing the
amount of the dividend payment by the average closing price per share of the
Corporation's Common Stock during the twenty consecutive trading days preceding
the date of accrual. Subject to any limitations under the Nevada General
Corporation Law (the "GCL") and except as otherwise provided in Sections B and
C below, dividend payments will be due 30 days after the close of each
"Dividend Year". As used herein, the first "Dividend Year" shall be the period
beginning on the date of original issuance of the particular shares of Class B
Preferred Stock and ending on March 31, 1997, and the successive Dividend Years
shall be the successive periods beginning April 1 and ending on March 31 of the
next calendar year. Dividends may be paid in any year to holders of any
"Junior Stock," subject to all of the preferential rights of the holders of the
Corporation's authorized preferred stock designated as Class A Preferred Stock
(the "Class A Preferred Stock") and any other Preferred Stock then outstanding,
and only after the Corporation shall have paid or provided for the payment of
dividends on all Class B Preferred Stock, including any amounts that may have
been accumulated but not declared or not paid for each Dividend Year from the
date of issuance to and including the Dividend Year in question. Dividends may
be paid in any year to any holders of the Class B Preferred Stock only to the
extent the Corporation shall have paid or provided for the equal payment of
dividends on all of the Class A Preferred Stock, including any amounts that may
have been accumulated but not declared or not paid for each Dividend Year from
the date of issuance to and including the Dividend Year in question. The term
"Junior Stock" shall mean shares
<PAGE> 2
of the Corporation's Common Stock and each series of Preferred Stock of the
Corporation ranking junior to the Class A Preferred Stock and the Class B
Preferred Stock as to dividends or distribution of assets on liquidation,
dissolution or winding up. Holders of Class B Preferred Stock shall not be
entitled to any cash or other dividend other than as provided in this Paragraph
A.
B. Senior Rights in Dissolution and Distribution of Assets. Upon
liquidation, dissolution, or winding up of the Corporation, holders of Class A
Preferred Stock and Class B Preferred Stock shall be equally entitled to
receive, on a pro rata basis, prior to any distribution to holders of any
Junior Stock, a liquidation preference of $10.00 per share (the "Original Class
B Issue Price") plus all dividends accumulated but unpaid to the date such
payment is made available to such holders of Class A Preferred Stock and Class
B Preferred Stock. Holders of Class B Preferred Stock shall not be entitled to
any further payment as dividends in liquidation or otherwise. After payment to
the holders of the Class A Preferred Stock and Class B Preferred Stock, the
holders of shares of Common Stock, subject to all of the preferential rights of
the holders of the Preferred Stock, shall be entitled to receive, ratably, all
remaining assets of the Corporation. A consolidation or merger of the
Corporation with or into any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of
this Paragraph B.
C. Conversion. The holders of the Class B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
1. Right to Convert. Each record holder of Class B
Preferred Stock of the Corporation shall be entitled to convert the shares of
Class B Preferred Stock held by such holder, at such holder's option, at any
time beginning 41 days following the date of issuance of such shares and in the
manner specified in Paragraph C(2) below, into that number of fully-paid and
non-assessable shares of the Corporation's Common Stock determined as follows:
Each share of Class B Preferred Stock so surrendered for conversion shall be
converted into that number of shares of Common Stock derived by dividing (a)
the Original Class B Issue Price by (b) the "Conversion Rate". As used herein,
the "Conversion Rate" shall be eighty percent (80%) of the average per share
high closing bid price of the Corporation's Common Stock for the five (5)
consecutive trading days ending two days before the "Conversion Date" (as
defined below), provided, however, that the maximum Conversion Rate shall be
$2.25 and the minimum Conversion Rate shall be $1.50. Following any such
conversion, the Corporation shall, as soon as reasonably practicable
thereafter, make provisions for payment of any dividends accumulated but
unpaid, through the Conversion Date, on any shares of Class B Preferred Stock
so surrendered, provided that such payment may be made, at the Corporation's
sole election, in a number of shares of the Corporation's Common Stock
determined in accordance with the provisions of Paragraph A above.
2. Mechanics of Conversion. In order to convert Class B
Preferred Stock into full shares of Common Stock, the holder shall surrender
the certificate or certificates therefor, duly endorsed, by either overnight
courier or 2-day courier, to the office of the
-2-
<PAGE> 3
Corporation or of any transfer agent for its Common Stock, and shall give
concurrent written notice to the Corporation at such office that he elects to
convert the same, the number of shares of Class B Preferred Stock to be
converted and a calculation of the Conversion Rate (with an advance copy of the
certificate(s) and the notice sent to the Corporation's principal offices by
facsimile); provided, however, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless either the certificates evidencing such shares of Class B
Preferred Stock are delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to evidence such loss and to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. No fractional shares of Common Stock shall be issued upon
conversion of Class B Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation shall pay cash to
such holder in an amount equal to such fraction multiplied by the Conversion
Rate then in effect. In the case of a dispute as to the calculation of the
Conversion Rate, the Corporation's calculation shall be deemed conclusive
absent manifest error.
The Corporation shall deliver as soon as reasonably
practicable after delivery to the Corporation of such certificates, or after
such agreement and indemnification, to such holder of Class B Preferred Stock
at the address of the holder on the stock books of the Corporation, a
certificate or certificates for the number of shares of Common Stock to which
the holder shall be entitled as aforesaid. The date on which notice of
conversion is given (the "Conversion Date") shall be deemed to be the date set
forth in such notice of conversion provided that delivery and advance facsimile
notice is made as provided above and that the original shares of Class B
Preferred Stock to be converted are received by the transfer agent or the
Corporation within three (3) business days thereafter, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. If the original shares of Class B
Preferred Stock to be converted are not received by the transfer agent or the
Corporation within three (3) business days after the Conversion Date, the
notice of conversion shall be deemed null and void.
3. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Class B Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Class B Preferred Stock, the Corporation shall take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
4. Forced Conversion. The Corporation is entitled, at
its sole election, any
-3-
<PAGE> 4
time commencing one year from the date of the closing of this subscription,
upon fifteen (15) days written notice to the holders of the Class B Preferred
Stock, to require the holders of the Class B Preferred Stock to convert each
share of Class B Preferred Stock into fully-paid and non-assessable shares of
Common Stock at the Conversion Rate then in effect as provided in Paragraph
C(1) above. The Corporation shall notify the holder of the Corporation's
intent to force conversion by giving written notice ("Notice of Mandatory
Conversion") to the holder by facsimile, original to follow by 2-day courier,
before midnight, New York City time, on the date of such mandatory conversion.
If the Corporation so elects, all Class B Preferred Stock shall be
automatically converted into Common Stock, as provided in this Paragraph C(4),
as of the date the Notice of Mandatory Conversion has been sent to the holders
of Class B Preferred Stock. Each holder of Class B Preferred Stock shall
hereafter promptly surrender his certificate(s) evidencing such shares at the
principal office of the Corporation or of the transfer agent for the
Corporation's Common Stock, and shall hereupon be entitled to receive
certificates evidencing the number of shares of Common Stock into which such
shares of Class B Preferred Stock are converted and, as of the date the Notice
of Mandatory Conversion has been sent, each holder of Class B Preferred Stock
shall be deemed to be a holder of record of the Common Stock issuable upon such
conversion, notwithstanding that the certificate(s) representing such Class B
Preferred Stock shall not have been surrendered to the Corporation or its
transfer agent or that certificates evidencing such shares of Common Stock
shall not then have been actually delivered to such holder. The Corporation is
not entitled to require conversion under this Paragraph C(4) if the
Corporation makes any planned press release either: (a) on the day it provides
such Notice of Mandatory Conversion to the holder or (b) prior to the close of
trading on the following business day.
5. Automatic Conversion. Each share of Class B
Preferred Stock outstanding on December 31, 1997 automatically shall be
converted into Common Stock on such date at the Conversion Rate then in effect
as provided in Paragraph C(1) above, and December 31, 1997 shall be deemed the
Conversion Date with respect to such Conversion.
D. Corporate Change. The Conversion Rate shall be appropriately
adjusted to reflect, as deemed equitable and appropriate by the Board of
Directors of the Corporation, any stock dividend, stock split or share
combination of the Common Stock or any distribution of a material portion of
the Corporation's assets to the holders of Common Stock. In the event of a
merger, reorganization, recapitalization or similar event of or with respect to
the Corporation (a "Corporate Change") (other than a Corporate Change in which
the Corporation is the surviving entity or in which all or substantially all of
the consideration received by the holders of the Corporation's capital stock
upon such Corporate Change consists of cash or assets other than securities
issued by the acquiring entity or any affiliate thereof), this Class B
Preferred Stock shall be assumed by the acquiring entity and thereafter this
Class B Preferred Stock shall be convertible into such class and type of
securities as the Holder would have received had the Holder converted this
Class B Preferred Stock immediately prior to such Corporate Change.
E. Voting Rights. Except as otherwise provided by the Nevada
Revised Statutes,
-4-
<PAGE> 5
the holders of the Class B Preferred Stock shall have no voting power
whatsoever, and no holder of Class B Preferred Stock shall vote or otherwise
participate in any proceeding in which actions shall be taken by the
Corporation or the shareholders thereof or be entitled to notification as to
any meeting of the Board of Directors or the shareholders.
To the extent that under the GCL the vote of the holders of
the Class B Preferred Stock, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of the Class B
Preferred Stock shall constitute the approval of such action by the class. To
the extent that under the GCL the holders of the Class B Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Class B Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of stockholders
as the date as of which the Conversion Rate is calculated. Holders of the
Class B Preferred Stock shall be entitled to notice of all shareholder meetings
or written consents with respect to which they would be entitled to vote, which
notice would be provided pursuant to the Corporation's Bylaws and applicable
statutes.
F. Protective Provisions. So long as shares of Class B Preferred
Stock are outstanding, the Corporation shall not without first obtaining the
approval (by voting or written consent, as provided by Nevada law) of the
holders of at least a majority of the then outstanding shares of Class B
Preferred Stock:
1. alter or change the rights, preferences or privileges
of the shares of Class B Preferred Stock so as to affect adversely the Class B
Preferred Stock;
2. CREATE ANY NEW CLASS OR SERIES OF STOCK HAVING A
PREFERENCE OVER THE CLASS B PREFERRED STOCK WITH RESPECT TO DISTRIBUTIONS (AS
DEFINED IN PARAGRAPH B ABOVE);
3. do any act or thing not authorized or contemplated by
this Designation which would result in taxation of the holders of shares of the
Class B Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
G. Status of Redeemed or Converted Stock. In the event any
shares of Class B Preferred Stock shall be converted pursuant to Paragraph C
hereof, the shares so converted shall be cancelled, shall return to the status
of authorized but unissued Preferred Stock of no designated class or series,
and shall not be issuable by the Corporation as Class B Preferred Stock.
H. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of preferred stock with such preferences as may be determined by
the Board of Directors, in its discretion.
-5-
<PAGE> 6
I. Amendments. Subject to Paragraph F above, the designation,
number of, and voting powers, designations, preferences, limitations,
restrictions and relative rights of the Class B Preferred Stock may be amended
by a resolution of the Board of Directors.
DATED this 18th day of March, 1996.
__________________________________
Richard McGorrian, President
__________________________________
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 4.(D)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
CLASS B PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), do hereby certify
that:
1. The original Certificate of Designation (the "Certificate of
Designation") of 400,000 of the Corporation's authorized preferred stock
designated as Class Preferred Stock (the "Class B Preferred Stock") was filed
in the Office of the Nevada Secretary of State on March 25, 1996.
2. The Board of Directors of the Corporation, pursuant to the
authority granted in Article IV of the Corporation's Articles of Incorporation,
as amended, has adopted a resolution amending the Certificate of Designation as
follows: Paragraph C(4) (Forced Conversion) shall be deleted in its entirety
and Paragraph (C)(5) (Automatic Conversion) shall be redesignated as Paragraph
(C)(4).
3. As of the execution of this Certificate of Amendment, no
shares of the Class B Preferred Stock have been issued.
DATED this 28th day of March, 1996.
____________________________
Richard McGorrian, President
____________________________
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 4.(E)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
CLASS B PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), do hereby certify
that:
1. The original Certificate of Designation (the "Certificate of
Designation") of the Corporation's authorized preferred stock designated as
Class Preferred Stock (the "Class B Preferred Stock") was filed in the Office
of the Nevada Secretary of State on March 25, 1996.
2. The Board of Directors of the Corporation, pursuant to the
authority granted in Article IV of the Corporation's Articles of Incorporation,
as amended, has adopted a resolution amending the Certificate of Designation to
increase the number of authorized shares of Class B Preferred Stock from
400,000 to 550,000.
3. As of the execution of this Certificate of Amendment, no
shares of the Class B Preferred Stock have been issued.
DATED this 22nd day of April, 1996.
____________________________
Richard McGorrian, President
____________________________
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 4.(F)
REDDI BRAKE SUPPLY CORPORATION
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
CLASS B PREFERRED STOCK
Nevada Revised Statutes Section 78.1955
The undersigned, being the President and the Secretary of Reddi Brake
Supply Corporation, a Nevada corporation (the "Corporation"), do hereby certify
that:
1. The original Certificate of Designation (the "Certificate of
Designation") of the Corporation's authorized preferred stock designated as
Class Preferred Stock (the "Class B Preferred Stock") was filed in the Office
of the Nevada Secretary of State on March 25, 1996 and amended by the filing of
amendments to the Certificate of Designation filed on March 28, 1996 and April
23, 1996.
2. The Board of Directors of the Corporation, pursuant to the
authority granted in Article IV of the Corporation's Articles of Incorporation,
as amended, has adopted a resolution further amending the Certificate of
Designation as follows:
(a) The definition of "Conversion Rate" contained in the
second sentence of Paragraph C(1) shall be amended to read in its entirety as
follows: "As used herein, the "Conversion Rate" shall be eighty percent (80%)
of the average per share high closing bid price of the Corporation's Common
Stock for the five (5) consecutive trading days ending two days before the
"Conversion Date" (as defined below), provided, however, that the maximum
Conversion Rate shall be $2.25."
(b) Paragraph C shall be further amended to include the
following new subparagraphs:
"6. Redemption in Lieu of Conversion. In the
event that a record holder surrenders shares of Class B Preferred
Stock for conversion in the manner set forth in Paragraph C(2) above
and the average per share high closing bid price of the Corporation's
Common Stock for any five (5) consecutive trading days ending two (2)
days before the Conversion Date is less than $1.25, the Corporation,
at its election, may redeem, in lieu of such conversion, any or all of
the shares of Class B Preferred Stock so surrendered at a redemption
price (the "Redemption Price") equal to $11.50 per share (subject to
adjustment as provided in Paragraph (D) below), plus any and all
amounts of accrued and unpaid dividends with respect to such share to
the date of the final distribution to the holders, from funds legally
available therefor. In the event of such election by the Corporation,
the date of
<PAGE> 2
redemption shall be deemed to be the Conversion Date.
7. Mechanics of Redemption. The following
procedures shall apply to all redemptions of Class B Preferred Stock
under Paragraph C(6):
7.1 The Corporation shall send a notice of
redemption (the "Redemption Notice") to each holder of record of
shares to be redeemed by facsimile, with the original to follow by
2-day courier addressed to the holder at such holder's address
appearing on the books of the Corporation or given by the holder to
the Corporation for the purpose of notice, or if there is no such
address, at the principal executive offices of the Corporation. The
Redemption Notice shall include the date of redemption, the Redemption
Price to be paid, the number of shares of Class B Preferred Stock to
be redeemed, and the place at which the shareholders may obtain
payment of the Redemption Price upon surrender of their share
certificates.
7.2 If funds are legally available for such
redemption on the date fixed in the Redemption Notice, then, whether
or not the share certificates are surrendered for payment of the
Redemption Price, the shares redeemed shall no longer be outstanding
and the holders thereof shall cease to be shareholders of the
Corporation with respect to the shares redeemed on and after the date
fixed for redemption and shall be entitled only to receive the
Redemption Price without interest upon surrender of the share
certificate. If less than all of the shares represented by one
certificate are to be redeemed, the Corporation shall issue a new
share certificate for the shares not redeemed."
(c) Paragraph D shall be amended to read in its entirety
as follows:
"D. Corporate Change. The Conversion Rate and Redemption
Price shall be appropriately adjusted to reflect, as deemed equitable
and appropriate by the Board of Directors of the Corporation, any
stock dividend, stock split or share combination of the Common Stock
or any distribution of a material portion of the Corporation's assets
to the holders of Common Stock. In the event of a merger,
reorganization, recapitalization or similar event of or with respect
to the Corporation (a "Corporate Change") (other than a Corporate
Change in which the Corporation is the surviving entity or in which
all or substantially all of the consideration received by the holders
of the Corporation's capital stock upon such Corporate Change consists
of cash or assets other than securities issued by the acquiring entity
or any affiliate thereof), this Class B Preferred Stock shall be
assumed by the acquiring entity and thereafter this Class B Preferred
Stock shall be convertible into such class and type of securities as
the Holder would have received had the Holder converted this Class B
Preferred Stock immediately prior to such Corporate
<PAGE> 3
Change."
(d) Paragraph G shall be amended to read in its entirety
as follows:
"G. Status of Redeemed or Converted Stock. In the event
any shares of Class B Preferred Stock shall be converted or redeemed
pursuant to Paragraph C hereof, the shares so converted shall be
cancelled, shall return to the status of authorized but unissued
Preferred Stock of no designated class or series, and shall not be
issuable by the Corporation as Class B Preferred Stock."
3. As of the execution of this Certificate of Amendment, no
shares of the Class B Preferred Stock have been issued.
DATED this 7th day of May, 1996.
____________________________
Richard McGorrian, President
____________________________
S. Gerald Birin, Secretary
<PAGE> 1
EXHIBIT 10.(A)
BAYTREE ASSOCIATES, INC.
INVESTMENT BANKERS
50 BROAD STREET
NEW YORK, NEW YORK 10004
212/509-1700 * FAXSIMILE 212/363-4231
CONFIDIENTIAL
March 22, 1996
Reddi Brake Supply Corp
1376 Walter Street
Ventura, CA 93003
Attention: Gerald Birin, CFO
Dear Mr. Birin:
This letter confirms that Reddi Brake Supply Corp ("the
Company") has retained Baytree Associates, Incorporated ("Baytree") on the
terms and conditions set forth herein, as the Company's exclusive agents to
arrange financing (the "Financing") for the Company. It is contemplated that
the Financing will consist of $8,000,000 face value Convertible Preferred
Shares, which will carry a four per cent (4%) dividend payable in stock.
The Convertible Preferred which will be more fully described
by the Certificate of Designation, which shall be an exhibit to the
Subscription Agreement, shall be equally divided into two classes: (a) $4
million of Class A Preferred Stock, convertible at a Twenty Per Cent (20%)
discount to the average high closing bid price for the five consecutive trading
days ending two days before the date of conversion, with a maximum conversion
price of $2.00, and (b) Class B Preferred Stock, convertible at a Twenty Per
Cent (20%) discount to the average high closing bid price for the five (5)
trading days ending two days before the date of Conversion, with a maximum
conversion price of $2.25 and a minimum conversion price of $1.50.
1. Services of Rendered.
(a) The Company hereby retains Baytree and authorizes Baytree to act
as its exclusive agent in connection with the placement of the Securities
pursuant to the exemption from registration under the Securities Act of 1933,
as amended (the "Act"), provided by Regulation S promulgated under the Act
("Regulation S") and subject to the terms of this Agreement. Such appointment
shall be effective for a period of 10 days form the date of this letter. In
the event of successful completion of half of the financing (the Class A
Preferred Stock) within the 10 days specified above, the Company shall extend
the term of Baytree's exclusive agreement for Regulation S for an additional 10
days. The initial 10 day period and, if applicable, the additional 10 day
period, is hereinafter referred to as the "Offering Period". Baytree shall not
be deemed an agent of the Company for any other purpose. The Company agrees
that until the termination of this engagement letter and if the full financing
is timely completed, for a period of 60 days following such completion, it will
not, directly or indirectly, seek to arrange or place any equity, debt or
convertible security financing, without the express written consent of Baytree.
Baytree hereby consents to Allen and Company or its agent or client doing a one
million dollar private placement for the Company.
<PAGE> 2
REDDI BRAKE SUPPLY CORP. Page 2 March 22, 1996
The proceeds shall be deposited with an escrow agent in a special segregated
account (the "Escrow Account") pursuant to an escrow agreement to be entered
into between Baytree, the Company and an Attorney agreed upon by both Baytree
and the Company, and shall be paid, less Baytree's Placement Fee and Expense
Allowance (each as defined in Paragraph 2 below), to the Company at a closing
or closings held with respect to the sale of the Securities (each a "Closing")
against delivery of the appropriate amount of Securities sold.
(b) It is contemplated that Baytree, on the terms and conditions set
forth herein, and subject to performance by the Company of all its obligations
hereunder, the completeness and accuracy of the Company's representations and
warranties set forth herein, and satisfactory completion of Baytree's due
diligence review, will use its reasonable best efforts to place the Securities
during the Offering Period (defined in Paragraph 1(a) above). Baytree shall
cause each person who seeks to purchase Securities to complete a subscription
agreement containing customary representations, warranties and other
information. The Company shall have the right to review each such subscription
agreement prior to its agreement to sell Securities to such person; provided,
however, that the Company shall accept the subscriptions from each subscriber
who executes a subscription agreement indicating to the Company's reasonable
satisfaction that it is a foreign "non-United States" person who complies with
the requirements for purchase under Regulation S. This engagement letter does
not constitute an understanding or a commitment, express or implied, by Baytree
to provide the Financing from its own account.
2. Fees and Expenses.
(a) As compensation for placing the Securities, the Company shall pay
Baytree a placement fee equal to 10% (the "Placement Fee") of the gross
proceeds from the sale of the Securities placed by Baytree. The Placement Fee
with respect to each sale of Securities shall be payable in cash from the
escrow account concurrently with each Closing.
(b) In addition to any other fees payable to Baytree hereunder, if at any
time commencing with the date hereof and ending 18 months after termination of
this letter or the Closing (whichever is later) a party introduced to the
Company by Baytree shall purchase or commit to purchase securities of the
Company (which commitment the Company shall have accepted or shall subsequently
accept), Baytree shall receive as compensation the Placement Fee and Agent's
Warrants (defined in Paragraph (c) below) that would have been payable and
issuable had such purchases occurred in connection with the Financing,
regardless of the type of securities so purchased or the form of payment
therefor.
<PAGE> 3
REDDI BRAKE SUPPLY CORP. Page 3 March 22, 1996
(c) The Company shall sell and issue to Baytree at the Closing, Common
Stock purchase warrants ("Agent's Warrants") at a nominal price ($.001 per
warrant), which shall entitle the holders to purchase at any time during the
five years following the first anniversary of the Closing, an aggregate amount
of shares of Common Stock equal to 6% of the Securities issued in connection
with the Closing. The Agent's Warrants exercise price shall be equal to 110%
of the price at which the Securities are sold in the Financing and the Agent's
Warrants shall contain such other terms and provisions as are customary for
such Warrants including, but not limited to, anti-dilution provisions and
registration rights satisfactory to Baytree and its counsel.
(d) It shall be the Company's obligation to bear all of its own expenses
in connection with the proposed Financing, including, but not limited to the
following: printing and duplication costs, postage and mailing expenses with
respect to the transmission of Offering Materials (defined in Paragraph 4
below), registrar and transfer agent fees, counsel and accounting fees, and
issue and transfer taxes. The purchasers, placement agent and the Company
shall each bear the cost of their own attorneys. In addition, the Company
shall pay to Baytree a non-accountable expense allowance of 1% of the gross
proceeds to be paid at closing. Baytree shall bear the cost of any expenses in
excess of the 1% mentioned above incurred by it.
3. Obligations Limited. Baytree shall be under no obligation to make an
independent investigation or inquiry as to any information regarding the
Company or any representations of the Company and shall have no liability in
regard thereto.
4. Offering Materials.
(a) The Company has delivered to offering materials which include all
filings made with the Securities and Exchange Commission since the beginning of
the Company's last completed fiscal year and all other requested information
with respect to the business and properties of the Company and any recent
developments. Such offering materials (the "Offering Materials") comply with
all applicable securities laws. The Company will be solely responsible for the
contents of the Offering Material and any other written information provided to
any offeree with the prior approval of the Company, and the Company represents
that the Offering Materials will not, as of the date of the offer or sale of
any Securities, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading. The Company
agrees to advise Baytree promptly of the occurrence of any event or any other
change, which results in the Offering Materials containing any untrue statement
of a material fact or omitting to state any material fact necessary in order to
make the
<PAGE> 4
REDDI BRAKE SUPPLY CORP. Page 4 March 22, 1996
statements contained therein, in light of the circumstances under which they
were made, not misleading. The Company authorizes Baytree to provide the
Offering Materials in the form provided by the Company to prospective
purchasers of Securities. The Company shall also provided a short overview,
all press releases issued within the last twelve months and any current
brochures or relevant literature, including the last form 10K and forms 10Q
filed since the last 10K.
(b) The Company and Baytree shall have the right to approve the Offering
Materials and any other written communications from the Company or any person
acting on its behalf, which could be deemed to constitute offering materials in
connection with the offer and sale of the Securities.
(c) The Company's financial and operational history, its capitalization,
its present condition, financial and otherwise, assets and prospects, shall be
as represented to Baytree in the written material delivered to Baytree by the
Company. The Company shall supply Baytree with such financial statements,
contracts and other corporate records and documents as Baytree shall deem
necessary and it shall supply Baytree's counsel with all financial statements,
contracts, documents and other corporate papers as may be reasonably requested.
In addition, Baytree shall be promptly and fully informed by the Company of any
events which might have a material effect on the financial condition, results
of operations, assets or prospects of the Company.
5. Representations, Warranties, and Covenants.
(a) The Company represents and warrants that this letter has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms except that enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or affecting the
enforcement of creditors' rights generally and by general equity principles.
The Company further represents and warrants that consummation of the
transactions contemplated herein will not conflict with or result in a breach of
any of the terms, provisions or conditions of any written agreement to which it
is a party.
(b) The Company has not offered the Securities in the United States and no
"directed selling efforts" (as defined in Rule 902 (b) of Regulations) have been
made in the United States. Subject to the requirements of law, the Company
shall not make any public announcement of the Financing without the prior
written consent of Baytree and in any event, shall make no such disclosure which
could be deemed to cause the exemption from registration provided by Regulation
S to become inapplicable.
<PAGE> 5
REDDI BRAKE SUPPLY CORP. Page 5 March 22, 1996
6. Termination Payments. Neither Baytree nor the Company shall be
responsible for any expense of the other for any charges or claims related to
the proposed Financing or otherwise if the sale of Securities contemplated by
this letter is not consummated. All fees shall be paid at closing.
7. Indemnity; Contribution.
(a) The Company agrees to indemnify and hold harmless Baytree, and each
person, if any, who controls Baytree and their respective employees, officers
and directors, their affiliates and any controlling person of any of them (each
an "indemnified party") from and against all claims, damages, losses,
liabilities, costs and expenses (collectively, for purposes of this
subparagraph (a), "liabilities" as the same are incurred (including, without
limitation, any actual, legal or other expenses reasonably incurred in
connection with investigating, preparing to defend or defending against any
action, claim, suit or proceeding (including an investigation) commenced or
threatened, or in appearing or preparing for appearance as a witness in any
action, suit or proceeding (including any investigation or pretrial proceeding
such as a deposition) which arises out of or in connection with this engagement
letter, the performance of any services pursuant to this engagement letter or
the Financing contemplated hereby, except in any event liabilities to the
extent they arise out of or in connection with the use of information included
in the Offering Materials which concern Baytree as regards the plan of
distribution of the Securities and which was provided in writing to the Company
by Baytree for inclusion therein. Baytree indemnifies and holds harmless the
Company for any statement made that is not in conformity with the due diligence
material described in Section 4 above or any material prepared by Baytree
specifically for inclusion in the Offering Materials.
(b) The party seeking indemnification shall promptly notify the Company,
or Baytree, as the case may be, by letter or telecopy or telegram, confirmed by
letter, of any claim, suit, action or proceeding commenced or threatened to be
commenced against such indemnified party promptly after such indemnified party
shall have received actual notice thereof; provided, however that the failure
by any indemnified party to give such notice shall not relieve any indemnifying
party of its obligations hereunder except to the extent of actual prejudice
directly resulting from such failure. The Company shall not be required to
make reimbursement or payment of any settlement effected without its prior
written consent, which consent shall not be unreasonably withheld.
(c) In the event of the assertion against any indemnified party of any
such claim or the commencement of any such suit, action or proceeding, the
Company, or Baytree, as the case may be, shall be entitled to participate in
such suit, action or proceeding, and in the investigation of such claim, and,
after written notice from the Company, or Baytree, as the case may be, to the
indemnified party, to assume the investigation or defense of such claim,
<PAGE> 6
REDDI BRAKE SUPPLY CORP. Page 6 March 22, 1996
suit, action or proceeding with counsel of its choice at is expense; provided,
however, that such counsel shall be reasonably satisfactory to the indemnified
party. Notwithstanding the election of the Company, or Baytree, as the case
may be, to assume the defense or investigation of such claim, suit, action or
proceeding, the indemnified party shall have the right to employ separate
counsel and to participate in the defense or investigation of such claim, suit,
action or proceeding, and the Company, or Baytree, as the case may be, shall
bear the expense of one such separate counsel, if (i) counsel to the
indemnified party in good faith advises the indemnified party that use of
counsel chosen by the Company, or Baytree, as the case may be, could give rise
to a conflict of interest and both are parties to the suit, (ii) the Company,
or Baytree, as the case may be, shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of any such litigation or
proceeding, or (iii) the Company, or Baytree, as the case may be, shall
authorize the indemnified party to employ separate counsel at the expense of
the Company, or Baytree, as the case may be.
(d) If for any reason the foregoing indemnification is unavailable to the
indemnified party or insufficient to hold the indemnified party harmless, then
the Company, or Baytree, as the case may be, shall contribute to the amount
paid or payable by the indemnified party as a result of such claim, suit,
action, proceeding, damage, loss, liability, cost or expense for which
indemnification is contemplated by paragraphs (a) and (b) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the other party or parties on the other hand in
connection with the matters covered by this engagement letter, or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits received
by the parties from the placement of the Securities, but also the relative
fault of the parties in connection with the statements or omissions which
resulted in such claims, suits, actions, proceedings, damages, losses,
liabilities, costs or expenses, as well as any relevant equitable
consideration. The relative benefits received by the Company on the one hand
and Baytree on the other shall be deemed to be in the same proportion as the
total proceeds from the placement of the Securities (net of the fees and
expenses paid to Baytree pursuant to Paragraph 2), received by the Company
bears to the fees received by Baytree pursuant to Paragraph 2. Relative fault
of the Company, on the one hand, and of Baytree, on the other, shall be
determined by reference to, among other things, the parties' relative intent,
knowledge and opportunity to correct or prevent such statement or omissions.
8. Notices. Any notice or other communication to be given to the Company
hereunder may be given by delivering the same in writing to the address set
forth above, and any notice or other communication to be given to Baytree may
be given by delivering the same to Baytree Associates, Incorporated, 50 Broad
Street, New York, New York 10004, Attention: Michael Gardner, President, or in
each case, such other address of which a party shall have received notice. Any
notice or other communication hereunder shall be deemed given three
<PAGE> 7
REDDI BRAKE SUPPLY CORP. Page 7 March 22, 1996
days after deposit in the mail if mailed by certified mail, return receipt
requested, or on the day after deposit with an overnight courier service for
next day delivery, or on the date personally delivered.
9. Miscellaneous. This letter sets forth the entire understanding of Baytree
and the Company concerning the subject matter hereof and supersedes any prior
communications, understandings and agreements between the
parties. This letter cannot be changed, nor can any of its provisions be
waived, except by a writing signed by Baytree and the Company. This letter
shall be governed by the laws of the State of New York without regard to its
conflict of laws provisions. The headings contained in this letter are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof. This letter may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Please execute a copy of this letter to confirm your agreement in
connection with the proposed offering referred to herein. This letter
constitutes a letter of intent only and except for Paragraphs 2, 6 and 7 hereof
no provision of this letter shall be binding on any party unless the financing
is consummated. You acknowledge and agree that there shall be no binding
commitment upon either Baytree or the Company to proceed with the Financing.
Very truly yours,
BAYTREE ASSOCIATES, INCORPORATED
By:________________________________________
Michael Gardner, President
The terms set forth in the foregoing
letter are agreed to and accepted by us:
REDDI BRAKE SUPPLY CORP.
By:__________________________________
Gerald Birin, CFO
<PAGE> 1
EXHIBIT 10.(B)
BAYTREE ASSOCIATES, INC.
INVESTMENT BANKERS
50 BROAD STREET
NEW YORK, NEW YORK 10004
212/509-1700 * FACSIMILE 212/363-4231
CONFIDENTIAL
May 7, 1996
Reddi Brake Supply Corp
1376 Walter Street
Ventura, CA 93003
Attention: Gerald Birin, CFO
Dear Mr. Birin:
This letter confirms that Reddi Brake Supply Corp ("the Company") has
retained Baytree Associates, Incorporated ("Baytree") on the terms and
conditions set forth herein, as the Company's exclusive agent to arrange
financing (the "Financing") for the Company. It is contemplated that the
Financing will consist of 550,000 shares of Class B Convertible Preferred
stock having an initial issue price of $10.00 per share (the "Class B Shares").
The Class B Shares will carry a four per cent (4%) dividend payable, at the
Company's option, in common stock.
The Class B Shares are more fully described by the Certificate of
Designation, which shall be an exhibit to the Subscription Agreement, which
shall be convertible at a Twenty Per Cent (20%) discount to the average high
closing bid price for the five consecutive trading days ending two days before
the date of conversion, with a maximum conversion price of $2.25. The Class B
Shares surrendered for conversion may, in lieu of conversion, be called by the
Company, if the per share price of the common stock drops below $1.25, at a
premium of Fifteen (15%) Per Cent over the initial issue price. These shares
are to be placed within a ten day period. This period is to begin upon
Baytree's receipt of the revised Certificate of Designation being supplied to
Baytree.
1. Services to be Rendered.
(a) The Company hereby retains Baytree and authorizes Baytree to act
as its exclusive agent in connection with the placement of the Securities
pursuant to the exemption from registration under the Securities Act of 1933,
as amended (the "Act"), provided by Regulation S promulgated under the Act
("Regulation S") and subject to the terms of this
<PAGE> 2
REDDI BRAKE SUPPLY CORP. Page 2 May 7, 1996
Agreement. Such appointment shall be effective for a period of 10 days from
the date of delivery to Baytree by the Company of the revised Certificate of
Designation (the "Offering Period"). Baytree shall not be deemed an agent of
the Company for any other purpose. The Company agrees, in addition to and
without limiting any such rights given to Baytree by the Company contained in
prior agreements, that until the termination of this engagement letter and for
a period of 60 days following the completion of the full amount of the
financing it will not, directly or indirectly, seek to arrange or place any
equity, debt or convertible security financing, without the express written
consent of Baytree.
The proceeds shall be deposited with an escrow agent in a special segregated
account (the "Escrow Account") pursuant to an escrow agreement to be entered
into between Baytree, the Company and an Attorney agreed upon by both Baytree
and the Company, and shall be paid, less Baytree's Placement Fee and Expense
Allowance (each as defined in Paragraph 2 below), to the Company at a closing
or closings held with respect to the sale of the Securities (each a "Closing")
against delivery of the appropriate amount of Securities sold.
(b) It is contemplated that Baytree, on the terms and conditions set
forth herein, and subject to performance by the Company of all its obligations
hereunder, the completeness and accuracy of the Company's representations and
warranties set forth herein, and satisfactory completion of Baytree's due
diligence review, will use its reasonable best efforts to place the Securities
during the Offering Period (defined in Paragraph 1(a) above). Baytree shall
cause each person who seeks to purchase Securities to complete a subscription
agreement containing customary representations, warranties and other
information. The Company shall have the right to review each such subscription
agreement prior to its agreement to sell Securities to such person; provided,
however, that the Company shall accept the subscriptions from each subscriber
who executes a subscription agreement indicating to the Company's reasonable
satisfaction that it is a foreign "non-United States" person who complies with
the requirements for purchase under Regulation S. This engagement letter does
not constitute an understanding or a commitment, express or implied, by Baytree
to provide the Financing from its own account.
<PAGE> 3
REDDI BRAKE SUPPLY CORP. Page 3 May 7, 1996
2. Fees and Expenses.
(a) As compensation for placing the Securities, the Company shall pay
Baytree a placement fee equal to 10% (the "Placement Fee") of the gross
proceeds from the sale of the Securities placed by Baytree. The Placement Fee
with respect to each sale of Securities shall be payable in cash from the
escrow account concurrently with each Closing.
(b) In addition to any other fees payable to Baytree hereunder, if at any
time commencing with the date hereof and ending 18 months after termination of
this letter or the Closing (whichever is later) a party introduced to the
Company by Baytree shall purchase or commit to purchase securities of the
Company (which commitment the Company shall have accepted or shall subsequently
accept), Baytree shall receive as compensation the Placement Fee and Agent's
Warrants (defined in Paragraph (c) below) that would have been payable and
issuable had such purchases occurred in connection with the Financing,
regardless of the type of securities so purchased or the form of payment
therefor. For the same period, the Company hereby grants to Baytree a right of
first refusal for any financing proposed by the Company or any of its
subsidiaries except in secured institutional lending.
(c) The Company shall sell and issue to Baytree at the Closing, Common
Stock purchase warrants ("Agent's Warrants") at a nominal price ($.001 per
warrant), which shall entitle the holders to purchase at any time during the
five years following the first anniversary of the Closing, an aggregate amount
of shares of Common Stock equal to 6% of the Securities issued in connection
with the Closing. The Agent's Warrants exercise price shall be equal to 110%
of the price at which the Securities are sold in the Financing and the Agent's
Warrants shall contain such other terms and provisions as are customary for
such Warrants including, but not limited to, anti-dilution provisions and
registration rights satisfactory to Baytree and its counsel.
(d) It shall be the Company's obligation to bear all of its own expenses
in connection with the proposed Financing, including, but not limited to the
following: printing and duplication costs, postage and mailing expenses with
respect to the transmission of Offering Materials (defined in Paragraph 4
below), registrar and transfer agent fees, counsel and accounting fees, and
issue and transfer taxes. The purchasers, placement agent and the Company
shall each bear the cost of their own attorneys. In addition, the Company
shall pay to Baytree a non-accountable expense allowance of 1% of the gross
<PAGE> 4
REDDI BRAKE SUPPLY CORP. Page 4 May 7, 1996
proceeds to be paid at closing. Baytree shall bear the cost of any expenses in
excess of the 1% mentioned above incurred by it.
3. Obligations Limited. Baytree shall be under no obligation to make an
independent
investigation or inquiry as to any information regarding the Company or any
representations of the Company and shall have no liability in regard thereto.
4. Offering Materials.
(a) The Company has delivered to Baytree offering materials included all
filings made with the Securities and Exchange Commission since the beginning of
the Company's last completed fiscal year and all other requested information
with respect to the business and properties of the Company and any recent
developments. Such offering materials (the "Offering Materials") shall comply
with all applicable securities laws. The Company will be solely responsible
for the contents of the Offering Material and any other written information
provided to any offeree with the prior approval of the Company, and the Company
represents that the Offering Materials will not, as of the date of the offer or
sale of any Securities, contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading. The
Company agrees to advise Baytree promptly of the occurrence of any event or any
other change, which results in the Offering Materials containing any untrue
statement of a material fact or omitting to state any material fact necessary
in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. The Company
authorizes Baytree to provide the Offering Materials in the form provided by
the Company to prospective purchasers of Securities. The Company shall also
provide a short overview, all press releases issued within the last twelve
months and any current brochures or relevant literature.
(b) The Company and Baytree shall have the right to approve the Offering
Materials and any other written communications from the Company or any person
acting on its behalf, which could be deemed to constitute offering materials in
connection with the offer and sale of the Securities.
(c) The Company's financial and operational history, its capitalization,
its present condition, financial and otherwise, assets and prospects, shall be
as represented to Baytree
<PAGE> 5
REDDI BRAKE SUPPLY CORP. Page 5 May 7, 1996
in the written material delivered to Baytree by the Company. The Company shall
supply Baytree with such financial statements, contracts and other corporate
records and documents as Baytree shall deem necessary and it shall supply
Baytree's counsel with all financial statements, contracts, documents and other
corporate papers as may be reasonably requested. In addition, Baytree shall be
promptly and fully informed by the Company of any events which might have a
material effect on the financial condition, results of operations, assets or
prospects of the Company.
5. Representations, Warranties, and Covenants.
(a) The Company represents and warrants that this letter has been
duly authorized, executed and delivered by the Company and constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms except that enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or
affecting the enforcement of creditors' rights generally and by general equity
principles. The Company further represents and warrants that consummation of
the transactions contemplated herein will not conflict with or result in a
breach of any of the terms, provisions or conditions of any written agreement
to which it is a party.
(b) The Company has not offered the Securities in the United States
and no directed selling efforts have been made in the United States which could
reasonably be expected to result in general preconditioning of the United
States market for the Securities. Subject to the requirements of law, the
Company shall not make any public announcement of the Financing without the
prior written consent of Baytree and in any event, shall make no such
disclosure which could be deemed to cause the exemption from registration
provided by Regulation S to become inapplicable.
(c) The Company will utilize the proceeds of the offering for general
corporate purpose and will not directly or indirectly pay proceeds to officers,
directors or affiliates of any of them, including the repayment of
indebtedness, without the express written consent of Baytree.
6. Termination Payments. Neither Baytree nor the Company shall be
responsible for any expense of the other for any charges or claims related to
the proposed Financing or otherwise if the sale of Securities contemplated by
this letter is not consummated. All fees shall be paid at closing.
<PAGE> 6
REDDI BRAKE SUPPLY CORP. Page 6 May 7, 1996
7. Indemnity; Contribution.
(a) The Company agrees to indemnify and hold harmless Baytree, and each
person, if any, who controls Baytree and their respective employees, officers
and directors, their affiliates and any controlling person of any of them (each
an "indemnified party") from and against all claims, damages, losses,
liabilities, costs and expenses (collectively, for purposes of this
subparagraph (a), "liabilities" as the same are incurred (including, without
limitation, any actual, legal or other expenses reasonably incurred in
connection with investigating, preparing to defend or defending against any
action, claim, suit or proceeding (including an investigation) commenced or
threatened, or in appearing or preparing for appearance as a witness in any
action, suit or proceeding (including any investigation or pretrial proceeding
such as a deposition) which arises out of or in connection with this engagement
letter, the performance of any services pursuant to this engagement letter or
the Financing contemplated hereby, except in any event liabilities to the
extent they arise out of or in connection with the use of information included
in the Offering Materials which Baytree as regards the plan of distribution of
the Securities and which was provided in writing to the Company by Baytree for
inclusion therein. Baytree indemnifies and holds harmless the Company for any
statement made that is not in conformity with the due diligence material
described in Section 4 above or any material prepared by Baytree specifically
for inclusion in the Offering Materials.
(b) The party seeking indemnification shall promptly notify the Company
by letter or telecopy or telegram, confirmed by letter, of any claim, suit,
action or proceeding commenced or threatened to be commenced against such
indemnified party promptly after such indemnified party shall have received
actual notice thereof; provided, however that the failure by any indemnified
party to give such notice shall not relieve any indemnifying party of its
obligations hereunder except to the extent of actual prejudice directly
resulting from such failure. The Company shall not be required to make
reimbursement or payment of any settlement effected without its prior written
consent, which consent shall not be unreasonably withheld.
(c) In the event of the assertion against any indemnified party of any
such claim or the commencement of any such suit, action or proceeding, the
Company shall be entitled to participate in such suit, action or proceeding,
and in the investigation of such claim, and, after written notice from the
Company to the indemnified party, to assume the investigation or defense of
such claim, suit, action or proceeding with counsel of its choice at is
expense; provided, however, that such counsel shall be reasonably satisfactory
to the
<PAGE> 7
REDDI BRAKE SUPPLY CORP. Page 7 May 7, 1996
indemnified party. Notwithstanding the election of the Company to assume the
defense or investigation of such claim, suit, action or proceeding, the
indemnified party shall have the right to employ separate counsel and to
participate in the defense or investigation of such claim, suit, action or
proceeding, and the Company shall bear the expense of one such separate
counsel, if (I) counsel to the indemnified party in good faith advises the
indemnified party that use of counsel chosen by the Company could give rise to
a conflict of interest and both are parties to the suit, (ii) the Company shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
institution of any such litigation or proceeding, or (iii) the Company shall
authorize the indemnified party to employ separate counsel at the expense of
the Company.
(d) If for any reason the foregoing indemnification is unavailable to the
indemnified party or insufficient to hold the indemnified party harmless, then
the Company shall contribute to the amount paid or payable by the indemnified
party as a result of such claim, suit, action, proceeding, damage, loss,
liability, cost or expense for which indemnification is contemplated by
paragraphs (a) and (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
other party or parties on the other hand in connection with the matters covered
by this engagement letter, or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the parties from the
placement of the Securities, but also the relative fault of the parties in
connection with the statements or omissions which resulted in such claims,
suits, actions, proceedings, damages, losses, liabilities, costs or expenses,
as well as any relevant equitable consideration. The relative benefits
received by the Company on the one hand and Baytree on the other shall be
deemed to be in the same proportion as the total proceeds from the placement of
the Securities (net of the fees and expenses paid to Baytree pursuant to
Paragraph 2), received by the Company bears to the fees received by Baytree
pursuant to Paragraph 2. Relative fault of the Company, on the one hand, and
of Baytree, on the other, shall be determined by reference to, among other
things, the parties' relative intent, knowledge and opportunity to correct or
prevent such statement or omissions.
8. Notices. Any notice or other communication to be given to the Company
hereunder may be given by delivering the same in writing to the address set
forth above, and any notice or other communication to be given to Baytree may
be given by delivering the same to Baytree Associates, Incorporated, 50 Broad
Street, New York, New York 10004, Attention: Michael Gardner, President, or in
each case, such other address of which a
<PAGE> 8
REDDI BRAKE SUPPLY CORP. Page 8 May 7, 1996
party shall have received notice. Any notice or other communication hereunder
shall be deemed given three days after deposit in the mail if mailed by
certified mail, return receipt requested, or on the day after deposit with an
overnight courier service for next day delivery, or on the date personally
delivered.
9. Miscellaneous. This letter sets forth the entire understanding of Baytree
and the Company concerning the subject matter hereof and supersedes any prior
communications, understandings and agreements between the parties. This letter
cannot be changed, nor can any of its provisions be waived, except by a writing
signed by Baytree and the Company. This letter shall be governed by the laws
of the State of New York without regard to its conflict of laws provisions.
The headings contained in this letter are for reference purposes only and shall
not affect in any way the meaning or interpretation of the provisions hereof.
This letter may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Please execute a copy of this letter to confirm your agreement in
connection with the proposed offering referred to herein. This letter
constitutes a letter of intent only and except for Paragraphs 2, 6 and 7 hereof
no provision of this letter shall be binding on any party unless the financing
is consummated. You acknowledge and agree that there shall be no binding
commitment upon either Baytree or the Company to proceed with the Financing.
Very truly yours,
BAYTREE ASSOCIATES, INCORPORATED
By:________________________________________
Michael Gardner, President
The terms set forth in the foregoing
letter are agreed to and accepted by us:
REDDI BRAKE SUPPLY CORP.
By:__________________________________
Gerald Birin, CFO
<PAGE> 1
EXHIBIT 10.(c)
March 18, 1996
Reddi Brake Supply Company, Inc.
1376 Walter Street
Ventura, CA 93003
Attention: Gerald Birin, Chief Financial Officer
RE: Loan and Security Agreement Dated November 29, 1995 entered into by
and between Reddi Brake Supply Company, Inc. ("Borrower") and The CIT
Group/Credit Finance, Inc. ("Lender") (the "Agreement")
Dear Gerald:
In confirmation of our understanding, the above captioned Agreement is hereby
amended effective immediately as set forth below. To the extent of any
inconsistencies between this letter-amendment and the Agreement, the terms and
conditions set forth below shall govern. In all other respects, the Agreement
shall remain in full force and effect.
1. Section 10.5(b) is hereby amended to increase the Net Loss covenant
for the fiscal year ended June 1996 from "$1,000,000.00" to
"$1,000,000.00 plus amount of equity infusion and additional
subordinated debt received from investors during Borrower's 1996
fiscal year."
With respect to the imminent receipt of the capital infusion anticipated by
Borrower, Lender hereby consents to the delivery of all such proceeds directly
to Borrower and waives, on this occasion only, the requirement, if any, that
such proceeds be delivered to Lender.
Very truly yours,
The CIT Group/
Credit Finance, Inc.
Terry Shope
Assistance Vice President
All of the foregoing is hereby accepted and agreed to.
Reddi Brake Supply Company, Inc.
S. Gerald Birin
CFO & Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 8,358,851
<ALLOWANCES> 416,647
<INVENTORY> 19,735,842
<CURRENT-ASSETS> 26,624,612
<PP&E> 6,416,813
<DEPRECIATION> 2,172,961
<TOTAL-ASSETS> 34,243,051
<CURRENT-LIABILITIES> 18,976,722
<BONDS> 8,879,306
1,654
0
<COMMON> 0
<OTHER-SE> 6,816,568
<TOTAL-LIABILITY-AND-EQUITY> 34,243,051
<SALES> 45,321,306
<TOTAL-REVENUES> 45,321,306
<CGS> 27,063,819
<TOTAL-COSTS> 16,401,169
<OTHER-EXPENSES> 5,426,893
<LOSS-PROVISION> 141,647
<INTEREST-EXPENSE> 964,382
<INCOME-PRETAX> (4,534,957)
<INCOME-TAX> 15,000
<INCOME-CONTINUING> (4,549,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,549,957)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
