<PAGE> 1
FORM 10-QSB
U.S. Securities and Exchange Commission
Washington D. C., 20549
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from__________ to ___________.
Commission file number 0-20924
RECONDITIONED SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
ARIZONA 86-0576290
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
</TABLE>
444 WEST FAIRMONT, TEMPE, ARIZONA 85282
(Address of principal executive offices)
602-968-1772
(Issuer's telephone number)
-------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 8, 1996, the number of
shares outstanding of the Registrant's common stock and Class B Warrants were
1,473,788 and 250,000, respectively.
<PAGE> 2
PART 1 - FINANCIAL STATEMENTS
ITEM 1
RECONDITIONED SYSTEMS, INC.
UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
2
<PAGE> 3
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 257,829
Accounts receivable - trade, net of allowance
for doubtful accounts of $24,938 592,551
Inventory 1,027,066
Prepaid expenses and other current assets 200,965
---------
TOTAL CURRENT ASSETS 2,078,411
PROPERTY AND EQUIPMENT:
Machinery and equipment 216,311
Office furniture and equipment 241,399
Leasehold improvements 35,620
Vehicles 13,632
-------
506,962
Accumulated depreciation 301,731 205,231
-------
OTHER ASSETS:
Refundable deposits 14,649
Other 28,301 42,950
------- ---------
2,326,592
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 4) 527,374
Current maturities of long-term debt 49,049
Accounts payable 308,900
Accrued expenses and other current liabilities 138,332
---------
TOTAL CURRENT LIABILITIES 1,023,655
LONG-TERM DEBT, LESS CURRENT MATURITIES 58,298
STOCKHOLDERS' EQUITY 1,244,639
---------
2,326,592
=========
</TABLE>
3
<PAGE> 4
RECONDITIONED SYSTEMS, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 2,123,621 1,408,927 4,975,036 3,296,414
Cost of sales 1,757,799 1,060,075 4,047,083 2,513,108
---------- ---------- ---------- ----------
Gross profit 365,822 348,852 927,953 783,306
Selling & administrative expenses 636,593 295,327 1,227,778 600,313
Restructuring charges 1,434,028 0 1,434,028 0
---------- ---------- ---------- ----------
Income (loss) from operations (1,704,799) 53,525 (1,733,853) 182,993
---------- ---------- ---------- ----------
Other income (expense):
Interest income 769 3,210 825 4,532
Interest expense (28,656) (29,681) (54,785) (59,659)
Other 19,197 (28) 22,928 0
---------- ---------- ---------- ----------
(8,690) (26,499) (31,032) (55,127)
---------- ---------- ---------- ----------
Net income (loss) (1,713,489) 27,026 (1,764,885 127,866
========== ========== ========== ==========
Earnings (loss) per common
and common equivalent share* (1.17) .02 (1.21) .08
========== ========== ========== ==========
Weighted average number
of shares outstanding 1,465,308 1,569,430 1,463,189 1,522,805
========== ========== ========== ==========
</TABLE>
* -The 1995 losses per share have been restated to give retroactive effect to
the reorganization of the Company's capital structure (See Note 2).
4
<PAGE> 5
RECONDITIONED SYSTEMS, INC.
- -------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE EIGHTEEN MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON COMMON PREFERRED PREFERRED RETAINED TREASURY
STOCK STOCK STOCK STOCK EARNINGS STOCK TOTAL
SHARES AMOUNT SHARES AMOUNT (DEFICIT) (134 SHARES) -----
------ ------ ------ ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
MARCH 31, 1995 1,533,000 2,445,618 555,555 2,156,717 (1,737,266) (3,754) 2,861,315
PURCHASE OF
CORPORATE 76,300
UPHOLSTERY,
INC
CONVERSION OF
REDEEMABLE 12,000 43,525 43,525
COMMON STOCK
NET LOSS (1,728,052) (1,728,052)
BALANCE AT
MARCH 31, 1996 1,621,300 2,489,143 555,555 2,156,717 (3,465,318) (3,754) 1,176,788
CONVERSION OF
PREFERRED STOCK 7,222,228 2,096,702 (555,555) (2,156,717) (60,015)
TO COMMON
STOCK, NET OF
COSTS OF $60,015
(NOTE 2)
REVERSE SPLIT OF
COMMON STOCK (7,369,606) 0
(NOTE 2)
NET INCOME 127,866 127,866
---------- --------- --------- ----------- ---------- ------ ---------
BALANCE AT
SEPTEMBER 31, 1,473,922 4,585,845 0 0 (3,337,452) (3,754) 1,244,639
1996
</TABLE>
5
<PAGE> 6
RECONDITIONED SYSTEMS, INC.
- -------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash and cash equivalents
provided (used) by operating
activities 529,636 249,257 535,040 (3,550)
Cash and cash equivalents
used by investing
activities (6,077) (15,838) (6,077) (20,795)
Cash and cash equivalents
provided (used) by financing
activities (445,564) (169,530) (436,341) 181,476
-------- -------- -------- --------
Increase in cash
and cash equivalents 77,995 63,889 92,622 157,131
Cash and cash equivalents,
beginning of period 104,185 193,940 89,558 100,698
-------- -------- -------- --------
Cash and cash equivalents,
end of period 182,180 257,829 182,180 257,829
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
RECONDITIONED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION:
The accompanying Statement of Operations for the three and six months
ended September 30, 1995, Statement of Stockholders' Equity for the
year ended March 31, 1996, and Statement of Cash Flows for the three
and six months ended September 30, 1995, are consolidated statements
and include all of the accounts of the Company and its wholly-owned
subsidiaries: RSI Integrated Parts, Inc., RSI Acquisitions, Inc.,
Corporate Upholstery, Inc., and Facility Options Group, Inc. All
intercompany accounts and transactions were eliminated in the
consolidation of these statements. All of the aforementioned
subsidiaries were closed as of March 31, 1996, and, as such, the
accompanying Balance Sheet as of September 30, 1996, Statement of
Operations for the six months ended September 30, 1996, Statement of
Stockholders' Equity for the three and six months ended September 30,
1996, and Statement of Cash Flows for the six months ended September
30, 1996, include only the accounts and transactions of the Company.
INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are necessary in order to make the financial statements not
misleading. Operating results for the six months ended September 30,
1996, are not necessarily indicative of the results that may be
expected for the entire year ending March 31, 1997. These financial
statements have been prepared in accordance with the instructions to
Form 10-QSB and do not contain certain information required by
generally accepted accounting principles. These statements should be
read in conjunction with financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended March 31,
1996.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
The computation of earnings (loss) per share is based on the net income
(loss) and the weighted average number shares of common stock and
common stock equivalents outstanding for each period. Certain stock
options outstanding are considered common stock equivalents during the
reporting quarter and period, and were accounted for under the Treasury
Stock method. These stock options were not included in the computation
of earnings (loss) per share during the comparable quarter or the
comparable period, as their effect would be antidilutive. In addition,
certain outstanding warrants are not included in the computation of
earnings (loss) per share because their effect would be antidilutive.
Fully diluted earnings per share were not materially different from
primary earnings per share. The earnings (loss) per share and the
weighted average number of shares outstanding for the periods presented
give retroactive effect to the conversion of preferred stock to common
stock and the reverse split of common stock which were effective on
August 12, 1996 (see Note 2).
7
<PAGE> 8
RECONDITIONED SYSTEMS, INC.
NOTES TO STATEMENTS (CONTINUED)
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 2.
REORGANIZATION OF CAPITAL STRUCTURE
- -------------------------------------------------------------------------------
On August 5, 1996, at the Company's annual shareholders meeting, the Company's
shareholders approved, among other things, a reorganization of the Company's
capital structure. The reorganization, which was effective on August 12, 1996,
consisted of the automatic conversion of each share of the Company's Series A
Convertible Preferred Stock, together with any and all accrued but unpaid
dividends through the conversion date, into thirteen shares of common stock and
a one-for-six reverse stock split (immediately following the preferred stock
conversion).
- -------------------------------------------------------------------------------
NOTE 3.
COMMON STOCK OPTIONS
- -------------------------------------------------------------------------------
On August 19, 1996, the Board of Directors approved the repricing of 100,000
stock options held by the Company's President and Chief Executive Officer, and
100,000 stock options held by the Company's Chief Financial Officer from $2.75
per share to $1.00 per share. In addition, at the same time, the Board issued
100,000 stock options with an exercise price of $1.00 per share to the Company's
Chairman of the Board. All of these stock options are presently exercisable;
provided, however, that the holders may not sell or otherwise transfer any
shares acquired upon exercise of the options until August 19, 1997. The Company
has agreed to register the shares issuable upon exercise of the option by filing
a registration statement on Form S-8 with the Securities and Exchange
Commission. The option exercise price equals the fair market value of the
underlying common stock on August 19, 1996.
- -------------------------------------------------------------------------------
NOTE 4.
SUBSEQUENT EVENT
- -------------------------------------------------------------------------------
Norwest Business Credit, Inc. has amended the terms of the Company's revolving
line of credit agreement. As of November 1, 1996 the applicable rate of interest
under the line of credit was reduced to the bank's base rate plus four percent
(4%), and the minimum monthly interest requirement was reduced to $4,000. In
addition, per the terms of the amendment, if the net income of the Company meets
or exceeds $200,000 for the fiscal year ended March 31, 1997, the interest rate
will be further reduced to the bank's base rate plus three percent (3%), with a
minimum monthly interest requirement of $2,500. The amendment also extended the
expiration of the revolving line of credit to February 28, 2000.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The statements contained herein which are not historical facts may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, and are subject to the safe harbors created thereby. These
forward-looking statements involve risks and uncertainties, including, but not
limited to, the Company's ability to maintain and increase current sales levels,
maintain a collection rate at or near its standard terms, and maintain annual
inventory turns of at least 4. In addition, the Company's business, operations
and financial condition are subject to substantial risks which are described in
the Company's reports and statements filed from time to time with the Securities
and Exchange Commission. These reports and statements include the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1996.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996
Reconditioned Systems, Inc. ("RSI" or the "Company") reported net income of
$27,026 for the three month period ended September 30, 1996 (hereinafter the
"reporting quarter") compared to a net loss of $1,713,489 for the three month
period ended September 30, 1995 (hereinafter the "comparable quarter"). The
improvement to the Company's net income was primarily attributable to the effect
of RSI's restructuring program which was completed and resulted in a $1,434,028
charge during the comparable quarter. The restructuring program downsized the
Company to its original form by closing all of its subsidiaries. RSI, not
including the losses of subsidiaries closed as part of its restructuring
program, had a net loss of $72,978 for the comparable quarter primarily as a
result of management's focus on the restructuring program.
The Company's revenues for the reporting quarter were $1,408,927 which
represents a $714,694 or 34% decrease from the comparable quarter. This decrease
was attributable to the downsizing that was done in conjunction with the
Company's restructuring program. RSI, excluding sales by the subsidiaries closed
as part of the restructuring, had sales of $1,152,454 for the comparable
quarter. The 22% increase in sales at RSI from the comparable to the reporting
quarters was due to unusually low sales at RSI during the comparable quarter
which resulted from management's focus on the restructuring program. During the
comparable quarter, management's time and energies were primarily focused on
closing the subsidiary operations and the entire Company was adversely affected
by the uncertainties the restructuring created.
Sales at RSI since it closed its subsidiaries were $1,493,557 for the quarter
ended December 31, 1995, $1,503,104 for the quarter ended March 31, 1996,
$1,887,487 for the quarter ended June 30, 1996, and $1,408,927 for the reporting
quarter. Management believes these fluctuations in sales are due to the
variations in the sales performance of its individual salespeople from
month-to-month, and a key to maintaining and sequentially improving sales is to
employ sufficient salespeople in expanded territories so that individual
performance becomes less critical for the Company to reach its sales goals.
Based on these beliefs, management has taken steps to further develop its sales
staff and expand into other regional markets.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
As of the beginning of the reporting period, April 1, 1996, the Company had four
salespeople focusing on the local retail market and two salespeople focusing on
non-local wholesale sales. Currently, the Company has six salespeople focusing
on the local retail market in Phoenix, one salesperson focusing on the local
retail market in Tucson, one salesperson focusing on non-local wholesale sales,
and it has created a sales manager position to train new salespeople as well as
monitor the activities of existing salespeople. The Company also plans to
increase its sales personnel within the non-local wholesale sales department.
Because training time varies from individual to individual and the success rate
of new salespeople is not 100%, there can be no assurance that the actions taken
by management to maintain or improve on the reporting quarter's sales levels
will be effective for the quarter ended December 31, 1996 or any subsequent
period. The Company intends to continue to selectively add to its sales staff
both locally and in other nearby markets.
The Company's gross profit margin during the reporting quarter was 25%, compared
with 17% for the comparable quarter. RSI's gross margin, not including the
subsidiaries closed as part of the restructuring plan for the comparable quarter
was 12%. The low margin for the comparable quarter was adversely affected by
RSI's unusually low sales in the comparable quarter where the Company's plant
was not near full capacity. Since the fixed costs associated with the plant were
then spread over less sales, the gross profit margin on these sales was less
than it is during a period in which the plant operates closer to full capacity.
The increase in the margin during the reporting quarter reflects the results of
the Company operating at a volume closer to the maximum production capacity.
The Company's selling and administrative expenses for the reporting quarter were
21% of sales as compared with 30% during the comparable quarter. This
improvement in the reporting quarter was achieved as a result of the downsizing
of the Company through implementation of its restructuring program. RSI's
selling and administrative expenses, not including the subsidiaries closed as
part of the restructuring program, were 19% during the comparable quarter. The
2% increase was a result of recent additions to the sales staff as part of
management's plan to increase and stabilize sales volume.
The Company's other income and expenses, which consist primarily of interest
expense, was $26,499 and $8,690 during the reporting and comparable quarters,
respectively, an increase of $17,809. This increase was primarily due to
miscellaneous income items earned by the subsidiary operations during the
comparable quarter.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996
The Company reported net income of $127,866 for the six month period ended
September 30, 1996 (hereinafter the "reporting period") compared to a net loss
of $1,764,885 for the six month period ended September 30, 1995 (hereinafter the
"comparable period"). RSI, not including the losses of subsidiaries closed as
part of its restructuring program, had net income of $26,391 for the comparable
period. The improvement in the Company's net income was primarily attributable
to RSI's restructuring as discussed above
The Company's revenues for the reporting period were $3,296,414 which represents
a $1,678,622 or 34% decrease over the comparable period. This decrease was
attributable to the downsizing that was done in conjunction with the Company's
restructuring program. Sales at RSI, excluding sales by the subsidiaries closed
as part of the restructuring, were $3,033,062 for the comparable period. The 9%
improvement in revenues during the reporting period was primarily a result of
the lower sales during the comparable quarter, which resulted from management's
focus on the restructuring program.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The company's gross profit margin during the reporting period was 24%, compared
with 19% for the comparable period. RSI's gross margin, not including the
subsidiaries closed as part of the restructuring plan for the comparable period
was 19%. The lower gross profit margins during the comparable period were
primarily a result of operating at levels significantly less than full capacity
during the comparable quarter.
The Company's selling and administrative expenses for the reporting period were
18% of sales as compared with 25% during the comparable period. This improvement
was also attributable to the downsizing and restructuring of the Company. RSI's
selling and administrative expenses, not including the subsidiaries closed as
part of the restructuring program, were 14% for the comparable period. The 4%
increase was a result of added personnel within the sales department.
The Company's other income and expenses, which consists primarily of interest
expenses, was $55,127 and $31,032 during the reporting and comparable periods,
respectively. This increase is primarily due to the fact that the Company's new
lender, Norwest Business Credit, Inc., is charging the Company a higher
borrowing rate than the Company's former lender. In addition, there were certain
miscellaneous income items earned by the subsidiary operations during the
comparable period.
FINANCIAL CONDITION
As a result of the net income for the reporting period and the reorganization of
the Company's capital structure that was approved at the annual shareholders
meeting on August 5, 1996, the Company's financial condition and liquidity has
improved dramatically during the reporting period. The automatic conversion of
each outstanding share of Series A Convertible Preferred Stock and accrued
dividends into 13 shares of common stock relieved the Company of accrued but
unpaid dividends of approximately $337,500 and the burden of the $56,250 per
quarter dividend going forward.
As of September 30, 1996, the Company's financial condition and liquidity is
sufficient to sustain current operating levels and pursue gradual and focused
growth. The Company has net worth of $1,244,639 and working capital of
$1,054,756. In addition, as of the date of this report, the Company has a
balance of approximately $400,000 and additional availability of approximately
$300,000 on its line of credit with Norwest Business Credit, Inc.. Since the
total availability under this line of credit agreement is based upon accounts
receivable and inventory up to a maximum amount of $1.2 million, this
arrangement should provide the Company with the short-term working capital
required for gradual growth. As of September 30, 1996, the Company was in
compliance with all of the financial convenants required by this financing
agreement.
With the elimination of the preferred stock dividend, the three items which now
primarily control the Company's financial condition and liquidity are its
results of operations, its collection of accounts receivable, and its ability to
turn inventory. The results of operations during the reporting quarter and
period were discussed above. The second item, the number of days sales in
accounts receivable as of September 30, 1996, was 33 as compared to 25 as of
March 31, 1996, and 44 as of June 30, 1996. Because the Company's standard terms
are net 30 days from existing customers and 50% down and 50% net 30 days from
new customers, the Company views the 25 days at March 31, 1996 as an anomaly and
does not expect to maintain a collection rate under 30 days in the future. For
the reporting quarter and period, the Company turned its inventory at an
annualized rate of approximately 3.8 and 4.2 times, respectively as compared to
4.7 times for the year ended March 31, 1996. The lower turns during the
reporting quarter and period are consistent with the lower sales revenues.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Company's operating activities produced positive cash flow during the
reporting quarter and a minimal amount of negative cash flow during the
reporting period. The increase in the cash provided by operating activities
during the reporting quarter was primarily attributable to net income and an
improved collection rate as compared to the previous quarter. The net income
earned during the reporting period was offset by weaker inventory turns and
collection rate than those achieved during the year ended March 31, 1996 and ,
as a result, the Company did not have positive cash flows from operating
activities during the reporting period.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceeding other than routine
litigation incidental to the business.
ITEM 2. CHANGES IN SECURITIES
Effective August 12, 1996, the Company converted its 9% Series A Convertible
Preferred Stock and accrued but unpaid dividends into Common Stock on the basis
of 13 shares of Common Stock for each share of "Preferred Stock". In addition,
the Company implemented a six-to-one reverse stock split of the Company's Common
Stock, including the shares of Common Stock into which the Preferred Stock was
converted (see below under Item 3 and 4).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During February, 1994, the Company issued 555,555 shares of Preferred Stock. The
dividend requirement on this Preferred Stock was $56,282 per quarter and the
last dividend paid was during February, 1995, resulting in an arrearage in the
amount of $337,692 as of August 1, 1996. Effective August 12, 1996, the
Preferred Stock and the accrued dividends were converted to Common Stock (see
below under Item 4).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 5, 1996, the Company held its annual shareholders meeting. The
following six proposals were presented at the meeting:
1. To consider and act upon a proposal (the "Preferred Stock Proposal") to amend
the Company's Articles of Incorporation to provide for the automatic conversion,
on August 12, 1996, of each outstanding share of the Company's Preferred Stock,
together with any and all accrued but unpaid dividends through the conversion
date, into 13 shares of the Company's Common Stock.
2. If the Preferred Stock Proposal is approved by the Stockholders, to consider
and act upon a proposal to amend the Company's Articles of Incorporation to
effect a six-to-one reverse stock split of the Company's presently issued shares
of Common Stock (including the shares of Common Stock into which the Preferred
Stock will be converted pursuant to the Preferred Stock Proposal).
3. Whether or not the Preferred Stock Proposal is approved by the Stockholders,
to consider and act upon a proposal to amend the Company's Articles of
Incorporation to make certain technical corrections and to eliminate, in certain
circumstances, the liability of directors to the Company and the Stockholders.
4. Whether or not the Preferred Stock Proposal is approved by the Stockholders,
to consider and act upon a proposal to amend and restate the Company's Bylaws.
5. To elect to the Board of Directors Wayne Collignon, Dirk Anderson, and Scott
Ryan.
6. To consider and act upon a proposal to ratify the appointment of Semple &
Cooper, PLC as the Company's independent public accountants for the fiscal year
ending March 31, 1997.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
All six proposals were passed at the meeting and the following table provides
the results of the voting:
<TABLE>
<CAPTION>
Proposal Shares Eligible Voted For Voted Against Abstentions Broker Non-Votes
- -------- --------------- --------- ------------- ----------- ----------------
Preferred Common Preferred Common Preferred Common Preferred Common Preferred Common
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 555,555 1,620,500 364,443 1,160,136 5,555 1,600 0 0 0 0
2 555,555 1,620,500 364,443 1,160,136 0 1,600 5,555 0 0 0
3 555,555 1,620,500 364,443 1,160,136 5,555 1,600 0 0 0 0
4 555,555 1,620,500 364,443 1,159,936 0 1,500 5,555 300 0 0
5(1) 555,555 1,620,500 369,998 1,160,336 0 0 0 1,400 0 0
6 555,555 1,620,500 364,443 1,161,736 0 0 5,555 0 0 0
</TABLE>
(1) The votes listed in this row were identical for Wayne Collignon, Dirk
Anderson, and Scott Ryan. Each such person was elected as a Director at the
meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith pursuant to Regulation S-B:
<TABLE>
<CAPTION>
NO. DESCRIPTION REFERENCE
- --- ----------- ---------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation (3)
3.2 Amended and Restated Bylaws (3)
4.1 Form of Stock Certificate (1)
4.2 Form of Class A and Class B Warrant (1)
4.3 Form of Series A Preferred Stock Agreement (2)
10.1 Lease Agreement, dated April 12, 1990 between Boston
Safe Deposit and Trust Company, as Lessor, and Registrant
as Lessee (1)
10.11 Purchase Agreement between Registrant and Corporate
Upholstery, Inc. (4)
10.16 Purchase Agreement between Registrant and Facility Options
Group, Inc. (5)
10.17 Loan document between National Bank of Arizona and Registrant (6)
10.18 Agreement for Surrender and Cancellation of Redemption Right
between Larry Henry and Registrant (7)
10.21* Employment Agreement between Registrant and Wayne Collignon (8)
10.22* Employment Agreement between Registrant and Dirk Anderson (8)
10.23 Third amendment to the Lease between Registrant, as Lessee,
and Newhew Associates, as Lessor (8)
10.24 Loan documents between Registrant and Norwest Business Credit (8)
10.25* Amendment to Employment Agreement between Registrant and
Wayne Collignon (9)
10.26* Amendment to Employment Agreement between Registrant and
Dirk Anderson (9)
</TABLE>
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<S> <C> <C>
10.27 Amendments to Loan document between Norwest Business
Credit and Registrant (9)
27 Financial Data Schedule
</TABLE>
(1) Filed with Registration Statement on Form S-18, No. 33-51980-L:A, under
Securities Act of 1933, as declared effective on December 17, 1992.
(2) Filed with Form 10-KSB on June 29, 1994.
(3) Filed with the Company's definitive proxy statement on July 10, 1996
(4)Filed with Form 8 amendment on May 17, 1993, amending 8-K filed on April 30,
1993
(5) Filed with Form 8-K on August 17, 1993
(6) Filed with Form 10-KSB on July 13, 1995
(7) Filed with Form 10-KSB on June 20, 1994
(8) Filed with Form 10-KSB on July 10, 1996
(9) Filed with Form 10-QSB on November 14, 1996
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended September 30, 1996.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RECONDITIONED SYSTEMS, INC.
/s/ Wayne R. Collignon
Date: November 14, 1996 _________________________________
--------------------------- Wayne R. Collignon, President and CEO
/s/ Dirk D. Anderson
Date: November 14, 1996 _________________________________
--------------------------- Dirk D. Anderson, CFO
16
<PAGE> 1
Exhibit 10.25
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into as of
the 19th day of August, 1996, between Reconditioned Systems, Inc., an Arizona
corporation (the "Company"), and Wayne R. Collignon (the "Executive").
RECITALS:
A. The Company and the Executive entered into an Employment
Agreement as of August 10, 1995 (the "Agreement").
B. The Compensation Committee of the Board of Directors of the
Company, pursuant to resolutions duly adopted at a meeting on August 19, 1996,
has directed that the Agreement be amended to provide that if the Agreement is
terminated subsequent to a Change of Control (as defined herein) either by the
new controlling party or by the Executive for Good Reason (as defined herein),
the Executive will receive a two-year consulting agreement at $100,000 per year
in addition to the severance pay already included in the Agreement.
C. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Agreement.
AGREEMENTS:
1. The Agreement is amended to add a new Section 3.4(e) which
reads in its entirety as follows:
"(e) "Change of Control" shall mean a change in ownership or
control of the Company effected through either of the following
transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders or other transaction, in any case whether or not the Board
recommends that the Company's stockholders accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (A)
<PAGE> 2
have been Board members continuously since the beginning of such period
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board. "
2. The Agreement is amended to add a new Section 4.3 which reads
in its entirety as follows:
"4.3 Termination After Change of Control by the Company or by the
Executive for Good Reason. If following a Change of Control the
Executive's employment is terminated by the Company or by the Executive
for Good Reason, the Company shall:
(a) pay the Executive the Accrued Base Salary;
(b) pay the Executive the Accrued Reimbursable Expenses;
(c) pay the Executive the Accrued Benefits;
(d) pay the Executive the Accrued Bonus;
(e) pay the Executive his Base Salary, as and when the
same would have been paid to the Executive pursuant to Section 2.1 had
the termination not occurred, for a period of six (6) months following
the termination date;
(f) maintain in full force and effect, for the continued
benefit of the Executive and his eligible beneficiaries, until the
first to occur of (i) his attainment of comparable benefits upon
alternative employment or (ii) six (6) months following the termination
date, the employee benefits pursuant to Company-sponsored benefit
plans, programs or other arrangements in which the Executive was
entitled to participate immediately prior to such termination, but only
to the extent that the Executive's continued participation is permitted
under the general terms and provisions of such plans, programs and
arrangements;
(g) in addition, the Executive shall have the right to
exercise all vested, unexercised stock options in accordance with the
terms of the plans and agreements pursuant to which such options were
issued;
(h) in addition, the Executive shall have the Right of
First Refusal; and
<PAGE> 3
(i) in addition, enter into a consulting agreement with
the Executive pursuant to which the Company shall pay the Executive
$100,000 per year for a period of two (2) years."
3. Subject to the approval of Norwest Business Credit, Inc., a
Minnesota corporation ("Norwest"), pursuant to that certain Credit and Security
Agreement dated as of February 26, 1996 between the Company and Norwest, this
Amendment shall be effective as of August 19, 1996.
4. All other terms and conditions of the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment.
COMPANY: EXECUTIVE:
RECONDITIONED SYSTEMS, INC.,
an Arizona corporation
By /s/ Scott W. Ryan /s/ Wayne R. Collignon
---------------------------- ---------------------------
Scott W. Ryan, Chairman Wayne R. Collignon
<PAGE> 1
Exhibit 10.26
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is made and entered into as of
the 19th day of August, 1996, between Reconditioned Systems, Inc., an Arizona
corporation (the "Company"), and Dirk Anderson (the "Executive").
RECITALS:
A. The Company and the Executive entered into an Employment
Agreement as of August 10, 1995 (the "Agreement").
B. The Compensation Committee of the Board of Directors of the
Company, pursuant to resolutions duly adopted at a meeting on August 19, 1996,
has directed that the Agreement be amended to provide that if the Agreement is
terminated subsequent to a Change of Control (as defined herein) either by the
new controlling party or by the Executive for Good Reason (as defined herein),
the Executive will receive a two-year consulting agreement at $100,000 per year
in addition to the severance pay already included in the Agreement.
C. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Agreement.
AGREEMENTS:
1. The Agreement is amended to add a new Section 3.4(e)
which reads in its entirety as follows:
"(e) "Change of Control" shall mean a change in ownership
or control of the Company effected through either of the
following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities pursuant
to a tender or exchange offer made directly to the Company's
stockholders or other transaction, in any case whether or not the Board
recommends that the Company's stockholders accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (A)
<PAGE> 2
have been Board members continuously since the beginning of such period
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board."
2. The Agreement is amended to add a new Section 4.3 which reads
in its entirety as follows:
"4.3 Termination After Change of Control by the Company or by the
Executive for Good Reason. If following a Change of Control the
Executive's employment is terminated by the Company or by the Executive
for Good Reason, the Company shall:
(a) pay the Executive the Accrued Base Salary;
(b) pay the Executive the Accrued Reimbursable Expenses;
(c) pay the Executive the Accrued Benefits;
(d) pay the Executive the Accrued Bonus;
(e) pay the Executive his Base Salary, as and when the same
would have been paid to the Executive pursuant to Section 2.1 had the
termination not occurred, for a period of six (6) months following the
termination date;
(f) maintain in full force and effect, for the continued
benefit of the Executive and his eligible beneficiaries, until the
first to occur of (i) his attainment of comparable benefits upon
alternative employment or (ii) six (6) months following the termination
date, the employee benefits pursuant to Company-sponsored benefit
plans, programs or other arrangements in which the Executive was
entitled to participate immediately prior to such termination, but only
to the extent that the Executive's continued participation is permitted
under the general terms and provisions of such plans, programs and
arrangements;
(g) in addition, the Executive shall have the right to
exercise all vested, unexercised stock options in accordance with the
terms of the plans and agreements pursuant to which such options were
issued;
(h) in addition, the Executive shall have the Right of First
Refusal; and
<PAGE> 3
(i) in addition, enter into a consulting agreement with the
Executive pursuant to which the Company shall pay the Executive
$100,000 per year for a period of two (2) years."
3. Subject to the approval of Norwest Business Credit, Inc., a
Minnesota corporation ("Norwest"), pursuant to that certain Credit and Security
Agreement dated as of February 26, 1996 between the Company and Norwest, this
Amendment shall be effective as of August 19, 1996.
4. All other terms and conditions of the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment.
COMPANY: EXECUTIVE:
RECONDITIONED SYSTEMS, INC.,
an Arizona corporation
By /s/ Scott W. Ryan /s/ Dirk Anderson
------------------------------ ---------------------------
Scott W. Ryan, Chairman Dirk Anderson
<PAGE> 1
Exhibit 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of the 15th day of August, 1996, by and
between RECONDITIONED SYSTEMS, INC., an Arizona corporation (the "Borrower"),
and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of February 26, 1996 (the "Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower
pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's promissory note dated as of February 26, 1996, in the maximum
principal amount of $1,200,000.00 and payable to the order of the Lender (the
"Note").
All indebtedness of the Borrower to the Lender is secured pursuant to
the terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless otherwise
defined herein.
2. The Credit Agreement is hereby amended as follows:
Section 7.19 of the Credit Agreement is hereby amended in its
entirety to read as follows:
Facilitec, Trade Payable. The Borrower will not permit the Borrower's
trade payables owed to Facilitec to be reduced except to the extent
such reduction results from the application of contra amounts resulting
from products purchased by Facilitec. No cash payments to Facilitec
will be permitted on Borrower's outstanding trade account payable to
Facilitec.
<PAGE> 2
3. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any advance thereunder.
4. The Borrower agrees to pay the Lender as of the date hereof a
fully earned, non-refundable fee in the amount of $500.00 in consideration of
the execution by the Lender of this Amendment.
5. This Amendment shall be effective upon receipt by the Lender
of an executed original hereof, together with each of the following, each in
substance and form acceptable to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower certifying as
to (i) the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Amendment, (ii) the fact that the Articles of
Incorporation and Bylaws of the Borrower, which were certified and delivered to
the Lender pursuant to the Certificate of the Borrower's Secretary dated as of
February 26, 1996 in connection with the execution and delivery of the Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be delivered, and
(iii) certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of the Borrower's Secretary
dated as of February 26, 1996, as being authorized to sign and to act on behalf
of the Borrower continue to be so authorized or setting forth the sample
signatures of each of the officers and agents of the Borrower authorized to
execute and deliver this Amendment and all other documents, agreements and
certificates on behalf of the Borrower.
(b) Opinion of the Borrower's counsel as to the matters set
forth in paragraphs 6(a) and (b) hereof and as to such other matters as the
Lender shall require.
6. The Borrower hereby represents and warrants to the Lender as
follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.
-2-
<PAGE> 3
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date hereof as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement"
shall be deemed to refer to the Credit Agreement as amended hereby; and any and
all references in the Security Documents to the Credit Agreement shall be deemed
to refer to the Credit Agreement as amended hereby.
8. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
9. The Borrower hereby absolutely and unconditionally releases
and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses
incurred by the Lender in connection with the Credit Agreement, the Security
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. The Borrower hereby agrees
that the Lender may, at any time or from time to time in its sole discretion and
without further authorization by the Borrower, make a loan to the Borrower under
the Credit Agreement, or apply the proceeds of any loan, for the purpose of
paying any such fees, disbursements, costs and expenses and the fee required
under paragraph 4 hereof.
11. This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which counterparts, taken together, shall constitute one and the same
instrument.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
RECONDITIONED SYSTEMS, INC., an
Arizona corporation
By /s/ Dirk Anderson
-----------------------------
Its CFO
--------------------------
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By /s/ Signature illegible
-----------------------------
Its Vice President
-4-
<PAGE> 5
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "Amendment") is made as
of the 31 st day of October, 1996 by and between RECONDITIONED SYSTEMS, INC.,
an Arizona corporation (the "Borrower"), and NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into the Credit and Security
Agreement dated as of February 26, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of August 15, 1996 (as so amended, the
"Credit Agreement").
The Lender has agreed to make certain loan advances to the Borrower
pursuant to the terms and conditions set forth in the Credit Agreement.
The loan advances under the Credit Agreement are evidenced by the
Borrower's promissory note dated as of February 26, 1996, in the maximum
principal amount of $1,200,000.00 and payable to the order of the Lender (the
"Note").
All indebtedness of the Borrower to the Lender is secured pursuant to
the terms of the Credit Agreement and all other Security Documents as defined
therein (collectively, the "Security Documents").
The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Terms used in this Amendment which are defined in the Credit
Agreement shall have the same meanings as defined therein, unless otherwise
defined herein.
2. The Credit Agreement is hereby amended as follows:
(a) The definition of "Floating Rate" contained in the
Credit Agreement is hereby deleted in its entirety and replaced as follows:
"Floating Rate" means an annual rate equal to the sum
of the Base Rate plus four percent (4%), which
Floating Rate shall change when and as the Base Rate
changes.
<PAGE> 6
(b) There is hereby added to the Credit Agreement a new
definition of "Incentive Rate" which provides as follows:
"Incentive Rate" means an annual rate equal to the
sum of the Base Rate plus three percent (3%) which
Incentive Rate shall change when and as the Base
Rate changes.
(c) The definition of "Default Rate" contained in the
Credit Agreement is hereby deleted in its entirety and replaced as follows:
"Default Rate" means at any time two percent (2%)
over the Floating Rate or the Incentive Rate, as
applicable, which Default Rate shall change when
and as the Floating Rate or the Incentive Rate, as
applicable, changes.
(d) The definition of "Termination Date" contained in the
Credit Agreement is hereby deleted in its entirety and replaced as follows:
"Termination Date" means February 28, 2000.
(e) Section 2.3(a) of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
(a) The principal of the Advances outstanding from
time to time during any month shall bear interest
(computed on the basis of actual days elapsed in a
360-day year) at the Floating Rate; provided,
however, that in the event that (i) Borrower's Net
Income for the fiscal year ending March 31, 1997 is
$200,000.00 or greater, and (ii) Borrower's Net
Worth as of March 31, 1997, is $1,316,788.00 or
greater, each as shown in audited financial
statements delivered to Lender in accordance with
Section 6.1 (a), then from the first day of the
month following Lender's receipt of the audited
financial statements evidencing compliance with
clauses (i) and (ii) above, the principal of the
Advances outstanding from time to time shall bear
interest at the Incentive Rate; provided, further,
however, that from the first day of any month
during which any Default or Event of Default occurs
or exists at any time, in the Lender's discretion
and without waiving any of its other rights and
remedies, the principal of the Advances outstanding
from time to time shall
-2-
<PAGE> 7
bear interest at the Default Rate during the entire
Default Period; and provided, further, that in any
event no rate change shall be put into effect which
would result in a rate greater than the highest rate
permitted by law. Interest accruing on the principal
balance of the Advances outstanding from time to time
shall be payable on the first day of each succeeding
month and on the Termination Date or earlier demand
or prepayment in full. The Borrower agrees that the
interest rate contracted for includes the interest
rate set forth herein plus any other charges or fees
set forth herein and costs and expenses incident to
this transaction paid by the Borrower to the extent
same are deemed interest under applicable law.
(f) Section 2.3(b) of the Credit Agreement is hereby
deleted in its entirety and replaced as follows:
(b) Notwithstanding the interest payable pursuant to
Section 2.3(a) hereof, the Borrower shall be liable
to the Lender for interest hereunder of not less than
(i) $4,000.00 per calendar month during any calendar
month in which the interest on Advances from time to
time outstanding is calculated based upon the
Floating Rate, or (ii) $2,500.00 per calendar month
during any calendar month in which interest on
Advances from time to time outstanding is calculated
based upon the Incentive Rate (the "Minimum Interest
Charge"), and the Borrower shall pay any deficiency
between the Minimum Interest Charge and the amount of
interest otherwise calculated under Sections 2.3(a)
hereof on the date and in the manner provided in
Section 2.3(a) hereof.
3. Section 7.17 of the Credit Agreement provides, among other
things, that the Borrower will not increase the salaries, bonuses, commissions,
consultant fees or other compensation of any director, officer or consultant, or
any member of their families, by more than 10% in any one year without the prior
written consent of the Lender. The Board of Directors of Borrower has
recommended the following incentive compensation plan for its fiscal year ending
March 31, 1997:
(a) The annual salaries of Wayne Collignon and
Dirk Anderson shall be $105,000.00 and $75,000.00, respectively.
-3-
<PAGE> 8
(b) Wayne Collignon and Dirk Anderson shall each
receive a bonus equal to five percent (5%) of the pre-tax, pre-bonus 1997 fiscal
year's income, payable bi-annually.
(c) 100,000 share stock options granted to Wayne
Collignon and Dirk Anderson originally priced on August 10, 1995, shall be
repriced at $1.00 per share, which was the closing price on August 16, 1996.
(d) Scott Ryan shall receive a $5,000.00
director's fee payable bi-annually, and receive a one-time grant of a 15,000
share stock option, at an exercise price of $1.00 per share and a one-time grant
of an 85,000 share stock option at an exercise price of $1.00 per share.
The Borrower has requested that the Lender consent to the implementation of said
incentive compensation plan provisions. Subject to the effectiveness of this
Amendment, the Lender hereby consents to the implementation of the incentive
compensation plan provisions set forth in Sections 3(a) through 3(d) above. This
consent shall not be deemed to waive Lender's right to withhold its consent to
any future waiver or exception regarding the covenant contained in Section 7.17
of the Credit Agreement.
4. Except as explicitly amended by this Amendment, all
of the terms and conditions of the Credit Agreement shall remain in full force
and effect and shall apply to any Advance thereunder.
5. This Amendment shall be effective upon the later of
(i) November 1, 1996, or (ii) receipt by the Lender of an executed original
hereof, together with each of the following, each in substance and form
acceptable to the Lender in its sole discretion:
(a) Certificate of the Secretary of the Borrower
certifying as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (ii) the fact that the
Fourth Amended and Restated Articles of Incorporation and Restated Bylaws of the
Borrower, which were certified and delivered to the Lender pursuant to the
Certificate of the Borrower's Secretary dated as of August 15, 1996, in
connection with the execution and delivery of the First Amendment to Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be delivered, and
(iii) certifying that the officers of the Borrower who have been certified to
the Lender, pursuant to the Certificate of the Borrower's Secretary dated as of
February 26, 1996, as being authorized to sign and to act on behalf of the
Borrower continue to be so authorized or setting forth the sample signatures of
each of the officers of the Borrower authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf of the
Borrower.
(b) Opinion of the Borrower's counsel as to the
matters set forth in paragraphs 6(a) and (b) hereof and as to such other matters
as the Lender shall require.
-4-
<PAGE> 9
6. The Borrower hereby represents and warrants to the
Lender as follows:
(a) The Borrower has all requisite power and
authority to execute this Amendment and to perform all of its obligations
hereunder, and this Amendment has been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by
the Borrower of this Amendment have been duly authorized by all necessary
corporate action and do not (i) require any authorization, consent or approval
by any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any law,
rule or regulation or of any order, writ, injunction or decree presently in
effect, having applicability to the Borrower, or the articles of incorporation
or bylaws of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
(c) All of the representations and warranties
contained in Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
7. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
8. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.
9. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
10. The Borrower hereby reaffirms its agreement under the
Credit Agreement to pay or reimburse the Lender on demand for all costs and
expenses incurred by the Lender in connection with the Credit Agreement, the
Security Documents and all other documents
-5-
<PAGE> 10
contemplated thereby, including without limitation all reasonable fees
and disbursements of legal counsel. Without limiting the generality of the
foregoing, the Borrower specifically agrees to pay all fees and disbursements of
counsel to the Lender for the services performed by such counsel in connection
with the preparation of this Amendment and the documents and instruments
incidental hereto. The Borrower hereby agrees that the Lender may, at any time
or from time to time in its sole discretion and without further authorization by
the Borrower, make a loan to the Borrower under the Credit Agreement, or apply
the proceeds of any loan, for the purpose of paying any such fees,
disbursements, costs and expenses.
11. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above written.
RECONDITIONED SYSTEMS, INC., an
Arizona corporation
By /s/ Dirk D. Anderson
-----------------------------
Its CFO
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By /s/ Signature illegible
-----------------------------
Its Vice President
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 257,829
<SECURITIES> 0
<RECEIVABLES> 617,489
<ALLOWANCES> 24,938
<INVENTORY> 1,027,066
<CURRENT-ASSETS> 2,078,411
<PP&E> 506,962
<DEPRECIATION> 301,731
<TOTAL-ASSETS> 2,326,592
<CURRENT-LIABILITIES> 1,023,655
<BONDS> 0
0
0
<COMMON> 4,585,845
<OTHER-SE> (3,341,206)
<TOTAL-LIABILITY-AND-EQUITY> 1,244,639
<SALES> 1,408,927
<TOTAL-REVENUES> 1,412,137
<CGS> 1,060,075
<TOTAL-COSTS> 1,355,402
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,681
<INCOME-PRETAX> 27,026
<INCOME-TAX> 0
<INCOME-CONTINUING> 27,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,026
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
