United States
Securities and Exchange Commission
Washington, D. C. 20547
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1997.
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: 0-22048
STARCRAFT CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 34-1817634
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Post Office Box 1903, 2703 College Avenue, Goshen, Indiana 46526
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (219) 533-1105
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of January 9, 1998, was 7,224,766.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of January 8, 1998, was 4,133,600 shares.
<PAGE>
STARCRAFT CORPORATION
Form 10-K
Index
PART 1
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K.
SIGNATURES
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
The Company is a leading second-stage manufacturer of custom van, sport utility
vehicle ("SUV") and pick-up truck conversions. Starcraft has historically
specialized in upscale custom vehicles. With the addition of the Imperial Group
("Imperial") in 1994, the Company offers a full range of conversion vehicles at
every consumer price point. In addition, the Company sells vehicle conversions
for the physically challenged through its recently acquired National Mobility
Corporation. The Company believes it is one of the four largest van conversion
manufacturers in the U.S. The Company sells its products to an extensive network
of approximately 600 authorized automotive dealers throughout the continental
U.S. and overseas. The Company believes the Starcraft name has a long-standing
reputation in the vehicle conversion industry for high quality.
Starcraft traces its history to 1903 when Star Tank Company was founded in
Goshen, Indiana as a maker of metal farm equipment. Over the course of the
century the Company's predecessor became a leading manufacturer of aluminum
boats and recreational vehicles and, in the late 1970's, led the automotive
conversion industry by producing luxury van conversions for middle and upper
income consumers. In 1987, the predecessor's management completed a leveraged
buyout and, in 1988, sold the boat manufacturing business. The resulting entity
was highly leveraged and eventually sought protection from creditors in a
bankruptcy reorganization proceeding in late 1990. On January 18, 1991, the
Company purchased the assets of the automotive and recreational vehicle
divisions (except for Canadian operations) from Starcraft Van Conversions
Corporation and its affiliates, as debtors-in-possession (the "Predecessor"),
with bankruptcy court approval. The Company simultaneously sold the recreational
vehicle division to a third party. In July 1994, the Company's wholly owned
subsidiary, Imperial Automotive Group, Inc., acquired substantially all of the
assets of Imperial Industries, Inc. In December 1995, the Company expanded its
manufacturing capabilities with a new plant in McGregor, Texas, operated by
Starcraft Southwest, Inc., a wholly owned subsidiary. In February 1997, the
Company purchased the assets of National Mobility Corporation in Elkhart,
Indiana. During fiscal year 1997 the Company closed its Imperial and McGregor,
Texas manufacturing facilities and consolidated the operations into its
Starcraft Group manufacturing complex in Goshen, Indiana.
The Company was incorporated in Indiana in 1990. Its executive offices are
located at 2703 College Avenue, Goshen, Indiana, 46526; telephone (219)
533-1105. The Company has four wholly-owned operating subsidiaries: Starcraft
Automotive Group, Inc.; Imperial Automotive Group, Inc., Starcraft Southwest,
Inc., and National Mobility Corporation.
Starcraft's principal manufacturing facilities are in Goshen, Indiana, and, as
of February 1997, Elkhart, Indiana with its National Mobility operation.
Industry Information
The custom vehicle conversion industry developed during the early 1970's.
Starcraft's Predecessor was a leader in transforming the industry from one
oriented toward younger recreational users to one oriented toward more mature
automotive customers. The Company believes retail prices of custom vans in the
United States for the 1997 model year generally ranged from $20,000 to $40,000.
Retail mark-ups vary widely among dealers and are not within the Company's
control.
According to the Recreational Vehicle Industry Association ("RVIA"), the average
domestic wholesale price to dealers of a van conversion, pick-up truck
conversion and SUV conversion (including chassis) during the first nine calendar
months of 1997 were $24,500, $18,700 and $28,200 respectively. Because the
Company emphasizes high-end, luxury vehicles, Starcraft's average domestic
wholesale price to dealers during fiscal 1997, was $27,800, assuming an average
cost of chassis to dealers of $20,000. Imperial's average wholesale price to
dealers during fiscal 1997 was $23,800 assuming an average cost of chassis to
dealers of $20,000.
<PAGE>
According to RVIA statistics, approximately 144,000 custom vans were sold by
United States conversion manufacturers during calendar 1996 compared to 151,000,
182,000, and 192,000 units in 1995, 1994 and 1993, respectively. RVIA reported
sales of 98,000 units through September 1997 and estimates sales of custom vans
for calendar 1997 will total 115,000, a 20.1% decrease from 1996 levels. In
1995, RVIA began tracking pick-up truck and SUV conversions. For the nine months
ended September 1997, 51,400 of such vehicles were sold by the conversion
industry compared to 58,400 in 1996, a 12% decline.
The domestic vehicle conversion industry has declined steadily over the last
several years with a significant decline in 1997. The Company believes that the
increased popularity of sport utility vehicles and factory minivans, price
pressure from higher chassis costs, lower levels of conversion inventory being
held on dealer lots and fewer automotive dealers selling conversion products
have adversely impacted the market. The Company believes that the changing level
of dealer support is due to the growing availability of additional vehicle
models to stock on their lots such as sport utility vehicles and a general
concern by dealers of the future of the conversion industry.
RVIA statistics are based on reports of its member manufacturers and its
estimates with respect to non-member manufacturers. The Company believes RVIA
members produce 80% - 85% of conversions produced in the United States.
The Company is the leading exporter of conversion vehicles. Primary markets
include Japan and Northern Europe. The recent strengthening of the U.S. dollar
and financial turmoil in Asian markets have negatively impacted the Company's
export sales and profit margins.
The conversion industry is cyclical and is affected by the general trends of the
economy and consumer preferences and consumer confidence and trends of the
automotive and recreational vehicle industries. Consumer preferences for sport
utility vehicles in recent years has adversely affected demand for conversion
products. The level of disposable consumer income affects the Company's sales
because its products are generally considered discretionary expenditures by
consumers. In difficult economic times, consumers tend to spend less of their
income on discretionary items. Other economic factors affecting the demand for
the Company's products include the availability and price of gasoline, the level
of interest rates and the availability of consumer financing. Reduced gasoline
availability could adversely affect the demand for the Company's products. A
significant increase in the price of gasoline could reduce demand for the
Company's products because it would increase the cost of operating these
products. Because many consumers finance their purchase of vehicle conversions,
the availability of financing and level of interest rates can affect a
consumer's purchasing decision. A decline in general economic condition or
consumer confidence can be expected to affect Starcraft's sales adversely. The
Company is dependent upon the OEMs to supply its requirements for vehicle
chassis. Labor stoppages, supply shortages and a variety of other factors that
influence OEM production can affect the availability or timely delivery of
vehicle chassis to the Company. In 1996 the Company's sales were adversely
impacted by the availability of certain OEM chassis.
Company Products
The Company converts fullsize vans manufactured by each of the major original
equipment manufacturers ("OEMs"): GMC Truck, Chevrolet, Dodge and Ford. The
Company manufactures minivan conversions on the GMC Safari, the Chevrolet Astro,
Chevrolet Venture and the Dodge Caravan. Starcraft also customizes Chevrolet and
GMC SUVs, along with several pick-up truck models for GMC, Chevrolet, Ford and
Dodge. The product contains a principal set of conversion features and a variety
of optional accessories designed by the Company in each model year to meet
prevailing customer preferences. Starcraft van models fall principally into
three price ranges (conversion cost to dealer): from $4,000 - $6,000, $6,000 -
$9,000, and $9,000 and above. Imperial models fall into the following price
ranges: $2,000 - $3,000, $3,000 - $4,000, over $4,000. These price ranges
provide marketing flexibility allowing for different demographics and varying
dealer marketing objectives. Certain SUV and pick-up truck conversion packages
may be priced below these ranges.
<PAGE>
Operating Data
The following sets forth information respecting the Company's gross sales by
product type for the fiscal periods indicated.
Gross Sales by Product (1)
<TABLE>
<CAPTION>
Year Ended
September 28, 1997 September 29, 1996 October 1, 1995
- - ----------- -------------------------------------- ----------------------------------------- --------------------------------------
Avg. Avg. Avg.
Price/ Gross % of Price/ Gross % of Price/ Gross % of
Units Unit Sales Sales Units Unit Sales Sales Unit Unit Sales Sales
- - ----------- ---------- -------- --------- ------- --------- --------- ----------- -------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fullsize 6,734 $6,600 $44,600 57.1% 8,085 $6,600 $53,300 50.1% 9,041 $7,500 $67,600 54.8%
Vans
Minivans 2,346 7,800 18,300 23.5% 4,676 8,200 38,300 36.0% 4,894 8,300 40,700 33.0%
Trucks & 2,909 3,700 10,800 13.9% 3,345 3,200 10,700 10.0% 3,009 3,400 10,300 8.4%
SUVs
Parts N/A N/A 4,300 5.5% N/A N/A 4,200 3.9% N/A N/A 4,700 3.8%
------- ---- ------ ---- ------ ------ -------- ---- ------- ------ -------- -----
Total 11,989 $6,200 $78,000 100% 16,106 $6,400 $106,500 100% 16,944 $7,000 $123,300 100%
==+==== ====== ======= ==== ====== ======= ======== === ====== ====== ======== ====
</TABLE>
(1) Gross dollar sales represent the price to dealers of the conversion
before discounts and exclude the cost of the chassis.
Company Strategy
The Company believes it can grow by expanding its domestic van conversion
business market share, further developing international sales opportunities and
offering additional products in new markets, such as conversions for the
physically challenged and shuttle buses for airport and hotel use.
Domestic Van Sales. The Company will continue to focus on core van conversion
products and, through aggressive marketing and promotion, will seek to expand
U.S. sales of custom vans. While Starcraft product lines will continue to
emphasize upscale custom van conversions, Imperial will continue a complementary
emphasis on mid- and low-price point conversion packages. The Company will
continue to seek to further differentiate its Starcraft lines from its
competition by emphasizing total value and quality versus unit price. By
offering both the Starcraft and Imperial product lines, the Company is able to
offer dealers a full price range of conversion vehicles from a single
manufacturer. Imperial will maintain its position in the entry level segment of
the market.
The Company will continue to focus on innovative product development to enhance
customer appeal and vehicle quality and safety. The Company will continue to
seek to differentiate itself from its competition by virtue of the resources it
devotes to training dealer personnel in selling, product knowledge, service and
compliance. Starcraft utilizes a specially equipped service van, videos,
manuals, other visual aids, and the classroom instruction at its main facility
and at dealer locations throughout the country. The Company maintains a strong
customer service area which includes warranty claims and approval, parts
ordering and processing and customer information. The Company maintains records
of Starcraft units sold as far back as 1978 and Imperial maintains records back
to 1991, which was the inception of the predecessor company, Imperial
Industries, Inc.
The acquisition of National Mobility Corporation offers a new product line aimed
at a specific consumer niche, physically challenged persons. By offering
additional products the Company can maintain its strategy to the dealer of being
a complete product line and full service organization. The Company estimates
that 1998 domestic industry sales will decline an additional 5%. The Company
will target key automotive dealers
<PAGE>
in each region to maintain market share and develop cooperative marketing plans.
The Company established a telemarketing division in 1997 to target smaller
markets.
Domestic Truck and SUV Conversions. Although the Company's conversions of
General Motors' Suburban, other SUV and pick-up trucks have proven to be a
popular line of products, the significant increase in the number of models and
the chassis availability of these products have reduced the demand for
conversions. Many of the OEM sport utility models now have options that were
historically supplied by the conversion industry. As a result, the Company
believes its overall sales of SUV and pick-up truck conversions may decline. The
Company will focus on select models and OEMs where it feels it can continue to
offer a unique product at a competitive price point.
International Vehicle Sales. The Company intends to further promote Starcraft
vehicles overseas, especially in Central/Northern Europe and Japan. The Company
maintains a distribution agreement with General Motors and Mitsui and Co.
(U.S.A.), Inc. which the Company believes makes Mitsui the sole distributor of
General Motors vans in Japan. Under this agreement Mitsui agreed to use its best
efforts to promote Starcraft vans in Japan and Starcraft agreed to sell van
conversions in Japan solely through Mitsui.
The increase in the U.S. dollar currency rate has put significant pressure on
the Company's export sales. In addition, the recent turmoil in the Asian
financial markets and economies have negatively impacted the demand for the
Company's products. In particular, 1998 sales to Japan, the Company's largest
export market, will decline.
The Company continues to redesign products to maintain unique products in the
marketplace and increase value for price to keep products competitive
internationally. In addition, the Company is targeting several new markets to
develop.
Diversification. With the decline in the conversion industry and the Company's
sales , the Company will attempt to diversify itself further with additional
products targeted at new markets. An example of such diversification is
commercial vehicles. The Company has developed plans to begin producing shuttle
buses for airports, hotels and other commercial markets at its Goshen, Indiana
facility.
Chassis and Other Suppliers
Historically, most of the Company's van conversions have been General Motors
products. In 1991, approximately 92% of its unit sales were represented by
General Motors. For 1997, 65% of the Company's products were on General Motors
chassis. The increase in the proportion of the Company's sales represented by
Ford and Chrysler products was due primarily to aggressive promotional
activities carried on by Chrysler.
The OEMs supply incomplete chassis to Starcraft or other manufacturers or
dealers for restricted use. The Company obtains substantially all of its chassis
acquired for domestic sale from the OEMs pursuant to consignment or restricted
sale contracts. Under these contracts each OEM maintains strict control over the
disposition of chassis delivered to the Company for modification and the Company
is prohibited from delivering a converted chassis provided by the OEM to any
person except an authorized dealer for that OEM. All of the Company's
consignment and restricted sale contracts with chassis suppliers are terminable
by either party on short notice without cause.
Under restricted sale contracts with the OEMs, the OEM retains the certificate
of origin and the Company has no right to obtain it or any other evidence of
title. These contracts state that vehicle title technically passes to the
Company upon acceptance of a chassis and the Company pays state property taxes
on chassis, but the Company can only sell the chassis back to the OEM for resale
to an authorized dealer. Except for demonstration vehicles, the Company is
prohibited from making modifications to chassis under these contracts until it
matches them with a dealer order. In the past, the Company has obtained waivers
of this limitation to permit accumulation of GMC or Chevrolet inventory in
connection with model year changes or other periods of anticipated increasing
demand. Prior to matching a chassis to a dealer order, the Company finances the
chassis through the OEM's financing affiliates at nominal rates. Once the
Company notifies the OEM that it has matched a chassis with a dealer, the OEM
"repurchases" the chassis, crediting
<PAGE>
the Company's account with the OEM's financing affiliate and invoicing its
dealer (the Company's customer) for the price of the chassis. Upon receiving the
converted vehicle, the dealer is obligated to pay the Company for the
improvements the Company has made. If the Company fails to match a chassis with
a dealer order within 90 days, the finance charge the Company must pay
increases. The past 90-day finance charge is currently the prime rate plus 1%.
Historically, the Company's international conversion sales have been primarily
manufactured on General Motors chassis. Generally, the foreign purchaser is an
authorized dealer for General Motors and Starcraft. The dealer submits an order
to General Motors' overseas sales affiliate (the "GM Export Affiliate") for the
chassis together with specifications for a Starcraft conversion. The GM Export
Affiliate purchases the chassis from General Motors and forwards it to Starcraft
for second stage manufacturing. Starcraft invoices the GM Export Affiliate for
the completed conversion, and the GM Export Affiliate arranges for shipment of
the unit, at the GM Export Affiliate's expense, from Starcraft to the foreign
dealer.
Starting in 1997, General Motors has changed its chassis system for the
Company's sales to Europe. The Company is the "Manufacturer of Record" for units
imported into Europe and is required to arrange and be responsible for all U.S.
export and shipping requirements. The Company continues to sell only to
authorized General Motors dealers. The Company does not believe this new system
will have a significant impact on its European sales.
A variety of factors govern chassis ordering and availability. Chassis are
ordered from the OEM based on the Company's annual sales plan. The plan is
broken down by OEM and vehicle model. Vehicle specifications are determined on
the basis of historical trend analysis and analysis of the backlog of orders.
The Company's chassis order forecast is shared with each OEM to determine
chassis availability. The OEMs confirm chassis availability and timing on an
annual basis. After confirmation by the OEM, the Company orders a 90-day supply
prioritized through a central computerized system. On a weekly basis, the
Company releases the actual orders it requires and the OEMs schedule delivery
dates for the orders. Chassis allocation to the Company from the OEMs is based
on credit lines, prior usage and wholesale and retail sales rates.
The following table sets forth for the periods indicated the number of chassis
received by the Company and the dollar value thereof, and, as of the end of such
periods, the number of chassis held over 90 days and the dollar value thereof.
<TABLE>
<CAPTION>
Year Ended
(Dollars in thousands)
Sept. 28, 1997 Sept. 29, 1996 Oct. 1, 1995
- - ------------------------------------ -------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Chassis Received 10,687 17,179 17,419
Value of Chassis Received $ 213,740 $ 305,300 $ 309,800
Chassis Over 90 Days at period end 433 262 491
Value of Chassis Held Over 90 Days $ 8,660 $ 4,615 $ 8,712
</TABLE>
The conversion process begins after a chassis is inspected and accepted and the
Company has received a confirmed order from an authorized dealer that is
compatible with the chassis. Generally, the order is scheduled for production
typically four to five days before work on the vehicle commences to allow for
completion of components to be installed in the chassis. The Company completes
the conversion process in an average of seven to eight days from the date that
the vehicle is first scheduled for production.
<PAGE>
The Company is dependent upon the OEMs to supply its requirements for vehicle
chassis. Labor stoppages, supply shortages and a variety of other factors that
influence OEM production can affect the availability or timely delivery of
vehicle chassis to the Company. The impact of these factors was significant in
1996. In 1997, chassis availability was generally good. If vehicle chassis are
unavailable, or if the Company must accept delivery earlier or later than it
otherwise would prefer, sales could be adversely affected and financing expenses
could increase. The Company must also comply with its consignment and restricted
sale contracts with the OEMs pursuant to which the OEMs impose certain
specifications for the Company's vehicle conversions, including gross vehicle
weight standards. Such contracts also restrict the Company's ability to dispose
of completed chassis and prohibit the transfer of chassis to unauthorized U.S.
and foreign dealers. All of the Company's consignment and restricted sale
contracts with chassis suppliers are terminable by either party on short notice
without cause. The availability of the OEM financing rates is dependent upon the
Company's compliance with its OEM contracts and its ability to maintain
satisfactory credit relationships with the OEM's finance subsidiaries. Adverse
changes in the Company's financial condition or results of operations could
cause such financing subsidiaries to seek to adversely change the Company's
financing terms or to terminate such financing arrangements. Such a change or
termination could have a material adverse effect on the Company's financial
condition and results of operations.
General Motors introduced a newly redesigned fullsize van in early calendar
1996. The Company believes dealers reduced their inventory levels in 1995 in
anticipation of the new chassis thereby negatively impacting the Company's sales
to dealers. In addition, the Company believes the availability of the newly
redesigned General Motors fullsize van restricted and negatively impacted the
Company's 1996 sales. At the end of 1996, the availability of this chassis to
the Company was adequate.
In July 1997, Dodge discontinued production of its fullsize van in anticipation
of introducing a newly redesigned van in December 1997. The transition period
adversely impacted the Company's Dodge sales in fiscal 1997 by approximately 600
units.
Vehicle converters can be penalized by the OEM for manufacturing overweight
vehicles and the National Highway Traffic Safety Administration ("NHTSA") could
require overweight vehicles to be recalled. See "Safety and Regulation." Such
standards are imposed by the OEMs in part to help assure that vehicle weight
does not exceed the capacity of the OEM's braking system.
The export of completed vehicles to unauthorized foreign dealers has been a
significant issue in the conversion industry in recent years, especially for
General Motors. In the past, some automotive dealers have sold vehicles to
brokers who, in turn, have sold them to unauthorized dealers overseas. General
Motors' financing subsidiary has indicated an intention to penalize or terminate
financing arrangements with any firm deemed responsible for unauthorized
exports. The Company makes an effort to assure itself that none of its vehicles
are exported in an unauthorized manner including obtaining written assurances
from certain dealers. General Motors has significantly increased its efforts to
curtail such activity. The Company has no control over the eventual disposition
of its vehicles by dealers, however, so it cannot eliminate the possibility of
unauthorized export. These efforts nevertheless should help assure that the
Company will not be deemed responsible for any unauthorized export.
Supplies for the components and materials the Company utilizes in its vehicle
conversions are generally available from several sources. From time to time the
Company experiences delays in delivery of certain components or materials from
suppliers, but such delays have not historically had any material effect on the
Company's production.
Manufacturing
The incomplete van chassis the Company receives directly from the OEMs have no
seats or floor covering or other interior components. The Company modifies the
exterior and interior of the chassis body to provide passenger comfort and
enhance safety. SUVs and pick-up trucks received have full interior OEM
components. The Company modifies these components and performs certain exterior
enhancements.
<PAGE>
Vehicle Modification and Assembly. After a chassis is inspected and accepted,
the Company begins the conversion process by modifying the chassis exterior,
installing tinted vista bay windows, raised roof, decorative decals and ground
effects. Star-structure steel bracing is installed for added structural support,
followed by rust proofing, wiring, insulation and vibration dampening materials.
After exterior seals are tested for leaks, the vehicle is lined with fabric and
wood-accented sidewalls and headliners. The Company's associates assemble the
complete vehicle interior in multiple production lines using the Company's own
manufactured components and parts supplied by others. The Company's distinctive
hardwood features, contoured seats, carpeting, curtains and other amenities are
installed in each vehicle, along with the customer's selection from over 100
optional accessories, including a wide variety of electronic components such as
rear heating and air-conditioning, television, video cassette player and other
audio equipment.
Vehicle Components. The Company manufactures its own woodwork, upholstery and
wiring harnesses, among other components. Starcraft's distinctive hardwood
interior appointments are manufactured at the Goshen facility in its 45,000
square foot wood shop. The Company planes, joins, shapes, sands and finishes
rough-cut teak and walnut lumber in a process that combines automation and hand
craftsmanship. A wood-burning laser is utilized which can transfer any image
directly onto wood components for added customization.
Vehicle seating and upholstery are primarily manufactured at the Company's Emma,
Indiana, facility, located 15 miles from its Goshen, Indiana plant. Company
associates cut and sew interior wall coverings, headliners, curtains and seat
upholstery from leather, cloth and vinyl materials. The seat padding and
upholstery are then assembled on pre-fabricated frames. Some of Starcraft's wire
harnesses are manufactured at the Goshen plant. The Company also paints and
finishes all of its custom fiberglass and polymer vehicle body components, such
as raised roofs, running boards and other ground effects which are manufactured
to the Company's design specifications by others. The Company maintains an
enclosed painting system to provide fiberglass and polymer components with high
quality base coat and clear coat finishes. This water-filtered, down draft
system is similar to those of the major automotive manufacturers and is designed
to control environmentally harmful emissions.
By manufacturing many of its own components, the Company is able to exercise
significant control over the quality and supply of components built into its
custom vehicles and to accommodate a wide range of customization demands. The
Company is also able to provide consumers with ongoing service and repair
capabilities by maintaining a record of, and access to supplies of, paint,
upholstery and other materials used to modify each vehicle.
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation into Starcraft Automotive Group's manufacturing complex
in Goshen, Indiana. The consolidation is designed to enhance profitable growth
by reducing excess production capacity, personnel count and fixed overhead
expenses. The Company recorded a $750,000 restructure charge in the first
quarter of fiscal year 1997. The Company estimates it will realize annual
overhead expense reductions of approximately $1.1 million from reduced facility
and personnel costs during 1998 relative to 1997.
In June 1997 the Company closed its McGregor, Texas manufacturing facility and
sold certain assets of the business. The Company recorded a $260,000 net
restructure charge in the third quarter of fiscal year 1997. The Company should
realize savings from the closure of the Texas facility which lost $1.3 million
pretax in 1997. The consolidation efforts were a result of the Company's belief
that the conversion industry will remain at current lower levels and the
elimination of excess production capacity was critical to obtain profitability.
Production Associates. The Company periodically employs associate training that
may include classroom instruction, job certification and technical and personal
skills training. The principal objective of the training is to develop
associates into more effective members of a team dedicated to continuous
improvement in all facets to the Company's business. In 1997, the Company's
production line associates' compensation was changed from an hourly system to an
incentive system.
The Goshen facility produced 45 custom vehicles per eight-hour shift during peak
production periods in 1997
<PAGE>
and has capacity to produce up to 95 units in one shift. During the fourth
quarter of 1997 the Goshen facility was producing 30 units per day, including
Starcraft and Imperial models.
Sales and Marketing
Domestic. The Company sells its custom vehicles to approximately 600 automobile
dealers throughout the continental U.S. and overseas. Custom vehicles are sold
through a network of regional exclusive sales representatives and associate
representatives. Each of its U.S. dealers is an authorized dealer for General
Motors, Ford or Chrysler and most sell and service a full complement of cars,
SUVs and vans. Starcraft's top 50 dealers accounted for approximately 60%, 59%
and 51% of unit sales in fiscal 1997, 1996 and 1995, respectively. During the
past two years, the geographic areas of the U.S. where the Company's sales have
been strongest include (i) the Great Lakes region (i.e., Illinois, Indiana,
Michigan, New York, Ohio, Pennsylvania, and Wisconsin), (ii) Oklahoma and Texas
and (iii) Northern California.
The Company's direct sales efforts to dealers are supplemented by a variety of
advertising and promotional programs and participation in various automobile
shows. The Company is also refining a targeting approach to better utilize
advertising expenditures by expanding its team selling efforts and developing
new marketing materials, including videos. In 1997 the Company established a
telemarketing sales team in Ocala, Florida to cost effectively focus on smaller
dealer activities.
International. Starcraft exports converted vehicles to 18 countries around the
world and employs an indernational department which is exclusively responsible
for the development of international sales. International sales fluctuate from
country to country and over time depending on import taxes and tariffs and
fluctuations in currency exchange rates as well as local economic conditions.
Starcraft's primary overseas markets are Japan and northern Europe. The Company
exported 1,584, 2,543 and 2,195 conversions in 1997, 1996 and 1995,
respectively.
The recent increase in U.S. currency and turmoil in Asian financial markets have
negatively impacted the Company's internationlal sales.
The Company intends to further promote Starcraft and Imperial vehicles overseas.
The Company maintains a distribution agreement with General Motors and Mitsui by
which the Company believes makes Mitsui the sole distributor of General Motors
vans in Japan. This agreement will continue from year-to-year unless terminated
on three months notice prior to the end of any such year.
Research and Development
The Company continues to devote efforts and resources in the area of research
and development to improve the appeal and safety of its products. Starcraft
believes it has a strong record of innovative product development to enhance
customer appeal and vehicle quality.
The Company has a patent on a system called the Integrated Belting System
("IBS"). Upon a rear-end collision in excess of 20 m.p.h., passenger seats in
many vehicles can collapse backward, increasing the risk of injury to vehicle
occupants. IBS is designed to reduce significantly the risk of seat back
collapse by restraining the seat back. A new seat belt integrated with the
conventional seat belt system is anchored to the vehicle roof or wall and
traverses the seat back. In the event of collision, the seat back is secured in
place.
IBS has been successfully tested by an independent testing firm. The Company
believes that only one other automotive manufacturer currently offers seats with
a safety feature designed to prevent collapse on rear impact. Eventually, the
Company intends to license the use of IBS by other manufacturers. There is no
assurance, however, as to the extent IBS will be employed by other
manufacturers.
The Company has product research and development teams devoted to design and
safety improvements. During fiscal 1997, 1996 and 1995, the Company spent
approximately $824,000, $893,000 and $726,000, respectively, on product research
and development.
<PAGE>
Competition
The United States vehicle conversion market is very competitive with four
principal national manufacturers and numerous local and regional manufacturers,
many of which are relatively small companies serving local dealers. The Company
believes it is one of the four largest van conversion companies in the United
States. The others are Glaval Inc., Mark III Industries, Inc. and Explorer Van
Company. The Company's Starcraft lines generally feature high-end, luxury custom
vehicles competing most directly with Explorer. The Imperial product lines
compete more directly in the price-sensitive segment of the van conversion
market. The Company believes the number of competitors will continue to decline
as increased quality, financial and engineering standards are imposed by the
OEMs.
In international markets, the Company competes with numerous foreign
manufacturers that produce vehicles comparable to converted vans, although
custom vans such as the Company's tend not to be widely produced within its
foreign markets.
The Company's Starcraft lines will continue to be focused on luxury vehicle
modifications and will seek to increase its market share of high-end van
conversions for which Starcraft vehicles have an established reputation.
Starcraft will also continue to be sensitive to changes in consumer preferences.
The Imperial product lines enable the Company to participate more fully in the
price-sensitive segment of the conversion market and offer its dealers a full
price range of conversion vehicles from one manufacturer. The Company believes
competitive factors in its industry include price, quality and variety of
product line, service and warranty, dealer network and safety. The Company
maintains a leading position in the conversion industry through high quality
workmanship, innovation, versatility in meeting customization requirements and
the diversity of its product line.
The Company will also target the mobility market through its National Mobility
subsidiary by offering fullsize vans and minivans for the physically challenged.
The Company estimates that it competes in this market with four national
manufacturers and several regional manufacturers. These products will be
distributed through both automotive dealerships and mobility centers. In
addition, the Company will participate in state government quotes for mobility
vehicles.
Backlog and Seasonality
At September 28, 1997, the Company had a backlog of 842 unit orders compared
with a backlog of 1,067 unit orders at September 29, 1996. The Company considers
such orders to be reasonably firm. All of the Company's products are subject to
certain seasonal sales influences and sales tend to be stronger during March
through July. The Company uses off-season sales promotions to market its
products with a view to reducing seasonal swings in sales.
Warranties
The Company historically provided a three-year, 36,000 mile limited warranty on
its conversions. In 1997, the Starcraft products began offering a 5-year, 60,000
mile warranty. The OEMs provide their own standard warranties of the chassis and
engine. At the time of sale of its product, the Company estimates the costs to
be incurred for product warranties and establishes reserves for warranty claims.
The Company believes that such reserves will adequately cover any such warranty
claims. The Company provides complete owners' manuals to retail customers
covering the conversion package as well as parts, warranty and service manuals
for dealers. The Company keeps a record of the paint, upholstery and styles
included in each vehicle conversion so that, when necessary, it can re-create
matching replacement parts.
Patents and Trademarks
IBS. In 1996, the Company received a U.S. patent on IBS, which is designed to
reduce significantly the risk of seat back collapse in the event of a rear-end
collision by restraining the seat back. A new seat belt integrated with the
conventional seat belt system is anchored to the vehicle roof or wall and
traverses the seat back. In the event of collision, the seat back is secured in
place. See "Research and Development."
Trademarks. The Company's Predecessor manufactured boats, motor homes and other
recreational vehicles under the name "Starcraft." (R) The boat manufacturing
business was sold by the Predecessor to Brunswick
<PAGE>
Corporation in 1988. The Company initially acquired the recreational vehicle
business in the Predecessor's 1991 reorganization proceeding, but immediately
sold it to Jayco Inc. The Predecessor's Canadian conversion business was
acquired by a Canadian firm. Brunswick Corporation has independently registered
and owns the "Starcraft" and related trademarks for use with boats and marine
products and thus Starcraft has no control over the quality of boats produced
and sold under the "Starcraft" mark. The Company retains ownership of
"Starcraft" and related registered marks for use with automotive and
recreational vehicle products. It licenses the owners of the Predecessor's RV
business and Canadian van conversion business to use these trademarks. While it
has some control over the quality of its licensees' products, it does not
control all aspects of their businesses. The Canadian entity is required to pay
a royalty to the Company and to purchase its components from the Company (or
from others with the company's approval). The Company does not export to Canada
and its Canadian licensee does not export to the United States.
Because of these considerations, there is a risk that the distinctiveness of the
"Starcraft" mark could become diluted or that its reputation for quality could
be adversely affected if the quality of another manufacturer's products sold
under the mark declines. The Company believes, however, that customers are
sufficiently discerning when making a purchase as significant as a vehicle
conversion that confusion between the Company and makers of other "Starcraft"
products is unlikely. It also believes its licensees are currently in compliance
with their obligations under their license agreements.
Safety and Regulation
The manufacture, distribution and sale of the Company's products are subject to
governmental regulations in the United States at the federal, state and local
levels. The most extensive regulations are promulgated under the National
Traffic and Motor Vehicle Safety Act which, among other things, empowers NHTSA
to require a manufacturer to remedy vehicles containing "defects related to
motor vehicle safety" or vehicles which fail to conform to all applicable
federal motor vehicle safety standards.
Federal Motor Vehicle Safety Standards were promulgated by the NHTSA in 1992.
Many of the Company's conversion components were affected by these standards.
Starcraft engaged a testing Company, which also performs testing for NHTSA, to
test the company's components. The Company's components subject to the new
standards were determined to meet or exceed them. Promulgation of additional
safety standards in the future could require the Company to incur additional
testing and engineering expenses which could adversely affect the Company's
results of operations.
NHTSA can require automotive manufacturers to recall products. The Company has
not experienced any material recalls.
The Company's international sales are subject to foreign tariffs and taxes,
changes in which are difficult to predict and which can adversely affect
Starcraft sales. Starcraft's products must also comply with government safety
standards imposed in its foreign markets. For example, in Japan and Germany each
vehicle conversion is individually inspected by local authorities before the
vehicle is registered in the country.
Both federal and state authorities have various environmental control standards
relating to air, water and noise pollution that affect the business and
operations of the Company. In particular, the Company generates paint, varnish
and other finishing wastes that it is required to dispose of in compliance with
environmental regulations. The Company believes that it has complied in all
material respects with applicable environmental regulations and standards and
does not currently expect that any failure of compliance will have any material
adverse effect on the Company.
Like other automotive manufacturers, the Company may be subject to claims that
its products caused or contributed to damage or injury sustained in vehicle
accidents or may be required to recall products deemed unsafe. Any such claims
in excess of the Company's insurance coverage or material product recall
expenses could adversely affect the Company's financial condition and results of
operations.
<PAGE>
Employees
As of September 28, 1997, the Company employed 568 people. Of these,
approximately 434 were production line associates and 134 were salaried sales,
engineering and administrative staff. During peak production periods, the
Company may increase its work force. Historically, the available labor force has
been adequate to meet such periodic requirements. The Company considers its
relationships with its personnel to be satisfactory.
The Company maintains a training and education process. The principal goal of
this program is to build a team-based learning organization that develops the
combined skills of associates. Management believes this approach promotes a
culture conducive to participation and teamwork that breeds innovation and
effective performance. The process includes personal and practical skills
training, and technical and development training. The Company has applied for
and received matching grants from the State of Indiana for part of this training
effort.
ITEM 2. PROPERTIES
The Company owns its properties in Goshen, and Emma, Indiana and leases the
Elkhart property, as further described below.
Size of
Location Facility Type of Operation
- - ---------------------- ------------------ ----- ----------------------------
Goshen, Indiana 454,400 s.f. Executive Offices (20,420
s.f.); Manufacturing and
Assembly
Emma, Indiana 42,700 s.f. Sewing and Upholstery
Manufacturing
Elkhart, Indiana 56,000 s.f. Offices (2,600 s.f.);
(National Mobility) Manufacturing and Assembly
The Goshen and Emma production facilities were constructed in the 1960's. They
have been maintained and improved upon from time to time and are presently in
satisfactory condition and sufficient for the Company's current requirements.
The Company also stores chassis on a 37-acre lot it owns near its Goshen
production facility. The Goshen facility produced 45 units per day during peak
production periods in 1997. See "Manufacturing."
The Elkhart facility, on approximately 3 acres of land, is leased for three
years through February 29, 2000 with five, one-year renewal options at the
Company's discretion. The lease contains an option to purchase for $800,000.
Monthly rent is $14,000 and the Company is responsible for property taxes and
building insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company does not anticipate that any pending legal proceeding to which it is
party will have any material adverse effect on its financial conditions or
results of operations. The Company maintains product liability insurance which
it currently considers adequate.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock is quoted on the NASDAQ Stock Market, National Market, under the
symbol "STCR." As of December 19, 1997, there were 98 shareholders of record of
Starcraft's Common Stock. The Company estimates that, as of such date, there
were approximately 1,200 beneficial owners of its Common Stock.
The following table sets forth the high and low bid prices per share of Common
Stock for the periods indicated.
Quarter Ended High Low
December 31, 1995 6.750 3.875
March 31, 1996 5.375 4.250
June 30, 1996 5.437 3.750
September 29, 1996 5.000 3.750
December 29, 1996 4.875 2.875
March 30, 1997 5.250 3.469
June 29, 1997 3.750 2.500
September 28, 1997 3.750 1.750
Source: Media General Financial Services
The foregoing quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Dividend Policy. The Company has paid no cash dividends since its initial public
offering. The Company currently intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate paying
cash dividends on Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent, among other things, upon earnings, capital requirements, any
financing agreement covenants and the financial condition of the Company.
Stock Repurchase. In March 1995, the Company's Board of Directors approved the
repurchase of up to 500,000 shares of the Company's outstanding shares of common
stock, of which 153,000 shares have been acquired to date. No shares were
repurchased in 1997.
Anti-Takeover Provisions. Indiana law and the Company's Articles of
Incorporation and Code of By-laws contain provisions that restrict the
acquisition of control of the Company. Such provisions can affect the rights of
shareholders acquiring substantial interests in the Company's shares. For
example, a shareholder who acquires more than 10% of the Company's shares
without prior board approval will be limited in the timing and terms of any
transaction it may enter into with the Company and will be subject to related
provisions. Any shareholder who effects an acquisition after which such
shareholder holds more than 20% of the Company's outstanding shares will have no
voting rights in the shares acquired in such acquisition, unless such rights are
conferred by the disinterested shareholders at the next annual meeting (or
earlier special meeting).
<PAGE>
SHAREHOLDER RIGHTS PLAN
In August 1997 the Company adopted a shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars in thousand,
except per share data) Year Ended
- - --------------------------------------------------------------------------------------------------------------------
Income Statement Data Sept. 28, Sept. 29, 1996 Oct. 1, 1995 Oct. 2, 1994 Oct. 3, 1993
1997
- - ---------------------------------- ---------------- ---------------- --------------- --------------- --------------
Net Sales:
<S> <C> <C> <C> <C> <C>
Domestic $ 57,235 $73,317 $ 91,652 $81,640 $75,278
Export 15,047 25,648 21,408 10,734 10,001
Total Net Sales 72,282 98,965 113,060 92,374 85,279
Cost of Goods Sold 66,342 83,669 92,692 73,775 68,262
Gross Profit 5,940 15,296 20,368 18,599 17,017
Operating Expenses 13,924 15,049 15,864 12,505 11,099
Restructuring and Goodwill
Impairment Charges 5,926 ---- ---- ---- ----
Operating Income (loss) (13,910) 247 4,504 6,094 5,918
Interest (expense) ( 400) ( 293) (208) 99 (373)
Other, Net 194 176 214 104 31
Income (loss) Before Taxes (14,116) 130 4,510 6,297 5,576
Income Taxes (Credit)/Pro Forma (2,814) 20 1,753 2,517 2,241
Income Taxes (1)
Net Income (loss) /Pro Forma $ (11,302) $ 110 $ 2,757 $ 3,780 $ 3,335
Net Income (loss)
Weighted Common Shares 4,127 4,142 4,261 4,193 3,512
Outstanding
Earnings (loss) Per Share $ (2.74) $ 0.03 $ 0.65 $ 0.90 $ 0.95
Balance Sheet Data
- - ---------------------------------- ----------- -------- --------- --------- ---------
Working Capital $ 7,011 $ 8,476 $ 8,693 $ 8,140 $ 9,072
Total Assets 27,779 36,524 34,213 32,772 24,590
Long-term Debt 5,696 0 323 196 209
Shareholders' Equity 10,295 21,552 21,688 19,556 14,866
Book Value per Share 2.49 5.23 5.20 4.58 3.05
</TABLE>
(1) For the period up through July 21, 1993, the Company was an S
Corporation for federal and state income tax purposes and, accordingly,
was not subject to such taxes. The pro forma information for the year
ended October 3, 1993 has been computed as if the Company were subject
to federal and state income taxes based on the tax laws in effect
during that year.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The consolidated statements of income summarize operating results for the last
three years. This section of Management's Discussion highlights the main factors
affecting the changes in operating results during the three-year period.
1997 VERSUS 1996
Net Sales
Net sales for 1997 were $72.3 million compared to $99.0 million in 1996.
Domestic sales declined 21.9% to $57.2 million and export sales declined 41.3%
to $15.0 million. The Company's average sale per unit was $6,000 in 1997 on
12,000 sale units versus $6,100 in 1996 on 16,100 sale units.
The domestic conversion market continues to decline due to the increased
popularity and availability of sport utility vehicles and factory minivans,
price pressure from higher chassis costs and lower levels of conversion
inventory being held on dealer retail lots. The Company's domestic sale units
declined 23.3% versus an industry average of 14.6% as reported by the
Recreational Vehicle Industry Association. International sales in 1996 benefited
from the early build of 1997 model year minivans for Japan totaling $6 million.
Gross Profit
Gross profit decreased from $15.3 million (15.5% of sales) in 1996 to $5.9
million (8.2% of sales) in 1997. The decrease in gross margin as a percent of
sales is attributable to the impact of fixed plant overhead costs on the lower
sales volume and $1.0 million of incremental carrying costs on chassis
consignment inventory.
Selling and promotion expense
Selling and promotion expense decreased $1 million to $7.2 million in 1997 from
1996 due to the lower domestic sales volume. This expense increased from 8.4% of
sales to 10.0% of sales due to the impact of fixed salesmen salaries on the
lower sales volume.
General and Administrative Expense
General and administrative expense decreased 7.0% in 1997 relative to 1996
before the impact of the National Mobility acquisition (1.7% after National
Mobility). The decrease is primarily attributable to a reduction in personnel.
Restructuring Charges
In December 1996 the Company completed the consolidation of its Imperial
Automotive Group manufacturing operation into Starcraft Automotive Group's
manufacturing complex in Goshen, Indiana. The consolidation is designed to
enhance profitable growth by reducing excess production capacity, personnel
count and fixed overhead expenses. The Company recorded a $750,000 restructure
charge in the first quarter of fiscal year 1997, which remains reasonable at
year end. The Company estimates it will realize annual overhead expense
reductions of approximately $1.1 million from reduced facility and personnel
costs during 1998 relative to 1997.
<PAGE>
In June 1997 the Company closed its McGregor, Texas manufacturing facility and
sold certain assets of the business. The Company recorded a $260,000 net
restructure charge in the third quarter of fiscal year 1997 primarily for the
write-down of leasehold improvements. The Company should realize savings from
the closure of the Texas facility which lost $1.3 million pretax in 1997.
The restructuring charges consisted of employee termination and other costs
($179,000), leasehold asset write-offs ($326,000) and the recognition of
remaining contractual lease obligations ($505,000).
Goodwill Impairment Loss
Operating losses at Imperial, together with a strategic review of the conversion
industry, resulted in an evaluation of the goodwill related to the acquisition
of Imperial Industries, Inc. The July 1994 acquisition of Imperial Industries,
Inc. was viewed at that time as a strategic expansion of the Company's
production capacity, conversion products lines, and sales and dealer network.
The operating strategy was to allow Imperial to remain an independent
manufacturing and operating subsidiary focused exclusively on the price
sensitive, entry level domestic market. However, subsequent to the acquisition,
the domestic market has contracted, gross margins have deteriorated, and
Imperial has experienced operating losses. In 1997, the manufacturing operations
of Imperial were consolidated into the Starcraft manufacturing facility to
reduce excess capacity. Further integration of the manufacturing operations, as
well as integration and reduction of the sales, dealer and general and
administration functions, have occurred since this consolidation.
As a result of the change in the domestic market, abandonment of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle conversion market, an impairment loss of $4.9
million, increased from the estimate of $4.5 million previously announced, was
recorded in the fourth quarter of 1997 to write-off the remaining goodwill
associated with this acquisition.
Income Taxes
The 1997 income tax credit was recorded at a 19.9% effective rate primarily due
to the impact of a $2.5 million valuation allowance for deferred income taxes.
The effective rate in 1996 was 15.4% which benefitted from the implementation of
a foreign sales corporation subsidiary.
1996 VERSUS 1995
Net Sales
Net sales for 1996 were $99.0 million, down 12.5% from 1995. Domestic sales
decreased 20.0% to $73.3 million while export sales increased 19.8% to $25.6
million. Unit sales decreased 4.9% to 16,106 in 1996.
Domestic sales were hampered early in the year by the availability of
General Motors products, primarily attributable to the OEM strike, production
issues on the minivan and the delayed introduction of the newly redesigned
fullsize van. As the Company historically relies heavily on General Motors
products, the Company's unit van shipments declined 12.7% in 1996 compared to
the industry's decline of 6.5% as reported by the Recreational Vehicle Industry
Association. Van conversion sales for 1996 were negatively impacted by the
growing popularity of OEM sport utility vehicles ("SUVs"). The Company's
shipments of converted pickup trucks and SUVs increased 11.3% in 1996.
International sales in 1996 benefited from the early build of 1997 model
minivans for Japan totaling $6 million.
The average conversion price declined 9.3% in 1996 due to a change in
product sales mix toward pickup trucks and SUVs and the percentage increase of
Imperial and Lonestar units which compete primarily in the entry level price
range.
<PAGE>
Gross Profit
Gross profit margin for 1996 was 15.5% compared to 18.0% in the prior year.
The 1996 decline is due to the impact of fixed overhead on the lower sales and
approximately $200,000 of project expenses incurred on the start-up of the Texas
facility.
Selling and Promotion Expense
Selling and promotion expense for 1996 decreased 11.2% to $8.3 million,
primarily attributable to the reduced sales. Selling and promotion expense as a
percent of sales was 8.4% in 1996 compared to 8.2% in the prior year.
General and
Administrative Expense
General and administrative expense was $6.8 million in 1996, a 3.4%
increase from 1995. The increase is due to approximately $360,000 of expenses to
start-up the Texas facility, offset by the successful implementation of several
expense-containment strategies including personnel reductions.
Income Tax Expense
The effective tax rate on income for 1996 was 15.4% compared to 38.9% in
the prior year. The effective rate in 1996 benefited from the implementation of
a foreign sales corporation subsidiary.
Seasonality and Trends
The Company's sales and profits are dependent on the automotive markets in the
United States and overseas, primarily Japan and northern Europe, and the OEM's
ability to supply vehicle chassis. The business tends to be seasonal with
stronger sales in March through July and is influenced by a number of factors
including atypical weather for any sales region and OEM programs affecting the
price, supply and delivery of vehicle chassis. General Motors' chassis
represented 65% of the Company's total unit shipments in 1997 compared to 72% in
1996.
The Company's retail dealers had approximately 3,600 units on hand at the end of
1997 compared to 5,300 at the end of 1996, 5,600 at the end of 1995 and 7,200 at
the end of 1994. Conversion inventory on dealer retail lots is down for the
entire industry relative to prior years. The Company believes dealers are
stocking fewer conversion products because of the growing availability of
additional vehicle models such as sport utility vehicles and a general concern
by dealers of the future of the conversion industry. The OEMs have recently
increased their advertising and dealer training efforts to support vehicle
conversion product.
The strengthened U.S. dollar and recent turmoil in financial markets in Asia
will pressure the Company's 1998 export sales and margins. However, new market
penetration and continued development of existing markets, especially Europe,
should partially offset the Asia market decline. The domestic conversion market
is expected to continue to decline in 1998.
The Company eliminated much excess production capacity and reduced overhead in
1997 to address the decline in revenue. In 1997 the Company began a plan to
diversify both its product base and target markets as it acquired National
Mobility Corporation. National Mobility markets its products in both the retail
and government markets. In 1998 the Company expects to continue to pursue its
cost reduction and diversification strategy. The Company plans to increase its
product offerings in the vehicle conversion commercial market, initially shuttle
buses for the airport, nursing home and hotel markets.
The Company has reviewed its information systems for compatability with year
2000. It has plans in place to replace software deemed incompatable with year
2000 in a timely manner and does not anticipate any material adverse effect from
year 2000 compatability issues.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $3.0 million during 1997 compared to providing
cash of $1.9 million in the prior year. The use of cash resulted primarily from
the pretax operating loss. The Company expects to receive $3.3 million in
federal and state tax refunds in December 1997 or January 1998. Receivables
decreased $2.5 million and accounts payable decreased $3.4 million due to the
decrease in sales and production levels. Inventories declined $4.5 million due
to the reduced production levels and the Company's inventory reduction efforts.
<PAGE>
The Company invested $1.4 million in property and equipment during the year
primarily for product tooling ($210,000), information systems ($670,000),
building upgrades ($290,000) and plant equipment ($100,000). The Company expects
1998 capital expenditures to be significantly less than 1997 levels.
The Company acquired National Mobility Corporation of Elkhart, Indiana in
February 1997 for $1.2 million in cash, assumption of certain bank debt, and
15,000 shares of the Company's Common Stock. National Mobility is one of the
largest manufacturers of conversion vehicles for the physically challenged with
annual sales for fiscal 1997 of $4 million.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of September 1997, bank debt was $5.7 million.
On January 12, 1998, the Company entered into an amended credit agreement with
its bank which was effective as of December 31, 1997. The agreement has a
maturity date of January 31, 1999. Borrowings are limited to specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum limits of $15 million through March 30, 1998, $12 million
from March 31, 1998 through June 29, 1998, and $10 million thereafter.
Borrowings pursuant to the agreement bear interest at the prime rate of the
lending bank plus 1% and are secured by substantially all of the Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused portion of the available credit based on the Company's level of
total interest bearing liabilities compared to consolidated earnings before
interest, taxes, depreciation, and amortization. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6.7 million at December 31, 1997, $6.1 million from January 1, 1998 through
June 27, 1998, $7.25 million from June 28, 1998 through September 27, 1998 and
$7.6 million thereafter. If these minimum levels are not maintained, any
outstanding balances become payable upon demand of the bank. The Company's
tangible net worth was $8.842 million at September 28, 1997.
In order to maintain the minimum levels of tangible net worth through 1998, the
Company needs to achieve operating results substantially consistent with its
1998 operating plan. This plan calls for 1998 net sales to be approximately six
percent less than 1997 net sales. This reduction results primarily from reduced
sales in the core conversion business partially offset by the inclusion of a
full year of National Mobility Corporation's sales in 1998. The Company plans to
reduce cost of goods sold through improved plant operating efficiencies, a new
pay system for production line associates, and the reduction of carrying costs
of its chassis by decreasing inventory levels. In addition, the Company plans to
reduce selling, general and administrative expenses. In December 1997 the
Company reorganized its sales department and adopted a more focused advertising
plan to reduce selling and promotion costs. General and administrative costs
will be reduced primarily through reductions in personnel and the decrease in
certain employee benefits in 1998.
In addition to the availability of bank financing, the Company has restricted
sales agreements with General Motors Acceptance Corporation, Chrysler Financial
Corporation and Ford Motor Credit Company. Pursuant to these agreements, the
Company obtains vehicle chassis from the OEM's for 90 days at nominal rates. If
the Company fails to match a chassis with a dealer order within 90 days after
delivery of the chassis to the Company, carrying charges increase to prime rate
plus 1%.
In 1995 the Board of Director's approved the repurchase of up to 500,000 shares
of the Company's outstanding shares of Common Stock, of which 153,000 shares
have been acquired to date. No shares were repurchased in 1997. Additional
shares are not expected to be acquired until the Company's debt is reduced.
The Company believes that future cash flows from operations, funds available
under its bank revolving credit agreement, and the continued use of OEM
financing arrangements to manage its chassis inventory will be sufficient to
satisfy its anticipated operating needs and capital improvements for 1998.
DISCUSSION OF FORWARD-LOOKING INFORMATION
The discussion above includes forward-looking statements respecting
restructuring cost estimates, future personnel and facility expense reductions,
anticipated tax refunds, domestic and international market and economic trends,
the Company's product and target market diversification plans, anticipated
capital expenditures, the adequacy of capital resources and other matters. From
time to time, Starcraft may make oral or written forward-looking statements
regarding its anticipated sales, costs, expenses, earnings and matters affecting
its condition and operations. All such forward- looking statements are subject
to a number of material factors which could cause the statements or projections
contained therein to be materially inaccurate. Such factors include, without
limitation, the following:
General Operating Contingencies. The Company may not be able to attract and
retain employees with sufficient skills to conduct its operations efficiently
and may from time to time be subject to work slow-downs or stoppages. The
Company may be adversely affected by delay or unavailability of supply of
numerous component parts. The Company will not always be able to satisfy its
capital requirements with internally generated funds and may, from time to time,
need to rely on bank financing and other third party capital resources. There is
no assurance that such resources will always be available to the Company or as
to the terms that will apply to any financing.
Acquisitions. The Company may be engaged in negotiations from time to time
regarding prospective acquisitions of van conversion or related businesses. Such
acquisitions could be material to the Company and, if effected, could have a
material effect on the Company's financial condition or results of operations.
There is no assurance as to when or whether the Company will be able to effect
acquisitions, whether it will be able to generate requisite funding to effect
such acquisitions, or as to the terms on which such acquisitions may be
effected.
Economic Conditions. The van conversion industry is cyclical and is affected by
the general trends of the economy and consumer preferences and consumer
confidence and trends of the automotive and recreational vehicle industries both
domestically and in international markets. The level of disposable consumer
income affects the Company's sales because its products are generally considered
discretionary expenditures by consumers. In difficult economic times, consumers
tend to spend less of their income on discretionary items. Other economic
factors affecting the demand for the Company's products include the availability
and price of gasoline, the level of interest rates and the availability of
consumer financing. A decline in general economic conditions or consumer
confidence can be expected to affect Starcraft's sales adversely.
<PAGE>
Supply and Financing of Vehicle Chassis. The Company is dependent upon the OEMs
to supply its requirements for vehicle chassis. Labor stoppages, supply
shortages and a variety of other factors that influence OEM production can
affect the availability or timely delivery of vehicle chassis to the Company. If
vehicle chassis are unavailable, or if the Company must accept delivery earlier
or later than it otherwise would prefer, sales could be adversely affected and
financing expenses could increase. The Company must also comply with its
consignment and restricted sale contracts with the OEMs pursuant to which the
OEMs impose certain specifications for the Company's vehicle conversions,
including gross vehicle weight standards. Such contracts also restrict the
Company's ability to dispose of completed chassis and prohibit the transfer of
chassis to unauthorized U.S. and foreign dealers. All of the Company's
consignment and restricted sale contracts with chassis suppliers are terminable
by either party on short notice without cause. The availability of the OEM
financing rates is dependent upon the Company's compliance with its OEM
contracts and its ability to maintain satisfactory credit relationships with the
OEM's finance subsidiaries. Adverse changes in the Company's financial condition
or results of operations could cause such financing subsidiaries to seek to
change adversely the Company's financing terms or to terminate such financing
arrangements. Such a change or termination could have a material adverse effect
on the Company's financial condition and results of operations.
Regulation. The Company is subject to various foreign, federal, state and local
regulations. In particular, van conversion components produced by the Company
are required to comply with Federal Motor Vehicle Safety Standards and similar
safety standards imposed in its foreign markets. Promulgation of additional
safety standards in the future could require the Company to incur additional
testing and engineering expenses which could adversely affect the Company's
results of operations. The Company's international sales can be adversely
affected by changes in foreign import tariffs and taxes and fluctuations in
exchange rates. The Company must comply with certain Federal and state
regulations relating to the disposition of hazardous wastes generated in its
production processes. The Company's failure to comply with applicable
regulations or changes in current regulations, including the adoption of new
safety or environmental standards, could have material adverse effect on the
Company's results of operations.
Competition. The United States van conversion industry is very competitive with
several principal nationwide manufacturers and numerous local and regional
competitors. There is no assurance the Company will be able to maintain its
current competitive position in the van conversion market.
Potential Product Liability. Like other automotive manufacturers, the Company
may be subject to claims that its products caused or contributed to damage or
injury sustained in vehicle accidents or may be required to recall products
deemed unsafe. Any such claims in excess of the Company's insurance coverage or
material product recall expenses could adversely affect the Company's financial
condition and results of operations.
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
To the Board of Directors
Starcraft Corporation
We have audited the accompanying consolidated balance sheets of Starcraft
Corporation and Subsidiaries as of September 28, 1997 and September 29, 1996 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended September 28, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of Starcraft Corporation and Subsidiaries for the year ended October 1, 1995
were audited by other auditors whose report dated November 3, 1995 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Starcraft Corporation and Subsidiaries as of September 28, 1997 and September
29, 1996 and the consolidated results of their operations and their cash flows
for each of the two years in the period ended September 28, 1997 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young
January 12, 1998
Fort Wayne, Indiana
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Starcraft Corporation
Goshen, Indiana
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Starcraft Corporation and Subsidiaries
for the period ended October 1, 1995. These consolidated financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of the operations and cash flows
of Starcraft Corporation and Subsidiaries for the period ended October 1, 1995
in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
November 3, 1995
<PAGE>
Starcraft Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 608 $ 1,366
Trade receivables, less allowance for
doubtful accounts: (1997--$81; 1996--$51) 3,977 9,165
Manufacturers' rebates receivable 692 1,079
Recoverable income taxes 3,300 -
Inventories 9,270 11,508
Other 444 330
---------------------------
Total current assets 18,291 23,448
Property and equipment:
Land, buildings, and improvements 5,857 6,033
Machinery and equipment 5,608 4,430
---------------------------
11,465 10,463
Less accumulated depreciation 3,491 2,697
---------------------------
7,974 7,766
Goodwill, at amortized cost 1,453 5,140
Other assets 61 170
===========================
$27,779 $ 36,524
===========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
---------------------------------------
Liabilities and shareholders' equity
Current liabilities:
<S> <C> <C>
Accounts payable, trade $ 6,354 $ 9,330
Accrued expenses:
Warranty 1,337 1,600
Compensation and related expenses 484 882
Taxes 1,060 1,280
Other 2,045 1,557
Current portion of long-term debt - 323
----------------------------------
Total current liabilities 11,280 14,972
Long-term debt 5,696 -
Deferred income taxes 508 -
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value--2,000,000
shares authorized but unissued - -
Common stock, no par value:
Authorized shares--10,000,000 shares
Issued and outstanding shares
1997--4,133,600; 1996--4,118,600 14,016 13,971
Additional paid-in capital 1,008 1,008
Retained earnings (deficit) (4,729) 6,573
----------------------------------
10,295 21,552
----------------------------------
$27,779 $ 36,524
==================================
</TABLE>
See accompanying notes.
<PAGE>
Starcraft Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
<TABLE>
<CAPTION>
Years ended
--------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Domestic $ 57,235 $ 73,317 $ 91,652
Export 15,047 25,648 21,408
------------------------------------------------------
72,282 98,965 113,060
Cost of goods sold 66,342 83,669 92,692
------------------------------------------------------
Gross profit 5,940 15,296 20,368
Operating expenses:
Selling and promotion 7,243 8,252 9,292
General and administrative 6,681 6,797 6,572
Restructuring charges 1,010 - -
Goodwill impairment loss 4,916 - -
-----------------------------------------------------
Operating income (loss) (13,910) 247 4,504
Nonoperating (expense) income:
Interest, net (400) (293) (208)
Other income, net 194 176 214
------------------------------------------------------
(206) (117) 6
------------------------------------------------------
Income (loss) before income taxes (14,116) 130 4,510
Federal and state income taxes (credit) (2,814) 20 1,753
======================================================
Net income (loss) $ (11,302) $ 110 $ 2,757
======================================================
Earnings (loss) per common and
common equivalent share $ (2.74) $ 0.03 $ 0.65
======================================================
Average number of common and
common equivalent shares outstanding 4,127,350 4,142,402 4,260,915
======================================================
</TABLE>
See accompanying notes.
<PAGE>
Starcraft Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in- Earnings
Stock Capital (Deficit) Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, October 2, 1994 $14,442 $1,008 $ 4,106 $ 19,556
Net income - - 2,757 2,757
Repurchase and retirement
of 100,000 shares of common stock (338) - (287) (625)
-----------------------------------------------------------
Balance, October 1, 1995 14,104 1,008 6,576 21,688
Net income - - 110 110
Repurchase and retirement
of 53,000 shares of common stock (133) - (113) (246)
-----------------------------------------------------------
Balance, September 29, 1996 13,971 1,008 6,573 21,552
Net loss - - (11,302) (11,302)
Issuance of 15,000 shares
of common stock 45 - - 45
===========================================================
Balance, September 28, 1997 $14,016 $1,008 $ (4,729) $ 10,295
===========================================================
</TABLE>
See accompanying notes.
<PAGE>
Starcraft Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Years ended
--------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
--------------------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income (loss) $ (11,302) $ 110 $ 2,757
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,199 1,087 1,006
Non-cash restructuring charges 611 - -
Goodwill impairment loss 4,916 - -
Deferred income taxes 583 51 93
Change in operating assets and liabilities:
Receivables 2,465 (2,810) (229)
Inventories 4,494 205 (1,346)
Other (113) 163 176
Accounts payable (3,369) 2,947 (696)
Accrued expenses (2,512) 110 (703)
--------------------------------------------------------
Net cash provided by (used in) operating activities (3,028) 1,863 1,058
Investing activities
Purchase of property and equipment (1,407) (932) (1,630)
Purchase of assets of National Mobility Corporation (1,756) - -
Proceeds from sale of property and equipment 60 36 45
--------------------------------------------------------
Net cash used in investing activities (3,103) (896) (1,585)
Financing activities
Proceeds from revolving credit agreement 12,200 7,800 5,100
Payments of revolving credit agreement (6,504) (7,800) (5,100)
Payments of long-term debt (323) (610) (512)
Repurchase of common stock - (246) (625)
--------------------------------------------------------
Net cash provided by (used in) financing activities 5,373 (856) (1,137)
--------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (758) 111 (1,664)
Cash and cash equivalents at beginning of year 1,366 1,255 2,919
========================================================
Cash and cash equivalents at end of year $ 608 $ 1,366 $ 1,255
========================================================
Supplemental information:
Interest paid $ 376 $ 304 $ 222
Income taxes paid $ 140 $ 60 $ 2,205
</TABLE>
See accompanying notes.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share data)
September 28, 1997
1. Nature of Business and Significant Accounting Policies
Nature of Business and Principles of Consolidation
Starcraft Corporation and Subsidiaries (Company) are second stage manufacturers
of custom van, pickup truck, and sport utility vehicle conversions. The
consolidated financial statements include the accounts of Starcraft Corporation
and its wholly owned subsidiaries: Starcraft Automotive Group, Inc., Imperial
Automotive Group, Inc. (Imperial), Starcraft Southwest, Inc., and National
Mobility Corporation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company's customers operate in the automotive industry. The Company sells
conversion units throughout the United States, and export sales are principally
to locations in Japan and northern Europe. Credit is extended to customers based
on an evaluation of the customer's financial condition, and when credit is
extended collateral generally is not required. Sales to the Company's largest
customer were $9,541, $18,526, and $15,185 in 1997, 1996, and 1995,
respectively.
Significant Accounting Policies
Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three
months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for certain inventories ($8,962 and $8,408 at
September 28, 1997 and September 29, 1996, respectively) and by the first-in,
first-out (FIFO) method for all other inventories.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed principally
by the straight-line method over the estimated useful lives of the assets. The
Company is depreciating buildings over periods of 15 to 50 years, building
improvements over periods of 5 to 20 years, and equipment over periods of 3 to
12 years.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
1. Nature of Business and Significant Accounting Policies (continued)
Goodwill
Goodwill is amortized by the straight-line method over a period of 15 years and
is stated net of accumulated amortization of $57 and $482 at September 28, 1997
and September 29, 1996, respectively. The Company evaluates the recoverability
based on undiscounted projected operating cash flows when factors indicate that
an impairment may exist. During the fourth quarter of 1997, the Company wrote
off the remaining goodwill associated with the acquisition of Imperial
Industries, Inc. as more fully described in Note 8.
Warranties
The Company follows the policy of accruing an estimated liability for warranties
at the time the warranted products are sold.
Revenue Recognition
The Company generally manufactures products based on specific orders from
customers. Shipments are generally made by common carrier after receiving
authorization from the customer, and revenue is generally recognized upon
shipment. Net sales do not include the cost of chassis (see Note 10).
Stock Based Compensation
The Company periodically grants stock options for a fixed number of shares to
employees. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Use of Estimates
Preparation of the financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
1. Nature of Business and Significant Accounting Policies (continued)
Earnings Per Share
Earnings (loss) per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," ("FAS 128") which is required to be adopted by the
Company in the first quarter of 1998. Upon adoption, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. The impact of FAS 128 on the calculation of
earnings per share is not expected to be material.
Seasonality
The Company's business is seasonal. Sales are generally higher during the spring
and summer months of the year.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to September 30. The years
ended September 28, 1997, September 29, 1996, and October 1, 1995 each contain
52 weeks.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform with the current
year presentation.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
2. Inventories
The composition of inventories is as follows:
September 28, September 29,
1997 1996
-----------------------------------------
Raw materials $ 4,654 $ 7,126
Work-in-process 1,667 1,786
Finished goods 2,949 2,596
=========================================
$ 9,270 $ 11,508
=========================================
The use of the LIFO method of determining the cost of inventories did not have a
material effect on inventories at September 28, 1997 and September 29, 1996.
3. Debt Arrangements
On January 12, 1998, the Company entered into an amended credit agreement with
its bank which was effective as of December 31, 1997. The agreement has a
maturity date of January 31, 1999. Borrowings are limited to specified
percentages of eligible receivables, inventories, and property and equipment and
are subject to maximum limits of $15,000 through March 30, 1998, $12,000 from
March 31, 1998 through June 29, 1998, and $10,000 thereafter. The carrying
amount of the Company's line of credit approximates fair value. Interest expense
was approximatley $403, $305, and $224 in 1997, 1996, and 1995, respectively.
Borrowings pursuant to the agreement bear interest at the prime rate of the
lending bank plus 1% and are secured by substantially all of the Company's
assets. Fees on the unused commitment range from 0.125% to 0.250% of the average
daily unused portion of the available credit based on the Company's level of
total interest bearing liabilities compared to consolidated earnings before
interest, taxes, depreciation, and amortization. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $6,700 at December 31, 1997, $6,100 from January 1, 1998 through June 27,
1998, $7,250 from June 28, 1998 through September 27, 1998 and $7,600
thereafter. If these minimum levels are not maintained, any outstanding balances
become payable upon demand of the bank. The Company's tangible net worth was
$8,842 million at September 28, 1997.
In order to maintain the minimum levels of tangible net worth through 1998, the
Company needs to achieve operating results substantially consistent with its
1998 operating plan. This plan calls for 1998 net sales to be slightly lower
than 1997 net sales. The Company plans to reduce cost of goods sold through
improved plant operating efficiencies, a new pay system for production line
associates, and the reduction of carrying costs of its chassis by decreasing
inventory levels. In addition, the Company plans to reduce selling, general and
administrative expenses primarly through reductions in personnel and employee
benefits costs.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
4. Income Taxes
Federal and state income taxes (credits), all of which were domestic, consist of
the following:
1997 1996 1995
---------------------------------------------------
Current:
Federal $(2,770) $ (103) $ 1,272
State (627) 55 378
---------------------------------------------------
---------------------------------------------------
(3,397) (48) 1,650
Deferred:
Federal 508 54 83
State 75 14 20
---------------------------------------------------
---------------------------------------------------
583 68 103
===================================================
$(2,814) $ 20 $ 1,753
===================================================
The provisions for income taxes are different from amounts that would otherwise
be computed by applying a federal statutory rate of 34% to income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Rate applied to pretax income (loss) $ (4,799) $ 44 $ 1,533
State taxes--net (701) 46 182
Foreign sales corporation (36) (205) -
Temporary differences for which no benefit
was recognized 2,544 - -
Other, net 178 135 38
===========================================================
$ (2,814) $ 20 $ 1,753
===========================================================
</TABLE>
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
4. Income Taxes (continued)
The composition of the deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
-------------------------------------------
Deferred tax liabilities:
<S> <C> <C>
Accelerated depreciation $ (484) $ (330)
Inventory basis difference (331) (331)
Other (57) (84)
-------------------------------------------
-------------------------------------------
(872) (745)
Deferred tax assets:
Inventory 216 267
Nondeductible accruals:
Warranty 276 378
Other 455 175
Goodwill 1,741 -
Alternative minimum tax credit carryforward 220 -
-------------------------------------------
Total deferred tax assets 2,908 820
Valuation allowance (2,544) -
-------------------------------------------
364 820
===========================================
Net deferred tax asset (liability) $ (508) $ 75
===========================================
</TABLE>
The alternative minimum tax carryforward of $220 has no expiration date for
income tax purposes.
5. Compensation Plans
The Company sponsors a qualified profit-sharing plan, more commonly known as a
401(k) plan, for all of its employees with over six months of service. The plan
provides for a matching contribution by the Company of the employee's salary
deduction, up to 6% of compensation. In addition, the plan provides for a
discretionary contribution annually as determined by the Board of Directors. The
amounts charged to expense for this plan were approximately $361, $107, and $470
in 1997, 1996, and 1995, respectively.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
6. Stock Option Plans
The Company maintains two stock incentive plans under which stock options are
granted to key employees and directors. The plans authorize the grant of stock
options for up to 630,000 shares of the Company's common stock. The options in
these two plans have 5 year terms and become fully exercisable after six months.
The Company also sponsors a qualified stock option plan with 40,000 shares of
common stock reserved for options to certain sales representatives who are not
employees of the Company. These options have five year terms.
Under the three plans, options may not be granted at prices below 85% of the
current market value of the stock at the date of grant. All options awarded
through September 28, 1997 have been at fair market value on the date of grant.
For each of the three years in the period ended September 28, 1997, the effect
of the stock options in computing earnings per common share was antidilutive.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 375,349 $6.24 311,850 $8.02 241,350 $8.55
Granted 124,500 3.40 176,500 4.38 167,000 7.46
Canceled (92,500) 5.02 (113,001) 8.26 (96,500) 8.37
------------- ---------------- --------------- -------------- --------------- --------------
Outstanding at end of
year 407,349 $5.65 375,349 $6.24 311,850 $8.02
============= ================ =============== ============== =============== ==============
Exercisable at end of 302,149 $6.46 359,849 $6.21 248,076 $8.21
============= ================ =============== ============== =============== ==============
</TABLE>
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
6. Stock Option Plans (continued)
As of September 28, 1997, there were 225,500 options outstanding with exercise
prices which ranged from $2.50 to $5.00. The weighted-average exercise price of
these options is $4.01, and the weighted-average remaining contractual life is
4.0 years. As of September 28, 1997, there were 181,849 options outstanding with
exercise prices which ranged from $5.125 to $10.00. The weighted-average
exercise price of these options is $7.67, and the weighted-average remaining
contractual life is 1.5 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25 no compensation expense
has been recognized because the exercise price of the Company's stock options
has equaled the market price of the underlying stock on the date of grant. Pro
forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
and has been determined as if the Company had accounted for its stock options
issued in 1997 and 1996 under the fair value method of FAS 123. The fair value
was estimated as of the date of grant using a Black-Sholes option pricing model
with the following assumptions:
1997 1996
------------------------------------------------
Risk-free interest rate 6.04% - 6.77% 5.41% - 6.71%
Dividend yield 0% 0%
Volatility factor 40.9% - 48.8% 33.3% - 41.3%
Expected option life 4 years 4 years
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1997 1996
--------------------------------
Pro forma net income (loss) $(11,469) $ 13
Pro forma net income (loss) per share $ (2.78) $ 0.00
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
7. Shareholder Rights Plan
In August 1997 the Company adopted a Shareholders Rights Plan issuing one right
for each outstanding share. Each right entitles the registered holder to
purchase from the Company one share of common stock at $15 per share, subject to
adjustment. The rights become exercisable if a person or group (other than
certain related persons) acquires or announces a tender offer for prescribed
percentages of the Company's shares or is declared an "adverse person" by the
Company's Board of Directors. In these events, each right holder may purchase
shares with a value equal to twice the exercise price. Furthermore, if the
Company engages in certain mergers or similar business combinations a right
holder may purchase shares of the acquiring company with a value of two times
the purchase price of the right. The rights expire on August 12, 2007.
8. Restructuring Charges and Goodwill Impairment
In December 1996 the Company consolidated its Imperial manufacturing operation
located in Elkhart, Indiana into the Company's facility in Goshen, Indiana. In
June 1997 the Company closed its McGregor, Texas plant and sold the assets of
the business. The Company recorded $1,010 of restructuring charges related to
such activities primarily for employee termination and other costs ($179),
leasehold asset write-offs ($326) and the recognition of remaining contractual
lease obligations ($505). The contractual lease obligations primarily pertain to
remaining rent and associated contractual costs at the former Imperial location.
The remaining liability for contractual lease obligations at September 28, 1997
is $155, which will be paid in fiscal 1998.
Operating losses at Imperial, together with a strategic review of the conversion
industry, resulted in an evaluation of the goodwill related to the acquisition
of Imperial Industries, Inc. The July 1994 aquisition of Imperial Industries,
Inc. was viewed at that time as a strategic expansion of the Company's
production capacity, conversion products lines, and sales and dealer network.
The operating strategy was to allow Imperial to remain an independent
manufacturing and operating subsidiary focused exclusively on the price
sensitive, entry level domestic conversion market. However, subsequent to the
acquistion, the domestic market has contracted, gross margins have deteriorated,
and Imperial has experienced operating losses. In 1997, the manufacturing
operations of Imperial were consolidated into the Starcraft manufacturing
facility to reduce excess capacity. Further integration of the manufacturing
operations, as well as integration and reduction of the sales, dealer and
general and administration functions, have occurred since this consolidation.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
8. Restructuring Charges and Goodwill Impairment Loss (continued)
As a result of the change in the domestic market, abandonment of the original
strategic operating plan for Imperial, cumulative operating losses and continued
weakness in the domestic vehicle conversion market, it was determined that the
goodwill was not recoverable and, therefore, a goodwill impairment loss of
$4,916 was recorded in the fourth quarter of 1997 to write-off the remaining
goodwill associated with this acquisition.
9. Business Combination
On February 28, 1997, the Company acquired the assets and assumed certain
liabilities of National Mobility Corporation, a manufacturer of conversion
vehicles for the physically challenged. The purchase price of the acquired
assets was $1,200 in cash, assumption of certain bank debt, and issuance of
15,000 shares of the Company's common stock. The excess of the total acquisition
cost over the fair value of the net assets acquired is recorded as goodwill and
is being amortized over 15 years using the straight-line method.
The acquisition was recorded using the purchase method of accounting, and
accordingly, the results of operations of National Mobility Corporation for the
seven months ended September 28, 1997 are included in the consolidated financial
statements. The purchase price has been allocated to assets acquired and
liabilities assumed based on their respective fair values at the date of
acquisition. The allocation of the purchase price is summarized as follows:
Current assets $ 2,448
Property and equipment 200
Goodwill 1,510
Current liabilities (2,357)
-------
$ 1,801
=======
On the basis of a pro forma consolidation of the results of operations as if the
acquisition had taken place at the beginning of 1996, consolidated net sales
would have been $102,978 for 1996 and $73,771 for 1997. Consolidated pro forma
income (loss) and earnings (loss) per share would not have been materially
different from the reported amounts for 1997 and 1996. The pro forma information
is not necessarily indicative of what the actual consolidated results of
operations might have been if the acquisition had been effective at the
beginning of 1996.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
10. Consignment Arrangements
The Company obtains vehicle chassis for modification from major vehicle
manufacturers (OEMs) under consignment and restricted sales agreements. These
agreements generally provide that (i) the Company may not obtain certificates of
origin or other evidence of ownership of chassis, (ii) modification must conform
to standards specified by OEMs, and (iii) modifications generally are performed
only after a sale has been negotiated with an OEM approved dealer. The Company
generally ships converted chassis only after dealer acceptance has been approved
by the OEM. The OEMs bill the dealer and provide warranty for the chassis.
Consistent with the practice in their industry, the Company accounts for chassis
as consignment inventory. Accordingly, the Company records chassis inventory and
related obligations only in the event they are required to purchase chassis from
the OEM. Provisions for decline in chassis value are recognized when, in
management's estimation, such provisions are necessary. Provisions for decline
in chassis value, chassis inventory, and chassis sales are not material to the
accompanying financial statements.
At September 28, 1997, the Company has possession of chassis in the aggregate
amount of $28,200 (of which $8,660 related to chassis on consignment for periods
exceeding 90 days) and has total chassis line availability between $82,520 and
$92,040 based on the time of year. Carrying charges on consignment chassis,
which are presented in cost of goods sold, were approximately $2,740, $1,729,
and $2,046 in 1997, 1996, and 1995, respectively. The OEMs have also instituted
incentive rebates to second-stage manufacturers based on the number of chassis
delivered to dealers. Those incentives reduced cost of goods sold by
approximately $751, $1,135, and $1,415 in 1997, 1996, and 1995, respectively.
11. Commitments and Contingencies
The Company leases certain of its facilities and equipment. The total rental
expense for the years ended 1997, 1996, and 1995 is $688, $490, and $295,
respectively. Rental commitments at September 28, 1997 for long-term
noncancelable operating leases are as follows:
1998 $ 228
1999 189
2000 94
2001 5
=========
$ 516
=========
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
11. Commitments and Contingencies (continued)
The Company is subject to various legal proceedings and claims with respect to
such matters as product liabilities and other actions which arise out of the
normal course of its business. Management and its legal counsel periodically
review the probable outcome of pending proceedings and the costs reasonably
expected to be incurred. The Company accrues for these costs when it is probable
that a liability has been incurred and the amount of the loss can be reasonably
estimated. In the opinion of management, any ultimate cost to the Company in
excess of amounts accrued will not materially affect its consolidated financial
position, cash flows or results of operations.
The Company's commitments with respect to its chassis arrangements are described
in Note 10.
12. Research and Development
The Company incurs costs to improve the appeal and safety of its products.
Research and development costs are charged to operations when incurred. Amounts
charged to operations were approximately $824, $893, and $726 in 1997, 1996, and
1995, respectively.
<PAGE>
Starcraft Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands, except share data)
13. Unaudited Interim Financial Information
Presented below is certain unaudited quarterly financial information for 1997
and 1996.
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------------------------------
December 29, March 30, June 29, September 28,
1996 1997 1997 1997
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $17,669 $18,552 $23,465 $12,596
Gross profit (loss) 2,028 1,120 2,843 (51)
Net loss (1,342) (1,552) (692) (7,716)
Loss per common share (0.33) (0.37) (0.17) (1.87)
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------------------------------
December 31, March 31, June 30, September 29,
1995 1996 1996 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $15,658 $23,063 $31,507 $28,737
Gross profit 1,538 1,717 6,276 5,765
Net income (loss) (1,142) (1,229) 1,414 1,067
Earnings (loss) per
common share (0.27) (0.30) 0.34 0.26
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission on or before January 16, 1998.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of the report:
Financial Statements (as of September 28, 1997 and September 29, 1996
and for the fiscal periods ended September 28, 1997, September 29,
1996, and October 1, 1995):
Reports of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Cash Flows
Statements of Shareholders' Equity
Notes to Financial Statements
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the period ending
September 28 1997.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index immediately following the signature page.
(d) The following financial statement schedule is filed as part of this
report:
Schedule II-Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
have been omitted.
<PAGE>
STARCRAFT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions from Balance at Close
Beginning of Period Operations Additions to of Period
Reserves (a)
Allowance for doubtful accounts - deducted from accounts receivable, trade, in
the consolidated balance sheets:
- - ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
52 weeks ended $ 51 $ 30 $ -- $ 81
September 28, 1997
52 weeks ended $ 57 $ -- ($ 6) $ 51
September 29, 1996
52 weeks ended $ 60 $ -- ($ 3) $ 57
October 1, 1995
</TABLE>
(a) Write-off of bad debts, less recoveries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report to be signed on
behalf of the undersigned, thereto duly authorized.
STARCRAFT CORPORATION
DATE: January 12, 1998 By: /s/ Kelly L. Rose
--------------------------------
Kelly L. Rose,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 12th day of January, 1998.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, Chief
Kelly L. Rose Executive Officer
2) Principal Financial/Accounting Officer:
By: /s/ Michael H. Schoeffler President, Chief
Michael H. Schoeffler Financial Officer,
Treasurer, Secretary
3) The Board of Directors:
By: /s/ Kelly L. Rose Director
Kelly L. Rose
By: /s/ Frank K. Martin Director
Frank K. Martin
By: /s/ L. Craig Fulmer Director
L. Craig Fulmer
By: /s/ David J. Matteson Director
David J. Matteson
By: /s/ Allen H. Neuharth Director
Allen H. Neuharth
<PAGE>
EXHIBIT INDEX
Reference to Sequential
Regulation S-K Page
Exhibit Number Document Number
3.1 Registrant's Articles of Incorporation, as amended.
Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ending October 1,
1995. *
3.2 Registrant's Code of By-Laws, as amended. Incorporated
by reference to Exhibit 3.2 to the Registrant's Form
10-K for the fiscal year ending September 29, 1996. *
4.1 Article 6 - "Terms of Shares" and Article 9 -
"Provisions for Certain Business Combinations" of the
Registrant's Articles of Incorporation, as amended.
Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ending October 1,
1995. *
4.2 Article III - "Shareholder Meetings", Article VI -
"Certificates for Shares" and Article VII - "Corporate
Books and Records - Section 3" of the Registrant's Code
of By-Laws, as amended. Incorporated by reference to
Exhibit 3.2 to the Registrant's Form 10-K for the fiscal
year ending September 29, 1996. *
4.3 Amended and Restated Credit Agreement between the
Registrant and Bank One Indianapolis, N.A., dated
November 30, 1994. Incorporated by reference to Exhibit
4.6 of the Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
4.4 First Amendment to Amended and Restated Credit Agreement
between the Registrant and Bank One, Indianapolis, N.A.
dated March 7, 1995. Incorporated by reference to
Exhibit 10(2) to the Registrant's Form 10-Q for the
quarter ending April 2, 1995. *
4.5 Second Amendment to Amended and Restated Credit
Agreement dated April 6, 1996 among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to the Registrant's Form 10-Q
for the Quarter Ended March 31, 1997. *
4.6 Third Amendment to Amended and Restated Credit
Agreement, effective January 31, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A.
Incorporated by reference to the Registrant's Form 10-Q
for the Quarter Ended March 31, 1997. *
4.7 Fourth Amendment to Amended and Restated Credit
Agreement, effective June 29, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.8 Fifth Amendment to Amended and Restated Credit
Agreement, effective December 31, 1997, among Starcraft
Corporation, Starcraft Automotive Group, Inc. Imperial
Automobile Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.9 Rights Agreement, dated as of August 12, 1997, between
Registrant and Harris Trust and Savings Bank, as Rights
Agent. Incorporated by reference to the Registrant's 8-A
filed September 9, 1997. *
10.1(a) The Starcraft Automotive Corporation Stock Incentive Plan. **
10.1(b) The Starcraft Corporation 1997 Stock Incentive Plan.
Incorporated by reference to Exhibit 10.1(b) to the
Registrant's From 10-K for the fiscal year ending
September 29, 1996. *
<PAGE>
10.2 Form of Tax indemnification agreement among the
Registrant, Mr. Kash, Mr. Rose, Mr. Newberry and Mr.
Hardin, dated as of July 21, 1993. Incorporated by
reference to Exhibit 10.7 of the Registrant's
registration statement on Form S-1, Reg. No. 33- 63760. *
10.3(a) Employment Agreement with Kelly L. Rose dated June 2,
1993. Incorporated by reference to Exhibit 10.10(a) of
the Registrant's Form S-1. **
10.3(b) Employment Agreement with Kelly L. Rose dated December
12, 1996. Incorporated by reference to Exhibit 10.3(b)
to the Registrant's From 10-K for the fiscal year ending
September 29, 1996.
10.3(c) Form of First Addendum to Employment Agreement with
Kelly L. Rose, December 31, 1997. [ ]
10.3(d) Consulting Agreement with Allen H. Neuharth dated
September 15, 1993. Incorporated by reference to Exhibit
10.3(k) of the Registrant's Form 10-K for the fiscal
year ending October 2, 1994. *
10.3(e) Employment Agreement between the Registrant and Michael
H. Schoeffler dated January 16, 1995. Incorporated by
reference to Exhibit 10.3(m) of the Registrant's Form
10-K for the year ending October 1, 1995. *
10.3(f) Employment Agreement between the Registrant and Michael
H. Schoeffler dated December 12, 1996. Incorporated by
reference to Exhibit 10.3(e) to the Registrant's From
10-K for the fiscal year ending September 29, 1996.
10.4 Inventory Loan and Security Agreement by and between the
Registrant and General Motors Acceptance Corporation, as
amended. Incorporated by reference to Exhibit 10.13 of
the Registrant's Form S-1. **
10.5 Agreement by and between the Registrant and General
Motors Acceptance Corporation dated February 7, 1991.
Incorporated by reference to Exhibit 10.14 of the
Registrant's Form S-1. **
10.6 Intercreditor Agreement between General Motors
Acceptance Corporation and Bank One, Indianapolis, N.A.
dated July 21, 1992. Incorporated by reference to
Exhibit 10.16 of the Registrant's Form S-1. **
<PAGE>
10.7 Authorized Converter Pool Agreement between the
Registrant and Ford Motor Company dated May 7, 1991 and
amended May 7, 1991. Incorporated by reference to
Exhibit 10.17 of the Registrant's Form S-1. **
10.8 Wholesale Financing and Security Agreement between the
Registrant and Ford Motor Credit Company dated April 17,
1991. Incorporated by reference to Exhibit 10.18 of the
Registrant's Form S-1. **
10.9 Intercreditor Agreement between Ford Motor Credit
Company and Bank One, Indianapolis, N.A. dated July 17,
1992. Incorporated by reference to Exhibit 10.20 of the
Registrant's Form S-1. **
10.10 Truck Consignment Agreement between the Registrant and
Chrysler Corporation dated August 29, 1991. Incorporated
by reference to Exhibit 10.21 of the Registrant's Form
S-1. **
10.11 License Agreement by and between the Registrant and
AlliedSignal, Inc. dated February 18, 1993. Incorporated
by reference to Exhibit 10.22 of the Registrant's Form
S-1. **
10.12 Agent Agreement by and between the Registrant, Mitsui &
Co. (U.S.A.), Inc. and Mitsui & Co., Ltd. dated March 1,
1993. Incorporated by reference to Exhibit 10.23 of the
Registrant's Form S-1. **
10.13 License Agreement by and between the Registrant and
Starcraft RV, Inc. dated September 12, 1991.
Incorporated by reference to Exhibit 10.24 of the
Registrant's Form S-1. **
10.14 License Agreement by and between the Registrant and
Starcraft Recreational Products, Ltd. dated January 18,
1991. Incorporated by reference to Exhibit 10.25 of the
Registrant's Form S-1. **
10.15 Contract for Conditional Sale of Real Estate by and
between the Registrant and the Harold A. Schrock
Revocable Trust dated December 20, 1991 and amended
February 28, 1992. Incorporated by reference to Exhibit
10.26 of the Registrant's Form S-1. **
<PAGE>
10.16(a) Directors' Share Plan, restated effective October 1,
1995. Incorporated by reference to exhibit 10.16(a) of
the Registrant's Form 10-K for the year ending October
1, 1995. *
10.16(b) Directors' Compensation Deferral Plan effective October
1, 1995. Incorporated by reference to Exhibit 10.16(b)
of the Registrant's Form 10-K for the year ending
October 1, 1995. *
10.17 Ford Authorized Convertor Pool Agreement between
Imperial Automotive Group, Inc. and Ford Motor Co. dated
June 29, 1994. Incorporated by reference to Exhibit
10.19 of the Registrant's Form 10-K for the fiscal year
ending October 2, 1994. *
10.18 Inventory Loan and Security Agreement between Imperial
Automotive Group, Inc. and General Motors Acceptance
Corporation dated June 20, 1994. Incorporated by
reference to Exhibit 10.20 of the Registrant's Form 10-K
for the fiscal year ending October 2, 1994. *
10.19 Ford Authorizing Converter Pool Agreement between Ford
Motor Co. and Imperial Automotive Group, Inc. dated June
29, 1994. Incorporated by reference to Exhibit 10.21 of
the Registrant's Form 10-K for the fiscal year ending
October 2, 1994. *
10.20 Intercreditor Agreement between General Motors
Acceptance Corporation and Bank One Indianapolis, N.A.
dated July 15, 1994. Incorporated by reference to
Exhibit 10.24 of the Registrant's Form 10-K for the
fiscal year ending October 2, 1994. *
10.21 GMC Truck Special Vehicle Manufacturers Agreement by and
between Starcraft Automotive Group, Inc. and GMC Truck
Division, Truck & Bus Group, General Motors Corporation
dated February 1, 1995. Incorporated by reference to
Exhibit 10.21 of the Registrant's Form 10-K for the year
ending October 1, 1995. *
<PAGE>
10.22 GMC Truck Special Vehicle Manufacturer's Agreement
between Imperial Automotive Group, Inc. and the GMC
division of General Motors Corporation effective
February 1, 1995. Incorporated by reference to Exhibit
10.22 of the Registrant's Form 10-K for the year ending
October 1, 1995. *
10.23 Lease between Imperial Automotive Group, Inc. and Beck
Real Estate Corporation dated February 3, 1995.
Incorporated by reference to Exhibit 10 to the
Registrant's Form 10-Q for the quarter ending January 1,
1995. *
10.24 Guaranty of Starcraft Automotive Group, Inc. to the
obligations of Starcraft Corporation to General Motors
Acceptance Corporation dated February 9, 1995.
Incorporated by reference to Exhibit 10.23 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.25 Guaranty of Starcraft Automotive Group, Inc. to the
obligations of Imperial Automotive Group, Inc.to General
Motors Acceptance Corporation dated February 9, 1995.
Incorporated by reference to Exhibit 10.25 of the
Registrants Form 10-K for the year ending October 1,
1995. *
10.26 Promissory Note from the Registrant to Imperial
Industries, Inc. dated April 1, 1995. Incorporated by
reference to Exhibit 10(3) to the Registrant's Form 10-Q
for the quarter ending April 2, 1995. *
10.27 Chevrolet Quality Approved Converters Program Agreement
by and between Starcraft Automotive Group, Inc. and
Chevrolet Motor Division, General Motors Corporation
dated April 10, 1995. Incorporated by reference to
Exhibit 10.27 of the Registrant's Form 10-K for the year
ending October 1, 1995. *
<PAGE>
10.28 Chevrolet Quality Approved Converters Program between
Imperial Automotive Group, Inc. and Chevrolet division
of General Motors Corporation dated April 10, 1995.
Incorporated by reference to Exhibit 10.28 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.29 Agreement between Chrysler Corporation and Starcraft
Automotive Group, Inc. dated July 1, 1995. Incorporated
by reference to Exhibit 10.29 of the Registrant's Form
10-K for the year ending October 1, 1995. *
10.30 Pool Company Wholesale Finance Plan and Security
Agreement between Chrysler Credit Corporation and
Starcraft Automotive Group, Inc. dated July 1, 1995.
Incorporated by reference to Exhibit 10.30 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
10.31 Agreement between Chrysler Corporation and Imperial
Industries, Inc. dated July 1, 1995. Incorporated by
reference to Exhibit 10.31 of the Registrant's Form 10-K
for the year ending October 1, 1995. *
10.32 Pool Company Wholesale Finance Plan and Security
Agreement between Chrysler Credit Corporation and
Imperial Industries, Inc. dated July 1, 1995.
Incorporated by reference to Exhibit 10.32 of the
Registrant's Form 10-K for the year ending October 1,
1995. *
11 Computation of Earnings Per Share [ ]
21 Subsidiaries of the Registrant. [ ]
23 (a) Consent of Ernst & Young LLP. [ ]
23 (b) Consent of McGladrey & Pullen, LLP [ ]
27 Financial Data Schedule [ ]
- - ------------
* Incorporated by reference as indicated in the
description.
** Incorporated by reference to the exhibit, bearing the
corresponding exhibit number to the Registrant's
registration statement on Form S-1, Reg. No. 33-63760,
unless another exhibit number is listed in the above
description.
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
STARCRAFT CORPORATION formerly known as STARCRAFT AUTOMOTIVE
CORPORATION, an Indiana corporation ("Parent"), STARCRAFT AUTOMOTIVE GROUP,
INC., an Indiana corporation ("Starcraft"), IMPERIAL AUTOMOTIVE GROUP, INC., an
Indiana corporation ("Imperial"), and BANK ONE, INDIANA, NA, a national banking
association, formerly known as BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION (the
"Bank"), agree as follows:
1. STATEMENT OF FACTS. This Fourth Amendment ("Amendment") is made in
the context of the following agreed state of facts:
a. The Parent, Starcraft, Imperial, Starcraft Southwest, Inc., an
Indiana corporation ("Starcraft Southwest") (collectively, the
"Companies") and the Bank are parties to an Amended and
Restated Credit Agreement executed November 30, 1994, but with
effect as of December 1, 1997, as amended by amendments dated
as of March 1, 1995, as of January 31, 1996, and as of January
31, 1997, respectively (the Amended and Restated Credit
Agreement, as amended, being collectively referred to herein
as the "Agreement').
b. The Parent has sold prior hereto all of its equity interest in
Starcraft Southwest.
c. The Companies and the Bank now agree to amend certain terms of
the Agreement subject to certain terms and conditions, and the
parties have executed this Amendment in order to give effect
to their agreement.
2. DEFINITIONS.
a. Terms used in this Amendment with their initial letters
capitalized are used as defined in the Agreement, unless
otherwise defined herein.
b. Section 1 of the Agreement is amended by adding the following
new definitions:
o Applicable Spread. "Applicable Spread" means that
number of percentage points to be taken into account
in determining the per annum rate at which interest
will accrue on the Revolving Loan when determined by
reference to the London Interbank Offered Rate, or
when determining the Unused Fee, as the context
requires, determined by reference to the ratio of the
Parent's total interest bearing liabilities to its
EBITDA in accordance with the following table:
-1-
<PAGE>
Ratio of Total
Interest Bearing (Revolving Loan) (Unused Fee)
Liabilities to EBITDA Applicable Spread Applicable Spread
Greater than 2.00: 1.00 1-1/2% 1/4%
1.50 to 1.99:1.00 1-1/4% 3/16%
1.00 to 1.49:1.00 1 % 1/8%
less than 1.00:1.00 3/4% 1/8%
Initially, as of the effective date of the Fourth Amendment, the
Applicable Spread shall be the largest spread shown on the above table.
Thereafter, the Applicable Spread shall be determined on the basis of
the financial statements of the Parent for each fiscal quarter
furnished to the Bank pursuant to the requirements of Section 5(b),
with prospective effect for the following fiscal quarter; provided,
that a reduction in the Applicable Spread shall be affected only if the
Parent meets the requirements for a decreased Applicable Spread for at
least two (2) consecutive fiscal quarters. Interest or the Unused Fee,
as applicable, will accrue and be payable in an fiscal quarter on the
basis of the Applicable Spread in effect during the preceding fiscal
quarter until an adjustment is made under the provisions of this
definition. The Applicable Spread shall be adjusted on the first
interest payment date which follows receipt by the Bank of the
financial statements upon which such adjustment is based. In the event
that the Parent fails to deliver the financial statements and
compliance certificates required under Section 5(b) for any month which
ends a fiscal quarter, then the Applicable Spread shall be the largest
spread shown on the above table from the date such financial statements
were required to be delivered until the first interest payment date
which follows delivery to the Bank of such financial statements.
o EBITDA. "EBITDA" means the Parent's consolidated
earnings before interest, taxes, depreciation, and
amortization.
o Fourth Amendment. "Fourth Amendment" means the
written amendment to this Agreement entitled "Fourth
Amendment to Amended and Restated Credit Agreement,"
dated with effect as of June 29, 1997.
o Imperial Security Agreement. "Imperial Security
Agreement" is used as defined in Section 3B.
o Parent Security Agreement. "Parent Security
Agreement" is used as defined in Section 3B.
-2-
<PAGE>
o Starcraft Security Agreement. "Starcraft Security
Agreement" is used as defined in Section 3B.
o Tangible Net Worth. "Tangible Net Worth" means the
shareholders' equity of the Parent less any allowance
for goodwill, patents, trademarks, trade secrets, any
other assets which would be classified as intangible
assets under generally accepted accounting
principles.
o Unused Fee. "Unused Fee" is used as defined in
Section 2(a)(vi).
c. The following definitions appearing in Section 1 of the Agreement
are hereby amended and restated in their respective entireties as follows:
o Company. "Company" means any of the Parent,
Starcraft, or Imperial as the context requires, and
when used in the plural refers to two or more of them
as the context requires.
o Libor-Based Rate and London Interbank Offered Rate.
"Libor-Based Rate" means that per annum rate of
interest which is equal to the sum of the Applicable
Spread plus the London Interbank Offered Rate.
"London Interbank Offered Rate" means the per annum
rate of interest, as determined by the Bank, at which
dollar deposits in immediately available funds are
offered to the principal banks in the London
Interbank Market by other principal banks in that
market two (2) Banking Days prior to the commencement
of the period of either one (1) month, three (3)
months, or six (6) months for which the Parent shall
have requested a quotation of the rate in amounts
equal to the amount for which the Parent shall have
requested a quotation of the rate, increased by an
amount equal to any increase, as determined by the
Bank, in the cost to the Bank of obtaining such
deposits resulting from the imposition of any
additional reserves or from any increase in the
amount reserves presently required by any United
States or foreign governmental authority including,
but not limited to, any marginal or extraordinary
reserves imposed to give effect to monetary policy.
Any determination by the Bank of increased costs of
maintaining deposits made pursuant to the provisions
of the preceding sentence shall be final, absence
manifest error.
o Parent Credit Document. "Parent Credit Document"
means any of this Agreement, the Revolving Note, the
Standby Letters of Credit, the Reimbursement
Agreement, the Parent Guaranty Agreement, the Parent
Security Agreement, the Starcraft Security Agreement,
the Imperial Security Agreement, and any other
instrument or document which evidences or secures
-3-
<PAGE>
the Loan, or which expresses an Agreement as to terms
applicable to the Loan.
3. UNUSED FEE. Section 2 of the Agreement is hereby amended by the
addition of a new subsection 2(a)(vi) as follows:
(vi) Unused Fee. In addition to interest on the Revolving
Loan, the Parent shall. pay to the Bank a facility
fee (the "Unused Fee") for each partial or full
calendar quarter during which the Commitment is
outstanding equal to the Applicable Spread per annum
of the average daily excess of the Commitment over
the aggregate outstanding principal balance of the
Revolving Loan. Facilities fees for each calendar
quarter shall be due and payable within ten (10) days
following the Bank's submission of a statement of the
amount due. Such fees may be debited by the Bank when
due to any demand deposit account of the Parent
carried with the Bank without further authority.
4. COLLATERAL FOR THE PARENT OBLIGATIONS. A new Section 3B is hereby
added to the Agreement as follows:
3B. Collateral for the Parent Obligations. The
obligations of Imperial and Starcraft under their
respective Guaranty Agreement shall be secured by a
security interest in all accounts receivable, general
intangibles, inventory and equipment by each of
Imperial and Starcraft, respectively, now owned and
hereafter acquired, and in the proceeds thereof,
which security interests shall be created by a
Security Agreement executed by each of Imperial and
Starcraft in the forms of Exhibits "A" and "B" to the
Fourth Amendment (each the "Imperial Security
Agreement" and the "Starcraft Security Agreement").
In addition, the Parent shall secure all of its
Parents Obligations by a security interest in all
accounts receivable, general intangibles, inventory
and equipment of Parent, now owned and hereafter
acquired, and any proceeds thereof, pursuant to the
terms of the Security Agreement executed by Parent in
the form of Exhibit "C". to the Fourth Amendment (the
"Parent Security Agreement").
5. AMENDMENT TO FINANCIAL COVENANT. Section 4(g)(i) of the Agreement is
amended and restated in its entirety to read hereafter as follows:
(i) Tangible Net Worth. The Parent shall maintain its
Tangible Net Worth at a level not less than
$10,250,000 from the effective date of the Fourth
Amendment and at all times thereafter.
6. CONDITIONS PRECEDENT. As conditions precedent to the effectiveness
of this Amendment, the Bank shall have received, each duly executed and in form
and substance .Satisfactory to the Bank, this Amendment and the following:
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a. The Imperial Security Agreement, the Starcraft Security
Agreement, the Parent Security Agreement and all UCC Financing
Statements required by the Bank in order to properly perfect
the liens granted thereunder.
b. A certified copy of resolutions of the Board of Directors of
each of the Companies authorizing the execution and delivery
of this Amendment any all other documents required under this
Amendment to which each of the Companies is a party.
c. A certificate signed by the Secretary of each of the Companies
certifying the name of the respective officer or officers
authorized to sign this Amendment and any other document
required under this Amendment to which each of the Companies
is a party, together with a sample of the true signature of
each such officer.
d. Such other documents as may be reasonably required by the
Bank.
7. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into
this Amendment, the Companies represent and warrant, as of the execution and
effective dates of this Amendment, that no Event of Default or Unmatured Event
of Default has occurred and is continuing and that the representations and
warranties contained in Section 3 of the Agreement are true and correct, except
that (a) the representations contained in Section 3(d) shall refer to the latest
financial statements furnished to the Bank by the Companies pursuant to the
requirements of the Agreement, and (b) the representations contained in Section
3(k) apply to the Companies and any Subsidiaries.
8 . STARCRAFT SOUTHWEST. By the execution hereof the Bank and the other
parties hereto agree and hereby do release Starcraft Southwest from any and all
obligations, liability, and claim under the Guaranty Agreement executed and
delivered by Starcraft Southwest pursuant to the Second Amendment and from all
future obligations, liability, and claim under the Agreement.
9. REAFFIRMATION OF THE AGREEMENT. Except as amended by this
Amendment, all terms and conditions of the Agreement shall continue unchanged
and in full force and effect and the Obligations of the Companies shall continue
to be secured and guaranteed as therein provided until payment and performance
in full of all Obligations.
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IN WITNESS WHEREOF, the Companies and the Bank, by their respective
duly authorized officers, have executed this Fourth Amendment to Amended and
Restated Credit Agreement on this 3rd day of August, 1997, but with effect as of
June 29, 1997.
Attest: STARCRAFT CORPORATION
/s/Janis M. Neal By: /s/ Kelly L. Rose
- - --------------------------------- --------------------------------
Janis M. Neal Executive Assistant Kelly L. Rose, Chairman & CEO
Attest: IMPERIAL AUTOMOTIVE GROUP, INC.
/s/ Janis M. Neal By: /s/ Kelly L. Rose
- - --------------------------------- ---------------------------------
Janis M. Neal, Executive Assistant Kelly L. Rose, Chairman & CEO
Attest: STARCRAFT AUTOMOTIVE GROUP, INC
/s/ Janis M. Neal By: /s/ Kelly L. Rose
- - --------------------------------- ---------------------------------
Janis M. Neal, Executive Assistant Kelly L. Rose, Chairman & CEO
BANK ONE, INDIANA, NA
By: /s/ Steven J. Liebold
---------------------------------
Steven J. Leibold, Vice President
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SCHEDULE OF EXHIBITS
Exhibit "A" - Security Agreement (Imperial Automotive Group, Inc.)
Exhibit "B" - Security Agreement (Starcraft Automotive Group, Inc.)
Exhibit "C" - Security Agreement (Starcraft Corporation)
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FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") has been executed as of the 31st day of December, 1997 (the
"Execution Date") by STARCRAFT CORPORATION, an Indiana corporation formerly
named Starcraft Automotive Corporation (the "Parent"), STARCRAFT AUTOMOTIVE
GROUP, INC., an Indiana corporation ("Starcraft"), IMPERIAL AUTOMOTIVE GROUP,
INC., an Indiana corporation ("Imperial"), and BANK ONE, INDIANA, NATIONAL
ASSOCIATION, a national banking association formerly named Bank One,
Indianapolis, National Association (the "Bank").
1. The Parent, Starcraft, Imperial and the Bank are parties to an
Amended and Restated Credit Agreement, dated November 30, 1994 with effect as of
December 1, 1994, as amended by a First Amendment to Amended and Restated Credit
Agreement, dated with an effective date as of March 1, 1995, a Second Amendment
to Amended and Restated Credit Agreement, dated with an effective date as of
January 31, 1996, a Third Amendment to Amended and Restated Credit Agreement,
dated with an effective date as of January 31, 1997, and a Fourth Amendment to
Amended and Restated Credit Agreement with an effective date as of June 29, 1997
( such Amended and Restated Credit Agreement, as so amended to date, being
referred to in this Amendment as the "Existing Agreement").
2. The Companies have requested the Bank to amend the Existing
Agreement, effective as of the Execution Date, as herein provided. The Bank has
agreed to amend the Existing Agreement as set forth in this Amendment and
subject to the terms and conditions of this Amendment.
Agreement
NOW, THEREFORE, in consideration of the Recitals and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged by
each of the parties to this Amendment, it is agreed as follows:
1. Definitions. Terms which are defined in the Existing Agreement shall
have the same meanings in this Amendment as are ascribed to them in the Existing
Agreement, as amended hereby, excepting only those terms which are expressly
defined in this Amendment, which shall have the meanings ascribed to them in
this Amendment.
2. Amendments to Existing Credit Agreement.
(a) Amendments to Definitions. Each of the following definitions which
are set forth in Section I of the Existing Agreement are amended and restated in
their respective entireties as of the Execution Date to read as follows:
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Applicable Spread. "Applicable Spread" means the percentage per annum
to be taken into account in determining any Prime-based Rate at which interest
will accrue on the Revolving Loan as provided in this Agreement, which
percentage per annum shall be 1.00%.
Bank. "Bank" means Bank One, Indiana, National Association, a national
banking association formerly named Bank One, Indianapolis, National Association.
(b) New Definitions. Section I of the Existing Agreement is amended as
of the Execution Date by adding thereto the following new definitions:
Borrowing Base. "Borrowing Base" means, at any date a determination
thereof is to be made, an amount equal to the sum of: (a) the Equipment
Collateral Value; (b) the Inventory Collateral Value; (c) Eighty Percent of the
value of the Eligible Accounts; (d) the Real Estate Collateral Value; and (e)
solely for the period from the Fifth Amendment Execution Date to February 10,
1998, the sum of $800,000.
Borrowing Base Certificate. "Borrowing Base Certificate" means a
certificate signed by the President or Senior Vice President-Finance of the
Parent certifying the amount of the Borrowing Base and the Maximum Loan
Availability as of a stated date and in such form and showing such detail as the
Bank reasonably may require from time to time.
Consolidated Tangible Net Worth. "Consolidated Tangible Net Worth"
means the shareholders' equity of the Parent and its Subsidiaries, determined on
a consolidated basis, less any allowance for goodwill, patents, trademarks,
trade secrets and any other assets which would be classified as intangible
assets under generally accepted accounting principles.
Eligible Accounts. "Eligible Accounts" means all accounts receivable of
the Parent and its Subsidiaries on a consolidated basis for which the Parent or
one of the Subsidiaries shall have furnished to the Bank information adequate
for purposes of identification at times and in form and substance as may be
reasonably requested by the Bank; provided, however, an that account receivable
shall not constitute an Eligible Account if it: (a) by its terms is not payable
within thirty (30) days after the date of the applicable invoice or it remains
unpaid ninety (90) days after the original date of the applicable invoice; (b)
is an account receivable with respect to which the account receivable debtor is
the subject of a bankruptcy or similar insolvency proceeding or has made an
assignment for the benefit of creditors or whose assets have been conveyed to a
receiver or trustee, except and to the extent the Bank otherwise agrees in
writing; (c) is an account receivable which is not invoiced (and dated as of the
date of such invoice) and sent to the account receivable debtor within the
ordinary course of the business of the Parent or its Subsidiary, as applicable,
and in accordance with customary billing practices after delivery of the
underlying goods to or performance of the underlying services for the accounts
receivable debtor; (d) is an account receivable arising with respect to goods
which have not been shipped or arising with respect to services which have not
been fully performed; (e) is an account receivable with respect to which the
account receivable debtor's obligation to pay the account receivable is
conditional upon the account receivable debtor's approval or is otherwise
subject to any
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repurchase obligation or return right, as with sales made on a bill-and-hold,
guaranteed sale, sale- and-return, sale on approval or consignment basis; (f) is
an account receivable in which the Bank does not have a first priority,
perfected security interest; (g) is an account receivable due from any of the
Companies or any Subsidiary or Affiliate thereof or which is due solely from an
accounts receivable debtor which is a United States federal governmental entity
or agency, except and to the extent the Bank otherwise agrees in writing; or (h)
is an account receivable evidenced by an instrument (as defined in Article 9 of
the Indiana Uniform Commercial Code) not in the possession of the Bank. At any
time more than ten percent (10%) of the aggregate amount of accounts receivable
due from an accounts receivable debtor remain unpaid more than ninety (90) days
after the date(s) of the original invoice(s) evidencing such accounts
receivable, no accounts receivable due the Parent and its Subsidiaries on a
consolidated basis from that accounts receivable debtor shall constitute an
Eligible Account unless the Bank, shall otherwise agree by written notice that
such accounts receivable constitute Eligible Accounts.
Equipment. "Equipment" shall have the meaning ascribed to such term in
Article 9 of the Indiana Uniform Commercial Code, but shall exclude fixtures and
shall exclude any property with respect to which the Parent or any of its
Subsidiaries is a lessee, whether under a true lease or a capital lease.
Equipment Collateral Value. "Equipment Collateral Value" means, at any
date a determination thereof is to be made, an amount equal to Fifty Percent
(50%) of the book value, net of depreciation, all as determined in accordance
with generally accepted accounting principles, of the Equipment owned at such
date by the Parent or any of its Subsidiaries and in which the Bank has a
first-priority, perfected security interest (collectively, the "Eligible
Equipment"); provided, however, that from and after the date on which the Bank
receives a orderly liquidation value appraisal of the Eligible Equipment
obtained pursuant to Section 2.a(v)(3) (the "Equipment Appraisal"), it shall be
an amount equal to Eighty Percent (80%) of the orderly liquidation value of the
Eligible Equipment owned on such date, as established by the Equipment
Appraisal, less the total amount of depreciation on such Eligible Equipment
which in accordance with generally accepted accounting principles has been
expensed by the Parent and its Subsidiaries, on a consolidated basis, since the
date of such liquidation value appraisal.
Fifth Amendment. "Fifth Amendment" means the Fifth Amendment to Amended
and Restated Credit Agreement, dated as of the Fifth Amendment Execution Date,
executed by the Bank, Parent, Starcraft and Imperial.
Fifth Amendment Execution Date. "Fifth Amendment Execution Date" shall
mean as of December 31, 1997.
FIRREA Appraisals. "FIRREA Appraisals" means appraisals of the fair
market value of the Real Estate by a qualified, independent appraiser selected
and engaged by the Bank and which fully conforms to the requirements of 12
U.S.C. ss. 3338 and implementing regulations applicable to national banks.
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<PAGE>
Intercompany Debt. "Intercompany Debt" shall mean all indebtedness
owing to the Parent by each Subsidiary of the Parent, including loans or other
advances of credit, which would be eliminated as an asset of the Parent or a
liability of the obligor-Subsidiary on a consolidated balance sheet of the
Parent and its Subsidiaries prepared in accordance with generally accepted
accounting principles.
Inventory Collateral Value. "Inventory Collateral Value" means, at any
date a determination thereof is to be made, an amount equal to the sum of: (a)
twenty five percent (25%) of the book value of the raw materials inventory (all
as determined and classified in accordance with generally accepted accounting
principles) owned by the Parent or one of its Subsidiaries at such date and in
which the Bank has a first-priority, perfected security interest; and (b)
seventy-five percent (75%) of the book value of finished goods inventory (all as
determined and classified in accordance with generally accepted accounting
principles) owned by the Parent or one of its Subsidiaries at such date and in
which the Bank has a first-priority, perfected security interest. (Work in
process inventories, as determined in accordance with generally accepted
accounting principles, are not included in the calculation of the Inventory
Collateral Value).
Maximum Loan Availability. "Maximum Loan Availability" means, at any
date a determination thereof is to be made, the lesser of: (a) the Maximum
Revolver Commitment at that date; and (b) the amount of the Borrowing Base at
that date.
Maximum Revolver Commitment. "Maximum Revolver Commitment" means, at
any date a determination thereof is to be made, $15,000,000, less (a) from and
after March 31, 1998, $3,000,000; and less (b) from and after February 10, 1998
and so long as the Bank has not canceled its New Facility Commitment, an
additional $5,500,000; and less (c) from and after June 30, 1998, an additional
$2,000,000; and less (e) such reduction as may be required by Section 3 of the
Fifth Amendment.
Mortgages. "Mortgages" shall mean the real estate mortgages executed
and delivered to the Bank by Starcraft in accordance with the requirements of
the Fifth Amendment, as each of such real estate mortgages may be amended,
modified, supplemented and/or restated from time to time and at any time.
National. "National" means National Mobility Corporation, an Indiana
corporation and a wholly-owned Subsidiary of the Parent.
New Facility Commitment. "New Facility Commitment" means that
commitment, dated as of the Execution Date, issued by the Bank to the Parent and
Starcraft to amend, effective as of February 10, 1998, this Agreement to include
a separate revolving loan and standby letter of credit facility extended by the
Bank to Starcraft in the maximum principal amount of $5,500,000 (the "Starcraft
Revolver") with the maximum aggregate principal amount which may be outstanding
at anytime on the Revolving Loan and the Starcraft Revolver to be the
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<PAGE>
lesser of the Maximum Loan Availability plus $5,500,000 and the Borrowing Base,
and with its scheduled maturity date being the Revolving Loan Maturity Date.
Parent Pledge Agreement. "Parent Pledge Agreement" means the Pledge
Agreement executed and delivered to the Bank by the Parent in accordance with
the requirements of the Fifth Amendment, as such Pledge Agreement may be
amended, modified, supplemented and/or restated from time to time and at any
time.
Real Estate. "Real Estate" shall mean the real estate, improvements and
other property identified as the "Mortgaged Property" in the Mortgages.
Real Estate Collateral Value. "Real Estate Collateral Value" means, at
any date a determination thereof is to be made: (a) prior to receipt by the Bank
of the FIRREA Appraisals, an amount equal to seventy percent (70%) of the book
value of the Real Estate which at such date is covered by and subject to a
mortgage lien granted under one of the Mortgages (the "Eligible Real Estate"),
net of depreciation, all as determined in accordance with the generally accepted
accounting principles; and (b) at any time subsequent to receipt by the Bank the
FIRREA Appraisals, an amount equal to Eighty percent (80%) of the amount equal
to the fair market value of the Eligible Real Estate, net of (i) the outstanding
amount of any indebtedness secured by a lien against the Eligible Real Estate or
any part thereof in favor of any person other than the Bank, whether or not
prior to the lien of any of the Mortgages; and (ii) any delinquent real estate
taxes, and all interest and penalties payable by reason of such delinquency,
which are a lien on any of the Eligible Real Estate.
Subsidiary Liens. "Subsidiary Liens" shall have the meaning ascribed to
such term in Section 4.k.
Title Policies, "Title Policies" shall have the meaning ascribed to
such term in Section 3B.
(c) Amendment to Section 2.a. Effective as of the Execution Date,
Section 2.a of the Existing Agreement is amended and restated in its entirety to
read as follows:
"(a) The Revolving Loan. Subject to all of the terms and conditions
of this Agreement, the Bank will make the Revolving Loan
described in this Section 2.a to the Parent on the following
terms and subject to the following conditions:
(i) The Commitment--Use of Proceeds. From the Fifth
Amendment Execution Date and until the Revolving Loan
Maturity Date, the Bank agrees to make Advances
(collectively, the "Revolving Loan") under a
revolving line of credit from time to time to the
Parent of principal amounts not exceeding in the
aggregate at any time outstanding the Maximum Loan
Availability, provided that all
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<PAGE>
of the conditions of lending stated in Section 6 of
this Agreement as being applicable to the Revolving
Loan have been fulfilled at the time of each Advance.
Proceeds of the Revolving Loan may be used by the
Parent only to fund working capital requirements of
the Parent and its Subsidiaries. The Revolving Loan
under this Agreement is a continuation of the
Revolving Loan (as such term is defined in this
Agreement immediately prior to the Fifth Amendment)
and the Parent affirms, acknowledges and agrees that
the unpaid principal balance of the Revolving Loan as
of the Execution Date (not including the face amount
of the outstanding $3,000,000 Standby Letter of
Credit in the face amount of $3,000,000 issued to
GMODC-Letter of Credit No. STI 07408) is
$9,900,000.
(ii) Method of Borrowing. The obligation of the Parent to
pay the Revolving Loan shall be evidenced by a
promissory note executed by the Parent to the Bank in
the form attached as Exhibit A to the Third Amendment
(as the same may be amended, modified, extended,
renewed and/or restated or replaced from time to time
and at any time, being referred to in this Agreement
as the "Revolving Note"). So long as no Event of
Default or Unmatured Event of Default shall have
occurred and be continuing and until the Revolving
Loan Maturity Date, the Parent may borrow, pay and
reborrow under the Revolving Note on any Banking Day,
provided that no borrowing may cause the principal
balance of the Revolving Loan to exceed the Maximum
Loan Availability or may result in an Event of
Default or an Unmatured Event of Default. Each
Advance under the Revolving Loan shall be conditioned
upon receipt by the Bank from the Parent of an
Application for Revolving Loan Advance, a Borrowing
Base Certificate and an Officer's Certificate,
provided that the Bank may, at its discretion, make a
disbursement upon the oral request of the Parent made
by an Authorized Officer, or upon a request
transmitted to the Bank by telephone facsimile
("fax") machine, or by any other form of written
electronic communication (all such requests for
Advances being hereafter referred to as "informal
requests"). In so doing, the Bank may rely on any
informal request which shall have been received by it
in good faith from an individual reasonably believed
to be an Authorized Officer. Each informal request
shall be promptly confirmed by a duly executed
Application for Revolving Loan Advance, Borrowing
Base Certificate (if the Borrowing Base Certificate
most recently submitted reports a Borrowing Base
which is greater than would be reported on the date
of the Application) and Officer's Certificate if the
Bank so requires and
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shall in and of itself constitute the representation
of the Parent that no Event of Default or Unmatured
Event of Default has occurred and is continuing or
would result from the making of the requested Advance
and that the making of the requested Advance shall
not cause the principal balance of the Revolving Loan
to exceed the Maximum Loan Availability at the date
such Advance is made. All borrowings and reborrowings
and all payments shall be in amounts of not less than
Fifty Thousand Dollars ($50,000), except for
repayment of the entire principal balance of the
Revolving Loan. Upon receipt of an Application for
Revolving Loan Advance, or at the Bank's discretion
upon receipt of an informal request for an Advance
and upon compliance with any other conditions of
lending stated in Section 6 of this Agreement
applicable to the Revolving Loan, the Bank shall
disburse the amount of the requested Advance to the
Parent. All Advances by the Bank and payments by the
Parent with respect to the Revolving Loan shall be
recorded by the Bank on its books and records, and
the principal amount outstanding from time to time,
plus interest payable thereon, shall be determined by
reference to the books and records of the Bank. The
Bank's books and records shall be presumed prima
facie to be correct as to such matters.
(iii) Interest on the Revolving Loan. The principal amount
of the Revolving Loan outstanding from time to time
shall bear interest until maturity of the Revolving
Note (whether by acceleration or passage of time) at
a rate per annum equal to the Prime Rate plus the
Applicable Spread. After maturity, whether on the
Revolving Loan Maturity Date or on account of
acceleration upon the occurrence of an Event of
Default, and until paid in full, the unpaid principal
balance of the Revolving Loan shall bear interest at
a per annum rate equal to the Prime Rate plus the
Applicable Spread plus three percent (3%) per annum.
Accrued interest on the Revolving Loan shall be due
and payable monthly on the first Banking Day of each
month prior to maturity. After maturity, interest on
the Revolving Loan shall be due and payable as
accrued and without demand.
(iv) Extensions of Revolving Loan Maturity Date. The Bank
may, upon the request of the Parent, but at the
Bank's sole discretion, extend the Revolving Loan
Maturity Date from time to time to such date or dates
as the Bank may elect by notice in writing to the
Parent, and upon any such extension and upon
execution and delivery by the Parent of a Revolving
Note reflecting the extended Revolving Loan Maturity
Date, the date to which the Commitment
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is then extended will become the "Revolving Loan
Maturity Date" for purposes of this Agreement.
(v) Mandatory Repayments of Principal. At any time the
principal balance of the Revolving Loan exceeds the
Maximum Loan Availability, as determined on the basis
of the most recent Borrowing Base Certificate
furnished by the Parent or as determined by the Bank
upon an inspection of the financial reports or books
and records of the Parent and its Subsidiaries, and
as reduced pursuant to the terms of Section 2.1(vi)
below, the Parent shall immediately repay such excess
principal amount. Such repayment shall be due and
payable without demand. If an Event of Default or an
Unmatured Event of Default has occurred and is
continuing and the Bank shall have notified the
Parent of its election to terminate the Commitment,
then the Commitment shall automatically reduce to $0
without any further action on the part of or the
giving of further notice to the Parent.
(vi) Standby Letters of Credit. At any time prior to
February 10, 1998, that the Parent is entitled to an
Advance under the Revolving Loan, the Bank shall,
upon the application of the Parent, issue for the
account of the Parent, a standby letter of credit
(each a "Standby Letter of Credit") in an amount not
in excess of the maximum Advance that the Parent
would then be entitled to obtain under the Revolving
Loan, provided that (A) the total amount of Standby
Letters of Credit which are outstanding at any time
shall not exceed $3,000,000, (B) the issuance of any
Standby Letter of Credit with a maturity date beyond
the Revolving Loan Maturity Date shall be entirely at
the discretion of the Bank, (C) the form of the
requested Standby Letter of Credit shall be
satisfactory to the Bank in the reasonable exercise
of the Bank's discretion, and (D) the Parent shall
have executed an application and reimbursement
agreement for the Standby Letter of Credit (a
"Reimbursement Agreement") in the Bank's standard
form. Any standby letters of credit which have been
issued by the Bank for the account of the Parent
under the Prior Agreement shall automatically be
deemed to be Standby Letters of Credit for all
purposes of this Agreement. Provided that the Parent
is the account party and executes the Reimbursement
Agreement in favor of the Bank, Standby Letters of
Credit may be issued at the request of the Parent on
behalf of the Parent or any of its Subsidiaries.
While any Standby Letter of Credit is outstanding,
the Maximum Loan Availability shall be reduced by the
maximum amount available to be drawn under such
Standby Letter of Credit. The Parent shall pay the
Bank a
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commission for each Standby Letter of Credit issued
calculated at the rate of one percent (1%) per annum
of the maximum amount available to be drawn under the
Standby Letter of Credit. Such commissions shall be
calculated on the basis of a 360 day year and the
actual number of days in the period during which the
Standby Letter of Credit will be outstanding. The
Parent shall pay the Bank's standard transaction fees
with respect to any transactions occurring on account
of any Standby Letter of Credit. Commissions shall be
payable when the related Standby Letters of Credit
are issued and transaction fees shall be payable upon
completion of the transaction as to which they are
charged. All such commissions and fees may be debited
by the Bank to any deposit account of the Parent
carried with the Bank without further authority, and
in any event, shall be paid by the Parent within ten
(10) days following billing."
(d) Deletion of Certain Definitions. Effective as of the Execution
Date, the definitions in Section 1 of the Existing Agreement of each of the
following terms are deleted in their entirety: "LIBOR-based Rate and London
Interbank Offered Rate"; "Optional Rate"; "Reinvestment Rate"; and "EBITDA".
(e) Deletion of Section 2.b(i) and Amendment of Section 3.l. (1)
Effective as of the Execution Date, Section 2.b(i) of the Existing Agreement is
deleted and the following is inserted in its place: "(i) This subsection
intentionally omitted." (2) Effective as of the Effective Date, Section 3.l of
the Existing Agreement is amended and restated in its entirety to read as
follows: "l. Subsidiaries. The Parent has no Subsidiaries, other than Imperial,
Starcraft, Starcraft Southwest and National."
(f) Amendment to Section 3B. Effective as of the Execution Date,
Section 3B of the Existing Agreement is amended by adding to the end thereof the
following additional text:
"In addition, the obligations of Starcraft under its Guaranty Agreement
shall be secured by mortgage liens in favor of the Bank on the Real
Estate, which mortgage liens shall be granted and created by the
Mortgages and which mortgage liens shall be first and prior liens on
the Real Estate subject only to the prior lien of real estate taxes
which are not yet due and payable and subject only to any mortgage
granted to the Bank by Starcraft to secure the Starcraft Revolver and
any letter of credit obligations for letters of credit issued by the
Bank for Starcraft, as account party. At the Parent's expense the Bank
shall be provided , within 60 days after the Fifth Amendment Execution
Date, with a standard ALTA Loan Policy of Title Insurance (1992
Revision) issued in favor of the Bank by a national title insurance
company acceptable to the Bank which insures the Mortgages as first and
prior mortgage liens, with coverages for each of the
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Mortgages in amounts acceptable to the Bank and with no standard or
special exceptions other than for Permitted Liens (as such term is
defined in the Mortgages) and with each of the following endorsements:
Access Endorsement, Usury Endorsement, a Form 8.1 Environmental
Endorsement, an ALTA form of Comprehensive Endorsement, a Future
Advances Endorsement, and a Form 3.0 Zoning Endorsement, all of which
endorsements shall be in form and substance as may be required by the
Bank (the "Title Policies"). In addition, the Parent shall further
secure payment of the Parent's Obligations by pledging to the Bank and
granting to the Bank a security interest in all of the issued and
outstanding capital stock of the Subsidiaries of the Parent, which
pledge and security interest shall be granted pursuant to the Parent
Pledge Agreement. To further perfect the security interest of the Bank
therein, the Parent shall assign of record to the Bank all financing
statements filed by it to perfect the Subsidiary Liens.
(g) Amendment of Section 4.g. Effective as of the Execution Date,
Section 4.g of the Existing Agreement is amended and restated to read in its
entirety as follows:
"(g) Consolidated Tangible Net Worth. The Parent and its
Subsidiaries shall maintain a Consolidated Tangible Net Worth in an
amount which is not less than the amounts shown in the following table
as at and during each of the dates and periods indicated:
Minimum Consolidated
Period Tangible Net Worth
At December 31, 1997 $6,700,000
From January 1, 1998 to
June 27, 1998 $6,100,000
From June 28, 1998 to
September 27, 1998 $7,250,000
From September 28, 1998 to
December 30, 1998 and
thereafter $7,600,000
(h) Amendment of Section 4.b. Effective as of the Execution Date,
Section 4.b of the Existing Agreement is amended by adding thereto at the close
of such Section new subsections (viii) and (ix) which read as follows:
"(viii) Monthly Collateral Reports/Misc. As soon as available and in
any event within 30 days after the end of each month : (1)
detailed consolidating reports of the accounts receivable,
accounts payable and inventory of each
-10-
<PAGE>
of the Parent, Starcraft, Imperial and National, with agings
for the accounts receivable and accounts payable and in such
detail as the Bank may reasonably request from time to time.;
and (2) a detailed line by line report which shows variations
in performance and results with respect to both the
consolidated and consolidating financial statements for that
month from the pro forma performance and balance sheet
projections for that month and year to date provided to the
Bank."
(ix) Borrowing Base Certificate. Within ten (10) calendar
days after the close of each calendar month, a
Borrowing Base Certificate as at such close."
(i) New Section 4.k. Effective as of the Execution Date,
Section 4 of the Existing Agreement is amended by adding at the end
thereof a new subsection k which reads as follows:
"k. Security for Intercompany Debt. On or before February 10,
1998, the Parent shall obtain from each of its Subsidiaries as
security for payment of all Intercompany Debt of each such
Subsidiary which is from time to time owed to the Parent a
perfected security interest (which shall be expressly junior
and subordinate to all liens and security interests now of
hereafter held by the Bank in or with respect to any of the
assets of any of the Subsidiaries) in all accounts receivable,
inventory, equipment and general intangibles, now existing or
hereafter arising, and all proceeds thereof, of each such
Subsidiary, which security interests shall be obtained
pursuant to security agreements executed by each Subsidiary in
form and substance reasonably satisfactory to the Bank "
(j) Amendment of Section 11. Effective as of the Execution
Date, Section 11 of the Existing Agreement is amended and restated in
its entirety to read as follows:
"Section 11. Costs, Expenses and Taxes. The Companies
jointly and severally agree to pay (without duplication), all
of the following fees, costs and expenses incurred by the
Bank: (i) all reasonable costs and expenses incurred in
connection with the negotiation, preparation, execution,
closing and delivery of the Fifth Amendment and any and all
other documents furnished pursuant thereto or in connection
therewith, including the New Facility Commitment, and in the
perfection of liens or security interests which may be granted
under the Credit Documents, including without limitation the
reasonable fees and out-of-pocket expenses of Baker & Daniels,
special counsel to the Bank; (ii) all reasonable costs and
expenses in connection with the negotiation, preparation,
execution and delivery of any amendments or modifications of
(or supplements to) any of the Credit Documents and any and
all other documents furnished pursuant thereto or in
connection therewith, and all investigation of and due
diligence regarding the Companies, including without
limitation the reasonable fees and out-of-pocket
-11-
<PAGE>
expenses of counsel retained by the Bank relative thereto, as
well as the reasonable fees and out-of-pocket expenses of
other outside experts reasonably retained by the Bank in
connection with the foregoing; (iii) all search fees,
appraisal fees and expenses, title insurance policy fees,
survey costs, filing service fees, costs and expenses and
filing and recording fees and taxes (including UCC, tax and
judgment lien searches to be obtained by the Bank) which may
be incurred from time to time by the Bank; and (iv) all costs
and expenses (including, without limitation, all reasonable
attorneys' fees and expenses incurred by the Bank) incurred at
any time an Unmatured Event of Default or Event of Default has
occurred and remains unremedied or incurred in connection with
the enforcement of this Agreement, or all or any of the other
Credit Documents or any other agreement furnished pursuant
hereto or thereto or in connection herewith or therewith. In
addition, the Companies agree jointly and severally to pay any
and all stamp, transfer, excise and other similar taxes
payable or determined to be payable in connection with the
execution and delivery of this Agreement, or any of the other
Credit Documents or the issuance of the Revolving Note or the
making of the Revolving Loan, and agree to save and hold the
Bank harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission
to pay, such taxes. Any portion of the foregoing fees, costs
and expenses which remains unpaid following the Bank's
statement and request for payment thereof shall bear interest
from the date of such statement and request to the date of
payment at a per annum rate equal to the Prime Rate plus the
Applicable Spread."
(k) Amendment of Section 2.b(iii). Effective as of the
Execution Date, Section 2.b of the Existing Agreement is amended and
restated in its entirety to read as follows:
"(iii). Manner of Payment-Application. All payments of
principal and interest on the Loan shall be payable
at the principal office of the Bank in Indianapolis,
Indiana, in funds available for the Bank's immediate
use in that city and no payment will be considered to
have been made until received in such funds. Unless
otherwise agreed to, in writing, or otherwise
required by applicable law, payments will be applied
first to accrued, unpaid interest, then to principal,
and any remaining amount to any unpaid collection
costs, late charges and other charges, provided,
however, upon delinquency or other default, the Bank
reserves the right to apply payments among principal,
interest, late charges, collection costs and other
charges at its discretion. All prepayments shall be
applied to the Obligations in such order and manner
as the Bank may from time to time determine in its
sole discretion."
(l) Amendment of Section 6. Effective as of the Execution
Date, Section 6 of the Existing Agreement is amended by adding to the
close thereof the following subsection d:
-12-
<PAGE>
"d. Appraisals. The Parent and Starcraft at the Parent's
expense shall cause to be prepared delivered to the
Bank within seventy-five (75) days after the Fifth
Amendment Execution Date: (a) FIRREA Appraisals of
the Real Estate, which appraisals shall be by
qualified appraisers satisfactory to and engaged the
Bank and addressed to the Bank as the recipient
thereof; and (b) unless Parent by a writing
acceptable to the Bank elects to eliminate the
Equipment Collateral Value from the Borrowing Base,
an appraisal of the orderly liquidation value of the
Eligible Equipment, which appraisal shall be by a
qualified appraiser satisfactory to the Bank and
addressed to the Bank as the recipient thereof."
Further, effective as of the Execution Date, Section 6.c(ii) of the Existing
Agreement is amended and restated in its entirety to read as follows: "(ii) An
Officer's Certificate and a Borrowing Base Certificate."
(m) Addition of New Sections 17 and 18. Effective as of the
Execution Date the Existing Agreement is amended by adding thereto new Sections
17 and 18, reading as follows:
"Section 17. Waiver of Jury Trial. THE BANK AND THE COMPANIES
EACH IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO TRIAL
BY JURY OF ANY DISPUTE OR CLAIM, WHETHER BASED UPON CONTRACT
OR ALLEGED WRONGFUL ACT OR OMISSION, WHICH DISPUTE OR CLAIM
ARISES OUT OF, OR IS INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THE COMPANIES AND THE BANK BY THIS OR ANY
OTHER CREDIT DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT
TO THE BANK TO ENTER INTO THIS AGREEMENT.
Section 18. Arbitration. The Bank and each of the Companies
agree that upon the written demand of any party, whether made
before or after the institution of any legal proceedings, but
prior to the rendering of any judgment in that proceeding, all
disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this
Agreement or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the
Commercial Rules of the American Arbitration Association, upon
request of either party. No act to take or dispose of any
collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of any party
during any dispute to seek, use, and employ ancillary or
preliminary remedies, judicial or otherwise , for the purposes
of realizing upon, preserving, protecting, foreclosing or
proceeding under forcible entry and detainer for possession of
any real or personal property, and any such action shall not
be deemed an election of remedies. This includes, without
limitation; obtaining injunctive relief or a temporary
restraining order;
-13-
<PAGE>
invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including
taking or disposing of such property with or without judicial
process pursuant to Article 9 of the Uniform Commercial Code.
Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any
right, concerning any collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating
the collateral, shall also be arbitrated, provided, however,
that no arbitrator shall have the right or the power to enjoin
or restrain any act of any party. Judgment upon any award
rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver,
laches and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of any
action for these purposes. The Federal Arbitration Act shall
apply to the construction, interpretation, and enforcement of
this arbitration provision."
(n) Amendment of Section 7. Effective as of the Execution
Date, Section 7 of the Existing Agreement is amended by adding to the
end thereof a new subsection h reading as follows:
"h. Noncompliance with Covenants in Fifth Amendment. Failure by
the Parent to comply with or perform any covenant stated in
Section 3 of the Fifth Amendment or any warranty or
representation made by any of the Companies in the Fifth
Amendment proving to have been false or misleading in any
material respect when made."
3. Special Covenant Regarding National. In order to obtain access to
financing and working capital required to support projected, substantial growth
in National's business and working capital requirements and to qualify the
assets associated with that business for inclusion in the Borrowing Base, the
Parent has confirmed and acknowledged to the Bank that it intends to merge
National and Starcraft, with Starcraft being the surviving corporation, by an
Agreement and Plan of Merger which will be closed and consummated by not later
than February 10, 1998. In the event for any reason this merger is not completed
by that date, then the Maximum Revolver Commitment (as it otherwise exists and
is calculated from time to time under the Agreement) automatically shall be
reduced on that date, and continue to be reduced thereafter until such merger
may be completed, by $750,000.
4. Amendments to Other Credit Documents. Effective as of the Execution
Date, each of the Parent Credit Documents is amended as follows: Each reference
in any of such Credit Documents to the term "Credit Agreement" shall be to the
Existing Agreement, as amended by this Amendment, and as the same may have been
or hereafter may be amended, modified, supplemented and/or restated from time to
time and at any time.
-14-
<PAGE>
5. Representations and Warranties. The Companies each represent and
warrant to the Bank that:
(a)(i) The execution, delivery and performance of this Amendment and
all agreements and documents delivered pursuant hereto by it has been duly
authorized by all necessary action (whether corporate, partnership or otherwise)
and does not and will not violate any provision of any law, rule, regulation,
order, judgment, injunction, or aware presently in effect applying to it, or of
its articles of incorporation, by-laws, articles of organization or operating
agreement (as applicable) or result in a breach of or constitute a default under
any material agreement, lease or instrument to which it is a party or by which
it or its properties may be bound or affected; (ii) no authorization, consent,
approval, license, exemption or filing of a registration with any court or
governmental department, agency or instrumentality is or will be necessary to
the valid execution, delivery or performance by it of this Amendment and all
agreements and documents delivered pursuant hereto; and (iii) this Amendment and
all agreements and documents delivered pursuant hereto by it are its legal,
valid and binding obligations and enforceable against it in accordance with the
terms thereof.
(b) After giving effect to the amendments contained in this Amendment,
the representations and warranties of it contained in Section 3 of the Existing
Agreement are true and correct on and as of the Execution Date with the same
force and effect as if made on and as of the Execution Date, except that the
representation in Section 3.d of the Existing Agreement shall be deemed to refer
to the financial statements of the Parent and its Subsidiaries most recently
delivered to the Bank prior to the Execution Date.
(c) No Event of Default or Unmatured Event of Default has occurred and
is continuing or will exist under the Agreement as of the Execution Date.
6. Conditions. The obligation of the Bank to execute and to perform
this Amendment shall be subject to full satisfaction of the following conditions
precedent:
(a) Copies, certified as of the Execution Date, of such corporate
documents of the Parent and its Subsidiaries as the Bank may request, including
articles of incorporation, by-laws, articles of organization, operating
agreement (or certifying as to the continued accuracy of the articles of
incorporation and by-laws previously delivered to the Bank), and incumbency
certificates, and such documents evidencing necessary corporate and partnership
action by the Companies with respect to this Amendment and all other agreements
or documents delivered pursuant hereto as the Bank may request.
(b) This Amendment shall have been duly executed by each of the
Companies.
(c) The Bank shall have received the following instruments and
documents, duly executed and delivered to the Bank:
-15-
<PAGE>
(i) a Pledge Agreement, in form and substance the same as
attached hereto as Exhibit A, and all documents
required thereby, all duly executed by the Parent;
(ii) Real estate mortgages, duly executed and acknowledged
by Starcraft, in form and substance the same as
attached to this Amendment as Exhibit " B-1" and
"B-2" (the "Mortgages").
(iii) such UCC-1 financing statements and other documents
as the Bank may reasonably request to fully perfect
the security interests granted under the Security
Agreements.
(d) The Company shall have paid all costs and expenses incurred by the
Bank in connection with the negotiation, preparation and closing of this
Amendment and the other documents and agreements delivered pursuant hereto or in
connection herewith, including the reasonable fees and out-of-pocket expenses of
Messrs. Baker & Daniels, special counsel to the Bank, which shall not exceed
$7,000.00.
(e) The Bank shall have received such additional agreements, documents
and certifications, fully executed by the Company as may be reasonably requested
by the Bank, including amendments to collateral documents.
7. Guarantor Consent and Affirmation. Each of the Companies in their
respective capacities as guarantors under the Guaranty Agreements, by their
execution of this Amendment, expressly consent to the execution, delivery and
performance by the other Companies and the Bank of this Amendment and each of
the other documents, instruments and agreements to be executed pursuant hereto,
and agrees that neither the provisions of this Amendment nor any action taken or
not taken in accordance with the terms of this Amendment shall constitute a
termination, extinguishment, release or discharge of any of their respective
guaranty obligations or provide a defense, set off, or counter claim to any of
them with respect to any of their respective obligations under any of the
Guaranty Agreements or other Credit Documents. Each of the Companies affirms to
the Bank that its Guaranty Agreements remain in full force and effect, are valid
and binding obligations of it, and continue to secure the Obligations the
payment of which is guaranteed by it thereunder.
8. Binding on Successors And Assigns. All of the terms and provisions
of this Amendment shall be binding upon and inure to the benefit of the parties
hereto, their respective successors, assigns and legal representatives.
9. Governing Law/Entire Agreement/Survival. This Amendment is a
contract made under, and shall be governed by an construed in accordance with,
the laws of the State of Indiana applicable to contracts made and to be
performed entirely with such state and without giving effect to the choice of
law principals of such state. This Amendment constitutes and expresses the
entire understanding between the parties hereto with respect to the subject
-16-
<PAGE>
matter hereof, and supersedes all prior agreements and understandings,
commitments, inducements or conditions, whether expressed or implied, oral or
written. All covenants, agreements, undertakings, representations and warranties
made in this Amendment shall survive the execution and delivery of this
Amendment, and shall not be affected by any investigation made by any party.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the Execution Date.
BANK ONE, INDIANA,
NATIONAL ASSOCIATION
By: /s/ Michael E. Lewis
---------------------------------------
Michael E. Lewis,
Senior Vice President
(the "Bank")
STARCRAFT CORPORATION
By: /s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler, President
- - ---------------------------------------
(the "Parent")
STARCRAFT AUTOMOTIVE GROUP, INC.
By: /s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler, President
- - ---------------------------------------
("Starcraft")
IMPERIAL AUTOMOTIVE GROUP, INC.
By: /s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler, President
- - ---------------------------------------
("Imperial")
-17-
FIRST ADDENDUM TO
EMPLOYMENT AGREEMENT
This Addendum is to the Agreement ("Agreement") made and dated as of
December 12, 1996 ("Effective Date"), by and between Starcraft Corporation, an
Indiana Corporation ("Employer"), and Kelly L. Rose, a resident of Elkhart
County, Indiana ("Employee").
WITNESSETH
WHEREAS, Employee is employed by Employer as its Chairman of the Board
and Chief Executive Officer, for itself and each of its subsidiaries ("Job
Responsibilities") and Employee has made valuable contributions to the strategic
planning, business operations, and financial strength of Employer;
WHEREAS, Employer desires to encourage Employee to continue to make
valuable contributions to Employer's business operations and not to seek or
accept employment elsewhere; and
WHEREAS, Employer desires to provide fair and reasonable benefits to
Employee from time to time on the terms and conditions set forth in the
Agreement as amended from time to time.
NOW THEREFORE, in consideration of these premises, the mutual covenants
and undertakings herein contained, and the continued employment of Employee to
perform Job Responsibilities for Employer, Employer and Employee agree to hereby
amend the Agreement, each intending to be legally bound, as follows:
1. Subsection 6 of the Agreement is hereby amended by adding the
following to subsection 6, which in all other respects remains in full force and
effect except as amended hereby:
So long as Employee is employed by Employer pursuant to this Agreement,
Employee shall be entitled to personal tax preparation services, an
annual physical examination, personal umbrella insurance coverage in an
amount not less than Ten Million Dollars ($10,000,00.00), and Employer
shall pay and continue to pay the fees, expenses, and premiums for each
of the foregoing.
2. Subsection 4 of the Agreement is hereby amended by adding the
following to subsection 4, which in all other respects remains in full force and
effect except as amended hereby:
Employer shall review Employee's Base Compensation on an annual basis
with the intention that such review of the Base Compensation and the
Executive Bonus Plan, subject to the discretion, responsibilities and
polices of the Employer's Compensation Committee, shall cause the
annual Base Compensation and Bonus to increase from year-to-year.
3. Subsection 8 of the Agreement is hereby amended by adding the
following to subsection 8, which in all other respects remains in full force and
effect:
(E) In the event Employee's employment with Employer shall
terminate in the event of Employee's death, pursuant to
subsection 7(D), compensation provided for herein (including
Base Compensation) shall continue to be paid as provided in
subsection 7(C), and from and after the date of Employee's
death the spouse of Employee shall be entitled to continue to
receive from Employer the Employee's Base Compensation at the
rates in effect at the time of termination for five (5)
additional twelve (12) month periods. In addition, during such
periods, Employer will maintain in full force and effect for
the continued benefit of the spouse of Employee each Benefit
Plan in which the spouse of Employee was entitled to
participate immediately prior to the date of death of
Employee, unless an essentially equivalent and no less
favorable benefit is provided by a subsequent employer of the
spouse of Employee. If the terms of any Benefit Plan, or
applicable laws, do not permit continued participation by the
spouse of Employee, Employer will arrange to provide to spouse
of Employee a benefit substantially similar to, and no less
favorable than, the benefit the spouse of Employee was
entitled to receive under such Benefit Plans at the date of
death of Employee. Employer reserves the right to cause the
payments provided for herein to be funded and paid in whole or
in part from life insurance, annuities, or other such similar
devices, in its sole discretion.
(F) In the event Employee's employment with Employer shall
terminate in the event of Employee's disability pursuant to
subsection 7(D), compensation provided for herein (including
Base Compensation) shall continue to be paid as provided in
subsection 7(C), and from and after the date of Employee's
disability and during the continuance or recurrence thereof,
Employee shall be entitled to continue to receive from
Employer the Employee's Base Compensation at the rates in
effect at the time of termination for five (5) additional
twelve (12) month periods. In addition, during such periods,
Employer will maintain in full force and effect for the
continued benefit of Employee each Benefit Plan in which
Employee was entitled to participate immediately prior to the
date of disability of Employee, unless an essentially
equivalent and no less favorable benefit is provided by a
subsequent employer of Employee. If the terms of any Benefit
Plan, or applicable laws, do not permit continued
participation by Employee, Employer will arrange to provide
Employee a benefit substantially similar to, and no less
favorable than, the benefit Employee was entitled to receive
under such Benefit Plans at the date of disability of
Employee. Employer reserves the right to cause the payments
provided for herein to be funded and paid in whole or in part
from life insurance, annuities, or other such similar devices,
in its sole discretion.
4. Except as expressly modified by these amendments to the Agreement
herein provided, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Addendum to the
Agreement to be executed and delivered this 31st day of December, 1997, as of
the Effective Date.
"EMPLOYEE" "EMPLOYER"
STARCRAFT CORPORATION
By: /s/ Michael H. Schoeffler
- - --------------------------- ---------------------------
Kelly L. Rose Michael H. Schoeffler
Its: President
--------------------------
Exhibit 11
Computation of Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
- - -------------------------------------------------- -------------------------------------------------------------------
September 28, 1997 September 29, 1996 October 1, 1995
<S> <C> <C> <C>
Primary Average Shares Outstanding 4,127 4,142 4,261
Net Effect of Dilutive Stock Options
- based on the treasury stock method using
average market price -- -- --
------------ ---------- ---------
Total 4,127 4,142 4,261
============ ========== =========
Net Income (Loss) $ ( 11,302) $ 110 $ 2,757
============ =========== =========
Per Share Amount $ (2.74) $ .03 $ 0.65
============ ========== =========
Fully Diluted Average Shares Outstanding 4,127 4,142 4,261
Net effect of dilutive stock options based on the
treasury stock method using the highest of the
average market price for the period or the market
price at the end of the period -- -- --
------------ ---------- ---------
Total 4,127 4,142 4,261
============ ========== =========
Net Income $ (11,302) $ 110 $ 2,757
============ ========== =========
Per Share Amount $ (2.74) $ .03 $ 0.65
============ ========== =========
</TABLE>
NOTE: Average shares outstanding used for earnings per share included in the
Company's financial statements do not reflect the effect of the stock
options granted since their effect is antidilutive.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
1. Starcraft Automotive Group, Inc.
State of Incorporation: Indiana
A. Starcraft FSC, Inc.
Jurisdiction of Incorporation: Barbados
2. Imperial Automotive Group, Inc.
State of Incorporation: Indiana
3. Starcraft Southwest, Inc.
State of Incorporation: Indiana
4. National Mobility Corporation
State of Incorporation: Indiana
Consent of Independent Auditors
We have audited the consolidated financial statements of Starcraft Corporation
and Subsidiaries as of September 28, 1997 and September 29, 1996 and for each of
the two years in the period ended September 28, 1997 and have issued our report
thereon dated January 12, 1998. Our audits also included the information for the
years ended September 28, 1997 and September 29, 1996 in the financial statement
schedule listed in Item 14 of this Annual Report. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information as of and for the years
ended September 28, 1997 and September 29, 1996 set forth therein.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-73148) pertaining to the Starcraft Automotive Corporation 401(k)
Profit Sharing Plan and Trust, in the Registration Statement (Form S-8 No.
33-70030) pertaining to the Starcraft Automotive Corporation Stock Incentive
Plan, and in the Registration Statement (Form S-8 No. 333-28247) pertaining to
the Starcraft Corporation 1997 Stock Incentive Plan of our report dated January
12, 1998, with respect to the consolidated financial statements of Starcraft
Corporation and Subsidiaries included in this Annual Report (Form 10-K) for the
years ended September 28, 1997 and September 29, 1996.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
January 12, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Starcraft Automotive Corporation
Goshen, Indiana
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 33-73148, File No. 33-70030 and 333-28247) of
our report, dated November 3, 1995, with respect to the consolidated financial
statements of Starcraft Corporation and Subsidiaries in the Annual Report on
Form 10-K for the year ended October 1, 1995.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
January 12, 1997
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT ON
THE SUPPLEMENTAL SCHEDULES
The Board of Directors
Starcraft Corporation
Goshen, Indiana
Our audit of the consolidated financial statements of Starcraft Corporation and
Subsidiaries included Schedule II, contained herein, for the period ended
October 1, 1995. Such schedule is presented for purposes of complying with the
Securities and Exchange Commission's rule and is not a required part of the
basic consolidated financial statements. In our opinion, such schedule presents
fairly the information set forth therein, in conformity with generally accepted
accounting principles.
/s/ McGLADREY & PULLEN, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
November 3, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906473
<NAME> Starcraft Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 608
<SECURITIES> 0
<RECEIVABLES> 8,050
<ALLOWANCES> 81
<INVENTORY> 9,270
<CURRENT-ASSETS> 18,291
<PP&E> 11,465
<DEPRECIATION> 3,491
<TOTAL-ASSETS> 27,779
<CURRENT-LIABILITIES> 11,280
<BONDS> 5,696
<COMMON> 14,016
0
0
<OTHER-SE> (3,721)
<TOTAL-LIABILITY-AND-EQUITY> 27,779
<SALES> 72,282
<TOTAL-REVENUES> 72,282
<CGS> 66,342
<TOTAL-COSTS> 66,342
<OTHER-EXPENSES> 13,924
<LOSS-PROVISION> 5,926
<INTEREST-EXPENSE> 206
<INCOME-PRETAX> (14,116)
<INCOME-TAX> (2,814)
<INCOME-CONTINUING> (11,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,302)
<EPS-PRIMARY> (2.74)
<EPS-DILUTED> (2.74)
</TABLE>
