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 27, 1998.
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 46527-1903
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (219) 533-1105
Securities registered pursuant to Section 12(b) ofthe 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 8, 1999, was $4,946,343.
The number of shares of the Registrant's Common stock, without par value,
outstanding as of December 23, 1998, was 4,133,600 shares.
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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 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
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<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 and with its acquisition of the Imperial
product line in 1994, now offers products at all consumer price levels. In
addition, the Company sells vehicle conversions for the physically challenged
through its 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 500 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. In 1998, the Company began manufacturing and marketing
commercial shuttle buses.
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 February 1997, the Company purchased the
assets of National Mobility Corporation in Elkhart, Indiana. In October 1997,
the Company started Tecstar, Inc. with a partner. The primary business purpose
of Tecstar is to supply conversion vehicles directly to the Big 3 automakers. In
February 1998, the Company started manufacturing and marketing commercial
shuttle buses at its Goshen manufacturing facility.
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 two wholly-owned operating subsidiaries: Starcraft
Automotive Group, Inc., and National Mobility Corporation. The Company owns 51%
of Tecstar, Inc.
Starcraft's principal manufacturing facilities are in Goshen, Indiana.
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 1998 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 1998 were $25,200, $22,900 and $31,500 respectively. The Company
maintains two product lines in its conversion business. The Starcraft product
line, emphasizing high-end, luxury vehicles, averaged a $28,600 wholesale price
to dealers during 1998 assuming an average cost of chassis of $20,000. The
Imperial product line, representing primarily the entry level position, averaged
a $24,200 wholesale price.
According to RVIA statistics, domestic conversion products sold by manufacturers
during the three preceding fiscal years have declined as follows:
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<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Industry unit sales 148,700 194,800 228,200
Decline from prior year (23.7%) (14.6%) (2.0%)
</TABLE>
The domestic vehicle conversion industry has declined steadily over the last
several years with a continued decline in 1998. 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 dealer retail lots such as sport utility vehicles and a
general concern by dealers about 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 conversion vehicles 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 conditions 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.
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.
The Company's National Mobility Corporation ("NMC") converts fullsize vans with
wheelchair lifts and low- floor minivans for the physically challenged
community. The average conversion price to dealers for NMC products in 1998 was
$10,800.
In 1998 the Company began manufacturing shuttle buses ranging in length from 20
to 35 feet with seating capacity for 12 to 25 passengers. Buses are offered with
a choice of interior and exterior storage areas, wheelchair lifts, diesel and
gasoline engines, and various seat types, arrangements and coverings. The buses
are marketed under the Starcraft trade name and are primarily marketed to
churches, nursing homes and hotel resorts through commercial bus dealers.
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The National Mobility and shuttle bus operations accounted for 8% of the
Company's sales in 1998.
Company Strategy
The Company believes it can grow by expanding its domestic vehicle conversion
business and physically challenged vehicle market share, further developing
international sales opportunities and offering additional products in new
markets, such as shuttle buses for airport and hotel use. Through its Tecstar
joint venture, the Company is also seeking to sell conversion vehicles directly
to OEM's.
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 conversion 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. In 1997, the Company established a telemarketing division to
effectively penetrate larger territories.
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.
Domestic Truck and SUV Conversions. Although the Company's conversions of 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
at automotive dealerships have reduced the demand for conversions of these
products. 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 will continue,
but will not be a significant growth segment. 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.
National Mobility Corporation offers a 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 will target key automotive dealers in
each region to maintain market share and develop cooperative marketing plans.
National Mobility will continue to pursue the distribution of its products
through governmental and commercial channels.
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 continuing turmoil in the Asian
financial markets and economies have negatively impacted the demand for the
Company's products. 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.
Page 5 of 25
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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, while manufacturing such products in existing
operating facilities.
The Company's shuttle bus operation was set-up in its main Goshen facility. The
Company also developed a conversion for the taxi industry which is being
manufactured in its National Mobility operation.
Tecstar, Inc. is a joint venture company between Starcraft and an engineering
firm. Tecstar's strategy is to set-up manufacturing facilities near OEM assembly
plants and manufacture conversion vehicles directly for the OEM's. The vehicles
are marketed by the OEM and are distributed through the OEM distribution
channel. Tecstar currently has three vehicle programs with facilities beginning
operations in Shreveport, Louisiana and Arlington, Texas.
Chassis and Other Suppliers
50%, 33% and 17% of the company's domestic vehicle conversion units in 1998 were
manufactured on General Motors, Dodge and Ford chassis, respectively. All of the
Company's export sales are associated with General Motors product.
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 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 changed its chassis system for the Company's
sales to Europe. The program encompasses 34% of the Company's 1998 export sales.
Under this program, 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 is required to purchase its
chassis and the OEM assists in the financing of such purchases. 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.
Page 6 of 25
<PAGE>
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 under its restricted sales contracts with the OEM's and
the dollar value in thousands thereof, and, as of the end of such periods, the
number of chassis held over 90 days and the dollar value in thousands thereof.
<TABLE>
<CAPTION>
Year Ended
(Dollars in thousands)
Sept. 27, 1998 Sept. 28, 1997 Sept. 29, 1996
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
Chassis Received 7,132 10,687 17,179
Value of Chassis Received $142,640 $ 213,740 $ 305,300
Chassis Over 90 Days at period end 148 433 262
Value of Chassis Held Over 90 Days $ 2,960 $ 8,660 $ 4,615
</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 and the purchase of
necessary assembly material. 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.
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 1997, chassis availability was generally
good. In 1998 chassis availability was adversely impacted late in the fiscal
year due to a labor stoppage at General Motors. The Company estimates that sales
were adversely impacted by $1.5 million due to chassis shortages in 1998. 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.
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.
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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. 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.
The shuttle bus operation utilizes bailment or consignment arrangements with the
OEM's, but must purchase the chassis prior to the start of manufacturing. The
shuttle bus operation is subject to the same risk factors of chassis
availability as the Company's vehicle conversion business.
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. In 1998, the availability of certain hardwood components adversely
impacted 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.
After a chassis is inspected and accepted, tinted vista bay windows, raised
roof, decorative decals and ground effects are installed. Star-structure steel
bracing is installed for added structural support, followed by rust proofing,
wiring, insulation and vibration dampening materials. The vehicle's interior 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 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. Wire harnesses are
manufactured at the Goshen plant. It also finishes its hardwood components at
the Goshen plant. The Company 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. This water-filtered, down draft paint system is
similar to those of the major automotive manufacturers and is designed to
control environmentally harmful emissions.
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation into Starcraft Automotive Group's manufacturing complex
in Goshen, Indiana. The consolidation was designed to reduce 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 realized annual overhead expense reductions of
approximately $1.0 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
realized 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 returning to
profitability.
Page 8 of 25
<PAGE>
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.
The Goshen facility produced 45 custom vehicles per eight-hour shift during peak
production periods in 1998 and has capacity to produce up to 70 units in one
shift.
Sales and Marketing
Domestic. The Company sells its custom vehicles to approximately 500 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. During the past two years, the geographic areas of the U.S. where
the Company's sales have been strongest include the Great Lakes region (i.e.,
Illinois, Indiana, Michigan, New York, Ohio, Pennsylvania, and Wisconsin), and
Oklahoma and Texas.
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 and larger territories.
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.
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 and pursue commercial applications.
International. Starcraft exports converted vehicles to 18 countries around the
world and employs an international department which is exclusively responsible
for the development of such 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
1,273, 1,584 and 2,543 conversions in 1998, 1997 and 1996, respectively. The
recent increase in U.S. currency and turmoil in Asian financial markets have
negatively impacted the Company's international 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.
The Company's shuttle bus products are marketed and distributed through
approximately 20 independent bus dealers. The majority of these bus dealers
carry other bus lines in addition to Starcraft. The Company will continue to
develop products to expand its customer base, including bidding for government
and large commercial contracts.
Page 9 of 25
<PAGE>
Competition
The United States conversion vehicle 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
estimates it has approximately 55 competitors in the conversion vehicle on
business. 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 entry level segment of the
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 and SUV's such as the Company's tend not to be widely produced
within its foreign markets.
The market for the Company's shuttle buses is highly competitive. The other
competitors in the bus industry are substantially larger than the Company. The
Company's products are a very small percentage of the bus market. The Company
will continue to position its product as an exceptional quality, high value
product targeting the high end user niche market. There can be no assurance that
the Company will be able to maintain or improve its competitive position in the
bus market.
Tecstar competes against several much larger automotive parts suppliers. Tecstar
is highly dependent on continuing to successfully bid future contracts as its
existing programs have two to four year terms.
Backlog and Seasonality
At September 27, 1998, the Company had a backlog of 441 unit orders compared
with a backlog of 842 unit orders at September 28, 1997. The backlog declined
from prior year levels due to reduced market activity, chassis availability
issues from the General Motors labor stoppage and customer concern from the
Company's production constraints in the summer arising from raw material
component availability. 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 on certain of its Starcraft products. 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." The boat manufacturing
business was sold by the Predecessor to Brunswick Corporation in 1988 which
subsequently sold the business. The Company initially acquired the recreational
vehicle business in the Predecessor's 1991 reorganization proceeding, but
immediately sold it to an RV company. The Predecessor's Canadian conversion
business was acquired by a Canadian firm. A corporation in the boating industry
has independently registered and owns the "Starcraft" and related trademarks for
use with boats and marine products and thus the Company 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
Page 10 of 25
<PAGE>
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 is not permitted to 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 are promulgated by the NHTSA. 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.
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.
Employees
As of September 27, 1998, the Company employed 550 people. Of these,
approximately 450 were production line associates and 100 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.
Page 11 of 25
<PAGE>
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. 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 the facility for
$800,000. Monthly rent is $14,500 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.
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, under the symbol "STCR." As
of December 21, 1998, there were 85 shareholders of record of Starcraft's Common
Stock.
During 1998, the Company did not meet the new market capitalization requirements
for continued listing on the NASDAQ National Market. As a result, in September
1998 the Company's shares began trading on the NASDAQ Small Cap market.
Page 12 of 25
<PAGE>
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 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
December 28, 1997 3.000 2.000
March 29, 1998 2.750 1.750
June 28, 1998 2.875 2.125
September 27, 1998 2.313 1.000
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 or 1998.
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).
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.
Page 13 of 25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars in thousand,
except per share data) Year Ended
---------------------------------------------------------------------------------
Income Statement Data Sept. 27, Sept. 28, Sept. 29, Oct. 1, Oct. 1,
1998 1997 1996 1995 1994
---------------- ---------------- --------------- --------------- --------------
Net Sales:
<S> <C> <C> <C> <C> <C>
Domestic $ 42,857 $ 57,235 $ 73,317 $ 91,652 $ 81,640
Export 10,235 15,047 25,648 21,408 10,734
Total Net Sales 53,092 72,282 98,965 113,060 92,374
Cost of Goods Sold 49,590 66,342 83,669 92,692 73,775
Gross Profit 3,502 5,940 15,296 20,368 18,599
Operating Expenses 9,548 13,924 15,049 15,864 12,505
Restructuring and Goodwill
Impairment Charges ---- 5,926 ---- ---- ----
Operating Income (loss) (6,046) (13,910) 247 4,504 6,094
Interest income (expense) ( 892) ( 400) (293) (208) 99
Other income, Net 100 194 176 214 104
Income (loss) Before Taxes (6,838) (14,116) 130 4,510 6,297
Income Taxes (Credit) (79) (2,814) 20 1,753 2,517
Net Income (loss) (6,759) (11,302) 110 2,757 3,780
Weighted Common Shares 4,134 4,127 4,142 4,261 4,193
Outstanding
Earnings (loss) Per Share $ (1.63)$ (2.74) $ 0.03 $ 0.65 $ 0.90
Balance Sheet Data
---------------- ---------------- --------------- --------------- --------------
Working Capital $ 5,402 $ 7,011 $ 8,476 $ 8,693 $ 8,140
Total Assets 29,015 27,779 36,524 34,213 32,772
Long-term Debt 10,777 5,696 0 323 196
Shareholders' Equity 3,536 10,295 21,552 21,688 19,556
Book Value per Share 0.86 2.49 5.23 5.20 4.58
</TABLE>
<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.
1998 VERSUS 1997
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 to
1998
1998 1997 Change
----------------------- ---------------------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 53,092 100.0% $72,282 100.0% (26.5%)
Cost of goods sold 49,590 93.4% 66,342 91.8% (25.3%)
-------- ----- -------- ----- -----
Gross profit 3,502 6.6% 5,940 8.2% (41.0%)
Selling and promotion expenses 4,484 8.4% 7,243 10.0% (38.1%)
General and administrative expenses 5,064 9.6% 6,681 9.2% (24.2%)
Restructuring charges 0 0.0% 1,010 1.4% --
Goodwill impairment loss 0 0.0% 4,916 6.8% --
-------- ----- -------- ----- -----
Operating loss (6,046) (11.4%) (13,910) (19.2%) (56.5%)
Interest expense (892) (1.7%) (400) (0.6%) 123.0%
Other income 100 0.2% 194 0.3% (48.5%)
-------- ----- -------- ----- -----
Loss before taxes (6,838) (12.9%) (14,116) (19.5%) (51.6%)
Income tax credit (79) (0.2%) (2,814) (3.9%) (97.2%)
-------- ----- -------- ----- -----
NET LOSS ($ 6,759) (12.7%) ($11,302) (15.6%) (40.2%)
======== ===== ======== ===== =====
</TABLE>
Net Sales
Net Sales for 1998 decreased 26.5% to $53.1 million from $72.3 million in 1997.
Vehicle conversion sales declined 27.2%, comprised of a 28.2% decline in
domestic and 32.0% decline in export. The start-up of the shuttle bus business
generated $1.2 million in sales in 1998.
The Company's domestic sales declined consistent with the decline in the overall
conversion market of 23.7% as reported by the Recreational Vehicle Industry
Association. In addition, the Company's sales were adversely impacted by
production constraints in the third quarter from shortages of key raw material
parts, primarily hardwood components. The Company estimates that the production
issues negatively impacted the year's sales by approximately $7 million.
Export sales declined due to price pressures from the stronger U.S. dollar and
reduced demand in Japan and Korea caused by the economic turmoil in Asia.
Gross Profit
Gross profit margin for 1998 was 6.6% of sales compared to 8.2% in 1997. The
decrease in gross margin as a percent of sales is primarily attributable to the
impact of fixed plant overhead costs on the lower sales volume.
Selling and promotion expense
Selling and promotion expense for 1998 decreased 38.1% to $4.5 million primarily
due to the lower domestic sales volume. The decrease in selling and promotion
expense as a percentage of sales in 1998 is due to cost reductions from fixed
salesmen salaries and the elimination of the Texas operation.
General and Administrative Expense
General and administrative expense in 1998 was $5.1 million, a 24.2% decrease
from 1997. The decrease is primarily attributable to reductions in personnel,
partially offset by $487,000 of start-up expense from Tecstar.
Restructuring Charges
In December 1996 the Company consolidated its Imperial Automotive Group
manufacturing operation and its Texas manufacturing facility into Starcraft
Automotive Group's manufacturing complex in Goshen, Indiana. The Company
recorded a $1.0 million restructure charge in fiscal 1997.
Goodwill
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. In 1997. As a
Page 15 of 25
<PAGE>
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 was recorded in 1997 to write-off the remaining goodwill associated with
this acquisition.
Income taxes
The Company recorded a minimal income tax credit in 1998 as the tax carry-back
is fully utilized. 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.
<TABLE>
<CAPTION>
1997 VERSUS 1996
(Dollars in Thousands) 1996 to
1997
1997 1996 Change
----------------------- ---------------------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 72,282 100.0% $ 98,965 100.0% (27.0%)
Cost of goods sold 66,342 91.8% 83,669 84.5% (20.7%)
-------- ------- -------- ------- ------
Gross profit 5,940 8.2% 15,296 15.5% (61.2%)
Selling and promotion expenses 7,243 10.0% 8,252 8.4% (12.2%)
General and administrative expenses 6,681 9.2% 6,797 6.9% (1.7%)
Restructuring charges 1,010 1.4% 0 0.0% --
Goodwill impairment loss 4,916 6.8% 0 0.0% --
-------- ------- -------- ------- ------
Operating income (loss) (13,910) (19.2%) 247 0.2% --
Interest expense (400) (0.6%) (293) (0.3%) 36.5%
Other income 194 0.3% 176 0.2% 10.2%
-------- ------- -------- ------- ------
Income (loss) before taxes (14,116) (19.5%) 130 0.1% --
Income taxes (credit) (2,814) (3.9%) 20 0.0% --
-------- ------- -------- ------- ------
NET INCOME (LOSS) ($11,302) (15.6%) $ 110 0.1% --
======== ======== ======== ======= ======
</TABLE>
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 continued to decline in 1997 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.
Page 16 of 25
<PAGE>
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 was designed to
reduce 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.
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.
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 contracted, gross margins deteriorated, and Imperial
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 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.
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 58% of the Company's total unit shipments in 1998 compared to 65% in
1997.
Page 17 of 25
<PAGE>
The Company's retail dealers had approximately 1,300 units on hand at the end of
1998 compared to 3,600 at the end of 1997 and 5,300 at the end of 1996.
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 about the
future of the conversion industry.
The strengthened U.S. dollar and recent turmoil in financial markets in Asia
pressured 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 in 1999. The domestic conversion
market is expected to continue to decline in 1999.
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 and has commenced production of a taxi product. In 1998
the Company continued to pursue its cost reduction and diversification strategy
with the introduction of the shuttle bus product and the Tecstar program. The
Company plans to continue to develop these new products and to increase its
product offerings in the vehicle conversion commercial market.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $4.6 million during 1998 compared to using
cash of $3.0 million in the prior year. The use of cash resulted primarily from
the pretax operating loss. Receivables decreased $0.8 million due to the
decrease in sales and production levels. Inventories increased primarily due to
chassis purchase requirements under the shuttle bus business and the European
conversion van sales program. Raw chassis in inventory at the end of September
1998 was $2 million compared to none at the end of last year. This inventory
growth was primarily financed by the OEM through accounts payable which
increased $1.9 million over prior year levels.
The Company invested $785,000 million in property and equipment during the year
primarily for information systems ($430,000) and the shuttle bus plant start-up
($200,000).
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.
The Company's use of cash for operations and investing activities was financed
by bank debt. At the end of September 1998, bank debt was $11.8 million.
Page 18 of 25
<PAGE>
On October 30, 1998, the Company entered into a new $14 million credit agreement
with a lending institution. The agreement is subject to renewal in November
2001. Revolving advances under the agreement are limited to specified
percentages of eligible receivables and inventories and are subject to a maximum
limit of $9.2 million. The credit agreement also includes a $4.8 million term
loan which is payable in monthly principal installments of $57,000 beginning
December 1, 1998. The revolving borrowings bear interest of either 1/2% over
prime or 3% over the Eurodollar rate. The term loan bears interest at either
3/4% over prime or 3.5% over the Eurodollar rate. The borrowings are secured by
substantially all of the Company's assets. There is a fee of .25% of the average
unused portion of the maximum borrowing amount. Pursuant to the agreement, the
Company must, among other things, maintain a minimum level of tangible net worth
of $(3.2 million) as of January 3, 1999, $(3.2 million) as of March 28, 1999,
$(350,000) as of June 27, 1999 and $700,000 as of October 3, 1999. Additionally,
the Company must generate earnings before income taxes, depreciation and
amortization (EBITDA) of at least $(2.4 million), $362,000, $1.5 million and
$410,000 for the fiscal quarters ending January 3, 1999, March 28, 1999, June
27, 1999 and October 3, 1999, respectively. If these minimum levels are not
maintained, any outstanding balances become payable upon demand of the lending
institution. In order to maintain the minimum levels of tangible net worth and
EBITDA through 1999, the Company needs to achieve operating results
substantially consistent with its 1999 operating plan.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3
million to be paid with proceeds from the $14 million refinancing described
above. The remaining $3 million is payable in monthly principal installments of
$36,000 beginning December 1, 1998. The note matures in November 2001 at which
time any remaining principal balance is due. The note bears interest at 2% over
the bank's prime rate and is subordinate to the $14 million credit agreement
described above. The note is partially guaranteed by two individuals, one of
whom is a director and officer of the Company and the other is currently an
outside director. As incentive for their guarantees, the Company issued to the
individuals warrants to purchase a total of 400,000 shares of Common Stock for
$2.20 per share. The warrants have a five year term and are exercisable at the
date of the grant.
The current and long-term notes payable on the September 27, 1998 balance sheet
reflect the above modifications.
On January 12, 1998, the Company entered into an amended credit agreement with
its former primary lender which was effective as of December 31, 1997.
Borrowings were limited to specified percentages of eligible receivables,
inventories and property and equipment, and were 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 under this agreement bore
interest at 1% over the bank's prime rate were secured by substantially all of
the Company's assets.
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 estimates that it will require $2 million to finance the start-up of
Tecstar in 1999. The Company's new financing agreement is forecasted to satisfy
this requirement.
Page 19 of 25
<PAGE>
The Company believes that future cash flows from operations, funds available
under its 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 1999.
OTHER MATTERS
The Company is dependent on a centralized computer which provides data in
support of vital company-wide operational and accounting functions. Many of the
computer processes used to generate this data were programmed in-house following
the common practice of using only two digits to designate a year. Other software
purchased by the Company was written using the same convention. As the year 2000
approaches, programs with such date-related logic will not be able to
distinguish between the years 1900 and 2000, potentially causing software and
hardware to fail, generate erroneous calculations or present information in an
unusable form beyond December 31, 1999. In 1997, the Company began devoting
significant resources to replace its current system with a new, year
2000-compliant enterprise computer system. It is expected that the new system
will be operational by June 1999. The total cost of the project, including
hardware, software and consulting costs, is currently estimated to be
approximately $1.1 million, of which $900,000 has been incurred as of September
27, 1998. These costs do not include any costs associated with the
implementation of contingency plans, which are in the process of being
developed.
Due to the uncertainty of the year 2000 readiness of third-party suppliers,
customers and financial institutions, the Company is currently unable to
determine whether the consequences of year 2000 failures will have a material
impact on the Company's operations. The Company is attempting to assess the
status of its significant third party vendors, customers and financial
institutions through the use of questionnaires. Management expects this process
to be complete by mid-1999. It is anticipated that the Company's year 2000
project will reduce the risk of significant business interruptions, but there is
no assurance that this outcome will be achieved. Failure to detect and correct
all internal instances of non-compliance or the inability of third parties to
achieve timely compliance could result in the interruption of normal business
operations which could, depending on its duration, have a material adverse
effect on the Company's financial condition or results of operations.
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, or as the Company's ability to
continue to comply with such terms over time.
Acquisitions and Diversification. 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
Page 20 of 25
<PAGE>
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. A significant aspect of the Company's strategy is
to diversify its product offerings into new product lines, such as taxis and
shuttle buses. The Company has less experience manufacturing and marketing such
products than it has in its core conversion vehicle business. There is no
assurance that such new product lines will be profitable.
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.
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 vehicle 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 vehicle conversion market.
Page 21 of 25
<PAGE>
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
We have audited the accompanying consolidated balance sheet of Starcraft
Corporation and Subsidiaries as of September 27, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended September 27, 1998. 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 audit. The
consolidated financial statements of Starcraft Corporation and Subsidiaries as
of September 28, 1997 and for the years ended September 28, 1997 and September
29, 1996 were audited by other auditors whose report dated January 12, 1998
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides 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 27, 1998 and the
consolidated results of their operations and their cash flows for the year ended
September 27, 1998 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
November 23, 1998
<PAGE>
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 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.
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 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>
STARCRAFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, 1998 and September 28, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 1,369 $ 608
Trade receivables, less allowance for
doubtful accounts: 1998 - $40; 1997 - $81 6,160 3,977
Manufacturers' rebates receivable 569 692
Recoverable income taxes 417 3,300
Inventories 10,857 9,270
Other 401 444
------------ ------------
Total current assets 19,773 18,291
Property and equipment
Land, buildings and improvements 5,927 5,857
Machinery and equipment 6,224 5,608
------------ ------------
12,151 11,465
Less accumulated depreciation 4,305 3,491
------------ ------------
7,846 7,974
Goodwill, at amortized cost 1,355 1,453
Other assets 41 61
------------ ------------
$ 29,015 $ 27,779
============ ============
</TABLE>
<PAGE>
See accompanying notes to financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 27, 1998 and September 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
<S> <C> <C>
Current maturities of long-term debt $ 1,023 $ -
Accounts payable, trade 8,244 6,354
Accrued expenses
Warranty 1,766 1,337
Compensation and related expenses 322 484
Taxes 971 1,060
Other 2,045 2,045
------------ ------------
Total current liabilities 14,371 11,280
Long-term debt 10,777 5,696
Deferred income taxes 331 508
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 - 4,133,600 14,016 14,016
Additional paid-in capital 1,008 1,008
Accumulated deficit (11,488) (4,729)
------------ ------------
3,536 10,295
------------ ------------
$ 29,015 $ 27,779
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 27, 1998, September 28, 1997 and
September 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in thousands, except per share data)
Net sales
<S> <C> <C> <C>
Domestic $ 42,857 $ 57,235 $ 73,317
Export 10,235 15,047 25,648
------------ ------------ ------------
53,092 72,282 98,965
Cost of goods sold 49,590 66,342 83,669
------------ ------------ ------------
Gross profit 3,502 5,940 15,296
Operating expenses
Selling and promotion 4,484 7,243 8,252
General and administrative 5,064 6,681 6,797
Restructuring charges - 1,010 -
Goodwill impairment loss - 4,916 -
------------ ------------ ------------
Operating income (loss) (6,046) (13,910) 247
Nonoperating (expense) income
Interest, net (892) (400) (293)
Other income, net 100 194 176
------------ ------------ ------------
(792) (206) (117)
------------ ------------ ------------
Income (loss) before income taxes (6,838) (14,116) 130
Federal and state income taxes (credit) (79) (2,814) 20
------------ ------------ ------------
Net income (loss) $ (6,759) $ (11,302) $ 110
============ ============ ============
Earnings (loss) per common share, basic $ (1.63) $ (2.74) $ .03
Earnings (loss) per common and common
equivalent share, assuming dilution $ (1.63) $ (2.74) $ .03
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 27, 1998, September 28, 1997 and
September 29, 1996
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
Cash flows from operating activities
<S> <C> <C> <C>
Net income (loss) $ (6,759) $ (11,302) $ 110
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation and amortization 1,018 1,199 1,087
Noncash restructuring charges - 611 -
Goodwill impairment loss - 4,916 -
Deferred income taxes (177) 583 51
Change in operating assets and liabilities
Receivables 823 2,465 (2,810)
Inventories (1,587) 4,494 205
Accounts payable 1,890 (3,369) 2,947
Accrued expenses 178 (2,512) 110
Other 30 (113) 163
------------ ------------ ------------
Net cash from operating activities (4,584) (3,028) 1,863
Cash flows from investing activities
Purchase of property and equipment (785) (1,407) (932)
Purchase of assets of National Mobility Corporation - (1,756) -
Proceeds from sale of property and equipment 26 60 36
------------ ------------ ------------
Net cash from investing activities (759) (3,103) (896)
Cash flows from financing activities
Proceeds from revolving credit agreement 11,604 12,200 7,800
Payments of revolving credit agreement (5,500) (6,504) (7,800)
Payments of long-term debt - (323) (610)
Repurchase of common stock - - (246)
------------ ------------ ------------
Net cash from financing activities 6,104 5,373 (856)
------------ ------------ ------------
Net change in cash and cash equivalents 761 (758) 111
Cash and cash equivalents at beginning of year 608 1,366 1,255
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,369 $ 608 $ 1,366
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid $ 770 $ 376 $ 304
Income taxes paid 10 140 60
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 27, 1998, September 28,
1997 and September 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Additional Retained
Common Common Paid-In Earnings
Shares Stock Capital (Deficit) Total
-------------- -------------(in thousands)----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, October 2, 1995 4,171,600 $ 14,104 $ 1,008 $ 6,576 $ 21,688
Net income - - - 110 110
Repurchase and retirement
of 53,000 shares of common stock (53,000) (133) - (113) (246)
-------------- ---------- ---------- ---------- ----------
Balance, September 29, 1996 4,118,600 13,971 1,008 6,573 21,552
Net loss - - - (11,302) (11,302)
Issuance of 15,000 shares
of common stock 15,000 45 - - 45
-------------- ---------- ---------- ---------- ----------
Balance, September 28, 1997 4,133,600 14,016 1,008 (4,729) 10,295
Net loss - - - (6,759) (6,759)
-------------- ---------- ---------- ---------- ----------
Balance, September 27, 1998 4,133,600 $ 14,016 $ 1,008 $ (11,488) $ 3,536
============== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 27, 1998 and September 28, 1997
(In thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 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, and shuttle buses. 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. Additionally the Company has a controlling interest
in Tecstar, Inc. which is also included as a part of the consolidated financial
statements.
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 $5,579, $9,541 and $18,526 in 1998, 1997 and 1996, respectively.
Cash Equivalents: Cash equivalents include all highly liquid investments with a
maturity when purchased 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
($10,081 and $8,962 at September 27, 1998 and September 28, 1997, 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.
Goodwill: Goodwill is amortized by the straight-line method over a period of 15
years and is stated net of accumulated amortization of $155 and $57 at September
27, 1998 and September 28, 1997, 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 recognized upon
shipment. Net sales do not include the cost of consigned chassis (see Note 10).
<PAGE>
STARCRAFT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 27, 1998 and September 28, 1997
(In thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings Per Common Share: Basic and diluted earnings per common share are
computed under an accounting standard effective beginning with the quarter ended
December 28, 1997. All prior earnings per common share amounts have been
restated to be comparable. Basic earnings per common share is based on net
income available to common shareholders divided by the weighted average number
of common shares considered to be outstanding during the period. The weighted
average number of common shares outstanding were 4,133,600, 4,127,350 and
4,142,402 for the years ended September 27, 1998, September 28, 1997 and
September 29, 1996, respectively. Diluted earnings per common share shows the
dilutive effect of any additional potential common shares issuable under stock
options. The Company's outstanding incentive stock options were not considered
in the computations of earnings per share, assuming dilution because the effects
of assumed exercise would have been antidilutive.
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 27, 1998, September 28, 1997 and September 29,
1996 each contain 52 weeks.
NOTE 2 - INVENTORIES
The composition of inventories at September 27, 1998 and September 28, 1997 is
as follows:
1998 1997
---- ----
Raw materials $ 4,631 $ 4,654
Chassis 2,006 -
Work-in-process 2,584 1,667
Finished goods 1,636 2,949
------------ ------------
$ 10,857 $ 9,270
============ ============
The use of the LIFO method of determining the cost of inventories did not have
material effect on inventories at September 27, 1998 and September 28, 1997.
<PAGE>
NOTE 3 - DEBT ARRANGEMENTS
On October 30, 1998, the Company entered into a new $14,000 credit agreement
with a lending institution. The agreement is subject to renewal in November
2001. Revolving advances under the agreement are limited to specified
percentages of eligible receivables and inventories and are subject to a maximum
limit of $9,200. The credit agreement also includes a $4,800 term loan which is
payable in monthly principal installments of $57 beginning December 1, 1998. The
note matures in November 2001 at which time any remaining principal balance is
due The revolving borrowings bear interest of either 1/2% over prime or 3% over
the Eurodollar rate. The term note bears interest at either 3/4% over prime or
3.5% over the Eurodollar rate. The borrowings are secured by substantially all
of the Company's assets. There is a fee of .25% of the average unused portion of
the maximum borrowing amount. Pursuant to the agreement, the Company must, among
other things, maintain a minimum level of tangible net worth of $(3,200) as of
January 3, 1999, $(3,200) as of March 28, 1999, $(350) as of June 27, 1999 and
$700 as of October 3, 1999. Additionally, the Company must generate earnings
before income taxes, depreciation and amortization (EBITDA) of at least
$(2,400), $362, $1,518 and $410 for the fiscal quarters ending January 3, 1999,
March 28, 1999, June 27, 1999 and October 3, 1999, respectively. If these
minimum levels are not maintained, any outstanding balances become payable upon
demand of the lending institution. In order to maintain the minimum levels of
tangible net worth and EBITDA through 1999, the Company needs to achieve
operating results substantially consistent with its 1999 operating plan.
On November 23, 1998, the Company entered into an amended credit agreement with
its former primary lender. The agreement called for all borrowings over $3,000
to be paid with proceeds from the $14,000 refinancing described above. The
remaining $3,000 is payable in monthly principal installments of $36 beginning
December 1, 1998. The note matures in November 2001 at which time any remaining
principal balance is due. The note bears interest at 2% over the bank's prime
rate and is subordinate to the $14,000 credit agreement described above. The
note is partially guaranteed by two individuals, both whom are currently
directors and one of whom is an officer of the Company. (See Note 13)
The current and long-term notes payable on the September 27, 1998 balance sheet
reflect the above modifications.
On January 12, 1998, the Company entered into an amended credit agreement with
its former primary lender which was effective as of December 31, 1997.
Borrowings were limited to specified percentages of eligible receivables,
inventories and property and equipment, and were 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. Borrowings under this agreement bear interest at 1%
over the bank's prime rate and were secured by substantially all of the
Company's assets. This credit agreement was further amended on November 23, 1998
(see above).
<PAGE>
NOTE 3 - DEBT ARRANGEMENTS (Continued)
The carrying amount of the Company's long-term debt approximates fair value.
Interest expense was approximately $892, $403 and $305 in 1998, 1997 and 1996,
respectively.
Long-term debt is due as follows:
Fiscal Year Ending
1999 $ 1,023
2000 1,116
2001 1,023
2002 8,638
NOTE 4 - INCOME TAXES
Federal and state income taxes (credits), all of which were domestic, consist of
the following:
1998 1997 1996
---- ---- ----
Current
Federal $ (61) $ (2,770) $ (103)
State 159 (627) 55
------------ ------------ ------------
98 (3,397) (48)
Deferred
Federal (154) 508 54
State (23) 75 14
------------ ------------ ------------
(177) 583 68
------------ ------------ ------------
$ (79) $ (2,814) $ 20
============ ============ ============
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rate applied to pretax income (loss) $ (2,325) $ (4,799) $ 44
State taxes - net (196) (701) 46
Foreign sales corporation - (36) (205)
Net operating loss for which no
benefit was recognized 2,231 - -
Temporary differences for which
no benefit was recognized 254 2,544 -
Other, net (43) 178 135
------------ ------------ ------------
$ (79) $ (2,814) $ 20
============ ============ ============
</TABLE>
<PAGE>
NOTE 4 - INCOME TAXES (Continued)
The composition of the deferred tax assets and liabilities at September 27, 1998
and September 28, 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities
Accelerated depreciation $ (460) $ (484)
Inventory basis difference (331) (331)
Other - (57)
------------ ------------
(791) (872)
Deferred tax assets
Inventory 275 216
Nondeductible accruals
Warranty 689 276
Other 487 455
Goodwill 1,587 1,741
Alternative minimum tax credit carryforward 220 220
Net operating loss carryforward 2,231 -
------------ ------------
Total deferred tax assets 5,489 2,908
Valuation allowance (5,029) (2,544)
------------ ------------
460 364
------------ ------------
Net deferred tax asset (liability) $ (331) $ (508)
============ ============
</TABLE>
The alternative minimum tax carryforward of $220 has no expiration date for
income tax purposes. The net operating loss carryforward of $2,231 expires in
2018.
NOTE 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 discretionary matching contribution by the Company of the
employee's salary deduction, up to 6% of compensation. Also, the plan provides
for an additional discretionary contribution annually as determined by the Board
of Directors. The amounts charged to expense for this plan were approximately
($250), $361 and $107 in 1998, 1997 and 1996, respectively.
<PAGE>
NOTE 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 five 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 27, 1998 have been at fair market value on the date of grant.
For each of the three years in the period ended September 27, 1998, 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 for the
years ended September 27, 1998, September 28, 1997 and September 29, 1996
follows:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
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 407,349 $ 5.65 375,349 $ 6.24 311,850 $ 8.02
Granted 188,849 1.85 124,500 3.40 176,500 4.38
Canceled (85,000) 4.41 (92,500) 5.02 (113,001) 8.26
Expired (58,349) 8.15 - - - -
----------- ------- ----------- -------- ----------- --------
Outstanding at
end of year 452,849 $ 3.97 407,349 $ 5.65 375,349 $ 6.24
=========== ======= =========== ======== =========== =======
Exercisable at end of year 383,515 $ 4.22 302,149 $ 6.46 359,849 $ 6.21
=========== ======= =========== ======== =========== =======
</TABLE>
As of September 27, 1998, there were 267,349 options outstanding with exercise
prices which ranged from $1.625 to $4.00. The weighted-average exercise price of
these options is $2.34, and the weighted-average remaining contractual life is
4.1 years. As of September 27, 1998, there were 185,500 options outstanding with
exercise prices which ranged from $4.25 to $7.75. The weighted-average exercise
price of these options is $6.32, and the weighted-average remaining contractual
life is 1.8 years.
<PAGE>
NOTE 6 - STOCK OPTION PLANS (Continued)
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.
Proforma 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 1998 and 1997 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:
1998 1997
---- ----
Risk-free interest rate 4.52% - 5.63% 6.04% - 6.77%
Dividend yield 0% 0%
Volatility factor 54.8% - 59.8% 40.9% - 48.8%
Expected option life 4 years 4 years
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's proforma
information follows:
1998 1997 1996
---- ---- ----
Proforma net income (loss) $(6,912) $(11,469) $13
Proforma net income (loss) per share $(1.67) $ (2.78) $0.00
NOTE 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 to two times
the purchase price of the right. The rights expire on August 12, 2007.
<PAGE>
NOTE 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
that plant. 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 27, 1997
was paid during 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 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 conversion 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, 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.
NOTE 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.
<PAGE>
NOTE 9 - BUSINESS COMBINATION (Continued)
The acquisition was recorded using the purchase method of accounting, and
accordingly, the results of operations of National Mobility Corporation for the
year ended September 27, 1998 and 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 proforma 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 proforma
income (loss) and earnings (loss) per share would not have been materially
different from the reported amounts for 1998 and 1997. The proforma 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.
NOTE 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 the 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.
<PAGE>
NOTE 10 - CONSIGNMENT ARRANGEMENTS (Continued)
At September 27, 1998, the Company has possession of chassis in the aggregate
amount of $8,720 (of which $2,960 related to chassis on consignment for periods
exceeding 90 days) and has total chassis line availability between $34,500 and
$44,000 based on the time of year. Carrying charges on consignment chassis,
which are presented in cost of goods sold, were approximately $1,030, $2,740 and
$1,729 in 1998, 1997 and 1996, 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 $731, $751 and $1,135 in 1998, 1997 and 1996, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment. The total rental
expense for 1998, 1997 and 1996 is $270, $688 and $490, respectively. Rental
commitments at September 27, 1998 for long-term noncancelable operating leases
are as follows:
1999 $ 204
2000 96
2001 5
------------
$ 305
============
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.
NOTE 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 $520, $824 and $893 in 1998, 1997 and
1996, respectively.
<PAGE>
NOTE 13 - SUBSEQUENT EVENT
On November 20, 1998 the Company issued warrants to purchase shares of Common
stock to two individuals as incentive for their partial guarantee of the
Company's long-term debt (See Note 3). The individuals can both purchase up to
200,000 shares of Common stock of the Company for $2.20 per share which was the
ten day average market price preceding the date of grant. The warrants have a
five year term and are exercisable at the date of grant.
NOTE 14 - UNAUDITED FINANCIAL INFORMATION
Presented below is certain unaudited quarterly financial information for 1998
and 1997.
<TABLE>
<CAPTION>
Quarter Ended
December 28, March 29, June 28, September 27,
1997 1998 1998 1998
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Net sales $ 13,419 $ 14,464 $ 11,820 $ 13,389
Gross profit (loss) 1,205 1,656 856 (215)
Net loss (1,137) (821) (1,281) (3,520)
Loss per common share (0.28) (0.19) (0.31) (0.85)
Quarter Ended
December 29, March 30, June 29, September 28,
1996 1997 1997 1997
------------ --------- -------- -------------
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>
Adjustments in the fourth quarter of the fiscal year ended September 27, 1998
included the start up loss related to Tecstar, Inc. and certain accruals.
Adjustments in the fourth quarter of the fiscal year ended September 28, 1997
included a goodwill impairment loss.
<PAGE>
NOTE 15 - MANAGEMENT'S PLAN REGARDING CONTINUING OPERATIONS
At September 27, 1998 and for the year then ended, the Company had negative cash
flow from operations, recurring losses from operations and no additional funds
available under its prior loan agreement.
Future operations of the Company are intended to continue. The Company has
refinanced its existing debt with a new lending institution (see Note 3). The
new agreement gives the Company availability of funds for near term operating
losses and working capital needs (subject to borrowing base limitations). The
new agreement also includes financial covenants that are less restrictive than
similar covenants with its former lender. Management intends to reduce operating
losses and ultimately return the Company to profitability through
diversification of their products and markets, and through continued cost
reductions. If future actual results fail to meet management's plan, additional
losses could occur.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported.
Page 22 of 25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's proxy statement filed with the
Securities and Exchange Commission on January 8, 1999.
Page 23 of 25
<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 27, 1998 and September 28, 1997
and for the fiscal periods ended September 27, 1998, September 28,
1997, and September 29, 1996):
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 a report on Form 8-K on July 24, 1998, reporting a
change of its independent auditors.
(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:
(i) 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 24 of 25
<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 $ 81 $ -- $ 41 $ 40
September 27, 1998
52 weeks ended $ 51 $ 30 $ -- $ 81
September 28, 1997
52 weeks ended $ 57 $ -- ($ 6) $ 51
September 29, 1996
</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 11, 1999 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 28th day of December, 1998.
1) Principal Executive Officer:
By: /s/ Kelly L. Rose Chairman, Chief Executive Officer
Kelly L. Rose
2) Principal Financial/
Accounting Officer:
By: /s/ Michael H. Schoeffler President, Chief Financial Officer,
Michael H. Schoeffler 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/ G. Raymond Stults Director
G. Raymond Stults
By: /s/ David J. Matteson Director
David J. Matteson
By: /s/ Allen H. Neuharth Director
Allen H. Neuharth
Page 25 of 25
<PAGE>
PART IV
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.
Incorporated by reference to Exhibit [ ] of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
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.
Incorporated by reference to Exhibit [ ] of
the Registrant's Form 10-K for the fiscal
year ending September 28, 1997. *
<PAGE>
4.9 Seventh Amendment to Amended and Restated
Credit Agreement, dated as of February 27,
1998 , among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automotive
Group, Inc. and Bank One, Indiana, N.A.
Incorporated by reference to Exhibit 10.1 of
the Registrant's Form 10-Q for the quarter
ending March 29, 1998. *
4.10 Eighth Amendment to Amended and Restated
Credit Agreement, effective November 23,
1998, among Starcraft Corporation, Starcraft
Automotive Group, Inc., Imperial Automobile
Group, Inc. and Bank One, Indianapolis, N.A. [ ]
4.11 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. *
4.12 Promissory Note from Starcraft Automotive
Group, Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. [ ]
4.13 Guaranty of Kelly L. Rose to the obligations
of Starcraft Automotive Group, Inc. to Bank
One, Indiana, N.A. dated November 23, 1998. [ ]
4.14 Guaranty of Gerald R. Stults to the
obligations of Starcraft Automotive Group,
Inc. to Bank One, Indiana, N.A. dated
November 23, 1998. [ ]
4.15 Loan and Security Agreement by and among
Starcraft Automotive Group, Inc., National
Mobility Corporation, Starcraft Corporation,
Imperial Automotive Group, Inc. and Foothill
Capital Corporation, dated October 30, 1998. [ ]
4.16 Secured Promissory Note from Starcraft
Automotive Group, Inc. and National Mobility
Corporation to Foothill Capital Corporation
dated October 30, 1998. [ ]
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. Incorporated by reference to Exhibit
10.1 of the Registrant's Form 10-Q for the
fiscal year ending March 29, 1998. *
10.3(d) Second Addendum to Employment Agreement with
Kelly L. Rose, effective December 15, 1997. [ ]
10.3(e) 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(f) 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(g) 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 Form 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. *
10.33 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to
Kelly L. Rose, dated November 23, 1998. [ ]
10.34 Warrant to Purchase 200,000 Shares of Common
Stock of Starcraft Corporation, issued to G.
Ray Stults, dated November 23, 1998. [ ]
11 Computation of Earnings Per Share. [ ]
21 Subsidiaries of the Registrant. [ ]
23.1 Consent of Crowe, Chizek and Company LLP. [ ]
23.2 Consent of Ernst & Young 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.
EXHIBIT 4.10
EIGHTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") has been executed as of the 23rd day of November, 1998 (the
"Eighth Amendment Effective Date") by STARCRAFT CORPORATION, an Indiana
corporation formerly named Starcraft Automotive Corporation ("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 ("Bank").
Recitals
1. Parent, Starcraft, Imperial and 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, a Fourth Amendment to Amended and
Restated Credit Agreement dated with an effective date as of June 29, 1997, a
Fifth Amendment to Amended and Restated Credit Agreement dated with an effective
date as of December 31, 1997, a Sixth Amendment to Amended and Restated Credit
Agreement dated with an effective date of February 10, 1997, and a Seventh
Amendment to Amended and Restated Credit Agreement, dated with an effective date
as of February 27, 1998 (such Amended and Restated Credit Agreement, as so
amended to date, being referred to in this Amendment as the "Existing
Agreement").
2. Certain of the Companies desire to enter into a Loan Agreement,
dated as of October 30, 1998 (the "Foothill Loan Agreement"), with Foothill
Capital Corporation ("Foothill") pursuant to which Starcraft and NMC may borrow
in the aggregate up to $14,000,000 from Foothill (all of the obligations,
liabilities and indebtedness of Starcraft, National, Parent or any of the other
Companies now or hereafter existing in favor of Foothill being collectively
referred to as the "Foothill Indebtedness"), with proceeds of such borrowing on
the Eighth Amendment Effective Date to be used to fully pay all of the
Obligations other than $3,000,000 of the outstanding principal of the Starcraft
Obligations on the Starcraft Revolver (the "Remaining Balance"). In order to
fulfill conditions precedent established by Foothill to the extension of loans
and credit to Starcraft and/or National under the Foothill Loan Agreement (which
loans and advances will de of direct financial benefit and value to each of the
Companies), the Companies have requested Bank to enter into an Subordination
Agreement with Foothill (to which the Companies have already given their consent
and unconditionally confirm by their execution of this Amendment or the Consent
which accompanies this Amendment) pursuant to which: (a) payment of the
Remaining Balance and any other Starcraft Obligations hereafter arising are,
subject to certain exceptions, fully subordinated to the Foothill Indebtedness;
<PAGE>
(b) all of the liens and security interests held by Bank as security for the
Obligations are subordinated to the liens and security interests now or
hereafter held by Foothill in the same collateral as security for payment of the
Foothill Indebtedness; (c) Bank is restricted and impaired in the exercise of
its rights and remedies, both before and after the occurrence of any Event of
Default, and (d) Bank is required to release to Foothill any stock certificates
for capital stock of the Subsidiaries of Parent pledged to Bank under or
pursuant to the Parent Pledge Agreement.
(3) So as to obtain the financing contemplated by the Foothill Loan
Agreement, the Companies have requested Bank to amend the Existing Agreement,
effective as of the Eighth Amendment Effective Date, as herein provided. Bank
has agreed to amend the Existing Agreement as set forth in this Amendment, all
subject to the terms and conditions of this Amendment, including the conditions
precedent set forth in Section 5 hereof.
Agreement
NOW, THEREFORE, in consideration of the Recitals and the mutual
covenants and agreements herein, and for other good and valuable considerations,
the receipt and sufficiency of which are 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 Agreement.
(a) Amendments to Definitions. Each of the following definitions which
are set forth in Section 1 of the Existing Agreement are amended and restated in
their respective entireties as of the Eighth Amendment Effective Date to read as
follows:
"o 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 or the Starcraft Revolver, as the
context requires, and as provided in this Agreement, which percentage per annum
shall be 2.00% per annum.
o Business Locations. "Business Locations" means those locations in
Indiana at which the property of one or more of the Companies is located, all of
which have been identified to Bank.
o Default Rate. "Default Rate" means the Prime Rate plus four percent
(4%) per annum.
o Final Maturity Date. "Final Maturity Date" means the earlier of: (a)
November 23, 2001; and (b) the date Bank accelerates the maturity of the
Starcraft Obligations pursuant to Section 8 of this Agreement.
o Revolving Loan Maturity Date. "Revolving Loan Maturity Date" means
November 23, 1998.
o Starcraft Revolver Maturity Date. "Starcraft Revolver Maturity Date"
means November 23, 1998."
(b) New Definitions. Section 1 of the Existing Agreement is amended as
of the Eighth Amendment Effective Date by adding thereto the following new
definitions:
"o Eighth Amendment. "Eighth Amendment" means the Eighth Amendment to
Amended and Restated Credit Agreement, dated as of the Eighth Amendment
Effective Date, which is executed by Bank, Parent, Starcraft and Imperial.
o Eighth Amendment Effective Date. "Eighth Amendment Effective Date"
means November 23, 1998.
o Guarantor L/C. "Guarantor L/C" means an irrevocable letter of credit
issued to Bank by Lake City Bank, in form and substance the same as the form of
irrevocable letter of credit attached as Exhibit C to the Eighth Amendment,
including after the Eighth Amendment Effective Date, any irrevocable letter of
credit accepted by the Bank in replacement of the initial Guarantor L/C
delivered and issued to the Bank by Lake City Bank as of the Eighth Amendment
Effective Date.
o Rose Guaranty. "Rose Guaranty" means a guaranty of payment of the
Starcraft Obligations by Kelly L. Rose, in form and substance the same as
Exhibit B attached to the Eighth Amendment, as the same may be amended and/or
restated from time to time and at any time.
o Stults Guaranty. "Stults Guaranty" means a guaranty of payment of the
Starcraft Obligations by Gerald R. Stults, in form and substance the same as
Exhibit A to the Eighth Amendment, as the same may be amended and/or restated
from time to time and at any time.
o Special Subordination Agreement. "Special Subordination Agreement"
means the Subordination Agreement, dated as of the Eighth Amendment Effective
Date, between Bank and Foothill Capital Corporation, as the same may be amended
and/or restated from time to time and at any time."
(c) Amendments to Section 2.5. (i) Section 2.5.a(iii) of the Existing
Agreement is amended as of the Eighth Amendment Effective Date to read in its
entirety as follows:
"(iii) Interest on the Starcraft Revolver. The principal
amount of the Starcraft Revolver outstanding from
time to time shall bear interest until the Final
Maturity Date at a rate per annum equal to the Prime
Rate plus the Applicable Spread. After the Final
Maturity Date and until paid in full, the unpaid
principal balance of the Starcraft Revolver
outstanding from time to time shall bear interest at
the Default Rate. Accrued interest on the Starcraft
Revolver shall be due and payable monthly on the
first day of each month prior to the Final Maturity
Date After the Final Maturity Date, interest on the
Starcraft Revolver shall be due and payable as
accrued and without demand."
Section 2.5.a(v) of the Existing Agreement is amended as of the Eighth Amendment
Effective Date to read in its entirety as follows:
"(v) Repayments of Principal On and After Starcraft
Revolver Maturity Date. The unpaid principal balance of the
Starcraft Revolver shall be reduced to not more than
$3,000,000 on the Eighth Amendment Effective Date. The unpaid
principal balance of the Starcraft Revolver (on which on and
after the Eighth Amendment Effective Date there shall no
longer be any Advances) shall be repayable in equal monthly
installments in the amount of $35,714.29 on the first day of
each successive calendar month, beginning December 1, 1998,
and continuing on the first day of each calendar month
thereafter until the Final Maturity Date, on which date the
entire remaining unpaid principal balance of the Starcraft
Revolver shall be due and payable, together with all accrued
and unpaid interest. Provided that Foothill shall have given
its prior consent under the terms of the Special Subordination
Agreement, the principal of the Starcraft Revolver from and
after the Starcraft Revolver Maturity Date may be prepaid at
any time in whole or in part, provided that any partial
prepayment shall be in an amount which is an integral multiple
of One Thousand Dollars ($1,000), and provided further that
all partial prepayments of principal shall be applied to the
scheduled installments of principal in the inverse order of
their maturities. The obligation of Starcraft to pay the
indebtedness outstanding from time to time on the Starcraft
Revolver (including after the Starcraft Revolver Maturity
Date) is evidenced by the Starcraft Note (as defined in this
Agreement). The Starcraft Note held by Bank immediately prior
to the Eighth Amendment Effective Date shall be amended and
restated by the promissory note executed and delivered to Bank
by Starcraft pursuant to the Eighth Amendment (which amended
and restated promissory note is and for all purposes shall be
deemed to be the Starcraft Note, as such term is defined in
this Agreement.)"
(d) Amendment of Section 3A. Section 3A of the Existing Agreement is
amended as of the Eighth Amendment Effective Date to add to the end thereof the
following text:
"On and after the Starcraft Revolver Maturity Date:
(1) the Starcraft Obligations shall be further secured by the
Rose Guaranty and the Stults Guaranty; and (2) the obligations
of the guarantors under the Rose Guaranty and the Stults
Guaranty shall be secured at all times by the Guarantor L/C."
(e) Amendment of Section 3B. The first paragraph of Section 3B of the
Existing Agreement is amended as of the Eighth Amendment Effective Date by
adding at the end thereof the following text:
"On the Eighth Amendment Effective Date, the Bank,
upon all Obligations (other than not more than $3,000,000 of
principal outstanding on the Starcraft Revolver) having been
paid in full, shall execute and be bound by the Special
Subordination Agreement."
(f) Amendment of Section 4.g. As of the Eighth Amendment Effective Date
Section 4.g of the Existing Agreement is amended and restated to read in its
entirety as follows:
"g. Financial and Other Covenants. The Companies
shall at all times comply with the affirmative and negative
covenants (including the financial covenants in Section 7.20)
in the Foothill Loan Agreement, as the same may be amended
and/or restated from time to time and at any time, excepting
such compliance as shall be waived in writing from time to
time by Foothill Capital Corporation."
(g) Amendment of Exhibit. Effective as of the Eighth Amendment
Effective Date, Exhibit G to the Existing Agreement is amended and restated in
its entirety to read the same as Exhibit G attached hereto and made a part
hereof for all purposes.
(h) Amendment of Section 7. Effective as of the Eighth Amendment
Effective Date, Section 7 of the Existing Agreement is amended by deleting
therefrom subsection 7.h.
(i) Closure of Revolving Loan Facility. The Revolving Loan, having
matured as of the Eighth Amendment Effective Date, is closed and Parent shall no
longer be entitled to any Advance under the Revolving Loan.
(j) Deletion of Subsections 4.h, 4.k and 7.h. Effective as of the
Eighth Amendment Effective Date, Subsections 4.h, 4.k and 7.h are deleted, and
replaced respectively with the following text:
"h. [This subsection 4.h is intentionally blank.]"
"k. [This subsection 4.k is intentionally blank.]"
"h. [This subsection 7.h is intentionally blank.]
(k) Deletion of Special Covenant Regarding National. The special
covenant regarding National in paragraph 3 of the Sixth Amendment is hereby
deleted, effective as of the Eighth Amendment Effective Date.
(l) Starcraft Southwest and Imperial Noncompliance. Notwithstanding any
provision to the contrary in any of the Credit Documents, there shall be no
Event of Default under the Agreement or any other of the Credit Documents by
reason of the failure of Imperial or Starcraft Southwest to: (i) be in good
standing in the State of Indiana or any other state in which either are admitted
to do business; or (ii) have a negative net worth or being unable to pay its
debts as they mature. Notwithstanding any provision to the contrary in any of
the Credit Documents, there shall be no Event of Default under the Agreement by
reason of Starcraft Southwest being administratively dissolved by the Indiana
Secretary of State.
(m) Financial Reporting. Bank agrees, effective as of the Eighth
Amendment Effective Date, that the Companies shall be deemed in compliance with
the financial reporting obligations set out in Subsections 4.b(viii) and 4.b(ix)
of the Agreement so long as Bank is provided, within five(5) days of the date
delivered to Foothill Capital Corporation, copies of each financial statement,
cash flow report, borrowing base report and collateral report for each of the
Companies provided to Foothill Capital Corporation from time to time under or
pursuant to the Foothill Loan Agreement.
(n) Amendment of Section 5.j Effective as of the Eighth Amendment
Effective Date, Section 5.j of the Existing Agreement is amended by adding to
the end thereof the following subparagraph:
"(iii) a revolving line of credit in the maximum
principal amount of $2,000,000 extended by Starcraft to
Tecstar, Inc or its successor, Tecstar LLC."
3. Representations and Warranties. The Companies each represent and
warrant to Bank that:
(a)(i) The execution, delivery and performance of this Amendment and
all agreements and documents delivered pursuant hereto by each of them 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 award presently in effect applying
to any of them, or of their 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
they or any of them are a party or by which they or their 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 any of them of this Amendment and all agreements and documents
delivered pursuant hereto; and (iii) this Amendment and all agreements and
documents delivered pursuant hereto by any of them are their legal, valid and
binding obligations and enforceable against them in accordance with the terms
thereof.
(b) After giving effect to the amendments contained in this Amendment,
the representations and warranties contained in Section 3 of the Existing
Agreement are true and correct on and as of the Eighth Amendment Effective Date
with the same force and effect as if made on and as of the Eighth Amendment
Effective Date, except that the representation in Section 3.d of the Existing
Agreement shall be deemed to refer to the financial statements of Parent and its
Subsidiaries most recently delivered to Bank prior to the Eighth Amendment
Effective Date.
(c) No Event of Default or Unmatured Event of Default has occurred and
is continuing or will exist under the Existing Agreement as of the Eighth
Amendment Effective Date, excepting only defaults under Section 4.g of the
Existing Agreement.
4. Special Provision. Provided that on the Eighth Amendment Effective
Date all of the Obligations are paid in full other than a remaining unpaid
principal balance of $3,000,000 on the Starcraft Revolver, the Bank hereby
waives, as of the Eighth Amendment Effective Date, the Event of Defaults and
Unmatured Events of Default which then exist by reason of the failure of the
Companies to be in compliance with the financial covenants in Section 4.g of the
Existing Agreement. This waiver and consent by the Bank is specifically
conditioned and made in reliance upon the Companies having executed and
delivered this Eighth Amendment and the conditions in Section 6 hereof being
fully satisfied.
5. General Release. EACH OF THE COMPANIES FOR ITSELF AND ITS LEGAL
REPRESENTATIVES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE ARELEASING PARTIES@),
HEREBY RELEASES AND DISCHARGES BANK, ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
ATTORNEYS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE
ARELEASED PARTIES@) FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS, DAMAGES AND
CAUSES OF ACTION WHICH ANY OF THE RELEASING PARTIES HAS ASSERTED OR CLAIMED OR
MIGHT NOW OR HEREAFTER ASSERT OR CLAIM AGAINST ALL OF ANY OF THE RELEASED
PARTIES, WHETHER KNOWN OR UNKNOWN, ARISING OUT OF, RELATED TO OR IN ANY WAY
CONNECTED WITH OR BASED UPON ANY PRIOR RELATED EVENT (AS SUCH TERM IS
HEREINAFTER DEFINED). AS USED HEREIN, THE TERM APRIOR RELATED EVENT@ SHALL MEAN
ANY ACT, OMISSION, CIRCUMSTANCE, AGREEMENT, LOAN, EXTENSION OF CREDIT,
TRANSACTION, TRANSFER, PAYMENT, EVENT, ACTION OR OCCURRENCE BETWEEN OR INVOLVING
ANY OF THE COMPANIES AND ALL OR ANY OF THE RELEASED PARTIES AND WHICH WAS MADE
OR EXTENDED OR WHICH OCCURRED AT ANY TIME OR TIMES PRIOR TO THE EXECUTION OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITING IN ANY RESPECT THE GENERALITY OF THE
FOREGOING: (i) ANY ACTION TAKEN ON OR PRIOR TO THE EXECUTION OF THIS AGREEMENT
TO OBTAIN PAYMENT OF ANY OBLIGATIONS OR TO OTHERWISE ENFORCE OR EXERCISE ANY
RIGHT OR PURPORTED RIGHT OF BANK AS A CREDITOR; (ii) ANY FAILURE OR REFUSAL TO
MAKE ANY LOAN OR ADVANCE; AND (iii) ANY PAYMENT OR OTHER TRANSFER MADE TO BANK
BY OR FOR THE ACCOUNT OF ANY OF THE COMPANIES AT ANY TIME PRIOR TO THE EXECUTION
OF THIS AGREEMENT. EACH OF THE COMPANIES AGREE AND ACKNOWLEDGE THAT THIS SECTION
5 IS NOT TO BE CONSTRUED AS OR DEEMED AN ACKNOWLEDGMENT OR ADMISSION ON THE PART
OF ANY OF THE RELEASED PARTIES OF LIABILITY FOR ANY MATTER OR AS PRECEDENT UPON
WHICH ANY LIABILITY MAY BE ASSERTED.
6. Conditions. The obligation of Bank to execute and to perform this
Amendment shall be subject to full satisfaction of the following conditions
precedent:
(a) This Amendment shall have been duly executed and delivered by each
of the Companies and Starcraft shall have executed and delivered to Bank a
promissory note in the principal amount of $3,000,000 and in form and substance
the same as attached hereto as Exhibit A, which note amends and restates for all
purposes the Starcraft Note held by Bank immediately prior to the Eighth
Amendment Effective Date and is the "Starcraft Note", as such term is defined in
the Agreement, upon its execution and delivery to Bank..
(b) Gerald R. Stults shall have executed and delivered to the Bank a
guaranty, in form and substance the same as attached to this Amendment as
Exhibit B.
(c) Kelly L. Rose shall have executed and delivered to the Bank a
guaranty in form and substance the same as attached to this Amendment as Exhibit
C.
(d) The Bank shall have received an irrevocable $1,000,000 letter of
credit, duly issued and executed by Lake City Bank, in form and substance the
same as attached to this Amendment as Exhibit D.
(e) Bank shall have received such additional agreements, documents and
certifications, fully executed by the Companies as may be reasonably requested
by Bank, or its counsel.
(f) Bank shall have received payment in full of all of the Obligations,
excepting only $3,000,000 of principal outstanding on the Starcraft Revolver.
(g) Bank shall have been paid by Starcraft a restructuring fee in the
amount of $15,000.
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 consents to the execution, delivery and
performance by the other Companies and 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 counterclaim 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
Bank that its Guaranty Agreement remains in full force and effect, is a valid
and binding obligation of it and continues to support 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 and 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 principles of such state. This Amendment constitutes and expresses the
entire understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings,
commitments, inducements or conditions, whether express 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.
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Amendment to be duly executed and delivered as of the Eighth Amendment Effective
Date.
BANK ONE, INDIANA,
NATIONAL ASSOCIATION
By:/s/ Michael E. Lewis
----------------------------
Michael E. Lewis, Senior Vice President
STARCRAFT CORPORATION
By:/s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler
---------------------------------------
(Print name and title)
STARCRAFT AUTOMOTIVE GROUP, INC
By:/s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler
---------------------------------------
(Print name and title)
IMPERIAL AUTOMOTIVE GROUP, INC.
By:/s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler
---------------------------------------
(Print name and title)
<PAGE>
CONSENT AND AGREEMENT
Each of the undersigned join in execution of this Eighth Amendment to evidence
their consent thereto and to agree to be bound by the terms and conditions of
the Existing Agreement, as amended by this Eighth Amendment, in all regards
applicable to the undersigned and to the broadest, fullest extent possible. By
their execution of this Consent, each of the undersigned agree to and shall be
bound by the terms of Sections 5 and 7 of this Eighth Amendment. Executed and
delivered as of the Eighth Amendment Effective Date.
STARCRAFT SOUTHWEST, INC., NATIONAL MOBILITY
an Indiana corporation CORPORATION, an Indiana corporation
By:/s/ Michael H. Schoeffler By:/s/ Michael H. Schoeffler
--------------------------------------- -----------------------------------
Michael H. Schoeffler Michael H. Schoeffler
--------------------------------------- -----------------------------------
(Print name and title) (Print name and title)
EXHIBIT 4.12
PROMISSORY NOTE
$3,000,000.00 Dated as of: November 23, 1998
Indianapolis, Indiana Final Maturity: November 23, 2001
On or before November 23, 2001 ("Final Maturity"), STARCRAFT AUTOMOTIVE
GROUP, INC., an Indiana corporation ("Maker"), promises to pay to the order of
BANK ONE, INDIANA, NATIONAL ASSOCIATION ("Bank") at the principal office of Bank
at Indianapolis, Indiana, the principal sum of Three Million and 00/100 Dollars
($3,000,000.00) and to pay interest on the unpaid principal balance outstanding
from time to time as provided in this Note.
This Note evidences indebtedness (the "Loan") incurred by Maker under a
revolving line of credit extended to Maker by Bank under an Amended and Restated
Credit Agreement dated November 30, 1994, but with effect as of December 1,
1994, as amended (collectively, the "Credit Agreement") among Maker, Imperial
Automotive Group, Inc., an Indiana corporation, Starcraft Corporation, an
Indiana corporation, and Bank. All references in this Note to the Credit
Agreement shall be construed as references to that Agreement as it has been to
date and hereafter may be amended and/or restated from time to time and at any
time. The Loan is referred to in the Credit Agreement as the "Starcraft
Revolver." The principal amount of the Loan outstanding from time to time shall
be determined by reference to the books and records of the Bank on which all
payments by the Maker on account of the Loan shall be recorded. Such books and
records shall be deemed prima facie to be correct as to such matters. All
capitalized terms used, but not defined, herein shall have the meanings ascribed
thereto in the Credit Agreement.
Interest on the unpaid principal balance of the Loan outstanding from
time to time prior to and after the Final Maturity Date will accrue at the rate
or rates provided in the Credit Agreement. Prior to the Final Maturity Date,
accrued interest shall be due and payable on the first day of each successive
month commencing on the first day of December, 1998. After the Final Maturity
Date, interest shall be due and payable as accrued and without demand. Interest
will be calculated on the basis that an entire year's interest is earned in 360
days.
The entire outstanding principal balance of this Note shall be due and
payable, together with accrued interest, at Final Maturity. Principal may be
prepaid, but only as provided in the Credit Agreement.
If any installment of interest due under the terms of this Note is not
paid when due, then Bank or any subsequent holder of this Note may, subject to
the terms of the Credit Agreement, at its option and without notice, declare the
entire principal amount of the Note and all accrued interest immediately due and
payable. Reference is made to the Credit Agreement which provides for
acceleration of the maturity of this Note upon the happening of other "Events of
Default" as defined therein.
<PAGE>
If any installment of interest due under the terms of this Note prior
to maturity is not paid in full when due, then Bank at its option and without
prior notice to Maker, may assess a late payment fee in an amount equal to the
greater of $50.00 or five percent (5%) of the amount past due. Each late payment
fee assessed shall be due and payable on the earlier of the next regularly
scheduled interest payment date or the maturity of this Note. Waiver by Bank of
any late payment fee assessed, or the failure of Bank in any instance to assess
a late payment fee shall not be construed as a waiver by Bank of its right to
assess late payment fees thereafter.
Unless otherwise required by applicable law, payments will be applied
among principal, interest, late charges, collection costs and other charges at
its sole discretion. Maker and any endorsers severally waive demand, presentment
for payment, protest, notice of dishonor and notice of nonpayment of this Note,
and each of them consents to any renewals or extensions of the time of payment
of this Note without notice.
All amounts payable under the terms of this Note shall be payable with
expenses of collection, including attorneys' fees, and without relief from
valuation and appraisement laws.
This Note amends, and so amended restates, the Starcraft Note held by
Bank immediately prior to the Eighth Amendment Effective Date and, upon its
execution and delivery to Bank, shall be the Starcraft Note under the Credit
Agreement.
This Note is made under and will be governed in all cases by the
substantive laws of the State of Indiana, notwithstanding the fact that Indiana
conflicts of law rules might otherwise require the substantive rules of law of
another jurisdiction to apply.
STARCRAFT AUTOMOTIVE GROUP, INC., an
Indiana corporation
By:/s/ Michael H. Schoeffler
---------------------------------------
Michael H. Schoeffler
---------------------------------------
(Print name and title)
EXHIBIT 4.13
GUARANTY
FOR VALUABLE CONSIDERATIONS, receipt and sufficiency of which are
hereby acknowledged, and in consideration of credit given, being given and to be
given, and of other financial accommodations afforded or to be afforded by BANK
ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association formerly
named Bank One, Indianapolis, National Association ("Creditor") to STARCRAFT
AUTOMOTIVE GROUP, INC., an Indiana corporation ("Debtor"), the undersigned,
KELLY L. ROSE ("Guarantor"), hereby unconditionally guarantees the full and
prompt payment when due of the Guaranty Obligations, together with all costs,
attorneys' fees and expenses paid or incurred by Creditor in endeavoring to
collect the Guaranty Obligations; provided, in no event shall the liability of
Guarantor hereunder exceed an amount equal to the sum of (the following sum
being referred to herein as the "Maximum Payment Amount"): (i) the Maximum
Guaranteed Principal Amount; plus (ii) the aggregate amount of all costs,
reasonable attorneys' fees and expenses paid or incurred by Creditor in
endeavoring to collect and enforce this Guaranty; plus (iii) interest accruing
at the Demand Rate on the Maximum Guaranteed Principal Amount outstanding from
and after the date on which Creditor demands payment under this Guaranty
("Demand Date").
Debtor and Creditor 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, a Fourth Amendment to Amended and
Restated Credit Agreement dated with an effective date as of June 29, 1997, a
Fifth Amendment to Amended and Restated Credit Agreement dated with an effective
date as of December 31, 1997, a Sixth Amendment to Amended and Restated Credit
Agreement dated with an effective date of February 10, 1997, a Seventh Amendment
to Amended and Restated Credit Agreement dated with an effective date of
February 27, 1998, and an Eighth Amendment to Amended and Restated Credit
Agreement dated with an effective date of November 23, 1998 (such Amended and
Restated Credit Agreement, as so amended to date, and as it hereafter may be
modified, amended, restated and/or extended from time to time and at any time,
being referred to herein as the "Credit Agreement"). Capitalized terms used in
this Guaranty and not otherwise defined in this Guaranty shall have the meanings
ascribed thereto in the Credit Agreement.
This Guaranty is an absolute and unconditional guarantee of the payment
of the Guaranty Obligations, and shall continue and be in full force and effect
until either (i) prior to the Demand Date, the Maximum Guaranteed Principal
Amount shall have been reduced to zero; (ii) all of the Guaranty Obligations
shall be fully paid and no further Guaranty Obligations may thereafter arise; or
(iii) the Demand Date shall have occurred and Guarantor thereafter shall have
paid fully and directly to Creditor the Maximum Payment Amount.
The Credit Agreement contemplates that certain other Persons may
guarantee payment of all or part of the Guaranty Obligations (such Persons being
referred to herein collectively as the "Other Guarantors"). Guarantor
acknowledges and agrees that Guarantor's liability with respect to the Guaranty
Obligations shall not be diminished, discharged, released or otherwise affected
in any way in the event any of the Other Guarantors fails to execute a guaranty
of the Guaranty Obligations, fails to be bound thereby, fails to perform
thereunder or in the event that such guaranty shall be invalid or unenforceable
in whole or in part for any reason.
Guarantor expressly waives presentment for payment, demand, notice of
demand and of dishonor and nonpayment of the Guaranty Obligations, protest and
notice of protest, diligence in collecting and in the bringing of suit against
any other party, and Creditor shall be under no obligation to notify Guarantor
of its acceptance of this Guaranty or of any advances made or credit extended on
the faith hereof or the failure of Debtor to pay any of the Guaranty Obligations
as they mature, or to use diligence in preserving the liability of any Person
(including, without limitation, Debtor) on the Guaranty Obligations or in
bringing suit to enforce collection of the Guaranty Obligations. To the full
extent allowed by applicable law, Guarantor waives all defenses given to
sureties or guarantors at law or in equity other than the actual payment of the
Guaranty Obligations and waives, to the full extent allowed by applicable law,
all defenses based upon questions as to the validity, legality or enforceability
of the Guaranty Obligations.
Creditor, without authorization from or notice to Guarantor and without
impairing or affecting the liability of Guarantor hereunder, may from time to
time at its discretion and with or without valuable consideration, alter,
compromise, accelerate, extend or change the time or manner for the payment of
any or all of the Guaranty Obligations owed to it, extend additional loans,
credit and financial accommodations and otherwise create additional Guaranty
Obligations, increase or reduce the rate of interest thereon, take and surrender
security, exchange collateral by way of substitution, or in any way it deems
necessary take, accept, withdraw, subordinate, alter, amend, modify or eliminate
collateral, add or release or discharge endorsers, guarantors or other obligors
(including, without limitation, Debtor) make changes of any sort whatever in the
terms of payment of the Guaranty Obligations owed to it or of doing business
with Debtor, settle or compromise with Debtor or any other Person or Persons
liable on the Guaranty Obligations owed to it (including, without limitation,
Debtor) and direct the order or manner of sale of any security or collateral,
all on such terms at it may see fit, and may apply all moneys received from
Debtor or others, or from any security or collateral held by it (whether held
under a security instrument or not) in such manner upon the Guaranty Obligations
owed to it (whether then due or not) as it may determine to be in its best
interest, without in any way being required to marshal securities or assets or
to apply all or any part of such moneys upon any particular part of the Guaranty
Obligations. It is specifically agreed that Creditor is not required to retain,
hold, protect, exercise due care with respect thereto or perfect security
interests in or otherwise assure or safeguard any collateral or security for the
Guaranty Obligations or the Guaranty Obligations. No exercise or nonexercise by
Creditor of any right or remedy of Creditor shall in any way affect any of
Guarantor's obligations hereunder or any security furnished by Guarantor or give
Guarantor any recourse against Creditor.
The liability of Guarantor hereunder shall continue notwithstanding the
incapacity, death, disability, dissolution or termination of any other or others
(including, without limitation, Debtor). Neither (i) the failure of Creditor to
file or enforce a claim against the estate (either in administration, bankruptcy
or other proceeding) of Debtor or of any other or others, (ii) the disallowance
or avoidance under the Federal Bankruptcy Code (11 U.S.C. ss. 101 et seq., as
amended) (the "Bankruptcy Code") of all or any portion of Creditor's claims for
repayment of the Guaranty Obligations or any security for the Guaranty
Obligations, (iii) the use of cash or non-cash collateral under Section 363 of
the Bankruptcy Code or any financing, extension of credit by Creditor or grant
of security interest to Creditor under Section 364 of the Bankruptcy Code, nor
(iv) any election of Creditor in a proceeding instituted under the Bankruptcy
Code, including without limitation any election of the application of Section
1111(b)(2) of the Bankruptcy Code, shall affect the liability of Guarantor
hereunder; nor shall Guarantor be released from liability if recovery from
Debtor or any other Person becomes barred by any statute of limitations or is
otherwise restricted or prevented.
Creditor shall not be required to pursue any other remedies before
invoking the benefits of the guaranty of payment contained herein, and
specifically it shall not be required to exhaust its remedies against Debtor or
any surety or guarantor other than Guarantor or to proceed against any security
now or hereafter existing for the payment of any of the Guaranty Obligations.
Creditor may maintain an action on this Guaranty whether or not Debtor is joined
therein or separate action is brought against Debtor.
Guarantor absolutely and unconditionally covenants and agrees that in
the event Debtor defaults in payment of the Guaranty Obligations, or any part
thereof, for any reason, when such becomes due, either by its terms or as the
result of the exercise of any power to accelerate, Guarantor on demand and
without further notice of dishonor and without any notice with respect to any
matter or occurrence having been given to Guarantor previous to such demand,
shall pay the Guaranty Obligations.
Guarantor further agrees that to the extent Debtor, Guarantor or any
other Person makes a payment or transfers an interest in any property to
Creditor or the Creditor enforces any security interest or lien or exercises any
rights of set-off, and such payment or transfer or proceeds of such enforcement
or set-off, or any portion thereof, are subsequently invalidated, declared to be
fraudulent or preferential, or otherwise is avoided, and/or required to be
repaid to Debtor, Debtor's estate, a trustee, receiver or any other Person under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such avoidance or repayment, the Guaranty Obligations or part
thereof intended to be satisfied shall be revived and this Guaranty shall
continue to be effective or shall be reinstated, as the case may be, and
continued in full force and effect as if said payment or transfer had not been
made or such enforcement or set-off had not occurred.
The payment by Guarantor of any amount pursuant to this Guaranty shall
not in any way entitle Guarantor to any right, title or interest (whether by way
of subrogation or otherwise) in and to any of the Guaranty Obligations or any
proceeds thereof, or any security therefor. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS GUARANTY OR THE CREDIT AGREEMENT, GUARANTOR HEREBY
UNCONDITIONALLY WAIVES: (1) ANY CLAIM OR OTHER RIGHT, NOW EXISTING OR HEREAFTER
ARISING, AGAINST DEBTOR OR ANY OTHER PERSON PRIMARILY OR CONTINGENTLY LIABLE FOR
ALL OR ANY PART OF THE GUARANTY OBLIGATIONS, WHICH ARISES FROM OR BY VIRTUE OF
THE EXISTENCE OR PERFORMANCE OF THIS GUARANTY, INCLUDING, WITHOUT LIMITATION:
(A) ANY RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION,
INDEMNIFICATION, OR OTHER RIGHT TO PAYMENT, WHETHER OR NOT SUCH RIGHT IS REDUCED
TO JUDGMENT, LIQUIDATED, UNLIQUIDATED, FIXED, CONTINGENT, MATURED, UNMATURED,
DISPUTED, UNDISPUTED, LEGAL, EQUITABLE, SECURED OR UNSECURED; OR (B) ANY RIGHT
TO AN EQUITABLE REMEDY FOR BREACH OF PERFORMANCE IF SUCH BREACH GIVES RISE TO A
RIGHT TO PAYMENT, WHETHER OR NOT SUCH RIGHT TO AN EQUITABLE REMEDY IS REDUCED TO
A JUDGMENT, FIXED, CONTINGENT, MATURED, UNMATURED, DISPUTED, UNDISPUTED, SECURED
OR UNSECURED; AND (2) ANY RIGHT TO PARTICIPATE OR SHARE IN ANY RIGHT, REMEDY OR
CLAIM OF CREDITOR AGAINST ANY OF DEBTOR'S INCOME OR ASSETS OR WITH RESPECT TO
ANY COLLATERAL OR OTHER SECURITY FOR ALL OR ANY PART OF THE GUARANTY OBLIGATIONS
OR ANY OTHER RIGHT OR CLAIM OF CREDITOR OF RECOURSE TO AND WITH RESPECT TO ANY
ASSETS, INCOME OR PROPERTIES OF DEBTOR.
Guarantor represents and warrants to Creditor that (i) Guarantor is
solvent; (ii) the execution and delivery of this Guaranty by Guarantor was not
undertaken by Guarantor with the "intent to hinder, delay, or defraud" (within
the meaning of Indiana Code ss.32-2-7-14 and ss.548(a)(1) of the United States
Bankruptcy Code) creditors or any other Persons; and (iii) that neither this
Guaranty nor the payment or performance by Guarantor of its obligations arising
under or pursuant to this Guaranty do or are intended to render Guarantor
insolvent, undercapitalized or in a condition of financial stringency; and (iv)
the Guaranty is a legal, valid and binding obligation of Guarantor, enforceable
in accordance with its terms. If at any time any portion of the obligations of
Guarantor under this Guaranty shall be determined by a court of competent
jurisdiction to be invalid, unenforceable or avoidable, the remaining portion of
the Guaranty Obligations under this Guaranty shall not in any way be affected,
impaired, prejudiced or disturbed thereby and shall remain valid and enforceable
to the full extent permitted by applicable law. Notwithstanding anything in this
Guaranty to the contrary, the liability of Guarantor hereunder shall be limited
to the maximum amount which would not result in any one of the following
conditions:
(1) this Guaranty would constitute a fraudulent transfer within the
meaning of Section 548(a) of the Bankruptcy Code;
(2) this Guaranty would constitute a fraudulent transfer within the
meaning of Ind. Codess. 32-2-7, et seq.; or
(3) this Guaranty would constitute a fraudulent conveyance or
fraudulent transfer within the meaning of any other applicable Federal or state
bankruptcy, insolvency or other similar law or judicial decision.
All principal of and interest on all indebtedness, liabilities and
obligations of Debtor to Guarantor (the "Subordinated Debt"), whether direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint
and several, now or hereafter existing, due or to become due to Guarantor, or
held or to be held by Guarantor, whether created directly or acquired by
assignment or otherwise, and whether evidenced by a written instrument or not,
shall be expressly subordinated to the Guaranty Obligations. Guarantor agrees
not to receive or accept any payment of the Subordinated Debt at any time after
and during the continuance of any Event of Default; and, in the event Guarantor
receives any payment on the Subordinated Debt in violation of the foregoing,
Guarantor will hold any such payment in trust for Creditor and forthwith turn it
over to Creditor, in the form received, to be applied to the Guaranty
Obligations.
The rights of Creditor are cumulative and shall not be exhausted by its
exercise of any of its rights under this Guaranty or otherwise against Guarantor
or by any number of successive actions until and unless each and all of the
obligations of Guarantor under this Guaranty have been fully performed,
satisfied and discharged.
When used in this Guaranty, each of the following terms shall have the
meanings set out hereafter:
(a) The term "Guaranty" means this Guaranty, as the same may be amended
and/or restated from time to time and at any time.
(b) The term "Guaranty Obligations" means all of the following,
collectively:
(1) all indebtedness, obligations and liabilities, and all
renewals and extensions thereof, now or hereafter owed by Debtor to
Creditor, now existing or hereafter arising, including, without
limiting the generality of the foregoing, all of the "Starcraft
Obligations" (as such term is defined in the Credit Agreement); and
(2) all extensions, renewals, amendments, restatements or
replacements of the foregoing, together with all costs, expenses and
reasonable attorneys' fees incurred by Creditor in the enforcement or
collection of any of the foregoing, whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several, joint and several, now exist
or hereafter arise, or were prior to acquisition thereof by Creditor
owed to some other Person.
(c) The term "Maximum Guaranteed Principal Amount" means an
amount equal to $500,000.00 minus the product that results from
multiplying .3333 times the sum of all principal payments of the
Starcraft Obligations received by the Creditor after the execution and
delivery of this Guaranty, excluding all payments made by Guarantor
under this Guaranty or by Gerald R. Stults under a Guaranty, of even
date, in favor of Creditor executed by Gerald R. Stults.
(d) The term "Demand Rate" shall mean the Prime Rate (as such
term is defined in the Credit Agreement), plus Four Percent (4%) per
annum.
This Guaranty shall be deemed to have been made under and shall be
governed by the laws of the State of Indiana in all respects and shall not be
waived, altered, modified or amended as to any of its terms or provisions except
in writing duly signed by Creditor and Guarantor.
This Guaranty shall bind Guarantor and Guarantor's successors, assigns
and legal representatives, and shall inure to the benefit of all transferees,
credit participants, assignees, successors and endorsees of Creditor. The
failure of any Person to execute or be bound by this Guaranty shall not release
or affect the liability of Guarantor, and the liability of Guarantor under this
Guaranty is not conditioned or contingent upon or subject in any way to
obtaining or retaining the primary or secondary liability of any party or
parties with respect to all or any part of the Guaranty Obligations (including,
without limitation, Debtor and the Other Guarantors).
Creditor is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly if any provision or provisions of
this Guaranty should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
As long as this Guaranty is in effect, Guarantor shall furnish to
Creditor the following:
a. Personal Financial Statement. Not less frequently than
annually, a signed personal financial statement, in such form as
Creditor reasonably may request, showing in detail all of Guarantor's
assets and liabilities.
b. Other Information. Such other information relating to the
financial condition of Guarantor as Creditor may reasonably require.
GUARANTOR AND CREDITOR (BY ITS ACCEPTANCE OF THIS GUARANTY) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG GUARANTOR AND CREDITOR ARISING IN ANY WAY OUT OF
OR WHICH IN ANY WAY INVOLVES ANY OF THE RIGHTS, OBLIGATIONS OR REMEDIES OF ANY
PARTY TO THIS GUARANTY OR ANY DOCUMENT EXECUTED OR DELIVERED PURSUANT TO OR
OTHERWISE IN CONNECTION WITH THIS GUARANTY OR THE CREDIT AGREEMENT, OR ANY
RELATIONSHIP BETWEEN GUARANTOR AND CREDITOR. THIS PROVISION IS A MATERIAL
INDUCEMENT TO CREDITOR TO PROVIDE THE FINANCING DESCRIBED IN THE CREDIT
AGREEMENT.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS GUARANTY SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA WITHOUT REGARD TO ITS
CHOICE OR CONFLICTS OF LAWS PROVISIONS. GUARANTOR AGREES THAT THE COURTS OF THE
STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE FEDERAL COURTS
LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE EXCLUSIVE
JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS GUARANTY OR
ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR
PURPOSES OF ANY SUCH ACTION OR PROCEEDING. GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION THAT GUARANTOR MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT
IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME
IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING
AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.
Executed and delivered to Creditor as of the 23rd day of November,
1998.
/s/ Kelly L. Rose
---------------------------------------------
Kelly L. Rose
("Guarantor")
EXHIBIT 4.14
GUARANTY
FOR VALUABLE CONSIDERATIONS, receipt and sufficiency of which are
hereby acknowledged, and in consideration of credit given, being given and to be
given, and of other financial accommodations afforded or to be afforded by BANK
ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association formerly
named Bank One, Indianapolis, National Association ("Creditor") to STARCRAFT
AUTOMOTIVE GROUP, INC., an Indiana corporation ("Debtor"), the undersigned,
GERALD R. STULTS ("Guarantor"), hereby unconditionally guarantees the full and
prompt payment when due of the Guaranty Obligations, together with all costs,
attorneys' fees and expenses paid or incurred by Creditor in endeavoring to
collect the Guaranty Obligations; provided, in no event shall the liability of
Guarantor hereunder exceed an amount equal to the sum of (the following sum
being referred to herein as the "Maximum Payment Amount"): (i) the Maximum
Guaranteed Principal Amount; plus (ii) the aggregate amount of all costs,
reasonable attorneys' fees and expenses paid or incurred by Creditor in
endeavoring to collect and enforce this Guaranty; plus (iii) interest accruing
at the Demand Rate on the Maximum Guaranteed Principal Amount outstanding from
and after the date on which Creditor demands payment under this Guaranty
("Demand Date").
Debtor and Creditor 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, a Fourth Amendment to Amended and
Restated Credit Agreement dated with an effective date as of June 29, 1997, a
Fifth Amendment to Amended and Restated Credit Agreement dated with an effective
date as of December 31, 1997, a Sixth Amendment to Amended and Restated Credit
Agreement dated with an effective date of February 10, 1997, a Seventh Amendment
to Amended and Restated Credit Agreement dated with an effective date of
February 27, 1998, and an Eighth Amendment to Amended and Restated Credit
Agreement dated with an effective date of November 23, 1998 (such Amended and
Restated Credit Agreement, as so amended to date, and as it hereafter may be
modified, amended, restated and/or extended from time to time and at any time,
being referred to herein as the "Credit Agreement"). Capitalized terms used in
this Guaranty and not otherwise defined in this Guaranty shall have the meanings
ascribed thereto in the Credit Agreement.
This Guaranty is an absolute and unconditional guarantee of the payment
of the Guaranty Obligations, and shall continue and be in full force and effect
until either (i) prior to the Demand Date, the Maximum Guaranteed Principal
Amount shall have been reduced to zero; (ii) all of the Guaranty Obligations
shall be fully paid and no further Guaranty Obligations may thereafter arise; or
(iii) the Demand Date shall have occurred and Guarantor thereafter shall have
paid fully and directly to Creditor the Maximum Payment Amount.
The Credit Agreement contemplates that certain other Persons may
guarantee payment of all or part of the Guaranty Obligations (such Persons being
referred to herein collectively as the "Other Guarantors"). Guarantor
acknowledges and agrees that Guarantor's liability with respect to the Guaranty
Obligations shall not be diminished, discharged, released or otherwise affected
in any way in the event any of the Other Guarantors fails to execute a guaranty
of the Guaranty Obligations, fails to be bound thereby, fails to perform
thereunder or in the event that such guaranty shall be invalid or unenforceable
in whole or in part for any reason.
Guarantor expressly waives presentment for payment, demand, notice of
demand and of dishonor and nonpayment of the Guaranty Obligations, protest and
notice of protest, diligence in collecting and in the bringing of suit against
any other party, and Creditor shall be under no obligation to notify Guarantor
of its acceptance of this Guaranty or of any advances made or credit extended on
the faith hereof or the failure of Debtor to pay any of the Guaranty Obligations
as they mature, or to use diligence in preserving the liability of any Person
(including, without limitation, Debtor) on the Guaranty Obligations or in
bringing suit to enforce collection of the Guaranty Obligations. To the full
extent allowed by applicable law, Guarantor waives all defenses given to
sureties or guarantors at law or in equity other than the actual payment of the
Guaranty Obligations and waives, to the full extent allowed by applicable law,
all defenses based upon questions as to the validity, legality or enforceability
of the Guaranty Obligations.
Creditor, without authorization from or notice to Guarantor and without
impairing or affecting the liability of Guarantor hereunder, may from time to
time at its discretion and with or without valuable consideration, alter,
compromise, accelerate, extend or change the time or manner for the payment of
any or all of the Guaranty Obligations owed to it, extend additional loans,
credit and financial accommodations and otherwise create additional Guaranty
Obligations, increase or reduce the rate of interest thereon, take and surrender
security, exchange collateral by way of substitution, or in any way it deems
necessary take, accept, withdraw, subordinate, alter, amend, modify or eliminate
collateral, add or release or discharge endorsers, guarantors or other obligors
(including, without limitation, Debtor) make changes of any sort whatever in the
terms of payment of the Guaranty Obligations owed to it or of doing business
with Debtor, settle or compromise with Debtor or any other Person or Persons
liable on the Guaranty Obligations owed to it (including, without limitation,
Debtor) and direct the order or manner of sale of any security or collateral,
all on such terms at it may see fit, and may apply all moneys received from
Debtor or others, or from any security or collateral held by it (whether held
under a security instrument or not) in such manner upon the Guaranty Obligations
owed to it (whether then due or not) as it may determine to be in its best
interest, without in any way being required to marshal securities or assets or
to apply all or any part of such moneys upon any particular part of the Guaranty
Obligations. It is specifically agreed that Creditor is not required to retain,
hold, protect, exercise due care with respect thereto or perfect security
interests in or otherwise assure or safeguard any collateral or security for the
Guaranty Obligations or the Guaranty Obligations. No exercise or nonexercise by
Creditor of any right or remedy of Creditor shall in any way affect any of
Guarantor's obligations hereunder or any security furnished by Guarantor or give
Guarantor any recourse against Creditor.
The liability of Guarantor hereunder shall continue notwithstanding the
incapacity, death, disability, dissolution or termination of any other or others
(including, without limitation, Debtor). Neither (i) the failure of Creditor to
file or enforce a claim against the estate (either in administration, bankruptcy
or other proceeding) of Debtor or of any other or others, (ii) the disallowance
or avoidance under the Federal Bankruptcy Code (11 U.S.C. ss. 101 et seq., as
amended) (the "Bankruptcy Code") of all or any portion of Creditor's claims for
repayment of the Guaranty Obligations or any security for the Guaranty
Obligations, (iii) the use of cash or non-cash collateral under Section 363 of
the Bankruptcy Code or any financing, extension of credit by Creditor or grant
of security interest to Creditor under Section 364 of the Bankruptcy Code, nor
(iv) any election of Creditor in a proceeding instituted under the Bankruptcy
Code, including without limitation any election of the application of Section
1111(b)(2) of the Bankruptcy Code, shall affect the liability of Guarantor
hereunder; nor shall Guarantor be released from liability if recovery from
Debtor or any other Person becomes barred by any statute of limitations or is
otherwise restricted or prevented.
Creditor shall not be required to pursue any other remedies before
invoking the benefits of the guaranty of payment contained herein, and
specifically it shall not be required to exhaust its remedies against Debtor or
any surety or guarantor other than Guarantor or to proceed against any security
now or hereafter existing for the payment of any of the Guaranty Obligations.
Creditor may maintain an action on this Guaranty whether or not Debtor is joined
therein or separate action is brought against Debtor.
Guarantor absolutely and unconditionally covenants and agrees that in
the event Debtor defaults in payment of the Guaranty Obligations, or any part
thereof, for any reason, when such becomes due, either by its terms or as the
result of the exercise of any power to accelerate, Guarantor on demand and
without further notice of dishonor and without any notice with respect to any
matter or occurrence having been given to Guarantor previous to such demand,
shall pay the Guaranty Obligations.
Guarantor further agrees that to the extent Debtor, Guarantor or any
other Person makes a payment or transfers an interest in any property to
Creditor or the Creditor enforces any security interest or lien or exercises any
rights of set-off, and such payment or transfer or proceeds of such enforcement
or set-off, or any portion thereof, are subsequently invalidated, declared to be
fraudulent or preferential, or otherwise is avoided, and/or required to be
repaid to Debtor, Debtor's estate, a trustee, receiver or any other Person under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such avoidance or repayment, the Guaranty Obligations or part
thereof intended to be satisfied shall be revived and this Guaranty shall
continue to be effective or shall be reinstated, as the case may be, and
continued in full force and effect as if said payment or transfer had not been
made or such enforcement or set-off had not occurred. The payment by Guarantor
of any amount pursuant to this Guaranty shall not in any way entitle Guarantor
to any right, title or interest (whether by way of subrogation or otherwise) in
and to any of the Guaranty Obligations or any proceeds thereof, or any security
therefor. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS GUARANTY OR THE
CREDIT AGREEMENT, GUARANTOR HEREBY UNCONDITIONALLY WAIVES: (1) ANY CLAIM OR
OTHER RIGHT, NOW EXISTING OR HEREAFTER ARISING, AGAINST DEBTOR OR ANY OTHER
PERSON PRIMARILY OR CONTINGENTLY LIABLE FOR ALL OR ANY PART OF THE GUARANTY
OBLIGATIONS, WHICH ARISES FROM OR BY VIRTUE OF THE EXISTENCE OR PERFORMANCE OF
THIS GUARANTY, INCLUDING, WITHOUT LIMITATION: (A) ANY RIGHT OF SUBROGATION,
REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION, OR OTHER RIGHT TO
PAYMENT, WHETHER OR NOT SUCH RIGHT IS REDUCED TO JUDGMENT, LIQUIDATED,
UNLIQUIDATED, FIXED, CONTINGENT, MATURED, UNMATURED, DISPUTED, UNDISPUTED,
LEGAL, EQUITABLE, SECURED OR UNSECURED; OR (B) ANY RIGHT TO AN EQUITABLE REMEDY
FOR BREACH OF PERFORMANCE IF SUCH BREACH GIVES RISE TO A RIGHT TO PAYMENT,
WHETHER OR NOT SUCH RIGHT TO AN EQUITABLE REMEDY IS REDUCED TO A JUDGMENT,
FIXED, CONTINGENT, MATURED, UNMATURED, DISPUTED, UNDISPUTED, SECURED OR
UNSECURED; AND (2) ANY RIGHT TO PARTICIPATE OR SHARE IN ANY RIGHT, REMEDY OR
CLAIM OF CREDITOR AGAINST ANY OF DEBTOR'S INCOME OR ASSETS OR WITH RESPECT TO
ANY COLLATERAL OR OTHER SECURITY FOR ALL OR ANY PART OF THE GUARANTY OBLIGATIONS
OR ANY OTHER RIGHT OR CLAIM OF CREDITOR OF RECOURSE TO AND WITH RESPECT TO ANY
ASSETS, INCOME OR PROPERTIES OF DEBTOR.
Guarantor represents and warrants to Creditor that (i) Guarantor is
solvent; (ii) the execution and delivery of this Guaranty by Guarantor was not
undertaken by Guarantor with the "intent to hinder, delay, or defraud" (within
the meaning of Indiana Code ss.32-2-7-14 and ss.548(a)(1) of the United States
Bankruptcy Code) creditors or any other Persons; and (iii) that neither this
Guaranty nor the payment or performance by Guarantor of its obligations arising
under or pursuant to this Guaranty do or are intended to render Guarantor
insolvent, undercapitalized or in a condition of financial stringency; and (iv)
the Guaranty is a legal, valid and binding obligation of Guarantor, enforceable
in accordance with its terms. If at any time any portion of the obligations of
Guarantor under this Guaranty shall be determined by a court of competent
jurisdiction to be invalid, unenforceable or avoidable, the remaining portion of
the Guaranty Obligations under this Guaranty shall not in any way be affected,
impaired, prejudiced or disturbed thereby and shall remain valid and enforceable
to the full extent permitted by applicable law. Notwithstanding anything in this
Guaranty to the contrary, the liability of Guarantor hereunder shall be limited
to the maximum amount which would not result in any one of the following
conditions:
(1) this Guaranty would constitute a fraudulent transfer
within the meaning of Section 548(a) of the Bankruptcy Code;
(2) this Guaranty would constitute a fraudulent transfer
within the meaning of Ind. Codess. 32-2-7, et seq.; or -- ---
(3) this Guaranty would constitute a fraudulent conveyance or
fraudulent transfer within the meaning of any other applicable Federal
or state bankruptcy, insolvency or other similar law or judicial
decision.
All principal of and interest on all indebtedness, liabilities and
obligations of Debtor to Guarantor (the "Subordinated Debt"), whether direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint
and several, now or hereafter existing, due or to become due to Guarantor, or
held or to be held by Guarantor, whether created directly or acquired by
assignment or otherwise, and whether evidenced by a written instrument or not,
shall be expressly subordinated to the Guaranty Obligations. Guarantor agrees
not to receive or accept any payment of the Subordinated Debt at any time after
and during the continuance of any Event of Default; and, in the event Guarantor
receives any payment on the Subordinated Debt in violation of the foregoing,
Guarantor will hold any such payment in trust for Creditor and forthwith turn it
over to Creditor, in the form received, to be applied to the Guaranty
Obligations.
The rights of Creditor are cumulative and shall not be exhausted by its
exercise of any of its rights under this Guaranty or otherwise against Guarantor
or by any number of successive actions until and unless each and all of the
obligations of Guarantor under this Guaranty have been fully performed,
satisfied and discharged.
When used in this Guaranty, each of the following terms shall have the
meanings set out hereafter:
(a) The term "Guaranty" means this Guaranty, as the same may
be amended and/or restated from time to time and at any time.
(b) The term "Guaranty Obligations" means all of the
following, collectively:
(1) all indebtedness, obligations and liabilities,
and all renewals and extensions thereof, now or hereafter owed
by Debtor to Creditor, now existing or hereafter arising,
including, without limiting the generality of the foregoing,
all of the "Starcraft Obligations" (as such term is defined in
the Credit Agreement); and
(2) all extensions, renewals, amendments,
restatements or replacements of the foregoing, together with
all costs, expenses and reasonable attorneys' fees incurred by
Creditor in the enforcement or collection of any of the
foregoing, whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent,
liquidated, unliquidated, joint, several, joint and several,
now exist or hereafter arise, or were prior to acquisition
thereof by Creditor owed to some other Person.
(c) The term "Maximum Guaranteed Principal Amount" means an
amount equal to $500,000.00 minus the product that results from
multiplying .3333 times the sum of all principal payments of the
Starcraft Obligations received by the Creditor after the execution and
delivery of this Guaranty, excluding all payments made by Guarantor
under this Guaranty or by Kelly L. Rose under a Guaranty, of even date,
in favor of Creditor executed by Kelly L. Rose.
(d) The term "Demand Rate" shall mean the Prime Rate (as such
term is defined in the Credit Agreement), plus Four Percent (4%) per
annum.
This Guaranty shall be deemed to have been made under and shall be
governed by the laws of the State of Indiana in all respects and shall not be
waived, altered, modified or amended as to any of its terms or provisions except
in writing duly signed by Creditor and Guarantor.
This Guaranty shall bind Guarantor and Guarantor's successors, assigns
and legal representatives, and shall inure to the benefit of all transferees,
credit participants, assignees, successors and endorsees of Creditor. The
failure of any Person to execute or be bound by this Guaranty shall not release
or affect the liability of Guarantor, and the liability of Guarantor under this
Guaranty is not conditioned or contingent upon or subject in any way to
obtaining or retaining the primary or secondary liability of any party or
parties with respect to all or any part of the Guaranty Obligations (including,
without limitation, Debtor and the Other Guarantors).
Creditor is relying and is entitled to rely upon each and all of the
provisions of this Guaranty; and accordingly if any provision or provisions of
this Guaranty should be held to be invalid or ineffective, then all other
provisions shall continue in full force and effect.
As long as this Guaranty is in effect, Guarantor shall furnish to
Creditor the following:
a. Personal Financial Statement. Not less frequently than
annually, a signed personal financial statement, in such form as
Creditor reasonably may request, showing in detail all of Guarantor's
assets and liabilities.
b. Other Information. Such other information relating to the
financial condition of Guarantor as Creditor may reasonably require.
GUARANTOR AND CREDITOR (BY ITS ACCEPTANCE OF THIS GUARANTY) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG GUARANTOR AND CREDITOR ARISING IN ANY WAY OUT OF
OR WHICH IN ANY WAY INVOLVES ANY OF THE RIGHTS, OBLIGATIONS OR REMEDIES OF ANY
PARTY TO THIS GUARANTY OR ANY DOCUMENT EXECUTED OR DELIVERED PURSUANT TO OR
OTHERWISE IN CONNECTION WITH THIS GUARANTY OR THE CREDIT AGREEMENT, OR ANY
RELATIONSHIP BETWEEN GUARANTOR AND CREDITOR. THIS PROVISION IS A MATERIAL
INDUCEMENT TO CREDITOR TO PROVIDE THE FINANCING DESCRIBED IN THE CREDIT
AGREEMENT.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS GUARANTY SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA WITHOUT REGARD TO ITS
CHOICE OR CONFLICTS OF LAWS PROVISIONS. GUARANTOR AGREES THAT THE COURTS OF THE
STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE FEDERAL COURTS
LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE EXCLUSIVE
JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS GUARANTY OR
ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR
PURPOSES OF ANY SUCH ACTION OR PROCEEDING. GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION THAT GUARANTOR MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT
IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME
IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING
AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.
Executed and delivered to Creditor as of the 23rd day of November,
1998.
/s/ Gerald R. Stults
---------------------------------------------
Gerald R. Stults
("Guarantor")
EXHIBIT 4.15
LOAN AND SECURITY AGREEMENT
by and among
STARCRAFT AUTOMOTIVE GROUP, INC.
and
NATIONAL MOBILITY CORPORATION,
as Borrowers,
and
STARCRAFT CORPORATION
and
IMPERIAL AUTOMOTIVE GROUP, INC.
as Additional Credit Parties,
and
FOOTHILL CAPITAL CORPORATION,
as Lender
DATED AS OF OCTOBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION...............................................1
1.1. Definitions.....................................................1
1.2. Accounting Terms...............................................17
1.3. Code...........................................................17
1.4. Construction...................................................17
1.5. Schedules and Exhibits.........................................17
2. LOAN AND TERMS OF PAYMENT.................................................17
2.1. Revolving Advances.............................................17
2.2. Letters of Credit..............................................19
2.3. Term Loan......................................................21
2.4. Intentionally Omitted..........................................21
2.5. Overadvances...................................................22
2.6. Interest: Rates, Payments and Calculations....................22
2.7. Collection of Accounts.........................................24
2.8. Crediting Payments; Application of Collections.................24
2.9. Designated Account.............................................25
2.10. Maintenance of Loan Account; Statements of Obligations........25
2.11. Fees..........................................................25
2.12. Eurodollar Rate Loans.........................................26
2.13. Illegality....................................................27
2.14. Requirements of Law...........................................28
2.15. Indemnity.....................................................29
3. CONDITIONS; TERM OF AGREEMENT.............................................30
3.1. Conditions Precedent to the Initial Advance,
Letter of Credit and the Term Loan............................30
3.2. Conditions Precedent to all Advances,
all Letters of Credit and the Term Loan.......................32
3.3. Condition Subsequent...........................................33
3.4. Term; Automatic Renewal........................................33
3.5. Effect of Termination..........................................33
3.6. Early Termination by Borrowers.................................34
3.7. Termination Upon Event of Default..............................34
4. CREATION OF SECURITY INTEREST.............................................34
4.1. Grant of Security Interest.....................................34
4.2. Negotiable Collateral..........................................34
4.3. Collection of Accounts, General Intangibles,
and Negotiable Collateral.....................................35
4.4. Delivery of Additional Documentation Required..................35
4.5. Power of Attorney..............................................35
4.6. Right to Inspect...............................................36
5. REPRESENTATIONS AND WARRANTIES............................................36
5.1. No Encumbrances................................................36
5.2. Eligible Accounts..............................................36
5.3. Eligible Inventory.............................................37
5.4. Equipment......................................................37
5.5. Location of Inventory and Equipment............................37
5.6. Inventory Records..............................................37
5.7. Location of Chief Executive Office; FEIN.......................37
5.8. Due Organization and Qualification; Subsidiaries...............37
5.9. Due Authorization; No Conflict.................................38
5.10. Litigation....................................................38
5.11. No Material Adverse Change....................................39
5.12. Solvency......................................................39
5.13. Employee Benefits.............................................39
5.14. Environmental Condition.......................................39
5.15. Year 2000 Compliance..........................................40
5.16. Consigned Chassis.............................................40
5.17. Starcraft Southwest, Inc......................................40
6. AFFIRMATIVE COVENANTS.....................................................40
6.1. Accounting System..............................................40
6.2. Collateral Reporting...........................................40
6.3. Financial Statements, Reports, Certificates....................41
6.4. Tax Returns....................................................42
6.5. Guarantor Reports..............................................43
6.6. Returns........................................................43
6.7. Title to Equipment.............................................43
6.8. Maintenance of Equipment.......................................43
6.9. Taxes..........................................................43
6.10. Insurance.....................................................44
6.11. No Setoffs or Counterclaims...................................45
6.12. Location of Inventory and Equipment...........................45
6.13. Compliance with Laws..........................................46
6.14. Employee Benefits.............................................46
6.15. Leases........................................................47
7. NEGATIVE COVENANTS........................................................47
7.1. Indebtedness...................................................47
7.2. Liens..........................................................48
7.3. Restrictions on Fundamental Changes............................48
7.4. Disposal of Assets.............................................48
7.5. Change Name....................................................48
7.6. Guarantee......................................................48
7.7. Nature of Business.............................................48
7.8. Prepayments and Amendments.....................................48
7.9. Change of Control..............................................49
7.10. Consignments; New Chassis Supplier Agreements.................49
7.11. Distributions.................................................49
7.12. Accounting Methods............................................49
7.13. Investments...................................................49
7.14. Transactions with Affiliates..................................50
7.15. Suspension....................................................50
7.16. Compensation..................................................50
7.17. Use of Proceeds...............................................50
7.18. Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees................................50
7.19. No Prohibited Transactions Under ERISA.........................50
7.20. Financial Covenants............................................51
7.21. Capital Expenditures...........................................52
8. EVENTS OF DEFAULT..........................................................52
9. FOOTHILL'S RIGHTS AND REMEDIES.............................................54
9.1. Rights and Remedies.............................................54
9.2. Remedies Cumulative.............................................56
10. TAXES AND EXPENSES........................................................56
11. WAIVERS; INDEMNIFICATION..................................................57
11.1. Demand; Protest; etc...........................................57
11.2. Foothill's Liability for Collateral............................57
11.3. Indemnification................................................57
12. NOTICES...................................................................58
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................................59
14. DESTRUCTION OF BORROWERS' DOCUMENTS.......................................59
15. GENERAL PROVISIONS........................................................60
15.1. Effectiveness..................................................60
15.2. Successors and Assigns.........................................60
15.3. Section Headings...............................................60
15.4. Interpretation.................................................60
15.5. Severability of Provisions.....................................60
15.6. Amendments in Writing..........................................61
15.7. Counterparts; Facsimile Execution..............................61
15.8. Revival and Reinstatement of Obligations.......................61
15.9. Integration....................................................61
15.10. Joint and Several Liability...................................61
<PAGE>
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.7 Chief Executive Office and FEIN
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.14 Environmental Matters
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Schedule 7.6 Guaranties
Schedule 7.14 Affiliate Transactions
Exhibit C-1 Form of Compliance Certificate
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
October 30, 1998, among FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333 and STARCRAFT AUTOMOTIVE GROUP,
INC. ("SAG"), an Indiana corporation, NATIONAL MOBILITY CORPORATION ("NMC"), an
Indiana corporation, STARCRAFT CORPORATION ("SC"), an Indiana corporation, and
IMPERIAL AUTOMOTIVE GROUP, INC. ("IAG"), an Indiana corporation, (SAG and NMC
are each individually a "Borrower", and collectively "Borrowers"; and SAG, NMC,
SC and IAG are each individually a "Company", and collectively "Companies").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. Definitions.
As used in this Agreement, the following terms shall have the following
definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Accounts" means, with respect to a Company, all currently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to such Company arising out of the sale or lease of goods or the rendition
of services by such Company, irrespective of whether earned by performance, and
any and all credit insurance, guaranties, or security therefor.
"Additional Raw Material Availability Amount" means, during November and
December of each fiscal year, an amount equal to 10% of the value of Eligible
Inventory consisting of raw materials (with such percentage subject to
adjustment as provided in Section 2.1(b)), during January and February of each
fiscal year, an amount equal to 5% of the value of Eligible Inventory consisting
of raw materials (with such percentage subject to adjustment as provided in
Section 2.1(b)), and at all other times, an amount equal to zero.
"Adjusted Eurodollar Rate" means, with respect to each Interest Period for
any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to
the next 1/16%) determined by dividing (a) the Eurodollar Rate for such Interest
Period by (b) a percentage equal to (i) 100% minus (ii) the Reserve Percentage.
The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
<PAGE>
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who directly
or indirectly controls, is controlled by, is under common control with or is a
director or officer of such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote 15% or more
of the securities having ordinary voting power for the election of directors or
the direct or indirect power to direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Authorized Person" means any officer or other employee of any Borrower.
"Average Unused Portion of Maximum Revolving Amount" means, as of any date
of determination, (a) the Maximum Revolving Amount, less (b) the sum of (i) the
average Daily Balance of Advances that were outstanding during the immediately
preceding calendar month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding
calendar month, plus (iii) the average Daily Balance of the Tecstar Obligations
that were outstanding during the immediately preceding calendar month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss. 101
et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35)
of ERISA) for which any Company, any Subsidiary of any Company, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday or other day on
which national banks are authorized or required to close, except that if a
determination of a Business Day shall relate to any Eurodollar Rate Loans, the
term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of stock then
outstanding of any Company entitled to vote in the election of directors.
<PAGE>
"Closing Date" means the date of the first to occur of the making of the
initial Advance, the issuance of the initial Letter of Credit or the funding of
the Term Loan.
"Code" means the Illinois Uniform Commercial Code.
"Collateral" means, with respect to a Company, each of the following:
(a) such Company's Accounts,
(b) such Company's Books,
(c) such Company's Equipment,
(d) such Company's General Intangibles,
(e) such Company's Inventory,
(f) such Company's Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of such Company that now or hereafter come
into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or intangible, of any of
the foregoing, including proceeds of insurance covering any or all of the
Collateral of such Company, and any and all Accounts, Company's Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property,
money, deposit accounts, or other tangible or intangible property resulting from
the sale, exchange, collection, or other disposition of any of the foregoing, or
any portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee waiver,
bailee letter, or acknowledgment agreement of any warehouseman, processor,
lessor, consignee, or other Person in possession of, having a Lien upon, or
having rights or interests in the Equipment or Inventory, in each case, in form
and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Company's Books" means, with respect to a Company, all of such Company's
books and records including: ledgers; records indicating, summarizing, or
evidencing such Company's properties or assets (including the Collateral) or
liabilities; all information relating to such Company's business operations or
financial condition; and all computer programs, disk or tape files, printouts,
runs, or other computer prepared information.
<PAGE>
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C-1 and delivered by the chief accounting officer of SAG to Foothill.
"Daily Balance" means, with respect to the Obligations or Tecstar
Obligations, the amount of an Obligation or Tecstar Obligation, as the case may
be, owed at the end of a given day.
"deems itself insecure" means that the Person deems itself insecure in
accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 501-937-643 of Borrowers
maintained with Borrowers' Designated Account Bank, or such other deposit
account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.
"Designated Account Bank" means National City Bank of Indiana, whose office
is located at One National City Center, Suite 735E, Indianapolis, Indiana 46255,
and whose ABA number is 074000065.
"Dilution" means, in each case based upon the experience of the immediately
prior 3 fiscal months, the result of dividing the Dollar amount of (a) bad debt
write-downs, discounts from the invoice amount of any Account, advertising,
returns, promotions, credits, or other dilutive items with respect to the
Accounts of Borrowers by (b) Borrowers' Collections (excluding extraordinary
items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce Foothill's advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of 5%.
"Disbursement Letter" means an instructional letter executed and delivered
by Borrowers to Foothill regarding the extensions of credit to be made on the
Closing Date, the form and substance of which shall be satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section 3.6.
"EBITDA" means, for any period, the consolidated net income of SC
(including Tecstar, Inc.) for such period (exclusive of extraordinary gains and
losses), plus interest, taxes, depreciation and amortization deducted in
determining such net income for such period.
<PAGE>
"Eligible Accounts" means those Accounts created by a Borrower in the
ordinary course of business, that arise out of such Borrower's sale of goods or
rendition of services, that strictly comply with each and all of the
representations and warranties respecting Accounts made by Borrowers to Foothill
in the Loan Documents, and that are and at all times continue to be acceptable
to Foothill in all respects; provided, however, that standards of eligibility
may be fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment. Eligible Accounts shall not include the following:
(a) Accounts of a Borrower that the Account Debtor has failed to pay within
60 days of due date or Accounts with selling terms of more than 30 days;
(b) Accounts of a Borrower owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) to Borrowers are deemed ineligible under clause (a) above;
(c) Accounts of a Borrower with respect to which the Account Debtor is an
employee, Affiliate, or agent of a Company;
(d) Accounts of a Borrower with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts of a Borrower that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States or Canada (provided, that the aggregate amount of Advances
against the Eligible Accounts of Account Debtors with their chief executive
office in Canada shall not exceed $500,000), or (ii) is not organized under the
laws of the United States or any State thereof, or (iii) is the government of
any foreign country or sovereign state, or of any state, province, municipality,
or other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to Foothill (as to
form, substance, and issuer or domestic confirming bank) that has been delivered
to Foothill and is directly drawable by Foothill, or (z) the Account is covered
by credit insurance in form and amount, and by an insurer, satisfactory to
Foothill;
(f) Accounts of a Borrower with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which such
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. ss. 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts of a Borrower with respect to which the Account Debtor is a
creditor of a Borrower, has or has asserted a right of setoff (unless such
Account Debtor has executed and delivered to Foothill a no offset letter in form
and substance satisfactory to Foothill), has disputed its liability, or has made
any claim with respect to the Account (but only to the extent of the amount of
the liability owing to such Account Debtor, the amount of the set off that has
or may be asserted, the amount of the disputed liability or the amount of the
claim, as the case may be);
<PAGE>
(h) Accounts of a Borrower owing by the Illinois Department of
Transportation if such obligations owing to Borrowers exceed 20% of all Eligible
Accounts, to the extent of the obligations owing by such Account Debtor in
excess of such percentage, Accounts of a Borrower owing by the General Motors
Overseas Distribution Corporation if such obligations owing to Borrowers exceed
25% of all Eligible Accounts, to the extent of the obligations owing by such
Account Debtor in excess of such percentage (provided, that if acceptable credit
insurance is received by Foothill, Foothill will consider increasing such
concentration limit with respect to General Motors Overseas Distribution
Corporation), or Accounts of a Borrower with respect to an Account Debtor (other
than the Illinois Department of Transportation and General Motors Overseas
Distribution Corporation) whose total obligations owing to Borrowers exceed 10%
of all Eligible Accounts, to the extent of the obligations owing by such Account
Debtor in excess of such percentage;
(i) Accounts of a Borrower with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts of a Borrower the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts of a Borrower with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, Accounts of
a Borrower with respect to which the Account Debtor has been billed but the
goods giving rise to such Accounts have not been shipped, the services giving
rise to such Account have not been performed and accepted by the Account Debtor,
or the Account otherwise does not represent a final sale;
(l) Accounts of a Borrower with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless such Borrower has qualified to do business in New Jersey, Minnesota, West
Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or
with such other state offices, as appropriate, for the then-current calendar
year, or is exempt from such filing requirement; and
(m) Accounts of a Borrower that represent progress payments or other
advance billings that are due prior to the completion of performance by such
Borrower of the subject contract for goods or services; and
<PAGE>
(n) Accounts representing rebate obligations owing to a Borrower.
"Eligible Inventory" means Inventory of a Borrower consisting of first
quality finished goods held for sale in the ordinary course of such Borrower's
business for which an order has been placed by an Account Debtor, uncut chassis
owned by a Borrower and raw materials (such as fiberglass shells, wheels, wood,
electronic devices (including televisions, radios and speakers), windows, doors,
carpet, fabrics and graphics/decals) for such finished goods, that are located
at or in-transit between such Borrower's premises identified on Schedule E-1,
that strictly comply with each and all of the representations and warranties
respecting Inventory made by such Borrower to Foothill in the Loan Documents,
and that are and at all times continue to be acceptable to Foothill in all
respects; provided, however, that standards of eligibility may be fixed and
revised from time to time by Foothill in Foothill's reasonable credit judgment.
In determining the amount to be so included, Inventory shall be valued at the
lower of cost or market on a basis consistent with a Borrower's current and
historical accounting practices; provided, that chassis consigned to a Borrower
or owned by a Borrower and subject to a Lien in favor of the supplier thereof
shall not be part of finished goods. An item of Inventory shall not be included
in Eligible Inventory if:
(a) it is not owned solely by a Borrower or a Borrower does not have good,
valid, and marketable title thereto (provided, that the interest of the chassis
supplier in the finished goods shall not cause such finished goods to not be
Eligible Inventory to the extent such supplier has executed an Intercreditor
Agreement with Foothill);
(b) it is not located at one of the locations set forth on Schedule E-1;
(c) it is not located on property owned or leased by a Borrower or in a
contract warehouse, in each case, subject to a Collateral Access Agreement
executed by the mortgagee, lessor, the warehouseman, or other third party, as
the case may be, and segregated or otherwise separately identifiable from goods
of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority security
interest in favor of Foothill;
(e) it consists of goods returned or rejected by a Borrower's customers or
goods in transit;
(f) it is an uncut chassis manufactured by General Motors Corporation or
any of its affiliates or subsidiaries unless a Borrower purchased such chassis
from the General Motors Vehicle Overseas Division of General Motors Corporation;
(g) it is an uncut chassis manufactured by Ford Motor Company or any of its
affiliates or subsidiaries unless such chassis is a cutaway bus chassis and a
Borrower has paid the full purchase price therefor and obtained the certificate
of origin with respect thereto; and
<PAGE>
(h) it is obsolete or slow moving, a demonstration model, work-in-process,
consigned Inventory, packaging and shipping materials, supplies used or consumed
in a Borrower's business, Inventory subject to a Lien in favor of any third
Person, bill and hold goods, defective goods, "seconds," or Inventory acquired
on consignment.
"Equipment" means, with respect to a Company, all of such Company's present
and hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including, (a) any interest of such Company in any of the foregoing,
and (b) all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of any
Company under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
any Company under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which any Company is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with any Company and whose employees are aggregated with the employees of such
Company under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan
or Multiemployer Plan, (b) the withdrawal of any Company, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of any Company, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by any Company or its Subsidiaries or any of their ERISA
Affiliates.
<PAGE>
"Eurodollar Rate" means, with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum at which United States dollar
deposits are offered to Foothill (or its Affiliate) by major banks in the London
interbank market (or other Eurodollar Rate market selected by Foothill) on or
about 11:00 a.m. (California time) 2 Business Days prior to the commencement of
such Interest Period in amounts comparable to the amount of the Eurodollar Rate
Loans requested by and available to Borrowers in accordance with this Agreement,
with a maturity of comparable duration to the Interest Period selected by
Borrowers.
"Eurodollar Rate Loans" means any Loan (or any portion thereof) made or
outstanding hereunder during any period when interest on such Loan (or portion
thereof) is payable based on the Adjusted Eurodollar Rate.
"Event of Default" has the meaning set forth in Section 8.
"Excess Loan Availability" means, as of the Closing Date, the amount by
which the lesser of (A) the Maximum Revolving Amount and (B) the Borrowing Base,
exceeds the sum of Obligations (other than the Term Loan) and the amount of
deterioration in the payables over 60 days past due since the date of Foothill's
last audit of Borrowers.
"Existing Lender" means Bank One, N.A.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Companies under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with any
Company, including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral and Real Property Collateral appraisals), real estate surveys, real
estate title policies and endorsements, and environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to any Borrower (by
wire transfer or otherwise); charges paid or incurred by Foothill resulting from
the dishonor of checks; costs and expenses paid or incurred by Foothill to
correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining any Company's Books; costs
and expenses of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or Foothill's relationship with
any Company or any guarantor; and Foothill's reasonable attorneys fees and
expenses incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning any Company or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
<PAGE>
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means, with respect to a Company, all of such
Company's present and future general intangibles and other personal property
(including contract rights, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill, patents, trade names,
trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer disks
or tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
"Governing Documents" means the certificate or articles of incorporation,
by-laws, or other organizational or governing documents of any Person.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guaranties" means (i) the Guaranty of even date herewith executed by SC
and (ii) the Guaranty of even date herewith executed by IAG.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of a Company for borrowed money,
(b) all obligations of a Company evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of a Company in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of a Company under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any property or
asset of a Company, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of a Company guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Company) any indebtedness, lease, dividend, letter of credit,
or other obligation of any other Person.
<PAGE>
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Intercreditor Agreements" means those certain intercreditor agreements
between Foothill and each of General Motors Acceptance Corporation, Chrysler
Credit Corporation and Ford Motor Credit Company, and any other consignor of
chassis to a Borrower.
"Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately 30, 60 or 90 days duration as Borrowers may elect, the exact
duration to be determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrowers may not elect an
Interest Period which will end after the last day of the then-current term of
this Agreement.
"Inventory" means, with respect to a Company, all present and future
inventory in which such Company has any interest, including goods held for sale
or lease or to be furnished under a contract of service and all of such
Company's present and future raw materials, work in process, finished goods, and
packing and shipping materials, wherever located.
"Inventory Reserve" means an amount equal to (i) zero, during the period
commencing on the Closing Date and ending December 31, 1998, (ii) $100,000,
during the period commencing January 1, 1999 and ending January 31, 1999, (iii)
$200,000 during the period commencing February 1, 1999 and ending February 28,
1999, (iv) $300,000, during the period commencing March 1, 1999 and ending March
31, 1999, (v) $400,000 during the period commencing April 1, 1999 and ending
April 30, 1999, and (vi) $500,000 at all times on and after May 1, 1999.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the context
requires.
<PAGE>
"Lien" means any interest in property securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement Letter, the Letters
of Credit, the Lockbox Agreements, Mortgages, the Stock Pledge Agreement, the
Trademark Mortgage, the Patent Mortgage, the Guaranties, any note or notes
executed by any Borrower and payable to Foothill, and any other agreement
entered into, now or in the future, in connection with this Agreement.
"Loans" means the Advances and the Term Loan.
"Lockbox Account" shall mean a depository account established pursuant to
one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrowers, Foothill,
and one of the Lockbox Banks.
"Lockbox Banks" means National City Bank or such other banks as are
acceptable to Foothill.
"Lockboxes" has the meaning set forth in Section 2.7.
<PAGE>
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of any Company, (b) the material impairment
of any Company's ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or realize upon
the Collateral, (c) a material adverse effect on the value of the Collateral or
the amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Amount" means, as of any date of determination, $14,000,000.
"Maximum Revolving Amount" means $14,000,000 less (a) the outstanding
principal amount of the Term Loan and (b) the Tecstar Obligations; provided,
that so long as the maximum principal amount of "Senior Debt" as set forth in
that certain Subordination Agreement between Foothill and Existing Lenders is
$14,000, the Maximum Revolving Amount means $13,500,000 less (a) the outstanding
principal amount of the Term Loan and (b) the Tecstar Obligations.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to secure
debt, executed by a Company in favor of Foothill, the form and substance of
which shall be satisfactory to Foothill, that encumber the Real Property
Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) to which any Company, any of its Subsidiaries, or any ERISA
Affiliate has contributed, or was obligated to contribute, within the past six
years.
"Negotiable Collateral" means, with respect to a Company, all of such
Company's present and future letters of credit, notes, drafts, instruments,
investment property, security entitlements, securities (including the shares of
stock of Subsidiaries of such Company), documents, personal property leases
(wherein such Company is the lessor), chattel paper, and such Company's Books
relating to any of the foregoing.
"Obligations" means all loans (including, without limitation, the Term
Loan), Advances, debts, principal, interest (including any interest that, but
for the provisions of the Bankruptcy Code, would have accrued), guaranties,
contingent reimbursement obligations under any outstanding Letters of Credit,
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to Borrowers' Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses (including any fees or expenses that, but
for the provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by any Company to Foothill of any kind
and description (whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between Foothill and any Company, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from any Company to
others that Foothill may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Foothill Expenses that any
Company is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
<PAGE>
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which Foothill has sold a participation
interest in its rights under the Loan Documents.
"Patent Mortgage" means that certain Patent Mortgage of even date herewith
between SC and Foothill.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Companies owing to Existing Lender
(other than a $3,000,000 term loan).
"PBGC" means the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for unpaid
taxes that either (i) are not yet due and payable or (ii) are the subject of
Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
lessors under operating leases and purchase money Liens of lessors under capital
leases to the extent that the acquisition or lease of the underlying asset
occurs after the Closing Date and is permitted under Section 7.21 and so long as
the Lien only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of any Company and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of a Company and not in
connection with the borrowing of money, (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary course of business of a Company, (i)
Liens of or resulting from any judgment or award that would not have a Material
Adverse Effect and as to which the time for the appeal or petition for rehearing
of which has not yet expired, or in respect of which a Company is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been secured, (j)
Liens with respect to the Real Property Collateral that are exceptions to the
commitments for title insurance issued in connection with the Mortgages, as
accepted by Foothill, and (k) with respect to any Real Property that is not part
of the Real Property Collateral, easements, rights of way, zoning and similar
covenants and restrictions, and similar encumbrances that customarily exist on
properties of Persons engaged in similar activities and similarly situated and
that in any event do not materially interfere with or impair the use or
operation of the Collateral by a Company or the value of Foothill's Lien thereon
or therein, or materially interfere with the ordinary conduct of the business of
a Company.
<PAGE>
"Permitted Protest" means the right of a Company to protest any Lien other
than any such Lien that secures the Obligations, tax (other than payroll taxes
or taxes that are the subject of a United States federal tax lien), or rental
payment, provided that (a) a reserve with respect to such obligation is
established on the books of such Company in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by such Company in good faith, and (c) Foothill is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of Foothill in and to
the Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the Real
Property Collateral.
"Plan" means any employee benefit plan, program, or arrangement maintained
or contributed to by any Company or with respect to which it may incur
liability.
"Real Property" means any estates or interests in real property now owned
or hereafter acquired by a Company.
"Real Property Collateral" means the parcel or parcels of real property and
the related improvements thereto identified on Schedule R-1, and any Real
Property hereafter acquired by a Company.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Reference Rate Loan" means any Loan (or any portion thereof) made or
outstanding hereunder during any period when interest on such Loan (or portion
thereof) is payable based on the Reference Rate.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in Section 4043(c) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
<PAGE>
"Reserve Percentage" means and refers to, as of the date of determination
thereof, the maximum percentage (rounded upward, if necessary to the nearest
1/100th of 1%), as determined by Foothill (or its Affiliate) in accordance with
its (or their) usual procedures (which determination shall be conclusive in the
absence of manifest error), that is in effect on such date as prescribed by the
Federal Reserve Board for determining the reserve requirements (including
supplemental, marginal, and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "eurocurrency liabilities") by
Foothill or its Affiliates.
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Stock Pledge Agreement" means that certain Stock Pledge Agreement of even
date herewith between SC and Foothill.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the difference
of (a) total stockholder's equity of SC on a consolidated basis, minus (b) the
sum of: (i) all Intangible Assets and "other assets" of the Companies, (ii) all
of the Companies' prepaid expenses, and (iii) all amounts due to the Companies
from Affiliates.
"Tecstar Loan Agreement" means that certain Loan and Security Agreement
dated as of November 20, 1998 between Tecstar, Inc. and Foothill.
<PAGE>
"Tecstar Obligations" means the "Obligations" (as defined in the Tecstar
Loan Agreement).
"Term Loan" has the meaning set forth in Section 2.3.
"Trademark Mortgage" means that certain Trademark Mortgage of even date
herewith between SC and Foothill.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2. Accounting Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with GAAP. When used herein, the term "financial statements" shall
include the notes and schedules thereto. Whenever the term "Company" is used in
respect of a financial covenant or a related definition, it shall be understood
to mean Companies on a consolidated basis unless the context clearly requires
otherwise.
1.3. Code.
Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein.
1.4. Construction.
Unless the context of this Agreement clearly requires otherwise, references
to the plural include the singular, references to the singular include the
plural, the term "including" is not limiting, and the term "or" has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms
in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. An Event of Default shall "continue" or be
"continuing" until such Event of Default has been waived in writing by Foothill.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in the
Loan Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5. Schedules and Exhibits.
All of the schedules and exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
<PAGE>
2. LOAN AND TERMS OF PAYMENT.
2.1. Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees
to make advances ("Advances") to Borrowers in an amount outstanding not to
exceed at any one time the lesser of (i) the Maximum Revolving Amount less the
outstanding balance of all undrawn or unreimbursed Letters of Credit, or (ii)
the Borrowing Base less (A) the aggregate amount of all undrawn or unreimbursed
Letters of Credit. For purposes of this Agreement, "Borrowing Base", as of any
date of determination, shall mean the result of:
(w) the lesser of (i) 85% of Eligible Accounts of
Borrowers, less the amount, if any, of the Dilution Reserve,
and (ii) an amount equal to Borrowers' Collections with
respect to Accounts of Borrowers for the immediately preceding
60 day period, plus
(x) the lower of (i) $6,000,000, and (ii) the sum of
(A) the lower of (1) 75% of the value of the Eligible
Inventory consisting of uncut chassis owned by a Borrower and
(2) $3,000,000, and (B) the lower of (1) 75% of the value of
the Eligible Inventory consisting of finished goods, and (2)
80% of the orderly liquidation value (as determined by an
appraiser and an appraisal methodology acceptable to Foothill)
of the Eligible Inventory consisting of finished goods, plus
(y) the lowest of (i) $3,000,000, (ii) the sum of 35%
of the value of the Eligible Inventory consisting of raw
materials and 100% of the Additional Raw Material Availability
Amount, and (iii) 80% of the orderly liquidation value (as
determined by an appraiser and an appraisal methodology
acceptable to Foothill) of the Eligible Inventory consisting
of raw materials, minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b);
provided, that the aggregate Advances outstanding predicated on the availability
described in clauses (x) and (y) above shall not exceed (A) 300% of the amount
of availability created under clause (w) above during the period commencing on
the date hereof and ending December 24, 1999, (B) 180% of the amount of
availability created under clause (w) above during the period commencing on
December 25, 1998 and ending on January 31, 1999, or (C) 160% of the amount of
availability created under clause (w) above at any time on or after February 1,
1999.
<PAGE>
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
Foothill may create reserves against the Borrowing Base or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default (i) for any amount subject to a Permitted Protest, (ii) for
amounts owing to landlords or similar Persons that could assert a statutory lien
in respect of any of the Collateral, (iii) for such amounts as Foothill deems
appropriate for finished goods that may be located with a processor, and/or (iv)
as determined by Foothill in its reasonable credit judgment. Without limiting
the foregoing, Foothill shall establish the Inventory Reserve as a reserve
against the Borrowing Base.
(c) Each Loan shall be made upon a Borrower's request (pursuant to the
terms of Section 2.9), which request shall be irrevocable except as set forth in
Section 2.12, specifying (i) the amount of the requested Loan; (ii) the
requested funding date of such Loan; (iii) whether the Loan is to constitute a
Eurodollar Rate Loan or a Reference Rate Loan; and (iv) if such Loan is to
constitute a Eurodollar Rate Loan, the requested Interest Period therefor. If a
requested Loan constitutes a Eurodollar Rate Loan, such request must be
delivered to Foothill no later than 11:00 a.m. (California time) 2 Business Days
prior to the requested funding date therefor. (d) Amounts borrowed pursuant to
this Section 2.1 may be repaid and, subject to the terms and conditions of this
Agreement, reborrowed at any time during the term of this Agreement. 2.2.
Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Foothill agrees to
issue letters of credit for the account of a Borrower (each, an "L/C") or to
issue guarantees of payment (each such guaranty, an "L/C Guaranty") with respect
to letters of credit issued by an issuing bank for the account of a Borrower.
Foothill shall have no obligation to issue a Letter of Credit if any of the
following would result:
(i) the aggregate amount of all undrawn and unreimbursed
Letters of Credit, would exceed the Borrowing Base less the amount of
outstanding Advances; or
(ii) the aggregate amount of all undrawn or unreimbursed
Letters of Credit would exceed the lower of: (x) the Maximum Revolving
Amount less the amount of outstanding Advances; or (y) $2,000,000; or
(iii) the outstanding Obligations (other than under the Term Loan)
would exceed the Maximum Revolving Amount. Each Borrower expressly
understands and agrees that Foothill shall have no obligation to
arrange for the issuance by issuing banks of the letters of credit that
are to be the subject of L/C Guarantees. Each Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to
be the subject of L/C Guarantees may be outstanding on the Closing
Date. Each Letter of Credit shall have an expiration date no later than
60 days prior to the date on which this Agreement is scheduled to
terminate under Section 3.4 (without regard to any potential renewal
term) and all such Letters of Credit shall be in form and substance
acceptable to Foothill in its sole discretion. If Foothill is obligated
to advance funds under a Letter of Credit, Borrowers immediately shall
reimburse such amount to Foothill and, in the absence of such
reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear
interest at the rate then applicable to Advances under Section 2.6.
<PAGE>
(b) Each Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless from any loss, cost, expense, or liability, including payments
made by Foothill, expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any Letter of Credit. Each Borrower agrees
to be bound by the issuing bank's regulations and interpretations of any Letters
of Credit guarantied by Foothill and opened to or for a Borrower's account or by
Foothill's interpretations of any L/C issued by Foothill to or for a Borrower's
account, even though this interpretation may be different from such Borrower's
own, and each Borrower understands and agrees that Foothill shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following any Borrower's instructions or those contained in the Letter of Credit
or any modifications, amendments, or supplements thereto. Each Borrower
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by such
Borrower against such issuing bank. Each Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by Foothill under
any L/C Guaranty as a result of Foothill's indemnification of any such issuing
bank.
(c) Each Borrower hereby authorizes and directs any bank that issues a
letter of credit guaranteed by Foothill to deliver to Foothill all instruments,
documents, and other writings and property received by the issuing bank pursuant
to such letter of credit, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters that it would otherwise accept and
rely upon Borrowers' instructions and agreements, arising in connection with
such letter of credit and the related application. Such Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred by
Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrowers to Foothill.
(e) Immediately upon the termination of this Agreement, Borrowers agree
to either (i) provide cash collateral to be held by Foothill in an amount equal
to 102% of the maximum amount of Foothill's obligations under Letters of Credit,
or (ii) cause to be delivered to Foothill releases of all of Foothill's
obligations under outstanding Letters of Credit. At Foothill's discretion, any
proceeds of Collateral of Borrowers received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this Section 2.2(e).
<PAGE>
(f) If by reason of (i) any change in any applicable law, treaty, rule,
or regulation or any change in the interpretation or application by any
governmental authority of any such applicable law, treaty, rule, or regulation,
or (ii) compliance by the issuing bank or Foothill with any direction, request,
or requirement (irrespective of whether having the force of law) of any
governmental authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or Foothill any
other condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly,
the cost to the issuing bank or Foothill of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify Borrowers, and Borrowers shall pay on demand such amounts as
the issuing bank or Foothill may specify to be necessary to compensate the
issuing bank or Foothill for such additional cost or reduced receipt, together
with interest on such amount from the date of such demand until payment in full
thereof at the rate set forth in Section 2.6(a)(i) or (c)(i), as applicable. The
determination by the issuing bank or Foothill, as the case may be, of any amount
due pursuant to this Section 2.2(f), as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the parties
hereto.
2.3. Term Loan.
Foothill has agreed to make a term loan (the "Term Loan") to Borrowers
in the original principal amount of $4,800,000. The Term Loan shall be repaid in
36 installments of principal each in the amount of $57,143 (except for the last
such installment which shall be in the amount of the unpaid principal balance of
the Term Loan). Each such installment shall be due and payable on the first day
of each calendar month commencing on the first day of December 1, 1998 and
continuing on the first day of each succeeding calendar month, and the final
payment shall be on the third anniversary of the Closing Date. The outstanding
principal balance and all accrued and unpaid interest under the Term Loan shall
be due and payable upon the termination of this Agreement, whether by its terms,
by prepayment, by acceleration, or otherwise. The unpaid principal balance of
the Term Loan may be prepaid in whole or in part without penalty or premium at
any time during the term of this Agreement upon 30 days prior written notice by
Borrowers to Foothill and with the prior written consent of Foothill. All
prepayments of principal of the Term Loan shall be applied to the installments
due on the Term Loan in the inverse order of their maturity. All amounts
outstanding under the Term Loan shall constitute Obligations.
<PAGE>
2.4. Intentionally Omitted.
2.5. Overadvances.
If, at any time or for any reason, the amount of Obligations (other
than the Term Loan) owed by Borrowers to Foothill pursuant to Sections 2.1 and
2.2 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 and 2.2 (an "Overadvance"), Borrowers immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrowers' obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.6. Interest: Rates, Payments and Calculations.
(a) Interest Rate. Except as provided in clause (c) below, all
outstanding Obligations (except for undrawn Letters of Credit) shall
bear interest as follows:
(i) Each Eurodollar Rate Loan (other than the portion
thereof that is part of the Term Loan) shall bear interest at
a per annum rate of 3 percentage points above the Adjusted
Eurodollar Rate and each Eurodollar Rate Loan constituting a
portion of the Term Loan shall bear interest at a per annum
rate of 3.5 percentage points above the Adjusted Eurodollar
Rate, and
(ii) all other outstanding Obligations (other than
the portion thereof that is part of the Term Loan) shall bear
interest at a per annum rate of 0.5 percentage points above
the Reference Rate and the Term Loan (other than the portion
thereof that is part of a Eurodollar Rate Loan) shall bear
interest at a per annum rate of 0.75 percentage points above
the Reference Rate; provided, that, notwithstanding the
foregoing, the Revolving Loans predicated on the Additional
Raw Material Availability Amount shall bear interest at a per
annum rate of 2 percentage points above the Reference Rate.
<PAGE>
(b) Letter of Credit Fee. Borrowers shall pay Foothill a fee (in
addition to the charges, commissions, fees, and costs set forth in Section
2.2(d)) equal to 1.75% per annum times the aggregate undrawn amount of all
outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, (i) all Obligations (except for undrawn Letters of Credit and
the Term Loan) shall bear interest at a per annum rate equal to 3.5 percentage
points above the Reference Rate, (ii) the Term Loan shall bear interest at a per
annum rate equal to 3.75 percentage points above the Reference Rate, and (iii)
the Letter of Credit fee provided in Section 2.6(b) shall be increased to 4.75%
per annum times the amount of the undrawn Letters of Credit that were
outstanding during the immediately preceding calendar month; provided, that
notwithstanding the foregoing, the Revolving Loans predicated on the Additional
Raw Material Availability Amount shall bear interest at a per annum rate of 6
percentage points above the Reference Rate.
(d) Minimum Interest. In no event shall the rate of interest chargeable
hereunder for any day be less than 7% per annum. To the extent that interest
accrued hereunder at the rate set forth herein would be less than the foregoing
minimum daily rate, the interest rate chargeable hereunder for such day
automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest in respect of Reference Rate Loans and Letter of
Credit Fees shall be due and payable, in arrears, on the first day of each
calendar month during the term hereof. Interest in respect of each Eurodollar
Rate Loan shall be due and payable, in arrears, on the last day of the Interest
Period applicable thereto. Each Borrower hereby authorizes Foothill, at its
option, without prior notice to Borrowers, to charge such interest and Letter of
Credit Fees, all Foothill Expenses (as and when incurred), the fees and charges
provided for in Section 2.11 (as and when accrued or incurred), and all
installments or other payments due under the Term Loan or any Loan Document to
Borrowers' Loan Account, which amounts thereafter shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due and
shall be compounded and shall thereafter accrue interest at the rate then
applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement is
8% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
<PAGE>
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and Foothill, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto as of the
date of this Agreement, Borrowers are and shall be liable only for the payment
of such maximum as allowed by law, and payment received from Borrowers in excess
of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
(h) For purposes of calculating interest, Revolving Loans shall be
deemed to be predicated upon the availability created by the Additional Raw
Material Availability Amount last. 2.7. Collection of Accounts.
Borrowers shall at all times maintain lockboxes (the "Lockboxes") and,
immediately after the Closing Date, shall instruct all Account Debtors with
respect to the Accounts, General Intangibles, and Negotiable Collateral of
Borrowers to remit all Collections in respect thereof to such Lockboxes.
Borrowers, Foothill, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Borrowers agree that
all Collections and other amounts received by any Borrower from any Account
Debtor or any other source immediately upon receipt shall be deposited into a
Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby shall
be modified by any Borrower without the prior written consent of Foothill. Upon
the terms and subject to the conditions set forth in the Lockbox Agreements, all
amounts received in each Lockbox Account after all applicable collection periods
shall be wired each Business Day into an account (the "Foothill Account")
maintained by Foothill at a depository selected by Foothill.
<PAGE>
2.8. Crediting Payments; Application of Collections.
The receipt of any Collections by Foothill (whether from transfers to
Foothill by the Lockbox Banks pursuant to the Lockbox Agreements or otherwise)
immediately shall be applied provisionally to reduce the Obligations outstanding
under Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrowers for 2 Business Days of `clearance' or `float' at
the rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as applicable, on
all Collections that are received by Foothill (regardless of whether forwarded
by the Lockbox Banks to Foothill, whether provisionally applied to reduce the
Obligations under Section 2.1, or otherwise). This across-the-board 2 Business
Day clearance or float charge on all Collections is acknowledged by the parties
to constitute an integral aspect of the pricing of Foothill's financing of
Borrowers, and shall apply irrespective of the characterization of whether
receipts are owned by any Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging 2 Business Days of interest on such Collections. Should
any Collection item not be honored when presented for payment, then Borrowers
shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before 11:00
a.m. California time. If any Collection item is received into the Foothill
Account on a non-Business Day or after 11:00 a.m. California time on a Business
Day, it shall be deemed to have been received by Foothill as of the opening of
business on the immediately following Business Day.
2.9. Designated Account.
Foothill is authorized to make the Advances, the Letters of Credit and
the Term Loan under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Person, or without
instructions if pursuant to Section 2.6(e). Borrowers agree to establish and
maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by any Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrowers, any
Advance requested by any Borrower and made by Foothill hereunder shall be made
to the Designated Account.
2.10. Maintenance of Loan Account; Statements of Obligations.
Foothill shall maintain an account on its books in the name of
Borrowers (the "Loan Account") on which Borrowers will be charged with all
Advances made by Foothill to any Borrower or for Borrowers' account, including,
accrued interest, Foothill Expenses, and any other payment Obligations of any
Borrower. In accordance with Section 2.8, the Loan Account will be credited with
all payments received by Foothill from any Borrower or for Borrowers' account,
including all amounts received in the Foothill Account from any Lockbox Bank.
Foothill shall render statements regarding the Loan Account to Borrowers,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Foothill Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrowers and Foothill unless, within 30 days after receipt
thereof by Borrowers, Borrowers shall deliver to Foothill written objection
thereto describing the error or errors contained in any such statements.
<PAGE>
2.11. Fees.
Borrowers shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of $70,000;
(b) Unused Line Fee. On the first day of each calendar month during the
term of this Agreement, an unused line fee in an amount equal to 0.25% per annum
times the Average Unused Portion of the Maximum Revolving Amount;
(c) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrowers
performed by personnel employed by Foothill; Foothill's customary appraisal fee
of $1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal
of the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or more third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrowers or to appraise the Collateral; and
(d) Servicing Fee. On the first day of each calendar month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $2,000 per month. 2.12.
Eurodollar Rate Loans.
2.12 Eurodollar Rate Loans. Any other provisions herein to the contrary
notwithstanding, the following provisions shall govern with respect to
Eurodollar Rate Loans as to the matters covered:
(a) Borrowing; Conversion; Continuation. Borrowers may from time to
time, on or after the Closing Date, request in a written or telephonic
communication with Foothill: (i) Loans to constitute Eurodollar Rate Loans
(pursuant to Section 2.12(c)); (ii) that Reference Rate Loans be converted into
Eurodollar Rate Loans; or (iii) that existing Eurodollar Rate Loans continue for
an additional Interest Period. Any such request shall specify the aggregate
amount of the requested Eurodollar Rate Loans, the proposed funding date
therefor (which shall be a Business Day, and with respect to continued
Eurodollar Rate shall be the last day of the Interest Period of the existing
Eurodollar Rate loans being continued), and the proposed Interest Period, in
each case subject to the limitations set forth below). Eurodollar Rate Loans may
only be made, continue, or extended if, as of the proposed funding date therefor
each of the following conditions is satisfied:
<PAGE>
(v) no Event of Default exists;
(w) no more than 3 Interest Periods may be in effect
at any one time;
(x) the amount of each Eurodollar Rate Loan borrowed,
converted, or continued must be in an amount not less than
$1,000,000 and integral multiples of $500,000 in excess
thereof;
(y) Foothill shall have determined that the Interest
Period or Adjusted Eurodollar Rate is available to Foothill
and can be readily determined as of the date of the request
for such Eurodollar Rate Loan by Borrowers; and
(z) Foothill shall have received such request at
least 2 Business Days prior to the proposed funding date
therefor.
Any request by Borrowers to borrow Eurodollar Rate Loans, to convert Reference
Rate Loans to Eurodollar Rate Loans, or to continue any existing Eurodollar Rate
Loans shall be irrevocable, except to the extent that Foothill shall determine
under Sections 2.12(a), 2.13 or 2.14 that such Eurodollar Rate Loans cannot be
made or continued.
(b) Determination of Interest Period. By giving notice as set forth in
Section 2.12(a), the Borrowers shall have the option of selecting an Interest
Period for such Eurodollar Rate Loan. The determination of Interests Periods
shall be subject to the following provisions:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the
date on which the next preceding Interest Period expires;
(ii) if any Interest period would otherwise expire on
a day which is not a Business Day, the Interest Period shall
be extended to expire on the next succeeding Business Day;
provided, however, that if the next succeeding Business Day
occurs in the following calendar month, then such Interest
Period shall expire on the immediately preceding Business Day;
<PAGE>
(iii) if any Interest Period begins on the last
Business Day of a calendar month, or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period, then the Interest Period
shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(iv) Borrowers may not select an Interest period
which expires later than the last day of the current term of
this Agreement.
(c) Automatic Conversion; Optional Conversion by Foothill. Any
Eurodollar Rate Loan shall automatically convert to a Reference Rate Loan upon
the last day of the applicable Interest Period, unless Foothill has received a
request to continue such Eurodollar Rate Loan at least 2 Business Days prior to
the end of such Interest period in accordance with the terms of Section 2.12(a).
Any Eurodollar Rate Loan shall, at Foothill's option, upon notice to Borrowers,
convert to a Reference Rate Loan in the event that (i) an Event of Default shall
have occurred and be continuing as of the last day of the Interest Period for
such Eurodollar Rate Loan, or (ii) this Agreement shall terminate, and Borrowers
shall pay to Foothill any amounts required by Section 2.15 as a result thereof.
2.13. Illegality.
Any other provision herein to the contrary notwithstanding, if the
adoption of or any change in any law or in the interpretation or application
thereof shall make it unlawful for Foothill to make or maintain Eurodollar Rate
Loans as contemplated by this Agreement, (a) the obligation of Foothill
hereunder to make Eurodollar Rate loans, continue Eurodollar Rate Loans as such,
and convert Reference Rate Loans to Eurodollar Rate Loans shall forthwith be
cancelled and (b) Foothill's then outstanding Eurodollar Rate Loans, if any,
shall be converted automatically to Reference Rate Loans on the respective last
days of the then current Interest Periods with respect thereto or within such
earlier period as required by law; provided, however, that before making any
such demand, Foothill agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, in its reasonable discretion, in any
legal, economic or regulatory manner) to designate a different lending office if
the making of such a designation would allow Foothill or its lending office to
continue to perform its obligations to make Eurodollar Rate Loans. If any such
conversion of a Eurodollar Rate Loan occurs on a day which is not the last day
of the then current Interest period with respect thereto, Borrowers shall pay to
Foothill such amounts, if any, as may be required pursuant to Section 2.15. If
circumstances subsequently change so that Foothill shall determine that it is no
longer so affected, Foothill will promptly notify Borrowers, and upon receipt of
such notice, the obligations of Foothill to make or continue Eurodollar Rate
Loans or to convert Reference Rate Loans into Eurodollar Rate Loans shall be
reinstated.
<PAGE>
2.14. Requirements of Law.
(a) If the adoption of or any change in any law or in the
interpretation or application thereof or compliance by Foothill with any request
or directive (whether or not having the force of law) from any central bank or
other Governmental Authority made subsequent to the date hereof:
(i) shall subject Foothill to any tax, levy, charge, fee,
reduction or withholding of any kind whatsoever with respect to this
Agreement or any Loan, or change the basis of taxation of payments to
Foothill in respect thereof (except for taxes and the establishment of
a tax based on the net income of Foothill or changes in the rate of tax
on the net income of Foothill);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of, Loans
or other extensions of credit by, or any other acquisition of funds by,
any office of Foothill; or (iii) shall impose on Foothill any other
condition with respect to this Agreement or any Loan; and the result of
any of the foregoing is to increase the cost to Foothill, by an amount
which Foothill deems to be material, of making, converting into,
continuing or maintaining Loans or to increase the cost to Foothill, by
an amount which Foothill deems to be material, or to reduce any amount
receivable hereunder in respect of Loans, or to forego any other sum
payable thereunder or make any payment on account thereof, then, in any
such case, Borrowers shall promptly pay Foothill, upon its demand, any
additional amounts necessary to compensate Foothill for such increased
cost or reduced amount receivable; provided, however, that before
making any such demand, Foothill agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous
to it, in its reasonable discretion, in any legal, economic or
regulatory manner) to designate a different Eurodollar lending office
if the making of such designation would allow Foothill or its
Eurodollar lending office to continue to perform its obligations to
make Eurodollar Rate Loans or to continue to fund or maintain
Eurodollar Rate Loans and avoid the need for, or materially reduce the
amount of, such increased cost. If Foothill becomes entitled to claim
any additional amounts pursuant to this Section 2.14, Foothill shall
promptly notify Borrowers of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable
pursuant to this Section 2.14 submitted by Foothill to Borrowers shall
be conclusive in the absence of manifest error. If Borrowers so notify
Foothill within 5 Business Days after Foothill notifies Borrowers of
any increased cost pursuant to the foregoing provisions of this Section
2.14, Borrowers may convert all Eurodollar Rate Loans then outstanding
into Reference Rate loans in accordance with Section 2.12 and,
additionally, reimburse Foothill for any cost in accordance with
Section 2.15.
<PAGE>
(b) If Foothill shall have determined that the adoption of or any
change in any law regarding capital adequacy or in the interpretation or
application thereof or compliance by Foothill or any Person controlling Foothill
with any request or directive regarding capital adequacy (whether or not having
the force of law) from any Governmental Authority made subsequent to the date
hereof does or shall have the effect of increasing the amount of capital
required to be maintained or reducing the rate of return on Foothill's or such
Person's capital as a consequence of its obligations hereunder to a level below
that which such Foothill or such Person could have achieved but for such change
or compliance (taking into consideration Foothill's or such Person's policies
with respect to capital adequacy) by an amount deemed by Foothill to be
material, then from time to time, after submission by Foothill to Borrowers of a
prompt written request therefor, Borrowers shall pay to Foothill such additional
amount or amounts as will compensate Foothill or such Person for such reduction.
2.15. Indemnity.
Each Borrower agrees to indemnify Foothill and to hold Foothill
harmless from any loss or expense which Foothill may sustain or incur as a
consequence of (a) default by Borrowers in payment when due of the principal
amount of or interest on any Eurodollar Rate Loan, (b) default by Borrowers in
making a borrowing of, conversion into, or continuation of Eurodollar Rate Loans
after Borrowers have given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by Borrowers in making any prepayment
after Borrowers have given a notice thereof in accordance with the provisions of
this Agreement, or (d) the making of a prepayment of Eurodollar Rate Loans on a
day which is not the last day of an Interest Period with respect thereto
(whether due to the termination of this Agreement upon the Event of Default or
otherwise), including, in each case, any such loss or expense (but excluding
loss of margin) arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
Calculation of all amounts payable to Foothill under this Section 2.15 shall be
made as though Foothill had actually funded the relevant Eurodollar Rate Loan
through the purchase of a deposit bearing interest at the Eurodollar Rate in an
amount equal to the amount of such Eurodollar Rate Loan and having a maturity
comparable to the relevant Interest Period; provided, however, that Foothill may
fund each of the Eurodollar Rate Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 2.15.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. Conditions Precedent to the Initial Advance, Letter of Credit and
the Term Loan.
The obligation of Foothill to make the initial Advance, to issue the
initial Letter of Credit or to make the Term Loan is subject to the fulfillment,
to the satisfaction of Foothill and its counsel, of each of the following
conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before November 20, 1998;
(b) Foothill shall have received searches reflecting the filing of its
financing statements and fixture filings for each Company and Tecstar, Inc.;
<PAGE>
(c) Foothill shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letters, together with UCC termination
statements and other documentation evidencing the termination by each
Existing Lender of its Liens in and to the properties and assets of all
Companies;
(iv) the Mortgages, the Guaranties, the Trademark Mortgage,
the Patent Mortgage and the Stock Pledge Agreement; and
(v) the Intercreditor Agreements.
(d) Foothill shall have received a certificate from the Secretary of
each Company attesting to the resolutions of such Company's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Company is a party and authorizing specific
officers of Company to execute the same;
(e) Foothill shall have received copies of each Company's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Company;
(f) Foothill shall have received a certificate of status with respect
to each Company, dated within 30 days of the Closing Date, such certificate to
be issued by the appropriate officer of the jurisdiction of organization of such
Company, which certificate shall indicate that such Company is in good standing
in such jurisdiction;
(g) Foothill shall have received certificates of status with respect to
each Company, each dated within 30 days of the Closing Date, such certificates
to be issued by the appropriate officer of the jurisdictions in which its
failure to be duly qualified or licensed would constitute a Material Adverse
Change, which certificates shall indicate that such Company is in good standing
in such jurisdictions;
(h) Foothill shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(i) Foothill shall have received the $2,000,000 promissory note
executed by Tecstar, Inc. in favor of SAG endorsed to Foothill and the Security
Agreement executed by Tecstar, Inc. and SAG, and such documents shall be in form
and substance satisfactory to Foothill;
(j) Foothill shall have reviewed and shall be satisfied with the
results of the Inventory and Equipment appraisals;
(k) Foothill shall have reviewed each Company's chassis agreements with
its suppliers and shall be satisfied with the results thereof;
<PAGE>
(l) Foothill shall have received such Collateral Access Agreements from
lessors, warehousemen, bailees, and other third persons as Foothill may require;
(m) Foothill shall have received an opinion of Companies' counsel in
form and substance satisfactory to Foothill in its sole discretion;
(n) Foothill shall have received (i) appraisals of the Real Property
Collateral and appraisals of the Equipment, in each case satisfactory to
Foothill and in compliance with FIRREA guidelines, (ii) ALTA surveys for the
Real Property Collateral, and (iii) mortgagee title insurance policies (or
marked commitments to issue the same) issued by a title insurance company
satisfactory to Foothill (each a "Mortgage Policy" and collectively, the
"Mortgage Policies") in amounts satisfactory to Foothill assuring Foothill that
the Mortgages on such Real Property Collateral are valid and enforceable first
priority mortgage Liens on such Real Property Collateral free and clear of all
defects and encumbrances except Permitted Liens, and the Mortgage Policies shall
otherwise be in form and substance reasonably satisfactory to Foothill;
(o) Foothill shall have received a phase-I environmental report and a
real estate survey shall have been completed with respect to the Real Property
Collateral and copies thereof delivered to Foothill; the environmental
consultants and surveyors retained for such reports or surveys, the scope of the
reports or surveys, and the results thereof shall be acceptable to Foothill in
its sole discretion.
(p) Foothill shall have reviewed the Companies' proposed payment
schedule to General Motors Company with respect to $3,000,000 past due amount
and shall be satisfied with the results thereof;
(q) Foothill shall have entered into a Subordination Agreement with
Existing Lender on terms and conditions satisfactory to Foothill;
(r) Foothill shall have received background searches of the officers of
the Companies and be satisfied with the results thereof;
(s) Foothill shall have received satisfactory evidence that all tax
returns required to be filed by each Borrower have been timely filed and all
taxes upon each Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
<PAGE>
(t) Foothill shall have received the Companies' business plan,
availability projections and cash flow projections for the fiscal year ending on
the Sunday closest to September 30, 1999 and such business plan and cash flow
projections shall be satisfactory to Foothill;
(u) Borrowers shall have Excess Availability of at least $75,000 after
giving effect to the funding of the initial Loans and Letters of Credit; and
(v) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Foothill and its
counsel.
3.2. Conditions Precedent to all Advances, all Letters of Credit and
the Term Loan.
The following shall be conditions precedent to all Advances, all
Letters of Credit and the Term Loan hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and (c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against any Company, Foothill, or any of their Affiliates.
3.3. Condition Subsequent.
As a condition subsequent to initial closing hereunder, Borrowers shall
perform or cause to be performed the following (the failure by Borrowers to so
perform or cause to be performed constituting an Event of Default) within:
(a) 30 days of the Closing Date, deliver to Foothill the certified
copies of the policies of insurance, together with the endorsements thereto, as
are required by Section 6.10, the form and substance of which shall be
satisfactory to Foothill and its counsel; and
(b) 10 days of the Closing Date, deliver to Foothill availability
projections for the fiscal year ending on the Sunday closest to September 30,
1999.
<PAGE>
3.4. Term; Automatic Renewal.
This Agreement shall become effective upon the execution and delivery
hereof by Borrowers and Foothill and shall continue in full force and effect for
a term ending on the date (the "Renewal Date") that is three years from the
Closing Date and automatically shall be renewed for successive one year periods
thereafter, unless sooner terminated pursuant to the terms hereof. Either
Borrowers or Foothill may terminate this Agreement effective on the Renewal Date
or on any one year anniversary of the Renewal Date by giving the other parties
at least 90 days prior written notice; provided, that Borrowers may not
terminate this Agreement unless contemporaneously therewith the Tecstar Loan
Agreement is terminated. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an Event of Default.
3.5. Effect of Termination.
On the date of termination of this Agreement, all Obligations
(including contingent reimbursement obligations of Borrowers with respect to any
outstanding Letters of Credit) immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrowers of their duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated. If
any Borrower has sent a notice of termination pursuant to the provisions of
Section 3.4, but Borrowers fail to pay the Obligations in full on the date set
forth in said notice, then Foothill may, but shall not be required to, renew
this Agreement for an additional term of one year.
3.6. Early Termination by Borrowers.
The provisions of Section 3.4 that allow termination of this Agreement
by Borrowers only on the Renewal Date and certain anniversaries thereof
notwithstanding, Borrowers have the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement by paying to Foothill,
in cash, the Obligations (including an amount equal to 102% of the undrawn
amount of the Letters of Credit), in full, together with a premium (the "Early
Termination Premium") equal to (a) 2% of the Maximum Amount if such termination
occurs on or before the first anniversary of the date hereof, and (b) 1% of the
Maximum Amount if such termination occurs after the first anniversary of the
date hereof but on or before the third anniversary of the date hereof or 1%
after the third anniversary of the date hereof but before the end of any renewal
term.
3.7. Termination Upon Event of Default.
If Foothill terminates this Agreement upon the occurrence of an Event
of Default, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Foothill's lost profits as a result thereof, Borrowers
shall pay to Foothill upon the effective date of such termination, a premium in
an amount equal to the Early Termination Premium. The Early Termination Premium
shall be presumed to be the amount of damages sustained by Foothill as the
result of the early termination and Borrowers agree that it is reasonable under
the circumstances currently existing. The Early Termination Premium provided for
in this Section 3.7 shall be deemed included in the Obligations.
<PAGE>
4. CREATION OF SECURITY INTEREST.
4.1. Grant of Security Interest.
Each Company hereby grants to Foothill a continuing security interest
in all currently existing and hereafter acquired or arising Personal Property
Collateral of such Company in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by each Company of each of
its covenants and duties under the Loan Documents. Foothill's security interests
in the Personal Property Collateral shall attach to all Personal Property
Collateral without further act on the part of Foothill or any Company. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business and as permitted under Section 7.4, no Company has any
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2. Negotiable Collateral.
In the event that any Collateral, including proceeds, is evidenced by
or consists of Negotiable Collateral, Companies, immediately upon the request of
Foothill, shall endorse and deliver physical possession of such Negotiable
Collateral to Foothill.
4.3. Collection of Accounts, General Intangibles, and Negotiable
Collateral.
At any time, Foothill or Foothill's designee may (a) notify customers
or Account Debtors of a Company that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein, and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to the Loan Account. Each Company agrees that it will hold in trust for
Foothill, as Foothill's trustee, any Collections that it receives and
immediately will deliver said Collections to the Lockbox or to Foothill in their
original form as received by such Company.
4.4. Delivery of Additional Documentation Required.
At any time upon the request of Foothill, each Company shall execute
and deliver to Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill reasonably may request, in form satisfactory to
Foothill, to perfect and continue perfected Foothill's security interests in the
Collateral, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
<PAGE>
4.5. Power of Attorney.
Each Company hereby irrevocably makes, constitutes, and appoints
Foothill (and any of Foothill's officers, employees, or agents designated by
Foothill) as such Company's true and lawful attorney, with power to (a) if any
Company refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of such Company on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure, sign such Company's name on
any invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse such Company's name on any Collection item that may come into Foothill's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, notify the post office authorities
to change the address for delivery of such Company's mail to an address
designated by Foothill, to receive and open all mail addressed to such Company,
and to retain all mail relating to the Collateral and forward all other mail to
such Company, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under such Company's policies of insurance and make all determinations
and decisions with respect to such policies of insurance, and (g) at any time
that an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as each Company's attorney, and each and every one of Foothill's rights
and powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Foothill's
obligation to extend credit hereunder is terminated.
4.6. Right to Inspect.
Foothill (through any of its officers, employees, or agents) shall have
the right, from time to time hereafter to inspect each Company's Books and to
check, test, and appraise the Collateral in order to verify each Company's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral. Foothill shall have the right, at Borrowers'
expense, to obtain desk top appraisals of the Inventory on a semi-annual basis
and full count appraisals of the Inventory on an annual basis, in each case,
such appraisals to be in form, scope and methodology acceptable to Foothill and
performed by an appraiser acceptable to Foothill.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each Company
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance, Letter of Credit or Term Loan made thereafter, as
though made on and as of the date of such Advance, Letter of Credit or Term Loan
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1. No Encumbrances.
Each Company has good and indefeasible title to its respective
Collateral, free and clear of Liens except for Permitted Liens.
5.2. Eligible Accounts.
The Eligible Accounts of each Borrower are bona fide existing
obligations created by the sale and delivery of Inventory or the rendition of
services to Account Debtors in the ordinary course of such Borrower's business,
unconditionally owed to such Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The property giving rise to
such Eligible Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance by
the Account Debtor. No Borrower has received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
Account Debtor regarding any Eligible Account.
5.3. Eligible Inventory.
All Eligible Inventory is of good and merchantable quality, free from
defects.
5.4. Equipment.
All of the Equipment of each Company is used or held for use in such
Company's respective business and is fit for such purposes.
<PAGE>
5.5. Location of Inventory and Equipment.
The Inventory and Equipment are not stored with a bailee, warehouseman,
or similar party (without Foothill's prior written consent) and are located only
at the locations identified on Schedule 6.12 or otherwise permitted by Section
6.12.
5.6. Inventory Records.
Each Company keeps correct and accurate records itemizing and
describing the kind, type, quality, and quantity of the Inventory, and such
Company's cost therefor.
5.7. Location of Chief Executive Office; FEIN.
The address of each Company 's chief executive office and FEIN is as
set forth on Schedule 5.7.
5.8. Due Organization and Qualification; Subsidiaries.
(a) Each Company is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list of each
Company's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by such Company. All of the outstanding capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of any direct or indirect Subsidiary of any
Company is subject to the issuance of any security, instrument, warrant, option,
purchase right, conversion or exchange right, call, commitment or claim of any
right, title, or interest therein or thereto.
5.9. Due Authorization; No Conflict.
(a) The execution, delivery, and performance by each Company of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
<PAGE>
(b) The execution, delivery, and performance by each Company of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to such
Company, the Governing Documents of such Company, or any order, judgment, or
decree of any court or other Governmental Authority binding on such Company,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation or
material lease of such Company, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
such Company, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of such Company.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by each Company
of this Agreement and the Loan Documents to which such Company is a party do not
and will not require any registration with, consent, or approval of, or notice
to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which each Company is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by such Company will be the legally valid and binding obligations
of such Company, enforceable against such Company in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by each Company to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10. Litigation.
There are no actions or proceedings pending by or against any Company
before any court or administrative agency and none of the Companies has
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving any Company or any guarantor of the Obligations, except for: (a)
ongoing collection matters in which any Company is the plaintiff; (b) matters
disclosed on Schedule 5.10; and (c) matters arising after the date hereof that,
if decided adversely to any Company, would not have a Material Adverse Change.
<PAGE>
5.11. No Material Adverse Change.
All financial statements relating to each Company or any guarantor of
the Obligations that have been delivered by such Company to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present such Company's (or such guarantor's, as
applicable) financial condition as of the date thereof and such Company's
results of operations for the period then ended. There has not been a Material
Adverse Change with respect to any Company (or such guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12. Solvency.
Each Company (other than IAG) is Solvent. No transfer of property is
being made by any Company and no obligation is being incurred by any Company in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of any Company.
5.13. Employee Benefits.
No Company, any of its Subsidiaries, or any of their ERISA Affiliates
maintains or contributes to any Benefit Plan, other than those listed on
Schedule 5.13. Each Company, each of its Subsidiaries and each ERISA Affiliate
have satisfied the minimum funding standards of ERISA and the IRC with respect
to each Benefit Plan to which it is obligated to contribute. No ERISA Event has
occurred nor has any other event occurred that may result in an ERISA Event that
reasonably could be expected to result in a Material Adverse Change. No Company
or its Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan is
subject to any direct or indirect liability with respect to any Plan under any
applicable law, treaty, rule, regulation, or agreement. No Company or its
Subsidiaries or any ERISA Affiliate is required to provide security to any Plan
under Section 401(a)(29) of the IRC.
5.14. Environmental Condition.
No Company's properties or assets has ever been used by such Company
or, to the best of such Company's knowledge, by previous owners or operators in
the disposal of, or to produce, store, handle, treat, release, or transport, any
Hazardous Materials, except in compliance with applicable laws or as described
on Schedule 5.14. No Company's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by any Company. Except as described on Schedule 5.14,
no Company has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by any Company resulting in the
releasing or disposing of Hazardous Materials into the environment.
<PAGE>
5.15. Year 2000 Compliance.
Companies have begun to undertake a comprehensive review and assessment
of their computer applications and have begun to make inquiry of their material
suppliers, vendors and customers. Based on the foregoing, Companies reasonably
believe that what is commonly referred to as the "Year 2000 problem" (that is,
the risk that computer applications used by any Person may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999) will not result in a Material
Adverse Change on the operations, business, properties, or conditions (financial
or otherwise) of Companies. Companies are taking all necessary and appropriate
steps to ascertain the extent of, quantify and successfully address the business
and financial risks facing Companies as a result of the Year 2000 problem,
including ascertaining risks resulting from the failure of key customers and
suppliers of Companies to address successfully the Year 2000 problems, and
Companies' material computer applications will, on or before March 31, 1999,
adequately address the Year 2000 problem in all material respects.
5.16. Consigned Chassis.
No Company's Inventory includes any chassis consigned to such Company.
5.17. Starcraft Southwest, Inc.
Starcraft Southwest, Inc. is a wholly-owned subsidiary of SC. It has no
assets and conducts no business operations.
6. AFFIRMATIVE COVENANTS.
Each Company covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, each Company shall do all of
the following:
6.1. Accounting System.
Maintain a standard and modern system of accounting that enables each
Company to produce financial statements in accordance with GAAP, and maintain
records pertaining to the Collateral that contain information as from time to
time may be requested by Foothill. Each Company also shall keep a modern
inventory reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
<PAGE>
6.2. Collateral Reporting.
Provide Foothill with the following documents at the following times in
form satisfactory to Foothill: (a) on a weekly basis, a sales journal,
collection journal, and credit register since the last such schedule and a
calculation of the Borrowing Base as of such date, (b) on a monthly basis and,
in any event, by no later than the 10th day of each fiscal month during the term
of this Agreement, (i) a detailed calculation of the Borrowing Base, and (ii) a
detailed aging by due date, by total, of the Accounts of each Borrower, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (c) on a monthly basis and, in any event, by no
later than the 10th day of each fiscal month during the term of this Agreement,
a summary aging, by vendor, of each Borrower's accounts payable and any book
overdraft, (d) on a weekly basis, Inventory reports specifying each Borrower's
cost and the wholesale market value of its Inventory by category, with
additional detail showing additions to and deletions from the Inventory
(provided, that the Inventory report with respect to raw materials shall be
delivered on a monthly basis), (e) on a weekly basis a report identifying those
Accounts which have been invoiced to the customer thereof but with respect to
which the Inventory has not yet been shipped, (f) on each Business Day if
requested by Foothill, notice of all returns, disputes or claims (other than
claims described in the warranty claims report delivered to Foothill pursuant to
clause (h) below), (g) upon request, copies of invoices in connection with the
Accounts, customer statements, credit memos, remittance advices and reports,
deposit slips, shipping and delivery documents in connection with the Accounts
and for Inventory and Equipment acquired by each Borrower, purchase orders and
invoices, (h) on a quarterly basis, a detailed list of each Borrower's customers
and a warranty claims report in form and substance satisfactory to Foothill, (i)
on a monthly basis, a calculation of the Dilution for the prior fiscal month;
and (j) such other reports as to the Collateral or the financial condition of
each Borrower as Foothill may request from time to time. Original sales invoices
evidencing daily sales shall be mailed by each Borrower to each Account Debtor
and, at Foothill's direction, the invoices shall indicate on their face that the
Account has been assigned to Foothill and that all payments are to be made
directly to Foothill. In addition to the foregoing, Borrowers shall promptly
provide to Foothill any report that Borrowers deliver to General Motors
Corporation.
<PAGE>
6.3. Financial Statements, Reports, Certificates.
Deliver to Foothill: (a) as soon as available, but in any event within
30 days after the end of each fiscal month during each of SC's fiscal years, a
company prepared balance sheet, income statement, and statement of cash flow
covering the Companies' consolidated operations during such period; (b) as soon
as available, but in any event within 90 days after the end of each of each SC's
fiscal years, consolidated financial statements of Companies for each such
fiscal year, audited by independent certified public accountants reasonably
acceptable to Foothill and certified, without any qualifications, by such
accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default; and (c) at the end of a fiscal year a monthly budget for the following
fiscal year, on a Company by Company basis. Such audited financial statements
shall include a balance sheet, profit and loss statement, and statement of cash
flow and, if prepared, such accountants' letter to management. The financial
statements referred to above shall be prepared on a consolidated basis for SC
and its Subsidiaries.
Together with the above, SC also shall deliver to Foothill SC's Form
10-Q Quarterly Reports, Form 10-K Annual Reports and Form 8-K Current Reports,
and any other filings made by SC with the Securities and Exchange Commission, if
any, as soon as the same are filed, or any other information that is provided by
SC to its shareholders, and any other report reasonably requested by Foothill
relating to the financial condition of SC and its Subsidiaries. In addition, so
long as Starshak & Associates is engaged by the Companies, SC shall cause
Starshak & Associates to deliver to Foothill a monthly status report.
Each fiscal month, together with the financial statements provided
pursuant to Section 6.3(a), SC shall deliver to Foothill a certificate signed by
its chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of each Company, (ii) the representations
and warranties of each Company contained in this Agreement and the other Loan
Documents are true and correct in all material respects on and as of the date of
such certificate, as though made on and as of such date (except to the extent
that such representations and warranties relate solely to an earlier date),
(iii) for each fiscal month that also is the date on which a financial covenant
in Sections 7.20 and 7.21 is to be tested, a Compliance Certificate
demonstrating in reasonable detail compliance at the end of such period with the
applicable financial covenants contained in Sections 7.20 and 7.21, and (iv) on
the date of delivery of such certificate to Foothill there does not exist any
condition or event that constitutes a Default or Event of Default (or, in the
case of clauses (i), (ii), or (iii), to the extent of any non-compliance,
describing such non-compliance as to which he or she may have knowledge and what
action Companies have taken, are taking, or propose to take with respect
thereto).
<PAGE>
Each Company shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning such Company
that Foothill may request. Such Company hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at such Company's expense, copies of such Company's financial
statements, papers related thereto, and other accounting records of any nature
in their possession, and to disclose to Foothill any information they may have
regarding such Company's business affairs and financial conditions.
6.4. Tax Returns.
Deliver to Foothill copies of each of each Company's future federal
income tax returns, and any amendments thereto, within 30 days of the filing
thereof with the Internal Revenue Service.
6.5. Guarantor Reports.
Cause any guarantor of any of the Obligations (other than IAG) to
deliver its annual financial statements at the time when each Company provides
its audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later than 30
days after the same are required to be filed by law.
6.6. Returns.
Cause returns and allowances, if any, as between each Borrower and its
Account Debtors to be on the same basis and in accordance with the usual
customary practices of such Borrower, as they exist at the time of the execution
and delivery of this Agreement. If, at a time when no Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to a
Borrower, such Borrower promptly shall determine the reason for such return and,
if such Borrower accepts such return, issue a credit memorandum (with a copy to
be sent to Foothill) in the appropriate amount to such Account Debtor. If, at a
time when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to such Borrower, such Borrower promptly shall determine
the reason for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7. Title to Equipment.
Upon Foothill's request, each Company immediately shall deliver to
Foothill, properly endorsed, any and all evidences of ownership of, certificates
of title, or applications for title to any items of Equipment.
<PAGE>
6.8. Maintenance of Equipment.
Maintain the Equipment in good operating condition and repair (ordinary
wear and tear excepted), and make all necessary replacements thereto so that the
value and operating efficiency thereof shall at all times be maintained and
preserved. Other than those items of Equipment that constitute fixtures on the
Closing Date, no Company shall permit any item of Equipment to become a fixture
to real estate or an accession to other property, and such Equipment shall at
all times remain personal property.
6.9. Taxes.
Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against any Company or any of
its property to be paid in full, before delinquency or before the expiration of
any extension period, except to the extent that the validity of such assessment
or tax shall be the subject of a Permitted Protest. To the extent that a Company
fails timely to make payment of such taxes or assessments, Foothill shall be
entitled, in its discretion, to reserve an amount equal to such unpaid amounts
against the Borrowing Base. Each Company shall make due and timely payment or
deposit of all such federal, state, and local taxes, assessments, or
contributions required of it by law, and will execute and deliver to Foothill,
on demand, appropriate certificates attesting to the payment thereof or deposit
with respect thereto. Each Company will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that such Company has made such payments or
deposits.
6.10. Insurance.
(a) At its expense, keep the Personal Property Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Each Company also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to Company's ownership and use of the Personal Property Collateral, as
well as insurance against larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type
necessary to insure the improvements and fixtures on the Real Property, for the
full replacement cost thereof, against any loss by fire, lightning, windstorm,
hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended coverage"
policies, in such amounts as Foothill may require, but in any event in amounts
sufficient to prevent any Company from becoming a co-insurer under such
policies, (ii) combined single limit bodily injury and property damages
insurance against any loss, liability, or damages on, about, or relating to each
parcel of Real Property Collateral, in an amount of not less than $2,000,000;
(iii) business rental insurance covering annual receipts for a 12 month period
for each parcel of Real Property Collateral; and (iv) insurance for such other
risks as Foothill may require. Replacement costs, at Foothill's option, may be
redetermined by an insurance appraiser, satisfactory to Foothill, not more
frequently than once every 12 months at Borrowers' cost.
<PAGE>
(c) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All hazard insurance and such other insurance as Foothill shall specify, shall
contain a Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Companies or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by Foothill pursuant to the Mortgages upon the happening of
an Event of Default, or (iii) any change in title or ownership of the Real
Property Collateral. Companies shall deliver to Foothill certified copies of
such policies of insurance and evidence of the payment of all then due premiums
therefor. (d) Original policies or certificates thereof satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill at least 30 days prior
to the expiration of the existing or preceding policies. Companies shall give
Foothill prompt notice of any loss covered by such insurance, and Foothill shall
have the right to adjust any loss. Foothill shall have the exclusive right to
adjust all losses payable under any such insurance policies without any
liability to Companies whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or shall be disbursed to
Companies under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements, or restorations; provided, that so long as no
Event of Default exists the proceeds of a casualty involving less than $50,000
shall be remitted to Companies. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have the
right to apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine. (e) No Company shall take out
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained under this Section 6.10, unless Foothill is
included thereon as named insured with the loss payable to Foothill under a
standard 438BFU (NS) Mortgagee endorsement, or its local equivalent. Companies
immediately shall notify Foothill whenever such separate insurance is taken out,
specifying the insurer thereunder and full particulars as to the policies
evidencing the same, and originals of such policies immediately shall be
provided to Foothill.
<PAGE>
6.11. No Setoffs or Counterclaims.
Make payments hereunder and under the other Loan Documents by or on
behalf of each Company without setoff or counterclaim and free and clear of, and
without deduction or withholding for or on account of, any federal, state, or
local taxes.
6.12. Location of Inventory and Equipment.
Keep the Inventory and Equipment only at the locations identified on
Schedule 6.12; provided, however, that Companies may amend Schedule 6.12 to add
a new location so long as such amendment occurs by written notice to Foothill
not less than 30 days prior to the date on which the Inventory or Equipment is
moved to such new location, so long as such new location is within the
continental United States, and so long as, at the time of such written
notification, Companies provide any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests in
such assets and also provide to Foothill a Collateral Access Agreement.
6.13. Compliance with Laws.
Comply with the requirements of all applicable laws, rules,
regulations, and orders of any governmental authority, including the Fair Labor
Standards Act and the Americans With Disabilities Act, other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, would not have and could not reasonably be expected to have a
Material Adverse Change.
6.14. Employee Benefits.
(a) Promptly, and in any event within 10 Business Days after any
Company or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, deliver a written statement of the chief financial officer of
such Company describing such ERISA Event and any action that is being taken with
respect thereto by such Company, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Such
Company or such Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is the plan sponsor,
shall promptly, and in any event within 3 Business Days after the filing thereof
with the IRS, deliver a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by such Company, any of its
Subsidiaries or, to the knowledge of Companies, any ERISA Affiliate with respect
to such request, and shall promptly, and in any event within 3 Business Days
after receipt by such Company, any of its Subsidiaries or, to the knowledge of
Companies, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, deliver copies
of each such notice.
<PAGE>
(b) Cause to be delivered to Foothill, upon Foothill's request, each of
the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of any Company or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by any
Company or any ERISA Affiliate to each such plan and copies of the collective
bargaining agreements requiring such contributions; (vi) any information that
has been provided to any Company or any ERISA Affiliate regarding withdrawal
liability under any Multiemployer Plan; and (vii) the aggregate amount of the
most recent annual payments made to former employees of any Company or its
Subsidiaries under any Retiree Health Plan.
6.15. Leases.
Pay when due all rents and other amounts payable under any leases to
which any Company is a party or by which any Company's properties and assets are
bound, unless such payments are the subject of a Permitted Protest. To the
extent that any Company fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
7. NEGATIVE COVENANTS.
Each Company covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, no
Company will do any of the following without Foothill's prior written consent:
7.1. Indebtedness.
Create, incur, assume, permit, guarantee, or otherwise become or
remain, directly or indirectly, liable with respect to any Indebtedness, except:
<PAGE>
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not materially impair the
prospects of repayment of the Obligations by any Company, (ii) the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2. Liens.
Create, incur, assume, or permit to exist, directly or indirectly, any
Lien on or with respect to any of its property or assets, of any kind, whether
now owned or hereafter acquired, or any income or profits therefrom, except for
Permitted Liens (including Liens that are replacements of Permitted Liens to the
extent that the original Indebtedness is refinanced under Section 7.1(d) and so
long as the replacement Liens only encumber those assets or property that
secured the original Indebtedness).
7.3. Restrictions on Fundamental Changes.
Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or assets.
<PAGE>
7.4. Disposal of Assets.
Sell, lease, assign, transfer, or otherwise dispose of any of any
Company's properties or assets other than (i) sales of Inventory to buyers in
the ordinary course of such Company's business as currently conducted and (ii)
so long as no Event of Default exists or would be caused thereby, sales of
obsolete or unuseful Equipment in the aggregate amount not to exceed $50,000 in
any fiscal year.
7.5. Change Name.
Change any Company's name, FEIN, corporate structure (within the
meaning of Section 9402(7) of the Code), or identity, or add any new fictitious
name.
7.6. Guarantee.
Except as described on Schedule 7.6, guarantee or otherwise become in
any way liable with respect to the obligations of any third Person except by
endorsement of instruments or items of payment for deposit to the account of a
Borrower or which are transmitted or turned over to Foothill.
7.7. Nature of Business.
Make any change in the principal nature of any Company's business.
7.8. Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or change
any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c) or (d).
7.9. Change of Control.
Cause, permit, or suffer, directly or indirectly, any Change of
Control.
<PAGE>
7.10. Consignments; New Chassis Supplier Agreements.
Consign any Inventory or sell any Inventory on bill and hold, sale or
return, sale on approval, or other conditional terms of sale; or commingle
consigned chassis and chassis owned by a Borrower; or enter into any arrangement
to acquire chassis on consignment unless the consignor thereof enters into an
intercreditor agreement with Foothill satisfactory to Foothill.
7.11. Distributions.
Make any distribution or declare or pay any dividends (in cash or other
property, other than capital stock) on, or purchase, acquire, redeem, or retire
any of any Company's capital stock, of any class, whether now or hereafter
outstanding.
7.12. Accounting Methods.
Modify or change its method of accounting or enter into, modify, or
terminate any agreement currently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of any Company's accounting records without said accounting firm or
service bureau agreeing to provide Foothill information regarding the Collateral
or such Company's financial condition. Each Company waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Foothill pursuant
to or in accordance with this Agreement, and agrees that Foothill may contact
directly any such accounting firm or service bureau in order to obtain such
information.
7.13. Investments.
Directly or indirectly make, acquire, or incur any liabilities
(including contingent obligations) for or in connection with (a) the acquisition
of the securities (whether debt or equity) of, or other interests in, a Person,
(b) loans, advances, capital contributions, or transfers of property to a
Person, or (c) the acquisition of all or substantially all of the properties or
assets of a Person; provided, that so long as no Event of Default exists or
would be caused thereby, Companies may make loans to Tecstar, Inc. in an
aggregate principal amount outstanding not to exceed $2,000,000 at any time so
long as such loans are evidenced by one or more promissory notes assigned to
Foothill.
7.14. Transactions with Affiliates.
Except as described on Schedule 7.14, directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of any Company
except for transactions that are in the ordinary course of such Company's
business, upon fair and reasonable terms, that are fully disclosed to Foothill,
and that are no less favorable to such Company than would be obtained in an
arm's length transaction with a non-Affiliate.
<PAGE>
7.15. Suspension.
Suspend or go out of a substantial portion of its business.
7.16. Compensation.
Increase the annual fee or per-meeting fees paid to directors of
Companies during any fiscal year by more than 15% over the prior fiscal year;
pay or accrue total cash compensation, during any fiscal year, to officers and
senior management employees of Companies in an aggregate amount in excess of
115% of that paid or accrued in the prior fiscal year; provided, that the
foregoing shall not prohibit Companies from employing additional officers and
senior management at a compensation level comparable for that type of position
in the industry.
7.17. Use of Proceeds.
Use the proceeds of the Advances and the Term Loan made hereunder for
any purpose other than (i) on the Closing Date, (y) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Existing Lenders, and (z) to pay transactional costs and expenses incurred in
connection with this Agreement, and (ii) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18. Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees.
Relocate its chief executive office to a new location without providing
30 days prior written notification thereof to Foothill and so long as, at the
time of such written notification, Borrowers provide any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19. No Prohibited Transactions Under ERISA.
Directly or indirectly:
(a) engage, or permit any Subsidiary of any Company to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
<PAGE>
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of any Company to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of any Company to terminate,
any Benefit Plan where such event would result in any liability of such Company,
any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of any Company to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of any Company to fail, to pay any
required installment or any other payment required under Section 412 of the IRC
on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of any Company to amend, a Plan
resulting in an increase in current liability for the plan year such that any
Company, any Subsidiary of any Company or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of any Company to withdraw, from
any Multiemployer Plan where such withdrawal is reasonably likely to result in
any liability of any such entity under Title IV of ERISA; which, individually or
in the aggregate, results in or reasonably would be expected to result in a
claim against or liability of any Company, any of its Subsidiaries or any ERISA
Affiliate in excess of $100,000.
<PAGE>
7.20. Financial Covenants.
Fail to maintain:
(a) Tangible Net Worth. Tangible Net Worth of at least (i) negative
$3,200,000 as of the last day of the fiscal quarter ending on the Sunday closest
to December 31, 1998, (ii) negative $3,200,000 as of the last day of the fiscal
quarter ending on the Sunday closest to March 31, 1999, (iii) negative $350,000
as of the last day of the fiscal quarter ending on the Sunday closest to June
30, 1999, and (iv) $700,000 as of the last day of the fiscal quarter ending on
the Sunday closest to September 30, 1999. For each fiscal quarter ending after
the Sunday closest to September 30, 1999, Companies shall maintain Tangible Net
Worth at a level to be determined by Foothill, which level will be based on
Companies' projections (but in no event will Tangible Net Worth as of the last
day of any such fiscal quarter be less than $700,000);
(b) EBITDA. EBITDA of at least (i) negative $2,400,000 for the fiscal
quarter ending on the Sunday closest to December 31, 1998; (ii) $362,000 for the
fiscal quarter ending on the Sunday closest to March 31, 1999; (iii) $1,518,000
for the fiscal quarter ending on the Sunday closest to June 30, 1999; and (iv)
$410,000 for the fiscal quarter ending on the Sunday closest to September 30,
1999. For each fiscal quarter ending after the Sunday closest to September 30,
1999, Companies shall maintain EBITDA at a level to be determined by Foothill,
which level will be based on Companies' projections (but in no event shall
EBITDA for any fiscal quarter be less than the level of EBITDA required for the
corresponding fiscal quarter in the immediate preceding fiscal year). Companies
agree to deliver to Foothill projections for each fiscal year prior to the
beginning of such fiscal year and such projections shall be in form and
substance acceptable to Foothill.
7.21. Capital Expenditures.
Make capital expenditures in any fiscal year in excess of $500,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1. If any Company fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
<PAGE>
8.2. (a) If a Company fails or neglects to perform, keep or observe any
term, provision, condition, covenant or agreement contained in Sections 6.1
(Accounting System), 6.2 (Collateral Reporting), 6.3 (Financial Statements,
Reports, Certificates), 6.4 (Tax Returns), 6.7 (Title to Equipment), 6.8
(Maintenance of Equipment), 6.12 (Location of Inventory and Equipment), 6.13
(Compliance with Laws), 6.14 (Employee Benefits) or 6.15 (Leases) of this
Agreement and such failure continues for a period of 5 Business Days; or (b) if
a Company or any other Obligor fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement contained in this
Agreement, or in any of the other Loan Documents; in each case, other than any
such term, provision, condition, covenant, or agreement that is the subject of
another provision of this Section 8, in which event such other provision of this
Section 8 shall govern; provided, that during any period of time that any such
failure or neglect of a Company or such other Obligor referred to in this
paragraph exists, even if such failure or neglect is not yet an Event of Default
by virtue of the existence of a grace or cure period or the pre-condition of the
giving of a notice, Foothill shall not be required during such period to make
Advances to Borrowers.
8.3. If there is a Material Adverse Change;
8.4. If any material portion of any Company's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5. If an Insolvency Proceeding is commenced by any Company;
8.6. If an Insolvency Proceeding is commenced against any Company and
any of the following events occur: (a) any Company consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within 60 calendar days of the date
of the filing thereof; provided, however, that, during the pendency of such
period, Foothill shall be relieved of its obligation to extend credit hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, any Company; or (e) an order for relief shall have
been issued or entered therein;
8.7. If any Company is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
8.8. If a notice of Lien, levy, or assessment is filed of record with
respect to any of any Company's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of any Company's properties or assets and
the same is not paid on the payment date thereof;
<PAGE>
8.9. If a judgment or other claim in excess of $50,000 becomes a Lien
or encumbrance upon any material portion of any Company's properties or assets;
8.10. If there is a default under any of the agreements between General
Motors Acceptance Corporation or any of its Affiliates, Ford Motor Credit
Company or any of its Affiliates or Chrysler Financial Company, L.L.C. or any of
its Affiliates, on the one hand, and any of the Companies, on the other hand; or
if there is a default under any Intercreditor Agreement; or if there is an
"Event of Default" as defined in the Tecstar Loan Agreement; or if there is a
default under any other material agreement to which any Company is a party with
one or more third Persons and such default (a) occurs at the final maturity of
the obligations thereunder, or (b) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of any Company's
obligations thereunder; or if any of the Intercreditor Agreements is terminated;
8.11. If any Company makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12. If any warranty, representation, statement, or report made to
Foothill by any Company or any officer, employee, agent, or director of any
Company, is untrue or misleading in any material respect when made, or if any
such warranty or representation is withdrawn; or
8.13. If the obligation of any guarantor under its guaranty or other
third Person under any Loan Document is limited or terminated by operation of
law or by the guarantor or other third Person thereunder, or any such guarantor
or other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1. Rights and Remedies.
Upon the occurrence, and during the continuation, of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Companies:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
<PAGE>
(b) Cease advancing money or extending credit to or for the benefit of
Companies under this Agreement, under any of the Loan Documents, or under any
other agreement between any Company and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of Foothill, but without affecting Foothill's
rights and security interests in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Foothill considers advisable, and in such
cases, Foothill will credit Borrowers' Loan Account with only the net amounts
received by Foothill in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause each Company to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of such
Company or in such Company's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon any Company or any guarantor, make
such payments and do such acts as Foothill considers necessary or reasonable to
protect its security interests in the Collateral. Each Company agrees to
assemble the Personal Property Collateral if Foothill so requires, and to make
the Personal Property Collateral available to Foothill as Foothill may
designate. Each Company authorizes Foothill to enter the premises where the
Personal Property Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of each Company's owned or leased
premises, each Company hereby grants Foothill a license to enter into possession
of such premises and to occupy the same, without charge, in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to any Company (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of any Company held by
Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrowers
held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of any
Company held by Foothill, and any amounts received in the Lockbox Accounts, to
secure the full and final repayment of all of the Obligations;
<PAGE>
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Foothill is hereby granted a license or other
right to use, without charge, each Company's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Personal Property Collateral, in completing production of, advertising for sale,
and selling any Personal Property Collateral and any Company's rights under all
licenses and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Personal Property Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including any Company's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the Personal
Property Collateral as follows:
(i) Foothill shall give Companies and each holder of a
security interest in the Personal Property Collateral who has filed
with Foothill a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private sale or
some other disposition other than a public sale is to be made of the
Personal Property Collateral, then the time on or after which the
private sale or other disposition is to be made;
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Companies as provided in Section 12, at least 10
days before the date fixed for the sale, or at least 10 days before the
date on or after which the private sale or other disposition is to be
made; no notice needs to be given prior to the disposition of any
portion of the Personal Property Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily
sold on a recognized market. Notice to Persons other than Companies
claiming an interest in the Personal Property Collateral shall be sent
to such addresses as they have furnished to Foothill; (iii) If the sale
is to be a public sale, Foothill also shall give notice of the time and
place by publishing a notice one time at least 10 days before the date
of the sale in a newspaper of general circulation in the county in
which the sale is to be held;
<PAGE>
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Companies. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Companies.
9.2. Remedies Cumulative.
Foothill's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Foothill shall have all
other rights and remedies not inconsistent herewith as provided under the Code,
by law, or in equity. No exercise by Foothill of one right or remedy shall be
deemed an election, and no waiver by Foothill of any Event of Default shall be
deemed a continuing waiver. No delay by Foothill shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Company fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by such Company could result in a Material Adverse
Change, in its discretion and without prior notice to any Company, Foothill may
do any or all of the following: (a) make payment of the same or any part
thereof; (b) set up such reserves in Borrowers' Loan Account as Foothill deems
necessary to protect Foothill from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type described in Section 6.10,
and take any action with respect to such policies as Foothill deems prudent. Any
such amounts paid by Foothill shall constitute Foothill Expenses. Any such
payments made by Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any Event of Default
under this Agreement. Foothill need not inquire as to, or contest the validity
of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly
due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1. Demand; Protest; etc.
Each Company waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Foothill on which
such Company may in any way be liable.
11.2. Foothill's Liability for Collateral.
So long as Foothill complies with its obligations, if any, under
Section 9207 of the Code, Foothill shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Companies.
<PAGE>
11.3. Indemnification.
Each Company shall pay, indemnify, defend, and hold Foothill, each
Participant and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the execution, delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities"). No
Company shall have any obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
<PAGE>
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or facsimile to Companies or to Foothill,
as the case may be, at its address set forth below:
If to a Company: STARCRAFT CORPORATION
2703 College Avenue
Goshen, Indiana 46526
Attn: Michael H. Schoeffler
Fax No. (219) 534-9524
with copies to: BARNES & THORNBURG
121 West Franklin Street
Suite 200
Elkhart, Indiana 46516
Attn: Rand W. Nilsson
Fax No. (219) 296-2535
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 478-9788
with copies to: GOLDBERG, KOHN, BELL, BLACK,
ROSENBLOOM & MORITZ, LTD.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Gary Zussman, Esq.
Fax No. (312) 332-2196
<PAGE>
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Each Company acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted facsimile or other similar method set forth
above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE
LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER
THE MATTER IN CONTROVERSY. EACH OF EACH COMPANY AND FOOTHILL WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH OF EACH COMPANY
AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
EACH OF EACH COMPANY AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE>
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill 4 calendar
months after they are delivered to or received by Foothill, unless a Company
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at such Company's expense, for their return.
15. GENERAL PROVISIONS.
15.1. Effectiveness.
This Agreement shall be binding and deemed effective when executed by
each Company and Foothill.
15.2. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that no
Company may assign this Agreement or any rights or duties hereunder without
Foothill's prior written consent and any prohibited assignment shall be
absolutely void. No consent to an assignment by Foothill shall release any
Company from its Obligations. Foothill may assign this Agreement and its rights
and duties hereunder and no consent or approval by any Company is required in
connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection with any
such assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to any Company or
any Company's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Companies.
15.3. Section Headings.
Headings and numbers have been set forth herein for convenience only.
Unless the contrary is compelled by the context, everything contained in each
Section applies equally to this entire Agreement.
<PAGE>
15.4. Interpretation.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Foothill or Companies, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
15.5. Severability of Provisions.
Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
15.6. Amendments in Writing.
This Agreement can only be amended by a writing signed by both Foothill
and Companies.
15.7. Counterparts; Facsimile Execution.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by facsimile shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by facsimile also
shall deliver an original executed counterpart of this Agreement but the failure
to deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
15.8. Revival and Reinstatement of Obligations.
If the incurrence or payment of the Obligations by Companies or any
guarantor of the Obligations or the transfer by either or both of such parties
to Foothill of any property of either or both of such parties should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Foothill is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrowers or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
<PAGE>
15.9. Integration.
This Agreement, together with the other Loan Documents, reflects the
entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof.
15.10. Joint and Several Liability.
(a) The obligation of the Borrowers hereunder and under the other Loan
Documents are joint and several.
(b) The liability of each Borrower hereunder and under the Loan
Documents shall be absolute, unconditional and irrevocable irrespective of:
(i) any lack of validity, legality or enforceability of this
Agreement, or any other Loan Document as to any Borrower;
(ii) the failure of Foothill (A) to enforce any right or
remedy against any Borrower or any other Person (including any
guarantor or any Borrower) under the provisions of this Agreement, any
other Loan Documents or otherwise, or
(B) to exercise any right or remedy against any
guarantor of, or collateral security any Obligations;
(iii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or other
extension, compromise or renewal of any Obligations;
(iv) any reduction, limitation, impairment or termination of
any Obligations with respect to any Borrower for any reason including
any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to (and each Borrower hereby waives any right to
or claim of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or any
other event or occurrence affecting, any Obligations with respect to
any Borrower;
(v) any addition, exchange, release, surrender or
nonperfection of any Collateral, or any amendment to or waiver or
release or addition of, or consent to departure from any guaranty, held
by any Foothill securing any of the Obligations; or
(vi) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, any
Borrower, any surety or any guarantor.
<PAGE>
Each Borrower agrees if such Borrower's joint and several liability
hereunder, or if any liens securing such joint and several liability, would, but
for the application of this sentence, be unenforceable under applicable law,
such joint and several liability and each such lien shall be valid and
enforceable to the maximum extent that would not cause such joint and several
liability or such lien to be enforceable under applicable law, and such joint
and several liability and such lien shall be deemed to have been automatically
amended accordingly at all relevant times.
To the maximum extent permitted by law, each Borrower hereby waives any
defense arising by reason of any claim or defense based upon an election of
remedies by Foothill including any defense based upon an election of remedies by
Foothill.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Chicago, Illinois.
STARCRAFT AUTOMOTIVE GROUP, INC.,
an Indian corporation
By /s/ Michael H. Schoeffler
--------------------------------------
Title Senior Vice President
------------------------------
NATIONAL MOBILITY CORPORATION,
an Indiana corporation
By /s/ Michael H. Schoeffler
--------------------------------------
Title Senior Vice President
------------------------------
IMPERIAL AUTOMOTIVE GROUP, INC.,
an Indiana corporation
By /s/ Michael H. Schoeffler
--------------------------------------
Title Senior Vice President
------------------------------
STARCRAFT CORPORATION,
an Indiana corporation
By /s/ Michael H. Schoeffler
--------------------------------------
Title President
------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Rhonda R. Foreman
--------------------------------------
Title Senior Vice President
------------------------------
EXHIBIT 4.16
SECURED PROMISSORY NOTE
$4,800,000 Chicago, Illinois
October 30, 1998
FOR VALUE RECEIVED, the undersigned (collectively, "Makers") hereby,
jointly and severally, promise to pay to Foothill Capital Corporation
("Foothill"), or order, at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333, or at such other address as the holder may
specify in writing, the principal sum of Six Million Three Hundred Thousand
Dollars ($6,300,000) plus interest in the manner and upon the terms and
conditions set forth below.
1. Rate of Interest. This Secured Promissory Note (this "Note") shall bear
interest at (a) the per annum rate of three-quarters of one percent (0.75%)
above the Reference Rate (as defined in the that certain Loan and Security
Agreement among Makers, Starcraft Corporation and Imperial Automotive Group,
Inc. (the "Agreement") of even date herewith) for all Reference Rate Loans (as
defined in the Agreement) and (b) the per annum rate of three and one-half
percent (3.5%) above the Adjusted Eurodollar Rate (as defined in the Agreement)
for all Eurodollar Rate Loans (as defined in the Agreement), computed on the
basis of a three hundred sixty (360) day year for actual days elapsed. Any
interest not paid when due may be compounded by adding it to principal and
thereafter shall bear interest at the rate provided herein. Upon the occurrence
of an Event of Default under the Agreement, the rate of interest on this Note
shall, at holder's option, be three and three-quarters percent (3.75%) above the
Reference Rate, computed on the basis of a three hundred sixty (360) day year
for actual days elapsed.
2. Schedule of Payments. Principal under this Note for all Loans shall be
due and payable according to the following schedule: Principal shall be payable
in 36 equal consecutive monthly installments of Seventy-Five Thousand Dollars
($75,000) each, commencing on December 1, 1998 and continuing thereafter on the
first day of each month, with a final installment of the remaining principal
balance payable on October 30, 2001, provided that all obligations under this
Note shall be immediately repayable in full upon the termination of the
Agreement. Interest with respect to Reference Rate Loans shall be payable, in
arrears, on the first day of each month. Interest with respect to any Eurodollar
Rate Loan shall be payable on the last day of the applicable Interest Period (as
defined in the Agreement). 3. Prepayment. Except as otherwise provided in the
Agreement, this Note may be prepaid without penalty. 4. Holder's Right of
Acceleration on Default and Due on Sale. Upon the occurrence of an Event of
Default under the Agreement including, but not limited to, the failure to pay
any installment of principal or interest hereunder when due, the holder of this
Note may, at its election and without notice to Makers, declare the entire
balance hereof immediately due and payable. 5. General Provisions.
(a) If this Note is not paid when due, Makers further promise to pay all
costs of collection, foreclosure fees, and reasonable attorneys' fees incurred
by the holder, whether or not suit is filed hereon.
(b) Makers hereby consent to the acceptance, release or substitution of
security for this Note.
(c) Presentment for payment, notice of dishonor, protest and notice of
protest are hereby expressly waived.
(d) Any waiver of any rights under this Note, the Agreement or under any
other agreement, instrument or paper signed by any Maker is neither valid nor
effective unless made in writing and signed by the holder of this Note.
(e) No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other right.
(f) A waiver by the holder of this Note upon any one occasion shall not be
construed as a bar or waiver of any right or remedy on any future occasion.
(g) Should any one or more of the provisions of this Note be determined
illegal or unenforceable, all other provisions shall nevertheless remain
effective.
(h) This Note cannot be changed, modified, amended or terminated orally.
(i) THE VALIDITY OF THIS NOTE, THE AGREEMENT OR ANY MATTER OR PROCEEDING
RELATING HERETO OR THERETO, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT
GIVING EFFECT TO ITS CONFLICT OF LAW PRINCIPLES. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE OR THE AGREEMENT
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF COOK, STATE OF ILLINOIS OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY
OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
EACH MAKER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,
ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 5. EACH MAKER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
NOTE, THE AGREEMENT OR ANY MATTER OR PROCEEDING RELATING HERETO OR THERETO,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH OF EACH MAKER AND FOOTHILL REPRESENTS THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS NOTE OR THE AGREEMENT OR ANY MATTER OR PROCEEDING
RELATING HERETO OR THERETO MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered on the date
first set forth above.
STARCRAFT AUTOMOTIVE GROUP, INC.
By /s/ Michael H. Schoeffler
--------------------------------------
Title Senior Vice President
------------------------------
Address: 2703 College Avenue
Goshen, Indiana 46526
NATIONAL MOBILITY CORPORATION
By /s/ Michael H. Schoeffler
--------------------------------------
Title Senior Vice President
------------------------------
Address: 2940 Dexter Drive
Elkhart, Indiana 46514
EXHIBIT 10.3.d
SECOND ADDENDUM TO
EMPLOYMENT AGREEMENT
This Second Addendum is to the Agreement and First Addendum thereto
each effective December 12, 1996, (collectively "Agreement") and is made and
dated as of December 15, 1997, ("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 been 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 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:
4. It shall not be a breach of this Subsection 4 in the event
that Employer and Employee shall mutually agree to reduce Employee's
Base Compensation from time to time. Such reductions shall be
immediately restored upon the occurrence of any such events of
termination and shall be deemed included in the Base Compensation then
in effect at the time of any such event of termination. Furthermore,
any such decrease in Base Compensation from time to time shall not
disqualify Employee from participation in Benefit Plans except as
Employee shall agree.
2. Subsection 8(E) of the Agreement is hereby deleted in its entirety
and replaced as follows:
<PAGE>
(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 time 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.
3. 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 22nd day of September, 1998, as of
the Effective Date.
"EMPLOYEE" "EMPLOYER"
STARCRAFT CORPORATION
/s/ Kelly L. Rose By:/s/ Michael H. Schoeffler
- ------------------------- ------------------------------
Kelly L. Rose Michael H. Schoeffler
Its: President
EXHIBIT 10.33
No. of Shares: 200,000 Warrant No. 1
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
STARCRAFT CORPORATION
Dated: November 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS........................................................1
SECTION 2. EXERCISE OF WARRANT................................................2
2.1. Exercise Generally..............................................2
2.2. Shareholder Approval; Alternative Cash Award Upon Exercise......3
2.3. Expenses of Exercise............................................3
SECTION 3. ANTI-DILUTION......................................................3
SECTION 4. RESERVATIONS.......................................................3
SECTION 5. SALE OF THE COMPANY; REORGANIZATIONS...............................3
SECTION 6. DISSOLUTION OR LIQUIDATION.........................................4
SECTION 7. NOTICE OF DIVIDENDS................................................5
SECTION 8. FRACTIONAL SHARES..................................................5
SECTION 9. FULLY PAID STOCK; VOTING RIGHTS UPON EXERCISE; TAXES...............5
SECTION 10. CLOSING OF TRANSFER BOOKS.........................................5
SECTION 11. REGISTRATION RIGHTS...............................................5
Section 11.1 Piggyback Registration..................................5
Section 11.2. Registration Procedures................................6
Section 11.3. Information to be Furnished by Holders.................8
Section 11.4. Expenses of Registration...............................8
Section 11.5. Indemnification and Contribution.......................8
Section 11.6. Underwriting Agreement................................10
Section 11.7. Future Registration Rights.............................10
Section 11.8. Reports Under Securities Exchange Act of 1934..........10
Section 11.9. Form S-3 Registration.................................11
SECTION 12. LOST, STOLEN WARRANTS, ETC.......................................12
SECTION 13. SEVERABILITY.....................................................13
SECTION 14. MISCELLANEOUS....................................................13
14.1. Notices.......................................................13
<PAGE>
14.2. Successors and Assigns........................................13
14.3. Amendments....................................................13
14.4. Headings......................................................13
14.5. Governing Law.................................................13
14.6. Exclusive Jurisdiction. .....................................13
EXHIBIT A....................................................................A-1
<PAGE>
No. of Shares: 200,000* Warrant No. 1
(*subject to ss. 2.2 of this Warrant)
Dated: November 23, 1998
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
STARCRAFT CORPORATION
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth,
Kelly L. Rose
or assigns
is entitled upon the due exercise hereof at any time during the Exercise Period
(as hereinafter defined) to purchase from Starcraft Corporation, an Indiana
corporation (the "Company"), up to 200,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein) of the Company
at the Exercise Price (as hereinafter defined and subject to adjustment as
provided herein) for each share of Common Stock so purchased and to exercise the
other rights, powers and privileges hereinafter provided, all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
Attest: STARCRAFT CORPORATION
/s/ Michael H. Schoeffler By:/s/ Michael H. Schoeffler
- ----------------------------- ----------------------------
Secretary President
Additional provisions follow on the next
17 pages and are incorporated in this
Warrant as if set forth on this page.
3
<PAGE>
SECTION 1. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the
following terms have the following respective meanings:
The "Alternative Cash Amount" shall be payable only when the conditions
set forth in ss.2.2(iii) apply, and shall mean an amount equal to the product of
(x) 175,000 times (y) the excess, if any, of (A) the fair market value per share
of the Underlying Shares on the date of exercise of this Warrant, over (B) the
Exercise Price.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a Federal legal holiday or a day on which banking institutions in
the State of Indiana are authorized or required by law or other government
actions to close.
A "Change of Control" shall be deemed to have occurred if during, or
following the consummation of, a stock purchase program, tender offer, exchange
offer, merger, consolidation, sale of assets, contested election, or any
combination of the foregoing transactions, any person, entity or group of
persons acting in concert, directly or indirectly (1) acquires ownership of the
power to vote in excess of 50% of the voting securities of Company, or (2)
otherwise acquires, directly or indirectly, the power to direct or cause the
direction of the management and policies of the Company.
"Common Stock" shall mean the Company's Common Stock, without par
value.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Company" shall mean Starcraft Corporation, an Indiana corporation, and
any successor to all or substantially all of the assets and business of such
corporation.
"Exercise Period" shall mean the period commencing on the date hereof
and terminating on the Expiration Date.
"Exercise Price" shall mean $2.20 share, which is the fair market value
per share of the Underlying Shares on the date of issuance of this Warrant,
adjustable as set forth in ss. 3.
"Expiration Date" shall mean November 23, 2008.
"Holder" shall mean the registered holder of this Warrant, and, if the
context so indicates, the holder of Warrant Shares.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization or any other entity, and a government or agency or
political subdivision thereof.
1
<PAGE>
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with ss. 13, including, without
limitation, all registration, filing and NASD fees, all fees and expenses of
complying with state securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, the fees and
disbursements of counsel and accountants retained by the Holder with respect to
Underlying Shares or Warrant Shares being registered, all fees and expenses
incurred in complying with the Company's indemnification obligations, premiums
and other costs of policies of insurance against liabilities arising out of the
public offering of such securities and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities.
"Sale of the Company" shall mean any Change of Control of the Company,
whether such Change of Control occurs through merger, consolidation, sale of
assets or stock, exchange of securities, or otherwise.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underlying Shares" shall mean the shares of Common Stock of the
Company issuable upon exercise of this Warrant.
"Warrant" or "this Warrant" as used herein shall mean this Warrant and
any warrant hereafter issued in exchange or substitution for this Warrant.
"Warrant Shares" shall mean the shares of Common Stock of the Company
issued upon the exercise of this Warrant.
SECTION 2. EXERCISE OF WARRANT.
2.1. Exercise Generally. The rights represented by this Warrant are
issued as an inducement to the initial Holder to guaranty the obligations of the
Company under that certain Continuing Guaranty (the "Guaranty") executed by the
Company in favor of Foothill Capital Corporation ("Lender") which Guaranty, in
turn, guaranties the payment to Lender by Starcraft Automotive Group, Inc. and
National Mobility Corporation, both of which are Indiana corporations and
wholly-owned subsidiaries of the Company (collectively, the "Borrowers"), of
certain indebtedness existing pursuant to a Loan and Security Agreement dated
November 23, 1998, among the Company, the Borrowers and Lender (the "Loan
Agreement") and other instruments and documents executed by Borrowers in favor
of Lender in connection therewith, including without limitation a $[7,800,000]
Promissory Term Note executed by each Borrower in favor of Lender (the "Note").
2
<PAGE>
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part (but not as to any fractional share of Common
Stock), during the Exercise Period, but in no event subsequent to the end of the
Exercise Period, by the surrender of this Warrant (with the exercise notice at
the end hereof duly completed and executed) at the office of any duly appointed
transfer agent for the Common Stock or at the principal office of the Company in
Goshen, Indiana, and upon payment to the Company, or for the account of the
Company, of the Exercise Price. Payment of the Exercise Price may be made by
cash in immediately available funds or by certified check or bank draft. This
Warrant and all rights and options hereunder shall expire at the Expiration
Date, and shall be wholly null and void to the extent this Warrant is not
exercised before that time. The Company agrees that the Warrant Shares shall be
and shall be deemed to be issued to the Holder hereof as the record owner of
such Warrant Shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares as
aforesaid. Certificates for the Warrant Shares shall be delivered to the Holder
hereof within a reasonable time, not exceeding 30 Business Days, after the
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of Underlying Shares, if any, with respect
to which this Warrant shall not then have been exercised shall also be issued to
the Holder hereof within such time.
2.2. Shareholder Approval; Alternative Cash Award Upon Exercise. This
Warrant is issued to the initial Holder hereof subject to the following: (i) a
determination by the staff of The Nasdaq Stock Market's SmallCap Market
("Nasdaq") that shareholder approval is not required for the issuance of this
Warrant pursuant to subparagraph (25)(H) of NASD Rule 4310 (relating to Nasdaq's
qualification requirements for domestic and Canadian securities), or (ii) the
approval of such issuance by the shareholders at the next annual meeting of
shareholders, or (iii) the requirement, if such approval is required by Nasdaq
but is not forthcoming at the next annual meeting of shareholders, that the
aggregate number of Warrant Shares to be issued upon the exercise hereof shall
not exceed 25,000 Warrant Shares, in which case the Holder exercising this
Warrant shall be entitled to receive, in addition to the Warrant Shares upon
such exercise but in any event subject to ss.15 hereof, the Alternative Cash
Amount. Payment of the Alternative Cash Amount may be made by cash in
immediately available funds or by certified check or bank draft at the time the
certificate for the Warrant Shares is issued.
2.3. Expenses of Exercise. The Company shall pay all expenses, taxes
and other charges payable in connection with the preparation, execution and
delivery of stock certificates under this ss. 2, regardless of the name or names
in which such stock certificates shall be registered.
SECTION 3. ANTI-DILUTION.
The Underlying Shares shall be subject to change or adjustment as set
forth in Exhibit A to this Warrant.
3
<PAGE>
SECTION 4. RESERVATIONS.
The Company shall at all times reserve and keep available such number
of authorized shares of its Common Stock, solely for the purpose of issuance
upon the exercise of the rights represented by this Warrant, as may at any time
be issuable upon the exercise of this Warrant.
SECTION 5. SALE OF THE COMPANY; REORGANIZATIONS.
If, in connection with any Sale of the Company, any capital
reorganization or reclassification of the capital stock of the Company, any
other change of outstanding shares of Common Stock, or any merger or
consolidation of the Company with or into another Person, or in the case of any
sale or conveyance to another Person of the property of the Company as, or
materially as, an entirety (a "Reorganization"), the Company shall cause such
Reorganization to be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such Reorganization, the
Company shall cause effective provision to be made whereby the Holder shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified in this Warrant, and in lieu of the Common Stock
immediately theretofore receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as would have been (by virtue of such
Reorganization) issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore receivable upon the exercise of this Warrant, assuming
such exercise had taken place immediately prior to such Reorganization. In any
such case, appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the number of shares of Common
Stock receivable upon exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter receivable upon the exercise of this Warrant. The Company shall not
effect any such Reorganization, unless, prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Company) resulting
from such transaction shall assume by written instrument, executed and mailed or
delivered to the Holder, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to receive. Notice of any proposed Reorganization shall
be given by the Company to the Holder as promptly as practicable after such
transaction appears likely but in no event less than 30 Business Days prior to
the consummation of the Reorganization.
SECTION 6. DISSOLUTION OR LIQUIDATION.
Upon any proposed distribution of the assets of the Company in
dissolution or liquidation (except under circumstances when ss. 5 shall be
applicable), the Company shall mail notice thereof to the Holder and shall make
no distribution to its shareholders until the expiration of 30 days from the
date of mailing of such notice and, in any such event, the Holder of this
Warrant may exercise the purchase rights with respect to this Warrant within 30
days from the date of mailing such notice. All rights herein granted not so
exercised within such 30-day period shall therafter become null and void.
4
<PAGE>
SECTION 7. NOTICE OF DIVIDENDS.
If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock, the Company shall mail notice thereof to
the Holder not less than 30 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder shall not participate in such dividend or other distribution or be
entitled to any rights on account or as a result thereof unless and to the
extent that this Warrant is exercised prior to such record date or as otherwise
provided by this Warrant. The provisions of this section shall not apply to
distributions made in connection with transactions covered by ss. 5.
SECTION 8. FRACTIONAL SHARES.
The Company shall not be required to issue or cause to be issued
fractional shares on the exercise of this Warrant and any such fractional share
otherwise issuable shall be rounded down to the nearest whole share.
SECTION 9. FULLY PAID STOCK; VOTING RIGHTS UPON EXERCISE; TAXES.
(a) The Company covenants and agrees that the shares of its Common
Stock represented by each certificate to be delivered on the exercise of this
Warrant shall, at the time of such delivery, be validly issued and outstanding,
and be fully paid and nonassessable. The Company covenants and agrees that, upon
issuance of the Underlying Shares, the Underlying Shares shall have voting
rights equivalent to those of any other holder of Common Stock.
(b) The Company covenants and agrees that it shall pay, when due and
payable, any and all federal and state issuance or transfer taxes that may be
payable in respect of this Warrant or any Common Stock or certificates issued
hereunder. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the transfer and delivery of
stock certificates in the name other than that of the Holder, and any such tax
shall be paid by the Holder at the time of presentation.
SECTION 10. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of the Company for its Common Stock may be
closed. The Company shall not be required, however, to deliver stock
certificates upon such exercise while such books are duly closed for any
purpose, but the Company may postpone the delivery of such certificates until
the opening of such books. In such case, the certificates shall be delivered
promptly after the books are opened.
SECTION 11. REGISTRATION RIGHTS.
5
<PAGE>
Section 11.1 Piggyback Registration. If at any time the Company
proposes for any reason to register (including for this purpose a registration
effected by the Company for securityholders other than the Holders of the
Warrants or Warrant Shares) any securities under the Securities Act, it shall,
each such time, promptly (but in no event less than 30 days prior to the
proposed date of the filing of the registration statement relating thereto) give
written notice to the Holders of the Warrants and Warrant Shares (collectively
the "Eligible Securities") then outstanding of its intention to do so, and, upon
the written request, given within 20 days after receipt of any such notice, of a
Holder to register any of his Eligible Securities, the Company shall cause all
Eligible Securities with respect to which Holders shall have so requested
registration to be registered under the Securities Act promptly upon receipt of
the written request of such Holders for such registration.
In the event that any registration pursuant to this ss. 11.1 shall be,
in whole or in part, an underwritten public offering of securities of the
Company registered under the Securities Act, the Company shall arrange for the
Eligible Securities requested to be registered pursuant to this ss. 11.1 to be
included in the underwriting. The inclusion of the Eligible Securities will be
on the same terms and conditions as the comparable securities, if any, otherwise
being sold through underwriters under such registration, or on terms and
conditions comparable to those normally applicable to offerings of such
securities in reasonably similar circumstances in the event that no securities
comparable to the Eligible Securities are being sold through underwriters under
such registration.
If the Company proposes to include in such underwritten public offering
any securities owned by any shareholder of the Company (such securities,
"Additional Securities") and the managing underwriter reasonably determines and
advises in writing that the inclusion in the offering of all of the securities
to be sold for the Company's account, the Eligible Securities covered by the
requests for registration made under this ss. 11.1, and the Additional
Securities would interfere with the successful marketing of the securities to be
sold for the Company's account, then (i) there shall first be excluded
Additional Securities proposed to be included and then (ii) the requisite number
of Eligible Securities proposed to be included shall be excluded from the
underwritten portion of the public offering, on a basis pro rata among the
holders of the Eligible Securities requesting such registration, and such
excluded Securities shall be withheld from the market by the holders thereof for
a period which the managing underwriter reasonably determines is necessary in
order to effect the underwritten portion of the public offering.
Section 11.2. Registration Procedures. If and whenever the Company is
under an obligation pursuant to the provisions of ss. 11.1 to use its best
efforts to effect the registration of any Eligible Securities, the Company
shall, as expeditiously as practicable:
(i) prepare and file with the Commission a registration
statement with respect to such Eligible Securities
and use its best efforts to cause such registration
statement to become effective and remain effective
and current in compliance with the Securities Act for
a period of [90] days for a piggyback registration;
(ii) prepare and file with the Commission such amendments
and supplements to
6
<PAGE>
such registration statement and the prospectus used
in connection therewith as may be necessary to keep
such registration statement effective and current in
compliance with the Securities Act for the applicable
period specified in clause (i) of this ss. 11.2;
(iii) furnish to each selling stockholder such numbers of
copies of each prospectus (including each preliminary
prospectus) in conformity with the requirements of
the Securities Act, and such other documents such
selling shareholders shall reasonably request, to
facilitate the public offering of their Eligible
Securities;
(iv) register or qualify the Eligible Securities covered
by such registration statement under the securities
or blue sky laws of such jurisdictions as each such
seller shall reasonably request (provided that the
Company shall not be required to qualify to do
business or file a general consent to service of
process in any jurisdiction where it is not then
qualified to do business); and do any and all other
acts or things which may be reasonably necessary or
advisable to enable such seller to consummate the
public sale or other disposition in such
jurisdictions of such Eligible Securities until the
sale or other disposition of all Eligible Securities
covered by such registration statement;
(v) notify each selling shareholder any time a prospectus
is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (i)
of thisss.11.2, of the happening of any event as a
result of which the prospectus included in such
registration statement, as then in effect, includes
or may include an untrue statement of material fact
or omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, and at the request of any
such seller, prepare and furnish to such seller a
reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of
such Eligible Securities such prospectus shall not
include an untrue statement of a material fact omit
to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading; and
(vi) furnish, at the request of any Holder or Holders
requesting registration pursuant to the terms hereof,
on or about the date that any Eligible Securities are
delivered to the underwriters for sale pursuant to
such registration or, if such Eligible Securities are
not being sold through underwriters, on the date that
the registration statement with respect to such
Eligible Securities becomes effective: (a) an
opinion, dated such date, of the counsel representing
the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the
Holder or Holders making such request, in form and
substance as is customarily given in an underwritten
public offering;
7
<PAGE>
and (b) a letter, dated such date, from the
independent certified public accountants of the
Company (the "Accountants"), addressed to the
underwriters, if any, and to the Holder or Holders
making such request, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering.
Section 11.3. Information to be Furnished by Holders. Prior to the
Company being obligated to register a particular prospective seller's Eligible
Securities pursuant to this Section 11, such seller shall furnish to the Company
such information and execute such documents regarding the Eligible Securities
held by such seller and the intended method of disposition thereof as the
Company shall reasonably request in connection with the action to be taken by
the Company.
Section 11.4. Expenses of Registration. The Company shall pay all
Registration Expenses in connection with each registration pursuant to ss. 11.1.
Section 11.5. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Holder, each of its officers, directors,
partners, agents, employees and controlling persons (within the meaning of the
Securities Act) and each person who participates as an underwriter or
controlling person of an underwriter (within the meaning of the Securities Act)
with respect to a registration statement pursuant to ss. 11.1 or 11.9 against
any losses, claims, damages or liabilities (or actions in respect thereof) to
which any of them may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact in a registration statement including any Eligible
Securities, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or in any application or other document
(such applications and documents are hereinafter collectively called
"Applications") filed in any jurisdiction in order to qualify all or part of the
Eligible Securities under the securities laws thereof or filed with the
Commission or the NASD, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
any of them for any legal or other expenses reasonably incurred by any of them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
hereunder in any such case if any such loss, claim, damage, or liability arises
out of or is based upon any such untrue statement or allegedly untrue statement
or such omission or alleged omission made in such registration statement,
prospectus or amendment or supplement thereto or in any Application in reliance
upon and in conformity with written information furnished to the Company by such
Holder for inclusion therein; provided, however, that the indemnity agreement
contained in this paragraph of this ss. 11.5 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability, action or violation if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld).
(b) To the extent permitted by law, each Holder whose Eligible
Securities are registered on any registration statement of the Company pursuant
to ss. 11.1 or 11.9 shall indemnify and hold
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<PAGE>
harmless the Company, each of its officers, directors, partners, agents,
employees and controlling persons (within the meaning of the Securities Act)
with respect to a registration statement pursuant to ss. 11.1 or 11.9 against
any losses, claims, damages or liabilities (or actions in respect thereof) to
which any of them may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact, or omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, made in such registration statement, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto or in
any Application, in reliance upon and in conformity with written information
furnished to the Company by such Holder for inclusion therein, and will
reimburse any of them for any legal or other expenses reasonably incurred by
them in connection with investigation or defending, any such loss, claim,
damage, liability or action, provided that the obligation of each Holder under
this ss. 11.5 shall be limited to an amount equal to the net proceeds to such
Holder of the Eligible Securities sold pursuant to such registration statement,
provided, however, that the indemnity agreement contained in this paragraph of
this ss. 11.5 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability, action or violation if such settlement is effected without
the Holder's consent (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this ss. 11.5
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in and to assume the defense thereof
at its expense with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this ss.
11.5, but the omission so to notify the indemnifying party will not relieve such
party of any liability that such party may have to any indemnified party other
than under this ss. 11.5.
(d) If the indemnification provided for in this ss. 11.5 is unavailable
to or insufficient to hold harmless an indemnified party under subsections (a)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits and relative fault of the Company
on the one hand and the Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Holder on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total net proceeds received by the
Holder. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Holder on the other and the
parties relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
9
<PAGE>
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this ss. 11(d) were determined by pro rata
allocation (even if all Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this ss. 11(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions or proceedings in respect thereto) referred to above in
this ss. 11(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 11.6. Underwriting Agreement. If Eligible Securities are to be
sold pursuant to a registration statement in an underwritten offering pursuant
to ss. 11.1, the Company agrees to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including, without
limiting the generality of the foregoing, customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
Section 11.7. Future Registration Rights. If, subsequent to the date
hereof, the Company grants piggyback registration rights to holders or
prospective holders of its securities to include their securities on any
registration statement proposed to be filed by the Company at the demand of the
Holders made under this Agreement, such piggyback registration rights shall
provide for the exclusion of such holders' securities from the registration
statement if the managing underwriter of the offering proposed to be made of the
Eligible Securities determines that the inclusion of such holders' securities
would be seriously detrimental to the offering of the Eligible Securities or, if
all or part of the offering of Eligible Securities is not to be underwritten,
the Holders of more than 50% of the Eligible Securities to be included in the
registration statement so determine.
If, subsequent to the date hereof, the Company grants demand
registration rights to holders or prospective holders of its securities to
demand that the Company register any securities of the Company under the
Securities Act, such demand registration rights shall be granted under and
subject to the piggyback registration right of the Holders to include all or
part of their Eligible Securities in any such registration on the terms and
conditions of ss. 11.1.
Section 11.8. Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
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(i) make and keep public information available, as those
terms are understood and defined in Commission Rule
144, at all times after the effective date of the
first registration statement filed by the Company for
the offering of its securities to the general public;
(ii) take such action, including the voluntary
registration of its Common Stock under Section 12 of
the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), as is necessary to enable the
Holders to utilize Form S- 3 for the sale of their
Eligible Securities, such action to be taken as soon
as practicable after the end of the fiscal year in
which the first registration statement filed by the
Company for the offering of its securities to the
general public is declared effective;
(iii) file with the Commission in a timely manner all
reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iv) furnish to any Holder, so long as the Holder owns any
Eligible Securities, forthwith upon request (x) a
written statement by the Company as to its compliance
with the reporting requirements of Commission Rule
144 (at any time after the effective date of the
first registration statement filed by the Company),
the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting
requirements), or as to its qualification that it
qualifies as a registrant whose securities may be
resold pursuant to Form S- 3 (at any time after it so
qualifies), (y) a copy of the most recent annual or
quarterly report of the Company and such other
reports and documents so filed by the Company, and
(z) such other information as may be reasonably
requested in availing any Holder of any rule or
regulation of the Commission which permits the
setting of any such securities without registration
or pursuant to such form.
Section 11.9. Form S-3 Registration. In case the Company shall receive
from any Holder of the Eligible Securities a written request or requests that
the Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Eligible Securities then owned
by such Holder or Holders, the Company will:
(i) promptly (but in no event less than 30 days prior to
the proposed date of the filing of the registration
statement relating thereto) give written notice of
the proposed registration, and any related
qualification or compliance, to all other Holders of
Eligible Securities; and
(ii) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale
and distribution of all or such portion of such
Holder's or Holders' Eligible
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<PAGE>
Securities as are specified in such request, together
with all or such portion of the Eligible Securities
of any other Holder or Holders joining in such
request as are specified in a written request given
within 20 days after receipt of such written notice
from the Company; provided, however, that the Company
shall not be obligated to effect any such
registration, qualification or compliance, pursuant
to this ss. 11.9: (v) if Form S-3 is not available
for such offering by the Holders; (w) if the Holders,
together with the holders of any other securities of
the Company entitled to inclusion in such
registration, propose to sell Eligible Securities and
such other securities (if any) at an aggregate price
to the public (net of any underwriters' discounts or
commissions) of less than $50,000; (x) if the Company
shall furnish to the Holders a certificate signed by
the President of the Company stating that in the good
faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3
Registration to be effected at such time, in which
event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the
requests of the Holder or Holders under this ss.
11.9; provided, however, that the Company shall not
utilize this right more than once in any 12 month
period; (y) if the Company has, within the 12 month
period preceding the date of such request, already
effected two registrations on Form S-3 for the
Holders pursuant to this ss. 11.9; or (z) in any
particular jurisdiction in which the Company would be
required to qualify to do business or to execute a
general consent to service of process in effecting
such registration, qualification or compliance.
(iii) Subject to the foregoing, the Company shall file a
registration statement covering the Eligible
Securities and other securities so requested to be
registered as soon as practicable after receipt of
the request or requests of the Holders. All out of
pocket expenses incurred in connection with the
registrations requested pursuant toss.11.9, including
(without limitation) all registration, filing,
qualification, printer's and accounting fees and the
fees and disbursements of counsel for the selling
Holder or Holders and counsel for the Company, shall
be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration. Unlimited
Registrations may be effected pursuant to
thisss.11.9.
SECTION 12. LOST, STOLEN WARRANTS, ETC.
If this Warrant shall be mutilated, lost, stolen or destroyed, the
Company shall issue a new Warrant of like date, tenor and denomination and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant, or in lieu of the Warrant lost, stolen or
destroyed, upon receipt of evidence satisfactory to the Company of the loss,
theft or destruction of such Warrant, and upon receipt of indemnity satisfactory
to the Company.
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SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid,
such decision shall not affect the validity of any remaining portion, which
shall remain in force and effect as if this Warrant had been executed with the
invalid portion thereof eliminated. It is hereby declared the intention of the
parties hereto that they would have executed and accepted the remaining portion
of this Warrant without including therein any such part, parts or portion which
may, for any reason, be hereafter declared invalid.
SECTION 14. MISCELLANEOUS.
14.1. Notices. Any notice, demand or delivery to be made pursuant to
the provisions of this Warrant shall be in writing and (a) shall be deemed to
have been given or made one day after the date sent (i) if by the Company, by
prepaid overnight delivery, addressed to the Holder at its last known address
appearing on the books of the Company maintained for such purpose or (ii) if by
the Holder, by prepaid overnight delivery, addressed to the Company at P. O. Box
1903, 2703 College Avenue, Goshen, Indiana 46526; and (b) if given by courier,
confirmed telegram, confirmed facsimile transmission or confirmed telex shall be
deemed to have been made or given when received. The Holder and the Company may
each designate a different address by notice to the other in the manner provided
in this ss. 14.2.
14.2. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Company and the Holder. The provisions of this Warrant
are intended to be for the benefit of the Holder of this Warrant or the Warrant
Shares and shall be enforceable by the Holder.
14.3. Amendments. This Warrant may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company and
the Holder.
14.4. Headings. The index and the descriptive headings of sections of
this Warrant are provided solely for convenience of reference and shall not, for
any purpose, be deemed a part of this Warrant.
14.5. Governing Law. THIS WARRANT AND ALL MATTERS CONCERNING THIS
WARRANT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF INDIANA FOR CONTRACTS
ENTERED INTO AND TO BE PERFORMED IN SUCH STATE WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
14.6. Exclusive Jurisdiction. Each party, and each express beneficiary
of this Warrant as a condition of its right to enforce or defend any right under
or in connection with this Warrant, (1) agrees that any Action with respect to
this Warrant or any transaction contemplated by this Warrant shall be brought
exclusively in the courts of the State of Indiana, City of Goshen or of the
United States of America sitting in the State of Indiana, City of Goshen, (2)
accepts for itself and in respect
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<PAGE>
of its property, generally and unconditionally, the jurisdiction of those
courts, (3) agrees that service of process may be made on such party, or such
express beneficiary, as the case may be, by prepaid certified mail with a proof
of mailing receipt validated by the United States Postal Service constituting
evidence of valid service, and that service made pursuant to this clause (3)
shall have the same legal force and effect as if served upon such person
personally within the State of Indiana, and (4) irrevocably waives any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens, which it may now or hereafter
have to the bringing of any legal action in those jurisdictions; provided,
however, that any party may assert in an Action in any other jurisdiction or
venue each mandatory defense, third-party claim or similar claim that, if not so
asserted in such Action, may thereafter not be asserted by such party in an
original Action in the courts referred to in clause (1) above.
* * * * * *
14
<PAGE>
EXHIBIT A
ANTI-DILUTION PROVISIONS
1. Anti-Dilution Provisions. The Underlying Shares shall be subject to
change or adjustment as follows:
(a) Common Stock Dividends, Subdivisions, Combinations. If the
Company shall (i) pay or make a dividend or other distribution to all holders of
its Common Stock in shares of Common Stock, (ii) subdivide, split or reclassify
the outstanding shares of its Common Stock into a larger number of shares, or
(iii) combine or reclassify the outstanding shares of its Common Stock into a
smaller number of shares, then in each such case the Underlying Shares shall be
adjusted to equal the number of such shares to which the Holder of this Warrant
would have been entitled upon the occurrence of such event had this Warrant been
exercised immediately prior to the happening of such event or, in the case of a
stock dividend or other distribution, prior to the record date for determination
of such Shareholder entitled thereto. An adjustment made pursuant to this
paragraph 1 shall become effective immediately after such record date, in the
case of a dividend or distribution, and immediately after the effective date, in
the case of a subdivision, split, combination or reclassification.
(b) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification of the Common Stock of the Company
(whether pursuant to a merger of consolidation or otherwise), this Warrant shall
thereafter be exercisable for the number of shares of stock or other securities
or property receivable upon such capital reorganization or reclassification of
Common Stock, as the case may be, by a holder of the number of shares of Common
Stock into which this Warrant was exercisable immediately prior to such capital
reorganization or reclassification of Common Stock; and, in any case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the Holder of
this Warrant to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the exercise of this
Warrant.
(c) Distributions of Assets or Securities Other Than Common
Stock. In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any of its capital stock (other than
Common Stock), rights or warrants to purchase any of its securities, cash, other
assets or evidences of its indebtedness, then in each such case the Underlying
Shares shall be adjusted by multiplying the Underlying Shares immediately prior
to the date of such dividend or distribution by a fraction, of which the
numerator shall be the fair market value per share of Common Stock at the record
date for determining shareholders entitled to such dividend or distribution, and
of which the denominator shall be such fair market value per share less the fair
market value (as determined in good faith by the Board of Directors of the
Company) of the portion of the securities, cash, assets or evidences of
indebtedness so distributed applicable to one share of Common Stock.
A-1
<PAGE>
An adjustment made pursuant to this subparagraph (c) shall become effective
immediately after such distribution date.
(d) No Impairment. The Company shall not, without the prior
consent of the Holder, by amendment of its Articles of Incorporation or through
any reorganization, transfer of the assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in the carrying out of all the provisions of this paragraph 1 and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Holder against impairment.
(e) Readjustment. Upon the termination of any right of
conversion or exchange of any securities convertible into or exchangeable for
Common Stock, or upon the expiration of any rights or options to purchase Common
Stock (other than this Warrant) or any securities convertible into or
exchangeable for Common Stock, or upon any change in the number of shares of
Common Stock issuable upon exercise, conversion or exchange of any such
securities, rights or options, the Underlying Shares then in effect shall
forthwith be readjusted to such Underlying Shares as would have been in effect
had the adjustments made upon the issuance or sale of such securities, rights or
options been made upon the basis of the issuance of only the number of shares of
Common Stock actually issued or to be issued upon the exercise, conversion or
exchange or such securities, rights or options.
2. Notice of Certain Corporation Transactions. The Company shall
promptly mail to the Holder a notice of any proposed dividend, merger,
dissolution, liquidation or winding up of the Company, stating the proposed
record date (if any) or effective date for any such transaction and briefly
describing the transaction.
3. Certificate of Adjustment. Upon the occurrence of each adjustment or
readjustment pursuant to this Exhibit A, the Company, at its expense, shall as
promptly as practicable compute such adjustment or readjustment in accordance
with the provisions of this Exhibit A, and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing in
reasonable detail the facts upon which such adjustment or readjustment in based.
4. Information to be Furnished Upon Request. Upon the request at any
time of the Holder, the Company shall as promptly as practicable furnish or
cause to be furnished, to the Holder, at its address set forth in such request,
a certificate setting forth the number of shares of Common Stock that at the
time would be received upon the exercise of the Warrant and the Exercise Price
thereof.
A-2
<PAGE>
EXERCISE NOTICE
TO STARCRAFT CORPORATION:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises the Warrant, purchases thereunder __________ shares of the
Common Stock of the Company, herewith makes payment of $__________ therefor, and
requests that the certificate(s) for such shares be issued in the name of the
undersigned Holder or its nominee and delivered to it at Holder's address on the
books of the Company.
Signature: _____________________________
Printed Name: __________________________
Dated: ________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered Holder of the within
Warrant hereby sells, assigns and transfers unto __________________ the Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint
_________________ attorney to transfer the Warrant on the books of the Company.
Signature: _____________________________
Printed Name: __________________________
Dated: _________________________________
EXHIBIT 10.34
No. of Shares: 200,000 Warrant No. 2
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
STARCRAFT CORPORATION
Dated: November 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS........................................................1
SECTION 2. EXERCISE OF WARRANT................................................2
2.1. Exercise Generally..............................................2
2.2. Expenses of Exercise............................................3
SECTION 3. ANTI-DILUTION......................................................3
SECTION 4. RESERVATIONS.......................................................3
SECTION 5. CHANGE OF CONTROL; REORGANIZATIONS.................................3
SECTION 6. DISSOLUTION OR LIQUIDATION.........................................4
SECTION 7. NOTICE OF DIVIDENDS................................................4
SECTION 8. FRACTIONAL SHARES..................................................4
SECTION 9. FULLY PAID STOCK; VOTING RIGHTS UPON EXERCISE; TAXES...............4
SECTION 10. CLOSING OF TRANSFER BOOKS.........................................5
SECTION 11. REGISTRATION RIGHTS...............................................5
Section 11.1 Piggyback Registration..................................5
Section 11.2. Registration Procedures................................6
Section 11.3. Information to be Furnished by Holders.................7
Section 11.4. Expenses of Registration...............................7
Section 11.5. Indemnification and Contribution.......................7
Section 11.6. Underwriting Agreement.................................9
Section 11.7. Future Registration Rights..............................9
SECTION 12. LOST, STOLEN WARRANTS, ETC.......................................10
SECTION 13. SEVERABILITY.....................................................10
SECTION 14. MISCELLANEOUS....................................................10
14.1. Notices.......................................................10
14.2. Successors and Assigns........................................10
14.3. Amendments....................................................11
14.4. Headings......................................................11
<PAGE>
14.5. Governing Law.................................................11
14.6. Exclusive Jurisdiction. .....................................11
EXHIBIT A....................................................................A-1
2
<PAGE>
No. of Shares: 200,000 Warrant No. 2
Dated: November 23, 1998
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
STARCRAFT CORPORATION
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth,
G. Ray Stults
or assigns
is entitled upon the due exercise hereof at any time during the Exercise Period
(as hereinafter defined) to purchase from Starcraft Corporation, an Indiana
corporation (the "Company"), 200,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein) of the Company at the
Exercise Price (as hereinafter defined and subject to adjustment as provided
herein) for each share of Common Stock so purchased and to exercise the other
rights, powers and privileges hereinafter provided, all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
Attest: STARCRAFT CORPORATION
/s/ Michael H. Schoeffler By:/s/ Michael H. Schoeffler
- ---------------------------- ------------------------------
Secretary President
Additional provisions follow on the next
15 pages and are incorporated in this
Warrant as if set forth on this page.
3
<PAGE>
SECTION 1. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the
following terms have the following respective meanings:
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a Federal legal holiday or a day on which banking institutions in
the State of Indiana are authorized or required by law or other government
actions to close.
A "Change of Control" shall be deemed to have occurred if during, or
following the consummation of, a stock purchase program, tender offer, exchange
offer, merger, consolidation, sale of assets, contested election, or any
combination of the foregoing transactions, any person, entity or group of
persons acting in concert, directly or indirectly (1) acquires ownership of the
power to vote in excess of 50% of the voting securities of Company, or (2)
otherwise acquires, directly or indirectly, the power to direct or cause the
direction of the management and policies of the Company.
"Common Stock" shall mean the Company's Common Stock, without par
value.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Company" shall mean Starcraft Corporation, an Indiana corporation, and
any successor to all or substantially all of the assets and business of such
corporation.
"Exercise Period" shall mean the period commencing on the date hereof
and terminating on the Expiration Date.
"Exercise Price" shall mean $2.20 per share, which is the fair market
value per share of the Underlying Shares on the date of issuance of this
Warrant, adjustable as set forth in ss. 3.
"Expiration Date" shall mean November 23, 2003.
"Holder" shall mean the registered holder of this Warrant, and, if the
context so indicates, the holder of Warrant Shares.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization or any other entity, and a government or agency or
political subdivision thereof.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with ss. 11, including, without
limitation, all registration, filing and NASD fees, all fees and expenses of
complying with state securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or
1
<PAGE>
"cold comfort" letters required by or incident to such performance and
compliance, the fees and disbursements of counsel and accountants retained by
the Holder with respect to Underlying Shares or Warrant Shares being registered,
all fees and expenses incurred in complying with the Company's indemnification
obligations, premiums and other costs of policies of insurance against
liabilities arising out of the public offering of such securities and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underlying Shares" shall mean the shares of Common Stock of the
Company issuable upon exercise of this Warrant.
"Warrant" or "this Warrant" as used herein shall mean this Warrant and
any warrant hereafter issued in exchange or substitution for this Warrant.
"Warrant Shares" shall mean the shares of Common Stock of the Company
issued upon the exercise of this Warrant.
SECTION 2. EXERCISE OF WARRANT.
2.1. Exercise Generally. The rights represented by this Warrant are
issued as an inducement to the initial Holder to provide a limited guaranty of
the payment to Bank One, N.A. ("Bank One") of up to $500,000 of the principal
amount of certain indebtedness owed by Starcraft Automotive Group, Inc. and
National Mobility Corporation, both of which are Indiana corporations and
wholly-owned subsidiaries of the Company, in connection with certain refinancing
transactions to be entered into between the Company and Foothill Capital
Corporation and Bank One.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part (but not as to any fractional share of Common
Stock), during the Exercise Period, but in no event subsequent to the end of the
Exercise Period, by the surrender of this Warrant (with the exercise notice at
the end hereof duly completed and executed) at the office of any duly appointed
transfer agent for the Common Stock or at the principal office of the Company in
Goshen, Indiana, and upon payment to the Company, or for the account of the
Company, of the Exercise Price. Payment of the Exercise Price may be made by
cash in immediately available funds or by certified check or bank draft. This
Warrant and all rights and options hereunder shall expire at the Expiration
Date, and shall be wholly null and void to the extent this Warrant is not
exercised before that time. The Company agrees that the Warrant Shares shall be
and shall be deemed to be issued to the Holder hereof as the record owner of
such Warrant Shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares as
aforesaid. Certificates for the Warrant Shares shall be delivered to the Holder
hereof within a reasonable time, not exceeding 30 Business Days, after the
Warrant shall have been so exercised, and, unless this Warrant has
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expired, a new Warrant representing the number of Underlying Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder hereof within such time.
2.2. Expenses of Exercise. The Company shall pay all expenses, taxes
and other charges payable in connection with the preparation, execution and
delivery of stock certificates under this ss. 2, regardless of the name or names
in which such stock certificates shall be registered.
SECTION 3. ANTI-DILUTION.
The Underlying Shares shall be subject to change or adjustment as set
forth in Exhibit A to this Warrant.
SECTION 4. RESERVATIONS.
The Company shall at all times reserve and keep available such number
of authorized shares of its Common Stock, solely for the purpose of issuance
upon the exercise of the rights represented by this Warrant, as may at any time
be issuable upon the exercise of this Warrant.
SECTION 5. CHANGE OF CONTROL; REORGANIZATIONS.
If, in connection with any Change of Control, any capital
reorganization or reclassification of the capital stock of the Company, any
other change of outstanding shares of Common Stock, or any merger or
consolidation of the Company with or into another Person, or in the case of any
sale or conveyance to another Person of the property of the Company as, or
materially as, an entirety (a "Reorganization"), the Company shall cause such
Reorganization to be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such Reorganization, the
Company shall cause effective provision to be made whereby the Holder shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified in this Warrant, and in lieu of the Common Stock
immediately theretofore receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as would have been (by virtue of such
Reorganization) issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore receivable upon the exercise of this Warrant, assuming
such exercise had taken place immediately prior to such Reorganization. In any
such case, appropriate provision shall be made with respect to the rights and
interests of the Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the number of shares of Common
Stock receivable upon exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter receivable upon the exercise of this Warrant. The Company shall not
effect any such Reorganization, unless, prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Company) resulting
from such transaction shall assume by written instrument, executed and mailed or
delivered to the Holder, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in
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accordance with the foregoing provisions, the Holder may be entitled to receive.
Notice of any proposed Reorganization shall be given by the Company to the
Holder as promptly as practicable after such transaction appears likely but in
no event less than 30 Business Days prior to the consummation of the
Reorganization.
SECTION 6. DISSOLUTION OR LIQUIDATION.
Upon any proposed distribution of the assets of the Company in
dissolution or liquidation (except under circumstances when ss. 5 shall be
applicable), the Company shall mail notice thereof to the Holder and shall make
no distribution to its shareholders until the expiration of 30 days from the
date of mailing of such notice and, in any such event, the Holder of this
Warrant may exercise the purchase rights with respect to this Warrant within 30
days from the date of mailing such notice. All rights herein granted not so
exercised within such 30-day period shall thereafter become null and void.
SECTION 7. NOTICE OF DIVIDENDS.
If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock, the Company shall mail notice thereof to
the Holder not less than 30 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder shall not participate in such dividend or other distribution or be
entitled to any rights on account or as a result thereof unless and to the
extent that this Warrant is exercised prior to such record date or as otherwise
provided by this Warrant. The provisions of this section shall not apply to
distributions made in connection with transactions covered by ss. 5.
SECTION 8. FRACTIONAL SHARES.
The Company shall not be required to issue or cause to be issued
fractional shares on the exercise of this Warrant and any such fractional share
otherwise issuable shall be rounded down to the nearest whole share.
SECTION 9. FULLY PAID STOCK; VOTING RIGHTS UPON EXERCISE; TAXES.
(a) The Company covenants and agrees that the shares of its Common
Stock represented by each certificate to be delivered on the exercise of this
Warrant shall, at the time of such delivery, be validly issued and outstanding,
and be fully paid and nonassessable. The Company covenants and agrees that, upon
issuance of the Underlying Shares, the Underlying Shares shall have voting
rights equivalent to those of other shares of Common Stock.
(b) The Company covenants and agrees that it shall pay, when due and
payable, any and all federal and state issuance or transfer taxes that may be
payable in respect of this Warrant or any Common Stock or certificates issued
hereunder. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the transfer and delivery of
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stock certificates in the name other than that of the Holder, and any such tax
shall be paid by the Holder at the time of presentation.
SECTION 10. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of the Company for its Common Stock may be
closed. The Company shall not be required, however, to deliver stock
certificates upon such exercise while such books are duly closed for any
purpose, but the Company may postpone the delivery of such certificates until
the opening of such books. In such case, the certificates shall be delivered
promptly after the books are opened.
SECTION 11. REGISTRATION RIGHTS.
Section 11.1 Piggyback Registration. If at any time the Company
proposes for any reason to register (including for this purpose a registration
effected by the Company for securityholders other than the Holders of the
Warrants or Warrant Shares) securities under the Securities Act (not including
securities proposed to be registered pursuant to an employee benefits plan on
Form S-8 or pursuant to a reorganization, exchange offer or similar transaction
on Form S-4), it shall, each such time, promptly (but in no event less than 30
days prior to the proposed date of the filing of the registration statement
relating thereto) give written notice to the Holders of the Warrants and Warrant
Shares (collectively the "Eligible Securities") then outstanding of its
intention to do so, and, upon the written request, given within 20 days after
receipt of any such notice, of a Holder to register any of his Eligible
Securities, the Company shall cause all Eligible Securities with respect to
which Holders shall have so requested registration to be registered under the
Securities Act promptly upon receipt of the written request of such Holders for
such registration.
In the event that any registration pursuant to this ss. 11.1 shall be,
in whole or in part, an underwritten public offering of securities of the
Company registered under the Securities Act, the Company shall arrange for the
Eligible Securities requested to be registered pursuant to this ss. 11.1 to be
included in the underwriting. The inclusion of the Eligible Securities will be
on the same terms and conditions as the comparable securities, if any, otherwise
being sold through underwriters under such registration, or on terms and
conditions comparable to those normally applicable to offerings of such
securities in reasonably similar circumstances in the event that no securities
comparable to the Eligible Securities are being sold through underwriters under
such registration.
If the Company proposes to include in such underwritten public offering
any securities owned by any shareholder of the Company (such securities,
"Additional Securities") and the managing underwriter reasonably determines and
advises in writing that the inclusion in the offering of all of the securities
to be sold for the Company's account, the Eligible Securities covered by the
requests for registration made under this ss. 11.1, and the Additional
Securities would interfere with the successful marketing of the securities to be
sold for the Company's account, then (i) there shall first be excluded
Additional Securities proposed to be included and then (ii) the requisite number
of Eligible Securities proposed to be included shall be excluded from the
underwritten portion of the
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public offering, on a basis pro rata among the holders of the Eligible
Securities requesting such registration, and such excluded Securities shall be
withheld from the market by the holders thereof for a period which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten portion of the public offering.
Section 11.2. Registration Procedures. If and whenever the Company is
under an obligation pursuant to the provisions of ss. 11.1 to use its best
efforts to effect the registration of any Eligible Securities, the Company
shall, as expeditiously as practicable:
(i) prepare and file with the Commission a registration
statement with respect to such Eligible Securities
and use its best efforts to cause such registration
statement to become effective and remain effective
and current in compliance with the Securities Act for
a period of 90 days for a piggyback registration;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement
effective and current in compliance with the
Securities Act for the applicable period specified in
clause (i) of this ss. 11.2;
(iii) furnish to each selling stockholder such numbers of
copies of each prospectus (including each preliminary
prospectus) in conformity with the requirements of
the Securities Act, and such other documents such
selling shareholders shall reasonably request, to
facilitate the public offering of their Eligible
Securities;
(iv) register or qualify the Eligible Securities covered
by such registration statement under the securities
or blue sky laws of such jurisdictions as each such
seller shall reasonably request (provided that the
Company shall not be required to qualify to do
business or file a general consent to service of
process in any jurisdiction where it is not then
qualified to do business); and do any and all other
acts or things which may be reasonably necessary or
advisable to enable such seller to consummate the
public sale or other disposition in such
jurisdictions of such Eligible Securities until the
sale or other disposition of all Eligible Securities
covered by such registration statement;
(v) notify each selling shareholder any time a prospectus
is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (i)
of this ss. 11.2, of the happening of any event as a
result of which the prospectus included in such
registration statement, as then in effect, includes
or may include an untrue statement of material fact
or omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, and at the request of any
such seller, prepare and furnish to
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such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to
the purchasers of such Eligible Securities such
prospectus shall not include an untrue statement of a
material fact omit to state a material fact required
to be stated therein or necessary to make the
statements therein not misleading; and
(vi) furnish, at the request of any Holder or Holders
requesting registration pursuant to the terms hereof,
on or about the date that any Eligible Securities are
delivered to the underwriters for sale pursuant to
such registration or, if such Eligible Securities are
not being sold through underwriters, on the date that
the registration statement with respect to such
Eligible Securities becomes effective: (a) an
opinion, dated such date, of the counsel representing
the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the
Holder or Holders making such request, in form and
substance as is customarily given in an underwritten
public offering; and (b) a letter, dated such date,
from the independent certified public accountants of
the Company (the "Accountants"), addressed to the
underwriters, if any, and to the Holder or Holders
making such request, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering.
Section 11.3. Information to be Furnished by Holders. Prior to the
Company being obligated to register a particular prospective seller's Eligible
Securities pursuant to this Section 11, such seller shall furnish to the Company
such information and execute such documents regarding the Eligible Securities
held by such seller and the intended method of disposition thereof as the
Company shall reasonably request in connection with the action to be taken by
the Company.
Section 11.4. Expenses of Registration. The Company shall pay all
Registration Expenses in connection with each registration pursuant to ss. 11.1.
Section 11.5. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Holder, each of its officers, directors,
partners, agents, employees and controlling persons (within the meaning of the
Securities Act) and each person who participates as an underwriter or
controlling person of an underwriter (within the meaning of the Securities Act)
with respect to a registration statement pursuant to ss. 11.1 against any
losses, claims, damages or liabilities (or actions in respect thereof) to which
any of them may become subject under the Securities Act or otherwise insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact in a registration statement including any Eligible
Securities, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or in any application or other document
(such applications and documents are hereinafter collectively called
"Applications") filed in any jurisdiction in order to qualify all or part of the
Eligible Securities under the securities laws thereof or filed with the
Commission or the NASD, or arise out of or are based upon the omission or
alleged omission to
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state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse any of them for any
legal or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable hereunder in any such
case if any such loss, claim, damage, or liability arises out of or is based
upon any such untrue statement or allegedly untrue statement or such omission or
alleged omission made in such registration statement, prospectus or amendment or
supplement thereto or in any Application in reliance upon and in conformity with
written information furnished to the Company by such Holder for inclusion
therein; provided, however, that the indemnity agreement contained in this
paragraph of this ss. 11.5 shall not apply to amounts paid in settlement of any
loss, claim, damage, liability, action or violation if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld).
(b) To the extent permitted by law, each Holder whose Eligible
Securities are registered on any registration statement of the Company pursuant
to ss. 11.1 shall indemnify and hold harmless the Company, each of its officers,
directors, partners, agents, employees and controlling persons (within the
meaning of the Securities Act) with respect to a registration statement pursuant
to ss. 11.1 against any losses, claims, damages or liabilities (or actions in
respect thereof) to which any of them may become subject under the Securities
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact, or omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, made in such registration statement, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto or in any Application, in reliance upon and in conformity
with written information furnished to the Company by such Holder for inclusion
therein, and will reimburse any of them for any legal or other expenses
reasonably incurred by them in connection with investigation or defending, any
such loss, claim, damage, liability or action, provided that the obligation of
each Holder under this ss. 11.5 shall be limited to an amount equal to the net
proceeds to such Holder of the Eligible Securities sold pursuant to such
registration statement, provided, however, that the indemnity agreement
contained in this paragraph of this ss. 11.5 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability, action or violation if such
settlement is effected without the Holder's consent (which consent shall not be
unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this ss. 11.5
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in and to assume the defense thereof
at its expense with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this ss.
11.5, but the omission so to notify the indemnifying party will not relieve such
party of any liability that such party may have to any indemnified party other
than under this ss. 11.5.
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(d) If the indemnification provided for in this ss. 11.5 is unavailable
to or insufficient to hold harmless an indemnified party under subsections (a)
and (b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits and relative fault of the Company
on the one hand and the Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Holder on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total net proceeds received by the
Holder. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Holder on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this ss. 11(d) were determined by pro rata
allocation (even if all Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this ss. 11(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions or proceedings in respect thereto) referred to above in
this ss. 11(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 11.6. Underwriting Agreement. If Eligible Securities are to be
sold pursuant to a registration statement in an underwritten offering pursuant
to ss. 11.1, the Company agrees to enter into an underwriting agreement
containing customary representations and warranties with respect to the business
and operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including, without
limiting the generality of the foregoing, customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
Section 11.7. Future Registration Rights. If, subsequent to the date
hereof, the Company grants piggyback registration rights to holders or
prospective holders of its securities to include their securities on any
registration statement proposed to be filed by the Company at the demand of the
Holders made under this Agreement, such piggyback registration rights shall
provide for the exclusion of such holders' securities from the registration
statement if the managing underwriter of the offering proposed to be made of the
Eligible Securities determines that the inclusion of such holders' securities
would be seriously detrimental to the offering of the Eligible Securities or, if
all or part of the offering
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of Eligible Securities is not to be underwritten, the Holders of more than 50%
of the Eligible Securities to be included in the registration statement so
determine.
If, subsequent to the date hereof, the Company grants demand
registration rights to holders or prospective holders of its securities to
demand that the Company register any securities of the Company under the
Securities Act, such demand registration rights shall be granted under and
subject to the piggyback registration right of the Holders to include all or
part of their Eligible Securities in any such registration on the terms and
conditions of ss. 11.1.
SECTION 12. LOST, STOLEN WARRANTS, ETC.
If this Warrant shall be mutilated, lost, stolen or destroyed, the
Company shall issue a new Warrant of like date, tenor and denomination and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant, or in lieu of the Warrant lost, stolen or
destroyed, upon receipt of evidence satisfactory to the Company of the loss,
theft or destruction of such Warrant, and upon receipt of indemnity satisfactory
to the Company.
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid,
such decision shall not affect the validity of any remaining portion, which
shall remain in force and effect as if this Warrant had been executed with the
invalid portion thereof eliminated. It is hereby declared the intention of the
parties hereto that they would have executed and accepted the remaining portion
of this Warrant without including therein any such part, parts or portion which
may, for any reason, be hereafter declared invalid.
SECTION 14. MISCELLANEOUS.
14.1. Notices. Any notice, demand or delivery to be made pursuant to
the provisions of this Warrant shall be in writing and (a) shall be deemed to
have been given or made one day after the date sent (i) if by the Company, by
prepaid overnight delivery, addressed to the Holder at his last known address
appearing on the books of the Company maintained for such purpose or (ii) if by
the Holder, by prepaid overnight delivery, addressed to the Company at P. O. Box
1903, 2703 College Avenue, Goshen, Indiana 46526; and (b) if given by courier,
confirmed telegram, confirmed facsimile transmission or confirmed telex shall be
deemed to have been made or given when received. The Holder and the Company may
each designate a different address by notice to the other in the manner provided
in this ss. 14.1.
14.2. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Company and the Holder. The provisions of this Warrant
are intended to be for the benefit of the Holder of this Warrant or the Warrant
Shares and shall be enforceable by the Holder.
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14.3. Amendments. This Warrant may not be modified, supplemented,
varied or amended except by an instrument in writing signed by the Company and
the Holder.
14.4. Headings. The index and the descriptive headings of sections of
this Warrant are provided solely for convenience of reference and shall not, for
any purpose, be deemed a part of this Warrant.
14.5. Governing Law. THIS WARRANT AND ALL MATTERS CONCERNING THIS
WARRANT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF INDIANA FOR CONTRACTS
ENTERED INTO AND TO BE PERFORMED IN SUCH STATE WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
14.6. Exclusive Jurisdiction. Each party, and each express beneficiary
of this Warrant as a condition of its right to enforce or defend any right under
or in connection with this Warrant, (1) agrees that any action with respect to
this Warrant or any transaction contemplated by this Warrant shall be brought
exclusively in the courts of the State of Indiana, City of Goshen or of the
United States of America sitting in the State of Indiana, City of Goshen, (2)
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of those courts, (3) agrees that service of
process may be made on such party, or such express beneficiary, as the case may
be, by prepaid certified mail with a proof of mailing receipt validated by the
United States Postal Service constituting evidence of valid service, and that
service made pursuant to this clause (3) shall have the same legal force and
effect as if served upon such person personally within the State of Indiana, and
(4) irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which it may now or hereafter have to the bringing of any legal
action in those jurisdictions; provided, however, that any party may assert in
an action in any other jurisdiction or venue each mandatory defense, third-party
claim or similar claim that, if not so asserted in such action, may thereafter
not be asserted by such party in an original action in the courts referred to in
clause (1) above.
* * * * * *
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EXHIBIT A
ANTI-DILUTION PROVISIONS
1. Anti-Dilution Provisions. The Underlying Shares shall be subject to
change or adjustment as follows:
(a) Common Stock Dividends, Subdivisions, Combinations. If the
Company shall (i) pay or make a dividend or other distribution to all holders of
its Common Stock in shares of Common Stock, (ii) subdivide, split or reclassify
the outstanding shares of its Common Stock into a larger number of shares, or
(iii) combine or reclassify the outstanding shares of its Common Stock into a
smaller number of shares, then in each such case the Underlying Shares shall be
adjusted to equal the number of such shares to which the Holder of this Warrant
would have been entitled upon the occurrence of such event had this Warrant been
exercised immediately prior to the happening of such event or, in the case of a
stock dividend or other distribution, prior to the record date for determination
of such Shareholder entitled thereto. An adjustment made pursuant to this
paragraph 1 shall become effective immediately after such record date, in the
case of a dividend or distribution, and immediately after the effective date, in
the case of a subdivision, split, combination or reclassification.
(b) Reorganization or Reclassification. In case of any capital
reorganization or any reclassification of the Common Stock of the Company
(whether pursuant to a merger of consolidation or otherwise), this Warrant shall
thereafter be exercisable for the number of shares of stock or other securities
or property receivable upon such capital reorganization or reclassification of
Common Stock, as the case may be, by a holder of the number of shares of Common
Stock into which this Warrant was exercisable immediately prior to such capital
reorganization or reclassification of Common Stock; and, in any case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the Holder of
this Warrant to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the exercise of this
Warrant.
(c) Distributions of Assets or Securities Other Than Common
Stock. In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any of its capital stock (other than
Common Stock), rights or warrants to purchase any of its securities, cash, other
assets or evidences of its indebtedness, then in each such case the Underlying
Shares shall be adjusted by multiplying the Underlying Shares immediately prior
to the date of such dividend or distribution by a fraction, of which the
numerator shall be the fair market value per share of Common Stock at the record
date for determining shareholders entitled to such dividend or distribution, and
of which the denominator shall be such fair market value per share less the fair
market value (as determined in good faith by the Board of Directors of the
Company) of the portion of the securities, cash, assets or evidences of
indebtedness so distributed applicable to one share of Common Stock.
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An adjustment made pursuant to this subparagraph (c) shall become effective
immediately after such distribution date.
(d) No Impairment. The Company shall not, without the prior
consent of the Holder, by amendment of its Articles of Incorporation or through
any reorganization, transfer of the assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in the carrying out of all the provisions of this paragraph 1 and in the taking
of all such action as may be necessary or appropriate in order to protect the
exercise rights of the Holder against impairment.
(e) Readjustment. Upon the termination of any right of
conversion or exchange of any securities convertible into or exchangeable for
Common Stock, or upon the expiration of any rights or options to purchase Common
Stock (other than this Warrant) or any securities convertible into or
exchangeable for Common Stock, or upon any change in the number of shares of
Common Stock issuable upon exercise, conversion or exchange of any such
securities, rights or options, the Underlying Shares then in effect shall
forthwith be readjusted to such Underlying Shares as would have been in effect
had the adjustments made upon the issuance or sale of such securities, rights or
options been made upon the basis of the issuance of only the number of shares of
Common Stock actually issued or to be issued upon the exercise, conversion or
exchange or such securities, rights or options.
2. Notice of Certain Corporation Transactions. The Company shall
promptly mail to the Holder a notice of any proposed dividend, merger,
dissolution, liquidation or winding up of the Company, stating the proposed
record date (if any) or effective date for any such transaction and briefly
describing the transaction.
3. Certificate of Adjustment. Upon the occurrence of each adjustment or
readjustment pursuant to this Exhibit A, the Company (acting through its Board
of Directors in the exercise of its reasonable discretion), at its expense,
shall as promptly as practicable compute such adjustment or readjustment in
accordance with the provisions of this Exhibit A, and prepare and furnish to the
Holder a certificate setting forth such adjustment or readjustment and showing
in reasonable detail the facts upon which such adjustment or readjustment in
based.
4. Information to be Furnished Upon Request. Upon the request at any
time of the Holder, the Company shall as promptly as practicable furnish or
cause to be furnished, to the Holder, at his address set forth in such request,
a certificate setting forth the number of shares of Common Stock that at the
time would be received upon the exercise of the Warrant and the Exercise Price
thereof.
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EXERCISE NOTICE
TO STARCRAFT CORPORATION:
The undersigned registered holder of the within Warrant hereby
irrevocably exercises the Warrant, purchases thereunder __________ shares of the
Common Stock of the Company, herewith makes payment of $__________ therefor, and
requests that the certificate(s) for such shares be issued in the name of the
undersigned Holder or its nominee and delivered to it at Holder's address on the
books of the Company.
Signature: _____________________________
Printed Name: __________________________
Dated: ________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered Holder of the within
Warrant hereby sells, assigns and transfers unto __________________ the Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint
_________________ attorney to transfer the Warrant on the books of the Company.
Signature: _____________________________
Printed Name: __________________________
Dated: _________________________________
Exhibit 11
Computation of Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
- ----------------------------------------------------------------------------------------------------------------------------
September 27, 1998 September 28, 1997 September 29, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Primary Average Shares Outstanding 4,134 4,127 4,142
Net Effect of Dilutive Stock Options
- based on the treasury stock method using
average market price -- -- --
-------- -------- --------
Total 4,134 4,127 4,142
======== ======== ========
Net Income (Loss) $ (6,759) $(11,302) $ 110
======== ======== ========
Per Share Amount $ (1.63) $ (2.74) $ 0.03
======== ======== ========
Fully Diluted Average Shares Outstanding 4,134 4,127 4,142
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 4,134 4,127 4,142
======== ======== ========
Net Income (loss) $ (6,759) $(11,302) $ 110
======== ======== ========
Per Share Amount $ (1.63) $ (2.74) $ 0.03
======== ======== ========
</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
5. Tecstar, Inc. (51% owned)
State of Incorporation: Indiana
EXHIBIT 23a
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
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 November
23, 1998, with respect to the consolidated financial statements of Starcraft
Corporation and Subsidiaries included in the Annual Report (Form 10-K) for the
year ended September 27, 1998.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
January 12, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Starcraft Corporation and Subsidiaries
Goshen, Indiana
We have audited the consolidated financial statements of Starcraft Corporation
and Subsidiaries as of September 27, 1998 and for the year then ended and have
issued our report thereon dated November 23, 1998. Our audit also included the
information for the year ended September 27, 1998 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 year
ended September 27, 1998 set forth therein.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
November 23, 1998
Exhibit 23.b
Consent of Independent Auditors
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 8, 1999
<PAGE>
Exhibit 23.b
Report of Independent Auditors
To the Board of Directors
Starcraft Corporation
We have audited the consolidated financial statements of Starcraft Corporation
and Subsidiaries as of September 28, 1997 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 September 28,
1997 and for each of the two years in the period ended September 28, 1997 set
forth therein.
\s\ Ernst & Young
January 12, 1998
Fort Wayne, Indiana
<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 27, 1998 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-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,369
<SECURITIES> 0
<RECEIVABLES> 7,186
<ALLOWANCES> 40
<INVENTORY> 10,857
<CURRENT-ASSETS> 19,773
<PP&E> 12,151
<DEPRECIATION> 4,305
<TOTAL-ASSETS> 29,015
<CURRENT-LIABILITIES> 14,371
<BONDS> 10,777
<COMMON> 14,016
0
0
<OTHER-SE> (10,480)
<TOTAL-LIABILITY-AND-EQUITY> 29,015
<SALES> 53,092
<TOTAL-REVENUES> 53,092
<CGS> 49,590
<TOTAL-COSTS> 49,590
<OTHER-EXPENSES> 9,548
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<INTEREST-EXPENSE> 892
<INCOME-PRETAX> (6,838)
<INCOME-TAX> (79)
<INCOME-CONTINUING> (6,759)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,759)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>
