SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1996 or ( )
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ________ to ________ Commission File
Number 1-13586
THE MORGAN GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2902315
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
2746 Old U.S. 20 West
Elkhart, Indiana 46515-1168
Registrants telephone number include area code: (219) 295-2200
Securities Registered Pursuant to Section 12(b) of the Act:
Class A Common Stock, without par value
(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 is not contained herein, and will not be contained, to the
best of Registrants 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 March 27, 1997 was _______________. The number of shares
of the Registrant's Class A Common Stock $.015 par value and Class B Common
Stock $.015 par value, outstanding as of March 27 1997, was _________ shares,
and _______ shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are
incorporated into Part III of this report.
Exhibit Index on Pages ________
Page 1 of Pages
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Part I
Item 1. BUSINESS
Overview
The Morgan Group, Inc. (The Company) is the leading provider of
outsourcing transportation services to the manufactured housing, motor homes,
and commercial truck industries in the United States and through its wholly
owned subsidiary, Morgan Drive Away, Inc. (Morgan) has been operating since
1936. The Company provides outsourcing transportation services through a
national network of approximately 1,720 independent owner operators and
approximately 1,300 driveaway drivers. The Company dispatches its drivers from
115 offices located in 35 states. The Company's largest customers include
Fleetwood Enterprises, Inc., Oakwood Homes Corporation, Winnebago Industries,
Inc., Champion Enterprises, Cavalier Homes, Inc., Clayton Homes, Schult Homes,
Ryder Systems, and Skyline Corporation. The Company's services also include
transporting other products, including commercial vehicles and office trailers,
and providing certain insurance and financing services to its owner operators.
As further described below, the Company's strategy is to grow through
expansion in the niche businesses already being serviced with heavy emphasis on
driver outsourcing, along with pursuing acquisitions of niche transportation
carriers who are servicing their customer base with unique service and/or
equipment. In addition, the Company will look to expand insurance product
offerings to drivers through its subsidiary Interstate Indemnity Company
(Interstate) and to broaden its financing activities through Morgan Finance,
Inc. (Finance).
Morgan, the Company's principal subsidiary, was founded in 1936 in
Elkhart Indiana and incorporated in 1943. The Morgan Group, Inc. is a Delaware
corporation formed by Lynch Corporation in 1988 to acquire Morgan and
Interstate, a wholly owned captive insurance company. In 1994, the Company
formed Finance for the purpose of offering financing to owner operators. In
1995, the Company acquired the assets of Transfer Drivers, Inc. (TDI), a
Northern Indiana-based driver outsourcing company. TDI, with revenue in excess
of $8.5 million and more than 265 drivers, is a market leader in the fragmented
outsourcing service business focusing on relocation of rental equipment for
customers such as Ryder Systems, Budget Rentals, and Penske Leasing, and also
delivering new equipment from manufacturers including Utilimaster, Grumman
Olson, and Bluebird Bus.
On December 30, 1996, Morgan acquired the assets of Transit Homes of
America, Inc., a national outsourcing company of manufactured housing located in
Boise, Idaho. Transit, with revenue in excess of $25 million and 358 drivers,
provides outsourcing transportation services to Fleetwood Enterprises, Champion
Enterprises, Palm Harbor, Schult Homes, and Cavalier Homes.
The Company decided in the fourth quarter of 1996 to discontinue the
truckaway operation of the Specialized Transport Division. Truckaway is a line
of business that transported van conversions, tent campers, and other automotive
products on company-owned equipment. The equipment being held for sale includes
6
<PAGE>
tractors, 74 drop deck trailers, 15 car carrier trailers, 22 tent camper
trailers, and 112 lowboy and miscellaneous trailers. In addition, there are 13
tractors and 9 tent camper trailers currently financed under operating leases.
As of December 31, 1996, there were approximately 110 independent contractors
and 19 company drivers assigned to the truckaway operation. The truckaway
operation had revenues of $12,900,000, $14,400,000, and $20,600,000 and
estimated losses of $1,800,000, $1,200,000, and estimated profits of $1,200,000
for the years ending December 31, 1996, 1995, and 1994, respectively.
The Company's principal office is located at 2746 Old U.S. 20 West,
Elkhart, Indiana 46514; the telephone number is (219) 295-2200.
<PAGE>
Industry Information
The Company's business is substantially dependent upon the manufactured
housing industry which experienced its fifth successive year of growth in 1996.
The recent decision to discontinue the truckaway operation, which transported
van conversions and tent campers, has resulted in the Company being less
dependent on the recreational vehicle industry.
Manufactured Housing.
The largest portion of the Company's carrier revenues are derived from
transportation of manufactured housing, primarily new manufactured homes. Unit
shipments by the manufactured housing industry (considering double-wide homes as
two shipments) in the U.S. increased by approximately 9% to 553,000 in 1996 from
506,000 in 1995, after 12% and 21% increases in 1995 and 1994, respectively,
according to data from the Manufactured Housing Institute (MHI). A manufactured
home is an affordable housing alternative. The Company believes the manufactured
housing industry production should continue to grow along with the general
economy, especially while employment statistics and consumer confidence remain
strong. The Company believes that the principal economic consideration of the
typical manufactured home buyer is the monthly payment required to purchase a
manufactured home and that purchasers are generally less affected by incremental
increases in interest rates than those purchasers of site built homes. There is
no assurance, however, that manufactured housing production will continue to
increase.
Recreational Vehicles.
Recreational Vehicles (defined as travel trailers, motor homes, tent
campers, and truck and van conversions) declined 1% in 1996 to 376,000 from
380,000 shipments in 1995 after declines of 11% in 1995, and a 5% increase in
1996. This data is obtained from the Recreational Vehicle Industry Association
(RVIA). RVs are discretionary purchases, sales of which are cyclical and tied
closely with overall consumer confidence in the economy, and, in particular,
consumers expectations as to the availability and price of motor fuel. Consumer
interest rates remain relatively low which make RVs easier for purchasers to
finance. There is no assurance, however, that the current economic environment
will continue to support RV production.
Company Services
Based on industry shipment data available from the MHI and RVIA, and
the Company's knowledge of the industry and its principal competitors, the
Company believes that it is the largest transporter of both manufactured homes
and provider of driver outsourcing services to the motor home markets in the
United States. In addition to new manufactured housing and RVs, the Company
transports used manufactured homes, commercial vehicles, rental trucks, office
trailers, new and used semi-trailers and other miscellaneous commodities. The
Company provides its specialized transportation services as follows:
<PAGE>
Manufactured Housing Group. The Manufactured Housing Group (Housing Group)
which includes Transamerican Carriers acquired in 1993 and Transit Homes
acquired in 1996, provides specialized transportation to companies which
produce new manufactured homes, modular homes, and office trailers. In
addition, the Housing Group transports used manufactured homes and offices
for individuals, businesses, and the U.S. Government. The Housing Group
ships product through approximately 1,300 independent owner operators who
drive compact semi-tractors, referred to as toters, used in manufactured
housing transportation to reduce combined vehicle length. Makers of
manufactured housing generally ship their products no more than a few
hundred miles from their production facilities. Therefore, to serve the
regional structure of this industry, the Company positions its dispatch
offices close to the production facilities it is serving. Approximately 28
of the Company's dispatch offices are located in such a manner to serve the
needs of a single manufactured housing producer. Most manufactured housing
units, when transported by a toter require a special permit prescribing the
time and manner of transport for over-dimensional loads. See
Business-Regulation. The Company obtains for its owner operators the
permits required for each shipment from each state through which the
shipment will pass.
Driver Outsourcing Group. The Driver Outsourcing Group (Outsourcing Group)
engages the services of approximately 1,300 drivers which are outsourced to
customers to drive motor homes (RVs), new commercial vehicles, and rental
units. The TDI acquisition, which occurred in May of 1995, added over 265
drivers to Morgans existing driver outsourcing base. In 1996, the
Outsourcing Group delivered approximately 58,000 units through the use of
these drivers.
Specialized Transport Group. In 1996, the Specialized Transport Division
moved a variety of specialized vehicles, including automobiles,
semi-trailers, military vehicles, travel trailers and other commodities by
utilizing specialized equipment. A decision was made in the fourth quarter
to discontinue the truckaway sector of the Specialized Transport Division,
which moved van conversions, automobiles, and tent campers by utilizing
company-owned trailers. Subsequent to the discontinuation of the truckaway
business, the Company will have 70 owner operators who own tractors and 185
pick-up truck owner operators assigned to Specialized Transport. These
independent owner operator dispatches are coordinated through ten offices.
Other Services. Other services provided include permit ordering services
principally for manufactured housing customers and, to a lesser degree,
installation services related to the set up of relocated manufactured
homes. The Company also currently provides physical damage insurance and
certain other insurance protection to the owners of equipment under lease
to the Company through a captive insurance subsidiary. Since the primary
risk for the most part
<PAGE>
is then re-insured, the Company service is primarily that of a broker. In
addition, the Company provides financing and certain guarantees of equipment
loans through its finance subsidiary.
Selected Operating Information
The following tables set forth operating information with respect to the
aforementioned Company services for each of the five years ended December 31,
1996.
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Manufactured Housing Group:
Shipments 80,587 95,184 121,604 135,750 144,601
Revenues (in thousands) $ 32,324 $ 39,930 $ 53,520 $ 63,353 $ 72,616
Driver Outsourcing:
Shipments 23,636 30,978 32,060 49,885 58,368
Revenues (in thousands) $ 8,055 $ 13,416 $ 15,197 $ 19,842 $ 23,090
Specialized Transport:
Shipments 39,706 38,618 41,934 44,406 41,255
Revenues (in thousands) $ 24,016 $ 25,835 $ 28,246 $ 29,494 $ 26,169
Other service revenues $ 2,721 $ 3,612 $ 4,917 $ 9,614 $ 10,333
Total operating revenues
(in thousands) $ 67,116 $ 82,793 $101,880 $122,303 $132,208
</TABLE>
Industry Participation.
The following tables set forth participation in the two principal markets the
Company operates in where industry information is available:
<TABLE>
<CAPTION>
Manufactured Homes 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Industry production (1) 309,457 374,126 451,646 505,819 553,133
Shipments 60,381 76,188 98,181 114,890 121,136
Shares of units shipped 19.5% 20.4% 21.7% 22.7% 21.9%
Recreational Vehicles
Industry production (2) 369,200 406,300 426,100 380,300 376,400
Units moved (3 62,012 71,792 67,502 64,303 57,703
Shares of units shipped (3) 16.8% 17.7% 15.8% 16.9% 15.3%
</TABLE>
(1) Based on reports of Manufactured Housing Institute (MHI). To calculate
shares of homes shipped, the company assumes two unit shipments for
each multi-section homes.
(2) Based on reports of Recreational Vehicle Industry Association (RVIA),
excluding van campers, truck campers, pick-up truck conversions, and
sport utility vehicle conversion. RVIA began reporting truck and sport
utility vehicle conversions in their industry shipment data in 1994.
(3) Shares of units shipped calculation includes travel trailers, two types
of motor homes, van conversions, and tent campers and truck conversions
in 1994, 1995, and 1996. The Company's shares of units shipped are
based on units moved compared to industry production rather than
shipments because certain RV shipments include more than one unit per
move.
<PAGE>
Growth Strategy
The Company's strategy is to focus on the profitable core
transportation services (manufactured housing and driver outsourcing) so that
revenues and profitability can grow in its area of substantial market position.
The Company will also look for opportunities to capitalize and/or grow its
strong market position in manufactured housing and driver outsourcing through
acquisitions if suitable opportunities arise. In addition, to enhance the
Company's profitability, it plans to reconstruct the corporate organization with
the purpose of giving higher focus to the two major operating groups and
reducing costs.
Manufactured Housing Growth. The Company believes it can take better
advantage of its position in the manufactured housing industry in its
relationship with manufacturers, retailers, dealers, and independent
owner operators, by expanding the service it offers within its
specialized business. The Company proposes to pursue opportunities to
offer new services, which may include financial, insurance, and to a
lessor degree, manufactured housing set up services. The recent
Morgan/Transit combination expands opportunities to increase revenues,
improve margins and further strengthen customer relationships. Morgan
and Transit now combined can serve the market better and operate more
efficiently. The acquisition of Transit could lead to additional
operating efficiencies and economies of scale from Morgan's ability to
apply information technology, administrative processes, driver and
staff training, safety and other programs across a larger operation.
These expanded capabilities should also enable the Company to make more
efficient use of our operating equipment. The Company may also pursue
the purchase of certain manufacturers' private transport fleets. In
such a case, the Company would typically purchase the customers'
tractors, sell the equipment to interested drivers, and then engage
these drivers as independent owner operators.
Driver Outsourcing. It is estimated that approximately 750,000 vehicles
are delivered each year through driveaway services, a delivery market
estimated at $500 million or more. The number of vehicles to be
outsourced are expected to increase substantially as companies
calculate the cost benefits in not maintaining their own driver corps,
paying salaries and benefits, running dispatch points, and maintaining
an equipment base. Unlike companies with drivers on their payroll,
Morgan's drivers are paid only when deliveries are made. Morgan's
growth strategy within this market is to expand its leading market
position in this highly fragmented delivery transportation market. The
future growth rate of the Company's driver outsourcing business, which
has a 36% average growth rate over the last five years, is dependent
upon continuing to add major vehicle manufacturer customers and
utilization of the Company's 1,300 driveaway drivers.
Reconstruct for Margin Improvement. In the fourth quarter of 1996, the
Company made a decision to exit the truckaway division which
transported van conversions, tent campers, and other automotive
products utilizing company-owned equipment. The decision to sell the
truckaway division was in
<PAGE>
line with the Company's growth strategy to focus on profitable operations
where the Company has a dominant market position. The Company is in the
process of reconstructing its organization to change the emphasis from a
centralized operation to a profit driven divisional and field operation
focused on bottom line management. This reconstruction could lead to
reduced overhead, especially in centralized corporate operations,
management will continue to scrutinize every facet of operations as the
Company searches for ways to run the business with greater efficiency, both
to enhance management processes and customer relationships, and to reduce
or eliminate costs wherever possible.
Acquisitions. The Company is actively considering acquisition opportunities
within the manufactured housing and driver outsourcing lines of business.
Thus, the Company may consider acquiring regional or national firms which
service the manufactured housing and/or the driver outsourcing industry.
The Company is continuously reviewing potential acquisitions and is engaged
in negotiations from time to time. There can be no assurance that any
future acquisitions will be effected, or, if effected, can be successfully
integrated with the Company's business.
Expansion of Related Services. The Company believes it can take better
advantage of its position in the manufactured housing and RV industries,
and its relationships with manufacturers, retailers, dealers, and
independent owner operators, by expanding the services it offers within its
specialized business. The Company proposes to pursue opportunities to offer
new financial, insurance or other services.
The Company is currently offering financing opportunities to selected
existing and new owner operators, through Morgan Finance, a financial
subsidiary created in 1994 to support these activities. In 1995, Morgan
formed an alliance with a financial institution which is providing
financing to Morgan owner operators for tractor purchases, and in return,
Morgan has entered into a limited guarantee agreement. These equipment
financing programs are expected to solidify the Company's relationships
with independent owner operators, increase its fleet, and further expand
the Company's transportation capacity. The Company also offers insurance
services to independent owner operators.
The Company may begin offering new insurance products as a managing
general agent. The Company's insurance subsidiary may determine to accept a
limited portion of the underwriting risk, retaining an appropriate
proportion of the premiums.
The Company will carefully consider the feasibility of these and similar
opportunities over the next year. If the Company is successful in offering new
services such as these, it expects to enhance and diversify its revenues and may
reduce its vulnerability to broad production cycles in the industries it serves.
The Company cannot give any assurance that new services, if any, will be
profitable and such new services may result in operating losses.
<PAGE>
Forward-Looking Discussion
In 1997, the Company could benefit from (i) the acquisition of Transit
Homes of America which consolidates our long-standing position as the absolute
leader in the delivery of outsourcing transportation services to the
manufactured housing industry, (ii) the closing of the Truckaway Division, which
cost the Company approximately $1,800,000 in 1996, (iii) reduction of overhead
through corporate restructuring, and (iv) improvement of our safety record.
Business expansion, including possible acquisitions, could augment operating
revenue gains. While the Company remains optimistic over the long term, near
term results could be affected by a number of internal and external economic
conditions.
This report contains a number of forward-looking statements, including
those contained in the preceding and growth stragey paragraph. From time to
time, the Company may make other oral or written forward-looking statements
regarding its anticipated sales, costs, expenses, earnings and matter affecting
its condition and operations. 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:
Dependent on Manufactured Housing. Shipments of manufactured housing have
historically accounted for a substantial majority of the Company's
operating revenues. Therefore, the Company's prospects are substantially
dependent upon this industry which is subject to broad production cycles.
Shipments by the manufactured housing industry could decline in the future
relative to historical levels which could have adverse impact on the
Company's revenues.
Costs of Accident Claims and Insurance. Traffic accidents occur in the
ordinary course of the Company's business. Claims arising from such
accidents can be significant. Although the Company maintains liability
insurance and cargo damage insurance, the number and severity of the
accidents involving the Company's owner operators and drivers can have
significant adverse effect on the profitability of the Company through
premium increases and amounts of loss retained by the Company below
deductible limits or above its total coverage. There can be no assurance
that the Company can continue to maintain its present insurance coverage on
acceptable terms nor that the cost of such coverage will not increase
significantly.
Customer Contracts and Concentration. Historically, a majority of the
Company's revenues have been derived under contracts with customers. Such
contracts generally have one to three year terms. There is no assurance
that customers will agree to renew their contracts on acceptable terms or
on terms as favorable as these currently in force. The Company's top ten
customers have historically accounted for a majority of the Company's
revenues. The loss of one or more of these significant customers could
adversely affect the Company's results of operations.
<PAGE>
Competition for Qualified Drivers. Recruitment and retention of qualified
drivers and owner operators is highly competitive. The Company's contracts
with owner operators are terminable by either party on ten days notice.
There is no assurance that the Company's drivers will continue to maintain
their contracts in force or that the Company will be able to recruit a
sufficient number of new drivers on terms similar to those presently in
force. The Company may not be able to engage a sufficient number of new
drivers to meet customer shipment demands from time to time, resulting in
loss of revenue that might otherwise be available to the Company.
Independent Contractors, Labor Matters. From time to time, tax authorities
have sought to assert that independent contractors in the transportation
service industry are employees, rather than independent contractors. Under
existing interpretations of federal and state tax laws, the Company
maintains that its independent contractors are not employees. There can be
no assurance that tax authorities will not challenge this position, or that
such tax laws or interpretations thereof will not change. If the
independent contractors were determined to be employees, such determination
could materially increase the Company's tax and workers compensation
exposure.
Risks of Acquisitions and Diversification. The Company has sought and will
continue to seek favorable acquisition opportunities. Its strategic plans
may also include the initiation of new services or products, either
directly or through acquisition, within its existing business lines or
which complement its business. There is no assurance that the Company will
be able to identify favorable acquisition opportunities in the future or as
to the terms of any such acquisition. There is no assurance that the
Company's recent or future acquisitions will be successfully integrated
into its operations or that they will prove to be profitable for the
Company. Similarly, there is no assurance that any new products or
services, individually or in the aggregate, could materially change the
Company's results of operations, financial condition and capital
requirements. Such changes could have a material adverse effect on the
Company.
Seasonality and General Economic Conditions. The Company's operations have
historically been seasonal, with generally higher revenues generated in the
second and third quarters than in the first and fourth quarters. A smaller
percentage of the Company's revenues are generated in the winter months in
areas where weather conditions limit highway use. The seasonality of the
Company's business may cause a significant variation in its quarterly
operating results. Additionally, the Company's operations are affected by
fluctuations in interest rates and the availability of credit to purchasers
of manufactured homes and motor homes, general economic conditions, and the
availability and price of motor fuels.
<PAGE>
Regulation. The Company's insurance subsidiary is regulated by the Vermont
Department of Banking, Insurance and Securities. There can be no assurance
that changes in state or federal regulations will not adversely affect the
Company.
Customers and Marketing
The Company's customers for transport of new manufactured homes,
recreational vehicles, and commercial vehicles are located in various parts of
the United States. The Company's largest manufactured housing customers include
Fleetwood Enterprises, Inc., Oakwood Homes Corporation, Cavalier Homes, Inc.,
Skyline Corporation, Clayton Homes, Champion Enterprises, Inc., Patriot Homes,
and Schult Homes. The Company's largest driver outsourcing customers include
Fleetwood Enterprises, Winnebago Industries, Inc., Thor Industries, Holiday
Rambler, and Ryder Systems. The specialized transport division customers, after
the discontinuance of the truckaway operation, include Utility Trailer, Great
Dane, Strick Corporation, Hale Trailer, Fleetwood Enterprises, Thor Industries,
Skyline Corporation, and Coachmen Industries. While most manufacturers rely
solely on carriers such as the Company, other manufacturers operate their own
equipment and may employ outside carriers only for that portion of their needs.
A substantial portion of the Company's revenues are generated under one -
five year contracts with producers of manufactured homes, RVs, and other
products. In these contracts, the manufacturers agree that a specific percentage
(up to 100%) of their transportation service requirements from a particular
location will be performed by the Company on the basis of a prescribed rate
schedule, subject to certain adjustments to accommodate increases in the
Company's transportation costs. Revenues generated under customer contracts in
1994, 1995, and 1996 were 57%, 58%, and 62% of total revenues, respectively.
The Company's ten largest customers all have been served for at least three
years and account for approximately 68% of its revenues. Revenues under contract
with one such customer, Fleetwood Enterprises, Inc. (Fleetwood), accounted for
27%, 24%, and 20% of revenues in 1994, 1995, and 1996, respectively. The
Fleetwood RV contracts are re-negotiated on a regional basis when they expire
and the Fleetwood manufactured housing contracts are continuous until canceled.
The Company has been servicing Fleetwood for over 25 years.
The Company markets and sells its services through 11 regional offices and
127 dispatch offices located in 35 states, concentrated where manufactured
housing and RV production facilities are located. Marketing support personnel
are located both at the Company's Elkhart, Indiana headquarters and at regional
offices. Dispatch offices are supervised by regional offices.
The Company has 34 dispatch offices devoted primarily to a single customer
facility. This allows the dispatching agent and local personnel to focus on the
needs of each individual customer while remaining supported by the Company's
nationwide operating structure. Sales personnel at regional offices and at the
corporate headquarters meet periodically with manufacturers to review production
schedules and requirements and maintain contact with customers shipping
personnel. Senior management maintains personal contact with corporate officers
of the Company's largest customers. Regional and terminal personnel also
<PAGE>
develop relationships with manufactured home park owners, retail dealers,
military installation officials and others to promote the Company's shipments of
used manufactured homes. The Company also participates in industry trade shows
throughout the country and advertises in trade magazines, newspapers, and
telephone directories.
Independent Owner Operators
The shipment of product by both the Manufactured Housing Group and
Specialized Transport Group is conducted by contracting for the use of the
equipment of independent owner operators.
Owner operators are independent contractors who own toters, tractors or
pick-up trucks which they contract to, and operate for, the Company on a
long-term basis. Independent owner operators are not generally approved to
transport commodities on their own in interstate or intrastate commerce. The
Company, however, possess such approvals and/or authorities (see
Business-Regulation), and provides marketing, insurance, communication,
administrative, and other support required for such transportation.
The Company attracts owner operators mainly through driver referrals,
local newspaper advertising, trade magazines, and truck stop brochures. The
Company has in the past been able to attract new owner operators primarily
because of its competitive compensation structure, its ability to provide loads
and its reputation in the industry. Recruitment and retention of qualified
drivers is highly competitive and there can be no assurance that the Company
will be able to attract a sufficient number of qualified owner operators in the
future.
The contract between the Company and each owner operator can be canceled
upon ten days notice by either party. The average length of service of the
Company's current owner operators is approximately 3.2 years. At December 31,
1996, 1,720 owner operators were under contract to the Company, including 1,307
operating toters, 228 operating semi-tractors, and 185 operating pick-up trucks.
Upon completion of the sale or disposition of the truckaway line of business,
the number of semi-tractor owner operators is expected to reduce to
approximately 75.
In the Manufactured Housing Group, independent owner operators utilizing
toter equipment tend to exclusively transport manufactured housing, modular
structures, or office trailers. Once modified from a semi-tractor, a toter has
limited applications for hauling general freight. Toter drivers are, therefore,
unlikely to be engaged by transport firms that do not specialize in manufactured
housing. This gives the Company an advantage in retaining toter independent
owner operators and the average tenure with the Company of its toter independent
owner operators is 3.3 years, which is longer than the average tenure of its
other independent owner operators.
In the Specialized Transport Group, Morgan is competing with national
carriers for the recruitment and retention of independent owner operators who
own tractors. The average length of service of the Company's tractor owner
operators is approximately 2.7 years. Pick-up truck owner operators are
difficult to retain because of the seasonality of business does not guarantee
consistent loads. Accordingly, the average length of service among this group of
drivers is 3.0 years.
<PAGE>
Independent owner operators are generally compensated for each trip on a
per mile basis. Owner operators are responsible for operating expenses,
including fuel, maintenance, lodging, meals, and certain insurance coverages.
The Company provides required operating licenses and permits, cargo and
liability insurance (coverage while transporting goods for the Company), and
communications, sales and administrative services. Independent owner operators,
except for owners of certain pick-up trucks, are required to possess a
commercial drivers license and to meet and maintain compliance with requirements
of the U.S. Department of Transportation and standards established by the
Company.
From time to time, tax authorities have sought to assert that
independent owner operators in the trucking industry are employees, rather than
independent contractors. No such tax claims have been successfully made with
respect to owner operators of the Company. Under existing industry practice and
interpretations of federal and state tax laws, as well as the Company's current
method of operation, the Company believes that its owner operators are not
employees. Whether an owner operator is an independent contractor or employee
is, however, generally a fact-sensitive determination and the laws and their
interpretations can vary from state to state. There can be no assurance that tax
authorities will not successfully challenge this position, or that such tax laws
or interpretations thereof will not change. If the owner operators were
determined to be employees, such determination could materially increase the
Company's employment tax and workers compensation exposure.
Driveaway Drivers
The Company outsources its over 1,300 driveaway drivers on a
trip-by-trip basis for delivery to retailers and rental truck agencies, certain
vehicles such as recreational vehicles, buses, tractors, rental trucks, and
commercial vans that are too large or the distance of the trip too short to
transport economically on a trailer. These individuals are recruited through
local newspaper advertising, trade magazines, brochures, and referrals.
Prospective drivers are required to possess at least a chauffeurs license and
are encouraged to obtain a commercial drivers license. They must also meet and
maintain compliance with requirements of the U.S. Department of Transportation
and standards established by the Company. Driveaway drivers are utilized as
needed, depending on the Company's transportation volume and driver
availability. Driveaway drivers are paid on a per mile basis. The driver is
responsible for most operating expenses, including fuel, return travel, lodging,
and meals. The Company provides licenses, cargo and liability insurance,
communications, sales, and administrative services. In addition to the 1,300
driveaway drivers, the Company employees 35 full time drivers using company
owned or leased tractors to deliver tent campers and manufactured homes. The
impending sale or disposition of the truckaway line of business will reduce the
full time drivers to 16 delivering manufactured homes.
Agents and Employees
The Company has 198 dispatchers and dispatch assistants who are involved
directly with the management of equipment and drivers. Of these 198 dispatchers,
approximately 164 are full-time employees, 12 are part-time employees and the
remainder are independent contractors who earn commissions. The dispatch
<PAGE>
personnel are responsible for the Company's dispatch operations, including
safety, customer relations, equipment assignment, invoicing, and other matters.
Because dispatch personnel develop close relationships with the Company's
customers and drivers, from time to time the Company has suffered a dispatching
personnel defection, following which the former dispatcher has sought to exploit
such relationships in competition with the Company. The Company does not expect
that any future defection, if any, would have a material effect on its
operations. Excluding these dispatching personnel and drivers, the Company has
approximately 175 full-time employees and 35 full time employee drivers.
Seasonality
Shipments of manufactured homes tend to decline in the winter months in
areas where poor weather conditions inhibit transport. This usually reduces
revenues in the first and fourth quarters of the year. RV movements are
generally stronger in the spring, when dealers build stock in anticipation of
the summer vacation season, and late summer and early fall when new vehicle
models are introduced. The Company's revenues, therefore, tend to be stronger in
the second and third quarters.
Risk Management, Safety and Insurance
The risk of substantial losses arising from traffic accidents is
inherent in any transportation business. The Company carries insurance to cover
such losses up to $20 million per occurrence with a deductible of up to $250,000
per occurrence for personal injury and property damage. The Company maintains a
cargo damage insurance policy of $1,000,000 with a $250,000 deductible. The
frequency and severity of claims under the Company's liability insurance affects
the cost and potentially the availability of such insurance. If the Company is
required to pay substantially greater insurance premiums, or incurs substantial
losses above $20 million or below its $250,000 deductible, its results could be
materially adversely affected. The Company does have an aggregate stop loss
insurance policy for the period July 1, 1996 through June 30, 1997 whereby
personal injury, property damage, and workers compensation losses below its
$250,000 deductible cannot exceed $4,000,000 (could be adjusted up dependent on
revenues). The Company has been approved for self-insurance authority of up to
$1 million. There are no immediate plans to institute this self-insurance. The
granting of self-insurance would provide the Company alternatives if insurance
pricing levels do not meet the Company's expectations. There can be no assurance
that the Company can continue to maintain its present insurance coverage on
acceptable terms.
<PAGE>
The following table sets forth information with respect to bodily
injury and property damage and cargo claims reserves for the years ended
December 31, 1994, 1995, and 1996, respectively.
Bodily Injury/Property Damage and Cargo
Claims Reserve History
Years Ended December 31,
(In Thousands)
1994 1995 1996
Beginning Reserve Balance $ 2,830 $ 3,326 $ 3,623
Provision for Claims 4,761 4,849 6,080
Payments, net (4,265) (4,552) (5.139)
Ending Reserve Balance $ 3,326 $ 3,623 $ 4,654
The Company has implemented and is enhancing driver screening and
training procedures to promote safe driver practices and enhance compliance with
Department of Transportation regulations. The Company's driver recognition
programs emphasize safety and provide for equipment maintenance, helping to
enhance the Company's overall safety record. In 1996, over 1,350 drivers were
honored and obtained recognition for accident free driving. In addition to
periodic recognition for safe operations and regulatory compliance, the Company
has implemented several award programs associated with particular customers.
These programs are intended to provide incentives for drivers to drive safely,
perform well and maintain their equipment. One such program provides certain
toter drivers with a credit for miles traveled while meeting standards for
safety and professional performance. The owner operator is entitled to use the
amount credited to obtain reimbursement from the Company for equipment
purchases, maintenance, or upgrade expenses. (This program paid out $315,000 in
1996 to owner operators). The Company has a Senior Vice President of Safety,
Director of Training, four Safety Directors, a Driver Trainer, and a Compliance
Manager dedicated to assist the operating groups in training and highway safety.
The Company has incentives for dispatchers based upon accident free miles. In
1996, over $100,000 was paid out under this program and it is expected that over
$100,000 will be paid in 1997 for 1996 performance.
Interstate, a wholly-owned insurance subsidiary of the Company, makes
available physical damage insurance coverage for the Company's owner operators.
Interstate also writes performance surety bonds for Morgan Drive Away, Inc. The
Company may also utilize its wholly-owned insurance subsidiary to secure
business insurance for Morgan through re-insurance contracts.
Interstate may begin offering new insurance products as a managing
general agent. Interstate may determine to accept a limited portion of the
underwriting risk, retaining an appropriate proportion of the premiums.
Competition
All of the Company's activities are highly competitive. In addition to
fleets operated by manufacturers, the Company competes with a large national
carrier and numerous small regional or local carriers. The Company's principal
competitors in the housing and driver outsourcing marketplaces are privately
owned. In the specialized transport market, the Company competes with large
national interstate carriers, many of whom have substantially greater resources
than the Company. No assurance can be given that the Company will be able to
maintain its competitive position in the future.
Competition among carriers is based on the rate charged for services,
quality of service, financial strength, insurance coverage and the geographic
scope of the carriers authority and operational structure. The availability of
tractor equipment and the possession of appropriate registration approvals
permitting shipments between points required by the customer may also be
influential.
<PAGE>
Regulation
The Company's interstate operations (Morgan Drive Away, Inc. and TDI)
are subject to regulation by the Federal Highway Administration which is an
agency of the United States Department of Transportation (D.O.T.). Effective
August 26, 1994, essentially all motor common carriers were no longer required
to file individually determined rates, classifications, rules or practices with
the I.C.C. Effective January 1, 1995, the economic regulation of certain
intrastate operations by various state agencies was preempted by federal law.
The states will continue to have jurisdiction primarily to insure that carriers
providing intrastate transportation services maintain required insurance
coverage, comply with all applicable safety regulations, and conform to
regulations governing size and weight of shipments on state highways. Most
states have adopted D.O.T. safety regulations and actively enforce them in
conjunction with D.O.T. personnel.
The Company was regulated by the Interstate Commerce Commission (the
"ICC") until passage of the ICC Termination Act of 1995, which abolished the ICC
on December 31, 1995. The Surface Transportation Board, an independent entity
within the D.O.T., assumed many of the responsibilities of the ICC. The Company
is also regulated by various state agencies. These regulatory authorities have
broad powers, generally governing matters such as authority to engage in motor
carrier operations, rates, certain mergers, consolidations and acquisitions, and
periodic financial reporting. The trucking industry is subject to regulatory and
legislative changes that can affect the economics of the industry by requiring
changes in operating practices or influencing the demand for, and the costs of
providing services to, shippers. Morgan is approved and/or holds authority to
provide transportation services from, to, and between all points in the
continental United States.
The Company provides services to certain specific customers under
contract and non-contract services to the shipping public pursuant to governing
rates and charges maintained at its corporate and various dispatching offices.
Transportation services provided pursuant to a written contract are designed to
meet a customers specific shipping needs or by dedicating equipment exclusively
to a given customer for the movement of a series of shipments during a specified
period of time.
Federal regulations govern not only operating authority and
registration, but also such matters as the content of agreements with owner
operators, required procedures for processing of cargo loss and damage claims,
and financial reporting. The Company believes that it is in substantial
compliance with all material regulations applicable to its operations.
The D.O.T. regulates safety matters with respect to the interstate
operations of the Company. Among other things, the D.O.T. regulates commercial
driver qualifications and licensing, sets minimum levels of carrier liability
insurance; requires carriers to enforce limitations on drivers hours of service;
prescribes parts, accessories and maintenance procedures for safe operation of
freight vehicles; establishes noise emission and employee health and safety
standards for commercial motor vehicle operators; and utilizes audits, roadside
inspections and other enforcement procedures to monitor compliance with all such
regulations. Recently, the D.O.T. has established regulations which mandate
random, periodic, pre-employment, post-accident and reasonable cause drug
testing for commercial drivers. The D.O.T. has also established similar
regulations for alcohol testing. The Company believes that it is in substantial
compliance with all material D.O.T. requirements applicable to its operations.
In Canada, provincial agencies grant both intraprovincial and
extraprovincial authority; the latter permits transborder operations to and from
the United States. The Company has obtained from Canadian provincial agencies
<PAGE>
all required extraprovincial authority to provide transborder transportation of
manufactured homes and RVs throughout most of Canada.
Most manufactured homes, when being transported by a toter, exceed the
maximum dimensions allowed on state highways without a special permit. The
Company obtains these permits for its owner operators from each state which
allows the Company to transport their manufactured homes on state highways. The
states and Canadian provinces have special requirements for over-dimensional
loads detailing permitted routes, timing required, signage, escorts, warning
lights and similar matters.
Most states and provinces also require operators to pay fuel taxes,
comply with a variety of other tax and/or registration requirements, and keep
evidence of such compliance in their vehicles while in transit. The Company
coordinates compliance with these requirements by its drivers and owner
operators, and monitors their compliance with all applicable safety regulations.
Interstate, the Company's insurance subsidiary, is a captive insurance
company incorporated under Vermont law. It is required to report annually to the
Vermont Department of Banking Insurance & Securities and must submit to an
examination by this Department on a triennial basis. Vermont regulations require
Interstate Indemnity to be audited annually and to have its loss reserves
certified by an approved actuary. The Company believes Interstate is in
substantial compliance with Vermont insurance regulations.
Morgan Finance, Inc., the Company's finance subsidiary, is incorporated
under Indiana law. Morgan Finance is subject to Indianas Equal Credit
Opportunity Laws and other state and federal laws relating generally to fair
financing practices.
Item 2. PROPERTIES
The Company owns approximately 24 acres of land with improvements in
Elkhart, Indiana. The improvements include a 23,000 square foot office building
used as the Company's principal office, a 7,000 square foot leased building
containing additional offices leased to one of the Company's customers, a 9,000
square foot building used for the Company's safety and driver service
departments and also for storage, and an 8,000 square foot building used as a
garage to service company-owned vehicles. Most of the Company's 8 regional and
108 dispatch offices are situated on leased property. The Company also owns and
leases property for parking and storage of equipment at various locations
throughout the United States, usually in proximity to manufacturers of products
moved by the Company. The property leases have term commitments of a minimum of
thirty days and a maximum of three years, at monthly rentals ranging from $100
to $8,950. The Elkhart facility is currently mortgaged to one of the Company's
lenders. The following table summarizes the Company's owned real property.
Property Location Property Description Approximate Acreage
- ----------------- -------------------- -------------------
Elkhart, Indiana Corporate and region 24
Wakarusa, Indiana Terminal and storage 4
Middlebury, Indiana Terminal and storage 13
Mocksville, North Carolina Terminal and storage 8
Edgerton, Ohio Terminal and storage 2
Woodburn, Oregon Storage 4
<PAGE>
Woodburn, Oregon Region and storage 1
Fort Worth, Texas Region and storage 6
Waco, Texas Storage 4
Ocala, Florida Terminal and storage 4
Montevideo, Minnesota Terminal and storage 3
Item 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are party to litigation in the
ordinary course of business, generally involving liability claims in connection
with traffic accidents incidental to its transport business. From time to time
the Company may become party to litigation arising outside the ordinary course
of business. The Company does not expect such pending suits to have a material
adverse effect on the Company or its results of operations.
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
In February of 1996, the Company adopted a Special Employee Stock
Purchase Plan (Plan) under which Morgan Drive Away's President and Chief
Executive Officer purchased 70,000 shares of Class A Common stock from treasury
stock at the then current market value price of $560,000. Under the terms of the
Plan, $56,000 was delivered to the Company and a promissory note was executed in
the amount of $504,000 bearing an interest rate of five (5%) percent per annum
due in 2003. The Plan allows for repayment of the note using shares at $8.00 per
share. The Company has the right to repurchase, at $8.00 per share, 56,000
shares during the first year of the agreement and 28,000 during the second year.
Such issuance was exempt from Registration under Section 4(2) of the Securities
Act of 1983, as amended.
Price Range of Common Stock
The Company's Common Stock is traded on the American Stock Exchange under the
symbol MG.
1996 1995
---------------------------------
Quarter Ended High Low High Low
March 31 $9.38 $7.56 $9.25 $7.00
June 30 9.75 8.00 9.00 7.87
September 30 9.19 7.25 10.62 7.69
December 31 7.75 7.13 9.62 7.69
As of March 25, 1997, the approximate number of shareholders of record of the
Company's Class A Common Stock was 174. These figures do not include
shareholders with shares held under beneficial ownership in nominee name or
within clearinghouse position of brokerage firms and banks. The Class B Common
Stock is held of record by Lynch Corporation.
Dividend Information
Class A Class B
Cash Dividends Cash Dividends
- --------------------------------------------------------------------------------
Quarter Ended 1996 1995 1996 1995
- --------------------------------------------------------------------------------
March 31 .02 .02 .01 .01
June 30 .02 .02 .01 .01
September 30 .02 .02 .01 .01
December 31 .02 .02 .01 .01
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Operating Revenues $ 132,208 $ 122,303 $ 101,880 $ 82,793 $ 67,116
Operating Income (Loss) (3,263)(1) 3,371 3,435 2,267 1,774
Pre-tax Income (Loss) (3,615) 3,284 3,367 1,714 709
Net Income (Loss) before
Extraordinary Item (2,070) 2,269 2,212 1,595 275
Net Income (Loss) (2,070) 2,269 2,212 1,595 645
Per Share
Primary Net Income (Loss) $ (.77) $ .80 $ .75 $ .71 $ .40
Fully Diluted Net Income (Loss) (.77) .80 .73 .67 .37
Cash Dividends Declared
Class A Common Stock .08 .08 .08 .02 ---
Class B Common Stock .04 .04 .04 .01 ---
Financial Position
Total Assets $ 33,066 $ 30,795 $ 28,978 $ 24,399 $ 15,605
Working Capital 2,095 8,293 11,045 9,600 2,771
Long-term Debt 4,206 3,275 1,925 2,347 4,917
Redeemable Preferred Stock --- --- 3,104 3,089 3,801
Common Shareholders Equity 13,104 15,578 12,980 11,170 339
Common Shares Outstanding at Year-end 2,685,520 2,649,554 2,566,665 2,566,665 1,333,333
Average Common Shares or
Equivalents Outstanding During the Year 2,684,242 2,557,516 2,626,926 1,970,343 1,466,665
Other Information
Company Unit Moves
New Manufactured Homes 121,136 114,821 98,181 76,188 60,381
Driver Outsourcing 58,368 49,885 32,060 30,978 23,636
</TABLE>
(1) Operating Loss in 1996 is after special charges of $3,500,000.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ANALYSIS OF OPERATIONS AND FINANCIAL CONDITIONS
Year 1996 Compared to 1995
Operating revenues rose by 8% to $132,208,000 in 1996 from $122,303,000 in 1995.
Prior to giving effect to the TDI acquisition, which, closed on May 22, 1995,
comparable operating revenues increased 5.5%. Morgan's manufactured housing
outsourcing operating revenues increased 15% out-pacingthe 1996 national
production growth of 9%. The growth in manufactured housing was partially offset
by an 11% decline in the Company's Specialized Transport Division. The Company's
Specialized Transport Division was impacted by weakened demand which drove down
the Company's utilization of equipment and rates. The truckaway operation of the
Specialized Transport Division will be sold in 1997. The truckaway operation
transports automotive products on company-owned trailers for van conversion,
tent camper and automotive customers. The acquisition of Transit Homes of
America, Inc. on December 30, 1996 should more than offset the lost operating
revenues from the closing of the truckaway line of business.
During 1996, the Company reported an operating loss, after special charges,
of $3,263,000 and a net loss of $2,070,000 ($.77 loss per share). In 1995, the
Company reported operating income of $3,371,000 and net income of $2,269,000
($.80 income per share). The special charge for 1996 amounted to $3,500,000
before taxes ($2,100,000 after tax or $.78 per share) and resulted from the sale
of the truckaway operation and the write-down of four properties, two of which
are associated with the creating of the truckaway operation. The carrying value
of assets being held for sale was reduced in accordance with SFAS No. 121.
While the truckaway operation generated approximately 10% of the Company's
1996 total revenue, the operating loss from this operation was approximately
$1,800,000 in 1996. Thus management expects the withdrawal from these
unprofitable activities should have a positive impact on the results of
operations in 1997 (see Note 16, Consolidated Financial Statements). During
1996, the Company also initiated a plan to dispose of certain land and
buildings, two of which are associated with the exiting of the truckaway
operation, that were recorded on the books at values higher than fair market
value.
Excluding the special charges of $3,500,000, operating income declined from
$3,371,000 in 1995 to $237,000 in 1996. The decline in operating income in 1996
was attributed to (i) weakened freight demand in the Specialized Transport
Division, (ii) increases of $1,250,000 in claims costs especially in the driver
outsourcing and specialized transport divisions, and (iii) an increase in
operating costs specifically to build infrastructure and to invest in the
operating structure.
The investment in operating costs included, but were not limited to,
dispatch personnel, regional personnel, and driver retention programs. Selling,
general and administrative costs increased from $7,260,000 in 1995 to $8,235,000
in 1996. Investments in 1996 were made in automation of dispatch facilities and
personnel. In addition, the Company had a full year of selling, general and
administrative expenses for the TDI organization.
Net interest expense increased from $87,000 to $352,000 primarily due to
increases in debt related to the TDI acquisition and reduced cash on hand during
the year. The Company expects interest expenses will increase slightly during
1997 as interest charges will be incurred on the Transit acquisition debt added
in late 1996.
In 1996, the income tax benefit of $1,545,000, including federal and state
tax benefits, resulted in an effective tax benefit of 42.7% compared to an
effective tax rate of 30.9% in 1995. The Company anticipates a decrease in the
1997 effective tax rate to approximately 34%.
Year 1995 Compared to 1994
Operating revenues rose by 20% to $122,303,000 in 1995 from $101,880,000 in
1994. Prior to giving effect to the TDI acquisition, which closed on May 22,
1995, comparable operating revenues increased 14.9%. Morgan benefited from
growth of its primary market, manufactured housing, where national production
was up 12% compared to 1994, and from seven months of revenue from the TDI
acquisition. The 1995 growth in sales was partially stunted by an industry-wide
decline in recreational vehicle production of 11%.
Operating income declined from $3,435,000 in 1994 to $3,371,000 in 1995.
The decline in operating income at Morgan Drive Away, Inc. of approximately
$500,000 was partially offset by operating income from TDI, Inc. of $350,000 and
increased profits from the Company's wholly-owned insurance company, Interstate
Indemnity. The decrease in Morgan Drive Away, Inc.'s operating income in 1995
was attributed to a slow-down in certain segments of the recreational vehicle
market which affected margins, and an increase in operating costs including, but
not limited to, increased fuel taxes, road taxes, recruiting costs, driver
retention, and safety programs. The Company's continued emphasis on safety
produced over $650,000 of claim cost savings calculated as a percentage of
revenue during the year. These savings were offset to some degree by higher
trucking liability premiums, in part due to one major claim which was resolved
during the year.
Selling, general and administrative expenses increased from $6,290,000 in
1994 to $7,260,000 in 1995. The higher general and administrative costs were
attributed to investment in personnel, increased lease costs for the automation
of dispatch facilities, and TDI, Inc. general and administrative costs of
$330,000.
Net interest expense increased from $68,000 to $87,000 primarily due to an
increase in debt related to the TDI acquisition.
The 1995 income tax provision of $1,015,000, including federal and state
taxes, resulted in an effective tax rate of 30.9% compared to 34.3% in 1994.
Net income increased from $2,212,000 in 1994 to $2,269,000 in 1995. As a
result of the earnings growth and the buy back of shares of Class A Common
stock, fully diluted earnings per share reached $.80 in 1995, up from $.73 per
share in 1994.
Liquidity and Capital Resources
Cash generated from operations decreased to $217,000 in 1996 from
$2,503,000 in 1995. The net loss during 1996 of $2,070,000 was in large part due
to the non-cash special charge net of tax of $2,100,000 (special charge of
$3,500,000 net of deferred tax effect of $1,400,000). The sale of the truckaway
operation along with the related operating equipment, land and buildings, and
collection of outstanding truckaway receivables, all net of cost, and related
tax benefits will produce additional cash estimated to be in excess of
$3,000,000. The increase in prepaid expenses in 1996 stems from an increase in
prepaid drivers pay. The decline in other accrued liabilities in 1996 is related
to decreases in accrued wages, fuel taxes, operating permits, and tax
liabilities. The accounts payable decline during 1996 is a result of reduced
cash overdrafts.
Cash used in investing activities decreased from $2,945,000 in 1995 to
$1,581,000 in 1996. In 1996, the Company invested $686,000 in net capital
expenditures and had initial acquisition payments to Transit of $895,000. This
compares to $1,927,000 of net capital expenditures in 1995 and initial
acquisition payments on TDI of $1,018,000. In 1996, approximately $200,000 of
the Company's capital expenditures were spent on Company-owned equipment in the
truckaway division. The decision to close the truckaway division will reduce
future needs for capital expenditures for Company-owned trailers.
Net cash used in financing activities decreased from $3,401,000 in 1995 to
$179,000 in 1996. In 1995, the Company bought over 156,000 shares of Class A
Common stock for $1,274,000. In addition, the Company expended $1,300,000 in
cash related to early redemption of preferred stock. During 1996, the Company
bought over 34,000 shares of Class A Common stock for $286,000.
Outstanding borrowings under the revolver increased to $1,250,000 at
December 31, 1996, as compared to no borrowings under the revolver as of
December 31, 1995. The Company has total borrowing facility available of
$10,000,000, of which there was $5,842,000 outstanding as of December 31, 1996.
The Company paid to the previous owner of Transit $895,000 on December 30,
1996, which was the closing date of the acquisition. In addition, $1,987,000 was
financed through a note due on January 2, 1997 of $697,000 and a five year note
for $1,300,000 (present value of $1,158,000) which requires annual payments of
$475,000, $375,000, $175,000, $175,000 and $100,000 in 1997, 1998, 1999, 2000,
and 2001, respectively.
It is the current policy of the Company to pay annual Class A Common stock
dividends totaling $.08 per share per year and Class B Common stock dividends
totaling $.04 per share. Payment of any future dividends will be dependent,
among other things, upon earnings, capital requirements, financing agreement
covenants, terms of other outstanding securities, future growth plans, legal
restrictions, and the financial condition of the Company.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit sales and transport. This usually reduces
revenues in the first and fourth quarters of the year. RV movements are
generally strong in the spring, when dealers build stock in anticipation of the
summer vacation season, and late summer and early fall when new vehicle models
are introduced. The Company's revenues, therefore, tend to be stronger in the
second and third quarters.
Impact of Inflation
Inflation can be expected to have an impact on the Company's operating costs.
While the effect of inflation has been moderate since 1990, a prolonged period
of inflation would adversely affect the Company's results unless rates charged
to customers could be increased accordingly.
Forward-Looking Discussion
In 1997, the Company could benefit from (i) the acquisition of Transit Homes of
America which consolidates Morgan's long-standing position as the leader in the
delivery of outsourcing transportation services to the manufactured housing
industry, (ii) the closing of the Truckaway Division, which cost the Company
approximately $1,800,000 in 1996, (iii) reduction of overhead through corporate
restructuring, and (iv) improvement of our safety record. Business expansion,
including possible acquisitions, could augment operating revenue gains. While
the Company remains optimistic over the long term, near term results could be
affected by a number of internal and external economic conditions.
This report contains a number of forward-looking statements, including
those contained in the preceding paragraph. From time to time, the Company may
make other oral or written forward-looking statements regarding its anticipated
sales, costs, expenses, earnings and matters affecting its condition and
operations. 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 risk of
declining production in the manufactured housing industry; the risk of losses or
insurance premium increases from traffic accidents; the risk of loss of major
customers; risks of competition in the recruitment and retention of qualified
drivers and in the transportation industry generally; risks of acquisitions or
expansion into new business lines that may not be profitable; risks of changes
in regulation and seasonality of the Company's business. Such factors are
discussed in greater detail in the Company's Annual Report on Form 10-K for 1996
under Part I, Item 1, Business.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Morgan Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,308 $ 2,851
Trade accounts receivable, less allowance for doubtful
accounts of $59,000 in 1996 and $102,000 in 1995 11,312 11,285
Accounts receivable, other 274 514
Refundable taxes 584 ---
Prepaid expenses and other current assets 3,445 2,875
Deferred income taxes --- 586
- ----------------------------------------------------------------------------------------------------
Total current assets 16,923 18,111
Property and equipment, net 2,763 6,902
Assets held for sale 2,375 --
Intangible assets, net 8,911 5,285
Deferred income taxes 1,683 --
Other assets 411 497
- ----------------------------------------------------------------------------------------------------
Total assets $ 33,066 $ 30,795
====================================================================================================
Liabilities and shareholders' equity
Current liabilities:
Note payable to bank $1,250 $ --
Trade accounts payable 3,226 3,845
Accrued liabilities 4,808 2,245
Accrued claims payable 1,744 1,337
Refundable deposits 1,908 1,607
Current portion of long-term debt 1,892 784
- ----------------------------------------------------------------------------------------------------
Total current liabilities 14,828 9,818
Long-term debt, less current portion 2,314 2,491
Deferred income taxes -- 622
Long term accrued claims payable 2,820 2,286
Commitments and contingencies --- ---
Shareholders' equity
Common stock, $.015 par value
Class A:
Authorized shares 7,500,000; 23 23
Issued and outstanding shares 1,485,520 and 1,449,554
Class B:
Authorized shares 2,500,000; 18 18
Issued and outstanding shares 1,200,000
Additional paid-in capital 12,441 12,441
Retained earnings 2,126 4,370
- ----------------------------------------------------------------------------------------------------
Total capital and retained earnings 14,608 16,852
Less treasury stock, 120,043 and 156,009 shares, at cost (1,000) (1,274)
loan to officer for stock purchase (504) --
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 13,104 15,578
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 33,066 $ 30,795
====================================================================================================
</TABLE>
See accompanying notes
<PAGE>
The Morgan Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Manufactured housing $ 72,616 $ 63,353 $ 53,520
Specialized transport 26,169 29,494 28,246
Driver outsourcing 23,090 19,842 15,197
Other service revenue 10,333 9,614 4,917
- ------------------------------------------------------------------------------------------------------
Total operating revenues: 132,208 122,303 101,880
Cost and expenses:
Operating costs 122,238 110,408 91,241
Special charges 3,500 --- ---
Selling, general and administration 8,235 7,260 6,290
Depreciation and amortization 1,498 1,264 914
- ------------------------------------------------------------------------------------------------------
Total costs and expenses 135,471 118,932 98,445
- ------------------------------------------------------------------------------------------------------
Operating (loss) income (3,263) 3,371 3,435
Interest expense, net 352 87 68
- ------------------------------------------------------------------------------------------------------
(Loss) income before taxes (3,615) 3,284 3,367
Total income tax (benefit) expense
Current 268 859 1,031
Deferred (1,813) 156 124
- ------------------------------------------------------------------------------------------------------
Total income tax (benefit) expense (1,545) 1,015 1,155
- ------------------------------------------------------------------------------------------------------
Net (loss) income (2,070) 2,269 2,212
Less preferred dividend -- 221 244
- ------------------------------------------------------------------------------------------------------
Net (loss) income applicable to Common stock $ (2,070) $ 2,048 $ 1,968
======================================================================================================
Net (loss) income per share:
Primary $ (0.77) $ 0.80 $ 0.75
======================================================================================================
Fully diluted $ (0.77) $ 0.80 $ 0.73
======================================================================================================
Average number of common shares and common stock equivalents 2,684,242 2,557,516 2,626,926
======================================================================================================
</TABLE>
See accompanying notes
<PAGE>
The Morgan Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $(2,070) $ 2,269 $ 2,212
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,101 901 630
Amortization 396 363 284
Deferred income taxes (1,719) 156 124
Special charges 3,500 -- --
Imputed non-cash interest on acquisition debt 101 112 71
Amortization of debt issuance costs 36 40 40
Gain (loss) on sale of equipment 37 (19) 8
Changes in operating assets and liabilities:
Accounts receivable 213 (1,835) (1,976)
Refundable taxes (584) -- --
Prepaid expenses and other current assets (891) (372) (939)
Other assets 86 (44) 9
Accounts payable (779) 45 1,324
Accrued liabilities 86 433 806
Accrued claims payable 341 297 496
Refundable deposits 363 157 409
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 217 2,503 3,498
Investing Activities
Purchases of property and equipment (780) (1,955) (1,433)
Proceeds from disposal of property and equipment 94 28 183
Acquisition of businesses (895) (1,018) --
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,581) (2,945) (1,250)
Financing Activities
Net proceeds from (payments on)
bank and seller-financed
notes and credit lines $ 225 (626) (493)
Conversion of warrants -- 297 --
Purchase of treasury stock (286) (1,274) --
Proceeds from sale of treasury stock 56 -- --
Redemption of Series A preferred stock -- (1,300) --
Common stock dividends paid (174) (161) (158)
Redeemable preferred stock dividends paid -- (337) (229)
- ------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (179) (3,401) (880)
- ------------------------------------------------------------------------------------------------------------
Net increase in (decrease in) cash and cash equivalents (1,543) (3,843) 1,368
Cash and cash equivalents at beginning of year 2,851 6,694 5,326
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,308 $ 2,851 $ 6,694
============================================================================================================
</TABLE>
See accompanying notes
<PAGE>
The Morgan Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER SHAREHOLDERS EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Redeemable
Series A Class A Class B Additional
Preferred Common Common Paid-in Officer Treasury Retained
Stock Stock Stock Capital Loan Stock Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 $ 3,089 $ 20 $ 18 $ 10,459 $--- $--- $ 673
Net income --- --- --- --- --- --- 2,212
Redeemable Preferred
Stock dividends:
Accrued 244 --- --- --- --- --- (244)
Paid (229) --- --- --- --- --- ---
Common stock dividends:
Class A ($.08 per share) --- --- --- --- --- --- (110)
Class B ($.04 per share) --- --- --- --- --- --- (48)
-------------------------------------------------------------------------------
Balance, December 31, 1994 3,104 20 18 10,459 --- --- 2,483
Net income --- --- --- --- --- --- 2,269
Redeemable Preferred
Stock dividends:
Accrued 221 --- --- --- --- --- (221)
Paid (337) --- --- --- --- --- ---
Redemption of Series A
Preferred Stock (2,988) 2 --- 1,686 --- --- ---
Conversion of Warrants,
including tax benefit --- 1 --- 296 --- --- ---
Purchase of Treasury Stock --- --- --- --- --- (1,274) ---
Common stock dividends:
Class A ($.08 per share) --- --- --- --- --- --- (113)
Class B ($.04 per share) --- --- --- --- --- --- (48)
-------------------------------------------------------------------------------
Balance, December 31, 1995 --- 23 18 12,441 --- (1,274) 4,370
Net (loss) --- --- --- --- --- --- (2,070)
Sale of Treasury Stock, net --- --- --- --- (504) 274 ---
Common stock dividends:
Class A ($.08 per share) --- --- --- --- --- --- (126)
Class B ($.04 per share) --- --- --- --- --- --- (48)
-------------------------------------------------------------------------------
Balance, December 31, 1996 $ 0 $ 23 $ 18 $ 12,441 $ (504) $ (1,000) $ 2,126
===============================================================================
</TABLE>
See accompanying notes
<PAGE>
NOTES TO CONSOLIDATED STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
The Morgan Group, Inc. (Company), formerly Lynch Services Corporation, was
incorporated in 1988 for the purpose of acquiring Morgan Drive Away, Inc.
(Morgan), and Interstate Indemnity Company (Interstate). In 1994 the Company
formed Morgan Finance, Inc. (Finance), in 1995 acquired the assets of Transfer
Drivers, Inc. (TDI), and on December 30, 1996, purchased the assets of Transit
Homes of America, Inc. (Transit). Lynch Corporation (Lynch) owns all of the
1,200,000 shares of the Company's Class B Common stock and 150,000 shares of the
Company's Class A Common stock, which in the aggregate represent 66% of the
combined voting power of both classes of the Company's Common stock.
The Company is the nation's leader in arranging for transportation services for
the manufactured housing and motor home industries and is building a strong
market presence in providing outsourcing services for a wide range of vehicle
manufacturers and fleet users. The Company provides outsourcing transportation
services through a national network of drivers. A majority of the Company's
accounts receivable are due from companies in the manufactured housing, motor
home, and commercial truck industries located throughout the United States.
While the Company does not consider its business to be dependent upon any one
customer, services provided to Fleetwood Enterprises, Inc. accounted for
approximately 20%, 24%, and 27% of operating revenues in 1996, 1995, and 1994,
and 12% and 17% of gross accounts receivables at December 31, 1996 and 1995,
respectively.
<PAGE>
The Company's services also include delivering other products, including
office trailers, and providing certain insurance and financing services to its
owner operators through Interstate and Finance. Revenues, operating profits, or
identified assets of these subsidiaries do not account for over 10% of the
Company's revenues, operating profits, or identifiable assets, and accordingly,
no segment information is required.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Morgan, Interstate, TDI, and Finance, all of which are wholly
owned. Significant intercompany accounts and transactions have been eliminated
in consolidation.
Recognition of Revenues
Operating revenues and related estimated costs of movements are recognized when
movement of the manufactured housing, recreational vehicles, or other products
is completed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the property and
equipment.
Impairment of Assets
The Company periodically assesses the net realizable value of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
For assets to be held, impairment is determined to exist if estimated
undiscounted future cash flows are less than carrying amount. For assets to be
disposed of, impairment is determined to exist if the estimated net realizable
value is less than the carrying amount. As discussed in Note 16, the Company
recognized an adjustment during 1996 for write-downs of assets to be disposed
of.
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees." Because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. Pro forma information regarding net income and earnings per share as
if the Company had accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method, which is required by Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," is immaterial.
<PAGE>
Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Intangible Assets
Intangible assets, including goodwill, are being amortized by the straight-line
method over their estimated useful lives.
The Company continually evaluates the performance of acquired companies by using
the undiscounted cash flow method to identify whether events and circumstances
have occurred that indicate the value of recorded goodwill may be impaired.
Insurance and Claim Reserves
The Company maintains liability insurance coverage of up to $20,000,000 per
occurrence, with a deductible of $250,000 per occurrence for personal injury and
property damage. The Company currently maintains cargo damage insurance of
$1,000,000 per occurrence with a deductible of $250,000. The Company carries
statutory insurance limits on workers compensation with a deductible of
$250,000. Claims and insurance accruals reflect the estimated cost of claims for
cargo loss and damage, bodily injury and property damage not covered by
insurance. The Company accrues its self-insurance liability using a case reserve
method based upon claims incurred and estimates of unasserted and unsettled
claims, and no portion of these reserves have been discounted.
Net Income Per Common Share
In 1995, primary net income per common share has been computed by dividing net
income, after reduction for (the now retired) Series A Redeemable Preferred
Stock dividends, by the average number of shares outstanding during each year,
as adjusted for stock splits. For periods prior to 1995, fully diluted net
income per common share includes the dilutive effect of the warrants issued in
1992 as computed by application of the treasury stock method. In 1995 net income
per common share reflects the conversion of the warrants into shares of Class A
Common stock. Because each share of the Company's Class B Common stock is freely
convertible into one share of Class A Common stock, the total of the average
number of common shares and Common stock equivalents outstanding for both
classes of Common stock are considered in the computation of income per share.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect (i) the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
(ii) the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclsssifications
Certain amounts in the financial statements have been reclassified to conform to
the 1996 presentation. Such reclassifications had no effect on total assets or
net income.
<PAGE>
2. Property and Equipment
Property and equipment consisted of the following:
Estimated December 31
Useful Life 1996 1995
- -----------------------------------------------------------------------
(Years) (In thousands)
Land -- $ 487 $ 1,263
Buildings 25 524 2,368
Transportation equipment 3 to 5 1,470 5,022
Office and service equipment 5 to 8 3,145 3,058
- -----------------------------------------------------------------------
5,626 11,711
Less accumulated depreciation 2,863 4,809
- -----------------------------------------------------------------------
Property and equipment, net $ 2,763 $ 6,902
=======================================================================
3. Intangible Assets
The components of intangible assets and their estimated useful lives are as
follows:
Estimated December 31
Useful Life 1996 1995
- -----------------------------------------------------------------------
(Years) (In thousands)
Contractor network 3 $1,210 $1,210
Trained work force 3 to 12 1,030 1,030
Covenants not to compete 5 to 15 1,152 1,152
Trade name and goodwill--original 40 1,660 1,660
Trade name and goodwill--purchased 20 6,828 2,806
Other 3 to 5 800 800
- -----------------------------------------------------------------------
12,680 8,658
Less accumulated amortization 3,769 3,373
- -----------------------------------------------------------------------
Intangible assets, net $8,911 $5,285
=======================================================================
4. Indebtedness
On March 27, 1997, the Company entered into a credit facility with a bank. The
credit facility, which replaced a similar facility with the same bank, provides
financing for working capital needs, equipment leasing, letters of credit, and
general corporate needs. The Company pays a fee of .125% on the unused line of
credit facilities, and may fix interest rates over the short term LIBOR plus 150
basis points. All letters of credit expire at various dates throughout 1997. The
Company has total available credit facilities of $10,000,000 of which there are
available borrowings of $4,158,000 as of December 31, 1996. In addition, the
Company has available borrowing of $400,000 under its mortgage debt agreements.
The key provisions of the credit arrangements are summarized in the following
table:
<TABLE>
<CAPTION>
Key Provisions Credit Interest
of Credit Expiration Arrangements Rate Interest
Arrangements Dates Outstanding Basis Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working capital line of credit 4-30-99 $1,250,000 Prime 8.25%
Lease line of credit 4-30-99 833,000 Various 6.27% to 7.48%
Letter of credit facility 4-30-99 3,418,000 Fixed 1.00%
Term note 7-31-00 341,000 Fixed 8.25%
- ------------------------------------------------------------------------------------------------------
Bank borrowing
(non-mortgage) 5,842,000
Revolving real
estate note 10-1-98 330,000 Prime +.75% 9.00%
- ------------------------------------------------------------------------------------------------------
Total bank credit arrangements $6,172,000
======================================================================================================
</TABLE>
<PAGE>
The lines of credit, notes, and letters of credit are collateralized by the
assets of Interstate, Morgan, Finance, and TDI, and the accounts receivable,
inventory, and motor equipment of Morgan and TDI. The revolving real estate note
is collateralized by approximately 24 acres of property and structures in
Elkhart, Indiana. The Company's Class B Common stock has been collateralized to
secure a Lynch Corporation line of credit.
As of December 31, 1996, long-term debt consisted of the following:
December 31
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Real estate note with principal and interest
payable monthly through October 1, 1998 $ 330 $ 690
Promissory note with imputed interest at 8%,
principal and interest payments due
monthly through September 1, 1998 270 426
Promissory note with imputed interest at 7%,
principal and interest payments due
annually through October 31, 2001 256 295
Promissory note with imputed interest at 7.81%,
principal and interest payments due annually
through August 11, 2000 1,154 1,414
Term note with principal and interest payable
monthly through July 31, 2000 341 450
Promissory note with imputed interest at 6.31%,
principal and interest payments due
quarterly through December 31, 2001 1,158 ---
Promissory note principal due on January 2, 1997 697 ---
- --------------------------------------------------------------------------------
4,206 3,275
Less current portion 1,892 784
- --------------------------------------------------------------------------------
Long-term debt, net $2,314 $2,491
================================================================================
<PAGE>
Maturities on long-term debt for the five succeeding years are as follows
(in thousands):
1997 $1,892
1998 977
1999 686
2000 448
2001 153
Thereafter 50
------------------------------------------
$4,206
==========================================
The Company, pursuant to a loan agreement with a bank, has agreed to comply
with certain covenants including minimum net worth, maximum ratio of funded debt
to net worth, minimum of interest ratio coverage, and incurrence of additional
debt.
Cash payments for interest were $381,000 in 1996, $278,000 in 1995, and
$202,000 in 1994.
5. Income Taxes
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The income tax provisions (benefits) are summarized as follows (in
thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Current:
State $ 28 $ 180 $ 219
Federal 240 679 812
- --------------------------------------------------------------------------------
268 859 1,031
Deferred:
State (267) --- ---
Federal (1,546) 156 124
- --------------------------------------------------------------------------------
(1,813) 156 124
- --------------------------------------------------------------------------------
$(1,545) $ 1,015 $ 1,155
================================================================================
Deferred tax assets and (liabilities) are comprised of the following at
December 31:
1996 1995
- --------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Accrued insurance claims $ 1,595 $ 1,016
Special charges 1,260 --
Minimum tax carryforward 96 --
- --------------------------------------------------------------------
2,951 1,016
Deferred tax liabilities:
Depreciation (709) (507)
Prepaid expenses (482) (465)
Other (77) (80)
- --------------------------------------------------------------------
(1,268) (1,052)
- --------------------------------------------------------------------
$ 1,683 $ (36)
====================================================================
<PAGE>
A reconciliation of the income tax provisions and the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Income tax provision (benefit) at
federal statutory rate $(1,229) $ 1,117 $ 1,145
Increases (decreases):
State income tax, net of
federal tax benefit (155) 118 144
Reduction attributable to special
election by captive insurance company (216) (223) (202)
Other 55 3 68
- --------------------------------------------------------------------------------
$(1,545) $ 1,015 $ 1,155
================================================================================
Cash payments for income taxes were $934,000 in 1996, $736,000 in 1995, and
$685,000 in 1994.
6. Redeemable Preferred Stock
The Company redeemed the Series A Redeemable Preferred Stock in a transaction
approved by a special meeting of the Board of Directors on November 22, 1995.
The transaction involved the redemption of the 1,493,942 preferred shares owned
by Lynch Corporation in exchange for $1,300,000 in cash and 150,000 shares of
Class A Common stock. The consideration received in exchange for the shares of
Class A Common stock exceeded the book value at the date of the exchange by
$450,000. The resulting premium was recorded as an increase to the paid-in
capital account in the Company's shareholders equity.
On December 7, 1994, June 22, 1995, and November 22, 1995, the Board of
Directors declared a Series A Redeemable Preferred Stock cash dividend pursuant
to its terms. Accordingly, $120,498, $118,533, and $97,577 of cash dividends
were paid to Lynch during 1995.
7. Stock Warrants
In November 1992, the Company granted an officer warrants to purchase 133,333
shares of Class A Common stock at an option price of $.75 per share. The
warrants were exercisable over a three year vesting period beginning in August,
1993. In June 1995, the officer exercised the warrants to purchase 88,888 shares
of Class A Common stock at an option price of $.75 per share. This exercise
represented two thirds of the total outstanding warrants. The final third of the
warrants, representing 44,445 shares, were canceled.
The Company accepted 22,660 shares of stock from the officer to satisfy the
federal income tax withholding resulting from the warrant exercise. The stock
price on the warrant exercise date was $8.375 per share.
<PAGE>
8. Stock Option Plan
On June 4, 1993, the Board of Directors approved the adoption of a stock option
plan which provides for the granting of incentive or non-qualified stock options
to purchase up to 200,000 shares of Class A Common stock to officers, including
members of the Board of Directors, and other key employees. No options may be
granted under this plan for less than the fair market value of the Common stock
at the date of the grant, except for certain non-employee directors. Three
non-employee directors were granted non-qualified stock options to purchase a
total of 24,000 shares of Class A Common stock at prices ranging from $6.80 to
$9.00 per shares. Although the exercise period is determined when options are
actually granted, an option shall not be exercised later than ten years and one
day after it is granted. Stock options granted will terminate if the grantees
employment terminates prior to exercise for reasons other than retirement,
death, or disability.
Employees have been granted non-qualified stock options to purchase 175,500
shares of Class A Common stock, net of cancellations and exercises, at prices
ranging from $7.38 to $8.75 per share. Stock options vest over a four year
period pursuant to the terms of the plan. As of December 31, 1996, there were
88,375 options to purchase shares granted to employees and non-employee
directors which were exercisable based upon the vesting terms, and 4,000 shares
had option prices less than the December 31, 1996 closing price of $7.50. The
following table summarizes activity under the option plan:
Shares Option Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1993 152,000 $8.75 - $9.00
Grants 16,500 $6.80 - $7.75
Exercises ---
Cancellations (8,000)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 160,500
Grants 15,000 $7.88 - $8.38
Exercises (1,250)
Cancellations (35,250)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 139,000
Grants 48,500 $7.38 - $8.69
Exercises ---
Cancellations (12,000)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 175,500
9. Special Employee Stock Purchase Plan
In February of 1996, the Company adopted a Special Employee Stock Purchase Plan
(Plan) under which Morgan Drive Away's President and Chief Executive Officer
purchased 70,000 shares of Class A Common stock from treasury stock at the then
current market value price of $560,000. Under the terms of the Plan, $56,000 was
delivered to the Company and a promissory note was executed in the amount of
$504,000 bearing an interest rate of five (5%) percent per annum due in 2003.
The Plan allows for repayment of the note using shares at $8.00 per share. The
Company has the right to repurchase, at $8.00 per share, 56,000 shares during
the first year of the agreement and 28,000 during the second year.
<PAGE>
10. Benefit Plans
In 1994, the Company adopted a 401(k) Savings Plan which matches 25% of employee
contributions up to a designated amount. The Company's contribution to the Plan
was $27,000 in 1996, $23,000 in 1995, and $19,000 in 1994.
The Company has established a non-qualified Compensation Plan applicable to
highly compensated employees. The Plan provides tax deferred savings for
executives unfavorably impacted by IRS restrictions. The rate of return is
predicated on rates available from life insurance products. For the years ended
December 31, 1996 and 1995, $12,000 and $10,000 were recognized as premium
expense under this Plan.
11. Transactions with Lynch
Lynch provides certain services to the Company which include executive,
financial and accounting, planning, budgeting, tax, legal, and insurance
services. As discussed in Note 6, the Redeemable Preferred Stock owned by Lynch
Corporation was redeemed during 1995 at a discount. The Company incurred service
fees of $100,000 in 1996, $100,000 in 1995, and $0 in 1994.
12. Leases
The Company leases certain buildings and equipment under non-cancelable
operating leases that expire in various years through 2001. Rental expenses were
$830,000 in 1996, $727,000 in 1995, and $564,000 in 1994. Equipment leases
totaled $1,259,000 in 1996, $1,077,000 in 1995, and 641,000 in 1994.
Future payments under non-cancelable operating leases with initial terms of
one year or more consisted of the following at December 31, 1996 (in thousands):
1997 $1,518
1998 990
1999 268
2000 163
2001 65
-------------------------------------------
Total lease payments $3,004
===========================================
13. Treasury Stock
On March 9, 1995, June 22, 1995, and July 31, 1996, the Company's Board of
Directors approved the purchase of up to 150,000 shares of Class A Common stock
for its Treasury at dates and market prices determined by the Company's
Chairman. As of December 31, 1996, 101,155 shares had been repurchased at prices
between $7.25 and $9.625 per share for a total of $843,215. In addition to these
purchases, the 22,660 shares tendered to the Company as a result of the exercise
of warrants (see Footnote 7) were placed in the Treasury at a value of $189,778.
On December 15, 1995, the Company's Board of Directors approved the repurchase
of 66,228 shares from a prior officer of the Company at a market price of $8.00
per share totaling $529,824. In addition, in February of 1996, Morgan Drive
Away's President and Chief Executive Officer purchased 70,000 shares of stock
from Treasury stock at the then current market value of $560,000.
<PAGE>
14. Acquisitions
Effective May 22, 1995, the Company purchased the assets of TDI, a market leader
in the fragmented outsourcing services business for a total purchase price of
$2,725,000. The acquisition was financed through a payment of $1,000,000 on May
11, 1995, with the balance of $1,725,000 financed with the seller over five
years with the payments beginning August 10, 1996. The present value of the
acquisition was $2,462,000, $75,000 of which related to the operating assets
purchased and $2,387,000 to the purchase of intangible assets. In addition, the
Company entered into a consulting agreement with two of the principals of the
seller, pursuant to which the principals agreed to provide consulting services
to the Company for sixty-three months for consideration totaling $202,500,
payable over the consulting period. The book value of the promissory note in
this transaction was $1,154,000 at December 31, 1996.
Effective December 30, 1996, the Company purchased the assets of Transit Homes
of America, Inc., a provider of outsourcing transportation services to the
manufactured housing industry. The aggregate purchase price was $4,372,000 which
includes the cost of the acquisition and certain limited liabilities assumed as
part of the acquisition. The acquisition was financed through available cash
resources and issuance of a promissory note. In addition, the Company entered
into an employment agreement with the seller which provides for incentive
payments up to $400,000, $300,000, and $200,000 in years 1997, 1998, and 1999,
respectively, and $100,000 in each of the years 2000 and 2001. The incentive
payments are based upon achieving certain profit levels in the Company's
Manufactured Housing Group and will be treated as compensation expense if
earned. The excess purchase price over assets acquired was approximately
$3,988,000 and is being amortized over twenty years. In connection with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired $ 350,000
Goodwill acquired 4,022,000
Cash paid December 30, 1996 (895,000)
Note issued due January 2, 1997 (697,000)
Note issued at acquisition date (1,158,000)
------------------------------------------------------
Liabilities assumed $ 1,622,000
======================================================
<PAGE>
The following unaudited pro forma condensed combined results of operations
of Transit and the Company have been prepared as if the acquisition of Transit
had occurred at the beginning of 1995. The following table incorporates the
special charges of $3,500,000 ($2,100,000 after tax or $.78 per share) related
to exiting the truckaway operation and write down of properties in accordance
with SFAS No. 121 (See Note 16):
Pro Forma Years Ended
Dec. 31 Dec. 31
1996 1995
- ------------------------------------------------------------------
(Dollars in thousands
except per share data)
Net Sales $162,000 $154,000
Operating income (loss) (2,510) 3,600
Net income (loss) (1,625) 2,200
Net income (loss) per share (.61) .77
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future.
15. Contingencies
The Company has general liabilities claims pending, incurred in the normal
course of business for which the Company maintains liability insurance covering
amounts in excess of its self-insured retention. Management believes that
adequate reserves have been established on its self-insured claims and that
their ultimate resolution will not have a material adverse effect on the
consolidated financial position, liquidity, or operating results of the Company.
On August 4, 1995, Finance entered into a Commercial Paper Purchase
Agreement with a lender whereby the lender has provided an equipment financing
facility for Morgans independent contractors. Under the Agreement, Finance has a
limited guarantee of twenty five percent (25%) of the original amount financed
on each loan purchased. As of December 31, 1996, the lender had extended
$238,000 of financing and Finance had limited guarantees outstanding of $59,500.
16. Special Charges
In the fourth quarter of 1996, the Company recorded special charges of
$2,675,000 ($1,605,000 after tax or $.60 per share) associated with exiting the
truckaway operation. The special charges comprise principally of the anticipated
loss on sales of revenue equipment, projected losses through April 30, 1997, and
write-downs of accounts receivable and other assets.
In addition, the Company is in the process of selling four properties, two
of which are associated with the exiting of the truckaway operation. The Company
has recognized an adjustment to the extent the carrying value of the affected
assets (which was $2,200,000 as of December 31, 1996), exceeds the estimated
realizable value (which was estimated at $1,375,000 as of December 31, 1996).
Accordingly, an adjustment of $825,000 ($495,000 net of taxes or $.18 per share)
is included as special charges. The truckaway operation had revenues of $12.9
million and $14.4 million, and operating losses of approximately $1.8 million
and $1.2 million for the years ended December 31, 1996, and 1995, respectively.
In addition, truckaway had revenues of $20.6 million and operating income of
$1.2 million in 1994.
<PAGE>
17. Operating Costs and Expenses (in thousands)
1996 1995 1994
- --------------------------------------------------------------------------------
Purchased transportation costs $ 92,037 $ 84,314 $ 70,137
Operating taxes and licenses 6,460 6,052 4,269
Insurance 3,502 4,000 3,064
Claims 6,080 4,797 4,761
Dispatch costs 7,676 6,637 5,896
Regional costs 2,948 2,492 2,141
Repairs and maintenance 918 770 799
TDI, Inc. 1,356 823 --
Other 1,261 523 174
- --------------------------------------------------------------------------------
$122,238 $110,408 $ 91,241
================================================================================
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1996, and 1995 (in thousands, except per share
data):
1996--Three Months Ended
- --------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------
Operating revenues $30,506 $36,698 $35,305 $29,699
Operating income (loss) (48) 678 788 (4,681)
Net income (loss) 9 417 495 (2,991)
Earnings (loss) per share
Primary --- .15 .18 (1.11)
Fully diluted $ --- $.15 $.18 $ (1.11)
1995--Three Months Ended
- --------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------
Operating revenues $26,803 $31,554 $33,251 $30,695
Operating income (loss) 737 1,242 1,103 289
Net income 463 764 814 228
Earnings per share
Primary .15 .27 .29 .07
Fully diluted $ .15 $ .27 $ .29 $ .07
In the fourth quarter of 1996, the Company recorded special charges of
$3,500,000 ($2,100,000 after taxes or $.78 per share) related to exiting the
truckaway operation and a write down of properties in accordance with SFAS No.
121. In addition, in the fourth quarter, the Company recorded $750,000 ($.17 per
share) of increased insurance reserves and insurance costs primarily related to
1996 accidents.
In the fourth quarter of 1995, the Company recorded $300,000 ($0.08 per
share) of insurance costs after beng notified of a significant jury award
against the Company. This charge reflects the uninsured portion of the award.
<PAGE>
Report of Independent Auditors
Board of Directors
The Morgan Group, Inc.
We have audited the accompanying consolidated balance sheet of The Morgan Group,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in redeemable preferred stock, common stock
and other shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Morgan Group,
Inc. and subsidiaries at December 31, 1996, and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Greensboro, North Carolina
March 27, 1997
<PAGE>
The Board of Directors, The Morgan Group, Inc.
We have audited the accompanying balance sheets of The Morgan Group, Inc. (A
Delaware Corporation) and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in redeemable preferred
stock, Common stock and other shareholders equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 financial statements referred to above present fairly,
in all material respects, the financial position of The Morgan Group, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 5, 1996
<PAGE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
THE MORGAN GROUP, INC.
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
Description Balance at Charges to Costs Charges to Other Deductions- Balance at End
Beginning of Period and Expenses Accounts-Describe Describe (1) of Period
Year ended December 31,
1996
<S> <C> <C> <C> <C> <C>
Allowance for doubtbul $102,000 $244,000 $287,000 $59,000
account
Year ended December 31,
1995
Allowance for doubtbul $171,000 $184,000 $253,000 $102,000
account
Year ended December 31,
1994
Allowance for doubtbul $137,000 $106,000 $72,000 $171,000
account
</TABLE>
(1) Uncollectible accounts written-off, net of recoveries.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No information is required to be reported in this Form 10-K.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 5 of the Company's Proxy Statement
for the 1997 Annual Meeting of Shareholders expected to be filed with the
Commission on or about April 12, 1997 (the 1997 Proxy Statement).
Item 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive
compensation is incorporated by reference to pages 6 through 12 of the 1997
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
pages 1 through 4 of the 1997 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the information under Certain Transactions with Related Persons on page 12 of
the 1997 Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) List the following documents filed as part of the report:
Included in Item 8.
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Change in
Redeemable Preferred Stock, Common Stock
and Other Shareholders Equity
Notes to Consolidated Financial Statements
Reports of Independent Auditors
Schedule VIII
b) Reports on Form 8-K
Registrant filed no reports on Form 8-K
during the quarter ending
December 31, 1996.
c) The exhibits filed herewith or incorporated
by reference herein are set forth on the
Exhibit Index on page E-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of 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.
THE MORGAN GROUP, INC.
Date: March 28, 1997 BY: /s/ Charles C. Baum
-------------------------------------
Charles C. Baum, 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 March, 1997.
1) Principal Executive Officer:
By:/s/ Charles C. Baum Chairman, Chief Executive Officer
------------------------------
Charles C. Baum
2) Principal Financial Officer:
By: /s/ Richard B. Deboer Chief Financial Officer and
----------------------------- Treasurer
Richard B. DeBoer
A Majority of the Board of Directors:
/s/ Charles C. Baum Director
------------------------------
Charles C. Baum
/s/ Bradley J. Bell Director
------------------------------
Bradley J. Bell
/s/ Richard B. Black Director
------------------------------
Richard B. Black
/s/ Frank E. Grzelecki Director
------------------------------
Frank E. Grzelecki
/s/ Todd L. Parchman Director
------------------------------
Todd L. Parchman
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Registrant's Restated Certificate of Incorporation, as
amended. *
3.2 Registrant's Code of By-Laws, as restated and amended. *
3.3 Form of Class A Common Stock Certificate. *
4.1 Fourth Articles - "Common Stock" of the Registrant's *
Certificate of Incorporation, incorporated by reference to
the Registrant's Certificate of Incorporation, as amended,
filed hereunder as Exhibit 3.1.
4.2 Article II - "Meeting of Stockholders," Article VI - *
"Certificate for Shares" and Article VII - "General
Provisions" of the Registrant's Code of By-Laws, incorporated
by reference to the Registrant's Code of By-Laws, as amended,
filed hereunder as Exhibit 3.2.
4.4 Loan Agreements dated September 13, 1994 between The Morgan ***
Group and Subsidiaries and Society National Bank.
4.5(a) Revolving Credit Facility Agreement effective March 27, 1997
among Morgan Drive Away Inc., TDI, Inc., Interstate Indemnity
Company and KeyBank National Association.
4.5(b) Master Revolving Note dated March 27, 1997 by Morgan
Drive Away, Inc., TDI, Inc. and Interstate Indemnity Company
to KeyBank National Association.
4.5(c) Security Agreement effective as of March 27, 1997 between
Morgan Drive Away, Inc. and KeyBank National Association.
4.5(d) Absolute, Unconditional and Continuing Guaranty effective as
of March 27, 1997 by the Morgan Group, Inc. to KeyBank
National Association.
10.1 The Morgan Group, Inc. Incentive Stock Plan. *
10.2 Memorandum to Charles Baum and Philip Ringo from Lynch *
Corporation, dated December 8, 1992, respecting Bonus Pool.
10.3 Employment Agreement between Morgan Drive Away, Inc. and Paul *
D. Borghesani dated July 26, 1988.
10.4 Term Life Policy from Northwestern Mutual Life Insurance *
Company insuring Paul D. Borghesani dated August 1, 1991.
10.5 Long Term Disability Insurance Policy from Northwestern Mutual *
Life Insurance Company dated March 1, 1990.
10.6 Letter Agreement from Philip J. Ringo to The Morgan Group,
Inc., (formerly * Lynch Services Corporation), dated August 3,
1993.
10.7 Warrants to Purchase Class A Common Stock of The Morgan Group,
Inc. * (formerly Lynch Services Corporation), dated November
10, 1992, issued to Philip J. Ringo, and amended June 7, 1993.
10.10 Asset Purchase Agreement, dated May 21, 1993, between The
Morgan Group, Inc., Transamerican Carriers, Inc., Ruby and
Billy Davis and Morgan Drive Away, Inc.
10.12 Management Agreement between Skandia International and Risk *
Management (Vermont), Inc. and Interstate Indemnity Company
dated December 15, 1992.
10.13 Agreement for the Allocation of Income Tax Liability between *
Lynch Corporation and its Consolidated Subsidiaries,
Including The Morgan Group, Inc. (formerly Lynch Services
Corporation), dated December 13, 1988, as amended.
10.16 The Morgan Group, Inc. Employee Stock Purchase Plan as
amended. ****
<PAGE>
Exhibit No. Description Page
----------- ----------- ----
10.17 MCI Corporate Service Agreement dated December 12, 1994 ****
between MCI Telecommunications Corporation and Morgan
Drive Away, Inc.
10.8 Certain Services Agreement dated January 1, 1995 between Lynch ****
Corporation and The Morgan Group, Inc.
10.9 Consulting Agreement between Morgan Drive Away, Inc. and Paul ******
D. Borghesani effective as of April 1, 1996.
10.20 Employment Agreement between Morgan Drive Away, Inc. and
Terence L. Russell ******
10.21 Stock Purchase Agreement between Morgan Drive Away, Inc. and ******
Terence L. Russell
10.22 Asset Purchase Agreement for Transfer Drivers Inc. and List of
Schedules ******
10.21 Asset Purchase Agreement between Registrant and Transit Homes *******
of America, Inc. as of November 19, 1996, as amended
as of December 30, 1996.
10.24 Amendment to Asset Purchase Agreement between Registrant and
Transit, Inc. as of December 29, 1996. *******
11 Statement Re: Computations of Per Share Earnings
16.1 Letter Re: Change in Accountants *****
21 Subsidiaries of the Registrant *
23.1 Consent of Ernst & Young LLP ******
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
* Incorporated by reference to the corresponding Exhibit to
Registrant's registration statement on Form S-1, Reg. No.
33-641-22.
** Incorporated by reference to Registrant's Form 8-K/A filed
March 29, 1984.
*** Incorporated by reference to Registrant's Form 10-Q filed
November 15, 1994.
**** Incorporated by reference to Registrant's Form 10-K filed
March 30, 1995.
***** Incorporated by reference to Registrant's Form 8-K filed March
19, 1996.
****** Incorporated by reference to Registrant's Form 10-K filed on
April 1, 1996.
******* Incorporated by reference to Registrant's Form 8-K filed
January 14, 1997.
REVOLVING CREDIT FACILITY AGREEMENT
THIS REVOLVING CREDIT FACILITY AGREEMENT ("this Agreement"), to be
effective March 27, 1997, is entered into by and between MORGAN DRIVE AWAY,
INC., an Indiana corporation ("Morgan"), TDI, INC., an Indiana corporation
("TDI"), INTERSTATE INDEMNITY COMPANY, a Vermont Corporation ("Interstate") and
KEYBANK NATIONAL ASSOCIATION, a national banking association ("Bank").
In consideration of the covenants and agreements contained herein,
Morgan, Interstate and TDI and the Bank hereby mutually agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. General. Any accounting term used but not specifically
defined herein shall be construed in accordance with GAAP.
The definition of each agreement, document, and instrument set forth in
Section 1.2 hereof shall be deemed to mean and include such agreement, document,
or instrument as amended, restated, or modified from time to time.
Interstate is a party to this Agreement as it will be entitled to
request letters of credit in accordance with the terms, conditions, and
restrictions set forth herein. The liability of Interstate under this Agreement
is limited at any given time to the then aggregate dollar amount of letters of
credit which have been issued at Interstate's request or for the benefit of
Interstate, plus related interest, fees and costs hereunder.
Section 1.2. Defined Terms. As used in this Agreement:
"Affiliate" shall mean any Person (other than a Subsidiary):
(a) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under
common control with, the Companies; or
(b) Five percent (5%) or more of the equity interest of which is
held beneficially or of record by the Companies or a
Subsidiary. The term "control" means the possession, directly
or indirectly, of the power to cause the direction of the
management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Affiliate Bank" shall mean any one or more bank subsidiaries (other
than the Bank) of KeyCorp and its successors.
"Bank" shall mean KeyBank National Association, a national banking
association with an office at 127 Public Square, Cleveland, Ohio 44114, and its
successors and assigns.
1
<PAGE>
"Beneficiary" shall mean one or more insurance companies or regulatory
bodies which are, or may become, beneficiaries of standby letter(s) of credit.
Companies have entered into and/or may enter into agreements with various
insurance companies (each, "Beneficiary") under which Beneficiary is
contingently liable for or may initially pay on behalf of Companies amounts
attributable to the deductible portion of Companies' insurance program with
Beneficiary, and under which Companies are obligated to repay Beneficiary for
any such payments made by Beneficiary on behalf of Companies. Beneficiary has
required Companies to provide a standby payment facility for payments made by
Beneficiary on behalf of Companies attributable to the deductible portion of
Companies' insurance program with Beneficiary. Additionally, Companies are or
may be obligated to deposit money or pledge some other form of guaranty of
payment with various state authorities wherein Companies are liable for excise
or use taxes as a result of their use of the public roads for commercial trans
portation in said states. To the extent Companies are or may be required to
deposit money or pledge some other form of guaranty of payment, the appropriate
state agency responsible for collection of such use taxes or bonding company
shall be deemed to be a Beneficiary herein.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Cleveland, Ohio and, if the applicable Business Day
relates to any Libor Rate Loan, on which dealings are carried on in the London
interbank Eurodollar market.
"Companies" shall mean Morgan Drive Away, Inc., an Indiana corporation,
with its principal office located at Elkhart, Indiana; TDI, Inc., an Indiana
corporation, with its principal office located in Elkhart, Indiana; and
Interstate Indemnity Company and their successors.
"Consolidated Net Worth" is defined as the net book value of Morgan
Group's assets less all liabilities as determined on a consolidated basis for
the Morgan Group and its Subsidiaries in accordance with GAAP.
"Consolidated Pre-Tax Earnings" is defined as earnings (or losses)
experienced by the Morgan Group and its subsidiaries as determined on a
consolidated basis and as determined by GAAP. Consolidated Pre-Tax Earnings
shall not include any extraordinary gains experienced by the Morgan Group and
its subsidiaries.
"EBIT" shall mean Consolidated Pre-Tax Earnings plus Net Interest
Expense.
"Environmental Law" means any federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability upon a Person in connection with the use, release or disposal
of any hazardous, toxic or dangerous substance, waste or material.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
2
<PAGE>
"ERISA Affiliate" means each Person (whether or not incorporated) which
together with Companies would be treated as a single employer under ERISA.
"Event of Default" shall mean any one or more of the occurrences
described in Article VII hereof.
"Expiration Date" as to a Standby Letter of Credit means the earliest
of: (1) 4:45 p.m. (Elkhart, Indiana time) on the Expiry Date of that Standby
Letter of Credit; or (2) when the full stated amount of the Standby Letter of
Credit has been drawn upon in a single drawing or aggregate of drawings; or (3)
the day on which the Standby Letter of Credit is surrendered.
"Funded Debt" is defined as the sum of funds provided by KeyBank to the
Morgan Group and its Subsidiaries and the sum of all other borrowed debt of the
Morgan Group and its subsidiaries, including capitalized lease obligations and
corporate guaranties.
"GAAP" shall mean generally accepted accounting principles as then in
effect, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"Guarantor" shall mean each Person that now or hereafter guarantees any
portion of the Companies' Indebtedness payable to the Bank, and such Person's
successors and shall include Morgan Group and all existing and to be created
operating Subsidiaries of Morgan Group.
"Indebtedness" shall mean for any Person: (1) all obligations to repay
borrowed money, direct or indirect, incurred, assumed or guaranteed; (2) all
obligations for the deferred purchase price of capital assets excluding trade
payables; (3) all obligations under conditional sales or other title retention
agreements; and (4) all lease obligations which have been or should be
capitalized on the books of such Person.
"Interest Coverage" shall mean the ratio of Consolidated Pre-Tax
Earnings plus Net Interest Expense divided by Net Interest Expense.
"Interest Period" means, with respect to any Libor Rate Loan, the
period commencing on the date such Loan is made, continued, or converted and
ending on the last day of such period as selected by Morgan or TDI (for purposes
of this definition ("the Company") pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of such period as selected
by the Company pursuant to the provisions below. The duration of each Interest
Period for any Libor Rate Loan shall be one (1) month, two (2) months, three (3)
months, or six (6) months, in each case as the Company may select upon notice,
as set forth in Section 2.1(b), provided that:
3
<PAGE>
(1) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall occur on the next succeeding Business
Day, provided that if such extension of time would cause the
last day of such Interest Period for a Libor Rate Loan to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day;
(2) if the Company fails to so select the duration of any Interest
Period, the duration of such Interest Period shall be three
(3) months in the case of a Libor Rate Loan; and
(3) the Company may not select any Interest Period which both
begins before and ends after the principal installment payment
date set forth in Section 2.1(c).
"Interstate" shall mean Interstate Indemnity Company, also a subsidiary
of Morgan Group.
"Leasing Company" shall mean Key Corp Leasing Company, and its
successors.
"Leverage" is defined as Funded Debt divided by the sum of Funded Debt
plus Consolidated Net Worth.
"Libor Rate" means, for any Interest Period for any Libor Rate Loan, an
interest rate per annum (rounded upwards to the next higher whole multiple of
1/16% if such rate is not such a multiple) equal at all times during such
Interest Period to the quotient of: (1) the rate per annum (rounded upwards to
the next higher whole multiple of 1/16% if such rate is not such a multiple) at
which deposits in United States dollars are offered at 11:00 a.m. (London,
England time) (or as soon thereafter as is reasonably practicable) by prime
banks in the London interbank Eurodollar market two (2) Business Days prior to
the first day of such Interest Period in an amount and maturity of such Libor
Rate Loan, divided by: (2) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of the Libor Reserve
Requirements current on the date two (2) Business Days prior to the first day of
such Interest Period.
"Libor Rate Loan" means any Loan that bears interest with reference to
the Libor Rate.
"Libor Reserve Requirements" means, for any Interest Period for any
Libor Rate Loan, the maximum reserves (whether basic, supplemental, marginal,
emergency or otherwise) prescribed by the Board of Governors of the Federal
Reserve System (or any successor) with respect to liabilities or assets
consisting of or including "Eurocurrency liabilities" (as defined in Regulation
D of the Board of Governors of the Federal Reserve System) having a term equal
to such Interest Period.
4
<PAGE>
"Lien" shall mean any mortgage, security interest, lien, charge,
encumbrance on, pledge or deposit of, or conditional sale or other title
retention agreement with respect to any property or asset.
"Loan" or "Loans" shall mean the Revolving Loans.
"Loan Documents" shall mean this Agreement, the Note, the Security
Agreements of even date herewith, and any other documents relating thereto.
"Margin Stock" shall have the meaning given to it under Regulation U of
the Board of Governors of the Federal Reserve System, as amended from time to
time.
"Morgan Group" shall mean The Morgan Group, Inc., a Delaware
corporation, of which the Companies are a subsidiary.
"Multiemployer Plan" means a plan described in ERISA which covers
employees of the Companies or an ERISA Affiliate.
"Net Interest Expense" is interest expense as defined by GAAP less
interest income as defined by GAAP.
"Note" shall mean the Promissory Note, in the form of Exhibit "A"
attached hereto, signed and delivered by the Companies to evidence their
obligation to the Bank in accordance with Section 2.1 hereof (including all
extensions, renewals, and modifications).
"Other Collateral Documents" shall mean each and every document
executed and delivered by any third person or entity in favor of Bank, pledging,
securing or guaranteeing any indebtedness owed to Bank or otherwise obligating
such third person or entity to Bank on behalf of Companies.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Title IV of ERISA.
"Person" shall mean any natural person, corporation (which shall be
deemed to include business trust), association, partnership, joint venture,
political entity or political subdivision thereof.
"Plan" shall mean any plan (other than a Multiemployer Plan) defined in
ERISA in which the Companies or any subsidiary are, or has been at any time
during the preceding two (2) years, an "employer" or a "substantial employer" as
such terms are defined in ERISA.
5
<PAGE>
"Potential Default" shall mean any condition, action or failure to act
which, with the passage of time, service of notice, or both, will constitute an
Event of Default under this Agreement.
"Prime Rate" shall mean that interest rate established from time to
time by the Bank as the Bank's Prime Rate, whether or not such rate is publicly
announced; the Prime Rate may not be the lowest interest rate charged by Bank
for commercial or other extensions of credit.
"Prime Rate Loan" means any Loan that bears interest with reference to
the Prime Rate.
"Prohibited Transaction" shall mean any prohibited transaction as that
term is defined for purposes of ERISA.
"Reportable Event" shall mean any reportable event as that term is
defined for purposes of ERISA.
"Revolving Loan(s)" means the revolving credit extended by the Bank
under the Master Revolving Loan Note pursuant to Article II hereof.
"Security Agreement" shall mean each and every security agreement
related to this Agreement, executed and delivered by Companies in favor of Bank,
including, but not limited to, the Security Agreements dated this date and
executed and delivered by Companies to Bank, and any and all security agreements
ratified pursuant to Section 4.4.
"Standby Letter of Credit" shall mean a letter of credit issued by the
Bank pursuant to this Agreement and shall include the letters of credit issued
by the Bank that are listed on Exhibit "B," and shall also include any amended
Standby Letter of Credit or any replacement Standby Letter of Credit, and any
other Standby Letter of Credit issued by Bank under this Agreement.
"Subordinated Debt" shall mean Indebtedness of a Person which is
subordinated in writing, in a manner satisfactory to the Bank, to all
Indebtedness owing to the Bank.
"Subsidiary" shall mean any corporation fifty-one percent (51%) of the
outstanding voting stock of which is at the time directly or indirectly owned by
Companies or by one or more of their Subsidiaries, or by the Morgan Group.
"Termination Date" shall mean April 30, 1999, or such earlier date on
which the commitment of the Bank to make loans pursuant to Section 2.1(a) hereof
shall have been terminated pursuant to Article VIII of this Agreement.
6
<PAGE>
"Total Indebtedness" shall mean the total of all items of indebtedness
or liability which in accordance with GAAP would be included in determining
total liabilities on the liability side of the balance sheet as of the date of
determination.
The foregoing definitions shall be applicable to the singulars and
plurals of the fore going defined terms.
ARTICLE II. REVOLVING CREDIT
AND STANDBY LETTER OF CREDIT FACILITY
REVOLVING CREDIT
Section 2.1. Amount of Revolving Credit. The Bank hereby agrees,
subject to the terms and conditions of this Agreement, to make, continue, and
convert Revolving Loans to Morgan and TDI as follows:
(a) The Bank will, subject to the terms and conditions of this
Agreement, make one or more Revolving Loans to Morgan and TDI
from time to time on and after the date of this Agreement
through and including the Termination Date, in an aggregate
principal amount not to exceed Ten Million Dollars
($10,000,000.00) outstanding at any one time (Revolving
Credit). All issued Standby Letters of Credit, whether issued
at the request of Morgan, Interstate or TDI, shall be included
in the calculation of the unpaid aggregate principal
outstanding and shall reduce the amount of the Revolving Loans
available dollar for dollar. Morgan and TDI may borrow,
prepay, and reborrow such maximum amount of credit; provided,
however, that except as otherwise provided in this Agreement,
Morgan and TDI may prepay any Libor Rate Loan only on the last
day of the applicable Interest Period for such Loan. The
Companies may from time to time, upon not less than three (3)
Business Days' prior notice made by telegraph, Telex or
telephone and confirmed in a writing delivered to the Bank,
terminate or reduce permanently, the commitment of the Bank to
make Revolving Loans pursuant to this Section 2.1(a) hereof by
the amount of Five Hundred Thousand Dollars ($500,000.00) or
any integral multiple thereof; provided that Morgan and TDI
shall immediately pay to the Bank the amount, if any, by which
the aggregate principal amount of such Revolving Loans
outstanding plus the stated amount of the Standby Letters of
Credit exceeds such reduced commitment of the Bank at that
time. If, however, after giving effect to any such payment any
Libor Rate Loans would be prepaid prior to the end of their
respective Interest Periods, the notice of the termination or
permanent reduction in the commitment of the Bank to make
Revolving Loans pursuant to Section 2.1(a) shall be deemed to
be Morgan and TDI's request that such termination or reduction
be effective on the last day of such Interest Periods.
7
<PAGE>
(b) Each Revolving Loan that is made as or converted into a Prime
Rate Loan shall be made or converted on such Business Day and
in such amount (equal to One Hundred Thousand Dollars
($100,000.00) or any integral multiple thereof) as Morgan or
TDI, jointly or individually, shall request by written notice
given to the Bank no later than 11:00 a.m. (Cleveland, Ohio
time) on the date of disbursement of or conversion into the
requested Prime Rate Loan; provided, however, that a Libor
Rate Loan may be converted into a Prime Rate Loan only upon
the expiration of the Libor Rate Loan's Interest Period except
in situations covered by Sections 2.7 and 2.8 of this
Agreement. Each Revolving Loan that is made or continued as or
converted into a Libor Rate Loan shall be made, continued, or
converted on such Business Day, in such amount (equal to One
Hundred Thousand Dollars ($100,000.00) or an integral multiple
thereof), and with such an Interest Period as Morgan or TDI
shall request by written notice given to the Bank no later
than 11:00 a.m. (Cleveland, Ohio time) on the third Business
Day prior to the date of disbursement or continuation of or
conversion into the requested Libor Rate Loan. Each written
notice of any Libor Rate Loan shall be irrevocable and binding
on Morgan and TDI and Morgan and TDI shall indemnify the Bank
against any loss or expense incurred by the Bank as a result
of any failure by Morgan or TDI to consummate such Revolving
Loan, including, without limitation, any loss (including loss
of anticipated profits) or expense incurred by reason of
liquidation or re-employment of deposits or other funds
acquired by the Bank to fund the Revolving Loan. A certificate
as to the amount of such loss or expense submitted by the Bank
to Morgan and TDI shall be conclusive and binding for all
purposes, absent manifest error. In the event that Morgan or
TDI fails to provide the Bank with the required written
notice, Morgan or TDI shall be deemed to have given a written
notice that such Revolving Loan shall be converted to a Prime
Rate Loan on the last day of the applicable Interest Period.
All Revolving Loans under this Section shall be evidenced by
the Master Revolving Note, dated the date hereof. The Note
shall be a master note, and the principal amount of all
Revolving Loans outstanding shall be evidenced by the Note or
any ledger or other record of the Bank, which shall be
presumptive evidence of the principal owing and unpaid on the
Note.
(c) Morgan and TDI shall repay to the Bank on the Termination
Date, the principal amount of all Revolving Loans evidenced by
the Master Revolving Note that are outstanding on the
Termination Date.
Section 2.2. Interest Rate.
(a) Each Revolving Loan that is a Libor Rate Loan shall bear
interest during each Interest Period at a fixed rate per annum
equal to the Libor Rate for such Interest Period plus the
Libor Margin. The Libor Margin as of the date of this
Agreement shall be one hundred fifty (150) basis points. The
Libor Margin
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shall be adjusted on a quarterly basis as follows: Upon
submission of Morgan Group's consolidated quarterly financial
statements the Libor Margin shall be determined for the
succeeding quarter by KeyBank using the following matrix:
EBIT Libor Margin
Less than $3,000,000.00 150 basis points
Greater than or equal to $3,000,000.00
but less than $4,500,000.00 125 basis points
Greater than or equal to $4,500,000.00 100 basis points
This matrix is based upon certain levels of Morgan Group's
EBIT on a rolling four (4) quarter basis.
The special charges included in the 1996 audited financial
statements related to the closing of the Truckaway segment of
the specialized transport division of Morgan shall be excluded
for testing purposes in an amount not to exceed Three Million
Five Hundred Thousand Dollars ($3,500,000.00) for special
charges and Seven Hundred Fifty Thousand Dollars ($750,000.00)
for insurance claim reserves.
Each Revolving Loan that is a Prime Rate Loan shall bear
interest at a floating rate per annum equal to the Prime Rate.
In the event of any change in the Prime Rate, the rate of
interest upon each Prime Rate Loan shall be adjusted to
immediately correspond with such change, except such interest
rate shall not exceed the highest rate permitted by law.
(b) After the maturity of any Revolving Loan, the unpaid principal
amount of the Revolving Loan, and accrued interest thereon, or
any fees or any other sum payable hereunder, shall thereafter
until paid in full bear interest at a rate per annum equal to
three percent (3%) in excess of the Prime Rate in effect from
time to time, which rate shall be adjusted in the manner
described in Section 2.2(a) above.
Section 2.3. Interest Payments. Morgan and TDI shall pay to the Bank
interest on the unpaid principal balance of each Prime Rate Loan on: (1) the
date such Loan is converted to a Libor Rate Loan; and (2) on the last day of
each month hereafter and at maturity. Morgan and TDI shall pay to the Bank
interest on the unpaid principal balance of each Libor Rate Loan on: (1) the
date such Loan is converted to a Prime Rate Loan; (2) the last day of the
applicable Interest Period of such Loan; or (3) each date an installment of
principal becomes due and payable in accordance with Section 2.1 hereof,
whichever is earlier. Additionally, if the
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applicable Interest Period exceeds three (3) months, interest shall also be paid
at quarterly intervals during the course of the applicable Interest Period.
Section 2.4. Payment. Morgan and TDI may pay any Prime Rate Loans in
whole, or in part, in the principal amount of One Hundred Thousand Dollars
($100,000.00) or any integral multiple thereof, at any time or times upon same
day by 11:00 a.m. Cleveland time notice made by telephone to the Bank. Morgan
and TDI may pay any Libor Rate Loan in whole or in part, in the principal amount
of One Hundred Thousand Dollars ($100,000.00) or any integral multiple thereof
only on the last day of the Interest Period applicable to such Loan upon not
less than three (3) Business Days' prior written notice given to the Bank.
Section 2.5. Fees. Morgan and TDI shall pay to the Bank a total yearly
fee of one-fourth percent (1/4%) of the total amount of the Revolving Credit
($10,0000,000.00) set forth in Section 2.1 whether or not the entire amount of
the Revolving Credit is available or used. This fee shall be paid quarterly, in
advance.
Morgan and TDI shall also pay to the Bank; prior to maturity (whether
by acceleration or otherwise), for each payment of principal or interest not
paid when due, a late fee equal to the greater of five percent (5%) of such
payment or One Hundred Dollars ($100.00).
Section 2.6. Computation of Interest and Fees. Interest on Loans shall
be computed on the basis of a year of three hundred sixty (360) days and paid
for the actual number of days elapsed. Interest on unpaid fees, if any,
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days and paid for the actual number of days elapsed.
Section 2.7. Additional Costs.
(a) If, due to either: (1) the introduction of, or any change in,
or in the interpre tation of, any law or regulation; or (2)
the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having
the force of law), there shall be any increase in the cost to
the Bank of making, funding or maintaining Loans, then Morgan
and TDI shall from time to time, upon demand by the Bank, pay
to the Bank additional amounts sufficient to reimburse the
Bank for any such additional costs. A certificate of the Bank
submitted to Morgan and TDI as to the amount of such
additional costs, shall be conclusive and binding for all
purposes, absent manifest error. Upon notice from Morgan or
TDI to the Bank within five (5) Business Days after the Bank
notifies Morgan and TDI of any such additional costs pursuant
to this Section 2.8(a), Morgan and TDI may either: (1) prepay
in full all Loans of any types so affected then outstanding,
together with interest accrued thereon to the date of such
prepayment; or (2) convert all Loans of any types so affected
then out standing into Loans of any other type not so affected
upon not less than four (4) Business Days' notice to the Bank.
If any such prepayment or conversion of
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any Libor Rate Loan occurs on any day other than the last day
of the applicable Interest Period for such Loan, Morgan and
TDI also shall pay to the Bank such additional amounts
sufficient to indemnify the Bank against any loss, cost or
expense incurred by the Bank as a result of such prepayment or
conversion, including, without limitation, any loss (including
loss of anticipated profits), cost or expense incurred by
reason of the liquidation or re-employment of deposits or
other funds acquired by the Bank to fund any such Loan, and a
certificate as to the amount of any such loss, cost or expense
submitted by the Bank to Morgan and TDI shall be conclusive
and binding for all purposes, absent manifest error.
(b) If either: (1) the introduction of, or any change in, or in
the interpretation of, any law or regulation; or (2) the
compliance with any guideline or request from any central bank
or other governmental authority (whether or not having the
force of law), affects or would affect the amount of capital
required or expected to be maintained by the Bank or any
corporation controlling the Bank and the Bank determines that
the amount of such capital is increased by or based upon the
existence of the Loans (or commitment to make the Loans) and
other extensions of credit (or commitments to extend credit)
of similar type, then, upon demand by the Bank, Morgan and TDI
shall pay to the Bank from time to time as specified by the
Bank additional amounts sufficient to compensate the Bank in
the light of such circumstances, to the extent that the Bank
reasonably determines such increase in capital to be allocable
to the existence of the Bank's Loans (or commitment to make
the Loans). A certificate of the Bank submitted to Morgan and
TDI as to such amounts shall be conclusive and binding for all
purposes, absent manifest error. Upon notice from Morgan or
TDI to the Bank within five (5) Business Days after the Bank
notifies Morgan or TDI of any such additional costs pursuant
to this Section 2.8(b), Morgan or TDI may either: (1) prepay
in full all Loans of any types so affected then outstanding,
together with interest accrued thereon to the date of such
prepayment; or (2) convert all Loans of any types so affected
then outstanding into Loans of any other type not so affected
upon not less than four (4) Business Days' notice to the Bank.
If any such prepayment or conversion of any Libor Rate Loan
occurs on any day other than the last day of the applicable
Interest Period for such Loan, Morgan and TDI also shall pay
to the Bank such additional amounts sufficient to indemnify
the Bank against any loss, cost or expense incurred by the
Bank as a result of such prepayment or conversion, including,
without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds
acquired by the Bank to fund any such Loan, and a certificate
as to the amount of any such loss, cost or expense submitted
by the Bank to Morgan or TDI shall be conclusive and binding
for all purposes, absent manifest error.
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Section 2.8. Illegality. Notwithstanding any other provision of this
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
governmental authority shall assert that it is unlawful, for the Bank to perform
its obligations hereunder to make, continue or convert Libor Rate Loans
hereunder, then: (1) on notice thereof by the Bank to Morgan or TDI, the
obligation of the Bank to make or continue a Loan of a type so affected or to
convert any type of Loan into a Loan of a type so affected shall terminate and
the Bank shall thereafter be obligated to make Prime Rate Loans whenever any
written notice requests any type of Loans so affected; and (2) upon demand
therefor by the Bank to Morgan or TDI, Morgan or TDI shall either, (a) forth
with prepay in full all Loans of the type so affected then outstanding, together
with interest accrued thereon, or (b) request that the Bank, upon four (4)
Business Days' notice, convert all Loans of the type so affected then
outstanding into Loans of a type not so affected. If any such prepayment or
conversion of any Libor Rate Loan occurs on any day other than the last day of
the applicable Interest Period for such Loan, Morgan and TDI also shall pay to
the Bank such additional amounts sufficient to indemnify the Bank against any
loss, cost or expense incurred by the Bank as a result of such prepayment or
conversion, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by the Bank to fund any such
Loan, and a certificate as to the amount of any such loss, cost or expense
submitted by the Bank to Morgan or TDI shall be conclusive and binding for all
purposes, absent manifest error.
Section 2.9. Renewals/Extensions. In 1998 and in each year thereafter,
Morgan and TDI may request in writing an extension of the Termination Date for
an additional one-year period. Such written request must be accompanied by the
Morgan Group's preceding fiscal year's audited financial statements and any
other financial information reasonably requested by Bank. Any such extension
shall be in each instance, made in the Bank's sole discretion. Upon such
extension, the Termination Date shall be changed to reflect the extension.
Section 2.10. Liability of Morgan and TDI. Morgan and TDI shall each be
jointly, severally, and unconditionally liable for all payments owing under the
Revolving Credit without regard to which of the Companies actually draws down or
received the proceeds from the Revolving Loan.
STANDBY LETTER OF CREDIT FACILITY
Section 2.11. Amount and Terms of Standby Letter of Credit Facility.
The Bank hereby agrees, subject to the terms and conditions of this Agreement,
to issue one or more standby letters of credit as follows:
(a) The Bank agrees, subject to the terms and conditions of this
Agreement, to issue one or more standby letters of credit to
the Beneficiary for account of the Companies from time to
time, to cover payments made by Beneficiary on behalf of
Companies and attributable to the deductible portion of
Companies' insurance
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program with the Beneficiary; provided, however, the total of
all issued Standby Letters of Credit shall not exceed, in the
aggregate, Seven Million Dollars ($7,000,000.00) (the stated
amount). Of the Seven Million Dollar ($7,000,000.00) aggregate
amount, Bank agrees, subject to all other terms and provisions
of this Agreement to issue up to Five Hundred Thousand Dollars
($500,000.00) in Standby Letters of Credit outstanding at any
one time at the request of or for use by Interstate.
As set forth in Section 2.1, issued Standby Letters of Credit
shall reduce the amount of the Revolving Credit available
hereunder by the stated amount of the Standby Letter of
Credit, dollar for dollar.
(b) Drawings under the Standby Letter of Credit shall be made only
by Beneficiary pursuant to the terms and provisions of, and
subject to the conditions set forth in, the Standby Letter of
Credit.
(c) No Standby Letter of Credit shall be issued for a period of
time exceeding one year and no Standby Letter of Credit shall
be issued with an expiration date which is later than the date
which is fifteen (15) business days prior to the Termination
Date.
Section 2.12. Reimbursement and Other Payment Obligations.
(a) Companies shall pay Bank, on demand and in lawful United
States funds, the amount paid by Bank on each draft or other
order, instrument or demand drawn or presented under the
Letter of Credit.
(b) Companies shall pay Bank interest at a floating rate per annum
equal to the Bank's Prime Rate on all amounts paid by Bank in
connection with a Letter of Credit from the date of such
payment until Bank receives Companies' reimbursement therefor.
In the event of any change in the Prime Rate, the rate of
interest upon each Prime Rate Loan shall be adjusted to
immediately correspond to such change, except such interest
rate shall not exceed the highest rate permitted by law.
Interest shall be calculated on the basis of a three hundred
sixty (360) day year and paid for actual days elapsed and
shall be paid on the last day of each month beginning with the
first month following a payment by Bank in connection with a
Letter of Credit.
(c) No interest shall be payable on drawings which are reimbursed
on or prior to 1:00 p.m. (Cleveland, Ohio time) on the day on
which the Bank honors such drawings. After such time, interest
shall be payable by the Companies on such reimbursable amounts
at a floating rate per annum equal to the Bank's Prime Rate.
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Section 2.13. Increased Cost. If any law or regulation hereinafter
enacted or, any change in any law or regulation, or any interpretation by any
court or administrative, banking or governmental authority charged or claiming
to be charged with the administration applicable to the Bank, shall:
(a) impose, modify or make applicable any reserve, special
deposit, risk/capital ratio or similar requirement against
letters of credit issued by the Bank;
(b) impose on the Bank any other condition regarding this
Agreement or the Standby Letter of Credit; or
(c) subject the Bank to any tax (other than taxes based upon gross
revenues or income), charge, deduction or withholding of any
kind whatsoever;
and the result of any event referred to in clause (a), (b) or (c) above shall be
to increase the cost to the Bank issuing or maintaining the Standby Letter of
Credit (which increase in cost shall be the result of a reasonable allocation of
the aggregate of such cost increase as resulting from such events), or to reduce
the amount of principal, interest or any fee or compensation to be paid to the
Bank under this Agreement or the Standby Letter of Credit or the Note, then, not
later than five (5) business days following demand for payment by the Bank, the
Companies shall pay to the Bank, from time to time as specified by the Bank,
additional amounts which shall be sufficient to compensate the Bank for such
increased cost or reduction. Any such amounts that remain unpaid as of the end
of said fifth business day shall accrue interest after such date at a floating
rate of the prime rate plus one percent (1%). A certificate setting forth in
reasonable detail such increased cost or reduction incurred by the Bank as a
result of any event referred to in clause (a), (b) or (c) above, submitted by
the Bank to the Companies, shall be conclusive, absent manifest error, as to the
amount. The obligations of the Companies under this section shall survive the
termination of this Agreement.
Section 2.14. Note and Payments. As soon as practicable under the
circumstances (which sometimes may be after a draw under the Standby Letter of
Credit is honored by the Bank) the Bank will make an attempt to notify
telephonically the appropriate Company (Morgan, TDI or Interstate) that it has
received a demand for a draw under the Standby Letter of Credit and in any event
the Bank will notify the Company forthwith after a draw under the Standby Letter
of Credit is honored by the Bank. Upon demand, all payments by the Companies to
the Bank with respect to the Standby Letters of Credit shall be made in lawful
currency of the United States in immediately available funds at the Bank's
office at 127 Public Square, Cleveland, Ohio. In the event that the date
specified for any payment is not a business day, such payment shall be made not
later than the next following business day and interest shall be paid at the
rate provided for in this Agreement on any such payment. Obligations of
Companies to Bank shall be evidenced by the Note or any ledger or other record
of the Bank, which shall be presumptive evidence of the principal owing and
unpaid on the Note.
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Section 2.15. Letter of Credit Fee. Companies shall pay Bank an annual
fee based on the stated amount of each Standby Letter of Credit on or before the
date of issuance and on each anniversary date of the date of issuance of that
Standby Letter of Credit.
The fee for the entire year shall be determined and paid on the date of
issuance based upon the Letter of Credit fee in effect on the date of issuance,
and on each anniversary date. The fee for Standby Letters of Credit shall be
adjusted on a quarterly basis as follows: Upon submission of Morgan Group's
consolidated quarterly financial statements, the Standby Letter of Credit fee
shall be determined for Letters of Credit issued in the succeeding quarter by
KeyBank using the following matrix:
EBIT Letter of Credit Fee
Less than $3,000,000.00 150 basis points
Greater than or equal to $3,000,000.00
but less than $4,500,000.00 125 basis points
Greater than or equal to $4,500,000.00 100 basis points
This matrix is based upon certain levels of Morgan Group's EBIT on a
rolling four (4) quarter basis.
The special charges included in the 1996 audited financial statements
related to the closing of the Truckaway segment of the specialized
transport division of Morgan shall be excluded for testing purposes in
an amount not to exceed Three Million Five Hundred Thousand Dollars
($3,500,000.00) for special charges and Seven Hundred Fifty Thousand
Dollars ($750,000.00) for insurance claim reserves.
Also, Companies agree to pay an issuance fee equal to the Bank's standard
issuance fee at the time of issuance and the Bank's standard amendment fee for
each amendment. Companies shall also pay the fees of Bank for review of any draw
of a letter of credit.
Section 2.16. Indemnification. In addition to any other amounts payable
by the Companies under this Agreement, the Companies hereby agree to pay and
indemnify the Bank from and against any and all claims, liabilities, losses,
costs, and expenses (including, without limitation, reasonable attorney's fees)
which the Bank may incur or be subject to as a consequence, directly or
indirectly, of:
(a) the issuance of, or payment or failure to pay under the
Standby Letter of Credit;
(b) any breach by the Companies of any warranty term or condition
in, or the occurrence of any default under, this Agreement,
including all reasonable fees
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or expenses resulting from the settlement or defense of any
claim or liabilities arising as a result of any such breach or
default; and
(c) any suit, investigation or proceeding as to which the Bank is
involved as a consequence, direct or indirect, of its issuance
of the Standby Letter of Credit or its execution of this
Agreement or any other event or transaction contemplated by
any of these matters. The obligations of the Companies under
this section shall survive the termination of this Agreement.
Section 2.17. Nature of Bank's Duties. The Companies assume all risks
of the acts, omissions or misuse of the Standby Letter of Credit by Beneficiary
or any successor; and except for instances of willful misconduct by Bank, the
Bank shall not be responsible:
(a) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted in connection with the
application for and issuance of, or the making of a drawing
under, the Standby Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged;
(b) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign the Standby
Letter of Credit or the rights or benefits under it or
proceeds of it, in whole or in part, which may prove to be
invalid or ineffective for any reason;
(c) for failure of the Beneficiary to comply fully with conditions
required in order to effect a drawing;
(d) for errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, telecopier, Telex or
otherwise;
(e) for any loss or delay in the transmission or otherwise of any
document or draft required in order to make a drawing; and
(f) for any consequences arising from causes beyond the control of
the Bank. Any action taken or omitted by the Bank, under or in
connection with the Standby Letter of Credit or any related
certificates or other documents, if taken or omitted in good
faith, shall be binding upon the Companies and shall not put
the Bank under any resulting liability to the Companies.
Section 2.18. Liability of Companies. Morgan and TDI shall each be
jointly, severally and unconditionally liable for all reimbursements under any
Letter of Credit without regard as to which of the Companies requested the
Letter of Credit. The liability of Interstate hereunder is limited at any given
time to the then aggregate Letters of Credit which have been
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issued at Interstate's request, or for the benefit of Interstate plus related
interest, fees and costs hereunder.
ARTICLE III. WARRANTIES
The Companies represent and warrant to the Bank (which representations
and warran ties will survive the delivery of the Note and all extensions of
credit under this Agreement) that:
Section 3.1. Organization; Corporate Power.
(a) The Companies are corporations duly organized, validly
existing, and in good standing under the laws of the
jurisdiction in which they are incorporated;
(b) The Companies have the corporate power and authority to own
their properties and assets and to carry on their business as
now being conducted;
(c) The Companies are qualified to do business in every
jurisdiction in which the ownership or leasing of their
property or the doing of business requires such qualification;
and
(d) The Companies have the corporate power to execute, deliver,
and perform their Loan Documents and to borrow hereunder.
Section 3.2. Authorization of Borrowing. The execution, delivery, and
performance of the Loan Documents have been duly authorized by all requisite
corporate action.
Section 3.3. No Conflict. The execution, delivery, and performance of
the Loan Documents will not: (1) violate any provision of law, the Articles of
Incorporation, the Code of Regulations or Bylaws of the Companies; (2) violate
any order of any court or other agency of any federal or state government or any
provision of any indenture, agreement, or other instrument to which the
Companies are parties or by which they or any of their properties or assets are
bound; (3) conflict with, result in a breach of, or constitute (with passage of
time or delivery of notice, or both), a default under any such indenture,
agreement or other instrument; or (4) result in the creation or imposition of
any Lien or other encumbrance of any nature whatsoever upon any of the
properties or assets of the Companies except in favor of the Bank.
Section 3.4. Execution of Loan Documents. The Loan Documents have been
duly executed and are valid and binding obligations of the Companies fully
enforceable in accor dance with their respective terms.
Section 3.5. Financial Condition. The Companies have furnished to the
Bank true and correct financial statements of Morgan Group prepared by a
certified public accountant as
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of the end of the Companies' calendar year which ended December 31, 1996, which
audited financial statements present fairly Morgan Group's financial condition
at such date, and there has been no material adverse change in Morgan Group's
financial condition since that date.
Section 3.6. Liabilities; Liens. The Companies have made no investment
in, advance to, or guarantee of, the obligations of any Person nor are the
Companies' assets and properties subject to any claims, liabilities, Liens or
other encumbrances, except as disclosed in the finan cial statements and related
notes thereto referred to in Section 3.5 hereof.
Section 3.7. Litigation. There is no action, suit, examination, review
or proceeding by or before any governmental instrumentality or agency now
pending or, to the knowledge of the Companies, threatened against the Companies
or against any property or rights of the Companies, which, if adversely
determined, would materially impair the right of the Companies to carry on
business as now being conducted or which would materially adversely affect the
financial condition of the Companies, except for the litigation, if any,
described in the notes to the financial statements referred to in Section 3.5
hereof.
Section 3.8. Payment of Taxes. Federal income tax returns of the
Companies have been examined by the Internal Revenue Service for all years prior
to and including their calendar year which ended December 31, 1993, and all
deficiencies finally resulting from such examinations have been discharged or
proper amounts have been set aside on the Companies' books to cover such
deficiencies. The Companies have filed, or caused to be filed, all federal,
state, local, and foreign tax returns required to be filed, and has paid, or
caused to be paid, all taxes as are shown on such returns, or on any assessment
received by the Companies, to the extent that such taxes become due, except as
otherwise contested in good faith. The Companies have set aside proper amounts
on their books, determined in accordance with GAAP, for the payment of all taxes
for the years that have not been audited by the respective tax authorities or
for taxes being contested by the Companies.
Section 3.9. Agreements. The Companies are not in default in the
performance, observance, or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party,
which default materially adversely affects the business, properties, assets or
financial condition of the Companies.
Section 3.10. Regulatory Status. Neither the making nor the performance
of this Agreement, nor any extension of credit hereunder, requires the consent
or approval of any governmental instrumentality or political subdivision
thereof, any other regulatory or adminis trative agency, or any court of
competent jurisdiction.
Section 3.11. Federal Reserve Regulations; Use of Loan Proceeds. The
Companies are not engaged principally, or as one of their important activities,
in the business of extending credit for the purpose of purchasing or carrying
any Margin Stock. No part of the proceeds of the Loans will be used, directly or
indirectly, for a purpose which violates any law, rule or
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regulation of any governmental body, including, without limitation, the
provisions of Regulations G, U or X of the Board of Governors of the Federal
Reserve System, as amended. No part of the proceeds of the Loans will be used,
directly or indirectly, to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
Following application of the proceeds of each Loan, not more than ten percent
(10%) of the value of the assets of the Companies and their subsidiaries on a
consolidated basis will be Margin Stock.
Section 3.12. Subsidiaries. Morgan has three (3) subsidiaries,
Transport Services Unlimited, Inc., Advertising Associates, Inc., MDA
Corporation and Interstate and TDI have no subsidiaries and neither will form,
purchase, or otherwise hold additional subsidiaries without written consent of
the Bank. The Morgan Group has four (4) subsidiaries, Morgan Drive Away, Inc.,
Interstate Indemnity Company, Morgan Finance, Inc., TDI, Inc., and will not
form, purchase or otherwise hold additional subsidiaries without written consent
of Bank.
Section 3.13. Licenses. The Companies have all licenses, franchises,
consents, approvals or authorizations required in connection with the conduct of
the business of the Companies, the absence of which would have a material
adverse affect on the conduct of the Companies' business, and all such licenses,
franchises, consents, approvals, and authorizations are in full force and
effect.
Section 3.14. ERISA. No Reportable Event or Prohibited Transaction has
occurred and is continuing with respect to any Plan, and the Companies have
incurred no "accumulated funding deficiency" (as that term is defined by ERISA)
since the effective date of ERISA.
Section 3.15. Environmental Matters. The Companies are in compliance
with all Environmental Laws and all applicable federal, state, and local health
and safety laws, regula tions, ordinances or rules.
Section 3.16. Solvency. The Companies have received consideration which
is the reasonable equivalent value of the obligations and liabilities that the
Companies have incurred to Bank. The Companies are not insolvent as defined in
any applicable state or federal statute, nor will the Companies be rendered
insolvent by the execution and delivery of this Agreement or the Note to Bank.
The Companies are not engaged or about to engage in any business or transaction
for which the assets retained by it shall be an unreasonably small capital,
taking into consideration the obligations to Bank incurred hereunder. The
Companies do not intend to, nor do they believe that they will, incur debts
beyond their ability to pay them as they mature.
ARTICLE IV. CONDITIONS OF LENDING AND COLLATERAL
Section 4.1. Credit Facility. The obligation of the Bank to make a Loan
or issue a Standby Letter of Credit shall be subject to satisfaction of the
following conditions, unless
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waived in writing by the Bank: (1) all legal matters and Loan Documents incident
to the trans actions contemplated hereby shall be satisfactory, in form and
substance, to Bank's counsel; (2) the Bank shall have received, (a) certificates
by an authorized officer of the Companies, upon which the Bank may conclusively
rely until superseded by similar certificates delivered to the Bank, certifying,
(i) all requisite action taken in connection with the transactions contemplated
hereby, and (ii) the names, signatures, and authority of the Companies'
authorized signers executing the Loan Documents; and (b) such other documents as
the Bank may reasonably require to be executed by, or delivered on behalf of,
the Companies; (3) the Bank shall have received the Note with all blanks
appropriately completed, executed by an authorized signer of the Companies; (4)
the Companies shall have paid to the Bank the fee(s) then due and payable in
accordance with Article II and Article IX of this Agreement and a closing fee of
Thirty Thousand Dollars ($30,000.00); (5) all existing credit facilities to
Morgan Group and its Subsidiaries are canceled ; (6) there is no Event of
Default or Potential Event of Default; (7) the Bank shall have received the
written opinion of legal counsel selected by the Companies and satisfactory to
the Bank, dated the date of this Agreement, in form and substance satisfactory
to the Bank, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by the Companies and constitutes a legal, valid and
binding obligation of the Companies enforceable in accordance
with its terms except to the extent that such enforceability
is limited by bankruptcy, insolvency, moratorium or similar
laws or equitable principles relating to the enforcement of
creditors' rights;
(ii) the Note delivered to Bank on the Closing Date has been
duly author ized, executed and delivered by the Companies and
is a legal, valid and binding obligation of the Companies
enforceable in accordance with its terms except to the extent
that such enforceability is limited by bankruptcy, insolvency,
moratorium or similar laws or equitable principles relating to
the enforcement of creditors' rights;
(iii) it is not necessary, in connection with the making and
delivery of the Note under the circumstances contemplated by
this Agreement, to register the Note under the Securities Act
of 1933, as amended, or to qualify an indenture in respect
thereof under the Trust Indenture Act of 1939, as amended;
(iv) no order, permission, consent or approval of any federal
or state com mission, board of regulatory authority is
required for the execution and delivery or performance of this
Agreement and of the Note;
(v) neither the consummation of the Agreement nor the use by
the Companies of any financial accommodation hereunder will
violate the Securities Exchange Act of 1934, as amended, or
applicable regulations thereunder;
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(vi) the Companies are corporations duly organized, existing
and in good standing under the laws of the state as set forth
in Section 3.1 with full corporate power and authority to
carry on the business, to enter into this Agreement, to borrow
money as contemplated by them, to issue the Note and to carry
out the provisions of this Agreement and the Note;
(vii) the Companies are duly qualified as foreign corporations
to do business in each of the states, other than the state of
their incorporation, in which the character of the properties
owned by them or the nature of the business trans acted by
them makes such qualification necessary, and is in good
standing in each of such states;
(viii) there is no charter, bylaw or preferred or common stock
provision, nor any indenture, contract or agreement to which
the Companies are to the knowledge of such counsel parties,
nor any statute, rule or regulation binding on the Companies,
which would be contravened by the execution and delivery of
this Agreement or of the Note or by the performance of any
terms, provisions, conditions, agreements, covenants or
obligations of the Companies contained herein or therein;
(ix) there are no actions, suits, investigations or
proceedings (whether or not purportedly on behalf of the
Companies) pending or, to the knowledge and belief of said
counsel, threatened against or affecting the Companies, or the
business or properties of the Companies, or before or by any
governmental agency, or any court, arbitrator or grand jury,
which can reasonably be expected to result in any material
adverse change in the business, operations, properties or
assets or in the condition, financial or otherwise, of the
Companies or in the ability of the Companies to perform this
Agreement. The Companies are not, to the knowledge and belief
of said counsel, in default with respect to any judgment,
order, writ, injunction, decree, demand, rule or regulation of
any court, arbitrator, grand jury, or any of the governmental
agency, default under which might have consequences which
would materially and adversely affect the business, properties
or assets or the condition, financial or otherwise, of the
Companies;
(x) the consummation of the Agreement and the execution and
delivery of the Note will not involve any prohibited
transaction under the Internal Revenue Code or ERISA; and
(6) the Bank shall have received a guarantee, satisfactory in form and substance
to Bank's counsel, by The Morgan Group, Inc. and Morgan Finance in favor of Bank
guaranteeing all indebtedness of Companies to Bank and from Morgan and TDI
guaranteeing all indebtedness of Interstate to Bank, and an opinion letter of
legal counsel selected by the Guarantor and
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satisfactory to the Bank in the form of Exhibit "C" attached to this Agreement
and covering such additional matters as Bank may reasonably require.
Section 4.2. Each Loan. The obligation of the Bank to make any Loan or
to issue any Standby Letter of Credit shall be subject to compliance with
Section 4.1 herein and also subject to satisfaction of the following conditions
that at the date of making such Loan or issuing any Standby Letter of Credit,
and after giving effect thereto: (1) no Event of Default or Potential Default
shall have occurred and be then continuing; and (2) each representation and
warranty set forth in Article III above is true and correct as if then made.
Section 4.3. Collateral. The obligations of Companies, hereunder shall
be secured by the Master Revolving Note, and by the collateral described in the
Security Agreements executed on even date herewith, and any and all security
agreements ratified pursuant to Section 4.4 herein, and by the Other Collateral
Documents and by any and all collateral securing any obligation of Companies to
Bank.
Section 4.4. Ratification and Confirmation. All security agreements,
financing statements, evidence of liens, and other security documents, executed
by the Companies in favor of Bank, are hereby ratified and confirmed, and
adopted by and to the uses of this Agreement, and shall continue in full force
and effect, and shall hereafter be related to this Agreement.
ARTICLE V. AFFIRMATIVE COVENANTS
As long as financial accommodation is available hereunder and until the
Expiration Date of all Letters of Credit shall have passed and until all
principal of and interest on the Note have been paid in full:
Section 5.1. Accounting; Financial Statements; and Other Information.
The Companies will maintain a standard system of accounting, established and
administered in accordance with GAAP consistently followed throughout the
periods involved, and will set aside on their books for each fiscal quarter the
proper amounts or accruals for depreciation, obsolescence, amortization, bad
debts, current and deferred taxes, prepaid expenses, and for other purposes as
shall be required by GAAP. The Companies will deliver to the Bank:
(a) As soon as practicable after the end of each month, and in any
event within thirty (30) days thereafter, a balance sheet of
the Companies as of the end of such month, and statements of
income, certified as complete and correct by the principal
financial officer of the Companies, accompanied by a
certificate by the chief financial officer stating whether or
not there exists any Event of Default or Potential Default.
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(b) Quarterly 10Q reports of Morgan Group within forty-five (45)
days of the quarter end.
(c) As soon as practicable after the end of each fiscal year, and
in any event within one hundred twenty (120) days thereafter,
the Annual 10K Report, and an audited consolidated financial
statement for The Morgan Group, audited by certified public
accountants of recognized standing, selected by the Companies
and satisfactory to the Bank prepared in accordance with GAAP.
In addition, a consolidating balance sheet as of the end of
such year, and statements of income of Companies, Interstate,
Morgan Finance, and the Morgan Group for such year, setting
forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail certified as
complete and correct by the principal financial officer of
each entity.
(d) Annual budgeted financial statements within ninety (90) days
of year end.
(e) Together with each set of financial statements required by
subparagraphs (b) and (c) above and, in addition, upon request
of the Bank at any other times, a certifi cate by the chief
financial officer or other authorized officer of the Companies
stating whether or not there exists any Event of Default or
Potential Default (including the calculations pursuant to
Sections 6.7, 6.10 and 6.11 hereunder) and if there is an
Event of Default or Potential Default, specifying the nature
and period of existence thereof and what action, if any, the
Companies are taking or proposes to take with respect thereto.
(f) With reasonable promptness, such other data and information as
from time to time may be reasonably requested by the Bank.
(g) Promptly and in any event within ten (10) days after the
occurrence of a Reportable Event with respect to a Plan,
copies of any materials required to be filed with the PBGC
with respect to such Reportable Event or those that would have
been required to be filed if the thirty (30) day notice
requirement to the PBGC were not waived.
(h) Promptly upon receipt, and in no event more than three (3)
days after receipt, of a notice by the Companies or any ERISA
Affiliate or any administrator of any Plan or Multiemployer
Plan that the PBGC has instituted proceedings to terminate
such Plan or to appoint a trustee to administer such Plan, a
copy of such notice.
Section 5.2. Insurance; Maintenance of Properties. The Companies will
maintain with financially sound and reputable insurers, insurance with coverage
and limits as may be required by law or as may be reasonably required by the
Bank. The Companies will, upon
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request from time to time, furnish to the Bank a schedule of all insurance
carried by it, setting forth in detail the amount and type of such insurance.
The Companies will maintain in good repair, working order, and condition, all
properties used or useful in the business of the Companies.
Section 5.3. Existence; Business. The Companies will cause to be done
all things necessary to preserve and keep in full force and effect their
existence and rights, to conduct their business in a prudent manner, to maintain
in full force and effect, and renew from time to time, their franchises,
permits, licenses, patents, and trademarks that are necessary to operate their
businesses. The Companies will comply in all material respects with all valid
laws and regulations now in effect or hereafter promulgated by any properly
constituted governmental authority having jurisdiction; provided, however, the
Companies shall not be required to comply with any law or regulation which it is
contesting in good faith by appropriate proceedings as long as either the effect
of such law or regulation is stayed pending the resolution of such proceedings
or the effect of not complying with such law or regulation is not to jeopardize
any franchise, license, permit patent or trademark necessary to conduct the
Companies' business.
Section 5.4. Payment of Taxes. The Companies will pay all taxes,
assessments, and other governmental charges levied upon any of their properties
or assets or in respect of their franchises, business, income or profits before
the same become delinquent, except that no such taxes, assessments, or other
charges need be paid if contested by the Companies in good faith and by
appropriate proceedings promptly initiated and diligently conducted and if the
Companies has set aside proper amounts, determined in accordance with GAAP, for
the payment of all such taxes, charges, and assessments.
Section 5.5. Litigation; Adverse Changes. The Companies will promptly
notify the Bank in writing of: (1) any future event which, if it had existed on
the date of this Agreement, would have required qualification of the
representations and warranties set forth in Article III hereof; and (2) any
material adverse change in the condition, business or prospects, financial or
otherwise, of the Companies.
Section 5.6. Notice of Default. The Companies will promptly notify the
Bank of any Event of Default or Potential Default hereunder and any demands made
upon the Companies by any Person for the acceleration and immediate payment of
any Indebtedness owed to such Person.
Section 5.7. Inspection. The Companies will make available for
inspection by duly authorized representatives of the Bank, or its designated
agent, the Companies' books, records, and properties when reasonably requested
to do so, and will furnish the Bank such information regarding their business
affairs and financial condition within a reasonable time after written request
therefor.
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Section 5.8. Environmental Matters. The Companies and each of their
subsidiaries:
(a) Shall comply with all Environmental Laws.
(b) Shall deliver promptly to Bank notice of the receipt of any
document received from the United States Environmental
Protection Agency or any state, county or municipal
environmental or health agency and, upon request of Bank: (1)
copies of any documents received from the United States
Environmental Pro tection Agency or any state, county or
municipal environmental or health agency; and (2) copies of
any documents submitted by Companies or any of their
Subsidiaries to the United States Environmental Protection
Agency or any state, county or municipal environmental or
health agency concerning their operations.
Section 5.9. Depository Accounts. Companies shall maintain all of their
primary depository accounts with the Bank, and Companies grant Bank the right to
offset Companies' funds on deposit with the Bank against Indebtedness owed by
Companies to the Bank.
ARTICLE VI. NEGATIVE COVENANTS
As long as credit is available hereunder and until all principal of and
interest on the Note have been paid in full:
Section 6.1. Sale or Purchase of Assets. Morgan Group and the Companies
(indivi dually or collectively) will not, nor will they allow any Subsidiary to,
directly or indirectly: (1) purchase, lease or otherwise acquire any assets
except in the ordinary course of business or as otherwise permitted by any
provision of this Agreement; or (2) sell, lease, transfer or otherwise dispose
of any facility (for purposes of this provision, sales of assets associated with
the closing of the Truckaway segment shall be excluded in an amount not to
exceed Two Million One Hundred Twenty-Five Thousand Dollars ($2,125,000.00); or
(3) sell, lease, transfer or otherwise dispose of in any transaction or series
of related transactions any of their property or assets (except in the ordinary
course of business) without written consent of Bank.
Section 6.2. Liens. Morgan Group and the Companies (individually or
collectively) will not, nor will they allow any Subsidiary to, directly or
indirectly, create, incur, assume, or permit to exist any Lien with respect to
any property or asset of the Companies now owned or hereafter acquired other
than:
(a) Liens for taxes or governmental assessments, charges or levies
the payment of which is not at the time required by Section
5.4 hereof;
(b) Liens imposed by law, such as Liens of landlords, carriers,
warehousemen, mechanics, and materialmen arising in the
ordinary course of business for sums
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not yet due or being contested by appropriate proceedings
promptly initiated and diligently conducted, provided the
Companies have set aside proper amounts, determined in
accordance with GAAP, for the payment of all such Liens;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation,
unemployment insurance, and other types of social security, or
to secure the performance of tenders, statutory obligations,
and surety and appeal bonds, or to secure the performance and
return of money, bonds, and other similar obligations, but
excluding Indebtedness; and
(d) Liens in respect of judgments or awards with respect to which
the Companies shall, in good faith, be prosecuting an appeal
or proceeding for review and with respect to which a stay of
execution upon such appeal or proceeding for review shall have
been obtained;
(e) Liens that secure the Companies' Indebtedness for the purchase
price of any real or personal property and that only encumber
the property purchased; provided the aggregate amount of all
such purchase money Liens shall not exceed an aggregate amount
outstanding at any time of Two Hundred Thousand Dollars
($200,000.00) (For purposes of calculating said $200,000.00
figure, all purchase money Liens of the Morgan Group,
Companies, Interstate, Morgan Finance, and the Subsidiaries of
Companies will be included so that the combined purchase money
Liens shall not exceed Two Hundred Thousand Dollars
($200,000.00);
(f) Liens in favor of the Bank or any Affiliate Bank.
Section 6.3. Indebtedness. Morgan Group and the Companies (individually
or collectively) will not, nor will they allow any Subsidiary to, directly or
indirectly, create, incur or assume Indebtedness, or otherwise become liable
with respect to, any Indebtedness other than:
(a) Indebtedness now or hereafter payable, directly or indirectly,
by the Companies to the Bank or any Affiliate Bank;
(b) Subordinated Debt of the Companies;
(c) To the extent permitted by this Agreement, Indebtedness for
the purchase price of any real or personal property, which is
secured only by a Lien on the Property purchased;
(d) Unsecured current Indebtedness and deferred liabilities (other
than for borrowed money or represented by bonds, notes, or
other securities) incurred in the
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ordinary course of business (except that Companies may enter
into agreements with their insurance providers for payment of
premiums over a period of time not to exceed one (1) year);
and
(e) Indebtedness for taxes, assessments, governmental charges,
Liens, or similar claims to the extent not yet due and
payable.
Section 6.4. Investments; Loans. Morgan Group and the Companies
(individually or collectively) will not, nor will they allow any Subsidiary to,
directly or indirectly, without written approval of the Bank: (1) purchase or
otherwise acquire any stock or other securities of any other Person (except that
it shall not be a violation of this agreement if Companies receive, following a
bankruptcy or other insolvency proceeding by one of Companies' debtors, stock in
exchange for or settlement of the unpaid account of that debtor to Companies);
or (2) make or permit to be outstanding any loan (other than loans to officers
in relation to or for the purpose of the special employee stock purchase plan)
or advance (other than trade advances in the ordinary course of business and
extensions of credit by Companies or Morgan Finance to owner-operators for the
purchase of a piece of equipment so long as the advances do not exceed the value
of the collateral pledged by the owner-operator to Companies or Morgan Finance
and assigned by Companies or Morgan Finance to Bank) or enter into any arrange
ment to provide funds or credit, to any other Person, except that the Companies
may purchase or otherwise acquire and own marketable United States Treasury and
Agency obligations, and certificates of deposit and bankers' acceptances issued
or created by any domestic commercial bank.
Section 6.5. Guaranties. Except for the guarantees given to Bank,
Morgan Group and the Companies (individually or collectively) will not, nor will
they allow any Subsidiary to, guarantee, directly or indirectly, or otherwise
become surety (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to, or otherwise invest in, any Person, or enter into any working capital
maintenance or similar agreement) in respect of any obligation or Indebtedness
of any other Person, except guaranties by endorsement of negotiable instruments
for deposit, collection, or similar transactions in the ordinary course of
business; provided, however, Morgan Group and/or its Subsidiaries may guarantee
the debt of Persons in an amount not to exceed, in the aggregate, Five Hundred
Thousand Dollars ($500,000.00).
Section 6.6. Mergers; Consolidation; Acquisitions. Morgan Group and the
Companies (individually or collectively) will not, nor will they allow any
Subsidiaries to, merge or consolidate with any Person or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of their assets (whether now owned or
hereafter acquired). Nor will Morgan Group, or Companies, or any Subsidiaries
purchase or otherwise acquire (whether in one transaction or in a series of
trans actions) all or substantially all of the assets of any Person (whether
through an asset or stock purchase) without prior written consent of Bank.
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Section 6.7. Consolidated Net Worth. Morgan Group will not permit at
any time its Consolidated Net Worth to be less than Twelve Million Five Hundred
Thousand Dollars ($12,500,000.00). The required Consolidated Net Worth shall
increase quarterly by an amount equal to fifty percent (50%) of Morgan Group's
consolidated quarterly positive net earnings beginning with the first quarter
end that occurs following execution of this Agreement. The required Consolidated
Net Worth shall not decrease below the amount established in the prior quarter
even if there is a quarter in which the Morgan Group does not have positive net
earnings.
The required Consolidated Net Worth shall also be increased by the
amount of any equity issued or subordinated debt converted to equity by the
Morgan Group over the term of this Revolving Credit Facility Agreement,
excluding stock offerings under any of the Morgan Group's or its Subsidiaries'
employee benefit plan.
Section 6.9. Subordinated Debt. Morgan Group and the Companies
(individually or collectively) will not, nor will they allow any Subsidiaries
to, make any payment upon outstanding Subordinated Debt, except in such manner
and amounts as may be expressly authorized in any subordination agreement
presently or hereafter held by the Bank.
Section 6.10. Leverage. Morgan Group will not permit its Leverage, on a
consolidated basis, to be at any time more than forty-five percent (45%),
calculated at closing and quarterly thereafter beginning with the first quarter
end that occurs following execution of this Agreement.
Section 6.11. Interest Coverage. Morgan Group will not permit its
Interest Coverage, on a consolidated basis, to fall below 2.0 to 1.0. This
covenant will be measured on a year-to-date basis for fiscal year 1997, until a
rolling four-quarter period is established.
Section 6.12. Transactions With Affiliates. Morgan Group and the
Companies (individually or collectively) will not, nor will they allow any
Subsidiary to, enter into any transaction including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliate except in the ordinary course of business (or as otherwise allowed
herein) and pursuant to the reasonable requirements of the Companies' business
and upon terms found by the Board of Directors to be fair and reasonable and no
less favorable to the Companies than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
Section 6.13. Name Change. Morgan Group and the Companies (individually
or collectively) will not change their name or location without written
notification to Bank.
Section 6.14. Use of Proceeds. Proceeds from the Loans hereunder shall
be used solely for proper corporate purposes.
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ARTICLE VII. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default under this Agreement:
Section 7.1. Principal or Interest. If the Companies fail to pay any
installment of principal of or interest on the Note or any other sums of money
upon demand or when otherwise due and payable under this Agreement or fail to
pay any installment of principal of or interest on any other obligation of
Companies to Bank, an Affiliate Bank or Leasing Company when due and payable; or
Section 7.2. Misrepresentation. If any representation or warranty made
herein by the Companies or in any written statement, certificate, report or
financial statement at any time furnished by, or on behalf of, the Companies in
connection herewith, is incorrect or misleading in any material respect when
made; or
Section 7.3. Failure of Performance of this Agreement. If the Companies
or the Morgan Group or any Affiliate or Subsidiary fails to perform or observe
any covenant or agreement contained in this Agreement, or in any other agreement
between Companies and Bank, an Affiliate Bank or Leasing Company other than any
sums of money payable, and such failure remains unremedied for ten (10) calendar
days after the Bank, Affiliate Bank or Leasing Company shall have given written
notice thereof to the Companies; or
Section 7.4. Default by Morgan Group. Any action which would constitute
a default by Morgan Group in the performance or observation of any covenants,
conditions or agreements contained in any agreement entered into by Morgan Group
and Bank, an Affiliate Bank or Leasing Company or in any note, guaranty or
mortgage or other security instrument signed by Morgan Group and given to Bank,
an Affiliate Bank or Leasing Company; or
Section 7.5. Default by Morgan Finance. Any action which would
constitute a default by Morgan Finance in the performance or observation of any
covenants, conditions or agreements contained in any agreement entered into by
Morgan Finance and Bank, an Affiliate Bank or Leasing Company or in any note,
guaranty or mortgage or other security instrument signed by Morgan Finance and
given to Bank, an Affiliate Bank or Leasing Company; or
Section 7.6. Cross-Default. If the Companies (or any Guarantor or any
Affiliate or Subsidiary): (1) fails to pay any Indebtedness (other than as
evidenced by the Note) owing by the Companies (or such Guarantor or any
Affiliate or Subsidiary) when due, whether at matur ity, by acceleration, or
otherwise; or (2) fails to perform any term, covenant or agreement on their part
to be performed under any agreement or instrument (other than the Loan
Documents) evidencing, securing or relating to such Indebtedness when required
to be performed, or is otherwise in default thereunder, if the effect of such
failure is to accelerate, or to permit the holder(s) of such Indebtedness or the
trustee(s) under any such agreement or instrument to
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accelerate, the maturity of such Indebtedness, whether or not such failure shall
be waived by such holder(s) or trustee(s); or
Section 7.7. Event of Default Under Any Security Agreement. If any
Event of Default occurs (with passage of time or service of notice, or both)
under the terms of any Security Agreement; or
Section 7.8. ERISA. If any of the following events occur: (1) any Plan
incurs any "accumulated funding deficiency" (as such term is defined in ERISA)
whether waived or not; (2) the Companies engage in any Prohibited Transaction;
(3) any Plan is terminated; (4) a trustee is appointed by an appropriate United
States district court to administer any Plan; or (5) the PBGC institutes
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or
Section 7.9. Guaranty. Failure by any Guarantor to maintain in effect
guarantees of all obligations of Companies to Bank, an Affiliate Bank, and
Leasing Company, including, but not limited to, obligations under this
Agreement, or failure of any Guarantor to deliver to Bank any financial
statements or documents required under Section 5.1 hereunder.
Section 7.10. Insolvency. If the Companies (or any Guarantor) shall
discontinue business or if the Companies or any Guarantor or Subsidiary: (1) is
adjudicated bankrupt or insolvent under any law of any existing jurisdiction,
domestic or foreign, or ceases, is unable, or admits in writing their inability
to pay their debts generally as they mature, or makes a general assignment for
the benefit of creditors; (2) applies for, or consents to, the appointment of
any receiver, trustee or similar officer for it or for any substantial part of
their property, or any such receiver, trustee or similar officer is appointed
without the application or consent of the Companies (or such Guarantor or
Subsidiary), and such appointment continues thereafter undischarged for a period
of thirty (30) days; (3) institutes, or consents to the institution of any
bankruptcy, insolvency, reorganization, arrangement, readjustment or debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction; (4) any such proceeding is instituted against the Companies
(or such Guarantor or Subsidiary) and remains thereafter undismissed for a
period of thirty (30) days; or (5) any judgment, writ, warrant of attachment or
execution, or similar process is issued or levied against a substantial part of
the property of the Companies or any subsidiary (or Guarantor or Subsidiary) and
such judgment, writ or similar process is not effectively stayed within thirty
(30) days after its issue or levy, or any Guarantor becomes deceased.
ARTICLE VIII. REMEDIES UPON DEFAULT
Section 8.1. Optional Acceleration. In the event that one or more of
the Events of Default set forth in Sections 7.1 through 7.9 above occurs and is
not waived by the Bank, then, in any such event, and at any time thereafter, the
Bank may, it its option, terminate its commitment to issue any Loan and any
Standby Letter of Credit and declare the unpaid
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principal of, and all accrued interest on, the Note, and any other liabilities
hereunder, and all other Indebtedness of the Companies to the Bank forthwith due
and payable, whereupon the same will forthwith become due and payable without
presentment, demand, protest or other notice of any kind, all of which the
Companies hereby expressly waive, anything contained herein or in the Note to
the contrary notwithstanding.
Section 8.2. Automatic Acceleration. Upon the happening of an Event of
Default referred to in Section 7.10 above, the unpaid principal of, and all
accrued interest on, the Note, and any other liabilities hereunder and all other
Indebtedness of the Companies to the Bank then existing will thereupon become
immediately due and payable in full and the commitment, if any, of the Bank to
issue Loans or any Standby Letter of Credit, if not previously terminated, will
thereupon immediately terminate without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived by the Companies, anything
contained herein or in the Note to the contrary notwithstanding.
Section 8.3. Right of Setoff; Security. Upon the occurrence of an Event
of Default, the Bank has the right, in addition to all other rights and remedies
available to it, to set off the unpaid balance of the Note and any other
Indebtedness payable to the Bank held by it against any debt owing to the
Companies by the Bank or by an Affiliate Bank, including, without limitation,
any obligation under a repurchase agreement or any funds held at any time by the
Bank or any Affiliate Bank, whether collected or in the process of collection,
or in any time or demand deposit account maintained by the Companies at, or
evidenced by any certificate of deposit issued by, the Bank or any Affiliate
Bank. The Companies hereby grant, pledge, and assign to the Bank a security
interest in, or Lien upon, all cash, negotiable instruments, securities, deposit
accounts, and other cash equivalents, whether collected or in the process of
collection, whether matured or unmatured, now or hereafter in the possession of
the Bank or any Affiliate Bank and upon which the Companies have or may
hereafter have any claim. The Companies acknowledge and agree that all of the
foregoing shall constitute "cash collateral" for purposes of this Agreement. The
Companies agree, to the fullest extent it may effectively do so under applicable
law, that any holder of a participation in the Note may exercise rights of
setoff or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Companies pursuant to this Agreement in the amount of such participation.
Section 8.4. No Waiver. The remedies in this Article VIII are in
addition to, not in limitation of, any other right, power, privilege or remedy,
either in law, in equity, or other wise, to which the Bank may be entitled. No
failure or delay on the part of the Bank in exercising any right, power or
remedy will operate as a waiver thereof, nor will any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right hereunder.
Section 8.5. Waiver of Surety Defenses. Each and every guarantor,
surety, endorser, and accommodation party of the obligations contained herein
shall be deemed to and shall have
31
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irrevocably waived and relinquished (1) the benefit of any and all defenses to
enforcement of the Note, any counterclaim, offset or claim in recoupment, based
upon contract, arising at equity, or under any state or federal law regarding
suretyship or guaranty generally; and (2) any discharge provided in Indiana Code
26-1-3.1-605, or other state or federal statute of similar import. Consistent
with this waiver, and not by way of limitation, the person or persons entitled
to enforce the Note may, at any time and without notice to any guarantor,
surety, endorser or accommodation party of the obligations contained in the
Note, (i) extend the maturity date of the Note; (ii) adjust any and all terms of
the Note, even if such adjustment materially alters the obligation; (iii) take
any action (or not take any action) with respect to any collateral for the Note,
including without limitation, releasing or diminishing (intentionally or
otherwise) the extent or value of such collateral.
Section 8.6. Additional Waivers. Each and every guarantor, surety,
endorser, and accommodation party of the obligations contained herein, or in the
Note, hereby waives each of the following:
(a) presentment, demand and protest, and notice of dishonor,
nonpayment or other default with respect to any of the
obligations hereunder;
(b) any and all defenses, claims and discharges of Companies or
any other obligor, except the defense of discharge by payment
in full; and, without limiting the generality of the
foregoing, will not assert, plead or enforce against the Bank
any defense of waiver, release, discharge in bankruptcy,
statute of limitations, respondent judicata, statute of
frauds, anti-deficiency statute, incapacity, minority, usury,
illegality or unenforceability which may be available to the
Companies or any setoff available to the Companies or any
other person against Bank; and
(c) any requirement that Bank take action, realize, institute
suit, or exercise or exhaust its rights or remedies against
any of the Companies or against any other person or guarantor,
or collateral securing and/or guaranteeing all or any part of
the obligations, prior to enforcing any rights it has against
said guarantor, surety, endorser or accommodation party.
(d) the invalidity of any instruments evidencing any obligation
hereunder or the disability or legal incapacity of any person
in whole or in part, at any time;
(e) the fact that the amount or value of any of the property
constituting a part of the Collateral, may at any time have
been or be incorrectly estimated;
(f) the deterioration in market or other values, waste, loss by
fire, theft, loss, non- existence or substitution of any
property constituting a part of the Collateral;
32
<PAGE>
(g) relief from valuation and appraisement laws; and
(h) any right that a guarantor, surety, endorser or accommodation
party has, or might hereafter have, to recover from any of the
Companies the monies that any such guarantor, surety, endorser
or accommodation party is obligated to pay to Bank hereunder.
Until Bank is paid in full and until no commitment by Bank to
provide Loans or financial accommodations hereunder remains,
the undersigned will not exercise or enforce, and expressly
waives, any right of contribution, reimbursement,
indemnification, recourse or subrogation available to the
undersigned against any person liable for payment of the
obligations hereunder, including, but not limited to, each of
the Companies or as to any collateral security therefor.
Section 8.7. Information Concerning Financial Conditions of Borrower.
Each and every guarantor, surety, endorser and accommodation party of the
obligations contained herein acknowledges that it is capable of, and hereby
assumes responsibility for keeping informed of the financial conditions of the
Companies, and of all other circumstances bearing upon the risk of nonpayment of
the obligations that diligent inquiry would reveal, and hereby agree that Bank
shall have no duty to advise them of information known to Bank regarding such
conditions or any such circumstances.
ARTICLE IX. MISCELLANEOUS
Section 9.1. Amendments. No waiver of any provision of this Agreement
or the Note, or consent to departure therefrom, is effective unless in writing
and signed by the Bank. No such consent or waiver extends beyond the particular
case and purpose involved. No amendment to this Agreement is effective unless in
writing and signed by the Companies and the Bank.
Section 9.2. Expenses; Documentary Taxes. The Companies shall pay: (1)
all out-of-pocket expenses of the Bank, including, but not limited to, all
filing fees and costs related thereto and all legal fees and disbursements of
special counsel for the Bank, in connection with the preparation of this
Agreement and the related documents; (2) any out-of-pocket expenses of the Bank,
including fees and disbursements of special counsel for the Bank related to any
waiver or consent hereunder or any amendment hereof or any Event of Default
hereunder; and (3) if an Event of Default or Potential Default occurs, all
out-of-pocket expenses incurred by the Bank, including reasonable fees and
disbursements of counsel, in connection with such Event of Default or Potential
Default and collection and other enforcement proceedings result ing therefrom.
The Companies shall reimburse the Bank for its payment of all transfer taxes,
documentary taxes, assessments or charges made by any governmental authority be
reason of the execution and delivery of this Agreement or the Note. Provided,
however, nothing contained herein shall be construed as requiring Companies to
pay income taxes of Bank incurred as a result of the Revolving Loan
relationship.
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<PAGE>
Section 9.3. Indemnification. The Companies shall indemnify and hold
the Bank harmless against any and all liabilities, losses, damages, costs, and
expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel in connection with any investigative, administrative or
judicial proceeding, whether or not the Bank shall be designated a party
thereto) which may be incurred by the Bank relating to or arising out of this
Agreement or any actual or proposed use of proceeds of any Loan hereunder;
provided, however, that the Bank shall have no right to be indemnified hereunder
for its own bad faith or willful misconduct as determined by a court of
competent jurisdiction. The Companies further agree to indemnify the Bank
against any loss or expense which the Bank may sustain or incur as a consequence
of any default by the Companies in payment when due of any amount due hereunder
in respect of any Libor Rate Loan, including, but not limited to, any loss of
profit, premium or penalty incurred by the Bank in respect of funds borrowed by
it for the purpose of making or maintaining any such Loan, as determined by the
Bank in the exercise of its sole but reasonable discretion. A certificate as to
any such loss or expense shall be promptly submitted by the Bank to the
Companies and shall, in the absence of manifest error, be conclusive and binding
as to the amount thereof.
Section 9.4. Construction. This Agreement and the Note will be governed
by and construed in accordance with the laws of the state of Indiana without
regard to principles of conflict of laws. The several captions to different
sections of this Agreement are inserted for convenience only and shall be
ignored in interpreting the provisions hereof.
Section 9.5. Extension of Time. Whenever any payment hereunder or under
the Note becomes due on a date which the Bank is not open for the transaction of
business, such payment will be due on the next succeeding Business Day and such
extension of time will be included in computing interest in connection with such
payment.
Section 9.6. Notices. All written notices, requests or other
communications herein provided for must be addressed to the Companies as
follows:
Morgan Drive Away, Inc.
2746 Old U.S. 20 West
Elkhart, IN 46514
Attn: Richard B. DeBoer, Chief Financial Officer
TDI, Inc.
10920 East McKinley
Osceola, IN 46561-9786
Attn: Richard B. DeBoer, Chief Financial Officer
34
<PAGE>
Interstate Indemnity Company
2746 Old U.S. 20 West
Elkhart, IN 46514
Attn: Richard B. DeBoer, Chief Financial Officer
to the Bank as follows:
KeyBank National Association
127 Public Square
Cleveland, OH 44114
Attn: Mr. Matthew P. Tuohey, Assistant Vice President
Service of all written notices under this Agreement shall be sufficient if hand
delivered, or delivered or mailed to the party at its respective address as set
forth above or at such address as such party may provide in writing from time to
time. Any such notice shall be effective when hand delivered, delivered by
overnight carrier or received by United States mail, certified mail, return
receipt requested at the address provided herein or at such address designated
to the other in writing.
Section 9.7. Survival of Agreements; Relationship. All agreements,
representations, and warranties made in this Agreement will survive the making
of the extension of credit hereunder, and will bind and inure to the benefit of
the Companies and the Bank, and their respective successors and assigns;
provided, that no subsequent holder of the Note shall by reason of acquiring
that Note become obligated to make any Loan hereunder and no successor to or
assignee of the Companies may borrow hereunder without the Bank's written
assent. The relationship between the Companies and the Bank with respect to this
Agreement, the Note and any other Loan Document is and shall be solely that of
debtor and creditor, respectively, and the Bank has no fiduciary obligation
toward the Companies with respect to any such document or the transactions
contemplated thereby.
Section 9.8. Severability. If any provision of this Agreement or the
Note, or any action taken hereunder, or any application thereof, is for any
reason held to be illegal or invalid, such illegality or invalidity shall not
affect any other provision of this Agreement or the Note, each of which shall be
construed and enforced without reference to such illegal or invalid portion and
shall be deemed to be effective or taken in the manner and to the full extent
permitted by law.
Section 9.9. Entire Agreement. This Agreement, the Note, and any other
Loan Document integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral representations and negotiations and
prior writings with respect to the subject matter hereof.
35
<PAGE>
Section 9.10. Submission to Jurisdiction; Venue. As part of the
consideration for the financial accommodation extended to Companies by Bank,
Companies consent to the juris diction of any local, state or federal court
located within Elkhart County, Indiana, (or in the case of a federal court, the
jurisdiction of which includes Elkhart County, Indiana) and consent that all
such service of process be made by registered mail directed to the parties at
the address stated in this Agreement and service so made shall be deemed to be
completed five (5) days after such mailing.
Section 9.11. Jury Trial Waiver. COMPANIES WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, BETWEEN BANK AND COMPANIES ARISING OUT OF, IN CONNECTION WITH,
RELATED TO, OR INCIDENTAL TO THE RELA TIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREE MENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED THERETO.
IN WITNESS WHEREOF, the Companies and the Bank have each caused this
Agree ment to be executed by their duly authorized officers this 27 day of
March, 1997.
COMPANIES:
MORGAN DRIVE AWAY, INC.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
TDI, INC.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
INTERSTATE INDEMNITY COMPANY
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
SIGNATURES CONTINUED ON PAGE 37
36
<PAGE>
BANK:
KEYBANK NATIONAL ASSOCIATION
By:_________________________________________
(Signature)
------------------------------------------
(Typed or Printed Name and Office)
The undersigned, The Morgan Group, Inc. represents and warrants that it
has read and reviewed this Agreement and that it consents to the execution of
this document by Morgan Drive Away, Inc., TDI, Inc., and Interstate Indemnity
Company and agrees to be bound by the terms and conditions contained herein.
THE MORGAN GROUP, INC.:
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
37
<PAGE>
LIST OF EXHIBITS TO MORGAN DRIVE AWAY, INC.'S
REVOLVING CREDIT FACILITY AGREEMENT
Exhibit "A"
Promissory Note........................................5
Exhibit "B"
Letters of Credit......................................6
Exhibit "C"
Opinion Letter........................................22
38
MASTER REVOLVING NOTE
$10,000,000.00 March 27, 1997
For value received, MORGAN DRIVE AWAY, INC., TDI, INC. and INTERSTATE
INDEMNITY COMPANY (the "Companies") promise to pay to the order of KEYBANK
NATIONAL ASSOCIATION (the "Bank"), its successors and assigns, on the date or
dates and in the manner specified in Article II of the Loan Agreement (as
defined below), the sum of Ten Million Dollars ($10,000,000.00) or such amount
which may be advanced by Bank under the terms and conditions of the Loan
Agreement as shown on any ledger or other record of the Bank, which shall be
rebuttably presumptive evidence of the principal amount owing and unpaid on this
Note.
The Companies promise to pay to the order of the Bank interest at such
times as are specified in Article II of the Loan Agreement.
This Note is the Master Revolving Note referred to in, and is entitled
to the benefits of, the Revolving Credit Facility Agreement by and between the
Bank and the Companies to be effective March 27, 1997, as the same may be
hereafter amended from time to time (the "Loan Agreement"). This Note may be
declared forthwith due and payable in accordance with the terms and conditions
of the Loan Agreement which contains provisions for payment upon maturity, and
upon demand, and also contains provisions for acceleration upon default.
Each defined term used in this Note shall have the meaning ascribed
thereto in Section 1.2 of the Loan Agreement.
This Note is secured by Security Agreements of even date herewith and
any and all security agreements ratified pursuant to the Loan Agreement, Other
Collateral Documents, and by any and all collateral securing any obligation of
Companies to Bank.
As security for the payment of the obligations evidenced by this Note
and the other liabilities and obligations of Companies to Bank, however and
whenever created or acquired, direct or contingent, which now or after the date
of this Note may exist, in addition to all other security for such payment,
Companies grant to Bank a continuing lien and security interest in all
Companies' personal property, or Companies' interest in personal property, which
now is or which may after the date of this Note be in the possession of Bank,
and a continuing lien and security interest in Companies' interest in all
amounts on deposit at Bank and upon the occurrence of an Event of Default (as
that is defined in the Loan Agreement), Bank may apply such property, interests,
and/or amounts upon any and all liabilities and obligations of Companies to
Bank, without prior notice to Companies.
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<PAGE>
The holder of this Note, in its sole discretion, may renew this Note,
accept a renewal note or notes, extend the time for the payment of the
indebtedness evidenced by this Note, reduce the payments under this Note, or do
any combination of such actions on any number of occasions; provided, however,
any such action shall not release the Companies or any endorser, accommodation
party or guarantor from any liability on the obligation evidenced by this Note.
Companies and any endorser, accommodation party or guarantor of this Note each
waive presentment for payment, protest, notice of protest, notice of nonpayment
or dishonor of this Note and diligence in the collection of this Note; and each
of them consents to any actions by Bank or any holder of this Note as set forth
in this paragraph.
By signing or guaranteeing this Note, each and every guarantor, surety,
endorser, and accommodation party of the obligations contained herein shall be
deemed to and shall have irrevocably waived and relinquished (i) the benefit of
any and all defenses to enforcement of this Note, any counterclaim, offset or
claim in recoupment, based upon contract, arising at equity, or under any state
or federal law regarding suretyship or guaranty generally; or (ii) any discharge
provided in Indiana Code ss. 26-1-3.1-605, or other state or federal statute of
similar import. Consistent with this waiver, and not by way of limitation, the
person or persons entitled to enforce this instrument may, at any time and
without notice to any guarantor, surety, endorser or accommodation party of the
obligations contained in this Note, (i) extend the maturity date of this Note;
(ii) adjust any and all terms of this Note, even if such adjustment materially
alters the obligation; (iii) take any action (or not take any action) with
respect to any collateral for this Note, including without limitation, releasing
or diminishing (intentionally or otherwise) the extent or value of such
collateral.
No failure by Bank to exercise any right under this Note, including any
rights resulting from an Event of Default (as that term is defined in the Loan
Agreement), shall operate as a waiver or otherwise prevent Bank from exercising
any of its rights under this Note at any other time, including the exercise by
Bank of any rights at any time during the continuance of such Event of Default
or on the occurrence of a subsequent Event of Default.
Companies agree that Bank shall be entitled to rely on any written,
oral or telephonic communication requesting a financial accommodation under this
Note which may be received by Bank from any person reasonably believed by Bank
to be an authorized representative of Morgan Drive Away, Inc., TDI, Inc. or
Interstate Indemnity Company. Records of Bank shall be deemed by Companies and
Bank to be sufficient evidence of credit extended under this Note.
This Note and any extensions or renewals of this Note relates to and is
subject to all of the terms, conditions, and provisions of the Loan Agreement
and any extensions, renewals, modifications or amendments of or to the Loan
Agreement; and this Note and any extensions or renewals of this Note is related
to any mortgage, pledge, financing statement, guaranty, security agreement and
other document required under or related to the Loan Agreement.
2
<PAGE>
This Note is made and shall be governed by the laws of the state of
Indiana and the Companies consent to the jurisdiction of any local, state or
federal court located within Elkhart County, Indiana (or in the case of a
federal court, the jurisdiction of which includes Elkhart County, Indiana).
IN WITNESS WHEREOF, the Companies have hereunto set their hands by
their duly authorized officers on the day and the year first above mentioned.
"COMPANIES":
Morgan Drive Away, Inc.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
TDI, Inc.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
Interstate Indemnity Company
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
3
Security Agreements in substantially the following form secruing
indebtedness under the Master Revolving Note (Exhibit 4.5(b)) have been executed
by Morgan Drive Away, Inc. Morgan Finance, Inc., TDI, Inc. and Interstate
Indemnity Company.
KEYBANK NATIONAL ASSOCIATION
MORGAN DRIVE AWAY, INC.
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") executed and to be effective the
27 day of March, 1997, by MORGAN DRIVE AWAY, INC. ("Company"), whose address is
2746 Old U.S. 20 West, Elkhart, Indiana 46514, to and in favor of KEYBANK
NATIONAL ASSOCIATION ("Bank"), whose address is 127 Public Square, Cleveland,
Ohio 44114, in consideration of credit extended or to be extended, or financial
accommodation given or to be given by Bank to Company, Company agrees with Bank
as follows:
1.0 Grant of Security Interest by Company. Company grants to Bank a
continu ing security interest in:
(a) All of the Company's accounts (the "Accounts"), which term
includes, but is not limited to, the Company's accounts, contract
rights, notes, drafts, accep tances and other forms of receivables, now
existing and all such as may hereafter come into existence and any
security held by the Company for any of the foregoing;
(b) All of the Company's inventory (the "Inventory"), which
term includes, but is not limited to, all goods, merchandise and other
personal property now owned and hereafter acquired by the Company,
wherever located, which are held for sale or lease or are furnished or
to be furnished under a contract of service and/or raw materials, part,
finished goods, work in process and materials used or consumed or to be
used or consumed in the Company's business, including all contract
rights relating to, and documents representing, the above;
(c) All of the Company's equipment now owned and hereafter
acquired (the "Equipment"), which term includes, but is not limited to,
all of the Company's machinery, parts, tools, furniture, and
accessories, of whatever name, nature, kind or description and wherever
located, together with all attachments, additions and accessions
thereto, and added and substituted parts, equipment and repairs now or
hereafter placed upon such property, whether because of necessary
repairs or otherwise;
(d) All of the Company's general intangibles now owned and
hereafter acquired (the "General Intangibles"), including, but not
limited to, (i) all contracts (whether completed or not); (ii) all
judgments, patents, trademarks, trade styles, trade or business names,
service marks, bids and proposals, logos, copyrights, trade secrets,
engineering reports, plans, blueprints, drafting papers, licenses,
permits, tax or other refunds, programs, inventions, models, business
or technical data, processes, product formulas, mailing and customer
lists, books and records (including research and development costs and
records and accounting records), and goodwill; (iii) all rights,
1
<PAGE>
applications, continuations, renewals, substitutions, improvements,
modifications and extensions in any manner related thereto; and (iv)
all proceeds and products thereof, including but not limited to all
license royalties and royalty rights, payments made under insurance
policies, unliquidated claims, publication rights, and proceeds of
infringement suits and any other suits;
(e) All monies, credits, documents, instruments, chattel paper
and other property of any nature whatsoever of the Company now or
hereafter in the possession of, in transit to or from, under the
custody or control of, or on deposit with (whether held by the Company
individually or jointly with another), the Secured Party or any
affiliate of the Secured Party, including but not limited to cash
collateral accounts; and
(f) The proceeds and products of the foregoing in whatever
form the same may be, including, but not limited to, proceeds from
insurance policies (including, without limitation, proceeds of credit
insurance policies).
All of the above property in which a continuing security interest has been
granted to Bank by Company is collectively referred to as the "Collateral".
2.0 Indebtedness Secured by Agreement.
2.1 Indebtedness. The continuing security interest granted to
Bank by Company in this Agreement is to secure the payment of:
All obligations, liabilities and indebtedness of Company to or
in favor of Bank of every kind and description, direct or indirect,
absolute or contingent, primary or secondary, liquidated or
unliquidated, joint, several or joint and several, due or to become
due, now existing or hereafter arising, and howsoever evidenced,
including, but not limited to, principal, interest, future advances,
any duty to act or refrain from acting, and any and all extensions or
renewals of all the foregoing, and all costs and expenses incurred by
Bank in collecting any of the foregoing and in protecting or enforcing
Bank's rights under this Agreement, including reasonable attorneys'
fees (the "Indebtedness").
2.2 Note Legends. Each loan or advance made by Bank to Company
to be secured hereby, upon request of Bank, may be evidenced by certain
Notes of Company to Bank, and all such notes may bear a legend
referring to this Security agreement. The omission of the legend from
any note shall not affect its secured status and it shall be secured
under this Agreement.
2.3 Payment of Indebtedness. Company agrees to pay all
Indebtedness to Bank when due, whether at maturity or by acceleration,
all without relief from valua tion and appraisement laws and with the
costs and expenses of collection, and reason able attorneys' fees.
3.0 Representations and Warranties of Company. Company represents and
warrants to Bank the following, all of which shall survive the execution and
delivery of this Agreement and the making of any and all extensions of credit
and/or granting of financial accommodations secured by this Agreement.
3.1 Organization and Location. Company is a corporation duly
organized, existing and in good standing under the laws of the State of
Indiana and is in good standing as a foreign corporation authorized to
do business in each jurisdiction where failure to qualify would have a
material adverse effect on Company or Company's business, or any
adverse effect on Bank's rights or interests under this Agreement.
Company's principle place of business and corporate headquarters is at
the address indicated for Company at the beginning of this Agreement,
and Company has its sole and only place of business at such address or,
if Company has more than one place of business, its chief executive
office is at such address.
3.2 Authority. Company has incurred the Indebtedness for its
business operations, and the Collateral is now or will, when acquired,
be only used in such business operations and for no other purpose
without the prior written consent of Bank; none of the provisions of
this Agreement contravenes or is in conflict with the provisions of any
existing loan, loan agreement or other agreement of Company, and
Company has taken all necessary action to authorize the Indebtedness,
the execution and delivery of this Agreement and all other things, as
may be required under this Agreement.
3.3 Financial Information. Subject to any limitations stated
in or in con nection with them, all balance sheets, earnings statements
and other financial data which have been or may hereafter be furnished
to Bank to induce Bank to make extensions of credit and/or financial
accommodations to or for the benefit of Company, do and shall fairly
represent the financial condition of Company as of the dates indicated
and all results of Company's operations for the periods for which they
are furnished, and all other information, reports and other papers and
data furnished to Bank are or shall be, at the time they are so
furnished, accurate and correct in all material respects and complete
insofar as completeness may be necessary to give Bank a true and
accurate knowledge of the subject matter. There has been no material
adverse change, financial or otherwise, in the condition of Company
from the period for which such financial data has been provided and the
date of this Agreement, except as disclosed in such data provided to
Bank.
3.4 No Adverse Litigation or Proceedings. No litigation or
proceedings of any governmental body are pending or threatened, to the
knowledge of Company
2
<PAGE>
against Company, which, if adversely determined, could materially
affect the opera tions or properties of Company, or any of the
Collateral or the rights or interests of Bank in the Collateral.
Company will immediately notify Bank of any litigation or proceedings
instituted or threatened after the date of this Agreement.
3.5 Agreement Binding and Enforceable. This Agreement is a
legal, valid and binding obligation of Company, enforceable in
accordance with its terms.
3.6 Collateral Ownership. Company is the sole owner of all
existing Collateral and will be the sole owner of all Collateral
hereafter arising or acquired.
3.7 Collateral Free of Lien. Other than the security interests
granted by this Agreement and prior security agreements executed by
Company in favor of Bank, all existing Collateral and Collateral
hereafter arising or acquired is and shall be free and clear of any
security interests, liens, encumbrances, claims or rights of others,
and Company does and shall warrant and defend the Collateral against
any person, firm or entity claiming an interest in the Collateral
adverse to the interest of Bank.
3.8 No Conflicting Filing. Other than the filings by First
National Bank and Society National Bank, Indiana, predecessors in
interest to Bank, no security agree ment, financing statement, or
equivalent security or lien document covering all or any part of the
Collateral is on file or of record, or will be placed on file or of
record, in any public office other than the security interest granted
by the Company in favor of Bank.
3.9 Validity of Rights to Payment for Collateral. Each Account
and other right of payment to Company is and will be a valid, legal and
enforceable obligation of the account debtor or other obligor to
Company, is not subject to any agreement in which the account debtor or
other obligor may claim a deduction or discount, and the amount
represented by Company to Bank from time to time as owing by each
account debtor or other obligor or by all account debtors and other
obligors with respect to the Accounts and other Rights to Payment will
at such time be the correct amount actually and unconditionally owing
by such account debtors and other obligors.
3.10 Location and Use of Collateral. All of the records
pertaining to the Collateral are and will be kept at the address of
Company indicated at the beginning of this Agreement, and Company will
not remove any material part of the Collateral without the prior
express written consent of Bank: and the Collateral will only be used
for the business operations of Company and in a manner not inconsistent
with any of the terms of this Agreement.
3
<PAGE>
4.0 Agreements of Company. Company covenants and agrees with
Bank from and after the date of this Agreement, and until all of the
Indebtedness is fully paid and satisfied and this Agreement is
terminated in accordance with paragraph 8.10.
4.1 General Protection of Collateral. Company will keep all
items of Collateral reasonably protected from the elements and in safe
storage places. Company shall not waste or destroy the Collateral or
any part of it. Company will comply in all material respects with all
rules, regulations, orders, decrees and acts of any governmental
authority, and provisions or requirements of all policies of insurance
applicable to the Collateral or any part of it, or to Company's
operations.
4.2 Records and Inspection. Company will keep and maintain
satisfactory, accurate and complete records of the Collateral now
existing and hereafter arising or acquired, including a record of all
payments received and all credits granted with respect to the
Collateral, and all other dealings with the Collateral and Company's
operations. Company will permit Bank and its designees from time to
time upon reasonable request to inspect the Collateral and to inspect,
audit and make copies and extracts of all records and other papers in
possession of Company or its accountants or other representatives
pertaining to the Collateral and the operations of Company and will,
upon request of Bank, deliver all such records and papers to Bank.
Company will upon request furnish to Bank such balance sheets, earnings
statements and other financial data concerning Company's operations as
Bank shall require. Company will immediately notify Bank of any event
causing a loss or depreciation in the value of the Collateral and of
any event pending or threatened affecting the condition of affairs of
Company, financial or otherwise, which if adversely determined, could
materially adversely affect Company, the operations of Company or the
Collateral or other properties of Company. Bank will endeavor not to
interfere unreasonably with Company's business in connection with the
inspection of records or Collateral.
4.3 Taxes and Other Claims. Company will promptly pay when due
all taxes, assessments and governmental charges or levies imposed on
Company, and/or the Collateral or other properties, or with respect to
the income and profits from the Collateral or other properties,
including, but not limited to, all income, sales and use, withholding,
unemployment and other taxes and assessments, and will promptly pay
when due all claims for labor, materials, services and supplies,
excepting that any such amount need not be paid if the validity is
being contested in good faith by Company in appropriate proceedings,
and such proceedings do not involve any danger of the sale, forfeiture
or loss of any of the Collateral or to the operations of Company, and
such amounts have been adequately reserved against in accordance with
generally accepted accounting principles or fully bonded.
4.4 Insurance. Company will maintain at all times, with
respect to Company, its operations and business and the Collateral,
fire, extended, all risk,
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sprinkler leakage, liability, and other risk coverage customarily
insured against by persons, firms and entities in operations and
businesses similar to that of Company, such coverages, the amounts,
terms, form, period of coverage and insuring companies to be
satisfactory to Bank. All policies shall contain appropriate loss
payable clauses in favor of Bank as its interests may appear and shall
provide that no cancellation of coverage shall be effective until at
least thirty (30) days after receipt by Bank of written notice from the
insuring companies. Company shall inform Bank of any reductions or
changes in coverage. Company shall furnish policies, certificates or
other evidence satisfactory to Bank of compliance with these insurance
provisions. Any sums received as compensation for loss or damage to the
Collateral shall be paid to Bank in partial payment of the Indebtedness
or, at Bank's option, any part or all of such payments may be used to
restore or repair the damage to the Collateral with respect to which
the payments are received.
4.5 Protection of Claims of Bank's Secured Interest.
(1) Except for the security interest granted herein,
Company will not create, permit or suffer to exist, and will
take such action as is necessary to remove, and will defend
the Collateral against any security interest, lien,
encumbrance, claim or other adverse interest in and to the
Collateral against all persons, firms and entities, and will
defend the right, title and interest of Bank in and to all the
Collateral.
(2) Company will advise Bank promptly in reasonable
detail of any security interest, lien, encumbrance, claim or
other interest made or asserted in or against any of the
Collateral, of any material change in the composition of the
Collateral, of any change in the state issuing title to motor
vehicles which is Collateral or of any other change in the
location of Collateral with an aggregate value in excess of
Twenty-Five Thousand Dollars ($25,000.00) in any calendar
year, or of any occurrence of any other event which would have
a material adverse affect on the value of the Collateral, the
security interest created in this Agreement, or Company, its
operations and business, or other properties.
(3) Company will not sell, transfer or otherwise
dispose of or enter into any agreement concerning the sale,
transfer or other disposition of any asset or assets which in
the aggregate total an amount in excess of Twenty-Five
Thousand Dollars ($25,000.00) in any calendar year which
constitute Collateral without the written consent of Bank.
(4) In any suit, proceeding or action brought by Bank
under any Account, other right of payment or General
Intangible, for any sum owing, Company will save and hold
harmless Bank from any and all expense, loss or damage
suffered by reason of any defense, set off, counterclaim, or
reduction of
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liability whatsoever of the obligor arising out of a breach by
Company of any obligation.
(5) Company shall not change its address without
prior written notice to Bank.
4.6 Advances by Bank to Protect its Secured Position. Bank
may, in its discretion, pay or otherwise discharge taxes, governmental
charges, other liens charges and/or encumbrances at any time levied or
placed, on or against, any of the Collateral, or on or against Company,
its operations or business, or other properties, if Bank determines
that such matters could affect the Collateral, or pay or acquire and
pay any insurance required under this Agreement, or pay, or procure and
pay, any and all costs and expenses for the repair, maintenance and
preservation of the Collateral or the other properties of Company. Any
and all advances made by Bank for any of these items shall constitute
Indebtedness secured by this Agreement and shall bear interest at the
same rate as the highest rate provided in any of the notes then
outstanding, or if no note is then outstanding but this Agreement has
not been terminated as provided in paragraph 8.10, the highest rate
permitted by law, and Company shall reimburse and/or pay bank on demand
for any payment made, or cost and expense incurred by Bank pursuant to
the authorization contained in this paragraph.
4.7 Perfection of Security Interests.
(l) Company will, upon request of Bank to secure the
payment of the Indebtedness, execute and deliver such
financing statements and other documents, including, but not
limited to, title to motor vehicles, and pay the reasonable
cost of preparation, filing or recording the same, in all
public offices deemed necessary by Bank, and do such other
acts and things as Bank may, from time to time, request to
establish and maintain valid security interests in the
Collateral free of all other security interests, encumbrances,
liens, claims and rights of third parties whatsoever.
(2) Company authorizes Bank to execute and file or
record such financing statements or other documents signed
only by Bank, as Secured Party, and without the signature of
Company in any public office deemed necessary by Bank to
perfect or continue the perfection of Bank's security
interests in the Collateral.
4.8 Assembly of Collateral. Company agrees to assemble and
make avail able the Collateral to Bank at such times and such places as
may be reasonably desig nated by Bank.
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4.9 Processing, Sale and Collections
(1) Until such time as Bank shall notify Company of
the revocation of such authority, Company may, in the ordinary
course of business, at its own expense, sell, lease or furnish
under contracts of service, any of the Inventory normally held
by Company for such purpose (a sale in the ordinary course of
business does not include a transfer in total or partial
satisfaction of a debt), and use and consume, in the ordinary
course of its business, any raw materials, work in process or
materials normally held by it for such purpose:
(2) Company will, at its own expense, endeavor to
collect, as and when due, all amounts due with respect to any
Collateral, including the taking of such action with respect
to such collection as Bank may reasonably request or, in the
absence of such request, as Company may deem advisable:
(3) Company may grant, in the ordinary course of
business, to any person purchasing goods from Company
("Account Debtor"), any rebate, refund or adjustment to which
such Account Debtor may be lawfully entitled, and may accept
the return of goods, the sale or lease of which shall have
given rise to the obligation of the Account Debtor:
(4) Upon written notice from Bank, Company will upon
receipt of all checks, drafts, cash and other remittances in
payment of inventory sold or in payment of Accounts Receivable
of Company, deposit them in a special collateral account
("Collateral Account") maintained with Bank. Such proceeds
shall be deposited in the form received except for the
endorsement of Company where required, which endorsement Bank
is authorized to make on Company's behalf and shall be held by
Bank as security for all Liabilities of Company in favor of
Bank;
(a) Upon written notice from Bank, Company will
deliver to Bank all chattel paper which
constitutes proceeds from the sale of
Collateral subject to delivery of the
proceeds resulting from the sale of such
chattel paper which shall be deposited in
the Colla teral Account;
(b) Company agrees that prior to the time of any
deposit or delivery, it will keep segregated
any such checks, drafts, cash, chattel paper
or other remittances from any of Company's
funds or property. Company agrees to hold
such checks, drafts, cash, chattel paper or
other remittances in trust for the benefit
of Bank until delivery or deposit into the
Collateral Account. Bank may charge the
Collateral Account at any time and, at its
sole discre tion, apply the funds in payment
of notes executed and delivered by Company
pursuant to the provisions of this
Agreement, and/or any other Liability of
Company in favor of Bank, or upon receipt of
a statement duly certified by an authorized
officer or agent of Company in the form then
specified by or acceptable to Bank, may
release funds to the general account of
Company.
4.10 Payment to Bank by Account Debtors. Company agrees that
Bank may, at any time before or after the maturity of any Indebtedness,
notify any Account Debtor to make payment directly to Bank of any
amounts due or to become due and enforce the collection of any Account
by suit or otherwise and surrender, release or exchange all or any
part, or compromise or extend or renew for any period (whether or not
longer than the original period) any Indebtedness under or evidenced by
any Account.
4.11 Noting Security Interest of Bank on Company's Records.
Company will, if requested by Bank, note the security interest of Bank
on all records relating to the Collateral.
5.0 Events of Default. Company will be in default under this Agreement
upon the occurrence of any of the following events or conditions, each of which
shall constitute an event of default ("Event of Default"):
5.1 Default on Indebtedness. Default in the payment or
performance, when due or payable of any Indebtedness of Company, or of
any accommodation party, endorser, guarantor, or surety for any
Indebtedness of Company to Bank.
5.2 Default on this or other Agreement. Default under any
provision in this Agreement, or in any loan agreement, mortgage,
security agreement, guaranty or other instrument or document executed
by Company or any accommodation party, endorser, guarantor or surety of
any liability of Company to Bank which is not cured or as to which
Company has not taken actions satisfactory to Bank within ten (10) days
after written notice of such default.
5.4 Misrepresentation or False or Misleading Information. The
making by Company of any misrepresentation to Bank for the purpose of
obtaining credit or an extension of credit or inducing Bank to take any
action or refrain from any action or the furnishing of any financial
information to Bank which is false or misleading in any material
respect.
5.5 Failure to Furnish Financial Information or Allow
Inspection. Failure of Company after reasonable request by Bank to
furnish financial information or to permit the inspection of books and
records and/or Collateral.
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5.6 Injunction or Attachment. Issuance of an injunction
against Company or property of Company, or attachment, levy or seizure
against property of Company.
5.7 Creditors' Proceedings. Calling of a meeting of creditors,
appointment of a committee of creditors or liquidating agents, offering
of a composition or extension to creditors by, for or of Company.
5.8 Insolvency. Insolvency of Company, of any endorser,
guarantor or surety for any Indebtedness of Company to Bank or of the
grantor of any collateral security for any Indebtedness of Company to
Bank.
5.9 Change Respecting Company or Others. Such a change in the
condition or affairs (financial or otherwise) of Company, of any
endorser, guarantor or surety for any Indebtedness of Company to Bank
or of the grantor of any collateral security for any Indebtedness of
Company to Bank, as in the opinion of Bank impairs Bank's security or
increases its risk.
5.10 Change respecting Collateral. An agreement to or a sale,
transfer or use, or an attempted sale, transfer or use, of the
Collateral, in contravention of this Agreement: loss, theft,
substantial damage, destruction, encumbrance or granting any security
interest in the Collateral without the consent of Bank: and the filing
of any suit for the purpose of or the making of any attachment, levy or
seizure of any of the Collateral.
5.11 Insecurity of Bank. Bank reasonably deems itself insecure
for any reason whatsoever.
6.0 Rights and Remedies of Bank. In the Event of Default, Bank shall
have all the rights and remedies permitted under the Uniform Commercial Code of
Indiana and in effect in each jurisdiction in which Collateral is located,
permitted under other laws and authorized under this Agreement, and without
limitation of other rights and remedies, the following:
6.1 Accelerate Indebtedness. Bank may, without notice or
demand, at Bank's option and notwithstanding any time or credit allowed
by an instrument evidencing an Indebtedness, accelerate and declare the
entire unpaid balance of any and all Indebtedness immediately due and
payable.
6.2 Take Possession of Collateral. Bank may take possession of
the Colla teral and, for that purpose, Bank may enter in or on to any
premises on which the Collateral or any part of it may be situated and
remove the Collateral or store it on such premises, and if such
premises are owned by Company, Bank shall have the right to store any
of the Collateral for a reasonable period of time rent-free. If Bank
stores Collateral on any premises owned by Company, Bank may segregate
such Collateral,
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<PAGE>
lock buildings and do whatever else may be necessary for the
preservation or protection of the Collateral, or Bank's rights.
6.3 Require Collateral to be Made Available. Bank may require
Company to make the Collateral available to Bank at a place to be
designated by Bank that is reasonably convenient to Bank and Company.
6.4 Preservation of Collateral. Bank may, but in no way is
obligated to, take steps to preserve rights in the Collateral against
any third party.
6.5 Use of Collateral while in Bank's Possession. When in
possession of the Collateral, Bank may use it for any purpose or in any
manner or cause it to lose its identity without an obligation to
account for such use, except when used for a purpose not connected with
performing Company's obligations with respect to it, preservation or
disposal of the Collateral unless otherwise authorized by law. Bank may
use, without charge, any and all equipment, machinery or appliances
necessary to unload and remove any Collateral from storage facilities
in the event that the removal of the Collateral is necessary for
purposes of repossession by Bank to realize on Bank's security
interest. The standard of care imposed upon Bank as to the use of the
Collateral in its possession is that of a prudent person without any
special skill or knowledge.
6.6 Collection of Collateral. Bank may:
(1) Notify any party liable for payment under any
Account, Right of Payment, General Intangible, Miscellaneous
Property in possession or control of Bank, or Proceeds,
including insurance and tort claims, and ask, demand, collect,
receive and give acquittances and receipts to such party for
any and all monies due or to become due under any such
Collateral.
(2) Bank may, in the name of Company or in Bank's
name or otherwise, take possession of, endorse and collect all
checks, drafts, notes, cash and other remittances due under
any Collateral.
(3) Bank may commence and prosecute any suits,
actions or other proceedings to collect any part or all of the
Collateral or to enforce any other rights with respect to the
Collateral: defend any suit brought against Company with
respect to any Collateral: settle, compromise or adjust any
such suit, action or proceeding, and give such discharges and
releases as Bank may deem appropriate: sell, transfer, pledge
(including executing instruments and other documents), make
any agreement with respect to, or otherwise deal, with any of
the Collateral as fully and completely as though the Bank was
the owner for all purposes: and generally do all acts and
things which Bank deems appropriate to
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<PAGE>
protect, preserve, collect and/or realize upon the Collateral
and the security interests granted by this Agreement, all as
fully and effectively as the Company might do. In connection
with the exercise of all these rights and remedies, Company,
as a power coupled with an interest, irrevocably appoints Bank
as its attorney in fact to exercise any and all rights
described in this paragraph 6.6.
6.7 Disposition of Collateral on Credit. Bank disposing of
Collateral may dispose of it upon credit secured by a security interest
in the Collateral taken from the purchaser. Such disposal may be upon
such terms and under such a form of security agreement as is
customarily employed in such purchases. Bank shall continue to hold a
security interest in the proceeds, including cash and non-cash proceeds
of the sale, as Proceeds of the Collateral covered by this Agreement.
6.8 Sale of Collateral. Unless the Collateral is perishable,
threatens to decline speedily in value or of a type customarily sold on
a recognized market, Bank shall give Company at least ten (10) days
prior written notice of the time and place of any public sale or of the
time after which any private sale or other intended disposition is to
be made. Bank may sell any of the Collateral, at public or private
sales, or a combination, for cash or on credit as a unit or in lots.
The order of sale of times in lots shall be as Bank shall determine.
Bank may become purchaser at any sale.
6.9 Expenses Incurred in Connection with a Sale of Collateral.
Expenses of retaking, holding, preparing for sale, selling or the like
shall include Bank's costs, expenses and reasonable attorneys' fees
which are secured under this Agreement and all such expenses shall be
first paid out of the proceeds of any disposition of Collateral.
6.10 Deficiency. Company will pay to Bank upon demand any
deficiency on the Indebtedness remaining after any disposition of the
Collateral and the application of the proceeds to the expenses
described in paragraph 6.9 and in partial satisfaction of the
Indebtedness.
6.11 Remedies Cumulative. All remedies, to the full extent
provided by law, shall be cumulative. Pursuit by the Bank of its
judicial or other remedies with respect to part of all of the
Indebtedness shall not abate or bar its judicial and other remedies
with respect to the Collateral or other portions of the Indebtedness,
and pursuit by Bank of its judicial or other remedies with respect to
part or all of the Collateral shall not bar its judicial and other
remedies with respect to the Indebtedness or other portions of the
Collateral.
7.0 Deposits. Any and all deposits of other sums at any time credited
by or due from Bank to Company shall at all times constitute security for any
and all Indebtedness and Bank may apply or set off such deposits or other sums
against Indebtedness at any time
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whether or not the Indebtedness is then due or other Collateral is considered by
Bank to be adequate.
8.0 General.
8.1 Waivers by Company. Company waives notice of acceptance of
this Agreement, presentment, demand, notice of dishonor and protest of
any Indebtedness or under this Agreement, notice of loans made or
credit extended, Collateral received or delivered or other action taken
in reliance on this Agreement, and all other demands and notices of any
description whatsoever. With respect to both the Indebtedness and the
Collateral, Company assents to any and all extensions, renewals or
postponements of the time of payment or any other indulgence, to any
substitutions, exchanges, or releases of Collateral, to the additions
or releases of any party or person primarily or secondarily liable, to
the acceptance of partial payments and the settlement, compromising or
adjusting of any of them, all in such manner and at such time or times
as Bank may deem advisable. A Company who is or becomes an
accommodation party, surety, guarantor or endorser or other person
whose obligation is conditioned upon this Agreement waives any
requirement of notice of acceptance and defenses arising from releases
of, extensions of time to, renewals and alterations of the contract
with the principal; from lack of presentment, demand, notice, notice of
dishonor and protest of any Indebtedness or under this Agreement: from
failure of Bank to proceed with diligence against the principal after
notice or under any requirement of law; and from releases of Collateral
or other security.
8.2 Company not Released. No transfers, renewals, extensions
or assign ments of this Agreement or the Indebtedness, or any interest
thereunder, and no loss, damage or destruction of the Collateral, and
no taking of security in other Collateral shall release Company from
this Agreement or the Indebtedness secured under this Agreement.
8.3 Waivers of Default by Bank. No waiver of any default by
Bank shall be effective, unless in writing, nor shall any such waiver
operate as a waiver of any other default or of the same default on a
future occasion.
8.4 Delays by Bank. No delay on the part of Bank in the
exercise of any right or remedy shall operate as a waiver, and no
single or partial release by Bank of any right or remedy shall preclude
other or further exercise or the exercise of any other right or remedy.
8.5 No Duty of Bank to Act on Collateral. Bank shall have no
duty:
(1) To take possession of any of the Collateral or to
take any action for the care, preservation, protection or
insurance of any of the Collateral:
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(2) To collect, foreclose on or otherwise realize on
the Collateral; or
(3) To collect, foreclose on or otherwise realize on
the Collateral in any particular manner, in any particular
sequence or at all.
8.6 Limitations on the Care, Preservation and Protection of
Collateral. Bank shall be deemed to have exercised reasonable care in
the care, preservation and protection of any of the Collateral in
Bank's possession if it takes action for that purpose as Company
requests in writing, but failure of Bank to comply with any such
request shall not be deemed a failure to exercise reasonable care, and
no failure of Bank to preserve or protect any rights with respect to
such Collateral against prior or subsequent parties, or to do any act
with respect to the care, preservation or protection of such Collateral
not reasonably requested by Company as provided in this paragraph shall
be deemed a failure to exercise reasonable care in the care,
preservation or protection of such Collateral.
8.7 Notices. Any demand upon or notice to Company that Bank
may elect to give shall be effective if personally delivered: sent by
ordinary mail, certified or registered mail; transmitted by telegraph,
wireless or radio company and/or sent by overnight courier addressed to
Company at the address identified at the beginning of this Agreement as
Company's address or, if Company has notified Bank in writing of a
change of address noted in its records, to Company's last address so
notified. Demands or notices addressed to Company's address at which
Bank customarily communicates with Company shall also be effective.
Notices and demands of Bank to Company shall be effective upon their
personal delivery, mailing, transmission, or delivery to an overnight
courier, as the case may be, whether or not actually received by
Company.
8.8 Joint and Several Obligation of Company. If there is more
than one company, the obligations of each and every company under this
Agreement are joint and several.
8.9 Transfers of Indebtedness or Collateral. If at any time or
times by assignment or otherwise Bank transfers any part of the
Indebtedness or Collateral, such transfer shall carry with it the
Bank's power and rights under this Agreement with respect to the part
of the Indebtedness or Collateral transferred and the transferee shall
become vested with such powers and rights whether or not they are
specifically referred to in the transfer. If and to the extent Bank
retains any other part of the Indebtedness or Collateral, Bank will
continue to have the rights and powers in this Agreement set forth by
Company with respect to the same.
8.10 Termination by Company and Effect. Provided that all
Indebtedness secured under this Agreement shall have been paid in full
and there shall be no commitments by Bank to extend credit or grant
financial accommodation to be secured
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by this Agreement, whether to Company or any other party whose
Indebtedness is to be secured by this Agreement, Company may terminate
this Agreement and the security interest in the Collateral granted by
this Agreement, by giving written notice to Bank, actually received by
Bank and acknowledged in writing by an officer of Bank, that Company is
terminating this Agreement. Otherwise, even though no Indebtedness is
outstanding at the time, this Agreement shall continue in full force
and effect to secure credit which may be extended or financial
accommodations which may be given by Bank to Company. No notice of
termination shall in any way effect this Agreement or any transactions
entered into, Indebtedness incurred by Company, or rights and powers
created in favor of Bank prior to the receipt of notice of termination
given in accordance with this subparagraph.
8.11 Meaning of the Term Insolvency. "Insolvency" of Company,
or any other person or entity, means that there shall have occurred
with' respect to Company, or such person or entity, one or more of the
following events: death, dissolution, termination of existence,
insolvency, inability to pay debts as they come due, business failure,
appointment of a receiver of any part of the property of, assignment
for the benefit of creditors by, or the filing of a petition in
bankruptcy or the commencement of any proceedings under any bankruptcy
or insolvency laws, or any laws relating to the relief of debtors,
readjustment of Indebtedness, reorganization, composition, or
extension, by or against, Company, or such person or entity.
8.12 Titles in Agreement. Titles of the several paragraphs and
subparagraphs of this Agreement are for convenience of reference only
and do not have any substantial effect or limit the contents of such
paragraphs.
8.13 Participations. Company consents to the assignment or
granting of participation interests in all or part of the Indebtedness
and the Collateral.
8.14 Form of Words. When applicable, use of the singular form
of any word shall also mean or apply to the plural, and the masculine
form shall mean and apply to the feminine or the neuter.
8.15 Severability of Agreement. If and to the extent that
applicable law confers any rights or imposes any duties inconsistent
with or in addition to any of the provisions of this Agreement, the
affected provisions shall be amended to conform to such law, and if any
provision of this Agreement shall be invalidated, all other provi sions
shall remain in full force and effect.
8.16 Successors and Assigns. All rights of Bank shall inure to
the benefit of its successors and assigns, and obligations of Company
shall bind the Company's successors and assigns.
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8.17 Governing Law. This Agreement and all rights and
obligations under it, including matters of construction, value and
performance, shall be governed by the Uniform Commercial Code, as
amended from time to time, in effect in the State of Indiana and by
other applicable laws of the State of Indiana.
EXECUTED AND DELIVERED by Company and Bank to be effective as of the
date first written above.
COMPANY:
Morgan Drive Away, Inc.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
(Typed or Printed Name and Office)
BANK:
KeyBank National Association
By:_________________________________________
(Signature)
------------------------------------------
(Typed or Printed Name and Office)
14
Guaranties in substantially the following form respecting the
indebtedness of Morgan Drive Away, Inc., TDI, Inc. and Interstate Indemnity
Company, have been provided by The Morgan Group, Inc., and Morgan Finance, Inc.,
as well as by Morgan Drive Away, Inc. (respecting indebtedness of Morgan Drive
Away, Inc. and Interstate Indemnity Company.
ABSOLUTE, UNCONDITIONAL AND CONTINUING GUARANTY
THIS ABSOLUTE, UNCONDITIONAL AND CONTINUING GUARANTY ("Guaranty") is made and
entered into, to be effective the 27th day of March, 1997, by THE MORGAN GROUP,
INC., a Delaware corporation, whose address is 2746 Old U.S. 20 West, Elkhart,
Indiana 46514 ("Guarantor"), to and in favor of KEYBANK NATIONAL ASSOCIATION,
127 Public Square, Cleveland, Ohio 44114, and any Affiliate Bank (which shall
hereinafter be referred to individually or collectively as "Bank").
RECITALS
A. Morgan Drive Away, Inc., an Indiana corporation with an address at 2746 Old
U.S. 20 West, Elkhart, Indiana 46514 ("Morgan"), is a wholly-owned subsidiary of
The Morgan Group, Inc. ("Guarantor").
B. Morgan has and shall become liable and indebted to Bank.
C. Morgan shall hereinafter be referred to as "Borrower."
D. "Affiliate Bank" shall mean any one or more bank subsidiaries of KeyCorp and
its successors.
E. As a condition to the loans, extensions of credit and/or other financial
accommodations made by Bank to Borrower concurrently with the delivery of this
Guaranty, and as a condition to any loans, extensions of credit and/or other
financial accommodations made by Bank to Borrower from time to time hereafter,
Bank requires that Guarantor guarantee on an absolute, unconditional and
continuing basis the payment of all of the present and future liabilities and
indebtedness of Borrower to Bank.
F. Guarantor expects to derive an economic benefit from any loans, extensions of
credit and/or other financial accommodations made by Bank to Borrower, and in
consideration of such expected benefit and to induce Bank to make loans, extend
credit and/or make other financial accommodations to Borrower, Guarantor is
willing to guarantee all such liabilities and indebtedness of Borrower to Bank.
NOW, THEREFORE, for value received and as an inducement for and in consideration
of the loans, extensions of credit and/or other financial accommodations made by
Bank to Borrower concurrently with the delivery of this Guaranty, and of other
loans, other extensions of credit and/or other financial accommodations to
Borrower which Bank, at its sole option and subject to its credit policies and
practices, may grant to Borrower from time to time hereafter, Guarantor does now
hereby agree to and for the benefit of Bank as follows:
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AGREEMENT
ARTICLE 1.
Inclusion of Recitals
The Recitals above set forth are a part of this Guaranty for all purposes.
ARTICLE 2.
Statement of Guaranty
Section 2.1. Liabilities and Indebtedness Guaranteed. Guarantor guarantees, on
an absolute, unconditional and continuing basis, the full and prompt payment
when due, whether by lapse of time or acceleration, of each one and all of the
existing and future loans, extensions of credit and/or other financial
accommodations of every kind and type whatsoever, now or hereafter owing by
Borrower to Bank including, but not limited to, the following:
1. all loans, and extensions of credit and other financial
accommodations previously, currently or hereafter made by Bank
to Borrower and any and all extensions or renewals of them;
and
2. all other obligations, liabilities and indebtedness of
Borrower to and in favor of Bank, direct or indirect, absolute
or contingent, now existing or hereafter arising, of every
kind and type whatsoever and however evidenced (including, but
not limited to, all existing and future loans, advances,
indebtednesses, liabilities, guarantees of the obligations of
others, and obligations to reimburse payments made under
letters of credit), whether secured or unsecured;
(the "Guaranteed Obligations").
Section 2.2. No Limitation. No act or thing need occur to establish the
liability of the undersigned hereunder, and no act or thing, except full payment
and discharge of all Indebtedness, shall in any way exonerate the undersigned or
modify, reduce, limit or release the liability of the undersigned hereunder.
Section 2.3. Absolute, Unconditional and Continuing. The liabilities of
Guarantor under this Guaranty are absolute, unconditional and continuing, and
irrespective of the regularity of any writing, document or instrument evidencing
any of the Guaranteed Obligations; and, to the extent any Guaranteed Obligations
are secured, irrespective of the validity, regularity or enforceability of any
writing, document or instrument evidencing such security for the Guaran teed
Obligations; and irrespective of the value of the security itself.
2
<PAGE>
Section 2.4. Severable. This Guaranty may be enforced from time to time as to
any part or all of the Guaranteed Obligations, and the enforcement of this
Guaranty as to part of the Guaranteed Obligations shall not terminate or
eliminate in any manner the liabilities of Guarantor for the other Guaranteed
Obligations.
ARTICLE 3.
Payment by Guarantor
Section 3.1. Default. If the Borrower should fail at any time fully and promptly
to pay when due, whether by lapse of time or acceleration, all or any part of
the Guaranteed Obligations, Guarantor, upon written demand by Bank, will
immediately pay such Guaranteed Obligations to Bank in the same manner as if
such Guaranteed Obligations constituted the direct and primary obligation or
obligations of Guarantor to Bank.
Section 3.2. Notice. The written demand of Bank for payment of the Guaranteed
Obligations, or any of the Guaranteed Obligations, shall be given in writing and
personally delivered to Guarantor, or sent by telegraph, facsimile transmission,
or overnight courier, or by U.S. Mail, postage prepaid, Registered or Certified,
Return Receipt Requested, to the Guarantor's address set forth above in this
Guaranty. If there is any address change, Bank shall be notified by Guarantor in
writing, and until such notice is received by Bank, Bank may rely upon the above
address.
Section 3.3. Obligation of Guarantor. Bank is not required, prior to the
enforcement of the Guaranty, to take any action or realize against the Borrower
or against any other persons, guarantors or collateral, guaranteeing or securing
any of the Guaranteed Obligations.
Section 3.4. Valuation and Appraisement Laws. The liability of Guarantor with
respect to the Guaranteed Obligations in all cases shall be without relief from
valuation and appraisement laws.
ARTICLE 4.
Waiver by Guarantor
Section 4.1. Waiver. Guarantor hereby waives each of the following:
1. notice of acceptance of this Guaranty, of each and every loan,
extension of credit, or other financial accommodation by Bank
(including extensions or renewals) to Borrower, and of the
amount or nature of the Guaranteed Obligations which may exist
from time to time;
3
<PAGE>
2. presentment, demand and protest, and notice of dishonor,
non-payment or other default with respect to any of the
Guaranteed Obligations;
3. any and all defenses, claims and discharges of Borrower or any
other obligor, pertaining to the Guaranteed Obligations,
except the defense of discharge by payment by Guarantor in
full; and, without limiting the generality of the foregoing,
the Guarantor will not assert, plead or enforce against the
Bank any defense of waiver, release, discharge in bankruptcy,
statute of limitations, res judicata, statute of frauds,
anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the
Borrower or any other person liable with respect to any
Guaranteed Obligations, or any setoff available to the
Borrower or any other person against Bank; and Guarantor
waives any and all claims or rights to assert claims of
discharge under I.C. 26- 1-3.1-605;
4. any requirement that Bank take action, realize, institute
suit, or exercise or exhaust its rights or remedies against
the Borrower or against any other person or guarantor, or
collateral securing and/or guaranteeing all or any part of the
Guaranteed Obligations [the obligations of any such other
person or guarantor, and any such collateral are referred to
as ("Collateral")], prior to enforcing any rights it has under
this Guaranty or otherwise against Guarantor;
5. the invalidity of any instruments evidencing Guaranteed
Obligations or the disability or legal incapacity of any
person in whole or in part, at any time;
6. the fact that the amount or value of any of the property
constituting a part of the Collateral, may at any time have
been or be incorrectly estimated;
7. the deterioration in market or other values, waste, loss by
fire, theft, loss, non- existence or substitution of any
property constituting a part of the Collateral;
8. relief from valuation and appraisement laws; and
9. any right that Guarantor has, or might hereafter have, to
recover from the Borrower the monies that Guarantor is
obligated to pay to Bank hereunder. The undersigned will not
exercise or enforce, and expressly waives, any right of
contribution, reimbursement, indemnification, recourse or
subrogation available to the undersigned against any person
liable for payment of the Indebtedness, including, but not
limited to, the Borrower, or as to any collateral security
therefor.
4
<PAGE>
Section 4.2. Failure of Bank to Act. The failure of Bank or any other persons to
take any of the actions authorized in this Guaranty, or the existence of any
conditions, waived above, shall in no way affect or release the obligations of
the Guarantor under this Guaranty.
ARTICLE 5.
Rights of Bank
Section 5.1. Rights of Bank with Respect to the Obligations Guaranteed. Bank
shall have the right, without releasing Guarantor from its liabilities hereunder
and without notice to the Guarantor, to deal in any manner with any of the
Guaranteed Obligations or the Collateral including, but not limited to, the
following rights:
1. to, on any number of occasions, modify or otherwise change any
terms or alter any part of the Guaranteed Obligations,
including, but not limited to, changing the rate of interest,
or affecting any release, compromise or settlement;
2. to extend or renew any or all of the Guaranteed Obligations on
any number of occasions and to forbear to take steps to
enforce the payment of all or any part of them against
Borrower;
3. to obtain Collateral or to not obtain Collateral (including
rights of setoff), to release or to forbear to proceed against
all or any part of the Collateral, or to substitute any new
Collateral for any existing Collateral;
4. to apply payments received from Borrower, from Guarantor, from
others or from realization upon any Collateral in such manner
and order in priority as Bank sees fit;
5. to make any election against the Borrower or the Collateral
under the United States Bankruptcy Code, as amended;
6. to add or release any other guarantor, surety, endorser or
accommodation party whether primarily or secondarily liable,
to proceed against all or any one or none of such persons or
entities, to accept partial payments from them and to settle,
compromise or adjust with any of them, all in such manner and
at such time or times as Bank may deem advisable; and
7. to assign or grant participation interests in all or part of
the Guaranteed Obligations.
Section 5.2. Guarantor not Released or Discharged by Bank's Acts or
Omissions. The obligations of Guarantor hereunder shall not be released,
discharged, or affected in any way,
5
<PAGE>
nor shall Guarantor have any recourse against Bank by reason of any action which
Bank may take or omit to take under this Guaranty or otherwise with respect to
the Guaranteed Obligations or the Collateral. Guarantor expressly agrees that
Guarantor shall be and remain liable for any deficiency remaining after the
foreclosure of any mortgage, security interest or other property interest
securing the Guaranteed Obligations, whether or not the liability of the
Borrower or any other obligor for such deficiency is discharged pursuant to
statute or judicial decision.
Section 5.3. Guaranty Extends to Amounts Applied on Obligation and Then
Returned. If any payment applied by Bank to the Guaranteed Obligations is set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Borrower or any other obligor), the Guaranteed Obligations to which such
payment was applied shall for the purposes of this Guaranty be deemed to have
continued in existence, notwithstanding such application, and this Guaranty
shall be enforceable as to such Guaranteed Obligations as fully as if such
application had never been made and notwithstanding the fact that prior to such
payment being so set aside, recovered, rescinded or required to be returned, the
Guarantor shall have terminated this Guaranty under Section 6.2 below.
Section 5.4. Assignment. The Bank may, without any notice whatsoever to
Guarantor or to the Borrower, sell, assign or transfer the Guaranteed
Obligations and any Collateral, or any part of them, and any part or all of this
Guaranty, and, in such event, each and every immediate and successive assignee,
transferee or holder of all or any part of the Guaranteed Obligations and
Guaranty, shall have the right to enforce this Guaranty (to the extent so sold,
assigned, transferred) by suit or otherwise for the benefit of such assignee,
transferee or holder, as if such assignee, transferee or holder were by name
specifically given such rights, powers and benefits; but the Bank shall continue
to have the unimpaired and absolute right to enforce this Guaranty, for its own
benefit, as to so much of the Guaranteed Obligations owed it that the Bank shall
not have sold, assigned or transferred.
ARTICLE 6.
Termination
Section 6.1. Guaranty is Continuing until Full Payment. This Guaranty shall be
on a continuing basis and shall remain in full force and effect until all
Guaranteed Obligations are paid in full and termination is accomplished in
accordance with the provisions of paragraph 6.2 below.
Section 6.2. Termination. Guarantor may terminate Guarantor's obligation as to
payment of future obligations of the Borrower to Bank (excepting, however, those
with respect to which there is an outstanding commitment or agreement on the
part of Bank to make further loans or advances), by delivering to an officer of
Bank, at the offices of Bank, during banking hours,
6
<PAGE>
written notice of termination signed by the Guarantor, and by receiving from
such officer written acknowledgment of such delivery. Any such termination shall
be effective on the next banking day of Bank following such written
acknowledgment of delivery.
Section 6.3. Termination not Effective for Obligations Existing at Time of
Termination. Termination of this Guaranty under Section 6.2 above shall have no
affect whatsoever on the obligations of the Guarantor to pay Guaranteed
Obligations existing at the time of termination whether or not they are then
due, nor shall such termination have any affect whatsoever on any extensions or
renewals of such existing Guaranteed Obligations which are effectuated after
such termination. Termination of this Guaranty under Section 6.2 above shall
also have no affect whatsoever on the obligations of Guarantor to pay Guaranteed
Obligations which spring from commitments or agreements on the part of Bank
which were outstanding at the time of the termination.
Section 6.4. Guaranty not Terminated because Borrower is not Indebted to Bank.
This Guaranty shall not be terminated by virtue of the fact that at any time
hereafter the Borrower is not indebted to Bank at any such time, unless
termination is accomplished in accordance with Section 6.2 above.
ARTICLE 7.
Miscellaneous
Section 7.1. Insolvency of Borrower does not Discharge Guarantor. This Guaranty
shall not be discharged by the dissolution or insolvency (however defined) of
the Borrower.
Section 7.2. Dissolution or Insolvency of Guarantor. If Guarantor shall be
dissolved or shall become insolvent (however defined) then Bank shall have the
right to declare immediately due and payable, and Guarantor shall forthwith pay
to Bank, the full amount of all Guaranteed Obligations, whether or not they are
otherwise due and payable, and if the Guarantor voluntarily commences or there
is commenced involuntarily against the Guarantor a case under the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency statute
or law, the full amount of all Guaranteed Obligations, whether or not they are
otherwise due and payable, shall be immediately due and payable to Bank without
demand or notice.
Section 7.3. This Agreement is not a Suretyship. This is an agreement of
guaranty, not of suretyship.
Section 7.4. Representations and Warranties of Guarantor. Guarantor represents
and warrants to Bank that:
1. Guarantor is a corporation duly organized and existing in good
standing and has full power and authority to make and deliver
this Guaranty.
7
<PAGE>
2. The execution, delivery and performance of this Guaranty by
Guarantor has been duly authorized by all necessary actions of
its officers, directors and share holders and do not and will
not violate the provisions of, or constitute a default under,
any presently applicable law or its Articles of Incorporation
or By-Laws, or any agreement presently binding upon the
Guarantor.
3. This Guaranty has been duly executed and delivered by the
authorized officers of Guarantor and constitutes Guarantor's
lawful, binding and legally enforceable obligation.
4. The authorization, execution, delivery and performance of this
Guaranty do not require notification to, registration with, or
consent or approval by any federal, state, local or foreign
regulatory body or administrative agency.
5. All financial data provided to the Bank by Guarantor in
connection with the execution of this Guaranty are true and
accurate and are not materially misleading.
Section 7.5. Representation and Warranty of Economic Benefit Derived by
Guarantor. Guarantor represents and warrants to Bank that Guarantor has a direct
and substantial economic interest in Borrower and expects to derive substantial
business, economic and other benefits from any loans, extension of credit and/or
other financial accommodations which result in the creation of Guaranteed
Obligations, and this Guaranty is given for a corporate purpose. Guarantor
agrees to rely exclusively on the right to terminate this Guaranty in accordance
with the provisions of Section 6.2 above, if at any time, in the opinion of the
officers, directors or shareholders of Guarantor, the corporate benefits then
being received by the Guarantor in connection with this Guaranty are not
sufficient to warrant the continuance of this Guaranty as to future Guaranteed
Obligations.
Section 7.6. Bank may Refuse to Loan. This Guaranty shall not in any way prevent
the Bank from refusing to loan any additional sums, or extend additional credit,
or make any other additional financial accommodations to the Borrower at any
time from and after the date of this Guaranty, and any such refusal by the Bank
shall not terminate this Guaranty nor diminish or discharge any liability of the
Guarantor.
Section 7.7. Severability of Provisions. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without affecting the validity or
enforceability of such provision in any other jurisdiction, and without
affecting the validity or enforceability of the remaining provisions of this
Guaranty in any jurisdiction.
8
<PAGE>
Section 7.8. Writing Requirement. This Guaranty may not be modified, amended, or
otherwise changed except by a writing signed by Guarantor and Bank.
Section 7.9. Governing Law. Guarantor agrees that for all purposes this Guaranty
shall be considered to have been executed and delivered at Elkhart, Indiana, and
that it shall be governed, interpreted and construed in accordance with the
internal laws (and not the law of conflicts) of the state of Indiana.
Section 7.10. Successors and Assigns. This Guaranty is binding upon Guarantor,
and Guarantor's successors and assigns, and shall inure to the benefit of Bank,
and its successors and assigns.
Section 7.11. Merger Clause. This instrument is the final, complete and
exclusive statement of the agreement between the Bank and the Guarantor with
respect to Guarantor's guaranty of the payment of the Guaranteed Obligations,
and all prior negotiations, representations, promises and conditions related
thereto are merged into this instrument.
Section 7.12. Information Concerning Financial Conditions of Borrower. Guarantor
acknowledges that it is capable of, and hereby assumes responsibility for
keeping informed of the financial conditions of Borrower, any and all endorsers
and any and all guarantors of the Guaranteed Obligations and of all other
circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations
that diligent inquiry would reveal, and Guarantor hereby agrees that Bank shall
have no duty to advise Guarantor of information known to Bank regarding such
conditions or any such circumstances.
Section 7.13. Headings. Article and Section headings in this Guaranty are
inserted for convenience only. They shall not be considered part of this
Guaranty, they shall not affect the construction or interpretation hereof, and
they shall not define or limit any of the terms or provisions herein.
Section 7.14. Submission to Jurisdiction; Venue. Guarantor consents to the
jurisdiction of any local, state or federal court located within Elkhart County,
Indiana, (or in the case of a federal court, the jurisdiction of which includes
Elkhart County, Indiana) and consents that all such service of process be made
by registered mail directed to the parties at the address stated in this
Agreement and service so made shall be deemed to be completed five (5) days
after such mailing.
SECTION 7.15. WAIVER OF JURY TRIAL. REGARDING ALL SUITS AND ACTIONS ARISING OUT
OF OR RELATING TO THIS GUARANTY IN ANY WAY, MANNER OR RESPECT, GUARANTOR WAIVES,
AT THE OPTION OF BANK, TRIAL BY JURY.
9
<PAGE>
IN WITNESS WHEREOF, the Guarantor has hereunto set its hand by its duly
authorized officer to be effective the day and year first above mentioned.
GUARANTOR:
The Morgan Group, Inc.
By:/s/ Richard B. DeBoer
------------------------------------------
(Signature)
Richard B. DeBoer, Chief Financial Officer
and Treasurer
------------------------------------------
ACCEPTANCE
This Guaranty is hereby accepted by KeyBank National Association, by its
undersigned duly authorized officer, to be effective the 27th day of
March, 1997.
BANK:
KeyBank National Association
By:______________________________________
(Signature)
Its:_____________________________________
(Printed Name and Office)
10
The Morgan Group, Inc.
Exhibit 11 - Statement Re: Computation of Per Share Earnings
Year Ended December 31
1994 1995 1996
--------- --------- --------
Fully Diluted
Average Shares Outstanding 1,333,333 1,333,333 1,333,33
Issuance of 1.1 million
shares of Class A
Common stock on July 22, 1993 1,100,000 1,100,000 1,100,000
Net effect of exercisable
warrants, price based upon the
Treasury Stock Method using average
stock prices 120,730 0 0
Exercise of warrants,
net of tax benefit 0 34,469 88,888
Redemption of shares of Series A
Preferred Stock 0 4,932 150,000
Effect of non-qualified options
outstanding, price based upon the
Treasury Stock method using
average price 0 1,520 0
Treasury stock repurchased 0 (50,070) (121,311)
Automatic conversion of Series B
Redeemable Preferred Stock into
Class A Common Stock effected
contemporaneously
with the initial public offering 133,332 133,332 133,332
--------- --------- --------
Total 2,687,395 2,557,516 2,684,242
========= ========= =========
Net income (loss) $ 2,212,000 $ 2,269,000 ($2,069,543)
Series A Redeemable
Preferred Stock dividends (244,273) (220,691) 0
----------- ----------- -----------
$ 1,968,035 $ 2,048,707 ($2,069,543)
=========== =========== ===========
Per share amount $ 0.73 $ .80 ($ .77)
=========== =========== ===========
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-72996) pertaining to The Morgan Group, Inc. Incentive Stock Plan and
in the Registration Statement (Form S-8 No. 33-72998) pertaining to The Morgan
Group, Inc. 401(k) Profit Sharing Plan of our report dated March 27, 1997, with
respect to the consolidated financial statements of The Morgan Group, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Greensboro, North Carolina
March 27, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 5, 1996 in his Form 10-K into the Morgan
Group, Inc.'s previously filed Registration Statements on Form S-8 (Registration
Nos. 33-72996, 33-72998). It should be noted that we have not audited any
financial statements of The Morgan Group, Inc. subsequent to December 31, 195 or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 12 MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906609
<NAME> THE MORGAN GROUP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 354
<SECURITIES> 954
<RECEIVABLES> 11,312
<ALLOWANCES> 59
<INVENTORY> 0
<CURRENT-ASSETS> 16,923
<PP&E> 5,626
<DEPRECIATION> 2,863
<TOTAL-ASSETS> 33,066
<CURRENT-LIABILITIES> 14,828
<BONDS> 0
<COMMON> 41
0
0
<OTHER-SE> 13,104
<TOTAL-LIABILITY-AND-EQUITY> 33,066
<SALES> 132,208
<TOTAL-REVENUES> 132,208
<CGS> 122,238
<TOTAL-COSTS> 135,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> (3,615)
<INCOME-TAX> (1,545)
<INCOME-CONTINUING> (2,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,070)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
</TABLE>
