<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22502
NATIONAL PICTURE & FRAME COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 36-3832862
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1500 COMMERCE STREET, GREENWOOD, MS 38930
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (601) 453-6686
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as of July 3, 1996 was approximately $23,449,000.
As of July 3, 1996, the Registrant had 4,961,249 shares of Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to stockholders for the fiscal
year ended April 30, 1996 are incorporated by reference in Part II and portions
of the Proxy Statement to be mailed to stockholders on or about July 26, 1996
for the Annual Meeting to be held on August 19, 1996 are incorporated by
reference in Part III.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Exhibit Index on Sequentially Numbered Page Page 1 of
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
The National Picture & Frame Company (the "Company") designs, manufactures
and markets a wide variety of picture frames, framed mirrors, framed art and
other items for home decor for sale primarily through major mass merchant
retailers. Principal customers of the Company in this retail channel include
discount stores such as Wal-Mart, Target, Caldor and K-Mart; warehouse clubs
such as Price/Costco and BJ's; variety stores such as Dollar General, Family
Dollar, Michael's and Fred's; and home centers such as Home Base, Builders'
Square, Lowes and Frank's Nursery. The Company's product lines currently include
over 1,200 stock-keeping units ("SKUs") and are offered in approximately 12,000
retail stores in North America. Sales of the Company's picture frames, which
include photo frames, portrait frames and document frames, accounted for
approximately 68% of the Company's net sales for fiscal 1996. On April 24, 1996,
the Company, through its subsidiary, acquired 100% of the outstanding common
stock of Universal Cork, Inc. ("Universal") for approximately $2.4 million.
Universal manufactures framed cork, dry erase and chalk boards as well as other
cork-based products.
BUSINESS STRATEGY
The Company's strategy is to be the leading supplier of photo frames, board
products and related home decor products to the major discount stores, warehouse
clubs, variety stores and home centers. The Company believes that the following
factors are of principal importance to its ability to successfully implement
this business strategy.
Overall Price/Value Product Strategy. The Company provides mass merchants
with quality products in styles similar in many cases to those found at higher
prices in department stores and specialty retailers. The Company has
traditionally utilized this approach and continues to sell basic document
frames, wood portrait frames, fashion photo frames, and, with the acquisition of
Universal, framed cork boards, dry erase boards and chalk boards, at prices
significantly below those for comparable-looking frames and board products found
in department stores and specialty retailers.
Focus on Mass Merchant Trade Channel. The Company focuses on sales to
discount stores such as Wal-Mart, Target and K-Mart; warehouse clubs such as
Price/Costco and BJ's; variety stores such as Dollar General, Family Dollar,
Fred's and Michael's; and home centers such as Home Base, Builders' Square,
Lowes and Frank's Nursery. Such mass merchants participate in one of the fastest
growing segments of the retailing industry. In addition, the Company believes
that it is one of a limited number of frame manufacturers with the manufacturing
capability to consistently fill the large orders for a variety of frames placed
by these mass merchants in a timely and efficient manner. By focusing on filling
such large orders, the Company makes relatively long production runs, thereby
reducing its costs of production by minimizing setup and retooling periods.
Focus on Product Introduction and Design. The Company's customers
continually demand new products and designs and the Company's ability to
introduce these new products and designs has been a significant factor in the
Company's success and growth. The Company's newest products include cork boards
and other cork products, dry erase boards and chalk boards. To broaden consumer
appeal for its products and the breadth of its product line, the Company
continuously expands styles, designs and colors. The Company's ability to
hot-stamp mylar foil and/or glue paper tape onto its plastic and wood frames to
create various decorative finishes offers a number of benefits, including the
ability to produce quickly new designs and styles by replacing the type of foil
or paper adhered to the frame. In addition, the Company has established
packaging and display methods which enhance the appeal and accessibility of its
products in high traffic areas, including corrugated pallet displays and endcap
displays.
Customer Service. The Company works closely with its customers to be a
quick response supplier and to ensure shipment of its products in a timely and
efficient manner. To facilitate the processing of customer orders, the Company
uses an Electronic Data Interchange (EDI) order entry system which allows
customers
1
<PAGE> 3
to order products electronically, using computers and telephone lines to
transmit data. Unlike many of its competitors, the Company does not employ an
"in-the-field" work force to perform restocking and reordering functions for its
customers. This allows the Company to further reduce its overhead expenses.
Virtually all of the Company's products are manufactured in the United States.
Management believes this enhances the consumer appeal of its products in the
mass merchant trade channel and better enables it to introduce products on a
timely basis and to respond to short term delivery schedules. Members of the
Company's top management deal directly with all of the Company's key accounts.
Low Cost Production/Vertical Integration. The Company's average unit costs
of production have declined significantly in recent years as a result of
improvements in production efficiencies, volume discounts currently obtained for
raw materials, improved fixed overhead absorption and other economies of scale.
The Company is a vertically integrated picture frame manufacturer; the Company
extrudes most of the plastic molding used for its plastic frames and produces
much of its own wood molding for its wood frames. Management believes that this
results in a cost advantage over competitors who outsource all of their plastic
molding and wood molding. This integration, coupled with high volume production,
also enables the Company to reduce start up costs and time schedules and produce
quality frames at low cost. In addition, the Company is able to respond quickly
to changing fashions and special order requests. The Company's strategy is to
remain a low cost producer by improving production techniques, maintaining
efficient purchasing methods and designing specialized tooling. Management
believes that Universal is a low cost supplier in its field and will comprise
another core product group where Management believes it can compete with
attractive margins and fashion products as well as give the Company expanded
entry into the home improvement and hardware store channels of distribution.
SALES AND MARKETING
For fiscal year 1996, a majority of the Company's revenues were from sales
made by a nationwide network of 23 independent manufacturers' representative
organizations with the balance (consisting of revenues from sales to Wal-Mart
and Sam's Club) handled directly by the Company's executive officers. The
Company maintains direct relationships with all of its customers, including
those handled by independent manufacturers' organizations. The manufacturers'
representatives are paid solely on a commission basis, are not dedicated solely
to the Company and do not carry the Company's products exclusively. The Company
does not consider itself dependent on any specific manufacturers' representative
organization for any of its major customers. The five largest manufacturers'
representatives (in terms of Company sales) have sold the Company's products for
an average of 9 years.
The Company utilizes promotional programs consisting of corrugated pallet
displays, endcap displays, and other displays that can be set-up in high-volume,
high-traffic areas outside of the normal frame departments of the Company's
customers. These promotional displays have the added benefit that a retailer can
test the Company's products without modifying its existing shelf space
allocations. In many instances, promotional sales to certain retailers have led
to the allocation by those retailers of shelf space in their normal frame
departments for the Company's products. In addition, depending upon the needs of
the retailer, the Company often customizes the face paper shown in the picture
frames to the retailer's specifications.
Virtually all of the Company's products are manufactured in the United
States. By manufacturing its products in the United States, the Company is
better able to respond to market trends quickly and to provide timely delivery
of products to its customers. In addition, the Company believes that it benefits
from the goodwill American consumers tend to associate with American made
products. The Company prominently displays the "Made in U.S.A." mark on its
products and packages. The Company's products are marketed primarily on price
and quality and generally not under any trade name.
CUSTOMERS
The Company sells its products primarily through discount stores such as
Wal-Mart, Target and Caldor; warehouse clubs such as Price/Costco and BJ's;
variety stores such as Dollar General, Family Dollar, Fred's and Michael's; and
home centers such as Home Base, Builders' Square, Lowes and Frank's Nursery. The
2
<PAGE> 4
Company has over 300 active customers in the United States and Canada, and its
products are currently stocked in over 12,000 individual retail stores. In
fiscal year 1996, Wal-Mart accounted for approximately 38% of the Company's net
sales. Dollar General accounted for approximately 10% of the Company's net sales
in fiscal year 1996. Wal-Mart and Dollar General have been customers of the
Company for approximately 15 years. The loss of these customers or a significant
portion of their business could have a material adverse effect on the Company.
MANUFACTURING AND SOURCING
The Company's frames are manufactured from plastic, wood and metal. The
Company extrudes its own molding for most of its plastic frames and purchases
some extruded plastic molding from domestic and overseas suppliers. Foil is
typically hot-stamped over plastic molding strips to create fashion looks such
as the Company's Floral and Marble Series. The molding is then cut and joined to
form a frame. While some wood molding is purchased from domestic and overseas
suppliers, the majority of wood molding used on the Company's frames is
manufactured by the Company. The wood frame manufacturing process begins with
feeding a strip of raw lumber through a saw that cuts the strip into molding.
This molding is generally sanded, stained and lacquered. Then, in the case of
many frames, a layer of paper and/or foil may be attached. The wood molding is
then cut and joined to form a frame. The Company purchases mylar-coated slit
steel for its metal frames. The steel is roll-formed, notched and joined to
create the metal frame.
After the frame is formed of plastic, wood, metal or cork, it is filled
with pre-cut glass, face paper, and backing. In some instances, a decorative
matting is added. Finally, the frames are boxed and shipped.
Framed cork, dry erase and chalk boards are manufactured using purchased
premitered pieces of channel molding which are assembled and joined around
sheets of laminated cork material, chalk boards or dry erase board, and then
packaged and shipped. The Company purchases the dry erase and chalk board
material from overseas suppliers; cork boards are manufactured by laminating a
piece of composition cork material (purchased from domestic importers or
overseas suppliers) onto a sheet of fiberboard, then die cut to size for use in
a framed product or sale as a finished product.
The major raw materials purchased by the Company are lumber, polystyrene,
pre-cut glass, pre-cut unframed mirrors, metal coils, cardboard and chipboard.
Most of the Company's raw materials are commodity items which are readily
available from a variety of sources. The Company uses multiple sources for its
raw materials with the exception of polystyrene, for which it has just-in-time
supply arrangements. Most raw materials are obtained from both domestic and
overseas sources. Since the acquisition of Universal, the Company also uses
composition cork, chalk board material, dry erase board material, fiberboard and
pre-mitered channel molding, most of which are purchased from overseas
suppliers. The Company has no long term supply arrangements for any of these raw
materials; Management believes the sources of supply to be adequate for each of
these materials. The Company has not experienced any unique problems obtaining
raw materials from its suppliers.
COMPETITION
The market for picture frames, framed mirrors and framed art is highly
competitive and the Company faces competition from a number of sources in each
of its product lines. There are no significant technological or manufacturing
barriers to entry in the frame businesses. Intercraft (a subsidiary of Newell
Co.) is the largest manufacturer of picture frames. Certain of the Company's
competitors are owned by large consumer products companies which may be able to
offer customers marketing programs tied to other products and certain
competitors may have greater financial resources than the Company. Competition
is based on price, quality, customer service and style. In addition, a number of
the Company's competitors produce their products offshore where labor rates can
be substantially lower than in the United States. The Company believes that its
low cost and high quality products, design capabilities, reputation for timely
delivery and quality customer service enable it to compete effectively.
Management believes the corkboard and other cork based product markets are
not dominated by any one large competitor. Universal has been able to compete
effectively with larger companies involved in similar
3
<PAGE> 5
businesses because of its position as a low cost producer. The Company's
acquisition of Universal will add another core product category which Management
believes will enhance the ability of each of the Company and Universal to
compete effectively in their respective markets.
EMPLOYEES
As of April 30, 1996, the Company had 611 full-time employees consisting of
13 sales and marketing employees, 18 in administration and 580 engaged in
manufacturing and assembling. During peak production seasons, the Company
employs approximately 699 employees for manufacture and assembly. Approximately
85% of the Company's employees are represented by the United Brotherhood of
Carpenters and Joiners of America. The Company believes that its relations with
its employees are good. The Company has never suffered a work stoppage or
slowdown.
ENVIRONMENTAL
The Company is subject to various federal, state and local environmental
laws and regulations relating to the handling and management of certain
chemicals used and generated in manufacturing frames. The Company believes that
its operations currently comply in all material respects with these laws and
regulations. Based on the annual costs incurred by the Company over the past
several years, management does not believe that compliance with these laws and
regulations will have a material adverse effect upon the Company's capital
expenditures, earnings or competitive position. The Company believes, however,
that it is reasonably likely that the trend towards stricter environmental
regulation will continue. Such changes in applicable environmental regulations
may require the Company to make additional capital expenditures which, while not
presently estimable with certainty, presently are not expected to have a
material adverse effect on the Company's results of operations or financial
position.
PROPRIETARY RIGHTS
Prior to its acquisition of Universal, the Company did not own any patents,
registered trademarks or registered service marks. In connection with its
acquisition of Universal, the Company acquired three registered trademarks: (i)
"Accent Boards" which is used to designate a specific type of framing for a
series of boards, (ii) "Handi-Cork" which is used for a brand of composition
cork sheets and prepackaged rolls, and (iii) "Notesters" which is used for a
type of small board with a double writing surface which uses dry erase or wet
erase pens.
ITEM 2. PROPERTIES
The Company occupies 461,000 square feet of manufacturing, warehouse and
office space in its two facilities in Greenwood, Mississippi and approximately
42,690 square feet of manufacturing space in its two facilities in Maple
Heights, Ohio. The Greenwood, Mississippi facilities consist of a plastics/metal
plant and a woodworking plant adjoining the Company's corporate headquarters.
The Maple Heights, Ohio facilities consist of Universal's office, manufacturing,
warehouse and distribution facilities.
The woodworking facility is leased by the City of Greenwood from Leflore
County under a 99 year lease which expires in the year 2046. The City of
Greenwood subleases the site to the Company for $600 per year. The Company may
purchase the City's rights in this site (i.e., the remainder of the 99 year
lease from the County) for $10,000; however, if the Company does so, the site
will no longer be exempt from municipal property taxes.
The plastics and metal plant is owned by the City of Greenwood and leased
to the Company under a 20 year lease which expires in 2015 for $1,250 per year.
The Company may renew the lease on the present terms for two additional 20 year
periods and one 14 year period. In addition, the Company may purchase the
property for $17,500 at the end of the present term or during any renewal term;
however, that purchase would result in the loss of the present municipal
property tax exemption for this site.
4
<PAGE> 6
The Maple Heights, Ohio locations are each owned by Dunham Road Associates
Limited Partnership and leased to Universal. In conjunction with its acquisition
of Universal, the Company assumed two Universal operating leases covering real
property used by Universal in their Maple Heights, Ohio operations, which
operations are being relocated to Greenwood, Mississippi. These two leases
require aggregate annual rents of $128,000 in fiscal years 1997 through 1999 and
$60,000 in fiscal 2000. Management is currently negotiating a sub-lease, or
alternatively, an early release from these lease agreements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant from time to time in lawsuits incidental to its
business. The Company believes that currently pending proceedings are of a
routine nature and will not, individually or in the aggregate, have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The information contained under the caption "Stock Listing and Price Range"
in the Company's Annual Report to Stockholders for the fiscal year ended April
30, 1996 (the "Annual Report") on page 28 is hereby incorporated by reference
and made a part of this report.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected financial data for the Company as of and for the fiscal years
ended 1996, 1995 and 1994 and the nine month period ended April 30, 1993 and the
financial data for the Company's predecessor for the 3 month period ended July
31, 1992 and the fiscal year ended April 30, 1992 set forth in the Annual Report
on page 16 under the caption "Selected Consolidated Financial Data" is
incorporated by reference and made part of this Form 10-K report. The data set
forth therein should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in the Annual Report
and the remainder of the section in which such information is contained which is
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth in the Annual Report on pages 16 and 17 under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" is incorporated by reference and made a part of this report. Such
information includes a discussion and analysis of the Company's financial
condition and results of operation addresses for the Company's fiscal years
1994, 1995 and 1996 and should be read in conjunction with the Company's
consolidated financial statements included elsewhere in the Annual Report. In
addition, as previously announced, the Company has retained Bowles Hollowell
Conner & Co. to serve as its financial advisor to assist the Company in a review
of alternatives to enhance shareholder value. The engagement of Bowles Hollowell
is not limited in scope, and a variety of alternatives have been or will be
considered, including a possible sale of the Company. No specific proposals are
currently under consideration by the Company.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements of the Company and the independent auditors report
thereon for the years ended April 30, 1996, April 30, 1995 and April 30, 1994
set forth in the Annual Report on pages 18 through 27 are incorporated herein by
reference and made a part of this Form 10-K report.
5
<PAGE> 7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
Information with respect to directors of the Company is incorporated herein
by reference to the information under the caption "Election of
Directors -- Nominees for Election as Directors" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders (the "Proxy Statement").
EXECUTIVE OFFICERS
JESSE C. LUXTON AGE: 53
Mr. Luxton has been with the Company for 20 years. He has spent the past
nine years as the Company's President and Chief Executive Officer and prior to
that as General Manager and Vice President of Sales and Marketing.
M. WESLEY JORDAN, JR. AGE: 47
Mr. Jordan is the Company's chief financial officer. Mr. Jordon joined the
Company as Vice President of Finance on May 8, 1995. Prior to joining the
Company, he was the Senior Vice President of Finance and Administration for the
Georgia Lottery Corporation for approximately one year. Prior to the Georgia
Lottery Corporation, Mr. Jordan was a partner with the accounting firm of
Coopers & Lybrand. Mr. Jordan is a Certified Public Accountant in the States of
Georgia and Texas.
BILLY D. MOORE AGE: 55
Mr. Moore has worked with the Company for over 22 years in various
manufacturing positions. He has served as Vice President of Operations and
General Manager since 1989. Prior to joining the Company, Mr. Moore held several
manufacturing positions with Baldwin Piano Company.
RICHARD A. BEATTIE AGE: 44
Mr. Beattie has been with the Company for the past ten years in various
sales and marketing positions. He has held his most recent position as Vice
President of Sales and Marketing for the past five years. Prior to joining the
Company, Mr. Beattie worked with Jack Shine & Associates, a manufacturer's
representative organization, for eight years.
ROBERT T. LITTLEJOHN AGE: 51
Mr. Littlejohn has been with the Company as Controller for the past 14
years. Prior to joining the company, Mr. Littlejohn worked in several accounting
functions with various companies. He is a Certified Public Accountant in the
State of Mississippi.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is incorporated herein
by reference to the information under the caption "Executive Compensation" in
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management is incorporated herein by reference to the information under the
caption "Security Ownership" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Transactions" in the Company's Proxy Statement.
6
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of the Annual Report and
incorporated herein:
1. Financial Statements:
Consolidated Balance Sheets of the Company at April 30, 1996 and April
30, 1995
Consolidated Statements of Income of the Company for the years ended
April 30, 1996, April 30, 1995 and April 30, 1994
Consolidated Statements of Changes in Redeemable Preferred Stock,
Common Stock and other Stockholders' Equity of the Company for the
years ended April 30, 1996, April 30, 1995 and April 30, 1994
Consolidated Statement of Cash Flow of the Company for the years ended
April 30, 1996, April 30, 1995 and April 30, 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. Financial Statement Schedule:
Consolidated Financial Statement Schedule of the Company for the years
ended April 30, 1996, April 30, 1995 and April 1994.
II. Valuation and Qualifying Accounts
All other financial statement schedules have been omitted because they
are inapplicable or the required information is included or incorporated
by reference elsewhere herein.
3. Exhibits:
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement dated as of April 24, 1996 by and among
Universal Cork, Inc., the Stockholders of Universal Cork, Inc. and NPF
Company.
3.1 Form of Certificate of Incorporation (incorporated by reference from
Exhibit 3.1 of the Company's Registration Statement on Form S-1,
Registration No. 33-67354 (the "Registration Statement")).
3.2 Form of By-Laws (incorporated by reference from Exhibit 3.2 of the
Registration Statement).
4.1 Form of certificate representing shares of Common Stock, $0.01 par value
per share (incorporated by reference from Section 4.1 of the
Registration Statement).
4.2 Registration Agreement among the Company and certain stockholders dated
July 31, 1992 (incorporated by reference from Section 10.1 of the
Registration Statement (the "Registration Agreement")).
4.3 Amendment No. 1 to the Registration Agreement, dated October 13, 1993
(incorporated by reference from Exhibit 4.3 of the Company's 1994 Report
on Form 10-K (the "1994 10-K")).
10.1 National Picture & Frame Company Amended and Restated Long Term
Incentive Plan (incorporated by reference from Exhibit 10.1 of the
Company's 1995 Report on Form 10-K (the "1995 10-K")).
10.2 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Jesse Luxton (incorporated by reference from Exhibit 10.29
of the Registration Statement).
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
10.3 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Richard Beattie (incorporated by reference from Exhibit
10.30 of the Registration Statement).
10.4 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Billy Moore (incorporated by reference from Exhibit 10.31 of
the Registration Statement).
10.5 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Robert Littlejohn (incorporated by reference from Exhibit
10.32 of the Registration Statement).
10.6 National Picture & Frame Co. Employee Retirement Plan (incorporated by
reference from Exhibit 10.33 of the Registration Statement).
10.7 National Picture & Frame Company Employee Stock Discount Purchase Plan
(incorporated by reference from Exhibit 10.7 of the 1995 10-K).
10.8 Articles of Agreement between the Company the Southern Council of
Industrial Workers and United Brotherhood of Carpenters and Joiners of
America (incorporated by reference from Exhibit 10.7 of the 1994 10-K).
10.9 National Picture & Frame Company Non-Employee Director Stock Option
Plan.
10.10 Loan Agreement dated as of February 16, 1996 by and among the Company,
NPF Company and Deposit Guaranty National Bank.**
10.11 Loan Agreement dated as of February 16, 1996, by and among the Company,
NPF Company and NationsBank of Tennessee, N.A.**
10.12 Consulting Agreement dated as of April 24, 1996 by and between NPF
Company and G. Harold Goodwin.
10.13 Consulting Agreement dated as of April 24, 1996 by and between NPF
Company and Cynthia S. Goodwin.
13.1 Annual Report to Security Holders.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP for incorporation by reference into other
1993 Act.
</TABLE>
- - ---------------
** To be filed by Amendment.
(b) The Company filed a Current Report on Form 8-K on May 16, 1996 with the
SEC describing the acquisition by NPF Company of Universal Cork, Inc. on April
24, 1996.
8
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on July 29, 1996.
NATIONAL PICTURE & FRAME COMPANY
By /s/ Jesse C. Luxton
------------------------------------
Jesse C. Luxton, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on July 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- - ----------------------------------------------- -----------------------------------------
<S> <C>
/s/ Jesse C. Luxton Chief Executive Officer, President and
- - ----------------------------------------------- Director (Principal Executive Officer)
Jesse C. Luxton
/s/ M. Wesley Jordan, Jr. Chief Financial Officer (Principal
- - ----------------------------------------------- Financial Officer and Principal
M. Wesley Jordan, Jr. Accounting Officer)
/s/ Daniel J. Hennessy Chairman of the Board
- - -----------------------------------------------
Daniel J. Hennessy
/s/ Peter B. Foreman Director
- - -----------------------------------------------
Peter B. Foreman
/s/ Arthur L. Goeschel Director
- - -----------------------------------------------
Arthur L. Goeschel
/s/ John F. Levy Director
- - -----------------------------------------------
John F. Levy
/s/ Jon S. Vesely Director
- - -----------------------------------------------
Jon S. Vesely
</TABLE>
9
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE(+)
- - ------- ------------------------------------------------------------------------ ------------
<S> <C> <C>
2.1 Stock Purchase Agreement dated as of April 24, 1996 by and among
Universal Cork, Inc., the stockholders of Universal Cork, Inc. and NPF
Company.................................................................
3.1 Form of Certificate of Incorporation (incorporated by reference from
Exhibit 3.1 of the Company's Registration Statement on Form S-1,
Registration No. 33-67354 (the "Registration Statement"))...............
3.2 Form of By-Laws (incorporated by reference from Exhibit 3.2 of the
Registration Statement).................................................
4.1 Form of certificate representing shares of Common Stock, $0.01 par value
per share (incorporated by reference from Section 4.1 of the
Registration Statement).................................................
4.2 Registration Agreement among the Company and certain stockholders dated
July 31, 1992 (incorporated by reference from Section 10.1 of the
Registration Statement (the "Registration Agreement"))..................
4.3 Amendment No. 1 to the Registration Agreement, dated October 13, 1993
(incorporated by reference from Exhibit 4.3 of the Company's 1994 Report
on Form 10-K (the "1994 10-K")..........................................
10.1 National Picture & Frame Company Amended and restated Long Term
Incentive Plan (incorporated by reference from Exhibit 10.1 of the
Company's 1995 Report on Form 10-K (the "1995 10-K"))...................
10.2 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Jesse Luxton (incorporated by reference from Exhibit 10.29
of the Registration Statement)*.........................................
10.3 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Richard Beattie (incorporated by reference from Exhibit
10.30 of the Registration Statement)*...................................
10.4 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Billy Moore (incorporated by reference from Exhibit 10.31 of
the Registration Statement)*............................................
10.5 Employment Agreement, dated as of April 30, 1993 by and between the
Company and Robert Littlejohn (incorporated by reference from Exhibit
10.32 of the Registration Statement)*...................................
10.6 National Picture & Frame Co. Employee Retirement Plan (incorporated by
reference from Exhibit 10.33 of the Registration Statement)*............
10.7 National Picture & Frame Company Employee Stock Discount Purchase Plan
(incorporated by reference from Exhibit 10.7 of the 1995 10-K)..........
10.8 Articles of Agreement between the Company, the Southern Council of
Industrial Workers and United Brotherhood of Carpenters and Joiners of
America (incorporated by reference from Exhibit 10.7 of the 1994
10-K)...................................................................
10.9 National Picture & Frame Company Non-Employee Director Stock Option
Plan*...................................................................
10.10 Loan Agreement dated as of February 16, 1996 by and among the Company,
NPF Company and Deposit Guaranty National Bank..........................
10.11 Loan Agreement dated as of February 16, 1996, among the Company, NPF
Company and NationsBank of Tennessee, N.A...............................
10.12 Consulting Agreement dated as of April 24, 1996 by and between NPF
Company and G. Harold Goodwin*..........................................
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE(+)
- - ------- ------------------------------------------------------------------------ ------------
<S> <C> <C>
10.13 Consulting Agreement dated as of April 24, 1996 by and between NPF
Company and Cynthia S. Goodwin*.........................................
13.1 Annual Report to Security Holders.......................................
21.1 Subsidiaries of the Company.............................................
23.1 Consent of E&Y for incorporation by reference into other 1993 Act.......
27.1 Financial Data Schedule.................................................
</TABLE>
- - ---------------
+ This information appears only in the manually signed original of Annual
Report on 10-K, filed with the Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.
INDEX TO FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule of the Company for the years ended April 30, 1995 and April 30, 1994 and for
the nine months ended April 1993 and of the Predecessor for the three months ended
July 31, 1993.......................................................................
II. Valuation and Qualifying Accounts................................................. 31
All other financial statement schedules have been omitted because they are
inapplicable or information is included or incorporated by reference elsewhere
herein.
</TABLE>
<PAGE> 13
NATIONAL PICTURE & FRAME COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COST WRITE-OFF BALANCE AT
BEGINNING AND OF END OF
OF PERIOD EXPENSE ACCOUNTS PERIOD
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended April 30, 1996:
Allowance for doubtful accounts................ $ 161 $ 50 $ 19 $ 192
===== ==== ===== =====
Year ended April 30, 1995:
Allowance for doubtful accounts................ $ 145 $180 $ 164 $ 161
===== ==== ===== =====
Year ended April 30, 1994:
Allowance for doubtful accounts................ $ 140 $140 $ 135 $ 145
===== ==== ===== =====
</TABLE>
<PAGE> 1
Exhibit 2.1
============================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
UNIVERSAL CORK, INC.,
THE STOCKHOLDERS OF UNIVERSAL CORK, INC.
AND
NPF COMPANY
DATED AS OF APRIL 24, 1996
============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . . 1
1.1 Stock Purchase . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price for Company Stock . . . . . . . . . . . . . 1
1.3 Purchase Price Adjustments . . . . . . . . . . . . . . . . 2
1.4 Closing Transactions . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions to Buyer's Obligations . . . . . . . . . . . . . 4
2.2 Conditions to Each Seller's Obligations . . . . . . . . . . 6
ARTICLE III
COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . 8
3.1 Affirmative Covenants of the Company and Each Seller. . . . 8
3.2 Negative Covenants of the Company and Each Seller . . . . . 9
3.3 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. . . . . . 10
4.1 Organization and Corporate Power . . . . . . . . . . . . . 10
4.2 Authorization of Transactions. . . . . . . . . . . . . . . 11
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Subsidiaries; Investments. . . . . . . . . . . . . . . . . 11
4.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . 12
4.6 Financial Statements . . . . . . . . . . . . . . . . . . . 12
4.7 Absence of Undisclosed Liabilities . . . . . . . . . . . . 12
4.8 Absence of Certain Developments. . . . . . . . . . . . . . 13
4.9 Title to Properties. . . . . . . . . . . . . . . . . . . . 14
4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Contracts and Commitments . . . . . . . . . . . . . . . . 17
4.12 Proprietary Rights . . . . . . . . . . . . . . . . . . . . 18
4.13 Litigation; Proceedings . . . . . . . . . . . . . . . . . 19
4.14 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . 19
4.15 Governmental Licenses and Permits . . . . . . . . . . . . 19
4.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . 20
4.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 20
4.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 21
4.19 Officers and Directors; Bank Accounts . . . . . . . . . . 21
4.20 Affiliate Transactions . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.21 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 22
4.22 Environmental Matters. . . . . . . . . . . . . . . . . . . . 22
4.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.24 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS . . . . . . 24
5.1 Authorization of Transactions . . . . . . . . . . . . . . . . 24
5.2 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 24
5.3 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Investment in Notes . . . . . . . . . . . . . . . . . . . . . 25
5.6 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . 25
6.1 Organization and Corporate Power . . . . . . . . . . . . . . 25
6.2 Authorization of Transactions . . . . . . . . . . . . . . . . 25
6.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . 26
6.4 Governmental Authorities and Consents . . . . . . . . . . . . 26
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Absence of Certain Developments . . . . . . . . . . . . . . . 26
6.8 Reliance on Representations and Warranties . . . . . . . . . 26
6.9 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS . . . . . . . . . . . . . . . 27
8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 28
8.3 Arbitration Procedure . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 32
9.1 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Continuing Assistance . . . . . . . . . . . . . . . . . . . . 33
9.3 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.4 Press Releases and Announcements . . . . . . . . . . . . . . 33
9.5 Further Transfers . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Specific Performance . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.7 Transition Assistance . . . . . . . . . . . . . . . . . . . . 34
9.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.9 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.10 Books and Records . . . . . . . . . . . . . . . . . . . . . 35
9.11 Non-Competition, Non-Solicitation and Confidentiality . . . 35
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . 37
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.3 Binding Agreement; Assignment . . . . . . . . . . . . . . . 38
10.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . 38
10.5 Rules of Construction . . . . . . . . . . . . . . . . . . . 38
10.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 39
10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 39
10.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 39
10.10 Parties in Interest . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
iii
<PAGE> 5
INDEX OF EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Sellers' Certificate
Exhibit C Buyer's Certificate
Exhibit D Form of Consulting Agreement
INDEX OF SCHEDULES
Preamble Schedule of Stockholders
Preamble Index of Defined Terms
Schedule 1.1 Stock Ownership
Schedule 1.2 Allocation of Consideration
Schedule 4.1 Organization and Corporate Power
Schedule 4.5 Absence of Conflicts
Schedule 4.7 Absence of Undisclosed Liabilities
Schedule 4.8 Absence of Certain Developments
Schedule 4.9(b) Real Property Leases and Subleases
Schedule 4.9(d) Personal Property
Schedule 4.10 Taxes
Schedule 4.11 Contracts and Commitments
Schedule 4.12 Proprietary Rights
Schedule 4.13 Litigation; Proceedings
Schedule 4.14 Brokerage (Company)
Schedule 4.15 Governmental Licenses and Permits
Schedule 4.16 Employees
Schedule 4.17 Employee Benefit Plans
Schedule 4.18 Insurance
Schedule 4.19 Officers and Directors; Bank Accounts
Schedule 4.20 Affiliate Transactions
Schedule 4.21 Compliance with Laws
Schedule 4.22 Environmental Matters
Schedule 5.3 Brokerage (Sellers)
Schedule 6.6 Brokerage (Buyer)
iv
<PAGE> 6
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Acquired Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Actual Net Book Value . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20
Affiliated Group . . . . . . . . . . . . . . . . . . . . . . . . . .4.10(c)(i)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Applicable Limitation Date . . . . . . . . . . . . . . . . . . . . . . . . 8.1
Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(b)(ii)
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Buyer Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(a)
Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(b)(ii)
Cash Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.22(e)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.4(a)
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.4(a)
Closing Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Closing Transactions . . . . . . . . . . . . . . . . . . . . . . . . . .1.4(b)
COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17(a)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(c)(ii)
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company's Latest Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 4.6
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . 9.11(c)
Draft Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Environmental and Safety Requirements . . . . . . . . . . . . . . . .4.22(i)(i)
Environmental Lien . . . . . . . . . . . . . . . . . . . . . . . .4.22(i)(iii)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17(a)
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6
Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.3(a)
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(d)
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(d)
indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11(b)
Insiders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.20
knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1
Leased Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.9(b)
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.15
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.9(d)
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(a)
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.2(a)
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . .4.8(a)
Net Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Non-Compete Period . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11(a)
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Note Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Objection Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3(c)(i)
Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . . .3.1(a)
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12(a)
Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.22(i)(ii)
responsible property transfer . . . . . . . . . . . . . . . . . . . . . 4.22(c)
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Sellers' Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(c)
Seller Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2(c)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.10(c)(iii)
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(c)(iv)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.10(c)(iii)
Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8
transaction-triggered . . . . . . . . . . . . . . . . . . . . . . . . . 4.22(c)
</TABLE>
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of April 24, 1996,
by and among Universal Cork, Inc., an Ohio corporation (the "Company"), the
stockholders listed on the Schedule of Stockholders attached hereto
(collectively, "Sellers" and individually, "Seller"), and NPF Company, a
Delaware corporation and wholly-owned Subsidiary of National Picture and Frame
Company ("Buyer"). The Company, Sellers and Buyer are referred to herein
collectively as the "Parties" and individually as a "Party." Capitalized terms
used herein shall have the meanings assigned to such terms in the sections
referenced in the Index of Defined Terms attached hereto.
WHEREAS, the authorized capital stock of the Company consists
of 500 shares of Common Stock, no par value (the "Common"), of which 250 shares
are issued and outstanding.
WHEREAS, Sellers own beneficially and of record 100% of the
issued and outstanding Common.
WHEREAS, Buyer desires to acquire from each Seller, and each
Seller desires to sell to Buyer, all of the Common owned by such Seller
(collectively, the "Acquired Stock").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 STOCK PURCHASE. On and subject to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 1.4(a)), Buyer shall purchase from each Seller, and each Seller shall
sell and transfer to Buyer, all of the shares of Common owned by such Seller as
such ownership is set forth on Schedule 1.1, free and clear of any Liens (as
defined in Section 4.9(d)).
1.2 PURCHASE PRICE FOR COMPANY STOCK. The aggregate purchase
price to be paid to Sellers for the Acquired Stock (the "Purchase Price") shall
consist of (a) the delivery of $1,250,000 in cash (as adjusted pursuant to
Section 1.3(a), the "Cash Purchase Price"); and (b) the issuance of $1,000,000
of Promissory Notes of Buyer in the form of Exhibit A attached hereto (as
adjusted pursuant to Section 1.3, the "Note Amount"). The Promissory Notes are
referred to herein as the "Notes." The Purchase Price will be allocated
between the Sellers in the manner set forth in Schedule 1.2 attached hereto.
The Cash Purchase Price and the Note Amount are subject to adjustment pursuant
to Section 1.3.
1.3 PURCHASE PRICE ADJUSTMENTS.
<PAGE> 8
(a) ADJUSTMENT TO THE CASH PURCHASE PRICE. At the
Closing (as defined in Section 1.4(a)), the Cash Purchase Price will be reduced
dollar-for-dollar by an amount equal to the Company's Indebtedness in existence
as of the Closing (including any accrued interest related thereto and all
prepayment premiums and penalties to be incurred by the Company in connection
with any prepayment of the Company's Indebtedness in connection with the
transactions contemplated by this Agreement) to the extent such Indebtedness
exceeds $500,000 as of the Closing. "Indebtedness" means all indebtedness for
borrowed money (including purchase money obligations), all indebtedness under
revolving credit arrangements, all capitalized lease obligations and all
guarantees of any of the foregoing; provided that Indebtedness shall not
include obligations evidenced by (i) those certain letters of credit issued in
connection with the Company's molding purchase orders from Global 88, Inc. in
the amounts of $39,271.12 and $38,481.12 and (ii) those certain letters of
credit to be issued in connection with the purchase of taper corks from Joao
Jose Figreiras dos Santos except to the extent that any such letter of credit
referred to in clauses (i) or (ii) has been drawn upon as of the Closing Date
and not reimbursed by the Company as of such time.
(b) ADJUSTMENT TO NOTES. At the Closing, the Note Amount
will be reduced dollar-for-dollar by an amount equal to the Company's
Indebtedness in existence as of the Closing (including any accrued interest
related thereto and all prepayment premiums and penalties to be incurred by the
Company in connection with any prepayment of the Company's Indebtedness in
connection with the transactions contemplated by this Agreement); provided,
however, that the Note Amount shall in no event be reduced pursuant to this
Section 1.3(b) by an amount in excess of $500,000.
(c) NET BOOK VALUE ADJUSTMENT.
(i) Within 90 days after the Closing Date, Buyer and its
auditors will conduct a review (the "Closing Review") of the Net Book
Value as of the close of business on the day before the Closing Date
and will prepare and deliver to Sellers a computation of the amount of
the Net Book Value as of the close of business on the day before the
Closing Date (the "Draft Balance Sheet"). "Net Book Value" means, as
of a given date, the Company's total assets which are properly set
forth on the face of the Company's balance sheet, minus the Company's
total liabilities which are properly set forth on the face of the
Company's balance sheet (other than Indebtedness and accrued interest
related thereto), determined in accordance with U.S. generally
accepted accounting principles ("GAAP"), applied on a basis consistent
with the Company's Latest Balance Sheet (but only to the extent the
Company's Latest Balance Sheet was prepared in accordance with GAAP).
With respect to the calculation of Net Book Value, all known errors
and adjustments shall be taken into account, regardless of their
materiality. Buyer and its auditors will give Sellers and their
auditors an opportunity to observe the Closing Review and will make
available to such Persons all records and work papers used in
preparing the Draft Balance Sheet. If Sellers disagree with the
computation of the Net Book Value reflected on the Draft Balance
Sheet, Sellers may, within thirty (30) days after receipt of the Draft
Balance Sheet, deliver a notice (an "Objection Notice") to Buyer
setting forth Sellers' calculation of the amount of the Net Book Value
as of the close of business on the day before the Closing Date. Buyer
and Sellers will use reasonable efforts to resolve any disagreements
as to the computation of the Net Book
2
<PAGE> 9
Value, but if they do not obtain a final resolution within 30 days
after Buyer has received the Objection Notice, Buyer and Sellers will
jointly retain an independent accounting firm of recognized national
or regional standing (the "Firm") to resolve any remaining
disagreements. If Buyer and Sellers are unable to agree on the choice
of the Firm, the Firm will be a "big-six" accounting firm selected by
lot (after excluding one firm designated by Buyer and one firm
designated by Sellers). Buyer and Sellers will direct the Firm to
render a determination within fifteen (15) days of its retention and
Buyer, Sellers and their respective employees and agents will
cooperate with the Firm during its engagement. The Firm will consider
only those items and amounts in the Draft Balance Sheet set forth in
the Objection Notice which Buyer and Sellers are unable to resolve.
The Firm's determination will be based on the definition of the Net
Book Value included herein. The determination of the Firm will be
conclusive and binding upon Buyer and Sellers. Buyer, on the one
hand, and Sellers, on the other hand (pro rata among the Sellers in
the manner set forth in Schedule 1.2 hereto) will each pay one half
of the fees and expenses of the Firm. The amount of the Net Book
Value, as finally determined pursuant to this Section 1.3(c)(i), is
referred to herein as the "Actual Net Book Value."
(ii) If the Actual Net Book Value is greater than
$1,101,009.00, the Note Amount shall be increased by the amount of
such excess.
(iii) If the Actual Net Book Value is less than
$1,101,009.00, the Note Amount shall be decreased by the amount of
such shortfall.
1.4 CLOSING TRANSACTIONS.
(a) CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois commencing at
10:00 a.m. on April 24, 1996, or at such other place or on such other date as
may be mutually agreeable to Buyer and the Company. The date and time of the
Closing are herein referred to as the "Closing Date."
(b) CLOSING TRANSACTIONS. Subject to the conditions set
forth in this Agreement, the Parties shall consummate the following "Closing
Transactions" on the Closing Date:
(i) each Seller shall deliver to Buyer certificates
representing the Acquired Stock owned by such Seller, duly endorsed
for transfer or accompanied by duly executed stock powers with all
requisite state and federal transfer stamps affixed thereto;
(ii) Buyer shall deliver to Sellers the Cash Purchase
Price in the manner set forth on Schedule 1.2 in immediately available
funds;
(iii) Buyer shall deliver to Sellers the Notes in the
amount and manner set forth in Schedule 1.2; and
3
<PAGE> 10
(iv) the Company, Sellers and Buyer, as applicable, shall
deliver the opinions, certificates and other documents and instruments
required to be delivered by or on behalf of such Party under Article
II.
ARTICLE II
CONDITIONS TO CLOSING
2.1 CONDITIONS TO BUYER'S OBLIGATIONS. The
obligation of Buyer to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of the following conditions as of the
Closing Date:
(a) The representations and warranties set forth in
Article IV and Article V hereof shall be true and correct in all material
respects at and as of the Closing Date as though then made and as though the
Closing Date were substituted for the date of this Agreement throughout such
representations and warranties (without taking into account any disclosures
made by the Company or Sellers to Buyer pursuant to Sections 3.1(f), 4.24 or
5.6 hereof (other than disclosures made by the Company or Sellers to Buyer on
the date hereof));
(b) The Company and each Seller shall have performed and
complied with all of the covenants and agreements required to be performed by
each of them under this Agreement on or prior to the Closing;
(c) All consents by third parties that are required for
the transfer of the Acquired Stock to Buyer, and the consummation of the other
transactions contemplated hereby or that are required in order to prevent a
breach of, a default under, a termination or modification of, or any
acceleration of, any obligations under any material contract to which the
Company is a party shall have been obtained, and payoff letters with respect to
all of the Company's Indebtedness outstanding as of the Closing and releases of
any and all Liens held by third parties against property of the Company shall
have been obtained, all on terms reasonably satisfactory to Buyer;
(d) All governmental filings, authorizations and
approvals that are required for the transfer of the Acquired Stock to Buyer and
the consummation of the other transactions contemplated hereby shall have been
duly made and obtained on terms reasonably satisfactory to Buyer;
(e) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
concerning the Company or any Seller wherein an unfavorable judgment, decree,
injunction, order or ruling would prevent the performance of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement, cause such transactions to be rescinded or
materially and adversely affect the right of Buyer to own, operate or control
the Company, and no judgment, decree, injunction, order or ruling shall have
been entered which has any of the foregoing effects;
4
<PAGE> 11
(f) All of the Company's directors shall have resigned as
such effective as of the Closing Date;
(g) Buyer shall have received an opinion, dated the
Closing Date, of Walter & Haverfield counsel to the Company and Sellers, in
form and substance reasonably satisfactory to Buyer and its counsel;
(h) On or prior to the Closing Date, Sellers and the
Company shall have delivered to Buyer all of the following:
(i) a certificate from the Company and Sellers in the
form set forth in Exhibit B attached hereto, dated the Closing Date,
stating that the preconditions specified in Sections 2.1(a) through
(f), inclusive, have been satisfied and are true and correct;
(ii) copies of all third party and governmental consents,
approvals, filings, releases and terminations required in connection
with the consummation of the transactions contemplated herein;
(iii) certified copies of the resolutions of the Company's
board of directors approving the transactions contemplated by this
Agreement;
(iv) certificates of the secretary of state of the State
of Ohio and each state where the Company is qualified to do business
(including, without limitation, the states listed on Schedule 4.1)
providing that the Company is in good standing;
(v) certified copy of the Company's articles of
incorporation certified by the Secretary of State of the State of Ohio;
(vi) certified copy of the Company's code of regulations
certified by an officer of the Company;
(vii) copies of the resignations described in Section
2.1(f);
(viii) landlord consents and estoppel certificates with
respect to any real estate leases to which the Company is a party, in
form and substance satisfactory to Buyer; and
(ix) such other documents or instruments as Buyer may
reasonably request to effect the transactions contemplated hereby;
(i) Buyer and each of G. Harold Goodwin ("GHG") and
Cynthia S. Goodwin ("CSG") shall have entered into agreements relating to
consulting services to be provided by GHG and CSG, respectively, to Buyer (the
"Consulting Agreements") substantially in the form set forth in Exhibit D
attached hereto; and
5
<PAGE> 12
(j) All proceedings to be taken by the Company and each
Seller in connection with the consummation of the Closing Transactions and the
other transactions contemplated hereby and all certificates, opinions,
instruments and other documents required to be delivered by each Seller to
effect the transactions contemplated hereby reasonably requested by Buyer shall
be reasonably satisfactory in form and substance to Buyer.
Any condition specified in this Section 2.1 may be
waived by Buyer; provided that no such waiver shall be effective unless it is
set forth in a writing executed by Buyer or unless Buyer agrees in writing to
consummate the transactions contemplated by this Agreement without satisfaction
of such condition.
2.2 CONDITIONS TO EACH SELLER'S OBLIGATIONS. The obligation
of each Seller to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in
Article VI shall be true and correct in all material respects at and as of the
Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations and
warranties (without taking into account any disclosures made by Buyer to
Sellers pursuant to Sections 3.3(a) or 6.7 hereof (other than disclosures made
by Buyer to Sellers on the date hereof));
(b) Buyer shall have performed and complied with all of
the covenants and agreements required to be performed by it under this
Agreement on or prior to the Closing;
(c) All consents by third parties that are required in
order to prevent a breach of, a default under, a termination or modification
of, or any acceleration of, any obligations under any material contract to
which Buyer is a party shall have been obtained;
(d) All governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated hereby shall have been duly made and obtained;
(e) No action, suit or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator concerning Buyer
wherein an unfavorable judgment, decree, injunction, order or ruling would
prevent the performance of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause such transactions to be rescinded, and no judgment, decree,
injunction, order or ruling shall have been entered which has any of the
foregoing effects;
(f) With respect to all instruments evidencing
outstanding obligations of the Company, all personal liability of Sellers
(whether fixed, contingent or conditional) as co-makers, guarantors or
otherwise shall have been released, or Sellers shall have received reasonably
adequate security that they will not become liable under such instruments
(e.g., pursuant to letters of credit, guarantees, indemnities or other forms of
security provided by creditworthy sources);
6
<PAGE> 13
(g) Sellers shall have received an opinion, dated the
Closing Date, of Kirkland & Ellis counsel to Buyer, in form and substance
reasonably satisfactory to Sellers and their counsel;
(h) On or prior to the Closing Date, Buyer shall have
delivered to Sellers all of the following:
(i) a certificate from Buyer in the form set forth in
Exhibit C attached hereto, dated the Closing Date, stating that the
preconditions specified in Sections 2.2(a) through (e), inclusive,
have been satisfied and are true and correct;
(ii) certified copies of the resolutions of Buyer's board
of directors approving the transactions contemplated by this
Agreement; and
(iii) such other documents or instruments as Sellers may
reasonably request to effect the transactions contemplated hereby;
(i) Buyer and each of G. Harold Goodwin ("GHG") and
Cynthia S. Goodwin ("CSG") shall have entered into agreements relating to
consulting services to be provided by GHG and CSG, respectively, to Buyer (the
"Consulting Agreements") substantially in the form set forth in Exhibit D
attached hereto; and
(j) All proceedings to be taken by Buyer in connection
with the consummation of the Closing Transactions and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to be delivered by Buyer to effect the transactions
contemplated hereby reasonably requested by Sellers shall be reasonably
satisfactory in form and substance to Sellers.
Any condition specified in this Section 2.2 may be waived by
Sellers; provided that no such waiver shall be effective unless it is set forth
in a writing executed by Sellers or unless Sellers agree in writing to
consummate the transactions contemplated by this Agreement without the
satisfaction of such condition.
ARTICLE III
COVENANTS PRIOR TO CLOSING
3.1 AFFIRMATIVE COVENANTS OF THE COMPANY AND EACH SELLER.
Prior to the Closing, unless Buyer otherwise agrees in writing, each Seller
shall cause the Company to, and in addition in the case of paragraphs (c), (f),
(g) and (h) each Seller shall:
(a) conduct its business and operations only in the
ordinary course of business consistent with past practice (including, without
limitation, with respect to collection of accounts receivable, purchases of
inventory and supplies, repairs and maintenance, payment of accounts
7
<PAGE> 14
payable and accrued expenses, levels of capital expenditures and operation of
cash management practices generally) ("Ordinary Course of Business");
(b) keep in full force and effect its corporate existence
and all rights, franchises and intellectual property relating or pertaining to
its business and use its best efforts to cause its current insurance (or
reinsurance) policies not to be cancelled or terminated or any of the coverage
thereunder to lapse;
(c) use commercially reasonable efforts to carry on the
business of the Company in the same manner as presently conducted and to keep
the Company's business organization and properties intact, including its
present business operations, physical facilities, working conditions and
employees and its present relationships with lessors, licensors, suppliers and
customers and others having business relations with it;
(d) maintain the material assets of the Company in good
repair, order and condition (normal wear and tear excepted) consistent with
current needs and past practices, replace in accordance with past practices its
inoperable, worn out or obsolete assets with assets of good quality consistent
with past practices and current needs and, in the event of a casualty, loss or
damage to any of such assets or properties prior to the Closing Date, whether
or not the Company is insured, either repair or replace such damaged property
or use the proceeds of such insurance in such other manner as mutually agreed
upon by Sellers and Buyer;
(e) maintain the books, accounts and records of the
Company in accordance with past custom and practice as used in the preparation
of the Financial Statements (as such term is defined in Section 4.6 hereof);
(f) promptly (once the Company or any Seller obtains
Knowledge thereof) inform Buyer in writing of any variances from the
representations and warranties contained in Article IV or Article V hereof or
any breach of any covenant hereunder by the Company or any Seller;
(g) cooperate with Buyer and use best efforts to cause
the conditions to Buyer's obligation to close to be satisfied (including,
without limitation, the execution and delivery of all agreements contemplated
hereunder to be so executed and delivered and the making and obtaining of all
third party and governmental notices, filings, authorizations, approvals,
consents, releases and terminations); and
(h) cooperate with Buyer in Buyer's investigation of the
business and properties of the Company, to permit Buyer and its employees,
agents, accounting, legal and other authorized representatives, upon reasonable
prior notice, to (i) have full access to the premises, books and records of the
Company at reasonable hours, (ii) visit and inspect any of the properties of
the Company, and (iii) discuss the affairs, finances and accounts of the
Company with the directors, officers, partners, key employees, key customers,
key sales representatives, key suppliers and independent accountants of the
Company.
8
<PAGE> 15
The term "Knowledge" as used in the phrases "to the Knowledge
of Company or Sellers", "to the Company's or Sellers' Knowledge" or phrases of
similar import shall mean and include (i) the actual knowledge or awareness of
Sellers or the Company (which shall include actual knowledge and awareness of
the officers, directors and key employees of the Company and the stockholders
of the Company) and (ii) the knowledge or awareness which a reasonable person
would have obtained in the conduct of his business after making reasonable
inquiry with respect to the particular matter in question.
3.2 NEGATIVE COVENANTS OF THE COMPANY AND EACH SELLER. Prior
to the Closing, unless Buyer otherwise agrees in writing, each Seller shall
cause the Company to not:
(a) take any action that would require disclosure under
Section 4.8;
(b) make any loans, enter into any transaction with any
Insider (as defined in Section 4.20) or make or grant any increase in any
employee's or officer's compensation or make or grant any increase in any
employee benefit plan, incentive arrangement or other benefit covering any of
the employees of the Company;
(c) establish or contribute to any pension, retirement,
profit sharing or stock bonus plan or multiemployer plan covering the employees
of the Company;
(d) except as specifically contemplated by this
Agreement, enter into any contract, agreement or transaction, other than in the
Ordinary Course of Business and at arm's length with unaffiliated Persons;
(e) declare, pay, make or otherwise effectuate any
dividends, distributions, redemptions, equity repurchases or other transactions
involving the Company's capital stock or equity securities (other than
Subchapter S corporation tax distributions made in the ordinary course of
business consistent with past practices);
(f) sell, transfer, contribute, distribute, or otherwise
dispose of any securities or assets of the Company, or agree to do any of the
foregoing, to any Person, or negotiate or have any discussions with any Person
with respect to any of the foregoing, other than in the Ordinary Course of
Business.
3.3 COVENANTS OF BUYER. Prior to the Closing, Buyer shall:
(a) promptly (once it obtains knowledge thereof) inform
the Company in writing of any variances from the representations and warranties
contained in Article VI or any breach of any covenant hereunder by Buyer;
(b) cooperate with Sellers and use its best efforts to
cause the conditions to each Seller's obligation to close to be satisfied
(including, without limitation, the execution and delivery of all agreements
contemplated hereunder to be so executed and delivered and the making and
9
<PAGE> 16
obtaining of all third party and governmental filings, authorizations,
approvals, consents, releases and terminations); and
(c) provide to each Seller (i) copies of all documents it
filed with the Securities and Exchange Commission after the date hereof and
prior to the Closing and (ii) such information as such Seller may reasonably
request regarding Buyer's business and financial condition.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
As a material inducement to Buyer to enter into this
Agreement, each Seller hereby jointly and severally represents and warrants
that:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio and is qualified to do business in every jurisdiction
in which it is required to be qualified. All jurisdictions in which the
Company is qualified to do business are set forth on Schedule 4.1. The Company
has full corporate power and authority and all licenses, permits and
authorizations necessary to own and operate its properties and to carry on its
business as now conducted. Correct and complete copies of the Company's
articles of incorporation and by-laws have been furnished to Buyer, which
documents reflect all amendments made thereto at any time prior to the date of
this Agreement. Correct and complete copies of the minute books containing the
records of meetings of the stockholders and board of directors, the stock
certificate books and the stock record books of the Company have been furnished
to Buyer. The Company is not in default under or in violation of any provision
of its articles of incorporation or code of regulations.
4.2 AUTHORIZATION OF TRANSACTIONS. The Company has full
corporate power and authority to execute and deliver this Agreement and all
other agreements contemplated hereby to which the Company is a party
(collectively, the "Transaction Documents") and to consummate the transactions
contemplated hereby and thereby. The board of directors of the Company has
duly approved the Transaction Documents and has duly authorized the execution
and delivery of the Transaction Documents and the consummation of the
transactions contemplated thereby. No other corporate proceedings on the part
of the Company are necessary to approve and authorize the execution and
delivery of the Transaction Documents and the consummation of the transactions
contemplated thereby. All Transaction Documents have been duly executed and
delivered by the Company and constitute the valid and binding agreements of the
Company, enforceable against the Company in accordance with their terms.
4.3 CAPITALIZATION. The authorized, issued and outstanding
stock of the Company consists of 500 shares of Common Stock, no par value, of
which 250 shares are issued and outstanding. All of the issued and outstanding
shares of the Company's capital stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are not subject to, nor were they
10
<PAGE> 17
issued in violation of, any preemptive rights or rights of first refusal, and
are owned of record and beneficially by the respective Sellers as set forth on
Schedule 1.1 free and clear of all Liens. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights or other agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock (other than
this Agreement). There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company. There are no
voting trusts, proxies or any other agreements or understandings with respect
to the voting of the capital stock of the Company. The Company is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire, as applicable, any shares of its capital stock.
4.4 SUBSIDIARIES; INVESTMENTS. The Company does not own or
hold any shares of stock or any other security or interest in any other Person
or any rights to acquire any such stock or other security or interest, and the
Company has never owned any Subsidiary. For purposes of this Agreement,
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization, a governmental entity or any department, agency
or political subdivision thereof or any other entity, and "Subsidiary" means,
with respect to any Person, any corporation, partnership, association or other
business entity of which (i) if a corporation, at least 50% of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a partnership, limited liability company, association or other
business entity, at least 50% of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have at
least 50% ownership interest in a partnership, limited liability company,
association or other business entity if such Person or Persons shall be
allocated at least 50% of partnership, association or other business entity
gains or losses or shall be or control the managing director or a general
partner of such partnership, association or other business entity.
4.5 ABSENCE OF CONFLICTS. Except as set forth in Schedule
4.5, neither the execution, delivery and performance of the Transaction
Documents nor the consummation of the transactions contemplated thereby do not
and shall not (a) conflict with or result in any breach of any of the terms,
conditions or provisions of, (b) constitute a default under, (c) result in a
violation of, (d) give any third party the right to modify, terminate or
accelerate any obligation under, or (e) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or other governmental body or agency, under
the provisions of the articles of incorporation or by-laws of the Company or
any indenture, mortgage, lease, loan agreement or other agreement or instrument
by which the Company is bound or affected, or any law, statute, rule,
regulation, judgment, order or decree or other restriction of any government,
governmental agency or court to which the Company is subject. Neither the
execution, delivery and performance of the Transaction Documents nor the
consummation of the transactions contemplated thereby shall result in the
creation of any Lien upon the Acquired Stock or the assets of the Company.
11
<PAGE> 18
4.6 FINANCIAL STATEMENTS. The Company has furnished Buyer
with copies of its (i) audited balance sheet as of November 30, 1995 (the
"Company's Latest Balance Sheet") and the related statement of operations for
the eleven-month period then ended and (ii) unaudited balance sheets and
statements of operations, shareholders' equity and cash flows for the fiscal
years ended December 31, 1995, 1994 and 1993. Each of the foregoing financial
statements (including in all cases the notes thereto, if any) (the "Financial
Statements") is accurate and complete in all material respects, is consistent
with the Company's books and records (which, in turn, are accurate and
complete), present fairly the Company's financial condition and results of
operations as of the times and for the periods referred to therein, and has
been prepared in accordance with GAAP, consistently applied, subject to changes
resulting from normal year-end adjustments for recurring accruals (which shall
not be material individually or in the aggregate) and to the absence of
footnote disclosure.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known, whether due or to become due and regardless
of when asserted) arising out of transactions entered into at or prior to the
Closing, or any action or inaction at or prior to the Closing, or any state of
facts existing at or prior to the Closing, except (i) obligations under
contracts or commitments described in Schedule 4.11 or under contracts and
commitments which are not required to be disclosed thereon (but not liabilities
for breaches thereof), (ii) liabilities reflected on the liabilities side of
the Company's Latest Balance Sheet, (iii) liabilities which have arisen after
the date of the Company's Latest Balance Sheet in the Ordinary Course of
Business or otherwise in accordance with the terms and conditions of this
Agreement (none of which is a liability for breach of contract, breach of
warranty, tort or infringement or a claim or lawsuit or an environmental
liability) and (iv) liabilities disclosed on Schedule 4.7.
4.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in
Schedule 4.8 and except as expressly contemplated by this Agreement, since
November 30, 1995 the Company has not:
(a) suffered any change that has had or could reasonably
be expected to have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company (a "Material Adverse Effect") or suffered any theft, damage,
destruction or casualty loss in excess of $10,000, to its assets, whether or
not covered by insurance or suffered any substantial destruction of the
Company's books and records;
(b) redeemed or repurchased, directly or indirectly, any
shares of its capital stock or other equity security or declared, set aside or
paid any dividends or made any other distributions (whether in cash or in kind)
with respect to any shares of its capital stock or other equity security;
(c) issued, sold or transferred any of its equity
securities, any securities convertible, exchangeable or exercisable into shares
of its capital stock or other equity securities, or warrants, options or other
rights to acquire shares of its capital stock or other equity securities of the
Company;
12
<PAGE> 19
(d) incurred or become subject to any liabilities, except
liabilities incurred in the Ordinary Course of Business;
(e) subjected any portion of its properties or assets to
any Lien;
(f) sold, leased, assigned or transferred (including,
without limitation, transfers to Sellers or any Insider (as defined in Section
4.20)) a portion of its tangible assets, except for sales of inventory in the
Ordinary Course of Business, or cancelled without fair consideration any
material debts or claims owing to or held by it (other than discounting
receivables in the Ordinary Course of Business);
(g) sold, assigned, licensed or transferred (including,
without limitation, transfers to Sellers or any Insider) any Proprietary Rights
owned by, issued to or licensed to the Company or disclosed any confidential
information (other than pursuant to agreements requiring the disclosure to
maintain the confidentiality of and preserving all rights of the Company in
such confidential information) or received any confidential information of any
third party in violation of any obligation of confidentiality;
(h) suffered any extraordinary losses or waived any
rights of a value in excess of $10,000;
(i) entered into, amended or terminated any material
lease, contract, agreement or commitment, or taken any other action or entered
into any other transaction other than in the Ordinary Course of Business;
(j) entered into any other transaction with a value in
excess of $10,000, or materially changed any business practice;
(k) made or granted any bonus or any wage, salary or
compensation increase to any director, officer, employee or sales
representative, group of employees or consultant or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement;
(l) made any other change in employment terms for any of
its directors, officers, and employees outside the Ordinary Course of Business;
(m) conducted its cash management customs and practices
other than in the Ordinary Course of Business (including, without limitation,
with respect to collection of accounts receivable, purchases of inventory and
supplies, repairs and maintenance, and payment of accounts payable and accrued
expenses);
(n) made any capital expenditures or commitments for
capital expenditures that aggregate in excess of $10,000;
13
<PAGE> 20
(o) made any loans or advances to, or guarantees for the
benefit of, any Persons;
(p) made charitable contributions, pledges, association
fees or dues in excess of $3,000 in the aggregate; or
(q) changed (or authorized any change) in its articles of
incorporation or by-laws.
4.9 TITLE TO PROPERTIES.
(a) The Company does not own any real property.
(b) The leases and subleases described in Schedule 4.9(b)
(the "Leased Properties") constitute all of the leases and subleases under
which the Company holds leasehold or subleasehold interests in real property.
The real property leases and subleases described on Schedule 4.9(b) are valid,
binding, enforceable and in full force and effect and have not been modified
(except to the extent disclosed in the documents delivered to Buyer), and the
Company holds a valid and existing leasehold interest under such leases or
subleases to which it is a party for the term set forth in Schedule 4.9(b).
The Company has delivered to Buyer complete and accurate copies of each of the
leases or subleases described in Schedule 4.9(b). With respect to each lease
and sublease listed on Schedule 4.9(b):
(i) the lease or sublease shall continue to be legal,
valid, binding, enforceable and in full force and effect on identical
terms immediately following the Closing;
(ii) neither the Company nor any other party to the lease
or sublease is in breach or default, and no event has occurred which,
with notice or lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration under the
lease or sublease;
(iii) no party to the lease or sublease has repudiated any
provision thereof and there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease; and
(iv) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold.
(c) The real property described in Schedule 4.9(b)
constitutes all of the real property used or occupied by the Company.
(d) Except as set forth on Schedule 4.9(d), the Company
owns good and marketable title to, or a valid leasehold interest in, free and
clear of all Liens, all of the personal property and assets which are shown on
the Company's Latest Balance Sheet or acquired thereafter or located on the
Leased Properties or used by the Company. For purposes of this Agreement,
"Lien" means any mortgage, pledge, security interest, encumbrance, option,
warrant, right, contract, call, lien or charge of any kind (including, without
limitation, any conditional sale or other title
14
<PAGE> 21
retention agreement or lease in the nature thereof), and any sale of
receivables with recourse against the Company.
(e) The buildings, machinery, equipment, personal
properties, vehicles and other tangible assets of the Company located upon or
used in connection with the Leased Properties are operated in conformity with
all applicable laws and regulations, are in good condition and repair,
reasonable wear and tear excepted, consistent with current needs and past
practices in the Ordinary Course of Business. The Company owns or leases under
valid leases all buildings, machinery, equipment and other tangible assets
necessary for the conduct of its business.
4.10 TAXES.
(a) Except as set forth on Schedule 4.10, (i) the Company
has timely filed or shall timely file all Tax Returns which are required to be
filed on or before the Closing Date, and all such Tax Returns are true,
complete and accurate, (ii) all Taxes due and payable by the Company have been
paid or shall be paid by the Company or Sellers on or before the Closing Date
and all Taxes accrued but not yet due are shown on the Company's Latest Balance
Sheet or are set forth on Schedule 4.10 and no Taxes are delinquent, (iii) no
deficiency for any amount of Tax has been asserted or assessed by a taxing
authority (including jurisdictions in which the Company currently files returns
and jurisdictions in which the Company does not currently file returns) against
the Company and neither the Company nor any Seller reasonably expects that any
such assertion or assessment of Tax liability will be made, (iv) the Company
has not consented to extend the time in which any Tax may be assessed or
collected by any taxing authority, (v) the Company has not been a member of an
Affiliated Group, (vi) no claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Taxes assessed by such jurisdiction, (vii) the Company has no
liability for Taxes of any other Person under Treasury Regulations Section
1.1502-6 (or any similar provision or state, local or foreign Tax law), as a
transferee, by contract, or otherwise, and (viii) the Company has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party. Schedule 4.10 contains a list of states,
territories and jurisdictions (whether foreign or domestic) in which the
Company is required to file Tax Returns.
(b) The Company made a valid election under Section 1362
of the Code and under any corresponding state or local tax provision to be an
"S corporation," for its taxable year beginning April 1, 1992, the Company has
been an "S corporation" as defined in Section 1361(a)(1) of the Code at all
times thereafter and the Company has never acquired assets from a C corporation
(other than in connection with the Company's conversion from a C corporation to
an S corporation pursuant to such election) in a transaction in which the
Company's basis in such asset is determined (in whole or in part) by reference
to the basis of such asset (or any other property) in the hands of a C
corporation.
(c) As used in this Agreement, the following terms shall
have the following respective meanings:
15
<PAGE> 22
(i) "Affiliated Group" means an affiliated group as
defined in Section 1504 of the Code (or any similar combined,
consolidated or unitary group defined under state, local or foreign
income Tax law).
(ii) "Code" means the Internal Revenue Code of 1986, as
amended.
(iii) "Tax" or "Taxes" means any federal, state, local or
foreign income, gross receipts, franchise, alternative or add-on
minimum, estimated, sales, use, transfer, registration, value added,
excise, stamp, environmental, customs, duties, real property, personal
property, capital stock, license, social security, unemployment,
disability, payroll, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to
tax or additional amounts in respect of the foregoing.
(iv) "Tax Returns" means returns, declarations, reports,
claims for refund, information returns or other documents (including
any related or supporting schedules, statements or information) filed
or required to be filed in connection with the determination,
assessment or collection of Taxes of any party or the administration
of any laws, regulations or administrative requirements relating to
any Taxes.
4.11 CONTRACTS AND COMMITMENTS.
(a) Except as specifically contemplated by this Agreement
and except as set forth in Schedule 4.11, the Company is not a party to or
bound by any of the following (whether written or oral):
(i) collective bargaining agreement or contract with any
labor union or any bonus, pension, profit sharing, retirement or any
other form of deferred compensation plan or any stock purchase, stock
option, hospitalization insurance or similar plan or practice, whether
formal or informal;
(ii) any contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis
or any severance agreements;
(iii) agreement or indenture relating to the borrowing of
money (including, without limitation, any letters of credit) or to
mortgaging, pledging or otherwise placing a Lien on any of its assets;
(iv) agreements with respect to the lending or investing
of funds;
(v) license or royalty agreements;
(vi) guaranty of any obligation, other than endorsements
made for collection;
16
<PAGE> 23
(vii) lease or agreement under which it is lessee of, or
holds or operates, any personal property owned by any other party
calling for payments in excess of $10,000 annually;
(viii) lease or agreement under which it is lessor of or
permits any third party to hold or operate any property, real or
personal, owned or controlled by it;
(ix) contract or group of related contracts with the same
party continuing over a period of more than six months from the date
or dates thereof, not terminable by it on 30 days or less notice
without penalties or involving more than $10,000;
(x) contract which prohibits it from freely engaging in
business anywhere in the world; or
(xi) other agreement not entered into in the Ordinary
Course of Business.
(b) Except as disclosed in Schedule 4.11, (i) no contract
or commitment required to be disclosed on Schedule 4.11 has been breached or
cancelled by the other party and the Company has no Knowledge of any
anticipated breach by any other party to any contract required to be set forth
on Schedule 4.11, (ii) no customer or supplier has indicated in writing or
orally to the Company or to any Seller that it shall stop or decrease the rate
of business done with the Company or that it desires to renegotiate its
contract or current arrangement with the Company, (iii) the Company has
performed all the obligations required to be performed by it in connection with
the contracts or commitments required to be disclosed on Schedule 4.11 and is
not in default under or in breach of any contract or commitment required to be
disclosed on the Schedule 4.11, and no event has occurred which with the
passage of time or the giving of notice or both would result in a default or
breach thereunder, (iv) the Company has no present expectation or intention of
not fully performing any obligation pursuant to any contract required to be set
forth on Schedule 4.11, and (v) each agreement required to be set forth on
Schedule 4.11 is legal, valid, binding, enforceable and in full force and
effect and will continue as such following the consummation of the transactions
contemplated hereby.
(c) Sellers have provided Buyer with a true and correct
copy of all written contracts which are required to be disclosed on Schedule
4.11, in each case together with all amendments, waivers or other changes
thereto (all of which are disclosed on Schedule 4.11). Schedule 4.11 contains
an accurate and complete description of all material terms of all oral
contracts referred to therein.
4.12 PROPRIETARY RIGHTS.
(a) "Proprietary Rights" means any and all patents,
patent applications, trademarks, service marks, trademark or service mark
applications and registrations, trade and corporate names, copyrights,
copyright applications and registrations, trade secrets, know-how, technology,
computer software and software systems, business and marketing plans, customer
and supplier lists, confidential information and all other proprietary
property, rights and interests.
17
<PAGE> 24
(b) Schedule 4.12 sets forth a complete and correct list
of: (i) all patented, registered or applied for Proprietary Rights owned or
used by the Company; (ii) all trade names, unregistered trademarks and material
unregistered copyrights owned or used by the Company; (iii) all licenses or
other agreements to which the Company is a party, either as licensee or
licensor, for the Proprietary Rights.
(c) Except as set forth in Schedule 4.12, (i) the Company
owns and possesses without restriction as to use, all right, title and interest
in and to the Proprietary Rights necessary for the operation of the Company's
business as currently conducted; (ii) the Company has not received any notices
of invalidity, infringement or misappropriation from any third party with
respect to any such Proprietary Rights; (iii) the Company has not interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Proprietary Rights of any third parties; and (iv) to the Company's Knowledge,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Proprietary Rights of the Company.
(d) The transactions contemplated by this Agreement shall
have no adverse effect on the Company's right, title and interest in and to any
of its Proprietary Rights. The Company has taken all necessary and desirable
actions to maintain and protect its Proprietary Rights and shall continue to
maintain and protect those rights prior to the Closing so as not to affect
adversely the validity or enforcement of such Proprietary Rights.
4.13 LITIGATION; PROCEEDINGS. Except as set forth in
Schedule 4.13, there are no actions, suits, proceedings, orders, judgments,
decrees or investigations pending or, to the Company's Knowledge, threatened
against or affecting the Company at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and to the Knowledge of
the Company there is no basis known for any of the foregoing. Except as set
forth in Schedule 4.13, the Company is not subject to any outstanding order,
judgment or decree issued by any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or any arbitrator.
4.14 BROKERAGE. Except as set forth in Schedule 4.14, there
are no claims for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Company.
4.15 GOVERNMENTAL LICENSES AND PERMITS. Schedule 4.15
contains a complete listing and summary description of all permits, licenses,
franchises, certificates, approvals and other authorizations of foreign,
federal, state and local governments or other similar rights (collectively, the
"Licenses") owned or possessed by the Company or used by the Company in the
conduct of its business. Except as indicated on Schedule 4.15, the Company
owns or possesses all right, title and interest in and to all Licenses which
are necessary to conduct its business as presently conducted and as proposed to
be conducted and shall use its reasonable efforts to maintain all such
Licenses. No loss or expiration of any License is pending or, to the Company's
Knowledge, threatened or reasonably foreseeable (including, without limitation,
as a result of the transactions contemplated hereby) other than expiration in
accordance with the terms thereof.
18
<PAGE> 25
4.16 EMPLOYEES. Except as set forth on Schedule 4.16, to the
Knowledge of the Company, no key executive employee and no group of employees
or independent contractors of the Company has any plans to terminate his, her
or its employment or relationship as an independent contractor with the
Company. Except as set forth on Schedule 4.16, the Company has complied with
all applicable laws relating to the employment of personnel and labor. The
Company is not a party to or bound by any collective bargaining agreement, nor
has the Company experienced any strikes, grievances, unfair labor practices
claims or other material employee or labor disputes. Except as set forth on
Schedule 4.16, the Company has not engaged in any unfair labor practice. The
Company has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Company.
4.17 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth on Schedule 4.17, with respect to
current or former employees of the Company, the Company does not maintain or
contribute to or have any actual or potential liability with respect to any (i)
deferred compensation or bonus or retirement plans or arrangements, (ii)
qualified or nonqualified defined contribution or defined benefit plans or
arrangements which are employee pension benefit plans (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA")), or
(iii) employee welfare benefit plans, (as defined in Section 3(1) of ERISA),
stock option or stock purchase plans, or material fringe benefit plans or
programs whether in writing or oral and whether or not terminated. The Company
has never contributed to any multiemployer pension plan (as defined in Section
3(37) of ERISA), and the Company has never maintained or contributed to any
defined benefit plan (as defined in Section 3(35) of ERISA). The Company does
not maintain or contribute to any employee welfare benefit plan which provides
health, accident or life insurance benefits to former employees, their spouses
or dependents, other than in accordance with Section 4980B of the Code
("COBRA").
(b) The employee welfare benefit plans (and related
trusts and insurance contracts) set forth on Schedule 4.17 comply in form and
in operation in all respects with the requirements of applicable laws and
regulations, including ERISA and the Code and the nondiscrimination rules
thereof.
(c) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with
respect to the employee pension benefit plans and employee welfare benefit
plans set forth on Schedule 4.17 have been properly and timely filed with the
appropriate government agency and distributed to participants as required. The
Company has complied with the requirements of COBRA.
(d) With respect to each employee welfare benefit plan
set forth on Schedule 4.17, (i) there have been no prohibited transactions as
defined in Section 406 of ERISA or Section 4975 of the Code, (ii) no fiduciary
(as defined in Section 3(21) of ERISA) has any liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of such plans, and (iii) no actions,
investigations, suits or claims with respect to the assets thereof (other than
routine claims for benefits) are pending or threatened, and
19
<PAGE> 26
the Company has no Knowledge of any facts which would give rise to or could
reasonably be expected to give rise to any such actions, suits or claims.
(e) With respect to each of the employee welfare benefit
plans listed on Schedule 4.17, Sellers have furnished to Buyer true and
complete copies of (i) the plan documents, summary plan descriptions and
summaries of material modifications and other material employee communications,
(ii) the Form 5500 Annual Report (including all schedules and other attachments
for the most recent three years), (iii) all related trust agreements, insurance
contracts or other funding agreements which implement such plans and (iv) all
contracts relating to each such plan, including, without limitation, service
provider agreements, insurance contracts, investment management agreements and
recordkeeping agreements.
4.18 INSURANCE. Schedule 4.18 lists and briefly describes
each insurance policy maintained by the Company with respect to its properties,
assets and business, together with a claims history for the past five years.
All of such insurance policies are in full force and effect, and the Company is
not in default with respect to its obligations under any such insurance
policies and the Company has not been denied insurance coverage. Except as set
forth on Schedule 4.18, the Company does not have any self-insurance or
co-insurance programs, and the reserves set forth on the Company's Latest
Balance Sheet are adequate to cover all anticipated liabilities with respect to
self-insurance or coinsurance programs.
4.19 OFFICERS AND DIRECTORS; BANK ACCOUNTS. Schedule 4.19
lists all officers and directors of the Company, and all bank accounts, safety
deposit boxes and lock boxes (designating each authorized signatory with
respect thereto) for the Company.
4.20 AFFILIATE TRANSACTIONS. Except as disclosed on Schedule
4.20, no officer, director, employee, stockholder, partner or Affiliate, as
applicable, of the Company or any individual related (whether by marriage,
adoption or otherwise) to any such individual or any entity in which any such
Person owns any beneficial interest (collectively, the "Insiders"), is a party
to any agreement, contract, commitment or transaction with the Company or which
is pertaining to the business of the Company or has any interest in any
property, real or personal or mixed, tangible or intangible, used in or
pertaining to the business of the Company. For purposes of this Agreement,
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities or otherwise.
4.21 COMPLIANCE WITH LAWS. Except as disclosed on Schedule
4.21, the Company and, as applicable, its officers, directors, partners, agents
and employees have complied with and are in compliance with all applicable
laws, regulations and ordinances of foreign, federal, state and local
governments and all agencies thereof which are applicable to the business,
business practices (including, but not limited to, the Company's marketing and
sales of its products and services) or any owned or leased properties of the
Company and to which the Company may be subject, and, except as disclosed on
Schedule 4.21, no claims have been filed against the Company alleging a
violation of any such laws or regulations, and the Company has not received
notice of any such violations.
20
<PAGE> 27
4.22 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
4.22:
(a) The Company has complied with and is currently in
compliance with all Environmental and Safety Requirements, and the Company has
not received any oral or written notice, report or information regarding any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or any corrective, investigatory or remedial obligations arising under
Environmental and Safety Requirements which relate to the Company or any of its
properties or facilities.
(b) Without limiting the generality of the foregoing, the
Company has obtained and complied with, and is currently in compliance with,
all permits, licenses and other authorizations that may be required pursuant to
any Environmental and Safety Requirements for the occupancy of its properties
or facilities or the operation of its business. A list of all such permits,
licenses and other authorizations which are material to the Company is set
forth on Schedule 4.22.
(c) Neither this Agreement or the other Transaction
Documents nor the consummation of the transactions contemplated hereby and
thereby contemplated hereby and thereby shall impose any obligations on the
Company for site investigation or cleanup, or notification to or consent of any
government agencies or third parties under any Environmental and Safety
Requirements (including, without limitation, any so called
"transaction-triggered" or "responsible property transfer" laws and
regulations).
(d) To the Company's Knowledge, none of the following
exists at any property or facility owned, occupied or operated by the Company:
(i) underground storage tanks or surface impoundments; (ii) asbestos-containing
material in any form or condition; or (iii) materials or equipment containing
polychlorinated biphenyls.
(e) The Company has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or Released any
substance (including, without limitation, any hazardous substance) or owned,
occupied or operated any facility or property, so as to give rise to
liabilities of the Company for response costs, natural resource damages or
attorneys fees pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any other
Environmental and Safety Requirements.
(f) Without limiting the generality of the foregoing, no
facts, events or conditions relating to the past or present properties,
facilities or operations of the Company shall prevent, hinder or limit
continued compliance with Environmental and Safety Requirements, give rise to
any corrective, investigatory or remedial obligations pursuant to Environmental
and Safety Requirements or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental and
Safety Requirements, including, without limitation, those liabilities relating
to onsite or offsite Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or natural resources
damage.
21
<PAGE> 28
(g) The Company has not, either expressly or by operation
of law, assumed or undertaken any liability or corrective investigatory or
remedial obligation of any other Person relating to any Environmental and
Safety Requirements.
(h) To the Company's Knowledge, no Environmental Lien has
attached to any property owned, leased or operated by the Company.
(i) For purposes of this Agreement, the following terms
shall have the following respective meanings:
(i) "Environmental and Safety Requirements" shall mean
all federal, state, local and foreign statutes, regulations,
ordinances and other provisions having the force or effect of law, all
judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health
and safety, worker health and safety and pollution or protection of
the environment (including, without limitation, all those relating to
the presence, use, production, generation, handling, transport,
treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, Release, threatened Release, control or cleanup
of any hazardous or otherwise regulated materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation).
(ii) "Release" shall have the meaning set forth in CERCLA.
(iii) "Environmental Lien" shall mean any Lien, whether
recorded or unrecorded, in favor of any governmental entity, relating
to any liability of the Company arising under any Environmental and
Safety Requirements.
4.23 DISCLOSURE. Neither this Agreement, the other
Transaction Documents, nor any of the schedules, attachments or Exhibits hereto
or thereto, contains any untrue statement of a material fact or omits a
material fact necessary to make each statement contained herein or therein, not
misleading; There is no fact which has not been disclosed to Buyer of which the
Company has Knowledge which has a Material Adverse Effect or could reasonably
be anticipated to have a Material Adverse Effect.
4.24 CLOSING DATE. All of the representations and warranties
concerning the Company or Sellers contained in this Article IV and elsewhere in
this Agreement and all information concerning the Company or Sellers delivered
in any schedule, attachment or Exhibit hereto or in any writing delivered to
Buyer are true and correct on the date of this Agreement and shall be true and
correct on the Closing Date, except to the extent that any Seller has advised
Buyer otherwise in writing prior to the Closing.
22
<PAGE> 29
ARTICLE V
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO SELLERS
As a material inducement to Buyer to enter into this
Agreement, each Seller severally represents and warrants to Buyer that:
5.1 AUTHORIZATION OF TRANSACTIONS. Such Seller has full
power, authority and legal capacity to enter into this Agreement and the other
documents contemplated hereby to which such Seller is a party and to perform
his obligations hereunder and thereunder. This Agreement and the other
documents contemplated hereby to which such Seller is a party have been duly
executed and delivered by such Seller and constitute the valid and binding
agreements of such Seller, enforceable in accordance with their respective
terms.
5.2 ABSENCE OF CONFLICTS. Neither the execution and the
delivery of this Agreement and the other documents contemplated hereby to which
such Seller is a party, nor the consummation of the transactions contemplated
hereby and thereby, shall (a) conflict with, result in a breach of any of the
provisions of, (b) constitute a default under, (c) result in the violation of,
(d) give any third party the right to terminate or to accelerate any obligation
under or (e) require any authorization, consent, approval, execution or other
action by or notice to any court or other governmental body, under the
provisions of any indenture, mortgage, lease, loan agreement or other agreement
or instrument by which such Seller is bound or affected, or any law, statute,
regulation, rule, judgment, order, decree or other restriction of any
government, governmental agency or court to which such Seller is subject. No
notice to, filing with or authorization, consent or approval of any government
or governmental agency by such Seller is necessary for the consummation of the
transactions contemplated by this Agreement and the other documents
contemplated hereby to which such Seller is a party. Neither the execution and
the delivery of this Agreement and the other documents contemplated hereby to
which such Seller is a party, nor the consummation of the transactions
contemplated hereby and thereby shall result in the creation of any Lien upon
the Acquired Stock owned by such Seller.
5.3 BROKERAGE. Except as set forth on Schedule 5.3, there
are no claims for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of such Seller.
5.4 SHARES. Such Seller holds of record and owns
beneficially the shares of Acquired Stock as indicated on Schedule 1.1, free
and clear of any Liens. Such Seller is not a party to any option, warrant,
right, contract, call, put or other agreement or commitment providing for the
disposition or acquisition of any capital stock of the Company (other than this
Agreement). Such Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any capital stock of
the Company.
5.5 INVESTMENT IN NOTES. Such Seller (a) understands that
the Notes have not been, and will not be, registered under the Securities Act
of 1933, as amended, or under any state
23
<PAGE> 30
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (b)
understands that the Notes are subject to certain restrictions on transfer set
forth in the Notes, (c) is acquiring the Notes solely for his or its own
account for investment purposes, and not with a view to the distribution
thereof, (d) is a sophisticated investor with knowledge and experience in
business and financial matters, (e) has received certain information concerning
Buyer and has had the opportunity to obtain additional information as desired
in order to evaluate the merits and the risks inherent in holding the Notes and
(f) is able to bear the economic risk and lack of liquidity inherent in holding
the Notes.
5.6 CLOSING DATE. All of the representations and warranties
concerning such Seller contained in this Article V and elsewhere in this
Agreement and all information concerning such Seller delivered in any schedule,
attachment or Exhibit hereto or in any writing delivered to Buyer are true and
correct on the date of this Agreement and shall be true and correct on the
Closing Date except to the extent that such Seller has advised Buyer otherwise
in writing prior to the Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to Sellers to enter into this
Agreement, Buyer hereby represents and warrants to Sellers that:
6.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and the other agreements contemplated hereby to which Buyer is a
party and perform its obligations hereunder and thereunder.
6.2 AUTHORIZATION OF TRANSACTIONS. The execution, delivery
and performance of this Agreement and the other agreements contemplated hereby
to which Buyer is a party have been duly and validly authorized by all
requisite corporate action on the part of Buyer, and no other corporate
proceedings on its part are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement constitutes, and each of the
other agreements contemplated hereby to which Buyer is a party shall when
executed constitute, a valid and binding obligation of Buyer, enforceable in
accordance with its terms.
6.3 NO VIOLATION. Buyer is not subject to or obligated under
its certificate of incorporation, its by-laws, any applicable law, or rule or
regulation of any governmental authority, or any agreement or instrument, or
any license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party.
6.4 GOVERNMENTAL AUTHORITIES AND CONSENTS. Buyer is not
required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of this Agreement
and the other agreements contemplated hereby to which Buyer is
24
<PAGE> 31
a party or the consummation of the transactions contemplated hereby or thereby.
No consent, approval or authorization of any governmental or regulatory
authority or any other party or person is required to be obtained by Buyer in
connection with its execution, delivery and performance of this Agreement and
the other agreements contemplated hereby to which Buyer is a party or the
transactions contemplated hereby or thereby.
6.5 LITIGATION. There are no actions, suits, proceedings or
orders pending or, to Buyer's knowledge, threatened against or affecting Buyer
at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which would adversely affect Buyer's performance under
this Agreement and the other agreements contemplated hereby to which Buyer is a
party or the consummation of the transactions contemplated hereby or thereby.
6.6 BROKERAGE. Except as set forth on Schedule 6.6, there
are no claims for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Buyer.
6.7 ABSENCE OF CERTAIN DEVELOPMENTS. Since January 31, 1996
Buyer has not suffered any material and adverse changes to its financial
condition.
6.8 RELIANCE ON REPRESENTATIONS AND WARRANTIES. Buyer has
not relied on any representations or warranties of Sellers or the Company other
than those representations and warranties contained herein and in the other
documents contemplated hereby.
6.9 CLOSING DATE. All of the representations and warranties
concerning Buyer contained in this Article VI and elsewhere in this Agreement
and all information concerning Buyer delivered in any schedule, attachment or
Exhibit hereto or in any writing delivered to Sellers are true and correct on
the date of this Agreement and shall be true and correct on the Closing Date,
except to the extent that Buyer has advised Sellers otherwise in writing prior
to the Closing.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of the Company and Buyer;
(b) by the Company or Buyer if there has been a material
misrepresentation or breach on the part of the other Party of the
representations, warranties or covenants set forth in this Agreement or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating Party's obligations to consummate the transactions
contemplated hereby unless
25
<PAGE> 32
such terminating Party's willful or knowing breach of this Agreement has caused
the condition to be unsatisfied; or
(c) by the Company or Buyer if the Closing has not
occurred on or prior to April 30, 1996; provided, however, that neither Buyer
nor the Company shall be entitled to terminate this Agreement pursuant to this
Section 7.1(c) if such Party's (including in the case of the Company, any
Seller's) willful or knowing breach of this Agreement has prevented the
consummation of the transactions contemplated hereby at or prior to such time.
7.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Sellers or Buyer as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability on the
part of any Party to any other Party under this Agreement, except that the
provisions of Sections 9.4 and 9.8 and Article X shall continue in full force
and effect and except that nothing herein shall relieve any Party from
liability for any breach of this Agreement prior to such termination.
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
8.1 SURVIVAL. All representations, warranties, covenants and
agreements set forth in this Agreement or in any writing or certificate
delivered in connection with this Agreement shall survive the Closing Date and
the consummation of the transactions contemplated hereby and shall not be
affected by any examination made for or on behalf of Buyer or Sellers, the
knowledge of any of their respective officers, directors, stockholders,
employees or agents, or the acceptance of any certificate or opinion.
Notwithstanding the foregoing, no Party shall be entitled to recover for any
Loss (as defined in Section 8.2) pursuant to Section 8.2(a)(i) or Section
8.2(c) unless written notice of a claim thereof is delivered to the other Party
prior to the Applicable Limitation Date. For purposes of this Agreement, the
term "Applicable Limitation Date" shall mean the third anniversary of the
Closing Date; provided that the Applicable Limitation Date with respect to the
following Losses shall be as follows: (i) with respect to any Loss arising from
or related to a breach of the representations and warranties of the Company and
Sellers set forth in Section 4.10 (Taxes), the Applicable Limitation Date shall
be the 30th day after expiration of the statute of limitations (including any
extensions thereto to the extent that such statute of limitations may be
tolled) applicable to the Tax which gave rise to such Loss, (ii) with respect
to any Loss arising from or related to a breach of the representations and
warranties of the Company and Sellers set forth in Section 4.22
(Environmental), the Applicable Limitation Date shall be the fifth anniversary
of the Closing Date, (iii) with respect to any Loss arising from or related to
a breach of the representations and warranties contained in Section 4.24
(Closing Date) and Section 5.6 (Closing Date) where the subject matter of such
breach is addressed by one of the representations and warranties referred to in
clauses (i), (ii), or (iv) of this Section 8.1, the time limitation set forth
in the relevant item of this clause (iii) shall control when written notice of
such breach must be given, and (iv) with respect to any Loss arising from or
related to a breach of the representations and warranties of the Company and
Sellers set forth in Section 4.1 (Organization and Corporate Power), Section
4.2 (Authorization
26
<PAGE> 33
of Transactions), Section 4.3 (Capitalization), Section 4.5 (Absence of
Conflicts), Section 4.14 (Brokerage) or Article V (Representations and
Warranties with Respect to Sellers) and with respect to any Loss arising from
or related to a breach of the representations and warranties of Buyer set forth
in Section 6.1 (Organization and Corporate Power), 6.2 (Authorization of
Transactions), 6.3 (No Violation) or 6.6 (Brokerage), there shall be no
Applicable Limitation Date (i.e., such representations and warranties shall
survive forever).
8.2 INDEMNIFICATION.
(a) Each Seller shall jointly and severally indemnify
Buyer, and the Company and each of their respective officers, directors,
stockholders, employees, agents, representatives, affiliates, successors and
assigns (collectively, the "Buyer Parties") and hold each of them harmless from
and against and pay on behalf of or reimburse such Buyer Parties in respect of
any loss, liability, cost, damage, or expense, whether or not arising out of
third party claims (including, without limitation, interest, penalties, and
reasonable attorneys' fees) (collectively, "Losses" and individually, a
"Loss") which any such Buyer Party suffers, sustains or becomes subject to, as
a result of or relating to:
(i) the breach of any representation or warranty (other
than representations or warranties set forth in Article V) made by the
Company or any Seller contained in this Agreement, the other
Transaction Documents, any Exhibit hereto or any certificate delivered
by the Company or any Seller to Buyer with respect thereto in
connection with the Closing;
(ii) the breach of any representation or warranty made by
such Seller contained in Article V of this Agreement or any
certificate delivered by such Seller to Buyer with respect thereto in
connection with the Closing; or
(iii) the breach of any covenant or agreement made by the
Company or any Seller contained in this Agreement, the other
Transaction Documents, any Exhibit hereto or any certificate delivered
by the Company or any Seller to Buyer with respect thereto in
connection with the Closing.
Buyer's remedy for any indemnification of Losses hereunder may be satisfied by
proceeding against one or more Sellers individually for all or any portion of
any such Loss; provided that no Seller shall be liable hereunder for Losses in
excess of such Seller's pro rata portion of the Cap (as defined in Section
8.2(b)(ii)) based on such Seller's proportionate ownership of the Acquired
Stock as set forth on Schedule 1.1. Notwithstanding the foregoing, if any such
Loss arises from a breach of such Seller's representation or warranty contained
in Article V or in Section 9.11, Buyer shall proceed solely against such
breaching Seller for the entire amount of such Loss. In addition, in each case
Buyer shall have the option of recouping all or any part of any Losses it
suffers (in lieu of seeking an equivalent amount of indemnification to which it
is entitled under this Section 8.2) by notifying any Seller that Buyer is
reducing the principal amount outstanding under his Note, but no such reduction
shall exceed such Seller's pro rata portion of the Cap. This shall affect the
timing and amount of payments required under such Note in the same manner as if
Buyer had made a prepayment thereunder; provided, however, that in the event
Sellers reasonably and in good faith
27
<PAGE> 34
dispute the amount of any such Loss, the principal amount outstanding under
such Seller's Note shall not be reduced until such dispute has been resolved.
(b) The indemnification provided for in Section 8.2(a)(i)
is subject to the following limitations:
(i) Sellers will be liable to the Buyer Parties with
respect to claims referred to in subsection (a)(i) above only if Buyer
gives Sellers written notice thereof within the Applicable Limitation
Date; and
(ii) Sellers shall not be liable to Buyer Parties for any
Loss arising under subsection (a)(i) above unless and until the
aggregate amount of all such Losses exceeds $100,000 in the aggregate
(the "Basket"), in which case Sellers shall be liable for the full
amount of such Losses in excess of the Basket up to an amount which
shall not exceed the Purchase Price (the "Cap"); provided that the
Basket shall not apply with respect to any Loss arising from or
related to a breach of the representations and warranties of the
Company or Seller set forth in Section 4.1 (Organization and Corporate
Power), Section 4.2 (Authorization of Transaction), Section 4.3
(Capitalization), Section 4.5 (Absence of Conflicts), Section 4.10
(Taxes), Section 4.14 (Brokerage) or Article V (Representations and
Warranties with Respect to Sellers).
Notwithstanding any implication to the contrary contained in this Agreement, so
long as Buyer is required to deliver notice of a claim to Sellers and delivers
written notice of such claim to Sellers no later than the Applicable Limitation
Date, Sellers shall be required to indemnify Buyer Parties for all Losses which
Buyer Parties may incur (subject to the Basket) in respect of the matters which
are the subject of such claim, regardless of when incurred.
(c) Subject to the limitations set forth in the following
sentence, Buyer shall indemnify Sellers and hold each Seller and its officers,
directors, stockholders (other than Sellers), employees, agents,
representatives, affiliates, successors and permitted assigns (collectively,
the "Seller Parties") harmless from and against and pay on behalf of or
reimburse such Sellers in respect of any Loss which any Seller Parties suffer,
sustain or become subject to, as a result of or relating to the breach by Buyer
of any representation or warranty, covenant or agreement made by Buyer
contained in this Agreement, any other Transaction Document or any certificate
delivered by Buyer to Sellers with respect thereto in connection with the
Closing. Notwithstanding the foregoing, in no event shall Buyer be liable to
Sellers by reason of application of this Section 8.2(c) for any Loss unless and
until the aggregate amount of such Losses thereunder exceeds $100,000 in the
aggregate (the "Sellers' Basket"), in which case Buyer shall be liable for the
full amount of such Losses in excess of the Sellers' Basket up to an amount
which shall not exceed the Cap; provided that the Sellers' Basket shall not
apply with respect to any Loss arising from or related to a breach of the
representations and warranties of Buyer set forth in Section 6.1 (Organization
and Corporate Power), 6.2 (Authorization of Transactions), 6.3 (No Violation)
or 6.6 (Brokerage) or a breach of any covenant or agreement made by Buyer
contained in this Agreement, any other Transaction Document or any certificate
delivered by Buyer to Sellers with respect thereto in connection with the
Closing.
28
<PAGE> 35
(d) If a party hereto seeks indemnification under this
Article VIII, such party (the "Indemnified Party") shall give written notice to
the other party (the "Indemnifying Party") after receiving written notice of
any action, lawsuit, proceeding, investigation or other claim against it (if by
a third party) or discovering the liability, obligation or facts giving rise to
such claim for indemnification, describing the claim, the amount thereof (if
known and quantifiable), and the basis thereof; provided that the failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of its
or his obligations hereunder except to the extent such failure shall have
prejudiced the Indemnifying Party. In that regard, if any action, lawsuit,
proceeding, investigation or other claim shall be brought or asserted by any
third party which, if adversely determined, would entitle the Indemnified Party
to indemnity pursuant to Article VIII, the Indemnified Party shall promptly
notify the Indemnifying Party of the same in writing, specifying in detail the
basis of such claim and the facts pertaining thereto and the Indemnifying Party
shall be entitled to participate in the defense of such action, lawsuit,
proceeding, investigation or other claim giving rise to the Indemnified Party's
claim for indemnification at its expense, and at its option (subject to the
limitations set forth below) shall be entitled to appoint lead counsel of such
defense with reputable counsel reasonably acceptable to the Indemnified Party;
provided that, as a condition precedent to the Indemnifying Party's right to
assume control of such defense, it must first: (i) enter into an agreement with
the Indemnified Party (in form and substance reasonably satisfactory to the
Indemnified Party) pursuant to which the Indemnifying Party agrees to be fully
responsible for all Losses relating to such claims and that it will provide
full indemnification to the Indemnified Party for all Losses relating to such
claim; (ii) unconditionally guarantee the payment and performance of any
liability or obligation which may arise with respect to such claim or the facts
giving rise to such claim for indemnification; and (iii) furnish the
Indemnified Party with reasonable evidence that the Indemnifying Party is and
will be able to satisfy any such liability; and provided further that the
Indemnifying Party shall not have the right to assume control of such defense
and shall pay the fees and expenses of counsel retained by the Indemnified
Party, if the claim over which the Indemnifying Party seeks to assume control
(i) seeks non-monetary relief, (ii) involves criminal or quasi-criminal
allegations, (iii) involves a claim to which the Indemnified Party reasonably
believes an adverse determination would be detrimental to or injure the
Indemnified Party's reputation or future business prospects, or (iv) involves a
claim which, upon petition by the Indemnified Party, the appropriate court
rules that the Indemnifying Party failed or is failing to vigorously prosecute
or defend. If the Indemnifying Party is permitted to assume and control the
defense and elects to do so, the Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnifying Party in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel employed by the Indemnified Party shall be at the
expense of the Indemnified Party unless (i) the employment thereof has been
specifically authorized by the Indemnifying Party in writing, or (ii) the
Indemnifying Party has been advised by counsel that a reasonable likelihood
exists of a conflict of interest between the Indemnifying Party and the
Indemnified Party. If the Indemnifying Party shall control the defense of any
such claim, the Indemnifying Party shall obtain the prior written consent of
the Indemnified Party (which shall not be unreasonably withheld) before
entering into any settlement of a claim or ceasing to defend such claim, if
pursuant to or as a result of such settlement or cessation, injunctive or other
equitable relief will be imposed against the Indemnified Party or if such
settlement does not expressly and unconditionally release the Indemnified Party
from all liabilities and obligations with respect to such claim, without
prejudice.
29
<PAGE> 36
(e) The Indemnifying Party shall pay the Indemnified
Party in immediately available funds promptly after the Indemnified Party
provides the Indemnifying Party with written notice of a claim hereunder and
the Parties reasonably agree that there is a reasonable basis for such claim;
provided that if the Indemnifying Party reasonably and in good faith disputes
the amount of such claim, the Indemnifying Party shall only pay the undisputed
portion of such amount until such dispute has been resolved.
(f) Amounts paid to or on behalf of Sellers or Buyer as
indemnification shall be treated as adjustments to the Purchase Price.
(g) Effective upon the Closing, each Seller hereby
irrevocably waives, releases and discharges the Company from any and all
liabilities and obligations to such Seller of any kind or nature whatsoever,
whether in his capacity as Seller hereunder, as a stockholder, officer or
director of the Company or otherwise (including, without limitation, in respect
of rights of contribution or indemnification other than compensation as an
employee of the Company), in each case whether absolute or contingent,
liquidated or unliquidated, and whether arising hereunder or under any other
agreement or understanding or otherwise at law or equity, and each Seller shall
not seek to recover any amounts in connection therewith or thereunder from the
Company.
8.3 ARBITRATION PROCEDURE.
(a) The parties agree that they will attempt to settle
any claim or controversy arising out of this Agreement (including any claim or
controversy arising out of Article VIII) through good faith negotiations in the
spirit of mutual cooperation between senior business executives with authority
to resolve the controversy.
(b) Any dispute that cannot be resolved by the parties
through good faith negotiations will, then, upon the written request of either
party, be resolved by binding arbitration conducted in accordance with the
Rules of the CPR Institute for Dispute Resolution by a sole arbitrator who is a
former judge or other mutually agreed-upon individual. To the extent not
governed by such rules, such arbitrator shall be directed by the parties to set
a schedule for determination of such dispute that is reasonable under the
circumstances. Such arbitrator shall be directed by the parties to determine
the dispute in accordance with this Agreement and the substantive rules of law
(but not the rules of procedure or evidence) that would be applied by a federal
court. The arbitration will be conducted in the English language in the State
of Indiana. The arbitration will be governed by the United States Arbitration
Act, 9 U.S.C. Section Section 1-16 and the Patent Arbitration Act, 35 U.S.C.
Section 294. Judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction.
(c) Nothing contained in this Section 8.3 shall prevent
either party from resorting to judicial process if injunctive relief from a
court is necessary to prevent serious and irreparable injury to such party or
to others. The use of arbitration procedures will not be construed under the
doctrine of laches, waiver or estoppel to affect adversely either party's right
to assert any claim or defense.
30
<PAGE> 37
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 NOTES. Each Note will be imprinted with a legend
substantially in the following form:
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN ADJUSTMENT AND SET-OFF PROVISIONS SET FORTH IN A STOCK
PURCHASE AGREEMENT DATED AS OF APRIL 24, 1996 (THE "PURCHASE
AGREEMENT") AMONG THE ISSUER OF THIS NOTE (THE "COMPANY"), THE PERSON
TO WHOM THIS NOTE ORIGINALLY WAS ISSUED, AND CERTAIN OTHER PERSONS.
THIS NOTE WAS ORIGINALLY ISSUED ON APRIL 24, 1996, AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
COMPARABLE STATE SECURITIES LAW. THE TRANSFER OF THIS NOTE IS SUBJECT
TO CERTAIN RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT, AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. THE COMPANY WILL FURNISH A COPY OF THESE PROVISIONS TO THE
HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
The Notes shall not be transferable without Buyer's consent; provided that the
Notes may be transferred to a Seller's spouse or direct descendants or to a
trust for the benefit of such Seller, such Seller's spouse and/or such Seller's
direct descendants without Buyer's consent. The Notes are to be secured by
letters of credit issued by NationsBank Tennessee, or a comparable institution,
each dated the date of the Note it secures.
9.2 CONTINUING ASSISTANCE. Subsequent to the Closing, each
Seller and Buyer (at its own cost) shall assist each other (including making
records available) in the preparation of their respective Tax Returns and the
filing and execution of tax elections, if required, as well as any audits or
litigation that ensue as a result of the filing thereof, to the extent that
such assistance is reasonably requested.
9.3 TAX MATTERS. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest thereon) incurred in connection with this Agreement shall be paid by
Sellers when due, and each Seller shall, at his own expense, file all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and if
required by applicable law, Buyer shall, and shall cause its affiliates to,
join in the execution of any such Tax Returns and other documentation.
9.4 PRESS RELEASES AND ANNOUNCEMENTS. Prior to the Closing
Date, no press releases related to this Agreement and the transactions
contemplated herein, or other announcements to the employees, customers or
suppliers of the Company shall be issued without the mutual
31
<PAGE> 38
approval of all Parties, except for any public disclosure which any Party in
good faith believes is required by law or regulation (in which case the
disclosure shall be prepared jointly by Sellers and Buyer). After the Closing
Date, no press releases related to this Agreement and the transactions
contemplated herein, or other announcements to the employees, customers or
suppliers of the Company shall be issued without Buyer's consent (which shall
not be unreasonably withheld).
9.5 FURTHER TRANSFERS. Each Seller shall execute and deliver
such further instruments of conveyance and transfer and take such additional
action as Buyer may reasonably request to effect, consummate, confirm or
evidence the transfer to Buyer of the Acquired Stock and any other transactions
contemplated hereby.
9.6 SPECIFIC PERFORMANCE. Each Seller acknowledges
that the Company's business is unique and recognizes and affirms that in the
event of a breach of this Agreement by such Seller, money damages may be
inadequate and Buyer may have no adequate remedy at law. Accordingly, each
Seller agrees that Buyer shall have the right, in addition to any other rights
and remedies existing in its favor, to enforce its rights and such Seller's
obligations hereunder not only by an action or actions for damages but also by
an action or actions for specific performance, injunctive and/or other
equitable relief.
9.7 TRANSITION ASSISTANCE. Each Seller shall not in any
manner take any action which is designed, intended, or might be reasonably
anticipated to have the effect of discouraging customers, suppliers, lessors,
licensors and other business associates from maintaining the same business
relationships with the Company after the date of this Agreement as were
maintained with the Company prior to the date of this Agreement.
9.8 EXPENSES. Except as otherwise provided herein, each
Seller and Buyer shall pay all of their own fees, costs and expenses
(including, without limitation, fees, costs and expenses of legal counsel,
investment bankers, brokers or other representatives and consultants and
appraisal fees, costs and expenses) incurred in connection with the negotiation
of this Agreement and the other agreements contemplated hereby, the performance
of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby (collectively, the "Transaction
Expenses"); it being understood that (i) Sellers shall pay all of the Company's
fees, costs and expenses (including, without limitation, legal and accounting
fees, costs and expenses) arising in connection with the transactions
contemplated hereby if such transactions are consummated, and (ii) the Company
shall pay all of Sellers' fees, costs and expenses (including, without
limitation, legal and accounting fees, costs and expenses) arising in
connection with the transactions contemplated hereby if the transactions are
not consummated. At the request of Sellers, the fees, costs and expenses for
which they are liable pursuant to this Section 9.8 may be deducted from the
Cash Purchase Price and paid directly by Buyer to Sellers' legal counsel,
investment bankers and other agents and representatives at Closing. To the
extent that the Company pays or becomes liable with respect to any Transaction
Expenses of the Company or Sellers, the Cash Purchase Price shall be reduced
dollar-for-dollar.
9.9 EXCLUSIVITY. Until this Agreement is terminated by its
terms, neither the Company nor Sellers shall (and neither the Company nor
Sellers shall cause or permit any Insider
32
<PAGE> 39
or agent or any other Person acting on behalf of any Seller, the Company or its
Affiliates to), (a) solicit, initiate or encourage the submission of any
proposal or offer from any Person (including any of them) relating to any (i)
liquidation, dissolution or recapitalization of, (ii) merger or consolidation
with or into, (iii) acquisition or purchase of assets of or any equity interest
in or (iv) similar transaction or business combination involving the Company or
(b) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any other Person to do or seek any of the
foregoing. Each of the Company and Seller agrees that it will discontinue
immediately any negotiations or discussion with respect to any of the
foregoing. Until this Agreement is terminated by its terms, Sellers and the
Company shall notify Buyer immediately if any Person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing.
9.10 BOOKS AND RECORDS. Unless otherwise consented to in
writing by Sellers or Buyer (as the case may be), Buyer, the Company and each
Seller will not, for a period of seven years following the date hereof,
destroy, alter or otherwise dispose of any of the books and records of the
Company acquired by Buyer hereunder or retained by any Seller without first
offering to surrender to Sellers or Buyer, as applicable, such books and
records or any portion thereof. Buyer and each Seller will allow the other
party's representatives, attorneys and accountants access to such books and
records, upon reasonable request during such party's normal business hours, for
the purpose of examining and copying the same in connection with any matter
whether or not related to or arising out of this Agreement or the transactions
contemplated hereby.
9.11 NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY.
(a) Non-Competition. In consideration of the mutual
covenants provided for herein to Sellers at the Closing, during the period
beginning on the Closing Date and ending on the fourth anniversary of the
Closing Date (the "Non-Compete Period"), none of Sellers or CSG shall engage
(whether as an owner, operator, manager, employee, officer, director,
consultant, advisor, representative or otherwise) directly or indirectly in any
business that the Company conducts as of the Closing Date in any geographic
area in which the Company conducts its business as of the Closing Date, except
as expressly permitted under the Consulting Agreements; provided that ownership
of less than 5% of the outstanding stock of any publicly-traded corporation
shall not be deemed to be engaging solely by reason thereof in any of its
businesses. CSG and each Seller acknowledge that the business that the Company
currently conducts includes, without limitation, the manufacture and assembly
of cork stops (other than wine stoppers), cork wall coverings (other than
wallpaper), composition cork (rolls and sheets), and wood and plastic framed
cork boards, dry erase boards and chalk boards. The parties hereto and CSG
agree that the covenant set forth in this Section 9.11 is reasonable with
respect to its duration, geographical area and scope. If the final judgment of
a court of competent jurisdiction declares that any term or provision of this
Section 9.11(a) is invalid or unenforceable, the Parties and CSG agree that the
court making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
33
<PAGE> 40
(b) Non-Solicitation. CSG and each Seller agree that,
during the Non-Compete Period, such Seller or CSG (i) shall not, and shall not
permit such Seller's or CSG's affiliates to, directly or indirectly contact,
approach or solicit for the purpose of offering employment to or hiring
(whether as an employee, consultant, agent, independent contractor or
otherwise) or actually hire any person employed by the Company at any time
prior to the Closing Date or during the Non-Compete Period (other than (w)
Sellers and CSG, (x) banks and investment bankers engaged by the Company, (y)
employees of the Company whose employment with the Company has been
involuntarily terminated by the Company and (z) employees, consultants and
independent contractors of the Company whose employments with the Company has
been terminated in connection with the relocation of the Company to Greenwood,
Mississippi), without the prior written consent of the Company and (ii) shall
not induce or attempt to induce any customer or other business relation of the
Company into any business relationship which might materially harm the Company.
The term "indirectly" as used in this Section 9.11 is intended to mean any acts
authorized or directed by or on behalf of any Seller or CSG or any person
controlled by such Seller or CSG.
(c) Confidentiality. CSG and each Seller for himself
severally shall treat and hold as confidential any information concerning the
business and affairs of the Company that is not already generally available to
the public (the "Confidential Information"), refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to Buyer or destroy, at the request and option of Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in his
possession or under his control. In the event that any Seller or CSG is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand,
or similar process) to disclose any Confidential Information, such Seller or
CSG shall notify Buyer promptly of the request or requirement so that Buyer may
seek an appropriate protective order or waive compliance with the provisions of
this Section 9.11(c). If, in the absence of a protective order or the receipt
of a waiver hereunder, any Seller or CSG is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else
stand liable for contempt, such Seller or CSG may disclose the Confidential
Information to the tribunal; provided that such disclosing Seller or CSG shall
use best efforts to obtain an order or other assurance that confidential
treatment shall be accorded to such Confidential Information required to be
disclosed.
(d) Trade Names. No Seller or CSG shall use or permit
any of his affiliates to use the "Universal Cork" name or any name confusingly
similar thereto in any manner anywhere in the world after Closing.
(e) Remedy for Breach. CSG and each Seller for himself
severally acknowledge and agree that in the event of a breach by any Seller or
CSG of any of the provisions of this Section 9.11, monetary damages shall not
constitute a sufficient remedy. Consequently, in the event of any such breach,
the Company, Buyer and/or their respective successors or assigns may, in
addition to other rights and remedies existing in their favor, apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof, in each case without the requirement of posting a
bond or proving actual damages.
ARTICLE X
34
<PAGE> 41
MISCELLANEOUS
10.1 AMENDMENT AND WAIVER. This Agreement may be amended and
any provision of this Agreement may be waived, provided that any such amendment
or waiver shall be binding upon the Parties only if such amendment or waiver is
set forth in a writing executed by Buyer and Sellers. No course of dealing
between or among any persons having any interest in this Agreement shall be
deemed effective to modify, amend or discharge any part of this Agreement or
any rights or obligations of any Party under or by reason of this Agreement.
10.2 NOTICES. All notices, demands and other communications
given or delivered under this Agreement shall be in writing and shall be deemed
to have been given when personally delivered, mailed by first class mail,
return receipt requested, or delivered by express courier service or telecopied
(with hard copy to follow). Notices, demands and communications to each Seller
shall, unless another address is specified in writing, be sent to the address
or telecopy number indicated on the signature page attached hereto, and
notices, demands and communications to the Company and Buyer shall, unless
another address is specified in writing, be sent to the address or telecopy
number indicated below:
Notices to the Company:
Universal Cork, Inc.
14508 South Industrial Avenue
Maple Heights, OH 44137
Attention: G. Harold Goodwin
Telecopy: (800) 344-4610
with a copy to:
Walter & Haverfield
1300 Terminal Tower
50 Public Square
Cleveland, OH 44113
Attention: Peter D. Brosse
Telecopy: (216) 575-0911
Notices to Buyer:
NPF Company
1500 Commerce Street
Greenwood, MS 38930
Attention: M. Wesley Jordan, Jr.
Telecopy: (601) 455-7588
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
35
<PAGE> 42
Attention: Kevin R. Evanich
Sanford E. Perl
Telecopy: (312) 861-2200
10.3 BINDING AGREEMENT; ASSIGNMENT.
(a) This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Parties and their respective
successors and permitted assigns; provided that neither this Agreement nor any
of the rights, interests or obligations hereunder may be assigned by any Seller
without the prior written consent of Buyer or by Buyer (except as otherwise
provided in this Agreement) without the prior written consent of each Seller;
provided that:
(i) Buyer may at any time prior to the Closing, at its
sole discretion, assign, in whole or in part, its rights and
obligations pursuant to this Agreement to one or more of its
affiliates;
(ii) Buyer may assign its rights under this Agreement for
collateral security purposes to any lender providing financing to
Buyer, the Company or any of their Affiliates and any such lender may
exercise all of the rights and remedies of Buyer hereunder; and
(iii) Buyer may assign its rights under this Agreement, in
whole or in part, to any subsequent purchaser of the Company or any
material portion of its assets (whether such sale is structured as a
sale of stock, a sale of assets, a merger or otherwise).
10.4 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.
10.5 RULES OF CONSTRUCTION.
(a) The language used in this Agreement shall be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any person.
(b) To the extent that an item is disclosed in a
particular schedule or a subsection of a particular schedule and such item is
readily apparent on its face as being applicable to another schedule or another
subsection of the same schedule, such item shall be deemed incorporated by
reference in such other schedule or such other subsection of the same schedule.
10.6 CAPTIONS. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement
and shall not be deemed to limit, characterize or in any way affect any
provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
10.7 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein contain the entire agreement between the Parties and
supersede any prior understandings,
36
<PAGE> 43
agreements or representations by or between the Parties, written or oral, which
may have related to the subject matter hereof in any way.
10.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
10.9 GOVERNING LAW. All questions concerning the
construction, validity and interpretation of this Agreement shall be governed
by and construed in accordance with the domestic laws of the State of
Mississippi, without giving effect to any choice of law or conflict of law
provision (whether of the State of Mississippi or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of Mississippi.
10.10 PARTIES IN INTEREST. Nothing in this Agreement,
express or implied, is intended to confer on any person other than the Parties
and their respective successors, assigns, heirs and personal representatives
any rights or remedies under or by virtue of this Agreement.
* * * *
37
<PAGE> 44
IN WITNESS WHEREOF, the Parties have executed this Stock
Purchase Agreement as of the date first written above.
NPF COMPANY
By:
--------------------------------
Its:
--------------------------------
UNIVERSAL CORK, INC.
By:
--------------------------------
Its:
--------------------------------
-----------------------------------
Gordon Goodwin
P.O. Box 1608
Boca Raton, FL 33429
-----------------------------------
G. Harold Goodwin
14508 South Industrial Avenue
Maple Heights, OH 44137
Telecopy: (800) 344-4610
For Purposes of Section 9.11 only:
- - ---------------------------------
Cynthia S. Goodwin
14508 South Industrial Avenue
Maple Heights, OH 44137
Telecopy: (800) 344-4610
38
<PAGE> 45
In accordance with Item 601(b)(2) of Regulation S-K, the Company will
furnish the Exhibits and Schedules identified on page (iv) of the Stock
Purchase Agreement available to the SEC upon request.
39
<PAGE> 1
EXHIBIT 10.9
NATIONAL PICTURE & FRAME COMPANY
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of the National Picture & Frame
Company's Non- Employee Directors' Stock Option Plan (the "Plan") is to advance
the interests of National Picture & Frame Company (the "Company") and its
stockholders by enabling members of the Board of Directors of the Company (the
"Board") who are not employees of the Company or any of its Subsidiaries to
elect to receive payment of fees for their services as directors in the form of
options to acquire Common Stock of the Company, $.01 par value per share
("Common Stock"), thus encouraging stock ownership in the Company by its
non-employee directors.
2. Administration. The Plan shall be administered by
the Compensation Committee of the Board (the "Committee"). The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions arising thereunder and to adopt and amend such rules
and regulations for the administration of the Plan as it may deem desirable.
Any decisions of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive. The Committee may authorize any one or
more of its members or the secretary of the Committee or any officer of the
Company to execute and deliver documents on behalf of the Committee. No member
of the Committee shall be liable for anything done or omitted to be done by him
or her or by any other member of the Committee in connection with the Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
3. Participation. Each member of the Board who is not a
regular employee of the Company or any of its Subsidiaries (a "Non-Employee
Director") shall be eligible to participate in the Plan. As used herein, the
term "Subsidiary" means any partnership, corporation, association, limited
liability company, joint stock company, trust, joint venture, unincorporated
organization or other business entity of which (i) if a corporation, a majority
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by the Company or one or more of the other Subsidiaries of the Company or a
combination thereof, or (ii) if a partnership, association, limited liability
company, joint stock company, trust, joint venture, unincorporated organization
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by the Company or one or more Subsidiaries of the Company or a
combination thereof. For purposes hereof, the Company or a Subsidiary shall be
deemed to have a majority ownership interest in a partnership, association,
limited liability company, joint stock company, trust, joint venture,
unincorporated organization or other business entity if the Company or such
Subsidiary shall be allocated a majority
- 1 -
<PAGE> 2
of partnership, association, limited liability company, joint stock company,
trust, joint venture, unincorporated organization or other business entity
gains or losses or shall be or control the managing director, the trustee, a
manager or a general partner of such partnership, association, limited
liability company, joint stock company, trust, joint venture, unincorporated
organization or other business entity.
4. Election to Receive Options to Purchase Common Stock
in Lieu of Cash Compensation.
(a) A Non-Employee Director may elect to reduce all (but
not less than all) of the cash compensation otherwise payable for services to
be rendered by him or her as a director (including the annual retainer fee and
any fees payable for services on the Board or any committee thereof, but
excluding any reimbursement for out-of-pocket expenses) and to receive in lieu
thereof options to purchase shares of Common Stock as provided in this Section
4.
(b) Each year, at least six months prior to the Company's
next scheduled annual meeting of stockholders (or, for Non-Employee Directors
whose Initial Election Date shall fall within the period of six months prior to
the next scheduled annual meeting, on said Initial Election Date), each
non-employee member of the Board may, subject to any subsequent approval by the
stockholders of the Company required by Rule 16b-3 promulgated under Section
16(b) of the Securities Exchange Act of 1934, make an irrevocable election to
receive, in lieu of all (but not less than all) cash compensation to which such
member would otherwise be entitled as a member of the Board and any committee
thereof (other than reimbursement for expenses) for the period from the next
scheduled annual meeting of stockholders to the day prior to the following
annual meeting of stockholders, an option granted in accordance with the
formula set forth below, provided, however, that a Non-Employee Director may
make his or her first election on, or at any time prior to, his or her Initial
Election Date. Subject to adjustment pursuant to Section 5, an election made
hereunder shall be effective, beginning on the Initial Election Date or the
annual meeting dates following subsequent elections, for the grant of such
number of Deferral Election Stock Options as it is determined by the Committee
to constitute an amount of options equivalent to the cash compensation elected
to be foregone. In making such determination of equivalency, the Committee
shall rely upon the option of an independent valuation expert of recognized
standing.
Each such election shall be evidenced by execution of an
Agreement substantially in the form of Exhibit A, which is attached hereto and
is hereby incorporated by reference, with such changes as the Board shall from
time to time approve (each, an "Election Agreement"), subject to the
limitations set forth in this Section 4, and shall be delivered to the
Secretary of the Company. The date of grant of any such Deferral Election
Stock Option shall be such be such non-employee member's Initial Election Date
or the annual meeting date following a subsequent election, as the case may be.
The Company shall effect the granting of Deferral Election Stock Options by its
execution of the respective Election Agreement.
- 2 -
<PAGE> 3
(c) The term "Deferral Election Stock Option" shall mean
and refer to any option issued to a Non-Employee Director pursuant to the
election of such person to receive such option in lieu of cash made in
accordance with Section 4(b). The term "Initial Election Date" shall mean,
for each member of the Board, the later to occur of (i) the date this Plan is
adopted by the Board, or (ii) the date of such member's initial election or
appointment to the Board.
(d) The Option Price per share of all Deferral Election
Stock Options granted hereunder (the "Option Price") shall be the closing sale
price (or if no closing sale price is reported, the closing bid price) for the
Common Stock on the Nasdaq National Market (or, if the principal trading market
for the Common Stock is a national securities exchange, on such securities
exchange) on the most recent trading day preceding the date of the next
scheduled annual meeting of stockholders. In the event that the Common Stock
is not admitted to trading on the Nasdaq National Market or on a national
securities exchange, the Option Price shall be the per share fair market value
of the Common Stock on the date the option is granted, as determined by the
Committee on the basis of such factors as it deems appropriate.
(e) Subject to acceleration as provided below, one year
after the date of grant, or such greater number of years as the Committee shall
determine, a Deferral Election Stock Option shall become exercisable for all
shares of Common Stock covered thereby. If the tenure Director of any
Non-Employee Director as a member of the Board ends during the one-year period
for which cash compensation has been foregone, however, such Non-Employee
Director's rights in such option shall be as follows:
(i) Upon the death or Disability of such Non-Employee
Director during such one-year period, each Deferral
Election Stock Option shall become immediately
exercisable as to 100% of the shares of Common Stock
covered thereby;
(ii) If the tenure of any Non-Employee Director as a
member of the Board ends during such one-year period
for any reason other than death or Disability, a
portion of the shares of the Common Stock covered
thereby shall become immediately exercisable as
follows:
(A) The shares of the Common Stock covered by a
Deferral Election Stock Option attributable
to the election to forgo cash fee for the
one-year period in which such Non-Employee
Director's tenure terminates shall be
prorated (determined using the actual number
of days served since the annual meeting of
stockholders and an assumed 365-day year) and
such option shall become immediately
exercisable to the extent of that portion of
the shares of Common Stock attributable to
the time served as a Non-Employee Director
during that one-year period; and
- 3 -
<PAGE> 4
(B) As to the balance of the shares of Common
Stock covered by such Deferral Election Stock
Option for such one-year period, such option
shall lapse immediately.
Notwithstanding the foregoing, upon the occurrence of a change in control as
contemplated by Section 7, each Deferral Election Stock option outstanding
under this Plan shall become immediately exercisable as to all of the shares of
Common Stock covered thereby. Once any portion of a Deferral Election Stock
Option becomes exercisable, it shall remain exercisable until the earlier of
(1) the fifth anniversary of the date of grant or (2) one year after the
termination of the Non-Employee Director's tenure as a member of the Board for
any reason. For purposes of this Plan, the term "Disability" shall mean a
permanent and total disability as defined in the Company's Long- Term
Disability Plan in effect at such time or as otherwise approved by the
Committee.
(f) The grant of Deferral Election Stock Options is intended to
comply in all respects with Rule 16b-3(d)(1) promulgated under Section 16(b) of
the Securities Exchange Act of 1934 such that the issuance of Deferral Election
Stock Options under the Plan shall be exempt from Section 16(b) of the
Securities Exchange Act of 1934.
(g) The grant date for each Deferral Election Stock Option for the
Non-Employee Director electing such option shall be the Initial Election Date
or the annual meeting date following a subsequent election; provided, however,
that for the purposes of Section 16(a) and 16(b) of the Securities Exchange Act
of 1934 only, the grant date of any Deferral Election Stock Option subject to
subsequent approval by the Company's stockholders of the Plan or any amendments
thereto shall be the date upon which such approval is duly obtained. For all
other purposes under this Plan, unless otherwise stated, the grant date for any
Deferral Election Stock Option shall be the Initial Election Date or the annual
meeting date following a subsequent election for the Non-Employee Director
electing such option.
5. Number of shares of Common Stock Issuable Under the Plan.
(a) The maximum number of shares of Common Stock that may be
issued upon exercise of options granted pursuant to the Plan shall be 125,000.
The maximum number of shares stated above is subject to adjustment under the
provisions of Section 5(b). The shares of Common Stock to be issued upon
exercise of options may be authorized but unissued shares or shares previously
issued which have been reacquired by the Company. In the event any option
shall, for any reason, terminate or expire or be surrendered without having
been exercised in full, the shares subject to such option but not purchased
thereunder shall be available for future options to be granted under this Plan.
(b) The maximum number of shares referred to in Section 5(a), the
Option Price and the number of shares which may be purchased under any
outstanding option granted under this Plan shall be proportionately adjusted
for any increase or decrease in the number of issued and
- 4 -
<PAGE> 5
outstanding shares of the Common Stock of the company as the result of (i) the
declaration and payment of a dividend payable in Common Stock of the Company,
or the division of the Common Stock of the Company outstanding at the date
hereof (or the date of the grant of any such outstanding option, as applicable)
into a greater number of shares without the receipt of consideration therefor
by the Company, or any other increase in the number of such shares of the
Company outstanding at the date hereof (or the date of the grant of any such
outstanding option, as applicable) which is effective without the receipt of
consideration therefor by the Company (exclusive of any shares of Common Stock
granted by the Company to employees without receipt of separate consideration
by the Company), or (ii) the consolidation of the shares of Common Stock of the
Company outstanding at the date hereof (or the date of the grant of any such
outstanding option, as applicable) into a smaller number of shares without the
payment of consideration thereof by the Company, or any other decrease in the
number of such shares of Common Stock outstanding at the date hereof (or the
date of the grant of any such outstanding option, as applicable) effected
without the payment of consideration by the Company; provided, however, the
total Option Price for all shares which may be purchased upon the exercise of
any option granted pursuant to this Plan (computed by multiplying the number of
shares originally purchasable thereunder, reduced by the number of such shares
which have theretofore been purchased thereunder, by the original Option Price
per share before any of the adjustments herein provided for) shall not be
changed.
In the event of a change in the Common Stock as presently
constituted which is limited to a change of the Company's authorized shares
with a par value into the same number of shares with a different par value or
without par value, the shares resulting from any such change will be deemed to
be the Common Stock within the meaning of this Plan.
The foregoing adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 5, a Non-Employee Director shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class.
6. Payment of Option Prices. Upon the exercise of any option
granted under this Plan, a Non-Employee Director (or such Non-Employee
Director's guardian or other legal representative) shall pay the full Option
Price for the shares of Common Stock elected to be purchased in cash or by
certified or bank cashier's check, unless the Election Agreement shall provide
for the payment of the Option Price by other means.
7. Fundamental Corporate Changes, Changes in Control. In the
event of a consolidation or merger of the Company with another corporation, or
the sale or exchange of all or substantially all of the assets of the Company,
or a reorganization or liquidation of the Company, each Non-Employee Director
holding any outstanding options shall be entitled to receive, upon exercise of
any option and payment in accordance with the terms of such option, the same
number of shares of Common Stock, other securities or other property as such
Non-Employee Director
- 5 -
<PAGE> 6
would have been entitled to receive upon the occurrence of such event if such
Non-Employee Director had been, immediately prior to such event, the holder of
the number of shares of Common Stock purchasable under such Non-Employee
Director's option or, if another corporation shall be the surviving
corporation, such surviving corporation shall substitute therefor substantially
equivalent shares, securities or property of such other corporation. In the
event of an acquisition of the Company involving a change in control, whether
by merger, consolidation, sale of assets, sale of stock or otherwise, options
granted hereunder shall become exercisable immediately, without regard to the
deferred exercise period otherwise stated in such options.
8. Miscellaneous Provisions.
(a) No Non-Employee Director shall be entitled under this Plan to
voting rights, dividends or other rights of stockholder, prior to the
issuance of Common Stock. Neither the Plan nor any action taken hereunder
shall be construed as giving any Non-Employee Director any right to be
retained in the service of the Company.
(b) All options granted under this Plan shall not be transferable
by the Non- Employee Director, other than by will or the laws of descent and
distribution, and shall be exercisable during the Non-Employee Director's
lifetime only by such Non-Employee Director or by such Non-Employee
Director's guardian or other legal representative.
(c) No shares of Common Stock shall be issued hereunder unless
counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign securities,
securities exchange and other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company to
issue shares of Common Stock upon exercise of options granted hereunder,
that the participant pay to the Company, upon its demand, such amount as may
be requested by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If the
amount requested is not paid, the Company shall have no obligation to issue,
and the Non-Employee Director shall have no right to receive, shares of
Common Stock.
(e) The expenses of the Plan shall be borne by the Company and its
Subsidiaries.
(f) By accepting any Common Stock hereunder or other benefit under
the Plan, each participant and each person claiming under or through him or
her shall be conclusively deemed to have indicated his or her acceptance and
ratification of, and consent to, any action taken under the Plan by the
Company or the Committee.
-6-
<PAGE> 7
(g) The Company shall use its best efforts to cause to be filed
under the Securities Act of 1933, as amended, a registration statement
covering the shares of Common Stock issuable upon exercise of options
granted under the Plan.
(h) The provisions of this Plan shall be governed by and construed
in accordance with the laws of the State of Delaware.
(i) Pending the grant of Deferral Election Stock Options
hereunder, all compensation earned by a Non-Employee Director with respect
to which an election to receive the grant of Deferral Election Stock Options
pursuant to Section 4 above has been made shall be the property of such
director and shall be paid to him or her in cash in the event that Deferral
Election Stock Options are not granted by the Company hereunder.
(j) Headings are given to the sections of this Plan solely as a
convenience to facilitate reference. Such headings, numbering and
paragraphing shall not in any case be deemed in any way material or relevant
to the construction of this Plan or any provisions thereof. The use of the
singular shall also include within its meaning the plural, where
appropriate, and vice versa.
9. Amendment. The Plan may be amended at any time and from time
to time by resolution of the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without stockholder approval
if such stockholder approval is required by law, rule or regulation, and
provided further, to the extent required by Rule 16b-3 under Section 16 of the
Securities Exchange Act of 1934, in effect from time to time, Plan provisions
shall not be amended more than once every six months, except that the foregoing
shall not preclude any amendment to comport with changes in the Internal
Revenue Code of 1986, the Employee Retirement Income Security Act of 1974 or
the rules thereunder or any other applicable federal or state statute or
regulation in effect from time to time. No amendment of the Plan shall
materially and adversely affect any right of any participant with respect to
any options to purchases shares of Common Stock theretofore issued without such
participant's written consent, except for any modifications required to
maintain compliance with any federal or state statute or regulation.
10. Termination. This Plan shall terminate upon the earlier of
the following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating
the Plan; or
(b) ten years from the date the Plan is initially approved and
adopted by the stockholders of the Company in accordance with Section 11.
-7-
<PAGE> 8
No termination of the Plan shall materially and adversely affect any
of the rights or obligations of any person without his or her consent with
respect to any options to purchase shares of Common Stock theretofore under the
Plan.
11. Stockholder Approval and Adoption. This Plan is dated August
21, 1995, which is the date upon which the Board adopted the Plan. The Plan
shall be submitted to the stockholders of the Company for their approval and
adoption at the meeting of stockholders of the Company to be held in August,
1996. The Plan shall not be effective unless and until the Plan has been so
approved and adopted. The stockholders shall be deemed to have approved and
adopted the Plan only if it is approved and adopted at a meeting of the
stockholders duly held on that date (or any adjournment of said meeting
occurring subsequent to such date) by vote taken in the manner required by the
laws of the State of Delaware.
-8-
<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
This LOAN AGREEMENT (hereinafter referred to as the "Agreement") is
made as of this 16th day of February, 1996, by and between Deposit Guaranty
National Bank (hereinafter referred to as "Lender"), with an office located at
Post Office Box 1200, Jackson, Mississippi, 39215-1200, and National Picture &
Frame Company, a Delaware corporation, and its wholly owned subsidiary, NPF
Company, a Delaware corporation, with their offices located at 1500 Commerce
Street, Greenwood, Mississippi (hereinafter referred to jointly as "Borrowers").
WITNESSETH
WHEREAS, Borrowers desires to borrow the sum of Five Million and
No/100ths Dollars ($5,000,000.00) from Lender, and Lender is willing to make a
loan in such amount to Borrowers upon the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extension of credit made by Lender to Borrowers, the
parties hereto agree as follows:
I. THE LOAN
1.1 THE LOAN. Upon the terms and subject to the conditions hereof.
Lender agrees to make a loan (the "Loan") to Borrowers in an amount not to
exceed the sum of Five Million and No/100ths Dollars ($5,000,000.00) pursuant
to the requirements set forth in this Agreement.
1.2 INTEREST. Borrowers agree to pay to Lender interest on the unpaid
principal amount of the Loan from the date of such Loan until the Loan is paid
in full, with interest to be calculated based on thirty (30) day LIBOR rate as
of the date of the closing plus 150 basis points to be adjusted as of the first
business day of each month during the term of the Loan (e.g., as of February
16, 1995 5.31 + 1.50 = 6.81 %).
1.3 TERM NOTE. The Borrowers' obligation to repay the Loan shall be
evidenced by a promissory note (the "Note") in a form to be provided by Lender.
1.4 TERM OF LOAN. Pursuant to the Note and this Agreement to be
executed under even date, as well as the Commitment Letter of Lender to
Borrowers dated December 8, 1995 (all collectively referred to as the "Loan
Documents") the indebtedness under the Note will be amortized over a five (5)
year (60 months) period with the entire unpaid balance of principal and accrued
interest to be payable five (5) years (sixty months) from date of the Note.
Provided, however, that the Note shall be subject to call and be deemed in
default for failure of Borrowers to meet any material requirements, ratios or
covenants herein.
1.5 USE OF PROCEEDS. The proceeds of the Loan shall be used by
Borrowers in part to pay in part that revolver or revolving line of credit with
Provident Bank, which in any event shall be paid in full upon disbursement of
this Loan and the NationsBank loan described herein.
1.6 FEES. Borrowers have agreed to pay all fees and expenses of
Lender in connection with this Loan including, but not limited to, reasonable
legal fees, title examination and filing fees of Lender in connection with the
transactions contemplated hereby.
II. PAYMENTS
2.1 INSTALLMENT PAYMENTS. The Loan shall be repaid in sixty (60)
monthly installments of equal principal amounts and accrued interest based on
the amortization as described in Paragraph 1.2 above, beginning April 1, 1996
with the entire outstanding principal balance and all accrued interest
1
<PAGE> 2
being due and payable five (5) years (sixty months) from date of the first
installment set out above.
2.2 PREPAYMENT. Borrowers may prepay the Note in accordance with the
provisions of Note and at any time without penalty.
2.3 NON-BUSINESS DAYS. If any payment under this Agreement falls due on a
day which is not a business day, the due date thereof shall be extended to the
next succeeding business day.
III. TERMS AND CONDITIONS OF LOAN
The making of advances by Lender pursuant to the terms of the Note shall be
subject to the fulfillment to the satisfaction of Lender of the following
conditions precedent:
3.1 RECEIPT OF NECESSARY DOCUMENTS. Lenders shall have received from
Borrowers all documentation and information requested by it in preparation for
extending the Loan.
3.2 SECURITY INTERESTS. The Loan will be secured by a first perfected
Deed of Trust as defined below.
3.3 NO DEFAULT. On the date of the Loan, Borrowers shall be in compliance
with all the terms and provisions contained herein as well as in the other Loan
Documents on its part to be observed or performed, and no Event of Default, as
set out below, or event which with notice or lapse of time or both which would
constitute an Event of Default shall have occurred and be continuing.
3.4 DEED(S) OF TRUST. All deeds of trust and/or leasehold deeds of trust
or other documents relating to the Collateral (as defined in Section IV, below)
shall have been duly executed and filed in all offices in which filing is
required in order to perfect for the benefit of Lender the first perfected lien
in and on the Collateral of Borrowers granted by Borrowers pursuant to this
Agreement. Borrowers shall have delivered to Lender and filed no later than
closing the Release or Subordination, as deemed fit by Lender, of all
preexisting liens and encumbrances upon the Collateral previously granted by
Borrowers to any entities or individuals.
3.5 PAYMENT OF TAXES AND SATISFACTION OF TAX LIENS. At or before closing,
Borrowers must provide proof of satisfaction of all Federal and State tax liens
or obligations to the satisfaction of Lender.
IV. COLLATERAL AND GRANT OF SECURITY INTEREST
4.1. COLLATERAL. To secure the prompt and complete payment, when due, of
the obligations of Borrowers pursuant to the Loan Documents, Borrowers hereby
pledge, assign and transfer to Lender, and grant to Lender a continuing security
interest in and to the following (hereinafter collectively referred to as the
"Collateral"):
(a) A first Deed of Trust covering the fee simple and leasehold
interests held by Borrowers or and any one of them in that property located in
Leflore County, Mississippi and on which Borrowers' 165,000 square foot
manufacturing facility is located, said property being more fully described in
said Deed of Trust.
4.2 GRANT OF SECURITY INTEREST. Borrowers hereby grant to Lender a
continuing security interest in and to all of the Collateral aforementioned.
All of the obligations of Borrowers pursuant to the Loan Documents shall be
secured by Lender's security interest in the Collateral, and by all other
security interests, security agreements, liens, claims, assignments, and
encumbrances now and from time to time hereafter granted by Borrowers to Lender.
Lender may, in its sole discretion, (a) exchange, enforce, waive or release any
security or portion of the Collateral, and any security agreement,
2
<PAGE> 3
lien, claim, assignment, or encumbrance relating to any Collateral owned by
Borrowers, (b) apply any security or Collateral and direct the order or manner
of sale thereof as Lender may, from time to time, determine, and (c) settle,
compromise, collect or otherwise liquidate any security or Collateral of
Borrowers' obligations pursuant to the Loan Documents in any manner following
the occurrence and continuance of any Event of Default as defined below without
affecting or impairing Lender's right to take any other action with respect to
any security or Collateral for the obligation of Borrowers or any part thereof.
4.3 PERFECTION OF SECURITY INTEREST.
(a) Borrowers shall take and perform any and all steps
necessary or appropriate to perfect, maintain, and protect Lender's security
interest in the Collateral until all obligations have been satisfied in full,
including, without limitation, executing and recording any assignments or
notices of assignments with respect to the Collateral, or amendments thereof
maintaining complete and accurate records, in taking such steps as are deemed
necessary by Lender to maintain Lender's control of the Collateral.
(b) To the extent permitted by applicable law, Lender may
file one or more Deeds of Trust to perfect its lien on said Collateral.
(c) If Borrowers fail to pay any taxes or charges assessed
on the Collateral, Lender may (but shall not be required to) pay the same and
charge the costs thereof to Borrowers as part of the obligation owed by
Borrowers pursuant to the Loan Documents payable on demand and secured by the
Collateral. In order to protect or perfect any security interest which Lender
is granted hereunder, Lender may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, pay any
service bureau, on obtaining any record and add the costs of any of the
foregoing to the obligations of Borrowers pursuant to the Loan Documents,
payable on demand and secured by the Collateral.
4.4 RIGHTS AND REMEDIES OF LENDER RELATING TO COLLATERAL.
The rights and remedies of the parties with respect to the Collateral shall be
fully set out in Deed(s) of Trust to executed as appropriate by the Borrowers
or any of them.
V. REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties made by Borrowers
elsewhere in this Agreement and the other Loan Documents, Borrowers represent
and warrant to Lender that:
5.1 ORGANIZATION AND CORPORATE POWERS. Each of the Borrowers is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, duly qualified to do business in the State of
Mississippi, and has the corporate power and authority to own its properties and
assets, and to carry on its business, all as, and in the places where, such
properties and assets are now owned or operated or such business is now
conducted or presently proposed to be conducted. Borrowers have not been known
as or used any other corporate or fictitious names except as disclosed herein.
5.2 TRANSACTION IS LEGAL AND AUTHORIZED. The borrowing of the
principal amount of the Loan hereunder and pursuant to the Note, the issuance
of the Note and compliance by Borrowers with all of the provisions of this
Agreement and the other Loan Documents are within the corporate powers of
Borrowers. Each of the Loan Documents including this Agreement have been duly
authorized, executed and delivered and are the legal, valid, and
3
<PAGE> 4
binding obligations of Borrowers, enforceable in accordance with their terms.
The Note has been fully authorized and, when executed and delivered in
accordance with this Agreement, will be the legal, valid, and binding
obligation of Borrowers enforceable in accordance with its terms. The
execution, delivery, and/or performance by Borrowers of the Loan Documents
shall not, by the lapse of time, the giving of notice or otherwise, constitute
a violation of any applicable law or a breach of any provision contained in
Borrowers' Bylaws or Certificates of Incorporation, or contained in any
material agreement, instrument or document to which either of such Borrowers is
now a party or by which either is bound.
5.3 APPROVALS, PERMITS, CERTIFICATES, INSPECTIONS, CONSENTS, ETC.
Borrowers have, and are in good standing with respect to, all material
approvals, permits, certificates,inspections, consents and franchises issued by
governmental authorities, including all state and federal agencies necessary to
continue to conduct its business as heretofore conducted by it and to own or
lease and operate its property as now owned or leased by it.
5.4 FINANCIAL STATEMENTS AND CONDITION. Borrowers have delivered to
Lender various financial statements. All such audited and unaudited financial
statements fairly present in all material respects the financial condition,
assets and liabilities of Borrowers at their respective dates and the results
of its operations for such periods; and have been prepared in accordance with
generally accepted accounting principles consistently maintained since the
beginning of such periods except that any such unaudited statements may not
contain footnoted disclosures and shall be subject to year-end adjustments
consistent with generally accepted accounting principles. Those financial
statements provided to Lender by Borrowers prior to closing are, to the best
knowledge of Borrowers, correct and complete.
5.5 CONDITION OF ASSETS: ABSENCE OF LIENS.
(a) Borrowers have good, indefeasible, merchantable and marketable
title to and ownership of the Collateral, free and clear of all liens,
marketable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances. Borrowers' assets are of
quality, are usable or saleable in the ordinary course of its business, are in
good operating condition, ordinary wear and tear excepted.
(b) Borrowers enjoy peaceful and undisturbed possession under all of
the leases under which it is operating, none of which contains any provision
that will materially adversely affect or impair the operations of Borrowers.
Each of such leases is valid, subsisting and in full force and effect, none of
such leases is in default and no event has occurred which with the passage of
time or the giving of notice, or both, would constitute a default under any
thereof.
(c) The office and/or location where Borrowers keep any portions of
the aforementioned Collateral and its books and records concerning such
Collateral are at the address of Borrowers stated above which constitutes all of
Borrowers' places of business and are Borrowers' only offices and places of
business.
5.6 ABSENCE OF LIENS AND GRANTING OF LIENS. Borrowers represent and
warrant that no mortgage, security agreement, financing statement or other title
retention agreement (except those executed in favor of Lender) has or will be
executed with respect to any real property, personal property, chattel or
fixture used in connection with the construction, operation or maintenance of
the Collateral, without the prior written consent of Lender.
4
<PAGE> 5
5.7 LITIGATION. There are no actions, suits, investigations, or
proceedings, (whether or not purportedly on behalf of Borrowers) pending or to
the knowledge and belief of Borrowers, threatened against or affecting
Borrowers, except for that litigation resulting in the Judgment in the favor of
Lajennifer J. Harbin, but none of which could reasonably be expected to (i)
result in any material adverse change in business, operation, or financial
condition of Borrowers or the ability of Borrowers to perform this Agreement or
any other obligation pursuant to the Loan Documents or (ii) materially adversely
affect the Collateral or interests of Lender pursuant to the Loan Documents.
5.8 NO DEFAULTS OR RESTRICTIONS. The execution and delivery of this
Agreement and the remaining Loan Documents, in compliance with the terms and
conditions hereof and thereof, do not and will not, with the passage of time
or the giving of notice or both result in a breach of, or constitute a default
under, any agreement, instrument or judicial action by which Borrowers or its
properties may be bound or affected. Borrowers are not in default in the
performance of any of the terms contained in any agreement, instrument or
judicial action by which Borrowers or any of their properties may be bound or
affected.
5.9 TAXES. Borrowers have filed all United States income tax returns and
all state and municipal tax returns (including income tax and franchise tax
returns) which are required to be filed, and have paid, or made provision for
the payment, of all taxes which have become due except such taxes, if any, being
contested in good faith and as to which adequate reserves have been provided.
5.10 GOVERNMENTAL CONSENT. No governmental authorizations are required to
be obtained, and no registrations or declarations are required to be filed by
Borrowers in connection with the execution and delivery of the Loan Documents
for the consummation of the transactions contemplated hereby and thereby.
5.11 COMPLIANCE WITH LAW. Borrowers have complied in all material
respects with all applicable statutes and with all regulations of any
government in respect of the conduct of its businesses and ownership of their
properties.
5.12 FULL DISCLOSURE. The balance sheets and financial statements
provided to Lender prior to the date of closing referenced in paragraph 5.4,
above, and the balance sheets and financial statements do not, nor does this
Agreement nor any of the Loan Documents furnished by Borrowers to Lender in
connection with the negotiations, execution or delivery of this Agreement or the
other Loan Documents, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein not
misleading. As to those financial statements provided to Lender by Borrowers
prior to closing, Lender makes the same acknowledgments and Borrowers the same
representations and warranties as set forth in paragraph 5.4, above.
5.13 SURVIVAL OF WARRANTIES AND REPRESENTATIONS. Borrowers covenant,
warrant and represent to Lender that all representations and warranties of
Borrowers contained in this Agreement and the other Loan Documents shall be true
at the time of Borrowers' execution of this Agreement and the other Loan
Documents, shall survive the execution, delivery and acceptances thereof and of
any supplemental documentation by the parties thereto and the closing of the
transactions described therein and related thereto.
5
<PAGE> 6
VI. AFFIRMATIVE COVENANTS
In addition to the covenants made by Borrowers elsewhere in this
Agreement and in the other Loan Documents, Borrowers covenant and agree that
so long as this Agreement shall remain in effect or any obligation hereunder or
pursuant to other Loan Documents shall be unpaid, unless Lender shall otherwise
consent in writing:
6.1 PUNCTUAL PAYMENT OF OBLIGATIONS. Borrowers will pay
punctually when due all of the amounts due and owing in respect of the Note and
other obligations pursuant to the Loan Documents.
6.2 MAINTENANCE OF CORPORATE EXISTENCE. Borrowers will at all
times do or cause to be done all things necessary to maintain its
corporate existence and to comply with all related laws applicable to them,
provided, however, that nothing contained in this paragraph shall, subject to
compliance with any applicable provision of this Agreement, (a) require
Borrowers to maintain any affiliation not necessary or desirable in the conduct
of the business of Borrowers, or (b) require Borrowers to comply with any law
so long as the validity or applicability thereof shall be contested in good
faith.
6.3 MAINTENANCE OF ASSETS. Borrowers will, insofar as it is not
prevented by causes beyond its control, at all times, maintain, preserve,
protect and keep, or cause to be maintained their property in good
condition, ordinary wear and tear excepted.
6.4 PAYMENT OF TAXES AND CLAIMS. Borrowers will file all tax
returns and other reports Borrowers are required by law to file, maintain
adequate reserves for the payment of all taxes and charges, and pay promptly,
when due, all such taxes and charges. Borrowers will duly pay and discharge,
as the same become due and payable, all taxes and charges which are, or which
if are unpaid might become, a lien or charge upon the franchises or properties
of Borrowers.
6.5 INSURANCE. Borrowers will provide or cause to be provided for
itself insurance against loss or damage of the kinds customarily insured
against by corporations similarly situated, including, but not limited to,
fire, hazard and products liability insurance, with reputable insurers, in such
amounts, with such deductibles and by such methods as generally maintained by
other companies engaged in similar businesses. Each such policy shall include
a provision requiring thirty (30) days prior written notice to Lender of any
cancellation and shall show Lender as a loss payee as its interests may appear.
6.6 COMPLIANCE WITH LAW. Borrowers have obtained all consents
required to be obtained by Borrowers from any governmental agency with respect
to the transactions contemplated by the Loan Documents including this
Agreement. Borrowers will comply with all applicable statutes or regulations
of any governmental department or agency or of any judicial authority.
6.7 FINANCIAL PERFORMANCE COVENANTS AND CERTIFICATES OF
COMPLIANCE. Borrowers shall furnish to Lender on a quarterly basis a
Certificate of Compliance executed by its Chief Financial Officer and properly
attested in the form of Exhibit "A" attached hereto certifying that Borrower is
in compliance with the following affirmative covenants:
(a) That the tangible net worth of Borrowers at the end of each fiscal
quarter as that phrase is defined and used in the November 2, 1995 commitment
letter of NationsBank to Borrowers regarding credit facilities between
NationsBank and Borrowers and any related documents (said facilities hereafter
referred to as the "NationsBank Facilities") provided to Lender in
6
<PAGE> 7
connection with application for this Loan shall not be less than
$17,500,000.00, and further that the minimum tangible net worth requirement
shall increase by forty percent (40%) of Borrowers' net profit after taxes for
each fiscal year end. The tangible net worth shall be derived from the
respective quarter ending consolidated balance sheets for Borrowers and their
subsidiaries, but in any event said amounts shall be derived pursuant to
generally accepted accounting principles;
(b) That at the end of each fiscal quarter there shall be no
greater than a maximum ratio of funded debt to EBITDA (net income plus
interest expense, taxes, depreciation, amortization, and other non-cash
expenses), as defined in connection with the NationsBank Facilities, of 3.00 to
1.00. The funded debt and EBITDA as well as the derivation of the ratio shall
be from the respective quarter ending consolidated balance sheets for Borrowers
and their subsidiaries, but in any event said amounts shall be derived pursuant
to generally accepted accounting principles; and
(c) That for each fiscal quarter there shall be a minimum cash flow
coverage, as that term is used in connection with the NationsBank Facilities,
of no less than 2.0 times calculated on a rolling four quarter basis (defined
as net profit plus depreciation and amortization, plus interest expense, minus
dividends, divided by interest expense plus prior year current maturity of
long-term debt). The minimum cash flow coverage shall be derived from the
respective quarter ending consolidated balance sheets for Borrowers and their
subsidiaries, but in any event said amounts shall be derived pursuant to
generally accepted accounting principles.
6.8 FINANCIAL STATEMENTS. Within forty-five (45) days after the
end of each fiscal quarter, a certificate of the chief financial officer shall
be provided with accompanying quarterly, interim financial statements prepared
by Borrowers. Likewise, within 120 days of the end of each fiscal year of
Borrowers, Borrowers shall provide audited, unqualified financial statements
from a reputable accounting firm acceptable to Lender and prepared in
accordance with generally accepted accounting principles. Promptly, from time
to time, such other information regarding the operations, business affairs and
financial condition of Borrowers as Lender may reasonably request shall also be
provided.
6.9 NOTICE OF EVENT OF DEFAULT AND OTHER ADVERSE EVENTS.
(a) In the event any officer of Borrowers knows at any time of
any Event of Default as defined below which shall have occurred or knows of the
occurrence of any event which with notice or lapse of time or both, would
constitute an Event of Default, such person will promptly furnish to Lender a
written statement ("Notice of Event of Default") as to such occurrence, specify
the nature and extent thereof and the action (if any) which is proposed to be
taken by Borrowers with respect thereto.
(b) Borrowers shall notify Lender in writing, promptly upon
Borrowers' learning thereof, of any claim or litigation affecting Borrowers,
whether or not the claim is considered by Borrowers to be covered by insurance,
and of the institution of any suit or administrative proceeding, which may
materially and adversely affect Borrowers' operations, financial condition,
business or Lender's security interest in the Collateral.
(c) Borrowers shall advise Lender by written notice
delivered to Lender at least thirty (30) days prior thereto of Borrowers'
closing of that facility located upon the Collateral pledged in connection with
this Loan.
(d) Borrowers shall notify Lender in writing within three (3)
business days after occurrence thereof, of Borrowers' default or of any claim
7
<PAGE> 8
that any event has occurred which constitutes or with notice or passage of time
will constitute such a default under any note, indenture, Loan agreement,
mortgage, lease, deed or other similar agreement to which Borrowers is a party
or by which Borrowers is bound.
(e) Borrowers shall notify Lender in writing, promptly upon the
occurrence thereof, of any event which may materially adversely affect
Borrowers' ability to comply with the terms and conditions of this Agreement or
any other Loan Documents.
VII. NEGATIVE COVENANTS
In addition to the covenants made by Borrowers elsewhere in this Agreement,
Borrowers covenant and agree that, so long as this Agreement shall remain in
effect or any obligation under the Loan Documents shall be unpaid, unless
Lender shall otherwise consent in writing:
7.1 INDEBTEDNESS: GUARANTEES.
(a) Borrowers will not incur, create, assume or permit to
exist any indebtedness for borrowed money, or any indebtedness evidenced by
Note, bonds, debentures or similar obligations of Borrowers except for: (i) the
obligations of Borrowers pursuant to the Loan Documents, or (ii) any
indebtedness of Borrowers to third parties incurred in the ordinary course of
Borrowers' business so long as Borrowers are in compliance with all terms,
convenants and requirements herein.
(b) Borrowers will not guarantee or otherwise, in any way,
become liable with respect to the obligations or liabilities of any other
entity or person except guarantees by endorsement of a negotiable instrument
for deposit or collection in the ordinary course of Borrowers' business.
7.2 LIENS. Borrowers will not incur, create, assume or permit to
exist any mortgage, lien or any other encumbrance of any nature whatsoever on
the Collateral pledged in connection with this Loan, except:
(a) Liens incurred or pledges or deposits made in
connection with Workmen's Compensation, unemployment insurance, old age
pensions, social security and public liability and similar legislation;
(b) Liens, pledges, or deposits to secure the performance
of bids, tenders, leases, contracts (other than for the repayment of borrowed
money), statutory obligations, surety and appeal bonds and other obligations of
like nature, incurred as an incidence to and in ordinary course of business;
(c) Statutory liens of landlords other liens imposed by
law, such as carriers', warehousemen's, mechanics', materialmen's and
vendors' liens, incurred in good faith in the ordinary course of business;
(d) The security interest of Lender to secure payment of
obligations of Borrowers pursuant to the Loan Documents; and
(e) Liens granted by Borrowers to NationsBank in connection
with financing for purposes of acquisitions.
7.3 DISPOSITION OF ASSETS. Borrowers will not sell, lease, assign,
transfer, or otherwise dispose of any of the Collateral other than in the
ordinary course of Borrowers' business and for fair market value.
7.4 TRANSACTIONS WITH AFFILIATES. Borrowers will not enter into
any transaction with any affiliate except in the ordinary course of business
and pursuant to the reasonable requirements of Borrowers' business and upon
terms found by the Board of Directors of Borrowers to fair and reasonable and
no less favorable to Borrowers than would obtain in a comparable arm's length
transaction with a person or entity not an affiliate or a subsidiary.
8
<PAGE> 9
7.5 CHANGE OF NAME. Borrowers will not use any other corporate or
fictitious name.
VIII. SURVIVIAL OF OBLIGATIONS UPON TERMINATION OF AGREEMENT
Except as otherwise expressly provided for in this Agreement and in
the other Loan Documents, no termination or cancellation (regardless of cause
or procedure) of this Agreement or the other Loan Documents shall in any way
affect or impair the powers, obligations, duties, rights and liabilities of
Borrowers or of Lender in any way or respect relating to the warranties and
representations of Borrowers or Borrowers' liability for the payment of
indebtedness due pursuant to the Loan Documents, until all the indebtedness has
been repaid in full. All such undertakings, agreements, covenants, and
representations shall survive such termination cancellation.
IX. EVENTS OF DEFAULT AND REMEDIES
9.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of
the following occur:
(a) Borrowers shall fail to pay any obligation or
indebtedness due pursuant to the Loan Documents including, but not limited to
those obligations set out in Section II above, within fifteen (15) days after
it is due.
(b) Default shall be made in the performance or observance
of any material covenant, condition or agreement contained in this Agreement or
any Event of Default or event which with notice or lapse of time or both would
become such an Event of Default shall occur under any of the Loan Documents.
(c) Any warranty, representation or other statement by or
on behalf of Borrowers contained in this Agreement or any other Loan Document
or in any instrument furnished in compliance with or connection with any of the
foregoing is false or misleading in any material respect or the Borrowers
shall hereafter make any material misrepresentation or omission to Lender or
any of its affiliates;
(d) Either of the Borrowers shall: (i) file a petition
seeking relief for itself under the Bankruptcy Code, or file an answer
consenting to, admitting the material allegations of, or otherwise not
controverting, or failing timely to controvert such a petition or (ii) file
such petition or answer with respect to relief under the provisions of any
other now existing or future applicable bankruptcy law.
(e) An order or relief is entered against either of the
Borrowers under the Bankruptcy Code or similar law which order is not
stayed, adjudging it as a bankrupt or insolvent, or of any substantial part of
its property, or ordering the reorganization, winding-up or liquidation of its
affairs; or upon the expiration of thirty (30) days after the filing of any
involuntary petition against it seeking any of the relief specified in this
paragraph 9.1(e) without the petition being dismissed prior to that time.
(f) Either of the Borrowers shall: (i) make a general
assignment for the benefit of its creditors, or (ii) consent to the appointment
of, or have all or any portion of its property taken possession of by, a
receiver, liquidator or trustee or Borrowers or any substantial part of its
property, or (iii) admit its insolvency or inability to pay its debts generally
as such debts become due, or (iv) fail generally to pay its debts as such debts
become due or (v) take or permit any action looking to the dissolution or
liquidation of Borrowers.
(g) Either of the Borrowers shall fail to pay when due any
of their indebtedness including the obligations represented by the Loan
9
<PAGE> 10
Documents and any indebtedness, liability, guarantees, endorsements and other
contingent obligations (excluding trade payables in the ordinary course of
Borrowers' business, and which do not represent indebtedness from borrowed
money) and any grace period provided with respect to such payment shall have
lapsed; any other relief shall occur which shall cause or permit the holder of
any of those indebtednesses to cause such indebtedness to become due prior to
its date of maturity; or if any event shall occur which shall result in the
termination of, or permit any person or entity, any agreement whose termination
would materially adversely affect Borrowers, its properties or the Collateral;
(h) There shall hereafter occur any material and adverse change in
the business operations and condition, financial or otherwise, of Borrowers;
(i) The Security Agreement(s) or Deed(s) of Trust or any other Loan
Documents shall terminate or cease to be in full force and effect by reason of
Borrowers' breach thereof;
(j) At any time Borrowers are deemed to be in default with respect to
the NationsBank Facilities; and
(k) At any time, Borrowers fail to meet any of the requirements set
out in any of the Loan Documents.
9.2 REMEDIES.
(a) In case any one or more of the Events of Default specified above
in section 9.1 shall have happened and be continuing, Lender shall have no
further duty under this Agreement to make the Loan or to meet any other
obligations pursuant to the Loan Documents. In addition to the rights and
remedies set forth elsewhere in this Agreement, Lender may proceed to protect
and enforce its rights either by suit in equity and/or in an action at law for
foreclosure, attachment or by other appropriate proceedings, or to enforce any
other legal or equitable right of Lender. Lender's rights and remedies under
this Agreement and any Deed(s) of Trust and other Loan Documents will be
cumulative and not exclusive of any other right or remedy which Lender may have,
and exercise of any one or more of such rights and remedies shall not be deemed
to preclude the exercise of any other rights and remedies.
(b) In particular, without limiting the generality of the foregoing,
Lender shall have the right to declare all debts and obligations hereunder to
be, inasmuch as obligations shall thereupon forthwith become, due and payable,
without any presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived,and Borrowers will forthwith pay to Lender the
entire outstanding principal of, and interest accrued on, all obligations
hereunder and pursuant to the other Loan Documents.
(c) No termination or cancellation (regardless of cause or procedure)
of this Agreement shall in any way affect or impair the powers, obligations,
duties, rights and liabilities of the parties hereto in any way with respect to:
(i) any transaction or event occurring prior to such termination or
cancellation, (ii) the Collateral, or (iii) any of Borrowers' undertakings,
agreements, covenants, warranties and representations contained in this
Agreement or any of the Loan Documents and all such undertakings, agreements,
covenants, warranties and representations shall survive such termination or
cancellation.
10
<PAGE> 11
X. MISCELLANEOUS
10.1 EXPENSES. Whether or not the transactions contemplated by this
Agreement shall be consummated, Borrowers will pay on the date of this
Agreement all reasonable expenses of Lender and its assignees incident to the
transactions contemplated by this Agreement or the other Loan Documents or in
connection with any modification, amendment, alteration, assignment, filing,
recording or enforcement of this Agreement, any other Loan Document and the
real property filings, including, but not limited to, the costs of, or
incidental to, any title searches with respect to the Collateral, any
appraisals of the Collateral, and any recording or filing of any Security
Agreement or financing statements concerning the Collateral, Lender's and its
assignees' out-of-pocket expenses and the charges and disbursements of their
attorneys associated with the transactions contemplated by this Agreement. The
obligations of Borrowers under this Section 10.1 shall survive the payment of
any other obligations pursuant to the Loan Documents.
10.2 LAW AND JURISDICTION. This Agreement and the other Loan Documents
shall be interpreted and the rights and liabilities of the parties hereto
determined in accordance with the laws of the State of Mississippi.
10.3 CONFLICT OF TERMS. The provisions of the other Loan Documents and any
schedule or exhibit thereto are incorporated in this Agreement by this reference
thereto. Except as otherwise provided in the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in the loan Documents, the provision contained in this Agreement
shall govern and control.
10.4 WAIVER BY BORROWERS. Except as otherwise provided for in this
Agreement, Borrowers waive (i) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise or
settlement; and (ii) the benefit of all valuations, appraisals, homestead and
exemption laws.
10.5 NON-WAIVER OF LENDER. No course of dealing between Borrowers or
Lender or any delay or failure on the part of Lender in exercising any rights
hereunder shall operate as a waiver of such rights or otherwise prejudice
Lender's rights, powers and remedies; no waiver by Lender will be effective
unless it is in writing and then only to the extent specifically stated, and no
waiver by Lender on any occasion shall affect or diminish Lender's rights
thereafter to require strict performance by Borrowers of any provision of this
Agreement, the Note or any other Loan Document contemplated hereby or thereby.
10.6 THE ENTIRE AGREEMENT: AMENDMENTS. This Agreement, the Security
Agreement(s) and Note and all other documents referenced in this Agreement and
the financing statements (including any schedules and exhibits thereto) sets
forth the entire agreement between the parties with respect to the transactions
contemplated hereby and thereby. This Agreement may not be terminated, amended
or supplemented except by a writing signed by all parties hereto.
10.7 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
11
<PAGE> 12
10.8 PARTIES. This Agreement and the other Loan Documents shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
successors and assigns of Borrowers and Lender. This provision, however, shall
not be deemed to modify section 10.10 hereof.
10.9 ASSIGNMENT. Lender shall have the right to assign any or all of this
rights under this Agreement; all of the rights, privileges, remedies, options
given to Lender hereunder shall inure to the benefit of Lender's successors and
assigns; and all the terms of this Agreement shall inure to the benefit of and
shall bind the representatives, successors and asides of Borrowers and Lender,
respectively. Borrowers may not assign any of their rights under this Agreement
without the written consent of Lender and Lender shall not be required to lend
under this Agreement except to Borrowers as presently existing.
10.10 NO JOINT VENTURE. Lender and Borrowers intend and agree
that the relationship between them shall be solely that of creditor and debtor.
Nothing contained herein or in any of the other Loan Documents shall be deemed
or construed to create a partnership, tenancy-in-common, joint tenancy, joint
venture or co-ownership by or between Lender and Borrowers. Lender shall not
in any way be responsible for the debts, losses, or obligations or Borrowers
with respect to its business operations or the Collateral or otherwise. All
obligations to pay real property taxes, assessments, insurance premiums, and
all other fees and charges arising from the ownership, operation or occupancy
of Borrowers' business and to perform all other agreements and contracts
relating to Borrowers' business shall be the sole responsibility of Borrowers.
Borrowers, at all times consistent with the terms hereof and of the other Loan
Documents, shall be free to determine and follow their own policies and
practices in the conduct of its business on the Premises. Borrowers hereby
agree to indemnify and hold Lender harmless from and against any and all
liabilities, losses, injuries, costs, expenses and damages, including, without
limitation, attorneys' fees and litigation costs, which it may suffer or incur
as a result hereof and of and from any and all claims and demands whatsoever
which may be instituted against it by reason of any alleged obligation or
undertaking on its part to perform or discharge any of the terms, covenants or
agreements contained in any lease, agreement or contract relating to the
premises to which Lender is not a direct and express party. Should Lender
incur any such liability under any such lease, agreement, or contract, or under
or by virtue hereof or of the other Loan Documents or in the defense of any
claims or demands related thereto, the amount thereof, including costs,
expenses and attorneys' fees, shall constitute a part of the indebtedness and
obligations owing from Borrowers to Lender, shall be secured by the Security
Agreement or the other Loan Documents as well as the financing statements, and
shall be payable to Lender on demand, together with interest at the rate of
twelve percent (12%) per annum from the date incurred OR THE FEDERAL DISCOUNT
RATE PLUS SEVEN PERCENT (7%) PER ANNUM FROM THE DATE INCURRED.
10.11 NOTICE. Accept as otherwise provided herein, any notice
required hereunder shall be in writing, and shall be given by telex, telegram,
hand delivery or through the United States mails, certified or registered,
return receipt requested, with proper postage prepaid, and shall be addressed
to the party to be notified at the address set forth in the first paragraph of
this Agreement or to such other address as each party may designate for itself
by like notice. Each such notice shall be effective upon receipt by the party
being notified.
12
<PAGE> 13
10.12 TITLES. The article and section titles obtained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the Agreement between the parties hereto.
IN WITNESS WHEREOF, this Borrowers and Lender have caused this
Agreement to be executed on the day and year first above written.
NATIONAL PICTURE & FRAME
COMPANY
BY:_________________________
NAME:_______________________
TITLE:______________________
[Seal]
Attest:____________________
Title:_____________________
STATE OF MISSISSIPPI
COUNTY OF___________
PERSONALLY appeared before me, the undersigned authority in and for the
said county and state, on this the _______day of February, 1996, within my
jurisdiction, the within named____________________, who acknowledged that he is
______________________________ of National Picture & Frame Company, a
______________ corporation, and that for and on behalf of said corporation and
as its act and deed, he executed the above and foregoing Agreement after first
having been duly authorized by said corporation so to do.
------------------------------------
Notary Public
My Commission Expires:_______________________________
NPF COMPANY
BY:________________________________
NAME:______________________________
TITLE:_____________________________
[Seal]
Attest:_______________________
Title:________________________
13
<PAGE> 14
STATE OF MISSISSIPPI
COUNTY OF___________
PERSONALLY appeared before me, the undersigned authority in and for the
said county and state, on this the _______day of February, 1996, within my
jurisdiction, the within named____________________, who acknowledged that he is
______________________________ of NPF Company, a ______________ corporation,
and that for and on behalf of said corporation and as its act and deed, he
executed the above and foregoing Agreement after first having been duly
authorized by said corporation so to do.
------------------------------------
Notary Public
My Commission Expires:_______________________________
LENDER: DEPOSIT GUARANTY
NATIONAL BANK
BY:________________________________
NAME:______________________________
TITLE:_____________________________
[Seal]
Attest:_______________________
Title:________________________
STATE OF MISSISSIPPI
COUNTY OF___________
PERSONALLY appeared before me, the undersigned authority in and for the
said county and state, on this the _______day of February, 1996, within my
jurisdiction, the within named____________________, who acknowledged that he is
______________________________ of Deposit Guaranty National Bank, a Mississippi
banking institution, and that for and on behalf of said corporation and as its
act and deed, he executed the above and foregoing Agreement after first having
been duly authorized by said corporation so to do.
------------------------------------
Notary Public
My Commission Expires:_______________________________
14
<PAGE> 1
EXHIBIT 10.11
NATIONSBANK OF TENNESSEE, N.A.
LOAN AGREEMENT
This Loan Agreement is made effective the ___ day of February, 1996, by and
among NationsBank of Tennessee, N.A., a national banking association with
offices located at 6363 Poplar Avenue, Suite 230, Memphis, Tennessee 38119
("Bank"), NPF Company and National Picture & Frame Company, each a Delaware
corporation with offices at 1500 Commerce Street, Greenwood, Mississippi 38930
(collectively, the "Borrower").
In consideration of the mutual promises and covenants contained herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged by each of the parties hereto, the parties agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined in
this Loan Agreement, the following terms shall have the meaning set forth with
respect thereto, unless the context clearly otherwise requires:
A. AGREEMENT. Agreement means this Loan Agreement, as amended or
supplemented from time to time in accordance with the terms hereof.
B. BUSINESS DAY. Any day other than a Saturday, Sunday, or other day on
which commercial banks in Memphis, Tennessee are authorized or required to
close under the laws of the State of Tennessee or the United States of
America.
C. CASH FLOW COVERAGE RATIO. Cash Flow Coverage Ratio means as of the end
of any fiscal quarter a fraction the numerator of which is net income
after taxes of Borrower and its Subsidiaries for the preceding four fiscal
quarters prior to any deduction for depreciation, amortization, and
interest expense, minus dividends paid during the preceding four fiscal
quarters and the denominator of which is the sum of the following items
payable by Borrower and its Subsidiaries: (a) interest expense during the
preceding four fiscal quarters, (b) the aggregate of the current portion
of long-term debt and capital lease obligations for the prior fiscal year.
D. FUNDED DEBT. Funded Debt means at any time, all of the following
obligations (without duplication) of Borrower and its Subsidiaries as of
such date: (a) All obligations for borrowed money; (b) All obligations
evidenced by bonds, debentures, notes or other similar instruments; (c)
All obligations to pay the deferred purchase price of property, except
trade accounts payable arising in the ordinary course of business; (d) All
obligations as lessee under capitalized leases; (e) All obligations to
purchase securities or other property which arise out of or in connection
with the sale of the same or substantially similar securities or property;
(f) All non-contingent obligations to reimburse any bank or other person
in respect of amounts actually paid under a letter of credit or similar
instrument; and (g) All debt of others secured by a Lien on any assets of
Borrower or its Subsidiaries, whether or not such debt is assumed.
<PAGE> 2
E. FUNDED DEBT RATIO. Funded Debt Ratio means as of the end of any fiscal
quarter a fraction the numerator of which is Funded Debt and the
denominator of which is the net income of Borrower and its Subsidiaries
for the preceding four fiscal quarters prior to any deduction for interest
expense, taxes, depreciation, depletion or amortization.
F. HAZARDOUS MATERIALS. Hazardous Materials include all materials defined
as hazardous wastes or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
G. LIEN. Any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance securing
indebtedness (statutory or other), or preference, priority, or other
security agreement or preferential arrangement, charge, or encumbrance
securing indebtedness of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of
the foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of
the foregoing).
H. LOANS. Loan or Loans means collectively any and all loans heretofore or
hereafter made by Bank to Borrower pursuant to this Loan Agreement.
I. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any and
all promissory notes executed by Borrower in favor of Bank and all other
security agreements, documents, instruments, guarantees, certificates and
agreements executed and/or delivered by Borrower, any guarantor or third
party in connection with any Loan.
J. PERSON. An individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
K. PERMITTED LIENS. Permitted Liens means:
(a) Liens with respect to indebtedness incurred pursuant to
this Loan Agreement;
(b) 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 benefits, or to secure
the performance of statutory obligations, surety and appeal bonds,
bids, tenders, leases, performance and return-of-money bonds and
other similar obligations not incurred in connection with the
borrowing of money;
2
<PAGE> 3
(c) Liens for taxes, assessments or governmental charges not
then due and delinquent or the validity of which is being contested
in good faith and as to which the Borrower has established adequate
reserves on its books;
(d) Liens arising in connection with court proceedings,
provided, that the executions of such Liens are effectively stayed
and such Liens are contested in good faith and as to which the
Borrower has established adequate reserves on its books;
(e) Liens arising in the ordinary course of business, including
encumbrances in the nature of zoning restrictions, easements, rights
and restrictions of record on the use of real property, which do not
materially interfere with the conduct of the business of the
Borrower;
(f) Liens incidental to the conduct of business or the
ownership of properties and assets (including warehousemen's and
attorney's liens, mechanics' liens, materialmen's liens, carriers'
liens and statutory landlords' liens) and Liens to secure the
performance of bids, tenders or trade contracts, or to secure
statutory obligations, surety or appeal bonds or other Liens of a
like general nature incurred in the ordinary course of business;
(g) Liens on fixed assets created or incurred within 180 days
of the date of acquisition to secure or provide for all or a portion
of the purchase price of such fixed assets provided that (i) such
liens do not extend to other property of the Borrower, and (ii) the
aggregate principal amount of Indebtedness secured by such Liens
does not exceed at the time of purchase or incurrence 100% of the
lesser of the fair market value or the purchase price of the fixed
assets subject to such Liens;
(h) Liens created upon the incurrence or assumption of capital
lease obligations or Indebtedness in connection with a
transaction permitted under this Loan Agreement; provided that (i)
such liens do not extend to the property of the Borrower, and (ii)
the aggregate principal amount of Indebtedness secured by such Liens
does not exceed at the time of purchase or incurrence 100% of the
lesser of the fair market value or the purchase price of the fixed
assets subject to such Liens; and
(i) Precautionary filings under the Uniform Commercial Code by
bailors, lessors or consignors.
L. SUBSIDIARY. As to Borrower, a corporation of which shares of stock
having ordinary voting power (other than stock having such power only by
reason of the happening of a contingency) to elect a majority of the board
of directors or other managers of such corporation are at the time owned,
or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by Borrower.
3
<PAGE> 4
M. TANGIBLE NET WORTH. Tangible Net Worth means the amount by which total
assets of Borrower and its Subsidiaries exceed total liabilities of
Borrower and its Subsidiaries in accordance with GAAP, less the net book
value of all items of the following character which are included in such
total assets: (a) goodwill, (b) organizational expense, (c) acquisition
expenses, (d) research and development expenses, (e) patents, trademarks,
trade names, and copyrights, (f) treasury stock, (g) stock held by
Borrower in any Subsidiary, (h) any advance to an Subsidiary, (i) any
advance to an officer of Borrower or any of its Subsidiaries, and (j) any
other assets of an intangible nature.
N. ACCOUNTING TERMS. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles, as in effect from
time to time, consistently applied ("GAAP").
2. LOANS.
A. LOANS. Bank hereby agrees to make Loans to Borrower in the aggregate
principal amount up to $25,000,000, consisting of one Loan in the
principal amount up to $10,000,000 to provide funds for working capital
(the "Line") and, one Loan in the principal amount up to $15,000,000 to
provide funds for up to 75% of the cost of capital items (the "Capital
Loan"). The obligations to repay the Loans are evidenced by promissory
notes of even date herewith (the promissory notes together with any and
all renewals, extensions or rearrangements thereof being hereafter
referred to as the "Notes"), having maturity dates, repayment terms,
prepayment terms and interest rates as set forth in the Notes.
B. REVOLVING CREDIT LINE. The Line provides for a revolving line of credit
under which Borrower may from time to time, borrow, repay and re-borrow
funds. Requests for advances under the Line shall be made by authorized
representatives of Borrower. Borrower shall provide Bank with the names of
its authorized representatives and any changes by notice as provided in
Section 10.
C. CAPITAL LOAN. The Capital Loan provides for a revolving line of credit
under which Borrower may borrower from time to time, borrow, repay and
re-borrower funds; provided, however, as of the end of each December 31,
commencing December 31, 1996, the then outstanding balance of the Capital
Loan shall be converted to a term loan requiring equal monthly payments of
principal over a period not exceeding 60 months. Bank will advance under
the Capital Loan only against purchase invoices presented by Borrower for
capital items and such advances shall be limited to 75% of the cost of
each such item.
D. FEES. Borrower will pay on the date hereof and on the first day of each
fiscal quarter thereafter until the Line is fully repaid, a loan fee of
$2500.00. Borrower will pay on the date hereof and on the first day of
each fiscal quarter thereafter until the Capital Loan is fully repaid, a
loan fee of $2500.00.
4
<PAGE> 5
E. BORROWING BASE. The Line is subject to the Borrowing Base Agreement
attached hereto as Exhibit A and by reference made a part hereof.
3. USE OF PROCEEDS. The proceeds of the advances under the Loan Documents will
be used as following:
A. LINE. The proceeds of the Line will be used solely for (1) the
repayment of certain indebtedness owed to existing lenders, (2)
reimbursement of all out-of-pocket expenses of Bank incurred in connection
with the negotiation and preparation of the Loan Documents, including
legal fees and expenses, and (3) working capital of Borrower.
B. CAPITAL LOAN. The proceeds of the Capital Loan will be used solely to
provide up to 75% of the cost of capital items acquired by Borrower for
use in its business.
4. CONDITIONS OF LENDING. The obligation of Bank to perform under this Loan
Agreement and to make advances under the Loan Documents is subject to the
performance by Borrower of the following conditions precedent:
A. LOAN DOCUMENTS. The Loan Documents shall have been duly authorized,
executed and delivered to Bank by all of the parties thereto.
B. AUTHORIZATION. The Bank shall have received certified board resolutions
in form and substance satisfactory to Bank whereby the directors of
Borrower authorize the execution, delivery and performance of the Loan
Documents.
C. INCUMBENCY AND SIGNATURE CERTIFICATE OF BORROWER. The Bank shall have
received a certificate dated as of the date of this Loan Agreement of the
Secretary or Assistant Secretary of Borrower certifying the names and true
signatures of the authorized officers authorized to sign the Loan
Documents to which it is a party and the other documents to be delivered
by Borrower under this Loan Agreement.
D. CHARTER. The Bank shall have received a copy of: (1) the Certificate of
Incorporation of Borrower, together with all amendments certified within
30 days of the date of this Loan Agreement by the Secretary of the State
of Delaware, or, with Bank's approval by its Secretary or Assistant
Secretary; (2) certificates of existence or good standing for Borrower,
issued within a date acceptable to Bank by the Secretary of State of the
States of Delaware and Mississippi and by the Secretary of State of each
additional state wherein it is required to qualify to do business or other
evidence, acceptable to Bank, of such qualifications; (3) a copy of the
Bylaws of Borrower certified within a date acceptable to Bank by its
Secretary or Assistant Secretary.
E. EXHIBITS, SCHEDULES. The Bank shall have received all of the exhibits
and schedules to the Loan Documents, in a form satisfactory to Bank.
5
<PAGE> 6
F. ATTORNEY'S OPINION. The Bank shall have received the written opinion of
legal counsel for Borrower approved by Bank to the effect that: (1)
Borrower is a duly organized and validly existing corporation in good
standing under the laws of the State of Delaware. The Borrower is duly
authorized to do business as foreign corporation under the laws of the
State of Mississippi; (2) Borrower has all requisite corporate power and
authority to execute, deliver and perform its obligations under each of
the Loan Documents; (3) the execution and delivery of each of the Loan
Documents and the performance of its obligations thereunder have been duly
authorized by all necessary corporate action on the part of Borrower; (4)
each of the Loan Documents has been duly executed and delivered and
constitutes the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms; (5) neither the
execution and delivery by Borrower of the Loan Documents, the performance
by Borrower of its obligations thereunder, nor the consummation of the
transactions contemplated thereby, constitutes or will result in a breach
of Borrower's Certificate of Incorporation or Bylaws, or constitutes or
will result in a violation of any law, rule or regulation, or any
judgment, order or decree of any court or governmental authority that is
applicable to Borrower; (6) neither the execution and delivery by Borrower
of the Loan Documents, the performance by Borrower of its obligations
thereunder, nor the consummation of the transactions contemplated thereby,
will conflict with, or result in any material breach of, or constitute a
default under, or result in the creation or imposition of any Lien (other
than Permitted Liens) upon any property or assets of Borrower pursuant to,
or require any consent not obtained under, any contract, indenture,
mortgage, deed of trust, lease, agreement or other instrument to which
Borrower is a party or by which it or any of its property or assets is
bound or to which it is subject; (7) the provisions of the security
agreement are effective to create, in favor of Bank valid and enforceable
security interests in Borrower's rights, title and interests in the
collateral described therein to the extent that a security interest can be
created therein under Article 9 of the UCC in the applicable jurisdiction;
(8) the Financing Statements to be filed in Mississippi are in appropriate
form for filing; (9) to the extent security interests in the collateral
can be perfected by filing financing statements in the applicable
jurisdictions under the UCC, upon proper filing of the financing
statements in the offices listed on Exhibit 5I attached hereto, the
security interests will be perfected and will secure payment of Borrower's
obligations; and (9) except as disclosed in an exhibit, there is no
action, suit or proceeding or governmental investigation pending or
threatened against Borrower, and no order, writ, judgment, injunction or
decree against Borrower before or by any court, arbitrator or governmental
or administrative body that challenges the validity of any of the Loan
Documents or the transactions contemplated thereby or that restrains,
prevents or imposes material adverse conditions upon, or seeks to
restrain, prevent or impose material adverse conditions upon, any such
transaction or that, if adversely decided, would have a material adverse
effect (i) on the business, condition or results of operations of
Borrower, taken as a whole, or (ii) upon the rights and remedies of Bank,
or (iii) the ability of Borrower to perform its obligations under the Loan
Documents.
G. REPRESENTATIONS AND WARRANTIES TRUE; NO DEFAULT. The Bank shall have
received a certificate from Borrower to the effect that the representations
and warranties set forth in Section 5 and in the other Loan Documents shall
be true and correct as of the date of the
6
<PAGE> 7
initial advance under the Loan Documents and that no Default or Event of
Default shall have occurred and be continuing.
H. INSURANCE. The Bank shall have received satisfactory evidence of the
insurance coverages required by Section 6E hereof.
I. MATERIAL ADVERSE CHANGE. For the period from April 30, 1995 to the
closing date, there shall have been (i) no material adverse change in the
business, operations, properties, assets or financial condition of Borrower
and its Subsidiaries taken as a whole and (ii) no occurrence or event which
shall have a material adverse effect on the rights and remedies of Bank or
on the ability of Borrower to perform its obligations to Bank. The Bank
shall not have become aware of any undisclosed materially adverse
information with respect to (i) the business, operations, properties,
assets or financial condition of Borrower or its Subsidiaries taken as a
whole, (ii) the ability of Borrower to perform its obligations under the
Loan Documents or (iii) the rights and remedies of Bank under the Loan
Documents.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to
Bank as follows:
A. GOOD STANDING. Borrower is a Delaware corporation with offices at, duly
organized, validly existing and in good standing under the laws of Delaware
and has the power and authority to own its property and to carry on its
business in each jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority to
execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized
by all proper and necessary action of the appropriate governing body of
Borrower. No consent or approval of any public authority or other third
party is required as a condition to the validity of any Loan Document, and
Borrower is in compliance with all laws and regulatory requirements to
which it is subject.
C. BINDING AGREEMENT. This Loan Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms, except to the extent
the enforceability thereof may be limited (i) by bankruptcy,
reorganization, or other similar laws affecting the rights and remedies of
creditors generally, or (ii) by the availability of any discretionary
equitable remedies.
D. LITIGATION. There is no proceeding involving Borrower or any of its
Subsidiaries pending or, to the knowledge of Borrower, threatened before
any court or governmental authority, agency or arbitration authority,
which would reasonably be expected to have a material adverse effect on
the financial condition of the Borrower, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Loan Agreement.
7
<PAGE> 8
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock provision,
partnership agreement or other document pertaining to the organization,
power or authority of Borrower and no provision of any existing agreement,
mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Loan Agreement and the other
Loan Documents.
F. OWNERSHIP OF ASSETS. Borrower and each of its Subsidiaries has good
title to its assets, and its assets are free and clear of Liens, except
(i) Permitted Liens which singularly or in the aggregate do not have a
material adverse effect on the financial condition or business of the
Borrower, and (ii) Liens on assets directly related to a plastics business
which are granted in favor of Deposit Guaranty National Bank.
G. TAXES. Borrower has filed or caused to be filed all tax returns that to
its knowledge are required to be filed (except for returns not yet due),
and has paid all taxes shown to be due and payable on said returns and all
other taxes, impositions, assessments, fees or other charges imposed on it
by governmental authority, agency, or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees, and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been reserved).
H. FINANCIAL STATEMENTS. The financial statements of Borrower heretofore
delivered to Bank have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there
has been no material adverse change in Borrower's financial condition or
operations since April 30, 1995. To the best of Borrower's knowledge, all
factual information furnished by Borrower to Bank in connection with this
Loan Agreement and the other Loan Documents is and will be accurate and
complete on the date as of which such information is delivered to Bank and
is not and will not be incomplete by the omission of any material fact
necessary to make such information not misleading.
I. PLACE OF BUSINESS. The records with respect to all intangible personal
property constituting a part of the collateral security for the Loan are
maintained at Borrower's chief executive office which has an address of
1500 Commerce Street, Greenwood, Mississippi 38930. All tangible personal
property constituting a part of the collateral security for the Loan is or
will be located at the specific locations set forth in the attached
Exhibit 5I.
J. ENVIRONMENTAL LAW COMPLIANCE. The conduct of Borrower's business
operations do not and will not violate any federal laws, rules or
ordinances for environmental protection, regulations of the Environmental
Protection Agency and any applicable local or state law, rule, regulation
or rule of common law and any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials and Borrower will not
use or permit any other party to use any Hazardous Materials at any of
Borrower's places of business or at any other property owned by Borrower
except such materials as are incidental
8
<PAGE> 9
to Borrower's normal course of business, maintenance and repairs and which
are handled in compliance with all applicable environmental laws. Borrower
agrees to permit Bank, its agents, contractors and employees to enter and
inspect any of Borrower's places of business or any other property of
Borrower at any reasonable times upon three (3) days prior notice for the
purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying with this
covenant and Borrower shall reimburse Bank on demand for the costs of any
such environmental investigation and audit. Borrower shall provide Bank,
its agents, contractors, employees and representatives with access to and
copies of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed of
by Borrower's business operations within five (5) days of the request
therefore.
K. LABOR DISPUTES AND ACTS OF GOD. Neither the business nor the properties
of Borrower or any Subsidiary are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God, or other casualty (whether or not covered
by insurance) materially and adversely affecting such business or
properties or the operation of Borrower or any Subsidiary.
L. ERISA. The Borrower and each Subsidiary is in substantial compliance in
all material respects with all applicable provisions of ERISA.
M. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. The Borrower and its
Subsidiaries have satisfied all judgments and neither Borrower nor any
Subsidiary is in material default with respect to any judgment, writ,
injunction, decree, rule, or regulation of any court, arbitrator, or
federal, state, municipal, or other governmental authority, commission,
board, bureau, agency, or instrumentality, domestic or foreign.
N. CONTINUATION OF REPRESENTATION AND WARRANTIES. All representations and
warranties made under this Loan Agreement shall be deemed to be made at
and as of the date hereof and at and as of the date of any future advance
under any Loan.
6. AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations
of Borrower under the Loan Documents, Borrower will, unless Bank consents
otherwise in writing (and without limiting any requirement of any other Loan
Document):
A. TANGIBLE NET WORTH. Maintain as of the end of each fiscal quarter a
Tangible Net Worth of not less than $17,500,000.00, plus 40% of the net
income after taxes for each fiscal year ending after the date hereof.
B. FUNDED DEBT RATIO. Maintain as of the end of each fiscal quarter a
Funded Debt Ratio of not more than 3.0 to 1.0.
C. CASH FLOW COVERAGE RATIO. Maintain as of the end of each fiscal quarter
a Cash Flow Coverage Ratio of not less than 2.0 to 1.0.
9
<PAGE> 10
D. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account
and other records at such reasonable times and as often as Bank may desire,
and pay the reasonable fees and disbursements of any accountants or other
agents of Bank selected by Bank for the foregoing purposes. Unless written
notice of another location is given to Bank, Borrower's books and records
will be located at Borrower's chief executive office set forth above. All
financial statements called for below shall be prepared in form and content
acceptable to Bank and by independent certified public accountants
acceptable to Bank.
In addition, Borrower will furnish to Bank:
(1) audited financial statements of Borrower for each fiscal year of
Borrower, within 150 days after the close of each such fiscal year;
(2) unaudited financial statements (including a balance sheet and
profit and loss statement) of Borrower for each quarter of each
fiscal year of Borrower, within 45 days after the close of each such
period;
(3) a borrowing base certificate within five days after the end of
each month;
(4) a compliance certificate for (and executed by an authorized
representative of) Borrower, concurrently with and dated as of the
date of delivery of each of the financial statements as required in
paragraphs (1) and (2) above, containing (a) a certification that
the financial statements of even date fairly present Borrower's
consolidated financial condition as of the date thereof and that the
Borrower is not in default under the terms of this Loan Agreement or
any of the other Loan Documents, and (b) computations and
conclusions, in such detail as Bank may request, with respect to
compliance with this Loan Agreement, and the other Loan Documents,
including computations of all quantitative covenants;
(5) if as of the end of any fiscal quarter the Funded Debt Ratio
shall exceed 1.0, an accounts receivable aging (listing of accounts
receivable aged from date of invoice) as of the end of such quarter;
and
(6) promptly such additional information, reports and statements
respecting the business operations and financial condition of
Borrower, from time to time, as Bank may reasonably request.
E. INSURANCE. Maintain insurance with responsible insurance companies on
such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets, business interruption insurance, workers compensation
10
<PAGE> 11
insurance and general liability insurance, all to be with such companies
and in such amounts as are satisfactory to Bank and with respect to
insurance on the collateral securing the Loan or referred to in any of the
Loan Documents, to contain a mortgagee clause naming Bank as a loss payee
or an additional insured (as applicable) as its interest may appear and
providing for at least 30 days prior notice to Bank of any cancellation
thereof. Satisfactory evidence of such insurance will be supplied to Bank
prior to funding under the Loan(s) and 30 days prior to each policy
renewal.
F. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
G. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of (i)
any condition, event or act which comes to its attention that would or
might materially adversely affect Borrower's financial condition or
operations, the collateral securing the Loan, or Bank's rights under the
Loan Documents, (ii) any litigation filed by or against Borrower, (iii)
any event that has occurred that would constitute an event of default
under any Loan Documents and (iv) any uninsured or partially uninsured
loss through fire, theft, liability or property damage in excess of an
aggregate of $250,000.
H. TAXES AND ASSESSMENTS; TAX INDEMNITY. Borrower shall (a) file all tax
returns and appropriate schedules thereto that are required to be filed
under applicable law, prior to the date of delinquency, (b) pay and
discharge all taxes, assessments and governmental charges or levies
imposed upon Borrower, upon its income and profits or upon any properties
belonging to it, prior to the date on which penalties attach thereto, and
(c) pay all taxes, assessments and governmental charges or levies that, if
unpaid, might become a Lien or charge upon any of its properties;
provided, however, that Borrower in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses
(b) and (c) so long as appropriate reserves are maintained with respect
thereto. If any tax is or may be imposed by any governmental entity in
respect of sales of Borrower's Inventory or the merchandise that is the
subject of such sales, or as a result of any other transaction of
Borrower, which tax Bank is or may be required to withhold or pay,
Borrower agrees to indemnify and hold harmless Bank in connection with
such taxes (including penalties and interest), and Borrower shall
immediately reimburse Bank for any such amounts paid by Bank, and such
amounts shall be added to the Secured Obligations pursuant to the terms
hereof.
I. MAINTENANCE. Maintain all of its tangible property in good condition
and repair and make all necessary replacements thereof, and preserve and
maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
11
<PAGE> 12
J. NOTIFICATION OF ENVIRONMENTAL CLAIMS. Borrower shall immediately advise
Bank in writing of (i) any and all enforcement, cleanup, remedial, removal,
or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws,
ordinances or regulations relating to any Hazardous Materials affecting
Borrower's business operations; and (ii) all claims made or threatened by
any third party against Borrower relating to damages, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous
Materials. Borrower shall immediately notify Bank of any remedial action
taken by Borrower with respect to Borrower's business operations.
7. NEGATIVE COVENANTS. Until full payment and performance of all obligations
of Borrower under the Loan Documents, Borrower will not, without the prior
written consent of Bank (and without limiting any requirement of any other Loan
Documents):
A. TRANSFER OF ASSETS. Sell, lease, assign or otherwise dispose of or
transfer any assets, except in the normal course of its business.
B. LIENS. Grant, suffer or permit any Lien on any of its assets now or
hereafter owned, except (i) Permitted Liens which singularly or in the
aggregate do not have a material adverse effect on the financial condition
or business of the Borrower, or (ii) Liens on assets directly related to a
plastics business which are granted in favor of Deposit Guaranty National
Bank.
C. CHARACTER OF BUSINESS. Change the general character of business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
D. CREATION OF DEBT. Incur, create or suffer to exist any indebtedness for
borrowed money, or issue, discount or sell any obligation of the Borrower,
excluding only: (a) the indebtedness to the Bank incurred under this Loan
Agreement; (b) indebtedness arising in the ordinary course of business
under a line of credit not to exceed the principal amount of $5,000,000
with Deposit Guaranty National Bank; and (c) seller financing not to
exceed the principal amount of $1,000,000, incurred in connection with the
acquisition of all of the issued and outstanding capital stock of
Universal Cork, Inc.
8. DEFAULT. Borrower shall be in default under this Loan Agreement and under
each of the other Loan Documents if (a) it shall default in the payment of any
amounts due and owing under the Loans and such default is not cured within ten
(10) days thereof, or (b) should it fail to timely and properly observe, keep or
perform any other term, covenant, agreement or condition in any Loan Document or
in any other loan agreement, promissory note, bond, trust indenture, security
agreement, deed of trust, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation and such failure is not cured within
thirty (30) days following written notice to Borrower thereof, or (c) should any
representation or warranty made by the Borrower in this Loan Agreement or which
is contained in any certificate, document, or financial or other statement
furnished at any time under
12
<PAGE> 13
or in connection with the Loans was materially untrue or misleading on or as of
the date made or deemed made. Notwithstanding the foregoing, Bank is not
required to give any notice of default and no cure period is permitted should
Borrower fail to timely and properly observe, keep or perform any term,
covenant, agreement or condition in subsections A, B, C, E, G or J of Section 6.
9. REMEDIES UPON DEFAULT. If an event of default shall occur Bank shall have
all rights, powers and remedies available under each of the Loan Documents as
well as all rights and remedies available at law or in equity.
10. NOTICES. All notices, requests or demands which any party is required or
may desire to give to any other party under any provision of this Loan Agreement
must be in writing delivered to the other party at the following address:
Borrower: National Picture & Frame Company
NPF Company
1500 Commerce Street
Greenwood, Mississippi 38930
Attn: M. Wesley Jordan, Jr., Vice President Finance and
Chief Financial Officer
Bank: NationsBank of Tennessee, N.A.
6363 Poplar Avenue, Suite 230
Memphis, Tennessee 38119
Attn: Lisa B. Barksdale, Vice President
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows: (i) if sent by hand delivery, upon delivery; (ii) if sent by mail,
upon the earlier of the date of receipt or five (5) days after deposit in the
U.S. Mail, first class postage prepaid; and (iii) if sent by commercial courier
guaranteeing next day delivery, upon the next business day after timely
delivery to the courier.
11. COSTS. EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank all costs
and expenses, including reasonable attorneys' fees incurred by Bank in
connection with (a) negotiation and preparation of this Loan Agreement and each
of the Loan Documents up to $3750, and (b) Bank's continued administration
thereof.
12. CONFIDENTIALITY. Bank agrees to keep confidential (and to cause its
officers, directors, employees, agents and representatives to keep
confidential), to the same extent, and in the same manner, as it protects its
own such comparable information, all information, material and documents
furnished to Bank by Borrower in connection with this Loan Agreement or any of
the other Loan Documents (the "Confidential Information"). Notwithstanding the
foregoing, the Bank shall be permitted to disclose Confidential Information (a)
to such of its officers, directors, employees, agents and representatives as
need to know such Confidential Information in connection with its participation
in any of the Loans contemplated hereby or the administration of the Loans,
13
<PAGE> 14
this Loan Agreement or the other Loan Documents; (b) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any governmental agency or authority; (c) to the extent such
Confidential Information (1) becomes publicly available other than as a result
of a breach of this Loan Agreement, (2) becomes available to the Bank on a
non-confidential basis from a source other than the Borrower, or (3) was
available to the Bank on a non-confidential basis prior to its disclosure to
the Bank by the Borrower; (d) to the extent the Borrower shall have consented
to such disclosure in writing; or (e) in connection with the sale of any
Collateral pursuant to the provisions of this Loan Agreement or any of the
other Loan Documents.
13. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows,
without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Bank
under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights
of Bank, and no delay in exercising any right shall operate as a waiver
thereof, nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to
accelerate and notice of acceleration. No notice to or demand on Borrower
in any case shall, of itself, entitle Borrower to any other or future
notice or demand in similar or other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted in accordance
with the laws of Tennessee and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Loan Agreement
is binding upon Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's rights or obligations hereunder shall be made
or be effective without Bank's prior written consent, nor shall it relieve
Borrower of any obligations hereunder. There is no third party beneficiary
of this Loan Agreement.
D. DOCUMENTS. All documents, certificates and other items required under
this Loan Agreement or the other Loan Documents to be executed and/or
delivered to Bank shall be in form and content satisfactory to Bank and
its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision
of this Loan Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or
14
<PAGE> 15
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
F. INDEMNIFICATION. Borrower shall indemnify, defend and hold Bank and its
successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions contemplated
hereby, including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous
Materials, arising from Borrower's business operations, any other property
owned by Borrower or in the surface or ground water arising from Borrower's
business operations, or gaseous emissions arising from Borrower's business
operations or any other condition existing or arising from Borrower's
business operations resulting from the use or existence of Hazardous
Materials, whether such claim proves to be true or false. Borrower further
agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of Borrower, regardless of whether Borrower has paid the employee
under the workmen's compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term
"property damage" as used in this paragraph includes, but is not limited
to, damage to any real or personal property of Borrower, Bank, and of any
third parties. The Borrower's obligations under this paragraph shall
survive the repayment of the Loan and any deed in lieu of foreclosure or
foreclosure of any deed to secure debt, deed of trust, security agreement
or mortgage securing the Loan.
The foregoing notwithstanding, the indemnity provided herein does not
apply with respect to any claims, demands, suits, losses, damages,
assessments, fines, penalties, costs or other expenses to the extent they
arise directly out of the Bank's gross negligence or willfull misconduct.
G. SURVIVABILITY. Except as otherwise provided herein, all covenants,
agreements, representations and warranties made herein or in the other
Loan Documents shall survive the making of the Loan and shall continue in
full force and effect so long as the Loan is outstanding or the obligation
of Bank to make any advances under the Line shall not have expired.
H. NUMBER AND GENDER. The use of any gender pronoun shall be deemed to
include all other genders, and the use of any singular noun, pronoun, or
verb shall be deemed to include the plural, and vice versa, whenever the
context plainly requires.
I. LIMITATION OF LIABILITY. In administering the loan evidenced and
secured by the Loan Documents and dealing with the collateral securing
the Loan, Bank makes no representation and assumes no responsibility to
Borrower, or any other Person with respect to: (a) the value,
marketability, quality, quantity, ownership or condition of any of the
collateral securing the Loan or covered by the Loan Documents; or (b) the
truth, correctness,
15
<PAGE> 16
validity or enforceability of any instrument, certificate, inventory,
appraisal, opinion or other document delivered or to be delivered to Bank
in connection with the Loan Documents. Nothing in the Loan Documents will
entitle any parties other than Bank and Borrower to rely thereon and no
Person will be deemed a third party beneficiary thereof. So long as Bank
acts in good faith in the administration of the loan evidenced by the Loan
Documents and the enforcement of the Loan Documents, Bank will incur no
liability whatsoever to Borrower, or any other party and will be
responsible only for the gross negligence and willful misconduct of Bank
and Bank's agents, officers and employees. The Bank will have the right to
consult with legal counsel of Bank's choice and to be fully exonerated
from liability for any action taken in good faith in accordance with the
advice of such legal counsel.
J. VENUE AND JURISDICTION. It is agreed that the debt evidenced by the
Loan Documents was contracted in Shelby County, Tennessee, and Borrower's
Note, the Loan Documents and all other instruments of indebtedness are
hereby deemed to have been given when received and accepted by the Bank at
the Bank's principal offices in Memphis, Tennessee. The Borrower and Bank
hereby waive all objections to venue and consent to the jurisdiction of
any state or federal court located in Shelby County, Tennessee in
connection with any action instituted by the Bank or Borrower by reason of
or arising out of the execution, delivery or performance of any of the
Loan Documents.
K. FURTHER ASSURANCES. The parties further agree that upon request, they
shall do such further acts and deeds, and shall execute, acknowledge,
deliver and record such other documents and instruments, as may be
reasonably necessary from time to time to evidence, confirm or carry out
the intent and purposes of this Loan Agreement.
14. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS LOAN
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), AND THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS LOAN AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
LOAN AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
MEMPHIS AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
16
<PAGE> 17
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS LOAN AGREEMENT SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS LOAN AGREEMENT; OR (II)
BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS LOAN AGREEMENT.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE RIGHT OF THE
CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OF
CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
15. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed under seal by their duly authorized representatives as of the
date first above written.
<TABLE>
<S> <C>
Bank: Borrower:
NATIONSBANK OF TENNESSEE, N.A. NATIONAL PICTURE & FRAME
COMPANY
By: By:
------------------------------------ --------------------------------------
Lisa B. Barksdale, Vice President M. Wesley Jordan, Jr., Vice President
Finance and Chief Financial Officer
NPF COMPANY
By:
--------------------------------------
M. Wesley Jordan, Jr., Vice President
Finance and Chief Financial Officer
</TABLE>
18
<PAGE> 1
EXHIBIT 10.12
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into
as of April 24, 1996, by and between G. Harold Goodwin ("Consultant") and NPF
Company, a Delaware corporation (the "Company"). The Company and Consultant
are sometimes collectively referred to herein as the "Parties" and individually
as a "Party".
WHEREAS, Consultant has been an employee, officer, director
and stockholder of Universal Cork, Inc., an Ohio corporation ("Universal"), and
as such, possesses special knowledge, abilities and experience regarding the
business of Universal. The Company and the stockholders of Universal are
parties to a Stock Purchase Agreement, dated April 24, 1996 (the "Purchase
Agreement"), whereby the Company shall purchase all of the issued and
outstanding shares of Universal's capital stock. Upon consummation of the
transactions contemplated by the Purchase Agreement, Universal shall become a
wholly-owned subsidiary of the Company. The Company desires to obtain the
services of Consultant to consult with and perform services as an independent
contractor for the Company with respect to its businesses, and Consultant
desires to provide services to the Company upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1. Consulting Services. The Company hereby engages
Consultant as an independent contractor, and not as an employee, to render
consulting services to the Company as hereinafter provided, and Consultant
hereby accepts such engagement, for a period commencing on the Closing Date (as
defined in the Purchase Agreement) and terminating on the first anniversary of
the Closing (the "Consulting Period"). Consultant shall not have any authority
to bind or act on behalf of the Company. During the Consulting Period,
Consultant shall render such consulting services to the Company in connection
with the Company's business as the Company from time to time reasonably
requests and which shall be consistent with Consultant's past services for
Universal; provided that during the first six months of the Consulting Period,
Consultant shall not be required to perform such services for more than three
weeks out of every month; provided further that after the first six months of
the Consulting Period, Consultant shall not be required to perform such
services for more than two weeks out of every month; and provided further that
Consultant shall not be required to perform such services for more than 30
weeks during the Consulting Period.
2. Compensation; Reimbursement. As long as Consultant
continues to comply with the provisions of Sections 3 and 4 below, in
consideration of Consultant's consulting services set forth in paragraph 1
above, the Company shall pay to Consultant $7,500 on the first day of each of
the twelve months following the Closing Date. Consultant shall not be entitled
to any fringe benefits or perquisites from the Company. The Company shall
reimburse Consultant for reasonable
<PAGE> 2
expenses for (w) air travel between Cleveland, Ohio and Greenwood, Mississippi
(coach class, excursion rates where applicable), (x) lodging at the Hampton Inn
in Greenwood, Mississippi, (y) meals, local travel, transportation and car
rental fees while is Mississippi and (z) local travel to and from, and parking
fees at, the airport in Cleveland, Ohio in each case incurred by Consultant in
the course of performing the duties specified in this Agreement, subject to the
Company's policies with respect to reporting and documentation of such
expenses. The Company's obligation to make payments to Consultant pursuant to
this Section 2 shall not be affected by the death or permanent disability of
Consultant.
3. Confidential Information. Consultant acknowledges
that the information, observations and data relating to the business of
Universal and the Company which Consultant has obtained as an employee,
officer, director and stockholder of Universal or which Consultant shall obtain
during the course of Consultant's association with the Company and its
subsidiaries and Consultant's performance under this Agreement are the property
of the Company and its subsidiaries. Consultant agrees that Consultant shall
not use for Consultant's own purposes or disclose to any third party any of
such information, observations or data without the prior written consent of the
President of the Company (the "President"), unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Consultant's acts or omissions. Consultant
shall deliver to the Company at the end of the Consulting Period, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documentation (and
copies thereof) relating to the business of Universal or the Company and its
subsidiaries which Consultant may then possess or have under Consultant's
control.
4. Inventions and Patents. Consultant acknowledges that
all inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether
patentable or not) which relate to the actual business, research and
development (pending or undertaken by the Company during, or prior to, the
Consulting Period, and of which Consultant has actual knowledge) or existing
products or services of the Company and its subsidiaries and which are
conceived, developed or made by Consultant during the Consulting Period ("Work
Product") belong to the Company. Consultant shall promptly disclose such Work
Product to the President and perform all actions reasonably requested by the
President (whether during or after the Consulting Period) to establish and
confirm such ownership (including, without limitation, assignments, powers of
attorney and other instruments).
5. Tax Returns. Consultant shall file all tax returns
and reports required to be filed by him on the basis that Consultant is an
independent contractor, rather than an employee, as defined in Treasury
Regulation Section 31.3121(d)-1(c)(2).
6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company and its affiliates,
successors and assigns and shall be binding upon and inure to the benefit of
Consultant and Consultant's legal representatives and assigns; provided that in
no event shall Consultant's obligations to perform future services for the
Company be delegated or transferred by Consultant without the prior written
consent of the Company (which consent may
2
<PAGE> 3
be withheld in the Company's sole discretion). The Company may assign or
transfer its rights hereunder to any of its affiliates or to a successor
corporation in the event of merger, consolidation or transfer or sale of all or
substantially all of the assets of Universal or the Company.
7. Modification or Waiver. No amendment, modification
or waiver of this Agreement shall be binding or effective for any purpose
unless it is made in a writing signed by the Party against which enforcement of
such amendment, modification or waiver is sought. No course of dealing between
the Parties to this Agreement shall be deemed to affect or to modify, amend or
discharge any provision or term of this Agreement. No delay on the part of the
Company or Consultant in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise
by the Company or Consultant of any such right or remedy shall preclude other
or further exercises thereof. A waiver of right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy on any
other occasion.
8. Governing Law. All issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by, and construed in accordance with, the laws of the State
of Mississippi, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Mississippi or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Mississippi.
9. Severability. Whenever possible each provision and
term of this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision or term of this Agreement
shall be held to be prohibited by or invalid under such applicable law, then
such provision or term shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
10. No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the Parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against any Party.
11. Consultant's Representations. Consultant represents
and warrants to the Company that (i) Consultant's execution, delivery and
performance of this Agreement does not and shall not conflict with, or result
in the breach of or violation of, any other agreement, instrument, order,
judgment or decree to which Consultant is a party or by which Consultant is
bound, (ii) Consultant is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity and (iii) upon the execution and delivery of this Agreement, this
Agreement shall be the valid and binding obligation of Consultant, enforceable
in accordance with its terms.
12. Notice. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or one day after being sent by Federal Express or other reputable
overnight carrier or five days after being sent by certified or registered mail
addressed to the other Party hereto at such Party's address shown below:
3
<PAGE> 4
If to the Company:
NPF Company
1500 Commerce Street
Greenwood, MS 38930
Attn: M. Wesley Jordan, Jr.
If to Consultant:
G. Harold Goodwin
14508 South Industrial Avenue
Maple Heights, OH 44137
or at such other address as such Party may designate by written notice to the
other Party.
13. Captions. The captions used in this Agreement are
for convenience of reference only and do not constitute a part of this
Agreement and shall not be deemed to limit, characterize or in any way affect
any provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
14. Counterparts. This Agreement may be executed in
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
15. Indemnification. The Company agrees to indemnify,
defend and hold Consultant, Consultant's heirs, representatives and assigns
(collectively referred to in this section 15 as "Consultant") harmless from and
against any and all claims, demands, causes of action, suits, judgments,
settlements, liabilities, losses, damages and expenses (including reasonable
attorney's fees and court costs) ("Losses") that may be sustained or suffered
by Consultant resulting from or relating to (i) acts or omissions of the
Company, its employees, agents or independent contractors, (ii) injury or
death, or property damage suffered by third parties resulting from defective
Company products, transportation of the Company's products or sustained by an
employee of the Company, or (iii) infringement of property rights of third
parties; provided that the Company will not indemnify, defend or hold
Consultant harmless from or against any Losses resulting from or relating to
acts or omissions of Consultant. This provision will survive the termination
of this Agreement.
* * * *
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this
Consulting Agreement as of the date first above written.
NPF COMPANY
By:_________________________
Its:________________________
____________________________
G. HAROLD GOODWIN
5
<PAGE> 1
EXHIBIT 10.13
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into
as of April 24, 1996, by and between Cynthia S. Goodwin ("Consultant") and NPF
Company, a Delaware corporation (the "Company"). The Company and Consultant
are sometimes collectively referred to herein as the "Parties" and individually
as a "Party".
WHEREAS, Consultant has been an employee and officer of
Universal Cork, Inc., an Ohio corporation ("Universal"), and as such, possesses
special knowledge, abilities and experience regarding the business of
Universal. The Company and the stockholders of Universal are parties to a
Stock Purchase Agreement, dated April 24, 1996 (the "Purchase Agreement"),
whereby the Company shall purchase all of the issued and outstanding shares of
Universal's capital stock. Upon consummation of the transactions contemplated
by the Purchase Agreement, Universal shall become a wholly-owned subsidiary of
the Company. The Company desires to obtain the services of Consultant to
consult with and perform services as an independent contractor for the Company
with respect to its businesses, and Consultant desires to provide services to
the Company upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
1. Consulting Services. The Company hereby engages
Consultant as an independent contractor, and not as an employee, to render
consulting services to the Company as hereinafter provided, and Consultant
hereby accepts such engagement, for a period commencing on the Closing Date (as
defined in the Purchase Agreement) and terminating on the first anniversary of
the Closing (the "Consulting Period"). Consultant shall not have any authority
to bind or act on behalf of the Company. During the Consulting Period,
Consultant shall render such consulting services to the Company in connection
with the Company's business as the Company from time to time requests and which
shall be consistent with Consultant's past services for Universal, which
services shall require Consultant's full business time and attention; provided
that after such time as the Company relocates substantially all of Universal's
operations to its manufacturing facility in Greenwood, Mississippi, Consultant
shall not be required to perform such services for more than one week out of
every month; and provided further that Consultant shall not be required to
perform such services for more than 18 weeks during the Consulting Period.
2. Compensation; Reimbursement. As long as Consultant
continues to comply with the provisions of Sections 3 and 4 below, in
consideration of Consultant's consulting services set forth in paragraph 1
above, the Company shall pay to Consultant $2,917 on the first day of each of
the twelve months following the Closing Date. Consultant shall not be entitled
to any fringe benefits or perquisites from the Company. The Company shall
reimburse Consultant for reasonable
<PAGE> 2
expenses for (w) air travel between Cleveland, Ohio and Greenwood, Mississippi
(coach class, excursion rates where applicable), (x) lodging at the Hampton Inn
in Greenwood, Mississippi, (y) meals, local travel, transportation and car
rental fees while is Mississippi and (z) local travel to and from, and parking
fees at, the airport in Cleveland, Ohio in each case incurred by Consultant in
the course of performing the duties specified in this Agreement, subject to the
Company's policies with respect to reporting and documentation of such
expenses. The Company's obligation to make payments to Consultant pursuant to
this Section 2 shall not be affected by the death or permanent disability of
Consultant.
3. Confidential Information. Consultant acknowledges
that the information, observations and data relating to the business of
Universal and the Company which Consultant has obtained as an employee and
officer of Universal or which Consultant shall obtain during the course of
Consultant's association with the Company and its subsidiaries and Consultant's
performance under this Agreement are the property of the Company and its
subsidiaries. Consultant agrees that Consultant shall not use for Consultant's
own purposes or disclose to any third party any of such information,
observations or data without the prior written consent of the President of the
Company (the "President"), unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other
than as a result of Consultant's acts or omissions. Consultant shall deliver
to the Company at the end of the Consulting Period, or at any other time the
Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documentation (and copies thereof)
relating to the business of Universal or the Company and its subsidiaries which
Consultant may then possess or have under Consultant's control.
4. Inventions and Patents. Consultant acknowledges that
all inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether
patentable or not) which relate to the actual business, research and
development (pending or undertaken by the Company during, or prior to, the
Consulting Period, and of which Consultant has actual knowledge) or existing
products or services of the Company and its subsidiaries and which are
conceived, developed or made by Consultant during the Consulting Period ("Work
Product") belong to the Company. Consultant shall promptly disclose such Work
Product to the President and perform all actions reasonably requested by the
President (whether during or after the Consulting Period) to establish and
confirm such ownership (including, without limitation, assignments, powers of
attorney and other instruments).
5. Tax Returns. Consultant shall file all tax returns
and reports required to be filed by him on the basis that Consultant is an
independent contractor, rather than an employee, as defined in Treasury
Regulation Section 31.3121(d)-1(c)(2).
6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company and its affiliates,
successors and assigns and shall be binding upon and inure to the benefit of
Consultant and Consultant's legal representatives and assigns; provided that in
no event shall Consultant's obligations to perform future services for the
Company be delegated or transferred by Consultant without the prior written
consent of the Company (which consent may be withheld in the Company's sole
discretion). The Company may assign or transfer its rights
2
<PAGE> 3
hereunder to any of its affiliates or to a successor corporation in the event
of merger, consolidation or transfer or sale of all or substantially all of the
assets of Universal or the Company.
7. Modification or Waiver. No amendment, modification
or waiver of this Agreement shall be binding or effective for any purpose
unless it is made in a writing signed by the Party against which enforcement of
such amendment, modification or waiver is sought. No course of dealing between
the Parties to this Agreement shall be deemed to affect or to modify, amend or
discharge any provision or term of this Agreement. No delay on the part of the
Company or Consultant in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise
by the Company or Consultant of any such right or remedy shall preclude other
or further exercises thereof. A waiver of right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy on any
other occasion.
8. Governing Law. All issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by, and construed in accordance with, the laws of the State
of Mississippi, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Mississippi or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Mississippi.
9. Severability. Whenever possible each provision and
term of this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision or term of this Agreement
shall be held to be prohibited by or invalid under such applicable law, then
such provision or term shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement.
10. No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the Parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against any Party.
11. Consultant's Representations. Consultant represents
and warrants to the Company that (i) Consultant's execution, delivery and
performance of this Agreement does not and shall not conflict with, or result
in the breach of or violation of, any other agreement, instrument, order,
judgment or decree to which Consultant is a party or by which Consultant is
bound, (ii) Consultant is not a party to or bound by any employment agreement,
noncompete agreement or confidentiality agreement with any other person or
entity and (iii) upon the execution and delivery of this Agreement, this
Agreement shall be the valid and binding obligation of Consultant, enforceable
in accordance with its terms.
12. Notice. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or one day after being sent by Federal Express or other reputable
overnight carrier or five days after being sent by certified or registered mail
addressed to the other Party hereto at such Party's address shown below:
3
<PAGE> 4
If to the Company:
NPF Company
1500 Commerce Street
Greenwood, MS 38930
Attn: M. Wesley Jordan, Jr.
If to Consultant:
Cynthia S. Goodwin
14508 South Industrial Avenue
Maple Heights, OH 44137
or at such other address as such Party may designate by written notice to the
other Party.
13. Captions. The captions used in this Agreement are
for convenience of reference only and do not constitute a part of this
Agreement and shall not be deemed to limit, characterize or in any way affect
any provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
14. Counterparts. This Agreement may be executed in
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
15. Indemnification. The Company agrees to indemnify,
defend and hold Consultant, Consultant's heirs, representatives and assigns
(collectively referred to in this section 15 as "Consultant") harmless from and
against any and all claims, demands, causes of action, suits, judgments,
settlements, liabilities, losses, damages and expenses (including reasonable
attorney's fees and court costs) ("Losses") that may be sustained or suffered
by Consultant resulting from or relating to (i) acts or omissions of the
Company, its employees, agents or independent contractors, (ii) injury or
death, or property damage suffered by third parties resulting from defective
Company products, transportation of the Company's products or sustained by an
employee of the Company, or (iii) infringement of property rights of third
parties; provided that the Company will not indemnify, defend or hold
Consultant harmless from or against any Losses resulting from or relating to
acts or omissions of Consultant. This provision will survive the termination
of this Agreement.
* * * *
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this
Consulting Agreement as of the date first above written.
NPF COMPANY
By:_________________________
Its:________________________
____________________________
CYNTHIA S. GOODWIN
<PAGE> 1
[LOGO]
1996 ANNUAL REPORT
NATIONAL PICTURE & FRAME COMPANY
---------------
Delivering Value and Fashion
in Home Decor
MADE IN U.S.A.
<PAGE> 2
Corporate Profile
National Picture & Frame Company is a leading manufacturer of picture frames,
framed art, framed mirrors and other items for home decor. The company's
products are distributed by major retailers, generating revenue of $67
million in fiscal 1996. Headquartered in Greenwood, MS, National Picture &
Frame Company operates two plants and employs approximately 600 people. The
company's common stock trades on the Nasdaq National Market System under the
symbol NPAF.
<PAGE> 3
FINANCIAL HIGHLIGHTS
FOR THE FISCAL YEAR ENDED APRIL 30, 1996,
NATIONAL PICTURE & FRAME COMPANY DEMONSTRATED
GROWTH IN SEVERAL KEY AREAS:
- Net sales increased to $67.17 million from
$60.79 million in fiscal 1995
- Operating income grew to $8.66 million from
$8.63 million
- Net income rose to $5.06 million from
$5.03 million
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1993 $44,357
1994 $51,293
1995 $60,794
1996 $67,169
</TABLE>
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1993 $ 3,099
1994 $ 6,369
1995 $ 8,634
1996 $ 8,659
</TABLE>
Pro forma(1)
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1993 $ 1,571
1994 $ 2,666
1995 $ 5,028
1996 $ 5,061
</TABLE>
Pro forma(1)
(1) The 1993 amounts are pro forma assuming acquisition of predecessor and the
initial public offering of the company's common stock occurred on May 1,
1992.
1
<PAGE> 4
SHAREHOLDER LETTER
[PHOTO OF JESSE LUXTON]
JESSE LUXTON
President and Chief Executive Officer
Dear Fellow Shareholders:
National Picture & Frame Company became more than a manufacturer of picture
frames in 1996. We expanded our product offerings, strengthening our core lines
so that we could easily switch our focus to reflect changing trends in home
furnishings. The acquisition of Universal Cork at the end of the fiscal year
gave us a new core competency -- cork and other board products -- as well as
increased penetration of important new distribution channels and additional
revenue that will be reflected in fiscal 1997.
Because of this flexibility in core product lines, National increased net sales
about 10 percent, to $67 million compared with $61 million in 1995. By
comparison, the picture frame industry grew only about three to four percent.
Our ability to move quickly and take advantage of growth opportunities sets us
apart from other companies that manufacture only picture frames. One of our
largest selling items in 1996, the windowpane mirror, didn't even exist among
our product offerings in 1995.
Net income increased slightly to $5.1 million for the fiscal year ended April
30, 1996 from $5.0 million for the fiscal year ended April 30, 1995, or $1.02
per share versus $1.01 per share, on 4,973,000 weighted average shares
outstanding compared with 5,000,000 weighted average shares outstanding in the
prior year. Growth
2
<PAGE> 5
SHAREHOLDER LETTER
in net income lagged the growth in revenues because we prepared for the future
by strengthening our infrastructure in several important ways. National's
management organization and facilities are now positioned to take the company to
the next level of growth.
NEW MANAGEMENT BRINGS MORE
TALENT TO NATIONAL
During the year, we added key people in some important areas. At the
senior management level, M. Wesley Jordan, Jr. completed his first full year as
chief financial officer. He brought significant expertise in financial
management that allowed us to structure more-favorable banking relationships
(including $30 million agreements with NationsBank and Deposit Guaranty
National Bank), better fulfill our responsibilities as a publicly-held company
and save significant dollars on workers compensation through more-astute risk
management. Wes also thoroughly understands acquisitions and business
valuations, areas that are increasingly important to National.
As our plastics factory acquired more sophisticated equipment and techniques, we
needed an experienced manager. John Barlow came to National as an expert in
polymers, working most recently with Chevron Oil. One of the accomplishments he
spearheaded in 1996 was reducing the density of our plastic moldings, which
substantially increased our yield from styrene. In addition to putting
leading-edge technology into production, he also assumed management of our
three-shift extrusion operation. John's experience helped us reach new
milestones in the extrusion area, including productivity increases that nearly
doubled our extrusion capability -- changes that directly affect our
manufacturing costs.
To better control the cost of raw materials -- which totaled $32.7 million last
year -- as well as other purchasing responsibilities, we brought on board Tom
Walburgh as materials manager. He helped reduce our inventories (excluding
Universal Cork) by approximately $2 million, to approximately $7 million
at year end 1996. This reduction led to more-favorable inventory turns as well
as decreased dependence on outside financing. The integrated manufacturing
system installed in fiscal 1994 has been an important tool for Tom and his
associates.
We also expanded our creative design department, now headed by our new director
of marketing and product development, Chuck Polandick. Chuck is widely regarded
as one of the leading designers of wall decor in the United States, specifically
in mass-market decorator products. With Chuck on board and some new
technology (including digital photography and
3
<PAGE> 6
SHAREHOLDER LETTER
computer-aided design software), our design team brought creative new products
to market quickly and successfully.
VALUE AND FASHION REMAIN KEY INITIATIVES
All of these changes helped strengthen our ongoing commitment to delivering
value and fashion in home decor. Our value orientation is rooted in low-cost
production with a fashion focus, bringing product to market quickly with
attractive margins for retailers at compelling prices.
Productivity per employee rose dramatically this year, to $114,000 per person
compared with $100,000 in 1995 and $94,000 in 1994. That's an increase of 21
percent during the past three years. Gross margin remained relatively stable in
the mid-20 percent range.
Capital expenditures on new equipment helped fuel this productivity increase. In
the polystyrene extrusion area, we effectively doubled the extrusion rate on
some types of moldings. In wood, new molders added 62 percent more throughput,
at much higher quality levels. New finishing equipment in the wood factory
increased productivity by 38 percent, reducing the number of steps and the total
time required to finish a piece of molding.
From a sales perspective, increasing net sales 10 percent was only part of the
success we achieved in 1996. During 1996, our product mix changed
significantly, reflecting new trends within the home decor marketplace. While
still staying within the core competencies we've established, we took advantage
of opportunities to sell more framed art and mirrors. Mirrors accounted for $13
million in sales, up from $8 million in the prior year. Net sales from framed
art increased to $9 million from $7 million. Together, these two categories
were responsible for the revenue growth we saw in fiscal 1996.
As mentioned earlier, one of our best-selling items was the windowpane mirror, a
new product in 1996. We identified the trend in home furnishings -- the
"country" look -- that generated demand for this product, and National was well
prepared to take advantage of this new fashion statement. Our expertise in wood
frames and in framed mirrors transferred well. This is only one example of our
ability to adapt and diversify.
Our $2.4 million acquisition of Universal Cork at the end of the fiscal year
exemplifies our commitment to value and fashion in several ways. First, like
National, Universal is a low-cost supplier in its field. Second, cork products
will become another core product group for National where we believe we can
compete with attractive margins and fashion-focused products (framed cork
boards, dry-erase boards and chalk-
4
<PAGE> 7
SHAREHOLDER LETTER
boards). Finally, Universal gives us better entry into the home improvement and
hardware stores, which we have targeted for increased growth in fiscal 1997.
Universal Cork also makes sense from a production standpoint, which is another
criteria for success within National. The operations of Universal are being
fully integrated with our Greenwood facilities. The peak seasons of the two
businesses are quite complementary. Universal's highest sales occur
during July and September, which correspond with slow months for National, while
National's sales peak during November and April, which are low months for
Universal. Thus, combining the production of both companies will help even out
capacity utilization.
Our continuity business -- the steady day-in, day-out movement of product that
helps make our business more predictable -- is crucial to National's growth.
Building this portion of our business is very important, because it's
manufacturing friendly and enables us to use our production facilities most
efficiently. Although promotional business may give us entry to new customers,
along with strong profit margins, the continuity business is our bread and
butter.
As we move into fiscal 1997, we expect National to continue these positive
moves. In fiscal 1996, we expanded our structure to accommodate sales growth.
During the coming year, we hope to retain our double-digit revenue growth rate
and move forward with new products and expanded distribution channels. At the
same time, we will build our continuity business with leading retailers in key
distribution channels -- companies like Price/Costco, Michael's, Frank's
Nursery, Lowe's and Target. The people at National are excited about the
opportunities ahead and we look forward to sharing our success with you.
Sincerely,
Jesse C. Luxton
Jesse C. Luxton, President and CEO
July 5, 1996
5
<PAGE> 8
VALUE
National has built its reputation by striving to be the low-cost producer in
the areas in which we have chosen to compete -- while retaining our fashion
orientation. Low-cost production is one way that we provide value to
customers, along with the flexibility to meet their rapidly changing needs.
6
<PAGE> 9
FOCUS ON VALUE IN HOME DECOR
PRODUCTION IMPROVEMENTS STRENGTHEN POSITION
AS LOW-COST PROVIDER
The volume of frames produced at the Greenwood facilities has established
National as one of the three largest domestic manufacturers of picture frames.
During fiscal 1996, National made 22 million plastic frames, 5.2 million metal
frames and 3.6 million wood frames. Economies of scale bring important cost
savings, much of which can be passed along to the consumer. Automation is used
judiciously, however, giving consideration to any loss of flexibility that would
hamper National's ability to meet customer's needs and stay in touch with
rapidly changing trends in home decor.
We are constantly looking for ways to decrease costs and our efforts in 1996
were no exception. We engineered higher yields with new equipment, some of
which replaced labor with automation. Analyzing our workflow to determine the
absolute minimum number of steps required from production through shipping
led to revised layouts of our factories.
Vertical integration is one key to cost efficiency. In wood frame production,
National is as vertically integrated as necessary, without actually owning
timberland and harvesting trees for lumber. During the past year, increased
productivity resulted from new multi-step ovens. We can now finish wood
moldings in one pass instead of using complicated finishing configurations with
more equipment that were labor intensive and time consuming.
Similarly, in the plastic frame production, National is striving to extrude all
moldings inhouse -- even fancier embossed moldings, a process that was refined
during the past year as part of the EnviroMold(TM) production. Inhouse
extrusion has saved 40 to 50 percent over the cost of purchased moldings (or an
average of 40 to 50 cents per sales unit). During the past year, National
commissioned state-of-the-art technology and tooling that could potentially
double the capacity of all of our plastic extruders, still with a very large
range of molding profiles.
We also developed a method of recycling our polystyrene "sawdust," the minute
particles left over when the frame moldings are mitered. Previously, this
leftover material was unusable because the particles were too small to
reprocess. We discovered a technique that allows us to recycle 100 percent of
our waste, saving money through increased yields as well as lessening
adverse environmental impact.
OTHER PRODUCTION ASPECTS MINIMIZE COSTS,
INCREASE FLEXIBILITY
The company utilizes just-in-time inventory controls for both raw materials and
finished goods, which helps the company remain flexible in producing customized
orders quickly. National expects to improve its ability to acquire large
quantities of raw materials--for example, plans are underway to build a railroad
spur near the plastics factory to cut transportation costs for the delivery of
polystyrene pellets.
Strong purchasing relationships give National access to large quantities of
materials that can be supplied quickly. Volume discounts also result from the
negotiating power of National's large purchases of lumber, polystyrene, paint
and other raw materials. However, many of these materials are highly
sensitive to "commodity" pricing that makes negotiation difficult. By
7
<PAGE> 10
FOCUS ON VALUE IN HOME DECOR
partnering with selected vendors National often can bring considerable
cost savings to the production process and thus make its pricing even more
attractive to customers.
COMPUTER SOFTWARE AIDS PLANT EFFICIENCY
National's ability to pinpoint all steps of the production process through
computer software also helps set us apart from competitors. Our integrated
manufacturing system has been in place for two years now and is a valuable
tool. We use this system for scheduling, distribution and purchasing. This
software system helps us look at orders pending as well as forecasts,
projecting what is needed sequentially in terms of labor and materials. It
also gives us real-time information that aids inventory management and cost
estimates. It enables us to serve the increasing number of retailers who
demand 95+ percent fill rates and on-time delivery as a condition for
continuing a growing business relationship.
Radio frequency is another important tool that allows us to know at any given
moment the location of raw materials, work in progress and finished goods
inventory. We achieve this by scanning the bar code on each item and reporting
its movement via radio frequency throughout the production facilities. This
system has been a tremendous help in ensuring that we can manage products
quickly and accurately for on-time and complete shipments.
PRODUCTIVITY AND SAFETY INCREASE
National's work force of 500 to 600 employees (the number fluctuates depending
upon the season) is empowered to make improvements, save money and enhance
safety. Turnover among employees has been dramatically reduced during the past
three years, falling to 18 percent in calendar 1995 from 43 percent in 1993.
More careful screening of potential employees, combined with improvements that
make National a better, safer place to work, contributed to the turnover
reduction -- which of course is a productivity enhancement.
Yield and productivity are carefully measured, and the safety focus is on
prevention. National has received awards for safety and positive audits from
OSHA and the Department of Environmental Quality.
UNIVERSAL CORK'S PRODUCTION TO BE INTEGRATED
WITH WOOD FRAMES
Universal Cork's production will be merged into the Greenwood facility in early
fiscal 1997. The wood factory will be the site of production for the cork
boards, blackboards and dry-erase boards as well as cork sheeting -- an
important product that's growing quickly for crafts and home improvement.
National believes that it can improve productivity and workflow by sharing its
expertise in factory layout, processes and materials acquisition.
On a calendar basis, Universal's seasonal business is almost exactly opposite
National's seasonality. Demand for bulletin boards and blackboards peaks
during the late summer, back-to-school season. Home decor sells most during
the fall and holiday seasons. Thus combining production will make
manufacturing capacity utilization even more efficient.
8
<PAGE> 11
FOCUS ON VALUE IN HOME DECOR
HIGH-QUALITY CUSTOMER SERVICE ENHANCES VALUE
Our responsiveness to customers has been one of the key value
definitions for National. The ability to respond quickly and on target has
grown out of our concentrated focus on doing what we do best -- providing a
limited product line at low cost with a fashion focus. We participate only in
areas where we believe we can perform better than anyone else.
Unlike competitors that offer a comprehensive line of products with full-service
representatives -- a system that largely grew out of the greeting card industry
- - -- National gives smart buyers low cost, high quality and quick response. We've
found that many major retailers don't need or want the type of "handholding"
that used to characterize the frame business even five years ago. Back then,
retailers often assigned full responsibility for the frame departments of their
stores to outside suppliers, who would stock and restock with minimal
participation by the stores. Today, retailers get up-to-the-minute reports on
sales from internal information systems, look for ways to integrate every
department with the stores' marketing strategy and seek suppliers who can add
value in price, quality, fashion and quick response. National's price/value
strategy, fashion-forward designs and efficient manufacturing fit very well with
today's competitive, profit-oriented retailers.
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1993 $ 3,099
1994 $ 6,369
1995 $ 8,634
1996 $ 8,659
</TABLE>
Pro forma
<TABLE>
<CAPTION>
In Thousands
<S> <C>
1993 $44,357
1994 $51,293
1995 $60,794
1996 $67,169
</TABLE>
9
<PAGE> 12
FOCUS ON VALUE IN HOME DECOR
LARGE MASS MERCHANDISERS RESPOND POSITIVELY
TO NATIONAL'S APPROACH
National works closely with our mass-merchant customers, which include Target,
Wal-Mart, Price/Costco, Dollar General and others, to develop the right mix of
product at the right price, fill the order completely and deliver on time.
Working closely with these large mass merchandisers allows us to build
partnerships based on the retailers' marketing, merchandising and promotional
strategies.
Together, National and the retailers concentrate on two types of selling
opportunities. Long-term, "continuity," sales involve maintaining a consistent
assortment of products that need to be restocked regularly. National's
information systems interface electronically with retailers' systems to track
product sales and identify future customer requirements. Short-term,
"promotional," opportunities are often centered around holidays with special
products -- Mother's Day promotions might feature floral frames and
multi-opening photo mats, for example.
Attractive price points (providing retail margins of 40 to 55 percent) and
timely, efficient delivery play key roles in our success with these larger
retailers. National will go to almost any lengths to make it easy for retailers
to stock and sell our products. We routinely fill even complex orders with 50
to 60 SKUs (stock keeping units) within 48 to 72 hours, maintaining an average
fill rate in the 98+ percent range.
VALUE STRATEGY HELPS EXPAND DISTRIBUTION CHANNELS
During the past year, we gained momentum in bringing our value strategy to more
distribution channels. In the coming year, we intend to expand our product
offerings to current customers and to seek expanded distribution channels as
well. The addition of the cork board and dry-erase board products gives our
design team a new challenge, which we've already begun to maximize by using our
expertise in framed wall decor.
We plan to expand our customer base in the coming year by increasing
penetration of important distribution channels. Chief among these are
hardware, home improvement and craft stores. These retailers are among the
fastest-growing channels and National is well prepared to grow with them.
As consolidation takes place in the frame industry, we believe that National
will grow even stronger. Some retailers are dissatisfied with larger companies
that can't or won't service them as well as National. These larger companies
often lack the flexibility to react to retailers' product and merchandising
needs because of burdensome size, bureaucracy and, in some cases, dependence on
unpredictable foreign imports. National retains an entrepreneurial, flexible
marketing approach that complements the service demands and fashion needs of our
most valuable mass-merchant customers.
10
<PAGE> 13
At National, our focus on fashion is another important aspect of what we bring
to retailers and their customers. One of the keys to National's growth and
future success is the company's strong creative talent that consistently
generates new products. Whether in wood, polystyrene or metal, frames, art or
mirrors. National has employed creative talent to come up with innovative
solutions that take advantage of the company's manufacturing capabilities while
reflecting current trends in home design.
11
<PAGE> 14
FOCUS ON FASHION IN HOME DECOR
National Identifies "Cutting-Edge of
Mainstream" Trends
Knowledge of the marketplace is very important -- not just framed wall decor but
home furnishings overall. Mass merchandisers demand "cutting-edge of
mainstream" designs and National's products are geared to meet this need.
National's products are part of the fast-growing segment of home furnishings.
Industry publications note the increasing popularity of frames as home decor as
well as the tremendous potential for additional growth. More retailers are
increasing shelf space and promotional emphasis to take advantage of this
growth, say industry experts.
This trend continues to be fueled by "point and shoot" cameras including the
newest models that make it easy to choose sizes of finished photos even before
the film is removed from the camera. Industry experts believe that more -- and
larger -- photo prints will enhance the growth of the frame industry. In
addition, the framed mirrors/framed art category is estimated at approximately
$1.5 billion (retail) annually with growth projected at 20 percent per year
during 1996 and 1997.
National has responded by expanding its capabilities in designing and
manufacturing these new products. Unlike many manufacturers, National has
the diversity and flexibility to switch its emphasis among picture frames,
framed art and framed mirrors -- and beginning in 1997, framed cork/board
products.
National attempts to add creative value to every step of production. For
example, even the face papers (inserts between the frame backing and glass,
which often use photographs or other images) are created inhouse, along with the
packaging. In the world of wall decor, marketing experts estimate that the
shopper will make a purchase decision in about 18 seconds. So every aspect of
the National product is designed for instant eye appeal, helping the consumer
see how a picture frame, mirror or piece of framed art will fit into his
or her home decor.
Manufacturing Improvements Support Creative Design
National is known for its technological advances in its EnviroMold(TM)
production, which uses polystyrene to economically produce a variety of frame
profiles and finishes. During 1996, a number of successful treatments led to
increases in volume and revenue from major customers. These included diverse,
fashion-forward foil finishes as well as wood-look "country" colors that sold
well and generated attractive margins for National and the retailers.
National is working on technical innovations that will enable the polystyrene
process to become even more vertically integrated. For example, capital
expenditures made during fiscal 1996 will allow us to manufacture entirely
different frame profiles, some of which are similar to moldings that the company
previously purchased outside or made from more expensive wood.
12
<PAGE> 15
FOCUS ON FASHION IN HOME DECOR
WOOD FRAMES COMBINE WITH OTHER MEDIA
FOR FRESH APPROACHES
Wood frames, which are perhaps the core product of the picture frame industry,
achieved an enhanced role at National during 1996. In addition to producing new
colors and finishes, we used wood frames in conjunction with other media, such
as mirrors and art prints, to generate new products.
In fact, one of our best-selling products of 1996 was the popular "windowpane"
mirror (a rectangular mirror framed in wood with a dividing grid that
simulates window mullions). National's production efficiencies allowed us to
initially offer this to our core customers at better costs than those quoted by
other suppliers. We are following this success with other mixed-media products,
such as art prints and mirrors combined in a single frame.
CORK OFFERS NEW CHALLENGES -- AND A NEW CORE PRODUCT LINE
With the acquisition of Universal Cork, National has the chance to use a new
medium to build quality products. Adding fashion frames to bulletin boards and
dry-erase boards is only one way that Universal's products can be enhanced with
National's creative input. We're already working on a range of other products,
many of which will be first-of-their-kind to be produced in cork/dry erase
boards.
In virtually all of our product categories, National achieves what we call "high
perceived value." This simply means that National's framed wall decor looks
very much like higher-priced items but costs far less, for both the retailer and
the customer. Creating fashion-forward design at low cost is one of the
distinctions that sets National apart from the competition.
NATIONAL PICTURE & FRAME PRODUCTS
<TABLE>
<S> <C>
EnviroMold(tm) Document/Wall Frames 14%
Mirrors 19%
WoodPhoto Frames 4%
Wood Portrait/Wall Frames 17%
Art 13%
Metal Promotional Photo Frames 5%
EnviroMold(tm) Photo Frames 28%
</TABLE>
13
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Company (1) Predecessor (1)
- - ----------------------------------------------------------------------------------------------------------------
Nine months Three months Fiscal year
Fiscal years ended ended ended ended
April 30, April 30, July 31, April 30,
In thousands, except per share data 1996 1995 1994 1993 1992 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $67,169 $60,794 $51,293 $38,035 $ 6,322 $31,289
Operating income 8,659 8,634 6,369 2,639 401 4,003
Net income 5,061 5,028 2,666 557 194 2,288
Net income per share 1.02 1.01 0.60 0.05 -- --
Working capital 14,113 14,695 12,171 6,216 5,542 5,636
Total assets 49,036 42,077 39,179 35,587 24,366 23,492
Total debt(2) 6,677 6,607 8,525 19,524 445 462
Preferred stock -- -- -- 5,370 -- --
Total stockholders' equity 33,572 28,842 23,814 187 13,166 12,972
================================================================================================================
</TABLE>
(1) The company was formed in March 1992 and acquired substantially all of the
assets and business of the Predecessor on July 31, 1992.
(2) Includes current and long-term portions of the debt and capital lease
obligations.
14
<PAGE> 17
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year 1996 (Unaudited)
- - -------------------------------------------------------------------------------------
First Second Third Fourth
In thousands, except per share data Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $12,832 $17,843 $19,858 $16,636
Operating income 941 2,436 3,514 1,768
Net income 509 1,428 2,102 1,022
Net income per share $ 0.10 $ 0.29 $ 0.42 $ 0.21
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1995 (Unaudited)
- - -------------------------------------------------------------------------------------
First Second Third Fourth
In thousands, except per share data Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $13,757 $15,106 $17,689 $14,242
Operating income 1,304 2,118 2,891 2,321
Net income 717 1,239 1,686 1,386
Net income per share $ 0.14 $ 0.25 $ 0.34 $ 0.28
</TABLE>
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Historically, the Company has generated a greater proportion of its net sales
and profits, and increased working capital needs, in the second and third
quarters of each fiscal year as retailers expand frame inventories for increased
Christmas and spring holiday demand. This seasonal pattern combined with the
effects of new product introductions and the timing of customer orders can cause
the Company's results of operations to vary significantly from quarter to
quarter.
The following discussions compare the results of operations of the Company
for fiscal 1996 to the results of operations of the Company for fiscal 1995 and
the results of operations of the Company for fiscal 1995 to the results of
operations of the Company for fiscal 1994.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, information derived from
the condensed consolidated statements of income of the Company expressed as a
percentage of net sales for such periods.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 75.5 73.8 76.2
---------------------------------------------------------------------------
Gross profit 24.5 26.2 23.8
Operating expenses:
Selling 5.9 5.9 6.0
General and administrative 5.2 5.5 4.7
Amortization of intangibles .5 .6 .7
---------------------------------------------------------------------------
Total operating expenses 11.6 12.0 11.4
---------------------------------------------------------------------------
Operating income 12.9 14.2 12.4
Other expenses (.7) (1.0) (2.4)
---------------------------------------------------------------------------
Income before income taxes
and extraordinary charge 12.2 13.2 10.0
Income taxes 4.6 4.9 3.6
---------------------------------------------------------------------------
Income before
extraordinary charge 7.6 8.3 6.4
Extraordinary charge -- -- (1.2)
---------------------------------------------------------------------------
Net income 7.6% 8.3% 5.2%
===========================================================================
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales increased by $6.38 million, or 10.5% for the fiscal year
ended April 30, 1996 compared to the fiscal year ended April 30, 1995. New
product sales were approximately 21% of the net sales for the year ended April
30, 1996.
GROSS PROFIT. Gross profit increased by $0.5 million, or 3.2% for the fiscal
year ended April 30, 1996 as compared to the fiscal year ended April 30,
1995. As a percentage of sales, gross profit decreased from 26.2% to 24.5% for
the same period. This decrease was primarily due to competitive pricing
pressures and increased cost of several key raw material components during a
portion of the year.
SELLING EXPENSES. Selling and marketing expenses increased by $0.3 million,
or 9.2% for the year ended April 30, 1996 as compared to the year ended April
30, 1995. As a percentage of net sales, selling and marketing expenses remained
constant.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $0.2 million, or 9.0% for the year ended April 30, 1996 as compared
to the year ended April 30, 1995. As a percentage of net sales, general and
administrative expenses decreased from 5.5% for fiscal 1995 to 5.2%. This
decrease is primarily due to decreased management bonuses in the year ended
April 30, 1996 as compared to the year ended April 30, 1995.
INTEREST EXPENSE. Interest expense decreased $0.12 million for the year ended
April 30, 1996 as compared to the year ended April 30, 1995, as a result of
the reduction in the revolving loan from the cash generated by operating
activities.
INCOME TAXES. Income taxes increased $0.11 million to $3.10 million for the
fiscal year ended April 30, 1996 compared to the $2.99 million for the
fiscal year ended April 30, 1995. The effective income tax rates remained
relatively constant at approximately 38%.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales increased by $9.5 million, or 18.5% for the fiscal year
ended April 30, 1995 compared to the fiscal year ended April 30, 1994. Sales
to new customers accounted for 64% of the sales increase. New product sales
were approximately 26% of the net sales for the year ended April 30, 1995.
GROSS PROFIT. Gross profit increased by $3.7 million, or 30.6% for the fiscal
year ended April 30, 1995 as compared to the fiscal year ended April 30,
1994. As a percentage of sales, gross profit increased from 23.8% to 26.2% for
the same period. This increase was primarily due to changes in the product mix,
the allocation of fixed expense over increased volume, and reduced labor
expenses resulting from the completion of the distribution center in March,
1994.
SELLING EXPENSES. Selling and marketing expenses increased by $0.5 million, or
17.3% for the year ended April 30, 1995 as compared to the year ended April 30,
1994. As a percentage of net sales, selling and marketing expenses decreased
from 6.0% to 5.9% for these periods. These changes are primarily due to the
mix in sales between commissioned and non-commissioned accounts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $0.9 million, or 39.7% for the year ended April 30, 1995 as
compared to the year ended April 30, 1994. These increases resulted from
increased personnel, a general wage increase, increased management bonuses due
to increased profits, and certain professional and insurance costs associated
with being a public company.
INTEREST EXPENSE. Interest expense decreased $0.6 million for the year ended
April 30, 1995 as compared to the year ended April 30, 1994, as a result of the
repayment of term indebtedness and reduction in the revolving loan from the
proceeds of the Offering.
INCOME TAXES. Income taxes increased $1.12 million to $2.99 million for the
fiscal year ended April 30, 1995 compared to the $1.87 million for the fiscal
year ended April 30, 1994. The effective income tax rates of 37.35% and 36.4%
for 1995 and 1994, respectfully, differ for the periods because the goodwill
amortization for the nine months ended April 30, 1993 was not deductible for
income tax purposes. The Company adopted income tax regulations in March, 1994
that permitted the Company to elect to deduct the amortization of certain
intangibles, including goodwill, for income tax purposes and reflected the prior
period's benefit in the tax provision for fiscal year ended April 30, 1994.
EXTRAORDINARY CHARGE. The application by the Company of the net proceeds of
the Offering to reduce long-term indebtedness incurred in connection with the
Acquisition caused an extraordinary charge of $0.96 million (net of tax benefit
of $0.36 million) to the Company's results of operations in the fiscal year
ended April 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES. On February 16, 1996, the Company entered
into credit agreements with two banks that replaced the prior credit agreement.
The primary credit facility from the first bank provides for borrowings of up
to $10.0 million for working capital and $15.0 million for capital expenditures
and other corporate purposes and is limited in availability based on
inventories, receivables and capital expenditures. Borrowings under the
primary facility will bear interest at the lesser of the bank's prime rate less
1.50% to 1.00% or LIBOR plus 1.50% to 2.00%, with the actual rate being
dependent on the level of funded indebtedness of the Company. Borrowings under
the primary credit facility are secured by inventories, receivables and certain
property, plant and equipment and are due in October 1998. There are no
compensating balance requirements; the company pays an annual commitment fee of
$20,000 for the lines of credit. In addition, the other new credit agreement
provides for a term loan with a second bank in the amount of $5.0 million
payable over 60 months. Borrowings under this facility bear interest at LIBOR
plus 1.50% and are collateralized by real property consisting of a
manufacturing facility located in Greenwood, MS. Both credit agreements set
forth certain financial requirements and other covenant requirements. At April
30, 1996, $8.8 million of unused borrowings were available for working capital,
$15 million were available for capital expenditures, and $4.9 million was owed
on the term loan.
The Company generated $7.3 million in cash flows from operations in fiscal
1996 which was principally used to purchase $4.7 million of property, plant and
equipment and to acquire Universal Cork, Inc. for $2.0 million. Management
anticipates that the budgeted capital expenditures will be funded by cash flows
from operations and additional borrowings under the primary credit facility.
The Company's current ratio was 2.6 to 1 at April 30, 1996 and 3.6 to 1 at
April 30, 1995.
17
<PAGE> 20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
National Picture & Frame Company
We have audited the accompanying consolidated balance sheets of National Picture
& Frame Company and subsidiaries (the "Company") as of April 30, 1996 and
1995, and the related consolidated statements of income, changes in redeemable
preferred stock, common stock and other stockholders' equity and cash flows for
three years in the period ended April 30, 1996. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, the evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the consolidated financial position of the Company at
April 30, 1996 and 1995 and the consolidated results of their operations and
their cash flow for each of the three years in the period ended April 30, 1996,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Jackson, Mississippi
June 12, 1996
18
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
In thousands, except share data 1996 1995
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $198 $336
Accounts receivable less allowance for doubtful accounts of $192 at April 30, 1996 12,739 9,365
and $161 at April 30, 1995 (Note 4)
Inventories (Notes 3 and 4) 7,812 9,295
Prepaid income taxes 439 109
Other prepaid expenses 1,078 874
Deferred income taxes (Note 5) 402 387
- - ---------------------------------------------------------------------------------------------------------------
Total current assets 22,668 20,366
Property, plant, and equipment (Note 4):
Land 30 30
Leasehold interest in buildings and improvements (Note 8) 5,620 5,070
Machinery and equipment 14,958 10,458
- - ---------------------------------------------------------------------------------------------------------------
20,608 15,558
Accumulated depreciation and amortization (4,164) (2,621)
- - ---------------------------------------------------------------------------------------------------------------
16,444 12,937
Goodwill, net 9,752 8,462
Other intangibles, net 172 312
- - ---------------------------------------------------------------------------------------------------------------
Total assets $49,036 $42,077
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,363 $2,976
Accrued expenses 2,028 2,618
Current maturities of long-term debt 1,164 77
- - ---------------------------------------------------------------------------------------------------------------
Total current liabilities 8,555 5,671
Long-term debt, less current maturities (Note 4) 5,513 6,530
Deferred income taxes 1,396 1,034
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000; Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares - 20,000,000; Issued shares - 5,000,008 at April 30, 1996
and 4,877,572 at April 30, 1995; Outstanding shares - 4,959,938 at April 30, 1996
and 4,877,572 at April 30, 1995 50 49
Nonvoting common stock, $.01 par value:
Authorized shares - 500,000
Issued and outstanding shares - none at April 30, 1996 and 122,014 at April 30, 1995 -- 1
Additional paid-in-capital 21,235 21,232
Retained earnings 12,621 7,560
- - ---------------------------------------------------------------------------------------------------------------
33,906 28,842
Less cost of common stock held in treasury (40,070 shares) (334) --
- - ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 33,572 28,842
- - ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $49,036 $42,077
===============================================================================================================
</TABLE>
See accompanying notes.
19
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
In thousands, except per share data 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $67,169 $60,794 $51,293
Cost of goods sold 50,701 44,837 39,079
- - ----------------------------------------------------------------------------------------------------------------
16,468 15,957 12,214
Operating expenses:
Selling 3,944 3,612 3,079
General and administrative 3,459 3,172 2,270
Bad debt expense 50 180 140
Amortization of intangibles 356 359 356
- - ----------------------------------------------------------------------------------------------------------------
7,809 7,323 5,845
- - ----------------------------------------------------------------------------------------------------------------
Operating income 8,659 8,634 6,369
Other income and expense:
Interest expense (497) (615) (1,238)
Other income 1 1 5
- - ----------------------------------------------------------------------------------------------------------------
(496) (614) (1,233)
- - ----------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary charge 8,163 8,020 5,136
Income taxes (Note 5) 3,102 2,992 1,869
- - ----------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 5,061 5,028 3,267
Extraordinary charge from early extinguishment of debt,
net of income taxes of $357 -- -- (601)
- - ----------------------------------------------------------------------------------------------------------------
Net income $5,061 $5,028 $2,666
================================================================================================================
Net income per share:
Income per share before extraordinary charge $1.02 $1.01 $.75
Extraordinary charge -- -- (.15)
- - ----------------------------------------------------------------------------------------------------------------
Net income per share $1.02 $1.01 $.60
================================================================================================================
</TABLE>
See accompanying notes.
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
In thousands, except share data
11% CUMULATIVE NONVOTING
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------- -----------------------------------
- - ------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1993 49,500 $5,370 2,255,009 $23 -- --
Sale of common stock -- -- 2,250,000 23 -- --
Exercise of warrants -- -- 250,549 2 244,028 $2
Net income for year -- -- -- -- -- --
Dividend accrued on
preferred stock -- 271 -- -- -- --
Redemption of
preferred stock (49,500) (5,641) -- -- -- --
- - ------------------------------------------------------------------------------------------
Balance at April 30, 1994 -- -- 4,755,558 48 244,028 2
Conversion of nonvoting
stock to common stock -- -- 122,014 1 (122,014) (1)
Net income for year -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------
Balance at April 30, 1995 -- -- 4,877,572 49 122,014 1
Conversion of nonvoting
stock to common stock -- -- 122,014 1 (122,014) (1)
Sale of common stock -- -- 422 0 -- --
Purchase of common stock
for treasury -- -- -- -- -- --
Net income for year -- -- -- -- -- --
- - ------------------------------------------------------------------------------------------
Balance at April 30, 1996 -- -- 5,000,008 $50 -- --
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
In thousands, except share data
ADDITIONAL COMMON TOTAL
PAID-IN RETAINED STOCK HELD STOCKHOLDERS'
CAPITAL EARNINGS IN TREASURY EQUITY
- - ----------------------------------------------------------------------------------------
SHARES AMOUNT
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 1, 1993 $27 $137 -- -- $187
Sale of common stock 21,209 -- -- -- 21,232
Exercise of warrants (4) -- -- -- --
Net income for year -- 2,666 -- -- 2,666
Dividend accrued on
preferred stock -- (271) -- -- (271)
Redemption of
preferred stock -- -- -- -- --
- - ----------------------------------------------------------------------------------------
Balance at April 30, 1994 21,232 2,532 -- -- 23,814
Conversion of nonvoting
stock to common stock -- -- -- -- --
Net income for year -- 5,028 -- -- 5,028
- - ----------------------------------------------------------------------------------------
Balance at April 30, 1995 21,232 7,560 -- -- 28,842
Conversion of nonvoting
stock to common stock -- -- -- -- --
Sale of common stock 3 -- -- -- 3
Purchase of common stock
for treasury -- -- (40,070) $(334) (334)
Net income for year -- 5,061 -- -- 5,061
- - ----------------------------------------------------------------------------------------
Balance at April 30, 1996 $21,235 $12,621 (40,070) $(334) $33,572
========================================================================================
</TABLE>
See accompanying notes.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended April 30,
In thousands 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $5,061 $5,028 $ 2,666
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,543 1,259 846
Amortization of intangible costs 367 359 437
Provision for losses on accounts receivable 50 180 140
Deferred income taxes 377 317 1,217
Extraordinary charge from early extinguishment of debt -- -- 958
Changes in operating assets and liabilities,
net of effects from acquisition of Universal Cork:
(Increase) decrease in receivables (2896) (122) 1194
(Increase) decrease in inventories and prepaid expenses 1,743 (1,593) (2,692)
Increase (decrease) in accounts payable and accrued expenses 1,009 (684) (4,201)
- - ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,254 4,744 565
INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,730) (2,540) (4,742)
Collections on notes receivable -- -- 116
Payment for intangibles -- -- (295)
Acquisition of Universal Cork, net of cash acquired (1,951) -- --
- - ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,681) (2,540) (4,921)
FINANCING ACTIVITIES
Net change in revolving loans (5,217) (1,988) 3,107
Long-term debt issued 5,000 -- --
Purchase of common stock for treasury (334) -- --
Principal payments on long-term debt and capital lease obligations (163) (94) (14,140)
Redemption of 11% cumulative preferred stock -- -- (5,641)
Proceeds from issuance of common stock -- -- 21,232
Issuance of common stock through Employee Stock
Discount Purchase Plan 3 -- --
- - ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (711) (2,082) 4,558
- - ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (138) 122 202
Cash and cash equivalents at beginning of year 336 214 12
- - ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 198 $336 $ 214
====================================================================================================
Non-cash investing and financing activity -
Capital lease obligations incurred for equipment $ -- $ 164 $ 34
- - ----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 542 $ 567 $ 1,339
- - ----------------------------------------------------------------------------------------------------
Cash paid during the year for income taxes $ 2,995 $2,272 $ 1,185
- - ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective August 1, 1992, NPF Company, a wholly-owned subsidiary of National
Picture & Frame Company (the "Company"), acquired substantially all of the
assets and business and assumed certain liabilities of National Picture & Frame
Co. the ("Predecessor") for cash of $21,450. The acquisition was accounted for
using the purchase method of accounting. The accompanying financial statements
presented herein are on the historical cost basis of the Company.
CONSOLIDATION
The Company's consolidated financial statements include the accounts of
National Picture & Frame Company and its wholly-owned subsidiaries, NPF
Company, and Universal Cork, Inc. ("Universal Cork"). All significant
intercompany transactions and accounts have been eliminated in consolidation.
NATURE OF BUSINESS
The Company designs, manufactures and markets a wide variety of picture
frames, framed mirrors, and framed art for sale primarily through major mass
merchant retailers. Credit is extended based upon an evaluation of the
customer's financial condition, and generally collateral is not required.
Sales to one customer and its affiliate accounted for 38%, 36%, and 38%, of net
sales for the years ended April 30, 1996, 1995, and 1994, respectively.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
general accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-our method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
provided by the straight-line method over the estimated useful lives.
REVENUE RECOGNITION
Revenue is recognized when product is shipped to customers.
GOODWILL
The excess of the cost of acquisitions over the fair value of the net assets
acquired (goodwill) is amortized on a straight-line basis over twenty to forty
years. The accumulated amortization of goodwill was $858, and $628, at April
30, 1996, and 1995, respectively.
OTHER INTANGIBLE COSTS
Costs incurred to obtain long-term financing are amortized on a straight-line
basis over the term of the related debt. Costs incurred to organize the Company
are amortized on a straight-line basis over five years. The accumulated
amortization of other intangible costs was $465 and $339 at April 30, 1996 and
1995, respectively.
INCOME TAXES
Income taxes are accounted for by the Company in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Deferred income taxes relate to temporary differences between assets and
liabilities recognized differently for financial reporting purposes and for
income tax purposes.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to or above the fair value of the shares at the date of
the grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
Net income per share is computed by dividing net income applicable to common
stock (net income less dividend requirements for preferred stock of none in
fiscal 1996 and 1995 and $271 in fiscal 1994) by the weighted average number of
common and common equivalent shares outstanding (4,973,000 shares in 1996,
5,000,000 shares in 1995, and 3,983,000 shares in 1994). The Company's
outstanding options are excluded due to their antidilutive effect.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed", which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed. The Company will adopt Statement 121 in the first
fiscal quarter of 1997 and, based on current circumstances, does not believe the
effect of adoption will be material.
2. ACQUISITION OF UNIVERSAL CORK, INC.
Effective April 24, 1996 the Company through its subsidiary, purchased 100% of
the outstanding stock of Universal Cork for cash of $1,951 and notes payable of
$450. The purchase price is subject to adjustment in fiscal 1997 based on
certain provisions of the stock purchase agreement. The acquisition was
accounted for using the purchase method of accounting and resulted in the
recording of $1,517 of goodwill which will be amortized over a period of twenty
years. Prior sales and net income of Universal Cork are considered
insignificant for presentation of pro forma financial information. Universal
Cork manufactures framed cork, dry-erase and black boards as well as other cork
based products.
3. INVENTORIES
<TABLE>
Inventories consist of the following:
APRIL 30, 1996 1995
------------------------------------------------------------
<S> <C> <C>
Raw materials $ 3,628 $ 3,484
Work-in-process 1,213 1,378
Finished goods 2,971 4,433
----------------------------------------------------------
$ 7,812 $ 9,295
</TABLE>
4. CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES
<TABLE>
<S> <C> <C>
Long-term debt consists of the following:
APRIL 30, 1996 1995
---------------------------------------------------------------------
Revolving loan with bank
(weighted average rate of 6.6%
at April 30, 1996 and 8.4% at
April 30, 1995) $1,158 $6,375
Term loan with bank
(weighted average rate of 6.8%
at April 30, 1996) 4,917 ----
Notes Payable 450 ----
Capital lease obligations
at 9.2% with monthly payments
of $6 through November 1998 152 232
---------------------------------------------------------------------
6,677 6,607
Less current maturities 1,164 77
---------------------------------------------------------------------
$5,513 $6,530
=====================================================================
</TABLE>
On February 16, 1996, the Company entered into credit agreements with two
banks that replaced the prior credit agreement. The primary credit facility
from the first bank provides for borrowings of up to $25,000 for working
capital, capital expenditures and other corporate purposes and is limited in
availability based on inventories, receivables and capital expenditures.
Borrowings under the primary facility will bear interest at the lesser of a) the
bank's prime rate less 1.50% to 1.00% or
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b) LIBOR plus 1.50% to 2.00%, with the actual rate being dependent on the level
of funded indebtedness of the Company. Borrowings under the primary credit
facility are secured by inventories, receivables and certain property, plant and
equipment and are due in October 1998. There are no compensating balance
requirements; the Company pays an annual commitment fee of $20 for the lines of
credit. The new credit agreement with the second bank provides for a term loan
in the amount of $5,000 payable over 60 months. Borrowings under this facility
bear interest at LIBOR plus 1.50% and are collateralized by real property
consisting of a manufacturing facility located in Greenwood, MS. Both credit
agreements set forth certain financial requirements and other covenant
requirements.
On April 24, 1996, the Company issued promissory notes for $450 to the
former stockholders of Universal Cork, Inc. in conjunction with the purchase of
that company. Interest is paid quarterly at a rate of 6.625% per annum.
Principal payments of $100 are payable on the first and second anniversary date
of the notes. The remaining balance is payable on the third anniversary.
The aggregate maturities of the long-term debt and capital leases at April
30, 1996, are as follows:
<TABLE>
<CAPTION>
Long-Term Capital
Debt Leases Total
- - ---------------------------------------------------------------
<S> <C> <C> <C>
1997 $ 1,100 $ 78 $ 1,178
1998 1,100 78 1,178
1999 2,408 51 2,459
2000 1,000 ---- 1,000
after 2000 917 ---- 917
- - ---------------------------------------------------------------
6,525 207 6,732
Less amounts
representing interest ---- 55 55
- - ---------------------------------------------------------------
$ 6,525 $ 152 $ 6,677
</TABLE>
The carrying amounts of the Company's borrowings under its credit
agreements, notes payable and capital leases approximate their fair value.
5. INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense consisted of the following:
Years ended April 30, 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,280 $ 2,290 $ 200
State 445 385 95
----------------------------------------------------------------------
2,725 2,675 295
Deferred:
Federal 326 260 1,077
State 51 57 140
----------------------------------------------------------------------
377 317 1,217
----------------------------------------------------------------------
3,102 2,992 1,512
Income taxes allocated
to extraordinary charge ---- ---- 357
----------------------------------------------------------------------
$3,102 $2,992 $1,869
======================================================================
</TABLE>
The difference between income taxes at the Company's effective income tax
rate and income taxes at the statutory federal tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, 1996 1995 1994
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
income taxes $2,775 $2,727 $1,421
Goodwill amortization ---- ---- (58)
State income taxes, net 327 292 146
Other, net ---- (27) 3
Income taxes allocated to
extraordinary charge ---- ---- 357
----------------------------------------------------------------------------
$3,102 $2,992 $1,869
=============================================================================
</TABLE>
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
APRIL 30, 1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 92 $ 60
Inventories 198 192
Prepaid expenses (46) (61)
Accrued expenses 158 196
- - ------------------------------------------------------------------------------------------------
$ 402 $ 387
================================================================================================
Deferred tax liabilities:
Property, plant
and equipment $ 852 $ 630
Goodwill 544 404
- - ------------------------------------------------------------------------------------------------
$1,396 $1,034
================================================================================================
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company participates in a multi-employer defined contribution pension plan
covering substantially all union employees after two months of service.
Included in cost of sales is approximately $93, $87 and $74 of expense for the
years ended April 30, 1996, 1995, and 1994, respectively, applicable to this
plan.
Effective August 1, 1992, the Company adopted a defined contribution plan
("the Plan") covering substantially all employees not covered by a collective
bargaining agreement. Under the Plan, participants may elect to contribute from
1% to 15% of their compensation, as defined, and the Company may elect to make
discretionary contributions. Beginning in December 1995, the Company instituted
a matching plan whereby the Company will match up to one-half of each
participating employee's elective contribution, up to a maximum amount of five
hundred dollars per employee. Benefit expense related to the Plan was $121 for
1996 and $100 for the years ended April 30, 1995 and 1994. The Company has
agreed to make a further discretionary contribution of not less than $95 for the
next fiscal year.
As of October 1993, the Company granted options on 350,000 shares of the
Company's common stock to certain members of management and options on 50,000
shares of the Company's common stock to certain other employees under the
Long-Term Incentive Plan of 1993. The options are excercisable beginning in
fiscal 1995 at $10.50 per share.
On August 21, 1995, the Company amended and restated the Long-Term
Incentive Plan of 1993 authorizing the granting of options for an additional
350,000 shares of the Company's common stock. Options granted under the
Long-Term Incentive Plan, as amended and restated, are generally excercisable at
a rate of 20% per year beginning at least one year following the date of the
grant, and if not exercised, expire ten years following the grant. In August
1995 the Company granted options on 40,000 shares to a certain member of
management. These options are excercisable beginning in fiscal 1997 at $9.00
per share.
Effective August 21, 1995, the Company adopted a Non-Employee Directors'
Stock Option Plan, subject to shareholder approval, of up to 125,000 shares.
Each non-employee director may elect to receive all or part of their director
compensation in options to purchase shares of the Company's common stock
equivalent to the cash compensation foregone.
Effective November 1, 1995, the Company adopted the National Picture &
Frame Company Employee Stock Discount Purchase Plan which enables Company
employees having at least one year of service to purchase shares of the
Company's common stock through periodic payroll deduction. Shares are issued
quarterly to participating employees based on 85% of the lessor of the closing
price of the Company's common stock as of the first day or the last day of each
quarter. Compensation expenses related to this plan was insignificant during
1996.
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PRO FORMA INCOME PER SHARE
The proceeds from the sale of 2,250,000 shares of common stock in an
underwritten offering in October 1993 were used to retire the 11% cumulative
preferred stock, to repay the term loans and subordinated notes payable and to
reduce the revolving loan from a bank. Pro forma income for the year ended
April 30, 1994, assuming the stock was issued at the beginning of fiscal 1994
is as follows:
<TABLE>
<S> <C>
Pro forma income per share
before extraordinary charge $ .76
Extraordinary charge (.15)
- - -----------------------------------------------------------
Pro forma income per share $ .61
===========================================================
</TABLE>
Pro forma income per share differs from the amounts reported in the
consolidated statement of income for fiscal year 1994 primarily due to
decreased interest expense and dividends on the 11% cumulative preferred stock
had the issuance of common stock occurred at the beginning of fiscal 1993.
8. OTHER MATTERS
The Company leases its principal facilities from a municipality under two
capital leases. One lease has a 99 year term expiring in 2046 with annual
rentals of six hundred dollars. The Company has 19 years remaining at $1 per
year on the second lease. The second lease may be renewed for two additional 20
year periods and one 14 year period for $1 per year. The Company is exempt from
municipal property taxes applicable to the above leases.
In conjunction with the April 24, 1996, acquisition of Universal Cork,
the Company affirmed two Universal Cork operating leases covering real
property used by Universal Cork in their Cleveland, Ohio operations, which
operations are being relocated to Greenwood, MS. These two leases require
aggregate annual rents of $128 in fiscal years 1997 through 1999 and $60 in
fiscal year 2000. Management is currently negotiating a sub-lease under these
operating lease agreements, or alternatively, an early release from the lease
agreements.
In addition, the Company entered into consulting agreements with two
former officers of Universal Cork providing aggregate consulting fees of $125
during fiscal year 1997.
The Company's leasehold interest in buildings and the related
improvements were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1996 1995
- - ---------------------------------------------------------------------
<S> <C> <C>
Leasehold interest in
buildings and improvements $5,620 $5,070
Accumulated depreciation
and amortization (537) (317)
- - ---------------------------------------------------------------------
$5,083 $4,753
=====================================================================
</TABLE>
Management fee expense to its principal stockholder was $83 for the year
ended April 30, 1994.
27
<PAGE> 30
CORPORATE INFORMATION
DIRECTORS
PETER B. FOREMAN
President
Sirius Corporation
DANIEL J. HENNESSY
Principal
Code Hennessy & Simmons, Inc.
JESSE C. LUXTON
President & Chief Executive Officer
National Picture & Frame Company
ARTHUR L. GOESCHEL
Former Chairman
Rexene Corporation
JOHN F. LEVY
Former President and Chief Executive Officer
Waban, Inc.
JON S. VESELY
Managing Director
Code Hennessy & Simmons, Inc.
ANNUAL MEETING
National Picture & Frame Company will hold its annual meeting of
shareholders on Monday, August 19, 1996 at 10:00 a.m. at the company's
corporate facility located at 702 Highway 82 West, Greenwood, MS.
TRANSFER AGENT AND REGISTRAR
Boston EquiServe
Boston, MA
AUDITORS
Ernst & Young LLP
Jackson, MS
FORM 10-K
A copy of the Company's Form 10-K, excluding exhibits, as filed with the SEC,
may be obtained by addressing a request to the Corporate Secretary.
STOCK LISTING AND PRICE RANGE
National Picture & Frame Company common stock is traded on the Nasdaq Stock
Market under the stock symbol NPAF. The approximate number of shareholders on
July 3, 1996 was 860. The following table indicates the high and low closing
prices for the common stock during the four quarters of 1996 and 1995. National
Market quotations are based on actual sales prices.
<TABLE>
PRICE RANGE
YEAR ENDED APRIL 30, 1996 HIGH LOW
<S> <C> <C>
First Quarter $10.25 $8.25
Second Quarter 10.00 7.75
Third Quarter 9.75 8.50
Fourth Quarter 10.50 8.88
<CAPTION>
YEAR ENDED APRIL 30, 1995
<S> <C> <C>
First Quarter $ 9.75 $7.75
Second Quarter 10.50 8.75
Third Quarter 10.50 9.38
Fourth Quarter 11.25 9.50
</TABLE>
Supplemental Information
For additional information please contact:
NATIONAL PICTURE & FRAME COMPANY
M. Wesley Jordan, Jr., CFO
National Picture & Frame Company,
1500 Commerce Street, Greenwood, MS 38930-1910
601/453-6686
The forward-looking statements in this annual report contain
projections that could be adversely affected by significant changes in National
Picture & Frame Company's operating environment and marketplace. These factors
could include, but are not limited to, a decrease in demand for framed wall
decor, loss of market share by major retail customers, cutbacks in overall
consumer spending, increasing prices of raw materials such as wood and
polystyrene and higher labor cost.
(C) 1996 National Picture & Frame Company
28
<PAGE> 31
ABOUT THE FRONT COVER:
Bordered with National's popular Citation frame, a typical "face paper" insert
contains the National logo along with a bar code for computer scanning, which
has been an important component in communicating electronically with
retailers, and the "Made in U.S.A." tag line that we proudly display on each
item we sell.
<PAGE> 32
[NATIONAL LOGO]
PICTURE & FRAME COMPANY
1500 Commerce Street, Greenwood, Mississippi 38930-1910
601/453-6686
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company
NPF Company, a Delaware corporation
NPF Computer Services, L.P., a Delaware limited partnership
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of National Picture & Frame Company of our report dated June 12, 1996; included
in the 1996 Annual Report to Shareholders of National Picture & Frame Company.
Our audits also included the financial statement schedule of National Picture &
Frame Company listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information as set forth
therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-98870) pertaining to the National Picture & Frame Company
Employee Stock Discount Purchase Plan of our report dated June 12, 1996, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in the Annual Report (Form 10-K) of
National Picture & Frame Company.
Ernst & Young LLP
Jackson, Mississippi
July 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 12,739
<ALLOWANCES> 161
<INVENTORY> 7,812
<CURRENT-ASSETS> 22,668
<PP&E> 20,608
<DEPRECIATION> 4,164
<TOTAL-ASSETS> 49,036
<CURRENT-LIABILITIES> 8,555
<BONDS> 0
<COMMON> 50
0
0
<OTHER-SE> 33,856
<TOTAL-LIABILITY-AND-EQUITY> 49,036
<SALES> 67,169
<TOTAL-REVENUES> 67,169
<CGS> 50,701
<TOTAL-COSTS> 58,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 497
<INCOME-PRETAX> 8,163
<INCOME-TAX> 3,102
<INCOME-CONTINUING> 5,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,061
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
