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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number 0-22716
BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2502577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
602 FOUNTAIN PARKWAY
GRAND PRAIRIE TEXAS 75050
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (972) 343-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
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 registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 16, 1997, was $1,439,328.
The number of shares of common stock of the registrant outstanding on June 16,
1997, was 4,000,210.
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TABLE OF CONTENTS
<TABLE>
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ITEM PAGE
PART I
<S> <C> <C>
1. Business.......................................................... 1
2. Properties........................................................ 5
3. Legal Proceedings................................................. 6
4. Submission of Matters to a Vote of Security Holders............... 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 8
6. Selected Financial Data........................................... 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 10
8. Financial Statements and Supplementary Data....................... 18
PART III
10. Directors and Executive Officers of the Registrant................ 19
11. Executive Compensation............................................ 21
12. Security Ownership of Certain Beneficial Owners and Management.... 22
13. Certain Relationships and Related Transactions.................... 23
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 25
Signatures............................................................. S-1
Index to Consolidated Financial Statements and Schedules............... F-2
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PART I
ITEM 1. BUSINESS.
Bollinger Industries, Inc. ("The Company") is a leading domestic supplier
of consumer fitness accessory products. The Company manufactures and
distributes, primarily to mass retailers, an extensive consumer fitness line,
including barbells and dumbbells, aerobic steps and other aerobics products,
trampolines, weightlifting belts and gloves, exercise mats, ankle and wrist
weights, weightlifting bars, waist trimmers, compression shorts, and walking
accessories.
RESULTS OF THE RESTRUCTURING OF OPERATIONS
In the fourth quarter of fiscal 1996, following a comprehensive review of
the Company's marketing method, operating policies and liquidity, management
formulated a plan to restructure the Company's operations. The primary elements
of the restructuring plan were to promote the Bollinger brand name,
dramatically reduce inventory levels and improve operating efficiency. (Please
refer to the Company's Form 10K for fiscal 1996 for additional information).
Since 1993, a significant portion of the Company's fitness accessory
products were sold with the use of celebrity endorsements. These endorsements
carried heavy incremental costs and were subsequently abandoned in favor of the
Bollinger brand. Customer acceptance of this change has been favorable but
sales for fiscal 1997 have been virtually flat as the Company worked through
existing inventory and marketing programs. The Company has introduced a line
of products in striking packaging geared toward the female consumer that is
ready for shipment in early fiscal 1998.
Inventory has been reduced from $30.1 million in 1996 to $16.2 million in
1997, or a reduction of 46%. Of the approximately $14.0 million reduction,
approximately $8.0 million came from inventory targeted for expedient disposal
in the restructuring plan. The inventory reduction has allowed the Company to
reduce trade payables and debt. There is an additional opportunity for further
reductions of inventory in fiscal 1998.
Concurrent with the inventory reductions, the Company has consolidated
warehouse operations. This action resulted in the closing of two leased
warehouses, the reduction of the warehouse workforce, and reduction in other
operating costs through enhanced efficiency. In addition, domestic production
of trampolines is in the process of being scaled down and relocated to
corporate headquarters from Georgia. This action, in addition to the lower
inventory levels, will allow the Company to further consolidate operations and
reduce fixed overhead.
The Company has plans to review all avenues of product sourcing in order
to significantly reduce product costs, thereby improving gross margin.
Management expects that such cost reductions will be attained during fiscal
1998, but the full annual effect will not be achieved until fiscal 1999.
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DISCONTINUED OPERATION
Management determined during the fourth quarter of fiscal 1996 that it
would be in the best interest of the Company to dispose of its Sports Medicine
and Safety Products business, known as Bollinger Healthcare (Healthcare). The
Healthcare business had been unprofitable for the prior two years during which
time sales had declined by 52%. The largest portion of this division was sold
in September, 1996 with the remainder disposed of or abandoned in January 1997.
The manufacturing facility in Lubbock ceased operation in November, 1996.
PRODUCTS AND MARKETS
Fitness Accessory Products
The Company manufactures and sells a complete line of more than 250
fitness accessory products, including barbells and dumbbells, aerobic steps and
other aerobics products, trampolines, weightlifting belts and gloves, exercise
mats, ankle and wrist weights, weightlifting bars, waist trimmers, compression
shorts and walking accessories. Other fitness accessory products include
weight sets, supports and support belts, handgrips and jump ropes. The
majority of the Company's fitness accessory products retail for less than $20
but the trampolines retail for $200 to $275.
In addition to the Bollinger Fitness(TM) trademark, the Company's fitness
accessories are sold under various trademarks to promote consumer
identification and coordinate affiliated products. Weightlifting products
include StarLock(C), SlipLock(TM) and CamLock(C) weightlifting systems, Zoom
Off(C) quick release weightlifting gloves, and BrightBells(C) dumbbells.
Aerobics items include the Step by Step(TM), FlexStep and SoftStep(TM) low
impact aerobic steps, RibMat(TM) exercise mats, TrimRider(TM) aerobic riders,
and NBF(TM) and UltraBounce(TM) trampolines. Solar(TM) trimming products,
Softone(C) wrist weights, and Exergrip(TM) strengthening putty are examples of
other fitness accessory products available through Bollinger.
In May 1994, as the result of an asset & business acquisition, the Company
began selling NBF(TM) and Ultra Bounce(TM) trampolines through its established
distribution channels for other fitness accessory products. In fiscal 1997,
1996 and 1995, trampoline sales accounted for approximately 40%, 26% and 13%
respectively of the Company's total net sales.
The Company markets its fitness accessories primarily to mass retailers.
The Company broadly defines mass retailers to include discount chains,
department stores, sporting goods retailers and sports superstores, warehouse
clubs and direct response television. In 1997, 1996, and 1995, the Company
served approximately 500 accounts, although the Company's ten largest fitness
accessory products customers accounted for approximately 88%, 80%,and 77% of
the Company's total net sales. In fiscal 1997 Wal-Mart accounted for 32.2% of
gross sales and KMart accounted for 35.7% of gross sales. Examples of discount
chain customers include Wal-Mart, KMart and Target. Sears is a representative
department store customer. The mass retailer category also encompasses catalog
customers like J.C. Penney and catalog showroom customers such as Service
Merchandise. Sporting goods retailers and sports superstore customers include
chains like Oshman's Sporting Goods, H. Modell & Company, The Sports Authority,
and The Academy. QVC is a shop at home cable television network that provided a
direct response television outlet for Bollinger. Wal-Mart, KMart, J.C. Penney
and Oshman's have been customers of the Company for approximately 20 years. The
loss of one or more of the Company's major customers could have a material
adverse impact on the Company.
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Quality is an important element of the Company's merchandising strategy.
To convey the image of quality to the consumer, the Company uses a
merchandising approach that emphasizes quality through easily recognizable
packaging and graphics. The Company's packaging style is uniform, with bright,
coordinating colors. This has enabled it to increase the in-store merchandising
impact of its products and awareness of the Bollinger brand name.
Bollinger believes it pioneered program marketing of fitness accessories.
This approach allows the presentation and sales of the products as an integrated
line rather than as stand alone items. The Company offers program management
services to help retail customers maximize results from the presentation,
merchandising and sale of its products. Program management assistance includes
helping plan product mix, helping merchandise the product, and responsive
inventory management. Through the use of distinctive marketing presentations,
and its computerized Plan-O-Gram system, Bollinger is able to customize an
in-store merchandising display for a customer, and quickly illustrate how the
optimum selection of fitness accessory products would fit into a given amount
of shelf space. Bollinger's ability to provide these program management
services is enhanced by the size and diversity of its extended product line.
The Company continually analyzes and validates its recommendations with product
tracking and store level research.
MANUFACTURING AND PRODUCT SOURCING
During fiscal 1997, domestic production of fitness accessory items has
been reviewed with the objective of becoming the low cost provider to the
customer and at the same time recovering the gross margin erosion the Company
has experienced in the last two years. The Company will seek and obtain the
lowest cost product available, while maintaining high quality standards. These
savings will enable the Company to remain competitive in the market place and
will provide additional gross margin for operations. The Company is currently
evaluating the cost effectiveness of continuing to manufacture certain of its
product lines. Approximately 49%, 50%, and 55% of the Company's net sales for
fiscal 1997, 1996 and 1995, respectively, were derived from the sale of
U.S.-made products, the majority of which were manufactured by Bollinger.
Many of the Company's fitness accessory products are currently
manufactured in a cut-and-sew operation in the Company's Grand Prairie, Texas,
facility. The Company currently manufactures many of its NBFTM trampolines at
its facility in Americus, Georgia.
The remainder of Bollinger's sales of fitness accessory products,
including barbells, dumbbells, weightlifting bars and weightlifting gloves and
trampolines, are attributable to products imported from China, Taiwan, and
Pakistan. The Company's imported products are packaged in custom packaging
designed by the Company. Depending on the particular product, the packaging
materials may be printed overseas and packaging is part of the foreign
manufacturing process. Bollinger's custom packaging differentiate its products
from its competitors.
SALES
The Company utilizes both a network of independent sales representatives,
and in-house sales management personnel. In-house management is responsible
for overseeing the independent representatives and for direct sales to major
customers. The independent sales representatives work on a commission only
basis, and specialize in the sale of sporting goods products to mass retailers.
These independent sales representatives market a variety of sporting goods,
and therefore generally have strong relationships with the trade customers.
The Company's in house sales management staff, and these independent
representatives, coordinate with Bollinger's marketing department to produce
a unified marketing and sales effort.
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Bollinger's executive officers directly manage the accounts of the largest
customers and focus on the development of new customers. Two sales managers
are assigned primary responsibility for all other customers and the
management of the independent sales representative firms. These sales managers
also have responsibilities in new customer development. During this past year,
Bollinger has consolidated its sales representation, and brought responsibility
for more accounts in house. The Company believes this will give it greater
flexibility in handling accounts, and improve net margins in some instances.
In a growing global economy, the Company is increasing its emphasis on the
development of international sales. Through its separate International
Division, it works to identify countries with significant population densities
that fit the demographic profile for fitness accessory sales, and to implement
programs which allow the Company to take advantage of its sourcing flexibility,
its merchandising expertise, and the depth of its product line to move into
those markets. It uses a variety of distributorship and trading partner
arrangements to allow it access to these markets. Currently, the Company's
products are sold in 40 nations and export sales in fiscal 1997 were
approximately $2.8 million.
PRODUCT DEVELOPMENT
The Company's product development effort continuously focuses on creating,
obtaining and developing new and innovative products and product ideas.
Similar effort is given to regular reevaluation of existing products and how
they may be repositioned to enhance the Company's competitive position in the
marketplace. Bollinger also frequently examines many unsolicited product
ideas, but generally does not make any advance commitments to purchase or
license a new product submission. New products and product ideas may come from
individual inventors, small companies that do not have sufficient manufacturing
capability or the relationships with mass retailers needed to market a new
product or consumers who submit new ideas based on personal experience. Once
the Company has identified a product, it will determine appropriate sourcing
for the product to attempt to ensure both quality manufacture and low costs.
The Company's product lines currently include more than 250 fitness accessory
products, including several trampoline items.
COMPETITION
Bollinger participates in a highly competitive industry, competing with a
number of established manufacturers, importers and distributors of fitness
products. Many competitors have significantly greater financial and other
resources than those available to the Company. The Company believes that the
principal competitive factors affecting its business include customer service,
manufacturing and distribution capabilities, price, marketing and merchandising
expertise, quality, brand name recognition and the ability to create and
develop a broad variety of innovative products and concepts.
The Company believes its principal competitors are large fitness equipment
manufacturers, which also sell fitness accessory products, and smaller
importers, which offer a more limited assortment of products than Bollinger or
the larger competitors. There are relatively few barriers to entry in the
fitness accessory products market.
The Company believes that one of the largest fitness and exercise
equipment manufacturers is Icon Health & Fitness, Inc. ("Icon"), which markets
products under the brand names of Weslo, Jumpking, Healthrider, Weider and
ProForm. Icon offers, among many other items, a line of packaged fitness
accessory products similar to Bollinger's fitness accessory products and
backyard trampolines. Although the Company believes that the majority of Icon's
sales come from treadmills, exercise machines, and weight benches, Icon
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competes directly with Bollinger for sales of a large number of handheld fitness
accessories and trampoline products. The Company believes that Icon has
larger net sales than the Company.
RDM Inc., formerly the Roadmaster Company, is another of the largest
fitness equipment and trampoline manufacturers. The Company believes that RDM
Inc. has larger net sales than the Company.
PATENTS AND TRADEMARKS
The Company has rights to a number of patented inventions, trademarks and
trade names used in connection with the sale and marketing of its products.
The company does not believe it infringes any patent, trademark or trade name
rights.
The Company currently holds and protects the rights to a number of U.S.
patents and additionally has a number of exclusive and nonexclusive licenses
under various other U.S. patents. It does not hold any foreign patents.
Bollinger does not view any single patent as critical to its business and none
of the patents or trademarks expire (without a renewal option) in the next five
years except for the exclusive rights to the name and likeness of Nolan Ryan,
in connection with his endorsement of Bollinger products, which expire in May,
1997.
Bollinger owns a number of trademarks and has licensed the use of
additional trademarks in the U.S. The Company intends to protect them to the
fullest extent practicable. Bollinger has registered its trademark in a number
of foreign countries.
EMPLOYEES
As of March 31, 1997, the Company employed approximately 350 persons on a
full-time basis, of which approximately 290 employees were engaged in
receiving, manufacturing, warehousing, and shipping activities. Approximately
60 employees were engaged in sales, customer service, accounting, MIS, and
other administrative functions. In addition, the Company, from time to time,
uses part-time workers and/or contract labor. None of the Company's employees
are represented by a union. The Company believes relations with its employees
are good.
REGULATIONS
The Company and its products are subject to numerous federal, state, and
local laws, rules and regulations ("Regulations"). Among the more significant
of such Regulations are consumer product safety laws under which a company's
products can be barred from sale or subject to recall if found to be hazardous;
occupational safety and health laws; and environmental laws.
The Company is not a party to any threatened or pending material
regulatory action, other than as discussed below in Item 3. Legal Proceedings.
ITEM 2. PROPERTIES.
The Company leases approximately 402,000 square feet in Grand Prairie,
Texas, which is currently used as the Corporate offices and houses its
accounting and sales effort as well as serving as the main manufacturing,
warehousing, and shipping facility. One lease for approximately 102,000 square
feet expires June 30, 1999, and has a renewal option for an additional four
years. The other lease for approximately 300,000 square feet expires May 1,
2004, and contains a renewal option to extend the lease an additional three
years.
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The Company also manufactures, warehouses, and ships trampolines out of a
facility in Americus, Georgia, which contains approximately 60,000 square feet.
The lease for this location expires on December 20, 2005, at which time the
Company is obligated to purchase the facility for a nominal amount.
The Company owns a facility in Irving, Texas, which contains approximately
43,000 square feet. This facility, which held the Company's corporate offices,
has been placed on the market for sale.
The Company intends to consolidate all operations to the Grand Prairie
facility and to reduce the Company's space requirements to allow relinquishing
or sub-leasing a significant portion of this location.
ITEM 3. LEGAL PROCEEDINGS.
The Company, Glenn D. Bollinger (Chairman & CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John
L. Maguire (Director), William Blair & Company, Rauscher Pierce Refnes, Inc.
(former underwriters of initial public offering), and Grant Thornton, L.L.P.
(former independent accountants), are defendants (the "Suntrust Defendants") in
a suit brought in the District Courts, Dallas County, Texas, by shareholder
Suntrust Bank Atlanta, as trustee for Suntrust Retirement Sunbelt Equity Fund,
on behalf of themselves and all persons similarly situated. In addition, the
Company, Glenn D. Bollinger, Bobby D. Bollinger, Curtis D. Logan, and Michael
J. Beck, are defendants (the "STI Defendants"), in a lawsuit brought in the
United States District Court for the Northern District of Texas, Dallas
Division, by shareholders STI Classic Fund and STI Classic Sunbelt, on behalf
of themselves and all persons similarly situated. The lawsuits purport to be
class actions and allege certain misrepresentations and fraudulent actions by
the Suntrust and STI Defendants. Both lawsuits seek damages, exemplary
damages, interest, costs, and expenses. Management of the Company does not
believe either lawsuit has merit. However, if the plaintiffs should prevail in
either lawsuit, it could have a material adverse effect on the Company.
The Company has been contacted by the Department of Labor (DOL) in regard
to certain questions about its former Employee Stock Ownership Plan (the
"ESOP"). Assets of the ESOP are held in the Company's 401(K) plan which is the
successor to the ESOP. The Company has responded to and cooperated with the
DOL. The DOL has not initiated any proceeding with respect to the ESOP or any
other of the Company's employee benefit plans.
On September 24, 1996, the United States Securities and Exchange
Commission filed a Civil Injunctive Action in the United States Court for the
District of Columbia naming Bollinger Industries, Inc., Glenn Bollinger and
Ronald Bollinger, Cause No. 96-2257. The Company consented to the entry of an
order of permanent injunction which directs the Company to comply with the
Securities and Exchange Act of 1934 in the future in the conduct of its
business. Glenn Bollinger and Ronald Bollinger also consented to the entry of
orders of permanent injunction which enjoins them from future violations of the
provisions of the Securities Exchange Act of 1934. and in addition, Glenn
Bollinger agreed to the payment of a monetary penalty in the amount of $40,000.
Ronald Bollinger also agreed to a bar from holding office as an officer or
director of a publicly-held company.
The Company filed a lawsuit against Denise Austin on December 2, 1996 in
the 162nd District Court of Dallas County, Texas and was subsequently removed
to the United States District Court for the Northern
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District of Texas, Dallas Division Case Number 3-97-CV-0246-G on February 6,
1997. Subsequently a suit was filed on December 30, 1996, by Denise Austin in
the United States District Court, Eastern District of Virginia. The suit was
filed for payment of royalties alleged to be due of approximately $655,000. The
Company has filed counter claims in excess of such amount.
From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a
party to any other material litigation and is not aware of any litigation
threatened against the Company, arising in the ordinary course of business,
that could have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on November 7, 1996.
During this meeting, five directors, which constitutes the entire Board of
Directors, were elected to serve until the next Annual Meeting of Stockholders
or until their successors are elected and qualified. The following individuals
were elected:
<TABLE>
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VOTING SUMMARY
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NAME FOR WITHHELD NOT VOTING
- ------------------ --------- -------- ----------
Glenn D. Bollinger 3,737,336 66,834 196,040
Bobby D. Bollinger 3,736,736 67,434 196,040
John L. Maguire 3,738,536 65,634 196,040
Stephen L. Parr 3,738,536 65,634 196,040
Richard J. Tucker 3,738,536 65,634 196,040
</TABLE>
King Griffin & Adamson P.C. were appointed as the Company's auditors for fiscal
1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company completed its initial offering during November 1993 at a price
of $12.50 per share. The Common Stock was quoted on the NASDAQ National Market
under the trading symbol "BOLL." However, due to delinquency in filing
certain reports with the Securities and Exchange Commission, and other matters,
the NASDAQ "delisted" the Company's common stock during August 1995. The
Company's common stock is currently traded over-the-counter. The following
table sets forth, on a per share basis for the periods indicated, the high and
low closing sale prices for the Common Stock as reported by NASDAQ for the
period April 1, 1995 through August 16, 1995 and a market maker of the
Company's common stock or the over-the-counter Bulletin Board for the period
from August 17, 1995 through March 31, 1997.
<TABLE>
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PRICE RANGE
---------------------------------
FISCAL 1997 FISCAL 1996
--------------- ----------------
HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
First Quarter............ $3.00 $1.25 $9.00 $1.87
Second Quarter........... 2.37 1.31 4.25 3.00
Third Quarter............ 1.69 .56 4.00 2.31
Fourth Quarter........... 1.00 .56 4.00 2.00
</TABLE>
On June 16, 1997, the closing sale price of the Common Stock as reported
by the over-the-counter Bulletin Board was $.9375 per share. As of June 16,
1997, there were approximately 54 holders of record of the Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company's board of directors does not anticipate payment of any
cash dividends by the Company in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below is derived from the
consolidated financial statements of the Company. The consolidated financial
data of the Company for the years ended March 31, 1993 and 1994, is derived
from the historical consolidated financial statements of the Company, which
have been audited by Grant Thornton, L.L.P., independent certified public
accountants. (The Company's historical consolidated financial statements for
the years ended March 31, 1993, and 1994 are not included in this Report.) The
consolidated financial data for the years ended March 31, 1995, 1996 and 1997,
are derived from the historical consolidated financial statements of the
Company, which have been audited by King Griffin & Adamson P.C (successor to
King Burns & Company P.C.). The selected financial data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and with the Company's consolidated financial
statements and related notes included elsewhere in this Report.
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
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1997 1996 1995 1994 1993
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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STATEMENT OF OPERATIONS (3)
Net Sales............................................. $82,599 $80,300 $67,894 $38,746 $27,586
Cost of goods sold.................................... 69,723 62,197 50,546 26,982 20,060
------- ------- ------- ------- -------
Gross profit...................................... 12,876 18,103 17,348 11,764 7,526
Selling expenses...................................... 6,879 7,877 6,862 4,070 2,282
Distribution, general and administrative expenses..... 11,506 12,115 8,422 4,224 3,331
Restructuring of operations........................... - 3,960 - - -
------- ------- ------- ------- -------
18,385 23,952 15,284 8,294 5,613
------- ------- ------- ------- -------
Operating profit (loss)........................... (5,509) (5,849) 2,064 3,470 1,913
Other expense (income)
Interest expense.................................... 2,552 2,252 1,167 667 320
Other............................................... (50) (105) (47) (65) (47)
------- ------- ------- ------- -------
2,502 2,147 1,120 602 273
------- ------- ------- ------- -------
Earnings (loss) from continuing operations
before income tax expense (benefit)............. (8,011) (7,996) 944 2,868 1,640
Income tax expense (benefit).......................... (92) (1,135) 350 1,042 685
------- ------- ------- ------- -------
Earnings (loss) from continuing operations (1)...... (7,919) (6,861) 594 1,826 955
Discontinued operations...............................
Earnings (loss) from operations net of income
tax benefit..................................... - (592) (525) 550 235
Gain (loss) on disposal, net of income tax
benefit including a $1,199,118 and $325,380
provision for operating losses during phase
out period in 1996 and 1994..................... 478 (770) - (573) -
------- ------- ------- ------- -------
Earnings (loss) from discontinued operations(2)....... 478 (1,362) (525) (23) 235
------- ------- ------- ------- -------
Net earnings (loss)................................... $(7,441) $(8,223) $ 69 $ 1,803 $ 1,190
======= ======= ======= ======= =======
Per share data:
Earnings (loss) from continuing operations.......... $ (2.04) $ (1.85) $ 0.15 $ 0.59 $ 0.36
======= ======= ======= ======= =======
Net earnings (loss)................................. $ (1.86) $ (2.22) $ 0.02 $ 0.59 $ 0.45
======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding.................................. 4,000 3,710 3,967 3,079 2,650
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital........ $15,994 $ 8,322 $15,725 $18,038 $ 3,484
Total assets........... 38,389 58,381 55,422 27,632 20,663
Total long term debt... 15,642 577 223 500 690
Total debt............. 18,483 23,260 26,810 4,977 9,701
Stockholders' equity... 5,021 12,463 20,467 19,398 4,369
</TABLE>
(1) The Company sold substantially all of the assets of its C. G. Products
subsidiary effective September 13, 1993. The Company sold substantially
all of the assets of the Healthcare Division during September 1996.
Earnings from continuing operations does not reflect the results of
operations for C. G. Products and the Healthcare Division. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note C of "Notes to Consolidated Financial Statements."
(2) Represents results of discontinued operations of C. G. Products and the
Healthcare Division. See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note C of "Notes to
Consolidated Financial Statements."
(3) The Statements of Operations for fiscal 1995, 1994, and 1993 have been
reclassified to reflect the discontinuance of the Healthcare operation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Report.
GENERAL
Bollinger Industries, Inc. designs, manufactures, imports, and distributes
a variety of fitness equipment and accessories.
During the fourth quarter of fiscal 1996, management undertook a
comprehensive review of the Company's marketing strategy, profitability and
liquidity. This strategy necessitated a three point plan (refer to Form 10-K
for fiscal 1996).
The components of the plan comprised: providing a restructuring charge to
cover disposal of certain inventory and phase out of certain celebrity endorsed
products: disposal of the Company's Sports Medicine and Safety Products
business ("Healthcare Division"), and revision of certain operating policies
and procedures.
RESTRUCTURING OF OPERATIONS
The significant elements of the Restructuring Plan were to substantially
reduce inventory levels, which had been excessive in prior years, and to
de-emphasize celebrity endorsed products. The Company expected to reduce
interest costs, generate much needed capital, reduce warehousing and related
costs, reduce royalty expense, improve gross profit, and increase net earnings
per share.
10
<PAGE> 13
Inventory levels have decreased substantially from $30.1 million in 1996
to $16.2 million in 1997 and inventory originally targeted for expedient
disposal has been reduced from approximately $12.0 million in 1996 to
approximately $4.0 million in 1997. This reduction in inventory has allowed
the Company to consolidate operations, relocate its Corporate Offices, and
reduce both short term and long term debt.
The Company did not experience the improved gross profit and related
increase in net earnings per share from this restructuring due to a decline in
the overall sales level of fitness accessory products and to a change in
product mix from higher margined light equipment items to lower margined
backyard trampolines.
DISCONTINUED OPERATIONS-HEALTHCARE DIVISION
Management of the Company determined in January of fiscal 1996 that it
would be in the best interest of the Company to dispose of its Sports Medicine
and Safety Products business, known as Bollinger Healthcare. The largest
portion of this division was sold in September, 1996 with the remainder
disposed of or abandoned in January 1997. The Company recorded a one time gain
in relation to this sale of $477,000 net of income tax expense of $246,000.
PROFITABILITY
The Company has experienced several areas of improvement, due to the
implementation of the Restructuring Plan, but there are many areas that need
to be addressed in fiscal 1998 for the Company to return to profitability.
NET SALES: The Company has suffered with Customer returns and allowances
over the last 2 1/2 years but is beginning to see an improvement in the number
and dollar amount of these returns and deductions. The controls surrounding the
prompt handling of returns has been improved and the response time and tracking
of these returns and related deductions has improved substantially. Customer
deductions from payments improved approximately $3.0 million dollars from
fiscal 1996 to 1997 but the Company believes even more progress can be made in
this area, the effect of which is a higher net sales dollar and improved gross
margin.
COST OF SALES: During the year, as inventory was sold and warehouses
consolidated, the Company saw improvements in the fixed costs associated with
warehousing and storing goods, but these improvements were not enough to
counteract the deteriorating margins due to freight demurrage charges,
scrapping of many of the returns from previous periods that were not cost
effective to repair, and the cost of contract labor to handle the start up of
trampoline production in the Grand Prairie facility.
The Company is currently in the process of examining the need to maintain
domestic production of several line items. Due to the highly competitive
nature of the overseas market it has become cost advantageous to source more
items from overseas. Additionally, there are potential savings to be
negotiated with steamship lines, freight forwarders and U.S. Customs as well as
major reductions in product costs previously referred to Part I, Item 1, of
this form 10-K.
GROSS MARGIN: The Company experienced a down turn in sales of the Fitness
Accessory line (excluding trampolines) in fiscal 1997, primarily due to the
ebbing popularity of the light equipment items such as Trimriders(TM) and
Powerriders(TM), many of which were celebrity endorsed. These items
traditionally carried a higher margin than the majority of the Fitness
Accessory line because they were sold through the televised shopping clubs.
Additionally, $5.0 million dollars of sales on the targeted inventory were at a
9% gross margin, causing an overall erosion of margin of one half of a
percentage point for the year. Historically
11
<PAGE> 14
there has been an 11% deferential between the gross margin on Fitness items and
trampolines. The Company experienced a sales shift of $12.8 million from
accessories to trampolines. This had a negative gross margin effect, on a
consolidated basis, of two percentage points for the year.
The Company believes that sourcing their products from the lowest cost,
high quality provider, in addition to strengthening the controls and response
time surrounding customer deductions, will enable it to substantially improve
gross margins in fiscal 1998.
WAREHOUSING EXPENSES: The Company plans to continue to consolidate
warehouse facilities in fiscal 1998 thereby lowering fixed costs. The Company
is also exploring the use of freight expediters on the west coast to receive the
product from the orient, unload and inspect it, and repack it for shipment to
the customer. Using the west coast facilities, as opposed to the Grand Prairie
operation, should save additional manpower and freight. Other improvements
include establishing more rigid quality standards for our imported products to
pass back to the supplier the cost of repackaging items with incorrect or faulty
labeling, resorting items grouped by the wrong size or color, etc. The Company
has, in the past, absorbed these costs as part of its operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, General and Administrative
expenses have continued to decline as Company management is constantly
challenged to find innovative ways to produce results with limited funds.
Staffing levels are monitored closely and expenses continue to be scrutinized.
FINANCING: The Company experienced an increase in the cost of financing
from fiscal 1996 to 1997 of $300,000 primarily due to higher interest paid in
the first two quarters.
ACQUISITIONS
Effective May 24, 1994, the Company, through a newly formed and wholly
owned subsidiary, NBF, Inc., a Georgia Corporation, acquired substantially all
the assets, liabilities and business of NBF, Inc., a Florida Corporation, in
exchange for 138,000 shares of the Company's restricted Common Stock. The
purchase price was approximately $2.8 million, including the assumption of
certain liabilities. Additionally, the Company acquired from an individual all
of the intellectual property rights to the products manufactured by NBF, Inc.,
a Florida Corporation, for $150,000 in cash. NBF, Inc. is a manufacturer of
trampolines and other outdoor playground equipment. The acquisition was
accounted for as a purchase and accordingly, results of operations have been
included in the Consolidated Statement of Earnings since the acquisition date.
SALE OF ASSETS
In September of 1996, the Company sold substantially all of the assets of
its Healthcare Division. The Healthcare division supplied sports medicine and
safety products to the medical markets. The Company realized a net gain from
the sale of this division of $477,000 net of income tax expense of $246,000.
The results of operations of the Healthcare Division are reflected in the
Company's consolidated financial statements as discontinued operations.
12
<PAGE> 15
RESULTS OF OPERATIONS
The following table presents for the periods indicated, certain items
derived from the Company's consolidated statements of operations expressed as a
percentage of net sales. The trends in sales or earnings illustrated in the
following table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
------------------------------ ------------------------
FISCAL YEAR ENDED MARCH 31, FISCAL FISCAL
1997 1996
OVER FISCAL
1997 1996 1995 1996 1995
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales...................... 100.0 100.0 100.0 3 18
Cost of goods sold............. 84.4 77.5 74.4 12 23
------- ------- -------
Gross profit................. 15.6 22.5 25.6 (29) (4)
Selling expenses............... 8.4 9.8 10.1 (13) (15)
Distribution, general and
administrative expenses...... 13.9 15.1 12.4 (5) 44
Restructuring of operations.... 0.0 4.9 0.0 (100) 0
------- ------- -------
22.3 29.8 22.5 (23) 57
------- ------- -------
Operating profit (loss)...... (6.7) (7.3) 3.0 (6) (383)
Interest expense............... 3.1 2.8 1.7 13 93
Other expense (income) - net... (0.1) (0.1) (0.1) (52) (78)
------- ------- -------
3.0 2.7 1.6 16 92
Earnings (loss) from
continuing operations
before income taxes.......... (9.7) (10.0) 1.4 0 (947)
Income tax expense (benefit)... 0.0 (1.4) .5 114 (424)
------- ------- -------
Earnings (loss) from
continuing operations........ (9.7) (8.5) .9 (19) (1,255)
======= ======= =======
</TABLE>
(1) The percentages for 1995 have been recalculated to reflect the
discontinuance of the Healthcare Division. See Management's Discussion of
Financial Condition and Results of Operations and Note C to "Notes to
Consolidated Financial Statements."
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
The Company's fitness accessory products (Fitness Accessory Products)
consist of two major product categories - trampoline products (Trampoline
Products) and other fitness accessory products (Other Fitness Accessory
Products).
Net sales of Fitness Accessory Products in fiscal 1997 increased by
approximately $2.3 million from fiscal 1996, an increase of 2.9%.
Approximately $12.8 million of this growth is attributable to net sales of
Trampoline Products which increased 62.2%. The reduction of approximately
$10.5 million is attributable to net sales of Other Fitness Accessory
products, which decreased 17.6%. The Company introduced Trampoline Products to
its Fitness Accessory Product line during May 1994. Since that time net sales
of Trampoline Products has increased rapidly due to placement of trampolines at
several of the Company's high volume mass merchant customers. The Company
expects net sales of Trampoline Products will continue to grow at a high rate.
However, it is unlikely that the prior year percentage increase in net sales
can be maintained. The decrease in net sales of Other Fitness Accessory
Products resulted from a continuing trend of a slow down of purchases of the
Company's light equipment items.
13
<PAGE> 16
In fiscal 1995 and 1996 the Company had experienced a high rate of product
returns and customer chargebacks. The Company's method for recording and
analyzing chargebacks, including returned merchandise deductions, has improved
substantially over the last 2 1/2 years. The Company has developed internal
procedures for receiving and reworking product returns as they arrive in the
warehouse, increased the number and talent of the accounts receivable staff, and
included a full review of customer deductions and payment practices in the
management review process.
Returns and deductions from customers was reduced in fiscal 1997 from a
high of approximately 11% of sales in the first quarter to approximately 6% by
year end.
Gross profit for Fitness Accessory Products in fiscal 1997 decreased by
approximately $5.2 million over fiscal 1996, and decreased as a percentage of
net sales from 22.5% in 1996 to 15.6% in fiscal 1997. This is due, in part,
to trampoline products earning a lower gross margin than other Fitness Products
and comprising a higher proportion of sales in 1997. Gross margins of the
other Fitness Accessory Products were lower in 1997 than 1996 due primarily to
the sales of $5 million of targeted inventory at a gross margin of 9% and the
loss of the light equipment sales which carry higher gross margin percentage
that other fitness accessories. Management expects the impact of selling
targeted inventory will be less in fiscal 1998.
Selling expenses for Fitness Accessory Products in fiscal 1997 decreased
by approximately $1.0 million compared to fiscal 1996 and decreased as a
percentage of net sales of Fitness Accessory Products from 9.8% in fiscal 1996
to 8.3% in fiscal 1997. The dollar decrease and percentage decrease in selling
expenses is attributed to the decrease in celebrity commissions, sales
commissions and royalties, as a result of discontinuing celebrity endorsements,
which will continue in fiscal 1998.
Distribution, general and administrative expenses for Fitness Accessory
Products decreased by $600,000 compared to fiscal 1996 and decreased as a
percentage of net sales of Fitness Accessory Products from 15.1% in fiscal 1996
to 13.9% in fiscal 1997. The decrease in distribution, general and
administrative expenses in dollars is attributed to the reduction of excess
warehouse rent and labor costs. In addition, distribution, general and
administrative expenses were lower than previous year due to a decrease in the
use of temporary employees in the office, and better cost controls.
Operating loss from continuing operations in fiscal 1997 as compared to
fiscal 1996 decreased by $300,000. As a percentage of net sales, operating
losses decreased from a 7.3% operating loss in 1996 to a 6.7% operating loss in
fiscal 1997.
Interest expense for continuing operations in fiscal 1997 increased
approximately $300,000 from fiscal 1996 primarily due to fees associated with
obtaining alternative financing. The average loan balance was lower in fiscal
1997 due to substantially lower inventory levels and decreases in accounts
payable. Interest rates improved from 11.75% to 10.0% in fiscal 1997.
FISCAL YEAR ENDED MARCH 31 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,1995
Net sales of Fitness Accessory Products in fiscal 1996 increased by
approximately $12.4 million from fiscal 1995, an increase of 18.3%
Approximately $11.5 million of this growth is attributable to net sales of
Trampoline Products which increased 127.9%. The balance of approximately
$900,000 is attributable to net sales of Other Fitness Accessory products,
which increased 1.4%. The relatively flat net
14
<PAGE> 17
sales of Other Fitness Accessory Products resulted from weak demand and a high
level of product returns. The high returns were a result of both defective
product and accommodations to certain of the Company's larger customers.
Returns and other customer deductions were particularly high in the fourth
quarter of fiscal 1996.
Gross profit for Fitness Accessory Products in fiscal 1996 increased by
approximately $800,000 over fiscal 1995, but decreased as a percentage of net
sales from 25.6% in 1995 to 22.5% in fiscal 1996. This is due to the fact that
trampoline products earn a lower gross margin than other Fitness Products and
were a higher proportion of sales in 1996. Gross margins of the other Fitness
Accessory Products were lower in 1996 than 1995 due primarily to a higher level
of customer returns and chargebacks.
Selling expenses for Fitness Accessory Products in fiscal 1996 increased
by approximately $1.0 million compared to fiscal 1995 and decreased as a
percentage of net sales of Fitness Accessory Products from 10.1% in fiscal 1995
to 9.8% in fiscal 1996. The dollar increase in selling expenses is attributed
to the overall increase in net sales of Fitness Accessory Products. The
decrease in selling expenses as a percentage of net sales of Fitness Accessory
Products is attributable to increased sales volume.
Distribution, general and administrative expenses for Fitness Accessory
Products increased by $3.7 million compared to fiscal 1995 and increased as a
percentage of net sales of Fitness Accessory Products from 12.4% in fiscal 1995
to 15.1% in fiscal 1996. The increase in distribution, general and
administrative expenses in dollars is attributed to the increase in net sales;
excessive warehouse rent and labor costs associated with product returns. In
addition, distribution, general and administrative expenses were higher than
anticipated due to increased consulting and temporary employee expenses to
address problems with the Company's computer system; increased legal expenses
and audit fees; expenses associated with taking extra physical inventories; and
certain other expenses.
In particular, the fourth quarter of fiscal 1996 was impacted by
significant temporary storage charges associated with in-transit inventory,
legal expenses, and insurance costs associated with product liability.
Operating profit from continuing operations in fiscal 1996 as compared to
fiscal 1995 decreased by $7.9 million including a restructuring charge of $4.0
million. As a percentage of net sales, operating profit decreased from a 3.0%
operating profit to a 7.3% operating loss.
Interest expense for continuing operations in fiscal 1996 increased
approximately $1.0 million from fiscal 1995 primarily due to a higher interest
rate on the Company's borrowings. In addition, the average loan balance was
higher in fiscal 1996 due to increased working capital required to support
increased sales volume partially offset by higher accounts payable.
Due to a loss from continuing operations the Company recorded an income
tax benefit of $1.0 million which is based on an effective tax rate of 14.2%.
The tax benefit was reduced to reflect the amount expected to be realized.
SEASONALITY; QUARTERLY RESULTS
In the past, the Company's net sales and earnings have been higher in the
last six months of the fiscal year compared to the first six months of the
fiscal year. This trend has been mitigated by the seasonality of trampoline
sales which tend to be higher in the spring and Christmas selling seasons. Net
earnings for the Company will generally rise and fall with sales volume
although not directly in proportion to the change in net sales due to certain
of the Company's expenses being relatively fixed while others are variable.
The
15
<PAGE> 18
Company's quarterly operating results may also vary depending on such other
factors as the timing of significant customer orders, the mix of products sold,
and the efficiency of operations.
The following table sets forth selected quarterly unaudited information
for the 1997, 1996, and 1995 fiscal years. In the opinion of the Company, such
information reflects all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the information set forth below. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL 1997 FISCAL 1996
---------------------------------------- -----------------------------------------
JUNE 30, SEPT. 29, DEC. 29, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1997 1995 1995 1995 1996
--------- --------- -------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............. $22,434 $19,093 $24,609 $16,463 $12,762 $21,489 $31,648 $14,401
Operating Profit
(loss).............. (124) (440) (1,300) (3,645) (748) 1,434 1,683 (8,218)
Earnings (loss)
from continuing
operations.......... (765) (1,074) (2,017) (4,308) (703) 694 701 (7,553)
Earnings (loss) per
share from
continuing
operations.......... (0.19) (0.27) (0.50) (1.08) (0.19) 0.18 0.18 (2.03)
<CAPTION>
FISCAL 1995
-----------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1995
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Net Sales............. $12,760 $16,245 $23,256 $15,633
Operating Profit
(loss).............. 953 898 1,569 (1,355)
Earnings (loss)
from continuing
operations.......... 572 465 744 (1,187)
Earnings (loss) per
share from
continuing
operations.......... 0.15 0.12 0.19 (0.32)
</TABLE>
The above table for Fiscal 1995 has been reclassified to retroactively
recognize the discontinued Healthcare Division.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of financing in the past several years
have been short-term borrowings from banks, asset based lenders and an IPO.
The Company's cash flow from operations was approximately $5.0 million for
fiscal 1997 and approximately $4.0 million in fiscal 1996. The improvement in
cash flow from operations is due primarily to the sell down of inventory, the
collection of an income tax refund and the collection of receivables offset by
a decrease in trade payables and continuing losses.
In fiscal 1997 the Company successfully secured a revolving credit
facility with a financial institution providing a maximum line of credit of
$25.0 million, subject to certain borrowing base requirements and covenants.
As of March 31, 1997 the outstanding balance was $15.5 million. This facility
matures August 16, 2000. As of March 31, 1997 the Company was in default or
out of compliance with certain of the covenants or other provisions of the
Credit Line. The financial institution has agreed to forebear exercising any
of its rights and remedies regarding these defaults or non compliance items
through year end and has restated the financial covenants for the periods
covering fiscal 1998, 1999, and beyond. The Company is currently in compliance
with the new terms and covenants.
The outstanding balance under the Credit Line is collateralized by
substantially all of the Company's assets including accounts receivable,
inventory and real estate. The Company also has a note payable to a bank of
$1.7 million which is collateralized by a building in Irving, Texas.
From April 1, 1996 to August 16, 1996 the outstanding balances under the
previous credit facility bore interest at the bank's prime interest plus 3% or
approximately 11.75%. The new credit facility, as acquired August 16, 1996,
bore interest at the rate of 10.00% through March 26, 1997, at which time it
increased to 10.25%.
16
<PAGE> 19
The Company expects to be able to raise funds from operations, the
additional sell down of inventory and the collection of accounts receivable.
Improved liquidity is crucial to the future success and growth of the Company.
There is no guarantee the Company will be successful in raising adequate funds
from any of these sources and the failure to raise adequate funds from any of
these sources and failure to raise adequate alternative and additional funds
will have a materially adverse effect on the Company.
Capital expenditures during fiscal 1997 were approximately $621,000. The
Company has budgeted approximately $250,000 for capital expenditures for fiscal
1998.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's operations. There can be no assurance,
however, that future inflation or foreign currency fluctuations will not have a
material adverse effect on the Company, or that the Company will be able to
pass on resulting cost increases without experiencing a reduction in demand for
its products. A substantial portion of the Company's existing indebtedness
bears, and future indebtedness may bear, interest that fluctuates with the
prime rate.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
Certain statements contained in this Annual Report on Form 10-K, including
without limitation, statements containing the words "believes", "anticipates",
"intends", "expects", and words of similar import, constitute "forward-looking
statements". Such forward-looking statements involve numerous assumptions
about known and unknown risks, uncertainties and other factors which may
ultimately prove to be inaccurate. Certain of these factors are discussed in
more detail elsewhere in this Annual Report, including without limitation under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and include the Company's ability to reverse the
erosion of gross margin efficiencies, to reduce general and administrative
expenses, including those associated with litigation, and to achieve
profitability. Actual results may differ materially from any future results
expressed or implied by such forward looking statements. The Company disclaims
any obligation to update any forward-looking statements or publicly revise any
of the forward-looking statements contained herein to reflect future events or
developments.
ONGOING OPERATIONAL LOSSES AND LIQUIDITY
The changes mentioned here and elsewhere in this report were implemented
in late fiscal 1997 and the other additional improvements are continuing to be
implemented in fiscal 1998. Management believes that based on fully
implementing these plans in fiscal 1998, and realizing the benefit of these
improvements in fiscal 1998 and 1999, the Company's operating losses will be
reversed and its liquidity improved.
17
<PAGE> 20
LEGAL PROCEEDINGS
The Company and certain officers and directors are defendants in two
separate lawsuits that purport to be class actions and allege certain
misrepresentations and fraudulent actions by the defendants. While the Company
believes both actions are without merit, a negative outcome would have a
material adverse effect upon the Company's business, operating results and
financial condition. See Item 3. Legal Proceedings.
The Company is involved in several other legal issues, particularly with
Denise Austin, a former celebrity endorsement representative, that may be
difficult to resolve and may continue to absorb Company management time and
resources.
PRODUCTS AND MARKETS
The Company believes there will continue to be a strong market for its
products and product lines but a substantial change in consumer preference away
from a particular product, particularly trampolines, could seriously effect the
Company's ability to produce sales at the same level as is currently enjoyed.
The Company's customer base is highly concentrated with a few key mass
merchandisers. Insolvency, or a slow down in payments or a change in buying
habits, of any of these customers would have a material adverse impact on the
Company.
VENDOR PRICING
The Company plans to continue to negotiate better prices from its vendors
in fiscal 1998. The Company has had initial success and plans to explore all
avenues of product sourcing. However, there are no guarantees that it will
have additional success in this regard. Failure to negotiate lower prices
would have a material adverse on the Company's future earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The consolidated financial statements and schedules of the Company as of
March 31, 1997, and 1996, and for each of the years in the three-year period
ended March 31, 1997, are included as part of this Report beginning on page F-1
hereof.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- ------------------------------------------------------
<S> <C> <C>
Glenn D. Bollinger 46 Chairman of the Board and Chief Executive Officer
Bobby D. Bollinger 44 Vice Chairman of the Board and President
Rose Turner 40 Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
James A. Burgin 55 Executive Vice President - Sales
Jack P. Carrithers 49 Executive Vice President - Marketing
Dell K. Bollinger 70 Senior Vice President - Administration
David Barr 38 Executive Vice President - Product Acquisition
Floyd DePauw 46 Controller and Chief Accounting Officer
John L. Maguire 66 Director
Stephen L. Parr 43 Director
Richard J. Tucker 49 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.
Glenn D. Bollinger is a co-founder of the Company and has served as
Chairman of the Board and Chief Executive Officer since 1979. Mr. Bollinger
is primarily responsible for the Company's overall operations, including
inventory, manufacturing and warehousing.
Bobby D. Bollinger is a co-founder of the Company and has served as Vice
Chairman of the Board and President since 1979. Mr. Bollinger is primarily
responsible for sales, marketing and product development. Mr. Bollinger is
Glenn Bollinger's brother.
Rose Turner became Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary of the Company in January 1997 after joining
the Company on a contract and full time basis starting in November 1995. Ms.
Turner is a certified public accountant. Ms. Turner was most recently employed
by Mission Foods, a Division of Gruma Corporation, a privately held company
headquartered in Los Angeles, California. Mission Foods is a food
manufacturing firm with operations throughout the United States. Ms. Turner
served as Regional Controller, Southwest Region, for the past four years. She
was employed by a variety of food manufacturing companies for approximately
seventeen years in increasing roles of responsibility.
19
<PAGE> 22
James A. Burgin became Vice President - Sales in December 1993. He
became Executive Vice President of Sales in November 1994. Before joining the
Company, Mr. Burgin was Executive Vice President of Dynamic Classics, Ltd.,
distributor of fitness products. Mr. Burgin was employed by Dynamic for
approximately three years. Prior to Dynamic, Mr. Burgin was employed by
various companies in the fitness and toy industries for approximately twenty
years.
Jack P. Carrithers became acting Vice President - Marketing in December
1993 and was elected Vice President - Marketing in May 1994. He became
Executive Vice President in November 1994. Before joining the Company, Mr.
Carrithers was a Vice President and Creative Director of Penny & Speier
Advertising Agency from July 1991 to November 1993. Prior to that employment,
he was an Executive Vice President and Creative Director of Evans
Communications for six years. In these past positions, Mr. Carrithers had
responsibility for developing marketing and advertising programs and materials
for a broad range of products and services.
Dell K. Bollinger became involved in the Company's business when it was
founded by her sons, Glenn and Bobby Bollinger, in 1974. Mrs. Bollinger has
served as a Vice President of the Company since 1979.
David Barr became Vice President - Product Development in July 1994 and
became Executive Vice President of New Products and Product Acquisition in
August 1996. Prior to joining the Company Mr. Barr was President and Owner of
New Zone Corporation, a privately held distributor of children's safety and
related products. Prior to that employment Mr. Barr held various positions at
Tandy Corporation, Fort Worth Texas, including Director of Marketing for
Computer City.
Floyd DePauw became Controller and Chief Accounting Officer in October
1996. Mr. DePauw is a certified public accountant. Before joining the
Company, Mr. DePauw was most recently the controller of Taylor Publishing
Company, a subsidiary of Insilco Corporation, a publicly owned company. He was
employed by Taylor in a variety of accounting positions for approximately 16
years. Prior to Taylor, Mr. DePauw was employed by Zoecon Industries, Inc., a
chemical manufacturer, for approximately five years.
John L. Maguire became a director in September 1993 and served as interim
Chief Financial Officer from August 1992 to August 1993. In addition, the
Company employs Mr. Maguire as a salaried consultant on certain financial
matters and acquisitions. Mr. Maguire is a certified public accountant.
Since 1982, he has been self-employed, concentrating on private family
investments. He was previously Chief Financial Officer of Tyson Foods, Inc.,
for 12 years. Mr. Maguire was a director of Arkansas Equity Growth Fund,
Inc., a publicly held investment company which was liquidated in July 1993 and
subsequently dissolved.
Stephen L. Parr became a Director of the Company in November 1995. Mr.
Parr is currently President of Navigator Capital Management, LLC. Mr. Parr was
previously a Vice President of Goldman Sachs where he was an international
specialist. Mr. Parr was with Goldman Sachs from 1977 to 1995. Mr. Parr
serves on the Board of Directors of DayStar Digital, a Georgia computer
company, Nextek, Inc., an Alabama electronics company, and Corphealth, Inc., a
Texas behavioral healthcare company.
Richard J. Tucker was retained by the Company in July of 1995 as a
consultant on certain financial and other matters, and shortly thereafter
became a director. He is the Chairman and Chief Executive Officer of First
Fidelity Acceptance Corp., a nationwide automobile finance company
headquartered in Plano, Texas. Mr. Tucker has been employed by First Fidelity
since 1992. Prior to First Fidelity, Mr. Tucker was President of two holding
companies, EntreCap International, Inc. and International Asset Management
Group, Inc.
20
<PAGE> 23
The Company's board of directors is currently composed of five directors,
two of whom are not employees of the Company. However, one of the non-employee
directors is currently retained as a consultant to the Company. All of the
current directors serve until the next annual shareholder's meeting or until
their successors have been duly elected and qualified. Certain of the directors
and officers are defendents to lawsuits as discussed in part 1, item 3 of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Company's
chief executive officer and the Company's three other most highly compensated
executive officers for services rendered in all capacities to the Company
during fiscal 1997, 1996 and fiscal 1995.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS COMPENSA- OPTIONS COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) TION ($)(1) (#) TION ($)
- -------------------------- ---- -------- ------ -------------- ----------- -----------------
<S> <C> <C> <C> C> <C> <C>
Glenn D. Bollinger............. 1997 $275,717 - - - -
Chairman of the Board and 1996 275,717
Chief Executive Officer....... 1995 275,735 - - - -
Bobby D. Bollinger............. 1997 275,717 - - - -
Vice Chairman of the Board 1996 275,717
and President................. 1995 275,735 - - - -
James A. Burgin................. 1997 118,120 3,008 - - -
Executive Vice President - 1996 118,024 - - - -
Sales......................... 1995 78,462 18,748 - 5,000 -
John T. Pryor................... 1997 109,723 - - 25,000 -
Former CFO - 1996 - - - - -
Senior Vice President......... 1995 - - - - -
</TABLE>
- --------------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive.
OPTIONS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executives concerning exercise of options during fiscal 1997 and unexercised
options held as of the end of fiscal 1997.
21
<PAGE> 24
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
SHARES FISCAL YEAR-END (#) YEAR-END ($) (1)
ACQUIRED ------------------------------ ----------------------------------
ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ------------------ ------------------ --------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Burgin - - 8,500 6,500 - -
</TABLE>
- -----------------
(1) Based on the closing sale price of the common stock on March 31, 1997, of
$.75 per share as reported by the over-the-counter Bulletin Board and a
weighted average exercise price per share of $10.30.
DIRECTOR'S COMPENSATION
Each independent director receives a fee of $10,000 annually and is
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board of directors and committee meetings. Each independent director was
granted options to purchase 8,333 shares of Common Stock at the time he became
a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the shares of Common Stock of the Company, as of June
16, 1997, by (i) each director, (ii) the Company's chief executive officer and
two other most highly compensated executive officers in fiscal 1997, (iii) all
officers and directors of the Company as a group, and (iv) each person deemed
to beneficially own more than five percent of the outstanding shares of Common
Stock. Except as otherwise indicated, each stockholder identified in the table
has sole voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
SHARES OWNED
---------------------
NAME NUMBER PERCENTAGE
- ---- --------- ----------
<S> <C> <C>
Glenn D. Bollinger (1)(2) 1,885,563 47.1
Bobby D. Bollinger (1)(3) 1,885,563 47.1
James A. Burgin (4) 8,500 *
John L. Maguire (5) 62,333 1.6
Richard J. Tucker - *
Stephen L. Parr 2,500 *
All directors and executive officers as a
group (11 persons) (6) (7) (8) 2,413,281 60.3
</TABLE>
- ------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Business mailing address is 602 Fountain Parkway, Grand Prairie, Texas
75050.
(2) Includes (i) 425,069 shares over which Glenn Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Glenn Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Glenn Bollinger
has shared voting and investment power because he and his brother Bobby
Bollinger each own 49.5% of the outstanding stock of the sole general
partner; (iii) 436,000 shares held by Bob Bollinger Family Enterprises,
Ltd., a Texas limited partnership, over which Glenn Bollinger has shared
voting and investment
22
<PAGE> 25
power because he and his brother Bobby Bollinger each own 49.5% of the
outstanding stock of the sole general partner; and (iv) 588,494 shares held
by the trustees of the Company's 401(K) Plan successor to the Company's
Employee Stock Ownership Plan (the "401(K) Plan"), including Glenn
Bollinger, and over which he has shared voting and investment power.
Neither the inclusion of shares owned by Bob Bollinger Family Enterprises,
Ltd., nor the inclusion of any 401(K) Plan shares not allocated to Glenn
Bollinger's 401(K) participant account is to be construed as an admission
that he is the beneficial owner of such shares.
(3) Includes (i) 425,069 shares over which Bobby Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Bobby Bollinger
has shared voting and investment power because he and his brother Glenn
Bollinger each own 49.5% of the outstanding stock of the sole general
partner; (iii) 436,000 shares held by Glenn Bollinger Family Enterprises,
Ltd., a Texas limited partnership, over which Bobby Bollinger has shared
voting and investment power because he and his brother Glenn Bollinger
each own 49.5% of the outstanding stock of the sole general partner; and
(iv) 588,494 shares held by the trustees of the 401(K) Plan, including
Bobby Bollinger over which he has shared voting and investment power.
Neither the inclusion of shares owned by Glenn Bollinger Family
Enterprises, Ltd., nor the inclusion of any 401(K) Plan shares not
allocated to Bobby Bollinger's 401(K) participant account is to be
construed as an admission that he is the beneficial owner of such shares.
(4) Includes options to purchase 8,500 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days.
(5) Includes options to purchase 54,999 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days. Does not
include 1,000 shares of Common Stock held in trust for which the reporting
person is the trustee and is a contingent beneficiary. The reporting
person disclaims beneficial ownership of these shares.
(6) Includes options to purchase 86,499 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days.
(7) Shares which are included beneficially under both Glenn and Bobby
Bollinger are only included once in the group total.
(8) Includes 1,300 and 100 shares of Common Stock, respectively, beneficially
owned by two executive officers of the Company, which are held by brokers
as custodians for the officers' individual retirement accounts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In April 1993, an independent sales representative of the Company,
advanced $500,000 to the Company for working capital. The loan was evidenced
by the Company's real estate lien note bearing interest at 10% per annum due
March 31, 1996, and secured in part by a lien on the Company's Irving facility.
In connection with this loan, the Company issued 34,405 shares of Common
Stock. In December 1993, Messrs. Glenn and Bobby Bollinger and Mrs. Dell
Bollinger purchased the note and received an assignment of the real estate lien
in consideration of payment of the outstanding principal balance of the note.
On March 29, 1996, the Company paid each of Messrs. Glenn and Bobby Bollinger
$110,000 against the note. The proceeds of the note payments were used by
Messrs. Glenn and Bobby Bollinger to exercise certain stock options granted in
1991. The Company extended the maturity of the $100,000 note to March 31, 1998
and remaining notes of $180,000 to August 16, 2000. In May 1996, a priority
lien on the real estate was granted to a bank to secure the Company's credit
facility.
The Company believes that the terms of the above transaction were at least
as favorable to the Company as those which could have been obtained in an arm's
length transaction with an unaffiliated party.
During July, 1995, the Company retained Mr. Richard Tucker as a
consultant. Shortly after his retention, Mr. Tucker became a director of the
Company. Pursuant to the consulting agreement, Mr. Tucker received $75,000 per
year for 2 years, of which $75,000 was paid in fiscal 1997 and $56,250 was paid
in fiscal 1996. The remaining $18,750 was paid in the first quarter of fiscal
1998.
23
<PAGE> 26
All transactions, if any, between the Company and any of its directors,
officers, principal stockholders, employees and other affiliates of the Company
are subject to the approval of a majority of the independent directors of the
Company who are disinterested in the transactions. All such transactions and
loans must be on terms no less favorable to the Company than those generally
available from unaffiliated third parties.
24
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. - Consolidated financial statements to this Report are listed in the
"Index to Consolidated Financial Statements and Schedules" at page
F-1.
2. - Consolidated financial statement schedules to this Report are listed
in the "Index to Consolidated Financial Statements and Schedules" at
page F-1. All other schedules are omitted because they are
inapplicable or the requested information is shown in the financial
statements or noted therein.
3. - Exhibits.
3.1 - Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-1 Registration
Statement No. 33-69708)
3.2 - By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Form S-1 Registration Statement No. 33-69708)
4.1 - Form of certificate representing shares of the Company's Common Stock
(incorporated by reference to Exhibit 4.1 to the Company's Form S-1
Registration Statement No. 33-69708)
10.1 - Bollinger Industries 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.2 - Bollinger Industries Employee Stock Ownership Plan and Trust
(incorporated by reference to Exhibit 10.2 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.3 - Form of Indemnification Agreement with independent director
(incorporated by reference to Exhibit 10.3 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.4 - Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.5 - Lease Agreement dated April 4, 1991, between William A. McCarty,
Jr., and Elinor F. McCarty and Bollinger Sports, Inc., formerly
known as Bollinger Industries, Inc. ("Bollinger-Texas")
(incorporated by reference to Exhibit 10.8 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.6 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.8.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.7 - Lease Agreement dated August 30, 1992, between Reba McPherson,
individually and as Trustee of the Reba McPherson Trust u/w/o
Harold Lynn McPherson, and Tarbox, Inc., as extended by an
Agreement dated August 9, 1993 (incorporated by reference to
Exhibit 10.9 to the Company's Form S-1 Registration Statement No.
33-69708)
25
<PAGE> 28
10.8 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Tarbox, Inc., as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.9.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.9 - Standard Industrial Lease dated March 17, 1993, between National
Life Insurance Company and Bollinger-Texas (incorporated by
reference to Exhibit 10.10 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.10 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P.,
as Assignee with respect to such lease (incorporated by reference
to Exhibit 10.10.1 to the Company's Form S-1 Registration Statement
No. 33-69708)
10.11 - $500,000 Real Estate Lien Note dated March 18, 1993, in favor of
Sid Reisman and executed by Bollinger-Texas, as modified by a
Renewal, Extension, and Modification Agreement dated as of April 6,
1993, and subsequently assigned to Glenn, Bobby and Dell Bollinger
(incorporated by reference to Exhibit 10.10 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.12 - Asset Purchase and Sale Agreement dated as of September 13, 1993,
by and between California Gym Equipment Company, S. G. Equipment,
Inc. and, for limited purposes, Bollinger-Texas and Sherman Grider
(incorporated by reference to Exhibit 10.13 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.13 - Standard Sublease dated as of September 13, 1993, between
California Gym Equipment Company and S. G. Equipment, Inc.,
together with the Industrial Real Estate Lease dated June 1, 1992,
between New England Mutual Life Insurance Company and
Bollinger-Texas attached thereto (incorporated by reference to
Exhibit 10.14 to the Company's Form S-1 Registration Statement No.
33-69708)
10.14 - Assignment and Assumption Agreement dated as of September 1, 1993,
between Bollinger-Texas and California Gym Equipment Company with
respect to Industrial Real Estate Lease dated June 1, 1992
(incorporated by reference to Exhibit 10.15 to the Company's Form
S-1 Registration Statement No. 33-69708)
10.15 - Letter agreement dated May 19, 1992, between Bollinger-Texas,
Denise Austin and Jeff Austin (incorporated by reference to Exhibit
10.16 to the Company's Form S-1 Registration Statement No.
33-69708)
10.16 - Letter agreement dated April 13, 1994, between Bollinger
Industries, L.P., Denise Austin and Jeff Austin (incorporated by
reference to Exhibit 10.16 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
10.17 - Endorsement Agreement dated September 1, 1993, between
Bollinger-Texas and Nolan Ryan (incorporated by reference to
Exhibit 10.17 to the Company's form 10-K for the fiscal year ended
March 31, 1994)
10.18 - Loan Agreement dated as of January 4, 1994, between Bollinger
Industries, L.P., the Company, and First Interstate (incorporated
by reference to Exhibit 10.18 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
26
<PAGE> 29
10.19 - Standard Office/Warehouse Lease dated May 11, 1994, between
Fountain Parkway, Ltd., and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.19 to the Company's form
10-K for the fiscal year ended March 31, 1994)
10.20 - Lease dated December 21, 1990, between Americus/Sumter Payroll
Development Authority and N.B.F., Inc. and R. Wayne Rich
(incorporated by reference to Exhibit 10.20 to the Company's form
10-K for the fiscal year ended March 31, 1994)
10.21 - Assignment and Assumption of Lease dated May 1, 1994, between
Americus/Sumter Payroll Development Authority, NBF, Inc., a Florida
corporation, and NBF, Inc., a Georgia corporation (incorporated by
reference to Exhibit 10.21 to the Company's form 10-K for the
fiscal year ended March 31, 1994)
10.22 - Amendment to Lease between Americus-Sumter Payroll Development
Authority and NBF, Inc., a Georgia corporation and R. Wayne Rich
amending the lease dated December 21, 1990 reflected at exhibit No.
10.20 above (incorporated by reference to Exhibit 10.2 to the
Company's form 10-Q for the quarter ended June 30, 1994)
10.23 - Asset Purchase Agreement dated May 24, 1994, and effective as of
May 1, 1994, between NBF, Inc., a Florida corporation, and NBF,
Inc., a Georgia corporation (incorporated by reference to Exhibit
10.3 to the Company's form 10-Q for the quarter ended June 30,
1994)
10.24 - First Amendment to Loan Agreement dated as of June 22, 1994,
between Bollinger Industries, L.P., the Registrant, Bollinger
Holding Corp., NBF and First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.5 to the Company's form
10-Q for the quarter ended June 30, 1994)
10.25 - Loan and Security Agreement dated September 9, 1994, between
Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's form
10-Q for the quarter ended September 30, 1994)
10.26 - First Amendment to Loan and Security Agreement dated September 9,
1994, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.2 to the Company's
form 10-Q for the quarter ended September 30, 1994)
10.27 - Second Amendment to Loan and Security Agreement dated December 8,
1994, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.1 to the Company's
form 10-Q for the quarter ended December 31, 1994)
10.28 - Lease Agreement dated November 16, 1994, between John Wilkerson,
individually and Bollinger Industries (incorporated by reference to
Exhibit 10.2 to the Company's form 10-Q for the quarter ended
December 31, 1994)
10.29 - Modification and Ratification of Lease dated November 1, 1994,
between Fountain Parkway, Ltd. and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.3 to the Company's form
10-Q for the quarter ended December 31, 1994)
27
<PAGE> 30
10.30 - Third Amendment to Loan and Security Agreement dated March 3, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.30 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.31 - Fourth Amendment to Loan and Security Agreement dated May 15, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.31 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.32 - Modification and Ratification of Lease dated February 22, 1995,
between Fountain Parkway, Ltd. and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.32 to the Company's Form
10-K for the fiscal year ended March 31, 1995)
10.33 - Fifth Amendment to Loan and Security Agreement dated September 9,
1995, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended December 31, 1995)
10.34 - Sixth Amendment to Loan and Security Agreement dated December 29,
1995, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended December 31, 1995)
10.35 - Seventh Amendment to Loan and Security Agreement dated March 8,
1996, between Bollinger Industries, L.P. and NationsBank of Texas,
N.A. (incorporated by reference to Exhibit 10.35 to the Company's
Form 10K for the year ended March 31, 1996)
10.36 - Eighth Amendment to Loan and Security Agreement dated May 8, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.36 to the Company's
Form 10K for the year ended March 31, 1996)
10.37 - Deed of Trust, Assignment, Security Agreement and Financing
Statement dated May 8, 1996, between Bollinger Industries, L.P. and
NationsBank of Texas, N.A. (incorporated by reference to Exhibit
10.37 to the Company's Form 10K for the year ended March 31, 1996)
10.38 - Ninth Amendment to Loan and Security Agreement dated May 17, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.38 to the Company's
Form 10K for the year ended March 31, 1996)
10.39 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Glenn D. Bollinger (incorporated by
reference to Exhibit 10.39 to the Company's Form 10K for the year
ended March 31, 1996)
10.40 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Bobby D. Bollinger (incorporated by
reference to Exhibit 10.40 to the Company's Form 10K for the year
ended March 31, 1996)
10.41 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Dell Bollinger (incorporated by
reference to Exhibit 10.41 to the Company's Form 10K for the year
ended March 31, 1996)
10.42 - Second Amendment to standard industrial lease dated January 31,
1996, between National Life Insurance Company and Bollinger
Industries, L.P., as assignee (incorporated by reference to Exhibit
10.42 to the Company's Form 10K for the year ended March 31, 1996)
10.43 - U.S. Trademark License Agreement between International Apparel
Marketing Corp. dba Nautilus Wear International and Bollinger
Industries, Inc. dated May 1, 1995 (incorporated by reference to
Exhibit 10.43 to the Company's Form 10K for the year ended March 31,
1996)
10.44 - Amendment to U.S. Trademark License Agreement between International
Apparel Marketing Corp. and Bollinger Industries, Inc. dated March
1, 1996 (incorporated by reference to Exhibit 10.44 to the Company's
Form 10K for the year ended March 31, 1996)
28
<PAGE> 31
10.45 - Intercreditor and Subordination Agreement dated May 8, 1996,
between NationsBank of Texas, N.A. and Glenn D. Bollinger, Bobby D.
Bollinger, and Dell Bollinger (incorporated by reference to Exhibit
10.45 to the Company's Form 10K for the year ended March 31, 1996)
10.46 - Eleventh Amendment to Loan and Security Agreement dated July 8, 1996,
between Bollinger Industries, LP, and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.46 to the Company's form
10-Q for the quarter ended September 29, 1996)
10.47 - Loan and Security Agreement dated August 16, 1996 between Bollinger
Industries, Inc., Bollinger Industries, LP and NBF, Inc. and
Foothill Capital Corporation and related schedules. (incorporated
by reference to Exhibit 10.47 to the Company's form 10-Q for the
quarter ended September 29, 1996)
10.48 - Collateral Assignment of Patents and Trademarks dated August 16,
1996 between Bollinger Industries, LP and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.48 to the
Company's form 10-Q for the quarter ended September 29, 1996)
10.49 - Subordination Agreement dated August 16, 1996 between Glenn D.
Bollinger, Bobby D. Bollinger, Dell Bollinger and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.49 to the
Company's form 10-Q for the quarter ended September 29, 1996)
10.50 - Deed of Trust dated August 16, 1996 executed by Bollinger
Industries, LP (incorporated by reference to Exhibit 10.50 to the
Company's form 10-Q for the quarter ended September 29, 1996)
10.51 - Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, LP, and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 10.51 to the Company's form
10-Q for the quarter ended September 29, 1996)
10.52 - Tenth Amendment to Loan and Security Agreement dated July 8,1996,
between Bollinger Industries, LP, and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's form
10-Q for the quarter ended June 30, 1996)
10.53 - Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, LP, and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 2.01 to the Company's form
10-Q for the quarter ended September 29, 1996)
10.54 - Asset Purchase Agreement dated November 7, 1996, between Bollinger
Industries, LP, and SST Acquisition Corporation (incorporated by
reference to Exhibit 2.01 to the Company's form 10-Q for the
quarter ended December 29, 1996)
10.55 - First Amendment to Loan and Security Agreement dated August 16,
1996, between Bollinger Industries, Inc., Bollinger Industries, LP
and NBF, Inc. and Foothill Capital Corporation.
10.56 - Second Amendment to Loan and Security Agreement dated August 16,
1996, between Bollinger Industries, Inc., Bollinger Industries, LP
and NBF, Inc. and Foothill Capital Corporation.
10.57 - Lease Agreement dated December 1, 1996 between Southwest Properties
Group, Inc. and Bollinger Industries, LP
11.1 - Statement re Computation of Per Share Data
21.1 - List of the Company's subsidiaries (incorporated by reference to
Exhibit 21.1 to the Company's Form 10-K for the fiscal year ended
March 31, 1995)
29
<PAGE> 32
27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
30
<PAGE> 33
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 the 16th day
of June, 1997.
BOLLINGER INDUSTRIES, INC.
By: /S/ Glenn D. Bollinger
------------------------------------
Glenn D. Bollinger
Chairman of the Board 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 and in the capacities indicated as of the 16th day of July, 1996.
<TABLE>
<S> <C>
/S/ Glenn D. Bollinger Chairman of the Board, President, and Chief
- ---------------------- Executive Officer (principal executive officer)
Glenn D. Bollinger
/S/ Bobby D. Bollinger Vice Chairman of the Board and President
- ----------------------
Bobby D. Bollinger
/S/ Rose Turner Senior Vice President - Finance, Chief Financial
- ---------------------- Officer, Treasurer, and Secretary
Rose Turner (principal financial officer)
/S/ Floyd DePauw Controller and Chief Accounting Officer (principal
- ---------------------- accounting officer)
Floyd DePauw
/S/ John L. Maguire Director
- ----------------------
John L. Maguire
/S/ Stephen L. Parr Director
- ----------------------
Stephen L. Parr
/S/ Richard J. Tucker Director
- ----------------------
Richard J. Tucker
</TABLE>
S-1
<PAGE> 34
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
F-1
<PAGE> 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Page
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets as of March 31, 1997 and 1996 F-4
Consolidated Statements of Operations for each of the three
years ended March 31, 1997 F-6
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years ended March 31, 1997 F-7
Consolidated Statements of Cash Flows for each of the three
years ended March 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
Report of Independent Certified Public Accountants on Schedule F-24
Schedule II F-25
</TABLE>
F-2
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1997, and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years ended March 31, 1997. 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, 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 our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
ended March 31, 1997, in conformity with generally accepted accounting
principles.
KING GRIFFIN & ADAMSON, PC
Dallas, Texas
June 16, 1997
F-3
<PAGE> 37
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
<TABLE>
ASSETS 1997 1996
----------- ---------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 3,481 $ 408,871
Accounts receivable
Trade, net of allowance for doubtful
accounts of $844,312 and $457,829 16,804,959 18,344,827
Other 177,208 229,735
Income tax refund - 2,307,235
Inventories 16,201,780 30,112,934
Current assets of discontinued
operations - net - 1,601,954
Prepaid expenses 533,215 525,272
Deferred income taxes - 66,309
----------- ---------------
Total current assets 33,720,643 53,597,137
PROPERTY, PLANT AND EQUIPMENT - NET 2,083,402 2,015,282
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS - 161,999
OTHER ASSETS
Goodwill, net of accumulated amortization of
$213,346 and $157,884 1,138,654 1,233,482
Notes receivable and other 951,085 1,373,003
Deferred financing fees, net of accumulated
amortization of $140,385 495,568 -
----------- ---------------
Total other assets 2,585,307 2,606,485
----------- ---------------
TOTAL ASSETS $38,389,352 $58,380,903
=========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 38
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------ -----------
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt and other debt
(including $100,000 note payable to officer and
shareholder in 1997) $ 2,841,645 $22,683,575
Accounts payable - trade 11,620,367 16,913,821
Federal income tax payable - 43,847
Other current liabilities 1,104,318 1,674,046
Provision for restructuring of operations 2,160,169 3,960,000
------------ -----------
Total current liabilities 17,726,499 45,275,289
LONG-TERM LIABILITIES
Long-term debt, net of current portion (including $180,000
and $280,000 notes payable to officers and shareholders in
1997 and 1996) 15,641,720 576,777
Deferred income taxes - 66,309
------------ -----------
Total long-term liabilities 15,641,720 643,086
------------ -----------
Total liabilities 33,368,219 45,918,375
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes B, E and N)
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value;
1,000,000 shares authorized; none issued - -
Common stock - $.01 par value; 8,000,000 shares authorized;
4,000,210 shares issued and outstanding 40,002 40,002
Capital in excess of par 15,323,058 15,323,058
Accumulated deficit (10,341,927) (2,900,532)
------------ -----------
Total stockholders' equity 5,021,133 12,462,528
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,389,352 $58,380,903
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 39
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $82,598,593 $80,300,431 $67,894,489
Cost of goods sold 69,723,015 62,197,227 50,546,515
----------- ----------- -----------
Gross profit 12,875,578 18,103,204 17,347,974
Selling expenses 6,878,803 7,876,538 6,861,621
Distribution, general and
administrative expenses (including $75,000
and $56,250 in 1997 and 1996 to a Director) 11,505,641 12,115,284 8,421,762
Restructuring of operations - 3,960,000 -
----------- ----------- -----------
18,384,444 23,951,822 15,283,383
----------- ----------- -----------
Operating profit (loss) (5,508,866) (5,848,618) 2,064,591
Other expense (income)
Interest expense 2,551,703 2,251,807 1,166,794
Other (50,243) (103,921) (46,795)
----------- ----------- -----------
2,501,460 2,147,886 1,119,999
----------- ----------- -----------
Earnings (loss) from continuing operations
before income tax expense (benefit) (8,010,326) (7,996,504) 944,592
Income tax expense (benefit) (91,964) (1,135,098) 350,416
----------- ----------- -----------
Earnings (loss) from continuing operations (7,918,362) (6,861,406) 594,176
Discontinued operations
Gain (loss) from operations, net of income
tax benefit - (591,886) (524,914)
Gain (loss) on disposal, net of income tax
expense (benefit) including a $1,199,118
provision for operating losses during the
phase-out period in 1996. 476,967 (770,068) -
----------- ----------- -----------
Earnings (loss) from discontinued operations 476,967 (1,361,954) (524,914)
----------- ----------- -----------
Net earnings (loss) $(7,441,395) $(8,223,360) $ 69,262
=========== =========== ===========
Per Share Data:
Earnings (loss) from continuing operations $ (2.04) $ (1.85) $ .15
=========== =========== ===========
Net earnings (loss) $ (1.86) $ (2.22) $ .02
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding 4,000,210 3,710,484 3,966,631
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 40
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS
---------------------- EXCESS OF (ACCUMULATED
SHARES AMOUNT PAR DEFICIT) TOTAL
--------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 3,592,551 $35,926 $14,108,142 $ 5,253,566 $19,397,634
Shares issued in
connection with
acquisition 138,000 1,380 999,120 - 1,000,500
Shares retired (22,461) (225) 225 - -
Net earnings - - - 69,262 69,262
--------- ------- ----------- ------------ ----------
Balance at March 31, 1995 3,708,090 37,081 15,107,487 5,322,828 20,467,396
Shares issued on
exercise of stock
options 292,120 2,921 215,571 - 218,492
Net loss - - - (8,223,360) (8,223,360)
--------- ------- ----------- ------------ ----------
Balance at March 31, 1996 4,000,210 40,002 15,323,058 (2,900,532) 12,462,528
--------- ------- ----------- ------------ ----------
Net loss - - - (7,441,395) (7,441,395)
--------- ------- ----------- ------------ ----------
Balance at March 31, 1997 4,000,210 $40,002 $15,323,058 $(10,341,927) $5,021,133
========= ======= =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 41
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $(7,441,395) $(8,223,360) $ 69,262
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities
(Gain) loss on disposal of assets (476,967) - (5,341)
Deferred income tax benefit (245,709) 1,148,050 (655,005)
Depreciation and amortization 891,417 651,500 442,926
Provision for restructuring of operations - 3,960,000 -
Other - - 74,000
Provision for doubtful accounts 236,483 (311,514) 793,931
Provision for obsolete inventory 325,991 365,795 852,204
Changes in operating assets and liabilities
Trade accounts receivable 1,153,385 (1,513,464) (5,175,131)
Other receivables 52,527 81,476 (159,247)
Inventories 12,880,151 581,275 (18,906,836)
Income tax refund 2,307,235 (2,307,235) -
Prepaid expenses 58,366 658,348 (393,078)
Notes receivable, deposits and other 405,611 (44,161) (599,000)
Current assets of discontinued operations 1,601,954 (1,601,954) -
Accounts payable (5,309,916) 10,274,464 3,944,881
Federal income tax payable (43,847) (389,849) (160,166)
Other current liabilities 233,323 660,813 284,644
Provision for restructuring operation (1,799,831) - -
Non-Current assets from discontinued
operations 161,999 - -
----------- ----------- -----------
Net cash provided by (used in) operating
activities 4,990,777 3,990,184 (19,591,956)
Cash flows from investing activities
Purchases of property and equipment (621,146) (425,041) (1,268,970)
Payments made on notes receivable 187,097 - -
Proceeds from sale of assets 1,418,129 58,329 36,205
----------- ----------- -----------
Net cash provided by (used in) investing
activities 984,080 (366,712) (1,232,765)
Cash flows from financing activities
Proceeds from long-term debt 287,774 395,449 21,298
Payments made on long term debt (1,030,116) (445,018) (687,223)
Net change in lines of credit (5,001,951) (3,500,000) 21,580,607
Net advance from (payments to) officers - - -
Proceeds from issuance of common stock - 218,492 -
Deferred financing fees (635,954) - -
----------- ----------- -----------
Net cash provided by (used in) financing
activities (6,380,247) (3,331,077) 20,914,682
----------- ----------- -----------
Net increase (decrease) in cash (405,390) 292,395 89,961
Cash at beginning of year 408,871 116,476 26,515
----------- ----------- -----------
Cash at end of year $ 3,481 $ 408,871 $ 116,476
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 42
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESS ACTIVITY
The Company is a supplier of consumer fitness equipment and accessories.
(See Note C for a discussion of discontinued operations.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bollinger
Industries, Inc. (Bollinger) which was reincorporated in Delaware in
September 1993, its wholly-owned subsidiaries and Bollinger Industries,
L.P., a partnership wholly-owned by Bollinger's subsidiaries (collectively
"the Company"). All significant intercompany accounts and transactions have
been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market (determined product by product on management
knowledge of current market conditions and existing stock levels).
The provision for obsolete and slow moving inventory is adjusted based on
current inventory levels, historical and expected future sales levels.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using straight-line
and accelerated methods for financial reporting purposes over the following
useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5-20 years
Equipment 3-7 years
Automobiles 3 years
Furniture and fixtures 3-5 years
</TABLE>
Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred. The advertising
expense amounted to $1,627,464, $1,558,397, and $1,790,521 in fiscal 1997,
1996 and 1995, respectively.
FAIR VALUE
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature. The carrying amount of long-term debt approximates its
fair value because interest rates approximate market.
F-9
<PAGE> 43
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
INCOME TAXES
Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are calculated based on
differences between financial accounting and tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense or benefit is the payable or refund for the period plus or minus the
change during the period in deferred tax assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is based on the net earnings (loss)
applicable to the weighted average number of common shares and common stock
equivalents outstanding. Common stock equivalents include the dilutive
effect of all stock options outstanding (except in the case of a net loss, in
which case they would be anti-dilutive), as though they had been outstanding
for all periods presented.
GOODWILL AND COVENANT NOT TO COMPETE
The excess of the purchase price of acquired companies over the fair value
of net identifiable assets at the date of acquisition has been recorded as
goodwill and is being amortized on a straight line basis over a twenty year
period. The Company periodically evaluates the net balance of goodwill
based on the projected operating income of the respective businesses on an
undiscounted cash flow basis. If necessary, the goodwill would be written
down to fair market value.
A covenant not to compete in the amount of $206,633 net of accumulated
amortization of $146,367 is included in "Notes receivable and other" and is
being amortized on a straight-line basis over its duration of 41 months.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used. In particular, the provision for chargebacks and
buybacks is subject to estimation. The actual chargebacks and buybacks
could vary from the estimate.
REVENUE RECOGNITION AND PROVISIONS FOR CHARGEBACKS AND BUYBACKS
The Company recognizes sales revenue at the time the products are shipped to
its customer. Provision is made currently for estimated product returns and
deductions which may occur. These returns are generally for products that
are salable with minor reworking of packaging or replacement of missing
components. The provision for returns is estimated based on current trends
and historical experience of returns. Additionally, provision is made for
chargebacks from the customer for marketing programs, volume discounts and
other items.
F-10
<PAGE> 44
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
In certain circumstances, the Company has followed a "buyback" policy
whereby the Company purchases competitors' product from a new customer in
order to obtain shelf space for the Company's product lines. The cost of
such "buybacks" is amortized over the life of the program, which typically
has been two to three years.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1997
presentation and to retroactively recognize the discontinued Healthcare
Division.
STOCK OPTIONS
Prior to April 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On April 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation", which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock options grants made in 1996 and future years
as if the fair value based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123
commencing in its March 31, 1997 financial statements. The effect of
applying the requirements of SFAS No. 123 is not considered to be material
to the financial statements.
ADOPTION OF NEW ACCOUNTING STANDARDS
The Company intends to adopt SFAS No. 128, "Earnings per Share" ("SFAS 128")
effective December 15, 1997. This statement requires the replacement of
primary earnings per share with basic earnings per share and fully diluted
earnings per share with diluted earnings per share. Management of the
Company does not expect the adoption of this statement will have a material
impact on the earnings per share computation.
F-11
<PAGE> 45
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ONGOING OPERATIONAL LOSSES AND LIQUIDITY
As indicated in the accompanying financial statements, the Company has
suffered losses of $7,441,395 and $8,223,360 during the years ended March
31, 1997 and 1996.
Funds provided by operating activities for fiscal 1997 were generated
primarily by the reduction of inventory, the sale of discontinued operations
and the receipt of an income tax refund. These funds were used to fund
operating losses and to decrease outstanding accounts payable and long term
debt. Management intends to further decrease inventory levels in fiscal 1998
but does not expect the impact of those reductions to be as significant.
Funds provided by operating activities for fiscal 1996 were generated
primarily by an increase in accounts payable.
In fiscal 1998, management intends to substantially improve operating gross
margins on all product lines. Due to the highly competitive nature of the
overseas market it has become cost advantageous to source more items from
overseas. There are potential savings to be negotiated with steamship lines,
freight forwarders and U.S. Customs as well as major reductions in product
costs. The Company has actively pursued and negotiated directly with
overseas suppliers and factories. Additionally, the domestic manufacturing
operations have been analyzed and will be maintained only where it is cost
advantageous to do so. The Company believes that sourcing their product from
the lowest cost, high quality provider, in addition to strengthening the
controls and response time surrounding customer deductions, which have been
a drain on gross margin in fiscal 1995 and 1996, will enable it to
substantially improve gross margin in 1998.
The Company plans to continue to consolidate warehouse facilities in fiscal
1998 thereby lowering fixed costs. The Company is also exploring the use of
freight expediters on the west coast, to receive product from the orient,
unload and inspect, and repack for shipment to the customer. The Company
intends to reduce warehouse space, outside facilities, staffing levels and
related overhead expenses.
Some of these changes were implemented in late fiscal 1997 and the other
additional improvements are continuing to be implemented in fiscal 1998.
Management believes that based on fully implementing these plans in fiscal
1998, and realizing the benefit of these improvements in fiscal 1998 and
1999, the Company's operating losses will be reversed and its liquidity
improved.
NOTE C - ACQUISITION, DISCONTINUED OPERATIONS, AND RESTRUCTURING OF OPERATIONS
ACQUISITION
On May 24, 1994, in exchange for 138,000 shares of its restricted common
shares, the Company acquired substantially all of the assets and liabilities
of NBF, Inc. (a Florida Corporation) which manufactures trampolines and
other outdoor playground equipment. The total consideration for the assets
and liabilities acquired including liabilities assumed was approximately
$2,762,472. Additionally, for cash of $150,000, the Company acquired from
an individual, all of the intellectual property rights to the products
manufactured. If the acquisition had occurred as of April 1, 1994,
consolidated results would not have been materially effected. The
acquisition was accounted for as a purchase and accordingly the consolidated
financial statements include the results of operations from the acquisition
date.
DISCONTINUED OPERATIONS
The Company determined during January 1996 to dispose of its Healthcare
Division which manufactured a line of sports medicine and safety products.
The Company sold the largest portion of the Healthcare Division in September
1996 with the balance sold or disposed of through January 1997. A gain on
the sale of $722,676 was recorded in fiscal 1997. Result of operations in
prior years have been restated to reclassify the Healthcare Division as
discontinued operations.
Interest expense has been allocated to discontinued operations based on the
proportion of average net assets of the discontinued Healthcare operations
as compared to consolidated average net assets of the Company.
Following is a summary of the discontinued operations:
F-12
<PAGE> 46
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1997 1996 1995
---------- ------------ ----------
<S> <C> <C> <C>
NET SALES OF DISCONTINUED OPERATIONS:
Healthcare Division $1,398,400 (1) $3,327,893 (2) $5,170,521
---------- ------------ ----------
Total net sales of discontinued operations $1,398,400 $3,327,893 $5,170,521
-
========== ========== ==========
LOSS (GAIN) FROM DISCONTINUED OPERATIONS (PRIOR TO THE
MEASUREMENT DATE):
Healthcare Division $ 689,784 (2) $ 795,324
Less: Tax (expense) benefit 97,898 270,410
---------- ----------
Net loss (gain) from discontinued operations - Healthcare
Division $ 591,886 $ 524,914
========== ==========
</TABLE>
(1) April 1, 1996, to December 31, 1996 (final disposition)
(2) April 1, 1995, to December 31, 1995
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
LOSSES ON DISPOSAL, INCLUDING PROVISION FOR OPERATING
LOSSES DURING PHASE-OUT PERIOD:
Healthcare Division $ - $ 897,574
Less: Tax benefit - 127,506
---------- ----------
Net loss on disposal - Healthcare Division $ - $ 770,068
========== ==========
OPERATING LOSSES DURING PHASE-OUT PERIOD (AFTER
MEASUREMENT DATE) APRIL 1, 1996 TO SEPTEMBER 1996:
Healthcare Division - January 1, 1996 to December 31, 1996 $ - $1,397,574
Less: Tax benefit - 198,456
---------- ----------
Total operating losses during phase-out period included
above $ - $1,199,118
========== ==========
NET LOSS FROM DISCONTINUED OPERATIONS (AFTER MEASUREMENT
DATE) APRIL, 1996 TO DECEMBER 31, 1996 AND JANUARY 1,
1996, TO MARCH 31, 1996:
Operating loss from discontinued operations - Healthcare
Division $ - $ 497,574
Less: Tax benefit - 70,656
---------- ----------
Net loss from discontinued operations January 1, 1996, to
March 31, 1996 $ - $ 426,918
========== ==========
</TABLE>
F-13
<PAGE> 47
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
ESTIMATED NET LOSS ON DISPOSAL OF HEALTHCARE DIVISION: 1996
--------
<S> <C>
Estimated operating loss during phase-out period April 1,
1996 to December 31, 1996 $900,000
Less: Estimated gain on sale of assets 500,000
--------
400,000
Less: Tax Benefit 56,850
--------
Estimated Net loss on disposal of Healthcare Division $343,150
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
NET GAIN ON DISPOSAL OF HEALTHCARE DIVISION: 1997
--------
<S> <C>
Loss during phase out period net of provision (April 1996 $ -
to December 1997)
722,676
Add: Gain on Sale of assets --------
722,676
Less: Tax expense 245,709
Net gain on disposal of Healthcare Division $476,967
========
</TABLE>
Proceeds upon sale of the Healthcare Division were as follows; $1,418,130 in
cash and $293,547 as a note receivable.
F-14
<PAGE> 48
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - Continued
RESTRUCTURING OF OPERATIONS
During the fourth quarter of 1996, the Company implemented a plan ("the Plan")
to reorganize and restructure its operations. The significant portion of this
Plan has been completed. In accordance with the Plan, management disposed of
its Healthcare Division, and sold a significant portion of the excess inventory
which it used to reduce accounts payable and debt, and fund operations.
The Company also obtained a new credit facility. At March 31, 1997, the
Company still has approximately $4.0 million of inventory which it intends to
sell rapidly. The provisions for restructuring of operations at March 31, 1997
of $2,160,169 is the remaining provision against inventory identified for sale
in connection with the restructuring.
NOTE D - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Interest paid $ 2,470,054 $2,213,613 $1,400,146
Income taxes paid
(refund received) $(2,100,611) $ 200,000 $ 865,507
Noncash financing
and investing
transactions:
Purchase of assets
financed by debt $ 66,381 $ 42,488 -
Purchase of NBF, Inc. $ - $ - $2,762,472
Notes receivable in
connection with sale
of Healthcare
Division $ 293,547 $ - $ -
</TABLE>
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
NOTE E - CREDIT RISK
The Company's assets which are subject to potential credit risk consist of
trade accounts receivable and cash. The Company sells its products primarily
to retailers, including national chains, geographically dispersed throughout
the United States on an unsecured basis. Risks associated with extension of
credit to customers are affected by the economic condition of the retail
industry. The Company performs ongoing credit evaluations of its customers'
financial condition to reduce credit risk. The Company has provided an
allowance for doubtful accounts which reflects its estimate of uncollectible
accounts.
Cash is at risk to the extent that it exceeds Federal Deposit Insurance
Corporation ("FDIC") insured amounts (approximately $575,000 at March 31,
1997). To minimize risk, the Company places its cash with high credit quality
institutions.
F-15
<PAGE> 49
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 9,013,914 $ 9,858,597
Work-in-process 328,436 305,777
Finished goods 8,419,200 23,117,280
Reserve for Obsolescence (1,559,770) (1,166,766)
----------- -----------
16,201,780 32,114,888
Less: Discontinued operations - net - 2,001,954
----------- -----------
$16,201,780 $30,112,934
=========== ===========
</TABLE>
NOTE G - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Land, buildings and improvements $1,915,305 $1,835,658
Equipment 1,699,103 1,585,146
Automobiles 53,860 53,860
Furniture and fixtures 1,453,910 1,238,752
---------- ----------
5,122,178 4,713,416
Less accumulated depreciation 3,038,776 2,536,135
---------- ----------
2,083,402 2,177,281
Less: Discontinued Operations - Net - 161,999
---------- ----------
$2,083,402 $2,015,282
========== ==========
</TABLE>
Depreciation expense for the years ended March 31, 1997, 1996,
and 1995 was approximately $558,000, $554,000, and $407,000,
respectively.
F-16
<PAGE> 50
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - NOTES PAYABLE AND LONG TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Note payable under a line of credit for
$2,000,000 ($22,500,000 in 1996) with a bank,
bearing interest at the prime rate (8.50% at
March 31, 1997) plus 3% in 1997 (8.25% at March
31, 1996) plus 3% in 1996; principal and interest
payable monthly; collateralized by land and
building located in Irving, Texas in 1997
(collateralized by receivables and inventory in
1996). (1) $ 1,700,000 $22,500,000
Loan with a financial institution providing a
maximum line of credit of $25,000,000, bearing
interest at the Reference Rate (8.50% at March
31, 1997) plus 1.75% in 1997. Interest payable
monthly; collateralized by receivables and
inventory.(2) 15,498,049 -
Notes to certain officers and shareholders of the
Company bearing interest at 10%, due in March
1998, as extended; collateralized by real estate
note (purchased by officers and shareholders from
an individual in December 1993). 280,000 280,000
Other 1,005,316 480,352
----------- -----------
18,483,365 23,260,352
Less current portion 2,841,645 22,683,575
$15,641,720 $ 576,777
=========== ===========
</TABLE>
(1) The loan agreement with the bank provides that borrowings are reduced
monthly by the amount of required principal payments (approximately $25,000
per month) in terms of an agreement reached in June, 1997. The balance is
payable on the loan expiration date of September 15, 1998.
(2) The loan agreement with the financial institution provides that borrowings
under the line of credit are subject to limitations based on the borrowing
base, as defined in the agreement, with a maximum facility of $25.0 million.
The terms of the agreement require the Company to maintain specific current
ratio levels, levels of debt to net worth, levels of tangible net worth and
other financial covenants as defined in the loan agreement. At December 31,
1996 and March 31, 1997, the Company was not in compliance with all covenants.
The financial institution has waived such defaults through March 31, 1997 and
restated those covenants on a going forward basis. At March 31, 1997 the
Company had $447,000 available in additional borrowing capacity under the loan
agreement. The loan agreement has an extended expiration date of August 16,
2000.
F-17
<PAGE> 51
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - NOTES PAYABLE AND LONG TERM DEBT - Continued
Future maturities of notes payable and long-term debt at March 31, 1997 are as
follows:
<TABLE>
<S> <C>
Year ending March 31, 1998 $ 2,841,645
1999 1,720,255
2000 1,044,099
2001 12,698,020
2002 21,203
Thereafter 158,143
-----------
$18,483,365
===========
</TABLE>
NOTE I - RELATED PARTY TRANSACTIONS
In 1993 certain officers of the Company purchased third party notes payable
of $500,000 with interest payable at 10% per annum (see Note H). The
officers assumed the same terms of the notes which matured on March 31, 1996.
On March 29, 1996 the Company paid each of two shareholders $110,000 on the
notes. The Company extended the maturity of the $100,000 note to March 31,
1998 and remaining notes of $180,000 to August 16, 2000.
The Company retains a director of the Company as a consultant on certain
matters. Consulting fee expense recorded by the Company was $75,000 and
$56,250 for the years ended March 31, 1997 and 1996.
NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN AND 401(K) PLAN
The Company had an employee stock ownership plan which provided for
discretionary contributions by the Company. During 1995, the Company amended
and restated the plan to qualify as a 401(k) employee deferred compensation
plan under the terms of which employees who have been employed for one year
or more are entitled to contribute up to the lesser of $9,500 or 15% of their
annual compensation. The Company may at its discretion contribute to the
401(k) plan. No Company contributions were made under either plan for any of
the three years in the period ended March 31, 1997.
F-18
<PAGE> 52
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE K - STOCK OPTIONS
1991 PLAN
The 1991 Stock Option Plan provides for options covering a total of 542,820
common shares, all of which were issued to the Chief Executive Officer and the
President of the Company. The exercise price of the options granted must be
at least 110% of the fair value of the common stock at date of grant. The
remaining options were exercised on March 29, 1996. At March 31, 1997, there
were no options outstanding or available for grant.
Following is a summary of option activity under the 1991 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
---------------------
SHARES PER SHARE TOTAL
-------- --------- ---------
<S> <C> <C> <C>
Outstanding at March 31, 1995 292,120 $.74795 $ 218,492
Granted - - -
Canceled - - -
Exercised (292,120) .74795 (218,492)
-------- --------- ---------
Outstanding at March 31, 1996 - - -
Granted - - -
Canceled - - -
Exercised - - -
Outstanding at March 31, 1997 - - -
======== ========= =========
</TABLE>
1993 PLAN
The 1993 Stock Option Plan provides for options covering a total of 500,000
common shares to be issued to key employees and directors other than the Chief
Executive Officer and the President. Under the Plan, incentive stock options
(ISO's) and non-qualified stock options may be granted at prices no less than
100% and 50%, respectively, of the fair value of the Company's common stock.
Options granted expire in ten years and will generally vest in annual
installments. At March 31, 1997, options for 246,501 shares were available
for grant.
F-19
<PAGE> 53
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
Following is a summary of option activity under the 1993 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
----------------------------
SHARES PER SHARE TOTAL
-------- --------------- -----------
<S> <C> <C> <C>
Outstanding at March 31, 1994 262,666 $10.00 - 12.50 $ 2,958,537
Granted 50,000 9.00 - 13.00 560,000
Canceled (46,000) 10.00 - 12.50 (550,000)
-------- --------------- -----------
Outstanding at March 31, 1995 266,666 9.00 - 13.00 2,968,537
Granted 110,999 3.00 - 7.50 424,621
Canceled (109,666) 3.63 - 12.50 (1,148,079)
-------- --------------- -----------
Outstanding at March 31, 1996 267,999 3.00 - 13.00 2,245,079
Granted 110,000 .56 - 6.00 329,439
Canceled (124,500) .56 - 12.50 (644,877)
-------- --------------- -----------
Outstanding at March 31, 1997 253,499 $ .56 - 13.00 $ 1,929,641
======== =============== ===========
</TABLE>
All the options are considered compensatory. The outstanding stock options
expire from November 1999 through January 2003.
The following summarizes information about compensatory options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Avg.
Range of Exercise Remaining Weighted Number Weighted Avg.
Prices Number Outstanding Contractual Life Avg. Exercise Price Exercisable Exercisable Price
- ----------------- ------------------ ---------------- ------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.56-$13.00 253,499 2.59 Years $7.48 87,715 $10.30
</TABLE>
The options granted in Fiscal 1997, 1996 and 1995 have exercise prices which
approximate fair value and accordingly, no compensation cost has been
recognized for compensatory stock options in the consolidated financial
statements.
F-20
<PAGE> 54
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------------ ----------
<S> <C> <C> <C>
Federal
Current $ 137,331 $ (2,031,628) $ 848,220
Deferred (245,709) 891,354 (497,804)
State 16,414 5,176 -
--------- ------------ ---------
$ (91,964) $ (1,135,098) $ 350,416
========= ============ =========
</TABLE>
The Company's effective income tax rate from continuing operations differed
from the Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0 % 34.0 % 34.0%
Amortization of goodwill (.3)% (.5)% 1.8%
Meals and entertainment (.1)% (.1)% .9%
Change in prior tax estimates 2.3 % (.7)% -
Valuation allowance (35.4)% (17.6)% -
Other, net (0.4)% (.9)% .4%
----- ----- ------
0.1 % 14.2 % 37.1%
===== ===== ======
</TABLE>
F-21
<PAGE> 55
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
Following are the components of deferred tax assets and deferred tax
liabilities:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1996
------------ ---------
<C> <C> <C>
Net current deferred tax assets
Inventories $ 463,534 $ 753,188
Allowance for doubtful accounts 179,129 96,110
Inventory reserves 376,171 3,208
Accrued expenses 67,895 42,500
Provision for discontinued operation - 136,000
Less valuation allowance (1,086,729) (964,697)
----------- ---------
$ - $ 66,309
=========== =========
Noncurrent deferred tax assets
Net operating loss $ 3,724,596 $ 725,917
Less valuation allowance (3,677,150) (725,917)
----------- ---------
$ 47,466 $ -
Noncurrent deferred tax liabilities
Accumulated depreciation $ (47,446) $ (66,309)
Net Noncurrent deferred taxes $ - $ (66,309)
=========== =========
</TABLE>
At March 31, 1997, the Company has net operating losses available to offset
future taxable income of approximately $10,950,000 which begin expiring in
2011. The valuation allowance increased by $3,073,265 during the year ended
March 31, 1997.
NOTE M - MAJOR CUSTOMERS
Customers accounting for 10% or more of total net sales from continuing
operations are as follows:
YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
1997
KMart 38%
Wal-Mart 34%
1996
KMart 31%
Wal-Mart 25%
1995
KMart 32%
Wal-Mart 13%
</TABLE>
F-22
<PAGE> 56
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE N - COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing and warehouse space; manufacturing
and computer equipment; and other items. These leases are operating leases
and have future minimum lease payments, excluding sublease income, as follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1998 $1,125,757
1999 879,809
2000 330,887
2001 65,000
2002 65,000
Thereafter 672,000
----------
$3,138,453
==========
</TABLE>
Total lease expense for the years ended March 31, 1997, 1996, and 1995 was
approximately $1,449,000, $1,552,000 and $793,000, respectively.
The Company, certain of its officers and directors, former officers, former
independent auditor, and the underwriters of the Company's initial IPO are
defendants in certain shareholder lawsuits. The Company believes the lawsuits
are without merit. However, if the plaintiffs prevail, the lawsuits could
have a material adverse effect on the Company. The Company is unable to
estimate the range of loss, if any.
The Company filed a lawsuit against Denise Austin on December 2, 1996 in
the 162nd District Court of Dallas County, Texas and was subsequently removed
to the United States District Court for the Northern District of Texas, Dallas
Division Case Number 3-97-CV-0246-G on February 6, 1997. Subsequently a suit
was filed on December 30, 1996, by Denise Austin in the United States District
Court, Eastern District of Virginia. The suit was filed for payment of
royalties alleged to be due of approximately $655,000. The Company has accrued
all amounts which it believes may be due.
In the normal course of business, the Company is involved in various
litigation. Management believes that the aggregate effect of any liability
arising from such items would not be material to the consolidated statements of
operations or financial position at March 31, 1997.
F-23
<PAGE> 57
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
In connection with our audit of the consolidated financial statements of
Bollinger Industries, Inc. and Subsidiaries referred to in our report dated
June 16, 1997, we have also audited Schedule II for the years ended March 31,
1997, 1996 and 1995. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
King Griffin & Adamson PC
Dallas, Texas
June 16, 1997
F-24
<PAGE> 58
Schedule II
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION> ADDITIONS
-------------------------------------------
Balance at Charged to Charged
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
- ------------------------------ ----------- ---------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995
Allowance for doubtful
accounts $ 476,675 $ 793,931 $ - $(350,391) $ 920,215
Inventory obsolescence reserve 112,217 852,204 - (163,449) 800,972
Year ended March 31, 1996
Allowance for doubtful
accounts $ 920,215 $(311,514) $ - $(150,872) $ 457,829
Inventory obsolescence reserve 800,972 365,794 - - 1,166,766
Year ended March 31, 1997
Allowance for doubtful
accounts $ 457,829 $ 464,407 $ - $ (77,924) $ 844,312
Inventory obsolescence reserve 1,166,766 585,900 - (192,896) 1,559,770
</TABLE>
Note - Deductions represent uncollectible accounts or inventories written off.
F-25
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
3.1 - Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Form S-1 Registration Statement No.
33-69708)
3.2 - By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Form S-1 Registration Statement No. 33-69708)
4.1 - Form of certificate representing shares of the Company's Common Stock
(incorporated by reference to Exhibit 4.1 to the Company's Form S-1
Registration Statement No. 33-69708)
10.1 - Bollinger Industries 1993 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to the Company's Form S-1 Registration Statement No.
33-69708)
10.2 - Bollinger Industries Employee Stock Ownership Plan and Trust
(incorporated by reference to Exhibit 10.2 to the Company's Form S-1
Registration Statement No. 33-69708)
10.3 - Form of Indemnification Agreement with independent director
(incorporated by reference to Exhibit 10.3 to the Company's Form S-1
Registration Statement No. 33-69708)
10.4 - Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's Form S-1
Registration Statement No. 33-69708)
10.5 - Lease Agreement dated April 4, 1991, between William A. McCarty, Jr.,
and Elinor F. McCarty and Bollinger Sports, Inc., formerly known as
Bollinger Industries, Inc. ("Bollinger-Texas")(incorporated by
reference to Exhibit 10.8 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.6 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P., as
Assignee with respect to such lease (incorporated by reference to
Exhibit 10.8.1 to the Company's Form S-1 Registration Statement No.
33-69708)
10.7 - Lease Agreement dated August 30, 1992, between Reba McPherson,
individually and as Trustee of the Reba McPherson Trust u/w/o Harold
Lynn McPherson, and Tarbox, Inc., as extended by an Agreement dated
August 9, 1993 (incorporated by reference to Exhibit 10.9 to the
Company's Form S-1 Registration Statement No. 33-69708)
</TABLE>
II-1
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.8 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Tarbox, Inc., as Assignor and Bollinger Industries, L.P., as
Assignee with respect to such lease (incorporated by reference to
Exhibit 10.9.1 to the Company's Form S-1 Registration Statement No.
33-69708)
10.9 - Standard Industrial Lease dated March 17, 1993, between National Life
Insurance Company and Bollinger-Texas (incorporated by reference to
Exhibit 10.10 to the Company's Form S-1 Registration Statement No.
33-69708)
10.10 - Assignment and Assumption Agreement dated as of October 1, 1993,
between Bollinger-Texas as Assignor and Bollinger Industries, L.P., as
Assignee with respect to such lease (incorporated by reference to
Exhibit 10.10.1 to the Company's Form S-1 Registration Statement No.
33-69708)
10.11 - $500,000 Real Estate Lien Note dated March 18, 1993, in favor of Sid
Reisman and executed by Bollinger-Texas, as modified by a Renewal,
Extension, and Modification Agreement dated as of April 6, 1993, and
subsequently assigned to Glenn, Bobby and Dell Bollinger (incorporated
by reference to Exhibit 10.10 to the Company's Form S-1 Registration
Statement No. 33-69708)
10.12 - Asset Purchase and Sale Agreement dated as of September 13, 1993, by
and between California Gym Equipment Company, S. G. Equipment, Inc.
and, for limited purposes, Bollinger-Texas and Sherman Grider
(incorporated by reference to Exhibit 10.13 to the Company's Form S-1
Registration Statement No. 33-69708)
10.13 - Standard Sublease dated as of September 13, 1993, between California
Gym Equipment Company and S. G. Equipment, Inc., together with the
Industrial Real Estate Lease dated June 1, 1992, between New England
Mutual Life Insurance Company and Bollinger-Texas attached thereto
(incorporated by reference to Exhibit 10.14 to the Company's Form S-1
Registration Statement No. 33-69708)
10.14 - Assignment and Assumption Agreement dated as of September 1, 1993,
between Bollinger-Texas and California Gym Equipment Company with
respect to Industrial Real Estate Lease dated June 1, 1992
(incorporated by reference to Exhibit 10.15 to the Company's Form S-1
Registration Statement No. 33-69708)
10.15 - Letter agreement dated May 19, 1992, between Bollinger-Texas, Denise
Austin and Jeff Austin (incorporated by reference to Exhibit 10.16 to
the Company's Form S-1 Registration Statement No. 33-69708)
</TABLE>
II-2
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.16 - Letter agreement dated April 13, 1994, between Bollinger Industries,
L.P., Denise Austin and Jeff Austin (incorporated by reference to
Exhibit 10.16 to the Company's form 10-K for the fiscal year ended
March 31, 1994)
10.17 - Endorsement Agreement dated September 1, 1993, between Bollinger-Texas
and Nolan Ryan (incorporated by reference to Exhibit 10.17 to the
Company's form 10-K for the fiscal year ended March 31, 1994)
10.18 - Loan Agreement dated as of January 4, 1994, between Bollinger
Industries, L.P., the Company, and First Interstate (incorporated by
reference to Exhibit 10.18 to the Company's form 10-K for the fiscal
year ended March 31, 1994)
10.19 - Standard Office/Warehouse Lease dated May 11, 1994, between Fountain
Parkway, Ltd., and Bollinger Industries, L.P. (incorporated by
reference to Exhibit 10.19 to the Company's form 10-K for the fiscal
year ended March 31, 1994)
10.20 - Lease dated December 21, 1990, between Americus/Sumter Payroll
Development Authority and N.B.F., Inc. and R. Wayne Rich
(incorporated by reference to Exhibit 10.20 to the Company's form 10-K
for the fiscal year ended March 31, 1994)
10.21 - Assignment and Assumption of Lease dated May 1, 1994, between
Americus/Sumter Payroll Development Authority, NBF, Inc., a Florida
corporation, and NBF, Inc., a Georgia corporation (incorporated by
reference to Exhibit 10.21 to the Company's form 10-K for the fiscal
year ended March 31, 1994)
10.22 - Amendment to Lease between Americus-Sumter Payroll Development
Authority and NBF, Inc., a Georgia corporation and R. Wayne Rich
amending the lease dated December 21, 1990 reflected at exhibit No.
10.20 above (incorporated by reference to Exhibit 10.2 to the Company's
form 10-Q for the quarter ended June 30, 1994)
10.23 - Asset Purchase Agreement dated May 24, 1994, and effective as of May 1,
1994, between NBF, Inc., a Florida corporation, and NBF, Inc., a
Georgia corporation (incorporated by reference to Exhibit 10.3 to the
Company's form 10-Q for the quarter ended June 30, 1994)
10.24 - First Amendment to Loan Agreement dated as of June 22, 1994, between
Bollinger Industries, L.P., the Registrant, Bollinger Holding Corp.,
NBF and First Interstate Bank of Texas, N.A. (incorporated by
reference to Exhibit 10.5 to the Company's form 10-Q for the quarter
ended June 30, 1994)
</TABLE>
II-3
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.25 - Loan and Security Agreement dated September 9, 1994, between Bollinger
Industries, L.P. and NationsBank of Texas, N.A. (incorporated by
reference to Exhibit 10.1 to the Company's form 10-Q for the quarter
ended September 30, 1994)
10.26 - First Amendment to Loan and Security Agreement dated September 9, 1994,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's form 10-Q
for the quarter ended September 30, 1994)
10.27 - Second Amendment to Loan and Security Agreement dated December 8, 1994,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's form 10-Q
for the quarter ended December 31, 1994)
10.28 - Lease Agreement dated November 16, 1994, between John Wilkerson,
individually and Bollinger Industries (incorporated by reference to
Exhibit 10.2 to the Company's form 10-Q for the quarter ended December
31, 1994)
10.29 - Modification and Ratification of Lease dated November 1, 1994, between
Fountain Parkway, Ltd. and Bollinger Industries, L.P. (incorporated
by reference to Exhibit 10.3 to the Company's form 10-Q for the quarter
ended December 31, 1994)
10.30 - Third Amendment to Loan and Security Agreement dated March 3, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.30 to the Company's Form 10-K
for the fiscal year ended March 31,1995)
10.31 - Fourth Amendment to Loan and Security Agreement dated May 15, 1995
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.31 to the Company's Form 10-K
for the fiscal year ended March 31, 1995)
10.32 - Modification and Ratification of Lease dated February 22, 1995, between
Fountain Parkway, Ltd. and Bollinger Industries, L.P. (incorporated by
reference to Exhibit 10.32 to the Company's Form 10-K for the fiscal
year ended March 31, 1995)
10.33 - Fifth Amendment to Loan and Security Agreement dated September 9, 1995,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended December 31, 1995)
</TABLE>
II-4
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.34 - Sixth Amendment to Loan and Security Agreement dated December 29, 1995,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q
for the quarter ended December 31, 1995)
10.35 - Seventh Amendment to Loan and Security Agreement dated March 8, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.35 to the Company's Form 10K
for the year ended March 31, 1996)
10.36 - Eighth Amendment to Loan and Security Agreement dated May 8, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.36 to the Company's Form 10K
for the year ended March 31, 1996)
10.37 - Deed of Trust, Assignment, Security Agreement and Financing Statement
dated May 8, 1996, between Bollinger Industries, L.P. and NationsBank
of Texas, N.A. (incorporated by reference to Exhibit 10.37 to the
Company's Form 10K for the year ended March 31, 1996)
10.38 - Ninth Amendment to Loan and Security Agreement dated May 17, 1996,
between Bollinger Industries, L.P. and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.38 to the Company's Form 10K
for the year ended March 31, 1996)
10.39 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Glenn D. Bollinger (incorporated by
reference to Exhibit 10.39 to the Company's Form 10K for the year
ended March 31, 1996)
10.40 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Bobby D. Bollinger (incorporated by
reference to Exhibit 10.40 to the Company's Form 10K for the year
ended March 31, 1996)
10.41 - Amended and Restated Promissory Note dated March 29, 1996, between
Bollinger Industries, L.P., and Dell Bollinger (incorporated by
reference to Exhibit 10.41 to the Company's Form 10K for the year
ended March 31, 1996)
10.42 - Second Amendment to standard industrial lease dated January 31, 1996,
between National Life Insurance Company and Bollinger Industries, L.P.,
as assignee (incorporated by reference to Exhibit 10.42 to the Company's
Form 10K for the year ended March 31, 1996)
10.43 - U.S. Trademark License Agreement between International Apparel
Marketing Corp. dba Nautilus Wear International and Bollinger
Industries, Inc. dated May 1, 1995 (incorporated by reference to
Exhibit 10.43 to the Company's Form 10K for the year ended March 31,
1996)
10.44 - Amendment to U.S. Trademark License Agreement between International
Apparel Marketing Corp. and Bollinger Industries, Inc. dated March 1,
1996 (incorporated by reference to Exhibit 10.44 to the Company's
Form 10K for the year ended March 31, 1996)
</TABLE>
II-5
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.45 - Intercreditor and Subordination Agreement dated May 8, 1996, between
NationsBank of Texas, N.A. and Glenn D. Bollinger, Bobby D. Bollinger,
and Dell Bollinger (incorporated by reference to Exhibit 10.45 to the
Company's Form 10K for the year ended March 31, 1996)
10.46 - Eleventh Amendment to Loan and Security Agreement dated July 8, 1996,
between Bollinger Industries, L.P., and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.46 to the Company's form 10-Q
for the quarter ended September 29, 1996)
10.47 - Loan and Security Agreement dated August 16, 1996 between Bollinger
Industries, Inc., Bollinger Industries, L.P. and NBF, Inc. and
Foothill Capital Corporation and related schedules. (incorporated by
reference to Exhibit 10.47 to the Company's form 10-Q for the quarter
ended September 29, 1996)
10.48 - Collateral Assignment of Patents and Trademarks dated August 16, 1996
between Bollinger Industries, L.P. and Foothill Capital Corporation.
(incorporated by reference to Exhibit 10.48 to the Company's form 10-Q
for the quarter ended September 29, 1996)
10.49 - Subordination Agreement dated August 16, 1996 between Glenn D.
Bollinger, Bobby D. Bollinger, Dell Bollinger and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.49 to the
Company's form 10-Q for the quarter ended September 29, 1996)
10.50 - Deed of Trust dated August 16, 1996 executed by Bollinger Industries,
L.P. (incorporated by reference to Exhibit 10.50 to the Company's form
10-Q for the quarter ended September 29, 1996)
10.51 - Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, L.P., and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 10.51 to the Company's form 10-Q
for the quarter ended September 29, 1996)
10.52 - Tenth Amendment to Loan and Security Agreement dated July 8,1996,
between Bollinger Industries, L.P., and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's form 10-Q
for the quarter ended June 30, 1996)
10.53 - Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, L.P., and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 2.01 to the Company's form 10-Q
for the quarter ended September 29, 1996)
10.54 - Asset Purchase Agreement dated November 7, 1996, between Bollinger
Industries, L.P., and SST Acquisition Corporation (incorporated by
reference to Exhibit 2.01 to the Company's form 10-Q for the quarter
ended December 29,1996)
10.55 - First Amendment to Loan and Security Agreement dated August 16, 1996,
between Bollinger Industries, Inc., Bollinger Industries, L.P. and NBF,
Inc. and Foothill Capital Corporation.
10.56 - Second Amendment to Loan and Security Agreement dated August 16, 1996,
between Bollinger Industries, Inc., Bollinger Industries, L.P. and NBF,
Inc. and Foothill Capital Corporation.
10.57 - Lease Agreement dated December 1, 1996 between Southwest Properties
Group, Inc. and Bollinger Industries, L.P.
11.1 - Statement re Computation of Per Share Data
21.1 - List of the Company's subsidiaries (incorporated by reference to
Exhibit 21.1 to the Company's Form 10-K for the fiscal year ended
March 31, 1995)
27.1 - Financial Data Schedule
</TABLE>
II-6
<PAGE> 1
EXHIBIT 10.55
AMENDMENT NO. ONE TO THE LOAN
AND SECURITY AGREEMENT
BOLLINGER INDUSTRIES, INC., BOLLINGER INDUSTRIES, L.P. and
NBF, INC.
This Amendment No. One To The Loan And Security Agreement (the
"Amendment") is entered into as of the 30th day of January, 1997, by and
between BOLLINGER INDUSTRIES, INC., a Delaware corporation ("Inc."), BOLLINGER
INDUSTRIES, L.P., a Texas limited partnership ("L.P.") and NBF, INC., a Georgia
corporation ("NBF"), jointly and severally, (collectively "Borrower"), with
their chief executive office located at 222 West Airport Freeway, Irving, Texas
75062 and FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, in light of the following facts:
FACTS
FACT ONE: Foothill and Borrower have previously entered into that
certain Loan And Security Agreement, dated August 16, 1996 (the "Agreement").
FACT TWO: Foothill and Borrower desire to amend the Agreement as
provided herein. Terms defined in the Agreement which are used herein shall have
the same meanings as set forth in the Agreement, unless otherwise specified.
NOW, THEREFORE, Foothill and Borrower hereby modify and amend the
Agreement as follows:
1. Section 1.1(g) of the Agreement is hereby amended in its
entirety to read as follows: "(g) Accounts with respect to an Account Debtor
whose total obligations owing to Borrower exceed ten percent (10%) of all
Eligible Accounts (or, in the case of Service Merchandise and Dayton-Hudson,
fifteen percent (15%)), to the extent of the obligations owing by such Account
Debtor in excess of such percentage; provided, however, in the case of Wal-Mart
or K-Mart, such percentage shall be seventy-five percent (75%) as to both
combined from January 15, 1997 through March 31, 1997; and effective April 1,
1997, said percentage shall be:
(i) From March 1 - September 30 (i) thirty percent (30%)
of each year as to each
(ii) From October 1 - February 28 (ii) seventy percent
of each year (70%) as to both combined."
2. The last sentence of Section 2.1(a) of the Agreement is hereby
amended in its entirety to read as follows: "The advance rate of forty-seven
percent (47%)
1
<PAGE> 2
against Eligible Inventory and Inventory In-transit shall be reduced by one
percent (1%) on April 1, 1997 and by one percent (1%) on May 1, 1997."
3. Effective February 14, 1997, Section 5.6 of the Agreement is
hereby amended to reflect the new Chief Executive Office of Borrower to read as
follows:
"602 Fountain Parkway
Grand Prairie, Texas 75050"
4. Foothill shall charge Borrower's loan account an accommodation
fee in the amount of Fifteen Thousand Dollars ($15,000.00) and a documentation
fee in the amount of Eight Hundred Fifty Dollars ($850.00). Said fee shall be
fully-earned, non-refundable, and due and payable on the date Borrower's loan
account is charged.
5. In the event of a conflict between the terms and provisions of
this Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern. In all other respects, the
Agreement, as supplemented, amended and modified, shall remain in full force
and effect.
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment
as of the day and year first written above.
FOOTHILL CAPITAL CORPORATION BOLLINGER INDUSTRIES, L.P.
By: Bollinger Operating Corp, its
General Partner
By /s/ LISA M. GONZALES By /s/ GLENN D. BOLLINGER
----------------------------- ---------------------------------
Lisa M. Gonzales Glenn D. Bollinger
Its Assistant Vice President Its
----------------------------- ---------------------------------
BOLLINGER INDUSTRIES, INC.
By /s/ GLENN D. BOLLINGER
---------------------------------
Glenn D. Bollinger
Its
---------------------------------
NBF, INC.
By /s/ GLENN D. BOLLINGER
---------------------------------
Glenn D. Bollinger
Its
---------------------------------
2
<PAGE> 3
REAFFIRMATION OF GUARANTORS
By its acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
BOLLINGER OPERATING CORP.,
a Nevada corporation
By /s/ BOBBY D. BOLLINGER
-----------------------------------
Bobby D. Bollinger
Its
-----------------------------------
By its acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
BOLLINGER HOLDING CORP.,
a Delaware corporation
By /s/ BOBBY D. BOLLINGER
-----------------------------------
Bobby D. Bollinger
Its
-----------------------------------
By its acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
BOLLINGER SPORT, INC.,
a Texas corporation
By /s/ BOBBY D. BOLLINGER
-----------------------------------
Bobby D. Bollinger
Its
-----------------------------------
3
<PAGE> 4
By its acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
C.G. PRODUCTS, INC.,
a California corporation
By /s/ GLENN D. BOLLINGER
-----------------------------------
Glenn D. Bollinger
Its
-----------------------------------
By its acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms its Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
TARBOX, INC.,
a Texas corporation
By /s/ GLENN D. BOLLINGER
-----------------------------------
Glenn D. Bollinger
Its
-----------------------------------
By his acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms his Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
/s/ GLENN D. BOLLINGER
-----------------------------------
Glenn D. Bollinger,
an individual
By his acceptance below this ___ day of February, 1997, the undersigned
guarantor hereby reaffirms his Continuing Guaranty dated August 16, 1996 and
consents to the above-stated terms.
/s/ BOBBY D. BOLLINGER
-----------------------------------
Bobby D. Bollinger,
an individual
4
<PAGE> 1
EXHIBIT 10.56
AMENDMENT NO. TWO TO THE LOAN
AND SECURITY AGREEMENT
BOLLINGER INDUSTRIES. INC., BOLLINGER INDUSTRIES. L.P.
AND NBF. INC.
THIS AMENDMENT NO. TWO TO THE LOAN AND SECURITY AGREEMENT (the
"Amendment"), dated as of May __, 1997, is entered into between FOOTHILL
CAPITAL CORPORATION, a California Corporation ("Foothill"), with a place of
business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, and Bollinger Industries, Inc., a Delaware corporation
("Inc."), Bollinger Industries, L.P., a Texas limited partnership ("L.P."), and
NBF, Inc., a Georgia corporation ("NBF"), jointly and severally (collectively,
"Borrower"), with their chief executive office located at 602 Fountain Parkway,
Grand Prairie, Texas 75050.
RECITALS
A. Borrower and Foothill have previously entered into that certain
Loan and Security Agreement dated as of August 16, 1996, as amended by
Amendment No. One dated as of January 30, 1997 (the "Loan Agreement"), pursuant
to which Foothill has made certain loans and financial accommodations available
to Borrower. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
B. Due to developments in Borrower's business, Borrower has
requested that the Loan Agreement be amended in certain respects.
C. Foothill is willing to amend the Loan Agreement under the terms
and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of Foothill's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follow:
1. Modification of Concentrations. The definition of "Eligible
Accounts" contained in Section 1.1 of the Loan Agreement is amended at
Subsection (g) to read as follows:
<PAGE> 2
"(g) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed ten percent (10%) of all
Eligible Accounts (or, in the case of Service Merchandise and
Dayton-Hudson, fifteen percent (15%), to the extent of the obligations
owing by such Account Debtor in excess of such percentage; provided,
however, in the case of Wal-Mart or K-Mart, such percentage shall be
seventy-five percent (75%) as to both combined from January 15, 1997
through May 31, 1997, and effective June 1, 1997, such percentage
shall be:
(i) From March - September 30 (i) thirty percent (30%)
of each year thereafter as to each
(ii) From October 1 - February 28 (ii) seventy percent (70%)
of each year thereafter as to both combined"
2. Additional Advances. A new Section 2.1(d) is added to the Loan
Agreement to read as follows:
"(d) In addition to the amounts available under Section
2.1(a), subject to the terms and conditions of this Agreement, Foothill
agrees to make revolving advances to Borrower in an amount at any one
time outstanding not to exceed $1,000,000 between the date of this
Amendment and May 31, 1997.
3. Change in Clearance Days. Section 2.5 of the Loan Agreement is
amended so that every reference to "two (2) Business Days of clearance," "two
(2) Business Day clearance charge: and the like is changed to substitute "two
and one-half (2.5)" in place of "two (2)."
4. Change in Fees.
4.1 Section 2.7(d) of the Loan Agreement is amended to
change the reference to Foothill's customary appraisal fee which currently
reads "One Thousand Dollars ($1,500) per day per appraiser, "to read "One
Thousand Five Hundred Dollars ($1,500) per day per appraiser," and to change
the reference which currently reads "One Thousand Hundred Dollars ($1,000) per
year for its loan documentation review" to read "One Thousand Dollars ($1,000)
per year for its loan documentation review."
4.2 Section 2.7(e) of the Loan Agreement is amended to read
in its entirety as follows:
"(a) Servicing Fee. From the date of this Amendment,
on the first day of each month during the term of this Agreement, and
thereafter so long as any Obligations are outstanding, a servicing fee in an
amount equal to Seven Thousand Dollars ($7,000) per month; provided, however,
that such fee will be reduced to Five Thousand Dollars ($5,000) per month if
Borrower's operating income is at least Two Million Seven Hundred Thousand
Dollars
2
<PAGE> 3
($2,700,000) for the fiscal year ended March 31, 1998 as reflected on
the audited financial statements for the year."
4.3 Section 2.7 of the Loan Agreement is amended to add the
following subsections at the end:
"(h) Overadvance Fee. A fee for the extension of
credit described in the new Section 2.1(b) in the amount of $20,000
payable in four equal monthly installments of $5,000 each beginning
June 1, 1997.
"(i) Waiver and Amendment Fee. A fee in the amount
of $20,000 payable in four equal monthly installments of $5,000 each
beginning June 1, 1997."
5. Extension of Term. The first sentence of Section 3.3 of the
Loan Agreement is amended to read, "This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill and shall continue
in full force and effect until August 20, 2000 (the "Renewal Date"), unless
sooner terminated pursuant to the terms hereof."
6. Modification of Early Termination Premium. The chart presented
in Section 3.5 of the Loan Agreement is amended to read as follows:
<TABLE>
<CAPTION>
Period of Time During Which
Termination Occurs Percent of Maximum Amount
--------------------------- -------------------------
<S> <C>
Prior to August 20, 1997 4.0%
August 21, 1997 to August 20, 1998 4.0%
August 21, 1998 to August 20, 1999 1.5%
August 21, 1999 to August 20, 2000 1.0%
</TABLE>
7. Modification of Certain Financial covenants: Waiver.
7.1 Sections 6.13(b) an 6.13(c) are amended to read in
their entirety as follows:
"(b) Total Liabilities to Tangible Net Worth Ratio.
A ratio of Borrower's total liabilities divided by Tangible Net Worth
measured on a fiscal quarter-end basis of not more than:
<TABLE>
<CAPTION>
Date of Fiscal Quarter-End Ratio
-------------------------- -----
<S> <C>
9/30/96 4.75:1.0
12/31/96 4.50:1.0
3/31/97 4.00:1.0
6/30/97 13.50:1.0
9/30/97 15.00:1.0
12/31/97 10.50:1.0
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
3/31/98 10.50:1.0
6/30/98 9.50:1.0
9/30/98 9.50:1.0
12/31/98 and thereafter 9.00:1.0
</TABLE>
"(c) Tangible Net Worth. Tangible Net Worth measured
on a fiscal quarter-end basis of at least:
<TABLE>
<CAPTION>
Date of Fiscal Quarter-End Tangible Net Worth
-------------------------- ------------------
<S> <C>
9/30/96 $ 9,300,000
12/31/96 $10,250,000
3/31/97 $10,250,000
6/30/97 $ 2,600,000
9/30/97 $ 2,300,000
12/31/97 $ 3,300,000
3/31/98 $ 3,300,000
6/30/98 $ 3,750,000
9/30/98 $ 3,750,000
12/31/98 (and thereafter) $ 4,000,000
</TABLE>
7.2 Foothill hereby waives the existing violations of the
covenants contained in Sections 6.13(b) and 6.13(c) for the third and fourth
fiscal quarters of 1997. This waiver is limited to its particular circumstances
and shall not constitute a waiver of any other provision of the Loan Agreement
or a future waiver of Section 6.13(b), Section 6.13(c) or any other provision
of the Loan Agreement.
8. Effectiveness of this Amendment. Foothill must have received
the following items, in form and content acceptable to Foothill, before this
Amendment is effective and before Foothill is required to extend any credit to
Borrower as provided for by this Amendment. The date on which all of the
following conditions have been satisfied is the "Closing Date".
(a) Amendment. This Amendment fully executed in a
sufficient number of counterparts for distribution to Foothill and
Borrower.
(b) Authorizations. Evidence that the execution, delivery
and performance by Borrower and each guarantor or subordinating
creditor of this Amendment and any instrument or agreement required
under this Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement and this Amendment must be
true and correct.
(d) Consent. The Consent appended hereto (the "Consent")
executed by each of the Guarantors.
4
<PAGE> 5
(e) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Agreement shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to Foothill.
9. Choice of Law. The validity of this Amendment, its
construction, interpretation and enforcement, the rights of the parties
hereunder, shall be determined under, governed by, and construed in accordance
with the internal laws of the State of California governing contracts only to
be performed in that State.
10. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument.
11. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding
on Borrower.
12. Effect of Amendment. Except as set forth expressly herein, all
terms of the Loan Agreement and the other Loan Documents shall be and remain in
full force and effect and shall constitute the legal, valid, binding and
enforceable obligations of Borrower to Foothill. To the extent that any terms
and conditions in any of the Loan Documents shall contradict or be in conflict
with any terms or conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified and amended
accordingly to reflect the terms and conditions of the Loan Agreement as
modified and amended hereby.
13. Ratification. Borrower hereby restates, ratifies and reaffirms
each and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
14. Estoppel. To induce Foothill to enter this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Foothill with respect
to the Obligations.
5
<PAGE> 1
EXHIBIT 10.57
STANDARD OFFICE SHOWROOM/WAREHOUSE COMMERCIAL LEASE
ARTICLE 1.00 BASIC LEASE TERMS
1.01 PARTIES. This lease agreement ("Lease") is entered into by and
between the following Lessor and Lessee:
Fountain Parkway, Ltd. ("Lessor")
Bollinger Industries, L.P. ("Lessee")
1.02 LEASED PREMISES. In consideration of the rents, terms,
provisions and covenants of this Lease, Lessor hereby leases, lets and demises
to Lessee the following described premises ("leased premises"):
300,000 (Approximate sq. ft.) at
602 Fountain Parkway
Grand Prairie, Texas 75050
1.03 TERM. Subject to and upon the conditions set forth herein, the
term of this Lease shall commence on December 1, 1996 (the "commencement date")
and shall terminate May 1, 2004 (89) months thereafter.
1.04 SECURITY DEPOSIT. Security deposit is $46,500.
1.05 ADDRESSES.
Lessor's Address: Lessee's Address:
Fountain Parkway Ltd. 602 Fountain Parkway
C/O Southwest Properties Group, Inc. Grand Prairie, TX 75050
701 Commerce St., Suite 200
Dallas, TX 75202
1.06 PERMITTED USE: Warehouse Storage, Assembly, and Light
Manufacturing.
ARTICLE 2.00 RENT
2.01 BASE RENT. Lessee agrees to pay monthly as base rent during
the term of this Lease the sum of money set forth this section of the Lease,
which amount shall be payable to Lessor at the address shown above. One monthly
installment of rent shall be due and payable on the date of execution of this
Lease by Lessee for the first month's rent and a like monthly installment shall
be due and payable on or before the first day of each calendar month succeeding
the commencement date or completion date during the term of this Lease;
provided, if the commencement date or the completion date should be a date
other than the first day of a calendar month, the monthly rental set forth
above shall be prorated to the end of that calendar month, and all succeeding
installments of rent shall be payable on or before the first day of each
succeeding calendar month during the term of this Lease. Lessee shall pay, as
additional rent, all other sums due under this Lease.
BASE RENT. Lessee agrees to pay monthly as base rent during the term of this
lease the following sums of money:
<TABLE>
<S> <C> <C> <C> <C>
Months 1-12: $ 35,593.11 per month or $1.42 per square foot per year
Months 13-29: $ 39,760.31 per month or $1.59 per square foot per year
Months 30-41: $ 47,500.00 per month or $1.90 per square foot per year
Months 42-53: $ 50,000.00 per month or $2.00 per square foot per year
Months 54-65: $ 52,500.00 per month or $2.10 per square foot per year
Months 66-77: $ 55,000.00 per month or $2.20 per square foot per year
Months 78-89: $ 57,500.00 per month or $2.30 per square foot per year
</TABLE>
2.02 LESSEE'S PROPORTIONATE SHARE. For the purpose of this lease,
the total area of the Building is 300,000 rentable square feet. The
relationship between the area of the demised premises and the area of the
Building as aforesaid is 100 percent which percentage should be used throughout
this lease in determining the portions of additional rent related thereto.
2.03 OPERATING EXPENSES. In the event Lessor's operating expenses
for the building and/or project of which the leased premises are a part shall,
in any calendar year during the term of this Lease, exceed the sum of the
actual 1995 Base Year Operating Expenses (the "Base Year Expense Stop"), Lessee
agrees to pay as additional rent Lessee's pro rata share of such excess
operating expenses. Lessor may invoice Lessee monthly for Lessee's pro rata
share of the estimated operating expenses for each calendar year, which amount
shall be adjusted each year based upon anticipated operating expenses. Within
nine months following the close of each calendar year, Lessor shall provide
Lessee an accounting showing in reasonable detail all computations of
additional rent due under this section. In the event the accounting shows that
the total of the monthly payments made by the Lessee exceeds the amount of
additional rent due by Lessee under this section, the accounting shall be
accompanied by a refund. In the event the accounting shows that the total of
the monthly payments made by Lessee is less than the amount of additional rent
due by Lessee under this section, the account shall be accompanied by an
invoice for the additional rent. Notwithstanding any other provision in this
Lease, during the year in which the Lease terminates, Lessor, prior to the
termination date, shall have the option to invoice Lessee for Lessee's pro rata
share of the excess operating expenses based upon the previous year's operating
expenses. If this Lease shall terminate on a day other than the last day of a
calendar year, the amount of any additional rent payable by Lessee applicable
to the year in which such termination shall occur shall be prorated on the
ratio that the number of days from the commencement of the calendar year to and
including the termination date and its relationship to three hundred sixty-five
(365) days. Lessee shall have the right, at its own expense and within a
reasonable time, to audit Lessor's books relevant to the additional rent
payable under this section. Lessee agrees to pay any additional rent due under
this section within ten (10) days following receipt of the invoice or
accounting showing additional rent due.
2.04 DEFINITION OF OPERATING EXPENSES. The term "operating
expenses" includes all real property taxes and installments of special
assessments, including dues and assessments by means of deed restrictions
and/or owners' associations which accrue against the building of which the
leased premises are a part during the term of this lease; and all insurance
premiums Lessor is required to pay or deems necessary to pay, including public
liability insurance, with respect to the building. The term operating expenses
does not include the following: repairs; restoration or other work occasioned
by fire, wind, the elements or other casualty; income and franchise taxes of
Lessor; expenses incurred in leasing to or procuring of Lessees, leasing
commissions, advertising expenses and expenses for the renovating of space for
new lessees; interest or principle payments on any mortgage or other
indebtedness of Lessor; compensation paid to any employee of
Page 1 of 8
<PAGE> 2
Lessor above the grade of property manager; any depreciation allowance or
expense; or operating expenses which are the responsibility of Lessee.
2.05 LATE PAYMENT CHARGE. Other remedies for nonpayment
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the fifth (5th) day of the month for which the rent is due, or if any
other payment due Lessor by Lessee is not received by Lessor on or before the
fifth (5th) day of the month for which such payment is due, a late payment
charge of ten percent (10%) of such past due amount shall become due and
payable in addition to such amounts owed under this Lease.
2.06 INCREASE IN INSURANCE PREMIUMS. If an increase in any
insurance premium paid by Lessor for the building is caused by Lessee's use of
the leased premises in a manner other than as set forth in section 1.06, or if
Lessee vacates the leased premises and causes an increase in such premiums,
then Lessee shall pay as additional rent the amount of such increase to Lessor.
2.07 SECURITY DEPOSIT. The security deposit set forth above shall
be held by Lessor for the performance of Lessee's covenants and obligations
under this Lease, it being expressly understood that the deposit shall not be
considered an advance payment of rental or a measure of Lessor's damage in case
of default by Lessee. Upon the occurrence of any event of default by Lessee or
breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time
to time, without prejudice to any other remedy, use the security deposit to the
extent necessary to make good any arrears of rent, or to repair any damage or
injury, or pay any expense or liability incurred by Lessor as a result of the
event of default or breach of covenant, and any remaining balance of the
security deposit shall be returned by Lessor to Lessee upon termination of this
Lease. If any portion of the security deposit is so used or applied, Lessee
shall upon ten (10) days written notice from Lessor, deposit with Lessor by
cash or cashier's check an amount sufficient to restore the security deposit to
its original amount.
2.08 HOLDING OVER. In the event that Lessee does not vacate the
leased premises upon the expiration or termination of this Lease, Lessee shall
be a lessee at will for the holdover period and all of the terms and provisions
of this Lease shall be applicable during that period, except that Lessee shall
pay Lessor as base rental for the period of such holdover an amount equal to
two times the base rent which would have been payable by Lessee had the
holdover period been a part of the original term of this Lease. Lessee agrees
to vacate and deliver the leased premises to Lessor upon Lessee's receipt of
notice from Lessor to vacate. The rental payable during the holdover period
shall be payable to Lessor on demand. No holding over by Lessee, whether with
or without the consent of Lessor, shall operate to extend the term of this
Lease. Lessee shall not, without Lessor's prior written consent holdover after
one hundred twenty (120) days from the expiration of this lease.
ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Lessee warrants and represents to Lessor that the leased
premises shall be used and occupied only for the purpose as set forth in
section 1.06. Lessee shall occupy the leased premises, conduct its business and
control its agents, employees, invitees and visitors in such a manner as is
lawful, reputable and will not create a nuisance. Lessee shall not permit any
operation which emits any odor or matter which intrudes into other portions of
the building, use any apparatus or machine which makes undue noise or causes
vibration in any portion of the building or otherwise interfere with, annoy or
disturb any other lessee in its normal business operations or Lessor in its
management of the building. Lessee shall neither permit any waste on the leased
premises nor allow the leased premises to be used in any way which would, in
the opinion of Lessor, be extra hazardous on account of fire or which would in
any way increase or render void the fire insurance on the building. If at any
time during the term of this Lease, the State Bureau of Insurance or other
insurance authority disallows any of Lessors sprinkler credits or imposes an
additional penalty or surcharge in Lessors insurance premiums because of
Lessee's original or subsequent placement or use of storage racks or bins,
method of storage or nature of Lessee's inventory or any other act of Lessee,
Lessee agrees to pay as additional rent the increase (between fire walls) in
Lessor's insurance premiums.
3.02 SIGNS. No sign of any type or description shall be erected,
placed or painted in or about the leased premises or project except those signs
submitted to Lessor in writing and approved by Lessor in writing, and which
signs are in conformity with Lessor's sign criteria established for the
project.
3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Lessee, at
Lessee's sole cost and expense shall comply with all laws, ordinances, orders,
rules and regulations of state, federal, municipal or other agencies or bodies
having jurisdiction over use, condition and occupancy of the leased premises.
Lessee will comply with the rules and regulations of the building adopted by
Lessor which are set forth on a schedule attached to this Lease. Lessor shall
have the right at all times to change and amend the rules and regulations in
any reasonable manners may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the building or
the leased premises. All changes and amendments to the rules and regulations of
the building will be sent by Lessor to Lessee in writing and shall thereafter
be carried out and observed by Lessee.
3.04 WARRANTY OF POSSESSION. Lessor warrants that it has the right
and authority to execute this Lease, and Lessee, upon payment of the required
rents and subject to the terms, conditions, covenants and agreements contained
in this Lease, shall have possession of the leased premises during the full
term of this Lease as well as any extension or renewal thereof. Lessor shall
not be responsible for the acts or omissions of any other lessee or third party
that may interfere with Lessee's use and enjoyment of the leased premises.
3.05 INSPECTION. Lessor or its authorized agents shall at any and
all reasonable times have the right to enter the leased premises to inspect the
same, to supply janitorial service or any other service to be provided by
Lessor, to show the leased premises to prospective purchasers or lessees, and
to alter, improve or repair the leased premises or any other portion of the
building. Lessee hereby waives any claim for damages for injury or
inconvenience to or interference with Lessee's business, any loss of occupancy
or use of the leased premises, and any other loss occasioned thereby. Lessor
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the leased premises. Lessee shall not change Lessor's lock
system or in any other manner prohibit Lessor from entering the leased
premises. Lessor shall have the right to use any and all means which Lessor may
deem proper to open any door in an emergency without liability therefore.
ARTICLE 4.00 SERVICES
4.01 Lessee accepts building services as adequate for its intended
use. Lessor agrees to make available to the premises at Lessor's sole cost and
expense: (1) water, (2) air conditioning and heating, (3) electric service, (4)
electrical lighting service for all common areas in the manner and to the
extent deemed by Lessor to be standard.
4.02 Lessee shall pay for the electricity and gas utilized in
operating any and all facilities serving the leased premises.
4.03 Failure to any extent to furnish of or any stoppage or
interruption of these defined services resulting from any cause shall not
render Lessor liable in any respect for damages to either person, property or
business; nor be construed as an eviction of Lessee or work an abatement of
rent; nor relieve Lessee from fulfillment of any covenant or agreement hereof.
Lessee shall have no claim for abatement of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom.
4.04 REPAIRS AND MAINTENANCE. By Lessor: Lessor shall at its
expense maintain only the roof, foundation, underground or otherwise concealed
plumbing, outside of the building and the structural soundness of the exterior
walls (excluding all windows, window glass, plate glass, and all doors) of the
Building and keep in good repair and condition, except for reasonable wear and
tear. However, in no event shall Lessor be responsible for repair of any damage
caused by any act of negligence of the Lessee, its employees, agents or
invitees.
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Lessee shall give immediate written notice to Lessor of the need for repairs or
corrections and Lessor shall proceed promptly to make such repairs or
corrections. Lessor's liability hereunder shall be limited to the cost of such
repairs or corrections. In addition, Lessor shall maintain the paving outside
the building.
4.05 By Lessee: Lessee shall at its expense and risk maintain all
other parts of the building and other improvements on the demised premises in
good repair and condition, including but not limited to repairs including all
necessary replacements to the interior plumbing, windows, window glass, plate
glass doors, heating system, air-conditioning equipment, fire protection
sprinkler system, elevators, and the interior of the building in general. All
warranties and guarantees in effect on any of the items mentioned above will be
for Lessee or Lessor's use as applicable. Lessee shall be responsible for
maintaining the landscaping and regular mowing of grass.
4.06 In the event Lessee should neglect to maintain the demised
premises and the equipment located therein, Lessor shall have the right (but
not the obligation) to cause repairs or corrections to be made and any
reasonable costs therefor shall be payable by Lessee to Lessor as additional
rental on the next rental installment date.
ARTICLE 5.00 LESSEE RESPONSIBILITIES
5.01 Lessee shall make no alteration or additions to the electrical
equipment and/or appliances without the prior written consent of the Lessor in
each instance. Lessee covenants and agrees that at all times its use of
electric current shall never exceed the capacity of existing feeders to the
building or the risers or wiring installation. Lessee warrants and agrees that
there will not be installed or used in the demised premises such machines or
appliances which exceed the existing electrical capacity within the building.
5.02 No additional heating, ventilating or air-cooling unit or
equipment shall be installed or used in the suite except with the Lessor's
prior written consent and Lessee hereby expressly grants to the Lessor
permission to enter the premises demised hereunder, upon Lessee's breach of the
provisions hereof and after notice to Lessee of such breach and Lessee
expressly grants permission to Lessor to remove the equipment or appliance
causing the non-compliance or breach of such provisions without liability of
any sort on the part of the Lessor to the Lessee or any other.
5.03 The Lessee shall keep the demised premises and the fixtures
and equipment therein in clean, safe and sanitary condition, will take good
care thereof, will suffer no waste or injury thereto, and will, at the
expiration or other termination of the term of this Lease, surrender the same,
broom clean, in the same order and condition in which they were on the
commencement of the term of this Lease.
5.04 The Lessee shall commit no violations of and abide by the
Building's rules and/or regulations (as may be promulgated from time to time by
the Lessor), building code violations, violations of Fire Department or local
authorities, violations of any and all laws governing the operation or
occupancy of this building. The cost of removing the violations including the
damages the Lessor may suffer as a result of Lessee's acts, shall be borne
solely by the Lessee and such cost, expenses, losses and damages which the
Lessor incurs or will incur, will be billed to Lessee as additional rent in
accordance with the terms and conditions of this Lease.
5.05 Lessee will not conduct or permit to be conducted any
activity, or place any equipment in or about the demised premises, which will,
in any way, increase the rate of fire insurance or other insurance on the
Building; and if any increase in the rate of fire insurance or other insurance
is stated by any insurance company or by the applicable Insurance Rating Bureau
to be due to any activity or equipment in or about the demised premises, such
shall be conclusive evidence that the increase in such rate is due to any such
activity or equipment, and, as a result thereof, Lessee shall be liable for
such increase and shall reimburse Lessor thereafter.
5.06 In case of the failure of Lessee to comply with any provision
or terms of this Lease, Lessor shall have the right, but shall not be
obligated, to effect such compliance on behalf of Lessee, and, in such event,
all expenses Incurred or monies spent by Lessor in effecting such compliance
shall be deemed to be additional rental and shall be paid by Lessee to Lessor
at the time for payment of the next monthly payment of rental hereunder
following notice to Lessee from Lessor of the said additional rent to be paid
hereunder.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 LESSOR IMPROVEMENTS. If construction to the leased premises is
to be performed by Lessor prior to or during Lessee's occupancy, Lessor will
complete the construction of the improvements to the leased premises, in
accordance with plans and specifications agreed to by Lessor and Lessee, which
plans and specifications are made a part of this Lease by reference. Lessee
shall execute a copy of the plans and specifications and change orders, if
applicable, setting forth the amount of any costs to be borne by Lessee within
seven (7) days of receipt of the plans and specifications. In the event Lessee
fails to execute the plans and specifications and change order within the seven
(7) day period, Lessor may, at its sole option, declare this Lease canceled or
notify Lessee that the base rent shall commence on the completion date even
though the improvements to be constructed by Lessor may not be complete. Any
changes or modifications to the approved plans and specifications shall be made
and accepted by written change order or agreement signed by Lessor and Lessee
and shall constitute an amendment to this Lease.
6.02 LESSEE IMPROVEMENTS. Lessee shall not make or allow to be made
any alterations or physical additions in or to the leased premises without
first obtaining the written consent of Lessor, which consent may in the sole
and absolute discretion of Lessor be denied. Any alterations, physical
additions or improvements to the leased premises made by Lessee shall at once
become the property of Lessor and shall be surrendered to Lessor upon the
termination of this Lease; provided, however, Lessor, at its option, may require
Lessee to remove any physical additions and/or repair any alterations in order
to restore the leased premises to the condition existing at the time Lessee
took possession, all costs of removal and/or alterations to be borne by Lessee.
This clause shall not apply to moveable equipment or furniture owned by Lessee,
which may by removed by Lessee at the end of the term of this Lease if Lessee
is not then in default and if such equipment and furniture are not then subject
to any other rights, liens and interest of Lessor.
6.03 MECHANICS LIEN. Lessee will not permit any mechanic's or
materialman's lien's or other lien to be placed upon the leased premises or the
building and nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Lessor, express or implied, by inference
or otherwise, to any person for the performance of any labor or the furnishing
of any materials to the leased premises, or any part thereof, nor as giving
Lessee any right, power, or authority to contract for or permit the rendering
of any services or the furnishing of any materials that would give rise to any
mechanic's, materialman's or other lien against the leased premises, In the
event any such lien is attached to the leased premises, then, in addition to
any other right or remedy of Lessor, Lessor may, but shall not be obligated to,
obtain the release of or otherwise discharge the same. Any amount paid by
Lessor for any of the aforesaid purposes shall be paid by Lessee to Lessor on
demand as additional rent.
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the leased premises should be
totally destroyed by fire or other casualty, or if the leased premises should
be damaged so that rebuilding cannot reasonably completed within ninety (90)
working days after the date of written notification by Lessee to Lessor of the
destruction, this Lease shall terminate and the rent shall be abated for the
unexpired portion Lease, effective as of the date of the written notification.
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<PAGE> 4
7.02 PARTIAL DESTRUCTION. If the leased premises should be
partially damaged by fire or other casualty, and the rebuilding or repairs can
reasonably be completed within ninety (90) working days from the date of
written notification by Lessee to Lessor of the destruction, this Lease shall
not terminate, and Lessor shall at its sole risk and expense proceed with
reasonable diligence to rebuild or repair the building or other improvements to
substantially the same condition in which they existed prior to damage. If the
leased premises are to be rebuilt or repaired and are untenantable in whole or
in part following the damage, and the damage or destruction was not caused or
contributed to by act or negligence of Lessee, its agents, employees, invitees
or those for whom Lessee is responsible, the rent payable under this Lease
during the period for which the leased premises are untenantable shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. In the event that Lessor fails to complete the necessary repairs
or rebuilding within ninety (90) working days from the date of written
notification by Lessee to Lessor of the destruction, Lessee may at its option
terminate this Lease by delivering written notice of termination to Lessor,
whereupon all rights and obligations under this Lease shall cease to exist.
7.03 PROPERTY INSURANCE. Lessor shall at all times during the term
of this Lease maintain a policy or policies of insurance with the premiums paid
in advance, issued by and binding upon some solvent insurance company, insuring
the building against all risk of direct physical loss in an amount equal to at
least ninety percent (90%) of the full replacement cost of the building
structure and its improvements as of the date of the loss; provided, Lessor
shall not be obligated in any way or manner to insure any personal property
(including, but not limited to, any furniture, machinery, goods or supplies) of
Lessee upon or within the leased premises, any fixtures installed or paid for by
Lessee upon or within the leased premises, or any improvements which Lessee may
construct on the leased premises. Lessee shall have no right in or claim to the
proceeds of any policy of insurance maintained by Lessor even though the cost of
such insurance is borne by Lessee as set forth in Article 2.00.
7.04 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property within the building, by reason
of fire or the elements, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Lessor and Lessee
agree immediately to give their respective insurance companies which have
issued policies of insurance covering all risk of direct physical loss, written
notice of the terms of the mutual waivers contained in this section, and to
have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages by reason of the mutual waivers.
7.05 HOLD HARMLESS. Lessor shall not be liable to Lessee's
employees, agents, invitees, licensees or visitors, or to any other person, for
an injury to person or damage to property on or about the leased premises
caused by any act or omission of Lessee, its agents, servants or employees, or
of any other person entering upon the leased premises under express or implied
invitation by Lessee, or caused by the improvements located on the leased
premises becoming out of repair, the failure or cessation of any service
provided by Lessor (including security service and devices), or caused by
leakage of gas, oil, water or steam or by electricity emanating from the leased
premises. Lessee agrees to defend, indemnify and hold harmless Lessor of and
from any loss, attorney's fees, expenses or claims arising out of any such
damage or injury.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the leased
premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the leased premises for the purpose for which it is then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease effective on the date physical possession is taken by the
condemning authority. Lessee shall have no claim to the condemnation award or
proceeds in lieu thereof.
8.02 PARTIAL TAKING. If all or a substantial part of the leased
premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and this Lease is not terminated as provided in section 8.01
above, Lessor shall at Lessor's sole risk and expense, restore and reconstruct
the building and other improvements on the leased premises to the extent
necessary to make it reasonably tenantable. The rent payable under this Lease
during the unexpired portion of the term shall be adjusted to such an extent as
may be fair and reasonable under the circumstances. Lessee shall have no claim
to the condemnation award or proceeds in lieu thereof.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LESSOR ASSIGNMENT. Lessor shall have the right to sell,
transfer or assign, in whole or in part, its rights and obligations under this
Lease and in the building. Any such sale, transfer or assignment shall operate
to release Lessor from any and all liabilities under this Lease arising after
the date of such sale, assignment or transfer.
9.02 LESSEE ASSIGNMENT. Lessee shall not assign, in whole or in
part, this Lease or allow it to be assigned, in whole or in part, by operation
of law or otherwise, including without limitation, a transfer of a majority
interest of stock or merger. Nor shall Lessee sublet the leased premises in
whole or in part, without the prior written consent of Lessor. No event of an
assignment or sublease shall ever release Lessee or any guarantor from any
obligation or liability hereunder. No assignee or sublessee of the leased
premises may assign or sublet the premises or any portion thereof.
9.03 CONDITIONS OF ASSIGNMENT. If Lessee desires to assign or
sublet all OR any part of the leased premises, it shall so notify Lessor, in
writing, at least thirty (30) days in advance of the date on which Lessee
desires to make such assignment or sublease. Lessee shall provide Lessor with a
copy of the proposed assignment or sublease and such information as Lessor
might request concerning the proposed sublessee or assignee to allow Lessor to
make informed judgements as to the financial condition, reputation, operations
and general desirability of the proposed sublessee or assignee. Within fifteen
(15) days after Lessor's receipt of Lessee's proposed assignment or sublease
and all required information concerning the proposed sublessee or assignee,
Lessor shall have the following options: (1) cancel this Lease as to the leased
premises or portion thereof proposed to be assigned or sublet; (2) consent to
the proposed assignment or sublease, and, if the rent due and payable by
assignee or sublessee under any such permitted assignment or sublease (or a
combination of the rent payable under such assignment or sublease plus any
bonus or any other consideration or any payment incident thereto) exceeds the
rent payable under this Lease for such space, Lessee shall pay to Lessor all
such excess rent and other excess consideration within ten (10) days following
receipt thereof by Lessee; or (3) refuse, in its sole and absolute discretion
and judgement, to consent to the proposed assignment or sublease, which refusal
shall be deemed to have been exercised unless Lessor gives Lessee written
notice providing otherwise. Upon the occurrence of an event of default, if all
or any part of the leased premises are then assigned or sublet, Lessor, in
addition to any other remedies provided by this Lease or provided by Law, may,
at its option, collect directly from the assignee or sublessee all rents
becoming due to Lessee by reason of the assignment or sublease, and Lessor
shall have a security interest in all properties on the leased premises to
secure payment of such sums. Any collection directly by Lessor from the
assignee or sublessee shall not be construed to constitute a novation or a
release of Lessee or any guarantor from the further performance of its
obligations under this Lease.
9.04 SUBORDINATION. Lessee accepts this Lease subject and
subordinate to any recorded mortgage or deed of trust lien presently existing
or hereafter created upon the building or project. Lessor is hereby irrevocably
vested with full power and authority to subordinate Lessee's interest under
this Lease to any first mortgage or deed of trust lien hereafter placed on the
leased premises, and Lessee agrees upon demand to execute additional
instruments subordinating this Lease as Lessor may require. If the interests of
Lessor under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any first mortgage or deed of trust lien on the
leased premises, Lessee shall be bound to the transferee (sometimes called the
"Purchaser") at the option of the Purchaser, under the terms,
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<PAGE> 5
covenants and conditions of this Lease for the balance of the term remaining,
including any extensions or renewals, with the same force and effect as if the
Purchaser were Lessor under this Lease, and, if requested by the Purchaser,
Lessee agrees to attorn to the Purchaser, including the first mortgagee under
any such mortgage if it be the Purchaser, as its Lessor.
9.05 ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to
time, within five (5) days after receipt of a request from Lessor or Lessor's
mortgagee, a statement certifying, if applicable, the following: Lessee is in
possession of the leased premises; the leased premises are acceptable; the
Lease is in full force and effect; the Lease is unmodified; Lessee claims no
present charge, lien, or claim of offset against rent; the rent is paid for the
current month, but is not prepaid for more than one month and will not be
prepaid for more than one month in advance: there is no existing default by
reason of some act or omission by Lessor; and such other matters as may be
reasonably required by Lessor or Lessors mortgagee. Lessee's failure to deliver
such statement, in addition to being a default under this Lease, shall be
deemed to establish conclusively that this Lease is in full force and effect
except as declared by Lessor, that Lessor is not in default of any of its
obligations under this Lease, and that Lessor has not received more than one
month's rent in advance.
ARTICLE 10.00 LIENS
10.01 LESSOR'S LIEN. As security for payment of rent, damages and
all other payments required to be made by this Lease, Lessee hereby grants to
Lessor a lien upon all property of Lessee now or subsequently located upon the
leased premises. If Lessee abandons or vacates any substantial portion of the
leased premises or is in default in the payment of any rentals, damages or
other payments required to be made by this Lease or is in default of any other
provision of this Lease, Lessor may enter upon the leased premises, by picking
or changing locks if necessary, and take possession of all or any part of the
personal property, and may sell all or any part of the personal property at a
public or private sale, in one or successive sales, with or without notice, to
the highest bidder for cash, and, on behalf of Lessee; sell and covey ALL or
part of the proceeds of the sale of the personal property shall be applied by
Lessor towards the reasonable costs and expenses of the sale, including
attorney's fees, and then toward the payment of all sums then due by Lessee to
Lessor under the terms of this Lease. Any excess remaining shall be paid to
Lessee or any other person entitled thereto by law.
10.02 UNIFORM COMMERCIAL CODE. This Lease is intended as and
constitutes a security agreement within the meaning of the Uniform Commercial
Code of the state in which the leased premises are situated. Lessor, in
addition to the rights prescribed in this Lease, shall have all of the rights,
titles, liens and interests in and to Lessee's property, now or hereafter
located upon the leased premises, which may be granted a secured party, as that
term is defined, under the Uniform Commercial Code to secure to Lessor payment
of all sums due and the full performance of all Lessee's covenants under this
Lease. Lessee will on request execute and deliver to Lessor a financing
statement for the purpose of perfecting Lessor's security interest under this
Lease or Lessor may file this Lease or a copy thereof as a financing statement.
Unless otherwise provided by law and for the purpose of exercising any right
pursuant to this section, Lessor and Lessee agree that reasonable notice shall
be met if such notice is given by ten (10) days written notice, certified mail,
return receipt requested, to Lessor or Lessee at the addresses specified
herein.
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 DEFAULT BY LESSEE, The following shall be deemed to be events
of default by Lessee under this Lease: (1) Lessee shall fail to pay when due
any installment of rent or any other payment required pursuant to this Lease
and the failure is not cured within ten (1O) days after written notice to
Lessee; (2) Lessee shall abandon any substantial portion of the leased
premises; (3) Lessee shall fail to comply with any term, provision or covenant
of this Lease, other than the payment of rent, and the failure is not cured
within twenty (20) days after written notice to Lessee; (4) Lessee shall file a
petition or be adjudged bankrupt or insolvent under any applicable federal or
state bankruptcy or insolvency law or admit that it cannot meet its financial
obligations as they become due; or a receiver or trustee shall be appointed for
all or substantially all of the assets of Lessee; or Lessee shall make a
transfer in fraud of creditors or shall make an assignment for the benefit of
creditors, or (5) Lessee shall do or permit to be done any act which results in
a lien being filed against the leased premises or the building and/or project
of which the leased premises are a part.
11.02 REMEDIES FOR LESSEE'S DEFAULT. Upon the occurrence of any
event of default set forth in this Lease, Lessor shall have the option to
pursue any one or more of the remedies set forth herein without any notice or
demand. (1) Lessor may enter upon and take possession of the leased premises,
by picking or changing locks if necessary, and lock out, expel or remove Lessee
and any other person who may be occupying all or part of the leased premises
without being liable for any claim for damages, and relet the leased premises
on behalf of Lessee and receive the rent directly by reason of the reletting.
Lessee agrees to pay Lessor on demand any deficiency that may arise by reason
of any reletting of the leased premises; further, Lessee agrees to reimburse
Lessor for any expenditures made by it in order to relet the leased premises,
including, but not limited to, remodeling and repair costs. (2) Lessor may
enter upon the leased premises, by picking or changing locks if necessary,
without being liable for any claim for damages, and can do whatever Lessee is
obligated to do under the terms of this Lease. Lessee agrees to reimburse
Lessor on demand for any expenses which Lessor may incur effecting compliance
with Lessee's obligations under this Lease caused by the negligence of Lessee
or otherwise. (3) Lessor may terminate this Lease, in which event Lessee shall
immediately surrender the leased premises to Lessor, and if Lessee fails to
surrender the leased premises, Lessor may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter upon and
take possession of the leased premises, by picking or changing locks if
necessary and lock out, expel or remove Lessee and any other person who may be
occupying all or any part of the leased premises without being liable for any
claim for damages. Lessee agrees to pay on demand the amount of all loss and
damage which Lessor may suffer by reason of the termination of this Lease under
this section, whether through inability to relet the leased premises on
satisfactory terms or otherwise. Notwithstanding any other remedy set forth in
this Lease, in the event Lessor has made rent concessions of any type or
character, or waived any base rent, and Lessee fails to take possession of the
leased premises on the commencement or completion date or otherwise defaults at
any time during the term of this Lease, the rent concessions, including any
waived base rent, shall be canceled and the amount of the base rent or other
rent concessions shall be due and payable immediately as if no rent concessions
or waiver of any base rent had ever been granted. A rent concession or waiver
of the base rent shall not relieve Lessee of any obligation to pay any other
charge due and payable under this Lease including without limitation any sum
due under section 2.02. In addition to the remedies set forth in this
paragraph, upon occurrence of any event or events of default by Lessee under
this Lease, Lessor may, at Lessors option, upon written notice to Lessee,
accelerate the remaining sums due from Lessee pursuant to this Lease, for the
remaining term of this Lease, at which time all such sums shall be immediately
due and payable by Lessee. Notwithstanding anything contained in this Lease to
the contrary, this Lease may be terminated by Lessor only by mailing or
delivering written notice of such termination to Lessee, and no other act or
omission of Lessor shall be construed as a termination of this Lease.
ARTICLE 12.00 DEFINITIONS
12.01 ABANDON. "Abandon" means the vacating of all or a substantial
portion of the leased premises by Lessee, whether or not Lessee is in default
of the rental payments due under this Lease.
12.02 ACT OF GOD OR FORCE MAJEURE. An "act of God" or "force
majeure" is defined for purposes of this Lease as strikes, lockouts, sitdowns,
material or labor restrictions by any governmental authority, unusual
transportation delays, riots, floods, washouts, explosions, earthquakes, fire,
storms, weather (including wet grounds or inclement weather which prevents
construction), acts of the public enemy, wars, insurrections and any other
cause not reasonably within the control of Lessor and which by the exercise of
due diligence Lessor is unable, wholly or in part, to prevent or overcome,
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12.03 BUILDING OR PROJECT. "Building" or "project" as used in this
Lease means the building and/or project described in section 1.02, including
the leased premises and the land upon which the building or project is
situated.
12.04 COMMENCEMENT DATE. "Commencement date" shall be the date set
forth in section 1.03. The commencement date shall constitute the commencement
of the term of this Lease for all purposes, whether or not Lessee has actually
taken possession.
12.05 COMPLETION DATE. "Completion date" shall be the date on which
the improvements erected and to be erected upon the leased premises shall have
been completed in accordance with the plans and specifications described in
article 6.00. The completion date shall constitute the commencement of the term
of this Lease for all purposes, whether or not the Lessee has actually taken
possession. Lessor shall use its best efforts to establish the completion date
as the date set forth in section 1.03. In the event that the improvements have
not in fact been completed as of that date, Lessee shall notify Lessor in
writing of its objections. Lessor shall have a reasonable time after delivery
of the notice in which to take such corrective action as may be necessary and
shall notify Lessee in writing as soon as it deems such corrective action has
been completed and the improvements are ready for occupancy. Upon completion of
construction, Lessee shall deliver to Lessor a letter accepting the leased
premises as suitable for the purposes for which they are let and the date of
such letter shall constitute the commencement of the term of this Lease.
Whether or not Lessee has executed such letter of acceptance, taking possession
of the leased premises by Lessee shall be deemed to establish conclusively that
the improvements have been completed in accordance with the plans and
specifications, are suitable for the purposes for which the leased premises are
let, and that the leased premises are in good and satisfactory condition as of
the date possession was so taken by Lessee, except for latent defects, if any.
12.06 SQUARE FEET. "Square Feet" or "square foot"as used in this
Lease includes the area contained within the leased premises together with a
common area percentage factor of the leased premises proportionate to the total
building area.
ARTICLE 13.00 MISCELLANEOUS
13.01 WAIVER. Failure of Lessor to declare an event of default
immediately upon its occurrence, or delay in taking action in connection with
an event of default, shall not constitute a waiver of default, but Lessor shall
have the right to declare the default at any time and take such action as is
lawful or authorized under this Lease. Pursuit of any one or more of the
remedies set forth in article 11.00 above shall not preclude pursuit of any one
or more of the other remedies provided elsewhere in this Lease or provided by
law, nor shall pursuit of any remedy constitute forfeiture or waiver of any
rent or damages accruing to Lessor by reason of the violation of any of the
terms, provisions or covenants of this Lease. Failure by Lessor to enforce one
or more of the remedies provided upon an event of default shall not be deemed
or construed to constitute a waiver of the default or of any other violation or
breach of any of the terms, provisions and covenants contained in this Lease.
13.02 ACT OF GOD. Lessor shall not be required to perform any
covenant or obligation in this Lease, or be liable in damages to Lessee, so
long as the performance or non-performance of the covenant or obligation is
delayed, caused or prevented by an act of God, force majeure or by Lessee.
13.03 ATTORNEYS FEES. In the event Lessee defaults in the
performance of any of the terms, covenants, agreements or conditions contained
in this Lease and Lessor places in the hands of an attorney the enforcement of
all or any part of this Lease, the collection of any rent due or to become due
or recovery of the possession of the leased premises, Lessee agrees to pay
Lessor's cost of collection, including reasonable attorney's fees for the
services of the attorney, whether suit is actually filed or not.
13.04. SUCCESSORS. This Lease shall the binding upon and inure to the
benefit of Lessor and Lessee and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed
that should Lessor's interest in the leased premises cease to exist for any
reason during the term of this Lease, then notwithstanding the happening of
such event this Lease nevertheless shall remain unimpaired and in full force
and effect, and Lessee hereunder agrees to attorn to the then owner of the
leased premises.
13.05 RENT TAX. If applicable in the jurisdiction where the leased
premises are situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Lessor by Lessee under
the terms of this Lease. Any such payment shall be paid concurrently with the
payment of the rent, additional rent, operating expenses or other charge upon
which the tax is based as set forth above. See Article 16.00 Other Provisions.
13.06 CAPTIONS. The captions appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any section.
13.07 NOTICE. All rent and other payments required to be made by
Lessee shall be payable to Lessor at the address set forth in section 1.05. All
payments required to be made by Lessor to Lessee shall be payable to Lessee at
the address set forth in section 1.05, or at any other address within the
United State as Lessee may specify from time to time by written notice. Any
notice or document required or permitted to be delivered by the terms of this
Lease shall be deemed to be delivered (whether or not actually received) when
deposited in the United States Mail, postage prepaid, certified mail, return
receipt requested, addressed to the parties at the respective addresses set
forth in section 1.05.
13.08 SUBMISSION OF LEASE. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option to lease.
This lease is not effective until execution by and delivery to both Lessor and
Lessee.
13.09 CORPORATE AUTHORITY. If Lessee executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Lessee does
hereby personally represent and warrant that Lessee is duly authorized and
existing corporation, the Lessee is qualified to do business in the state in
which the leased premises are located, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this Lease shall be liable,
individually, as Lessee.
13.10 SEVERABILITY. If any provision of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Lease and the application of
such provisions to other persons or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by law.
13.11 LESSOR'S LIABILITY. If Lessor shall be in default under this
Lease and, if as a consequence of such default, Lessee shall recover a money
judgement against Lessor, such judgment shall be satisfied only out of the
right, title and interest of Lessor in the building as the same may then be
encumbered and neither Lessor not any person or entity that comprises Lessor
shall be liable for any deficiency. In no event shall Lessee have the right to
levy execution against any property of Lessor nor any person or entity
comprising Lessor other than its interest in the building as herein expressly
provided.
13.12 INDEMNITY. Lessor agrees to indemnify and hold harmless Lessee
from and against any liability or claim, whether meritorious or not, arising
with respect to any broker whose claim arises by through or on behalf of
Lessor. Lessee agrees to indemnify and hold harmless Lessor from and against
any liability or claim, whether meritorious or not, arising with respect to any
broker whose claim arises by, through or on behalf of Lessee.
13.13 Upon request, Lessee shall furnish Lessor with annual
financial statements and reports in a timely manner.
Page 6 of 8
<PAGE> 7
ARTICLE 14.0 AMENDMENT AND LIMITATION OF WARRANTIES
14.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LESSEE, AS A
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH
THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT
OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO
THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT
INCORPORATED IN WRITING IN THIS LEASE.
14.02 AMENDMENT, THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
14.03 THIS LEASE AGREEMENT SUPERSEDES ANY AND ALL PREVIOUS
AGREEMENTS BETWEEN THE PARTIES HERETO. AND ANY AND ALL PREVIOUS AGREEMENTS
SHALL BECOME NULL AND VOID UPON EXECUTION OF THIS AGREEMENT.
ARTICLE 15.00 OTHER PROVISIONS
15.01 LESSEE INSURANCE. Lessee shall procure and maintain throughout
the term of this lease a policy or policies of insurance, at its sole cost and
expense, causing Lessee's fixtures and contents to be insured under standard
fire and extended coverage insurance and, with regard to liability insurance,
insuring both Lessor, Lessor's Agents, and Lessee against all claims, demands or
actions arising out of or in connection with Lessee's use or occupancy of the
Demised Premises, or by the condition of the Demised Premises. The limits of
Lessee's liability policy or policies shall be in an amount of not less than
$1,000,000.00 per occurrence, and shall be written by insurance companies
satisfactory to Lessor. Lessee shall obtain a written obligation on the part of
each insurance company to notify Lessor at least twenty (20) days prior to
cancellation of such insurance. Such policies and renewals thereof as required
shall be delivered to Lessor at least thirty (30) days prior to the expiration
of the respective policy terms. If Lessee should fail to comply with the
foregoing requirement relating to insurance, Lessor may obtain such insurance
and Lessee shall pay to Lessor on demand as additional rental hereunder the
premium cost thereof plus interest at the maximum contractual rate (but in no
event to exceed 1 1/2% per month) from the date of payment by Lessor until
repaid by Lessee.
15.02 TAXES. The Lessee covenants to pay all Taxes (whether imposed
upon the Lessor or the Lessee) attributable to the personal property, trade
fixtures, business, income, occupancy or sales of the Lessee or any other
occupant of the Leased Premises, and to any Leasehold Improvements or fixtures
installed by or on behalf of the Lessee within the Leased Premises, and to the
use by the Lessee of any of the Property.
Lessee covenants to pay the amount by which Taxes (whether imposed
upon the Lessor or the Lessee) are increased above the Taxes which would have
otherwise been payable as a result of the Leased Premises or the Lessee or any
other occupancy of the Leased Premises being taxed or assessed in support of
separate schools.
15.03 ENVIRONMENTAL MATTERS. Lessee agrees that it shall not allow
or permit the Premises to be used for the handling, transportation, storage,
treatment or other usage of hazardous or toxic substances. Lessee does hereby
agree to indemnify, defend and hold Lessor and its officers, employees and
agents harmless from any claims, judgements, damages, fines, penalties, costs,
liabilities (including sums paid in settlement of claims) or loss, including
attorneys' fees, consultant fees, and expert fees which arise in connection
with the presence or suspected presence of toxic or hazardous substances in the
Premises, the soil, groundwater or soil vapor on or under the premises, the
building in which the premises is located or in the surrounding property which
arise as a result of Lessee's operation of its business. Any failure by Lessee
to comply with the terms of this Paragraph 16.03 within ten (10) days of
delivery of written notice to Lessee by Lessor of such failure shall constitute
an event of default under this Lease. For purposes of this Paragraph 16.03, the
term "hazardous or toxic substances" shall mean any substance which is subject
to regulation by the Federal Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("CERCLA") as authorized and amended by the Superfund
Amendment and Re-authorization Act of 1986 substance which may be reasonably
determined to cause a risk to the environment as determined by the
Environmental Protection Agency or other governmental agency.
15.04 BROKERAGE COMMISSION. Lessee represents and warrants that
there are no claims for brokerage commissions or finders' fees in connection
with the execution of this Lease except for Sovereign Commercial Realty ("SCR")
or separate agreement. Lessee agrees to indemnify and hold harmless Lessor
against all liabilities and costs arising from such claims, including without
limitation attorney's fees in connection therewith. In addition, Lessor hereby
agrees to pay SCR a commission equal to four and one half percent (4 1/2%) of
the gross rentals to be paid upon execution for any expansions, extensions, or
renewals pertaining to this Lease.
15.05 ARBITRATION. The parties wish to provide for a rapid and
efficient means of resolving any dispute relating to this Lease. Accordingly,
any dispute arising out of or relating to this Lease may be referred by either
party to arbitration, in which case it shall be decided by a single arbitrator
of the American Arbitration Association sitting in Dallas, Texas, providing
that any issues relating to allocation of Operating Costs shall be referred
first to the parties auditors for resolution. The American Arbitration
Association and the arbitrator shall be instructed to use the most expedited
rules then available, and the parties agree to cooperate to make the
arbitration as rapid and inexpensive as possible. Once an arbitrator has been
used to resolve one dispute, the parties stipulate that the same arbitrator
shall be used, unless the parties mutually agree otherwise, to resolve any
subsequent disputes. In the event of a default or claimed default on the part
of Lessee, Lessor shall be entitled to file an unlawful detainer action under
the relevant laws of the State of Texas, but any issue of fact or lease
interpretation thereunder shall be referred to arbitration as set forth above,
and the decision of the arbitrator shall be final and binding upon the parties
and the court. In any arbitration under this Section, the prevailing party
shall recover its attorneys fees and costs, and the non-prevailing party shall
pay the cost of the arbitrator.
Page 7 of 8
<PAGE> 8
ARTICLE 16.00 SCHEDULES
16.01 The provisions of the following Schedules attached hereto shall
form part of this Lease as if the same were embodied herein:
Schedule "A" - Legal Description of Lands
Schedule "B" - Outline of Leased Premises
Schedule "C" - Rules and Regulations
Schedule "D" - Leasehold Improvements
Schedule "F" - Renewal Option
Schedule "G" - Subordination Agreement
ARTICLE 17.00 SIGNATURES
EXECUTED at Dallas, Texas this 1st day of December 1996.
LESSOR LESSEE
Fountain Parkway, Ltd.
By: Inner Fountain, Inc, its general partner /s/ Bollinger Industries, L.P.
------------------------------------------- ------------------------------
By: /s/ CLIFFORD A. BOOTH By: /s/ GLENN D. BOLLINGER
------------------------------------------- --------------------------
Clifford A. Booth, President
Page 8 of 8
<PAGE> 9
SCHEDULE "A"
(Legal Description of Lands)
<PAGE> 10
EXHIBIT "A"
(Legal Description of Land)
FOUNTAIN PARKWAY
BEING a tract of land in the J.J. Goodwin Survey, Abstract No. 589, and being
that tract of land known as SITE 12, GREAT SOUTHWEST INDUSTRIAL DISTRICT,
INDUSTRIAL COMMUNITY NO. 5, City of Grand Prairie, Texas as recorded in Volume
388-46, Page 735, Plat Records, Tarrant County, Texas, and being more
particularly described as follows:
BEGINNING at the 5/8-inch iron rod found at land southeast corner of said Site
12, said iron rod being in the north line of Fountain Parkway (100-foot
right-of-way);
THENCE West, along said north line, a distance of 597.74 feet to a 1/2-inch
iron rod with yellow plastic cap stamped "A.H. HALFF ASSOC." (hereafter
referred to as "with cap") set in the east line of the Chicago, Rock Island and
Pacific Railroad (50-foot right-of-way);
THENCE North 0 degrees 24 minutes 08 seconds East, departing said north line
and along said east line, a distance of 1234.40 feet to a 1/2-inch iron rod
with cap set for the point of curvature of a circular curve to the left having
a radius of 482.28 feet and whose long cord bears South 57 degrees 30 minutes
48 seconds East, a distance of 518.07 feet and being on the south line of Lead
Track Number 23 (60-foot right-of-way);
THENCE Southeasterly, departing said east line, along said south line and along
said curve, through a central angle of 64 degrees 58 minutes 25 seconds, an arc
distance of 546.91 feet to a 1/2-inch iron rod with cap set for the point of
tangency;
THENCE East, continuing along said south line, a distance of 145.73 feet to a
set 1/2-inch iron rod with cap for corner;
THENCE South, departing said south line, a distance of 245.75 feet to a point
for corner in the interior of a building;
THENCE South 0 degrees 50 minutes 47 seconds East (Plat - South 0 degrees, 45
minutes 06 seconds East), a distance of 237.53 feet (Plat - 236.67 feet) to a
fence post found for corner at the northwest corner of the Ford Cemetery;
THENCE South 0 degrees 46 minutes 16 seconds East (Plat - South 1 degrees 47
minutes 20 seconds East), along the west line of said cemetery and along a
chain link fence, a distance of 106.52 feet (Plat - 103.94 feet) to a fence
post found for the southwest corner of said cemetery;
THENCE South 0 degrees 13 minutes 12 seconds East (Plat - South), a distance of
366.34 feet (Plat - 369.82 feet) to the POINT Of BEGINNING AND CONTAINING
599,733 square feet (Plat - 600,003 square feet) or 13.7680 acres (Plat - 13.774
Acres) of land.
<PAGE> 11
SCHEDULE "C"
SCHEDULE "B"
(Outline of Leased Premises)
<PAGE> 12
SCHEDULE "B"
(Outline of Leased Premises)
[SITE PLAN]
<PAGE> 13
SCHEDULE "C"
Rules and Regulations
1. The sidewalks, entry passages, elevators (if installed in the
building) and common stairways shall not be obstructed by the Lessee or used
for any other purposes than for ingress and egress to and from the Leased
Premises. The Lessee will not place or allow to be placed in the Building
corridors or public stairways any waste paper, dust, garbage, refuse or
anything whatever.
2. The washroom plumbing fixtures and other water apparatus shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown therein.
The expense of any damage resulting by misuse by the Lessee shall be borne by
the Lessee.
3. No one shall use the Leased Premises for residential purposes, or for
the storage of personal effects or articles other than those required for
business purposes.
4. No dangerous or explosive materials shall be kept or permitted to be
kept in the Leased Premises.
5. The Lessee shall not and shall not permit any cooking in the Leased
Premises except in a microwave oven. The Lessee shall not install or permit the
installation or use of any machine dispensing goods for sale in the Leased
Premises without the prior written approval of the Lessor. Only persons
authorized by the Lessor shall be permitted to deliver or to use the elevators
(if installed in the Building) for the purpose of delivering food or beverages
to the Leased Premises.
6. The Lessee shall not bring in or take out, position, construct,
install or move any safe, business machine or other heavy office equipment
without the prior consent of the Lessor. In giving such consent, the Lessor
shall have the right in its sole discretion, to prescribe the weight permitted
and the position thereof, and the use and design of planks, skids or platforms
to distribute the weight thereof. All damages done to the Building by moving or
using any such heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Lessee. The moving of all heavy equipment or
other office equipment or furniture shall occur only at times consented to by
the Lessor and the persons employed to move the same in and out of the Building
must be acceptable to the Lessor. Safes and other heavy office equipment will
be moved through the halls and corridors only upon steel bearing plates. No
freight or bulky matter of any description will be received into the Building
or carried in the elevators (if installed in the Building) except during hours
approved by the Lessor.
7. The parking of automobiles shall be subject to the charges and the
reasonable regulations of the Lessor. The Lessor shall not be responsible for
damage to or theft of any car, its accessories or contents whether the same be
the result of negligence of otherwise. Parking may be regulated and/or assigned
by Lessor.
8. The Lessee shall not mark, drill into or in any way deface the walls,
ceilings, partitions, floors or other parts of the Leased Premises and the
Building unless Lessor has provided consent to do so.
9. If the Lessee desires any electrical or communications wiring, the
Lessor reserves the right to direct qualified persons as to where and how the
wires are to be introduced, and without such directions, no borings or cutting
for wires shall take place. No other wires or pipes of any kind shall be
introduced without the prior written consent of the Lessor,
10. The Lessee shall not place or cause to be placed any additional locks
upon any doors of the Leased Premises without the approval of the Lessor and
subject to any conditions imposed by the Lessor. Additional keys may be
obtained from the Lessor at the cost of the Lessee.
11. The Lessee shall take care of the rugs and window treatments in the
Leased Premises and shall arrange for the carrying-out of regular cleaning and
shampooing of carpets and cleaning of window treatments in a manner acceptable
to the Lessor.
12. The Lessee shall permit the periodic closing of lanes, driveways and
passages for the purpose of preserving the Lessor's rights over such lanes,
driveways and passages.
13. The Lessee shall not place or permit to be placed any sign,
advertisement, notice or other display on any part of the exterior of the
Leased Premises or elsewhere if such sign, advertisement, notice or other
display is visible from outside the Leased Premises without the prior written
consent of the Lessor which may be arbitrarily withheld. The Lessee, upon
request of the Lessor, shall immediately remove any sign, advertisement, notice
or other display which the Lessee has placed or permitted to be placed which,
in the opinion of the Lessor, is objectionable, and if the Lessee shall fail to
do so, the Lessor may remove the same at the expense of the Lessee.
14. The Lessor shall have the right to make such other and further
reasonable rules and regulations and to alter the same as in its judgment may
from time to time be needed for the safety, care, cleanliness and appearance of
the Leased Premises and the Building and for the preservation of good order
therein and the same shall be kept and observed by the lessees, their employees
and servants. The Lessor also has the right to suspend or cancel any or all of
these rules and regulations herein set out.
15. Lessor will not be responsible for lost or stolen personal property,
money or jewelry from Lessee's leased area or public area regardless of whether
such loss occurred when area is locked against entry or not.
<PAGE> 14
SCHEDULE "D"
(Leasehold Improvements)
Lessor agrees to provide Lessee with the demised premises in an "as is"
condition. Lessor shall provide Lessee a leasehold improvement allowance equal
to fifty thousand dollars ($50,000) within 30 days of completion of the
improvements and submission of original invoices to Lessor.
UNLESS OTHERWISE NOTED, ANY ADDITIONAL LEASEHOLD IMPROVEMENTS REQUIRED BY
LESSEE SHALL BE THE FISCAL RESPONSIBILITY OF LESSEE.
AGREED AND ACCEPTED THIS 1st DAY OF DECEMBER, 1996.
- ---------------------------------------------------
<PAGE> 15
EXHIBIT G
SUBORDINATION AGREEMENT
THIS AGREEMENT is entered into among Fountain Parkway LTD. (hereinafter
referred to as "Landlord"). Bollinger Industries, L.P. (hereafter referred to
as "Tenant"), and Foothill Capital Corporation hereinafter referred to as
"Lender") effective the 1st day of December, 1996.
WHEREAS, that certain lease ("Original Lease") dated December 1st, 1996,
covering approximately 300,000 square feet of space at 602 Fountain Parkway,
Grand Prairie, Tarrant County, Texas, a copy of which is attached hereto
between Fountain Parkway, Ltd. as ("Lessor") and Bollinger Industries, L.P,
("Lessee").
WHEREAS, the fact that Foothill Capital Corporation ("Lender") (11111
Santa Monica Blvd., Suite 1500, Los Angeles, CA. 90025-3333, Attn: Suzanne
Witkowsky), has made a loan (as amended, increased, extended or otherwise
changed from time to time, the Loan") to the Lessee to be guaranteed by the
Company and secured in part by any and all inventory and accounts receivable,
and any records relating thereto, owned or held by Bollinger Industries, L.P.
(the "Collateral") stored or otherwise located on the premises demised under
said Lease.
WHEREAS, the fact that Lender would not be willing to make said Loan but
for the consent and waiver of Lessor, all as herein provided.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
valuable consideration by Lessee in hand this day paid to the undersigned, the
receipt does hereby agree and represent as follows:
1. In the event of default under the proposed Loan, Lender or its successors
or assigns, may, prior to the expiration or termination of the Lease, upon
prior written notice to Lessor, enter upon the premises at the time
specified by Lessor and remove said Collateral from the premises without
the consent of, or accounting to, the undersigned Lessor, conditioned,
however, upon any damage caused to the premises by reason of the removal of
the Collateral being repaired without cost or expense to Lessor promptly
after such removal. Upon written notification by Lessor of the Termination
of the Lease or the exercise of its rights to possession of the premises by
virtue thereof, Lender shall have the license for a period of up to 30
days after such notice to enter upon the premises to remove the Collateral
and shall cause any damage caused to the premises by reason of the removal
of the Collateral to be repaired without cost or expenses to Lessor
promptly after such removal. Lender shall pay Lessor a daily license fee
equivalent to one-thirtieth (1/30th) of the holdover monthly rental provided
for in the Lease. In the event Lender does not intend to exercise its
rights with regard to the Collateral and to remove the Collateral from the
premises, Lender shall so notify Lessor in writing on or prior to Midnight
CST time on the date which is 7 days after the date of Lender's receipt of
such notice from Lessor, and Lessor may thereafter remove the Collateral
from the premises and otherwise deal with the Collateral as permitted by
applicable law and the Lease. It is expressly understood and agreed that
Lessor shall have no obligation whatsoever to preserve or protect the
Collateral after the expiration or termination of the Lease. Lessor hereby
subordinate to Lender any and all landlord's lien and other lien rights on
security interests, whether statutory or contractual, perfected or
unperfected, respecting the Collateral until the Loan is repaid in full and
all of Lessee's and Lender's obligations under the Loan have terminated.
2. Except as provided above, the Lease has not been modified, changed,
altered, or amended by any written instrument in any respect and is the only
agreement between the Lessor and the Lessee affecting the premises demised
under the Lease.
<PAGE> 16
3. To the best of our knowledge, the Lease is not in default by either the
Lessor or the Lessee and is in full force and effect.
4. In the event of the occurrence of a default under the Lease, the Lessor
will use Lessor's best efforts to provide a copy of any written notice of
such default sent to Lessee to the Lender at the respective address set
forth above, or at such other addresses as the Lender may provide in writing
to the Lessor.
5. Any and all notices hereunder to the Lender or the Lessor shall be sent by
registered or certified mail, return receipt requested, or via hand
delivery, to their respective addresses set forth herein.
6. It is specifically understood and agreed that this Subordination
Agreement shall be binding upon the undersigned and its successors in
interest.
The foregoing is hereby approved and agreed to this 1st day of December, 1996.
LESSOR: FOUNTAIN PARKWAY, LTD.
By: Inner Fountain, Inc., Its General Partner
/s/ CLIFFORD A. BOOTH
---------------------------------------
Clifford A. Booth, President
LESSEE: Bollinger Industries, L.P.
/s/ GLENN D. BOLLINGER
---------------------------------------
Glenn D. Bollinger
Chief Executive Officer
<PAGE> 17
EXHIBIT "F"
RENEWAL OPTION (MARKET)
Lessee (but not any assignee or sublessee of Lessee, even if Lessor's consent
is obtained as required by Article 9.00 of this Lease) is granted the option(s)
to extend the term of this lease for ONE consecutive extended term of THREE
year(s) each, provided (a) Lessee is not in default at the time of the exercise
of the respective option, and (b) Lessee gives written notice of its exercise
of the respective option at least ninety (90) days prior to the expiration of
the original term or the expiration of the then existing term. Each extension
term shall be upon the same terms and conditions, except (i) Lessee shall have
no further right of renewal after the last extension term prescribed above, and
(ii) the Monthly Guaranteed Rental will be equal to whatever monthly Minimum
Guaranteed Rental (plus whatever periodic adjustments) Lessor is then quoting
to prospective lessees for new leases of comparable space in Dallas, Fort Worth
for comparable terms (as confirmed by written statement to Lessee by a
representative of Lessor), or comparable space in comparable office showroom
tech projects located in the same general area as this project (also as
confirmed by written statement to Lessee by a representative of Lessor).
Notwithstanding the above provisions to the contrary: (A) in no event will the
adjusted monthly Minimum Guaranteed Rental for any option period be lower than
the monthly Minimum Guaranteed Rental for the immediately preceding period; and
(B) in the event Lessee has not agreed in writing to accept the monthly Minimum
Guaranteed Rental before ninety (90) days prior to the expiration of the then
existing term, Lessor at its option may terminate this lease as of the
expiration of the then existing term.
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Earnings (loss) from continuing operations $(8,164,071) $(6,861,406) $ 594,176
Loss from discontinued operations 722,676 (1,361,954) (524,914)
----------- ----------- ----------
Net earnings (loss) $(7,441,395) $(8,223,360) $ 69,262
=========== ============ ==========
Weighted average number of common shares 4,000,210 3,710,484 3,669,577
Net effect of dilutive stock options
based on the treasury stock method (using
the initial public offering price of
$12.50 per share and assuming that all
options had been outstanding for all
periods prior to the IPO on November 17,
1993) (1) - - 297,054
----------- ----------- ----------
Shares used for computation 4,000,210 3,710,484 3,966,631
=========== =========== ==========
Per Share Data:
Earnings (loss) from continuing operations $ (2.04) $ (1.85) $ .15
=========== =========== ==========
Net earnings (loss) $ (1.86) $ (2.22) $ .02
=========== =========== ==========
</TABLE>
Note - fully diluted and primary calculations are the same.
(1) Dilutive stock options for the fiscal years ended March 31, 1997 and
March 31, 1996, were not included because of the net loss.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheets, Consolidated Statements of Earnings, and
Schedule II Valuation and Qualifying Accounts as of and for the fiscal year
ended March 31, 1997 shown elsewhere in this report and is qualified in it's
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,481
<SECURITIES> 0
<RECEIVABLES> 16,804,959
<ALLOWANCES> 844,312
<INVENTORY> 16,201,780
<CURRENT-ASSETS> 33,720,643
<PP&E> 4,986,867
<DEPRECIATION> 2,903,465
<TOTAL-ASSETS> 38,389,352
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0
0
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<SALES> 82,598,593
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<INCOME-PRETAX> (8,010,326)
<INCOME-TAX> (91,964)
<INCOME-CONTINUING> (8,164,071)
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<NET-INCOME> (7,441,395)
<EPS-PRIMARY> (1.86)
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</TABLE>
