<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarter ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 0-22716
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)
(972) 343-1000
(Registrant's telephone number, including area code)
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
--- ---
As of November 10, 1998, 4,400,210 shares of the registrant's common
stock, $0.01 par value per share, were outstanding.
1
<PAGE> 2
BOLLINGER INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1998 (unaudited), and March 31, 1998 3
Consolidated Statements of Earnings -
Three Months and Six Months Ended September 30, 1998
and 1997 (unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, MARCH 31,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 38,372 $ 136,369
Accounts receivable - trade net allowance for doubtful accounts of
$516,233 and $450,000 and allowance for returns and allowances of
$1,297,687 and $910,025 6,001,574 6,351,691
Escrow receivable 507,999 1,012,296
Other 33,981 424,335
Inventories 5,048,721 5,820,013
Prepaid expenses 723,381 793,511
------------ ------------
Total current assets 12,354,028 14,538,215
PROPERTY PLANT AND EQUIPMENT - NET 2,017,000 1,864,993
OTHER ASSETS
Notes receivable and other 118,049 209,554
Deferred financing fees - net of accumulated amortization of $488,391
and $372,390 272,563 388,564
------------ ------------
TOTAL ASSETS $ 14,761,640 $ 17,001,326
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt and other debt $ 1,185,582 $ 142,681
Current portion of capital lease obligations 228,753 212,101
Accounts payable - trade 2,838,370 2,595,565
Income tax payable 47,200 224,700
Other current liabilities 1,093,203 1,016,513
Accrued product liability 336,007 381,957
Other payables-customer overpayment 214,276 1,125,627
------------ ------------
Total current liabilities 5,943,391 5,699,144
LONG-TERM LIABILITIES
Long-term debt, net of current portion 40,773 36,505
Long-term capital lease obligations 653,616 778,319
------------ ------------
Total long-term liabilities 694,389 814,824
------------ ------------
Total liabilities 6,637,780 6,513,968
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; 1,000,000 shares authorized;
none issued -- --
Common stock -- $.01 par value; 8,000,000 shares authorized;
issued and outstanding 4,000,210 at September 30,1998, and
March 31, 1998 40,002 40,002
Capital in excess of par 15,323,058 15,323,058
Accumulated deficit (7,239,200) (4,875,702)
------------ ------------
Total stockholders' equity 8,123,860 10,487,358
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,761,640 $ 17,001,326
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 7,092,170 $ 15,107,320 $ 14,495,239 $ 35,623,961
Cost of Goods Sold 5,011,901 12,355,971 10,433,944 28,858,157
-------------- -------------- ------------- --------------
Gross Profits 2,080,269 2,751,349 4,061,295 6,765,804
Selling Expenses 697,780 956,463 1,643,412 2,528,818
Distribution, general and
administrative expenses 2,392,297 2,605,666 4,515,259 5,068,475
-------------- -------------- ------------- --------------
3,090,077 3,562,129 6,158,671 7,597,293
-------------- -------------- ------------- --------------
Operating profit (loss) (1,009,808) (810,780) (2,097,376) (831,489)
Other expense (income)
Interest expense 136,956 531,898 256,193 1,156,203
Gain on sale of assets (5,933) (868,430) (7,142) (869,245)
Other 51,830 (454) 17,071 (7,282)
-------------- -------------- ------------- --------------
182,853 (336,986) 266,122 279,676
-------------- -------------- ------------- --------------
Earnings (loss) before
income tax expense
(benefit) (1,192,661) (473,794) (2,363,498) (1,111,165)
Income tax expense
(benefit) - - - 1,060
-------------- -------------- ------------- --------------
Net earnings (loss) $ (1,192,661) $ (473,794) $ (2,363,498) $ (1,112,225)
============== ============== ============= ==============
Per share data (basic and
diluted):
Basic Earnings (loss per
share) $(0.30) $(0.12) $(0.59) $(0.28)
============== ============== ============= ==============
Diluted earnings (loss)
per share $(0.30) $(0.12) $(0.59) $(0.28)
============== ============== ============= ==============
Shares used in the
calculation of per share
amounts:
Basic common shares 4,000,210 4,000,210 4,000,210 4,000,210
Dilutive impact of stock
options - - - -
-------------- -------------- ------------- --------------
Diluted common shares 4,000,210 4,000,210 4,000,210 4,000,210
============== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (2,363,498) $ (1,112,225)
Adjustments to reconcile net earnings (loss) to net cash
Provided by (used in) operating activities
(Gain) loss on disposal of assets (7,142) (869,245)
Depreciation and amortization 398,442 514,252
Provision for returns and allowances 1,199,581 1,767,887
Provision for doubtful accounts 120,000 6,408
Provision for obsolete inventory 156,366 260,567
Changes in operating assets and liabilities
Accounts receivable -trade (969,464) 2,169,592
Other receivables 390,354 128,591
Inventories 614,926 3,241,478
Prepaid expenses 70,130 (193,606)
Notes receivable and other assets 4,280 9,441
Accounts payable-trade 242,805 944,393
Income tax payable (177,500) -
Other current liabilities (880,611) (245,773)
Provision for restructuring operations - (1,609,364)
---------------- ---------------
Net cash provided by (used in) operating activities (1,201,331) 5,012,396
Cash flows from investing activities
Purchases of property and equipment (447,420) (110,765)
Payments (advances made) on note receivable 87,225 199,315
Proceeds from sale of assets 20,114 1,140,209
Escrow receivable 504,297 -
---------------- ---------------
Net cash provided by (used in) investing activities 164,216 1,228,759
Cash flows from financing activities
Net proceeds from (payments on) long term debt 1,047,169 (6,063,183)
Payments on capital lease obligations (108,051) -
Financing Fees - (125,000)
---------------- ---------------
Net cash provided by (used in) financing activities 939,118 (6,188,183)
Net increase (decrease)in cash (97,997) 52,972
Cash at beginning of period 136,369 3,481
---------------- ---------------
Cash at end of period $ 38,372 $ 56,453
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - GENERAL
The consolidated interim financial statements include the accounts of Bollinger
Industries, Inc., its wholly-owned subsidiaries, and Bollinger Industries, L.P.,
a partnership wholly-owned by Bollinger's subsidiaries (collectively the
"Company").
The consolidated interim financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principals ("GAAP") have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and notes for the fiscal year ended March 31,
1998 contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the unaudited interim consolidated financial
statements of the Company contain all adjustments, consisting only of those of a
normal recurring nature, necessary to present fairly the Company's financial
position and the results of its operations and cash flows for the periods
presented. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Revenue Recognition and Provisions for Returns and Chargebacks
The Company recognizes sales revenue at the time products are shipped to its
customers. Provision is made currently for estimated product returns and
chargebacks, which may occur. Returns are generally for products that are
salable with minor reworking of packaging or replacement of missing components.
The term "chargebacks" refers to the action taken by customers of withholding
payments or applying for credit amounts for items such as volume discounts or
rebates under
6
<PAGE> 7
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - CONTINUED)
NOTE A - GENERAL-CONTINUED
marketing programs or pricing discrepancies, penalties, vendor compliance
issues, shipping shortages and any other similar item under vendor compliance
guidelines established by customers.
The provision for returns is estimated based on current trends and historical
experience of returns. The provision for chargebacks is estimated based on the
marketing programs designed for customers, and recent historical experience
based on volume.
NOTE B - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------- -------------
<S> <C> <C>
Interest paid $ 265,051 $ 1,313,068
</TABLE>
Shortly before the fiscal year-end on March 31, 1998, the Company received
$1,125,000 in cash from a major customer that should have been properly payable
to the purchaser of the trampoline product line. The Company advised the
customer of this payment, but the customer did not request an immediate
repayment. Accordingly, this is included in other payables on the Company's
balance sheet at 1998 fiscal year-end and at the end of the second quarter of
fiscal 1999. During the second quarter ended September 30, 1998 the overpayment
has been reduced by $911,000 to $214,000 based on the customers purchases of
additional products from the Company.
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
-------------- -------------
<S> <C> <C>
Raw materials $ 425,798 $ 336,285
Work-in-process - -
Finished goods 6,155,658 7,686,607
Reserve for obsolescence (1,532,735) (2,202,879)
-------------- -------------
$ 5,048,721 $ 5,820,013
============== =============
</TABLE>
7
<PAGE> 8
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE D - NOTES PAYABLE
The Company obtained a credit facility with a financial institution on August
16, 1996 with a maximum line of $25 million and a three-year term. The loan
agreement had an expiration date of August 16, 2000. During the first quarter of
Fiscal 1999, at the request of the Company, the loan agreement was favorably
renegotiated with the financial institution to more closely reflect the
Company's current financial condition and financing needs. The maximum line of
credit was reduced to $15 million subject to certain borrowing base
requirements. The facility was extended to August 20, 2002 and several of the
performance covenants were revised or removed. Availability under the credit
line is based on the level of specific current assets, namely accounts
receivable and inventory. The outstanding obligation at September 30, 1998 was
$1,003,000, and the Company had borrowing availability of $3,081,000 pursuant to
the asset-based formula and prior to the funding of the acquisitions during
October 1998, which required $3,575,000 cash in the aggregate.
NOTE E - INCOME TAXES
The Company's effective income tax rates for the three and six months ended
September 30, 1997 and 1998 respectively were 0% and 0%, based on utilization of
a tax loss carry-forward (and lack of income).
NOTE F- COMMITMENTS AND CONTINGENCIES
The Company, certain of its officers and directors, former officers, former
independent auditors, and the underwriters of the Company's initial public
offering are defendants in certain shareholder lawsuits. The Company believes
the lawsuits are without merit. However, if the plaintiffs prevail, the lawsuits
would have a material adverse effect on the operations and financial condition
of the Company. The Company is unable to estimate the range of loss, if any. See
"Part II, Item 1. Legal Proceedings."
The Company was contacted by the Department of Labor ("DOL") in fiscal 1996 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 of the
Company's other employee benefit plans. The DOL has requested and received
tolling agreements extending the running of the statute of limitations through
and including January 31, 1999.
The Internal Revenue Service ("IRS") has examined the Bollinger Employees
Retirement Plan and Trust ("Plan"). In order to maintain its tax-exempt status,
the Plan must comply with certain tests and limitations of the Internal Revenue
Code of 1986, as amended (the "Code"). The Plan currently has excess participant
elective contributions over the maximum amount of such contributions permitted.
As a result, the possible violation of tax laws and regulations could adversely
affect the Plan's tax status. The Company has retained counsel for
representation in this matter. At this time, the effect of such an IRS
examination on the Company or the Plan, if any, cannot be determined.
8
<PAGE> 9
BOLLINGER INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - CONTINUED)
In the normal course of business, the Company is involved in various other
lawsuits. 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 September 30, 1998.
NOTE G - DISPOSITIONS
DISPOSAL OF TRAMPOLINE PRODUCT LINE
On November 21, 1997 the Company disposed of its trampoline product line. Escrow
in the amount of $507,999 is being held back by the purchaser, and is reflected
as such in the September 30, 1998 consolidated balance sheet. Subject to
contingencies, the escrow will be paid to the Company during fiscal 1999.
The unaudited pro forma results of operations for the three month and six month
periods ended September 30, 1998 and 1997, stated as though the disposition
occurred on April 1, 1997, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 7,092,170 $ 10,019,624 $14,495,239 $17,345,149
============ ============ =========== ===========
Net earnings (loss) $(1,192,661) $ (643,361) $(2,363,498) $(2,752,655)
============ ============ =========== ===========
Net earnings (loss) per
commons share $(0.30) $ (.16) $(0.59) $ (.69)
============ ============ =========== ===========
</TABLE>
The pro forma results are not necessarily indicative of what would have occurred
if the disposition occurred during the periods presented. In addition, they are
not intended to be a projection of future results.
NOTE H - SUBSEQUENT EVENTS
On October 15, 1998 an asset purchase agreement was entered into by The Step
Company ("Seller") and Bollinger Industries, L.P. ("Purchaser") to acquire
patent rights to various retail products for an aggregate purchase price of
$3,575,000 in cash and notes and 300,000 shares of the Company's Common Stock.
On October 8, 1998 an asset purchase agreement was entered into by Self Image
Sports and Fitness Co., Inc. ("Seller") and Bollinger Industries, L.P.
("Purchaser") to acquire accounts receivable, inventory and other assets for an
aggregate cash purchase price of $1,500,000.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Annual
Reports on Form 10-K and consolidated financial statements for the fiscal years
ended March 31, 1998 and March 31, 1997; the Company's Form 10-Q for the Fiscal
quarters ended June 30, 1997, September 30, 1997, December 31, 1997, June 30,
1998; and the consolidated financial statements and related notes for the
quarter ended September 30, 1998 found elsewhere in this report.
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS
AND SIX MONTHS ENDED SEPTEMBER 30, 1997
Subsequent to the September 30, 1998 period, the Company purchased the assets of
Self Image Sports (dba Multi-Grip) and licensed "The Step" for retail
distribution. Each of these purchase agreements were signed in mid October. The
Company will be reporting results from October 1st in the next reporting period,
therefore operating results for this reporting quarter are unaffected.
Fitness accessory sales decreased for the quarter by $2,927,000 on a comparative
basis with the same quarter of the prior year, a decrease of 29.2%. Consolidated
net sales for the quarter ended September 30, 1998 decreased by $8.0 million as
compared to the quarter ended September 30, 1997, a decrease of 53.1%. In the
second quarter of the prior year, the Company successfully sold approximately
$5.1 million of trampoline products. The trampoline product line was sold in
November 1997. Fitness accessory sales decreased for the six months by
$2,850,000 on a comparative basis with the same period of the prior year, a
decrease of 16.4%. Consolidated net sales for the six months ended September 30,
1998 decreased by $21.1 million as compared to the six months ended September
30, 1997, a decrease of 59.3%. In the six months ended September 30, 1997, the
Company sold approximately $18.3 million of trampoline products.
Gross profits as a percent of net sales increased dramatically for fitness
accessory products from 17.5% in the quarter ended September 30, 1997 to 29.3%
in the quarter ended September 30, 1998 (eliminating the effect of the
trampoline product line). The improvement was primarily due to improved pricing
from overseas vendors and better controls over related expenses. In addition,
the prior year gross profit percentage was suppressed by low margins on targeted
inventory sales. Consolidated gross profit for the quarter ended September 30,
1998 decreased $671,000 as compared to the quarter ended September 30, 1997, and
increased as a percentage of net sales from 18.2% in 1997 to 29.3% in 1998 for
the same period. The decrease in dollars is directly related to the sale of the
trampoline product line. Gross profits as a percent of net sales of fitness
accessories increased from 18.5% during the six months ended September 30, 1997
to 28.0% in the six months ended September 30, 1998 (eliminating the effect of
the trampoline product line). Consolidated gross profit for the six months ended
September 30, 1998 decreased $2,705,000 as compared to the six months ended
September 30, 1997 and increased as a percentage of net sales from 19.0% in 1997
to 28.0% in 1998 for the same period. The decrease in dollars of $2.7 million is
directly related to the sale of the trampoline product line.
10
<PAGE> 11
Selling expenses for the quarter ended September 30, 1998 decreased by $259,000
as compared to the quarter ended September 30, 1997, and increased as a
percentage of net sales from 6.3% to 9.8%. The quarter ended September 30, 1997
benefited from a $508,000 decrease in royalty commissions that were previously
accrued. The decrease in selling expenses for the quarter ended September 30,
1998 compared to the same quarter in 1997 would have been $767,000 (and
increased as a percentage of net sales from 9.7% to 9.8%). Selling expenses for
the six months ended September 30, 1998 decreased by $885,000 as compared to the
six months ended September 30, 1997, and increased as a percentage of net sales
from 7.1% to 11.3%. The six months ended September 30, 1997 benefited from the
$508,000 decrease in royalty commissions and selling expenses compared to
September 30, 1998 would have decreased by $1,393,000 and increased as a
percentage of net sales from 8.5% to 11.3%. The remaining dollar decrease and
the percentage increase in selling expense were directly related to the lower
sales due to the disposition of the trampoline product line.
Distribution, general and administrative expenses for the quarter ended
September 30, 1998 decreased by $213,000 as compared to the quarter ended
September 30, 1997, and increased as a percentage of net sales from 17.2% in
1997 to 33.7% in 1998. The decrease in distribution, general and administrative
expenses resulted from the reduction of warehouse rent, computer costs, and
labor costs partially offset by the increase in depreciation and legal fees
expense. The percentage increase was directly related to decreased sales after
the sale of the trampoline product line. Distribution, general and
administrative expenses for the six months ended September 30, 1998 decreased by
$553,000 as compared to the same period last year, and increased as a percentage
of net sales from 14.2% to 31.1% based on lower net sales. The decrease in
distribution, general and administrative expenses resulted from the reduction of
warehouse rent, computer costs, and labor costs partially offset by the increase
in depreciation and bad debt expense. The percentage increase was directly
related to decreased sales after the sale of the trampoline product line.
The Company sustained an operating loss of $1,010,000 for the quarter ended
September 30, 1998, as compared to an operating loss of $811,000 in the same
quarter last year. The gross profit decline of $671,000 for the quarter ended
September 30, 1998 as compared to the same quarter last year was partially
offset by lower selling and distribution, general, and administrative expenses
of $472,000.
The Company sustained an operating loss of $2,097,000 for the six months ended
September 30, 1998 as compared to an operating loss of $831,000 in the same
period last year. The gross profit decline of $2,705,000 for the six months
ended September 30, 1998 as compared to the same period a year ago was partially
offset by lower selling and distribution, general, and administrative expenses
of $1,439,000.
Interest expense for the quarter ended September 30, 1998 was $137,000 compared
to $532,000 for the same quarter in the previous year. Interest expense for the
six months ended September 30, 1998 was $256,000 compared to $1,156,000 for the
same period last year. The significant reduction in interest expense was due to
the reduction of debt made possible by the sale of the assets associated with
the trampoline product line in November 1997 and the sale of the Irving facility
in September 1997.
11
<PAGE> 12
Net loss for the quarter ended September 30, 1998 was $1,193,000 compared to
$474,000 for the same quarter in the previous year. Net loss for the six month
period ended September 30, 1998 was $2,363,000 compared to $1,112,000 for the
same six month period in the previous year. The gain on the sale of fixed
assets, primarily from the sale of the building in Irving, Texas of $869,000,
greatly affected the overall loss for the prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of outside financing has been borrowings from
various financial institutions and its initial public offering. Net cash used in
operating activities for the six months ended September 30, 1998 was $1,201,000,
compared to cash provided by operating activities for the same period in the
prior year of $5,012,000. Cash generated from the sale of inventory and the
collection of escrow was used to fund operating losses in the quarter ended
September 30, 1998. The $5,012,000 cash provided by operating activities in the
prior year was generated primarily by the reduction of accounts receivable and
inventory. The prior year $1,228,759 cash provided by investing activities was
primarily from the sale of the Irving facility in September 1997. The $6,188,183
used in financing activities in the prior year was the repayment of borrowing
from a financial institution made possible by the cash generated from operating
activities specifically, inventory and receivable reductions while the current
year cash from financing activities is comprised of additional borrowings.
Shortly before the fiscal year end on March 31, 1998, the Company received
$1,125,000 in cash from a major customer that should have been properly payable
to the purchaser of the trampoline product line. The Company advised the
customer of this payment, but the customer did not request an immediate
repayment. Accordingly, this is included in other payables on the Company's
balance sheet at March 31, 1998 and at September 30, 1998. During the second
quarter ended September 30, 1998 the overpayment has been reduced by $911,000 to
$214,000 based on the customers purchases of additional products from the
Company.
The Company obtained a credit facility with a financial institution on August
16, 1996 with a maximum line of $25 million and a three-year term. The loan
agreement had an expiration date of August 16, 2000. During the first quarter of
fiscal 1999, at the request of the Company, the loan agreement was renegotiated
with the financial institution to more closely reflect the Company's current
financial condition and financing needs. The maximum line of credit was reduced
to $15 million subject to certain borrowing base requirements. The facility was
extended to August 20, 2002 and several of the performance covenants were
revised or removed. Availability under the credit line is based on the level of
specific current assets, namely accounts receivable and inventory. The
outstanding obligation at September 30, 1998 was $1,003,000, and the Company had
borrowing availability of $3,081,000 pursuant to the asset-based formula and
prior to the funding of the acquisitions during October 1998, which required
$3,575,000 cash in the aggregate. Outstanding balances in the quarter ended
September 30, 1998 bore interest at an approximate rate of 10.00% compared to a
rate of 10.25% for the quarter ended September 30, 1997.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize data
12
<PAGE> 13
sensitive information when the Year 2000 arrives. Software that does not
properly recognize such information could generate erroneous data or cause a
system to fail.
Although the Company believes its previous accounting system was Year 2000
compliant, in 1998 the Company began installing a new accounting system that was
confirmed by the vendor to address the Year 2000 issues. The upgrade to the new
system was completed during the second quarter of Fiscal 1999 and is ready for
the internal Year 2000 issues. The Company has conducted random testing on its
computer accessory equipment, phone system, fax machines, copy equipment, etc.,
and believes it will not have Year 2000 problems. The Company has not analyzed
any external factors, such as the impact on those vendors and customers
adversely affected by the Year 2000 issue, and has not assessed the related
potential effect on the Company's business, financial condition or results of
operations. There can be no assurance that computer systems and applications of
other companies on which the Company's operations rely will be converted in a
timely fashion, or that such failure to correct by another company would not
have a material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements about the business and
financial condition of the Company, including various statements contained in
"Management's Discussions and Analysis of Financial Condition and Results of
Operations." When used in this report, words such as "believes," "anticipates,"
"intends," "expects," "should," and words of similar import identify a
forward-looking statement. Such forward-looking statements may involve numerous
assumptions about known and unknown trends, uncertainties, risks, economic
conditions and other factors, which may ultimately prove to be inaccurate.
Investors are cautioned that forward-looking statements involve certain risks
and uncertainties that could cause actual results of the Company to differ
materially from those contained in the forward-looking statements. Important
factors include, but are not limited to: seasonality, advertising and
promotional efforts, availability and terms of capital, future acquisitions,
economic conditions, consumer preferences, lack of success of new products, loss
of customer loyalty, heightened competition, failure of the Company to become
Year 2000 compliant and other factors discussed in this report. The Company
disclaims any obligation to update or to publicly revise any of the
forward-looking statements contained herein to reflect future events or
developments.
The Company continues to suffer operating losses. Nothing contained in these
financial statements or in Management's Discussion and Analysis of Financial
Condition and Results of Operations should be interpreted as a guarantee of
future earnings or a change in financial condition. The actual results of the
Company could differ materially from the statements found in this section and
elsewhere in this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust Retirement
Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D.
Bollinger, Curtis D. Logan, Michael J. Beck, John L. Maguire, William Blair &
Company, Rauscher Pierce Refsnes, Inc. and Grant Thornton, L.L.P.; in the 68th
Judicial District Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John L.
Maguire (Director), William Blair & Company (underwriters of initial public
offering), Rauscher Pierce Refsnes, Inc. (underwriters of initial public
offering) and Grant Thornton, L.L.P. (independent accountants), are defendants
in a lawsuit filed on March 22, 1996, by shareholder Suntrust Bank Atlanta, as
Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of themselves,
and all persons similarly situated. This lawsuit was filed as a class action
suit on behalf of those who purchased securities through a public offering that
were issued by the Company, alleging that the prices were artificially inflated
and maintained in violation of the anti-fraud provisions of the securities law
as well as common law. Initial briefing on the class certification issues was
completed following extensive discovery. Prior to the class certification
hearing which is still pending, plaintiffs amended their petition asserting
claims on behalf of a new plaintiff. The court has granted preliminary approval
of a settlement stipulation entered between the underwriters and the plaintiffs.
Notices are being sent to the settlement class and a final hearing on the
settlement is scheduled for early January 1999. Further, Grant Thornton has
cross-claimed against the underwriters, and against the Company, Glenn D.
Bollinger and Bobby D. Bollinger, generally seeking contribution. Additional
discovery is also ongoing with regard to the merits of plaintiffs' claims. The
plaintiffs' lawsuit seeks recovery of actual damages in the amount of
$10,636,648, treble damages, and exemplary damages, attorneys' fees and expert
fees, as well as rescission, pre-judgment interest and extraordinary equitable
and/or injunctive relief. The case is currently set for trial in January 1999.
The Company believes it has several meritorious defenses to plaintiffs' claims,
and continues to explore the factual basis for such defenses through the
discovery process. A mediator has been engaged and the parties are planning a
mediation session, although whether the case may settle or not at mediation is
uncertain. Also note the STI lawsuit described in the following paragraph,
involving similar issues.
Civil Action No. 3:96C-V-0823-R; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, and Michael
J. Beck; in the United States District Court for the Northern District of Texas,
Dallas Division (the "STI Lawsuit"):
The Company, Glenn D. Bollinger, Bobby D. Bollinger, and Michael J. Beck, are
defendants in this lawsuit filed on March 22, 1996, 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. Like the Suntrust Lawsuit, this lawsuit was
also filed as a class action on behalf of a class of persons who purchased
securities issued by the Company at prices which allegedly were artificially
inflated and maintained in violation of the anti-fraud provisions under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 10b-5 thereunder. The plaintiffs have filed a Motion
for Partial
14
<PAGE> 15
Summary Judgment against the Company, which is being briefed and is currently
pending. The Court has granted leave for the Plaintiffs to file a Fourth Amended
Complaint, which adds claims for common law fraud, negligent misrepresentation,
and a claim for $100,000,000 in punitive damages ("New Claims") against Glenn D.
Bollinger, Bobby D. Bollinger and the Company. Limited discovery is proceeding
on the New Claims pursuant to court order. The plaintiffs seek damages,
exemplary damages, costs and expenses. The Court has granted the plaintiffs'
Motion to Certify the Class. Significant discovery has been conducted, and a
limited amount of discovery is continuing simultaneously with discovery in the
state court action. The Company believes it has several meritorious defenses to
plaintiffs' claims, and is actively pursuing such defenses. The case is
currently set for trial February 1999. A mediator has been engaged and the
parties are planning a mediation session, although whether the case will settle
at mediation or not is uncertain.
Civil Action No. 3-98CV0039X; Breathe Better, Inc. v. Bollinger Industries, in
the United States District Court for the Northern District of Texas:
Dr. Robert Ross, a principal of Breathe Better, Inc., originally ordered over
$1,000,000 in specially designed and packaged goods from the Company and
subsequently reneged on the orders. The Company believes that Dr. Ross attempted
to avoid his obligations to the Company in this matter by conceding a patent
infringement claim involving the product that was subject to a good faith
dispute. Breathe Better filed suit against the Company claiming damages and the
Company counter claimed alleging breach of contract, breach of indemnity
agreement, and seeking attorneys' fees. The case is scheduled for trial in early
December 1998 and is scheduled for mediation in late November 1998.
The Company was contacted by the Department of Labor ("DOL") in fiscal 1996 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. The DOL has requested and received
tolling agreements extending the running of the statute of limitations through
and including January 31, 1999.
The Internal Revenue Service ("IRS") has examined the Bollinger Employees
Retirement Plan and Trust ("Plan"). In order to maintain its tax-exempt status,
the Plan must comply with certain tests and limitations of the Internal Revenue
Code of 1986, as amended (the "Code"). The Plan currently has excess participant
elective contributions over the maximum amount of such contributions permitted.
As a result, the possible violation of tax laws and regulations could adversely
effect the Plan's tax status. The Company has retained counsel for
representation in this matter. At this time, the effect of such an IRS
examination on the Company or the Plan, if any, cannot be determined.
On September 30, 1996 in connection with an investigation by the Securities and
Exchange Commission, the Company consented to the entry of an order of permanent
injunction which enjoins the Company from violating the antifraud, periodic
reporting, record keeping and internal accounting controls provisions of the
Exchange Act and regulations promulgated thereunder in the future in the conduct
of its business. Glenn Bollinger also consented to the entry of an order of
permanent injunction enjoining him from violations of the antifraud, record
keeping, periodic reporting and internal accounting controls provisions of the
Exchange Act and regulations promulgated thereunder in the future, and agreed to
the payment of a monetary penalty in the amount of $40,000. Ronald
15
<PAGE> 16
Bollinger also consented to the entry of an order of permanent injunction
enjoining him from violations of the antifraud, record keeping, periodic
reporting and internal accounting controls provisions of the Exchange Act and
regulation promulgated thereunder in the future, and agreed not to act as a
director or officer of a registered or reporting entity.
From time to time, the Company is a party to various other 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held it's annual meeting of stockholders on September 24, 1998.
During this meeting four 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>
<CAPTION>
Voting Summary
-----------------------------------------------------------
Broker Non
Name For Against Withheld Votes
- ---- --- ------- -------- -----
<S> <C> <C> <C> <C>
Glenn D. Bollinger 3,728,300 - 153,510 118,400
Bobby D. Bollinger 3,866,100 - 15,710 118,400
John L. Maguire 3,866,800 - 15,010 118,400
Stephen L. Parr 3,866,800 - 15,010 118,400
</TABLE>
The 1998 Stock Option Plan of the Company was adopted and King Griffin & Adamson
were appointed as the Company's auditors for fiscal 1999.
ITEM 5. OTHER INFORMATION
Subsequent Events
On October 15, 1998 an asset purchase agreement was entered into by The Step
Company ("Seller") and Bollinger Industries, L.P. ("Purchaser") to acquire
patent rights to various retail products for an aggregate purchase price of
$3,575,000 and 300,000 shares of the Company's Common Stock.
16
<PAGE> 17
On October 8, 1998 an asset purchase agreement was entered into by Self Image
Sports and Fitness Co., Inc. ("Seller") and Bollinger Industries, L.P.
("Purchaser") to acquire accounts receivable, inventory and other assets for an
aggregate purchase price of $1,500,000.
Funding of the asset purchase agreement of Self Image Sports and Fitness Co.,
Inc. occurred on October 13, 1998 and funding of the asset purchase agreement of
the retail products division of The Step Company occurred on October 22, 1998.
On November 5, 1998 an 8-K with a date of event of October 22, 1998 was filed
for the purchase of the retail products division of The Step Company.
On November 1, 1998 the Board of Directors of the Company approved the addition
Mr. Richard Boggs as a director. Mr. Boggs is the President and CEO of The Step
Company. His addition increases the number of directors of the Company to five.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.67 Asset Purchase Agreement is entered into as of
October 8, 1998 and consummated October 13, 1998, by
and among Self Image Sports and Fitness Co., Inc., a
Tennessee Corporation ("Seller"), and Bollinger
Industries, L.P., a Texas limited partnership
("Purchaser").
11 Computation of Earnings Per Share*
27.1 Financial Data Schedule*
27.2 Restated Financial Data Schedule*
- ------------------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended
September 30, 1998.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
BOLLINGER INDUSTRIES, INC.
Date: November 13, 1998 /S/ Glenn D. Bollinger
----------------- ---------------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1998 /S/ Rose Turner
----------------- ---------------------------------------
Rose Turner
Executive Vice President - Finance,
Chief Financial Officer,
Treasurer and Secretary
Date: November 13, 1998 /S/ Floyd DePauw
----------------- ---------------------------------------
Floyd DePauw
Controller and Chief Accounting
Officer
18
<PAGE> 19
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
10.67 Asset Purchase Agreement is entered into as of October 8, 1998 and consummated October 13,
1998, by and among Self Image Sports and Fitness Co., Inc., a Tennessee Corporation
("Seller"), and Bollinger Industries, L.P., a Texas limited partnership ("Purchaser").
11 Computation of Earnings Per Share
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 10.67
ASSET PURCHASE AGREEMENT
between
SELF IMAGE SPORTS AND FITNESS CO., INC.
a Tennessee corporation
as Seller
and
BOLLINGER INDUSTRIES, L.P.
a Texas limited partnership
as Purchaser
Dated October 8, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS
2. SALE AND PURCHASE
(a) PURCHASE AND SALE OF ASSETS ................................................................ 3
(b) PURCHASE PRICE ............................................................................. 3
(c) PAYMENT OF PURCHASE PRICE .................................................................. 3
(d) ALLOCATIONS OF PURCHASE PRICE .............................................................. 3
(e) ASSUMPTION OF LIABILITIES .................................................................. 3
3. SELLER'S REPRESENTATIONS AND WARRANTIES
(a) ORGANIZATION OF SELLER ..................................................................... 3
(b) AUTHORIZATION OF TRANSACTION AND CONSENTS .................................................. 4
(c) NONCONTRAVENTION ........................................................................... 4
(d) BROKERS' FEES .............................................................................. 4
(e) TITLE TO ASSETS ............................................................................ 4
(f) FINANCIAL STATEMENTS ....................................................................... 4
(G) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END ........................................... 4
(h) LEGAL COMPLIANCE ........................................................................... 4
(i) TAX MATTERS ................................................................................ 5
(j) INTELLECTUAL PROPERTY ...................................................................... 5
(k) PERSONAL PROPERTY .......................................................................... 6
(l) ACCOUNTS RECEIVABLE ........................................................................ 6
(m) LITIGATION ................................................................................. 6
(n) LIABILITY CLAIMS ........................................................................... 7
(o) PRODUCT WARRANTY ........................................................................... 7
(p) PRODUCT LIABILITY .......................................................................... 7
(q) ENVIRONMENT, HEALTH, AND SAFETY ............................................................ 7
(r) LOCATION OF INVENTORY ...................................................................... 8
(s) DISCLOSURE ................................................................................. 8
4. PURCHASER'S REPRESENTATIONS AND WARRANTIES
(a) ORGANIZATION OF THE PURCHASER .............................................................. 8
(b) AUTHORIZATION OF TRANSACTION ............................................................... 8
(c) NONCONTRAVENTION ........................................................................... 8
(d) BROKERS' FEES .............................................................................. 8
5. AUDITS AND ADJUSTMENTS TO PURCHASE PRICE
(a) AUDIT OF ASSETS ............................................................................ 9
(b) ADJUSTMENTS TO PURCHASE PRICE .............................................................. 9
(C) CALCULATION AND PAYMENT OF PURCHASE PRICE ADJUSTMENTS ...................................... 9
(d) ADJUSTMENTS TO INVENTORY AND ACCOUNTS RECEIVABLE............................................ 9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
6. THE CLOSING
(a) DATE OF CLOSING ............................................................................ 10
(b) ITEMS DELIVERED AT THE CLOSING ............................................................. 10
7. INDEMNIFICATION BY SELLER
(a) LIABILITIES NOT ASSUMED .................................................................... 11
(b) OPERATIONS OF THE BUSINESS ................................................................. 11
(c) DAMAGES .................................................................................... 11
(d) ENVIRONMENTAL .............................................................................. 11
(e) BULK TRANSFERS ............................................................................. 11
(f) ACTIONS .................................................................................... 11
8. INDEMNIFICATION BY PURCHASER
(a) DAMAGES .................................................................................... 11
(b) INVENTORY INVOICES ......................................................................... 12
(c) OPERATIONS OF THE BUSINESS ................................................................. 12
(d) ACTIONS .................................................................................... 12
9. POST-CLOSING SETTLEMENT AND OTHER MATTERS
(a) POST CLOSING CALCULATION OF PURCHASE PRICE ADJUSTMENTS ..................................... 12
(b) GOOD FAITH EFFORTS ......................................................................... 12
(c) PRODUCT WARRANTY AND RETURNS AFTER CLOSING ................................................. 13
(d) SALES AND TRANSFER TAXES ................................................................... 13
(e) RESERVATION FOR ACCOUNTS RECEIVABLE ........................................................ 13
10. MISCELLANEOUS
(a) RESOLUTION OF DISPUTES ..................................................................... 14
(b) BULK TRANSFER LAWS ......................................................................... 14
(c) NO THIRD-PARTY BENEFICIARIES ............................................................... 14
(d) ENTIRE AGREEMENT ........................................................................... 14
(e) SUCCESSION AND ASSIGNMENT .................................................................. 15
(f) COUNTERPARTS ............................................................................... 15
(g) HEADINGS ................................................................................... 15
(h) FORCE MAJEURE .............................................................................. 15
(i) NOTICES .................................................................................... 15
(j) GOVERNING LAW .............................................................................. 16
(k) AMENDMENTS AND WAIVERS ..................................................................... 16
(l) SEVERABILITY ............................................................................... 16
(m) EXPENSES ................................................................................... 16
(n) GENERAL RULES OF CONSTRUCTION .............................................................. 16
(o) INCORPORATION OF EXHIBITS .................................................................. 17
(a) LIABILITIES NOT ASSUMED .................................................................... 17
(b) OPERATIONS OF THE BUSINESS ................................................................. 18
(c) ENVIRONMENTAL .............................................................................. 18
(d) BULK TRANSFERS ............................................................................. 18
(e) SALES AND TRANSFER TAXES ................................................................... 18
(f) ACTIONS .................................................................................... 18
</TABLE>
-ii-
<PAGE> 4
ASSET PURCHASE AGREEMENT
This asset purchase agreement ("Agreement") is entered into by Self
Image Sports and Fitness Co., Inc., a Tennessee corporation ("Seller"), and
Bollinger Industries, L.P., a Texas limited partnership ("Purchaser")
(collectively the "Parties").
Seller and Purchaser have reached an understanding with respect to the
sale by Seller and the purchase by Purchaser of certain assets of Seller, as
same are more particularly described in this Agreement.
In consideration of the rights, obligations, representations,
warranties, and covenants provided for in this Agreement, the Parties agree as
follows.
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings indicated below:
(a) "Accounts Receivable" means the rights to payment for
goods sold or leased or for services rendered by Seller that are identified on
EXHIBIT 1(a) as of September 18, 1998, and as same will be amended as provided
in this Agreement to update such listing as of the Closing Date.
(b) "Affiliate" means, with respect to any individual,
partnership, limited liability company, corporation, unincorporated
organization or association, trust (including the trustees thereof in their
capacity as such) or other entity (collectively a "Person"), any other Person
which either directly or indirectly controls, is controlled by or is under
common control with the first Person.
(c) "Assets" means the Accounts Receivable, Intellectual
Property, Inventory, and Personal Property.
(d) "Business" means all aspects of Seller's operations
related to the manufacture, sale, marketing, and distribution of boxing and
other related exercise accessories, as currently conducted by Seller.
(e) "Closing" means the closing of the sale and purchase
of assets contemplated in this Agreement and described in SECTION 6 of this
Agreement.
(f) "Confidential Information" means any information
concerning the businesses and affairs of Seller that is not already generally
available to the public.
<PAGE> 5
(g) "Effective Date" means the Closing Date.
(h) "Environmental, Health, and Safety Laws" mean the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Occupational Safety
and Health Act of 1970, each as amended, together with all other laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or protection of
the environment, public health and safety, or employee health and safety,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, gasoline and other fuels, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
(i) "Extremely Hazardous Substance" has the meaning set
forth in Sec. 302 of the Emergency Planning and Community Right-to-Know Act of
1986, as amended.
(j) "Intellectual Property" means (1) all inventions
(whether patentable or unpatentable), patents, and improvements, modifications,
and changes thereto, (2) all trademarks, logos, trade names, and corporate
names, (3) all copyrightable works, copyrights, and renewals in connection
therewith, (4) all trade secrets and confidential business information
(including compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
customer credit information, pricing and cost information, and business and
marketing plans and proposals), (5) all other proprietary rights, and (6) all
copies and tangible embodiments thereof (in whatever form or medium). For
purposes of reference and not in limitation of the foregoing, the Intellectual
Property is described on EXHIBIT 1(j) and designated as either Seller owned or
third party owned.
(k) "Inventory" means the inventory, raw materials,
supplies, manufactured and purchased parts, and goods in process that are held
and used by Seller in the Business. For purposes of reference and not in
limitation of the foregoing, the Inventory is described on EXHIBIT 1(k) at
September 19, 1998, and such listing shall be updated through the Closing Date
as provided in this Agreement. Inventory specifically excludes any Aeroglove
inventory that is held on Seller's business premises, as such products are not
owned by Seller.
-2-
<PAGE> 6
(l) "Personal Property" means the tangible personal
property described on EXHIBIT 1(l).
2. SALE AND PURCHASE.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the
terms and conditions of this Agreement and in reliance on the representations
and warranties of Seller and Purchaser contained in this Agreement, Purchaser
hereby purchases from Seller, and Seller hereby sells, transfers, conveys, and
delivers to Purchaser, all of the Assets and the Business at the Closing for
the consideration specified in this Section.
(b) PURCHASE PRICE. The total consideration for the
Business and the Assets is One Million Five Hundred Thousand Dollars
($1,500,000) (the "Purchase Price"), as same is adjusted under the provisions
of SECTION 5(b).
(c) PAYMENT OF PURCHASE PRICE. The Purchase Price shall
be paid to Seller as follows:
(1) a cash payment to Seller in immediately
available federal funds at Closing of $1,400,000, plus or minus the adjustments
to such cash payment that are provided for in SECTION 5(c) and agreed to by
Purchaser and Seller at the Closing; and
(2) a cash payment to Seller in immediately
available federal funds of $100,000, plus or minus the adjustments that are
provided for in SECTION 9(e), payable to Seller at the time set forth in
SECTION 9(e).
(d) ALLOCATIONS OF PURCHASE PRICE. The Parties shall
mutually agree on an allocation of the Purchase Price to the Assets and
complete EXHIBIT 2(d) with such allocation. Seller and Purchaser further agree
that (1) these allocations have been made as provided in Section 1060 of the
Internal Revenue Code of 1986 (the "Code"), (2) each shall file Form 8594
(Asset Allocation Statement Under Section 1060) on a timely basis for reporting
the allocation, (3) the filing shall be consistent with the allocations set
forth on EXHIBIT 2(d), and (d) neither will take any position on its respective
income tax return that is inconsistent with the allocation.
(e) ASSUMPTION OF LIABILITIES. Except for the invoices
that are described on EXHIBIT 5(c), Purchaser is not assuming any liabilities
or obligations of or claims against
-3-
<PAGE> 7
Seller of any nature or type, whether same exist on the Closing Date or arise
after the Closing Date.
3. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents
and warrants to Purchaser that the statements contained in this Section are
correct and complete as of the Closing date.
(a) ORGANIZATION OF SELLER. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and such other states or jurisdictions where
the failure to so qualify would have a material, adverse affect on its Business
or the Assets.
(b) AUTHORIZATION OF TRANSACTION AND CONSENTS. Seller
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Without limiting the generality of the
foregoing, the board of directors of Seller and Seller's shareholders have duly
authorized the execution, delivery, and performance of this Agreement by
Seller. To the knowledge of Seller and its officers, directors, and
shareholders, no consents from Persons not a party to this Agreement are
required for the consummation of the transactions contemplated by this
Agreement.
(c) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (1) violate any statute, regulation, order, or other
restriction of any government, governmental agency, or court to which Seller is
subject or any provision of the charter or bylaws of Seller, or (2) cause a
breach, default, or termination with regard to the Intellectual Property.
(d) BROKERS' FEES. Seller has no liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which Purchaser could
become liable or obligated.
(e) TITLE TO ASSETS. Seller has, and assigns to
Purchaser pursuant to this Agreement, good and marketable title to, or a valid
contract interest in, the Assets, free and clear of all liens, security
interests, obligations, or encumbrances, other than the invoices set forth on
EXHIBIT 5(c).
(f) FINANCIAL STATEMENTS. To the best of Seller's
knowledge, after reasonable inquiry, all balance sheets, revenue and expense
statements, and other financial data of Seller supplied to Purchaser have been
prepared in accordance with generally accepted accounting principles applied on
a consistent
-4-
<PAGE> 8
basis, present fairly the financial condition and the results of operations of
Seller, and are correct and complete.
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. To
the best of Seller's knowledge, after reasonable inquiry, there has not been
any material adverse change in the business, financial condition, operations,
results of operations, or future prospects of Seller since the end of the most
recent fiscal year of seller.
(h) LEGAL COMPLIANCE. To the best of Seller's knowledge,
after reasonable inquiry, Seller has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against Seller alleging any failure so to comply.
(i) TAX MATTERS.
(1) Seller has filed, within the applicable time
period including extensions, all local, state, and federal income,
informational, franchise, sales, and other tax returns of any nature and type
that it is required to file, all such tax returns were correct and complete in
all respects, and all taxes, fees, penalties, interest, or other expenses
related thereto have been paid in full or adequate provision has been made for
same.
(2) Seller has withheld and paid, or made
adequate provisions for the payment of, all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(3) There is no dispute or claim concerning any
tax liability or similar liability of Seller either (1) claimed or raised by
any authority in writing, or (2) as to which any of Seller's shareholders,
directors, or officers have knowledge based upon personal contact with any
agent of such authority.
(j) INTELLECTUAL PROPERTY.
(1) Seller owns all the Intellectual Property,
and each item of Intellectual Property will be owned by Purchaser on identical
terms and conditions immediately subsequent to the Closing Date.
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(2) Seller has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of Seller's shareholders, directors,
or officers has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that Seller must license or refrain from using any
intellectual property rights of any third party). To the knowledge of Seller's
shareholders, directors, and officers, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of Seller that are the subject of this Agreement.
(3) With regard to Seller's Intellectual
Property, EXHIBIT 1(j) identifies each (A) patent or registration which has
been issued to Seller, (B) pending patent application or application for
registration which Seller has made, and (C) identifies each license, agreement,
or other permission which Seller has granted to any third party. Seller has
delivered to Purchaser correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Purchaser correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. EXHIBIT 1(j) also identifies each trade name or
unregistered trademark used by Seller in the Business. As to each of the
foregoing:
(a) Seller possesses all right, title,
and interest in and to the item, free and clear of any lien, security
interests, encumbrance, license, or other restriction;
(b) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(c) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is pending, or to
the knowledge of any of Seller's shareholders, directors, or officers is
threatened, which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(d) Seller has never agreed to any
infringement, misappropriation, or other conflict with respect thereto.
(k) PERSONAL PROPERTY. Seller has maintained the
Personal Property consisting of equipment, machinery, and similar items in
accordance with normal industry practice, and represents
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that it is in good operating condition and repair (subject to normal wear and
tear), and it is suitable for the purposes for which it presently is used.
(l) ACCOUNTS RECEIVABLE. The Accounts Receivable are
reflected properly on Seller's books and records and are valid receivables for
the sale of Inventory or services related to the Business.
(m) LITIGATION. EXHIBIT 3(m) sets forth each instance in
which Seller (1) is subject to any outstanding injunction, judgment, order,
decree, ruling, or charge or (2) is a party, or to the knowledge of Seller's
shareholders, directors, or officers is threatened to be made a party, to any
action, suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator. None of the actions, suits
proceedings, hearings, and investigations set forth in EXHIBIT 3(m) could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Business to be
acquired by Purchaser.
(n) LIABILITY CLAIMS. EXHIBIT 3(n) sets forth with
regard to products sold in the Business: (1) each claim for coverage that has
been filed by Seller since December 31, 1996 under any liability insurance
policy, and (2) each event or occurrence in respect of which a claim for
coverage under any liability insurance policy could have been or could be filed
if the event or occurrence had been or is reported to or otherwise known to
Seller.
(o) PRODUCT WARRANTY. Each product manufactured, sold,
leased, or delivered by Seller has been in conformity with all applicable
contractual commitments and all express and implied warranties, and Seller does
not have any liability (and there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against Seller giving rise to any liability) for replacement or repair thereof
or other damages in connection therewith. No product manufactured, sold,
leased, or delivered by Seller is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease,
and Seller has furnished a written copy of such standard terms and conditions
to Purchaser and designated in writing the materials so furnished.
(p) PRODUCT LIABILITY. Seller has no liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against Seller giving rise
to any liability) arising out
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of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
Seller in the course of its prior operations of the Business.
(q) ENVIRONMENT, HEALTH, AND SAFETY
(1) Seller and its predecessors and Affiliates
have complied with all Environmental, Health, and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced that alleges any failure so to comply.
Without limiting the generality of the preceding sentence, Seller and its
predecessors and Affiliates have obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and have complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all Environmental, Health,
and Safety Laws.
(2) Seller and its predecessors and Affiliates
have not handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against Seller that
would give rise to (1) any liability for damage to any site, location, or body
of water (surface or subsurface), (2) for any illness of or personal injury to
any employee or other individual, or (3) for any reason under any
Environmental, Health, and Safety Law.
(3) All properties and equipment used in the
Business of Seller and its predecessors and Affiliates have been and are free
of Extremely Hazardous Substances.
(r) LOCATION OF INVENTORY. The Inventory is located at
the street addresses set forth on Exhibit 3(r).
(s) DISCLOSURE. The representations and warranties
contained in this Section do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section not misleading.
4. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser
represents and warrants to Seller that the statements contained in this Section
are correct and complete as of the Closing Date.
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(a) ORGANIZATION OF THE PURCHASER. Purchaser is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its formation and authorized to conduct its business in such
other jurisdictions as are necessary for the consummation of this Agreement.
(b) AUTHORIZATION OF TRANSACTION. Purchaser has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Purchaser, enforceable in accordance with its terms
and conditions.
(c) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (1) violate any statute, regulation, order, or other
restriction of any government, governmental agency, or court to which Purchaser
is subject or any provision of the partnership agreement of Purchaser, or (2)
cause a breach, default, or acceleration of any contracts or agreements by
which it is bound.
(d) BROKERS' FEES. Purchaser has no liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Seller
could become liable or obligated.
5. AUDITS AND ADJUSTMENTS TO PURCHASE PRICE. The Parties agree
to the following:
(a) AUDIT OF ASSETS. EXHIBIT 1(l) listing certain items
of Seller's Personal Property and EXHIBIT 1(k) listing the Inventory were
prepared on the basis of a physical audit performed by Seller and Purchaser on
September 19, 1998. Also, a listing of the Accounts Receivable of Seller was
prepared as of the end of business on September 18, 1998, and this listing is
attached as EXHIBIT 1(a).
(b) ADJUSTMENTS TO PURCHASE PRICE. The Parties agree
that the Purchase Price shall be adjusted as follows:
(1) It shall be increased by the amount of
$1,610.00 per day including and from September 21, 1998 through and including
the Closing Date;
(2) It shall be decreased by the cash receipts of
Seller on or after September 19, 1998 through and including the Closing Date;
(3) It shall be increased by the invoice cost of
any items of inventory, and the freight costs attributable to
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same, that were received by Seller on or after September 20, 1998 through and
including the Closing Date; and
(4) It shall be increased by the amount of
freight costs attributable to customer shipments on or after September 19, 1998
through and including the Closing Date.
(c) CALCULATION AND PAYMENT OF PURCHASE PRICE
ADJUSTMENTS. To the extent determined as practicable by Seller and Purchaser,
the Purchase Price adjustments described in subsection (b) above shall be
determined on or prior to the Closing Date and shall be paid as follows: (1) If
represented by inventory purchases and freight costs under subsection (b)(3),
Purchaser shall assume all liabilities for the cost of same as represented by
the invoices described on EXHIBIT 5(c); and (2) If represented by any of the
other adjustments under subsection (b) above, it shall be added or subtracted
from the cash payment owed to Seller under SECTION 2(c)(1). To the extent not
so determined on or prior to the Closing Date, the Purchase Price adjustments
under subsection (b) shall be determined and settled between the Parties under
the post-closing settlement procedures set forth in SECTION 9.
(d) ADJUSTMENTS TO INVENTORY AND ACCOUNTS RECEIVABLE.
The inventory that is purchased and accounted for under subsection (b)(3) above
shall be added to the Inventory being purchased under this Agreement. The
accounts receivable that result from sales of Inventory on or after September
18, 1998 through and including the Closing Date shall be added to the Accounts
Receivable being purchased under this Agreement.
6. THE CLOSING.
(a) DATE OF CLOSING. The Closing for the purchase and
sale contemplated by this Agreement is taking place on the date on the
signature page of this Agreement (the "Closing Date"), and this shall be the
effective date of this Agreement.
(b) ITEMS DELIVERED AT THE CLOSING.
(1) BY SELLER. Seller is delivering to Purchaser
each of the following items:
(A) A certificate of good standing
issued by the appropriate state office and dated within thirty (30) days of the
Closing Date, and a copy of the shareholder and board of director consents
approving this Agreement;
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(B) Executed originals of bills of sale
and other applicable assignment documents conveying title to the Assets on
forms acceptable to Seller;
(C) Possession of the Assets;
(D) A certificate of insurance providing
for tail liability insurance coverage for the operations of the Business on and
prior to the Closing Date that is effective until December 1, 2000 and that
names Purchaser and Foothill Capital Corporation as an additional insured under
such coverage;
(E) Executed originals of the
Noncompetition Agreement attached hereto as EXHIBIT 6(b)(1)(E);
(F) Executed originals of the
Registration Rights and Option Agreement attached hereto as EXHIBIT
6(B)(1)(F);
(G) Executed originals of the Services
Letter attached as EXHIBIT 6(b)(1)(G); and
(H) Executed originals of this
Agreement.
(2) BY PURCHASER. Purchaser is delivering to
Seller each of the following items:
(A) Payment of the Purchase Price in
accordance with the terms of SECTION 2(c);
(B) Executed originals of the
Registration Rights and Option Agreement attached hereto as EXHIBIT
6(B)(1)(F);
(C) Executed originals of the Services
Letter attached as EXHIBIT 6(b)(1)(G); and
(D) Executed originals of this
Agreement.
7. INDEMNIFICATION BY SELLER. Seller agrees to defend, indemnify
and hold Purchaser harmless against the following items:
(a) LIABILITIES NOT ASSUMED. Any and all liabilities and
obligations of or claims against Seller not assumed by Purchaser under the
terms of this Agreement;
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(b) OPERATIONS OF THE BUSINESS. All matters relating to
Seller and the operation of the Business on or before the Closing Date;
(c) DAMAGES. Any and all damage or deficiency resulting
from any misrepresentation, breach of warranty, or nonfulfillment of any
covenant or agreement on the part of Seller under this Agreement or from any
misrepresentation in, or omission from, any certificate or other instrument
furnished or to be furnished to Purchaser pursuant to this Agreement, or in
connection with the transactions contemplated hereby;
(d) ENVIRONMENTAL. Any and all claims for environmental
spills or pollution and the handling of Extremely Hazardous Substances in the
operation of the Business that relate to periods on or before the Closing Date;
(e) BULK TRANSFERS. Any and all claims related to the
Parties not complying with all applicable bulk transfer laws, including but not
limited to the notice provisions of same; and
(f) ACTIONS. Any and all actions, suits, proceedings,
demands, assessments, judgments, costs, and expenses incident to any of the
foregoing.
If Purchaser receives notice of any claim against it or Seller with
respect to any unassumed liability or obligation of Seller, Purchaser shall
promptly notify Seller of same and Seller shall compromise or defend same, with
Seller further agreeing to inform Purchaser in writing from time to time as is
reasonable regarding the status of such claim.
8. INDEMNIFICATION BY PURCHASER. Purchaser agrees to defend,
indemnify and hold Seller harmless against the following items:
(a) DAMAGES. Any and all damages or deficiencies
resulting from any misrepresentation, breach of warranty, or nonfulfillment of
any covenant or agreement on the part of Purchaser under this Agreement or from
any misrepresentation in connection with the transaction contemplated hereby;
(b) INVENTORY INVOICES. The invoices described on
EXHIBIT 5(c);
(c) OPERATIONS OF THE BUSINESS. All matters relating to
Purchaser and the operation of the Business after the Closing Date; and
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(d) ACTIONS. Any and all actions, suits, proceedings,
demands, assessments, judgments, costs, and expenses incident to any of the
foregoing.
If Seller receives notice of any claim against it or Purchaser with
respect to the Liabilities, Seller shall promptly notify Purchaser of same and
Purchaser shall compromise or defend same, with Purchaser further agreeing to
inform Seller in writing from time to time as is reasonable regarding the
status of such claim.
9. POST-CLOSING SETTLEMENT AND OTHER MATTERS.
(a) POST CLOSING CALCULATION OF PURCHASE PRICE
ADJUSTMENTS. Within fifteen (15) days after the Closing, Seller shall prepare
a settlement statement (the "Settlement Statement") and make available to
Purchaser all records necessary for Purchaser to review and confirm the
accuracy of the Settlement Statement. The Settlement Statement shall set forth
any changes to results of the Closing Date calculation of the purchase price
adjustments as provided for in SECTION 5(c) and the calculation of the purchase
price adjustments that are provided for in SECTION 5(b) that were not included
in the Closing Date calculation as set forth in SECTION 5(c). Within ten (10)
days after Purchaser's receipt of the Settlement Statement, Purchaser shall
deliver to Seller a written report which contains any changes which Purchaser
proposes to the Settlement Statement and any requests for additional
information Purchaser requests. Within five (5) days after Seller's receipt of
Purchaser's written report, Seller shall respond in writing to Purchaser's
written report. If the Purchaser and Seller reach an agreement with respect to
the payment due to either Purchaser or Seller under the Settlement Statement,
then any amount owed shall be paid within five (5) days of such agreement.
Amounts paid after such five (5) days shall bear interest at the rate of
fourteen percent (14.0%) per annum.
(b) GOOD FAITH EFFORTS. Purchaser and Seller shall each
use its reasonable good faith efforts to agree with respect to any amounts due
pursuant to the Settlement Statement no later than thirty (30) days after the
Closing. If an agreement has not been reached within such period, either party
may seek to enforce any rights it claims under this Agreement. In the event a
party has used its reasonable efforts to reach an agreement with respect to any
amounts due under the Settlement Statement and such party is successful in a
legal action for any amount due to it, the successful party shall be entitled
to reimbursement from the other party of all expenses and costs related to the
legal action and shall be entitled to interest at the rate of fourteen percent
(14.0%) per annum on the amount due. In such event, the
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interest shall be calculated from thirty (30) days after the Closing.
(c) PRODUCT WARRANTY AND RETURNS AFTER CLOSING.
Purchaser agrees to perform all warranty work related to the products sold by
Seller in Seller's Business operations on or prior to the Closing Date and
similarly agrees to accept all customer returns of products sold by Seller in
the Business on or prior to the Closing Date. Purchaser's obligations under
the foregoing shall apply to warranty work and product returns until the
cumulative cost of same to Purchaser exceeds $10,000 (based on the direct cost
to Purchaser of such warranty work or returned product). If this cumulative
amount is exceeded and further warranty work is received by Purchaser,
Purchaser shall immediately notify Seller of same and Seller shall provide such
warranty work at Seller's cost or Seller shall pay Purchaser to provide such
warranty work on the basis of Purchaser's direct costs of providing the
warranty work. If the cumulative amount is exceeded and a product return is
received by Purchaser, Purchaser shall immediately notify Seller of the cost
incurred by Purchaser and Seller shall immediately reimburse Purchaser for such
cost.
(d) SALES AND TRANSFER TAXES. Following the Closing,
Seller shall pay when due all sales and transfer taxes, if any, payable in
connection with this Agreement and the conveyances, assignments, transfers, and
deliveries to be made to Purchaser under this Agreement.
(e) RESERVATION FOR ACCOUNTS RECEIVABLE. The $100,000 of
the Purchase Price that is not paid to Seller at the Closing under SECTION
2(c)(2) shall be paid to Seller or retained by Purchaser under the following
provisions:
(1) If one or more of the Accounts Receivable
have not been collected by Purchaser on or before six (6) months after the
Closing Date, Purchaser shall be entitled to retain the amount of such
uncollected Accounts Receivable from the $100,000 and shall pay to Seller the
balance of the $100,000.
(2) If Purchaser retains any portion of the
$100,000 under the provisions of subsection (1), Purchaser shall assign to
Seller all rights to the uncollected Account Receivable that gives rise to such
retention by Purchaser.
(3) Purchaser agrees that, with regard to any
Account Receivable that is assignable to Seller under subsection (2), Purchaser
shall not release any rights with respect to such Account Receivable prior to
the assignment of same to Seller.
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(4) If more than $100,000 of the Accounts
Receivable are not collected by Purchaser within the six (6) month period in
subsection (1), Seller shall have no obligation to pay such uncollected amount
to Purchaser in excess of the retained $100,000, and Purchaser shall have no
obligation to assign to Seller more than $100,000 of the uncollected Accounts
Receivable, with Purchaser having the absolute discretion to select which of
the uncollected Accounts Receivable that are to be assigned to Seller in
satisfaction of such $100,000 amount.
10. MISCELLANEOUS.
(a) RESOLUTION OF DISPUTES. The Parties hereby
acknowledge that they will first attempt in good faith to resolve their
disputes through direct negotiation within thirty (30) days of the date either
Party notifies the other Party of the existence of a dispute. If a shorter
time period is indicated by the circumstances, the Parties agree that the time
period shall be reduced accordingly. This time period may be extended by
agreement, during which time neither Party shall institute legal proceedings,
unless the commencement of an action is necessary for statute of limitations
purposes.
(b) BULK TRANSFER LAWS. The Parties agree that the
applicable provisions, if any, of the Tennessee state laws related to bulk
transfers (as that term is defined in the Uniform Commercial Code or other
applicable statutes of such state) shall be waived in that Seller shall not be
required to comply with the terms thereof for the sole and only reason that
Seller warrants and represents that there are no creditors that would in any
way be affected by this sale and transfer. Seller does hereby and herein agree
to, and shall defend, indemnify, and hold Purchaser harmless from, any claim of
creditors or other persons, firms, or entities that assert claims against
either Seller or Purchaser that would have been otherwise eliminated in the
event that Purchaser had required Seller to satisfy the provisions of the
applicable bulk transfer laws prior to the date of the closing of the
transactions contemplated by this Agreement.
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall
not confer any rights or remedies upon any Person other than the Parties, and
the successors and assigns of the Parties as permitted by this Agreement.
(d) ENTIRE AGREEMENT. It is expressly agreed by Seller
and Purchaser, as a material consideration for the execution of this Agreement,
that this Agreement is intended by the parties to be the final, complete, and
exclusive embodiment of their agreement regarding the subject matter of this
Agreement; that there are, and were, no oral representations,
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<PAGE> 19
warranties, understandings, stipulations, agreements, or promises pertaining to
this Agreement or any expressly mentioned written documents that are not
incorporated in writing in this Agreement, and none shall be binding.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. Purchaser may make a collateral
assignment of its rights under this Agreement to any institutional lender who
provides funds to Purchaser for the acquisition of the Assets and the Business.
(f) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(h) FORCE MAJEURE. Neither Purchaser nor Seller shall be
required to perform any term, condition, or covenant in this Agreement so long
as such performance is delayed or prevented by force majeure, which shall mean
acts of God, strikes, material or labor restrictions by any governmental
authority, civil riot, floods, and any other cause not reasonably within the
control of either Purchaser or Seller and that either Purchaser or Seller, by
the exercise of due diligence, is unable, either wholly or in part, to prevent
or overcome.
(i) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given
after two (2) business days if it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below or immediately if it is hand delivered during
normal business hours to the addresses set forth below:
If to Seller: Mr. Morton Finkelstein
Self Image Sports and Fitness Co., Inc.
17079 Darlington Court
Boca Raton, Florida 33496
Telephone: 561-488-7949
With Copy To: Shirley D. Weisman
Moskowitz, Mandell, Salim,
& Simowitz, P.A.
800 Corporate Drive, Suite 510
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<PAGE> 20
Fort Lauderdale, Florida 33334
Telephone: 954-491-2000
Telecopy: 954-491-2051
If to Purchaser: Bollinger Industries, L.P.
Attn: Glenn Bollinger
602 Fountain Parkway
Grand Prairie, Texas 75050
Telephone: 972-343-1122
Telecopy: 972-343-1199
With a copy to: George T. Johns
Tracy & Holland, L.L.P.
306 West Seventh Street - Suite 500
Fort Worth, Texas 76102-4982
Telephone: 817-335-1050
Telecopy: 817-332-3140
Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
(j) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Texas
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
(k) AMENDMENTS AND WAIVERS. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by Purchaser and Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(l) SEVERABILITY. Any term or provision of this
Agreement that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(m) EXPENSES. Purchaser and Seller will bear its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions
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contemplated hereby, unless another provision for an expense or fee is
specifically set forth in this Agreement.
(n) GENERAL RULES OF CONSTRUCTION. This Agreement shall
not be strictly construed against either Purchaser or Seller. No remedy or
election given by any provision in this Agreement shall be deemed exclusive
unless so indicated, but each shall, wherever possible, be cumulative with all
other remedies in law or equity. The parties acknowledge that each party (and
its counsel, if any) has had the opportunity to review and revise this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments or exhibits thereto.
(o) INCORPORATION OF EXHIBITS. The Exhibits identified
in this Agreement are incorporated herein by reference and made a part hereof.
The Parties have executed this Agreement on October ___, 1998.
BOLLINGER INDUSTRIES, L.P. SELF IMAGE SPORTS AND
FITNESS CO., INC.
By: By:
----------------------------------- ------------------------------
Glenn D. Bollinger, CEO of Morton Finkelstein,
Bollinger Operating Corp., President
its general partner
Fed. ID# 75-2502573 Fed. ID# _____________________
<TABLE>
<CAPTION>
EXHIBITS ATTACHED
-----------------
<S> <C>
Exhibit 1(a) Accounts Receivable
Exhibit 1(j) Intellectual Property
Exhibit 1(k) Inventory
Exhibit 1(l) Personal Property
Exhibit 2(d) Allocation of Purchase Price
Exhibit 3(m) Litigation
Exhibit 3(n) Liability Claims
Exhibit 3(r) Locations of Inventory
Exhibit 5(c) Inventory and Freight Invoices
Exhibit 6(b)(1)(E) Consulting and Noncompetition Agreement
Exhibit 6(b)(1)(F) Registration Rights and Option Agreement
Exhibit 6(b)(1)(G) Services Letter
</TABLE>
The undersigned Morton Finkelstein is signing this Agreement in his
individual capacity solely for the purpose of his agreeing
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to defend, indemnify, and hold Purchaser and its assigns harmless from and
against any of the following that are asserted against Purchaser or an
Affiliate of Purchaser within the period of eighteen (18) months years after
the Closing Date:
(a) LIABILITIES NOT ASSUMED. Any and all liabilities and
obligations of or claims against Seller by a Person not a party to this
Agreement of any nature or type, whether same exist on the Closing Date or
arise after the Closing Date, but specifically excluding from the foregoing the
invoices described on EXHIBIT 5(C);
(b) OPERATIONS OF THE BUSINESS. All matters relating to
Seller and the operation of the Business on or before the Closing Date;
(c) ENVIRONMENTAL. Any and all claims for environmental
spills or pollution and the handling of Extremely Hazardous Substances in the
operation of the Business that relate to periods on or before the Closing Date;
(d) BULK TRANSFERS. Any and all claims related to the
Parties not complying with all applicable bulk transfer laws, including but not
limited to the notice provisions of same;
(e) SALES AND TRANSFER TAXES. Any and all sales and
transfer taxes, if any, payable in connection with this Agreement and the
conveyances, assignments, transfers, and deliveries to be made to Purchaser
under this Agreement; and
(f) ACTIONS. Any and all actions, suits, proceedings,
demands, assessments, judgments, costs, and expenses incident to any of the
foregoing.
--------------------------------
Morton Finkelstein
-19-
<PAGE> 23
List of schedules to the Asset Purchase Agreement by and among Bollinger
Industries, Inc., Self Image Sports and Fitness Company, Inc. and Bollinger
Industries, L.P. dated as of October 8, 1998, which are not filed herewith:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
1(a) Accounts Receivable
1(j) Intellectual Property
1(k) Inventory
1(l) Personal Property
2(d) Allocation of Purchase Price
3(m) Litigation
3(n) Liability Claims
3(r) Locations of Inventory
5(c) Inventory and Freight Invoices
6(b)(1)(E) Consulting and Noncompetition Agreement
6(b)(1)(F) Registration Rights and Option Agreement
6(b)(1)(G) Services Letter
</TABLE>
The registrant will furnish supplementally a copy of any omitted exhibit or
schedule to the Securities and Exchange Commission upon request
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
A reconciliation of basic to diluted earnings per share for the six months ended
September 30, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- --------------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (2,363,498) $ (2,363,498) $ (1,112,225) $ (1,112,225)
============ ============ ============ ===============
Weighted average number of
common shares outstanding
during the period 4,000,210 4,000,210 4,000,210 4,000,210
the period
Net effect of dilutive stock options
based on the treasury stock
method at market prices - - - -
------------ ------------ ------------ ---------------
Shares used for computation 4,000,210 4,000,210 4,000,210 4,000,210
============ ============ ============ ===============
Net earnings (loss) per share $ (0.59) $ (0.59) $ (0.28) $ (0.28)
============ ============ ============ ===============
</TABLE>
As the Company incurred a net loss for the six months ended September 30, 1998
and 1997, there were no adjustments for potentially dilutive securities as the
adjustments would have been antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS,
CONSOLIDATED STATEMENTS OF CASH FLOWS AS OF AND FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1998 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 38,372
<SECURITIES> 0
<RECEIVABLES> 6,001,574
<ALLOWANCES> 516,233
<INVENTORY> 5,048,721
<CURRENT-ASSETS> 12,354,028
<PP&E> 3,249,390
<DEPRECIATION> 1,232,390
<TOTAL-ASSETS> 14,761,640
<CURRENT-LIABILITIES> 5,943,391
<BONDS> 0
0
0
<COMMON> 40,002
<OTHER-SE> 8,083,858
<TOTAL-LIABILITY-AND-EQUITY> 14,761,640
<SALES> 14,495,239
<TOTAL-REVENUES> 14,495,239
<CGS> 10,433,944
<TOTAL-COSTS> 1,643,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 256,193
<INCOME-PRETAX> (2,363,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,363,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,363,498)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS,
CONSOLIDATED STATEMENTS OF CASH FLOWS AS OF AND FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1997 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 56,453
<SECURITIES> 0
<RECEIVABLES> 12,861,072
<ALLOWANCES> 794,687
<INVENTORY> 12,699,735
<CURRENT-ASSETS> 26,392,698
<PP&E> 3,264,240
<DEPRECIATION> 1,670,189
<TOTAL-ASSETS> 30,303,200
<CURRENT-LIABILITIES> 15,837,909
<BONDS> 0
0
0
<COMMON> 40,002
<OTHER-SE> 3,868,906
<TOTAL-LIABILITY-AND-EQUITY> 30,303,200
<SALES> 35,623,961
<TOTAL-REVENUES> 35,623,961
<CGS> 28,858,157
<TOTAL-COSTS> 2,528,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,408
<INTEREST-EXPENSE> 1,156,203
<INCOME-PRETAX> (1,111,165)
<INCOME-TAX> 1,060
<INCOME-CONTINUING> (1,112,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,112,225)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
