United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For
the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 33-75154
J.B. POINDEXTER & CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0312814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Louisiana
Suite 5400
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (713) 655-9800
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange where registered: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $ 0
The number of shares outstanding of each of the registrants' classes of common
stock as of March 7, 1998: 3059
Documents Incorporated by Reference: None
-1-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
PART I.
Item 1. Business
J.B. Poindexter & Co., Inc. ("JBPCO") operates a variety of manufacturing and
wholesale distribution businesses. JBPCO's subsidiaries consist of Morgan
Trailer Mfg Co., ("Morgan"), Truck Accessories Group, Inc. ("TAG"), Lowy Group,
Inc. ("Lowy" or "Lowy Group"), EFP Corporation ("EFP"), and MIC Group Corp. (MIC
Group). Effective May 6, 1997, MIC Group filed an assumed name certificate and
began doing business as MIC Group or Manufacturing Innovations Corp.
Unless the context otherwise requires, the "Company" refers to JBPCO
together with its consolidated subsidiaries. The Company is controlled by John
B. Poindexter. In May 1994 the Company completed an initial public offering of
$100 million, 12 1/2% Senior Notes due 2004 (sometimes referred to herein as the
"Note Offering"). Concurrent with the Note Offering the Company acquired, from
John B. Poindexter and various minority interests, TAG, Lowy Group, EFP and MIC
Group. The Company manages its assets on a decentralized basis, with a small
corporate staff providing strategic direction and support.
The Company has three industry segments: Automotive (Morgan and TAG), Floor
Covering (Lowy Group), and Plastics and Precision Machining (EFP and MIC Group).
See Note 12 to the Consolidated Financial Statements of the Company.
Automotive - Morgan
Morgan is the nation's largest manufacturer of commercial van bodies ("van
bodies") for medium-duty trucks. Morgan products, which are mounted on truck
chassis manufactured and supplied by others, are used for general freight and
deliveries, moving and storage and distribution of refrigerated consumables. Its
eighty-four authorized distributors, seven manufacturing plants and two service
facilities are positioned in strategic locations to provide nationwide service
to its customers, which include rental companies, truck dealers and companies
that operate fleets of delivery vehicles. Formed in 1952, Morgan is
headquartered in Morgantown, Pennsylvania and was acquired in 1990.
Morgan's van bodies are manufactured and installed on truck chassis, which
are classified by hauling capacity or gross vehicular weight rating ("GVWR").
There are eight classes of GVWR. Morgan generally manufactures products for
Classes 3 through 7, those having a GVWR of between 10,001 pounds (light duty
dry freight vans) and 33,000 pounds (medium-duty trucks). It generally does not
manufacture products for Classes 1 or 2 (pickup trucks) or Class 8. The
principal products offered by Morgan are the following:
Dry Freight Bodies (Classes 3-7). Dry freight bodies typically are
fabricated with pre-painted aluminum or fiberglass reinforced plywood ("FRP")
panels, aerodynamic front-end treatment, hardwood floors and various door
configurations to accommodate end-user loading and unloading requirements. These
products are used for diversified dry freight transportation and represent more
than one-half of Morgan's sales.
-2-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Refrigerated Van Bodies (Classes 3-7). Refrigerated vans are equipped with
insulated aluminum or FRP bodies that accommodate controlled temperature and
refrigeration needs of end-users. These products are used primarily on trucks
that transport dairy products, frozen food and meats.
Cutaway Van Bodies (Classes 3-5). Aluminum or FRP cutaway van bodies (which
differ from conventional vans generally by having different floor configurations
and shorter lengths) are installed only on cutaway chassis which are available
with or without access to the cargo area from the cab. Cutaway bodies are used
primarily for local delivery of parcels, freight and perishables.
Stake Bodies and Flatbeds. Morgan also manufactures stake bodies, which are
flatbeds with various configurations of removable sides. Stake bodies are used
for the movement of a variety of materials for the agricultural and construction
industries, among others.
Gem Top Pick Up Truck Caps. Pickup truck caps are fabricated enclosures that
fit over the beds of pickup trucks, converting the beds into weatherproof
storage areas. Effective June 30, 1997 Morgan acquired the operations of Gem Top
from TAG. Gem Top services primarily commercial customers. For a more detailed
discussion of the truck accessories business see TAG below.
Some of the components of Morgan's products, such as certain patented
methods for making curtained doors for vehicle bodies, are proprietary. Morgan
also offers certain products manufactured by others, including those distributed
by Morgan's Advanced Handling Systems Division that facilitate the loading and
unloading of cargo. Morgan distributes spare parts through and offers limited
service programs at some of its own facilities and through its eighty-four
authorized distributors.
Customers and Sales. The van body industry has two major categories of
customers: (1) customers operating their own fleets of vehicles or who lease
their vehicles to third parties (collectively, "fleet/leasing customers"); and
(2) truck dealers and distributors who sell vehicles to others (collectively,
"dealer/distributor customers"). Morgan's net sales constituted 40%, 34% and 42%
of the Company's total net sales in 1997, 1996 and 1995, respectively.
Morgan's revenue is generated by five sources: (1) sales to commercial
divisions of leasing companies, companies with fleets of delivery vehicles,
truck dealers and distributors ("Commercial Sales"); (2) sales to consumer
rental companies ("Consumer Rental Sales"); (3) parts; (4) service; and (5) the
Advanced Handling Systems Division.
Consumer Rental Sales are composed of sales to companies that maintain large
fleets of one-way and local moving vehicles available for rent to the general
public. Procurement contracts for Consumer Rental Sales are negotiated annually,
usually in late summer to early fall and tend to be the most volatile and price
sensitive aspect of Morgan's business.
Morgan's two largest customers have historically represented approximately
40-50% of Morgan's total net sales. Each has been a customer of Morgan for
approximately 20 years, and management considers relations with each to be good.
Sales to these customers represented 18%, 14% and 21% of the Company's
consolidated net sales during the years 1997, 1996, and 1995, respectively.
-3-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Morgan sells products through its own sales force and through independent
distributors. Most of the distributors sell a wide variety of truck related
equipment to truck dealers and end-users.
Manufacturing and Supplies. Morgan operates manufacturing, body mounting and
service facilities in Pennsylvania, Wisconsin, Georgia, Texas, and Arizona. It
also has sales, service and body mounting facilities in Florida and California.
Its Gem Top division is located in Oregon.
Generally all van bodies manufactured by Morgan are produced to order. The
shipment of a unit is dependent upon receipt of the chassis supplied by the
customer and the customer's arrangements for delivery of completed units.
Revenue is recognized and the customer is billed upon final body assembly and
quality inspection. Because contracts for Consumer Rental Sales are entered into
in the summer or fall but production does not begin until the following January,
Morgan generally has a significant backlog of Consumer Rental Sales orders at
the end of each year that is processed through May of the following year. In
addition, Morgan typically maintains a significant backlog of Commercial Sales.
At December 31, 1997 and 1996, Morgan's total backlog was $55.2 million and
$50.2 million, respectively. All of the products under the orders outstanding at
December 31, 1997 are expected to be shipped during 1998.
Morgan maintains an inventory of raw materials necessary to build van bodies
according to customers' orders. Raw materials are acquired from a variety of
sources, and Morgan has not experienced significant shortages of materials in
recent years. Fiberglass reinforced panels, which are important components of
Morgan's products, are acquired principally from two suppliers. The loss of
either of those suppliers could disrupt Morgan's operations until a replacement
source could be located. Morgan's customers purchase their truck chassis from
major truck manufacturing companies. The delivery of a chassis to Morgan is
dependent upon truck manufacturers' production schedules which are beyond
Morgan's control. Delays in chassis deliveries can disrupt Morgan's operations
and can increase its working capital requirements.
Industry. Industry revenue and growth are dependent primarily on the demand
for delivery vehicles in the general freight, moving and storage, parcel
delivery and food distribution industries. Replacement of older vehicles in
fleets represents an important revenue source, with replacement cycles varying
from approximately four to six years, depending on vehicle types. During
economic downturns, replacement orders are often deferred or, in some cases,
older vehicles are retired without replacement.
Competition. The van body manufacturing industry is highly competitive.
Morgan competes with a limited number of large manufacturers and a large number
of smaller manufacturers. Some of Morgan's competitors operate from more than
one location. Certain competitors are publicly-owned with substantial capital
resources. Competitive factors in the industry include product quality, delivery
time, geographic proximity of manufacturing facilities to customers, warranty
terms, service and price.
Automotive - TAG
TAG has two operating divisions: TAG Manufacturing Division which consists
of TAG West (Leer West and Raider),TAG Midwest (Leer Midwest and 20th Century
Fiberglass) and TAG East (Leer East); and TAG Distribution Division consisting
of retail (Leer Retail and Radco) and the
-4-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
wholesale distribution businesses (National Truck Accessories, including MTA
which was acquired in October, 1997).
TAG is the nation's largest manufacturer and distributor of pickup truck
caps and tonneau covers marketed under the brand names Leer, Raider, LoRider and
Century. Caps and tonneau covers are fabricated enclosures that fit over the
beds of pickup trucks, converting the beds into weatherproof storage areas.
Sales of caps represented approximately 20% of the Company's consolidated net
sales in each of the prior three years. In addition, TAG distributes other
accessories for light trucks, minivans and sport utility vehicles such as
running boards, steps, reinforced bumpers, wind deflectors, bedliners, hood
shields, visors, bumper covers and roof-mounted luggage carriers. TAG's eight
manufacturing plants and network of over 600 independent dealers, 36
company-owned retail stores and six wholesale distribution centers provide a
national network through which its products are marketed to individuals, small
businesses and fleet operators. Leer Retail has increased the number of
company-owned stores from eight at the beginning of 1991 to 36 at the end of
1997. Leer Retail closed eight stores during 1997. TAG's net sales constituted
30%, 37% and 30% of the Company's total net sales during 1997, 1996 and 1995,
respectively. Formed in 1971, TAG is headquartered in Elkhart, Indiana and was
acquired in 1987.
Customer and Sales. Most purchasers of TAG's products (whether purchased
from company-owned stores or from dealers) are individuals. TAG's products are
sold primarily through its national network of independent dealers and though
its company-owned stores. TAG also sells its products in Canada and Europe. In
1997, foreign sales (primarily in Canada) represented approximately 10% of TAG's
total sales. TAG has a sales and marketing staff which, among other things,
trains dealers and company-owned store personnel.
Manufacturing and Supplies. TAG designs and manufactures caps and tonneaus
in seven manufacturing facilities located in California, Indiana, Minnesota,
Pennsylvania and Saskatchewan, Canada. Approximately 85% of the caps sold by TAG
are fiberglass, with aluminum representing the balance. TAG maintains an
inventory of raw materials necessary to manufacture its products. Raw materials
are obtained from a variety of sources, and TAG has not experienced significant
shortages of materials in recent years. TAG purchases a substantial majority of
its windows for caps from a single supplier. Although the loss of that supplier
would disrupt TAG's production activities until a replacement supplier could be
located, management does not believe that such loss would have a material
adverse effect on the Company.
Industry. Sales of caps and tonneaus tend to correspond to the level of new
pickup truck sales. Sales of accessories are affected by sales of new pickup
trucks, sport utility vehicles and minivans. Cap sales are seasonal, with sales
typically being higher in the fall and spring than in the summer and winter.
Competition. The cap and truck accessory industry is highly competitive.
Competitive factors include product availability, quality, price and
installation services. Competitors in the distribution of accessories include
other cap manufacturers, auto parts stores, and mass merchandisers which, in
certain instances, have the purchasing power to buy and sell accessories at
deeply discounted prices.
-5-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Floor Covering - Lowy Group
Lowy Group which was acquired in 1991 operates in the floor covering
business through three separate divisions: Lowy Distribution (a wholesale floor
covering distributor), Blue Ridge (a carpet manufacturer) and Courier (a dyer
and printer of carpeting). Lowy Group's net sales represented 16%, 17% and 17%
of the Company's total consolidated net sales in 1997, 1996 and 1995,
respectively.
Lowy Distribution
Lowy Distribution is a leading wholesale floor covering distributor in the
Midwest, serving twelve Midwestern states. It operates seven facilities, located
in Ankeny, Iowa near Des Moines; Lenexa, Kansas; New Brighton, Minnesota; Omaha,
Nebraska; and St. Louis (three locations).
Products. Lowy Distribution offers two broad categories of products, each
of which includes multiple product lines and accessories:
o Hard Surface Products. Hard surface products include sheet vinyl,
vinyl, wood flooring, ceramic floor and wall tiles and accessories.
o Soft Surface Products. This product line consists of carpet, padding
substrate used in carpet installation, area rugs and sundry items,
such as carpet cleaners and installation accessories. Most of Lowy
Distribution's carpet sales are for residential installation, with the
balance being sales to the commercial market. Its carpet line is
anchored by carpet manufactured by Peerless Carpet of Canada and
Milliken and Co. Lowy Distribution also offers private label carpeting
marketed under the "Americana" and "Essex House" names and
manufactured by various suppliers, including the Blue Ridge division
of Lowy Group.
Customers and Sales. Lowy Distribution sells its products primarily to
floor covering retailers, most of which are privately owned, small- to
medium-sized dealers located away from major metropolitan areas. These dealers
rely on wholesalers, such as Lowy Distribution, to provide a broad line of
products with adequate inventory ready for immediate delivery and to provide
sales and marketing support.
Inventory and Supplies. Lowy Distribution offers products manufactured
by a variety of suppliers. Its largest supplier is Congoleum Corporation
("Congoleum"), whose products represented approximately 30% of Lowy
Distribution's total revenue during each of the last three years. Lowy
Distribution has purchased products from Congoleum since 1967, and management
considers its relations with Congoleum to be good. Nonetheless, Congoleum is
entitled to terminate its relationship with Lowy Distribution at any time
subject to notice requirements. Lowy Distribution is an exclusive distributor of
Congoleum's products in certain markets and competes with other Congoleum
distributors in other markets. Congoleum may appoint additional distributors of
its products in Lowy Distribution's markets at any time. The loss of Congoleum
as a supplier, or the introduction of other Congoleum distributors into Lowy
Distribution's markets, could adversely affect Lowy Distribution's operations.
-6-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Industry. The wholesale distribution of floor covering is affected by
the level of new home and remodeling construction activity. Lowy Distribution
believes that approximately two-thirds of its sales are generated by home
remodeling activities. The industry is also affected by consumer taste and floor
covering fashion trends. During the 1980s, carpet manufacturers increasingly
began shipping products directly from their mills to the end users, bypassing
wholesale distribution, such that management believes that a substantial
majority of carpet sales are now direct from the mill to end users. Excess
manufacturing capacity in the carpet industry has resulted in relatively level
pricing during the past several years, forcing manufacturers to reduce their
distribution costs in order to preserve their operating margins. Lower freight
costs occasioned by the deregulation of the freight industry and the emergence
of discount carpet retailers have bolstered this direct-to-customer distribution
trend. The industry is somewhat seasonal, with the second and third quarters
generally having higher sales than the other quarters.
Competition. The floor covering wholesale distribution business is
highly competitive. Lowy Distribution competes with other wholesale
distributors, and large carpet and tile manufacturing companies who sell their
products directly to their customers. The growth of large retail building supply
concerns that compete with Lowy Distribution's retail floor covering customers,
coupled with direct selling activities by carpet and tile manufacturers, could
adversely affect the floor covering wholesale distribution industry in the
future. Management believes that the ability of floor covering wholesale
distributors to carry broader product lines and to provide prompt service are
competitive advantages to the wholesale distributors. Lowy Distribution also
competes with several regional distributors.
Blue Ridge
Blue Ridge designs, manufactures and markets distinctive mid- to
high-end commercial carpet and, to a limited extent, residential carpet for sale
throughout the United States and abroad.
Formed in 1968, Blue Ridge is located in Ellijay, Georgia.
Products and Design. At present, Blue Ridge offers approximately 40
styles of commercial carpeting with an average of 15 colors per style. Its
residential carpet line currently consists of approximately 12 printed patterns
with a total of 35 colors. Blue Ridge also manufactures custom carpet (e.g.,
imprinting a company's logo in the carpet) and custom colors within existing
styles. Blue Ridge manufactures "tufted" carpeting, which is made by inserting
yarn into the carpet backing, forming loops that may or may not be cut,
depending on the particular carpet style being made (e.g., cut pile, level loop
or textured level loop carpeting). All of Blue Ridge's commercial carpeting is
offered and sold under the "Blue Ridge" brand name. Its residential carpeting is
manufactured for third parties who sell it under their own private labels. Blue
Ridge designs all of the carpet that it offers except for certain carpet that is
custom made or sold under private labels.
Customers and Sales. Blue Ridge's commercial carpeting is used by
businesses and organizations with high traffic areas, such as health care
facilities (nursing homes, clinics and hospitals), schools and universities,
hotels and motels, restaurants and office buildings.
Sales and marketing efforts for the commercial line are conducted by
Blue Ridge's sales force. Blue Ridge markets its commercial market line
primarily through architects, designers and
-7-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
specifiers. Management oversees marketing of the residential carpet line, which
is marketed and sold through distributors and dealers. Blue Ridge maintains a
sales office and showroom in Chicago for use by architects, designers and
specifiers in the central area of the nation.
Manufacturing and Supplies. Blue Ridge owns and operates an integrated,
185,000 square foot mill that performs tufting, backing and finishing of its
products. Dyeing and printing of carpeting is performed for Blue Ridge by
Courier. Blue Ridge maintains a significant inventory of raw materials and
carpet because of its commitment to deliver products quickly after receiving a
customer's order.
Blue Ridge acquires its nylon and other fibers for yarn from large
companies, primarily Allied-Signal, Inc., and B.A.S.F. Corporation. Pursuant to
their licensing arrangements with Blue Ridge, these suppliers periodically test
Blue Ridge's carpeting to ensure that appropriate manufacturing procedures are
being followed. Favorable test results are required to enable Blue Ridge to
market its products using the supplier's brand names and to offer the supplier's
warranties.
Industry. Sales of broadloom carpeting in the industry's two major
markets, residential and commercial, represent approximately 75% and 25% of
total sales, respectively. According to an industry survey, a majority of the
sales in the commercial market in which Blue Ridge competes relate to the
modernization and renovation of facilities, with the remaining sales relating to
installations in new construction. Excess capacity in the industry has resulted
in relatively level pricing during the past several years, forcing manufacturers
to reduce manufacturing costs through a higher degree of vertical integration
and distribution costs by implementing factory-direct sales in order to preserve
their operating margins. Installations in new construction are affected by the
prevailing new construction activity. The industry is somewhat seasonal, with
the second and third quarters generally having higher sales than the other
quarters.
Competition. With approximately 200 carpet manufacturers in the United
States, the carpet manufacturing industry is highly competitive. The industry
competes also with other floor covering industries, such as hardwood and tile
flooring. Management believes that both the consolidation of the carpet industry
and the use of direct marketing of commercial carpet to end-users will continue.
Nonetheless, management believes that smaller companies, such as Blue Ridge,
will continue to satisfy market niches. The principal competitive factors in the
industry are style, quality, price and service, although management believes
that the commercial market in which it principally operates is less
price-sensitive than the residential market.
Courier
Courier, operated as a division of Blue Ridge, dyes and prints patterns
on commercial and residential carpeting that is manufactured by Blue Ridge and
other companies. Management believes that Courier's 66,000 square-foot dyeing
and printing plant is one of the most modern facilities of its kind operating in
the carpet industry.
Services. The plant, located in Ellijay, Georgia, is designed to print
and dye carpeting with multi-color patterns and random color effects. Its
continuous dyeing line has the ability to place up to 14 different colors on
carpet in a desired pattern. Moreover, in response to the industry's increased
use of polyester fibers in residential carpeting, Courier has developed a
process to dye
-8-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
polyester fiber. Courier also owns two "Jet Beck" dyeing machines, each of which
is capable of dyeing in excess of 1,000 square yards of carpet in a single dye
lot, ensuring color consistency for large orders. Most of Courier's 1997 net
sales are generated by services performed for unaffiliated manufacturers, with
the remaining being performed for Blue Ridge.
Plastic and Precision Machining - EFP
EFP molds and markets expandable foam plastics used primarily by the
automotive, electronics, furniture and appliance industries as packaging, shock
absorbing and materials handling products. Management believes that EFP is the
nation's third largest producer and marketer of custom-shaped, molded expandable
plastics. Management believes that EFP's competitive strengths include its
ability to manufacture high quality products for competitive prices while
providing excellent service to its customers, including timely delivery of
products. EFP's net sales made up less than 10% of the Company's total net sales
during each of the last three years. Founded in 1954, EFP is headquartered in
Elkhart, Indiana and was acquired in 1985.
Products. EFP's products are manufactured from expandable polystyrene
("EPS"), expandable polypropylene ("EPP"), expanded polyethylene ("EPE"), a
copolymer of polyethylene and polystyrene ("Copolymer") and certain high heat
resistant resins ("Resins"). EPP, EPE, Copolymer and Resins are each tougher and
more resilient, or have higher temperature tolerances, than EPS. Products made
from expandable foams are lightweight and durable, capable of absorbing shocks
and impacts, provide thermal insulation and are chemically neutral.
EFP manufactures and markets the following products:
o Packaging and Shock Absorbing Products. EFP sells these products to
other manufacturers who use them to package and ship a wide assortment
of industrial and consumer products, such as computers, television
sets, toys, furniture, appliances, and cameras. Virtually all of these
products are custom made to fit the "footprint" of the particular
product or item for which EFP's product is being manufactured. These
products are manufactured from EPS and EPP, with EPP being used for
more fragile products. Sales of packaging and shock absorbing products
represent approximately 75% of EFP's total sales.
o Material Handling Products. These products include reusable trays or
containers that are used for transporting components to or from a
customer's manufacturing facility. EFP also offers its Thin-Wall(TM)
products which are used as parts positioning trays for robotic or
automatic product assembly (such as camera manufacturing). Material
handling products generally are produced from EPS, EPP or Copolymer.
o Components. EFP provides materials manufactured from EPP which are
used as energy absorbing components of automobile bumpers. EFP also
offers a line of its Styro-Cast(R) foam foundry patterns used by
foundries in the "lost foam" or "evaporative casting" metal pouring
process. During 1996, EFP began the production of door cores, with a
molded-in metal frame, for use in the mobile home manufacturing
industry.
-9-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Customers and Sales. EFP's products are sold to the automotive,
electronics, furniture, appliance, and marine industries, among others. EFP has
a diversified customer base.
EFP utilizes an in-house sales force and engages independent
representatives from time to time to provide supplemental sales support in the
marketing of EFP's packaging and shock absorbing products. EFP also employs an
engineering staff that assists customers in the production, design and testing
of products. Because expanded foams are very bulky, freight charges impose
geographical limitations on sales of those products. Generally, EFP considers
its target market to be limited to a 300-mile radius surrounding each
manufacturing facility. In certain circumstances, however, EFP has shipped its
products greater distances.
Manufacturing and Supplies. EFP manufactures its products at facilities
located in Indiana, Wisconsin, Alabama, Tennessee and Texas. The Texas and
Tennessee facilities manufacture products primarily for Compaq Computer
Corporation and Toshiba Corporation, respectively, although EFP intends to
utilize both facilities to manufacture products for other customers as well.
As is customary in the industry, EFP purchases its raw materials from a
variety of sources on a purchase order basis and not pursuant to long term
supply contracts. Raw material prices fluctuate and EFP historically has been
affected by price increases in the past but has not experienced significant
shortages of raw materials in recent years.
Industry. Because most of EFP's products are manufactured for use by
other industries, economic conditions which affect those other industries
generally will affect EFP's operations. In particular, growth or a downturn in
the automotive, electronics, furniture or appliance industries generally would
be expected to have a corresponding effect on EFP's business as those are the
principal industries served by its packaging and shock absorbing products. Sales
of EFP's products typically are not seasonal other than during a slight downturn
during the latter part of December and early January.
Competition. EFP competes with other molded, expandable plastic
producers and with manufacturers of alternative packaging and handling
materials, including paper, corrugated boxes and other foam products (such as
soft urethane). Many of these competitors, particularly the paper companies, are
large companies having greater financial resources than EFP. Certain other
expandable plastic manufacturers have multiple facilities. EFP also competes
with other companies in the foundry patterns market. Competitive factors include
price, quality and timely delivery of products.
Plastics and Precision Machining - MIC Group
MIC Group is a manufacturer, caster and assembler of precision metal
parts used in the worldwide oil and gas exploration industry. Formed in 1963,
MIC Group is located in Brenham, Texas and was acquired in 1992. During 1997,
MIC Group opened a new facility in Houston in addition to the electronic
assembly facility opened in 1994. The electronic assembly facility is operating
under the name ElectroSpec. MIC Group's net sales made up less than 10% of the
Company's net sales during each of the last three years.
-10-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Products. MIC Group manufactures various precision metal parts and
electro-mechanical devices that are utilized in a variety of oilfield-related
applications. Most of the precision parts currently manufactured by MIC Group
are utilized in connection with the exploration for oil and gas reserves. Parts
produced by MIC Group are utilized for complex functions, such as well bore
perforation and fracturing. Its products are also applicable to many seismic and
geophysical activities. ElectroSpec assembles electronic printed circuit boards
and instrumentation packages for the same or similar applications. Management
believes that the addition of electronic assembly provides additional sales
opportunities by providing turnkey value-added assemblies to its customers which
incorporate machined parts and electronics in the manufacture of their products.
Customers. MIC Group sells its products primarily to international
oilfield service companies. MIC Group's three largest customers represented
approximately 53% of its total net sales during 1997. All of these customers
have been customers of MIC Group for more than five years, and management
considers relations with them to be good.
Manufacturing and Supplies. MIC Group manufactures its products in a
75,500 square-foot manufacturing facility located in Brenham, Texas and a 27,000
square foot facility in Houston, Texas. ElectroSpec is located in Houston.
Management believes that MIC Group's manufacturing capabilities are among the
most sophisticated in the industry. It performs a broad range of
computer-controlled precision machining and welding, including electrostatic
discharge machining, electron beam welding, trepanning, gun drilling and
investment casting.
MIC Group is ISO 9000 certified. ISO is an internationally recognized
certification of production practices and techniques employed in manufacturing
processes.
Products are manufactured primarily from non-magnetic stainless steel,
alloy steels, nickel based alloys, titanium, brass and beryllium copper.
Materials are obtained from a variety of sources and MIC Group has not
experienced significant shortages in materials in recent years.
Industry. Because MIC Group's products are sold to large, international
oilfield service companies, MIC is not dependent solely on the domestic oil and
gas industry. Rather, demand for equipment and services supplied by those
oilfield service companies and, in turn, sales of related parts manufactured by
MIC Group and ElectroSpec, are directly related to the level of worldwide oil
and gas drilling activity. Worldwide drilling activity increased during 1997
thereby increasing the demand for services from oilfield service companies
which, in turn, increased MIC Group's sales.
Competition. MIC Group competes with other businesses engaged in the
machining, casting, and manufacturing of parts and equipment utilized in the oil
and gas exploration industry. Technological know-how and production capacity are
the primary competitive factors in MIC Group's industry.
Trademarks and Patents
The Company owns rights to certain presentations of Leer's name which
the Company believes is valuable insofar as management believes that it is
recognized as being a leading "brand name." The Company also owns rights to
certain other trademarks and tradenames, including
-11-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
certain presentations of Morgan's name. Although these and other trademarks and
tradenames used by the Company help customers differentiate Company product
lines from those of competitors, the Company believes that the trademarks or
tradenames themselves are less important to customers than the quality of the
products. The Company also holds patents on certain products which, although
valuable to the Company, are not critical to the Company's operations. In
addition, Blue Ridge uses, with permission, certain of its suppliers' tradenames
and trademarks which are important to its business.
Employees
At February 28, 1998, the Company had approximately 3,800 permanent
employees. Personnel are unionized in: Lowy Distribution's New Brighton,
Minnesota (contract expires May, 1999), St. Louis (contract expires December
1998) and Ankeny, Iowa (contract expires December, 1999) warehouses (covering
12, 13, and 8 persons, respectively); EFP's Decatur, Alabama facility (covering
approximately 65 persons, with a contract expiring in August 2000); and TAG's
Raider Industries facility in Canada (covering approximately 160 persons, with a
contract expiring in December 2000). The Company believes that relations with
its employees are good.
Environmental Matters
The Company's operations are subject to numerous environmental statutes
and regulations, including laws and regulations affecting its products and
addressing materials used in manufacturing the Company's products. In addition,
certain of the Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air and water. The Company also generates non-hazardous
wastes. The Company has received occasional notices of noncompliance from time
to time with respect to its operations which are typically resolved by
correcting the conditions and the payment of minor fines, none of which
individually or in the aggregate has had a material adverse effect on the
Company. However, the Company expects that the nature of its operations will
continue to make it subject to increasingly stringent environmental regulatory
standards. Although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change.
Unforeseen significant expenditures required to maintain such future compliance,
including unforeseen liabilities, could limit expansion or otherwise have a
material adverse effect on the Company's business and financial condition.
Morgan has been named as a potentially responsible party ("PRP") with
respect to the generation of hazardous materials alleged to have been handled or
disposed of at two Federal Superfund sites in Pennsylvania and one in Kansas.
Although a precise estimate of liability cannot currently be made with respect
to these sites, based upon information known to Morgan, the Company currently
believes that it's proportionate share, if any, of the ultimate costs related to
any necessary investigation and remedial work at those sites will not have a
material adverse effect on the Company.
Since the 1980s and early 1990s, products manufactured from expandable
polystyrene, such as some of the products manufactured by EFP, have been
criticized as being allegedly harmful to
-12-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
the environment. Although management believes that more recent information
suggest that expandable polystyrene is not as harmful to the environment as
reported earlier, negative publicity relating to the material has had, and in
the future could have, an adverse effect on EFP's business, although this
publicity has not had a material adverse effect on EFP's results of operations.
Item 2. Properties
The Company owns or leases the following manufacturing, distribution,
office and sales facilities:
<TABLE>
<CAPTION>
Owned
Approximate or Lease
Location Principal Use Square Feet Leased Expiration(a)
<S> <C> <C> <C> <C>
Morgan:
Ehrenberg, Arizona Manufacturing 125,000 Owned --
Rydal, Georgia Manufacturing 85,000 Leased 1999
Ephrata, Pennsylvania Manufacturing 50,000 Owned --
Morgantown, Pennsylvania Manufacturing 62,900 Leased 1999
Morgantown, Pennsylvania Office & manufacturing 261,500 Owned --
Corsicana, Texas Manufacturing 60,000 Owned --
Janesville, Wisconsin Manufacturing 23,000 Leased 1998
Janesville, Wisconsin Manufacturing 32,000 Owned --
Clackamas, Oregon Manufacturing 78,000 Leased 1998
TAG Manufacturing:
Woodland, California Manufacturing 92,000 Leased 2001
Elkhart, Indiana Office & research 17,500 Owned --
Elkhart, Indiana Manufacturing 139,000 Leased 2001
Milton, Pennsylvania Manufacturing 102,000 Leased 2001
Elkhart, Indiana Manufacturing 91,900 Owned --
Elkhart, Indiana Manufacturing Office 18,400 Leased 2005
Drinkwater, Saskatchewan, Canada Office & manufacturing 72,000 Owned --
Moose Jaw, Saskatchewan, Canada Manufacturing 87,000 Leased 2005
Leer Retail: (b)
Brainerd, Minnesota Manufacturing & sales 11,900 Leased 1999
NTA:
Woodland, California Office & warehouse 21,000 Leased 1999
Conyers, Georgia Office & warehouse 13,000 Leased 1999
Elkhart, Indiana Office & warehouse 57,000 Leased 2000
Milton, Pennsylvania Office & warehouse 35,000 Leased 1998
Tulsa, Olahoma Office & warehouse 32,500 Leased 2002
Tyler Texas Office & warehouse 22,000 Leased 2002
Lowy Distribution:
Ankeny, Iowa Warehouse, office & showroom 30,000 Leased 2007
Lenexa, Kansas Warehouse, office & showroom 12,000 Leased 1997
Fridley, Minnesota Warehouse, office & showroom 55,000 Leased 2002
St. Louis, Missouri Warehouse, office & showroom 85,000 Owned --
St. Louis, Missouri Warehouse, office & showroom 45,000 Owned --
St. Louis, Missouri Warehouse, office & showroom 14,000 Leased 2000
Omaha, Nebraska Warehouse, office & showroom 7,000 Leased 1998
Blue Ridge/Courier:
Ellijay, Georgia Office & manufacturing 195,000 Owned --
Ellijay, Georgia Office & manufacturing 66,000 Owned --
EFP:
Decatur, Alabama Manufacturing 175,000 Leased 1999
Elkhart, Indiana Office & manufacturing 211,600 Owned --
Elkhart, Indiana Manufacturing 24,900 Leased 1997
Gordonsville, Tennessee Manufacturing 40,000 Leased 2001
Marlin, Texas Manufacturing 73,000 Leased 1998
Waukesha, Wisconsin Manufacturing 13,850 Leased 1997
MIC Group:
Brenham, Texas Office & manufacturing 75,500 Owned --
Houston, Texas Manufacturing 26,550 Leased 2002
Houston, Texas Manufacturing 9,600 Leased 1998
<FN>
(a) Including all renewal terms.
(b) In addition, TAG (Leer Retail) leases 36 retail stores aggregating
approximately 100,000 square feet pursuant to leases with terms
averaging approximately nine years (including renewal options).
</FN>
</TABLE>
-13-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
The Company utilizes principally all of its facilities and believes
that its facilities are adequate for its current needs and are capable of being
utilized at higher capacities to supply increased demand if necessary.
Item 3. Legal Proceedings
The Company is involved in various lawsuits which arise in the ordinary
course of business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The registrant's common equity is privately held and not publicly
traded. As of March 1998, one individual owned all of the registrant's issued
and outstanding common equity. During the last three fiscal years, JBPCO paid no
cash dividends.
The registrant's ability to pay dividends on its common equity is
restricted to the extent described in the Indenture, dated as of May 23, 1994,
pertaining to the registrant's 12 1/2% Senior Notes due 2004 and the Loan and
Security Agreement, dated as of June 28, 1996, with Congress Financial
Corporation, as lender.
Item 6. Selected Financial Data
The historical financial data presented below for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 are derived from the audited
Consolidated Financial Statements of the Company. The data presented below
should be read in conjunction with Management's Discussion and Analysis of
Results of Operations and Financial Condition and the Consolidated Financial
Statements of the Company and notes thereto. The financial information is not
directly comparable due to the acquisitions of Gem-Top Mfg., Inc. (March 1993),
Radco (December 1994), 20th Century Fiberglass, Century Distributing and Raider
Industries (June 1995) and MTA(October 1997).
-14-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Millions, Except Per Share Amounts)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales ........................... $ 447.5 $ 432.4 $ 450.7 $ 386.6 $ 327.4
Cost of sales ....................... 351.6 338.0 365.3 301.3 254.9
Selling, general and
administrative expense............. 86.1 84.0 82.0 64.9 56.0
Closed and excess facility costs .... 2.3 1.4 -- -- --
Other (income) expense .............. (3.2) (0.1) (1.2) 0.4 1.2
-------- -------- -------- -------- --------
Operating income .................... 10.7 9.1 4.6 20.0 15.3
Interest expense .................... 16.9 16.2 15.9 11.5 6.4
Income tax provision (benefit) ...... 1.4 (1.0) (2.8) 3.0 2.3
Minority interests .................. -- -- -- -- (0.1)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary loss ................ 7.6 (6.1) (8.5) 5.5 6.7
Extraordinary loss .................. -- 0.3 -- 2.1 --
-------- -------- -------- -------- --------
Net income (loss) ................... $ 7.6 $ (6.4) $ (8.5) $ 3.4 $ 6.7
======== ======== ======== ======== ========
Earnings (loss) per share ........... $ 2,466 $ (2,097) $ (2,790) $ 1,503 $ 6,656
======== ======== ======== ======== ========
Cash dividends per share ............ $ -- $ -- $ -- $ 2,910 $ 1,136
======== ======== ======== ======== ========
Pro Forma for Taxes (a):
Income (loss) before income
taxes, minority interests and
extraordinary loss ................ $ (6.2) $ (7.1) $ (11.2) $ 8.5 $ 8.9
Income tax provision (benefit) ...... 1.4 (1.0) (2.8) 3.5 3.7
Minority interests .................. -- -- -- -- (0.1)
Extraordinary loss .................. -- 0.3 -- 2.1 --
-------- -------- -------- -------- --------
Net income (loss) ................... $ 7.6 $ (6.4) $ (8.5) $ 2.9 $ 5.3
======== ======== ======== ======== ========
Balance Sheet Data
(at period end):
Working capital ................. $ 19.4 $ 22.4 $ 29.4 $ 56.6 $ 19.6
Total assets .................... 175.3 173.5 180.8 173.2 139.8
Total long-term obligations ..... 105.6 105.6 107.6 106.9 75.9
Stockholder's equity (deficit) .. $ (4.7) $ 3.0 $ 9.5 $ 17.8 $ 15.2
Other Data:
EBITDA (b)(c) ................... $ 22.3 $ 20.9 $ 15.1 $ 28.2 $ 23.1
Capital expenditures ............ 7.3 8.1 11.9 9.2 9.0
Depreciation and amortization (c) 11.6 11.2 10.5 8.2 7.0
Consolidated EBITDA
Coverage Ratio (d) .............. 1.3x 1.3x 1.0x 2.5x 3.6x
</TABLE>
-15-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
(a) Pro Forma for Taxes data reflect the Company's income taxes (benefits)
assuming that Lowy Group and MIC Group, which had been "S" corporations
prior to May 16, 1994, were taxable "C" corporations during the relevant
periods.
(b) "EBITDA" means earnings before deducting interest expense, taxes,
depreciation and amortization and minority interests as defined in the
Indenture pertaining to the Senior Notes. EBITDA is not included herein as
operating data and should not be construed as an alternative to operating
income (determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance. The
Company has included EBITDA because it is relevant for determining
compliance under the Indenture and because the Company understands that it
is one measure used by certain investors to analyze the Company's operating
cash flow and historical ability to service its indebtedness.
(c) Depreciation and amortization excludes amortization of debt issuance cost
of $0.8 million, $0.7 million and $0.7 million in 1997, 1996 and 1995,
respectively.
(d) "Consolidated EBITDA Coverage Ratio" is the ratio of EBITDA of JBPCO and
its Guarantor Subsidiaries to interest expense that is used in the
Indenture to limit the amount of indebtedness that the Company may incur.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto.
Basis of Financial Statements
Concurrently with the initial public offering of $100.0 million, 12
1/2% Senior Notes due 2004, (the "Senior Notes"), effective May 23, 1994, the
Company acquired TAG, Lowy, EFP and MIC Group from John B. Poindexter and
certain minority interests. The historical, Consolidated Financial Statements
reflect the acquisition of the Subsidiaries as an exchange of interests in
companies under common control in a manner similar to a pooling of interests,
except that each subsidiary is included only from the date of Mr. Poindexter's
purchase of his interest therein.
Overview
The Company has grown from 1993 through 1997, both internally and
through acquisitions (MIC Group and Gem-Top were acquired in June 1992 and March
1993, respectively). During 1994, the Company acquired Radco, a pick up truck
accessory retailer, and Tile by Design, a wholesale floor covering distributor.
TAG acquired the businesses and assets of three companies, effective June 30,
1995: 20th Century Fiberglass, a manufacturer of pick up truck caps, Century
Distributing, a wholesaler of light truck accessories, both based in Elkhart,
Indiana, and Raider Industries, a manufacturer of pickup truck caps and tonneau
covers based in Drinkwater,
-16-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Saskatchewan, Canada. Effective October 31,1997, TAG acquired the business and
assets of Midwest Truck Aftermarket, a wholesaler of light truck accessories
based in Tulsa, Oklahoma. Net sales increased from $327.4 million in 1993 to
$447.5 million in 1997. Operating income increased from $15.3 million in 1993 to
$20.0 million in 1994, however, during 1995, 1996 and 1997 TAG incurred
operating losses of $12.1 million, $6.9 million and $10.1 million respectively,
which reduced the Company's consolidated operating income to $4.6 million, $9.1
million and $10.7 million, respectively.
The following table represents the net sales, operating income and
operating margins for each Subsidiary and on a consolidated basis.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C>
Net Sales:
Morgan ............... $ 178.3 $ 145.5 $ 187.7
TAG .................. 138.9 158.6 137.5
Lowy ................. 69.7 71.3 75.0
EFP .................. 33.0 31.5 30.2
MIC Group ............ 28.6 25.5 20.3
Eliminations ......... (1.0) -- --
---------- ---------- ----------
Consolidated ......... $ 447.5 $ 432.4 $ 450.7
========== ========== ==========
Operating Income (Loss):
Morgan ............... $ 8.7 $ 7.1 $ 9.9
TAG .................. (10.1) (6.9) (12.1)
Lowy ................. 7.2 3.9 4.9
EFP .................. 3.0 2.7 1.7
MIC Group ............ 4.7 4.8 2.9
JBPCO ................ (2.8) (2.5) (2.7)
---------- ---------- ----------
Consolidated ......... $ 10.7 $ 9.1 $ 4.6
========== ========== ==========
Operating Margins:
Morgan ............... 5.0% 4.9% 5.2%
TAG .................. (7.0) (4.4) (8.8)
Lowy ................. 10.0 5.5 6.6
EFP .................. 9.0 8.6 5.7
MIC Group ............ 17.0 18.8 14.4
---------- ---------- ----------
Consolidated ......... 2.0% 2.0% 1.0%
========== ========== ==========
</TABLE>
-17-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Results of Operations
Consolidated Operating Results
Comparison of 1997 to 1996
Net sales increased 4% to $447.5 million in 1997 compared to $432.4
million in 1996. The increase was due primarily to Morgan whose sales increased
23% or $32.8 million partially offset by a decrease of $19.7 million (12%) at
TAG. MIC Group and EFP recorded sales increases of 12% or $3.1 million and 5% or
$1.5 million respectively.
Cost of sales increased 4% to $351.6 million in 1997 from $338.0
million in 1996, and gross profit increased 2% to $96.0 million (21% of net
sales) in 1997 compared to $94.4 million (22% of net sales) in 1996.
Selling, general and administrative expense increased 2% to $86.1
million (19% of net sales) in 1997 compared to $84.1 million (19% of net sales)
in 1996.
The Company recorded Closed and Excess Facility Costs of $2.3 million
and $1.4 million during the years ended December 31, 1997 and 1996,
respectively. During 1997 Morgan committed to a plan to sell its idle facility
in Mexico. Accordingly, Morgan began marketing the property and, based on an
estimate of the fair value less the cost to sell the property, wrote down the
carrying value by $0.6 million. In 1997 TAG Distribution closed eight
unprofitable stores and its administrative office, and TAG Manufacturing
incurred additional unexpected expenses with respect to manufacturing facilities
closed during 1996. The closure of these excess facilities resulted in a charge
of $1.7 million for the year ended December 31, 1997. In 1996, TAG Distribution
closed four unprofitable stores and TAG Manufacturing closed two manufacturing
facilities, resulting in a charge of $1.4 million for the year ended December
31,1996.
Operating income increased 18% to $10.7 million in 1997 compared to
$9.1 million in 1996. Operating income increased 23% or $1.6 million at Morgan
and 85% or $3.3 million at Lowy. The increase at Lowy included a gain on the
sale of certain real estate of $2.7 million. Operating losses at TAG increased
46% to $10.1 million compared to $6.9 million during 1996.
Interest expense increased 4% to $16.9 million in 1997 compared to
$16.2 million in 1996, average total debt increased 3% to $138.8 million during
1997 compared to $134.6 million during 1996.
The Company recorded an income tax expense of $1.4 million for the year
ended December 31, 1997 compared to a $1.0 million benefit during 1996. The
income tax expense of $1.4 million in 1997 represents state and foreign income
taxes payable. The Company's income tax provision differs from the federal
statutory rate principally due to an increase in the deferred tax valuation
allowance relating to net operating losses that may not be realizable. See Note
11 of Notes to the Consolidated Financial Statements.
-18-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Comparison of 1996 to 1995
Net sales decreased 4% to $432.4 million in 1996 compared to $450.7
million in 1995. The decrease was due primarily to Morgan whose sales decreased
22% or $42.2 million, partially offset by increases of $21.1 million (15%) at
TAG and $5.2 million (26%) at MIC Group.
Cost of sales decreased 8% to $338.0 million in 1996 from $365.3
million in 1995, and gross profit increased 11% to $94.4 million (22% of net
sales) in 1996 compared to $85.4 million (19% of net sales) in 1995. EFP, MIC
Group and TAG recorded 47%, 38% and 37% increases in gross profit, respectively.
Selling, general and administrative expense increased 3% to $84.1
million (19% of net sales) in 1996 compared to $82.0 million (18% of net sales)
in 1995.
Operating income increased 95% to $9.1 million in 1996 compared to $4.6
million in 1995. Operating losses at TAG decreased 43% to $6.9 million compared
to $12.1 million during 1995.
Interest expense increased 2% to $16.2 million in 1996 compared to
$15.9 million in 1995, average total debt increased 9% to $134.6 million during
1996 compared to $123.2 million during 1995.
The Company recorded an aggregate income tax benefit of $1.1 million
for the year ended December 31, 1996 compared to a $2.7 million benefit during
1995. See Note 11 of Notes to the Consolidated Financial Statements.
Morgan
Morgan acquired Gem-Top from TAG effective June 30,1997. Gem-Top
manufactures pickup truck caps primarily for commercial customers which
compliments the Morgan business. Morgan's operating results include Gem-Top from
the date of acquisition only. For the six months ended December 31,1997 Gem-
Top's net sales were $2.6 million and its operating loss was $0.2 million. Gem
Top's operating results are not considered material to the results of Morgan or
TAG and, therefore, the operating results presented for Morgan and TAG were not
restated.
Comparison of 1997 to 1996
Net sales increased 23% to $178.3 million in 1997 compared to $145.5
million in 1996. Shipments of van body units increased 26% to 23,575 units in
1997 compared to 18,647 units during 1996. Consumer Rental Sales (as defined
under Business) increased 65% to $22.9 million and Commercial Sales increased
10% to $131.3 million in 1997 compared to 1996. Backlog at December 31, 1997 was
$55.2 million compared to $50.2 million at the end of 1996. Gem-Top sales of
$2.7 million for the six months ended December 31 are included in Morgan sales
during 1997
Cost of sales increased 22% to $153.3 million in 1997 compared to
$126.1 million in 1996 as a result of the increase in units produced. Gross
profit increased 29% or $5.6 million to $25.0
-19-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
million (14% of net sales) compared to $19.4 million (13% of net sales) in 1996.
Gross profit margins increased slightly as a result of the improved absorption
of overhead costs.
Selling, general and administrative expense increased 28% to $15.7
million (9% of net sales) in 1997 compared to $12.3 million (8% of net sales) in
1996. Selling expense increased 8% to $7.6 million primarily as a result of
including the selling expenses of Gem Top for the six months ended December 31,
1997. General and Administrative expense increased 49% due to increased
personnel and related costs
Morgan's operating income increased 23% to $8.7 million in 1997
compared to $7.1 million in 1996 due to its increased net sales. As a percentage
of net sales, operating income remained at 5% in 1997 the same as in 1996.
Comparison of 1996 to 1995
Net sales decreased 22% to $145.5 million in 1996 compared to $187.7
million in 1995. Shipments of van body units decreased 25% to 18,647 units in
1996 compared to 25,016 units during 1995. Consumer Rental Sales (as defined
under Business) decreased 60% to $13.9 million and Commercial Sales decreased
12% to $117.7 million in 1996 compared to 1995. Backlog at December 31, 1996 was
$50.2 million compared to $41.8 million at the end of 1995. The increase in
backlog reflects an increase in consumer rental orders following the cyclical
downturn in that business during 1995.
Cost of sales decreased 23% to $126.1 million in 1996 compared to
$163.4 million in 1995 as a result of the decrease in units produced. Gross
profit decreased $4.9 million or 20% compared to 1995. Gross profit margins
increased slightly as a result of slightly lower raw material costs and the
implementation of selling price increases.
Selling, general and administrative expense decreased 14% to $12.3
million (9% of net sales) in 1996 compared to $14.4 million (8% of net sales) in
1995. Selling expense decreased 11% and General and Administrative expense
decreased 18%.
Due to decreased net sales Morgan's operating income decreased 28% to
$7.1 million in 1996 compared to $9.9 million in 1995. As a percentage of net
sales, operating income remained at 5% in 1996 the same as in 1995.
TAG
During the years ended December 31, 1997, 1996 and 1995, TAG incurred
operating losses of $10.1 million, $6.9 million and $12.1 million, respectively.
The continued losses at TAG have resulted in management reviewing various
options related to the TAG business. The events and circumstances resulting in
the operating performance indicated that assets of certain TAG operations,
amounting to $24.3 million, may be impaired. However, an estimate of
undiscounted cash flows from these assets indicated that the carrying values of
the assets would be expected to be recovered over the useful life of the assets.
Management's options related to the TAG business include the possible sale of
all or part of the business, however, management has not committed to
-20-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
a formal plan to dispose of all or part of the TAG business. The accompanying
financial statements have, therefore, been prepared assuming that the Company
continues to operate TAG. However, should the Company decide in the future to
dispose of all or part of TAG, the Company could incur a loss on sale of up to
$20.0 million. Similarly, it is reasonably possible that the estimate of
undiscounted future cash flows could change in the future requiring the
recognition of an impairment loss.
TAG transferred the operations of Gem Top to Morgan effective June
30,1997. The following comparisons include the operating results of Gem Top for
the period until the date of transfer.
Comparison of 1997 to 1996
Total net sales for TAG decreased 12% to $138.9 million in 1997
compared to $158.6 million in 19965. TAG Manufacturing Division net third party
sales decreased 8% to $84.0 million during 1997 compared to $91.5 million during
1996. Total shipments of caps and tonneaus, including shipments to TAG
Distribution were 161,571 units during 1997 compared to173,884 units in 1996.
The decline in units shipped is primarily due to Leer Manufacturing as a result
of closing the Leer plant in the Southeastern United States and a decline
national market share. Raider recorded an 8,900 unit or 44% increase in
shipments and Century's shipments were consistent with the prior year.
TAG Distribution Division net sales decreased 18% to $55.0 million
during 1997 compared to $67.1 million during 1996. At Leer Retail, sales
decreased 14% to $37.2 million as same store sales decreased approximately 6%,
primarily due to lower cap sales. Leer Retail closed six stores between July
1996 and December 1997, which reduced sales approximately $2.8 million during
1997, compared to 1996. Wholesale sales decreased 33% or $6.6 million primarily
due to softness in regional markets and the loss of customers resulting from a
reorganization of service areas late in 1996. Effective October 31, 1997 TAG
acquired the assets of Midwest Truck After Market Inc., a wholesale distributor
of light truck accessories based in Tulsa Oklahoma, for approximately $2.7
million. The acquisition provides the wholesale operations of TAG Distribution
with a presence in a geographical market not previously served.
Cost of sales decreased $14.6 million (12%) to $103.1 million in 1997
compared to $117.7 million in 1996. Gross profit decreased 12% to $35.8 million
(26% of net sales) during 1997 compared to $40.9 million (26% of net sales)
during 1996. The decrease in gross profits was due primarily to a $12.1 million
decline in the sales at the TAG Distribution Division. TAG Manufacturing gross
profit decreased $1.8 million or 9% during 1997 compared to 1996. A $1.7 million
or 84% increase at Raider was reduced by a decrease of $3.1 million or 29% at
Leer Manufacturing.
Selling, general and administrative expense decreased 4% to $44.5
million (32% of net sales) during 1997 compared to $46.4 million (29% of net
sales) during 1996. Selling expense decreased 12% or $2.2 million primarily as a
result of a $1.7 million (16%) decrease in selling expense at Leer Retail
resulting from the closure of six stores during 1997 and reduced delivery
-21-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
costs at TAG Distribution. General and administrative expense increased 5% or
$1.7 million, primarily as a result of costs associated with the TAG
Distribution headquarters office in Houston.
During the year ended December 31, 1997, TAG closed the TAG
Distribution headquarters in Houston, closed eight unprofitable retail stores
and incurred additional costs associated with the closure of two manufacturing
plants during 1996. The associated costs of $1.8 million were included in Closed
and Excess Facility Costs during 1997.
TAG incurred an operating loss for the year ended December 31, 1997 of
$10.1 million compared to an operating loss of $6.9 million in 1996. The decline
in operating performance was primarily the result of lower sales at Leer
Manufacturing and TAG Distribution and the costs associated with the closing and
consolidation of various stores and administrative activities late in the year.
The Company continued to respond in a number of ways to improve the
performance of TAG including the elimination of certain overhead costs, the
closure of unprofitable stores and by addressing the manufacturing problems
including redesigning certain products and implementing additional quality
control procedures. Other improvement measures are being evaluated.
Comparison of 1996 to 1995
Total net sales for TAG increased 15% to $158.6 million in 1996
compared to $137.5 million in 1995. TAG Manufacturing Division net sales
increased 21% to $91.5 million during 1996 compared to $75.9 million during
1995. Net sales during 1995 include sales of 20th Century Fiberglass and Raider
Industries for the six months subsequent to their acquisition during June 1995.
Combined net sales for 20th Century Fiberglass and Raider Industries were $36.0
million for the year ended December 31, 1996 compared to $17.6 million for the
six months ended December 31, 1995.
TAG Distribution Division net sales increased 9% to $67.1 million
during 1996 compared to $61.6 million during 1995. Operations acquired during
June 1995 increased sales approximately $3.2 million for the year ended December
31, 1996 compared to 1995. Leer Retail sales increased $2.9 million (7%) and
wholesale sales, excluding Century Distribution, remained flat. TAG closed four
unprofitable stores during 1996, resulting in closure costs of approximately
$0.3 million.
Cost of sales increased $10.1 million (9%) to $117.7 million in 1996
compared to $107.6 million in 1995. Gross profit increased 37% to $40.9 million
(26% of net sales) during 1996 compared to $29.9 million (22% of net sales)
during 1995. The increase was due primarily to TAG Manufacturing Division
product mix changes and efforts to improve product quality and delivery times
were reflected in lower cost of sales . Also during 1996, TAG Manufacturing
Division eliminated the production of plastic caps.
Selling, general and administrative expense increased 10% to $46.4
million (29% of net sales) during 1996 compared to $42.1 million (31% of net
sales) during 1995. Selling expense increased 5% or $0.9 million and general and
administrative expense increased 14% or $3.4 million,
-22-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
primarily as a result of the inclusion of operations, acquired during June 1995,
for twelve months of 1996.
TAG incurred an operating loss for the year ended December 31, 1996 of
$6.9 million compared to an operating loss of $12.1 million in 1995. The
improvement in operating performance was primarily the result of efforts to
remedy manufacturing problems associated with the introduction of new product
lines, product design changes and paint finishing processes.
The Leer Manufacturing plant in the Southeastern United States was
closed during the last quarter of 1996 due to inefficient operations. Production
was transferred to the remaining TAG Manufacturing plants with an associated
reduction in overhead costs. Including costs of closing the Gem Top East
facility, total closure costs of approximately $1.1 million were charged to
expense during 1996 as Closed and Excess Facility Cost.
Lowy Group
Comparison of 1997 to 1996
Net sales decreased 2% to $69.7 million in 1997 compared to $71.3
million in 1996. Sales from the floor covering distribution business declined
$3.6 million (9%) and sales from carpet manufacturing activity increased $1.5
million (5%).
Cost of sales decreased 3% to $49.7 million in 1997 from $51.5 million
in 1996. Accordingly, gross profit increased 2% to $20.1 million (29% of net
sales) in 1997 compared to $19.8 million (28% of net sales) in 1996. Gross
profit increased $0.9 million or 9% at the carpet manufacturing operations as a
result of lower labor and material costs
Selling, general and administrative expense decreased 1% to $15.7
million (23% of net sales) in 1997 compared to $15.9 million (22% of net sales)
in 1996.
Lowy sold two locations during the period recognizing a gain of $2.7
million, which was included in Other Income, net, for the year ended December
31, 1997. A warehouse facility near Minneapolis, Minnesota was sold effective
March 31, 1997 and the operations moved to new location during the quarter ended
June 30, 1997. Effective June 30, 1997, Lowy distribution sold and leased back a
warehouse facility in Ankeny, Iowa.
Lowy Group's operating income, excluding the gains from the sale of
real estate, increased 15% to $4.5 million (6% of net sales) in 1997 compared to
$3.9 million (5% of net sales) in 1996 due to increased sales and gross profit
at the carpet manufacturing operation.
Comparison of 1996 to 1995
Net sales decreased 5% to $71.3 million in 1996 compared to $75.0
million in 1995. Sales from the floor covering distribution business declined
$4.3 million (9%) and carpet manufacturing activity sales increased $0.6 million
(2%).
-23-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Cost of sales decreased 5% to $51.5 million in 1996 from $54.0 million
in 1995. Accordingly, gross profit decreased 6% to $19.8 million (28% of net
sales) in 1996 compared to $21.0 million (28% of net sales) in 1995.
Selling, general and administrative expense decreased 2% to $15.9
million (22% of net sales) in 1996 compared to $16.2 million (21% of net sales)
in 1995. The decrease was due primarily to lower expenses associated with a
reduction in personnel partially offset by higher sample expense and increased
fixed selling costs.
Lowy Group's operating income decreased 21% to $3.9 million (6% of net
sales) in 1996 compared to $4.9 million (7% of net sales) in 1995.
EFP
Comparison of 1997 to 1996
Net sales increased 5% to $33.0 million in 1997 compared to $31.5
million in 1996. EFP's Components (as defined under Business) sales increased
$1.9 million, on the strength of new business including the door core business
started in 1996.
Cost of sales increased 4% to $25.9 million in 1997 from $25.0 million
in 1996. Accordingly, gross profit increased 9% to $7.1 million (22% of net
sales) in 1997 compared to $6.5 million (21% of net sales) in 1996. The increase
in gross profit was due to a decrease in material costs which was offset by
higher labor costs resulting from changes in product mix.
Selling, general and administrative expense increased 5% to $4.0
million (12% of net sales) in 1997 compared to $3.8 million (12% of net sales)
in 1996.
EFP's operating income increased 11% to $3.0 million (9% of net sales)
in 1997 compared to $2.7 million (9% of net sales) in 1996.
Comparison of 1996 to 1995
Net sales increased 4% to $31.5 million in 1996 compared to $30.2
million in 1995. EFP's Components (as defined under Business) sales increased
$3.9 million, on the strength of new business, offset by decreased Styrocast
business and the absence of revenue from the beverage cooler business sold in
1995.
Cost of sales decreased 3% to $25.0 million in 1996 from $25.8 million
in 1995. Accordingly, gross profit increased 47% to $6.5 million (21% of net
sales) in 1996 compared to $4.4 million (15% of net sales) in 1995. The decrease
in cost of sales was due to a decrease in labor costs as a result of the sale of
the beverage cooler product line.
Selling, general and administrative expense remained $3.8 million (12%
of net sales) in 1996 compared to $3.8 million (13% of net sales) in 1995. The
decrease in expense as a percentage of net sales is primarily due to the
elimination of the beverage product line.
-24-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
EFP's operating income increased 58% to $2.7 million (9% of net sales)
in 1996 compared to $1.7 million (6% of net sales) in 1995.
MIC Group
Comparison of 1997 to 1996
Net sales increased 12% to $28.6 million in 1997 compared to $25.5
million in 1996. The increase was attributable to an increased demand for MIC's
products and services due to increased levels of activity in the energy
exploration and production business.
Cost of sales increased 17% to $20.6 million in 1997 compared to $17.6
million in 1996. Gross profit increased 3% to $8.0 million (28% of net sales) in
1997 compared to $7.9 million (31% of net sales) in 1996. Labor costs increased
$1.4 million or 18% primarily due to increased training costs.
Selling, general and administrative expense increased 6% to $3.3
million (12% of net sales) compared to $3.1 million (12% of net sales) in 1996,
principally because of increased sales personnel and related costs.
Operating income decreased 2% to $4.7 million during 1997, or 16% of
net sales, compared to $4.8 million or 19% of net sales in 1996.
Comparison of 1996 to 1995
Net sales increased 26% to $25.5 million in 1996 compared to $20.3
million in 1995. The increase was attributable to an increased demand for
Magnetic's products and services due to increased levels of activity in the
energy exploration and production business.
Cost of sales increased 21% to $17.6 million in 1996 compared to $14.5
million in 1995. Accordingly, gross profit increased 38% to $7.8 million (31% of
net sales) in 1996 compared to $5.7 million (28% of net sales) in 1995 due
primarily to a higher volume of sales in 1996.
Selling, general and administrative expense increased 18% to $3.0
million (12% of net sales) compared to $2.6 million (12% of net sales) in 1995,
principally because of increased sales commission payments and increased
personnel costs.
Operating income increased 65% to $4.8 million during 1996, or 19% of
net sales, compared to $2.9 million or 14% of net sales in 1995.
Liquidity and Capital Resources
During 1997 net cash used by operations was $2.5 million compared to
net cash provided by operations of $10.7 million during 1996. Overall changes in
working capital used cash of $7.2 million during 1997 primarily due to a build
up in working capital at Morgan as the result of a large shipment during late
December and increased inventory in response to a $5.0 million increase in
-25-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
backlog at December 31, 1997. Cash used by operations was funded by revolver
borrowings which increased $11.5 million during 1997. Capital expenditures of
$7.3 million were partially funded by the proceeds from the sale of real
properties by Lowy and the remainder funded by revolver borrowings.
The Company's ability to borrow under its Revolving Loan Agreement
depends on the amount of eligible collateral which is dependant on certain
advance rates applied to the value of accounts receivables and inventory. At
March 13, 1998 the Company had unused available borrowing capacity of $5.7
million under the terms of the Revolving Loan Agreement. At December 31, 1997
the Company had total borrowing capacity of $50.0 million, of which $4.6 million
was used to secure letters of credit and $0.7 million was used to secure trade
finance borrowings. Additionally, $38.2 million had been borrowed to fund
operations resulting in unused available borrowing capacity of $6.5 million. The
decline in unused available borrowing capacity is primarily due to the build up
in working capital at Morgan in advance of the seasonal consumer rental
business.
The Company's Radco subsidiary, which is a non-guarantor subsidiary
under the terms of the bond indenture, concurrently with the acquisition of
substantially all the assets of MTA, entered into a three-year revolving credit
agreement with the Company's revolving credit lender. The agreement provides for
borrowings of up to the lesser of $5,000,000 or an amount based on advance rates
applied to the total amounts of eligible accounts receivable and inventories of
Radco. The revolving loan agreement provides for borrowing at a variable rate of
interest, based on the U.S. prime rate (8.5 percent at December 31, 1997), and
expires October 31, 2000. The arrangement allows Radco to borrow funds and
provides for the guarantee of letters of credit. Radco used proceeds of
approximately $1.7 million to finance the acquisition of the MTA assets. At
December 31, 1997, Radco had total borrowing capacity of approximately $1.8
million and unused net available borrowing capacity of approximately $0.2
million.
As discussed in Notes 8 and 9 to the Consolidated Financial Statements,
the Company's Revolving Loan Agreement and Senior Notes Indenture restrict the
ability of the Company to dispose of assets, incur debt, pay dividends and
restrict certain corporate activities.
The Company has signed a letter of intent to sell the assets of the Lowy
Distribution business and has retained investment bankers to evaluate the
possible sale of the Blue Ridge carpet manufacturing business of Lowy Group.
Proceeds from the possible sale of these business units would be used to repay
revolver borrowings. Any remaining proceeds, under the terms of the bond
indenture, would be required to be re-invested in the business within one year.
There are no assurances that the sales will occur. See "Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995" below.
The Company believes that it has adequate resources to meet its working
capital and capital expenditure requirements consistent with past trends and
practices, and that its cash balances and the borrowing availability under the
Revolving Credit Agreement will satisfy the Company's cash requirements for the
foreseeable future given its anticipated additional capital expenditure and
working capital requirements and its known obligations. The Company's management
believes that its options related to TAG include the resolution of operating
problems or the possible sale of the
-26-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
operations, both resulting in improved liquidity, however, there are no
assurances that these events will occur. See "Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995" below.
Other Matters
The Company is significantly leveraged and has a $4.2 million
stockholder's deficit at December 31, 1997. Through its floating rate debt, the
Company is subject to interest rate fluctuations. The Company operates in
cyclical businesses and the markets for its products are highly competitive. In
addition, the Company places significant reliance on a relatively few number of
customers with two customers accounting for 18% of 1997 consolidated net sales.
The combination of these factors, which are outside the Company's control, cause
it to be subject to changes in economic trends and new business developments.
The Company has net operating loss carryforwards of approximately $28.3
million for U.S. federal income tax purposes at December 31, 1997, which if not
utilized, will begin to expire in 2002. The Company has recorded a valuation
allowance of $2.1 million and $.7 million, during the years ended December
31,1997 and 1996, respectively, against the net operating loss carryforwards as
the Company believes that the corresponding deferred tax asset may not be
realizable. The Company has considered prudent and feasible tax planning
strategies in assessing the need for the valuation allowance. The Company has
assumed approximately $8.3 million ($10.6 million net of a valuation allowance
of $2.3 million) of benefits attributable to such tax planning strategies. The
Company believes that after consideration of its options concerning the
operations of TAG, which incurred significant losses during 1997, 1996 and
1995,and other tax planning strategies, that sufficient future taxable income
will be generated to utilize the deferred tax asset. In the event the Company
were to determine in the future that any such tax planning strategies would not
be implemented, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.
Inflation historically has not materially affected the Company's
business, although raw materials and general operating expenses, such as
salaries and employee benefits, are subject to normal inflationary pressures.
The Company believes that generally it has been able to increase its selling
prices to offset increases in costs due to inflation.
Morgan has been named as a potentially responsible party ("PRP") with
respect to the generation of hazardous materials alleged to have been handled or
disposed of at two Federal Superfund sites in Pennsylvania and one in Kansas.
Although a precise estimate of liability cannot currently be made with respect
to these sites, based upon information known to Morgan, the Company currently
believes that it's proportionate share, if any, of the ultimate costs related to
any necessary investigation and remedial work at those sites will not have a
material adverse effect on the Company.
The Company's subsidiaries are evaluating plans to modify their
information technology systems to recognize the year 2000. The modifications are
expected to be substantially complete by mid-1999 and to cost between $1.0
million and $2.0 million. This estimate excludes the costs to upgrade and
replace systems in the normal course of business. The project is not expected to
significantly
-27-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
affect operations. See "Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995" below.
Although all of the Subsidiaries have reviewed the benefits of the
adoption of ISO 9000, an internationally recognized certification regarding
production practices and techniques employed in manufacturing processes, only
MIC Group and EFP, at its facility in Indiana, have obtained certification. The
implementation of this standard is in recognition of the international nature of
a number of MIC Group's customers as well as being reflective of the high
precision nature of the services of both companies. EFP and the Raider division
of TAG have plans to implement the standard, EFP at its other locations, within
the next two years. The Company believes that, except for MIC Group and EFP,
none of the customers of the Company have requested or expect the adoption by
the Company of ISO 9000.
The Subsidiaries have historically made payments to a partnership and a
corporation controlled by Mr. Poindexter in the form of allocated overhead
expenses, consulting services and management fees. Since the consummation of the
Note Offering, the Company has paid fees to that corporation for, among other
things, services provided by Messrs. Poindexter and Magee. The Company charges
the Subsidiaries for their use of funds and for stewardship services provided to
them by the Company.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (1) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (2) any sale of a business unit is
subject to many factors including terms considered satisfactory to the
management of the Company; and (3) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements: Page
Report of Independent Auditors (Ernst & Young LLP) ................... 29
Report of Independent Public Accountants (Arthur Andersen LLP) ....... 30
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......... 31
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 ................................ 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ................................ 33
Consolidated Statements of Stockholder's Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995 ............ 34
Notes to Consolidated Financial Statements ........................... 35
-28-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
J.B. Poindexter & Co., Inc.
We have audited the accompanying consolidated balance sheets of J.B. Poindexter
& Co., Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholder's equity (deficit) and cash
flows for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of J.B.
Poindexter & Co., Inc. and subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
March 6, 1998
-29-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J.B. Poindexter & Co., Inc.:
We have audited the accompanying consolidated statement of operations, cash
flows and stockholder's equity of J.B. Poindexter & Co., Inc. (a Delaware
Corporation) and subsidiaries, for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in Note 8, the Company incurred a significant loss in 1995
attributable to losses by one of its subsidiaries. As a result, JBPCO violated
certain financial covenants of its revolving credit agreement. The lenders have
agreed to waive the covenant violations and amended financial covenants have
been established through expiration of the facility in May 1997. The steps taken
by Company management to address certain operational issues of the subsidiary
are also discussed in Note 8.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
J.B. Poindexter & Co., Inc. and subsidiaries for the year ended December 31,
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1996
-30-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
December 31,
------------
1997 1996
--------- --------
<S> <C> <C>
Current assets
Restricted cash ............................................................ $ 3,191 $ 2,607
Accounts receivable, net of allowance for doubtful accounts of
$1,900 and $1,863, respectively ................................... 36,546 31,258
Inventories, net ........................................................... 50,305 48,612
Deferred income taxes ...................................................... 2,277 2,588
Prepaid expenses and other ................................................. 1,660 2,139
--------- ---------
Total current assets .............................................. 93,979 87,204
Property, plant and equipment, net .............................................. 46,329 51,097
Goodwill, net ................................................................... 21,919 21,773
Deferred income taxes ........................................................... 5,259 5,174
Other assets .................................................................... 7,873 8,233
--------- ---------
Total assets .................................................................... $ 175,359 $ 173,481
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Short-term debt ............................................................ $ 428 $ 917
Current portion of long-term debt .......................................... 1,376 1,885
Borrowings under revolving credit facilities ............................... 39,763 28,238
Accounts payable ........................................................... 14,473 14,624
Accrued compensation and benefits .......................................... 5,887 7,427
Accrued income taxes ....................................................... 196 372
Accrued warranty liabilities ............................................... 2,682 2,799
Other accrued liabilities .................................................. 9,735 8,576
--------- ---------
Total current liabilities ......................................... 74,540 64,838
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ....................................... 102,291 102,767
Employee benefit obligations and other ..................................... 3,269 2,846
--------- ---------
Total noncurrent liabilities ...................................... 105,560 105,613
--------- ---------
Commitments and contingencies
Stockholder's equity (deficit)
Common stock and paid-in capital ........................................... 16,486 16,486
Cumulative translation adjustment .......................................... (186) 39
Accumulated deficit ........................................................ (21,041) (13,495)
--------- ---------
Total stockholder's equity (deficit) .............................. (4,741) 3,030
--------- ---------
Total liabilities and stockholder's equity (deficit) .............. $ 175,359 $ 173,481
========= =========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-31-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales ..................................... $ 447,536 $ 432,387 $ 450,716
Cost of sales ................................. 351,580 337,957 365,313
--------- --------- ---------
Gross profit .................................. 95,956 94,430 85,403
Selling, general and administrative expense ... 86,106 84,062 81,971
Closed and excess facility costs .............. 2,306 1,375 --
Other income, net ............................. (3,197) (76) (1,211)
--------- --------- ---------
Operating income .............................. 10,741 9,069 4,643
Interest expense .............................. 16,894 16,214 15,901
--------- --------- ---------
Loss before income taxes and extraordinary loss (6,153) (7,145) (11,258)
Income tax provision (benefit) ................ 1,393 (991) (2,722)
--------- --------- ---------
Loss before extraordinary loss ................ (7,546) (6,154) (8,536)
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $135 ... -- 260 --
--------- --------- ---------
Net loss ..................................... $ (7,546) $ (6,414) $ (8,536)
========= ========= =========
Basic and diluted loss per share:
Loss before extraordinary loss ............ $ (2,467) $ (2,012) $ (2,790)
Extraordinary loss ........................ -- (85) --
--------- --------- ---------
Net income (loss) ......................... $ (2,467) $ (2,097) $ (2,790)
========= ========= =========
Weighted average shares outstanding ........... 3,059 3,059 3,059
========= ========= =========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-32-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss ....................................................................... $ (7,546) $ (6,414) $ (8,536)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................................. 12,382 11,862 11,155
Extraordinary loss on early extinguishment of debt,
net of tax ............................................................ -- 260 --
Closed and excess facility costs .......................................... 1,834 -- --
(Gain) loss on sale of facilities and equipment ........................... (2,545) 19 (1,144)
Deferred federal income tax provision (benefit) ........................... 229 (1,875) (3,875)
Other ..................................................................... 344 453 96
Increase (decrease) in assets and liabilities net of the effect of acquisitions:
Accounts receivable ....................................................... (4,903) 2,590 923
Inventories ............................................................... (1,077) 3,325 5,126
Prepaid expenses and other ................................................ 485 160 71
Accounts payable .......................................................... (151) 798 (13,430)
Accrued income taxes ...................................................... (378) 9 224
Other accrued liabilities ................................................. (1,189) (500) 1,229
-------- -------- --------
Net cash provided by (used in) operating activities ................... (2,515) 10,687 (8,161)
-------- -------- --------
Cash flows used in investing activities:
Purchase of businesses, net of cash acquired .............................. (2,700) -- (10,277)
Proceeds from disposition of facilities and equipment ..................... 3,674 416 2,988
Proceeds from sale of short-term investments .............................. -- -- 180
Acquisition of property, plant and equipment .............................. (7,262) (8,091) (11,870)
Other ..................................................................... (145) 178 (34)
-------- -------- --------
Net cash used in investing activities ................................. (6,433) (7,497) (19,013)
-------- -------- --------
Cash flows provided by financing activities:
Net proceeds of revolving lines of credit ................................. 11,037 683 21,615
Payments of long-term debt and capital leases ............................. (1,298) (2,228) (1,848)
Debt issuance costs ....................................................... (207) (752) --
-------- -------- --------
Net cash provided (used in) financing activities ...................... 9,532 (2,297) 19,767
-------- -------- --------
Increase (decrease) in restricted cash ........................... 584 893 (7,407)
Restricted cash beginning of period ............................................ 2,607 1,714 9,121
-------- -------- --------
Restricted cash end of period .................................................. $ 3,191 $ 2,607 $ 1,714
======== ======== ========
Supplemental information:
Cash paid for income taxes ................................................ $ 1,526 $ 1,010 $ 937
======== ======== ========
Cash paid for interest cost ............................................... $ 15,029 $ 16,211 $ 14,873
======== ======== ========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-33-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 and 1997
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Shares of Common Retained Currency
Common Stock and Earnings Translation
Stock Paid-in Capital (Deficit) Adjustment Total
----- --------------- --------- ---------- -----
<S> <C> <C> <C> <C> <C>
December 31, 1994 ................... 3,059 $ 16,486 $ 1,326 $ -- $ 17,812
Net loss ................... -- -- (8,536) -- (8,536)
Pension liability adjustment -- -- 129 -- 129
Translation adjustment ..... -- -- -- 46 46
-------- -------- -------- -------- --------
December 31, 1995 ................... 3,059 16,486 1,326 -- 9,451
Net loss ................... -- -- (6,414) -- (6,414)
Translation adjustment ..... -- -- -- (7) (7)
-------- -------- -------- -------- --------
December 31, 1996 ................... 3,059 16,486 (13,495) 39 3,030
Net loss ................... -- -- (7,546) -- (7,546)
Translation adjustment ..... -- -- -- (225) (225)
-------- -------- -------- -------- --------
December 31, 1997 ................... 3,059 $ 16,486 ($21,041) $ (186) ($ 4,741)
======== ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-34-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization & Business:
J. B. Poindexter & Co., Inc. ("JBPCO") and its subsidiaries (the
"Subsidiaries", and together with JBPCO, the "Company") operate primarily
manufacturing and wholesale distribution businesses. JBPCO and the Subsidiaries
are controlled by John B. Poindexter.
Morgan Trailer Manufacturing Co. ("Morgan") Acquired January 12, 1990,
Morgan manufactures truck bodies for dry freight and refrigerated vans
(excluding those made for pickup trucks and tractor trailer trucks). Its
customers include rental companies, truck dealers and companies that operate
fleets of delivery vehicles.
Effective July 1,1997 Morgan acquired the assets of Gem-Top Manufacturing,
Inc. ("Gem-Top") from the Truck Accessories Group, Inc. Gem-Top manufactures and
distributes light truck caps primarily to commercial customers and was
originally acquired on March 16, 1993. Since both companies are under common
control the acquisition was accounted for in a manner similar to a pooling of
interests.
Truck Accessories Group, Inc., ("TAG") Acquired on August 14, 1987, TAG is a
manufacturer and distributor of pickup truck "caps" and tonneau covers which are
fabricated enclosures that fit over the open beds of pickup trucks, converting
the beds into weatherproof storage areas. In addition, TAG distributes other
accessories for light trucks, minivans and sports utility vehicles. TAG
operations are organized into two separate and distinct operating divisions: TAG
Manufacturing Division, manufactures caps and tonneau covers and certain other
accessories; TAG Distribution Division, operates as a retail and wholesale
distributor of products manufactured by TAG divisions and other suppliers.
The TAG Manufacturing Division includes Leer, which was acquired on August
14, 1987, 20th Century Fiberglass which was acquired June 29, 1995, and Raider
Industries Ltd., a Saskatchewan, Canada corporation that acquired the cap
manufacturing businesses of Raider and Lo Rider on June 30, 1995.
The TAG Distribution Division includes Radco Industries, Inc., ("Radco")
which was acquired on December 28, 1994. Century Distributing which was acquired
June 29, 1995, and Midwest Truck After Market ("MTA") which was acquired October
31, 1997.
Lowy Group, Inc. ("Lowy Group") Acquired August 30, 1991, Lowy Group
operates in the floor covering business through three divisions. Lowy
Distribution is a wholesale floor covering distributor that serves all or a
portion of twelve Midwestern states through six company operated facilities.
Blue Ridge Carpet Mills designs, manufactures and markets mid- to high-end
commercial carpeting for sale throughout the United States and abroad. Courier
Division uses state of the art equipment to dye and print patterns on commercial
and residential carpeting that is manufactured by Blue Ridge and other unrelated
companies.
EFP Corporation ("EFP") Acquired on August 2, 1985, EFP molds and markets
expandable foam products which are used as casting patterns, packaging, shock
absorbing and materials handling products primarily by the automotive,
electronics, furniture, appliance and other industries. It also manufactures
products used as thermal insulators. On August 31, 1992, EFP acquired Astro
Pattern Corporation's ("Astro") assets. Astro's assets are used to produce
machine tooling and wood patterns primarily for the foundry industry.
-35-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 8, 1995, EFP sold certain assets related to its line of
beverage cooler products and recognized a net gain of $1,040,000.
MIC Group Corp. ("MIC Group") Acquired on June 19, 1992, MIC Group is a
manufacturer, investment caster and assembler of precision metal parts for use
in the worldwide oil and gas exploration industry.
2. Summary of Significant Accounting Policies:
Principles of Consolidation. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. All
intercompany accounts and transactions have been eliminated in consolidation.
Restricted Cash. At December 31, 1997 and 1996, substantially all of the
Company's cash is restricted pursuant to the terms of the revolving credit
facility (See Note 8).
Cash and Cash Equivalents. For the purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Accounts Receivable. Accounts receivable are stated net of an allowance for
doubtful accounts. During the years ended December 31, 1997, 1996 and 1995, the
Company charged to expense $779,000, $723,000, and $2,079,000, respectively, as
a provision for doubtful accounts and deducted from the allowance $758,000,
$1,486,000, and $714,000, respectively, for write-offs of bad debts.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for certain operating
companies and by the first-in, first-out (FIFO) method by other operating
companies.
Property, Plant and Equipment. Property, plant and equipment, including
property under capital leases, are stated at cost. The cost of property under
capital leases represents the present value of the future minimum lease payments
at the inception of the lease. Depreciation and amortization is computed by
using the straight-line method over the estimated useful lives of the applicable
assets for financial reporting purposes and accelerated methods for income tax
purposes.
The cost of maintenance and repairs is charged to operating expense as
incurred and the cost of major replacements and significant improvements is
capitalized.
Warranty. Certain Subsidiaries (Morgan, TAG and Lowy Group) provide product
warranties for periods up to ten years, except for TAG in which case the
warranty period, exclusive to the original truck owner, is in general but with
exclusions one year for parts, five years for paint and lifetime for structure.
A provision for warranty costs is included in cost of sales when goods are sold
based on historical experience and the estimated warranty liability is adjusted
based on current performance. Actual warranty costs could differ from estimates
made.
Income Taxes. The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109,
deferred tax assets and liabilities are computed
-36-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted tax rates. Deferred income tax expenses
or credits are based on the changes in the deferred tax asset or liability from
period to period.
Net Sales Recognition. Net sales are recognized upon shipment of the product
to customers, except for Morgan where revenue is recognized and the customer is
billed upon final body assembly and quality inspection. Adjustments to arrive at
net sales are estimated allowances for discounts and returns.
Earnings per Share. Earnings per share is calculated by dividing net income
by the weighted average number of shares outstanding during the period. No
common stock equivalents exist.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation. The functional currency of a subsidiary of one
of the Company's Subsidiaries is the applicable local currency. The translation
of the foreign currency into U.S. Dollars is performed for balance sheet
accounts using the exchange rate in effect at the balance sheet date and for
income statement accounts using a weighted average exchange rate for the period.
The gains or losses resulting from such translation are included as a separate
component of stockholder's equity (deficit).
Recently Issued Accounting Standards. In June 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 130 - "Reporting Comprehensive Income" ("SFAS130") and Statement
of Financial Accounting Standards No. 131 - "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"). Both SFAS 130 and SFAS 131
will be adopted in 1998.
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non- owner sources. SFAS 130 is not expected to
have a significant impact on the Company's results of operations or financial
position.
SFAS 131 changes the way segment information is presented from an
industry segment approach to a management approach, segments are determined
based on the operations regularly reviewed by the chief operating decision maker
to make decisions about resources to be allocated to the segment and assess its
performance. The Company has not completed its evaluation of the impact of SFAS
131 on its financial statements.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 - "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132") that revises existing disclosure
requirements of SFAS 87 "Employers' Accounting for Pensions" and SFAS 106
"Employers' Accounting for Postretirement Benefits other than Pensions". The
Company will adopt SFAS
-37-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132 in 1998 and does not expect it to have an impact on the Company's results of
operations or financial position.
3. Acquisitions:
Effective October 31, 1997 Radco, a subsidiary of TAG, acquired
substantially all of the assets of MTA. MTA, based in Tulsa, Oklahoma, was a
wholesale distributor of light truck and vehicle accessories. Radco paid
approximately $2.5 million of which $2.1 million was paid in cash and $0.5
million evidenced by a 9% promissory note payable in 20 consecutive quarterly
installments of principal and interest. Radco also assumed $100,000 in closing
fees
Concurrently with the acquisition, Radco entered into a five year
non-compete agreement and a six month consulting agreement with the owner of MTA
pursuant to which the owner will be compensated for providing continuing
services to, and not competing with, Radco. Radco will pay the owner an
aggregate of $100,000 each year under the terms of the non-compete agreement.
The Company's consolidated results of operations on an unaudited pro forma
basis, as though MTA, had been acquired on January 1, 1996 are as follows
(Dollars in thousands, except per share amounts):
1997 1996
---- ----
(Unaudited)
Net sales .............................................$ 454,513 $ 440,850
Operating income ...................................... 11,043 9,832
Loss before extraordinary loss ........................ (7,507) (5,875)
Net loss .............................................. (7,507) (6,135)
Net loss per common share before extraordinary loss ... (2,454) (1,921)
Net loss per common share ............................. (2,454) $ (2,005)
These pro forma results are presented for informational purposes only
and do not purport to show the actual results which would have occurred had the
business combinations been consummated on January 1, 1996.
During June 1995, the Company's TAG subsidiary acquired substantially all of
the assets of five companies: 20th Century Fiberglass, Inc., Century
Distributing, Inc., Brown Industries Ltd., Pro-More Industries Ltd., and Lo
Rider Industries Inc. The aggregate purchase price approximated $10.3 million in
cash and TAG assumed liabilities of approximately $8.5 million of which $1.6
million was repaid in full at closing. The results of all businesses acquired
during the year ended December 31, 1995, have been included in the consolidated
financial statements from the dates of acquisition.
-38-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories:
Consolidated net inventories consist of the following (dollars in thousands):
December 31,
1997 1996
---- ----
FIFO Basis Inventory:
Raw Materials .................. $14,580 $13,231
Work in Process ................ 13,450 12,052
Finished Goods ................. 11,327 12,436
------- -------
39,357 37,719
LIFO Basis Inventory:
Raw Materials .................. 2,160 2,041
Work in Process ................ 1,658 1,595
Finished Goods ................. 7,130 7,257
------- -------
10,948 10,893
Total Inventory ........................ $50,305 $48,612
======= =======
If the FIFO method had been used for all inventory, inventory would have
approximated inventory valued on a LIFO basis at December 31, 1997 and at
December 31, 1996.
Inventories are stated net of an allowance for excess and obsolete
inventory of $1,270,000 and $1,754,000 at December 31, 1997 and 1996,
respectively. During the years ended December 31, 1997, 1996 and 1995, the
Company charged to expense and other accounts $2,243,000, $2,453,000 and
$1,795,000, respectively, as a provision for excess and obsolete inventory and
deducted from the allowance $2,727,000, $1,727,000 and $1,341,000, respectively,
for write-offs of excess and obsolete inventory.
5. Closed and Excess Facilities and Assets Held for Sale
During 1997 Morgan committed to a plan to dispose of its idle facility
in Mexico in 1998. Accordingly, Morgan began marketing the property and, based
on an estimate of the fair value less the cost to sell the property, wrote down
the carrying value by $558,000 which was included in Closed and Excess Facility
Cost in the accompanying consolidated statement of operations for the year ended
December 31, 1997. The Mexico facility has a net book value of $1,200,000 at
December 31, 1997, which is included in Property, Plant and Equipment.
In 1997 TAG Distribution closed eight unprofitable stores and its
administrative office, and TAG Manufacturing incurred additional unexpected
expenses with respect to manufacturing facilities closed during 1996. The
closure of these excess facilities resulted in a charge of $1,748,000 for the
year ended December 31, 1997. In 1996, TAG Distribution closed four unprofitable
stores and TAG Manufacturing closed two manufacturing facilities, resulting in a
charge of $1,375,000 for the year ended December 31, 1996. Both such charges are
included in Closed and Excess Facility Cost in the accompanying consolidated
statements of operations. Of these charges $1,111,000 in 1997 and $453,000 in
1996 were non-cash expenses related to the write-down or disposal of assets
during those years. At December 31, 1997 accrued expenses included $547,000 with
respect to severance costs and lease obligations which run through
-39-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 1999. Approximately $271,000 of this accrual will be paid in 1998 and
the remainder will be paid in 1999.
The Company received a letter of intent, dated December 23, 1997, to sell
the assets of the Lowy Distribution division of Lowy Group Inc. At December 31,
1997 Lowy Distribution assets subject to sale were $9,547,000 less liabilities
of approximately $3,406,000. During the years ended December 31, 1997, 1996 and
1995 Lowy Distribution sales were $37,902,000, $41,501,000 and $45,785,000 and
operating income was $3,039,000, $628,000 and $1,521,000, respectively.
Operating profit during the year ended December 31, 1997 included gains on the
sales of certain real estate of $2,738,000. The anticipated sales proceeds from
the disposal of Lowy Distribution's assets approximate their carrying value at
December 31, 1997. Any sale is subject to many factors including terms
considered satisfactory to the management of the Company and no assurances can
be made that these transactions will occur.
During the year ended December 31, 1997, Lowy Group sold two warehouse
facilities and realized a gain of $3,233,000. Operations in New Brighton were
moved to a new leased location. The facility in Ankenny was sold and leased back
for a term of 10 years. The deferred gain on sale of $622,000 will be recognized
over the period of the lease. The gain recognized during 1997 of $2,738,000 has
been included in Other Income, net.
6. Long Lived Assets
Property, plant and equipment as of December 31, 1997 and 1996,
consisted of the following (Dollars in thousands):
<TABLE>
<CAPTION>
Range of Useful Lives 1997 1996
--------------------- ------- -------
<S> <C> <C> <C>
Land .................................... -- $ 4,065 $ 4,122
Buildings and improvements .............. 5-32 20,722 21,012
Machinery and equipment ................. 3-10 54,981 50,332
Furniture and fixtures .................. 2-10 7,959 7,385
Transportation equipment ................ 2-10 3,867 4,129
Leasehold improvements .................. 3-10 5,244 5,449
Construction in progress ................ -- 2,795 3,647
-------- --------
99,633 96,076
Accumulated depreciation and amortization (53,304) (44,979)
-------- --------
Property, plant and equipment, net ...... $ 46,329 $ 51,097
======== ========
</TABLE>
Depreciation expense was $9,701,000, $9,191,000 and $8,364,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
-40-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other assets and goodwill as of December 31, 1997 and 1996, consist of the
following (Dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
Amortization Accumulated Net Book Accumulated Net Book
Period Amortization Value Amortization Value
------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Other Assets:
Cash surrender value of
life insurance ............ -- $ -- $ 2,345 $ -- $ 2,077
Agreements not-to-compete ... 3-6 901 1,275 3,467 1,581
Debt issuance costs and other 3-10 2,229 4,253 1,426 4,575
---------- ---------- ---------- ----------
Total ......................... $ 3,130 $ 7,873 $ 4,893 $ 8,233
========== ========== ========== ==========
Goodwill ...................... 25-40 $ 7,900 $ 21,919 $ 6,727 $ 21,773
========== ========== ========== ==========
</TABLE>
Goodwill is being amortized on a straight-line basis over forty years for
Morgan and twenty-five years for TAG.
In accordance with FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets may be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. During the years ended December 31, 1997, 1996 and
1995, TAG incurred operating losses of $10.1 million, $6.9 million and $12.1
million, respectively. The continued losses at TAG have resulted in management
reviewing various options related to the TAG business. The events and
circumstances resulting in the operating performance indicated that assets of
certain TAG operations, amounting to $24.3 million, may be impaired. However, an
estimate of undiscounted cash flows from these assets indicated that the
carrying values of the assets would be expected to be recovered over the useful
life of the assets. Management's options related to the TAG business include the
possible sale of all or part of the business, however, management has not
committed to a formal plan to dispose of all or part of the TAG business. The
financial statements have, therefore, been prepared assuming that the Company
continues to operate TAG. However, should the Company decide in the future to
dispose of all or part of TAG the Company could incur a loss on sale of up to
$20.0 million. Similarly, it is reasonably possible that the estimate of
undiscounted future cash flows could change in the future requiring the
recognition of an impairment loss.
7. Short-term debt:
Short-term debt as of December 31, 1997 and 1996, consists of the
following (Dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Morgan:
Bankers' acceptances generally 180 day terms with interest rates ranging
from 4.9% to 7.7% ................................................... $428 $917
==== ====
</TABLE>
-41-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Revolving Credit Agreements:
Amounts outstanding under the Revolving Credit Agreement as of December
31, 1997 and 1996 were (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
$50,000,000 revolving loan due June 1999 ................... $38,154 $28,238
$5,000,000 revolving loan due October 2000 ................ 1,609 --
------- -------
Total ...................................... $39,763 $28,238
======= =======
</TABLE>
On June 28, 1996, the Company entered into a senior secured revolving
loan agreement (Revolving Loan Agreement) providing for borrowing by its
Subsidiaries of up to $50.0 million. The arrangement allows the Company to
borrow funds and provides for the guarantee of letters of credit and certain
foreign exchange contracts, issued by the Company's banks, up to the lesser of
$50,000,000 or an amount based on advance rates applied to the total amounts of
eligible accounts receivable and inventories of the Subsidiaries. The advance
rates vary by subsidiary and range between 75 percent and 85 percent for
receivables and between 40 percent and 60 percent for inventory. The Revolving
Loan Agreement provides for borrowing at variable rates of interest, based on
either LIBOR (London Interbank Offered Rate, 5.6 percent at December 31, 1997)
or U.S. prime rate (8.5 percent at December 31, 1997), and expires June 28,
1999. Interest is payable monthly including a fee of one-half of one percent on
the amount of unused borrowings. The Subsidiaries are guarantors of this
indebtedness, and inventory and receivables are pledged under the Revolving Loan
Agreement. At December 31, 1997, the Company had total borrowings of
$38,154,000, bank acceptances of $428,000 and letters of credit and foreign
exchange accommodations of $4,931,000 outstanding pursuant to the Revolving Loan
Agreement. At December 31, 1997, the Company's unused available borrowing under
the Revolving Loan Agreement totaled approximately $6,487,000.
During the year ended December 31,1996 the Company wrote off certain
capitalized financing costs and recorded an extraordinary loss of $260,000, net
of tax benefits, as a result of refinancing the revolver debt.
The Revolving Loan Agreement contains provisions allowing the lender to
accelerate debt repayment upon the occurrence of an event the lender determines
to represent a material adverse change. Accordingly, balances outstanding under
the Revolving Loan Agreement are classified as a current liability. The
Revolving Loan Agreement also contains restrictive covenants which among other
things restrict the ability of the Company to dispose of assets, incur debt and
restrict certain corporate activities. At December 31, 1997, the Company was
prohibited from paying dividends under the terms of the Revolving Loan
Agreement. Additionally, the Company's cash balance is restricted under the
terms of the Revolving Loan Agreement.
Radco is a non-guarantor of the Company's Senior Notes (See Note 9) and
is not a Subsidiary Guarantor under the terms of the Company's Revolving Loan
Agreement. Concurrent with the acquisition of substantially all the assets of
MTA, Radco entered into a three-year revolving credit agreement providing for
borrowings of up to the lesser of $5,000,000 or an amount based on advance rates
applied to the total amounts of eligible accounts receivable and inventories of
Radco. The advance rates are 80 percent for receivables and 60 percent for
inventory. The revolving loan agreement provides for borrowing at a
-42-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
variable rate of interest, based on the U.S. prime rate (8.5 percent at December
31, 1997), and expires October 31, 2000. Interest is payable monthly including a
fee of one quarter percent on the amount of unused borrowings. Radco used
proceeds of approximately $1.7 million to finance the acquisition of the MTA
assets. The arrangement allows Radco to borrow funds and provides for the
guarantee of letters of credit.
At December 31, 1997, Radco had total borrowings of $1,609,000, and
unused available borrowing capacity totaling approximately $.2 million.
The Company used proceeds from the Revolving Loan Agreement, entered
into on June 28, 1996 to repay all borrowings under the Revolving Credit
Agreement entered into on May 23, 1994. The Revolving Credit Agreement contained
numerous restrictive covenants, which, among other things, restricted the
ability of the Company to dispose of assets and incur debt and restrict certain
corporate activities. In addition, the Company was required to maintain
specified financial covenants including a minimum net worth and debt coverage
ratio. At December 31, 1995, the Company was not in compliance with the minimum
net worth requirements or the debt coverage ratio as specified by the Revolving
Credit Agreement and borrowings by certain subsidiaries had exceeded their
borrowing base.
The covenant violations as of December 31, 1995 primarily resulted from
the Company incurring a net loss of $8.5 million in 1995, which included
significant losses at TAG, as a result of manufacturing problems associated with
new product development, design changes and paint finishing processes. These
problems contributed to higher than normal product returns and production
delays. Management of JBPCO and TAG, began taking steps during 1995 to address
these problems including, among others, redesigning certain products and
implementing additional quality control procedures and closing inefficient
operations.
Subsequent to December 31, 1995, upon determination of the available
borrowing base, the Company took action to conform the borrowings of the
subsidiaries to the limits of the then available borrowing bases. In addition,
the lenders agreed to waive the covenant violations and to amend the financial
covenants of the Revolving Credit Agreement through its May 1997 expiration
subject to completion of certain documentation requirements.
9. Long-term debt and Note Offering:
Long-term debt as of December 31, 1997 and 1996 consists of the
following (Dollars in the table in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
JBPCO:
12 1/2% Senior Notes due 2004 .................................. $ 100,000 $ 100,000
--------- ---------
</TABLE>
-43-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
TAG:
Note payable, due October 1, 2002, quarterly principal payments
of $25,000 plus interest at 9% .............................. 500 --
Note payable, due June 15, 2000, monthly principal payments
of $26,666 plus interest at U.S. prime, (8.5% at
December 31, 1997) ......................................... 800 1,120
Obligations under various non-compete agreements ............... 1,384 1,490
Obligations under capital leases ............................... 196 589
--------- ---------
2,880 3,199
--------- ---------
Morgan:
Capital lease obligation due in monthly installments of $17,704
including interest at 8.2%, through May 10, 1998 ............ 90 284
Other .......................................................... -- 28
--------- ---------
90 312
--------- ---------
Lowy Group:
Life insurance policy loans, secured by the cash surrender value
accumulated on each policy, balances are payable at the
termination of the policy. Interest rates range from 5%
to 8.6% ..................................................... 190 184
Other .......................................................... -- 3
--------- ---------
190 187
--------- ---------
EFP:
Various equipment notes, due in monthly or annual installments,
interest from 8.12% to 10%, with maturities from May 1997 to
September 1999, each collateralized by specific assets ......... 478 678
Other .......................................................... -- 83
--------- ---------
478 761
--------- ---------
MIC Group:
Covenant not-to-compete......................................... 29 193
--------- ---------
Total long-term debt ................................................... 103,667 104,652
Less current portion ................................................... 1,376 1,885
--------- ---------
Long-term debt, less current portion ................................... $ 102,291 $ 102,767
========= =========
</TABLE>
The Senior Notes Indenture contains restrictive covenants which, among
other things, restrict the ability of the Company to dispose of assets, incur
debt and restrict certain corporate activities. At December 31, 1997, the
Company was prohibited from paying dividends under the terms of the Senior Notes
Indenture.
The Company's obligations under the Senior Notes are guaranteed by each
directly wholly-owned Subsidiary of JBPCO (the "Subsidiary Guarantors"). Each
guarantee is a senior unsecured obligation of the Subsidiary providing such
Guarantee and ranks pari passu with all other senior unsecured indebtedness of
such subsidiary. In addition, the Subsidiary Guarantors guarantee the
indebtedness outstanding under the Revolving Loan Agreement and have pledged
substantially all of their assets. Separate financial
-44-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements of the Subsidiary Guarantors are not included because (a) all the
Subsidiary Guarantors provide the Guarantees, and (b) the Subsidiary Guarantors
are jointly and severally liable on a full and unconditional basis. Condensed
financial information for the Subsidiary Guarantors and non-guarantor
subsidiaries, as a group, is included in Note 17.
The Company estimates the fair value of the 12 1/2% Senior Notes at
December 31, 1997 to be $110,000,000 based on their publicly traded value at
that date compared to a recorded amount of $100,000,000 as of December 31, 1997.
Maturities. Aggregate principal payments on long-term debt for the next
five years subsequent to December 31, 1997, are as follows (In thousands):
1998 ................................... $ 1,376
1999 ................................... 1,181
2000 ................................... 623
2001 ................................... 200
2002 ................................... 100
Thereafter ............................. 100,187
--------
$103,667
========
10. Operating Leases:
The Company leases certain manufacturing facilities and equipment under
noncancelable operating leases certain of which contain renewal options. The
future minimum lease payments for the next five years subsequent to December 31,
1997 are as follows (Dollars in thousands):
1998 ................................... $ 8,242
1999 ................................... 6,075
2000 ................................... 3,654
2001 ................................... 2,556
2002 ................................... 2,086
-------
$22,613
=======
Total rental expense under all operating leases was $8,417,000, $7,694,000
and $7,617,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
-45-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes:
The income tax provision (benefit) consists of the following for the years
ended December 31, 1997, 1996 and 1995 (Dollars in thousands):
1997 1996 1995
---- ---- ----
Current:
Federal ..................... $ -- $ -- $ --
State ....................... 1,166 884 1,172
Foreign ..................... -- -- --
Deferred:
Federal ..................... 525 (1,945) (3,666)
State ....................... (299) 70 (146)
Foreign ..................... -- -- (82)
------- ------- -------
Income tax provision (benefit) $ 1,393 $ (991) $(2,722)
======= ======= =======
The following table reconciles the differences between the statutory
Federal income tax rate and the effective tax rate for the years ended December
31, 1997, 1996 and 1995 (Dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- ------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax provision (benefit) at statutory
Federal income tax rate ..................... $(2,093) 34% $(2,430) 34% $(3,828) 34%
Valuation allowance ............................ 1,277 (21) -- -- -- --
Goodwill amortization .......................... 239 (4) 335 (5) 268 (2)
Non deductible expenses ........................ 196 (3) -- -- -- --
Federal income tax provision on foreign earnings 225 (4) -- -- -- --
Expiration of ITC .............................. 663 (11) -- -- -- --
State income taxes, net of Federal income
tax benefit ................................... 474 (8) 517 (7) 980 (9)
Losses (profit) from foreign corporations ...... (52) 1 368 (5) -- --
Other .......................................... 464 (7) 219 (3) (142) 1
------- --- ------- --- ------- ---
Provision (benefit) for income taxes
and effective tax rates ...................... $ 1,393 (23%) $ (991) 14% $(2,722) 24%
======= === ======= === ======= ===
</TABLE>
Deferred taxes are based on the estimated future tax effects of
differences between the financial statements and tax basis of assets and
liabilities given the provisions of the enacted tax laws. The net deferred tax
assets and liabilities as of December 31, 1997 and 1996 are comprised of the
following (Dollars in thousands):
-46-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1996
---- ----
Current deferred tax (assets):
Allowance for doubtful accounts ........ $ (994) $ (764)
Employee benefit accruals and reserves . (1,031) (997)
Warranty liabilities ................... -- (118)
Excess facility costs .................. (252) (328)
Other .................................. -- (381)
---------- ----------
Total current deferred tax (assets) . (2,277) (2,588)
Long term deferred tax (assets):
Tax benefit carryforwards .............. (10,635) (10,343)
Warranty liabilities ................... (1,235) (932)
Non-compete agreements ................. (579) --
Other .................................. (198) --
Valuation allowance .................... 2,312 1,035
---------- ----------
Total long term deferred tax (asset) (10,335) (10,240)
Long term deferred tax liabilities:
Depreciation and amortization .......... 3,645 4,603
Other .................................. 1,431 463
---------- ----------
Net long term deferred tax (asset) .. (5,259) (5,174)
---------- ----------
Net deferred tax assets ..... $ (7,536) $ (7,762)
========== ==========
Tax Carryforwards. The Company has investment tax credit carryforwards of
approximately $189,000 for U.S. federal income tax purposes which will expire
between 1998 and 2001 if not previously utilized. The company has recorded a
valuation allowance of $189,000 against the investment tax credit carryforward
as the Company believes that the corresponding deferred tax asset may not be
realizable. The Company has alternative minimum tax credit carryforwards of
approximately $817,000 for U.S. federal income tax purposes which may be carried
forward indefinitely. The utilization of the alternative minimum tax credit
carryforward is restricted to the taxable income of one Subsidiary. In addition,
the Company has net operating loss carryforwards of approximately $28.3 million
for U.S. federal income tax purposes at December 31, 1997, which if not
utilized, will begin to expire in 2002. The Company has recorded a valuation
allowance of $2.1 million and $708,000, during the years ended December 31, 1997
and 1996, respectively, against the net operating loss carryforwards as the
Company believes that the corresponding deferred tax asset may not be
realizable.
The Company has considered prudent and feasible tax planning strategies
in assessing the need for the valuation allowance. The Company has assumed
approximately $8.3 million ($10.6 million net of a valuation allowance of $2.3
million) of benefits attributable to such tax planning strategies. In the event
the Company were to determine in the future that any such tax planning
strategies would not be implemented, an adjustment to the deferred tax asset
would be charged to income in the period such determination was made.
12. Segment Data:
The Company operates in three industry segments: Automotive, Floor
Covering and Plastics and Other. The Automotive segment includes Morgan and TAG,
the Floor Covering segment includes Lowy
-47-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Group, and the Plastics and Other segment includes EFP and MIC Group. The
Company operates principally in only one geographic segment (the United States).
The following is a summary of the industry segment data for the years ended
December 31, 1997, 1996 and 1995 (Dollars in thousands):
<TABLE>
<CAPTION>
Operating Identifiable Depreciation/ Capital
Net Sales Income Assets Amortization Expenditures
<S> <C> <C> <C> <C> <C>
1997:
Automotive* ............. $ 317,211 $ (1,389) $ 122,415 $ 7,970 $ 5,778
Floor Covering .......... 69,724 7,150 23,813 384 155
Plastics and Other ...... 61,516 7,763 24,753 3,083 1,228
JBPCO ................. (915) (2,783) 4,378 945 101
---------- ---------- ---------- ---------- ----------
Consolidated ........ $ 447,536 $ 10,741 $ 175,359 $ 12,382 $ 7,262
========== ========== ========== ========== ==========
1996:
Automotive* ............ $ 304,119 $ 138 $ 115,594 $ 7,207 $ 6,093
Floor Covering ......... 71,343 3,927 23,815 617 304
Plastics and Other ..... 56,925 7,539 25,074 3,363 1,650
JBPCO ................. -- (2,535) 8,998 675 32
---------- ---------- ---------- ---------- ----------
Consolidated ........ $ 432,387 $ 9,069 $ 173,481 $ 11,862 $ 8,079
========== ========== ========== ========== ==========
1995:
Automotive ............. $ 325,249 $ (2,227) $ 121,196 $ 6,400 $ 8,128
Floor Covering ......... 74,955 4,944 24,018 678 875
Plastics and Other ..... 50,512 4,644 26,024 3,308 2,704
JBPCO .................. -- (2,718) 9,556 769 163
---------- ---------- ---------- ---------- ----------
Consolidated ........ $ 450,716 $ 4,643 $ 180,794 $ 11,155 $ 11,870
========== ========== ========== ========== ==========
</TABLE>
*Includes a $2,306,000 and a $1,375,000 charge, during the years ended
December 31, 1997 and 1996, respectively, associated with the closure or write
down in carrying value of certain excess facilities.
13. Stockholder's Equity:
As of December 31, 1997 and 1996, there were 100,000 shares authorized
and 3,059 shares outstanding of JBPCO common stock with a par value of $.01 per
share. JBPCO was incorporated in Delaware. No other classes of common stock,
preferred stock or common stock equivalents exist.
14. Employee Benefit Plans:
Defined Contribution Plans
JBPCO 401(k) Plan. Effective January 1, 1996, substantially all
employees of the Company became eligible to participate in the JBPCO-sponsored
401(k) savings plan. This plan allows participating employees to contribute
through salary deductions up to 15 percent of gross pay and provides for Company
matching contributions up to two percent of gross pay as well as an annual
discretionary contribution. Vesting in the Company matching contribution is 20
percent per year over the first five years. The
-48-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company incurred expenses of $1,355,000 and $1,426,000 during the years ended
December 31, 1997 and 1996, respectively, including administrative fees of
approximately $75,000 in each year.
The Subsidiaries (except MIC Group) had various defined contribution
plans for their employees prior to January 1, 1996. Effective January 1, 1996
certain of these plans were merged into the JBPCO 401 (k) plan. Total employer
contributions to remaining defined contribution plans for all Subsidiaries were
$68,000, $40,000 and $932,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Each Subsidiary's plan is summarized below.
Morgan. Morgan had a profit participation program for certain members
of management which provided for payments to participants in 1995. This plan was
terminated in 1995. Morgan maintains a separate all employee, noncontributory
profit sharing plan which provides for an annual contribution at the discretion
of the board of directors. This plan and the JBPCO 401(k) plan are administered
under a master trust agreement, which became effective January 1, 1996.
Contributions to the noncontributory profit sharing plan are based on the
earnings of Morgan as defined under the plan agreement. Morgan made no
contributions to the plan during the years ended December 31, 1997 and 1996
respectively.
TAG. TAG had a profit sharing plan that covered substantially all
full-time employees which was merged into the JBPCO 401(k) plan effective
January 1, 1996.
Lowy Group. Certain warehouse employees participate in a
collectively-bargained, multi-employer defined contribution pension plan to
which the Lowy Group makes required payments. The basis for contributions and
the amount contributed is set forth in the collectively-bargained contract. Lowy
Group makes discretionary contributions to individual retirement accounts
established by and for the benefit of certain non-union employees. During the
year ended December 31, 1997 Lowy contributed $29,000 to the plan.
EFP. Certain employees of EFP who are covered by a collective
bargaining agreement, participate in a defined contribution retirement plan
whereby EFP's contribution is based on the number of hours worked. During the
year ended December 31, 1997 EFP contributed $5,000 to the plan. Employees of
EFP who were not covered by the collective bargaining agreement were eligible to
participate in the employer-sponsored 401(k) profit sharing plan, which was
merged into the JBPCO 401(k) plan effective January 1,1996.
Substantially all employees of EFP's Astro division are covered by a
defined contribution plan. The Money Purchase Pension Plan requires EFP to
contribute four and one half percent of each participant's compensation as
defined in the plan agreement. Vesting is based on years of service. During the
year ended December 31,1997 EFP contributed $34,000 to the plan. Effective
January 1, 1996, the EFP Astro division's 401(k) profit sharing plan was merged
into the JBPCO 401(k) plan. Also, effective January 1, 1996, the contribution
percentage to the money purchase pension plan was reduced to two and one half
percent.
-49-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plans
Morgan, Lowy Group, TAG and EFP have defined benefit plans as discussed
below. The other Subsidiaries do not have defined benefit plans.
Morgan. Morgan assumed future sponsorship of the NSSC (Morgan was
merged into NSSC during 1993) pension plan and continues to make contributions
to the plan in accordance with the funding requirements of the Internal Revenue
Service. No further benefits have accrued subsequent to February 12, 1992. Plan
assets consist primarily of investments in two bank funds and the plan is
overfunded by approximately $493,000.
Lowy Group. Lowy Group has an unfunded executive defined benefit plan
whereby deferred compensation agreements provide a fixed amount of retirement
benefits to key corporate and sales employees. The accumulated benefit
obligation related to this plan is approximately $1.8 million at December 31,
1997 and 1996. Lowy Group makes no contributions to the plan, and no assets are
held in trust to secure benefits accumulating in the plan. Lowy Group does,
however, maintain life insurance policies to fund the plan obligations and
accumulate cash surrender values. The cash surrender value of life insurance
policies of which Lowy Group was beneficiary totaled $1,647,000 and $1,560,000
at December 31, 1997 and 1996, respectively, and is included in other
non-current assets in the accompanying consolidated balance sheets. Payments
made to retired individuals in the plan were $142,000, $136,000 and $147,000 in
1997, 1996 and 1995, respectively. The benefits are based on the employee's age
at retirement and the fixed monthly benefit amount specified in each individual
deferred compensation agreement. The actuarial present value of projected future
benefits attributed to employee service to date represents the projected benefit
obligation in the following table.
EFP. EFP had a defined benefit plan covering substantially all
full-time employees of one of its divisions. Benefits under the plan were based
on years of service and a percentage of the employee's average monthly earnings.
This plan was terminated effective April 15, 1996 and the assets distributed
effective October 10, 1996. The Company realized a gain, during the year ended
December 31, 1996, of approximately $200,000 upon termination of the plan.
Participants of this plan became eligible to participate in the J.B. Poindexter
& Co., Inc. 401(k) plan effective January 1, 1996.
TAG. TAG had a defined benefit plan covering hourly employees of Gem
Top working at least 1,000 hours per year. The normal retirement benefit is
equal to $20 per month for each year of service. Normal retirement date is 65
years of age. The plan was frozen effective March 31, 1996, and at December 31,
1997 and 1996 plan assets approximated projected benefit obligations.
-50-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic pension cost for the defined benefit
plans of the Company are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service costs benefits earned during the year .... $ 72 $ 75 $ 254
Interest costs on projected benefit obligation ... 340 342 575
Actual return on plan assets ..................... (659) (338) (1,031)
Net amortization & deferral and other costs ...... 461 (216) 544
----- ----- -------
Net pension expense (income) ..................... $ 214 $(137) $ 342
===== ===== =======
</TABLE>
The following table sets forth the funded status and amounts recognized
in the Company's consolidated balance sheets as of December 31, 1997 and 1996,
and the significant assumptions used in accounting for the defined benefit plans
(Dollars in table in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated benefit obligations .................................. $ 4,817 $ 5,137
======= =======
Projected benefit obligations for services
rendered to date, including vested benefits
of $3,050,000 and $3,367,000 ................................... $ 4,817 $ 5,137
Plan assets at fair value ........................................ 3,543 3,511
------- -------
Projected benefit obligation in excess of plan assets ............ (1,274) (1,626)
Unrecognized net (gain) loss from past experience
different from that assumed and effects
of changes in assumptions ...................................... (359) (27)
Prior service cost not yet recognized in net periodic pension cost -- --
Unrecognized transition cost ..................................... -- --
------- -------
Accrued pension liabilities ...................................... $(1,633) $(1,653)
======= =======
Cash surrender value of Lowy Group's life insurance policies ..... $ 1,647 $ 1,560
======= =======
Major assumptions at measurement dates:
Discount rate.................................................... 7.25% to 7.5%
Expected long-term rate of return on plan assets................. 8.0%
</TABLE>
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the
Company recorded an increase in equity of $129,000, to recognize a reduction in
the minimum liability in 1995.
15. Commitments and Contingencies:
Claims and Lawsuits. The Company is involved in certain claims and
lawsuits arising in the normal course of business. In the opinion of management,
the ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
Concentration of Credit Risk. Concentration of credit risk exists in
three Subsidiaries. Morgan has two customers (truck leasing and rental
companies) accounting for, on a combined basis, approximately 46%, 40% and 50%
of Morgan's net sales during 1997, 1996 and 1995, respectively and 18%, 14% and
21% of consolidated net sales, respectively. EFP has three customers in the
electronics industry accounting for approximately 25% and 21% of EFP's net sales
in 1997 and 1996, respectively and 2% of consolidated
-51-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
net sales, respectively. MIC Group has an industry concentration pertaining to
international oil field service companies with three customers in 1997 and four
customers in 1996 and 1995 representing approximately 53%, 69% and 79% of MIC
Group's net sales and 3%, 4% and 3% of consolidated net sales in 1997, 1996 and
1995, respectively.
Letters of Credit and Other Commitments. Morgan had approximately
$773,000 and $1,628,000 in letters of credit outstanding as of December 31, 1997
and 1996. The Company had $3,950,000 and $4,250,000 in standby letters of credit
outstanding at December 31, 1997 and 1996, respectively, primarily securing the
Company's insurance programs.
Environmental Matters. Morgan has been named as a potentially
responsible party ("PRP") with respect to the generation of hazardous materials
alleged to have been handled or disposed of at two Federal Superfund sites in
Pennsylvania and one in Kansas. Although a precise estimate of liability cannot
currently be made with respect to these sites, based upon information known to
Morgan, the Company currently believes that it's proportionate share, if any, of
the ultimate costs related to any necessary investigation and remedial work at
those sites will not have a material adverse effect on the Company.
Certain of the Company's operations utilize paints and solvents in their
businesses. Also, raw materials used by EFP contain pentane, which is a volatile
organic compound subject to regulation under the Clean Air Act. Although the
Company believes that it has made sufficient capital expenditures to maintain
compliance with existing laws and regulations, future expenditures may be
necessary if and when compliance standards and technology change.
Self-Insured Risks. The Subsidiaries utilize a combination of insurance
coverage and self-insurance programs for health care and workers compensation.
The portion of certain risks not covered by insurance are summarized as follows:
workers compensation individual deductibles range from $100,000 to $250,000 and
health care individual deductibles range from $25,000 to $75,000 with certain
Subsidiaries self-insuring up to $1,000,000 (aggregate stop-loss) under both
workers compensation and health care coverage.
The Company has reserves recorded to cover the self-insured portion of
these risks based on known facts and historical trends and management believes
that such reserves are adequate and the ultimate resolution of these matters
will not have a material adverse effect on the financial position or results of
operations of the Company.
16. Related Party Transactions:
Concurrently with the Note Offering on May 23, 1994, the Company entered
into a Management Services Agreement with Southwestern Holdings, Inc. a
corporation ("Southwestern") owned by Mr. Poindexter. Pursuant to the Management
Services Agreement, Southwestern provides services to the Company, including
those of Mr. Poindexter and Mr. Magee its Chief Financial Officer. The Company
pays to Southwestern approximately $600,000 per year for these services, subject
to annual automatic increases based upon the consumer price index. The Company
may also pay a discretionary annual bonus to Southwestern subject to certain
limitations, $63,000 was paid in 1995 and none was paid in 1997 or 1996. The
Company and Subsidiaries use certain facilities provided by Southwestern for
meetings and conferences. The Company did not use the facilities during 1997 and
1996 and paid Southwestern $23,000 during 1995 for the use of the facilities.
The Company paid Southwestern approximately $613,000,
-52-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$600,000 and $653,000 during 1997, 1996 and 1995, respectively. During 1995, the
Company paid approximately $16,000 to a company owned by Mr. Poindexter for the
use of a private plane to transport company employees to the facilities provided
by Southwestern. A subsidiary of the Company, which is not a restricted
subsidiary under the terms of the Bond Indenture or a guarantor under the terms
of the Company's Revolving Loan Agreement, paid Southwestern Holdings $60,000
and $50,000 during 1997 and 1996, respectively, for certain services.
Mr. Poindexter, Mr. Magee of JBPCO and certain members of Morgan's
management are partners in a partnership that leases to Morgan certain real
property in Georgia. Morgan paid $222,000 in rent to the partnership in 1997,
and approximately $200,000 during 1996 and 1995 pursuant to such lease.
TAG leases certain real estate in Canada from an entity controlled by an
executive vice president of TAG. Total lease expense for that facility was
$117,000 and $114,000 in 1997 and 1996, respectively.
17. Supplemental Guarantor Information:
The Company's obligations under the Senior Notes are guaranteed by each
directly wholly-owned Subsidiary of JBPCO. In addition, the Subsidiary
Guarantors guarantee the indebtedness outstanding under the Revolving Loan
Agreement. The Indenture and Revolving Loan Agreement provides for acquired
subsidiaries subsequent to the issuance of the Senior Notes to be designated as
guarantors of the Senior Notes, provided certain financial ratio tests are met.
The following consolidating financial information is presented for
purposes of complying with the reporting requirements of the parent company and
the Guarantor Subsidiaries. The financial information includes condensed balance
sheet information as of December 31, 1997 and 1996 and condensed operating and
cash flow statement information for each of the three years ended December 31,
1997. The Company's non-guarantor subsidiaries are Radco Industries (acquired by
TAG in December 1994 including MTA acquired in October 1997), Tile by Design
(acquired by Lowy in November 1994), and Acero-Tec, S.A. de C.V. (Morgan's
Mexico subsidiary). The Company believes that separate financial statements or
other disclosures of the guarantors are not material to the investors.
<TABLE>
<CAPTION>
Consolidating Condensed Balance Sheet Information:
December 31, 1997
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Assets
Current assets ................. $ 90,629 $ 3,340 $ 10 $ 93,979
Noncurrent assets .............. 71,945 4,961 4,474 81,380
---------- ---------- ---------- ----------
Total assets ................... $ 162,574 $ 8,301 $ 4,484 $ 175,359
========== ========== ========== ==========
Liabilities and Equity
Current liabilities ............ $ 69,786 $ 3,865 $ 889 $ 74,540
Noncurrent liabilities ......... 99,170 4,150 2,240 105,560
Stockholder's equity ........... (6,382) 286 1,355 (4,741)
---------- ---------- ---------- ----------
Total liabilities and equity ... $ 162,574 $ 8,301 $ 4,484 $ 175,359
========== ========== ========== ==========
</TABLE>
-53-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Assets
Current assets ................. $ 86,220 $ 1,336 $ (352) $ 87,204
Noncurrent assets .............. 75,724 3,961 6,592 86,277
---------- ---------- ---------- ----------
Total assets ................... $ 161,944 $ 5,297 $ 6,240 $ 173,481
========== ========== ========== ==========
Liabilities and Equity
Current liabilities ............ $ 62,641 $ 569 $ 1,628 $ 64,838
Noncurrent liabilities ......... 1,903 3,710 100,000 105,613
Stockholder's equity ........... 97,400 1,018 (95,388) 3,030
---------- ---------- ---------- ----------
Total liabilities and equity ... $ 161,944 $ 5,297 $ 6,240 $ 173,481
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Consolidating Condensed Income Statement Information for the Year ended:
December 31, 1997
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales .............................. $ 436,694 $ 11,756 $ (914) $ 447,536
Cost of sales .......................... 344,223 8,271 (914) 351,580
Income (loss) before
extraordinary item .................. (2,906) (845) (3,795) (7,546)
Net loss ............................... $ (2,906) $ (845) $ (3,795) $ (7,546)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales .............................. $ 421,275 $ 11,112 $ -- $ 432,387
Cost of sales .......................... 330,206 7,751 -- 337,957
Income (loss) before
extraordinary item .................. (7,099) (437) 1,382 (6,154)
Net loss ............................... $ (7,099) $ (437) $ 1,122 $ (6,414)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales .............................. $ 440,104 $ 10,612 $ -- $ 450,716
Cost of sales .......................... 357,628 7,685 -- 365,313
Income (loss) before
extraordinary item .................. (10,884) (586) 2,934 (8,536)
Net income (loss) ...................... $ (10,884) $ (586) $ 2,934 $ (8,536)
</TABLE>
-54-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Cash Flows Information for the Year ended:
December 31, 1997
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net cash provided (used) by
operating activities .............. $ (4,128) $ 748 $ 865 $ (2.515)
---------- ---------- ---------- ----------
Capital expenditures ................... (7,122) (39) (101) (7,262)
Purchase of business ................... -- (2,700) -- (2,700)
Proceeds from sale of assets ........... 3,674 -- -- 3,674
Other .................................. (95) -- (50) (145)
---------- ---------- ---------- ----------
Net cash used in investing activities .. (3,543) (2,739) (151) (6,433)
---------- ---------- ---------- ----------
Net proceeds of
revolving lines of credit ......... 9,113 1,609 315 11,037
Net payments long-term
debt and capital leases ........... (1,772) 474 -- (1,298)
Other .................................. -- (207) -- (207)
---------- ---------- ---------- ----------
Net cash provided (used ) by
financing activities .............. 7,341 1,876 315 9,532
---------- ---------- ---------- ----------
Increase (decrease) in restricted cash
and cash equivalents ............. $ (330) $ (115) $ 1,029 $ 584
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net cash provided (used) by
operating activities .............. $ 10,326 $ (416) $ 777 $ 10,687
---------- ---------- ---------- ----------
Capital expenditures ................... (8,048) (11) (32) (8,091)
Other .................................. 594 -- -- 594
---------- ---------- ---------- ----------
Net cash used in investing activities .. (7,454) (11) (32) (7,497)
---------- ---------- ---------- ----------
Net proceeds of
revolving lines of credit ......... 683 -- -- 683
Net payments long-term
debt and capital leases ........... (2,106) (122) -- (2,228)
Other .................................. (156) 156 (752) (752)
---------- ---------- ---------- ----------
Net cash provided (used ) by
financing activities .............. (1,579) 34 (752) (2,297)
---------- ---------- ---------- ----------
Increase (decrease) in restricted cash
and cash equivalents ............. $ 1,293 $ (393) $ (7) $ 893
========== ========== ========== ==========
</TABLE>
-55-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, 1995
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C>
Net cash provided (used) by
operating activities .............. $ (8,245) $ (507) $ 591 $ (8,161)
---------- ---------- ---------- ----------
Capital expenditures ................... (11,045) (662) (163) (11,870)
Purchase of business ................... (10,277) -- -- (10,277)
Proceeds from sale of assets ........... 2,988 -- -- 2,988
Other .................................. 19 -- 127 146
---------- ---------- ---------- ----------
Net cash used in investing activities .. (18,315) (662) (36) (19,013)
---------- ---------- ---------- ----------
Net proceeds of
revolving lines of credit ......... 21,615 -- -- 21,615
Net payments of long-term
debt and capital leases ........... (1,473) (375) -- (1,848)
Intercompany transfers ................. 5,663 838 (6,501) --
---------- ---------- ---------- ----------
Net cash provided (used ) by
financing activities .............. 25,805 463 (6,501) 19,767
---------- ---------- ---------- ----------
Decrease in restricted cash and cash
equivalents ....................... $ (755) $ (706) $ (5,946) $ (7,407)
========== ========== ========== ==========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure as discussed in Form 8K filed on October 11, 1996.
As discussed in Form 8K filed on October 11, 1996, during October 1996,
the Company engaged Ernst & Young LLP as the Company's independent auditors to
audit the Company's consolidated financial statements for the fiscal year ended
December 31, 1996. The Company chose not to renew the engagement of Arthur
Andersen LLP, who previously served as the Company's independent auditors. The
change of independent auditors was approved by the Company's Board of Directors.
In connection with the audits of the Company for the year ended
December 31, 1995 and since such time, there were no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP
to make reference to the subject matter of the disagreement in connection with
its report.
-56-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are set forth
below. All directors hold office until the next annual meeting of stockholders
of the Company or until their successors are duly elected and qualified.
Executive officers of the Company are appointed by the Board of Directors
annually and serve at the discretion of the Board of Directors.
Name Age Position
John B. Poindexter 53 Chairman of the Board, President
and Chief Executive Officer
W.J. Bowen 76 Director
Stephen P. Magee 50 Chief Financial Officer, Treasurer
and Director
R.S. Whatley 46 Vice President, Controller
L.T. Wolfe 49 Vice President Administration
John B. Poindexter has served as Chairman of the Board and Director of the
Company since 1988 and Chief Executive Officer since 1994. From 1985 through
1996, Mr. Poindexter was the majority limited partner of J.B. Poindexter & Co.,
L.P., a privately held, long-term equity investment and management firm formed
by Mr. Poindexter. From 1983 through 1985, he was co-managing partner of KD/P
Equities, a privately held equity investment firm that he co-founded. From 1976
through 1985, Mr. Poindexter worked for Smith Barney, Harris Upham & Co. While
with Smith Barney, he became a senior vice president for its Smith Barney
Venture Corporation and Smith Barney Capital Corporation ("SBCC") affiliates and
a partner in First Century Partnership II, an investment fund managed by SBCC.
Stephen P. Magee has served as Treasurer and Director of the Company since
the Company was formed in 1988 and Chief Financial Officer since 1994.
W.J. Bowen retired in 1992 as the Chairman of the Board of Transco Energy
Company ("Transco"), a diversified energy company based in Houston, Texas. Mr.
Bowen served as Chief Executive Officer of Transco from 1974 until his
retirement from that position in 1987.
R.S. Whatley has served as Vice President, Controller since June, 1994.
Previously Mr. Whatley held senior financial positions with Vinmar, Inc., a
chemical trading company and Weatherford International, an oilfield services
company.
Larry T. Wolfe has served as Vice President of Administration since May of
1995. Previously Mr. Wolfe was Vice President of Human Resources and
Administrative Services of Transco Energy Services, Inc.
Directors who are officers or employees of the Company do not receive fees
for serving as directors. The Company pays $20,000 per year as director's fees
to each outside director.
Other Significant Persons
Although not an executive officer of the Company, each of the following
persons is an officer of the referenced Subsidiary or division thereof and is an
important contributor to the Company's operations:
Name Age Position
James R. Chandler 62 President of EFP
Norman E. Gibbs, Jr. 58 President of Blue Ridge and Courier
Mike Hart 51 President of Lowy Distribution
Jack Rhine 64 President of MIC Group
-57-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
James R. Chandler has served as President of EFP since 1978. Prior to 1978,
Mr. Chandler worked in various marketing and executive positions with the Ames
Division of Miles Laboratories, Inc. and in the management consulting section of
Price Waterhouse & Co.
Norman E. Gibbs, Jr. has served as President of Blue Ridge & Courier since
the Company's acquisition of Lowy Group in 1991 and has more than 25 years of
experience in the carpet manufacturing industry. From 1973 until the Company's
acquisition of Lowy Group, Mr. Gibbs served successively as an Executive Vice
President and President of Blue Ridge and, since 1981, Courier for their former
owners.
J. Michael Hart, was named President of Lowy Group Inc. on June 2, 1995.
Mr. Hart has held a variety of positions during his thirty year career with the
company and served as Executive Vice President immediately preceding his
appointment to this current position.
Jack Rhine has served as President of MIC Group since April 1996 and
previously served as Chief Financial Officer from August 1993.
Item 11. Executive Compensation
The following table sets forth certain information regarding the
compensation paid to the Company's Chief Executive Officer and the other
executive officers whose total annual salary and bonus are anticipated to exceed
$100,000 for the fiscal years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
John B. Poindexter 1997 $ (a) $ - $ -
Chairman of the Board and 1996 (a)
Chief Executive Officer 1995 (a)
Stephen P. Magee 1997 $ (a) $ (b) $ -
Chief Financial Officer 1996 (a)
1995 (a)
R.S. Whatley Controller 1997 $105,000 $ - $ -
L.T. Wolfe Vice President
Administration 1997 $165,000 $ - $ -
1996 $160,000 $ 27,500 $ -
<FN>
(a) Messrs. Poindexter and Magee do not receive salaries from the Company.
Rather, their services are provided to the Company pursuant to a Management
Services Agreement. See "Management Services Agreement."
(b) It is anticipated that Mr. Magee will be eligible to receive in the future
an annual bonus pursuant to the incentive plan described below.
</FN>
</TABLE>
-58-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
The Company implemented an incentive plan covering certain of its
executive officers. Although the precise terms of that plan have not been
established, the Company anticipates that it will be similar to the Subsidiary
Incentive Plans described below. Messrs. Poindexter and Magee are covered by the
various insurance programs provided by Morgan to its employees.
Management Services Agreement
Concurrently with the Note Offering, the Company entered into a
Management Services Agreement with a corporation ("Southwestern") owned by Mr.
Poindexter. Pursuant to the Management Services Agreement, Southwestern provides
services to the Company, including those of Mr. Poindexter who serves as the
Company's Chairman of the Board and Chief Executive Officer and of Mr. Magee who
serves as its Chief Financial Officer. The Company pays to Southwestern
approximately $600,000 per year for these services, subject to annual automatic
increases based upon the consumer price index. The Company may pay a
discretionary annual bonus to Southwestern for the provision of Mr. Poindexter's
and Mr. Magee's services and may increase the annual fee payable above the
automatic annual increase, in each case subject to certain limitations, if after
giving effect to such payment and/or increase the Company's Consolidated EBITDA
Coverage Ratio is 2.00 to 1 or higher. Pursuant to this agreement, the Company
paid Southwestern $63,000 and in 1995 and none in 1997 and 1996.
Subsidiary Incentive Plans
The Company has adopted an incentive compensation plan for members of
upper management of each of its Subsidiaries (collectively the "Incentive
Plans") to provide for the payments of annual bonuses based upon the attainment
of performance-based goals. Eligible employees will be entitled to receive a
bonus if the Subsidiary attains or surpasses a stated percentage (which varies
by Subsidiary) of that Subsidiary's budgeted pre-tax profit, with the amount of
bonus being tied to the Subsidiary's actual pre-tax profits. Individual bonuses
are then allocated among the eligible employees based upon their individual
achievement of stated performance objectives. The Subsidiaries also maintain
certain other benefit plans for their respective officers and employees. See
Note 15 to the Consolidated Financial Statements for the Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. Instead, executive
compensation review decisions are made by the entire board of directors.
-59-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Item 12. Security of Ownership of Certain Beneficial Owners and Management
Beneficial Ownership
Number Percent
Directors, Officers and 5% Stockholders of Shares of Class
- --------------------------------------- --------- --------
John B. Poindexter 3,059 100%
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
Stephen P. Magee -- --
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
W.J. Bowen -- --
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
All directors and officers as a
group (6 persons) 3,059 100%
Mr. Poindexter has sole voting and investment power with respect to all
shares that he beneficially owns.
Item 13. Certain Relationships and Related Transactions
Messrs. Poindexter and Magee and certain members of Morgan's management are
members of a partnership ("Bartow") that leases certain real property in Georgia
to Morgan. During each of 1997, 1996 and 1995, Morgan paid approximately
$200,000 as rent to Bartow, and it will continue to pay such rent to Bartow in
the future. The Company believes that the rent paid by Morgan to Bartow is a
competitive market rate for the location.
The Company has entered into a Management Services Agreement with
Southwestern Holdings, Inc. a corporation ("Southwestern") owned by Mr.
Poindexter. Pursuant to the Management Services Agreement, Southwestern provides
services to the Company, including those of Mr. Poindexter and Mr. Magee its
Chief Financial Officer. The Company pays to Southwestern approximately $600,000
per year for these services, subject to annual automatic increases based upon
the consumer price index. The Company may also pay a discretionary annual bonus
to Southwestern subject to certain limitations. $63,000 was paid in 1995 and
none was paid in 1997 or 1996. The Company and Subsidiaries use certain
facilities provided by Southwestern for meetings and conferences. Although the
Company did not use the facilities during 1996 or 1997, the Company paid
Southwestern $23,000 during 1995 for the use of the facilities. For all services
and facility use, the Company paid Southwestern approximately $613,000, $600,000
and
-60-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
$653,000 during 1997, 1996 and 1995, respectively.
The Company believes that the amounts paid by it to Southwestern for the
use of these facilities is a market rate. A subsidiary of the Company, which is
not a restricted subsidiary under the terms of the Senior Notes Indenture or a
guarantor under the terms of the Company's Revolving Loan Agreement, paid
Southwestern Holdings $60,000 and $50,000 during 1997 and 1996, respectively for
certain services.
A corporation owned by Mr. Poindexter had an airplane that the Company used
from time to time. During 1995, the Company paid approximately $16,000 for the
use of the airplane. The Company believes that the amount it paid for the use of
the airplane was a market rate.
TAG leases certain real estate in Canada from an entity controlled by an
executive vice president of TAG. Total lease expenses was $117,000 and $114,000
in 1997 and 1996, respectively, the Company considers this to be a market rate
for the property.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - None, other than as previously listed
in response to Item 8.
(a)(2) Financial Statement Schedules - None
(a)(3) Exhibits
3.1(a) Second Restated Certificate of Incorporation
3.1.1(e) Certificate of First Amendment to Second Restated Certificate
of Incorporation.
3.2(a) Amended and Restated Bylaws
4.1(e) Form of 12 1/2% Senior Note due 2004 (included in Exhibit 4.2)
4.2(e) Indenture dated as of May 23, 1994
4.2.1(f) First Supplemental Indenture dated as of May 11, 1995.
Incorporated by reference to Exhibit 4.1 to the Form
10-Q for the quarterly period ended June 30, 1995, as filed
with the Commission on August 15, 1995
4.2.2(f) Second Supplemental Indenture dated as of June 26, 1995.
Incorporated by reference to Exhibit 4.2 to the Form 10-Q for
the quarterly period ended June 30, 1995, as filed with the
Commission on August 15, 1995.
4.3(a) List of certain promissory notes
10.1.5(h) Loan and Security Agreement by and among Congress Financial
Corporation and J.B.Poindexter & Co.,Inc., dated June 28,1996.
10.23(a) Lease Agreement, dated as of March 29, 1990, between Bartow
Partners, L.P. and Morgan Trailer Manufacturing Co., d/b/a
Morgan Corporation, as amended by the First Amendment to Lease
Agreement, dated June 13, 1991
10.24(a) Form of Salary Continuance Agreement for director level
employees of Morgan Trailer Mfg. Co.
10.25(a) Form of Salary Continuance Agreement for officers of Morgan
Trailer Mfg. Co.
10.26(a) Form of Incentive Plan for certain employees of the
Subsidiaries
10.27(a) Morgan Trailer Mfg. Co. Long-Term Management Equity
Appreciation Program
10.32(a) Lease Agreement, dated August 14, 1987, between C&D Realty
Partnership and Leer, Inc., as amended by the Lease Option and
Amendment Agreement , dated as of August 14, 1992
10.33(a) Lease Agreement, dated August 14, 1987, between J&R Realty
Company and Leer, Inc.
-61-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
10.34(a) Lease Agreement, dated August 14, 1987, between BCD Realty
Partnership with Leer, Inc., as amended by the Lease Option
and Amendment Agreement, dated as of August 14, 1992 (missing
page 2 of Amendment)
10.35(a) Lease Agreement, dated August 14, 1987, between John M.
Collins and Leer, Inc., as amended by the Lease Option and
Amendment Agreement, dated as of August 14, 1992, and the
Addendum to Lease Agreement, dated as of August 1, 1993
10.36(a) Lease agreement, dated August 14, 1987, between PCD Realty
Partnership and Leer, Inc., as amended by the Lease Option and
Amendment Agreement, dated as of August 14, 1992
10.44(a) Employment Agreement, dated January 1, 1994, between Lowy
Group, Inc. and Norman E. Gibbs, Jr.
10.46(a) Non-competition Agreement, dated as of August 30,1991, between
Lowy Group, Inc. and Norman E. Gibbs, Jr.
10.86(e) Management Services Agreement dated as of May 23,1994, between
J.B. Poindexter & Co., Inc. and Southwestern Holdings, Inc.
10.102(f) Asset Purchase Agreement, dated as of June 15, 1995, among
Leer Inc., 20th Century Fiberglass, Inc., Steven E. Robinson
and Ronald E. Hickman. Incorporated by reference to Exhibit
10.1 to the current report on Form 8-K, dated June 29, 1995,
as filed with the Commission on September 11, 1995
10.103(f) Promissory Note, dated June 29, 1995, executed by Leer, Inc.
Incorporated by reference to Exhibit 10.2 to the current
report on Form 8-K, dated June 29, 1995, as filed with the
Commission on September 11, 1995
10.104(f) Asset Purchase Agreement, dated as of June 15, 1995 among Leer
Inc., Century Distributing, Inc., Steven E. Robinson and
Ronald E. Hickman. Incorporated by reference to Exhibit 10.3
to the current report on Form 8-K, dated June 29, 1995, as
filed with the Commission on September 11, 1995
10.105(f)Consulting Agreement, dated as of June 29, 1995,
between Leer, Inc. and Steven E. Robinson. Incorporated by
reference to Exhibit 10.4 to the current report on Form 8-K,
dated June 29, 1995, as filed with the Commission on September
11, 1995
10.106(f) Consulting Agreement, dated as of June 29, 1995, between Leer,
Inc. and Ronald E. Hickman. Incorporated by reference to
Exhibit 10.5 to the current report on Form 8-K, dated June 29,
1995, as filed with the Commission on September 11, 1995.
10.107(f) Non-Competition Agreement, dated as of June 29, 1995, between
Leer, Inc. and Steven E. Robinson. Incorporated by reference
to Exhibit 10.6 to the current report on Form 8-K, dated June
29, 1995, as filed with the Commission on September 11, 1995.
10.108(f) Non-Competition Agreement, dated as of June 29, 1995, between
Leer, Inc. and Ronald E. Hickman. Incorporated by reference to
Exhibit 10.7 to the current report on Form 8-K, dated June 29,
1995, as filed with the Commission on September 11, 1995.
10.109(f) Share Purchase Agreement dated as of June 30, 1995, between
Raider Industries, Inc. and Martin Brown
10.110(f) Asset Purchase Agreement dated as of June 30, 1995, by and
between Raider Industries Inc.,Pro-More Industries Ltd., Brown
Industries (1976) Ltd. and Martin Brown
10.111 Loan and Security Agreement by and between Congress Financial
Corporation and Radco Industries Inc., dated October 31,1997
10.112 Asset Purchase Agreement by and among Radco Industries Inc.,
and Midwest Truck After Market and William J. Avery, Sr. and
Sarah A. Avery, dated October 31.1997.
-62-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
21.1 Subsidiaries of the Registrant
27.1 Financial data schedule
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-75154) as filed with the Commission on February 10, 1994
(b) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement (No. 33-75154) as filed with the Commission on February 24, 1994
(c) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement (No. 33-75154) as filed with the Commission on March 23, 1994
(d) Incorporated by reference to the Company's Amendment No. 3 to Registration
Statement (No. 33-75154) as filed with the Commission on May 16, 1994
(e) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, as filed with the Commission on March 31,
1995.
(f) Incorporated by reference to the Company's Annual Report on form 10-K for
the year ended December 31, 1995, as filed with the Commission on March 29,
1996.
(g) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, as filed with the Commission on May
10, 1996.
(h) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, as filed with the Commission on August
13, 1996.
- -----------------------
(b) Reports of Form 8-K. The Company filed the following reports on Form 8-K
during the year:
None
Supplemental Information to Be Furnished With Reports Filed Pursuant to Section
15 (d) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
The registrant has not delivered to its security holders any annual report to
security holders covering the last fiscal year, proxy statement, form of proxy
or other proxy soliciting material (as described under this caption in Form 10-K
as promulgated by the Securities and Exchange Commission). A copy of this Form
10-K will be sent to each registered holder of the registrant's 12 1/2% Senior
Notes due 2004.
-63-
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
J.B. POINDEXTER & CO., INC.
Date: March 27, 1998 By: John B. Poindexter
----------------------
John B. Poindexter, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 27, 1998 John B. Poindexter
------------------
John B. Poindexter
Chairman and Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 27, 1998 Stephen P. Magee
----------------
Stephen P. Magee
Chief Financial Officer and Director
(Principal Financial Officer)
Date: March 27, 1998 W.J. Bowen
----------
W.J. Bowen
Director
Date: March 27, 1998 Robert S. Whatley
-----------------
Robert S. Whatley
Chief Accounting Officer
(Principal Accounting Officer)
-64-
[Execution Copy]
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
RADCO INDUSTRIES, INC.
as Borrower
Dated: October 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS................................................ 1
SECTION 2. CREDIT FACILITIES.......................................... 10
2.1 Loans...................................................... 10
2.2 Letter of Credit Accommodations............................ 11
2.3 Availability Reserves...................................... 13
SECTION 3. INTEREST AND FEES.......................................... 13
3.1 Interest................................................... 13
3.2 Closing Fee................................................ 14
3.3 Servicing Fee.............................................. 14
3.4 Unused Line Fee............................................ 14
SECTION 4. CONDITIONS PRECEDENT....................................... 14
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations............................................. 14
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations............................................. 17
SECTION 5. GRANT OF SECURITY INTEREST................................. 17
SECTION 6. COLLECTION AND ADMINISTRATION.............................. 18
6.1 Borrower's Revolving Loan Account.......................... 18
6.2 Statements................................................. 18
6.3 Collection of Accounts..................................... 19
6.4 Payments................................................... 20
6.5 Authorization to Make Loans................................ 21
6.6 Use of Proceeds............................................ 21
SECTION 7. COLLATERAL REPORTING AND COVENANTS......................... 21
7.1 Collateral Reporting....................................... 21
7.2 Accounts Covenants......................................... 22
7.3 Inventory Covenants........................................ 23
7.4 Equipment Covenants........................................ 24
7.5 Power of Attorney.......................................... 24
7.6 Right to Cure.............................................. 25
7.7 Access to Premises......................................... 25
SECTION 8. REPRESENTATIONS AND WARRANTIES............................. 26
8.1 Corporate Existence, Power and Authority; Subsidiaries..... 26
8.2 Financial Statements; No Material Adverse Change........... 26
(i)
<PAGE>
8.3 Chief Executive Office; Collateral Locations............... 27
8.4 Priority of Liens; Title to Properties..................... 27
8.5 Tax Returns................................................ 27
8.6 Litigation................................................. 27
8.7 Compliance with Other Agreements and Applicable Law........ 27
8.8 Employee Benefits.......................................... 28
8.9 Environmental Compliance................................... 29
8.10 Bank Accounts.............................................. 30
8.11 Acquisition of Purchased Assets............................ 30
8.12 Capitalization............................................. 30
8.13 Accuracy and Completeness of Information................... 31
8.14 Survival of Warranties; Cumulative......................... 31
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS......................... 31
9.1 Maintenance of Existence................................... 31
9.2 New Collateral Locations................................... 32
9.3 Compliance with Laws, Regulations, Etc..................... 32
9.4 Payment of Taxes and Claims................................ 33
9.5 Insurance.................................................. 33
9.6 Financial Statements and Other Information................. 34
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.... 35
9.8 Encumbrances............................................... 35
9.9 Indebtedness............................................... 36
9.10 Loans, Investments, Guarantees, Etc........................ 38
9.11 Dividends and Redemptions.................................. 38
9.12 Transactions with Affiliates............................... 39
9.13 Additional Bank Accounts................................... 39
9.14 Compliance with ERISA...................................... 40
9.15 Costs and Expenses......................................... 40
9.16 Further Assurances......................................... 40
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................... 41
10.1 Events of Default.......................................... 41
10.2 Remedies................................................... 43
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................ 44
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver..................................................... 44
11.2 Waiver of Notices.......................................... 45
11.3 Amendments and Waivers..................................... 46
11.4 Waiver of Counterclaims.................................... 46
11.5 Indemnification............................................ 46
(ii)
<PAGE>
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS................................ 46
12.1 Term...................................................... 46
12.2 Notices................................................... 48
12.3 Partial Invalidity........................................ 48
12.4 Successors................................................ 48
12.5 Entire Agreement.......................................... 48
(iii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 6.3 Bank Accounts
Schedule 8.4 Existing Liens
Schedule 8.7 Permits
Schedule 8.8 Pension Matters
Schedule 8.9 Environmental Matters
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(i)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated October 31, 1997 is entered into
by and between Congress Financial Corporation, a California corporation
("Lender") and Radco Industries, Inc., a Minnesota corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION
1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrower and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1
<PAGE>
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Affiliate" shall mean, with respect to a specified person, any
other person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
person, (b) which beneficially owns or holds five (5%) percent or more of any
class of the voting stock or other equity interest of such specified person, or
(c) of which five (5%) percent or more of the voting stock or other equity
interest is beneficially owned or held by such specified person or a Subsidiary
of such specified person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with") when used with respect to any specified person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting stock, by agreement or otherwise.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Loans and Letter of Credit Accommodations
which would otherwise be available to Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations or its
value, (ii) the assets, business or prospects of Borrower or any Obligor or
(iii) the security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof) or (b) to
reflect Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Obligor to Lender is or
may have been incomplete, inaccurate or misleading in any material respect or
(c) to reflect outstanding Letter of Credit Accommodations as provided in
Section 2.2 hereof or (d) in respect of any state of facts which Lender
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which Lender is open for the transaction of business.
1.6 "Change of Control" shall mean the occurrence of any of the
following: (a) any Person or Persons (other than a Permitted Holder) acting
together which would constitute a "group" (a "Group") for purposes of Section
13(d)(3) of the Securities Exchange Act, together with any Affiliates thereof,
shall beneficially own (as defined in Rule 13d-3 of the Securities Exchange Act
at least fifty (50%) percent of the aggregate voting power of all classes of
Capital
2
<PAGE>
Stock of Borrower entitled to vote generally in the election of directors of
Borrower or (b) any Person or Group (other than a Permitted Holder), together
with any Affiliates thereof, shall succeed in having sufficient of its or their
nominees elected to the Board of Directors of Borrower so that such nominees,
when added to any existing directors remaining on the Board of Directors of
Borrower after such election who is an Affiliate of such Person or Group, shall
constitute a majority of the Board of Directors of Borrower.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.9 "Consolidated Net Income" shall mean, with respect to Borrower for
any period, the aggregate of the net income (loss) of such Person and its
Subsidiaries, on a consolidated basis, for such period (excluding to the extent
included therein any extraordinary gains and extraordinary non-cash losses)
after deducting all charges which should be deducted before arriving at the net
income (loss) for such period and after deducting the Provision for Taxes for
such period, all as determined in accordance with GAAP; provided, that, (a) the
net income of any Person that is not a wholly-owned Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid or payable to Borrower
or a wholly-owned Subsidiary of such person; (b) except to the extent included
pursuant to the foregoing clause, the net income of any Person accrued prior to
the date it becomes a wholly-owned Subsidiary of such Person or is merged into
or consolidated with such Person or any of its wholly-owned Subsidiaries or that
Person's assets are acquired by such Person or by any of its wholly-owned
Subsidiaries shall be excluded; (c) the effect of any change in accounting
principles adopted by such Person or its Subsidiaries after the date hereof
shall be excluded; (d) net income shall exclude interest accruing, but not paid
on indebtedness owing to a Subsidiary or parent corporation of Borrower, which
is subordinated in right of payment to the payment in full of the Obligations,
on terms and conditions acceptable to Lender; and (e) the net income (if
positive) of any wholly-owned Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such wholly-owned Subsidiary to
Borrower or to any other wholly-owned Subsidiary of Borrower is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such wholly-owned Subsidiary shall be excluded. For the purposes of this
definition, (i) net income excludes any gain and non-cash loss (but not any cash
loss) together with any related Provision for Taxes for such gain and non-cash
loss (but not any cash loss) realized upon the sale or other disposition of any
assets that are not sold in the ordinary course of business (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or of any
capital stock of such Person or a Subsidiary of such Person and any net income
realized as a result of changes in accounting principles or the application
thereof to such Person, and (ii) the term "Provision for Taxes" shall mean an
amount equal to all taxes imposed on or measured by net income, whether Federal,
State, Provincial,
3
<PAGE>
county or local, and whether foreign or domestic, that are paid or payable by
any Person in respect of any period in accordance with GAAP.
1.10 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid after the lesser of sixty (60)
days past the original due date thereof or ninety (90) days from the date of the
original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval (except for the right of
return given to retail customers in the ordinary course of the business of
Borrower in accordance with the then current return policy of Borrower, so long
as such policy is no more favorable to the retail customer in any material
respect than the policy in effect on the date hereof), or other terms under
which payment by the account debtor may be conditional or contingent;
(e) such Accounts do not constitute the rights of Borrower to
payment from any credit card issuer, credit card processor or other third party
arising from sales of goods or rendition of services to customers who have
purchased such goods or services using a credit or debit card and such Accounts
do not constitute the rights of Borrower to payment from any credit card issuer,
credit card processor or other third party in connection with the sale or
transfer of Accounts arising pursuant to the sale of goods or rendition of
services to customers who have purchased such goods or services using a credit
card or a debit card;
(f) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all
4
<PAGE>
respects to Lender (subject to such lending formula with respect thereto as
Lender may determine);
(g) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(h) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(i) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(j) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(k) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or other
Affiliate of Borrower;
(l) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(m) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which could
reasonably be expected to result in any material adverse change in any such
account debtor's financial condition;
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the lesser of sixty (60) days past the original due
date thereof or ninety (90) days from the date of the original invoice for them,
constituting more than fifty (50%) percent of the total Accounts of such account
debtor;
5
<PAGE>
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Borrower from time to time in the ordinary
course of business to the extent such credit limits are satisfactory to Lender
(but the portion of the Accounts not in excess of such credit limit may be
deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined in good faith by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.11 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower, raw
materials and work-in-process for such finished goods which are acceptable to
Lender based on the criteria set forth below. In general, Eligible Inventory
shall not include (a) components which are not part of finished goods; (b) spare
parts for equipment; (c) packaging and shipping materials; (d) supplies used or
consumed in Borrower's business; (e) Inventory at premises other than those
owned and controlled by Borrower, except if Lender shall have received an
agreement in writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(f) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (g) bill and hold
goods; (h) unserviceable, obsolete or slow moving Inventory; (i) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (j) returned, damaged and/or defective Inventory; (k) returned Inventory
that is not held for resale; (l) Inventory to be returned to vendors; (m)
Inventory subject to deposits made by a customer for sales of Inventory that has
not been delivered to the extent that such Inventory has been identified to be
sold to such customer; and (n) Inventory purchased or sold on consignment.
General criteria for Eligible Inventory may be established and revised from time
to time by Lender in good faith. Any Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.
1.12 "Environmental Laws" shall mean all Federal, State, Provincial,
county, district, local and foreign laws, rules, regulations, ordinances, and
consent decrees relating to workplace health and safety, hazardous substances,
pollution and environmental matters, as now or at any time hereafter in effect,
applicable to the business of Borrower and its facilities (whether or not owned
by any of them), including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contamination, chemicals, or hazardous, toxic
or dangerous substances, materials or wastes into the environment (including,
without limitation, ambient air, surface
6
<PAGE>
water, ground water, land surface or subsurface strata) or otherwise relating to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.
1.13 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.14 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.15 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b) and 414(c) of the
Code (and Sections 414(m) or 414(o) of the Code for purposes of provisions
relating to Section 412 of the Code).
1.16 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.17 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of
the Loans available to Borrower as of such time based on the applicable lending
formulas multiplied by the Net Amount of Eligible Accounts and the Value of
Eligible Inventory, as determined by Lender, and subject to the sublimits and
Availability Reserves from time to time established by Lender hereunder and (ii)
the Maximum Credit, minus (b) the sum of: (i) the amount of all then outstanding
and unpaid Obligations, plus (ii) the aggregate amount of all trade payables of
Borrower which are more than sixty (60) days past due as of such time.
1.18 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.19 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
7
<PAGE>
1.20 "Hazardous Materials" any hazardous or toxic substances, materials
and wastes, including, without limitation, petroleum, flammable explosives,
asbestos, radioactive materials, biological substances, polychlorinated
biphenyls, pesticides, herbicides, industrial slag, solvents and/or any other
substances, materials or wastes that are or become regulated as hazardous or
toxic under any Environmental Law.
1.21 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.22 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.23 "JBPCO" shall mean J.B. Poindexter & Co., Inc., a Delaware
corporation, and its successors and assigns.
1.24 "Leer" shall mean Leer Acquisition Company, Inc., a Delaware
corporation, and its successors and assigns.
1.25 "Letter of Credit Accommodations" shall mean the letters of
credit, acceptances with respect to drafts issued under such letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by Borrower of its obligations to such issuer.
1.26 "Loans" shall mean the loans now or hereafter made by Lender to or
for the benefit of Borrower on a revolving basis (involving advances, repayments
and readvances) as set forth in Section 2.1 hereof.
1.27 "Management Services Agreement" shall mean the Management Services
Agreement, dated February 1, 1996, by and between Borrower and Southwestern
Holdings, Inc., a Texas corporation, as the same now exists or may hereafter be
amended, modified, restated, extended, renewed, restated or replaced.
1.28 "Maximum Credit" shall mean the amount of $5,000,000.
1.29 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
8
<PAGE>
1.30 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its Affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
arising under this Agreement, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, or secured or unsecured.
1.31 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.32 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.33 "Permitted Holder" shall mean John B. Poindexter, his executors,
administrators or similar legal representatives, or any Person which is
controlled, directly or indirectly by any of the foregoing.
1.34 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
1.35 "Plan" shall mean any employee benefit plan within the meaning of
Section 3(2) of ERISA that is subject to Title IV of ERISA maintained by
Borrower or any ERISA Affiliate.
1.36 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.37 "Purchase Agreements" shall mean, individually and collectively,
the Asset Purchase Agreement, dated on or about the date hereof, by and among
Borrower, Seller, William J. Avery, Sr. and Sara A. Avery, together with bills
of sale, quitclaim deeds, assignment and assumption agreements and such other
instruments of transfer as are referred to therein and all side letters with
respect thereto, and all agreements, documents and instruments executed and/or
delivered in connection therewith, as all of the foregoing now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced; provided, that, the term
9
<PAGE>
"Purchase Agreements" as used herein shall not include any of the "Financing
Agreements" as such term is defined herein.
1.38 "Purchased Assets" shall mean all of the assets and properties
acquired by Borrower from Seller pursuant to the Purchase Agreements.
1.39 "Receivables" shall mean all present and future (a) Accounts; (b)
rights of Borrower to payment from any credit card issuer, credit card processor
or other third party arising from sales of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card and rights of Borrower to payment from any credit card issuer, credit
card process or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card; (c) chattel paper, documents and instruments (i) which evidence or
relate to Accounts and Inventory and including documents of title or other
documents representing them, or (ii) which evidence or relate to instruments
evidencing indebtedness arising pursuant to Accounts or any of the other
Collateral; and (d) rights of Borrower to payment arising pursuant to loans,
advances or other financial accommodations made or provided by Borrower to any
other person.
1.40 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.41 Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.42 "Seller" shall mean Midwest Truck After Market, Inc., an Oklahoma
corporation, and its successors and assigns.
1.43 "Subsidiary" shall mean any corporation of which fifty (50%)
percent or more of the outstanding securities of any class or classes thereof,
as to which the holders thereof are ordinarily, in the absence of contingencies,
entitled to elect a majority of the directors (or Persons performing similar
functions) of such corporation, is now hereafter directly or indirectly (through
one or more intermediaries) owned by Borrower and/or any one or more of its
Subsidiaries.
10
<PAGE>
1.44 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) the lesser of (A) eighty (80%) percent of the Net
Amount of Eligible Accounts and (B) $1,000,000, plus
(ii) sixty (60%) percent of the Value of Eligible
Inventory, minus
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender determines in good
faith that: (A) the dilution with respect to the Accounts for any period (based
on the ratio of (1) the aggregate amount of reductions in Accounts other than as
a result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined in any material respect or (ii)
reduce the lending formula(s) with respect to Eligible Inventory to the extent
that Lender determines in good faith that: (A) the number of days of the
turnover of the Inventory for any period has changed in any material respect or
(B) the liquidation value of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature and quality or mix of the Inventory has
deteriorated so as to adversely affect the Value of the Inventory or the ability
of Lender to realize thereon. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of
the Loans and Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit and (ii) the aggregate amount of Loans outstanding at
any time based on Eligible Inventory consisting of raw materials and
work-in-process shall not exceed $100,000. In the event that the outstanding
amount of any component of the Loans, or the aggregate amount of the outstanding
Loans and Letter of Credit Accommodations, exceed the amounts available under
the lending formulas, the sublimits for Letter of Credit Accommodations set
forth in Section 2.2(d) or the Maximum
11
<PAGE>
Credit, as applicable, such event shall not limit, waive or otherwise affect any
rights of Lender in that circumstance or on any future occasions and Borrower
shall, upon demand by Lender, which may be made at any time or from time to
time, immediately repay to Lender the entire amount of any such excess(es) for
which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Loans to Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to two (2%) percent
per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month, except that Borrower shall
pay to Lender such letter of credit fee, at Lender's option, without notice, at
a rate equal to four (4%) percent per annum on such daily outstanding balance
for: (i) the period from and after the date of termination or non-renewal hereof
until Lender has received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrower) and (ii) the period from
and after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing as determined by Lender. Such letter of credit
fee shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and the obligation of Borrower to pay such fee shall survive
the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than: (i) if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible Inventory, the sum of
(A) the percentage equal to one hundred (100%) percent minus the then applicable
percentage set forth in Section 2.1(a)(ii) above of the Value of such Eligible
Inventory, plus (B) freight, taxes, duty and other amounts which Lender
estimates must be paid in connection with such Inventory upon arrival and for
delivery to one of Borrower's locations for Eligible Inventory within the United
States of America and (ii) if the proposed Letter of Credit Accommodation is for
any other purpose, an amount equal to one hundred (100%) percent of the face
amount thereof and all other commitments and obligations made or incurred by
Lender with respect thereto. Effective on the issuance of each Letter of Credit
Accommodation, an Availability Reserve shall be established in the applicable
amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
12
<PAGE>
(d) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed
$500,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Loans otherwise
available to Borrower shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation except as a result of the gross negligence or willful
misconduct of Lender as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. Borrower assumes all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances
13
<PAGE>
thereunder or any letters of credit included in the Collateral. Lender may take
such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Availability Reserves. All Loans otherwise available to Borrower
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves. Without limiting any other rights or
remedies of Lender under this Agreement or any of the other Financing Agreements
with respect to the establishment of Availability Reserves or otherwise, Lender
may establish and revise Availability Reserves to reflect: (a) amounts due or to
become due in respect of sales, use and/or withholding taxes; (b) any rental
payments, service charges or other amounts due to lessors of real or personal
property to the extent Inventory or Records are located in or on property or
such Records are needed to monitor or otherwise deal with the Collateral or (c)
amounts owing by Borrower to credit card issuers or credit card processors.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Loans at the rate of one and one-quarter (1 1/4%)
percent per annum in excess of the Prime Rate, except that, at Lender's option,
without notice, Borrower shall pay to Lender interest at the rate of three and
one-quarter (3 1/4%) percent per annum in excess of the Prime Rate: (i) on the
Loans for (A) the period from and after the date of termination or non-renewal
hereof until such time as Lender has received full and final payment of all such
Obligations (notwithstanding entry of any judgment against Borrower), and (B)
the period from and after the date of the occurrence of an Event of Default for
so long as such Event of Default is continuing as determined by Lender and (ii)
on the Loans at any time outstanding in excess of the amounts available to
Borrower under Section 2 (whether or not such excess(es), arise or are made with
or without Lender's knowledge or consent and whether made before or after an
Event of Default).
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an
14
<PAGE>
amount equal to each increase or decrease in the Prime Rate effective on the
first day of the month after any change in such Prime Rate is announced. The
increase or decrease shall be based on the Prime Rate in effect on the last day
of the month in which any such change occurs. All interest accruing hereunder on
and after an Event of Default or termination or non-renewal hereof shall be
payable on demand. In no event shall charges constituting interest payable by
Borrower to Lender exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any part or provision of this Agreement is
in contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $50,000, which shall be fully earned as of the date hereof and
$16,666.66 of which shall be payable on the date hereof, $16,666.66 of which
shall be payable on the first anniversary of the date hereof, and $16,666.67 of
which shall be payable on the second anniversary of the date hereof, provided,
that, such amount shall become immediately due and payable, without notice or
demand, at Lender's option, upon the occurrence of an Event of Default or upon
the termination or non-renewal hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
in an amount equal to $2,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof for the month ending November 30, 1997
and on the first day of each month thereafter commencing on December 1, 1997.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to one-quarter (1/4%) percent per annum of the
difference between (a) the average monthly principal balance of the outstanding
Loans and Letter of Credit Accommodations and (b) the Maximum Credit, while this
Agreement is in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each month in
arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of the Purchase Agreements have been
consummated prior to or contemporaneously with the execution of this Agreement;
15
<PAGE>
(b) Lender shall have received, in form and substance
satisfactory to Lender, a pro-forma balance sheet of Borrower reflecting the
initial transactions contemplated hereunder, including, but not limited to, (i)
the consummation of the acquisition of the Purchased Assets by Borrower from
Seller and the other transactions contemplated by the Purchase Agreements and
(ii) the Loans and Letter of Credit Accommodations provided by Lender to
Borrower on the date hereof and the use of the proceeds of the initial Loans as
provided herein, accompanied by a certificate, dated as of the date hereof, of
the Vice President of Borrower stating that such pro-forma balance sheet
represents the reasonable, good faith opinion of such officer as to the subject
matter thereof as of the date of such certificate;
(c) Lender shall have received, in form and substance
satisfactory to Lender, the agreement of the Seller consenting to the collateral
assignment by Borrower to Lender of all of Borrower's rights and remedies and
claims for damages or other relief under the Purchase Agreements and granting
Lender such other rights as Lender may require, duly authorized, executed and
delivered by Seller;
(d) Lender shall have received, in form and substance reasonably
satisfactory to Lender, the intercreditor and subordination agreement between
Lender and Seller, as acknowledged and agreed to by Borrower, providing for,
among other things, the terms of the subordination in right of payment of all
amounts at any time owing by Borrower to Seller to the indefeasible payment and
satisfaction of the Obligations and the subordination of the security interests
of Seller in any of the assets and properties of Borrower to the security
interests of Lender in the assets and properties of Borrower, duly authorized,
executed and delivered by Seller;
(e) Lender shall have received, in form and substance
satisfactory to Lender, evidence that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations, subject only to
the security interests and liens permitted herein or in the other Financing
Agreements;
(f) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(g) no material adverse change shall have occurred in the assets
or business of Borrower since the date of Lender's latest field examination and
no change or event shall have occurred which would impair the ability of
Borrower or any Obligor to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral;
16
<PAGE>
(h) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrower, the results of which shall
be satisfactory to Lender, not more than three (3) Business Days prior to the
date hereof;
(i) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(j) Borrower shall have established the Blocked Accounts and
Lender shall have received, in form and substance satisfactory to Lender, all
agreements with the depository banks and Borrower with respect to such Blocked
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrower;
(k) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrower has (i) directed the banks at which
Borrower maintains deposit accounts for the initial receipt of cash, checks and
other items from Borrower's retail store locations to transfer all immediately
available funds deposited in such bank only to the Blocked Accounts as required
pursuant to Section 6.3 hereof or as otherwise directed by Lender and (ii)
notified such banks of the security interests of Lender in such funds and the
other Collateral;
(l) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance reasonably satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee with respect
to the Collateral ;
(m) Lender shall have received, in form and substance reasonably
satisfactory to Lender, the opinion letter of counsel(s) to Borrower with
respect to the Purchase Agreements, the Financing Agreements and the security
interests and liens of Lender with respect to the Collateral and such other
matters as Lender may request;
(n) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance reasonably satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
Each of the following is an additional condition precedent to Lender making
Loans and/or providing
17
<PAGE>
Letter of Credit Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto except
to the extent that such representation and warranties expressly relate solely to
an earlier date (in which case such representations and warranties shall have
been true and accurate on and as of such earlier date); and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 To secure payment and performance of all Obligations, Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property of Borrower, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
(a) all Receivables;
(b) all present and future contract rights and general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and acceptances and guarantees) in connection with or related to the
Receivables and any of the other Collateral;
(c) all right, title and interest of Borrower under the Asset Purchase
Agreement by and among Debtor, Midwest Truck After Market, Inc., William J.
Avery, Sr. and Sara A. Avery and related agreements, documents and instruments,
including, without limitation, all rights of Borrower to receive monies due or
to become due thereunder or in connection therewith, all rights of Borrower to
indemnification and claims for damages or other relief pursuant to such
agreement or related agreements, all rights of Borrower to perform and exercise
all remedies thereunder and to require performance by the other parties thereto,
and all proceeds, collections, recoveries and rights of subrogation with respect
to the foregoing;
18
<PAGE>
(d) all present and future monies, securities and the other investment
property, credit balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to Lender or its
Affiliates or at any other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (i) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit, banker's acceptances and
credit and other insurance related to the other Collateral, (ii) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (iii) goods described in
invoices, documents, contracts, instruments, credit card sales drafts, credit
card sales slips or charge slips or receipts and other forms of daily store
receipts, with respect to, or otherwise representing or evidencing, Receivables
or other Collateral, including returned, repossessed and reclaimed goods, and
(iv) deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(e) all Inventory;
(f) all Records; and
(g) all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
5.2 Notwithstanding anything to the contrary contained in Section 5.1
above, the types or items of Collateral shall not include any rights or
interests in any contract, lease, permit, license, charter or license agreement
covering personal property, as such, if under the terms of such contract, lease,
permit, license, charter or license agreement, or applicable law with respect
thereto, the valid grant of a security interest or lien therein to Lender is
prohibited and such prohibition has not been or is not waived or the consent of
the other party to such contract, lease, permit, license, charter or license
agreement has not been or is not otherwise obtained or under applicable law such
prohibition cannot be waived; provided, that, the foregoing exclusion shall in
no way be construed (a) to apply if such prohibition is unenforceable under
Section 9-318 of the UCC or other applicable law or (b) so as to limit, impair
or otherwise affect Lender's unconditional continuing security interests in and
liens upon any rights or interests of Borrower in or to monies due or to become
due under any such contract, lease, permit, license, charter or license
agreement (including, without limitation, any Accounts or other Receivables).
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Revolving Loan Account. Lender shall maintain one or
more loan account(s) on its books in which shall be recorded (a) all Loans,
Letter of Credit Accommodations and other Obligations and the Collateral, (b)
all payments made by or on
19
<PAGE>
behalf of Borrower and (c) all other appropriate debits and credits as provided
in this Agreement, including fees, charges, costs, expenses and interest. All
entries in the loan account(s) shall be made in accordance with Lender's
customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
deposit account arrangements and merchant payment arrangements with the banks
set forth on Schedule 6.3 hereto and after prior written notice to Lender,
subject to Section 9.13, such other banks as Borrower may hereafter select as
are acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of
the banks with whom Borrower has deposit account arrangements and merchant
payment arrangements as of the date hereof and identifies each of the deposit
accounts at such banks to a retail location of Borrower or otherwise describes
the nature of the use of such deposit account by Borrower.
(i) Borrower shall deposit all proceeds from sales of
Inventory in every form, including, without limitation, cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts and other forms
of daily store receipts, from each retail store location of Borrower on each
Business Day into the deposit accounts of Borrower used solely for such purpose
and identified to each retail store location as set forth on Schedule 6.3. All
such funds deposited into the separate deposit accounts shall be sent by wire
transfer on a daily basis and all other proceeds of Collateral shall be sent by
wire transfer, to the Blocked Accounts as provided in Section 6.3(a)(ii) below.
Borrower shall irrevocably authorize and direct in writing, in form and
substance satisfactory to Lender, each of the banks into which proceeds from
sales of Inventory from each retail store location of Borrower are at any time
deposited as provided above to send all funds deposited in such account by wire
transfer on a daily basis to the Blocked Accounts. Such authorization and
direction shall not be rescinded, revoked or modified without the prior written
consent of Lender.
(ii) Borrower shall establish and maintain, at its expense,
deposit accounts with such banks as are acceptable to Lender (the "Blocked
Accounts") into which Borrower shall promptly either cause all amounts on
deposit in its deposit accounts used by each retail store
20
<PAGE>
location to be sent as provided in Section 6.3(a)(i) above or shall itself
deposit or cause to be deposited all proceeds from sales of Inventory, all
amounts payable to Borrower from credit card issuers and credit card processors
and all other proceeds of Collateral. The banks at which the Blocked Accounts
are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right of setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all amounts
deposited in such Blocked Accounts or other funds received and collected by
Lender, whether as proceeds of inventory or other Collateral or otherwise shall
be the property of Lender.
(b) For purposes of calculating the amount of the Loans available
to Borrower, such payments will be applied (conditional upon final collection)
to the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) Business Day following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
(c) Borrower and all of its Subsidiaries, employees, agents and
other Affiliates shall, acting as trustee for Lender, receive, as the property
of Lender, any monies, checks, notes, credit card sales drafts, credit card
sales or charge slips or receipts, notes, drafts, all forms of store receipts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply
21
<PAGE>
payments received or collected from Borrower or for the account of Borrower
(including the monetary proceeds of collections or of realization upon any
Collateral) to such of the Obligations, whether or not then due, in such order
and manner as Lender determines. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this Agreement or the
other Financing Agreements may be charged directly to the loan account(s) of
Borrower. Borrower shall make all payments to Lender on the Obligations free and
clear of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
11:00 a.m. New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
22
<PAGE>
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts, sales made, credits issued and cash
received; (b) on a monthly basis or more frequently beginning five (5) days
after Lender's request, (i) perpetual inventory reports, (ii) inventory reports
by category and (iii) agings of accounts payable, (c) upon Lender's request, (i)
copies of customer statements and credit memos, remittance advices and reports,
and copies of deposit slips and bank statements, (ii) copies of shipping and
delivery documents, and (iii) copies of purchase orders, invoices and delivery
documents for Inventory acquired by Borrower; (d) agings of accounts receivable
on a monthly basis or more frequently as Lender may request; and (e) such other
reports as to the Collateral as Lender shall request from time to time. If any
of Borrower's records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any material
account debtor or the assertion of any material claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Lender's consent,
except in the ordinary course of Borrower's business in accordance with its then
current practices and policies (so long as such practices and policies are no
more favorable to such account debtor or other person in any material respect
than those in effect on the date hereof). So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
23
<PAGE>
(b) Without limiting the obligation of Borrower to deliver any
other information to Lender, Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $10,000 other than returns from retail customers in the
ordinary course of the business of Borrower in accordance with the then current
return policy of the Borrower (provided that such return policy shall be no more
favorable to the retail customer in any material respect than the policy in
effect as of the date hereof). At any time that Inventory is returned, reclaimed
or repossessed, the Account (or portion thereof) which arose from the sale of
such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Receivable: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with the then current practices and policies of Borrower (so long as
such practices and policies are no more favorable to the account debtor or other
person in any material respect than those in effect on the date hereof), (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Receivable or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments constituting part of the Collateral which Borrower
now owns or may at any time acquire immediately upon Borrower's receipt thereof,
except as Lender may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Receivables have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts
24
<PAGE>
debtors to make payment of Receivables directly to Lender, (ii) extend the time
of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all
Receivables or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or parties in any way
liable for payment thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Receivables or such other obligations,
but without any duty to do so, and Lender shall not be liable for its failure to
collect or enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action Lender may
deem necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor shall state that
the Receivables and such other obligations have been assigned to Lender and are
payable directly and only to Lender and Borrower shall deliver to Lender such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Receivables as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except (i) for sales of Inventory in the ordinary course of the business
of Borrower, (ii) for Inventory purchased by Borrower from a third party which
is in transit to a location set forth or permitted herein and is identified to
Lender as Inventory in transit, (iii) to move Inventory from time to time in the
ordinary course of business to third party processors or outside contractors in
order for such third party or outside contractor to process or otherwise work
with such Inventory; provided, that, all such Inventory is reported to Lender as
Inventory at such third party locations, and (iv) to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no more than once in any
twelve (12) month period, but at any time or times as Lender may request on or
after an Event of Default exists or has occurred and is continuing, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) in the event that the amount of Inventory shown
on the books and records of Borrower is greater than the amount of Inventory
based on the physical count of Inventory by more than five (5%) percent at any
time (but at any time or times as Lender may request on or after an Event of
Default exists or has occurred and is continuing), upon Lender's request,
Borrower shall, at its expense, conduct through RGIS Inventory Specialists, Inc.
or another inventory counting service acceptable to Lender, a physical count of
the Inventory in form, scope and methodology acceptable to Lender, the results
of
25
<PAGE>
which shall be reported directly by such inventory counting service to Lender
and Borrower shall promptly deliver confirmation in a form satisfactory to
Lender that appropriate adjustments have been made to the inventory records of
Borrower to reconcile the inventory count to Borrower's inventory records; (f)
Borrower shall produce, use, store and maintain the Inventory with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (g) as between Borrower and Lender,
Borrower assumes all responsibility and liability arising from or relating to
the production, use, sale or other disposition of the Inventory; (h) Borrower
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory except for the right of return given to retail customers in the
ordinary course of the business of Borrower in accordance with the then current
return policy of Borrower (so long as such policy shall be no more favorable to
the retail customer in any material respect than the policy in effect on the
date hereof); (i) Borrower shall keep the Inventory in good and marketable
condition; and (j) Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval. The foregoing shall
not be construed to limit the existing customary practice of Borrower to accept
returns from time to time from customers in the ordinary course of the business
of Borrower.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrower
shall keep the Equipment necessary to operate the businesses of Borrower in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (b) Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws; and (c) as between Borrower and Lender,
Borrower assumes all responsibility and liability arising from the use of the
Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Receivables or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Receivables by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Receivable or other Collateral, (iv) sell or assign any Receivable upon such
terms, for such amount and at such time or times as the Lender deems advisable,
(v) settle, adjust, compromise, extend or renew a Receivable, (vi) discharge and
release any Receivable, (vii) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against an account
debtor, (viii) notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Lender, and open and
dispose of all mail addressed to Borrower, provided, that, Lender shall use all
reasonable efforts to only open and dispose of mail which it receives pursuant
to the exercise by Lender of its rights set forth in this Section 7.5 from
account debtors or other persons indebted to Borrower or any Obligor, or which
might relate to the Collateral or proceeds thereof, or from suppliers, vendors
or other trade creditors of Borrower or any Obligor,
26
<PAGE>
and (ix) do all acts and things which are necessary, in Lender's determination,
to fulfill Borrower's obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of any item of
payment or proceeds of any Collateral or other item or proceeds received in the
Blocked Accounts or otherwise remitted to Lender, (ii) have access to any
lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds of any Collateral or other
item or proceeds received in the Blocked Accounts or otherwise remitted to
Lender and deposit the same in Lender's account for application to the
Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Receivable
or any goods pertaining thereto or any other Collateral, (v) sign Borrower's
name on any verification of Receivables and notices thereof to account debtors
and (vi) execute in Borrower's name and file any UCC financing statements or
amendments thereto, in each case to the extent not otherwise prohibited by
applicable law and in accordance with the other terms of this Agreement and the
other Financing Agreements,. Borrower hereby releases Lender and its officers,
employees and designees from any liabilities arising from any act or acts under
this power of attorney and in furtherance thereof, whether of omission or
commission, except as a result of Lender's own gross negligence or wilful
misconduct as determined pursuant to a final non-appealable order of a court of
competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) upon notice to
Borrower, cure any default by Borrower under any material agreement with a third
party which affects the Collateral, its value or the ability of Lender to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Lender therein or the ability of Borrower to perform its obligations under
the other Financing Agreements; (b) discharge taxes, liens, security interests
or other encumbrances at any time levied on or existing with respect to the
Collateral and (c) pay any amount, incur any expense or perform any act which,
in Lender's good faith judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by Borrower on demand.
Lender shall be under no obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested in good faith by
Lender, at the cost and expense of Borrower, (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may
27
<PAGE>
be reasonably necessary for the foregoing and if an Event of Default exists or
has occurred and is continuing for the collection of Receivables and realization
of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of applicable law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
or any material agreement or undertaking to which Borrower is a party or by
which Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of Borrower
enforceable in accordance with their respective terms. Borrower does not have
any Subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Receivables are located
only at the address set forth below and at 109 S. 122nd E. Avenue, Tulsa,
Oklahoma 74128 and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in the Information
Certificate, subject to the right of Borrower to establish new locations in
accordance with Section 9.2 below. The Information Certificate correctly
identifies any of such locations
28
<PAGE>
which are not owned by Borrower and sets forth the owners and/or operators
thereof and to the best of Borrower's knowledge, the holders of any mortgages on
such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it. All information in such tax returns, reports and declarations is complete
and accurate in all material respects. Borrower has paid or caused to be paid
all taxes due and payable or claimed due and payable in any assessment received
by it, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. Adequate
provision has been made for the payment of all accrued and unpaid Federal,
State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets or business of
Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Borrower is not in default in any material respect under, or
in violation in any respect of any of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound. Borrower is in compliance in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority relating to its business,
including, without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all Federal, State and local statutes, regulations,
rules and orders relating to consumer credit (including, without limitation, as
each has been amended, the
29
<PAGE>
Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit Opportunity
Act and the Fair Credit Reporting Act, and regulations, rules and orders
promulgated thereunder), all Federal, State and local states, regulations, rules
and orders pertaining to sales of consumer goods (including, without limitation,
the Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder and all Environmental Laws).
(b) Borrower has obtained, or has taken all action necessary to
obtain, all material permits, licenses, approvals, consents, certificates,
orders or authorizations of any governmental agency required for the lawful
conduct of its business. Schedule 8.7 hereto sets forth all material permits,
licenses, approvals, consents, certificates, orders or authorizations (the
"Permits") issued to or held by Borrower as of the date hereof by any Federal,
State or local governmental agency and any applications pending by Borrower with
such Federal, State or local governmental agency. The Permits constitute all
permits, licenses, approvals, consents, certificates, orders or authorizations
necessary for Borrower to own and operate its business as presently conducted or
proposed to be conducted where the failure to have such Permits would have a
material adverse effect on the business, performance, operations or properties
of Borrower or the legality, validity or enforceability of this Agreement or the
other Financing Agreements or the ability of Borrower to perform its obligations
under the Agreement or any of the other Financing Agreements or the rights and
remedies of Lender under this Agreement or any of the other Financing
Agreements. All of the Permits are valid and subsisting and in full force and
effect. There are no actions, claims or proceedings pending or to the best of
Borrower's knowledge, threatened that seek the revocation, cancellation,
suspension or modification of any of the Permits except for any such actions,
claims or proceedings disclosed in the Information Certificate or arising after
the date hereof, in each case, which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, so long as
such Permit remains in effect during the pendency of such action, claim or
proceeding.
8.8 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any ERISA Affiliate could reasonably be expected to be
subject to either a civil penalty assessed pursuant to ERISA or a tax imposed
pursuant to the Code with respect to a Plan in excess of $100,000.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by Borrower to be incurred with respect to any Plan. There
has been no reportable event (within the meaning of ERISA) or any other event or
condition with respect to any Plan which presents a material risk of termination
of any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or
any ERISA Affiliate is required under ERISA and the Code to have paid under the
terms of each Plan as contributions to such Plan as of the last day of the most
recent fiscal year of such plan ended
30
<PAGE>
prior to the date hereof, and no accumulated funding deficiency (as defined in
ERISA and the Code), whether or not waived, exists with respect to any Plan.
(d) The current value of all vested accrued benefits under the
Plans does not exceed the current value of the assets of such plans allocable to
such vested accrued benefits by more than $350,000 as to any one Plan and
$650,000 in the aggregate as to all Plans. The terms "current value" and
"accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any ERISA Affiliate has any liability or
potential liability with respect to any "multiemployer plan" (as such term is
defined in ERISA) that is subject to Title IV of ERISA (other than any liability
arising in the ordinary course of the business of Borrower or any ERISA
Affiliate for contributions to such plan in accordance with the collective
bargaining agreement of Borrower), except as set forth in Schedule 8.8 hereto.
8.9 Environmental Compliance.
(a) Except as set forth on Schedule 8.9 hereto, (i) Borrower has
not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which violates any applicable Environmental
Law or any license, permit, certificate, approval or similar authorization
thereunder and (ii) the operations of Borrower complies in all material respects
with all Environmental Laws and all licenses, permits, certificates, approvals
and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other third party nor is any pending
or to the best of Borrower's knowledge threatened, with respect to any material
non-compliance with or material violation of the requirements of any
Environmental Law by Borrower or the release, spill or discharge, threatened or
actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials.
(c) Borrower has no material liability (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals
or similar authorizations required to be obtained or filed in connection with
the operations of Borrower under any Environmental Law.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set
31
<PAGE>
forth on Schedule 6.3 hereto, subject to the right of Borrower to establish new
accounts in accordance with Section 9.13 below.
8.11 Acquisition of Purchased Assets.
(a) The Purchase Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Purchase Agreements and the assignments to
be executed and delivered by Seller (or any of its Affiliates or Subsidiaries)
thereunder, Borrower acquired and has good and marketable title to the Purchased
Assets, free and clear of all claims, liens, pledges and encumbrances of any
kind, except as permitted hereunder.
(b) All actions and proceedings required by the Purchase
Agreements, applicable law or regulation (including, but not limited to,
compliance with the Hart-Scott-Rodino AntiTrust Improvements Act of 1976, as
amended, but not including for this purpose applicable bulk sales statutes) have
been taken and the transactions required thereunder have been duly and validly
taken and consummated (except for those transactions required by the Purchase
Agreements to be taken after the closing of the acquisition).
(c) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Purchase Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.
(d) Borrower has delivered, or caused to be delivered, to Lender,
true, correct and complete copies of the Purchase Agreements.
8.12 Capitalization.
(a) All of the issued and outstanding shares of capital stock of
Borrower are directly and beneficially owned and held by Leer Acquisition
Company, Inc. and all of such shares have been duly authorized and are fully
paid and non-assessable, free and clear of all claims, liens, pledges and
encumbrances of any kind, except as disclosed in writing to Lender.
(b) Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the indebtedness of Borrower, and
32
<PAGE>
including subordinated and contingent liabilities computed at the amount which,
to the best of Borrower's knowledge, represents an amount which can reasonably
be expected to become an actual or matured liability.
8.13 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which could reasonably be expected to have a material
adverse affect on the business or assets of Borrower, which has not been fully
and accurately disclosed to Lender in writing.
8.14 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
33
<PAGE>
(a) Borrower shall at all times comply in all material respects
with all applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders and duly observe all material requirements, of any foreign,
Federal, State or local governmental authority, including, without limitation,
the Occupational Safety and Health Act of 1970, as amended, the Code, the Fair
Labor Standards Act of 1938, as amended, and the rules and regulations
thereunder, all Federal, State and local statutes, regulations, rules and orders
relating to consumer credit (including, without limitation, as each has been
amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act, and regulations, rules and
orders promulgated thereunder), all Federal, State and local statutes,
regulations, rules and orders pertaining to sales of consumer goods (including,
without limitation, the Consumer Products Safety Act of 1972, as amended, and
the Federal Trade Commission Act of 1914, as amended, and all regulations, rules
and orders promulgated thereunder) and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health
and safety, including, without limitation, all Environmental Laws.
(b) Borrower shall establish and maintain, at its expense,
reasonable procedures to assure and monitor its continued compliance with all
Environmental Laws in all of its operations. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations disclosing material environmental conditions obtained by Borrower
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
(c) Borrower shall give both oral and written notice to Lender
promptly upon the receipt by Borrower, of any written notice of, or its
otherwise obtaining reliable knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material which results in any material non-compliance with or material
violation of applicable Environmental Laws or which has a reasonable likelihood
of resulting in any material liability to any third party, or (ii) any third
party investigation, proceeding, complaint, order, directive, claims, citation
or notice of violation involving actual or potential material liability with
respect to: (A) any material non-compliance with or material violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material or (C) the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or (D) any other environmental, health or safety matter,
which affects Borrower or its business, operations or assets or any properties
at which it transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is any occurrence, event or condition
which has a reasonable likelihood of resulting in any material non-compliance
with any Environmental Law, or any occurrence, event or condition which requires
any action by or on behalf of Borrower, in order to avoid the reasonable
likelihood of any material non-compliance with any Environmental Law, Borrower
shall, at Lender's request and the expense of Borrower: (i) to prepare and
deliver to Lender a report as to such occurrence, event or condition setting
forth the results of its review, a proposed plan for responding to such
occurrence, event or condition and an estimate of the costs thereof
34
<PAGE>
and (ii) provide to Lender a supplemental report whenever the scope of such
occurrence, event or condition, or the response of Borrower thereto or the
estimated costs thereof shall change in any material respect. At any time after
the receipt by Lender of such report or reports (so long as it is prepared and
delivered to Lender in a timely manner, otherwise at any time), upon Lender's
reasonable request, at the expense of Borrower, Borrower shall cause an
independent environmental engineer to prepare and deliver a report, in form and
scope acceptable to Lender, as to such occurrence, event or condition reviewing
the proposed plan for responding thereto and the estimated costs thereof.
Borrower shall have the right to review, comment on and approve all such
reports, which review, comment and approval shall not be unreasonably withheld,
conditioned or delayed, provided, that, such review, comment and approval shall
not in any manner delay the receipt by Lender of such reports.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, representatives, successors and assigns
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material in connection with the business, operations,
assets or properties of Borrower, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of
35
<PAGE>
such insurance, and, if Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of Borrower. All policies with
respect to the Collateral shall provide for at least thirty (30) days prior
written notice to Lender of any cancellation or reduction of coverage and that
Lender may act as attorney for Borrower in obtaining, and at any time an Event
of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies with respect to the Collateral and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its Subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within thirty (30) days after the end of each fiscal month (other
than December of any year) and within forty-five (45) days after the end of
December of each year, monthly unaudited consolidated financial statements, and,
if Borrower has any Subsidiaries, unaudited consolidating financial statements
(including in each case balance sheets, statements of income and loss and
statements of cash flow) all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and, unaudited consolidating financial statements of JBPCO
and its Subsidiaries, so long as Borrower shall be one of such Subsidiaries, and
if not, then audited financial statements of Borrower (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of JBPCO and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such consolidated
financial statements have been prepared in accordance with GAAP, and present
fairly the results of operations and financial condition of Borrower and its
Subsidiaries as of the end of and for the fiscal year then ended.
36
<PAGE>
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all public reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business,
(ii) the disposition of worn-out or obsolete Equipment or Equipment no longer
used in the business of Borrower so long as such sales do not involve Equipment
having an aggregate fair market value in excess of $50,000 for all such
Equipment disposed of in any fiscal year of Borrower, (iii) after written notice
to Lender, the disposition through the abandonment, cancellation or other
failure to maintain any trademark or other intellectual property (A) which is no
longer used or useful in the business of Borrower has not been used in the
business of Borrower for a period of not less than six (6) months, is not
otherwise material to the business of Borrower in any respect and has little or
no value or (B) which pursuant to applicable law may not be renewed or extended
and (iv) sales or other dispositions by Borrower of assets in connection with
the closing or sale of a retail store location of Borrower which consist of
leasehold interests in the premises of such store, the Equipment located at such
premises and the books and records relating exclusively and directly to the
operations of such store; provided, that, (A) the aggregate amount of all of the
37
<PAGE>
assets so sold by Borrower in all such transactions shall not exceed $50,000,
(B) as of the date of such sale or other disposition and after giving effect
thereto, no Event of Default, or act, condition or event which with notice or
passage of time would constitute an Event of Default, shall exist or have
occurred, and (C) such sale shall be on commercially reasonable prices and terms
in a bona fide arm's length transaction, (c) form or acquire any Subsidiaries,
or (d) wind up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including the
Collateral, except: (a) liens and security interests of Lender; (b) liens
securing the payment of taxes, assessments and governmental charges or levies
either not yet overdue or the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing the payment of
taxes, assessments and governmental charges or levies) arising in the ordinary
course of Borrower's business to the extent: (i) such liens secure indebtedness
which is not overdue or (ii) such liens secure indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, rights-of-way, servitudes, licenses, covenants
and other restrictions affecting the use of real property which do not interfere
in any material respect with the use of such real property or ordinary conduct
of the business of Borrower as presently conducted thereon or materially impair
the value of the real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and purchase money
mortgages on real estate arising after the date hereof not to exceed $500,000 in
the aggregate so long as such security interests and mortgages do not apply to
any property of Borrower other than the Equipment or real estate so acquired,
and the indebtedness secured thereby does not exceed the cost of the Equipment
or real estate so acquired, as the case may be; (f) the liens and security
interests of Seller to secure the indebtedness of Borrower to Seller permitted
under Section 9.9(d), which liens and security interests are, in all respects,
subject and subordinate in priority to the liens and security interests of
Lender pursuant to the intercreditor and subordination agreement between Lender
and Seller; (g) liens on, or rights of setoff against deposits of cash with the
owner or lessor of premises leased and operated by Borrower in the ordinary
course of the business of Borrower to secure the performance by Borrower of its
obligations under the terms of the lease for such premises; (h) liens incurred
(other than on Collateral) or deposits made by Borrower in the ordinary course
of the business of Borrower in connection with worker's compensation,
unemployment insurance or other types of social security benefits consistent
with the current practices of Borrower as of the date hereof, or to secure the
performance of bids, tenders, sales, contracts (other than for the repayment of
indebtedness), surety, appeal, customs and performance bonds consistent with the
current practices of Borrower as of the date hereof; provided, that, such liens
or deposits shall not
38
<PAGE>
interfere in any material respect with the use of any property or the ordinary
conduct of the business of Borrower or impair the value of the assets and
properties of Borrower in any material respect; (i) encumbrances constituting
the filing of notice financing statements of a lessor's rights in and to
personal property leased to Borrower in the ordinary course of the business of
Borrower; (j) non-consensual statutory or common law liens on, or rights of
setoff against, cash of Borrower on deposit with any depositary bank listed on
Schedule 6.3 hereto, or any other banks with whom Borrower maintains deposit
accounts to the extent permitted under Section 6.3 hereof, in favor of the banks
in possession of such cash (other than the banks at which the Blocked Accounts
are maintained as to cash in the Blocked Accounts); provided, that, (i) such
liens shall not secure any indebtedness and (ii) there shall not be any
restrictions on the ability or right of Borrower to withdraw or use any such
cash; and (k) the security interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations, operating leases and normal accruals in
the ordinary course of business not yet due and payable, or with respect to
which the Borrower is contesting in good faith the amount or validity thereof by
appropriate proceedings diligently pursued and available to Borrower, and with
respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) indebtedness of Borrower to Seller (or to William J. Avery,
Sr., as assignee of Seller after the date hereof) evidenced by or arising under
the Secured Subordinated Promissory Note, dated on or about the date hereof,
issued by Borrower payable to Seller, which indebtedness is subject and
subordinate in right of payment to the right of Lender to receive the prior
payment in full of all of the Obligations; provided, that, (i) the principal
amount of such Indebtedness shall not exceed $500,000 (or such other amount as
may be determined pursuant to the terms of the Purchase Agreements as a result
of the post-closing adjustment to the purchase price in accordance with the
terms thereof as in effect on the date hereof), less the aggregate amount of all
payments, optional or mandatory, of principal in respect thereof, plus interest
thereon at the rate provided for in such Note, as in effect on the date hereof,
(ii) Borrower shall not, directly, or indirectly, make any payments in respect
of such Indebtedness, including, but not limited to, any prepayments or other
non-mandatory payments, except that Borrower may make regularly scheduled
payments of principal and interest, on an unaccelerated basis, in respect of
such indebtedness in accordance with the terms of such Note as in effect on the
date hereof, provided, that, each of the following conditions is satisfied: (A)
as of the date of each such payment and after giving effect thereto, no Event of
Default, or act, condition or event which
39
<PAGE>
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and (B) as of the date of each such payment and
after giving effect thereto, Excess Availability shall not be less than
$100,000, (iii) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change any terms of such indebtedness or any agreement, document or
instrument related thereto in any material respect, or (B) redeem or set aside
or otherwise deposit or invest any sums for such purpose, and (iv) Borrower
shall furnish to Lender all notices, demands or other materials in connection
with such indebtedness either received by Borrower or on its behalf, promptly
after receipt thereof or sent by Borrower or in its behalf, concurrently with
the sending thereof, as the case may be;
(e) unsecured indebtedness of Borrower to Seller arising pursuant
to the Non- Competition Agreement, dated on or about the date hereof, between
Borrower and Seller, which indebtedness is subject to and subordinate in right
of payment to the right of Lender to receive the prior payment in full of all of
the Obligations; provided, that: (i) the principal amount of such indebtedness
shall not in the aggregate exceed $500,000, less the aggregate amount of all
payments, optional or mandatory, in respect thereof, (ii) Borrower shall not,
directly or indirectly, make any payments in respect of such indebtedness,
including, but not limited to, any prepayments or other non-mandatory payments,
except that Borrower may make the regularly scheduled quarterly installments of
$25,000 each year, on an unaccelerated basis, in respect of such indebtedness in
accordance with the terms of such Non-Competition Agreement as in effect on the
date hereof, and (iii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto in any material respect, or (B) redeem or
set aside or otherwise deposit or invest any sums for such purpose, and (iv)
Borrower shall furnish to Lender all notices, demands or other materials in
connection with such indebtedness either received by Borrower or on its behalf,
promptly after receipt thereof or sent by Borrower or in its behalf,
concurrently with the sending thereof, as the case may be;
(f) unsecured indebtedness of Borrower to Leer arising after the
date hereof pursuant to loans by Leer to Borrower in cash or other immediately
available funds, provided, that, (i) such indebtedness is subject to, and
subordinate in right of payment to, the right of Lender to receive the prior
payment in full of all of the Obligations on terms and conditions acceptable to
Lender, (ii) Lender shall have received, in form and substance satisfactory to
Lender, a subordination agreement providing for the terms of the subordination
in right of payment of such indebtedness of Borrower to the payment of the
Obligations, duly authorized, executed and delivered by Leer and Borrower, (iii)
Borrower shall not, directly or indirectly, make or be required to make any
payments in respect of such indebtedness, except to the extent permitted under
Section 9.11(c) below, (iv) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease, purchase
or otherwise acquire such indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (v) Borrower shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by
40
<PAGE>
Borrower or on its behalf, promptly after receipt thereof, or sent by Borrower
or on its behalf, concurrently with the sending thereof, as the case may be;
(g) the indebtedness set forth on Schedule 9.9 hereto; provided,
that, (i) Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such indebtedness as in
effect on the date hereof, (ii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose, and (iii)
Borrower shall furnish to Lender all notices or demands in connection with such
indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated
A1 or P1; provided, that, as to any of the foregoing investments to the extent
constituting Collateral, unless waived in writing by Lender, Borrower shall take
such actions as are deemed necessary by Lender to perfect the security interest
of Lender in such investments; (c) loans by Borrower to Leer permitted under
Section 9.11(b) below; and (d) the loans, advances and guarantees set forth on
Schedule 9.10 hereto; provided, that, as to such loans, advances and guarantees,
(i) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such loans, advances or guarantees or any agreement,
document or instrument related thereto, or (B) as to such guarantees, redeem,
retire, defease, purchase or otherwise acquire the obligations arising pursuant
to such guarantees, or set aside or otherwise deposit or invest any sums for
such purpose, and (ii) Borrower shall furnish to Lender all notices or demands
in connection with such loans, advances or guarantees or other indebtedness
subject to such guarantees either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.11 Restricted Payments.
(a) Borrower shall not, directly or indirectly, declare or pay
any dividends on account of any shares of class of capital stock of Borrower now
or hereafter outstanding, or set
41
<PAGE>
aside or otherwise deposit or invest any sums for such purpose, or redeem,
retire, defease, purchase or otherwise acquire any shares of any class of
capital stock (or set aside or otherwise deposit or invest any sums for such
purpose) for any consideration other than common stock or apply or set apart any
sum, or make any other distribution (by reduction of capital or otherwise) in
respect of any such shares or agree to do any of the foregoing.
(b) Borrower may pay dividends on account of any shares of common
stock of Borrower now outstanding, or make any loans or advance money or
property to Leer, provided, that, in each case as to any of the foregoing, each
of the following conditions is satisfied as determined by Lender: (i) as of the
date of the payment of such dividend or making such loan, and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred and be continuing, (ii) any dividends or other
distributions shall be out of funds legally available therefor, (iii)
immediately after giving effect to the payment of such dividend or making of
such loan, as the case may be, the aggregate amount of all such dividends and
loans in any fiscal year of Borrower shall not exceed the amount equal to fifty
(50%) percent of the positive Consolidated Net Income of Borrower in the
immediately preceding fiscal year calculated based on the annual audited
financial statements of JBPCO, Inc. for such fiscal year delivered to Lender in
accordance with Section 9.6(a)(ii) hereof, (iv) as of the date of the payment of
such dividend or making such loan, the daily average of the Excess Availability
for the immediately preceding thirty (30) consecutive day period shall be not
less than the amount equal to two (2) times the amount of the trade payables and
other current liabilities of Borrower as of the last day of the preceding month
for which Lender has received monthly financial statements pursuant to Section
9.6(a)(i) above, as set forth in such monthly financial statements and as of the
date of such dividend or loan, and after giving effect thereto, the Excess
Availability shall not be less than such amount and (v) no Loans shall have been
outstanding on each of the sixty (60) days immediately prior to the payment of
such dividend or making of such loan.
(c) Borrower may repay the indebtedness of Borrower to Leer arising
after the date hereof permitted under Section 9.9(f) above, provided, that, as
to any such payment each of the following conditions is satisfied: (i) as of the
date of such repayment and after giving effect thereto, no Event of Default, or
act, condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred and be continuing
and (ii) as of the date of such repayment, the daily average of the Excess
Availability for the immediately preceding thirty (30) consecutive day period
shall not be less than the amount equal to two (2) times the amount of the trade
payables and other current liabilities of Borrower as of the last day of the
preceding month for which Lender has received monthly financial statements
pursuant to Section 9.6(a)(i) above, as set forth in such monthly financial
statements and as of the date of such repayment, and after giving effect
thereto, the Excess Availability shall not be less than such amount.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director,
42
<PAGE>
agent or other Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with a person who is not an Affiliate or (b)
make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing to any officer, employee,
shareholder, director or other Affiliate of Borrower except (i) reasonable
compensation to officers, employees and directors for services rendered to
Borrower in the ordinary course of business, (ii) payments for management fees
and reimbursements for costs, charges or expenses by Borrower to Southwestern
Holdings, Inc. in accordance with the terms of the Management Services Agreement
(as in effect on the date hereof or as amended after date hereof to increase the
amount payable by Borrower thereunder by up to $100,000 each year), (iii)
payments by Borrower to JBPCO pursuant to the tax sharing arrangements between
Borrower (as in effect on the date hereof); provided, that, (A) Borrower is
included in the consolidated federal income tax return filed by JBPCO as to
which Borrower is making such payments, (B) the payments in any year shall not
exceed the federal income tax liability that Borrower would have been liable for
if Borrower had filed its tax returns on a stand-alone basis, (C) such payments
shall be made by Borrower no earlier than five (5) days prior to the date on
which JBPCO would be required to make its payments to the Internal Revenue
Service, and (D) in the event that Borrower also joins with JBPCO in filing any
combined or consolidated (or similar) state or local income tax returns, then
the making of payments to JBPCO shall be allowed in a manner as similar as
possible to that provided herein with respect to federal income taxes and (iv)
payments by Borrower to Leer in respect of indebtedness owing by Borrower to
Leer to the extent permitted under Section 9.11(c) hereof.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 6.3 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.14 Compliance with ERISA. Borrower shall not with respect to any
Plan: (a) terminate any such Plan so as to incur any liability to the Pension
Benefit Guaranty Corporation under Section 4041(c) of ERISA; (b) allow or suffer
to exist any non-exempt prohibited transaction involving any of such Plan or any
trust created thereunder which would subject Borrower or any ERISA Affiliate to
a tax or penalty or other material liability on prohibited transactions imposed
under Section 4975 of the Code or under ERISA; (c) fail to pay to any such Plan
any contribution which it is obligated to pay under ERISA, the Code or the terms
of such Plan; (d) allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such Plan; (e) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
43
<PAGE>
Corporation of any such Plan under Section 4042 of ERISA or (f) incur any
withdrawal liability with respect to any multiemployer pension plan in excess of
$500,000.
9.15 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem charge
at the rate of $600 per person per day for Lender's examiners in the field and
office; and (h) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
9.16 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender with respect to the Collateral.
44
<PAGE>
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower or any Obligor fails to pay when due any of the
Obligations or (ii) Borrower or any Obligor fails to perform any of covenants
contained in Sections 9.1, 9.2, 9.3, 9.4, 9.6 and 9.14 hereof, and such failure
shall continue for ten (10) days, provided, that, such ten (10) day period shall
not apply in the case of: (A) any failure to observe any such covenant or
agreement which is not capable of being cured at all or within such ten (10) day
period or which has been the subject of a prior failure within the immediately
preceding six (6) months or (B) an intentional breach by Borrower or any Obligor
of any such covenant or agreement or (iii) Borrower or any Obligor fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements to which it is a party other
than those described in Sections 10.1(a)(i) or 10.1(a)(ii);
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor (other than a judgment for which Borrower or such
Obligor is fully insured and for which the insurer has acknowledged its
liability therefor in writing) in excess of $50,000 in any one case or in excess
of $100,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) Borrower or any Obligor, which is a partnership, limited
liability company, limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors in connection with any deferral or moratorium with respect to payments
on, or compromise of, or settlement or reduction in indebtedness owing to such
creditors;
45
<PAGE>
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender (including, without limitation, the Secured
Subordinated Promissory Note issued by Borrower payable to Seller, the
Non-Competition Agreement between Borrower and Seller and the Asset Purchase
Agreement between Borrower and Seller), or any capitalized lease obligations,
contingent indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person other than
Lender, in any case in an amount in excess of $80,000, which default continues
for more than the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease, license
or other obligation to any person other than Lender, which default continues for
more than the applicable cure period, if any, with respect thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any
Obligor (as Lender may reasonably and in good faith determine) under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which statute or
proceeding the penalties or remedies sought or available include forfeiture of
any material portion of the property of Borrower or such Obligor;
(l) after the date hereof any act, condition or event shall exist
or have occurred which has a material adverse affect upon the assets of Borrower
or any Obligor, or the Collateral or the value thereof, or the ability of Lender
to realize thereon, or the rights and remedies of Lender under this Agreement or
the other Financing Agreements or the ability of Borrower or any Obligor to
repay the Obligations or of Borrower or any Obligor to perform its obligations
under this Agreement or any of the other Financing Agreements; or
46
<PAGE>
(m) there shall have occurred and be continuing an event of
default under any of the other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, ten (10) days prior notice by Lender to Borrower designating
the time and place of any public sale or the time after which any private sale
or other intended disposition of Collateral is to be
47
<PAGE>
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default and for so long as the same is continuing, Lender
may, at its option, without notice, (i) cease making Loans or arranging for
Letter of Credit Accommodations or reduce the lending formulas or amounts of
Loans and Letter of Credit Accommodations available to Borrower and/or (ii)
suspend the effectiveness of any provision of this Agreement providing for any
future Loans or Letter of Credit Accommodations to be made by Lender to
Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York in New
York County and the United States District Court for the Southern District of
New York and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in
48
<PAGE>
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
ten (10) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER
FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein.
49
<PAGE>
No notice to or demand on Borrower which Lender may elect to give shall entitle
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the reasonable fees and
reasonable expenses of counsel except for any loss, claim, damage, liability,
costs or expense resulting from the gross negligence or willful misconduct of
Lender as determined pursuant to a final non-appealable order of a court
competent jurisdiction. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term
50
<PAGE>
ending on the date three (3) years from the date hereof (the "Renewal Date"),
and from year to year thereafter, unless sooner terminated pursuant to the terms
hereof; provided, that, Lender may, at its option, extend the Renewal Date to
the date four (4) years from the date hereof by giving Borrower notice at least
sixty (60) days prior to the third (3rd) anniversary of this Agreement. Lender
or Borrower (subject to Lender's right to extend the Renewal Date as provided
above) may terminate this Agreement and the other Financing Agreements effective
on the Renewal Date or on the anniversary of the Renewal Date in any year by
giving to the other party at least sixty (60) days prior written notice;
provided, that, this Agreement and all other Financing Agreements must be
terminated simultaneously. Upon the effective date of termination or non-renewal
of the Financing Agreements, Borrower shall pay to Lender, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Lender
in such amounts as Lender determines are reasonably necessary to secure Lender
from loss, cost, damage or expense, including reasonable attorneys' fees and
legal expenses, in connection with any contingent Obligations, including issued
and outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrower for such purpose. Interest shall be due until
and including the next Business Day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
12:00 noon, New York City time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid. Upon the receipt by Lender of payment in
full in cash or other immediately available funds of all of the outstanding and
unpaid Obligations and cash collateral as provided for in Section 12.1(a), upon
Borrower's request and at Borrower's expense, except as otherwise required by
applicable law, Lender shall execute and deliver to Borrower UCC-3 termination
statements and such other release documents with respect to the Collateral as
may be reasonably requested by Borrower, in form and substance satisfactory to
Lender, to effectuate the termination of the security interests granted by
Borrower or any Obligor to Lender herein and in the other Financing Agreements.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement at the request of
Borrower or by Lender as the result of an Event of Default, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount equal
to: (i) three (3%) percent of the Maximum Credit if such termination occurs on
or prior to the first anniversary of the date hereof;
51
<PAGE>
(ii) two (2%) percent of the Maximum Credit if such termination occurs after the
first anniversary of the date hereof, but prior to or on the second anniversary
of the date hereof; and (iii) one (1%) percent of the Maximum Credit if such
termination occurs after the second anniversary date, but prior to the third
anniversary of the date hereof, or if Lender exercises its option to extend the
Renewal Date pursuant to Section 12.1 of this Agreement, prior to the fourth
anniversary of the date hereof; provided, that, in the event of the termination
by Borrower of the financing arrangements provided for herein upon the amendment
of the existing financing arrangements of JBPCO with Lender pursuant to the Loan
and Security Agreement, dated June 28, 1996, by and among Lender, JBPCO and
certain of its Subsidiaries to add Borrower as a guarantor thereunder, together
with such other agreements, documents and instruments in connection therewith as
Lender may require (including, without limitation, agreements relating to
intercompany lending arrangements between Borrower and JBPCO, and the assignment
thereof to Lender), Borrower shall not be required to pay the early termination
fee provided for above. Nothing contained herein or otherwise shall be construed
to require Lender to agree to any such amendment to the existing financing
arrangements of Lender with JBPCO and certain of its Subsidiaries. Such early
termination fee shall be presumed to be the amount of damages sustained by
Lender as a result of such early termination and Borrower agrees that it is
reasonable under the circumstances currently existing. In addition, Lender shall
be entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h) hereof, even if Lender does
not exercise its right to terminate this Agreement, but elects, at its option,
to provide financing to Borrower or permit the use of cash collateral under the
United States Bankruptcy Code. The early termination fee provided for in this
Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below (with a copy to J.B. Poindexter &
Co., Inc., 1100 Louisiana Street, Houston, Texas 77002, Attention: Mr. Stephen
Magee), or to such other address as either party may designate by written notice
to the other in accordance with this provision, and (b) deemed to have been
given or made: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next Business Day, one (1) Business Day after
sending; and if by certified mail, return receipt requested, five (5) days after
mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be
52
<PAGE>
enforceable by Lender, Borrower and their respective successors and assigns,
except that Borrower may not assign its rights under this Agreement, the other
Financing Agreements and any other document referred to herein or therein
without the prior written consent of Lender. Lender may, after notice to
Borrower, assign its rights and delegate its obligations under this Agreement
and the other Financing Agreements and further may, after notice to Borrower,
assign, or sell participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein to another financial
institution or other person, in which event, the assignee or participant shall
have, to the extent of such assignment or participation, the same rights and
benefits as it would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment or participation.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by Borrower pursuant to this Agreement which is clearly and
conspicuously marked as confidential at the time such information is furnished
by Borrower to Lender, provided, that, nothing contained herein shall limit the
disclosure of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation
to which Lender is a party, (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) shall have first agreed in writing to treat such
information as confidential in accordance with this Section 12.5, or (v) to
counsel for Lender or any participant or assignee (or prospective participant or
assignee).
(b) In no event shall this Section 12.5 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other than
Borrower, (iii) require Lender to return any materials furnished by Borrower to
Lender or (iv) prevent Lender from responding to routine informational requests
in accordance with the Code of Ethics for the Exchange of Credit Information
promulgated by The Robert Morris Associates or other applicable industry
standards relating to the exchange of credit information. The obligations of
Lender under this Section 12.5 shall supersede and replace the obligations of
Lender under any confidentiality letter signed prior to the date hereof.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning
53
<PAGE>
the subject matter hereof and thereof between the parties hereto, and supersede
all other prior agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written. In the event of
any inconsistency between the terms of this Agreement and any schedule or
exhibit hereto, the terms of this Agreement shall govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
54
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION RADCO INDUSTRIES, INC.
By: By:
Title: Title:
Address: Chief Executive Office:
1133 Avenue of the Americas 122 Highway 25, N.E.
New York, New York 10036 Brainerd, Minnesota 56401
=============================== =========================
55
<PAGE>
[10/30/97]
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT ("Intercreditor
Agreement") dated as of October 31, 1997, is by and between CONGRESS FINANCIAL
CORPORATION, a California corporation ("Senior Creditor" as hereinafter further
defined) and MIDWEST TRUCK AFTER MARKET, INC., an Oklahoma corporation ("Junior
Creditor" as hereinafter further defined). Senior Creditor and Junior Creditor
are sometimes individually referred to herein as a "Creditor" and collectively
as "Creditors."
W I T N E S S E T H:
WHEREAS, Junior Creditor has sold to Radco Industries, Inc., a
Minnesota corporation ("Debtor" as hereinafter further defined) substantially
all of its business, assets and properties and in connection with such
acquisition, Debtor has incurred certain indebtedness in favor of Junior
Creditor, which indebtedness is secured by certain assets and properties of
Debtor; and
WHEREAS, Senior Creditor has entered or is about to enter into
financing arrangements with Debtor, pursuant to which Senior Creditor may, upon
certain terms and conditions, make loans and provide other financial
accommodations to Debtor secured by certain assets and properties of Debtor; and
WHEREAS, Creditors desire to enter into this Intercreditor Agreement to
(i) confirm the relative priority of the security interests of each Creditor in
the assets and properties of Debtor, (ii) provide for the orderly sharing among
Creditors, in accordance with such priorities, of proceeds of such assets and
properties upon any foreclosure thereon or other disposition thereof, and (iii)
agree upon the terms of the subordination of the obligations of Debtor to Junior
Creditor and related matters;
NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and in this Intercreditor Agreement, the following terms
shall have the meanings ascribed to them below:
1.1 "Agreements" shall mean, collectively, the Senior Creditor
Agreements and the Junior Creditor Agreements.
-1-
<PAGE>
1.2 "Collateral" shall mean all of the property and interests in
property, real or personal, tangible or intangible, now owned or hereafter
acquired by Debtor in or upon which either or both of Creditors at any time has
a Lien, and including, without limitation, all proceeds of such property and
interests in property.
1.3 "Creditors" shall mean, collectively, Senior Creditor and Junior
Creditor and their respective successors and assigns.
1.4 "Debtor" shall mean Radco Industries, Inc., a Minnesota corporation
and its successors and assigns, including, without limitation, a receiver,
trustee or debtor-in-possession on behalf of such person or on behalf of any
such successor or assign.
1.5 "Junior Creditor" shall mean Midwest Truck After Market, Inc., an
Oklahoma corporation and its successors and assigns.
1.6 "Junior Creditor Agreements" shall mean, collectively, the Secured
Subordinated Promissory Note, dated of even date herewith, issued by Debtor
payable to Junior Creditor in the original principal amount of $500,000, the
Security Agreement, dated of even date herewith, by Debtor in favor of Junior
Creditor, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.7 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor, including principal, interest, charges, fees, premiums, indemnities
and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, arising under the Junior Creditor Agreements, whether
now existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Junior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable in whole or in part, in any such case or similar proceeding),
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured,
provided, that, the term "Junior Debt" shall not include indebtedness of Debtor
to William J. Avery, Sr. pursuant to the Non-Competition Agreement, dated of
even date herewith, by and between Debtor and William J. Avery, Sr.
1.8 "Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security interest, encumbrance
(including, but not limited to, easements, rights of way and the like), lien
(statutory or other), security agreement or transfer intended as security,
including without limitation, any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease or any financing lease
having substantially the same economic effect as any of the foregoing.
-2-
<PAGE>
1.9 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without imitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, limited liability partnership,
business trust, unincorporated association, joint stock company, trust, joint
venture, or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.10 "Senior Creditor" shall mean Congress Financial Corporation, a
California corporation, and its successors and assigns (and including any other
lender or group of lenders that at any time refinances, replaces or succeeds to
all or any portion of the Senior Debt or is otherwise party to the Senior
Creditor Agreements).
1.11 "Senior Creditor Agreements" shall mean, collectively, the Loan
and Security Agreement, dated of even date herewith, by and between Senior
Creditor and Debtor and all agreements, documents and instruments at any time
executed and/or delivered by Debtor or any other person to, with or in favor of
Senior Creditor in connection therewith or related thereto, as all of the
foregoing now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated, refinanced, replaced or restructured (in whole or
in part and including any agreements with, to or in favor of any other lender or
group of lenders that at any time refinances, replaces or succeeds to all or any
portion of the Senior Debt).
1.12 "Senior Debt" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Senior
Creditor and/or its affiliates or participants, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under Senior
Creditor Agreements, whether now existing or hereafter arising, whether arising
before, during or after the initial or any renewal term of the Senior Creditor
Agreements or after the commencement of any case with respect to Debtor under
the U.S. Bankruptcy Code or any state insolvency law or similar statute (and
including, without limitation, any principal, interest, fees, costs, expenses
and other amounts, which would accrue and become due but for the commencement of
such case, whether or not such amounts are allowed or allowable in whole or in
part in any such case), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured.
1.13 All terms defined in the Uniform Commercial Code as in effect in
the State of New York, unless otherwise defined herein shall have the meanings
set forth therein. All references to any term in the plural shall include the
singular and all references to any term in the singular shall include the
plural.
2. SECURITY INTERESTS; PRIORITIES; REMEDIES
2.1 Each Creditor hereby acknowledges that the other Creditor has been
granted a Lien upon the Collateral.
-3-
<PAGE>
2.2 Notwithstanding the order or time of attachment, or the order, time
or manner of perfection, or the order or time of filing or recordation of any
document or instrument, or other method of perfecting a security interest in
favor of each Creditor in any Collateral, and notwithstanding any conflicting
terms or conditions which may be contained in any of the Agreements, the Liens
upon the Collateral of Senior Creditor have and shall have priority over the
Liens upon the Collateral of Junior Creditor and such Liens of Junior Creditor
are and shall be, in all respects, subject and subordinate to the Liens of
Senior Creditor therein to the full extent of the Senior Debt.
2.3 The lien priorities provided in Section 2.2 shall not be altered or
otherwise affected by any amendment, modification, supplement, extension,
renewal, restatement or refinancing of either the Senior Debt or the Junior
Debt, nor by any action or inaction which any Creditor may take or fail to take
in respect of the Collateral.
2.4 Each Creditor shall be solely responsible for perfecting and
maintaining the perfection of its Lien in and to each item constituting the
Collateral in which such Creditor has been granted a Lien. The foregoing
provisions of this Agreement are intended solely to govern the respective lien
priorities as between the Creditors and shall not impose on Senior Creditor any
obligations in respect of the disposition of proceeds of foreclosure on any
Collateral which would conflict with prior perfected claims therein in favor of
any other person or any order or decree of any court or other governmental
authority or any applicable law. Each Creditor agrees that it will not contest
the validity, perfection, priority or enforceability of the Liens upon the
Collateral of the other Creditor and that as between Senior Creditor and Junior
Creditor, the terms of this Intercreditor Agreement shall govern even if part or
all of the Senior Debt or the Liens securing payment and performance thereof are
not perfected or are avoided, disallowed, set aside or otherwise invalidated in
any judicial proceeding or otherwise.
2.5 Senior Creditor shall have the exclusive right to manage, perform
and enforce the terms of the Senior Creditor Agreements with respect to the
Collateral on which it has a Lien, to exercise and enforce all privileges and
rights thereunder according to its discretion and the exercise of its business
judgment, including, without limitation, the exclusive right to take or retake
control or possession of such Collateral and to hold, prepare for sale, process,
sell, lease, dispose of, or liquidate such Collateral.
2.6 Notwithstanding anything to the contrary contained in any of the
Agreements, only Senior Creditor shall have the right to restrict or permit, or
approve or disapprove, the sale, transfer or other disposition of Collateral in
which it has a Lien. Junior Creditor shall (a) immediately upon the request of
Senior Creditor, release or otherwise terminate its Liens on the Collateral to
the extent such Collateral is sold or otherwise disposed of either by Senior
Creditor, its agents, or Debtor with the consent of Senior Creditor and Junior
Creditor shall immediately deliver such release documents as Senior Creditor may
require in connection therewith, provided, that such release by Junior Creditor
shall not extend to or otherwise affect any of the rights, if any, of Junior
Creditor to the proceeds from any such sale or other disposition of Collateral
and
-4-
<PAGE>
(b) be deemed to have consented under the Junior Creditor Agreements to such
sale or other disposition.
2.7 Notwithstanding any rights or remedies available to a Creditor
under any of the Agreements, applicable law or otherwise, Junior Creditor shall
not, directly or indirectly, (a) seek to collect from Debtor (including, without
limitation, from or by way of any Collateral) any of the Junior Debt or exercise
any of its rights or remedies upon a default or event of default by Debtor under
the Junior Creditor Agreements or otherwise, or (b) seek to foreclose or realize
upon (judicially or non-judicially) its Lien on any Collateral or assert any
claims or interests therein (including, without limitation, by setoff or
notification of account debtors), or (c) commence any action or proceeding
against Debtor or its properties under the U.S. Bankruptcy Code or any state
insolvency law or similar present or future statute, law or regulation or any
proceedings for voluntary liquidation, dissolution or other winding up of
Debtor's business, or the appointment of any trustee, receiver or liquidator for
Debtor or any part of its properties or any assignment for the benefit of
creditors or any marshalling of assets of Debtor, or (d) take any other action
against Debtor and the Collateral. The foregoing shall not in any way limit or
impair the right of Junior Creditor from bidding for and purchasing Collateral
at any private or judicial foreclosure upon such Collateral initiated by Senior
Creditor.
3. SUBORDINATION OF JUNIOR DEBT
3.1 Subordination. Except as specifically set forth in Section 3.2
below, Junior Creditor hereby subordinates its right to payment and satisfaction
of the Junior Debt and the payment thereof, directly or indirectly, by any means
whatsoever, is deferred, to the indefeasible payment and satisfaction in full of
all Senior Debt.
3.2 Permitted Payments. Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 3.1, unless and
until the occurrence of an Event of Default (as such term is defined in the
Senior Creditor Agreements), Debtor may make and Junior Creditor may receive and
retain from Debtor regularly scheduled payments of principal and interest, on an
unaccelerated basis, in respect of the Junior Debt in accordance with the terms
of the Junior Creditor Agreements as in effect on the date hereof (but not any
prepayments, non-mandatory payments or any payments pursuant to acceleration or
claims of breach or to acquire any Junior Debt or otherwise); provided, that, as
of the date of each such payment and after giving effect thereto, Excess
Availability (as such term is defined in the Senior Creditor Agreements) shall
be not less than $100,000.
3.3 Distributions.
(a) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Debtor or the proceeds thereof
to the creditors of Debtor or readjustment of the obligations and indebtedness
of Debtor, whether by reason of liquidation, bankruptcy, arrangement,
receivership,
-5-
<PAGE>
assignment for the benefit of creditors, marshalling of assets of Debtor or any
other action or proceeding involving the readjustment of all or any part of the
indebtedness or other obligations of Debtor or the application of the assets of
Debtor to the payment or liquidation thereof, or upon the dissolution or other
winding up of Debtor's business, or upon the sale of all or substantially all of
Debtor's assets, then, and in any such event, (i) Senior Creditor shall first
receive indefeasible payment in full in cash of all of the Senior Debt prior to
the payment of all or any part of the Junior Debt, and (ii) Senior Creditor
shall be entitled to receive any payment or distribution of any kind or
character, whether in cash, securities or other property, which be payable or
deliverable in respect of any or all of the Junior Debt.
(b) In order to enable Senior Creditor to enforce its rights
under Section 3.3(a) above, Senior Creditor is hereby irrevocably authorized and
empowered (in its own name or in the name of Junior Creditor or otherwise), but
shall have no obligation to, enforce claims comprising any of the Junior Debt by
proof of debt, proof of claim, suit or otherwise and take generally any action
which Junior Creditor might otherwise be entitled to take, as Senior Creditor
may deem necessary or advisable for the enforcement of its rights or interests
hereunder.
(c) To the extent necessary for Senior Creditor to realize the
benefits of the subordination of the Junior Debt provided for herein (including
the right to receive any payment and distributions which might otherwise be
payable or deliverable in respect of the Junior Debt in any proceeding described
in Section 3.3(a) or otherwise), Junior Creditor shall execute and deliver to
Senior Creditor such instruments or documents (together with such assignments or
endorsements as Senior Creditor shall deem necessary), as may be requested by
Senior Creditor.
3.4 Payments Received by Junior Creditor. Except for payments received
by Junior Creditor as provided in Section 3.2 above, should any payment or
distribution or security or instrument or proceeds thereof be received by Junior
Creditor in respect of the Junior Debt, Junior Creditor shall receive and hold
the same in trust, as trustee, for the benefit of Senior Creditor, segregated
from other funds and property of Junior Creditor and shall forthwith deliver the
same to Senior Creditor (together with any endorsement or assignment of Junior
Creditor where necessary), for application to any of the Senior Debt. In the
event of the failure of the Junior Creditor to make any such endorsement or
assignment to Senior Creditor, Senior Creditor, or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same.
3.5 Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Intercreditor Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) the
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the occurrence
of an Event of Default as such term is defined in the Senior Creditor
Agreements. In the event any legend or endorsement is omitted, Senior
-6-
<PAGE>
Creditor or any of its officers or employees, are hereby irrevocably authorized
on behalf of Junior Creditor to make the same. No specific legend, further
assignment or endorsement or delivery of notes, guarantees or instruments shall
be necessary to subject any Junior Debt to the subordination thereof contained
in this Agreement.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 Additional Covenants of Junior Creditor and Debtor. Junior Creditor
and Debtor agree in favor of Senior Creditor that:
(a) except as specifically set forth in Section 3.2 above,
Debtor shall not, directly or indirectly, make and Junior Creditor shall not,
directly or indirectly, accept or receive any payment of principal or interest
or any prepayment or non-mandatory payment or any payment pursuant to
acceleration or claims of breach or any payment to acquire Junior Debt or
otherwise in respect of any Junior Debt;
(b) Junior Creditor and Debtor shall not amend, modify, alter
or change in any material respect the terms of any of the Junior Creditor
Agreements or any other arrangements related to the Junior Debt;
(c) Junior Creditor and Debtor shall, at any time or times
upon the request of Senior Creditor, promptly furnish to Senior Creditor a true,
correct and complete statement of the outstanding Junior Debt;
(d) Junior Creditor and Debtor shall execute and deliver to
Senior Creditor such additional agreements, documents and instruments and take
such further actions as may be reasonably necessary or desirable in the opinion
of Senior Creditor to effectuate the provisions and purposes of this
Intercreditor Agreement.
4.2 Additional Covenant of Junior Creditor. Junior Creditor agrees in
favor of Senior Creditor that Junior Creditor shall not sell, assign, pledge,
encumber or otherwise dispose of any of the Junior Debt, except, that, Junior
Creditor may assign all of the Junior Debt to William J. Avery, Sr. so long as
on or prior to such assignment, Senior Creditor shall have received from such
assignee a written acknowledgment of receipt of a copy of this Intercreditor
Agreement together with the written agreement of William J. Avery, Sr., in form
and substance satisfactory to Senior Creditor, to be bound by the terms and
conditions of this Intercreditor Agreement.
4.3 Additional Representations and Warranties of Junior Creditor and
Debtor. Junior Creditor and Debtor represent and warrant to Senior Creditor
that:
(a) as of the date hereof, the total principal amount of the Junior
Debt is $500,000; and
-7-
<PAGE>
(b) as of the date hereof, no default or event of default, or event
which with notice or passage of time or both would constitute an event of
default exists or has occurred under the Junior Creditor Agreements.
4.4 Additional Representations and Warranties of Junior Creditor.
Junior Creditor agrees in favor of Senior Creditor that:
(a) Junior Creditor is the exclusive legal and beneficial owner of all
of the Junior Debt;
(b) none of the Junior Debt is subject to any lien, security interest,
financing statements or assignment;
(c) this Intercreditor Agreement constitutes the legal, valid and
binding obligations of Junior Creditor, enforceable in accordance with its
terms.
4.5 Additional Representation of Senior Creditor. Senior Creditor
represents to Junior Creditor that, as of the date hereof, the maximum amount of
loans available to Debtor under the Senior Creditor Agreements is $5,000,000.
4.6 Waivers. Notice of acceptance hereof, the making of loans, advances
and extensions of credit or other financial accommodations to, and the incurring
of any expenses by or in respect of, Debtor by Senior Creditor, and presentment,
demand, protest, notice of protest, notice of nonpayment or default and all
other notices to which Junior Creditor and Debtor are or may be entitled are
hereby waived (except as expressly provided for herein or as to Debtor, in the
Senior Creditor Agreements). Junior Creditor also waives notice of, and hereby
consents to, (a) any amendment, modification, supplement, renewal, restatement
or extensions of time of payment of or increase or decrease in the amount of any
of the Senior Debt or to the Senior Creditor Agreements or any Collateral, (b)
the taking, exchange, surrender and releasing of Collateral or guarantees now or
at any time held by or available to Senior Creditor for the Senior Debt or any
other person at any time liable for or in respect of the Senior Debt, (c) the
exercise of, or refraining from the exercise of any rights against Debtor or any
other obligor or any Collateral, (d) the settlement, compromise or release of,
or the waiver of any default with respect to, any of the Senior Debt, and/or (e)
Senior Creditor's election, in any proceeding instituted under the U.S.
Bankruptcy Code, of the application of Section 1111(b)(2) of the U.S. Bankruptcy
Code. Any of the foregoing shall not, in any manner, affect the terms hereof or
impair the obligations of Junior Creditor hereunder. All of the Senior Debt
shall be deemed to have been made or incurred in reliance upon this
Intercreditor Agreement.
4.7 Subrogation; Marshalling. Junior Creditor shall not be subrogated
to, or be entitled to any assignment of any Senior Debt or Junior Debt or of any
Collateral or guarantees or evidence of any thereof until all of the Senior Debt
is indefeasibly paid and satisfied in full. Junior Creditor hereby waives any
and all rights to have any Collateral or any part thereof
-8-
<PAGE>
granted to Senior Creditor marshalled upon any foreclosure or other disposition
of such collateral by Senior Creditor or Debtor.
4.8 No Offset. In the event Junior Creditor at any time incurs any
obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance with
the terms of the contract governing such obligation and shall not deduct from or
setoff against any amounts owed by the Junior Creditor to Debtor in connection
with any such transaction any amounts such of Junior Creditor claims are due to
it with respect to the Junior Debt.
5. MISCELLANEOUS
5.1 Amendments. Any waiver, permit, consent or approval by any Creditor
of or under any provision, condition or covenant to this Intercreditor Agreement
must be in writing and shall be effective only to the extent it is set forth in
writing and as to the specific facts or circumstances covered thereby. Any
amendment of this Intercreditor Agreement must be in writing and signed by each
of the parties to be bound thereby.
5.2 Successors and Assigns.
(a) This Intercreditor Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of each of Creditors and its respective successors, participants and
assigns.
(b) Senior Creditor reserves the right to grant participations
in, or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and the Collateral securing same; provided, that,
Junior Creditor shall not be obligated to give any notices to or otherwise in
any manner deal directly with any participant in the Senior Debt and no
participant shall be entitled to any rights or benefits under this Intercreditor
Agreement except through Senior Creditor. In connection with any participation
or other transfer or assignment, Senior Creditor (i) may disclose to such
assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or the Collateral and (ii) shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Intercreditor Agreement.
(c) In connection with any assignment or transfer of any or
all of the Senior Debt, or any or all rights of Senior Creditor in the property
of Debtor (other than pursuant to a participation), Junior Creditor agrees to
execute and deliver an agreement containing terms substantially identical to
those contained herein in favor of any such assignee or transferee and, in
addition, will execute and deliver an agreement containing terms substantially
identical to those contained herein in favor of any third person who refinances
or succeeds to or replaces any or all of Senior Creditor's financing of Debtor,
whether such successor financing or replacement occurs by transfer, assignment,
"takeout" or any other means or vehicle.
-9-
<PAGE>
5.3 Insolvency. This Intercreditor Agreement shall be applicable both
before and after the filing of any petition by or against Debtor under the U.S.
Bankruptcy Code and all converted or succeeding cases in respect thereof, and
all references herein to Debtor shall be deemed to apply to a trustee for Debtor
and Debtor as debtor-in-possession. The relative rights of Senior Creditor and
Junior Creditor to repayment of the Senior Debt and the Junior Debt,
respectively, and in or to any distributions from or in respect of Debtor or any
Collateral or proceeds of Collateral, shall continue after the filing thereof on
the same basis as prior to the date of the petition, subject to any court order
approving the financing of, or use of cash collateral by, Debtor as
debtor-in-possession.
5.4 Bankruptcy Financing. If Debtor shall become subject to a
proceeding under the U.S. Bankruptcy Code and if Senior Creditor desires to
permit the use of cash collateral or to provide financing to Debtor under either
Section 363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor agrees
as follows: (a) adequate notice to Junior Creditor shall have been provided for
such financing or use of cash collateral if Junior Creditor receives notice two
(2) business days prior to the entry of the order approving such financing or
use of cash collateral and (b) no objection will be raised by Junior Creditor to
any such financing or use of cash collateral on the ground of a failure to
provide "adequate protection" for Junior Creditor's junior Liens on the
Collateral or any other grounds, provided Junior Creditor retains a Lien on the
post-petition Collateral with the same priority as existed prior to the
commencement of the proceeding under the U.S. Bankruptcy Code. For purposes of
this Section, notice of a proposed financing or use of cash collateral shall be
deemed given when given, in the manner prescribed by Section 5.5 hereof, to
Junior Creditor.
5.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed duly given,
made or received: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by certified mail, return receipt requested, five (5)
days after mailing to the parties at their addresses set forth below (or to such
other addresses as the parties may designate in accordance with the provisions
of this Section):
To Senior Creditor: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Andrew J. Robin
To Junior Creditor: Midwest Truck After Market, Inc.
P.O. Box 1405
Flagler Beach, Florida 32156
Attention: Mr. William J. Avery, Sr.
-10-
<PAGE>
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 5.5, but such
change shall not be effective until notice of such change has been received by
the other Creditors.
5.6 Counterparts. This Intercreditor Agreement may be executed in any
number of counterparts, each of which shall be an original with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument.
5.7 Governing Law. The validity, construction and effect of this
Intercreditor Agreement shall be governed by the internal laws of the State of
New York (without giving effect to principles of conflicts of law).
5.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties
hereto hereby irrevocably consents to the non-exclusive jurisdiction of the
Supreme Court of the State of New York in New York County and the United States
District Court for the Southern District of New York and waives trial by jury in
any action or proceeding with respect to this Intercreditor Agreement.
5.9 Complete Agreement. This written Intercreditor Agreement is
intended by the parties as a final expression of their agreement and is intended
as a complete statement of the terms and conditions of their agreement.
5.10 No Third Parties Benefitted. Except as expressly provided in
Section 5.2, this Intercreditor Agreement is solely for the benefit of the
Creditors and their respective successors, participants and assigns, and no
other person shall have any right, benefit, priority or interest under, or
because of the existence of, this Intercreditor Agreement.
5.11 Disclosures; Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of Debtor and no Creditor shall have any obligation or duty to
disclose any such information to any other Creditor. Except as expressly set
forth in this Intercreditor Agreement, the parties hereto have not otherwise
made to each other nor do they hereby make to each other any warranties, express
or implied, nor do they assume any liability to each other with respect to: (a)
the enforceability, validity, value or collectability of any of the Junior Debt
or Senior Debt or any guarantee or security which may have been granted to any
of them in connection therewith, (b) Debtor's title to or right to transfer any
of the Collateral, or (c) any other matter except as expressly set forth in this
Intercreditor Agreement.
5.12 Term. This Intercreditor Agreement is a continuing agreement and
shall remain in full force and effect until the indefeasible satisfaction in
full of all Senior Debt and the termination of the financing arrangements
between Senior Creditor and Debtor.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Intercreditor
Agreement to be duly executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
By:
Title:
MIDWEST TRUCK AFTER MARKET, INC.
By:
Title:
The undersigned hereby acknowledges and agrees to the foregoing terms
and provisions. By its signature below, the undersigned agrees that it will,
together with its successors and assigns, be bound by the provisions hereof.
The undersigned agrees that any Creditor holding Collateral which is
also subject to a Lien in favor of the other Creditor does so as bailee (under
the UCC) for the other and is hereby authorized to and may turn over to such
other Creditor upon request therefor any such Collateral, after all obligations
and indebtedness of the undersigned to the bailee Creditor have been fully paid
and performed.
The undersigned acknowledges and agrees that: (i) although it may sign
this Intercreditor Agreement it is not a party hereto and does not and will not
receive any right, benefit, priority or interest under or because of the
existence of the foregoing Intercreditor Agreement, (ii) in the event of a
breach by the undersigned or Junior Creditor of any of the terms and provisions
contained in the foregoing Intercreditor Agreement, such a breach shall
constitute an "Event of Default" as defined in and under the Senior Creditor
Agreements and (iii) it will execute and deliver such additional documents and
take such additional action as may be necessary or desirable in the opinion of
any Creditor to effectuate the provisions and purposes of the foregoing
Intercreditor Agreement.
RADCO INDUSTRIES, INC.
By:
Title:
-12-
ASSET PURCHASE AGREEMENT
by and among
RADCO INDUSTRIES, INC.
and
MIDWEST TRUCK AFTER MARKET, INC.
and
WILLIAM J. AVERY, SR.
and
SARAH A. AVERY
Dated as of October 31, 1997
<PAGE>
Table of Contents
Page
ARTICLE I
DEFINITIONS...........................................................1
1.1 Definitions..................................................1
ARTICLE II
SALE, PURCHASE AND OBLIGATIONS........................................7
2.1 Transfer of Assets...........................................7
2.2 Purchase Price...............................................8
2.3 Payment of Purchase Price....................................8
2.4 Adjustments to Purchase Price................................8
2.5 Assumed Obligations; Excluded Obligations....................9
2.6 Risk of Loss and Allocation of Purchase Price...............10
2.7 Deliveries..................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
AND STOCKHOLDER......................................................10
3.1 Due Incorporation; Subsidiaries.............................10
3.2 Authority; Consents; No Defaults............................10
3.3 Seller Consents and Approvals...............................11
3.4 Title; Condition of Assets..................................12
3.5 Financial Statements; Undisclosed Liabilities;
Other Documents.............................................12
3.6 No Adverse Effects or Changes...............................12
3.7 Accounts Receivable and Advances............................14
3.8 Contracts...................................................14
3.9 Permits.....................................................15
3.10 Insurance...................................................16
3.11 Employment and Labor Matters................................16
3.12 Capital Improvements; Adequacy and Condition of Property....17
3.13 Taxes.......................................................18
3.14 No Defaults or Violations...................................19
3.15 Litigation..................................................20
3.16 No Conflict of Interest.....................................20
3.17 Bank Accounts...............................................20
3.18 Due Diligence Materials.....................................20
3.19 Accuracy of Statements......................................20
3.20 Inventories.................................................21
3.21 Employee Benefit Matters....................................21
3.22 Environmental Matters.......................................22
3.23 Customers and Suppliers.....................................23
i
<PAGE>
Table of Contents
continued
Page
3.24 Claims Against Officers and Directors.......................24
3.25 Brokers.....................................................24
3.26 Products Liability..........................................24
3.27 Intellectual Property.......................................24
3.28 Transactions with Affiliates................................24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................25
4.1 Due Incorporation; Financial Condition......................25
4.2 Due Authorization...........................................25
4.3 Consents and Approvals; Authority Relative to this
Agreement...................................................25
4.4 Litigation..................................................26
4.5 Accuracy of Statements......................................26
4.6 Brokers.....................................................26
ARTICLE V
COVENANTS............................................................26
5.1 Access to Information and Facilities........................26
5.2 [Intentionally Omitted].....................................26
5.3 Consents and Approvals......................................26
5.4 [Intentionally Omitted].....................................27
5.5 Exclusivity.................................................27
5.6 Additional Financial Statements.............................27
5.7 Stockholder's Actions.......................................27
5.8 Non-Competition.............................................27
5.9 Employment Matters..........................................28
5.10 Taxes on Transfer...........................................28
5.11 Use of Name.................................................28
5.12 Benefit of Contracts. ......................................29
5.13 Accounts Receivable.........................................29
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.....................29
6.1 Warranties True as of Both Present Date and Closing Date....29
6.2 Compliance with Agreements and Covenants....................29
6.3 Consents and Approvals......................................29
6.4 Non-Competition Agreement...................................30
6.5 Facility Lease..............................................30
ii
<PAGE>
Table of Contents
continued
Page
6.6 Documents...................................................30
6.7 Due Diligence Review........................................30
6.8 No Material Adverse Change..................................30
6.9 Actions or Proceedings......................................30
6.10 Financing...................................................30
6.11 Other Agreements............................................30
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER........................31
7.1 Warranties True as of Both Present Date and Closing Date....31
7.2 Compliance with Agreements and Covenants....................31
7.3 Documents...................................................31
7.4 Actions or Proceedings......................................31
7.5 Consulting Agreement........................................31
7.6 Other Agreements............................................31
7.7 Assumed Obligations.........................................31
7.8 Note, Security Agreement and Financing Statements...........31
ARTICLE VIII
CLOSING..............................................................32
8.1 Closing.....................................................32
8.2 Deliveries by Seller........................................32
8.3 Deliveries by Purchaser.....................................32
ARTICLE IX
TERMINATION..........................................................33
9.1 Termination.................................................33
9.2 Effect of Termination.......................................33
ARTICLE X
INDEMNIFICATION......................................................34
10.1 Survival....................................................34
10.2 Indemnification by Seller...................................34
10.3 Indemnification by Purchaser................................34
10.4 Notice of Claim.............................................35
10.5 Indemnifying Person's Opportunity to Defend.................35
10.6 Indemnifying Person's Failure to Act........................35
10.7 Settlement or Compromise....................................35
iii
<PAGE>
10.8 Right of Set-Off............................................36
10.9 Limitations on Liability....................................36
ARTICLE XI
MISCELLANEOUS........................................................36
11.1 Expenses....................................................36
11.2 Amendment...................................................37
11.3 Notices.....................................................37
11.4 Effect of Investigation.....................................38
11.5 Waivers.....................................................38
11.6 Counterparts................................................38
11.7 Interpretation..............................................38
11.8 Applicable Law..............................................39
11.9 Assignment..................................................39
11.10 No Third Party Beneficiaries................................39
11.11 Publicity...................................................39
11.12 Further Assurances..........................................39
11.13 Severability................................................39
11.14 Remedies Cumulative.........................................39
11.15 Entire Understanding........................................40
iv
<PAGE>
Exhibits
Exhibit 1.1A -- Equipment Leases
Exhibit 2.3 -- Form of Note
Exhibit 6.4 -- Form of Non-Competition Agreement
Exhibit 6.5 -- Facility Lease
Exhibit 7.5 -- Form of Consulting Agreement
Schedules
Schedule 1.1A -- Financial Statements
Schedule 2.1 -- Assets
Schedule 2.1(a)(i) -- Inventories
Schedule 2.1(a)(ii) -- Expenses, Deposits, Etc.
Schedule 2.1(a)(iii) -- Equipment
Schedule 2.1(a)(iv) -- Intellectual Property
Schedule 2.1(a)(vi) -- Assumed Contracts
Schedule 2.1(a)(vii) -- Furnishings, Fixtures & Related Items
Schedule 2.1(a)(viii) -- Licenses, Certificates, Permits, Etc.
Schedule 2.1(b) -- Excluded Assets
Schedule 3.4 -- Exceptions to Title or Condition of Assets
Schedule 3.5 -- Liabilities of Company
Schedule 3.6 -- Material Adverse Effect or Changes
Schedule 3.7 -- Accounts Receivable and Advances
Schedule 3.8(i) -- Guaranties
Schedule 3.8(ii) -- Contracts
Schedule 3.9 -- Permits
Schedule 3.10 -- Insurance
Schedule 3.11 -- Directors, Officers and Employees
Schedule 3.12A -- Capital Expenditures
Schedule 3.12B -- Problems to Title of Assets
Schedule 3.12E -- Legal Description of Property; Leases;
Contaminants
Schedule 3.14 -- Compliance with Laws
Schedule 3.17 -- Bank Accounts
Schedule 3.20 -- List of Unmerchantable Inventory
Schedule 3.21 -- Employee Benefit Plans
Schedule 3.22 -- Environmental Matters
Schedule 3.23 -- Customers and Suppliers
Schedule 3.26 -- Products Liability Claims
Schedule 3.27 -- Exceptions to Intellectual Property Rights
Schedule 3.28 -- Affiliate Transactions
v
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of the 31st
day of October, 1997, by and among, RADCO INDUSTRIES, INC., a Minnesota
corporation, ("Purchaser") and MIDWEST TRUCK AFTER MARKET, INC., an Oklahoma
corporation ("Seller") and WILLIAM J. AVERY, SR. and SARAH A. AVERY, two
individuals whose address is P.O. Box 1405, Flagler Beach, Florida 32156
(collectively, the "Stockholder").
W I T N E S S E T H:
WHEREAS, Seller owns certain assets (defined below as the "Assets")
relating to the Business (as defined below) that Purchaser desires to purchase,
and Seller has agreed to transfer the Assets to Purchaser, and Purchaser has
agreed to purchase the Assets, upon the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements, representations and warranties herein contained, the
parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the following meanings
for the purposes of this Agreement:
"Accepted Inventory on Order" shall mean all products ordered in the
ordinary course of business consistent with past practice but not received by
the Seller prior to the Closing Date.
"Accounts Receivable" shall have the meaning set forth in Section 3.7.
"Advances" shall have the meaning set forth in Section 3.7.
"Affiliate" shall mean, with respect to any specified Person: (i) any
other Person which directly or indirectly owns or controls, is under common
ownership or control with, or is owned or controlled by such specified Person;
(ii) any other Person which is a director, officer or partner or is directly or
indirectly the beneficial owner of ten percent (10%) or more of any class of
equity securities of the specified Person or a Person described in (i); (iii)
another Person of which the specified Person is a director, officer or partner,
or is directly or indirectly the beneficial owner
1
<PAGE>
of ten percent (10%) or more of any class of equity securities; or (iv) any
relative or spouse of the specified Person or any of the foregoing Persons, any
relative of such spouse, or any spouse of any such relative. Without limiting
the foregoing, "Affiliates" of the Seller include the Stockholder, the
Stockholder's spouse and their children.
"Agreement" shall mean this Asset Purchase Agreement, including all
exhibits hereto, as it may be amended from time to time.
"Assumed Contracts"shall have the meaning set forth in Section 2.1(vi).
"Assumed Obligations" shall have the meaning set forth in Section 2.5.
"Bank" shall mean Congress Financial Corporation.
"Business" shall mean the wholesale distribution of light truck after
market accessories engaged in by Seller.
"Business Day" shall mean any day of the year other than (i) any
Saturday or Sunday or (ii) any other day on which banks located in Tulsa,
Oklahoma generally are closed for business.
"Claim" shall have the meaning set forth in Section 10.4.
"Closing" shall mean the consummation of the transactions contemplated
herein in accordance with Article VIII.
"Closing Date" shall mean the date on which the Closing occurs or is to
occur.
"COBRA" shall mean the Consolidated Omnibus Reconciliation Act of 1986,
as amended.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Confidential Information" shall mean all confidential information
concerning Seller that (i) is not and has not become ascertainable or obtainable
from public or published information, (ii) is not received from a party other
than the parties to this Agreement or Seller, (iii) was not in Purchaser's
possession prior to disclosure thereof to Purchaser in connection with (A) this
Agreement, or (B) that certain Letter of Intent between J.B. Poindexter & Co.,
Inc., the parent company of the Purchaser, and the Seller, and (iv) was not
independently developed by J.B.
Poindexter & Co., Inc. or Purchaser.
"Contract" shall mean any contract, lease, commitment, understanding,
arrangement, sales order, purchase order, agreement, indenture, mortgage, note,
bond, right, warrant, instrument,
2
<PAGE>
plan, permit or license, whether written or verbal, which is intended or
purports to be binding and enforceable.
"Employee Arrangement" shall mean any and all Contracts to which Seller
is a party or as to which it participates relating to or affecting its
employees, officers, directors, agents or representatives, or as to which they
are beneficiaries, including, without limitation, (a) any "employee welfare
benefit plan," "employee pension benefit plan" or "multi-employer plan" as those
terms are respectively defined in sections 3(1), 3(2) and 3(37) of ERISA or any
other plan or arrangement subject to ERISA (referred to collectively hereinafter
as "ERISA Plans"), and (b) any retirement or deferred compensation plan,
incentive compensation plan, profit sharing, pension, performance unit, stock
appreciation right, employee benefit agreements, stock and stock option plans,
unemployment compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance, medical (both insured and uninsured, including, without
limitation, retiree medical programs) or hospitalization program or any other
trusts, plans or funds, fringe benefit arrangements for the benefit or welfare
of any current or former employee, director, consultant or agent, which does not
constitute an ERISA Plan.
"Employee Benefit Plans" shall have the meaning set forth in Section
3.21.
"Employee Claims" shall mean any and all claims of current or former
employees of the Seller relating to or arising out of (a) Seller employment of
such employee (including termination of such employment) or (b) any existing or
former Employment Arrangement of Seller.
"Environmental Law" shall mean any Law which relates to or otherwise
imposes liability or standards of conduct concerning mining or reclamation of
mined land, discharges, emissions, releases or threatened releases of noises,
odors or any pollutants, contaminants or hazardous or toxic wastes, substances
or materials, whether as matter or energy, into ambient air, water, or land, or
otherwise relating to the manufacture, processing, generation, distribution,
use, treatment, storage, disposal, cleanup, transport or handling of pollutants,
contaminants, or hazardous or toxic wastes, substances or materials, including
(but not limited to) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986,
as amended, the Resource Conservation and Recovery Act of 1976, as amended, the
Toxic Substances Control Act of 1976, as amended, the Federal Water Pollution
Control Act Amendments of 1972, the Clean Water Act of 1977, as amended, any
so-called "Superlien" law, and any other similar Federal, state or local
statutes.
"Environmental Permit" shall mean any permit, license, approval,
consent or other authorization required by or pursuant to any applicable
Environmental Law.
"Environmental Statute of Limitations Date" shall mean (i) five (5)
years from the Closing Date for any Claim arising under any Environmental Law
except the Comprehensive
3
<PAGE>
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), and
(ii) for any Claim arising under CERCLA, the close of business on the ninetieth
(90th) day after the expiration of any applicable statute of limitations under
CERCLA, including any extensions thereof and after giving effect to any tolling
thereof (or if such date is not a Business Day, the next Business Day).
"Environmental Warranty" shall mean a representation or warranty
contained in Section 3.22.
"Equipment" shall have the meaning set forth in Section 2.1.
"Equipment Leases" shall mean those certain equipment leases listed in
Exhibit 1.1A.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Excluded Obligations" shall have the meaning set forth in Section 2.5.
"Facility" shall mean the premises owned by Stockholder and currently
leased by Seller located at 109 S. 122nd E. Avenue, Tulsa, Oklahoma 74128.
"Facility Lease" shall have the meaning set forth in Section 6.5.
"Financial Statements" shall mean the Unaudited Financial Statements
and the Interim Financial Statements.
"GAAP" shall mean United States Generally Accepted Accounting
Principles at the time in effect.
"Governmental Authority" shall mean the government of the United States
or any foreign country, or any state or political subdivision thereof, and any
entity, body or authority exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
the Pension Benefit Guaranty Corporation and other quasi-governmental entities
established to perform such functions.
"Hazardous Substance" shall mean any material or substance which (i)
constitutes a hazardous substance, toxic substance or pollutant (as such terms
are defined by or pursuant to any Environmental Law) or (ii) is regulated or
controlled as a hazardous substance, toxic substance, pollutant or other
regulated or controlled material, substance or matter pursuant to any
Environmental Law.
"Indemnified Person" shall mean the Person or Persons entitled to, or
claiming a right to, indemnification under Article X.
4
<PAGE>
"Indemnifying Person" shall mean the Person or Persons claimed by the
Indemnified Person to be obligated to provide indemnification under Article X.
"Intellectual Property"shall have the meaning set forth in Section 2.1.
"Interim Financial Statements" shall mean the unaudited
internally-prepared balance sheet of Seller as of August 31, 1997, which is
included in Schedule 1.1A.
"Inventories" shall have the meaning set forth in Section 2.1.
"Kilgore Facility" shall mean Seller's leased premises located at 502
Highway 135 North, Kilgore, Texas.
"Law" shall mean any law, statute, regulation, ordinance, rule, order,
decree, judgment, consent decree, settlement agreement or governmental
requirement enacted, promulgated, entered into, agreed or imposed by any
Governmental Authority.
"Lien" shall mean any mortgage, lien (except for any lien for taxes not
yet due and payable), charge, restriction, pledge, security interest, proxy,
option, claim, right of any third party, easement, encroachment or encumbrance.
"Loan" shall mean the obligations arising under or evidenced by that
certain Loan and Security Agreement by and between the Bank and the Purchaser of
even date herewith.
"Loss" or "Losses" shall mean any and all liabilities, losses, costs,
claims, damages (including consequential damages), fines, penalties and expenses
(including reasonable attorneys' fees and expenses and costs of investigation
and litigation). In the event any of the foregoing are indemnifiable hereunder,
the terms "Loss" and "Losses" shall include any and all reasonable attorneys'
fees and expenses and costs of investigation and litigation incurred by the
Indemnified Person in enforcing such indemnity.
"Material Adverse Change" shall mean a change, or any fact,
circumstance or event that could reasonably be expected to result in a change,
in the business, operations, assets, liabilities, results of operations, cash
flows, condition (financial or otherwise) or prospects of Seller which is
materially adverse.
"Material Adverse Effect" shall mean an effect, or any fact,
circumstance or event that could reasonably be expected to result in an effect,
on the business, operations, assets, liabilities, results of operations, cash
flows, condition (financial or otherwise) or prospects of Seller which is
materially adverse.
"Note" shall have the meaning set forth in Section 2.3.
5
<PAGE>
"Permits" shall have the meaning set forth in Section 2.1.
"Person" shall mean any individual, corporation, proprietorship, firm,
partnership, limited partnership, trust, association or other entity.
"Purchase Price" shall mean $2,600,000 in U.S. Dollars, subject to
adjustment after the Closing pursuant to Section 2.4.
"Purchaser Indemnified Parties" shall mean Purchaser and each of its
Affiliates and their respective officers, directors, employees, agents and
representatives.
"Real Property" shall have the meaning set forth in Section 3.12(g).
"Real Property Leases" shall have the meaning set forth in Section
3.12(g).
"Related Agreements" shall mean the Non-Competition Agreement, Facility
Lease Agreement, Consulting Agreement and other agreements necessary to conclude
the transactions contemplated in this Agreement.
"Seller Indemnified Parties" shall mean Seller and each of his
Affiliates, and its officers, directors, employees, agents and representatives.
"Taxes" shall mean all taxes, charges, fees, duties, levies or other
assessments, including income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational, interest equalization, windfall profits,
severance, employee's income withholding, other withholding, unemployment and
Social Security taxes which are imposed by any Governmental Authority, and shall
include any interest, penalties or additions to tax attributable thereto.
"Tax Return" shall mean any report, return or other information
required to be supplied to a Governmental Authority in connection with any
Taxes.
"Tax Statute of Limitations Date" shall mean the close of business on
the thirtieth (30th) day after the expiration of the applicable statute of
limitations with respect to Taxes or any Governmental Authority's ability to
assess Taxes, fines or penalties, including any extensions thereof and after
giving effect to any tolling thereof (or if such date is not a Business Day, the
next Business Day).
"Tax Warranty" shall mean a representation or warranty contained in
Section 3.13.
6
<PAGE>
"Title Warranty" or "Title Warranties" shall mean representations and
warranties relating to the ownership of tangible and intangible assets contained
in Sections 3.2, 3.3, 3.4, and 3.12.
"Unaudited Financial Statements" shall mean the unaudited financial
statements of Seller as of December 31, 1995 and December 31, 1996 (including
all notes thereto), all of which are included in Schedule 1.1A, consisting of
the balance sheets at such dates and the related consolidated income statements
for the twelve-month periods then ended.
ARTICLE II
SALE, PURCHASE AND OBLIGATIONS
2.1 Transfer of Assets. (a) Subject to the other terms and conditions
of this Agreement, on and as of the Closing Date Seller shall sell, convey,
assign, transfer and deliver to Purchaser and Purchaser shall purchase, acquire
and take assignment and delivery from Seller of the following assets of Seller
(the "Assets") used in the Business:
(i) all inventories and supplies held for use,
consumption or sale in the Business and all Accepted
Inventory on Order, including, without limitation,
the inventory set forth on Schedule 2.1(a)(i) (the
"Inventories");
(ii) all prepaid expenses, all lease, utility and similar
deposits relating to the Business and all payments or
deposits received by the Seller on or before Closing
that relate to products to be shipped or delivered
to, or picked up by, the customer on or after the
Closing Date, as set forth on Schedule 2.1(a)(ii);
(iii) all equipment owned by Seller, including those items
described in Schedule 2.1(a)(iii) (the "Equipment");
(iv) all tradenames, trademarks, servicemarks patents,
co-patents and applications for patents (if any),
trade secrets, inventions, processes, designs,
know-how, proprietary technology, technical
information, formulae and process information used by
Seller in the Business, including, without
limitation, those set forth on Schedule 2.1(a)(iv)
(the "Intellectual Property");
(v) all cash and cash equivalents belonging to the
Sellers;
(vi) all right, title and interest of Seller in and to all
Assumed Contracts listed in Schedule 2.1(a)(vi);
7
<PAGE>
(vii) all furnishings, fixtures and related items listed
in Schedule 2.1(a)(vii);
(viii) all records, product files, price lists and
information, marketing information, sales history
information, sales lists and customer lists of Seller
and all other assets and supplies used in the
Business (excluding the Excluded Assets and tax
records, however Purchaser may copy all such tax
records at Purchaser's expense), including Seller's
rights in outside telephone numbers, keys and lock
combinations; and
(ix) any and all accounts receivable, trade receivables,
notes receivable and other receivables arising out of
the conduct of the business.
In any event, the Assets shall include, without limitations, the Assets
described on Schedule 2.1 hereto.
(b) Notwithstanding the provisions of Section 2.1(a), the Purchaser
shall not purchase, nor shall it be a successor-in-interest to, the activities
of Seller at the Kilgore Facility, and the acquisition of the Assets by
Purchaser shall not be deemed to be an assumption of any liabilities arising
from Seller's operations at the Kilgore Facility. Moreover, Purchaser shall not
purchase the assets listed in Schedule 2.1(b) ("Excluded Assets").
2.2 Purchase Price. On the Closing Date, in consideration for the
Assets and the covenants and agreements of the Seller contained herein,
Purchaser shall, pursuant to Section 2.3 below, pay to the Seller the Purchase
Price for the Assets of Seller free and clear of all Liens.
2.3 Payment of Purchase Price. The aggregate Purchase Price will
be paid as follows:
(a) On the Closing Date, Purchaser shall pay to Seller Two Million One
Hundred Thousand Dollars ($2,100,000) by wire transfer of immediately available
funds to a bank account designated by Seller; and
(b) Purchaser will deliver to Seller a five-year promissory note in the
amount of Five Hundred Thousand Dollars ($500,000) (this and any substitute note
issued pursuant to Section 2.4 below, hereinafter referred to as the "Note"),
which will be in the form attached hereto as Exhibit 2.3 and will contain the
following terms:
(i) Interest will be payable quarterly, in arrears, at
the rate of nine percent (9%) per annum;
(ii) Principal payments will be made in equal, quarterly
installments commencing three months after the first
anniversary of the Closing and continuing through the
fifth year;
8
<PAGE>
(iii) The Note will be secured by a security interest in
the Assets, which security interest shall be
subordinated to those liens granted to the Bank to
secure the Loan.
2.4 Adjustments to Purchase Price. Promptly following the Closing,
Purchaser and Seller shall jointly determine the net value of the Assets as at
the Closing Date by subtracting the total cost of all Assumed Obligations (as
defined in Section 2.5) from the total value of the Assets, and the amount of
the Purchase Price to be paid pursuant to Section 2.3(b) above shall be either
(i) reduced on a dollar-for-dollar basis to the extent that the net value of the
Assets on the Closing Date is less than One Million Four Hundred Seventy-Five
Thousand Dollars ($1,475,000), or (ii) increased on a dollar-for-dollar basis to
the extent that the net value of the Assets on the Closing Date is more than One
Million Four Hundred Seventy-Five Thousand Dollars ($1,475,000). For the
purposes of this determination, the parties shall take a physical inventory of
all tangible assets being sold pursuant to this Agreement at or immediately
prior to the Closing. Inventory shall be valued at its cost on the books of the
Seller at the time of the Closing as may be verified by inspection of vendor
invoices. The value of the Accounts Receivable shall be the total amount of said
Accounts Receivable actually collected by Purchaser during the ninety (90) day
period following the Closing. The Assumed Obligations shall be valued as set
forth in the books of account of Seller immediately prior to the Closing. In the
event Purchaser and Seller are unable to mutually agree upon the net value of
the Assets, either party may submit the dispute to final and binding arbitration
under the rules of the American Arbitration Association using a single
arbitrator, with the arbitration taking place in Houston, Texas. If the net
value of the Assets determined pursuant to this paragraph results in an
adjustment to the Purchase Price, Seller shall promptly surrender to Purchaser
the Note provided for in Section 2.3 above and the Purchaser shall
contemporaneously therewith deliver to Seller a substitute Note in an amount
reflecting any post-Closing adjustment required pursuant to this Section 2.4.
2.5 Assumed Obligations; Excluded Obligations. At Closing, Seller shall
assign all of its right, title and interest in and to, and Purchaser shall
assume and agree to perform and discharge Seller's obligations under (i) the
Assumed Contracts, (such assumption to be evidenced by the Purchaser's execution
and delivery of the assumption contemplated by Section 7.7, in each case to the
extent, but only to the extent, such obligations relate to the period on and
after the Closing Date, and (ii) all trade payables incurred in the ordinary
course of business (collectively, the "Assumed Obligations"). Except for the
Assumed Obligations, neither Purchaser nor any of its Affiliates shall assume or
otherwise be liable in respect of, or be deemed to have assumed or otherwise be
liable in respect of, any debt, liability, Claim or other obligation of Seller
or any of its Affiliates (collectively, "Excluded Obligations"), regardless of
whether such Excluded Obligation is matured or unmatured, fixed or contingent,
or known or unknown. Excluded Obligations shall include, without limitation, (a)
any notes payable by Seller; (b) any liability for Taxes of Seller or the
Business or related to the Assets for any period prior to and including the
Closing Date, any Tax liability of Seller for any period on and after the
Closing Date and any Tax liability arising from the sale of the Business and
Assets to Purchaser contemplated herein or any liquidation and dissolution of
Seller; (c) any obligation, claim, commitment or liability against
9
<PAGE>
Seller that constitutes or arises from a breach by Seller of any representation,
warranty or covenant contained in this Agreement; (d) any obligation,
commitment, liability or claim arising from Seller's ownership or operation of
the Business or Assets except to the extent expressly assumed herein; (e) any
obligation, commitment or liability of or claim which may arise from events or
conditions existing or occurring prior to the Closing Date that relate to or
affect the Assets or Business; (f) any Employee Claims; and (g) any obligation,
commitment, liability or claim relating to the Kilgore Facility.
2.6 Risk of Loss and Allocation of Purchase Price. Risk of loss or
damage to the Assets transferred hereunder by fire or other casualty prior to
the Closing shall remain with Seller and after the Closing such risk of loss or
damage shall be borne by the Purchaser. Seller and Purchaser agree to allocate
the Purchase Price among the Assets in such a manner as Seller and Purchaser
shall jointly determine; such allocation shall be in accordance with Section
1060 of the Code and the regulations thereunder. Seller and Purchaser shall each
make all required filings under the Code consistent with such allocation, and
shall not take any position inconsistent with such allocation, and shall not
take any position inconsistent with such allocation.
2.7 Deliveries. It is expressly agreed that Purchaser shall not take
delivery of any of the Assets at the Kilgore Facility. At or prior to the
Closing, Seller shall relocate any Assets at the Kilgore Facility to a location
designated by Purchaser. The cost of relocating any such assets shall be borne
by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER
Except as expressly set forth herein, Seller and Stockholder jointly
and severally make the following representations and warranties to Purchaser (i)
as of the date of this Agreement and (ii) as of the Closing Date (as if such
representations and warranties were made on the Closing Date):
3.1 Due Incorporation; Subsidiaries. Seller is duly organized, validly
existing and in good standing under the laws of the State of Oklahoma and has
all requisite power and authority to carry on its business as currently
conducted. Seller is licensed or qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the nature of its
business requires such licensing or qualification and where the failure to be
licensed or to so qualify would have a Material Adverse Effect on its business
or assets. Seller has no direct or indirect subsidiaries, either wholly or
partially owned, and Seller does not hold any direct or indirect economic,
voting or management interest in any Person or directly or indirectly own any
security issued by any Person. All action taken by the Board of Directors (and
all committees thereof) and stockholders of Seller with respect to material and
significant corporate transactions pursuant to which Seller will, on the date
hereof or on the Closing Date, have any contractual rights or obligations, is
reflected in such minutes and written consents.
10
<PAGE>
3.2 Authority; Consents; No Defaults.
(a) (i) Seller and Stockholder have full power and authority to enter
into this Agreement and each of the Related Agreements and to consummate the
transactions contemplated by this Agreement and by the Related Agreements; (ii)
Seller and Stockholder have duly and validly executed and delivered this
Agreement and prior to or at the Closing, will duly and validly execute and
deliver the Related Agreements; (iii) this Agreement constitutes Seller's legal,
valid and binding obligation, and the Related Agreements, upon execution and
delivery by Seller, will constitute Seller's legal, valid and binding
obligations, in each case enforceable against Seller in accordance with its
respective terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in effect
which affect the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies; and (iv) this Agreement
constitutes Stockholder's legal, valid and binding obligation, and the Related
Agreements, upon execution and delivery by Stockholder, will constitute
Stockholder's legal, valid and binding obligations, in each case enforceable
against Stockholder in accordance with its respective terms except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws in effect which affect the enforcement of
creditors' rights generally and by equitable limitations on the availability of
certain remedies.
(b) No consent, authorization or approval of, filing or registration
with, or cooperation from, any Governmental Authority or any other Person not a
party to this Agreement is necessary in connection with the execution, delivery
and performance by Seller or Stockholder of this Agreement and the execution,
delivery and performance by them of the Related Agreements or the consummation
of the transactions contemplated by this Agreement or by the Related Agreements.
(c) The execution, delivery and performance of this Agreement and the
Related Agreements do not and will not: (i) violate any Law; (ii) violate or
conflict with, result in a breach or termination of, constitute a default or
give any third party any additional right (including a termination right) under,
permit cancellation of, result in the creation of any Lien hereunder on any of
Seller's assets or properties (except for the security interest in favor of
Seller pursuant to Section 2.3(b)(iii), or result in or constitute a
circumstance which, with or without notice or lapse of time or both, would
constitute any of the foregoing under, any Contract to which Seller or
Stockholder is a party or by which Seller or Stockholder or any of Seller's or
Stockholder's assets or properties are bound; or (iii) permit the acceleration
of the maturity of any of Seller's indebtedness or indebtedness secured by its
assets or properties.
3.3 Seller Consents and Approvals.
Except for consents, authorizations, and approvals the failure of which
to obtain would not have a Material Adverse Effect, no consent, authorization or
approval of, filing or registration
11
<PAGE>
with, or cooperation from any Governmental Authority or any other Person not a
party to this Agreement is necessary in connection with the execution, delivery
and performance by Seller or the Stockholder of any Related Agreements or the
consummation of the transactions contemplated hereby or thereby. Seller
currently holds and will maintain in effect until the Closing Date all Permits
set forth on Schedule 3.9, and no other material permits are necessary for the
lawful operation of the Business. No suspension or cancellation of any Permit
has occurred or is, to each of Seller's and Stockholder's best knowledge
threatened.
3.4 Title; Condition of Assets. Except as set forth on Schedule 3.4,
(i) Seller has good and marketable title to, is the lawful owner of and has the
full right to sell, convey, assign, transfer and deliver the Assets, free and
clear of any Lien; and (ii) all of the Assets comprising tangible property,
whether owned or leased, have been well maintained and are in good operating
condition and repair and are free from defects other than such minor defects as
do not interfere with the continued use thereof in the conduct of normal
operations or adversely affect the resale value thereof. Seller shall transfer
the Assets to Purchaser free and clear of all Liens, and upon such transfer
Purchaser shall own the Assets free and clear of all Liens except for the
security interest in favor of Seller pursuant to Section 2.3(b)(iii).
3.5 Financial Statements; Undisclosed Liabilities; Other Documents.
(a) The Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position, assets and
liabilities of Seller as of the dates thereof and the revenues, expenses,
results of operations and cash flows of Seller for the periods covered thereby.
The Financial Statements are in accordance with the books and records of Seller
in all material respects and do not reflect any transactions which are not bona
fide transactions.
(b) Except as set forth in Schedule 3.5 or in the latest Financial
Statements Seller has no other liabilities, debts, claims or obligations,
whether accrued, absolute, contingent or otherwise, whether due or to become
due, other than trade payables, accrued expenses, and additional indebtedness
incurred pursuant to Seller's line of credit existing on the date hereof, and
other normal recurring liabilities.
3.6 No Adverse Effects or Changes. Except for transactions contemplated
by this Agreement or as otherwise set forth in Schedule 3.6, since January 1,
1997, Seller has not:
(a) suffered any Material Adverse Change or Material Adverse Effect
(whether or not covered by insurance) or circumstances which could create a
Material Adverse Effect;
(b) incurred any obligation or entered into any Contract which either
(x) requires a payment by any party in excess of, or a series of payments which
in the aggregate exceed, $5,000 or provides for the delivery of goods or
performance of services, or any combination thereof, having a value in excess of
$5,000, other than obligations and Contracts entered into with
12
<PAGE>
suppliers and customers in the ordinary course of business, or (y) has a term
of, or requires the performance of any obligations by Seller over a period in
excess of, six months;
(c) taken any action, or entered into or authorized any Contract or
transaction other than in the ordinary course of business and consistent with
past practice;
(d) sold, transferred, conveyed, assigned or otherwise disposed of any
of its assets or properties, including sales of inventory, except in the
ordinary course of business and consistent with past practice;
(e) waived, released, or canceled any claims against third parties,
debts owing to it, or any rights which have any value in excess of $1,000 in the
aggregate;
(f) made any changes in its accounting systems, policies, principles or
practices except as required by GAAP;
(g) entered into, authorized, or permitted any transaction with any
Affiliate of the Seller, other than the payment of normal compensation and
expense reimbursement in the ordinary course of business;
(h) made any borrowings, incurred any debt (other than trade payables,
accrued expenses and additional indebtedness incurred pursuant to Seller's line
of credit existing on the date hereof, all in the ordinary course of business
and consistent with past practice), or assumed, guaranteed, endorsed (except for
the negotiation or collection of negotiable instruments in trans actions in the
ordinary course of business and consistent with past practice) or otherwise
become liable (whether directly, contingently or otherwise) for the obligations
of any other Person, or made any payment or repayment in respect of any
indebtedness (other than trade payables, accrued expenses and additional
indebtedness incurred pursuant to Seller's line of credit existing on the date
hereof, all in the ordinary course of business and consistent with past
practice);
(i) entered into, adopted, amended or terminated any bonus, profit
sharing, compensation, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any director, officer or
employee, or increased in any manner the compensation or fringe benefits of any
director, officer or employee or paid any benefit not required by any existing
plan and arrangement in an aggregate amount in excess of $1,000, or entered into
any contract, agreement, commitment or arrangement to do any of the foregoing;
(j) acquired, leased or encumbered any assets outside the ordinary
course of business or which are material to Seller;
13
<PAGE>
(k) authorized or made any capital expenditures which individually or
in the aggregate are in excess of $5,000;
(l) made any Tax election or settled or compromised any federal, state,
local or foreign Tax liability, or waived or extended the statute of limitations
in respect of any such Taxes;
(m) paid any amount, performed any obligation or agreed to pay any
amount or perform any obligation, in settlement or compromise of any suits or
claims of liability against Seller or any of its directors, officers, employees
or agents; or
(n) terminated, modified, amended or otherwise altered or changed any
of the terms or provisions of any Contract, except in the normal course of
business and consistent with past practices and not in excess of $1,000 in the
aggregate.
3.7 Accounts Receivable and Advances. Schedule 3.7 contains a true and
accurate aging schedule of all accounts receivable of Seller ("Accounts
Receivable") and all loans and advances to third parties ("Advances") as of the
date of such Schedule. Each such Account Receivable represents a sale made in
the ordinary course of business and represents a valid obligation due to Seller.
Seller has performed all of its obligations to produce the goods or perform the
services to which such Account Receivable relates and no such Account Receivable
or Advance is subject to any claim for reduction, counterclaim, set-off,
recoupment or other claim for credit, allowances or adjustments by the obligor
thereof except to the extent Seller will receive restitution, reimbursement or
repayment from a supplier. Except as reserved against in the Financial
Statements, all such Accounts Receivable and Advances are collectible in full
within ninety (90) days of their origination (except for those Accounts
Receivable relating to freight charges which are collectible within one hundred
eighty (180) days and which do not, in the aggregate, amount to more than Five
Thousand Dollars ($5,000)).
3.8 Contracts. (i) True, correct and complete copies of all of Assumed
Contracts (including all amendments thereto) have been provided to Purchaser and
are listed in Schedule 2.1(a)(iv). Each Assumed Contract is valid and
enforceable by the Seller in accordance with its terms; the Seller has performed
all of, and is not in default with respect to, its material obligations
thereunder, including all payment obligations (and, in that regard all amounts
due and payable by the Seller with respect to such Assumed Contracts on or prior
to the Closing Date will have been paid on or prior to the Closing Date) and to
the knowledge of the Seller and the Stockholder, the other parties thereto have
performed all of, and are not in default with respect to, their material
obligations thereunder including all payment obligations; and, except as
disclosed in Schedule 3.8(i) no Person guarantees or is otherwise obligated to
perform the Seller's obligations under any such agreements; (ii) Schedule 3.8
(ii) lists all the Contracts of the following types to which Seller is a party
or by which Seller is bound, or to which any of its assets or properties is
subject:
14
<PAGE>
(a) any Contract of any kind with any employee, officer or director of
Seller or any of the respective Affiliates of such individuals, or any Contract
or other arrangement of any kind with any Seller or any Affiliate of any Seller;
(b) any Contract of any nature which involves the payment or receipt of
cash or other property, an unperformed commitment, or goods or services, having
a value in excess of $1,000;
(c) any Contract pursuant to which Seller has made or will make loans
or advances, or has or will have incurred debts or become a guarantor or surety
or pledged its credit on or otherwise become responsible with respect to any
undertaking of another (except for the negotiation or collection of negotiable
instruments in transactions in the ordinary course of business);
(d) any indenture, credit agreement, loan agreement, note, mortgage,
security agreement, lease of real or personal property, loan commitment or other
Contract relating to the borrowing of funds, an extension of credit or
financing;
(e) any Contract creating or evidencing a partnership, joint venture or
other similar cooperative undertaking;
(f) any Contract involving any restrictions with respect to the
geographical area of operations or scope or type of business of Seller;
(g) any power of attorney or agency agreement with any Person pursuant
to which such Person is granted the authority to act for or on behalf of Seller
or Seller is granted the authority to act for or on behalf of any Person;
(h) any Contract for which the full performance thereof may extend
beyond sixty (60) days from the date of this Agreement;
(i) any Contract not made in the ordinary course of business which is
to be performed in whole or in part on or after the date of this Agreement;
(j) any Contract with any customer of Seller;
(k) any Contract, whether or not fully performed, relating to any
acquisition or disposition of Seller, or any predecessor in interest of Seller,
or any acquisition or disposition of any subsidiary, division, line of business,
or real property; and
(l) any Contract not specified above that is material to Seller. Seller
has delivered to Purchaser true and complete copies of each document listed on
Schedule 3.8, and a written description of each oral arrangement so listed.
15
<PAGE>
3.9 Permits. Schedule 2.1(a)(viii) is a true and accurate list of all
licenses, certificates, permits, franchises, rights, and approvals issued or
granted by any Governmental Authority held by Seller. Except for the Permits set
forth on Schedule 3.9, there are no Permits, whether federal, state, local or
foreign, which are necessary for the lawful operation of the business of Seller
as such business has heretofore been conducted, except for Permits the failure
of which to obtain or maintain could not have a Material Adverse Effect. All
Permits are in full force and effect.
Purchaser acknowledges that none of the Permits is transferable.
3.10 Insurance.
(a) Schedule 3.10 contains an accurate and complete list of all
policies of fire, liability (including products liability), worker's
compensation, title and other forms of insurance owned, held by or applicable to
Seller (or its assets or business), and Seller has heretofore delivered to
Purchaser a true and complete copy of all such policies, including all
occurrence-based policies applicable to Seller (or its business) for the
three-year period prior to the Closing Date. All such policies are valid,
enforceable and in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with (i) all requirements of
Law and (ii) all Contracts to which Seller is a party. Except as set forth on
Schedule 3.10 Seller has not been refused any insurance with respect to its
assets or operations, and its coverage has not been limited by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance, during the last three (3) years. Purchaser acknowledges that
Seller's insurance is not assignable by Seller to Purchaser.
(b) Seller has furnished to Purchaser a list of all claims which have
been made by Seller in the last three years under any worker's compensation,
general liability, property or other insurance policy applicable to Seller or
any of its properties. Except as set forth on said list, there are no pending
or, to Seller's knowledge, threatened claims under any insurance policy. Such
claim information includes the following information with respect to each
accident, loss, or other event: (i) the identity of the claimant; (ii) the date
of the occurrence; (iii) the status as of the report date and (iv) the amounts
paid or expected to be paid or recovered.
3.11 Employment and Labor Matters. Schedule 3.11 contains a true,
complete and accurate list of all directors, officers and employees of Seller
and their respective titles, annual compensation and all bonuses and similar
payments made with respect to each such individual for the current and preceding
two (2) calendar years. Seller has and currently is conducting its business in
full compliance with all Laws relating to employment and employment practices,
terms and conditions of employment, wages and hours and nondiscrimination in
employment, except where the failure to comply with such Laws would not have a
Material Adverse Effect. Except as set forth on Schedule 3.11, the relationship
of Seller with its employees is good and there is, and during the past three (3)
years there has been, no labor strike, dispute, slow-down, work
16
<PAGE>
stoppage or other similar labor difficulty actually pending or, to Seller's
knowledge, threatened against or involving Seller. None of the employees of
Seller are covered by any collective bargaining agreement, no collective
bargaining agreement is currently being negotiated and no attempt is currently
being made or during the past three years has been made to organize any
employees of Seller to form or enter a labor union or similar organization.
3.12 Capital Improvements; Adequacy and Condition of Property.
(a) Schedule 3.12A describes all the capital improvements or
purchases or other capital expenditures which Seller has committed to or
contracted for and which have not been completed prior to the date hereof and
the cost and expense reasonably estimated to complete such work and purchases.
(b) Except as disclosed on Schedule 3.12B, immediately after
the Closing Date, Purchaser will own or have the right to use all the assets,
properties, rights, know-how and processes which are required for or currently
used in connection with the operation of its business as it is presently
conducted. Such assets, properties and rights, except for changes in the
ordinary course of business since December 31, 1996, were sufficient to produce
the consolidated income for the period ended August 31, 1997 as shown on the
income statement for that period.
(c) Seller has no liability that is not directly related to,
and that did not arise directly out of, the business of Seller.
(d) To the best of Seller's knowledge, all computer hardware
and software and related materials used by Seller in its business (herein
collectively referred to as the "Computer System") is in good working order and
condition, and Seller has not experienced any significant defects in design,
workmanship or material, and the Computer System has the performance
capabilities, characteristics and functions necessary to the conduct of the
business and operations of Seller as it is presently being conducted. The use of
the Computer System by Purchaser (including any software modifications) (i) will
not violate or infringe upon the rights of any third parties and (ii) will not
result in the termination of any maintenance, service or support agreement
relating to any part of the Computer System or any reduction in the services
provided, warranties available or rights thereunder. Seller will provide
Purchaser with full and adequate user and service documentation for the Computer
System.
(e) Schedule 3.12E includes a complete and accurate legal
description of all the real estate owned and leased under real property leases,
except for the Kilgore Facility, (all such owned and leased real estate, the
"Real Property"); no other real estate, except for the Kilgore Facility, is held
or used by Seller. Schedule 3.12E contains true and complete copies of all
leases in effect on the date hereof for any such Real Property (the "Real
Property Leases"). The activities carried on in all buildings, plants,
facilities, installations, fixtures and other structures or improvements
included as part of, or located on or at, the Real Property and the buildings,
plants,
17
<PAGE>
facilities, installations, fixtures and other structures or improvements
themselves, are not in violation of, or in conflict with, any applicable zoning,
environmental or health regulations or ordinance or any other similar law.
Except as set forth in Schedule 3.12E, no asbestos, asbestos- containing
materials, PCB compounds or other pollutants, contaminants or Hazardous
Substances have been used in the construction or repair of, or any alterations
or additions to, or are otherwise located on, any portion of the Real Property.
No parcel of land included in the Real Property relies on or regularly makes use
of access to the nearest public road or right-of-way over land owned by others,
except where such access is by means of one or more valid recorded easements not
subject to divestiture, the terms of which have been disclosed in writing to
Purchaser prior to the date hereof. All covenants or other restrictions (if any)
to which any of the Real Property is subject are being in all respects properly
performed and observed and, except for covenants contained in the Real Property
Leases, do not provide for forfeiture or reversion of title if violated, and
Seller has not received any notice of violation (or claimed violation) thereof.
Seller has delivered to Purchaser true and complete copies of the most recent
title insurance policies and surveys (if any) for the Real Property in the
possession of Seller or Seller, together with copies of all material reports (if
any) of any engineers, environmental consultants or other consultants in its
possession relating to any of the Real Property. Each separate parcel included
in the Real Property has adequate water supply, storm and sanitary sewer
facilities, access to telephone, gas and electrical connections, fire
protection, drainage and other public utilities, and has adequate parking
facilities that meet all requirements imposed by applicable Laws. None of the
Real Property is subject to any lien, easement, right-of-way, building or use
restriction, exception, variance, reservation or limitation as might in any
material respect interfere with or impair the present and continued use thereof
in the usual and normal conduct of the Business. All rent and other charges due
and payable with respect to the Real Property Leases have been paid through the
date of this Agreement and all rent and other charges due and payable with
respect to the Real Property Leases on or prior to the Closing Date will have
been paid prior to the Closing Date.
3.13 Taxes.
(a) The amounts provided as a liability on the Financial Statements for
all Taxes are adequate to cover all unpaid liabilities for all Taxes, whether or
not disputed, that have accrued with respect to or are applicable to the period
covered by the Financial Statements or to any years and periods prior thereto
and for which Seller may be directly or contingently liable in its own right or
as a transferee of the assets of, or successor to, any Person. Seller has not
incurred any Tax liabilities other than in the ordinary course of business for
any taxable year for which the applicable statute of limitations has not
expired. There are no Tax Liens (other than Liens for current Taxes not yet due
and payable) upon the properties or assets of Seller. Seller has not granted or
been requested to grant any waiver of any statutes of limitations applicable to
any claim for Taxes.
(b) All Federal, state, local and foreign income, corporation and other
Tax Returns, and all other filings in respect of Taxes required to be filed
prior to the Closing Date, have been
18
<PAGE>
or will be filed before the Closing Date as required by applicable Law. All
Taxes shown as due on or before the Closing Date on all such Tax Returns and
other filings have been or will be paid on or prior to the Closing Date. Each
such Tax Return and filing is true and correct and Seller has not or will not
have any additional liability for Taxes with respect to any Tax Return or other
filing heretofore filed or which was required by Law to be filed prior to the
Closing Date, other than as reflected as liabilities on the Financial
Statements. None of the Tax Returns or other filings that include the operations
of Seller has ever been audited or investigated by any Governmental Authority,
and no facts exist which would constitute grounds for the assessment of any
additional Taxes by any Governmental Authority with respect to the taxable years
covered in such Tax Returns and filings. No material issues have been raised in
any examination by any Governmental Authority with respect to the business and
operations of Seller which, by application of similar principles, reasonably
could be expected to result in a proposed adjustment to the liability for Taxes
for any other period not so examined. All Taxes which Seller is required by Law
to withhold or collect, including without limitation sales and use taxes and
amounts required to be withheld for Taxes of employees and other withholding
taxes, have been duly withheld or collected and, to the extent required, have
been paid over to the proper Governmental Authorities or are held in separate
bank accounts for such purpose. All information returns required to be filed by
Seller prior to the Closing Date have been or will be filed, and all statements
required to be furnished to payees by Seller prior to the Closing Date have been
or will be furnished to such payees, and the information set forth on such
information returns and statements is true, complete and correct in all material
respects.
(c) The Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Code.
(d) Seller is not a party to and is not otherwise subject to any
arrangement having the effect of or giving rise to the recognition of a
deduction or loss in a taxable period ending on or before the Closing Date and a
corresponding recognition of taxable income or gain in a taxable period ending
after the Closing Date, or any other arrangement that would have the effect of
or give rise to the recognition of taxable income or gain in a taxable period
ending after the Closing Date without the receipt of or entitlement to a
corresponding amount of cash.
(e) Seller is not subject to any joint venture, partnership or other
arrangement or contract which is treated as a partnership for Federal income tax
purposes, and is not a party to any tax sharing agreement.
(f) The basis of all depreciable or amortizable assets, and the methods
used in determining allowable depreciation or amortization (including cost
recovery) deductions of Seller are correct and, to Seller's knowledge, in
compliance in all material respects with the Code and the regulations
thereunder.
19
<PAGE>
3.14 No Defaults or Violations.
(a) Seller has not materially breached any provision of, nor is it in
material default under the terms of, any Contract to which it is a party or
under which it has any rights or by which it is bound and, to the best of
Seller's knowledge, no other party to any such Contract has breached such
Contract or is in default thereunder.
(b) Except as set forth in Schedule 3.14, Seller is in compliance with,
and no violation exists under, and no violation has existed under any and all
Laws applicable to Seller (including, without limitation, Environmental Laws),
the failure to comply with which could have a Material Adverse Effect.
(c) No notice from any Governmental Authority has been received by
Seller claiming any violation of any Law (including any Environmental Law, or
building, zoning or other ordinance), or asserting any Tax, assessment or
penalty, or asserting violation, lapse, or terminating any Permit, which has not
been corrected, cured or otherwise resolved to the satisfaction of the
Governmental Authority.
3.15 Litigation.
(a) There are no actions, suits, arbitrations, regulatory proceedings
or other litigation, proceedings or governmental investigations pending or
threatened against or affecting Seller or any of its officers, directors,
employees, agents or stockholders thereof in their capacity as such, or any of
its properties or business, and to Seller's knowledge there are no facts or
circumstances which may give rise to any of the foregoing. Seller is not subject
to any order, judgment, decree, injunction, stipulation or consent order of or
with any court or other Governmental Authority. Seller has not entered into any
agreement to settle or compromise any proceeding pending or threatened against
it which has involved any obligation.
(b) There are no claims, actions, suits, proceedings or investigations
pending or threatened by or against Seller or Seller with respect to this
Agreement or the Related Agreements, or in connection with the transactions
contemplated by this Agreement or by the Related Agreements, and to Seller's
knowledge there is no valid basis for any such claim, action, suit, proceeding,
or investigation.
3.16 No Conflict of Interest. Except for the transactions contemplated
by this Agreement, neither Stockholder nor, to Stockholder's knowledge, any of
his Affiliates have or claims to have any direct or indirect interest in any
tangible or intangible property used in the business of Seller except as a
holder of Shares.
3.17 Bank Accounts. Schedule 3.17 sets forth the names and locations
of each bank or other financial institution at which Seller has an account
(giving the account numbers) or safe
20
<PAGE>
deposit box and the names of all Persons authorized to draw thereon or have
access thereto, and the names of all Persons, if any, now holding powers of
attorney or comparable delegation of authority from Seller and a summary
statement thereof.
3.18 Due Diligence Materials. Seller has provided to Purchaser or its
representatives access to the books and records of Seller and other material
information pertaining to the business, assets, prospects and affairs of Seller
in Stockholder's possession or under Stockholder's control.
3.19 Accuracy of Statements. Neither this Agreement nor any schedule,
statement, list, document, or certificate specifically referred to herein and
furnished or to be furnished by Seller or Stockholder to Purchaser or any
representative or Affiliate of Purchaser pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
3.20 Inventories. Schedule 2.1(a)(i) sets forth the quantity, unit
cost, and total cost of each item of inventory, which list and schedule are true
and accurate in all material respects as of the date of such schedule. Except as
set forth on Schedule 3.20, each item of truck accessory inventory owned by
Seller is of merchantable quality, is not obsolete, and is usable and saleable
in the ordinary course of business, and none of such items is held on assignment
or consignment. Inventories are fairly reflected in the inventory accounts on
the balance sheets included in the Financial Statements in accordance with GAAP,
including all appropriate reserves, and are valued on a FIFO basis at the lower
of cost or market.
3.21 Employee Benefit Matters.
(a) General. The only "employee welfare benefit plans" or "employee
pension benefit plans" (as those terms are respectively defined in sections 3(1)
and 3(2) of ERISA), fringe benefit arrangements which do not constitute employee
benefit plans (as defined in section 3(3) of ERISA) or employment agreements
with respect to which Seller has any liability are set forth on Schedule 3.21
(referred to hereinafter as "Employee Benefit Plans"). No Employee Benefit Plan
is subject to Title IV of ERISA, and Seller does not have any liability with
respect to any "multiemployer plan" (as defined in section 3(37) of ERISA) or
for providing any post-retirement medical or life insurance benefits.
(b) Plan Documents and Reports. A true and correct copy of each of the
Employee Benefit Plans and all contracts relating thereto or to the funding
thereof and of the most recent annual report (including attachments), summary
plan description and Internal Revenue Service determination letter with respect
to each Employee Benefit Plan has been supplied to the Purchaser.
(c) Compliance with Laws; Liabilities. As to each Employee Benefit Plan:
21
<PAGE>
(i) Each Employee Benefit Plan complies and has been
administered in form and in operation in all
material respects with all applicable
requirements of law, and no event has occurred
which will or could cause any such plan to fail
to comply with such requirements and Seller has
not received any written notice by any
governmental authority questioning or
challenging such compliance.
(ii) None of the assets of any Employee Benefit Plan
is invested in employer securities or employer
real property.
(iii) To Seller's knowledge, there have been no acts
or omissions by Seller or the Seller which have
given rise to or may give rise to fines,
penalties, taxes or related charges under
section 502 of ERISA or Chapters 43, 47, 68 or
100 of the Code for which Seller may be liable.
(iv) None of the payments contemplated by the
Employee Benefit Plans would, in the aggregate,
constitute excess parachute payments (as defined
in section 280G of the Code (without regard to
subsection (b)(4) thereof)).
(v) There are no actions, suits or claims (other
than routine claims for benefits) pending or
threatened involving any Employee Benefit Plan
or the assets thereof and no facts exist which
could give rise to any such actions, suits or
claims (other than routine claims for benefits).
(vi) There has been no act or omission that would
impair the ability of Seller (or any successor
thereto) to unilaterally amend or terminate any
Employee Benefit Plan.
3.22 Environmental Matters. Except as set forth on Schedule 3.22:
(a) the business and operations of Seller are in material compliance
with all Environmental Laws in effect as of the date hereof;
(b) no condition exists or event has occurred on, in, under, or from
any owned or leased property which has been caused by Seller, by the
Stockholder, or by any other Person and which, with or without notice or the
passage of time or both, would constitute a violation of or give rise to any
Lien or liability under any Environmental Law in effect on the date hereof or on
the Closing Date, as the case may be;
22
<PAGE>
(c) Seller is in possession of all Environmental Permits required for
the conduct or operation of its business (or any part thereof), and is in
material compliance with all of the requirements and limitations included in
such Environmental Permits;
(d) Seller has not used, stored, transported, treated or disposed of
any Hazardous Substances in, on, at, or from any of the properties or facilities
of Seller, except for inventories of substances listed on Schedule 3.22 which
have been used or are to be used in the ordinary course of business (which
inventories have been stored and used in material compliance with all applicable
Environmental Laws and Environmental Permits, including all so-called "Right To
Know Laws");
(e) there are no Hazardous Substances in, on, or at any of the
properties or facilities of Seller, except for inventories of substances listed
on Schedule 3.22;
(f) Seller has not received any notice from any Governmental Authority
or any other Person that any aspect of the business, operations or facilities of
Seller is or may be in violation of any Environmental Law or Environmental
Permit, or that Seller is responsible (or potentially responsible) for the
cleanup or remediation of any substances at any location;
(g) Seller is not the subject of any litigation or proceedings in any
forum, judicial or administrative, involving a demand for damages, injunctive
relief, penalties, or other potential liability with respect to violations of
any Environmental Law;
(h) Seller has timely filed all reports and notifications required to
be filed with respect to all of its properties and facilities and has generated
and maintained all required records and data under all applicable Environmental
Laws;
(i) no condition has existed or event has occurred with respect to (i)
any property that was at any time owned or leased by Seller, by any direct or
indirect subsidiary that was at any time owned or controlled by Seller, or by
any predecessor to Seller or any Person that is or was an Affiliate of Seller,
which property or subsidiary has been sold, transferred or disposed of or for
which any lease has terminated or (ii) any predecessor to Seller that could (in
the case of either of the foregoing clauses (i) or (ii)), with or without
notice, passage of time or both, give rise to any present or future liability of
Seller pursuant to any Environmental Law in effect on the date hereof or on the
Closing Date, as the case may be; and
(j) no asbestos, asbestos-containing materials, PCB compounds or other
pollutants, contaminants or Hazardous Substances have been used in the
construction or repair of, or any alterations or additions to, or are otherwise
located on, any portion of the Real Property.
3.23 Customers and Suppliers.
23
<PAGE>
(a) Schedule 3.23 sets forth:
(i) a list of the ten largest customers of Seller in
terms of revenue during the fiscal year ended
1996, and the most recent quarter of the current
fiscal year (collectively, the "Major
Customers"), showing the total revenue received
in each such period from each such customer; and
(ii) a list of the ten largest suppliers of Seller in
terms of purchases during the fiscal year ended
1996 and the most recent quarter of the current
fiscal year (collectively, the "Major
Suppliers"), and showing the approximate total
purchases in each such period from each such
supplier.
(b) Except as set forth on Schedule 3.23, no customer represented in
excess of 10% of the total revenue of Seller during the fiscal year ended 1996
and the most recent quarter of the current fiscal year and no supplier
represented in excess of ten percent (10%) of the purchases of Seller during
such period. To Seller's knowledge, except as set forth in Schedule 3.23, since
December 31, 1996, there has been no material adverse change in business
relationship and no material dispute between Seller and any Major Customer or
Major Supplier, and neither Seller nor Stockholder has received any written
notice that any Major Customer or Major Supplier intends to reduce its purchases
from, or sales to Seller.
3.24 Claims Against Officers and Directors. There are no pending or, to
Seller's knowledge, threatened claims against any director, officer, employee or
agent of Seller or any other Person which could give rise to any claim for
indemnification against Seller.
3.25 Brokers. Neither Stockholder nor Seller has used any broker or
finder in connection with the transactions contemplated by this Agreement,
except for The Geneva Companies and neither Purchaser nor any Affiliate of
Purchaser has or shall have any liability or otherwise suffer or incur any Loss
as a result of or in connection with any brokerage or finder's fee or other
commission of any Person retained by Seller or Seller in connection with any of
the transactions contemplated by this Agreement. The Seller agrees to be solely
liable to pay any amounts due to the Geneva Companies.
3.26 Products Liability. Except as set forth in Schedule 3.26 and
except as otherwise provided for in the Financial Statements, there is no
product liability claim pending or threatened against Seller, whether pursuant
to any warranty or otherwise, and there has been no product recall, rework or
post-sale warning or similar action conducted with respect to any product
manufactured, shipped, sold, delivered or installed by or on behalf of Seller.
3.27 Intellectual Property. Schedule 2.1(iv) sets forth a true and
complete list of all Intellectual Property used by Seller in the Business.
Except as set forth on Schedule 3.27: (i)
24
<PAGE>
Seller and Stockholder own or possess adequate, perpetual and irrevocable rights
in and to all Intellectual Property necessary to conduct the Business as
presently conducted and are not obligated to pay any royalty, license fee or
other payment to any Person in order to use the Intellectual Property; and (ii)
none of the Intellectual Property is the subject of any pending or, to Seller or
Stockholder's best knowledge, threatened adverse claims or proceedings and there
are no claims or proceedings pending or, to Seller's best knowledge, threatened
against Seller or Stockholder asserting that their use of any of the
Intellectual Property infringes the rights of any third party and, to Seller or
Stockholder's best knowledge, no third party is infringing any of the rights of
Seller's in the Intellectual Property.
3.28 Transactions with Affiliates. Except as set forth on Schedule
3.28: Seller is not a party to any Contract with any of its Affiliates in
connection with the Assets or the Business and does not purchase any supplies
from any of its Affiliates, and no Affiliates of Seller provide credit support
to the Seller (whether in the form of loans, guarantees, collateral or
otherwise).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller, as of the date of this
Agreement and as of the Closing Date (as if such representations and warranties
were made on the Closing Date), as follows:
4.1 Due Incorporation; Financial Condition. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, with all requisite power and authority to conduct its
current business.
4.2 Due Authorization. Purchaser has full power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance by Purchaser of this
Agreement and the Note, Security Agreement and UCC-1s have been duly and validly
approved by the board of directors of Purchaser and no other actions or
proceedings on the part of Purchaser are necessary to authorize this Agreement,
the Note, Security Agreement and UCC-1s and the transactions contemplated by
this Agreement. Purchaser has duly and validly executed and delivered this
Agreement and the Note and Security Agreement and each such agreement
constitutes the legal, valid and binding obligation of Purchaser, enforceable in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors' rights
generally and by equitable limitations on the availability of specific remedies.
4.3 Consents and Approvals; Authority Relative to this Agreement.
25
<PAGE>
(a) No consent, authorization or approval of, filing or registration
with, or cooperation from, any Governmental Authority or any other Person not a
party to this Agreement is necessary in connection with the execution, delivery
and performance by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, the Note and
Security Agreement.
(b) The execution, delivery and performance by Purchaser of this
Agreement, the Note and the Security Agreement does not and will not (i) violate
any Law; (ii) violate or conflict with, result in a breach or termination of,
constitute a default or give any third party any additional right (including a
termination right) under, permit cancellation of, result in the creation of any
Lien, other than Liens in favor of the Bank and as permitted under Section
2.3(b)(iii), upon any of the assets or properties of Purchaser under, or result
in or constitute a circumstance which, with or without notice or lapse of time
or both, would constitute any of the foregoing under, any Contract to which
Purchaser is a party or by which Purchaser or any of its assets or properties
are bound; (iii) permit the acceleration of the maturity of any indebtedness of
Purchaser or indebtedness secured by its assets or properties; or (iv) violate
or conflict with any provision of Purchaser's Certificate of Incorporation or
bylaws.
4.4 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to Purchaser's knowledge, threatened by or against
Purchaser or its Affiliates with respect to this Agreement or in connection with
the transactions contemplated by this Agreement, and Purchaser has no reason to
believe there is a valid basis for any such claim, action, suit, proceeding, or
investigation.
4.5 Accuracy of Statements. Neither this Agreement nor any exhibit,
statement, list, document, or certificate specifically referred to herein and
furnished or to be furnished by the Purchaser to Seller pursuant to this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
4.6 Brokers. Purchaser has not used any broker or finder in connection
with the transactions contemplated by this Agreement, and neither the Seller nor
Seller has or shall have any liability or otherwise suffer or incur any Loss as
a result of or in connection with any brokerage or finder's fee or other
commission of any Person retained by Purchaser in connection with any of the
transactions contemplated by this Agreement.
26
<PAGE>
ARTICLE V
COVENANTS
5.1 Access to Information and Facilities.
(a) In connection with this Agreement, Seller shall give Purchaser and
Purchaser's representatives full and complete access during normal business
hours to all of the facilities, properties, books, Contracts, commitments and
records of Seller and shall make the officers and employees of Seller reasonably
available to Purchaser and its representatives as Purchaser and its
representatives shall from time to time reasonably request. Purchaser and its
representatives will be furnished with any and all information concerning Seller
which Purchaser or its representatives reasonably request.
(b) Purchaser agrees to hold all Confidential Information in confidence
and will not disclose the same, except to person(s) participating in this
Agreement, including attorneys, accountants and potential financing sources;
except that nothing contained herein shall prevent disclosure or use of any
Confidential Information as may be required by law, or any Confidential
Information that otherwise becomes public through no fault of Purchaser.
5.2 [Intentionally Omitted]
5.3 Consents and Approvals. The Seller and Purchaser shall use
reasonable efforts to obtain all consents, approvals, certificates and other
documents required in connection with the respective performances by the Seller
and the Purchaser of this Agreement and the consummation of the transactions
contemplated by this Agreement.
5.4 [Intentionally Omitted]
5.5 Exclusivity. Neither the Stockholder nor Seller nor any of its
directors, officers, employees, representatives, agents or Affiliates
(collectively, Seller's representatives) shall directly or indirectly solicit,
initiate, encourage, respond favorably to, or condone inquiries or proposals
from, provide any Confidential Information to, or participate in any discussions
or negotiations with any Person (other than Purchaser and its affiliates,
directors, officers, employees, representatives and agents) concerning (a) any
merger, acquisition, sale of assets, investment, joint venture or other business
combination in any way relating to or affecting the shares, assets and/or
business of Seller or (b) any purchase or other acquisition by any Person of any
of the Shares, or (c) any sale or issuance by Seller of any shares of its
capital stock.
5.6 Additional Financial Statements. Prior to Closing, the Seller
agrees to provide to Purchaser as soon as practicable after the end of each
calendar month financial statements of Seller, consisting of a balance sheet as
of the end of such month and an income statement and
27
<PAGE>
statement of cash flows for that month and for the portion of the year then
ended.
5.7 Stockholder's Actions. Stockholder shall cause the Seller to comply
with all of the Seller's covenants contained in this Agreement.
5.8 Non-Competition. Seller agrees that it will at no time within the
period beginning on the Closing Date and ending five (5) years following the
Closing Date (the "Non-Compete Period"), directly or indirectly, alone or with
others, engage in, or have any ownership interest in, any person, firm,
corporation or business, whether as owner, partner, equity security holder, or
otherwise, that engages in, or participates as an agent, partner, or joint
venturer in, any activity competitive with the business carried on by the Seller
prior to the Closing Date anywhere within the States of Oklahoma, Texas,
Louisiana, Georgia, Florida, Alabama, Mississippi, South Carolina, Tennessee and
Arkansas. Seller agrees that during the Non- Compete Period it will not induce
or attempt to induce any employee of Purchaser or any Affiliate thereof who is
currently an employee of Seller or an Affiliate thereof to leave such
employment, or in any other manner interfere with such employment. In the event
a court of competent jurisdiction determines that the non-competition covenant
herein is unreasonable because of its term or territorial scope, or for any
other reason, Seller and Purchaser agree that such court may reform the
conditions of such covenant so that it is reasonable under the circumstances and
that this covenant, as reformed, shall be enforceable. The parties hereto agree
and acknowledge that the limitations as to time, geographical area, and scope of
activity to be restrained as set forth in this Section 5.8 do not impose any
greater restraint than is necessary to protect the legitimate business interests
of Purchaser and the Assets. The parties further agree and acknowledge that, in
the event of a breach or threatened breach of any of the provisions of this
Section 5.8, Purchaser shall be entitled to immediate and temporary injunctive
relief, as any such breach would cause Purchaser irreparable injury for which it
would have no
28
<PAGE>
adequate remedy at law. Nothing herein shall be construed so as to prohibit
Purchaser from pursuing any other remedies available to it for any such breach
or threatened breach.
5.9 Employment Matters. Purchaser (or any Affiliate of the Purchaser)
shall have the right, but not the obligation, to offer employment on such terms
and conditions as Purchaser may determine to any or all of such employees.
Purchaser (or any Affiliate of the Purchaser) shall advise Seller as soon as
practicable which of such employees, if any, it wishes to employ from and after
the Closing Date. Seller shall cooperate in any attempt by Purchaser (or any
Affiliate of the Purchaser) to employ such employees. Nothing in this Section
5.9 shall obligate Purchaser (or any Affiliate of the Purchaser) to offer
employment to an employee in a similar job or with similar responsibilities as
such employee was provided by Seller. Seller is retaining and shall pay all
obligations relating to its employees' accrued salaries, wages, compensation and
employee benefits of any nature whatsoever. Without limiting the foregoing,
Seller shall (i) pay all wages, bonuses, commissions, and other remuneration
payable to or for the benefit of employees with respect to periods prior to the
Closing Date; (ii) pay all vacation pay or pay for other compensated absences
earned or accrued by all of Seller's employees as of the Closing Date, including
any related payroll burden (FICA and other pension or other employee benefit
plan contributions and employment taxes) with respect thereto to the appropriate
Governmental Authority or other Person, whether or not such pay is vested or has
been accrued on the books of Seller as of such date, based upon the remuneration
of such employees normally used in computing such vacation pay or pay for other
compensated absences; (iii) pay all severance payments (if any) due to all of
Seller's employees as a result of the termination of their employment with
Seller; (iv) comply with the insurance continuation requirements under COBRA and
any similar state law applicable to any of Seller's employees as a result of
their termination of employment by Seller; and (v) be responsible for continued
medical and disability coverage liability with respect to any such employee who
is disabled and not hired by Purchaser. Seller shall also pay or be liable for
any worker's compensation claims or amounts payable to such employees in
connection with events occurring prior to the Closing Date and for any liability
or costs associated with the termination of any of their employee benefit plans.
5.10 Taxes on Transfer. Seller shall bear all sales tax, use tax and
other similar taxes incurred as a result of the sale and purchase of the Assets
and the Business hereunder.
5.11 Use of Name. From and after the Closing Date, Seller shall not use
its corporate name, trade name, trademarks or logos; and Seller shall change its
name promptly after Closing to a name that is dissimilar to "Midwest Truck After
Market" or "MTA" and neither Seller nor Stockholder nor any of their Affiliates
shall use after Closing a name that is similar to "Midwest Truck After Market"
or "MTA"; provided, however, that, Seller shall be entitled to use its existing
corporate name and tradename for purposes of filing Tax Returns and for a period
of 270 days after Closing for the purposes of notifying Governmental Authorities
and other Persons of its name change. From and after the Closing Date, Seller
and Stockholder shall cooperate with the Purchaser and take such reasonable
steps requested by Purchaser to notify customers and suppliers of the change of
ownership of the Business.
29
<PAGE>
5.12 Benefit of Contracts. To the extent that any Contract that is
intended to be assigned at the Closing by Seller to the Purchaser cannot be
assigned to the Purchaser on the Closing Date (whether as a result of a failure
to obtain a necessary consent or otherwise), and the Purchaser elects or is
required by the terms hereof to consummate the transactions contemplated hereby,
the Seller shall use its best efforts to take such actions as may be reasonably
requested by the Purchaser (e.g., to act as sublessor, distributor or agent) to
enable the Purchaser to realize the practical economic benefits of, and have the
rights under, such Contract and the Purchaser shall use its best efforts to take
such actions as may be reasonably requested by the Seller to impose on the
Purchaser (or to reimburse the Seller for its performance of) the practical
economic burden of, and the obligations under, such Contract for which the
Purchaser would have been responsible had such Contract been assigned at the
Closing Date.
5.13 Accounts Receivable.
(i) On and after Closing, Purchaser shall have the right to
endorse and negotiate all checks and other instruments received from customers
that are payable to the Seller.
(ii) Seller and Stockholder shall cooperate with and provide
reasonable assistance to the Purchaser to facilitate Purchaser's securing
satisfactory arrangements with the Seller's suppliers prior to Closing.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER
The obligations of Purchaser under Article II of this Agreement are
subject to the satisfaction or waiver by Purchaser of the following conditions
precedent on or before the Closing Date:
6.1 Warranties True as of Both Present Date and Closing Date. The
representations and warranties of Seller and Stockholder contained herein shall
have been accurate, true and correct in all material respects on the date of
this Agreement, and on the Closing Date with the same force and effect as though
made by Seller and Stockholder on the Closing Date.
6.2 Compliance with Agreements and Covenants. Seller and Stockholder
shall have performed and complied in all material respects with all of their
covenants, obligations and agreements contained in this Agreement to be
performed and complied with by him on or prior to the Closing Date.
6.3 Consents and Approvals. Purchaser shall have received written
evidence reasonably satisfactory to Purchaser that all consents and approvals
required for the
30
<PAGE>
consummation of the transactions contemplated by this Agreement or the ownership
and operation by Purchaser of Business have been obtained, and all required
filings have been made.
6.4 Non-Competition Agreement. Stockholder shall have entered into a
non-competition agreement with a five (5) year term with Purchaser in exchange
for payments to Stockholder by Purchaser in the amount of $100,000 per year
payable in equal quarterly installments, which non-competition agreement shall
be in substantially the form of Exhibit 6.4 (the "Non-Competition Agreement").
6.5 Facility Lease. Stockholder shall have entered into a five-year,
triple net lease with Purchaser for the facility located at 109 South 122 East
Avenue, Tulsa, Oklahoma 74128 (the "Facility Lease"). The Facility Lease shall
be in form and substance similar to the agreement attached as Exhibit 6.5 and
shall provide for annual rent of $132,000 payable in equal monthly installments,
in advance.
6.6 Documents. Purchaser shall have received all of the agreements,
documents and items specified in Section 8.2 in form and substance reasonably
acceptable to the Purchaser.
6.7 Due Diligence Review. Purchaser shall be satisfied with the results
of its investigation and review of the business, operations, assets,
liabilities, results of operations, cash flows, condition (financial and
otherwise) and prospects of, and other matters relating to, Seller, provided
that its determination that it is satisfied with such results shall not be
unreasonably withheld, delayed or conditioned.
6.8 No Material Adverse Change. No Material Adverse Change since the
date hereof shall have occurred and no event shall have occurred which, in the
reasonable judgment of Purchaser, may have a Material Adverse Effect.
6.9 Actions or Proceedings. No action or proceeding by any Governmental
Authority or other Person shall have been instituted or threatened which (a)
might have a Material Adverse Effect, or (b) could enjoin, restrain or prohibit,
or could result in substantial damages in respect of, any provision of this
Agreement or the consummation of the transactions contemplated by this
Agreement.
6.10 Financing. Purchaser shall have obtained financing in amounts
sufficient to pay the cash portion of the Purchase Price and provide working
capital, all in amounts and on terms satisfactory to Purchaser in its sole
discretion.
6.11 Other Agreements. The Stockholder shall have entered into the
Consulting Agreement provided for in Section 7.5 below.
31
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under Article II of this Agreement are
subject to the satisfaction or waiver by Seller of the following conditions
precedent on or before the Closing Date:
7.1 Warranties True as of Both Present Date and Closing Date. The
representations and warranties of Purchaser contained herein shall have been
accurate, true and correct in all material respects on and as of the date of
this Agreement and as of the Closing Date with the same force and effect as
though made by Purchaser on the Closing Date.
7.2 Compliance with Agreements and Covenants. Purchaser shall have
performed and complied with all of its covenants, obligations and agreements
contained in this Agreement to be performed and complied with by it on or prior
to the Closing Date.
7.3 Documents. Seller shall have received all of the agreements,
documents and items specified in Section 8.3 in form and substance reasonably
acceptable to Seller.
7.4 Actions or Proceedings. No action or proceeding by any Governmental
Authority or other Person shall have been instituted or threatened which could
enjoin, restrain or prohibit, or could result in substantial damages in respect
of, any provision of this Agreement or the consummation of the transactions
contemplated by this Agreement.
7.5 Consulting Agreement. Purchaser shall have entered into a six (6)
month consulting agreement with Stockholder, which will provide for an aggregate
payment of $40,000, payable in equal bi-monthly installments and which will be
in substantially the form of Exhibit 7.5.
7.6 Other Agreements. Purchaser shall have entered into the Non-
Competition Agreement and the Facility Lease.
7.7 Assumed Obligations. Purchaser shall have agreed to assume the
Assumed Obligations.
7.8 Note, Security Agreement and Financing Statements. Purchaser shall
have executed and delivered the Note, Security agreement and appropriate UCC-1
financing statements to Seller.
32
<PAGE>
ARTICLE VIII
CLOSING
8.1 Closing. The Closing shall take place at the offices of Mayer,
Brown & Platt, at 10:00 A.M. on the earlier of: (i) October 31, 1997, or (ii)
five (5) business days after the satisfaction or waiver of the conditions
precedent set forth in Article VI and Article VII. The Closing, and all
transactions to occur at the Closing, shall be deemed to have taken place at,
and shall be effective as of, the close of business on the Closing Date.
8.2 Deliveries by Seller. At the Closing, in addition to any other
documents or agreements required under this Agreement, Seller shall deliver to
Purchaser the following:
(a) Evidence in form satisfactory to Purchaser that all consents and
approvals referred to in Section 5.3 have been obtained;
(b) A written statement from each Person holding a Lien upon any of the
assets of Seller, confirming the repayment of the indebtedness secured thereby
and the release as of the Closing Date of (i) such Lien and (ii) all obligations
under any and all Contracts relating thereto;
(c) A certificate dated the Closing Date executed by Seller certifying
as to the compliance by Seller with Section 6.2;
(d) The Certificate of Incorporation or similar instrument of Seller
certified by the Secretary of State or equivalent Person of the jurisdiction of
its incorporation, and Bylaws or similar instruments of Seller certified by the
Secretary of Seller;
(e) Certificates of Good Standing for Seller from the States of
Oklahoma and Texas .
(f) A bill of sale, conveying to Purchaser the Assets and other
instruments of transfer as may be reasonably required by Purchaser; and
(g) Original copies of the Non-Competition Agreement, Consulting
Agreement and Facility Lease duly executed by the Stockholder.
8.3 Deliveries by Purchaser. At the Closing, Purchaser shall deliver to
Seller and Stockholder the following:
(a) The cash amount payable to Seller at the Closing and the Note, a
security agreement and appropriate executed UCC financing statements granting a
subordinated security interest as described in Section 2.3.
33
<PAGE>
(b) A certificate, dated the Closing Date, of an executive officer of
Purchaser, certifying as to compliance by Purchaser with Section 7.2; and
(c) A certificate of Purchaser's secretary certifying resolutions of
the board of directors of Purchaser approving this Agreement and the Related
Agreements and the transactions contemplated by this Agreement and by the
Related Agreements (together with an incumbency and signature certificate
regarding the officer(s) signing on behalf of Purchaser).
(d) Original copies of the Non-Competition Agreement, Consulting
Agreement and Facility Lease, duly executed by Purchaser.
(e) Evidence in form satisfactory to Seller that all consents and
approvals referred to in Section 5.3 have been obtained.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time on or
prior to the Closing Date:
(a) With the written mutual consent of Seller and Purchaser;
(b) By Seller or Purchaser if the Closing shall not have taken place on
or before November 15, 1997; provided, however, that the right to terminate this
Agreement under this Section 9.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before such date;
(c) By Purchaser if there shall have been a material breach of any
covenant, representation or warranty of Seller hereunder and such breach shall
not have been remedied within ten (10) Business Days after receipt by Seller of
a notice in writing from Purchaser specifying the breach and requesting such be
remedied; or
(d) By Seller if there shall have been a material breach of any
covenant, representation or warranty of Purchaser hereunder and such breach
shall not have been remedied within ten (10) Business Days after receipt by
Purchaser of notice in writing from Seller specifying the breach and requesting
such be remedied.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all obligations of the parties hereunder shall terminate, however,
no such termination shall relieve any party from liability for any prior willful
breach of this Agreement.
34
<PAGE>
ARTICLE X
INDEMNIFICATION
10.1 Survival. The representations and warranties of Purchaser and
Seller contained herein shall survive the Closing for a period of two years,
except that Tax Warranties shall survive until the Tax Statute of Limitations
Date, Environmental Warranties shall survive until the Environmental Statute of
Limitations Date, and Title Warranties shall survive without any limitations.
10.2 Indemnification by Seller. Seller agrees to indemnify the
Purchaser Indemnified Parties against, and agrees to hold them harmless from,
any and all Losses incurred or suffered by them relating to or arising out of or
in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or warranty
made by Seller in this Agreement, provided such claim is made prior to the
expiration of the survival period of the relevant warranty on which the claim is
based as set forth in Section 10.1;
(b) any breach of or failure by Seller to perform any covenant or
obligation of Seller set out or contemplated in this Agreement;
(c) any claims made against Purchaser by creditors of Seller for the
payment or satisfaction of any obligation constituting an Excluded Obligation;
and
(d) all demands, assessments, judgments, costs and reasonable legal and
other expenses arising from, or in connection with, any Claim (as defined in
Section 10.4 below) incident to any of the foregoing.
10.3 Indemnification by Purchaser. Purchaser agrees to indemnify the
Seller Indemnified Parties against, and agrees to hold each of them harmless
from, any and all Losses incurred or suffered by them relating to or arising out
of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or warranty
made by Purchaser in this Agreement; and
(b) any breach of or failure by Purchaser to perform any covenant or
obligation of Purchaser set out or contemplated in this Agreement; and
(c) all demands, assessments, judgments, costs and reasonable legal and
other expenses arising from, or in connection with, any Claim (as defined in
Section 10.4 below) incident to any of the foregoing.
35
<PAGE>
10.4 Notice of Claim. Promptly after receipt by an Indemnified Person
of notice of any demand, claim, or circumstances giving rise to a claim, or
commencement of any action, suit, proceeding, or investigation that may result
or has resulted in a Loss for which indemnification is provided hereunder (a
"Claim"), the Indemnified Person shall give notice of the Claim to the
Indemnifying Person, which notice shall describe the nature of the Claim in
reasonable detail and the amount or estimated amount thereof. Failure to give
such notice shall not affect an Indemnified Person's right to indemnification
hereunder unless the Indemnified Party shall be prejudiced as a result of such
failure to give notice.
10.5 Indemnifying Person's Opportunity to Defend. Within ten (10) days
of receipt of notice of a Claim, the Indemnifying Person may elect to compromise
or defend the Claim, provided that the Indemnifying Person delivers a written
acknowledgment of its obligation to indemnify the Indemnified Person for any and
all Losses that ultimately result from the Claim, and provided further that the
Indemnifying Person undertakes to compromise or defend the Claim at its own
expense and with its own counsel, the selection of which counsel shall be
subject to the Indemnified Person's approval which approval shall not be
unreasonably withheld, conditioned or delayed. The Indemnified Person shall, and
shall have the right to, cooperate in the compromise or defense of the Claim at
the Indemnifying Person's expense, and shall make available to the Indemnifying
Persons all books, records, documents, and other information in the Indemnified
Person's possession or control that are necessary or appropriate for the
investigation or defense of the Claim.
10.6 Indemnifying Person's Failure to Act. In the event that the
Indemnifying Person elects not to compromise or defend the Claim, fails to
notify the Indemnified Person of its election to do so, or contests its
obligation to indemnify the Indemnified Person for the Claim, the Indemnified
Person may, subject to Section 10.7, pay the Claim in full, or compromise or
defend the Claim with counsel of its own choice, provided that such payment,
compromise or defense shall not be construed as a waiver of the Indemnified
Person's rights to indemnification hereunder, and the Indemnified Person may
assert those rights in a subsequent suit or third party action as it deems
appropriate, and provided further that in the event the Indemnifying Person is
found to have improperly denied its obligation to provide indemnification for
the Claim, it shall be liable to the Indemnified Person for all Losses incurred
in paying, settling or compromising the Claim, as well as costs (including
attorneys fees and expenses) of enforcing these indemnification provisions,
subject to Section 10.7.
10.7 Settlement or Compromise. If either the Indemnifying Person or the
Indemnified Person proposes to enter into a settlement or compromise of any
Claim, such Person shall promptly notify the other Person and such other Person
shall have fifteen (15) days from the receipt of such notice within which to
either consent or object to said settlement or compromise. A Person failing
within such fifteen (15) day period to notify the other in writing of his
acceptance of or objection to the settlement or compromise shall be deemed to
have consented thereto. Any settlement or compromise of any Claim which has been
consented to by both the Indemnifying Person and the Indemnified Person shall be
binding on both such Persons (but only inter se) as if a final judgment or
decree had been entered by a court of competent jurisdiction
36
<PAGE>
in the amount of such settlement or compromise; provided, however, that any
consent given or deemed to have been given by an Indemnifying Person to a
settlement or compromise which an Indemnified Person proposes to enter into
shall not be deemed an admission that the Claim was covered by any
indemnification obligation under this Article X or otherwise affect the
Indemnifying Person's right to assert a defense that the Claim was not subject
to any such indemnification obligation. Except as provided herein, in no event
shall an Indemnifying Person settle or compromise any Claim without the written
consent of the Indemnified Person. If the Indemnified Person objects to any
settlement or compromise to which the Indemnifying Person has consented, the
Indemnified Person shall immediately assume (or continue, as the case may be)
and control the entire defense of the Claim and the Indemnifying Person's
obligation to indemnify the Indemnified Person shall be limited to the amount
that it would have been obligated to pay pursuant to the settlement or
compromise to which it had consented. If the Indemnifying Person objects to any
settlement or compromise of any Claim to which the Indemnified Party has
consented, the Indemnified Person may enter into such settlement or compromise
of the Claim notwithstanding the objection of the Indemnifying Person. In such
event, the Indemnifying Person's obligation to indemnify the Indemnified Person
for any such Claim shall be determined in the same manner as any other dispute
between the parties hereto under this Agreement.
10.8 Right of Set-Off. In the event a Purchaser Indemnified Party is
entitled to receive any amount from Stockholder under this Agreement, including
without limitation any indemnification payment under this Agreement, without
limiting Purchaser's rights to seek any recovery against Stockholder directly,
Purchaser may elect to retain any amounts owed to Stockholder under the
Consulting Agreement and the Non-Competition Agreement; provided, however, that
if the Stockholder disputes any such claim, Purchaser shall place the amount
subject to offset in escrow until the dispute is resolved through mutual
agreement or by a decision of the court having jurisdiction over the subject
matter of the claim.
10.9 Limitations on Liability. Notwithstanding the foregoing, a claim
by any of the parties pursuant to Sections 10.2, 10.3 and 10.4 against the other
shall not be asserted unless and until the aggregate and cumulative totals of
all such claims by all Purchaser Indemnified Parties or Seller Indemnified
Parties, as the case may be, shall have exceeded Ten Thousand ($10,000) Dollars
(the "Threshold"), whereupon the Indemnified Person shall be entitled to
indemnification for all Losses without regard to, or reduction by, the
Threshold. Purchaser will not be entitled to indemnification hereunder in excess
of the purchase price paid for the Shares pursuant to Section 2 hereof;
provided, however, that the foregoing limitation will not apply to
indemnification for breach of the Tax Warranty or the Environmental Warranty.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses. Each party hereto shall bear its own expenses with
respect to the transactions contemplated hereby.
37
<PAGE>
11.2 Amendment. This Agreement may be amended, modified or supplemented
only in writing signed by Purchaser and Seller.
11.3 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (a) when received if given in person or by courier or a courier
service that obtains receipts, (b) one business day after the day of
transmission if sent by telex, facsimile or other wire transmission or
recognized overnight courier (c) three Business Days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
(a) If to Stockholder, addressed as follows:
William J. Avery, Sr. and Sarah A. Avery
P.O. Box 1405
Flagler Beach, Florida 32156
with a copy to:
Carson, Messinger, et al
3300 North Central Avenue, Suite 1900
Phoenix, Arizona 85012
Attn: James Burns
Facsimile No.: (602) 277-4507
(b) If to Seller, addressed as follows:
Midwest Truck After Market, Inc.
P.O. Box 1405
Flagler Beach, Florida 32156
with a copy to:
Carson, Messinger, et al
3300 North Central Avenue, Suite 1900
Phoenix, Arizona 85012
Attn: James Burns
Facsimile No.: (602) 277-4507
(c) If to Purchaser, addressed as follows:
Radco Industries, Inc.
1100 Louisiana Street, Suite 5400
Houston, Texas 77002
Attn: Stephen Magee
Facsimile No.: (713) 951-9038
38
<PAGE>
with a copy to:
Mayer, Brown & Platt
700 Louisiana Street, Suite 3600
Houston, Texas 77002
Attn: Paul B. Clemenceau
Facsimile No.: (713) 224-6410
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
11.4 Effect of Investigation. Any due diligence review, audit or other
investigation or inquiry undertaken or performed by or on behalf of Purchaser
shall not limit, qualify, modify or amend the representations, warranties or
covenants of, or indemnities by, Seller made or undertaken pursuant to this
Agreement, irrespective of the knowledge and information received (or which
should have been received) therefrom by Purchaser.
11.5 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
to enforce the same at a later time. No waiver by a party of any condition or of
any breach of any term, covenant, representation or warranty contained in this
Agreement shall be effective unless in writing, and no waiver in any one or more
instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
11.6 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
11.7 Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement and the headings to Exhibits and Exhibits
attached to this Agreement are for convenience only and shall not be deemed part
of this Agreement or be given any effect in interpreting this Agreement. The use
of the masculine, feminine or neuter gender herein shall not limit any provision
of this Agreement. The use of the terms "including" or "include" shall in all
cases herein mean "including, without limitation" or "include, without
limitation," respectively. Underscored references to Articles, Sections,
Subsections or Exhibits shall refer to those portions of this Agreement.
Consummation of the transactions contemplated herein shall not be deemed a
waiver of a breach of or inaccuracy in any representation, warranty or covenant
or of any party's rights and remedies with regard thereto. No specific
representation, warranty or covenant contained herein shall limit the generality
or applicability of a more general representation, warranty or covenant
contained herein. A breach of or inaccuracy in any representation, warranty or
covenant shall not be affected by the fact that any more general or less general
representation, warranty or covenant was not also breached or inaccurate.
39
<PAGE>
11.8 Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Texas without
giving effect to the principles of conflicts of law thereof. The parties, on
behalf of themselves and their respective Affiliates, submit themselves to the
jurisdiction of the Federal and State courts located in Houston, Texas and agree
to commence any lawsuit arising under or relating to this Agreement or the
Related Agreements in such courts.
11.9 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that prior to the Closing Date no assignment of any rights or
obligations shall be made by Seller or Stockholder without the written consent
of Purchaser or by Purchaser without the written consent of Seller, except that
Purchaser may assign its rights hereunder without such consent to any Affiliate
of Purchaser; provided that (i) such Affiliate of Purchaser assumes Purchaser's
obligations under this Agreement and (ii) Purchaser remains liable for all
obligations under this Agreement in the event of a default by assignee.
11.10 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, to the extent provided herein, their
respective Affiliates, directors, officers, employees, agents and
representatives, and no provision of this Agreement shall be deemed to confer
upon other third parties any remedy, claim, liability, reimbursement, cause of
action or other right.
11.11 Publicity. Prior to the Closing Date, except as required by Law
or the rules of any stock exchange, no public announcement or other publicity
regarding the transactions referred to herein shall be made by either party
hereto or any of their respective Affiliates, officers, directors, employees,
representatives or agents, without the prior written agreement of the other
party, in any case, as to form, content, timing and manner of distribution or
publication; provided, however, that nothing in this Section shall prevent such
parties from discussing such transactions with those Persons whose approval,
agreement or opinion, as the case may be, is required for consummation of such
particular transaction or transactions.
11.12 Further Assurances. Each of the parties hereto will, upon the
reasonable request of the other party, on and after the Closing Date execute and
deliver such other documents, releases, assignments and other instruments as may
be required to effectuate completely the transactions contemplated herein and to
otherwise carry out the purposes of this Agreement.
11.13 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
11.14 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided in this Agreement shall be cumulative and shall not preclude
the assertion or exercise of any other rights or remedies available by law, in
equity or otherwise.
40
<PAGE>
11.15 Entire Understanding. This Agreement and the Related Agreements
set forth the entire agreement and understanding of the parties hereto and
supersede any and all prior agreements, arrangements and understandings among
the parties. No representation, warranty, promise, inducement, or statement of
intention has been made or relied upon by a party hereto that is not set forth
in this Agreement or the Related Agreements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
PURCHASER
RADCO INDUSTRIES, INC.
By:
Name: Michael H. Manor
Title: President
SELLER
MIDWEST TRUCK AFTER MARKET, INC.
By:
Name:
Title:
41
<PAGE>
STOCKHOLDER
WILLIAM J. AVERY, SR.
SARAH A. AVERY
42
Subsidiaries of J. B. Poindexter & Co., Inc.
1. EFP Corporation, a Delaware corporation
a. EFP Corporation also operates under the following names:
i. Astro Pattern Corporation
ii. Engineered Foam Plastics
2. Lowy Group, Inc., a Delaware corporation
a. Tile By Design, Inc., a Delaware corporation, is a wholly- owned
subsidiary of Lowy Group, Inc.
b. Lowy Group, Inc. also operates under the following names:
i. Blue Ridge Carpet Mills
ii. Courier
iii. Fred T. Lowy Distributors Division
iv. Lowy Enterprises of Minnesota
v. Fred Lowy Linoleum & Rug
vi. Flooring Distributors
vii. Lowy Distributors
3. Magnetic Instruments Corp., a Delaware corporation
a. Magnetic Instruments Corp. also operates under the following names:
i. Electrospec
ii. MIC Group
4. Morgan Trailer Mfg. Co., a New Jersey corporation
a. Acero-Tec S.A. de C.V., a Monterry, Nuevo Leon, Mexico corporation, is
a subsidiary of Morgan Trailer Mfg. Co.
b. Morgan Trailer Mfg. Co. also operates under the name Morgan
Corporation.
5. Truck Accessories Group, Inc., a Delaware corporation, f/w/a Leer, Inc.,
f/w/a Leer Holdings Inc.
a. Subsidiaries of Truck Accessories Group, Inc. include:
i Raider Industries Inc., a Saskatchewan, Canada corporation, is a
wholly- owned subsidiary of Truck Accessories Group, Inc.
(a) Raider Industries Inc. also operates under the
following names :
1) Lo Rider
2) Raider
ii. Leer Acquisition Company, Inc., a Delaware corporation, is a
wholly- owned subsidiary of Truck Accessories Group, Inc.
(a) Radco Industries, Inc., a Minnesota corporation, is a
wholly-owned subsidiary of Leer Acquisition Company,
Inc.
b. Truck Accessories Group, Inc. also operates under the following names:
i. 20th Century Fiberglass
ii. Century Fiberglass
iii. Gem-Top Mfg.
iv. Leer
v. Leer Corporate
vi. Leer East
vii. Leer Midwest
viii. Leer Retail
ix. Leer Southeast
x. Leer Specialty Products
xi. Leer Truck Accessory Centers
xii. Leer West
xiii. National Truck Accessories
xiv. National Truck Accessories Headquarters
xv. National Truck Accessories Midwest
xvi. National Truck Accessories Southeast
xvii. National Truck Accessories West
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
FORM 10-K AND IS QALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,191
<SECURITIES> 0
<RECEIVABLES> 36,546
<ALLOWANCES> 1,900
<INVENTORY> 50,305
<CURRENT-ASSETS> 93,979
<PP&E> 99,632
<DEPRECIATION> 53,303
<TOTAL-ASSETS> 175,359
<CURRENT-LIABILITIES> 74,540
<BONDS> 105,560
0
0
<COMMON> 16,486
<OTHER-SE> (186)
<TOTAL-LIABILITY-AND-EQUITY> 175,359
<SALES> 447,536
<TOTAL-REVENUES> 447,536
<CGS> 351,580
<TOTAL-COSTS> 351,580
<OTHER-EXPENSES> 2,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,894
<INCOME-PRETAX> (6,153)
<INCOME-TAX> 1,393
<INCOME-CONTINUING> (7,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,546)
<EPS-PRIMARY> (2)
<EPS-DILUTED> (2)
</TABLE>
