U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.:
December 31, 1996 0-24804
FEATHERLITE MFG., INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1621676
(State of Incorporation) (IRS Employer Identification Number)
Highways 63 and 9
Cresco, Iowa 52136
(319) 547-6000
(Address of principal executive offices;
Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 18, 1997, was $18,563,000 (based on the last sale
price of the registrant's Common Stock on such date).
Shares of without par value Common Stock outstanding at March 18, 1997:
6,255,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated Part of this Form 10-K: (1) Annual report to shareholders for the
fiscal year ended December 31, 1996 - Part II; (2) Proxy statement for 1997
Annual Meeting - Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Featherlite Mfg., Inc. was organized by current management as a Minnesota
corporation in 1988 to acquire the assets of a non-affiliated business which
manufactured trailers since the early 1970s under the FEATHERLITE(R) brand name.
The Company designs, manufactures and markets over 400 models of both custom
made and standard model specialty aluminum and steel trailers through a network
of over 240 full-line dealers and over 600 limited-line utility dealers located
in the United States and Canada. Its product lines vary from an eight-foot
livestock trailer to a specially designed trailer which houses a rare traveling
museum exhibition or a custom designed trailer to transport race cars, spare
parts, tools and work shops of race car owners and drivers.
In 1996, the Company began manufacturing and marketing a custom luxury
motorcoach primarily through the acquisition of Vantare International, Inc.,
which is among the leaders and fastest growing companies in the motorcoach
industry. Entry into the luxury motorcoach market was consistent with
Featherlite's long-term growth strategy of product diversification. These
motorcoaches are marketed under the trade name "VANTARE by Featherlite(TM)".
The Company markets its primary products under the FEATHERLITE(R) brand
name. FEATHERLITE(R) trailers are made of aluminum, which differentiates the
Company from most of its competitors that primarily make steel trailers.
Aluminum trailers are superior to steel in terms of weight, durability,
corrosion resistance, maintenance and weight-to-load ratio. Although the
Company's focus is on manufacturing and marketing aluminum trailers, it also
markets a line of composite steel and aluminum trailers under the
FEATHERLITE-STL(TM) series (replaced Econolite beginning in 1997) and DIAMOND
D(R) brands in order to provide dealers and customers with a high quality, but
less expensive, alternative to the aluminum trailer.
Management believes that the Company's growth is being caused by overall
market expansion, particularly in uses related to entertainment and leisure, and
by the Company increasing its share of a fragmented market. Demand for the
Company's products is being significantly driven by the lifestyles, hobbies and
events that are important to Featherlite's target customers. Growth in those
product and service categories which could use or require a high quality trailer
is creating increased demand for the Company's products. Those categories and
uses include pickup trucks, sport utility vehicles, all-terrain-vehicles,
personal watercraft and snowmobiles; auto races, classic car shows and
motorcycle rallies; hobby farming and raising and showing horses; art and craft
fairs and expositions; and vending trailers for selling crafts, food and other
concessions, such as T-shirts or novelty items. Examples of other users of the
Company's trailers include lawn care services, house painters, construction
crews, traveling museum exhibitions, concert tours, musical groups and fiber
optic utility crews that require clean environments in which to splice and store
cable.
The Company continually monitors the market for opportunities to introduce
new and innovative designs. Featherlite pioneered the introduction of standard
model aluminum horse and livestock trailers, which traditionally had been custom
made. It has also responded to the increasing demand for customizing the
interiors of trailers, a capability which helps distinguish the Company from its
competition. Typical interiors range from simple, such as a dressing room,
closet and mirror in the nose of a horse trailer, to sophisticated, such as
upholstered seating and sleeping areas, kitchens, bathrooms and modern
electronics, including fax machines, cellular phones and satellite dishes, in
race car transporters and luxury custom coaches. In addition, Featherlite
refines the products it already offers by introducing new features to satisfy
the increasing demands of its customers.
The Company pays special attention to its target customers and attempts to
reach them through a variety of media. Unlike most of its competition,
Featherlite is large enough to benefit from national advertising and sponsorship
of major events which are visible to its customers. These sponsorships include
Featherlite's designation as the "Official Trailer of NASCAR, CART, IRL, ARCA,
ASA, World of Outlaws and the Indianapolis Motor Speedway," a major sponsor of
NHRA drag racing and association with the All American Quarter Horse Congress,
the International Arabian Horse Association and others. Featherlite intends to
expand its promotional activities as the Company enters new markets.
<PAGE>
Specialty Trailer and Motorcoach Industries
The company operates in two principal industries and business segments:
specialty trailers and motorcoaches, as discussed in the sections labeled
"Management's Discussion and Analysis" which appears in Company's Annual Report
to Shareholders for the year ended December 31, 1996 which is incorporated
herein by reference.
Specialty Trailer Industry
Specialty trailers are designed for specific hauling purposes rather than
for general commercial freight. The customers of the specialty trailer industry
consist of broad segments of the general public, such as hobbyists, sports
enthusiasts, farmers and ranchers, engaged in the activities for which
particular trailers are designed. In contrast, commercial freight trailers are
generally made for non-specific purposes and the customers are typically
trucking companies and manufacturers with fleets of trucks and trailers. Unlike
the commercial freight trailer industry which is dominated by a few large
manufacturers, the specialty trailer industry is comprised of many small
manufacturers. No published statistics are available on the size of the
specialty trailer industry or its subcategories. However, the Company believes
that there may be as many as 500 manufacturers of specialty steel trailers in
the United States, of which approximately 20 manufacture specialty aluminum
trailers.
Historically, specialty trailers were made of steel, principally because
they cost approximately 30% to 40% less than trailers made primarily of
aluminum. Entry into the production of steel trailers is relatively easy and
inexpensive because of the widespread availability of steel components and
simple production techniques. The relative lack of barriers to entry into the
steel trailer industry, differing regional demands for trailer types and the
relatively high cost of long distance delivery have contributed to the
fragmented status of the specialty trailer industry. As a result, specialty
trailer manufacturers generally produce relatively small numbers of trailers for
sale in limited geographical markets without the efficiencies of high volume
production, quality controls, significant warranty and service capabilities,
substantial dealer networks, or national advertising and marketing programs. In
comparison, production of aluminum trailers requires larger capital investment
in dies, extrusion molds and equipment, more sophisticated welding and
production techniques, and greater design capabilities to maximize the
strength-to-weight ratio advantage of aluminum over steel.
In dollar sales, the Company estimates that aluminum trailers presently
constitute five to ten percent of the total market for specialty trailers and
that this percentage is increasing. The trend of the trailer market to migrate
toward aluminum models is driven by a number of factors. Aluminum trailers offer
substantial advantages over steel trailers in weight, ease of maintenance,
durability and useful life. Aluminum trailers do not rust and weigh 30% to 40%
less than comparable steel models. Maintenance is substantially less on aluminum
trailers because of the absence of rust and because they typically are not
painted or are pre-painted with a baked-on enamel. As a result, aluminum
trailers can be offered with superior warranties and provide greater customer
satisfaction. The lighter weight of aluminum trailers reduces the demands on the
towing vehicle, affords better gas mileage and allows a greater percentage of
gross trailer weight for carrying cargo.
Motorcoach Industry
Bus conversion motorcoaches are the most luxurious of all recreational
vehicles. They represent a unique market niche, with selling prices ranging from
$500,000 to $900,000 or more. These motorcoaches are made from a bus shell for
conversions that is purchased and completed to provide an interior area designed
to the customers specifications. It has been estimated that this segment of the
RV market experienced more than a 30% growth between 1990 and 1994 and this
growth is expected to continue in the future. A large part of the target market,
the 45 to 64 age group, is expected to grow by 33% this decade alone. Sales of
these vehicles will be boosted because this group is expected to retire earlier
and have a greater affluence than previous generations. The Company believes
that there are presently ten or more companies in this industry.
<PAGE>
Products and Services
The Company's primary business activity is the manufacture and sale of
specialty aluminum trailers under the FEATHERLITE(R) brand name. In 1996, the
Company began manufacturing and marketing a custom motorcoach under the name
"VANTARE by Featherlite(TM)". In addition, the Company manufactures and sells
combination steel and aluminum trailers under its FEATHERLITE-STL(TM) series
(formerly Econolite) and DIAMOND D(R) brand names, sells replacement and
specialty parts, and coordinates delivery of completed trailers to customers.
Rework and warranty services are also provided for Company built trailers at the
Company's facilities and dealer locations. The Company and an affiliate provide
dealer and retail product financing. For 1996, over 95% of the Company's
revenues were derived from trailer and motorcoach sales.
The following data illustrate the percentage of the Company's net sales by
product type in 1994, 1995 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Years ended December 31
1994 1995 1996
Amount Percent Amount Percent Amount Percent*
<S> <C> <C> <C> <C> <C> <C>
Horse $21,179 37.3% $23,985 36.8% $29,697 31.1%
Livestock 14,590 25.7% 13,604 20.9% 17,789 18.6%
Car and race car
transporters 9,237 16.3% 14,333 22.0% 15,847 16.8%
Utility and 2,600 4.5% 4,468 6.9% 7,206 7.5%
recreational
Commercial and semi 9,229 16.2% 8,786 13.4% 10,150 10.6%
Motorcoaches --- --- --- --- 14,785 15.5%
Net Trailer &
Motorcoach Sales $56,835 100.0% $65,176 100.0% $95,474 100.0%
</TABLE>
*Product mixed percentages in 1996 affected by addition of motorcoaches.
Trailers
The Company is unique among trailer manufacturers because of the many types
of trailers it makes. The Company's FEATHERLITE(R), FEATHERLITE- STL(TM) series
and DIAMOND D(R) trailers may be broadly classified into several trailer types,
which can be further subdivided into over 400 models depending on their intended
use and resulting design. The Company's primary trailer types are horse,
livestock, utility and cargo, snowmobile and car trailers as well as race car
transporters. Within these broad product categories, the Company generally
offers different features, such as various lengths, heights and widths, open and
enclosed models, gooseneck and bumper pulls, straight and slant loaders, and
aluminum, steel, fiberglass and wood frames, floors, sides and roofs. The
Company believes FEATHERLITE(R) brand trailers, which are "all aluminum" with
the exception of steel axle and hitch parts, enjoy a premier image in the
industry. Sales of FEATHERLITE(R) brand trailers currently represent over 82% of
the Company's total trailer sales. FEATHERLITE-STL(TM) series and DIAMOND D(R)
brand trailers, which generally are a composite of steel frame, aluminum skin
and galvanized roof, allow the Company to place its product line at the
lower-priced end of the market.
FEATHERLITE(R), FEATHERLITE-STL(TM) series and DIAMOND D(R) trailers are
built as standard models or to customer order from selected options. Depending
on the model, the Company's trailers generally include name brand tires,
reflectors and exterior running and license plate lights, sealed and enclosed
wires, and safety chains and breakaway switches. Popular options to standard
designs include paint schemes, logos, lettering and graphics, winches and
generators, viewing platforms, workbenches and cabinets, vents and other airflow
designs, rollup doors, access and side doors and windows, aluminum wheels and
hubcaps, and hydraulic or air brakes.
<PAGE>
Trailer design traditionally has been utilitarian. Recently, however, the
demand for trailers with special amenities and custom designed features has
increased dramatically. For that reason, the Company's Interiors Division offers
options ranging from simple shelves, cupboards, lockers and dressing rooms to
complete living quarters, including upholstered furniture, electronics, wood or
laminated Formica finishes, air conditioning, refrigerators, dinettes and bath
packages. The Company stresses its ability and willingness to build trailers
"from the ground up" with unique, even luxurious, custom designed features and
amenities tailored to customer specifications. This distinguishes the Company
from many other trailer manufacturers.
In addition to custom designed trailers, the Company manufactures standard
model trailers for inventory which are available for immediate delivery to
dealers. In an industry consisting primarily of manufacturers who custom build
trailers, the Company's introduction in 1991 of standard model aluminum trailers
represented an innovative step. Standard model trailer sales now represent
approximately 40% of the Company's total trailer sales. The Company's dealer
network has enthusiastically endorsed and supported the standard model concept.
Retail prices for the Company's standard aluminum model trailers range from
approximately $1,200 for the least expensive snowmobile trailer to over $300,000
for a custom built race car transporter and hospitality trailer and over
$900,000 for a luxury coach. Representative FEATHERLITE(R) aluminum trailer
retail prices are approximately $7,200 for a bumper pull livestock trailer,
$8,200 for a two horse trailer, and $16,000 for a gooseneck car trailer.
Motorcoaches
The Company offers three motorcoaches based on various models made from a
single bus shell manufacturer (Prevost Car Company), the XL-40 and XL-45 and the
H3-45. Even though the "H" body style is much taller and the layout is
considerably different than a typical XL motorcoach, it has become the most
popular model requested by customers. The Company also now offers a "slide-out"
model which expands the livable space within the motorcoach.
The Company's goal is to produce the best performing and most reliable
coach while keeping a low overall gross weight and extremely low ambient noise
level. It incorporates into motorcoaches many of the good features and quality
often present in luxury yachts and which were previously developed by Vantare
International, Inc. when it was in the business of building yachts.
All coaches are built to customer order from selected options, except for
show motorcoaches which are built for demonstration and resale purposes at
particular shows or events. Retail prices range from $500,000 to $900,000 or
more.
The Company also sells used motorcoaches which are taken as trade-ins from
customers on new coaches or on a consignment basis. Repair services are provided
for coaches of customers and others at the Vantare facility in Sanford, Florida,
as well as at a Company service center in Mocksville, North Carolina and Cresco,
Iowa.
Other Business Activities
In addition to the manufacture and sale of specialty trailers and luxury
motorcoaches, the Company sells replacement and specialty trailer parts to its
dealers and to others. It coordinates delivery of completed trailers to
customers and to dealers for a fee and in 1996 delivered approximately 50% of
the trailers sold to dealers, with the remainder picked up at its Iowa
facilities. The Company owns and maintains a fleet of trucks and leases semi
tractors for this purpose. The Company is a licensed aircraft dealer and
believes that dealing in used aircraft is complementary to its principal
business. Featherlite Aviation Company, a wholly-owned subsidiary of the
Company, conducts such aircraft dealer activities. Featherlite Aviation Company
currently holds for resale three used aircraft. The purchase, sale, use and
operation of aircraft and the volatility in the sales volume and value of
aircraft, create risks to the Company and its operating results. The Company
maintains liability insurance policies relating to its aircraft in an amount it
believes to be adequate, but there is no assurance that its coverage will
continue to be available at an acceptable price or be sufficient to protect the
Company from adverse financial effects in the event of claims. The Company's
other business activities, in the aggregate, accounted for approximately 5.6%,
5.8% and 3.9% of the Company's net sales for 1994, 1995 and 1996, respectively.
<PAGE>
Marketing and Sales
Dealer Network
The Company markets its products primarily through a network of over 240
full-line dealers and over 600 limited-line utility dealers located in the
United States and Canada, one distributor serving the southeast region of the
United States, and one distributor serving Alberta and British Columbia, Canada.
Dealers typically handle only a portion of the entire FEATHERLITE(R),
FEATHERLITE-STL(TM) series and DIAMOND D(R) product lines and may sell other
steel trailer brands. Featherlite dealers are not prohibited by their agreements
with the Company from selling other brands of aluminum trailers but generally do
not do so. No single dealer represents more than 10% of the Company's net sales.
The Company's top 50 dealers accounted for approximately 74%, 76% and 54% of the
Company's net trailer sales for 1994, 1995 and 1996, respectively. For these
periods, 79% or more of the Company's trailer sales were made by its dealer
network, with the remainder representing direct Company sales to end users.
Company sales to end users are primarily drop deck trailers, specialty trailers
and race car transporters. The Company does not sell direct its horse and
livestock trailers. For these periods, approximately 97% of the number of units
sold were sold by the dealer network.
Dealers and distributors sell FEATHERLITE(R), FEATHERLITE-STL(TM) series
and DIAMOND D(R) products under contractual arrangements which can be terminated
by either party on specified notice. Laws in certain states govern terms and
conditions under which dealers and distributors may be terminated. Such laws
have not materially adversely affected the Company to date. Changes in dealers
and distributors take place from time to time. The Company believes that a
sufficient number of prospective dealers exists across the United States and
Canada to permit orderly transitions whenever necessary. The Company is
continually seeking to expand the size and upgrade the quality of its dealer
network. The Company believes that significant areas of the United States and
Canada are not served by a sufficient number of dealers and the Company intends
to increase substantially its number of dealers over the next several years.
The Company employs territory managers to assist in the marketing and sales
process. These managers assist the Company's dealers in coordinating the
selection of custom options by customers and the production of orders. They also
participate with the dealers at trade shows, fairs, rodeos, races and other
events to promote the FEATHERLITE(R) brand and actively seek out potential new
dealers.
All motorcoaches are sold directly by Company personnel to end user
customers. Company sales representatives participate in trade shows, fairs,
motorsports races and other events to promote the "VANTARE by Featherlite(TM)"
motorcoach.
Financing
A substantial portion of the Company's sales of trailers and motorcoaches
are paid for within ten days of invoicing. The Company has arrangements with
NationsCredit Commercial Corporation, Deutsche Financial Services Corp.
(formerly ITT Commercial Finance Corp.), Bombardier Capital, and with
TransAmerica Commercial Finance Corp. to provide trailer floor plan financing
for its dealers. Featherlite Credit Corporation, a corporation owned by certain
of the Company's officers and directors, provides retail financing to end user
customers of the Company's dealers. Under these floor plan and retail financing
arrangements, the Company is required in certain circumstances to guarantee
certain debt, or repurchase for the remaining unpaid balance including finance
charges plus costs and expenses, any repossessed trailers financed through such
arrangements. Although the Company has not been required to make any such
payments or repurchases to date, there can be no assurance that such obligations
will not, in the future, adversely impact the Company.
The Company has arrangements with several companies to provide motorcoach
retail financing to end user customers. There is no recourse to the Company on
these retail financing arrangements. The Company has a wholesale floor plan
agreement with a company to finance a portion of the new and used motorcoaches
held in inventory.
<PAGE>
Promotion
The Company's marketing activities are designed primarily to communicate
directly with consumers and to assist with selling and marketing efforts of the
dealer network. The Company promotes its products directly using print
advertising in user group publications, such as Quarter Horse Journal,
Successful Farming, Snowmobile, Sno Goer and National Association of Stock Car
Auto Racing ("NASCAR") Winston Cup Series event programs. A series of product
brochures, product videotapes and other promotional items are available for use
by the dealers. The Company also advertises on television, primarily on cable
television racing programs.
The Company promotes its motorcoaches directly in user group publications,
such as the Family Motorcoaching Magazine, The Robb Report, The DuPont Registry
and the RV Trader. In addition, the Company participates in the Family Motor
Coach Association rallies twice each year, the Tampa RV Show and numerous other
shows and rallies and is represented at motorsports events where other
Featherlite products are promoted and where Featherlite already has a customer
base.
An example of the Company's specialized niche market promotional efforts is
the motor sports industry. Featherlite currently is the "Official Trailer of
NASCAR, CART, IRL, ARCA, ASA, World of Outlaws the Indianapolis Motor Speedway"
and the title sponsor of the NASCAR Featherlite Southwest Tour and the NASCAR
Featherlite Modified Tour, and a major sponsor of the National Hot Rod
Association ("NHRA"). The 1996 NASCAR Featherlite Southwest Tour was comprised
of sixteen events in various cities in Arizona, California, Nevada and Colorado.
The NASCAR Featherlite Modified Tour schedule takes place primarily in the
northeastern United States. The Company expects to continue to design and build
trailers to fit the needs of all types of racing, including NASCAR, NHRA,
Automobile Racing Club of America ("ARCA"), IndyCar, nostalgic, sprint car, off
road, boat, motorcycle and motocross.
In addition to the racing industry, the Company sponsors or is associated
with the All American Quarter Horse Congress, the National Cutting Horse
Association, the American Paint Horse Association and the National Western
Livestock Show as well as various rodeos and state and local fairs and expos.
Annually, Featherlite factory representatives attend in excess of 250 races,
rodeos, fairs, trade shows and other special events. The Company's dealers
attend approximately 1,200 to 1,400 such events each year.
Competition - Specialty Trailers
The specialty trailer industry is highly competitive, especially with
respect to the most commonly sold models, such as one and two horse trailers.
Competition is based upon a number of factors, including brand name recognition,
quality, price, reliability, product design features, breadth of product line,
warranty and service. The primary competition to FEATHERLITE(R) aluminum
trailers are steel trailers, which typically sell for approximately 30% to 40%
less but are subject to rust and corrosion and are heavier. There are no
significant technological or manufacturing barriers to entry into the production
of steel trailers and only moderate barriers to the production of aluminum
trailers. Because the Company has a broad based product line, its competition
varies by product category. There is no single company that provides competition
in all product lines. Certain of the Company's competitors and potential
competitors have greater financial and other resources than the Company.
Furthermore, certain of the Company's competitors are better established in
segments of the Company's business. The Company's principal competitors, all of
which are located domestically, include the following:
Trailer Types Principal Competitors' Brands
Horse and Livestock 4 Star, Barrett, Sooner, Wilson,
Sundowner, Kiefer Built, W-W
Utility Wells Cargo, PACE, Haulmark, Sooner
Drop Frame Vans Kentucky
Car Trailers and
Race Car Transporters HighTech, Competition, Concept, Wells
Cargo, Haulmark, PACE, Sooner
<PAGE>
Competition - Motorcoaches
The motorcoach industry is highly competitive, particularly in XL models,
with ten or more manufacturers. Vantare is the dominant producer of H model
coaches. Competition is based primarily on quality and price although other
factors such as brand name, reliability, design features, warranty and service
are also important. The brand names of the Company's principal competitors in
this industry, all of which are located domestically, include, among others:
Marathon, Liberty, Country Coach, Angola, Monaco, Vogue and Custom.
Manufacturing
The Company manufactures substantially all of its trailers at plants
located in Cresco, Nashua and Shenandoah, Iowa. It has agreements with two
companies to manufacture certain trailers. Under the agreements, the Company
supplies trailer materials and specifications to those manufacturers. The
manufacturers, which are prohibited from manufacturing trailers for any other
entities without Featherlite's consent, cover labor and overhead expenses and
manufacture the trailers for contractually agreed upon prices. Such trailers
constituted approximately 3% of net trailer sales for 1996.
Except for tires, brakes, couplers, axles and various other purchased
items, the Company fabricates its component parts for its trailers. Most raw
materials and standard parts, including aluminum extrusions and sheet metal, are
available from multiple sources. Prices of aluminum, the principal commodity
used in the Company's business, fluctuate daily in the open market. Costs of
aluminum to the Company remained fairly stable during the period 1992 through
1994 due in part to the Company's practice during such period of negotiating
annual pricing contracts with suppliers. Due to significant fluctuations in
market aluminum prices during 1995, the Company was not able to contract for
extended periods at acceptable prices for all of 1995. As discussed in the M D &
A section of the Annual Report, fluctuations in aluminum prices did affect the
Company's margins in 1995 and may do so again in the future. The Company has
obtained fixed price contracts from suppliers for 1997 to reduce the risk
related to fluctuations in the cost of aluminum.
The Company presently purchases substantial amounts of aluminum extrusions
from two major suppliers, Alumax Extrusions Inc. and Easco Aluminum, and the
majority of its sheet metal from two large suppliers, Reynolds Aluminum Co. and
Samuel Whittar. The identity of particular suppliers and the quantities
purchased from each varies from period to period. The Company has not engaged in
hedging or the purchase and sale of future contracts other than contracts for
delivery to fill its own needs. The Company has contracts with suppliers to fill
a substantial part of its projected need for aluminum in 1997. In the event that
one or more of the Company's suppliers were unable to deliver raw materials to
the Company for an extended period of time, the Company's production and profits
could be materially and adversely affected if an adequate replacement supplier
could not be found within a reasonable amount of time. The Company has never
been unable to obtain an adequate supply of raw materials. Increases in prices
of aluminum and other supplies may adversely affect sales of the Company's
products.
In addition to obtaining long term contracts from suppliers, the Company
may in the future also try to reduce the price risk associated with aluminum by
buying London Metal Exchange hedge contracts or options for future delivery.
These contracts would "lock in" the aluminum cost for the Company for
anticipated aluminum requirements during the periods covered by the contracts.
There is a potential risk of loss related to such contracts if the quantity of
materials hedged significantly exceeds the Company's actual requirements and the
contract is closed without taking physical delivery of the aluminum or if there
is a substantial drop in the actual cost of aluminum in relation to the hedge
contract price which would affect the competitive price of the Company's
product.
In the manufacturing process, the Company seeks to maximize production
efficiency by using weekly production schedules which allocate scheduled
trailers to specific production lines within each plant. The Company generally
follows a build-to-order policy to control inventory levels. If orders cannot be
filled from any inventory maintained by the Company, they are scheduled for
production. Inventory pool trailers may be scheduled to maximize the efficiency
of the production lines. The Company also utilizes certain production lines
solely for standard model trailers.
<PAGE>
The Company manufactures all of its motorcoaches at its plant located in
Sanford, Florida. Except for electronic equipment, various kitchen and bathroom
fixtures and accessories and other purchased items, the Company fabricates all
the components for its coaches. When a customer order is received for a
motorcoach, a coach shell is ordered by the Company from a manufacturer in
accordance with the customer's order specifications. After the shell is
received, the Company completes the conversion by finishing the interior of the
shell to the layout and design requirements of the customer. All design
engineering, plumbing, cabinetry and upholstery required to complete the coach
is done by company personnel.
The Company purchases its motorcoach shells from one manufacturer, Prevost
Car, Inc. of Sainte-Claire, Quebec, Canada, although the Company could purchase
certain shells from other manufacturers. The Company does not have any long or
short term manufacturing contracts with Prevost. However, the Company provides
Prevost with its estimated yearly motorcoach requirements. Once Prevost releases
an order to production, Prevost becomes obligated to fill the order and the
Company becomes obligated to take delivery of the order. In the event the
Prevost was unable to deliver motorcoach shells to the Company, the Company's
revenues and profits could be materially and adversely affected.
Backlog
At December 31, 1996 the Company had unfilled confirmed orders from its
customers in the amount of approximately $28 million, including $16 million in
motorcoach orders, and $7.2 million, at December 31, 1995. All orders at
December 31, 1996 are expected to be filled during 1997.
Quality Assurance
The Company monitors quality at various points of the manufacturing
process. Due to the variety of custom products that the Company builds, employee
skill training and individual responsibility for workmanship are emphasized.
Inventory specialists assess the overall quality, physical dimensions, and
imperfections or damage to the raw materials. Extruded and sheet aluminum which
is outside of specified tolerances is rejected and replaced by the vendor. Line
foremen train and monitor work cells of employees. Quality control inspectors
inspect trailers for quality of workmanship, material quality and conformity of
options to order specifications.
Government and Industry Regulation
The Company and its products are subject to various foreign, federal, state
and local laws, rules and regulations. The Company builds its trailers and
motorcoaches to standards of the federal Department of Transportation. The
Company is a member of the National Association of Trailer Manufacturers
("NATM") and manufactures its trailers to NATM standards. The quality assurance
program in the Company's Interiors Division includes being a member of the
Recreational Vehicle Industry Association ("RVIA"), which requires plumbing,
electrical and gas testing on trailers with living quarters. These tests are
recorded before RVIA certification numbers are affixed to trailers. RVIA
inspectors periodically check the production facility and work in progress to
assure that codes and procedures are met. Infractions can lead to fines or loss
of RVIA membership. The Company is also governed by regulations relating to
employee safety and working conditions and other activities. A change in any
such laws, rules, regulations or standards, or a mandated federal recall by the
National Highway Transportation Safety Board, could have a material adverse
effect on the Company.
Patents and Trademarks
The Company has registered FEATHERLITE(R) as a trademark for use in
conjunction with trailers in the United States, Canada and Germany. In general,
such registrations are effective through the year 2001, with continuous ten-year
renewal periods thereafter. The Company has a United States trademark
application pending with respect to FEATHERLITE-STL(TM) series. In October 1995,
the Company acquired the rights to the DIAMOND D(R) trademark and has registered
it as a trademark in the United States and has a trademark application pending
in Canada. In 1993, the Company purchased the rights to two design patents,
which expire in 1997, relating to the V-nose design of certain of its horse,
livestock and snowmobile trailers. The Company believes that the patented
designs are useful, but that the expiration of the patents will not have a
material effect on the Company. In addition, the Company has filed for certain
trailer design and utility patents relating to race car transporters.
The Company has a trademark application pending for VANTARE by
Featherlite(TM) trade name for use in conjunction with motorcoaches and yachts
in the United States.
<PAGE>
Warranty
The Company warrants the workmanship and materials of certain parts of the
main frame of its aluminum trailers under a limited warranty for a period of six
years and certain parts of other Company trailers as well as other products
manufactured by the Company for periods of one to four years. The limited
warranty does not include normal wear items, such as brakes, bearings and tires.
The Company's warranty obligations are expressly limited to repairs and
replacement of parts. Historically, there have been no recalls of the Company's
trailers for replacement of major components or parts and the expense of
warranty claims for repairs or replacement of parts has been less than 1% of the
Company's net sales.
The Company warrants for one year the workmanship and materials related to
certain parts of the motorcoach conversion. Otherwise, warranties applicable to
components purchased from vendors are applicable. The warranty of the
manufacturer of the shell generally is for two years.
Product Liability
Although the Company has never been required to pay any significant amount
in a product liability action, as a manufacturing company it is subject to an
inherent risk of product liability claims. The Company maintains product
liability insurance policies in an amount it believes is adequate, but there is
no assurance that its coverage will continue to be available at an acceptable
price or be sufficient to protect the Company from adverse financial effects in
the event of product liability claims.
Employees
As of December 31, 1996, the Company had 1127 employees, of whom 1018 are
full-time and 19 are part-time as follows: Production and production support -
1022, Sales and Marketing- 60, and Administration - 45.
The Company is not a party to any collective bargaining agreement and
believes that it has good working relationships with its employees.
The Company's success is highly dependent on its senior management,
including Conrad D. Clement, President and Chief Executive Officer, and Michael
Guth, President of the Vantare Division of Featherlite. The loss of Mr.
Clement's or Mr. Guth's services could have a material adverse effect on the
Company's business and development. There can be no assurance that an adequate
replacement could be found for either individual in the event of his departure.
The Company does not carry any key man life insurance on any of its officers or
employees.
The Company has two separate agreements with Iowa community colleges which
provide approximately $620,000 for job training purposes. The amounts are to be
repaid, together with interest, over a ten year period from state withholding
taxes on employees at the Company's Iowa facilities. The Company may be required
to provide funds for the repayment of these training credits if sufficient
withholding and unused training funds are not available.
Former S Corporation Status
From February 1, 1989 to September 27, 1994, the Company was treated for
federal income tax purposes as an S corporation under the Internal Revenue Code
of 1986, as amended, and was treated on a similar basis for state income tax
purposes under comparable state tax laws. As a result, the Company's earnings
from such period were, for federal and certain state income tax purposes, taxed
directly to the Company's shareholders rather than to the Company. The
termination date of the Company's S corporation status occurred upon completion
of the Company's initial public offering.
<PAGE>
The Company historically made distributions to its shareholders in amounts
approximately equal to the shareholders' federal and state income tax
liabilities arising from the Company's status as an S corporation. The amounts
of these cash distributions were $1,795,000 and $305,000 in 1994 and 1995,
respectively. The 1995 payment was accrued at December 31, 1994 and represents
the final distribution to be made to S corporation shareholders.
Cautionary Statements
Featherlite desires to take advantage of the new "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Many of the following
important factors discussed below have been discussed in Featherlite's prior SEC
filings.
Featherlite wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect,
Featherlite's actual results and could cause Featherlite's actual consolidated
results for 1996 and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, Featherlite:
o A moderating growth rate in the overall demand or in specific market
segment demand, in the US and to some extent Canada, for existing models of
aluminum or steel specialty trailers and motorcoaches manufactured by
Featherlite and in acceptance by the market of new trailer models and
luxury coaches introduced by Featherlite; and general or specific economic
conditions, pricing, purchasing, operational, advertising and promotional
decisions by intermediaries in the distribution channels, which could
affect their supply or end user demand for Featherlite products;
o Increased competition from competitors and potential competitors which have
greater financial and other resources than Featherlite; and competitors
that are better established in segments of Featherlite's business;
o Fluctuation in aluminum prices; inability of a major supplier of aluminum
extrusion or sheets utilized by Featherlite to deliver raw materials on a
timely basis;
o Inability of motorcoach shell manufacturer to deliver shells on a timely
basis;
o The effects of changes within Featherlite's organization, including the
loss of the services of key management personnel, including Mr. Conrad
Clement, President and Chief Executive Officer and Michael Guth, President
of Vantare division of Featherlite;
o Continued availability of adequate financing and cash flow from operations
to support operations and expansion plans, including the amount, type and
cost of financing which Featherlite has and changes to that financing;
o Continued pressure to increase the selling prices for Featherlite's
products to reduce the impact on margins of increasing aluminum and other
materials costs, labor rates and overhead costs related to the expanded
production facilities and organization to support expected increases in
sales; underutilization of Featherlite's manufacturing facilities,
resulting in production inefficiencies and higher costs;
o The inability to obtain adequate insurance coverage at an acceptable price
or in a sufficient amount to protect Featherlite from the adverse effects
of product and other liability claims;
o The risks related to being a licensed aircraft dealer which deals in used
business aircraft, including the purchase, sales, use and operation of
aircraft and the volatility in the sales volume and value of aircraft;
o Payments or repurchases by Featherlite related to guarantees of debt or the
repurchase of trailers under certain circumstances in connection with
dealer and retail product financing arrangements;
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related, or
criminal), settlements and investigations, claims and changes in those
items;
o A change in foreign, federal, state and local laws, rules and regulations
related to Featherlite, its products, or activities.
<PAGE>
ITEM 2. PROPERTIES
The Company's principal sales, marketing and executive offices are located
in a 20,000 square foot building owned by the Company near Cresco, Iowa.
Adjacent to it is a Company-owned 30,000 square foot parts distribution center
and a rework, maintenance and trailer distribution facility, from which
substantially all trailer deliveries to dealers are made.
The Company has production and warehouse facilities in Cresco, Nashua and
Shenandoah, Iowa. The Cresco facilities presently consist of five buildings and
include approximately 238,000 square feet including a 140,000 expansion
completed in March 1995. Three buildings, totaling approximately 136,000 square
feet of Company owned space and 30,000 square feet of leased space, are used for
production of trailers and fabrication of components. A 58,000 square foot
building is used, pursuant to a lease, for custom interior finishing and a
14,000 square foot building, which the Company owns, is used for storage of raw
materials.
The Shenandoah facilities include a 117,000 square foot manufacturing
facility for steel trailers acquired in October 1995 in connection with the
Diamond D acquisition. All of the assets of Diamond D Trailer Manufacturing
Inc., including the office and production facilities were purchased for $2.4
million, including the assumption of certain liabilities of $408,000 and the
payment of $2.4 million in cash. The consideration paid was based primarily on
the book value of the acquired assets on the date of purchase. The Company-owned
Nashua facilities include a 51,000 square foot manufacturing plant and an 18,000
square foot plant office building. The Company also owns three buildings in
Grand Meadow, Minnesota that were used as the Company's corporate office and
rework/distribution center prior to the relocation of these activities to Iowa
in 1993. The Company currently is attempting to sell the Grand Meadow facilities
which are being leased on a short term basis to offset real estate taxes and
other costs of holding the property.
In July 1996, the Company acquired office and production facilities and
other assets of Vantare International, Inc. in Sanford, Florida. (See Note 11 to
financial statement). This facility includes approximately 55,000 square feet of
production and office space and is used for the manufacture of luxury
motorcoaches. This facility is owned by Seminole County Port Authority and is
being leased by the Company under terms of an operating lease. These facilities
are in the process of being expanded in 1997 to add 24,000 square feet to the
production and office space as well as 6,000 square feet for outside service
bays. The outside parking area is also being improved. The Company's profit
margins will depend in part on its ability to increase unit sales volume to
fully utilize its new facilities and integrate operations efficiently.
In the future, the Company may determine to build or acquire existing
manufacturing facilities outside of Northeastern Iowa, which would create
additional risks to the Company's ability to manage growth.
ITEM 3. LEGAL PROCEEDINGS
Other than routine immaterial litigation incidental to the Company's
business, there are no other legal proceedings pending or, to the Company's
knowledge, threatened to which the Company is or may be a party or to which its
property is or may be subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company:
Name of
Executive Officer Age Present Position with Company
Conrad D. Clement 53 President, Chief Executive Officer and Director
Jeffery A. Mason 56 Chief Financial Officer and Director
Tracy J. Clement 30 Executive Vice President and Director
Gary H. Ihrke 50 Vice President of Operations & Secretary
Eric P. Clement 27 Vice President Sales
Steven J. Sheldon 46 Vice President of Market Development
Larry D. Clement 51 Treasurer
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor is
elected.
The business experience of the executive officers during the past five
years is as follows:
Conrad D. Clement has been the Chairman, President and Chief Executive
Officer and a director of the Company since its inception in 1988. From 1969 to
1988, Mr. Clement was the President and principal owner of several farm
equipment and agricultural businesses. Mr. Clement is also the President and
Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an
affiliate of the Company ("Featherlite Credit"). Mr. Clement is the brother of
Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement.
Jeffery A. Mason has been the Chief Financial Officer and Controller of the
Company since August 1989 and has been a director of the Company since June
1993. From 1969 to 1989, Mr. Mason served in various financial management
capacities with several companies, including Arthur Andersen & Co. and Carlson
Companies. Mr. Mason is a certified public accountant.
Tracy J. Clement has been Executive Vice President and a director of the
Company since 1988. Prior to 1988, Mr. Clement was a shareholder and manager of
several farm equipment and agricultural businesses with his father, Conrad D.
Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit.
Gary H. Ihrke was appointed Secretary in August 1996 and Vice President of
Operations in March 1996 after service as Vice President of Manufacturing since
June 1993 and was previously a director of the Company. From January 1989 to
June 1993, Mr. Ihrke was the General Manager of the Company's Cresco, Iowa
facilities. From 1969 to 1989, he served as general manager and branch manager
of an agricultural equipment manufacturing company.
Eric P. Clement has been Vice President Sales since March 1996 after
service as Vice President of Operations since January 1991 and was previously a
director of the Company. Prior to that time, Mr. Clement attended college and
worked part time for businesses owned by his father, Conrad D. Clement. Mr.
Clement is also an officer and shareholder of Featherlite Credit.
Steven J. Sheldon has been Vice President of Market Development since March
1996 after service as Vice President of Sales since June 1993 and was previously
a director of the Company. From 1988 to June 1993, he was the national sales
manager of the Company.
Larry D. Clement has been Treasurer of the Company since 1988 and was
previously secretary and a director of the Company. He has also been the owner
and President of several auto and truck dealerships since 1971. Mr. Clement is
the President and Secretary of Clement Auto & Truck, Inc., a FEATHERLITE(R)
dealer. Mr. Clement is the brother of Conrad D. Clement.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
the sections labeled "Corporate Information" and "Financial Information" which
appear in the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
"Selected Financial Information" which appears in the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference to
the section labeled "Management's Discussion and Analysis" which appears in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
the consolidated financial statements, notes thereto and Independent Auditors'
Report thereon which appear in the Company's Annual Report to Shareholders for
the fiscal year ended December 31, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other than "Executive Officers of the Registrant" which is set forth at the
end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the section labeled "Election of Directors"
which appears in the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section labeled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Certain Transactions" which appears in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Page
Report of Independent Auditor *
Balance Sheets at December 31, 1996 and 1995 *
Statements of Operations for each of the years
ended December 31, 1996, 1995 and 1994 *
Statements of Cash Flows for each of the years
ended December 31, 1996, 1995 and 1994 *
Statements of Shareholders' Investment for each
of the years ended December 31, 1996, 1995 and 1994 *
Notes to Consolidated Financial Statements *
(2) Financial Statement Schedules:
Report of Independent Auditor
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits. See Exhibit Index on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the last quarter of the period covered by this report.
* Incorporated by reference to the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1996, a copy of which is included
with this Form 10-K as Exhibit 13.
MCGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
To the Board of Directors
Featherlite Mfg., Inc.
Cresco, Iowa
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This Schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Rochester, Minnesota
February 19, 1997
Schedule II - Valuation and Qualifying Accounts
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged To Balance
Beginning Costs Charged To at End
Description of Period and Expenses Other Accounts Deductions(1) of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $20 $25 $-- $ (5) $40
Allowance for inventory obsolescence 45 68 -- -- 113
Year ended December 31, 1995:
Allowance for doubtful accounts $40 $16 $1 $(16) $41
Allowance for inventory obsolescence 113 -- -- (14) 99
Year ended December 31, 1996:
Allowance for doubtful accounts $41 $16 $-- $(16) $41
Allowance for inventory obsolescence 99 101 -- (50) 150
</TABLE>
(1) Write off of uncollectible accounts/obsolete inventory
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FEATHERLITE MFG., INC.
By: /s/ Conrad D. Clement
Conrad D. Clement
Date: March 18, 1997 President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes CONRAD D. CLEMENT and
TRACY J. CLEMENT his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this Annual Report on Form 10-K and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Signature Title Date
/s/ Conrad D. Clement President, Chief Executive March 18, 1997
Conrad D. Clement Officer and Director (Principal
Executive Officer)
/s/ Jeffery A. Mason Chief Financial Officer and March 18, 1997
Jeffery A. Mason Director (Principal Financial
and Accounting Officer)
/s/ Tracy J. Clement Executive Vice President and March 18, 1997
Tracy J. Clement Director
/s/ Donald R. Brattain Director March 18, 1997
Donald R. Brattain
/s/ Thomas J. Winkel Director March 18, 1997
Thomas J. Winkel
/s/ Kenneth D. Larson Director March 18, 1997
Kenneth D. Larson
/s/ John H. Thomson Director March 18, 1997
John H. Thomson
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED
DECEMBER 31, 1996
FEATHERLITE MFG., INC.
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement between Diamond D Trailer Manufacturing Inc. and Featherlite
Mfg., Inc. dated September 30, 1995 - incorporated by reference to
Exhibit 10.21 of the Company's Form 10-K for the fiscal year ended
December 31, 1995*
2.2 Agreement and Plan of Reorganization dated July 1, 1996, among the
Registrant, Vantare International, Inc., and Michael Guth --
incorporated by reference to Exhibit 2 to the Company's Form 8-K
filing dated July 1, 1996*
2.3 Amendment to agreement and Plan of Reorganization between Registrant,
Vantare International, Inc. and Michael Guth dated December 30, 1996
3.1 The Company's Articles of Incorporation, as amended -- incorporated by
reference to Exhibit 3.1 to Company's S-1 Registration Statement, Reg.
No. 33-82564*
3.2 The Company's Bylaws, as amended--incorporated by reference to Exhibit
3.2 to Company's S-1 Registration Statement, Reg. No. 33-82564*
4.1 Specimen Form of the Company's Common Stock Certificate --
incorporated by reference to Exhibit 4.1 to Company's S-1 Registration
Statement, Reg. No. 33-82564*
10.2** 1994 Stock Option Plan, including Form of Incentive Stock Option
Agreement--incorporated by reference to Exhibit 10.2 to Company's S-1
Registration Statement, Reg. No. 33-82564*
10.10 Industrial New Jobs Training Agreement between the Company and
Northeast Iowa Community College--incorporated by reference to Exhibit
10.10 to Company's S-1 Registration Statement, Reg. No. 33- 82564*
10.11 Industrial New Jobs Training Agreement between the Company and Hawkeye
Institute of Technology--incorporated by reference to Exhibit 10.11 to
Company's S-1 Registration Statement, Reg. No. 33-82564*
10.12 Inventory Repurchase Agreement, dated September 12, 1990, between the
Company and NationsCredit Commercial Corporation (formerly Chrysler
First Commercial Corporation Limited)--incorporated by reference to
Exhibit 10.12 to Company's S-1 Registration Statement, Reg. No.
33-82564*
<PAGE>
10.13 Floorplan Agreement, dated March 27, 1992, between the Company and ITT
Commercial Finance Corp.--incorporated by reference to Exhibit 10.13
to Company's S-1 Registration Statement, Reg. No. 33- 82564*
10.15 Agreement, effective January 1, 1995, between the Company and Polaris
Industries, L.P.--incorporated by reference to Company's Form 10- K
for the fiscal year ended December 31, 1994 *
10.16 Inventory Repurchase Agreement, dated February 27, 1995, between
Featherlite Mfg., Inc. and TransAmerica Commercial Finance Corporation
--incorporated by reference to Company's Form 10-K for the fiscal year
ended December 31, 1995*
10.17 Agreement between Featherlite Mfg., Inc. and Featherlite Credit
Corporation--incorporated by reference to Company's 10-Q for the
quarter ended March 31, 1996*
10.19 Agreement dated August 1, 1996 between the Company and Dolton
Aluminum--incorporated by reference to Company's 10-Q for the quarter
ended September 30, 1996.*
10.20 Agreement dated August 1, 1996 between the Company and Alumax
Extrusions Inc.--incorporated by reference to the Company's 10-Q for
the quarter ended September 30, 1996*
10.21 Amended and restated Credit and Security Agreement dated December 30,
1996 between Featherlite Mfg., Inc. and Firstar Bank
10.22 Agreement for wholesale financing dated October 3, 1996 between
Deutsche Financial Services and Featherlite Mfg., Inc.
10.23** Amendment to 1994 Stock Option Plan dated May 14, 1996
10.24*** Agreement dated August 26, 1996 between the Company and Reynolds
Aluminum
10.25*** Agreement dated September 13, 1996 between the Company and Samuel
Whittar Inc.
10.26*** Agreement dated November 27, 1996 between the Company and Dolton
Aluminum
10.27*** Agreement dated November 27, 1996 between the Company and Alumax
Transportation Products
13 Portions of annual report to shareholders for the fiscal year ended
December 31, 1996 incorporated as reference in this Form 10-K
21 Subsidiaries of the Company:
State of
Name Incorporation
Featherlite Aviation Company Minnesota
23 Consent of Independent Auditors
24 Powers of Attorney of directors--included under the "Signatures"
section of this Form 10-K
27 Financial Data Schedule (filed in electronic format only)
* Incorporated by reference to a previously filed document or report (File
#0-24804, unless otherwise indicated).
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
*** Portions of this documents have been omitted pursuant to a request for
confidential treatment.
Exhibit 10.21
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
This Amended and Restated Credit and Security Agreement dated as of
November 30, 1996 (the "Restated Agreement") is by and between the following
identified parties:
Featherlite Mfg., Inc., a corporation duly organized and validly
existing under the laws of the State of Minnesota, with its principal
place of business at Highway 63 & 9, Cresco, Iowa 52136 ("Borrower");
Conrad Clement, Larry Clement, Kathy Clement, residents of Iowa, and
Tracy Clement and Nancy Clement, residents of Minnesota (each a
"Guarantor" and collectively the "Guarantors"); and
Firstar Bank Iowa, N.A., a national banking institution ("Bank"),
(successor in interest through merger of Firstar Bank Cedar Rapids,
N.A.);
RECITALS
A. Borrower, Guarantors and the predecessor to Bank entered into a Credit
and Security Agreement dated July 19, 1991 (the "Credit Agreement"). A First
Amendment to Credit and Security Agreement was entered into by the parties on
November 14, 1991; a Second Amendment to Credit and Security Agreement was
entered into by the parties on July 20, 1992; a Third Amendment to Credit and
Security Agreement was entered into by the parties on February 5, 1993; a Fourth
Amendment to Credit and Security Agreement was entered into by the parties on
August 20, 1993; a Fifth Amendment to Credit and Security Agreement was entered
into by the parties on December 17, 1993; a Sixth Amendment to Credit and
Security Agreement was entered into by the parties on July 20, 1994; a Seventh
Amendment to Credit and Security Agreement was entered into by the parties on
December 1, 1994; an Eighth Amendment to Credit and Security Agreement was
entered into by the parties on July 20, 1995; a Ninth Amendment to Credit and
Security Agreement was entered into by the parties on September 30, 1995; and a
Tenth Amendment to Credit and Security Agreement was entered into by the parties
on January 11, 1996. This Restated Agreement supersedes and replaces the Credit
Agreement, as amended.
B. Guarantors own stock of the Borrower and each Guarantor individually
perceives substantial business advantage from the transaction outlined herein,
including those transactions from which the individual Guarantors will not
receive any direct economic benefit.
C. Borrower and Guarantors have requested that Bank renew the $12,000,000
Revolving Line of Credit and amend certain terms and conditions. Guarantors have
requested that their guarantees be released if Borrower achieves certain targets
by June 30, 1997.
D. Bank is willing to grant the requests subject to the terms of this
Restated Agreement.
- 1 -
<PAGE>
Therefore, the parties agree that the Credit Agreement, as amended by the
First through Tenth Amendments, is amended and restated in its entirety as
follows:
1. DEFINITIONS AND ACCOUNTING. As used in this Restated Agreement, and
unless otherwise expressly indicated, or unless the context clearly
requires otherwise, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined:
"Accounts Receivable and Loan Reconciliation Certificate" means a
certificate in substantially the form of Exhibit A, attached hereto, which will
contain a loan covenant compliance calculation certified by an executive officer
of the Borrower.
"Accounts Payable" means trade payables under GAAP.
"Bank" means Firstar Bank Iowa, N.A., a national banking institution.
"Borrower" means Featherlite Mfg., Inc., a Minnesota corporation.
"Borrowing Base" means an amount equal to the sum of 80 percent of Eligible
Receivables of Borrower outstanding from time to time applicable thereto plus 65
percent of the Eligible Inventory of Borrower as Bank shall deem acceptable.
Such Borrowing Base shall be determined by submission of a monthly Accounts
Receivable and Loan Reconciliation Certificate by the end of each month,
accurate to the first of such month.
"Business Day" means a day other than a Saturday, Sunday or a day on which
commercial banks are authorized or permitted to close in Cedar Rapids.
"Collateral" shall have the meaning of the collateral described Section 3.
"Customer" means a party indebted or obligated to Borrower or a party
against which Borrower has a claim on a Receivable.
"Eligible Inventory" means inventory valued at the lower of cost or market
value on a "first in - first out" basis which is acceptable to Bank, in its sole
discretion, and excludes inventory that is slow moving or obsolete (as
determined by the Bank in its sole discretion), or on display, or on
consignment.
"Eligible Receivable" means a Receivable which is acceptable to Bank in its
sole discretion, but at least is continuously in compliance with all of the
following:
(1) The Receivable is an account which arose in the ordinary course of
the business of Borrower from or in connection with a bonafide sale of
goods or rendition of services, performed in accordance with an order
or contract, oral or written, wherein all obligations of Borrower
regarding the shipment or delivery of such goods to Customer have been
satisfied or the services have been performed for Customer or which
are Receivables in accordance with GAAP;
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(2) The rights of a Borrower in and to the Receivable and the proceeds
thereof are not subject to any assignment, claim, lien, security
interest, or other encumbrance;
(3) The Receivable is not disputed nor subject to offset, credit
allowance, contra account or adjustment by Customer, except discounts
for prompt payment disclosed to Bank;
(4) The Receivable has been due and payable for less than ninety (90)
days from the invoice date;
(5) The Customer is not a governmental agency, foreign company or
controlled by, in control of, or under common control with, the
Borrower.
"Environmental Law" means any federal, state or local environmental
statute, regulation, ordinance, law or decree presently in effect or that may be
promulgated in the future, as such statutes, regulations, and ordinances may be
amended from time to time, including without limitation, the Comprehensive
Environmental Response Compensation Liability Act, as amended, 42 U.S.C. ss.9601
et seq., ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901 ("RCRA"), and the common law.
"Event of Default" means each and every event specified in Section 12 of
this Restated Agreement.
"GAAP" means generally accepted accounting principles consistently applied.
"Guarantors" mean Conrad Clement, Larry Clement, Kathy Clement, Tracy
Clement and Nancy Clement (each a "Guarantor").
"Guaranty" means a guaranty given by a Guarantor pursuant to Section 4 of
this Restated Agreement and substantially in the form attached as Exhibit B.
"Hazardous Substance" means any substance or material defined or designated
as hazardous or toxic waste, hazardous or toxic material, a hazardous or toxic
substance, or infectious material, substance or waste, or other similar term, by
any Environmental Law or including, without limitation, asbestos, petroleum
products, mining wastes, fly ash and agricultural chemical products.
"Interest and Charges" means interest, charges, expenses and other items
incurred by the Bank under the Loan Documents which are chargeable to the
Borrower and which shall be billed directly to the Borrower.
"Loan" means all loans from Bank to Borrower including all revolving credit
facilities and all term facilities.
"Notes" means all notes executed by Borrower in favor of Bank including but
not limited to the Revolving Line of Credit Promissory Note and all term notes.
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"Obligations" means any and all indebtedness, obligations, and liabilities
of Borrower to Bank of every kind and description, direct or indirect, secured
or unsecured, joint or several, absolute or contingent, due or to become due,
whether for payment or performance, now existing or hereafter arising,
regardless of how the same arise or by what instrument, agreement, or book
account they may be evidenced, or whether evidenced by any instrument,
agreement, or book account, including, without limitation: all loans (including
any loan by renewal or extension); all indebtedness, all undertakings to take or
refrain from taking any action; all indebtedness, liabilities or obligations
owing from Borrower to others which Bank may have obtained by purchase,
negotiation, discount, assignment, or otherwise; and all interest, taxes, fees,
charges, expenses, and attorney's fees chargeable to Borrower or incurred by
Bank under this Restated Agreement or in any other document or instrument
delivered hereunder or as a supplement hereto.
"Operating Cash Flow" means net income plus income taxes, interest expense,
depreciation, amortization, and other non-cash items, adjusted to eliminate
extraordinary items and adjusted on a consistent basis to reflect increases or
decreases that result from acquisition sales, or exchanges of property and
gains/losses on the sale of property.
"Person" means an individual, a corporation, a voluntary association, a
partnership, a trust, a limited liability company, an unincorporated
organization or a governmental agency, instrumentality or political subdivision
thereof.
"Receivable" means all accounts and general intangibles, each as defined in
the Uniform Commercial Code, of Borrower, constituting any right to the payment
of money, including (but not limited to) all monies due and to become due to the
Borrower in respect of any loans or advances for Inventory or Equipment or other
goods sold by Borrower and all tax refunds.
"Revolving Line of Credit" means the credit referred to in Section 5.
"Revolving Line of Credit Borrowing Limit" means an amount equal to the
lesser of:
(1) $12,000,000
(2) the Borrowing Base.
"Revolving Line of Credit Promissory Note" means the promissory note, in
substantially the form of Exhibit C attached, to be delivered by Borrower to the
Bank.
"Revolving Line of Credit Termination Date" means the maturity date on the
Revolving Line of Credit Promissory Note as it may be extended, amended or
renewed from time to time at the sole discretion of Bank, or earlier accelerated
upon the occurrence of an Event of Default or otherwise as provided herein.
"Revolving Loans" means the credit referred to in Section 5.
"Subsidiary" means, with respect to any Person (the "Parent"), any
corporation or other business organization of which at least a majority of the
outstanding shares of stock or other ownership interests having by the terms
thereof ordinary voting power to elect a majority of the
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Board of Directors or comparable positions (irrespective of whether or not at
the time any other class or classes of such stock or ownership interests of such
corporation or other business organization shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Parent or one or more of the Subsidiaries
of the Parent.
"Tangible Net Worth" means the excess of total assets over total
liabilities, total assets and total liabilities each to be determined in
accordance with GAAP, excluding, however, from the determination of total
assets, (i) all assets which would be classified as intangible assets under
GAAP, including, without limitation, organization fees and expenses, goodwill,
patents, trademarks, trade names, copyrights, and franchises, and (ii) all
indebtedness to Borrower from any shareholder, director, officer or employee of
Borrower or from any relative of such party (but net of any corresponding,
offsetting indebtedness from Borrower to such individual).
"Term Loans" means the credits referred to in Section 6.
"Term Notes" means the notes evidencing the Term Loans.
"Total Debt Service" means, during any period, all interest on and
principal due of, all indebtedness which is due and payable during such period.
"Total Expenditures" means all cash expenses (including debt service) and
capital expenditures actually made.
2. REPRESENTATIONS AND WARRANTIES.
As a material inducement to Bank to make loans to the Borrower under this
Restated Agreement, Borrower represents and warrants to Bank, and such
representations and warranties shall survive during the term of this Restated
Agreement and so long thereafter as any Obligations shall remain outstanding, as
follows:
a. Corporate Standing and Power: The Borrower has been duly incorporated
and organized and is existing as a corporation in good standing under the laws
of Minnesota and is duly qualified and in good standing as a foreign corporation
in those jurisdictions where the conduct of its business or the ownership of its
properties requires qualification. The Borrower has the power and authority to
own its properties and assets, to conduct its business, to enter into and
perform this Restated Agreement, and any other document or instrument delivered
in connection herewith, and to incur the Obligations.
b. Trade Names, Business Changes: Except as may be set forth on Exhibit D
attached, Borrower has utilized no trade names in the conduct of its business;
has not changed its name, been the surviving entity in a merger, acquired any
business, or changed the location of their chief place of business or chief
executive office or the location of their records or the location of any of the
Collateral.
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c. No Defaults: Borrower is not in default with respect to any agreement to
which it is a party or by which it is bound. The execution and performance of
this Restated Agreement and any other document or instrument to be delivered
hereunder or as a supplement hereto will not violate any law or the terms of the
incorporation documents or bylaws of Borrower, nor will it violate or result in
a default or in the creation or imposition of any lien or encumbrance upon any
of the assets of Borrower (immediately, with the passage of time, or with the
giving of notice and the passage of time) under any other contract, agreement or
instrument to which Borrower is a party or by which Borrower is bound, nor will
it result in the acceleration of any obligation under any mortgage, lien, lease,
franchise, license, permit, agreement, instrument, order, arbitration award,
judgment, or decree, or in the termination of any license, franchise, lease, or
permit, to which Borrower is a party or by which it is bound; and it will not
violate or conflict with any other restriction of any kind or character to which
Borrower is subject.
d. Authorization, Binding Effect: This Restated Agreement and any document
or instrument to be delivered hereunder or as a supplement hereto and the
transaction contemplated hereby or thereby have been duly authorized and/or
executed and delivered, as appropriate, and constitute valid and legally binding
obligations of the Borrower and are enforceable against the Borrower in
accordance with their respective terms.
e. No Claims: There is no claim, loss contingency, litigation, or
proceeding whether or not pending, threatened, or imminent against or otherwise
affecting the Borrower which involves the possibility of any judgment or
liability not fully covered by insurance or which may result in a material
adverse change in the business, properties, or condition, financial or
otherwise, of the Borrower.
f. Properties: The Borrower is the owner of its properties, free and clear
of all security interests, encumbrances, or liens, except real estate or special
improvement assessment liens which arise by operation of law with respect to
obligations of the Borrower which are not yet due and payable and except such
liens as may be listed in Exhibit E attached hereto; Borrower will defend its
properties against all claims and demands of all persons at any time claiming an
interest therein. Inventory is and shall at all times be of good and
merchantable quality, free from all defects, encumbrances and liens except the
lien granted to the Bank hereunder.
g. Financial Statements: The financial statements of the Borrower for the
fiscal year ended December 31, 1995 furnished to Bank by Borrower are complete
and accurate representations of the financial condition of Borrower as of the
respective dates thereof, and have been prepared in accordance with GAAP. Since
the December 31, 1995 financial statements, there has been no material adverse
change in the financial condition of Borrower and there has been no transaction
other than in the ordinary course of the business of Borrower, except for the
purchase of the Vantare assets in Florida. The financial statements furnished to
Bank by the Guarantors are complete and accurate representations of the
financial condition of the Guarantors as of their respective dates.
h. Offices: The address of the chief executive office and chief place of
business of Borrower is Highway 63 & 9, Cresco, Iowa 52136. All records
pertaining to the Inventory and Receivables (including computer records) are
kept at Borrower's chief place of business.
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i. Taxes: The Borrower and Guarantors have filed all federal, state, and
local tax returns and other reports they are required to file and have paid or
made adequate provision for payment of all such taxes, assessments, and other
governmental charges.
j. Compliance: To the best of its knowledge after due inquiry, the Borrower
has complied with all applicable statutes, regulations, ordinances, court
decrees, or other directives of the United States of America, and all states,
counties, municipalities, and agencies with respect to the manufacture and sale
of its goods, the rendition of its services, and/or the conduct of its business.
k. Consents, Approvals: No consent or approval of any person, no waiver of
any lien or other similar right, and no consent, license, approval,
authorization, or declaration of any governmental authority, bureau, or agency
is or will be required in connection with the execution, delivery, performance,
validity or enforcement or priority of this Restated Agreement or any other
agreement, instrument or document to be executed or delivered in connection
herewith.
l. GAAP: Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP.
m. Use of Property. None of the property of any Borrower has been used as a
Hazardous Substance disposal site, as a landfill or as a dump.
n. Hazardous Substances. To the best of its knowledge after due inquiry, no
Hazard Substance or toxic substance has been stored, used, or disposed of on any
property in which Borrower holds a real estate interest except as listed on the
Hazardous Substance Certificate attached as Exhibit F.
o. Subsidiaries. Borrower has only one Subsidiary; Featherlite Aviation
Company.
p. Federal Reserve Regulations. Borrower does not own any margin stock or
intend to carry or purchase any margin stock or security within the meaning of
Regulation U or the Securities Exchange Act of 1934, as amended. The Borrower is
not engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended. None of the transactions contemplated by this
Restated Agreement including, without limitation, the use of proceeds of any
loan advance, will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations pursuant
thereto, including, without limitation, Regulations G, U or X of the Board of
Governors of Federal Reserve System, as amended. None of the proceeds of any
loan will be used to carry or purchase (or refinance any borrowing the proceeds
of which were used to purchase or carry) any margin stock or any security within
the meaning of the Securities Exchange Act of 1934, as amended.
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<PAGE>
q. Free Disclosure. This Restated Agreement and the other documents or
instruments to be delivered hereunder or as a supplement hereto do not contain
any known untrue statement of a material fact or omits to state a known material
fact necessary in order to make the statements contained therein not misleading.
There is no known material fact (other than general economic conditions or facts
or information available to the public generally) that has not been disclosed in
writing to the Bank that materially adversely affects, or as far as the Borrower
can now reasonably foresee, may materially adversely affect, the business,
operations, prospects, properties or assets of the Borrower or any Guarantor, or
the ability of the Borrower or any Guarantor to perform its/their obligations
under any document.
3. COLLATERAL.
As security for the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the Obligations, Borrower pledges and
grants to Bank a security interest in the following property, whether now owned
by Borrower or hereafter acquired and whether now existing or hereafter coming
into existence (all being collectively referred to herein as "Collateral"):
a. Receivables: All accounts and general intangibles (each as defined in
the Uniform Commercial Code) of Borrower constituting any right to the payment
of money, including (but not limited to) all moneys due and to become due to the
Borrower in respect of any loans or advances for Inventory or Equipment or other
goods sold by Borrower and all tax refunds (collectively "Receivables");
b. Instruments: All instruments, chattel paper or letters of credit (each
as defined in the Uniform Commercial Code) evidencing, representing, arising
from or existing in respect of, relating to, securing or otherwise supporting
the payment of, any of the Receivables, including (but not limited to)
promissory notes, drafts, bills of exchange and trade acceptances (collectively
"Instruments"),
c. Inventory: All inventory (as defined in the Uniform Commercial Code) of
Borrower, including all goods obtained by Borrower in exchange for such
inventory, and any products made or processed from such inventory including all
substances, if any, commingled herewith or added thereto (collectively
"Inventory");
d. General Intangibles: All licenses, franchises, patents, trademarks,
copyrights, trade names, goodwill and any and all items of Borrower which would
be classified as general intangibles under the Uniform Commercial Code
(collectively "General Intangibles").
e. Equipment: All equipment (as defined in the Uniform Commercial Code) of
Borrower, including (but not limited to) all furniture, fixtures, trade
fixtures, displays, counters, cash registers, motor vehicles, trucks and
trailers (collectively "Equipment");
f. Contracts: Each contract and other agreement relating to the sale or
other disposition of Inventory or Equipment;
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<PAGE>
g. Documents: All documents of title (as defined in the Uniform Commercial
Code) or other receipts covering, evidencing or representing Inventory or
Equipment (collectively "Documents");
h. Real Estate: All real estate in which the Borrower has an ownership
interest (except homestead property) and all of the Borrower's right, title and
interest in and to the buildings, improvements, ways, streets, alleys, passages,
rights of way, waters, water courses, rights, liberties, privileges, tenements,
hereditaments, and appurtenances now or hereafter hereunto appertaining to said
real estate together with the rents, issues and profits thereof and the proceeds
of the conversion therefore (collectively "Real Estate");
i. Fixtures: All fixtures (as defined in the Uniform Commercial Code) of
the Borrower (collectively "Fixtures"). The security interest from Borrower to
Bank in the Real Estate and Fixtures will, at the request of the Bank, in
addition to other documentation which may be requested by Bank, be evidenced by
Mortgage and Security Agreements, in a form requested by the Bank.
j. Claims: All rights, claims and benefits of Borrower against any person
arising out of, relating to or in connection with Inventory or Equipment
purchased by Borrower, including, without limitation, any such rights, claims or
benefits against any Person storing or transporting such Inventory or Equipment;
and,
k. Leaseholds: All leasehold interests in real estate leases to which the
Borrower is a party. The security interest from Borrower to Bank in the
leasehold interest of Borrower will, in addition to the additions to the
documents which may be requested by Bank, be evidenced by a collateral
assignment of real estate leases.
l. Proceeds: All proceeds, products and accessions of and to any of the
property described in clauses (a) through (k) above in this Section 3
(including, without limitation, any proceeds of insurance thereon), and to the
extent related to any property described in said clauses or in this clause, all
books, correspondence, credit files, records, invoices and other papers,
including without limitation all tapes, cards, computer runs and other papers
and documents in the possession or under the control of Borrower or any computer
bureau or service company from time to time acting for Borrower.
4. GUARANTORS. Banks have required the participation of the Guarantors as a
precondition to the availability of the credit arrangements established herein.
The Guarantors, by their executions hereof, acknowledge that the obligations of
the Borrower hereunder are enforceable in accordance with their terms, that such
are obligations of the Guarantors under the personal guarantees and that the
guarantees are in full force and effect, without amendment or defense of any
description. Banks agree to release the guarantees if Borrower is in compliance
with all loan and financial covenants and has a year to date actual cash flow to
debt service ratio of 1.5:1 as of June 30, 1997.
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5. REVOLVING LINE OF CREDIT LOAN AND PAYMENT PROVISIONS. The Bank establishes
the Revolving Line of Credit for the benefit of the Borrower for the purpose of
supplying working capital as may reasonably be required from time to time by the
Borrower. The Line of Credit is extended pursuant to the following provisions:
a. Borrowing. Subject to the terms and conditions of this Restated Agreement,
the Bank shall, in its sole discretion, make loans (each a "Revolving
Loan") to the Borrower in such amounts as the Borrower may from time to
time require in increments of at least $50,000 and at such intervals as the
Bank may from time to time determine, provided that the aggregate principal
amount of Revolving Loans outstanding hereunder, together with the
principal amount of such Revolving Loan requested, shall not exceed the
Borrowing Limit.
(1) Oral Requests. Revolving Loan requests may be either written or oral,
including a request made by telephone. In the case of an oral request,
the Bank is authorized to make such requested advance and to rely upon
the authority of the person making the request, unless the Borrower
directs the Bank, in writing, not to honor oral requests except from
certain identified persons. The authority of the person requesting the
advance shall be conclusively deemed authorized by the Borrower. Oral
requests must be received by the Bank prior to noon on the day of the
requested advance.
(2) Deposit of Loan Advances. All Revolving Loan advances shall be
credited to an account of the Borrower at the Bank.
(b) Promissory Note: The Borrower shall execute and deliver to the Bank the
Revolving Line of Credit Promissory Note with this Restated Agreement. The
Revolving Line of Credit Promissory Note, together with this Restated
Agreement and other documents referred to herein, shall evidence the
Borrower's indebtedness to the Bank in respect of the Revolving Loans and
the Term Notes and the other documents referred to herein shall evidence
the Borrower's indebtedness to the Bank in respect of the Term Loans.
(c) Interest: In accordance with the Revolving Line of Credit Promissory Note,
the Borrower shall pay interest to the Bank upon the outstanding daily
principal balance of the Loan Account, which interest shall be computed at
the close of each day, on the basis of actual days elapsed in the year of
360 days, at the interest rate specified in the Revolving Line of Credit
Promissory Note. Until the Revolving Line of Credit Termination Date, such
interest shall be paid monthly in arrears, commencing on the first day of
the next succeeding month following the month in which this Restated
Agreement is executed, and continuing on the first day of each successive
month thereafter. At the Revolving Line of Credit Termination Date, all
sums due hereunder shall be due and payable. All payments shall be made to
the Bank on or before the required due dates in immediately available
funds.
(d) Debits: The Bank shall enter as debits to the Loan Account all loans and/or
advances made pursuant to the Loan Documents, and Interest and Charges in
accordance with the Loan Documents. The Bank shall enter as credits to the
Loan Account all payments
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made by the Borrower on account of indebtedness evidenced by the Loan
Account, all net proceeds of Collateral which are finally paid to Bank
in cash or solvent credits, and other appropriate credits. The debit
balance of the Loan Account shall reflect the amount of indebtedness of
the Borrower to the Bank from time to time by reason of loans and other
appropriate charges under this Restated Agreement.
(e) Line of Credit Account Imbalance: If at any time that portion of the
debit balance of the Loan Account allocable to the Revolving Line of
Credit Promissory Note exceeds the Borrowing Limit, at the option of
the Bank, the Borrower shall (i) pledge, assign, and transfer to the
Bank such additional collateral as the Bank shall request or (ii) pay
cash to the Bank to be credited against the Revolving Line of Credit
Promissory Note, in an amount sufficient to eliminate the excess.
(f) Repayment: The Borrower promises to pay the debit balances of the Loan
Account and accrued Interest and Charges to the Bank in accordance with
the terms of the Notes and the other Loan Documents.
(g) Application of Credits: All payments and/or proceeds of Collateral
received by the Bank shall be applied to the payment of Interest and
Charges, if any, to principal on the Revolving Line of Credit
Promissory Note or any Term Loans in the Bank's discretion. The
Borrower authorizes the Bank to charge the Interest and Charges to the
Loan Account or to any deposit account maintained by the Borrower with
the Bank.
(h) Determination of Balances: The records of the Bank shall be prima facie
evidence as to the amounts of advances, outstanding principal balance,
and accrued Interest and Charges.
6. CONFIRMATION OF TERM LOANS AND PAYMENT PROVISIONS.
a. Borrower is obligated to pay Bank under various agreements and notes
(each a "Term Note") identified as:
(i) a term loan in the original principal amount of $300,000
pursuant to a note dated February 2, 1993, maturing on July 1, 2008,
payable to Firstar;
(ii) a term loan in the original principal amount of
$1,835,000 pursuant to a note dated July 20, 1994, maturing on July
20,1999, payable to Firstar; and
(iii) a term loan in the original principal amount of
$1,400,000 pursuant to a note dated September 30, 1995, maturing on
September 20, 1999, payable to Firstar.
b. Borrower and Guarantors acknowledge and agree that the notes referred to
in Section 6(a) are Obligations of Borrower to the Bank and are
cross-collateralized by the Collateral, and in the event of default under the
terms of any Obligation of the Borrower or any obligation of any Guarantor, that
such a default shall be deemed a default under any or all of
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the Borrower's Obligations and under any or all of the obligations of Guarantors
at the option of the Bank.
7. REPAYMENT TERMS. Interest and charges shall be paid to the Bank in accordance
with the terms of this Restated Agreement, the notes and other loan documents.
If any term of this Restated Agreement is in conflict with a term in any note
regarding payment of principal, interest, fees or charges, the term of the
applicable note shall apply. All payments shall be made timely in immediately
available funds. The Bank shall account for loan advances and payments in
accordance with its standard practices. The records of the Bank shall be prime
face evidence as to the amount of advances, outstanding principal balances, and
accrued interest and charges. Bank may make recourse against any security in any
order or grouping it desires and apply the proceeds to any of Borrower'
Obligations in its sole discretion. All payments by the Borrower shall be made
without setoff, counterclaim or deduction of any kind. Payments received by Bank
after 3:00 p.m. on any Business Day shall be deemed to be received on the next
succeeding Business Day for the purpose of calculation of interest.
8. CONDITIONS PRECEDENT TO INITIAL AND SUBSEQUENT LOANS. Borrower shall satisfy
each of the following conditions prior to the making of the initial loan and/or
each subsequent loan by Bank hereunder, as follows:
A. Initial Loan.
(1) All of the representations and warranties of Borrower set forth in
Section 2 hereof shall be true and correct as of the date of the initial loan.
(2) Borrower shall be in full compliance with the terms and conditions
hereof and no Event of Default shall have occurred and be continuing.
(3) Borrower shall have delivered to Bank, all in form and substance
satisfactory to Bank:
a. A duly executed Accounts Receivable and Loan Reconciliation Certificate
to be delivered and dated as of the date of the initial loan;
b. A certificate of the Secretary or other like officer of Borrower
containing copies of resolutions of the Board of Directors and, if applicable,
Stockholders of Borrower authorizing the execution, delivery and performance of
this Restated Agreement, any document or instrument to be delivered pursuant
hereto or in connection herewith and the transactions contemplated herein and
therein, and identifying the officer or officers authorized to execute this
Restated Agreement and such other documents and to make requests for Loans
hereunder;
c. A certificate of reasonably recent date of the Secretary of State of the
State of Iowa and a certificate of the Secretary of State of each state in which
Borrower is
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qualified to do business as a foreign corporation, certifying that Borrower is
in good standing in each such jurisdiction;
d. Financing statements necessary to perfect the security interest of Bank
in the Collateral;
e. Releases of all other security interests in the equipment of Borrower;
f. Revolving Line of Credit Promissory Note;
g. Execution and delivery of mortgage on property in Shenadoah, Iowa;
h. Delivery of all original notes receivables from officers and employees;
i. Delivery of an opinion letter of counsel for Borrower regarding
authority, enforceability of documents and priority of liens;
j. Evidence of all required insurance being in place;
k. Such other documents or instruments as Bank shall reasonably request.
B. Subsequent Loans and/or Advances.
(1) All of the representations and warranties of Borrower set forth in
Section 2 hereof shall be true and correct as of the date of each
subsequent loan and/or advance.
(2) Borrower shall be in full compliance with the terms and conditions
hereof and no Event of Default shall have occurred and be continuing.
(3) Borrower may request the making of any subsequent Revolving Loan,
which amount in addition to the then outstanding balance of Revolving
Loans shall not exceed the Borrowing Limit. Borrower's request may be
either written or oral, including a request made by telephone. If an
oral request, Bank is authorized to make such requested Loan and rely
upon the authority of the person making the request, unless Borrower
directs the Bank, in writing, not to honor a Loan request except from
certain identified persons. The authority of the person requesting the
Loan shall be conclusively deemed authorized by Borrower. Loan advances
shall be credited to an account of the Borrower at the Bank.
(4) Borrower shall have delivered to Bank, all in form and substance
satisfactory to Bank, any documents or instruments as Bank shall
request.
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9. NEGATIVE COVENANTS.
Borrower and Guarantors agree that during the term of this Restated
Agreement and so long thereafter as any Obligations remain outstanding, they
will not, nor will they allow any subsidiary to, without the prior written
consent of Bank:
a. Corporate Changes: Enter into any merger or consolidation or effect any
reorganization or recapitalization or create or fund any Subsidiary.
b. Liens: Mortgage, pledge, grant or permit to exist a security interest
in, or lien or encumbrance upon, any of their assets or property, real or
personal, tangible or intangible, now owned or hereafter acquired in excess of
$3,000,000 except: (i) liens in favor of Bank, (ii) liens arising by operation
of law with respect to obligations of Borrower not yet due and payable; (iii)
liens for aircraft financing obtained by a subsidiary; and (iv) $3,500,000 in
floor plan financing for the Vantare division.
c. Third Party Liabilities: Assume, endorse, guarantee, or otherwise become
liable for or upon the obligations of any person, partnership, corporation or
other entity (other than endorsements for deposit in the ordinary course of
business) in excess of $7,500,000.
d. Borrower Liabilities: Incur, create, assume, or permit to exist any
indebtedness or liability for borrowed money in excess of $3,000,000 except: (i)
indebtedness to Bank; (ii) financing for aircraft purchases by a subsidiary; and
(iii) $3,500,000 in floor plan financing for Vantare division.
e. Stock, Dividends: Redeem, purchase, or retire any of the capital stock
of Borrower or declare or pay any dividends (other than stock dividends), or
make any other payment or distribution upon any of the capital stock of
Borrower.
f. Investments: Make any investment in, or make any loan or advance to, any
person, partnership, or corporation, including officers, stockholders, or
directors of Borrower.
g. Securities: Purchase of or otherwise invest in or hold securities,
nonoperating real estate, or other non-operating assets, except direct
obligations of the United States of America or certificates of deposit or
equivalent securities issued by Bank.
h. Disposal of Assets: Enter into any sale-leaseback transaction, or sell,
lease, transfer, or otherwise dispose of all or any substantial portion of its
assets, except that Borrower may sell inventory in the ordinary course of
business, except a sale and lease back of the Vantare expansion project.
i. Regulation U: Directly or indirectly use or apply all or any portion of
the proceeds of any loans made hereunder to purchase or carry any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder, as
amended.
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j. Change in Business: Make or permit any substantial change in, or cease
in whole or in part, the present business of Borrower, or engage in any other
activities apart from its present business.
k. Transfer of Inventory: Authorize, cause or permit the issuance or
execution of any negotiable warehouse receipt or bill of lading representing any
right, title, or interest in and to any Inventory, unless same are forthwith
turned over to Bank so that Bank shall continue to have a perfected security
interest in such inventory.
l. Ownership: Make any change for any reason whatsoever in the majority
ownership, or control of Borrower without the prior written consent of Bank.
m. Payments on Indebtedness: Borrower will not make any payments in respect
of principal or interest on any of its indebtedness to any Person (other than
payments made on indebtedness required or permitted hereunder) prior to the
stated maturity or other due date thereof or the scheduled payment date of any
principal installment in respect of any of its indebtedness, except that
Borrower may make (i) early payments on trade accounts in order to receive trade
discounts offered in the ordinary course of business, and (ii) such other early
payments for which the Bank gives their prior written consent. Borrower will not
modify or enter into any agreement as a result of which the terms of payment or
any such indebtedness to any Person are waived or modified, except that the
Borrower may enter into refinancing of existing indebtedness if no more than
$50,000 in additional liability is incurred by the Borrower.
n. Amendment to Certificate of Incorporation: Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws if any such
amendment alone or in conjunction with any other amendment or amendments would
have a material adverse affect on the ability of Borrower or the Guarantors to
discharge their obligations to the Bank or on the ability of the Bank to
collect, realize upon, or enforce payment of any obligation of any Borrower or
any Guarantor to the Bank. Borrower shall furnish to the Bank a copy of any
amendment to the certificate of incorporation, articles of incorporation or
bylaws.
o. Transactions with Affiliates: Borrower will not (nor will it permit any
Subsidiary to) enter into or permit to remain in effect or outstanding any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property, the rendering of any service, or the making of any loan or
advance) with or to any affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the business of Borrower or such
Subsidiary and such affiliate and upon terms found by the Board of Directors of
the Borrower to be fair and reasonable and no less favorable to the Borrower or
any such subsidiary than it would obtain in a comparable arms-length transaction
with a person not affiliated or related or connected to the Borrower or any such
Subsidiary.
p. Aircraft Investment. Allow a subsidiary to incur or maintain any
investment in aircraft in excess of $7,000,000.
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10. AFFIRMATIVE COVENANTS.
Borrower and Guarantors covenant and agree with Bank that they will, during
the term of this Restated Agreement and so long thereafter as any Obligations
remain outstanding.
a. Submissions to Bank: Furnish Bank:
(1) Within 90 days after the last day of each fiscal year of
Borrower, a balance sheet and related statements of income,
retained earnings, and changes in financial position, each
prepared in reasonable detail and in accordance with GAAP
audited by an independent certified public accountant
satisfactory to Bank and bearing an unqualified Opinion;
(2) Within 30 days after the end of each month (except the
last month of each fiscal year for which the time shall be 60
days), of each fiscal year of Borrower, a balance sheet as of
the end of such month and statements of income and retained
earnings for the period from the beginning of the fiscal year
to the end of such month;
(3) Within thirty days after the end of each calendar month,
an Accounts Receivable and Loan Reconciliation Certificate;
(4) A balance sheet and other statement of financial position
as to each Guarantor, which statement shall be in form and
substance satisfactory to Bank within sixty days after the
last day of Borrower's fiscal year;
(5) All public filings with the Securities & Exchange
Commission and all shareholders communications at the same
time they are filed or mailed; and
(6) Promptly, and in form satisfactory to Bank, such other
information as Bank may reasonably request from time to time.
b. Insurance: Maintain casualty insurance coverage on its physical assets
and other insurance against other risks, including public liability and product
liability insurance in such amounts and of such types and, in any event, not
less than as are ordinarily carried by similar businesses. In the case of all
policies insuring property in which Bank shall have a security interest of any
kind whatsoever, all such insurance policies shall provide that the proceeds
thereof shall be payable to Borrower and Bank, as their respective interests may
appear. All said policies or certificates thereof, including all endorsements
thereof and those required hereunder, shall be deposited with Bank; and such
policies shall contain provisions that no such insurance may be canceled or
decreased without thirty (30) days prior written notice to Bank. In the event of
acquisition of additional property, real or personal, or of incurrence of
additional risks of any nature, Borrower shall cause such insurance coverage to
be increased or amended in such manner and to such extent as prudent business
judgment would dictate. If Borrower shall at any time or times hereafter fail to
obtain and maintain any of the policies of insurance required herein, or fail to
pay any premium in whole or in part relating to any such policies, Bank may, but
shall not be obligated to, obtain and/or cause to be maintained insurance
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coverage with respect to the assets of Borrower, including, at Bank's option,
the coverage provided by all or any of the policies of Borrower and pay all or
any part of the premium thereunder, without waiving any Event of Default by
Borrower, and any sums disbursed by Bank shall be additional Obligations of
Borrower to Bank payable on demand. Bank shall have the right to settle and
compromise any and all claims under any of the policies required to be
maintained by Borrower hereunder; to demand, receive, and receipt for all monies
payable thereunder; and to execute in the name of Borrower or Bank or both any
proof of loss, notice, or other instruments in connection with such policies or
any loss thereunder.
c. Collateral: Maintain Collateral which is tangible property in good
condition and repair, defend at Borrower expense all Collateral from all adverse
claims and shall not use any of the Collateral for any illegal purpose.
d. Examinations: Permit Bank, through its authorized attorneys,
accountants, and representatives, to examine the Inventory and the books,
accounts, records, ledgers, and assets of every kind and description of Borrower
at all reasonable times.
e. Notice of Defaults: Promptly notify Bank of any condition or event which
constitutes, or would constitute with the passage of time or giving of notice or
both, a default under this Restated Agreement, and promptly inform Bank of any
events or changes in the Business, properties, or condition, financial or
otherwise, of Borrower, which individually or cumulatively when viewed in light
of prior financial statements, may result in a material adverse change in the
financial condition of Borrower.
f. Corporate Status: Maintain in good standing its corporate existence in
the State of Iowa and its status as a foreign corporation qualified to do
business in those jurisdictions where it is required to be qualified.
g. Accounts: Maintain their principal checking and business accounts at
Bank and use Bank as their principal depository.
h. ERISA: If Borrower shall now or hereafter maintain an employee benefit
plan covered by 4021(a) of the Employee Retirement Income Security Act of 1974,
as amended (ERISA), relating to plan termination insurance, it shall:
(1) furnish Bank a copy of each annual report, together with
any schedules or other attachments thereto, required to be filed with
the Secretary of Labor or any other governmental official pursuant to
ERISA;
(2) furnish Bank a copy of any notice of a reportable event
required to be furnished to the Pension Benefit Guaranty Corporation
(PBGC) or other governmental agency;
(3) notify Bank of the filing of a notice with PBGC pursuant
to 4041 of ERISA that the plan is to be terminated; and
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(4) notify Bank of the institution of any proceedings by the
PBGC under 4042 of ERISA promptly after the filing of such reports or
notices or institution of such proceedings.
i. Corporate Changes: Notify Bank not less than 30 days prior to (i) the
change of its name or use of any trade names or (ii) any change in the address
of the chief executive office and/or chief place of business of Borrower, the
location of any records pertaining to the Receivables, and the address where any
Inventory is or may be stored.
j. Receivables: Promptly notify Bank of any disputes which shall arise in
connection with a Receivable or if a Receivable is not paid when due, or if any
petition in bankruptcy or under any other insolvency act for the relief of
debtors with respect to a Customer is filed, or if a Customer makes an
assignment for the benefit of creditors, becomes insolvent, ceases to carry on
its business, or if a Borrower has notice of any facts or circumstances which
could reasonably be expected to have a material adverse effect upon the ability
of Customer to pay the Receivable.
k. Confirmation: Upon the creation of a Receivable, or at such other
intervals as Bank may hereafter determine, Borrower shall provide Bank, at its
request, with confirmatory assignment schedules; copies of all invoices relating
to the Receivable; evidence of shipment or delivery of Inventory; and such
further information and/or schedules as Bank may reasonably require, all in a
form satisfactory to Bank.
l. Books and Records: Keep complete and accurate books and records with
respect to the business of the Borrower and the Collateral consistent with good
business practice including current stock, cost, and sales records of Inventory,
accurately itemizing and describing the kinds, types, and quantities of
Inventory, and the cost and selling price thereof.
m. Instruments: At any time and from time to time upon request of Bank,
execute and deliver to Bank, in form and substance satisfactory to Bank,
negotiable promissory notes for any or all of the Obligations and/or such
documents in respect of the Obligations as Bank shall deem necessary or
desirable to evidence the Obligations or perfect or maintain perfected the
security interest of Bank in the Collateral or which may be necessary to comply
with the provisions of the law of the State of Iowa or the law of any other
jurisdiction in which Borrower may then be conducting business or in which any
of the Collateral may be located.
n. Subsidiaries: Without limitation of any provision of this Restated
Agreement which prohibits any person from becoming a subsidiary, forthwith upon
any Person becoming a Subsidiary of any of the Borrower after the date hereof,
such Borrower will cause such Person
(1) to become a co-maker by executing and delivery to the Bank of such
documents as the Bank may require,
(2) to secure said Obligation with a first lien upon the types of
Collateral described in Section 3. owned by the Subsidiary.
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(3) to deliver to Bank executed filings of financing statements
necessary to perfect said security interest, and,
(4) to provide Bank with such other documents or instruments as Bank
shall reasonably request, including obligating itself to all of the
terms and conditions of this Restated Agreement.
o. Compliance with Environmental Laws. Borrower will comply and cause each
Subsidiary to comply with all applicable environmental, hazardous waste or
substance, toxic substance and underground storage laws and regulations and will
obtain any permits, licenses, or buildings, improvements, fixtures, equipment or
property required by reason of any applicable environmental, hazardous waste or
substance, toxic substance or underground storage laws or regulations. Borrower
shall exercise due diligence in determining the applicability of the above laws
and regulations and shall take the necessary steps to comply with such laws and
regulations within a reasonable period of time after discovering any violations
of such laws and statutes.
p. Strategic Plans. Within sixty days after its fiscal year, Borrower will
provide Bank annually a three-year business and financial plan which includes
financial projections and capital expenditure budgets.
11. FINANCIAL COVENANTS OF BORROWER.
So long as the Obligations shall remain unpaid or the Bank shall have any
commitment under this Restated Agreement, Borrower will maintain the following:
a. Minimum Working Capital: Maintain at all times an excess of current
assets over current liabilities of not less than $8,000,000.
b. Minimum Tangible Net Worth: Maintain at all times a Tangible Net Worth
of not less than $16,500,000.
c. Capital Expenditures: Refrain from making expenditures for fixed or
capital assets which would cause the aggregate of all such expenditures made by
Borrower to exceed $1,500,000 for fiscal 1996 or $2,000,000 during any
subsequent fiscal year.
d. Current Ratio: Maintain at all times a ratio of current assets to
current liabilities of not less than 1.5 to 1.
e. Leverage Ratio: Maintain at all times a ratio of total liabilities to
Tangible Net Worth of not greater than 2.25 to 1 until March 31, 1997, and
thereafter not greater than 2.0 to 1.
f. Cash Flow/Debt: Beginning on December 31, 1996, maintain a ratio
measured quarterly on a year to date actual basis, of Operating Cash Flow to
Total Debt Service of not less than 1.25 to 1. As of June 30, 1997, maintain a
ratio of 1.5 to 1 measured the same way.
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As of September 30, 1997, and quarterly thereafter, maintain a ratio of 1.5 to 1
measured on a trailing four-quarter average basis.
12. EVENTS OF DEFAULT AND ACCELERATION.
The occurrence of any one or more of the following events shall constitute
an Event of Default hereunder (each an "Event of Default"):
a. Payments: Default in the payment of any principal, interest, or other
charges in respect of any of the Obligations as and when due; or default in
payment of any principal, interest or other charges by any Guarantor with
respect to any of their obligations.
b. Covenants: Default in the observance or performance of any covenant or
agreement of any Borrower or Guarantor herein set forth or set forth in any
agreement, note, or instrument heretofore, now or hereafter executed by Borrower
or Guarantor in favor of Bank;
c. Representations: If any representation, warranty, certificate, schedule,
or other information made or furnished by any Borrower or Guarantor herein or
pursuant hereto is or shall be untrue or misleading in any material respect;
d. Third Party Obligations: Default in the performance of any material
obligation of Borrower or Guarantor to any third party in excess of $250,000;
e. Losses: Loss, theft, damage, or destruction of any substantial portion
of the property of Borrower for which there is either no insurance coverage or
for which, in the opinion of Bank, there is insufficient insurance coverage, or
the making of any levy, seizure, or attachment upon the Collateral or upon any
substantial portion of other property of Borrower by any third party;
f. Insolvency: Insolvency of any Borrower or Guarantor or if a creditors
committee is appointed for the business of any Borrower or Guarantor; or if any
Borrower or Guarantor makes an assignment for the benefit of creditors, or is
adjudicated bankrupt, or if a petition in bankruptcy or for reorganization or to
effect a plan of arrangement with creditors is filed by or against any Borrower
or Guarantor; or if any Borrower or Guarantor applies for or permits the
appointment of a receiver or trustee for any of its property or assets, or if
any such receiver or trustee is appointed for any of its property or assets; or
if any of the above actions or proceedings whatsoever are commenced by or
against any Borrower or any Guarantor of or any other party liable for any of
the obligations;
g. Dissolution: If a proceeding is filed or commenced by or against
Borrower for its dissolution or liquidation; or if Borrower voluntarily or
involuntarily dissolves or is dissolved, terminates or is terminated;
h. Prohibition on Business: If Borrower is permanently enjoined,
restrained, or in any way prevented by court order from conducting all or any
material part of its business affairs; or
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i. Termination of Guaranty: Termination for any reason of any guaranty of,
or contract of surety for, the Obligations, or termination of any subordination
agreement for the benefit of Banks.
If any Event of Default shall occur, then or at any time thereafter, while
such Event of Default shall continue, Bank may declare all Obligations to be due
and payable, without notice, protest, presentment, or demand, all of which are
hereby expressly waived by the Borrower.
13. RIGHTS AND REMEDIES.
Bank shall have, by way of example and not of limitation, the rights and
remedies set forth in Section 13 at all times prior to and/or after the
occurrences of an Event of Default and shall have all of the rights and remedies
enumerated herein after the occurrence of an Event of Default;
a. Attorney in Fact: Without limiting any rights or powers granted by this
Restated Agreement to the Bank while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default the Bank is hereby appointed the attorney-in-fact of the Borrower for
the purpose of carrying out the provisions of this Restated Agreement and taking
any action and executing any instruments which the Bank may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Bank shall be entitled under
this Restated Agreement to make collections in respect of the Collateral, the
Bank shall have the right and power to receive, endorse, and collect all checks
made payable to the order of the Borrower representing any dividend, payment, or
other distribution in respect of the Collateral or any part thereof and to give
full discharge for the same.
b. Premises: Bank shall have the right to enter and/or remain upon the
premises of any Borrower without any obligation to pay rent to such Borrower or
others, or any other place or places where any of the Collateral is located and
kept and: (i) remove Collateral therefrom to the premises of Bank or any agent
of Bank, for such time as Bank may desire, in order to maintain, collect, sell
and/or liquidate the Collateral or; (ii) use such premises, together with
materials, supplies, books and records of Borrower, to maintain possession
and/or the condition of the Collateral, and to prepare the Collateral for sale,
liquidation, or collection. Bank may require Borrower to assemble the Collateral
and make it available to Bank at a place to be designated by Bank which is
reasonably convenient to both parties.
c. Setoff: Bank shall have a right to set-off, without notice to the
Borrower, any and all deposits or other sums at any time or times credited by or
due from Bank to any of the Borrower, whether in a special account or other
account or represented by a certificate of deposit (whether or not matured),
which deposits and other sums shall at all times constitute additional security
for the Obligations and may be set-off at any time against all or any part of
the Obligations on which any of the Borrower is an obliger whether or not they
are then due and whether other security held by Bank is deemed by it to be
adequate.
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<PAGE>
d. Uniform Commercial Code Rights: Bank shall have, in addition to any
other rights and remedies contained in this Restated Agreement, the Notes and
any other agreements, guarantees, notes, instruments, and documents heretofore,
now, or at any time or times hereafter executed by any of the Borrower and
delivered to Bank, all of the rights and remedies of a secured party under the
Uniform Commercial Code in force in the State of Iowa as of the date of this
Restated Agreement, all of which rights and remedies shall be cumulative, and
nonexclusive, to the extent permitted by law.
e. Notice of Sale: Any notice required to be given by Bank of a sale or
other disposition or other intended action by Bank with respect to any of the
Collateral, or otherwise, made in accordance with the terms of this Restated
Agreement at least fourteen (14) days prior to such proposed action, shall
constitute fair and reasonable notice to Borrower of any such action. The net
proceeds realized by Bank upon any such sale or other disposition, after
deduction of the expenses of retaking, holding, preparing for sale, selling, or
the like and reasonable attorneys' fees and other expenses incurred by Bank,
shall be applied toward satisfaction of the Obligations hereunder. Bank shall
account to Borrower for any surplus realized upon such sale or other disposition
and the Borrower shall remain liable for any deficiency. The commencement of any
action, legal or equitable, shall not affect the security interest of Bank in
the Collateral until the Obligations hereunder or any judgment therefor are
fully paid.
f. Appointment: The Borrower hereby irrevocably appoints Bank its true and
lawful attorney, with full power of substitution, in Bank's name or otherwise,
for Bank's sole use and benefit, but at Borrower cost and expense, to exercise,
if Bank shall elect after an event of default has occurred (whether or not Bank
then elects to exercise any other of its rights arising upon default), all or
any of the following powers with respect to all or any Accounts which are
Collateral:
1. To execute on Borrower's behalf assignments of any or all Accounts
which are Collateral to Bank, and to notify account debtors thereunder
to make payments directly to Bank;
2. To demand, sue for, collect, receive and give acquittance for any
and all moneys due or to become due upon or by virtue thereof;
3. To receive, take, endorse, assign and deliver any and all checks,
notes, drafts, documents and other negotiable and non-negotiable
instruments and chattel paper taken or received by Bank in connection
therewith;
4. To settle, compromise, compound, prosecute or defend any action or
proceeding with respect thereto;
5. To sell, transfer, assign or otherwise deal in or with the same or
the proceeds thereof or the relative goods, as fully and effectually
as if Bank were the absolute owner thereof; and
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6. To extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto.
Any funds collected pursuant to such powers shall be applied to the payment
of the Obligations. The exercise by Bank of, or failure to so exercise, any of
the foregoing authority, shall in no manner affect Borrower's liability to Bank
on any of the Obligations. Bank shall be under no obligation or duty to exercise
any of the powers hereby conferred upon it and it shall be without liability for
any act or failure to act in connection with the collection of or the
preservation of any rights under such accounts. Bank shall not be bound to take
any steps necessary to preserve rights in any instrument or chattel paper
against prior parties.
14. TERM OF AGREEMENT.
The term of this Restated Agreement shall commence on the Date of Agreement
and shall continue in full force and effect until all Obligations shall have
been fully paid and satisfied. No termination shall affect in any way the duties
of the Borrower hereunder or the security interest of Bank in the Collateral so
long as any Obligations are outstanding; and, notwithstanding such termination,
Borrower shall continue to assign Receivables to Bank and turn over all
collections to Bank as herein provided, and Bank shall retain the security
interest, lien and rights granted to it hereunder until all the Obligations are
paid in full and satisfied.
15. GENERAL PROVISIONS.
a. No Waiver: The failure of Bank at any time or times hereafter to require
strict performance by any Borrower of any of the provisions, warranties, terms,
and conditions in this Restated Agreement or in any other agreement, guaranty,
note, instrument, or document now or at any time or times hereafter executed by
such Borrower and delivered to Bank shall not waive, affect, or diminish any
right of Bank at any time or times hereafter to demand strict performance
thereof. No rights of Bank hereunder shall be deemed to have been waived by any
act or knowledge of Bank, its agents, officers or employees, unless such waiver
is contained in an instrument in writing signed by an officer of Bank. No waiver
by Bank of any of its rights shall operate as a waiver of any other of its
rights or any of its rights on a future occasion.
b. Notice: Any demand or notice required or permitted to be given hereunder
shall be deemed effective when deposited in the United States mail, addressed to
Bank at Bank or to Borrower at the address shown in 2(h), or to such other
address as may be provided in writing prior to the giving of such notice by the
party to be notified.
c. Entire Understanding: This Restated Agreement contains the entire
understanding between the parties hereto with respect to the transactions
contemplated herein and such understanding shall not be modified except in
writing signed by or on behalf of the parties hereto. This Restated Agreement
supersedes and replaces the 1991 Credit Agreement and all amendments thereto but
does not in any way impair any previously executed promissory notes which are
still outstanding nor discontinue or impair any previously granted Collateral.
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d. Invalidity: Wherever possible, each provision of this Restated Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. Should any portion of this Restated Agreement be declared
invalid for any reason in any jurisdiction, such declaration shall have no
effect upon the remaining portions of this Restated Agreement, and the entirety
of this Restated Agreement shall continue in full force and effect in all other
jurisdictions and said remaining portions of this Restated Agreement shall
continue in full force and effect in the subject jurisdiction as if this
Restated Agreement had been executed with the invalid portions thereof deleted.
e. Waiver of Bond: If Bank seeks to take possession of any or all of the
Collateral by court process, the Borrower hereby irrevocably waive any bonds and
any surety or security relating thereto required by any statute, court rule or
otherwise as an incident to such possession, and waives any demand for
possession prior to the commencement of any suit or action to recover with
respect thereto.
f. Successors and Assigns: The provisions of this Restated Agreement shall
be binding upon and shall inure to the benefit of the successors and assigns of
Bank and the Borrower; provided, however, the Borrower may not assign any of
their rights or delegate any of their obligations hereunder without the prior
written consent of Bank.
g. Choice of Law, Forum: This Restated Agreement is and shall be deemed to
be a contract entered into and made pursuant to the laws of the State of Iowa
and shall in all respects be governed, construed, applied, and enforced in
accordance with the laws of said state and any action to enforce, construe,
invalidate or modify this Restated Agreement shall be brought in a court of
competent jurisdiction in Linn County, Iowa. Borrower waives the right to demand
a trial by jury in any action hereunder.
h. Fees: If, prior hereto and/or at any time or times hereafter, Bank shall
employ counsel in connection with the execution and consummation of the
transactions contemplated by this Restated Agreement or to commence, defend or
intervene, file a petition, complaint, answer, motion or other pleadings, or to
take any other action in or with respect to any suit or proceeding (bankruptcy
or otherwise) relating to this Restated Agreement, the Collateral, or any other
agreement, guaranty, note, instrument, or document heretofore, now or at any
time or times hereafter executed by any Borrower and delivered to Bank, or to
protect, collect, lease, sell, take possession of or liquidate any of the
Collateral, or to attempt to enforce or to enforce any security interest in any
of the Collateral, or to enforce any rights of Bank hereunder, whether before or
after the occurrence of any Event of Default, or to collect any of the
Obligations, then in any of such events, all of the reasonable attorneys' fees
arising from such services, and any expenses, costs and charges relating
thereto, shall be part of the Obligations, payable on demand and secured by the
Collateral.
i. Counterparts: This Restated Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
j. References: Each reference herein to Bank shall be deemed to include its
successors and assigns, and each reference to the Borrower and any pronouns
referring thereto
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as used herein shall be construed in the masculine, feminine, neuter, singular
or plural, as the context may require, and shall be deemed to include the legal
representatives, successors and assigns of the Borrower, all of whom shall be
bound by the provisions hereof.
k. Joint and Several: The term "Borrower" as used herein shall, if this
Restated Agreement is signed by more than one borrower, means unless this
Restated Agreement otherwise provides or unless the context otherwise requires,
the "Borrower and each of them" and each and every representation, promise,
agreement and undertaking shall be joint and several except that the granting of
the security interest, right of set-off and lien, shall be by each Borrower in
its respective properties. If there is more than one Borrower, any loan or
advance hereunder shall be deemed to be made at the request of and for the
benefit of each Borrower (since Borrower are affiliates and/or their respective
businesses are closely integrated and interrelated).
l. Headings: The section headings herein are included for convenience only
and shall not be deemed to be a part of this Restated Agreement.
m. Participations: Bank may, at its option, sell participations in or
assign all or part of the Revolving Line of Credit or the Term Loans to another
Bank or other entity. Bank may furnish any information concerning Borrower or
any subsidiary of Borrower in the possession of Bank from time to time to such
assignee or participant. Borrower shall not assign any rights or obligations
hereunder without the prior written consent of Bank.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN AGREEMENT (EXCEPT THE CREDIT
AGREEMENT AS PREVIOUSLY AMENDED AND DOCUMENTS REFERRED TO IN THE CREDIT
AGREEMENT AS PREVIOUSLY AMENDED) MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE
TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
FEATHERLITE MFG., INC.
BY:/s/ Conrad Clement
Conrad Clement, President
BY:/s/ Tracy J. Clement
Tracy J. Clement, Executive Vice President
/s/ Conrad Clement
Conrad Clement, individually
(Signatures continue)
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<PAGE>
/s/ Larry Clement
Larry Clement, individually
/s/ Kathy Clement
Kathy Clement, individually
/s/ Tracy Clement
Tracy Clement, individually
/s/ Nancy Clement
Nancy Clement, individually
FIRSTAR BANK IOWA, N.A.
BY:/s/ Mitch McElree
Mitch McElree, Vice President
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Exhibit A Accounts Receivable and Loan Reconciliation Certificate
Exhibit B Guaranty
Exhibit C Revolving Line of Credit Promissory Note
Exhibit D Trade Names, Business Changes
Exhibit E Liens
Exhibit F Hazardous Substance Certificate
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EXHIBIT "A"
a. Receivables. All accounts and general intangibles (each as defined in the
UCC) of the Borrower constituting any right to the payment of money,
including (but not limited to) all moneys due and to become due to the
Borrower in connection with any loans or advances or for inventory or
equipment or other goods sold by the Borrower and all tax refunds
(collectively, "Receivables");
b. Instruments. All instruments, chattel paper or letters of credit (each as
defined in the UCC) evidencing, representing, arising from or existing in
respect of, relating to, securing or otherwise supporting the payment of,
any of the Receivables, including (but not limited to) promissory notes,
drafts, bills of exchange and trade acceptances (collectively,
"Instruments");
c. Inventory. All inventory (as defined in the UCC) of the Borrowers,
including all goods obtained by the Borrower in exchange for such
inventory, and any products made or processed from such inventory including
all substances, if any, commingled therewith or added thereto
(collectively, "Inventory");
d. General Intangibles. All franchises, patents, trademarks, goodwill and any
and all items of the Borrower which would be classified as general
intangibles under the UCC (collectively, "General Intangibles").
e. Documents. All documents of title (as defined in the UCC) or other receipts
covering, evidencing or representing Inventory or Equipment (collectively,
"Documents");
f. Real Estate and Fixtures. All Borrower's right, title and interest in and
to the buildings, improvements, ways, streets, alleys, passages, rights of
way, waters, water courses, rights, liberties, privileges, tenements,
hereditaments, and appurtenances now or hereafter hereunto appertaining to
(Describe Real Estate) (collectively, "Real Estate and Fixtures") (as
defined in the UCC). The building is known as the Featherlite Rework and
Delivery Building. See attached Exhibit F;
h. Claims. All rights, claims and benefits of the Borrower against any Person
arising out of, relating to or in connection with Inventory purchased by
the Borrower, including, without limitation, any such rights, claims or
benefits against any Person storing or transporting such Inventory or
Equipment;
j. Proceeds. All proceeds, products and accessions of and to any of the
property described in clauses (a) through (i) above in this section
(including, without limitation, any proceeds of insurance thereon), and to
the extent related to any property described in said clauses or in this
clause all books, correspondence, credit files, records, invoices and other
papers, including without limitation all tapes, cards, computer runs and
other papers and documents in the possession or under the control of the
Borrower or any computer bureau or service company from time to time acting
for the Borrower.
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And as additional collateral, all additions to and replacements of the
collateral, and all accessories, accessions, parts and equipment now or
hereafter affixed thereto or used in connection therewith and the proceeds and
products from all such collateral.
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Exhibit 10.22
AGREEMENT FOR WHOLESALE FINANCING
This Agreement for Wholesale Financing ("Agreement") is made as of October 31,
1996 between Deutsche Financial Services Corporation ("DFS") and Featherlite
Mfg., Inc., a Minnesota corporation ("Dealer"), having a principal place of
business located at Highways 63 & 9, Cresco, Iowa 52136 .
1. New Vantare Inventory Credit Facility. Subject to the terms of this
Agreement, DFS may extend credit to Dealer for the purpose of financing
completed motor coaches manufactured by Dealer's Vantare Division,
located in Sanford, Florida ("Wholesale Facility"). The Wholesale
Facility will be subject to the following terms:
1.1 Eligible Inventory/Advance Rates. Subject to the maximum amount
of the Wholesale Facility, DFS will finance completed motor
coaches manufactured by Dealer's Vantare Division in an amount
not to exceed the lesser of:
(1) $500,000 per completed unit, or
(2) the sum of (a) eighty percent (80%) of the
manufacturers invoice price (including freight) of
the chassis, PLUS (b) sixty percent (60%) of the
remainder of (i) the actual cost of manufacture of
said motor coach as reflected on Dealer's invoice for
such unit, LESS (ii) the manufacturer's invoice price
(including freight) for the chassis.
1.2 Inspection/Documentation. Prior to funding a completed unit,
Dealer will provide an invoice for the completed unit containing
details of all equipment and options. Upon receipt of the
invoice, DFS will arrange a physical inspection of the completed
unit to verify completion. The manufacturer's statement of origin
for both the chassis and the completed unit must be delivered to
DFS prior to funding to be retained until funding of the retail
sale of the unit. Upon funding, DFS may remit the portion of the
advance allocated to the cost of the chassis directly to the
manufacturer of the chassis. DFS must have a first perfected
security interest in each motor coach financed and all proceeds
thereof.
1.3 Curtailments. A curtailment payment of five percent (5%) of the
original principal balance for each completed unit will be due
and payable on the 90th and 180th day after the date the unit was
financed. The completed unit will be due and payable in full 365
days after the date the completed unit was originally financed.
2. Used Inventory Credit Facility. Subject to the terms of this Agreement,
DFS agrees to extend credit to Dealer for the purpose of financing used
recreational vehicles ("Used Inventory Facility"). The term "used
recreational vehicles" is defined as recreational vehicles which have
been registered or titled in any state with the appropriate state
authorities in accordance with applicable state law ("Used Vehicles").
Subject to the
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limitations contained in this Section 2, Used Vehicles may consist of
used motor coaches that were manufactured by or bear the trademark or
tradename of Dealer's Vantare Division or its predecessor, Vantare
International, Inc. ("Vantare"). As provided below, the terms for
financing for Used Vehicles consisting of Vantare units may have
different financing terms. The Used Inventory Facility will be subject
to the following terms:
2.1. Qualifying Units. Used Vehicles for which Dealer may request a
loan must be the current model year or no more than seven model
years prior to the current model year, in good physical and
mechanical condition, and subject to DFS' approval.
2.2 Advance. DFS, in its sole discretion, may loan to Dealer an
amount up to (1) Eighty percent (80%) of the Base NADA average
trade-in value, excluding the value of any added accessories, of
Used Vehicles other than Vantare Used Vehicles; and (2) the
applicable percentage of the original wholesale cost of Used
Vehicles consisting of Vantare Used Vehicles in accordance with
the schedule identified below, excluding the value of any added
accessories:
Number of Years Prior to Applicable Percentage of
Current Model Year Original Wholesale Cost
1 85%
2 72%
3 62%
4 52%
5 42%
6 35%
7 28%
2.3 Curtailment Payments. Dealer will pay DFS ten percent (10%) of
the principal amount of DFS' advance to Dealer for each Used
Vehicle on the ninetieth (90th) and one hundred eightieth (180th)
day following the date the Used Vehicle is financed. The balance
of the amount financed will be due in full on the 270th day after
the Used Vehicle is financed.
2.4 Financing Period. DFS' financing to Dealer shall be on terms not
to exceed a two hundred seventy (270) day maturity, provided,
however, that the full amount of the loan balance will be due in
full immediately upon the sale, transfer, rent, lease or other
disposition of the Used Vehicle or upon the loss, theft or damage
of the Used Vehicle.
2.5 Financing Procedures. Dealer represents that all Used Vehicles to
be financed by DFS are free and clear of all liens and
encumbrances. Dealer will forward to DFS a copy of the bill of
sale, title showing the transfer of title by the previous owner
to Dealer and all other documentation evidencing the acquisition
of the Used Vehicle by Dealer. Dealer will provide to DFS a
written request for financing of each Used Vehicle, with such
supporting information as DFS may
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request, in form and substance satisfactory to DFS. Upon DFS'
receipt of such documents and if approved by DFS, DFS will
forward the loan amount to Dealer.
3. Financing Terms and Statements of Transaction. Upon agreeing to finance a
particular item of inventory for Dealer, DFS will send Dealer a Statement
of Transaction identifying such inventory and the applicable financial
terms. Unless Dealer notifies DFS in writing of any objection within
fifteen (15) days after a Statement of Transaction is mailed to Dealer: (a)
the amount shown on such Statement of Transaction will be an account
stated; (b) Dealer will have agreed to all rates, charges and other terms
shown on such Statement of Transaction; (c) Dealer will have agreed that
DFS is financing the items of inventory referenced in such Statement of
Transaction at Dealer's request; and (d) such Statement of Transaction will
be incorporated herein by reference, will be made a part hereof as if
originally set forth herein, and will constitute an addendum hereto. If
Dealer objects to the terms of any Statement of Transaction, Dealer agrees
to pay DFS for such inventory in accordance with the most recent terms for
similar inventory to which Dealer has not objected (or, if there are no
prior terms, at the lesser of 16% per annum or at the maximum lawful
contract rate of interest permitted under applicable law), but Dealer
acknowledges that DFS may then elect to terminate Dealer's financing
program pursuant to Section 19, and cease making additional advances to
Dealer. However, such termination will not accelerate the maturities of
advances previously made, unless Dealer shall otherwise be in default of
this Agreement.
4. Grant of Security Interest. To secure payment of all of Dealer's current
and future debts to DFS, whether under this Agreement or any current or
future guaranty or other agreement, Dealer grants DFS a security interest
in all of Dealer's inventory, equipment, fixtures, accounts, contract
rights, chattel paper, security agreements, instruments, deposit accounts,
reserves, documents, and general intangibles; and all judgments, claims,
insurance policies, and payments owed or made to Dealer thereon; all
whether now owned or hereafter acquired, all attachments, accessories,
accessions, returns, repossessions, exchanges, substitutions and
replacements thereto, and all proceeds thereof. All such assets are
collectively referred to herein as the "Collateral". All of such terms for
which meanings are provided in the Uniform Commercial Code of the
applicable state are used herein with such meanings. All Collateral
financed by DFS, and all proceeds thereof, will be held in trust by Dealer
for DFS, with such proceeds being payable in accordance with Section 10.
5. Affirmative Warranties and Representation. Dealer warrants and represents
to DFS that: (a) Dealer has good title to all Collateral; (b) DFS' security
interest in the Collateral financed by DFS is not now and will not become
subordinate to the security interest, lien, encumbrance or claim of any
person; (c) Dealer will execute all documents DFS requests to perfect and
maintain DFS' security interest in the Collateral; (d) Dealer will deliver
to DFS immediately upon each request, and DFS may retain, each Certificate
of Title or Statement of Origin issued for Collateral financed by DFS; (e)
Dealer will at all times be duly organized, existing, in good standing,
qualified and licensed to do business in each state, county, or parish, in
which the nature of its business or property so requires; (f) Dealer has
the right and is duly authorized to enter into this Agreement; (g) Dealer's
execution of this Agreement does not constitute a breach of any agreement
to
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<PAGE>
which Dealer is now or hereafter becomes bound; (h) there are and will be
no actions or proceedings pending or threatened against Dealer which might
result in any material adverse change in Dealer's financial or business
condition or which might in any way adversely affect any of Dealer's
assets; (i) Dealer will maintain the Collateral in good condition and
repair; (j) Dealer has duly filed and will duly file all tax returns
required by law; (k) Dealer has paid and will pay when due all taxes,
levies, assessments and governmental charges of any nature; (1) Dealer will
keep and maintain all of its books and records pertaining to the Collateral
at its principal place of business designated in this Agreement; (m) Dealer
will promptly supply DFS with such information concerning it or any
guarantor as DFS hereafter may reasonably request; (n) all Collateral will
be kept at Dealer's place of business of its Vantare Division at 1550
Dolgner Place, Sanford, Florida 32771, and with respect to such other
locations, if any, of which Dealer has notified DFS in writing or as listed
on any current or future Exhibit "A" attached hereto which written
notice(s) to DFS and Exhibit A(s) are incorporated herein by reference; (o)
Dealer will give DFS thirty (30) days prior written notice of any change in
Dealer's identity, name, form of business organization, ownership,
management, principal place of business, Collateral locations or other
business locations, and before moving any books and records to any other
location; (p) Dealer will observe and perform all matters required by any
lease, license, concession or franchise forming part of the Collateral in
order to maintain all the rights of DFS thereunder; (q) Dealer will advise
DFS of the commencement of material legal proceedings against Dealer or any
guarantor; and (r) Dealer will comply with all applicable laws and will
conduct its business in a manner which preserves and protects the
Collateral and the earnings and incomes thereof.
6. Negative Covenants. Dealer will not at any time (without DFS' prior written
consent): (a) other than in the ordinary course of its business, sell,
lease or otherwise dispose of or transfer any of its assets; (b) rent,
lease, demonstrate, consign, or use any Collateral financed by DFS; or (c)
merge or consolidate with another entity.
7. Insurance. Dealer will immediately notify DFS of any loss, theft or damage
to any Collateral. Dealer will keep the Collateral insured for its full
insurable value under an "all risk" property insurance policy with a
company acceptable to DFS, naming DFS as a lender loss-payee or mortgagee
and containing standard lender's loss payable and termination provisions.
Dealer will provide DFS with written evidence of such property insurance
coverage and lender's loss-payee or mortgagee endorsement.
8. Financial Statements. Dealer will deliver to DFS: (a) within ninety (90)
days after the end of each of Dealer's fiscal years, a reasonably detailed
balance sheet as of the last day of such fiscal year and a reasonably
detailed income statement covering Dealer's operations for such fiscal
year, in a form satisfactory to DFS; (b) within forty-five (45) days after
the end of each of Dealer's fiscal quarters, a reasonably detailed balance
sheet as of the last day of such quarter and an income statement covering
Dealer's operations for such quarter, in a form satisfactory to DFS; and
(c) within ten (10) days after request therefor by DFS, any other report
requested by DFS relating to the Collateral or the financial condition of
Dealer. Dealer warrants and represents to DFS that all financial statements
and information relating to Dealer or any guarantor which have been or may
hereafter be delivered by Dealer or any guarantor are true and correct and
have been and
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will be prepared in accordance with generally accepted accounting
principles consistently applied and, with respect to such previously
delivered statements or information, there has been no material adverse
change in the financial or business condition of Dealer or any guarantor
since the submission to DFS, either as of the date of delivery, or, if
different, the date specified therein, and Dealer acknowledges DFS'
reliance thereon.
9. Reviews. Dealer grants DFS an irrevocable license to enter Dealer's
business locations during normal business hours without notice to Dealer
to: (a) account for and inspect all Collateral; (b) verify Dealer's
compliance with this Agreement; and (c) examine and copy Dealer's books and
records related to the Collateral. Dealer may temporarily maintain up to
two (2) motor coaches financed by DFS, whether new motor coaches or Used
Vehicles, as demonstration units at locations other than Dealer's place of
business in Sanford, Florida. If DFS conducts an inspection of Dealer's
Collateral, Dealer must identify the locations where the demonstration
units are located and such units must be returned to the Sanford, Florida
location within forty-five (45) days of the inspection (subject to
verification of return by DFS).
10. Payment Terms. Dealer will immediately pay DFS the principal indebtedness
owed DFS on each item of Collateral financed by DFS (as shown on the
Statement of Transaction identifying such Collateral) on the earliest
occurrence of any of the following events: (a) when such Collateral is
lost, stolen or damaged; (b) for Collateral financed under Pay-As-Sold
("PAS") terms (as shown on the Statement of Transaction identifying such
Collateral), when such Collateral is sold, transferred, rented, leased,
otherwise disposed of or matured; (c) in strict accordance with any
curtailment schedule for such Collateral (as shown on the Statement of
Transaction identifying such Collateral); (d) for Collateral financed under
Scheduled Payment Program ("SPP") terms (as shown on the Statement of
Transaction identifying such Collateral), in strict accordance with the
installment payment schedule; and (e) when otherwise required under the
terms of any financing program agreed to in writing by the parties.
Regardless of the SPP terms pertaining to any Collateral financed by DFS,
if DFS determines that the current outstanding debt which Dealer owes to
DFS exceeds the aggregate wholesale invoice price of such Collateral in
Dealer's possession, Dealer will immediately upon demand pay DFS the
difference between such outstanding debt and the aggregate wholesale
invoice price of such Collateral. If Dealer from time to time is required
to make immediate payment to DFS of any past due obligation discovered
during any Collateral audit, or at any other time, Dealer agrees that
acceptance of such payment by DFS shall not be construed to have waived or
amended the terms of its financing program. The proceeds of any Collateral
received by Dealer will be held by Dealer in trust for DFS' benefit, for
application as provided in this Agreement. Dealer will send all payments to
DFS' branch office(s) responsible for Dealer's account. DFS may apply: (i)
payments to reduce finance charges first and then principal, regardless of
Dealer's instructions; and (ii) principal payments to the oldest (earliest)
invoice for Collateral financed by DFS, but, in any event, all principal
payments will first be applied to such Collateral which is sold, lost,
stolen, damaged, rented, leased, or otherwise disposed of or unaccounted
for. Any third party discount, rebate, bonus or credit granted to Dealer
for any Collateral will not reduce the debt Dealer owes DFS until DFS has
received payment therefor in cash. Dealer will: (1) pay DFS even if any
Collateral is defective or fails to conform to any
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warranties extended by any third party; (2) not assert against DFS any
claim or defense Dealer has against any third party; and (3) indemnify and
hold DFS harmless against all claims and defenses asserted by any buyer of
the Collateral relating to the condition of, or any representations
regarding, any of the Collateral. Dealer waives all rights of offset and
counterclaims Dealer may have against DFS.
11. Calculation of Charges. Dealer will pay finance charges to DFS on the
outstanding principal debt which Dealer owes DFS for each item of
Collateral financed by DFS at the rate(s) shown on the Statement of
Transaction identifying such Collateral, unless Dealer objects thereto as
provided in Section 3. The finance charges attributable to the rate shown
on the Statement of Transaction will: (a) be computed based on a 360 day
year; (b) be calculated by multiplying the Daily Charge (as defined below)
by the actual number of days in the applicable billing period; and (c)
accrue from the invoice date of the Collateral identified on such Statement
of Transaction until DFS receives full payment in good funds of the
principal debt Dealer owes DFS for each item of such Collateral in
accordance with DFS' payment recognition policy and DFS applies such
payment to Dealer's principal debt in accordance with the terms of this
Agreement. The "Daily Charge" is the product of the Daily Rate (as defined
below) multiplied by the Average Daily Balance (as defined below). The
"Daily Rate" is the quotient of the annual rate shown on the Statement of
Transaction divided by 360, or the monthly rate shown on the Statement of
Transaction divided by 30. The "Average Daily Balance" is the quotient of
(i) the sum of the outstanding principal debt owed DFS on each day of a
billing period for each item of Collateral identified on a Statement of
Transaction, divided by (ii) the actual number of days in such billing
period. Dealer will also pay DFS $100 for each check returned unpaid for
insufficient funds (an "NSF check") (such $100 payment repays DFS'
estimated administrative costs; it does not waive the default caused by the
NSF check). The annual percentage rate of the finance charges relating to
any item of Collateral financed by DFS will be calculated from the invoice
date of such Collateral, regardless of any period during which any finance
charge subsidy shall be paid or payable by any third party. Dealer
acknowledges that DFS intends to strictly conform to the applicable usury
laws governing this Agreement. Regardless of any provision contained herein
or in any other document executed or delivered in connection herewith or
therewith, DFS shall never be deemed to have contracted for, charged or be
entitled to receive, collect or apply as interest on this Agreement
(whether termed interest herein or deemed to be interest by judicial
determination or operation of law), any amount in excess of the maximum
amount allowed by applicable law, and, if DFS ever receives, collects or
applies as interest any such excess, such amount which would be excessive
interest will be applied first to the reduction of the unpaid principal
balances of advances under this Agreement, and, second, any remaining
excess will be paid to Dealer. In determining whether or not the interest
paid or payable under any specific contingency exceeds the highest lawful
rate, Dealer and DFS shall, to the maximum extent permitted under
applicable law: (A) characterize any non-principal payment (other than
payments which are expressly designated as interest payments hereunder) as
an expense or fee rather than as interest; (B) exclude voluntary
pre-payments and the effect thereof; and (C) spread the total amount of
interest throughout the entire term of this Agreement so that the interest
rate is uniform throughout such term.
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12. Billing Statement. DFS will send Dealer a monthly billing statement
identifying all charges due on Dealer's account with DFS. The charges
specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, unless DFS receives
Dealer's written objection thereto within 15 days after it is mailed to
Dealer. If DFS does not receive, by the 25th day of any given month,
payment of all charges accrued to Dealer's account with DFS during the
immediately preceding month, Dealer will (to the extent allowed by law) pay
DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the amount
of such finance charges (payment of the Late Fee does not waive the default
caused by the late payment). DFS may adjust the billing statement at any
time to conform to applicable law and this Agreement.
13. Financial Covenants/Minimum Utilization Covenant.
13.1 Financial Covenants. Dealer will at all times maintain:
(a) a Tangible Net Worth and Subordinated Debt in the combined amount of
not less than FOURTEEN MILLION DOLLARS ($14,000,000.00);
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth and
Subordinated Debt of not more than TWO AND ONE HALF to ONE (2.5:1); and
(c) a ratio of Current Tangible Assets to current liabilities of not less
than ONE AND SEVENTY-FIVE HUNDREDTHS to ONE (1.75:1).
For purposes of this paragraph: (i) "Tangible Net Worth" means the book
value of Dealer's assets less liabilities, excluding from such assets all
Intangibles; (ii) "Intangibles" means and includes general intangibles (as
that term is defined in the Uniform Commercial Code); accounts receivable
and advances due from officers, directors, employees, stockholders and
affiliates; leasehold improvements net of depreciation; licenses; good
will; prepaid expenses; escrow deposits; covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar items as
DFS may from time to time determine in DFS' sole discretion; (iii) "Debt"
means all of Dealer's liabilities and indebtedness for borrowed money of
any kind and nature whatsoever, whether direct or indirect, absolute or
contingent, and including obligations under capitalized leases, guaranties
or with respect to which Dealer has pledged assets to secure performance,
whether or not direct recourse liability has been assumed by Dealer; (iv)
"Subordinated Debt" means all of Dealer's Debt which is subordinated to the
payment of Dealer's liabilities to DFS by an agreement in form and
substance satisfactory to DFS; and (v) "Current Tangible Assets" means
Dealer's current assets less, to the extent otherwise included therein, all
Intangibles. The foregoing terms will be determined in accordance with
generally accepted accounting principles consistently applied, and, if
applicable, on a consolidated basis.
13.2 Minimum Utilization Covenant. Dealer will at all times maintain an
average daily outstanding loan balance of FIVE HUNDRED THOUSAND DOLLARS
($500.000.00).
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If Dealer fails to maintain such balance for any month, the interest rate
charged to Dealer for such month shall be increased by one percent (1%).
14. Default. Dealer will be in default under this Agreement if: (a) Dealer
breaches any terms, warranties or representations contained herein, in any
Statement of Transaction to which Dealer has not objected as provided in
Section 3, or in any other agreement between DFS and Dealer; (b) any
guarantor of Dealer's debts to DFS breaches any terms, warranties or
representations contained in any guaranty or other agreement between the
guarantor and DFS; (c) any representation, statement, report or certificate
made or delivered by Dealer or any guarantor to DFS is not accurate when
made; (d) Dealer fails to pay any portion of Dealer's debts to DFS when due
and payable hereunder or under any other agreement between DFS and Dealer;
(e) Dealer abandons any Collateral; (f) Dealer or any guarantor is or
becomes in default in the payment of any debt owed to any third party; (g)
a money judgment issues against Dealer or any guarantor; (h) an attachment,
sale or seizure issues or is executed against any assets of Dealer or of
any guarantor; (i) the undersigned dies while Dealer's business is operated
as a sole proprietorship, any general partner dies while Dealer's business
is operated as a general or limited partnership, or any member dies while
Dealer's business is operated as a limited liability company, as
applicable; (j) any guarantor dies; (k) Dealer or any guarantor shall cease
existence as a corporation, partnership, limited liability company or
trust, as applicable; (l) Dealer or any guarantor ceases or suspends
business; (m) Dealer, any guarantor or any member while Dealer's business
is operated as a limited liability company, as applicable, makes a general
assignment for the benefit of creditors; (n) Dealer, any guarantor or any
member while Dealer's business is operated as a limited liability company,
as applicable, becomes insolvent or voluntarily or involuntarily becomes
subject to the Federal Bankruptcy Code, any state insolvency law or any
similar law; (a) any receiver is appointed for any assets of Dealer, any
guarantor or any member while Dealer's business is operated as a limited
liability company, as applicable; (p) any guaranty of Dealer's debts to DFS
is terminated; (q) Dealer loses any franchise, permission, license or right
to sell or deal in any Collateral which DFS finances; or (r) Dealer or any
guarantor misrepresents Dealer's or such guarantor's financial condition or
organizational structure.
15. Rights of DFS Upon Default. In the event of a default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any part
of the debt Dealer owes DFS immediately due and payable, together with
all costs and expenses of DFS' collection activity, including, without
limitation, all reasonable attorneys' fees; exercise any or all rights
under applicable law (including, without limitation, the right to
possess, transfer and dispose of the Collateral); and/or cease
extending any additional credit to Dealer (DFS' right to cease
extending credit shall not be construed to limit the discretionary
nature of this credit facility).
(b) Dealer will segregate and keep the Collateral in trust for DFS, and in
good order and repair, and will not sell, rent, lease, consign,
otherwise dispose of or use any Collateral, nor further encumber any
Collateral.
(c) Upon DFS' oral or written demand, Dealer will immediately deliver the
Collateral to DFS, in good order and repair, at a place specified by
DFS, together
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with all related documents; or DFS may, in DFS' sole discretion and
without notice of demand to Dealer, take immediate possession of the
Collateral together with all related documents.
(d) DFS may, without notice, apply a default finance charge to Dealer's
outstanding principal indebtedness equal to the default rate specified
in Dealer's financing program with DFS, if any, or if there is none so
specified, at the lesser of 3% per annum above the rate in effect
immediately prior to the default, or the highest lawful contract rate
of interest permitted under applicable law.
All of DFS' rights and remedies are cumulative. DFS' failure to
exercise any of DFS' rights or remedies hereunder will not waive any
of DFS' rights or remedies as to any past, current or future default.
16. Sale of Collateral. Dealer agrees that if DFS conducts a private sale of
any Collateral by requesting bids from 10 or more dealers or distributors
in that type of Collateral, any sale by DFS of such Collateral in bulk or
in parcels within 120 days of: (a) DFS' taking possession and control of
such Collateral; or (b) when DFS is otherwise authorized to sell such
Collateral; whichever occurs last, to the bidder submitting the highest
cash bid therefor, is a commercially reasonable sale of such Collateral
under the Uniform Commercial Code. Dealer agrees that the purchase of any
Collateral by a Vendor, as provided in any agreement between DFS and the
Vendor, is a commercially reasonable disposition and private sale of such
Collateral under the Uniform Commercial Code, and no request for bids shall
be required. Dealer further agrees that 7 or more days prior written notice
will be commercially reasonable notice of any public or private sale
(including any sale to a Vendor). Dealer irrevocably waives any requirement
that DFS retain possession and not dispose of any Collateral until after an
arbitration hearing, arbitration award, confirmation, trial or final
judgment. If DFS disposes of any such Collateral other than as herein
contemplated, the commercial reasonableness of such disposition will be
determined in accordance with the laws of the state governing this
Agreement.
17. Power of Attorney. Dealer grants DFS an irrevocable power of attorney to:
execute or endorse on Dealer's behalf any checks, financing statements,
instruments, Certificates of Title and Statements of Origin pertaining to
the Collateral; supply any omitted information and correct errors in any
documents between DFS and Dealer; initiate and settle any insurance claim
pertaining to the Collateral; and do anything to preserve and protect the
Collateral and DFS' rights and interest therein.
18. Information. DFS may provide to any third party any credit, financial or
other information on Dealer that DFS may from time to time possess. DFS may
obtain from any Vendor any credit, financial or other information regarding
Dealer that such Vendor may from time to time possess.
19. Termination/Right of First Refusal. Dealer may not terminate this Agreement
prior to the third anniversary of the date of this Agreement; provided,
however, that Dealer may terminate this Agreement prior to such date if:
(i) Dealer is provided with a written offer
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<PAGE>
for floorplan financing from another financial institution which sets forth
reasonably detailed terms for the proposed floorplan credit facility; (ii)
Dealer delivers a copy of said proposal to DFS and allows DFS thirty (30)
days to determine whether to match the proposed floorplan financing
program; and (iii) DFS elects not to offer the same floorplan financing
program to Dealer. DFS may terminate this Agreement at any time. If DFS
elects to terminate this Agreement, Dealer agrees that if Dealer: (a) is
not in default hereunder, 30 days prior notice of termination is reasonable
and sufficient (although this provision shall not be construed to mean that
shorter periods may not, in particular circumstances, also be reasonable
and sufficient); or (b) is in default hereunder, no prior notice of
termination is required. Dealer will not be relieved from any obligation to
DFS arising out of DFS' advances or commitments made before the effective
termination date of this Agreement. It is understood that Dealer may elect
to terminate this Agreement in its entirety only, no section or lending
facility may be terminated singly. DFS will retain all of its rights,
interests and remedies hereunder until Dealer has paid all of Dealer's
debts to DFS. All waivers set forth within this Agreement will survive any
termination of this Agreement.
20. Binding Effect. Dealer cannot assign its interest in this Agreement without
DFS' prior written consent, although DFS may assign or participate DFS'
interest, in whole or in part, without Dealer's consent. This Agreement
will protect and bind DFS' and Dealer's respective heirs, representatives,
successors and assigns.
21. Notices. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place of
business specified above; and (b) to DFS at 655 Maryville Centre Drive, St.
Louis, Missouri 63141-5832, Attention: General Counsel, or such other
address as the parties may hereafter specify in writing.
22. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT DEALER AND
DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY
PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO MODIFY IT.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
23. Other Waivers. Dealer irrevocably waives notice of: DPS' acceptance of this
Agreement, presentment, demand, protest, nonpayment, nonperformance, and
dishonor. Dealer and DFS irrevocably waive all rights to claim any punitive
and/or exemplary damages.
24. Severability. If any provision of this Agreement or its application is
invalid or unenforceable, the remainder of this Agreement will not be
impaired or affected and will remain binding and enforceable.
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<PAGE>
25. Supplement. If Dealer and DFS have heretofore executed other agreements in
connection with all or any part of the Collateral, this Agreement shall
supplement each and every other agreement previously executed by and
between Dealer and DFS, and in that event this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement
nor shall execution of this Agreement be deemed a satisfaction of any
obligation secured by such previously executed agreement.
26. Receipt of Agreement. Dealer acknowledges that it has received a true and
complete copy of this Agreement. Dealer acknowledges that it has read and
understood this Agreement. Notwithstanding anything herein to the contrary:
(a) DFS may rely on any facsimile copy, electronic data transmission or
electronic data storage of this Agreement, any Statement of Transaction,
billing statement, invoice from a Vendor, financial statements or other
reports, and (b) such facsimile copy, electronic data transmission or
electronic data storage will be deemed an original, and the best evidence
thereof for all purposes, including, without limitation, under this
Agreement or any other agreement between DFS and Dealer, and for all
evidentiary purposes before any arbitrator, court or other adjudicatory
authority.
27. Miscellaneous. Time is of the essence regarding Dealer's performance of its
obligations to DFS notwithstanding any course of dealing or custom on DFS'
part to grant extensions of time. Dealer's liability under this Agreement
is direct and unconditional and will not be affected by the release or
nonperfection of any security interest granted hereunder. DFS will have the
right to refrain from or postpone enforcement of this Agreement or any
other agreements between DFS and Dealer without prejudice and the failure
to strictly enforce these agreements will not be construed as having
created a course of dealing between DFS and Dealer contrary to the specific
terms of the agreements or as having modified, released or waived the same.
The express terms of this Agreement will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the
terms hereof. If Dealer fails to pay any taxes, fees or other obligations
which may impair DFS' interest in the Collateral, or fails to keep the
Collateral insured, DFS may, but shall not be required to, pay such taxes,
fees or obligations and pay the cost to insure the Collateral, and the
amounts paid will be: (a) an additional debt owed by Dealer to DFS, which
shall be subject to finance charges as provided herein; and (b) due and
payable immediately in full. Dealer agrees to pay all of DFS' reasonable
attorneys' fees and expenses incurred by DFS in enforcing DFS' rights
hereunder. This is an agreement regarding the extension of credit, and not
the provision of goods or services. The Section titles used in this
Agreement are for convenience only and do not define or limit the contents
of any Section.
28. BINDING ARBITRATION.
28.1 Arbitrable Claims. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or
in equity of any type or nature whatsoever (including, without
limitation, all torts, whether regarding negligence, breach of
fiduciary duty, restraint of trade, fraud, conversion, duress,
interference, wrongful replevin, wrongful sequestration, fraud in the
inducement, usury or any other tort, all contract actions, whether
regarding express or implied terms, such as implied covenants of good
faith, fair dealing,
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<PAGE>
and the commercial reasonableness of any Collateral disposition, or
any other contract claim, all claims of deceptive trade practices or
lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of
this Agreement, and whether directly or indirectly relating to: (a)
this Agreement and/or any amendments and addenda hereto, or the
breach, invalidity or termination hereof; (b) any previous or
subsequent agreement between DFS and Dealer; (c) any act committed by
DFS or by any parent company, subsidiary or affiliated company of DFS
(the "DFS Companies"), or by any employee, agent, officer or director
of a DFS Company whether or not arising within the scope and course of
employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or
dealing between DFS and Dealer; and/or (d) any other relationship,
transaction or dealing between DFS and Dealer (collectively the
disputes), will be subject to and resolved by binding arbitration.
28.2 Administrative Body. All arbitration hereunder will be conducted in
accordance with the Commercial Arbitration Rules of The American
Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or
becomes subject to any state or federal bankruptcy or insolvency
proceeding, the parties will remain subject to binding arbitration
which will be conducted by a mutually agreeable arbitral forum. The
parties agree that all arbitrator(s) selected will be attorneys with
at least five (5) years secured transactions experience. The
arbitrator(s) will decide if any inconsistency exists between the
rules of any applicable arbitral forum and the arbitration provisions
contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The
site of all arbitration proceedings will be in the Division of the
Federal Judicial District in which AAA maintains a regional office
that is closest to Dealer.
28.3 Discovery. Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the parties will exchange
detailed statements setting forth the facts supporting the claim(s)
and all defenses to be raised during the arbitration, and a list of
all exhibits and witnesses. No later than twenty-one (21) days prior
to the arbitration hearing, the parties will exchange a final list of
all exhibits and all witnesses, including any designation of any
expert witness(es) together with a summary of their testimony; a copy
of all documents and a detailed description of any property to be
introduced at the hearing. Under no circumstances will the use of
interrogatories, requests for admission, requests for the production
of documents or the taking of depositions be permitted. However, in
the event of the designation of any expert witness(es), the following
will occur: (a) all information and documents relied upon by the
expert witness(es) will be delivered to the opposing party, (b) the
opposing party will be permitted to depose the expert witness(es), (c)
the opposing party will be permitted to designate rebuttal expert
witness(es), and (d) the arbitration hearing will be continued to the
earliest possible date that enables the foregoing limited discovery to
be accomplished.
- 12 -
<PAGE>
28.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
28.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although
any award or order rendered by the arbitrator(s) pursuant to the terms
of this Agreement may be entered as a judgment or order in any state
or federal court and may be confirmed within the federal judicial
district which includes the residence of the party against whom such
award or order was entered. This Agreement concerns transactions
involving commerce among the several states. The Federal Arbitration
Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will govern
all arbitration(s) and confirmation proceedings hereunder.
28.6 Prejudgment and Provisional Remedies. Nothing herein will be construed
to prevent DFS' or Dealer's use of bankruptcy, receivership,
injunction, repossession, repletion, claim and delivery,
sequestration, seizure, attachment, foreclosure, dation and/or any
other prejudgment or provisional action or remedy relating to any
Collateral for any current or future debt owed by either party to the
other. Any such action or remedy will not waive DFS' or Dealer's right
to compel arbitration of any Dispute.
28.7 Attorneys' Fees. If either Dealer or DFS brings any other action for
judicial relief with respect to any Dispute (other than those set
forth in Section 28.6), the party bringing such action will be liable
for and immediately pay all of the other party's costs and expenses
(including attorneys' fees) incurred to stay or dismiss such action
and remove or refer such Dispute to arbitration. If either Dealer or
DFS brings or appeals an action to vacate or modify an arbitration
award and such party does not prevail, such party will pay all costs
and expenses, including attorneys' fees, incurred by the other party
in defending such action. Additionally, if Dealer sues DFS or
institutes any arbitration claim or counterclaim against DFS in which
DFS is the prevailing party, Dealer will pay all costs and expenses
(including attorneys' fees) incurred by DFS in the course of defending
such action or proceeding.
28.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either
party to the other, within two (2) years after the date the last
payment was received by the instituting party; and (b) with respect to
any other Dispute, within two (2) years after the date the incident
giving rise thereto occurred, whether or not any damage was sustained
or capable of ascertainment or either party knew of such incident.
Failure to institute an arbitration proceeding within such period will
constitute an absolute bar and waiver to the institution of any
proceeding, whether arbitration or a court proceeding, with respect to
such Dispute.
28.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
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<PAGE>
29. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT
TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
SUCH PROCEEDING.
30. Governing Law. Dealer acknowledges and agrees that this and all other
agreements between Dealer and DFS have been substantially negotiated, and
will be substantially performed, in the state of FLORIDA. Accordingly,
Dealer agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent
with the provisions of the FAA which shall control and govern all
arbitration proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the
date first set forth hereinabove.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES FEATHERLITE MFG., INC.
CORPORATION
By: /s/ David O'Hare By: /s/ Conrad Clement
Print Name: David O'Hare Print Name: Conrad Clement
Title: Credit Manager Title: President
ATTEST:
/s/ Gary Ihrke
(Assistant) Secretary
Print Name: Gary Ihrke
- 14 -
Exhibit 10.23
AMENDMENT NO. 1
TO
FEATHERLITE MFG., INC. 1994 STOCK OPTION PLAN
This Amendment No. 1 to the Featherlite Mfg., Inc. 1994 Stock Option Plan
(the "Plan") was adopted by the Board of Directors of the Company on May 14,
1996:
1. Section 5 of the Plan is amended in its entirety to read as follows:
"SECTION 5.
PARTICIPANTS
The Board or the Committee, as the case may be, shall from
time to time, at its discretion and without approval of the
shareholders, designate those employees, directors, officers,
consultants, and advisors of the Company or of any Subsidiary to whom
nonqualified stock options shall be granted under this Plan; provided,
however, that consultants or advisors shall not be eligible to receive
stock options hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital raising
transaction. The Board or the Committee, as the case may be, shall,
from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any
Subsidiary to whom incentive stock options shall be granted under this
Plan. The Board or the Committee may grant additional incentive stock
options or nonqualified stock options under this Plan to some or all
participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Board
or the Committee shall also determine the number of shares to be
optioned to each such participant. The Board may from time to time
designate individuals as being ineligible to participate in the Plan."
2. Paragraph (a) of Section 17 of the Plan is hereby amended in its
entirety to read as follows:
"(a) Grant of Nonqualified Stock Options. All grants of nonqualified
stock options to Outside Directors under this Section 17 shall be
automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(1) No person shall have any discretion to select the Outside
Directors that shall be eligible for nonqualified stock options
pursuant to this Section 17 or to determine the number of shares
of Common Stock to be subject to such options, the option price
per share or the date of grant.
(2) Initial Grants. Each Outside Director who becomes a member of the
Board of Directors after the date this Amendment No. 1 is adopted
by the
- 1 -
<PAGE>
Board shall, on the date that such Outside Director is first
elected to the Board of Directors by the shareholders of the
Company, be granted a nonqualified stock option to purchase 3,000
shares of Common Stock of the Company.
(3) Annual Grants. Each Outside Director shall, on the date of each
annual meeting of the shareholders of the Company, be granted a
nonqualified stock option to purchase 3,000 shares of Common
Stock of the Company so long as such Outside Director continues
to serve on the Board."
3. Except as otherwise amended or modified herein, all other provisions of
the Plan shall remain in full force and effect.
FEATHERLITE MFG., INC.
By /s/ C. Clement
Its President
- 2 -
Exhibit 10.24
Confidential portions of this document have been omitted and filed separately
with the Commission.
REYNOLDS ALUMINUM SUPPLY CO.
1801 BEDFORD AVENUE QUOTE
N. KANSAS CITY, MO 64116
Phone (816) 842-2200/Fax (816) 471-2382
Toll Free (800) 821-2568
Bill To: Ship To:
Quotation # :
FEATHERLITE MFG., SAME Date: August 21, 1996
INC.
HWY 63 & 9 Customer ID: S9288
CRESCO, IA 52136
ATTN: MR. GARY IHRKE
END USE PACKING SALES REP. DELIVERY SHIP VIA PAYMENT ESTIMATED
TERMS TERMS SHIPMENT
ARO
TRAILERS 2500# MAX STEVE FOB OUR TRUCK 1% - 10
SKIDS MERRYMAN CRESCO, NET 45
IA DAYS
QTY PART # UNITS DESCRIPTION UNIT PR
********** ********* 3105H14MF - .040, .100, .125 GUAGES $*******/#
to ********* + Not Purchased
********** - 10%
********** +******* + 3105h18PTD. - .030 & .040 GUAGES $*******/#
to - 10%
**********
PRICE FIRM THROUGH OCTOBER,
1997 BY MY SIGNATURE AND
FEATHERLITE BLANKET PURCHASE ORDER,
AS A AUTHORIZED AGENT OF FEATHERLITE MFG.,
WE ACCEPT THIS PROPOSAL AND ENTER INTO
CONTRACT WITH REYNOLDS ALUMINUM SUPPLY CO
FOR THE ABOVE ITEMS. PER THE ITEMS, PER THE
TERMS AND CONDITIONS STATED IN THE QUOTATION.
PER: /S/ GARY IHRKE
GARY IHRKE
PO NUMBER: DATE: 8/22/96
- 1 -
<PAGE>
THIS QUOTATION IS SUBJECT TO THE TERMS AND CONDITIONS STATED ON PAGE 2.
Should you have any questions concerning this quotation or should you wish to
place an order, please contact the undersigned.
/s/ Steve Merryman
THANK YOU FOR THE OPPORTUNITY TO QUOTE
- 2 -
Exhibit 10.25
Confidential portions of this document have been omitted and filed separately
with the Commission.
Featherlite Mfg., Inc.
Hwy 63 & 9
Cresco, IA 52136
September 13, 1996
Samuel-Whittar Inc.
20091 Shorwood Avenue
Detroit, Michigan 48234
Dear Norb:
This letter will confirm our telephone conversation regarding Featherlite Mfg.,
Inc.'s purchase of aluminum shape products from Samuel-Whittar during the year
1997.
1. Featherlite's delivered price for 3105-H14 alloy aluminum is as
follows:
A. ********** pounds at $********** per pound for the first
quarters of 1997.
B ********** pounds at $********** per pounds for the fourth
quarter of 1997.
2. Featherlite will place orders in truck load quantities (40,000+).
3. Samuel-Whittar will keep in stock one month of cut sheet pieces,
which will be determined by Larry Balser and Craig Lepa and one
month of coil in stock with one month of coil on order at the
mill through out this contract.
4. Featherlite agrees to take any item Featherlite orders through
out the contract, even if the item becomes obsolete.
5. Monthly orders will be an average only of ********** pounds. This
number may go up and down as the year progresses.
6. The first three quarters of 1997 will be plus or minus 10% of the
total pounds ordered. Therefore, Featherlite can order between
********** and ********** pounds for the first three quarters
(plus or minus 10% of the total).
7. Credit terms are 45 days.
8. 2500 pound maximum skid weight.
9. No splices or skid stringers and stringers to be a minimum of 3
1/2" tall.
10. Certifications are required on all products purchased from
Samuel-Whittar.
11. Billing weight is to be calculated off .099 theoretical weight.
- 1 -
<PAGE>
I believe this to be a complete understanding as we agreed to on the telephone
last week. If you have any questions regarding this matter please feel free to
call me at 319-547-6000.
Sincerely,
/s/ Tracy Clement
Tracy Clement
Executive Vice President
Agreed to this ____ day of September, 1996.
Samuel-Whittar, Inc.
/s/ Norb Niemier 10/1/96
Norb Niemier
Vice President of Sales
- 2 -
Exhibit 10.26
Confidential portions of this document have been omitted and filed separately
with the Commission.
FIXED-PRICE PURCHASE AND SALE AGREEMENT
This Agreement ("Agreement") dated November 27, 1996 is between Dolton Aluminum
Company, Inc. ("Seller") and FEATHERLITE TRAILERS ("Buyer").
Seller desires to sell certain goods to Buyer and Buyer desires to purchase
certain goods from Seller.
NOW, THEREFORE, in consideration of these premises and the following mutual
agreements, the parties agree as follows:
1. Seller will sell to Buyer, and Buyer will purchase from Seller, the aluminum
extrusions identified on Schedule A attached hereto ("Product"), subject to the
terms contained in this Agreement and the attached Schedule A. The quantity,
delivery dates, and prices, for Product are also set forth on Schedule A.
2. This Agreement shall have a term from the date hereof to December 31, 1997.
This Agreement may not be canceled by either party prior to the termination date
without the prior written consent of the other. Buyer acknowledges that Seller
intends to rely on this Agreement in fixing the prices and delivery dates of its
raw material purchases necessary to fulfill this Agreement and as such, Buyer
agrees to pay for the quantity specified on Schedule A whether or not Buyer
places specific orders with Seller as specified in Item 3 below.
3. Buyer agrees to place specific firm orders with Seller for the Product at
least 28 days prior to the requested shipment date which shall specify the
number of pounds, feet, or pieces of specific aluminum extrusion shapes. Seller
will attempt to respond to Buyer's order requests with less than 28 day lead
time but shall be under no obligation to do so. Seller is required to
manufacture and ship only product for which Seller has timely received specific
firm orders.
4. Seller's obligations hereunder are subject to Seller's credit approval with
respect to each shipment and to the availability of financial information on
Buyer which, in the Seller's opinion, is adequate to demonstrate the Buyer's
financial condition, ability to pay for shipments in accordance with agreed
terms of payment, and ability to support the volume of credit extended by the
Seller.
Payment terms for the Product shall be as set forth in Schedule A. Seller's
obligation to continue shipments of Product is conditioned upon Buyer satisfying
its payment obligations under this Item 4 in full within the time period
specified.
5. Either party's failure, at any time or times hereafter, to require strict
performance by the other party of any provision of this Agreement shall not
constitute a waiver, or affect or diminish the right thereafter to demand strict
compliance and performance of this Agreement.
- 1 -
<PAGE>
Page 2
Fixed-Price Purchase and Sale Agreement
6. This Agreement (including Schedule A) shall constitute the entire agreement
between the parties with respect to the subject matter hereof and shall not
apply to any purchases by Buyer in excess of the quantities set forth in
Schedule A. The terms of any such excess purchases will be governed by separate
agreement of the parties. Except as specified in this Agreement, the terms of
sale and rights of the parties with respect to any specific order shall be as
set forth in Seller's order acknowledgment as provided from time to time.
By: Gary Ihrke By: Drago H. Kahanu
Title: Vice President Title: Vice President
Manufacturing Sales and Marketing
Signature: /s/ Gary Ihrke Signature: /s/ Drago H. Kahanu
FEATHERLITE TRAILERS DOLTON ALUMINUM CO., INC.
(BUYER) (SELLER)
Dated: 11/27/96 Dated: 11-27-96
- 2 -
<PAGE>
SCHEDULE A
Material Description: This agreement covers custom and standard extrusions
currently being supplied or quoted to FEATHERLITE TRAILERS (Buyer") by Dolton
Aluminum Company, Inc. ("Seller") with specific pounds/pieces/feet by specific
shape to be supplied by Buyer.
Quantity: ********** pounds per calendar month for a total of ********** pounds.
Delivery Period: January 1, 1997 through December 31, 1997.
Price: $********** per pound for solid aluminum extrusions, add $********** per
pound for hollows.
Packaging: Standard - Bare Bundle.
Tolerance: Aluminum Association standards to apply.
FOB: FEATHERLITE TRAILERS, Cresco, IA.
Total Dollar Value of Contract: Approximately $**********.
Terms: Net 30 days.
By: Gary Ihrke By: Drago Kahanu
Title: Vice President Title: Vice President Marketing
Signature: /s/ Gary Ihrke Signature: /s/ Drago Kahanu
FEATHERLITE TRAILERS DOLTON ALUMINUM CO., INC.
(BUYER) (SELLER)
Dated: 11/27/96 Dated: 11-27-96
- 3 -
Exhibit 10.27
Confidential portions of this document have been omitted and filed separately
with the Commission.
ALUMAX 2700 International Drive
TRANSPORTATION PRODUCTS Suite 200
West Chicago, IL 60185
VIA FACSIMILE 319/547-6099 630/584-1000
November 27, 1996 Fax 630/584-1243
Mr. Gary Ihrke
Vice President, Operations
Featherlite Manufacturing, Inc.
Box 320
Cresco, IA 52136
Dear Gary:
This letter will confirm that Alumax Transportation Products agrees to supply
and you agree to purchase ********** pounds of aluminum extrusions for delivery
January, 1997 through December, 1997 via our assigned contract number ATP0078.
Pricing during this contract period will be firm at $********** per pound.
Based upon your commitment, Alumax Transportation Products has taken the
necessary actions, via an established metal position, to provide a firm price
for the duration of this agreement. It is expected that shipments of finished
product will occur in a timely manner, which in this case equates to
approximately ********** pounds on a monthly basis.
In the event you do not fulfill the volume commitment during the contract
period, you will be invoiced for and expected to pay an amount equal to any
financial loss we incurred on the metal position we established in order to
provide you with this firm price contract. The amount you would be invoiced
would be calculated in accordance with the attached Alumax Extrusions, Inc.
terms and conditions regarding firm priced contracts.
We believe the above establishes the essence of our agreement and we request
that you acknowledge receipt and forward a signed copy of this contract for our
files.
We appreciate your confidence in Alumax Transportation Products and look forward
to the successful completion of this contract.
Best regards,
/s/ Ted E. Smothers ACKNOWLEDGED AND ACCEPTED:
Ted E. Smothers /s/ Gary Ihrke 12/2/96
Vice President, Sales & Marketing Gary Ihrke
Vice President, Operations
Featherlite Manufacturing, Inc.
- 1 -
Exhibit 13
Growing Through Diversity
Featherlite Mfg., Inc. 1996 Annual Report
Registrar and Stock Transfer Agent
Firstar Trust Company
Milwaukee, WI
Independent Auditors
McGladrey & Pullen, LLP
Rochester, MN
General Counsel
Fredrikson & Byron, P.A.
Minneapolis, MN
Annual Meeting
The Featherlite, Mfg., Inc. annual meeting will take place on May 7, 1997 at
Corporate Headquarters at 7 p.m. Plant tours at 4 p.m.
Availability of l0-K
A copy of the Company's 1996 Annual Report on Form l0-K filed with the
Securities and Exchange Commission will be made available to interested
shareholders without charge upon written request to the Company or by calling
Investor Relations at (319) 547-6000 or fax (319) 547-6099.
Stock Market Information
Nasdaq Stock Market: FTHR
As of February 15, 1997, there were approximately 264 shareholders of record.
<PAGE>
SELECTED FINANCIAL INFORMATION
(In thousands, except per share and stock price data)
<TABLE>
<CAPTION>
FIVE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $99,329 $69,159 $60,172 $39,763 $29,383
Cost of goods sold 84,643 58,673 47,521 31,269 23,260
------------------------------------------------------------------------------
Gross profit 14,686 10,486 12,651 8,494 6,123
Selling and administrative expenses 12,492 9,993 8,075 6,308 5,149
------------------------------------------------------------------------------
Operating income 2,194 493 4,576 2,186 974
Interest expense (1,450) (799) (667) (550) (450)
Other income, net 660 1,478 344 480 270
------------------------------------------------------------------------------
Income before taxes 1,404 1,172 4,253 2,116 794
Provision for Income taxes 562 471 392 -- --
------------------------------------------------------------------------------
Net income $ 842 $ 701 $ 3,861 $ 2,116 $ 794
------------------------------------------------------------------------------
Pro Forma Statement of Income Data
Net income, as reported $ -- $ -- $ 3,861 $ 2,116 $ 794
Pro forma provision for taxes -- -- 1,152 811 339
------------------------------------------------------------------------------
Pro forma net income $ -- $ -- $ 2,709 $ 1,305 $ 455
==============================================================================
Net income per share $ 0.13 $ 0.12 $ 0.60 $ 0.33 $ 0.11
==============================================================================
Cash Distributions for taxes* $ -- $ 305 $ 1,795 $ 746 $ 146
==============================================================================
Weighted average number of
common shares outstanding (000's) 6,106 5,955 4,509 4,000 4,000
==============================================================================
Balance Sheet Data (End of Period) 1996 1995 1994 1993 1992
Working capital $15,128 $15,360 $ 9,516 $ 782 $ 1,794
Total assets 53,534 46,084 33,258 19,098 13,586
Total long-term debt,
net current maturities 13,356 15,194 5,282 4,230 3,559
Total shareholders' investment 20,595 17,953 17,252 4,517 3,615
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Data (Unaudited)
Operating Net Income
Gross Income Net Income (Loss) Common Stock Price
Net Sales Profit (Loss) (Loss) Per Share High Low
<S> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter $19,976 $3,018 $ 302 $ 51 $0.01 $ 6.00 $4.63
Second Quarter 21,169 2,704 85 14 -- 6.38 $4.75
Third Quarter 28,384 3,938 690 206 0.03 6.88 $5.13
Fourth Quarter 29,800 5,026 1,117 571 0.09 6.25 $4.75
1995
First Quarter $18,214 $3,279 $ 970 $912 $0.15 $11.38 $9.00
Second Quarter 17,396 2,563 224 496 0.08 $ 9.88 $7.38
Third Quarter 16,164 2,180 (381) (332) (0.05) $ 8.13 $5.50
Fourth Quarter 17,385 2,464 (320) (375) (0.06) $ 6.25 $4.19
</TABLE>
The Company's common stock trades on the Nasdaq National Market Stock tier of
The NASDAQ Stock Market under the symbol "FTHR".
*Represent only distribution for estimated shareholders' federal and state
income tax liabilities from Company's status as S corporation prior to initial
public stock offering. No other dividends were paid. The Company is restricted
from paying dividends. See Liquidity & Capital Resources in MD&A for a
discussion of these restrictions.
<PAGE>
Management's Discussion and Analysis
The following discussion pertains to the Company's results of operations
and financial condition for the years ended December 31, 1996, 1995 and 1994.
Results of Operations
Net Sales
Featherlite Mfg., Inc. achieved a 43.6% increase in net sales to $99.3
million for the year ended December 31, 1996 following an increase of 15% to
$69.2 million in 1995 from $60.2 million in 1994. These gains were the result of
strong growth in all product lines in 1996 and 1995 as well as acquisitions in
both years. In 1996, the Company acquired the assets of Vantare International,
Inc., a converter of luxury motorcoaches and in 1995, the assets of Diamond D
Trailer Manufacturing, Inc. which manufactures steel trailers.
Gross Profit
Significant sales expansion combined with lower aluminum costs caused gross
profit to increase to $14.7 million in 1996 from $10.5 million in 1995 and $12.6
million in 1994. As a percentage of sales, gross profit margin was 14.8% in 1996
compared to 15.2% in 1995 and 21.0% in 1994. Following is a summary of
components of the change in the gross profit margin percentage, by year, for the
years 1994 through 1996:
1996
With
Motor Trailers
coaches Only
Aluminum 7.2% 4.9%
Other Materials (9.0) (3.8)
Labor and overhead 1.4 (0.9)
-----------------------
Gross Margin Inc(dec) (0.4%) (0.2%)
-----------------------
1995 1994
Aluminum (2.1)% (1.6)%
Other Materials (1.2) .3
Labor and overhead (2.5) .9
-----------------------
Gross Margin Inc(dec) (5.8)% (0.4%)
-----------------------
The gross margin decrease in 1996 relates primarily to the increased cost
of luxury motorcoaches which offset the effect of aluminum cost decreases during
the year. If motorcoaches are excluded, the gross profit margin for 1996 is
comparable to 1995. Other materials related to trailers increased due to greater
sales of utility trailers, steel horse and livestock trailers and other trailers
which have a higher percentage of non-aluminum materials. In 1995 the gross
margin was lower than 1994 due to the increased cost of aluminum and other
materials as well as labor and overhead cost increases.
<PAGE>
Aluminum is a commodity which is traded daily on commodity markets and
fluctuates in price. The average Midwest delivered market cash price per pound
for ingot aluminum during the three years ended December 31, 1996, as reported
to the Company by its suppliers, was $.72 in 1996, $.86 in 1995 and $.72 in
1994. The Company's cost of aluminum varies from these market prices due to
vendor processing charges, timing of purchases, contractual commitments with
suppliers for specific prices and other factors. Its average cost of aluminum,
which peaked in the third and fourth quarters of 1995, was approximately 6% less
in 1996 than in 1995 and 20% greater than in 1994.
Selling, Administration and Other
The significant sales growth, coupled with expense control also reduced
selling and administrative costs as a percent of sales. Selling and
administrative expenses decreased as a percentage of sales to 12.6% in 1996
compared with 14.5% in 1995 and 13.4% in 1994. These costs increased by $2.4
million to $12.4 million in 1996 from $10.0 million in 1995 and $8.1 million in
1994. This increase in 1996 mainly reflects sales and other personnel added
throughout 1995 and 1994 to improve product exposure and to build a larger sales
organization to support a higher sales volume and expanded dealer network. The
acquisition of Vantare increased selling and administrative expenses by $692,000
in 1996.
Interest expense increased in 1996 by $650,000 to $1.5 million from
$799,000 in 1995 and $667,000 in 1994 as the result of increased levels of
borrowings for working capital and aircraft in 1996 and 1995. Borrowings against
the line of credit were reduced in the first half of 1995 as a portion of the
proceeds from the initial public offering were available to finance 1995 working
capital increase. Other income decreased by $853,000 in 1996 over 1995,
substantially due to the non- recurrence in 1996 of a $750,000 development grant
received in 1995 for working capital and operating costs related to the
facilities expansion, and additional sales of aircraft in 1995 which realized
gains of $525,000. Other income in 1996 also includes a litigation settlement in
the amount of approximately $245,000.
Provision for income taxes
The provision for income taxes reflects an effective federal and state
income tax rate of 40% in 1996 and 1995. In 1994, a pro forma provision for
taxes was calculated using an effective rate of 36% as the Company was an S
corporation for federal and state income tax purposes until its S election
terminated in connection with a public offering of common stock in September,
1994.
Segment information
The following discussion pertains to information on the Company's principal
business segments as set forth in Note 11 to the financial statements for the
years ended December 31, 1996, 1995 and 1994.
<PAGE>
Trailer Segment
1996 1995 1994
Net sales
(000's) $80,689 $65,176 $56,835
Segment
income
(000's) 5,085 2,764 6,395
Segment
income
percent 6.3% 4.2% 11.3%
Net trailer sales increased by 23.8% in 1996 and 14.6% in 1995. The 1996
increase includes a 20% increase in the sales of Featherlite and Econolite
trailers plus the added sales of Diamond D trailers (which was acquired in the
4th quarter of 1995). On a product line basis, there were significant gains in
1996 over 1995 in sales of horse and livestock trailers, which are each up more
than 20%, and increased sales of snowmobile and other recreational/utility
trailers, which are each up over 60% in 1996. Car trailer and race car
transporter sales were up about 10% compared to last year. Commercial trailers
were up by only 15% reflecting the expansion of drop frame moving and specialty
van sales offset by the discontinuation of flatbed and drop deck semi-trailers
during 1996. The sales increase in 1995 compared to 1994 included gains in sales
in all product lines except sales of livestock trailers and
commercial/semi-trailers which were down slightly. Other factors contributing to
the trailer sales growth in 1995 and 1996 included: the introduction of new
trailer models in existing product lines, the introduction of new product lines
and the expanded use of specialty trailers in activities related to hobbies and
entertainment of end user customers. A portion of the sales increase in 1996 and
1995 was the result of price increases ranging from 2-5% introduced in those
years.
Segment income increased in 1996 primarily due to higher sales volume,
improved margins resulting from reduced aluminum costs and reduced marketing
expenses. These improvements were partially offset by increases in other
materials, and labor and overhead costs. In 1995 segment income decreased
primarily due to increased aluminum and other material costs, as well as
increased labor and overhead costs which were higher than 1994 due to increased
average labor rates and greater overhead costs related to expanded plant
capacity. Sales and marketing expenses also increased in 1995. Sales and
marketing expenses related to this segment were 5.7% in 1996, 6.9% in 1995 and
6.0% in 1994.
Motorcoach segment
1996
Net sales (000's) $14,785
Segment income (000's) 932
Segment income percent 6.3%
The Company began developing and manufacturing luxury motorcoaches in 1995
and it acquired the assets of Vantare International, Inc., a luxury motorcoach
converter, as of July 1, 1996. Net sales for 1996 include sales of used
trade-ins in the amount of $5.2 million, which have a lower margin than new unit
sales. Marketing and administrative expenses related to this segment were
approximately 5.7% of segment income, including amortization of intangibles
related to the acquisition of approximately $82,000 in 1996.
<PAGE>
Looking Forward
The statements made in this annual report which are forward looking in time
involve risks and uncertainties discussed here and in the Company's Form 10K and
other filings with the SEC, including but not limited to: product demand and
acceptance of new products in each segment of the Company's markets,
fluctuations in the price of aluminum, competition, facilities utilization and
aircraft purchases and sales.
Sales are expected to continue to remain strong in 1997 in all product
groups. The Vantare acquisition in 1996 will add significant luxury motorcoach
sales volume as they expect to sell 42 new motorcoaches in 1997. Increases in
livestock trailer sales are expected to continue as cattle prices have improved.
Significant additional sales are expected from the sale of private label
snowmobile trailers to Polaris dealers. Continued growth is expected in drop
frame delivery and moving van sales which the Company introduced in late 1995.
These sales are expected to substantially replace sales of semi-flat bed
trailers which the Company has discontinued due to lower profit margins. These
expectations may not be met if there are changes in the general economy or in
the market for particular types of trailers or motorcoaches. Price increases
ranging from 2 to 5% announced in midyear 1996 will be effective for all new
orders received in 1997. The total sales order backlog at December 31, 1996 was
approximately $28 million, including $16 million in Vantare orders, compared
with $7.2 million at December 31, 1995. All of this backlog will be delivered in
1997.
Continued decreases in the average cost of aluminum, which are expected to
be approximately 10% less than the 1996 average cost, will have a positive
impact on gross margins. The Company has obtained commitments from suppliers to
provide, at an agreed upon fixed price, substantial portions of its total
aluminum requirements for much of 1997. However, the overall gross margin
percentage may not improve significantly as future Vantare sales may include a
significant amount of used coach sales which have a low gross margin and will
hold down improvement in the Company's overall gross margin percent. However,
the effect of this on overall operating income should be partially reduced by
lower than average sales and administration costs related to the Vantare
operation.
There is a risk to future operating results related to losing a major
supplier of aluminum. This risk is relatively nominal as there are alternate
sources of supply. It may take a little longer to replace an extruded aluminum
supplier due to the fact that dies are required and would have to be made. The
Company routinely tries to keep at least two suppliers of each shape so it has a
backup supplier, if necessary. Many of these suppliers have multiple plants that
can be used to produce the material the Company requires.
There is also a risk if the Company were to lose its sole supplier of
motorcoach conversion shells, Prevost Car Company, although the Company could
purchase certain shells from other manufacturers. The Company does have business
interruption insurance to cover all or a portion of the losses it may sustain if
Prevost's plant is destroyed by fire or certain other catastrophies.
Sales and administration expenses are expected to increase at a lower rate
than sales growth as much of the organizational growth occurred in 1996 and
1995. Also, the addition of Vantare will not result in a significant increase in
sales and administration expense, except for amortization of intangibles as
discussed in Note 10 to the financial statements. Interest expense will likely
remain higher in 1997 as the average level of debt is expected to be greater in
1997 than 1996. No significant amount of grant income will be realized in 1997.
<PAGE>
The Company has made increased use of leverage and incurred increased
interest and related expenses in the three years ended December 31, 1996.
Increased debt was incurred in connection with the acquisition of Diamond D
(fourth quarter of 1995), financing operations of Vantare (third quarter of
1996) and financing additional working capital. The Company temporarily was out
of compliance with certain covenants in its loan agreements in 1996 but is now
in compliance and has extended its bank line of credit. Increased leverage and
related expenses create a risk to future operating results of the Company.
Liquidity and Capital Resources
Operating activities used net cash of $214,000 for the year 1996, primarily
for investment in working capital. Net income for the year ended December 31,
1996 provided cash of $842,000. This amount was increased by adjustments for
depreciation of $1.5 million and reduced by other non-cash items in a net amount
of $185,000. Increases in receivables and inventories and other working capital
items used cash of $2.3 million, excluding the effect of the Vantare acquisition
which increased receivables, inventories and prepaids by $5.8 million and
accounts payable and accruals by $6.1 million. These increases in working
capital reflect the Company's increased volume of sales and additional increases
may be required in the future to support higher sales levels throughout the next
year.
Investing activities in the year ended December 31, 1996 provided cash of
$1.6 million, net of $1.5 million used for plant and other improvements. Sales
of aircraft provided $2.8 million, which will be reinvested in aircraft in 1997.
The Company also made a non-cash acquisition of the assets of Vantare
International, Inc. as of July 1, 1996. In connection with this purchase which
is described in Note 10 to financial statements, the Company received cash and
cash equivalents in the amount of $231,000 and equipment with a fair value of
$330,000.
Financing activities used net cash of $1.9 million after borrowing an
additional $6.1 million and repaying $8.2 million of aircraft and other debt. In
connection with the purchase of the assets of Vantare International, Inc. the
Company issued 300,000 shares of common stock with an approximate value of $1.8
million and assumed debt in the amount of $1.7 million. An additional 100,000
shares of stock may be issued over the next four years if defined levels of net
income are achieved by the Vantare operation.
The Company has a working capital line of credit with its primary lender.
This line has a borrowing limit of equal to the lessor of $12 million or a
defined percentage of eligible receivables and inventory and an interest rate of
prime. The maturity date of this line is July 31, 1998, subject to renewal and
extension. The Company is required by the lender to maintain defined levels of
working capital, tangible net worth and cash flow and to limit leverage and
capital expenditures. Borrowings under the line are secured by substantially all
the assets of the Company. There was $9.1 million borrowed against this line as
of December 31, 1996.
<PAGE>
The Company also has a wholesale floor plan agreement with a finance
company to borrow up to $3.5 million for financing new and used motorcoaches
held in inventory. At December 31, 1996, $1.8 million was borrowed against this
line.
The Company believes that its current cash balances, cash flow generated
from operations and available borrowing capacity will be sufficient to fund
operations and capital requirements for the next year and the foreseeable
future.
As discussed in Note 6 to financial statements, the Company is contingently
liable under certain dealer floor plans and retail financing arrangements and
has guaranteed certain notes payable to Featherlite Credit Corporation, a
related company. These contingent liabilities total approximately $6.1 million
at December 31, 1996. Also, the Company is self-insured for a portion of certain
health benefit and workers' compensation insurance claims. At December 31, 1996,
the Company's maximum annual claim exposure under these programs is
approximately $2.2 million. The Company has obtained an irrevocable standby
letter of credit in the amount of $1,225,000 in favor of the workers'
compensation claim administrator.
The Company is expanding its production facility in Sanford, Florida. Upon
completion, this expansion project will be sold, at its completed cost of
approximately $855,000, to the Seminole County Port Authority, the present owner
of the facility. The facility will then be leased back to the Company under the
terms of a ten year capitalizable lease. During the construction period the
Company will provide financing for the construction using funds obtained from a
bank. The cost of this financing will be included in the total project cost. The
Company has made a commitment to the City of Cresco to construct a hangar
facility at a cost of approximately $300,000 as part of an airport expansion
project in 1997 or 1998.
For the foreseeable future, the Company does not plan to pay dividends but
instead will follow the policy of reinvesting earnings in order to finance the
expansion and development of its business. As discussed in Note 5 to financial
statements, the Company is a party to certain loan agreements which prohibit the
payment of dividends without the lender's consent.
<PAGE>
Featherlite Mfg., Inc.
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 256,128 $ 810,708
Trade accounts receivable 6,782,898 5,501,045
Refundable income taxes -- 466,411
Inventories 25,235,331 19,461,509
Prepaid expenses 1,093,463 787,657
Deferred taxes 481,410 430,410
---------- ----------
Total current assets 33,849,230 27,457,740
---------- ----------
PROPERTY AND EQUIPMENT:
Land and improvements 1,111,212 1,071,100
Building and improvements 7,300,025 7,110,754
Machinery and equipment 9,275,861 7,932,603
Accumulated depreciation (4,914,212) (3,780,835)
---------- ----------
Net property and equipment 12,772,886 12,333,622
---------- ----------
GOODWILL AND OTHER ASSETS 6,911,416 6,292,854
---------- ----------
$53,533,532 $46,084,216
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,145,465 $ 1,094,769
Other notes payable 2,254,641 656,571
Trade accounts payable 9,776,106 8,418,101
Accrued liabilities 3,110,187 1,811,954
Customer deposits 2,157,412 116,395
Income taxes payable 240,298 --
---------- ----------
Total current liabilities 18,684,109 12,097,790
---------- ----------
LONG-TERM DEBT:
Bank line of credit 9,100,000 7,600,000
Other debt, net of current maturities 4,245,592 7,594,173
---------- ----------
Total long term debt 13,345,592 15,194,173
---------- ----------
DEFERRED GRANT INCOME 310,170 383,362
DEFERRED INCOME TAXES 598,743 455,743
CONTINGENCIES AND COMMITMENTS (Note 6) ---------- ----------
SHAREHOLDERS' INVESTMENT
Common stock 14,220,355 12,420,355
Additional paid-in capital 4,061,500 4,061,500
Retained earnings 2,313,063 1,471,293
---------- ----------
Total shareholders' investment 20,594,918 17,953,148
---------- ----------
$53,533,532 $46,084,216
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Featherlite Mfg., Inc.
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $99,328,995 $69,159,149 $60,171,843
Cost of sales 84,642,699 58,672,720 47,521,014
---------- ---------- ----------
Gross profit 14,686,296 10,486,429 12,650,829
Selling, general and administrative expenses 12,372,360 9,979,389 8,008,036
Amortization of intangibles 119,610 14,462 66,407
---------- ---------- ----------
Income from operations 2,194,326 492,578 4,576,386
---------- ---------- ----------
Other income (expense):
Interest expense (1,450,265) (798,530) (667,212)
Grant income 73,192 823,192 88,646
Gain on aircraft and other sales 59,648 534,092 128,688
Other income, net 526,869 120,333 126,348
---------- ---------- ----------
Total other income (expense) (790,556) 679,087 (323,530)
---------- ---------- ----------
Income before taxes 1,403,770 1,171,665 4,252,856
Provision for income taxes 562,000 471,000 392,000
---------- ---------- ----------
Net income $ 841,770 $ 700,665 $ 3,860,856
========== ========== ==========
Pro forma data
Net income as reported $ -- $ -- $ 3,860,856
Pro forma provision for income taxes -- -- 1,152,000
---------- ---------- ----------
Pro forma net income $ -- $ -- $ 2,708,856
========== ========== ==========
Net income per share (Pro forma in 1994) $ 0.13 $ 0.12 $ 0.60
========== ========== ==========
Weighted average number of common
shares outstanding 6,106,072 5,955,000 4,508,836
========== ========== ==========
</TABLE>
Consolidated Statements of Shareholders' Investment
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
--Common Stock--
Outstanding Additional Retained
Shares Amount Paid in Capital Earnings
<S> <C> <C> <C> <C>
Balance December 31, 1993 4,000,000 $ 2,000,000 $2,516,802
Net income for the period 3,860,856
Distributions for shareholders' taxes (1,545,530)
Sale of common stock, net 1,955,000 10,420,355
Reclassify undistributed previously
taxed S corporation earnings 4,061,500 (4,061,500)
--------- ---------- --------- ---------
Balance December 31, 1994 5,955,000 $12,420,355 $4,061,500 $ 770,628
Net income for the period 700,665
--------- ---------- ---------- ---------
Balance December 31, 1995 5,955,000 $12,420,355 $4,061,500 $1,471,293
Net income for the period 841,770
Issue of common stock 300,000 1,800,000
--------- ---------- ---------- ---------
Balance December 31, 1996 6,255,000 $14,220,355 $4,061,500 $2,313,063
========= ========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Featherlite Mfg., Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 841,770 $ 700,665 $3,860,856
Adjustments to reconcile net income to net cash
from (used for) operating activities
Depreciation and amortization 1,454,271 1,244,495 925,739
Trailers exchanged for advertising and related amortization (143,953) 98,546 38,487
Grant income (73,192) (823,192) (88,646)
Deferred taxes 92,000 190,333 (165,000)
(Gain) on sales of aircraft and other property (59,648) (534,092) (128,688)
Changes in current operating items, net of effect of
business acquisitions
Trade accounts receivable (1,150,027) (1,657,627) (920,605)
Refundable income taxes 466,411 (466,411) --
Inventories (285,297) (6,763,671) (5,009,675)
Prepaid expense (147,755) (127,543) 92,381
Trade accounts payable (1,999,439) 1,895,513 2,684,551
Accrued liabilities 1,305,557 149,222 889,945
Customer deposits (755,080) (199,866) (35,948)
Income taxes payable 240,298 -- --
--------- --------- ---------
Net cash from (used for) operations (214,084) (6,293,628) 2,143,397
--------- --------- ---------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Acquisition of business 231,365 (2,005,708) --
Purchases of property and equipment (1,542,899) (2,941,669) (3,811,728)
Proceeds from sale of equipment 78,868 123,087 159,347
Purchase of airplanes for resale -- (5,513,773) (2,975,500)
Proceeds from sale of airplanes 2,788,500 4,225,000 1,240,000
--------- --------- ---------
Net cash (used for) investing activities 1,555,834 (6,113,063) (5,387,881)
--------- --------- ---------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Distribution for shareholder taxes -- (305,000) (1,795,051)
Short-term debt increase (decrease) 140,313 523,627 (2,198,962)
Proceeds from long-term debt and grants 6,106,387 16,412,183 4,844,227
Repayment of long-term debt (8,143,030) (6,212,223) (4,289,779)
Net proceeds from issuance of common stock -- -- 10,420,355
Checks issued not yet presented increase (decrease) -- -- (937,494)
--------- --------- ----------
Net cash from (used for) financing activities (1,896,330) 10,418,587 6,043,296
--------- ---------- ---------
Net cash increase (decrease) for period (554,580) (1,988,104) 2,798,812
Cash, beginning of the period 810,708 2,798,812 --
--------- --------- ---------
Cash, end of the period $ 256,128 $ 810,708 $2,798,812
========= ========= =========
</TABLE>
<PAGE>
Featherlite Mfg., Inc.
Notes To Consolidated Financial Statements
Note 1. Nature of Business
Featherlite Mfg., Inc. (the Company) is engaged in the manufacturing of
various types of specialty trailers and luxury motorcoaches as well as related
parts and accessories. The trailers are primarily sold at wholesale to
authorized dealers throughout the United States and Canada. Dealer terms and
conditions for business are defined by standard agreements with each authorized
dealer. The luxury motorcoaches are sold directly by the Company to end user
customers. The Company is also involved in the purchase and resale of commercial
type aircraft used for business purposes.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Featherlite
Aviation Company. All material intercompany accounts and transactions are
eliminated in consolidation.
Fair Values of Financial Instruments: The carrying values of cash, accounts
receivable and payable, short-term debt and accrued liabilities approximate fair
value due to the short-term maturities of these assets and liabilities. The
carrying amount of long term debt, including current maturities, approximates
the fair value of long-term debt because the related interest rates either
fluctuate with the lending bank's current prime rate or approximate current
interest rates for debt of a similar nature and maturity.
Financial Statement 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 disclosures 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 these estimates.
Cash: At December 31, 1996 and 1995, the Company had cash with a financial
institution in excess of the Federal Deposit Insurance Corporation insurance
coverage. The Company has performed an evaluation of the relative credit
standing of this financial institution and believes it has limited its credit
exposure accordingly.
Inventories. Inventories are stated at lower of first-in, first-out (FIFO)
cost or market and include materials, labor and overhead costs. Inventories were
as follows:
1996 1995
Raw Materials $ 8,053,000 $ 6,886,000
Work in Progress 8,410,000 3,329,000
Finished Trailers
& Motorcoaches 8,772,000 9,247,000
---------- ----------
Total $25,235,000 $19,462,000
========== ==========
<PAGE>
Aircraft Held for Resale: Aircraft held by the Company for resale are
stated at cost. Charges for depreciation are not taken, but the Company
periodically evaluates the aircraft's net realizable value and, if necessary,
adjusts the carrying value by charges to operations. Gain or loss on the sale of
aircraft is included in operations during the period in which the aircraft are
sold. Aircraft held by the Company for resale are classified as noncurrent as
prior history indicates that the aircraft may not be sold within the next twelve
months.
Property and Equipment: Property and equipment are capitalized at cost,
while repair and maintenance items are charged to current operations.
Depreciation is provided for financial reporting purposes using straight-line
and accelerated methods over estimated useful lives of 31 to 39 years for
building and improvements and 5 to 7 years for machinery and equipment.
Product Warranty: The Company's products are covered by product warranties
ranging from one to six years after date of purchase by the consumer. At the
time of sale, the Company recognizes estimated warranty cost, based on prior
history and expected future claims, by a charge to operations.
Goodwill and Long-lived Assets: The Company assesses long-lived assets for
impairment under FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under those
rules, property and equipment, goodwill associated with assets acquired in a
purchase business combination, idle facilities held for sale and any other
long-lived assets are included in impairment evaluations when events or
circumstances exist that indicate the carrying amount of those assets may not be
recoverable.
<PAGE>
Cash Flow Information: Cash payments for interest were $1,461,000, $770,000
and $662,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Cash payments for income taxes were $143,000 in 1996 and $825,000
in 1995. Cash provided by (used for) acquisition of businesses in 1996 and 1995
was as follows:
1996 1995
Fair Value of Assets
Acquired $ 9,412,000 $ 2,414,000
Liabilities Assumed (7,843,000) (408,000)
Issuance of Common
Stock (1,800,000) --
--------- ---------
Cash provided (used) $ 231,000 $(2,006,000)
========= =========
Revenue Recognition: The Company recognizes revenue, net of all anticipated
discounts, when the title to the trailer or motorcoach passes, normally upon
completion of production and issuance of an invoice and the Manufacturer's
Statement of Origin.
Deferred Grant Income: The Company recognizes revenue related to grants
received from various governmental units over the life of the assets to which
the funding relates or during the period in which the expense occurs for which
grants were received. Revenue recognition begins when there is reasonable
assurance that all conditions of the grants, principally job creation goals,
have been met.
Income Taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Net Income Per Common Share: Net income per common share is computed based
upon the weighted average number of common shares outstanding during each year.
The dilutive effect of the stock options is not material and has not been
included in the computation of weighted average earnings per share.
<PAGE>
Note 3. Goodwill and Other Assets
Goodwill and Other assets consist of the following:
1996 1995
Goodwill, net $3,536,000 $ 220,000
Aircraft held for resale 2,815,000 5,514,000
Idle Facilities 522,000 522,000
Advertising and Other 39,000 37,000
--------- ---------
Total $6,912,000 $6,293,000
========= =========
Goodwill: As discussed in Note 10, the excess of the total acquisition cost
of Vantare International, Inc. and Diamond D Trailer Manufacturing, Inc. over
the fair value of the net assets acquired of $3,648,000 is being amortized on a
straight-line basis over periods of up to 20 years. Amortization was $108,000 in
1996 and $4,000 in 1995 and accumulated amortization was $112,000 and $4000 at
December 31, 1996 and 1995, respectively.
Idle Facilities: The Company owns land and buildings in Grand Meadow,
Minnesota that was previously used as its corporate headquarters and
delivery/maintenance facility. The net book value of the facilities have been
reclassified from property and equipment to other assets and a provision has
been made to reduce the facility to its expected realizable value. Portions of
these facilities are being rented under operating leases to cover costs related
to holding these properties while they are being marketed for resale.
Advertising and Other: In 1996, 1995 and 1994, the Company exchanged
trailers and coaches (total sales value $276,000 in 1996, $155,000 in 1995 and
$193,000 in 1994) for future personal appearances and specific promotional and
advertising services of an equivalent value. These contracts were capitalized
and are being amortized over the period the services will be rendered.
Amortization of these agreements to advertising expense was $315,000 in 1996,
$254,000 in 1995 and $231,000 in 1994. Advertising expense was $1,299,000 in
1996, $1,116,000 in 1995 and $955,000 in 1994.
<PAGE>
Note 4. Income Tax Matters
Prior to the completion of the sale of 1,955,000 shares of its common stock
to the public, as described in Note 9, the income and deductions of the Company
were reported in the individual income tax returns of the shareholders under
provision of Subchapter S of the Internal Revenue Code. Periodic distributions
have been made to the Company's shareholders representing the estimated income
tax liability on the S corporation earnings which were the responsibility of the
individual shareholders. Final distributions for shareholders taxes were
$305,000, which were accrued at December 31, 1994, were paid in 1995.
The pro forma adjustments for the year ended December 31, 1994 to reflect
income taxes in the accompanying statements of operations is for information
purposes only and has been calculated based on the estimated effective tax rate
in each year assuming the Company had been subject to corporate income taxes.
The components of the income tax provision charged to operations in 1996,
1995 and 1994, after the sale of common stock, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current
Federal $425,000 $259,000 $412,000
State 45,000 22,000 64,000
------- ------- -------
$470,000 $281,000 476,000
------- ------- -------
Deferred
Federal 82,000 $171,000 (75,600)
State 10,000 19,000 (8,400)
------- ------- -------
92,000 $190,000 $(84,000)
------- ------- -------
Total $562,000 $471,000 $392,000
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate to the provision for income taxes in the financial statement is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Provision at
statutory rate $478,000 $421,000 $409,000
State income taxes,
net of Federal
income tax benefit 60,000 38,000 37,000
Change in valuation
allowance -- -- (40,000)
Other 24,000 12,000 (14,000)
------- ------- -------
Total $562,000 $471,000 $392,000
======= ======= =======
</TABLE>
<PAGE>
Net deferred tax assets and liabilities consist of the following components
as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation $599,000 $456,000
------- -------
Deferred Tax Assets:
Accrued expenses $270,000 $245,000
Accrued warranty reserve 100,000 48,000
Inventory allowances 64,000 100,000
Receivable allowances 48,000 38,000
------- -------
$482,000 $431,000
======= =======
Net deferred tax
(liabilities) $(117,000) $(25,000)
======= =======
</TABLE>
<PAGE>
Note 5. Financing Arrangements
Other Notes Payable: At December 31, 1996 and 1995, other notes payable
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Wholesale floor plan line
of credit* $1,817,000 --
Insurance premiums;
interest at 6.0%, payable
in monthly installments 438,000 657,000
--------- -------
$2,255,000 $657,000
========= =======
</TABLE>
*The Company has a wholesale finance agreement with a financial services
company for a $3.5 million line of credit to finance completed new and used
motorcoaches held in inventory. Amounts borrowed are subject to defined
percentages of eligible inventory. Borrowings bear interest at prime plus .25%
(8.5% at December 31, 1996) and are secured by the motorcoach financed and other
assets of the Company. The agreement includes covenants requiring maintenance of
defined levels of tangible net worth, leverage and working capital. The
agreement is subject to renewal on October 31, 1999.
Bank line of credit: The Company has a Credit Agreement with a bank that
provides for a working line of credit to provide for borrowing equal to the
lesser of $12,000,000 or a defined percentage of eligible trade accounts
receivable and inventory. Borrowings under this arrangement, which bear interest
at prime (8.25% at December 31, 1996 and 1995), are secured by substantially all
assets of the Company, and are guaranteed by certain shareholders under defined
circumstances. The agreement includes covenants requiring maintenance of defined
levels of working capital, tangible net worth, leverage, and cash flow and
prohibits the payment of dividends without approval of the bank. Borrowings
against this line of credit were $9,100,000 and $7,600,000 at December 31, 1996
and 1995, respectively. These borrowings are classified as long-term debt as the
Credit Agreement matures and is subject to renewal on July 31, 1998.
Long-term debt: (In thousands) 1996 1995
Bank notes payable; interest
at 8.75%, payable in varying monthly
installments plus interest through
2000; contains same collateral and
covenant provisions as bank
line of credit $2,176 $2,696
Bank notes payable; interest at
prime plus 1%, (9.25% at December
31, 1996 and 1995) adjusted
quarterly; payable in varying
monthly installments with interest
through October, 2006; collateralized
by aircraft 1,559 4,144
Notes and capitalized leases to banks
and others, interest to 11.5%, payable
in varying monthly installments through
2003; collateralized by real estate
and partial shareholder and
other guarantees. 1,656 1,849
----- -----
Total 5,391 8,689
Less current maturities (1,145) (1,095)
----- -----
$4,246 $7,594
===== =====
Annual maturities during the five years subsequent to December 31, 1996
are: (in thousands) 1997 - $1,145; 1998 - $2,222; 1999 - $712; 2000 - $802; and
2001 - $116.
<PAGE>
Note 6. Commitments and Contingencies
Pursuant to dealer inventory floor plan financing arrangements, the Company
may be required, in the event of default by a financed dealer, to repurchase
products from the financial institutions or to reimburse the institutions for
unpaid balances including finance charges, plus costs and expenses. The Company
was contingently liable under these arrangements for a maximum amount of
$6,059,000 at December 31, 1996.
The Company has two separate agreements which provide approximately
$620,000 for job training purposes. The amounts are to be repaid, together with
interest, over a ten year period from state withholding taxes on employees at
the Company's Iowa facilities. The Company may be required to provide funds for
the repayment of these training credits if sufficient withholding and unused
training funds are not available.
The Company is partially self-insured for a portion of certain health
benefit and workers' compensation insurance claims. The Company's maximum annual
claim exposure under these programs is approximately $2.2 million, including
$634,000 accrued for estimated unpaid claims at December 31, 1996. The Company
has obtained an irrevocable standby letter of credit in the amount of $1,225,000
in favor of the workers compensation claim administrator.
The Company is expanding its production facility in Sanford, Florida. Upon
completion, this expansion project will be sold, at its completed cost of
approximately $855,000, to the Seminole County Port Authority, the present owner
of the facility. The facility will then be leased back to the Company under the
terms of a ten year capitalized lease. During the construction period the
Company will provide financing for the construction using funds borrowed from a
bank. The cost of this financing will be included in the total project cost.
There is a risk related to losing Prevost Car Company, the company's sole
supplier of motorcoaches, although the Company could purchase certain motorcoach
shells from other manufacturers. The Company does have business interruption
insurance to cover all or a portion of the losses it may sustain if Prevost's
plant was destroyed by fire or certain other catastrophes.
Note 7. Deferred Grant Income
Deferred grant income consists of forgivable loans (grants) in an aggregate
amount of $2,030,000 provided to the Company by various governmental units to
assist with the establishment of the Company's headquarters and production
facility in Cresco, Iowa and its Nashua, Iowa production facility. These loans
are wholly or partially forgivable based on fulfillment and retention of job
creation goals through June, 1999. These grants are being recognized as income
as they are earned. Accumulated income recognized for these grants was
$1,719,000 at December 31, 1996, $1,646,000 at December 31, 1995 and $823,000 at
December 31, 1994. On January 2, 1997, a loan originated in 1991 in the amount
of $375,000 was forgiven.
Note 8. Related Party Transactions
The Company recorded sales to authorized Featherlite dealers and
Featherlite Credit, that are related entities under common ownership, of
$3,154,000, $1,276,000, and $1,633,000, in 1996, 1995, and 1994, respectively.
The Company has leased various buildings and equipment and received
interest bearing advances from certain shareholders during current and prior
periods. Payments related to these leases and interest on these advances totaled
$91,000 in 1996, $91,000 in 1995 and $135,000 in 1994.
In 1996 and 1995, the Company entered into agreements with Featherlite
Credit Corporation, related under common ownership, to compensate it for various
credit related services it provided for the Company, including the development
of the Featherlite Master Lease program. Expenses under this agreement totaled
$100,000 in 1996 and $170,000 in 1995. Also under the terms of this agreement,
Featherlite Credit reimbursed the Company $116,000 and $88,000 for salaries and
other costs paid by the Company in 1996 and 1995, respectively.
<PAGE>
Note 9. Shareholders' Investment
Capitalization: The Company's authorized capital is 40,000,000 shares of no
par Common Stock and 10,000,000 shares of undesignated stock. In 1994, the
Company completed an initial public offering of 1,955,000 shares of Common Stock
including an over-allotment option to the underwriter for an additional 255,000
shares at a price of $6.00 per share.
Upon the closing of the public stock offering, the Company's S corporation
election terminated. At that time, the retained earnings balance of $4,061,500,
representing undistributed earnings on which income taxes have been paid, was
reclassified to paid-in capital as a constructive distribution to the
shareholders followed by a contribution by them to the capital of the Company.
Stock option Plan: At December 31, 1996, the Company has a stock option
plan which reserves up to 550,000 shares of Common Stock for issuance as
options. These options may be granted to employees and directors at the
discretion of the Board of Directors, which may grant either incentive stock
options or non-statutory stock options. All incentive options must be granted at
no less than 100 percent of the fair market value of the stock on the date of
grant, (110 percent for employees owning more than 10 percent of fair market
value on the date of grant.) The options expire at varying dates generally not
to exceed ten years from date of grant and are non-transferable.
Grants under this plan are accounted for using APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under the stock option plan. Had compensation cost for the stock
option plan been based on the grant date fair values of awards (the method
described in FASB Statement No. 123), reported net income and earnings per share
would have been reduced to the pro forma amounts shown below.
1996 1995
Net income (000's)
As reported $842 $701
Pro forma 728 701
--- ---
Primary earnings per share
As reported $.13 $.12
Pro forma .12 .12
--- ---
Fully diluted earnings per share
As reported $.13 $.12
Pro forma .12 .12
--- ---
The fair value of each option has been estimated at the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996 and 1995, respectively: dividend rate of 0% for
all years; price volatility of 48.5% and 50.2%, risk-free interest rates of 6.3%
and 6.6% for the five year options and 6.8% for the ten year options and
expected lives of 5 and 10 years for the five and ten year options respectively.
<PAGE>
A summary of the status of the stock option plan at December 31, 1996, 1995
and 1994 and changes during the years ended on those dates is as follows:
1996 Weighted
Average
Shares Exercise Price
Outstanding, beginning of year 159,168 $6.28
Granted 90,212 5.54
Exercised/forfeited - -
------- ----
Outstanding, end of year 249,380 $6.02
======= ====
Exercisable at end of year 158,755
=======
Weighted-average fair value
per share of options granted
during the year $3.73
========
1995 Weighted
Average
Shares Exercise Price
Outstanding, beginning of year 152,500 $6.16
Granted 6,668 9.00
Exercised/forfeited - -
------- ----
Outstanding, end of year 159,168 $6.28
======= ====
Exercisable at end of year 97,918
=======
Weighted-average fair value
per share of options granted
during the year $4.68
=======
1994 Weighted
Average
Shares Exercise Price
Outstanding, beginning of year - -
Granted 152,500 $6.16
Exercised/forfeited - -
------- ----
Outstanding, end of year 152,500 $6.16
======= ====
Exercisable at end of year 60,525
=======
At December 31, 1996, the options outstanding have exercise prices ranging
from $5.50 to $9.00 and a weighted average remaining contractual life of 7.9
years. All but 6,668 shares are exercisable at prices ranging from $5.50 to
$7.25. All of the non-vested options are expected to eventually vest.
<PAGE>
Note 10. Business Combination
In July, 1996, the Company acquired all the assets of Vantare
International, Inc., a privately-held converter of purchased bus shells into
luxury motorcoaches, in exchange for 300,000 restricted shares of the Company's
common stock with a value of approximately $1.8 million and the assumption of
certain liabilities. An additional 100,000 shares may be issued pending the
attainment of certain defined net earnings, as determined annually, through
December 31, 2000. This acquisition was accounted for as a purchase and
accordingly, results of operations of Vantare have been included in the
accompanying statement of operations since July 1, 1996, the acquisition date.
The Company recorded intangible assets of $3.2 million, including goodwill,
tradename and certain other rights which are being amortized over 20 years. The
following unaudited pro forma summary presents the consolidated results of
operations of the Company for the year ended December 31, 1996 as if the
business combination had occurred on January 1, 1995 (in thousands, except for
per share data):
1996 1995
Revenue $111,509 $88,980
Net Earnings 583 497
Earnings per share .09 .08
======= ======
In October, 1995, the Company acquired all the assets of Diamond D Trailer
Manufacturing, Inc., a privately-held manufacturer of steel trailers, for
approximately $2.4 million, including cash and the assumption of certain
liabilities. This acquisition was accounted for as a purchase and accordingly,
results of operations of the acquired company, which are not significant to the
Company's operations, have been included in the accompanying consolidated
financial statements since the acquisition date. The purchase price was
allocated on the basis of the estimated fair value of assets acquired and
liabilities assumed with the remaining excess purchase price of $356,000 to be
amortized over 15 years.
<PAGE>
Note 11. Segment Reporting
In 1996, the Company began operating in two principal business segments:
trailers and motorcoaches. Prior to 1996, the Company only manufactured and
distributed trailers. Sales to customers outside of the United States represent
less than 10% of consolidated sales.
<TABLE>
<CAPTION>
Information on business segments was as follows:
(in thousands) 1996 1995 1994
<S> <C> <C> <C>
Net sales
Trailers $80,689 $65,176 $56,836
Motorcoaches 14,785 -- --
All other segments 3,855 3,983 3,336
------ ------ ------
Total net sales $99,329 $69,159 $60,172
====== ====== ======
Income from operations
Trailers $5,085 $2,764 $6,395
Motorcoaches 932 -- --
All other segments 438 1,513 1,369
General corporate expenses (4,221) (3,784) (3,188)
Other income/(expense) (830) 679 (323)
----- ----- -----
Income before income taxes $1,404 $1,172 $4,253
===== ===== =====
Identifiable assets
Trailers $31,327 $35,715 $23,603
Motorcoaches 13,646 968 --
All other segments 381 166 144
General corporate assets 8,180 9,235 8,914
------ ------ ------
Total assets as reported $53,534 $46,084 $32,661
====== ====== ======
Capital Expenditures
Trailers $ 725 $2,004 $3,213
Motorcoaches 18 -- --
All other segments 309 62 --
Corporate 491 876 599
----- ----- -----
Total capital expenditures $1,543 $2,942 $3,812
===== ===== =====
Depreciation and Amortization
Trailers $ 850 $ 848 $ 583
Motorcoaches 106 -- --
All other segments 95 63 58
Corporate 403 333 285
---- ---- ----
Total Depreciation and
Amortization $1,454 $1,244 $ 926
===== ===== ====
</TABLE>
<PAGE>
To the Board of Directors
Featherlite Mfg. Inc.
Cresco, Iowa
We have audited the accompanying consolidated balance sheets of Featherlite
Mfg. Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' investment, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, 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 financial position of Featherlite Mfg.
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
February 19, 1997
Exhibit 23
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Annual Report
on Form 10-K of Featherlite Mfg., Inc. for the year ended December 31, 1996 of
our report on the consolidated financial statements dated February 19, 1997
which appears on page 21 of the annual report to shareholders for the year ended
December 31, 1996.
We also consent to the incorporation by reference in the Registration
Satement on Form S-8 (No. 33-90860) of the Featherlite Mfg., Inc. 1994 Stock
Option Plan and Registration Statement on Form S-3 (No. 333-20969) of our
reports, each dated February 19, 1997, on the consolidated financial statements
and schedule of Featherlite Mfg., Inc., which reports, statements and schedules
appear, or are incorporated by reference in the Annual Report on Form 10-K for
the year ended December 31, 1996.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM 10-K FOR THE FISCAL
YEAR ENDED 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 256
<SECURITIES> 0
<RECEIVABLES> 6783
<ALLOWANCES> 0
<INVENTORY> 25235
<CURRENT-ASSETS> 33849
<PP&E> 17687
<DEPRECIATION> (4914)
<TOTAL-ASSETS> 53534
<CURRENT-LIABILITIES> 18684
<BONDS> 14490
0
0
<COMMON> 14220
<OTHER-SE> 6365
<TOTAL-LIABILITY-AND-EQUITY> 53534
<SALES> 99329
<TOTAL-REVENUES> 99329
<CGS> 84643
<TOTAL-COSTS> 97145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1450
<INCOME-PRETAX> 1404
<INCOME-TAX> 562
<INCOME-CONTINUING> 842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 842
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
