UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission File Number: 0-24804
Featherlite, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1621676
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Highways 63 & 9, P.O. Box 320, Cresco, IA 52136
(Address of principal executive offices) (Zip Code)
319/547-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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. [ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,493,338 Shares as of October 28, 1998
<PAGE>
FEATHERLITE, INC.
INDEX
Page No.
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Balance sheets
September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . 3
Condensed Statements of Income
Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . 4
Condensed Statements of Cash Flows
Nine months Ended September 30, 1998 and 1997 . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 10
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1:
Featherlite, Inc.
Condensed Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------ -----------
<S> <C> <C>
Current Assets
Cash $ 1,782 $ 1,632
Trade receivables 10,426 7,050
Inventories
Raw Materials 11,695 10,052
Work in process 14,783 11,815
Finished trailers/motorcoaches 27,083 17,797
--------- ---------
Total inventories 53,561 39,664
Prepaid expenses 1,269 1,110
Deferred taxes 824 824
--------- ---------
Total current assets 67,862 50,280
--------- ---------
Property and equipment 22,940 20,460
Less accumulated depreciation (7,460) (6,280)
--------- ---------
Property and equipment, net 15,480 14,180
--------- ---------
Goodwill and Other assets 16,906 11,048
--------- ---------
$ 100,248 $ 75,508
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long term debt $ 1,027 $ 1,173
Other notes payable 13,738 6,515
Accounts payable 18,845 11,984
Accrued liabilities 6,477 5,380
Customer deposits 2,150 3,585
--------- ---------
Total current liabilities 42,237 28,637
--------- ---------
Long Term Debt, net of current maturities 28,419 22,075
Other long term liabilities 863 919
Commitments and Contingencies (Note 5)
Shareholders' Equity 28,729 23,877
--------- ---------
$ 100,248 $ 75,508
========== =========
See Notes to financial statements
</TABLE>
<PAGE>
Featherlite, Inc.
Condensed Statements of Income
(Unaudited)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Three months Ended Nine months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 48,895 $ 32,728 $139,931 $ 99,414
Cost of Sales 41,366 26,926 118,096 83,315
-------- -------- -------- --------
Gross profit 7,529 5,802 21,835 16,099
Selling and administrative expenses 5,899 4,215 15,835 11,632
-------- -------- -------- --------
Income from operations 1,630 1,587 6,000 4,467
Other income (expense)
Interest (863) (445) (2,124) (1,220)
Gain on aircraft and property sales -- 275 140 269
Other, net 103 66 433 250
-------- -------- -------- --------
Total Other expense (760) (104) (1,551) (701)
-------- -------- -------- --------
Income before taxes 870 1,483 4,449 3,766
Provision for income taxes 346 594 1,779 1,507
-------- -------- -------- --------
Net income $ 524 $ 889 $2,670 $2,259
======== ======== ======== ========
Net income per share - basic $ 0.08 $ 0.14 $ 0.42 $ 0.36
-------- -------- -------- --------
Net income per share - diluted $ 0.08 $ 0.14 $ 0.41 $ 0.36
-------- -------- -------- --------
Weighted average shares outstanding - basic 6,493 6,255 6,381 6,255
-------- -------- -------- --------
Weighted average shares outstanding - diluted 6,643 6,305 6,512 6,309
-------- -------- -------- --------
See Notes to financial statements
</TABLE>
<PAGE>
Featherlite, Inc.
Condensed Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months Ended
September 30
-----------------
1998 1997
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 2,670 $ 2,259
Depreciation & amortization 1,369 1,052
Other non cash adjustments, net (260) (505)
(Increase) in working capital, net (8,025) (3,729)
------- -------
Net cash (used for) operating activities (4,246) (923)
------- -------
Cash provided (used for) investing activities
Acquisition of business (310) -
Additions to property and equipment, net (1,889) (2,062)
Sale of aircraft and other property, net 461 519
------- -------
Net cash (used for) investing activities (1,738) (1,543)
------- -------
Cash provided by (used for) financing activities
Change in short term debt (45) 1,711
Change in long term debt and grants 6,176 1,172
Exercise of stock options 3 --
------- -------
Net cash provided by financing activities 6,134 2,883
------- -------
Net cash increase 150 417
Cash, begin of period 1,632 256
------- -------
Cash, end of period $ 1,782 $ 673
======= =======
Non-cash Investing and Financing Activities
Fair market value of assets acquired $12,434
Excess of purchase price over net assets acquired 6,310
Liabilities assumed (16,255)
Issuance of common stock (2,179)
-------
Cash used for business acquisition $ (310)
=======
See Notes to financial statements
</TABLE>
<PAGE>
FEATHERLITE, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Basis of Presentation
The accompanying condensed financial statements have been prepared, without
audit, in accordance with the instructions of Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Financial information as of December
31, 1997 has been derived from the audited financial statements of the Company,
but does not include all disclosures required by generally accepted accounting
principles.
It is the opinion of management that the unaudited condensed financial
statements include all adjustments, consisting of normal recurring accruals,
necessary to fairly state the results of operations for the three and nine month
periods ended September 30, 1998 and 1997. The results of interim periods are
not necessarily indicative of results to be expected for the year. For further
information refer to the financial statements and notes to financial statements
included in the Company's Form 10-K Annual Report for the year ended December
31, 1997.
Note 2: Property and Equipment
Property and equipment consists of the following at September 30,
1998(unaudited) and December 31, 1997 (in thousands):
September 30, December 31,
1998 1997
---- ----
Land and improvements $ 2,867 $ 2,098
Building and improvements 8,482 7,954
Machinery and equipment 11,591 10,408*
Accumulated depreciation (7,460) (6,280)
------- -------
Net Property and equipment $15,480 $ 14,180
------- --------
* This amount was incorrectly reported as $10,280 in the December 31,
1997 annual report.
Note 3: Goodwill and Other Assets
Goodwill and other assets consists of the following at September 30, 1998
(unaudited) and December 31, 1997 (in thousands):
September 30, December 31,
1998 1997
---- ----
Goodwill, net $ 9,593 $ 3,461
Aircraft held for resale 6,676 6,726
Idle facilities 232 522
Advertising and other 393 328
Investment in joint venture 12 11
----------- -----------
Total $ 16,906 $ 11,048
----------- -----------
Goodwill increased during the year by $6,310,000 as a result of the
acquisition of the assets of Mitchell Motorcoach Sales, Inc. as discussed in
Note 9 to financial statements.
<PAGE>
During the third quarter, the Company entered into agreements to sell a
substantial portion of the property included in idle facilities. The aggregate
purchase price for the property sold totaled $445,000, including $289,000 paid
in cash at closing with the remaining balance of $156,000 to be paid in monthly
installments of $1,536, including interest at 8-1/2% until September, 2003, when
the balance is then due. No gain or loss was realized in this transaction.
Note 4: Financing Arrangements
Other notes payable primarily include borrowings under a wholesale finance
agreement with a financial services company for a $23 million line of credit to
finance completed new and used motorcoaches. At September 30, 1998, $13.7
million was borrowed against this line.
In September, 1998, the Company entered into a Revolving Loan and Security
Agreement with Firstar Financial Services Division of Firstar Bank Milwaukee,
N.A. and in October, 1998, paid off all of its revolving credit and term
obligations with Firstar Bank, Iowa, N.A. The new agreement, which provides a
total of $34 million in financing, has a working capital line limit of $23.0
million together with various term notes totaling $11.0 million for existing and
future borrowings for equipment and real estate projects. These borrowings bear
an interest rate of prime less .75% (7.5% at September 30, 1998). The maturity
date of the borrowings under the revolving loan is September 30,2002, subject to
renewal and extension. They are secured by substantially all assets of the
Company. There was $17.0 million borrowed against the credit line with Firstar
Bank Iowa as of September 30, 1998 and $5.8 million of term notes, which were
refinanced, under the new revolving loan in October. There are no financial
covenants in the revolving loan and security agreement.
Note 5: 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 financial institutions or to reimburse the institutions for unpaid
balances including finance charges plus costs and expenses. The Company was
contingently liable under the arrangement for a maximum of $ $16.5 million at
September 30, 1998 and $14.8 million at December 31, 1997.
Also, the Company is 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 $3.5 million, including
$1,169,000 accrued for estimated unpaid claims at September 30, 1998 and
$844,000 at December 31, 1997. The Company has obtained an irrevocable standby
letter of credit in the amount of $1,245,000 in favor of the workers
compensation claim administrator.
There is a risk to future operating results 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
catastrophes.
The Company, in the course of its business, has been named as a defendant in
various legal actions. Most, but not all, of such actions are product liability
or workers' compensation claims in which the Company is covered by insurance
subject to applicable deductibles. Although the ultimate outcome of such claims
cannot be ascertained at this time, it is the opinion of management, after
consulting with counsel, that the resolution of such suits will not have a
material adverse effect on the financial position of the Company, but may be
material to the Company's operating results for any particular period.
<PAGE>
Note 6: Shareholders' Equity
Shareholders' equity may be further detailed as follows (Dollars in thousands)
Sept. 30, Dec 31,
1998 1997
--------- --------
Common stock - without par value;
authorized- 40,000,000 shares;
issued- 6,493,338 shares at Sept. 30, 1998* $ 16,403 $14,220
6,255,000 shares at Dec. 31, 1997
Additional paid-in capital 4,062 4,062
Retained earnings 8,264 5,595
-------- -------
Total Shareholders' equity $ 28,729 $23,877
====== ======
* As discussed in Note 9 to financial statements, the Company issued
272,851 shares of common stock on May 7, 1998 with an aggregate value of
$2,500,000 in exchange for the assets of Mitchell Motorcoach Sales, Inc. This
amount was retroactively reduced by $320,803 and 35,013 shares were cancelled
and added to the earnout shares based on the outcome of an audit of the closing
balances of the assets and liabilities acquired. Up to an additional 417,005
shares may be issued in the future if certain levels of defined earnings are
achieved during an earnout period ending December 31, 2001.
In 1994, the Company completed an initial public offering of 1,955,000 shares of
Company common stock and granted an option to the Underwriter for an additional
120,000 shares at a price of 120 percent of the initial public offering price of
$6.00 per share. This option, which expires in September 1999, has not yet been
exercised.
Note 7: Stock Option Plan
The Board of Directors has granted stock options to certain employees and
directors in the total amount of 322,880 shares and 311,380 shares at September
30, 1998 and December 31, 1997 pursuant to the stock option plan established by
the Company in July 1994. These shares were granted at prices ranging from
$5.50-$10.00 per share, and are exercisable at varying dates not to exceed 10
years from the date of grant. Options totaling 12,000 shares were granted to
directors upon their election to a one-year term in May 1998. Options totaling
500 shares were exercised during the quarter. On May 6, 1998, the shareholders
approved an amendment to the stock option plan, which increased the shares
reserved for the stock option plan from 550,000 to 1,100,000.
Note 8: Earnings per Share
Effective December 31, 1997, the Company adopted FASB Statement No 128, Earnings
per Share. The statement requires the presentation of earnings per share by all
entities that have common stock or potential common stock, such as options,
warrants and convertible securities outstanding that trade in a public market.
Those entities that have only common stock outstanding are required to present
basic earnings per share amounts. All other entities are required to present
basic and diluted per share amounts. Diluted per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations.
The weighted-average number of shares of common stock used to compute the basic
earnings per share were increased by 149,857 and 130,570 at September 30,1998
and 50,245 and 54,262 at September 30,1997 for the assumed exercise of options
<PAGE>
and warrants in computing the quarterly and year to date diluted earnings per
share data, respectively. Basic and diluted earnings per share, as calculated
under FAS statement No. 128, are not different than the primary and fully
diluted earnings per share as previously reported in prior periods.
Note 9: Acquisition of business
In May 1998, the Company acquired substantially all the assets of Mitchell
Motorcoach Sales, Inc. in exchange for 237,838 shares of Company common stock
with an aggregate value of $2.2 million and the assumption of certain Mitchell
Motorcoach Sales liabilities. Additional Company common stock with an aggregate
value of $3.8 million may be issued if this newly formed Vogue Division of the
Company achieves certain defined earnings levels through December 31, 2001. This
acquisition was accounted for as a purchase and, accordingly, results of
operations of the newly formed division, which are not significant to the
Company's operations, have been included in the Company's operating 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 $6,310,000 to be amortized over 30 years.
<PAGE>
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion pertains to the Company's results of
operations and financial condition for the three-month periods and nine-month
periods ended September 30, 1998 and 1997.
Results of Operations
Three months ended September 30, 1998 and 1997
On an overall basis, the Company's net income for the third quarter
ended September 30, 1998 was $524,000 or 8 cents per diluted share compared to
net income of $889,000, or 14 cents per diluted share, in the third quarter of
1997.
Net sales of $48.9 million for the quarter increased by 49.4% over the
same period in 1997. This sales growth was led by a 138% increase in sales of
luxury motorcoaches over 1997, including sales of $8.9 million from the Vogue
Division, which is new in 1998. Sales of Featherlite aluminum and steel brand
trailers increased by 14.1%. On a trailer product group basis, horse trailer
sales increased by 47%, which is a continuation of strong volume in this
category from earlier quarters. Livestock trailers were down about 8% due to
weakness in the farm and agricultural economy. Car/racecar and specialty
transporter sales were down about 10%, primarily due to delays in the completion
of a number of units at the end of the quarter. Utility trailers were up about
25% due mainly to the timing of shipments. Commercial trailer sales were down
4%, which the Company's previously announced as being de-emphasized.
Gross margin increased to $7.5 million in 1998 from $5.8 million in
1997 as a result of the increased levels of sales. As a percentage of sales,
gross margin for the quarter was 15.4% compared to 17.7% in 1997. The gross
profit margin percentage decrease primarily reflects the effect of the Vogue
Division (which was formed as a result of the Mitchell Motorcoach asset
acquisition during the second quarter of 1998). Excluding these sales, the gross
margin percentage would have been about 17%. On a segment basis, trailer margins
were about 3 percent lower during the quarter than in 1997 due to increased
labor and overhead costs not fully offset by price increases and efficiency
improvements. Luxury motorcoach margins improved by about 2% over 1997 as the
result of realizing higher margins on both new and used coach sales. This
increase was partially offset by lower margins at the Vogue Division. Margins at
Vogue were mainly lower than normal due to the sale of new units at prices
established before the acquisition was completed.
Selling and administrative expenses increased in 1998 by $1.7 million
over 1997, including $690,000 related to the Vogue Division, which was acquired
during 1998. This increase, excluding Vogue, primarily reflects greater
personnel and advertising costs primarily at the Vantare Division in response to
further growth. As a percentage of sales, these expenses decreased to 12.1%
(13.2% excluding Vogue) from 12.9% in 1997.
Interest expense increased by $418,000 in 1998 compared to 1997 due to
higher levels of debt in 1998. Other income decreased by $238,000 compared to
1997, primarily as the result of a $275,000 gain on the sale of aircraft in
1997.
The provision for income taxes reflects an effective federal and state
income tax rate of 40% in 1998 and 1997.
<PAGE>
Nine months ended September 30, 1998 and 1997
On an overall basis, net income for the nine months ended September 30,
1998 was $2.7 million, or 41 cents per diluted share, up 18.1% from net income
of $2.3 million, or 36 cents per diluted share in 1997.
Net sales of $139.9 million for the nine months ended September 30,
1998 were up 40.8% over 1997, including an increase of 16.4% in sales of
Featherlite aluminum and steel brand trailers. Luxury motorcoach sales were up
107.6%, including sales of Featherlite Vogue motorcoaches in the amount of $13.5
million. The Vogue Division was created in May 1998 as a result of the Company's
acquisition of the assets of Mitchell Motorcoach Sales, Inc. On a product group
basis, horse trailer sales increased by 35%, livestock trailers increased by 4%,
car/racecar and specialty transporter sales were up by 11%, utility trailer
sales increased by 12% and commercial trailer sales were unchanged from 1997.
Gross margin increased to $21.8 million in the first nine months of
1998 from $16.1 million in 1997 as a result of increased levels of sales. As a
percentage of sales, gross margin for the period decreased to 15.6% compared to
16.2% in 1997. The 1998 gross margin percentage benefited from improvements in
margin percentages realized in the Vantare Division in 1998 compared to 1997.
These improvements were offset by lower gross margins in Featherlite trailer
product categories due to increased labor and overhead costs not fully covered
by price increases and efficiency improvements in 1998 and by lower than normal
margins on Featherlite Vogue motorcoaches, many of which were sold at prices
established before the acquisition.
Selling and administration expenses increased in 1998 by $4.2 million
over 1997 and decreased as a percentage of sales to 11.3% from 11.7% in 1997.
The increase in overall spending reflects additional advertising and personnel
costs related to the overall growth of the Company as well as the addition of
the Vogue Division in the second quarter of 1998 which added selling and
administrative costs of $1,003,000. On an overall basis, selling and
administrative costs have increased by 36%, which is slightly less than the
overall sales growth rate of 40%.
Interest expense for 1998 is $904,000 greater than in 1997. This is due
to increased borrowings on the revolving lines of credit for working capital and
capital expenditures as well as increased levels of borrowing on the wholesale
line of credit used to finance new and used motorcoach inventory. The
acquisition of the assets of Mitchell Motorcoach sales increased working capital
funding requirements.
The provision for income taxes reflects an effective federal and state
income tax rate of 40% in 1998 and 1997.
Looking Forward
The statements made in this Form 10Q quarterly 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.
Total sales are expected to be slightly greater in the fourth quarter
than in the third quarter and should be strong in 1999, barring any unforseen
increase in economic uncertainty or declines in consumer confidence. For the
fourth quarter, increased sales of car and race car specialty trailers and
utility trailers are expected to offset lower levels of sales of horse and
livestock trailers. Motorcoach sales are expected to increase above levels
realized in the third quarter. The total sales backlog for 1998 delivery was $21
million at September 30, 1998 compared with $23 million at September 30, 1997
and $28 million at December 31, 1997.
<PAGE>
Overall gross margin levels should improve in the fourth quarter of
1998 and into 1999. Aluminum prices for the quarter will remain unchanged from
prior quarters as the Company has obtained commitments from suppliers to
provide, at an agreed upon fixed price, all of its aluminum requirements for the
remainder of 1998 and such contracts have also been obtained for substantially
all of 1999. Aluminum costs for 1999 should average at least 5% lower than 1998.
Labor costs are expected to decrease as a percentage of sales as the production
workforce is adjusted to lower sales levels in certain product lines and as
production efficiencies improve. The price increase made during the third
quarter should also have a positive impact on trailer margins. In addition,
margin improvements experienced in the first nine months of 1998 by the
motorcoach product line are expected to continue as the Vogue Division becomes
integrated into the Company and its volume increases.
Sales and administration expenses for 1998 are expected to increase but
at a lower rate than sales growth. Interest expense will remain higher in 1998
than 1997 as the average level of debt is expected to be greater due working
capital growth.
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. There is also a risk to future operating results if the
Company were to lose its sole supplier of motorcoach 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 catastrophes.
The Company has made greater use of leverage and incurred increased
interest and related expenses in the past several years to finance acquisitions
and working capital growth. Increased debt has been incurred in connection with
the acquisition of the assets of Mitchell Motorcoach Sales, in financing the
operations of the Vogue and Vantare Divisions and in providing additional
working capital for growth of the trailer operations. Increased leverage and
related expenses create a risk to future operating results.
Liquidity and Capital Resources
During the first nine months of 1998, net cash increased by $150,000, including
$6,134,000 provided by financing activities and net of $4,246,000 used for
operating activities and $1,738,000 used for capital expenditures for equipment
and the acquisition of the assets of Mitchell Motorcoach Sales.
Operating activities in the first nine months of 1998 used cash of $4,246,000.
Net income of $2,670,000 was increased by adjustments for depreciation and
amortization of $1,369,000 and decreased other non-cash items in an aggregate
amount of $260,000. Net changes in receivables, inventories and other working
capital items used cash of $8,025,000, excluding the effect of the Vogue
acquisition, which increased receivables, inventory and prepaid expenses by
$11,858,000 and increased current liabilities by $8,965,000. Non-acquisition
related receivables and inventories increased by $5,602,000, an increase of 12%
compared to a net sales increase of 26%. Working capital of $2,434,000 was also
used to fund decreases in customer deposits and other payables. Increased
expenditures for working capital items may be required to support increased
sales levels throughout 1998. Cash generated from operations as well as the
Company's available lines of credit will fund these increases.
Investing activities for the nine months ended September 30, 1998 used cash of
$1,738,000, including $1,889,000 for equipment and other capital expenditures.
The Company also used cash of $310,000 in connection with the acquisition of the
assets of Mitchell Motorcoach Sales in May, 1998, which is more fully described
in Note 9 to financial statements, including property and equipment valued at
$575,000. The facility used by Mitchell is leased under the terms of an
operating lease. Also during the quarter, net cash of $461,000 was provided from
the purchase and resale of aircraft, including $289,000 from the partial sale of
idle facilities as described in Note 3 to financial statements.
<PAGE>
Financing activities provided net cash of $6,134,000, including net borrowings
of $4,578,000 on the bank line of credit and net borrowings $3,076,000 on the
wholesale financing line of credit and other short term notes and $1,520,000 for
the reduction of other short and long term debt. In connection with the purchase
of assets of Mitchell Motorcoach Sales, Inc. as discussed in Note 9 to the
financial statements, the Company issued 237,838 shares of common stock with an
aggregate value of $2,179,197 and assumed notes payable of $7,290,000. These
acquired notes payable were then refinanced with borrowings of $4.8 million of
the Company's wholesale line of credit and $2.5 million on the bank line of
credit.
In September, 1998, the Company entered into a Revolving Loan and Security
Agreement with Firstar Financial Services Division of Firstar Bank Milwaukee,
N.A. and in October, 1998, paid off all of its revolving credit and term
obligations with Firstar Bank, Iowa, N.A. The new Agreement provides a total
credit facility of $34 million, including a working capital line limit of $23.0
million together with various term notes totaling $11.0 million for existing and
future equipment and real estate projects. These borrowings bear an interest
rate of prime less .75% (7.5% at September 30, 1998). The maturity date of the
borrowings under the revolving loan is September 30,2002, subject to renewal and
extension. The borrowings are secured by substantially all assets of the
Company. There was $17.0 million borrowed against the line with Firstar Iowa as
of September 30, 1998 and $5.8 million in term debt, which were refinanced under
the new revolving loan in October. There are no financial covenants in the
Revolving Loan and Security Agreement.
The Company also has a wholesale floor plan agreement with Deutsche Financial
Services to borrow up to $23 million for financing new and used motorcoaches
held in inventory by the Vantare and Vogue Divisions with interest at prime
(8.25% at September 30, 1998) on borrowed funds. The Company was in compliance
with all the covenants of this Agreement at September 30,1998 and $13.5 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 5 to financial statements, the Company is contingently
liable under certain dealer floor plan and retail financing arrangements. These
contingent liabilities total approximately $16.5 million at September 30, 1998.
Also, the Company is self-insured for a portion of certain health benefit and
workers' compensation insurance claims. At September 30, 1999, the Company's
maximum annual claim exposure under these programs is approximately $3.5
million. The Company has obtained an irrevocable standby letter of credit in the
amount of $1,245,000 in favor of the workers compensation claim administrator.
The Company has also made a commitment to the City of Cresco to construct a
hangar facility at a cost of $300,000 as part of an airport expansion project,
which may begin in 1999. The Company has deferred plans to 1999 or later for the
construction of a warehouse facility for raw material storage at its Cresco
location with an estimated total completed cost of $2.0 million. In late 1998,
the Company may begin some phases of a $4.5 million expansion at its Vantare
facilities. This project may be completed in the first half of 1999 and will be
financed with new borrowings from banks or other financial institutions.
In October 1997, the Company signed a joint venture agreement with GMR Marketing
to form Featherlite/GMR Sports Group, LLC. The joint venture will focus on
developing promotional events and implementing marketing strategies in the
rapidly growing motorsports industry. Since inception, the Company has invested
$20,000 in this venture and it is not expected significant additional amounts of
capital will be required to maintain this operation.
<PAGE>
The Company leases certain office and production facilities under various leases
that expire at varying dates through fiscal year 2007. Minimum lease payments
for 1998 are expected to total $693,000, including $193,000 related to an
operating lease assumed in connection with the Mitchell Motorcoach Sales, Inc.
acquisition.
Based on a recent assessment by the Company of its computer equipment and
software programs and communications with significant third party vendors
providing payroll and benefit services, the Company has determined the certain
modifications may be required to this equipment and these programs to properly
utilize dates beyond December 31, 1999. The Company believes that with
modification to existing equipment and software or conversions to new software,
the year 2000 issue can be mitigated at a nominal cost and that such changes can
be made on a timely basis and not have a material impact on the operations of
the Company. The Company is in the process of making inquiries with its major
vendors and suppliers of aluminum and other raw materials and with its major
customers to determine the status of their year 2000 compliance programs and the
effect, if any, of these programs on the Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index on Page 18 following signatures.
(b) Form 8-K. The Registrant did not file any reports on Form 8-K
during the three months ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEATHERLITE MFG., INC.
(Registrant)
Date: October 28, 1998 /S/ CONRAD D. CLEMENT
---------------------
Conrad D. Clement
President & CEO
Date: October 28, 1998 /S/ JEFFERY A. MASON
--------------------
Jeffery A. Mason
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Form 10Q
Quarter Ended September 30, 1998
Exhibit No. Description
10.1 Revolving Loan and Security Agreement dated September 24, 1998
with Firstar Financial Services, Division of Firstar Bank,
Milwaukee, Wisconsin
27 Financial Data Schedule (filed in electronic format only)
FINANCIAL SERVICES
REVOLVING LOAN AND SECURITY AGREEMENT
FIRSTAR BANK MILWAUKEE, N.A. ("Lender"), through its Financial Services
Division, and Featherlite, Inc. ("Debtor") agree as follows:
NATURE OF CREDIT
For good and valuable consideration and upon the security of the Collateral (as
defined below), Lender may lend to Debtor such amounts as Lender determines in
its SOLE AND ABSOLUTE DISCRETION, and Debtor promises to repay to Lender any
amounts so lent at such times and in such manner as provided herein ("Line of
Credit"). This is an asset-based revolving Line of Credit under which Lender
may, among other things: establish, without obligation for payment to any party,
such reserves from Qualified Accounts and/or Qualified Inventory as Lender deems
necessary to preserve the value of the Collateral and/or protect Lender's rights
and interest in the Collateral; reduce the percentage advance ratios set forth
in Section 3. COLLATERAL-OBLIGATION RATIO below; advance funds in excess of such
percentage advance ratios; decline to advance funds at any time against any
particular Qualified Accounts or Qualified Inventory; and, in order to determine
potential borrowing availability but not the calculation of interest, give
credit against Debtor's Loan Account Ledger for Collections (as defined in
Section 4. COLLECTIONS below) before Lender determines that such Collections
constitute good funds. Notwithstanding Lender's discretion and as consideration
from Lender, Lender agrees with Debtor that Lender shall at all times while this
Revolving Loan and Security Agreement ("Agreement") is in effect, maintain its
own borrowing capability to meet Debtor's daily borrowing requests up to the
maximum amount set forth herein and staff its operation through the scheduled
term of this Agreement with sufficient personnel and systems to process
Debtor's loan requests in order to administer on a daily basis this revolving
Line of Credit and any other credit facilities extended by Lender to Debtor.
Debtor acknowledges that Lender is furnishing valuable consideration by
undertaking the foregoing covenants.
1. LOANS AND SECURITY INTEREST
(a) Loans and Interest Rate. Lender and Debtor intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this Agreement.
Such indebtedness shall not be evidenced by separate notes but by Lender's
computer and/or book entries ("Loan Account Ledger"); and each month, Lender
shall render to Debtor a statement of account as of the last day of the
preceding month. As provided herein, DEBTOR PROMISES TO PAY LENDER all or any
part of the Obligations (as defined in Section 2. DEFINITIONS below) at any time
outstanding on Debtor's Loan Account Ledger, together with all expenses and
accrued interest thereon computed on the basis of the daily balance of such Loan
Account Ledger during such month. The interest rate hereunder shall be computed
at an annual rate equal to .75% below the rate announced from time to time by
Lender as its "prime rate", which may or may not be the best rate available at
said bank. (In the event of a participation, see Section 7(a). PARTICIPATIONS,
PARTICIPANT INTEREST RATE.) Such interest rate does not reflect additional costs
payable by Debtor including, without limitation: wire transfer charges or other
charges pertaining to the transfer of funds to Debtor or to Lender from Debtor
or from Debtor's depository banks; lock box, demand deposit, control
disbursement fees and other fees described in this or other agreements between
Debtor and Lender; charges arising from any returned or dishonored checks of an
account debtor; accrual of interest pending the "clearance" of checks described
in Section 4. COLLECTIONS below: and interest upon unpaid interest debited as
principal to Debtor's Loan Account Ledger. Interest shall be computed on the
basis of actual days elapsed and a year of 360 days. Interest for each calendar
month shall be due and payable by Debtor as of the first day of the next
succeeding month and, at Lender's option, may be debited as principal to
Debtor's Loan Account Ledger on the first day of each month or thereafter.
<PAGE>
(b) Daily Advances. Debtor may make daily telephonic or written requests to
Lender for advances under the Agreement for deposit into Debtor's demand deposit
account(s) at a permitted depository institution. Any requests for advances to
be disbursed elsewhere shall be made in writing signed by an authorized
representative of Debtor. Debtor agrees not to hold Lender responsible for any
errors or misunderstandings in complying with any telephonic or oral directions
for advance requests; and Debtor has the responsibility for ensuring that
representatives of Debtor contacting Lender to request advances are authorized.
(c) Minimum Monthly Charge. Notwithstanding the principal amount of the debit
balance of the Loan Account Ledger, and in addition to fees or charges for items
other than interest described herein, Debtor agrees to pay Lender, as of the
first day of the next succeeding month, at least $25,000.00* per
calendar month for every calendar month during the scheduled term of this
Agreement including any renewal terms, as stated in Section 9. TERMINATION
hereof (but discounted in the event of an earlier termination of this Agreement
as requested by Debtor), which monthly amount shall be reduced by any interest
paid to Lender for such month only, and not reduced by the cumulative interest
paid to Lender during the term of this Agreement (hereinafter "Minimum Monthly
Charge"). Lender may debit as principal any unpaid portion of such charge to
Debtor's Loan Account Ledger. Such Minimum Monthly Charge shall constitute,
among other things, partial compensation for Lender's benefit of its bargain,
including, without limitation, loss of future interest income to Lender if this
Agreement were to be terminated by Debtor before the end of that term set forth
in Section 9. TERMINATION below, and partial remuneration of Lender's fixed
costs associated with Lender's business (which costs may be amortized during the
full term of this Agreement). Unless otherwise specifically expressed in
writing, only one Minimum Monthly Charge applies to all Obligations and
agreements between Debtor, Debtor's affiliated companies (where applicable) and
Lender.
* (combined limit with Featherlite Credit Corporation)
(d) Security Interest, Assignment and Cross-Collateralization. To secure payment
of Debtor's Obligations, Debtor grants to Lender a security interest in the
Collateral, and Debtor collaterally assigns to Lender its rights under any lease
of personal or real property and its interests in all general intangibles,
including, without limitation, trademarks, trade names, patents, copyrights,
licenses, franchises, insurance claims and claims or rights of action against
third parties, however arising. The intent of the parties hereto is that all the
Collateral plus all other property, rights and claims pledged to Lender secures
all Obligations of Debtor to Lender, whether or not such Obligations exist under
this or other agreements and while such Obligations are due under any other
agreement, whether or not the loans under this Agreement have been paid in full.
<PAGE>
2. DEFINITIONS
The terms set forth in this Agreement shall have the meanings set forth in the
Uniform Commercial Code as adopted in the State of Wisconsin unless otherwise
defined herein.
(a) "Collateral" means all of the following whether now owned or existing or
hereafter created or acquired by Debtor, wherever located, including all
documents, general intangibles, additions and accessions, spare and repair
parts, special tools, replacements, returned or repossessed goods and books and
records relating to the following; and all proceeds and products of the
following: all accounts, instruments, documents, chattel paper, general
intangibles, contract rights, securities, certificates of deposit and funds on
deposit with and all property in possession of Lender or any other depository
institutions; all inventory; all equipment and all fixtures.
(b) "Qualified Account" means an account owing to Debtor which meets all of
these specifications on a continuing basis, as determined by Lender:
(1) Sale of Goods or Services Rendered. It arose from the performance
of services by Debtor, or from a bona fide sale or lease of goods on terms
in effect as of the date of this Agreement as disclosed by Debtor to
Lender; which services have been fully performed for an account debtor or
which goods have been delivered or shipped to an account debtor residing in
the United States or a foreign account debtor acceptable to Lender; and for
which Debtor has genuine and complete invoices, shipping documents or
receipts;
(2) Age and Due Date. It is payable not more than 30 days
from the date of invoice, and is not more than 60 days past due;
(3) Ownership. It is owned and assignable by Debtor free of all
claims, encumbrances and security interests (except Lender's paramount
security interest);
(4) No Defenses. It is enforceable by Debtor and Lender against the
account debtor for the amount shown as owing in the statements furnished by
Debtor to Lender; it and the transaction out of which it arose comply with
all applicable laws and regulations; it is not subject to any setoff,
credit allowance or adjustment except discount for prompt payment, nor has
the account debtor returned the goods or disputed liability; and it did not
arise from a conditional sale, guaranteed sale, sale on approval, sale or
return or sale on consignment;
(5) Financial Condition of Account Debtor. Neither Debtor nor Lender
has any notice or knowledge of anything which might impair the credit
standing of the account debtor or the prospect of payment of the account,
nor does the dollar amount of past-due invoices as a portion of the total
dollar amount due from an account debtor exceed 50%, which limitation may
change from time to time;
(6) Satisfaction of Lender. Lender has not notified Debtor, orally or
in writing, that the account or account debtor is unsatisfactory;
(7) Affiliates. It is not due from an Affiliate of Debtor, including,
without limitation, a parent corporation, subsidiary corporation or
corporation owned in part or in whole by any controlling shareholder(s) of
Debtor, or any officer, director or shareholder of Debtor or of any
Affiliate (collectively "Affiliate");
<PAGE>
(8) Other Provisions. Qualified Account shall not include, among
other things, finance charges, deposits, dealer holdbacks and dilution
reserve.
(c) "Qualified Inventory" means inventory which meets all of these
specifications on a continuing basis, as determined by Lender:
(1) Ownership. It is owned and assignable by Debtor free of all
claims, encumbrances and security interests (except Lender's paramount
security interest); it is not stored with any bailee, warehouseman,
Affiliate or other party without a written agreement in favor of Lender;
and it is not with Debtor nor put in the field by Debtor as a conditional
sale, guaranteed sale, sale on approval, sale or return or sale on
consignment;
(2) Condition. It is in good condition; it has not materially declined
in value; it is of an age, type and quantity acceptable to Lender; and, in
the case of goods held for sale, it is new and unused (except as Lender may
otherwise consent in writing);
(3) Satisfaction of Lender. Lender has not notified Debtor, orally or
in writing, that any of the inventory is unsatisfactory;
(4) Other Provisions. Qualified Inventory shall not include, among
other things, reserve for obsolescence/slow moving inventory, promotional
items, outside processors, prepaid intransit, at shows/dealers/sales
representatives, leased, drivers using, used trailers, test count reserves,
new and used motorcoaches.
(d) "Obligations" means all Debtor's debts, covenants, warranties, duties and
liabilities to Lender (including the Financial Services Division and any other
division of Lender) whether liquidated or unliquidated, absolute or contingent,
whether arising under this Agreement, any lease, any charge card program, any
other service or credit extended by Lender, any mortgage or deed of trust, any
guaranty, any letter of credit or bankers acceptance, any reserve established by
Lender to support any letter of credit, bankers acceptance or other undertaking
by Lender for the benefit of Debtor and/or its Affiliates, any account with a
balance due Lender, any term indebtedness (installment, demand or promissory
note), and/or under any other agreements of whatever nature with Lender
(together and individually, the "Loan Documents") and including fees and charges
related to any of the foregoing; and whether arising out of past, existing or
future credit granted by Lender to Debtor, to Debtor and others, to other
guaranteed or endorsed by Debtor or to any debtor-in-possession or
successor-in-interest of Debtor.
<PAGE>
3. COLLATERAL-OBLIGATION RATIO
Without Lender's prior written consent, Debtor shall not permit advances
(including accrued interest, expenses, fees and reserves) against Qualified
Accounts and Qualified Inventory at any time outstanding to exceed the lesser of
$23,000,000.00; or
See Exhibit A attached hereto for subsections (a), (b) and (c).
In addition to other required payments herein, Debtor shall at all times pay
Lender such sums as may be necessary from time to time to maintain the foregoing
ratios or limits ("Ratios"). Such Ratios are stated only for the purpose of
establishing advances under this Agreement and not for valuation of the
Collateral. Notwithstanding Debtor's obligation to maintain the foregoing
Ratios, Lender, in its sole discretion, may make advances to Debtor in excess of
the foregoing Ratios, which advances shall be payable to Lender ON DEMAND unless
otherwise agreed to in writing by Lender. Where Debtor has exceeded the
foregoing Ratios or any Excess Line of Credit (as defined below), Debtor shall
be assessed a daily service fee as a cost in addition to the interest designated
in Section 1. LOANS AND SECURITY INTEREST above. Furthermore, where Lender has
consented to an additional line of credit in excess of the foregoing Ratios
("Excess Line of Credit"), Debtor shall be assessed a daily service fee for such
Excess Line of Credit whether or not Debtor draws upon such Excess Line of
Credit. Nothing herein, however, shall be construed as a commitment by Lender to
make or allow advances against Qualified Accounts and/or Qualified Inventory
(including accrued interest, expenses, fees and reserves) in excess of the
foregoing Ratios; nor shall this section be a waiver of any default by Debtor if
it exceeds such Ratios without Lender's prior written consent.
4. COLLECTIONS
(a) Payment of Collections. Debtor promises to continuously repay the
Obligations upon Debtor's receipt of any proceeds of the Collateral, including
all checks, drafts, cash and other remittances and proceeds received in part or
full payment of or with respect to the Collateral ("Collections"). Debtor shall
deposit or cause to be deposited all Collections in accordance with the
provisions marked with an 'x' below.
[X] Lender's/Remote Lock Box Service; Restricted Account. Prior to Lender
making any advances hereunder, Debtor hereby agrees to enter into a lock
box arrangement with Lender to which Collections shall be sent by Debtor
("Depository Bank"). All Collections shall constitute a payment to and
the property of Lender and be processed in accordance with such lock box
arrangement. Once processed, the amount of any such Collections at
Depository Bank shall be placed in a restricted account in the sole name
and control of Lender (if not otherwise immediately wire-transferred
to Lender). Any charges relating to such restricted account which Lender
elects to pay shall be charged to Debtor's Loan Account Ledger. Any
Collections inadvertently received by Debtor shall be immediately delivered
to Lender or to Lender's restricted account at Depository Bank in
precisely the form received (but endorsed by Debtor if necessary for
collection), and until such delivery, Debtor shall not commingle any
such Collections with any other funds or property of Debtor and shall hold
the Collections upon an express trust for Lender.
<PAGE>
[ ] Direct Deliver/Restricted Account. Immediately upon receipt, Debtor
shall (1) deliver to Lender or (2) deliver to
___________________________________________________________ ("Depository
Bank") [strike as appropriate] all Collections in precisely the form
received (but endorsed by Debtor if necessary for collection). Said
Collections shall constitute a payment to and the property of Lender and,
until such delivery, Debtor shall not commingle any Collections with any
other funds or property of Debtor and shall hold the Collections upon an
express trust for Lender. Once delivered, the amount of any such
Collections at Depository Bank shall be immediately placed in a restricted
account in the sole name and control of Lender (if not otherwise
immediately wire-transferred to Lender). Any charges relating to such
restricted account which Lender elects to pay shall be charged to Debtor's
Loan Account Ledger.
(b) Credit for Collections. For calculating the amount available for borrowing
hereunder, the amount of any Collections in the form of cash, immediately
payable checks, drafts or other instruments received by Lender in Milwaukee,
Wisconsin, prior to 12:00 Noon of each banking day will be immediately credited
to Debtor's Loan Account Ledger. As consideration, in part, for Collections that
may not be immediately available for use by Lender, interest shall continue to
be charged on the amount so credited at Lender's rate of interest for a period
of -2- business days after such receipt. The amount of any Collections
in the form of a wire transfer received by Lender at Milwaukee, Wisconsin, prior
to 1:30 P.M. of each banking day, will be credited that same day to Debtor's
Loan Account Ledger for borrowing and interest purposes unless otherwise agreed
to in writing by Debtor and Lender. In the event that any such Collections, the
amount of which has been credited to Debtor's Loan Account Ledger, is
subsequently dishonored or otherwise returned unpaid to Lender, Lender may debit
Debtor's Loan Account Ledger for such amount, including any charges for
dishonored items, retroactively to the date that the amount was credited against
the Obligations. Except as provided in any account agreement and except for
Lender's willful misconduct, Lender shall not be liable for any of its own
errors or errors by any other financial institution in the processing and/or
transfer of funds or Collections to or from Lender, and Lender may retroactively
debit Debtor's Loan Account Ledger for any lost interest or principal resulting
therefrom.
(c) Verification and Notification. Lender may verify accounts and other
Collateral in any manner, and Debtor shall assist Lender in so doing. Upon
default by Debtor or termination of this Agreement, Lender may (or Debtor shall,
upon request of Lender) notify account debtors to make payment directly to
Lender; and Lender may enforce collection of, settle, compromise, extend or
renew the indebtedness of such account debtors, all without notice to or the
consent of Debtor. Lender shall have the right to exercise all rights and
remedies available to Debtor relating to account debtors (including, without
limitation, enforcing any mechanic or construction lien rights), and Debtor is
hereby deemed to have assigned to Lender all such rights and remedies.
<PAGE>
5. DEBTOR'S WARRANTIES AND COVENANTS
During the term of this Agreement or while any Obligations are unpaid or
outstanding under this Agreement or the other Loan Documents, Debtor
continuously warrants, represents and agrees as follows:
(a) Accuracy of Information. All information, certificates or statements given
to Lender pursuant to this Agreement and the other Loan Documents shall be
accurate and complete when given.
(b) Organization, Authority, Validity of Obligations. Debtor is a validly
existing corporation or partnership (as applicable) in good standing under the
laws of its state of organization, and has all requisite power and authority,
corporate or otherwise, to perform under this Agreement, and possesses all
necessary licenses, to conduct its business and own its properties. The
execution, delivery and performance of this Agreement and the other Loan
Documents with Lender are within Debtor's authority, are legal, valid and
binding obligations of Debtor, enforceable against Debtor in accordance with
their terms, and do not require the consent of others.
(c) Existence; Business Activities; Adverse Change; Litigation. Debtor will:
preserve its corporate or partnership existence (as applicable) and its rights
and franchises; not make any material change in the nature or manner of its
business activities, and not suffer any material adverse change in its business
operation, its financial condition or in the value or condition of the
Collateral. Further, there is no litigation or administrative proceeding
threatened or pending against Debtor which would, if adversely determined, have
a material adverse affect on Debtor's business operation, financial condition or
the Collateral.
(d) Acquisitions, Investments, Dividends, Corporate Changes. Without the prior
written consent of Lender, Debtor shall not: acquire any other business (whether
by stock or asset acquisition); make any loan, advance or extension of credit
to, or investment in, any other person, corporation or other entity (except for
extensions of credit to account debtors for goods and/or services purchased from
Debtor in the ordinary course of business and except for loans up to $5,000 at
any time outstanding to individual employees); pay any cash dividends; pay any
management, administration, consulting fees or the like to any Affiliate,
director or shareholder; purchase, redeem or otherwise acquire, directly or
indirectly, any shares of any class of its stock or any other stock; merge with
or into or consolidate with or into any other corporation or entity; or
liquidate or dissolve.
(e) Other Agreements, Laws and Regulations. Debtor is not in default under any
material agreement for the payment of money which would give any creditor of
Debtor the right to accelerate indebtedness of Debtor to such creditor or
terminate such agreement to which Debtor is a party; nor is Debtor delinquent in
the payment of any tax, payroll or withholding obligation or of any obligation
under any federal or state law which could impose a lien or claim upon the
Collateral as a result of such default. Furthermore, Debtor's Affiliates are not
in default under any agreement between such Affiliates and Lender.
(f) Debtor's Name, Locations; Notice of Changes. Debtor's name and
organizational structure have remained the same during the past 5 years. Debtor
will continue to use only the name set forth on the first page of this Agreement
unless Debtor gives Lender prior written notice of any change. Furthermore,
Debtor shall not do business under another name nor use any trade name without
giving 10 days prior written notice to Lender. The address appearing below
Debtor's signature is Debtor's chief executive office and principal place of
business; and such office, place of business and all Collateral shall be at such
address except to the extent Debtor has provided prior written notice to Lender
of any change of address/new location. Further, Debtor will promptly notify
Lender in writing of any change, death or disability of any of its principal
officers, directors and key employees; death of any guarantor; and any other
material change in the structure, business or financial affairs of Debtor or the
Collateral.
<PAGE>
(g) Use of Proceeds, Speculation. Advances by Lender under this and other
agreements shall be used exclusively by Debtor for working capital purposes. No
part of any of the proceeds shall be used for speculative investment purposes,
including, without limitation, speculating or hedging in the commodities and/or
futures market without the prior written consent of Lender.
(h) Ownership, Maintenance of Collateral, Restriction on Liens and Dispositions.
Debtor is the sole owner of the Collateral free of all claims, encumbrances and
security interests, except as permitted in writing by Lender. Debtor shall:
maintain the Collateral in good condition and repair (reasonable wear and tear
excepted), and not permit its value to be impaired; not permit waste, removal or
loss of identity of the Collateral, nor shall Debtor, by action or inaction,
cause Lender in good faith to fear waste, removal or loss of identity of the
Collateral; keep the Collateral free from all claims, encumbrances and security
interests (other than Lender's paramount security interest); defend it against
all claims and legal proceedings by persons other than Lender; pay and discharge
when due all taxes, levies and other charges or fees upon the Collateral except
for payments of taxes contested by Debtor in good faith by appropriate
proceedings so long as no levy or lien has been imposed upon the Collateral; not
lease, sell or transfer the Collateral to any party or to any new location
outside of the ordinary course of business; not permit the Collateral to become
a fixture or accession to other goods; not permit the Collateral to be used in
violation of any applicable law, regulation or policy of insurance; and, as to
the Collateral consisting of instruments and chattel paper, preserve Lender's
rights in it against all other parties. Notwithstanding the above, Debtor may
sell or lease inventory in the ordinary course of its business provided that (1)
no sale or lease shall include any transfer or sale in satisfaction (partial or
complete) of a debt owed by Debtor; (2) title will not pass to buyer until
Debtor physically delivers the goods to buyer or Debtor ships the goods F.O.B.
to buyer's destination; and (3) sales and/or leases to Debtor's Affiliates shall
be for its fair market value, cash on delivery, with the proceeds remitted to
Lender.
(i) Maintenance of Security Interest/Purchase Money Security Interests. Debtor
shall take any action requested by Lender to preserve the Collateral and to
establish priority of, perfect, continue perfection of or enforce Lender's
interest in the Collateral and Lender's rights under this Agreement; and shall
pay all costs and expenses related thereto. Debtor and Lender intend to maintain
the full effect of any purchase money security interest granted in favor of
Lender notwithstanding the fact that the Collateral so purchased is also pledged
as security for other Obligations under this Agreement and the other Loan
Documents.
(j) Collateral Inspections, Modifications, Changes and Returns. At reasonable
times, Lender may examine the Collateral and Debtor's records pertaining to it,
wherever located, and make copies of such records at Debtor's expense; and
Debtor shall assist Lender in so doing. Without Lender's prior written consent,
Debtor shall not alter, modify, discount, extend, renew or cancel any
Collateral, except for ordinary discounts for prompt payment on accounts,
physical modifications to the inventory occurring in the manufacturing process
or alterations to equipment which do not materially affect its value. Debtor
shall promptly notify Lender if any Qualified Account or Qualified Inventory
ceases to be qualified, and notify Lender of any change in the condition of the
Collateral.
(k) Collateral Records/Reports. Debtor shall keep accurate and complete records
respecting the Collateral in such form as Lender may approve. At such times as
Lender may require, Debtor shall furnish to Lender information regarding the
Collateral, certified by Debtor as complete and accurate and in such form and
substance as required by Lender, including, without limitation: the current
status and value of the Collateral; a schedule of all inventory showing the cost
and wholesale market value thereof; a periodic appraisal of equipment and
fixtures (if applicable) and by the 10th day of each month, a detailed listing
of accounts according to age and address, identifying those which are current,
those which are past due (including the extent to which they are past due) and a
reconciliation of such aging of accounts. Upon request, Debtor shall provide
Lender with copies of applicable account invoices and conclusive evidence of
shipment of goods to such accounts.
<PAGE>
(l) Accounting Records/Reports; Controller. Debtor shall maintain a modern
system of accounting in accordance with generally accepted principles of
accounting consistently applied throughout all accounting periods. Debtor shall
furnish Lender such reports and financial statements respecting the business,
assets, income and financial condition of Debtor as Lender may reasonably
request (at least within 30 days of the end of each monthly interim accounting
period); all of which reports and financial statements shall be certified as
complete and accurate by a principal officer of Debtor, and annually, within 90
days of fiscal year end Debtor shall provide Lender a certified audit, by an
independent public accountant satisfactory to Lender with a reliance letter for
the benefit of Lender. Furthermore, Debtor shall cause and hereby authorizes its
accountants to deliver to Lender a copy of any letters, memoranda or advice such
accountants direct to Debtor's management. At Debtor's expense, Lender shall
have the right at any time during normal business hours to verify, inspect and
make extracts of all of Debtor's books, accounts, records, orders,
correspondence and such other papers as Lender may desire. Debtor shall employ a
full-time controller whose experience and training are acceptable to Lender.
(m) Insurance. Debtor shall keep the Collateral and Lender's interest in it
insured against all risks and under policies with such provisions, for such
amounts and with such insurers as shall be satisfactory to Lender, and shall
furnish evidence of such insurance satisfactory to Lender. Insurer or its agent
shall endorse the policy of insurance naming Lender as "Lender's Loss Payee",
and shall agree to notify Lender of any changes in the policy coverage with
respect to the Collateral or the addition of any other loss payees as to the
Collateral. Debtor hereby assigns all insurance proceeds to and irrevocably
directs, while any Obligations remain unpaid, any insurer to pay to Lender the
proceeds of all such insurance and any premium refund, and authorizes Lender to
endorse Debtor's name to effect the same; to make, adjust or settle, in Debtor's
name, any claim on any insurance policy relating to the Collateral; and, at the
option of Lender, to apply such proceeds and refunds to any balance of the
Obligations and/or to restoration of the outstanding Collateral, returning any
excess to Debtor.
(n) Environmental Matters. Except as disclosed in a written schedule attached to
this Agreement (if no schedule is attached, there are no exceptions), there
exists no uncorrected violation by Debtor of any federal, state or local laws
(including, without limitation, statutes, regulations, ordinances or other
governmental restrictions and requirements) relating to the discharge of air
pollutants, water pollutants or process waste water or otherwise relating to the
environment or hazardous substances as hereinafter defined, whether such laws
currently exist or are enacted in the future (collectively "Environmental
Laws"). The term "Hazardous Substances" shall mean any hazardous or toxic
wastes, chemicals or other substances, the generation, possession or existence
of which is prohibited or governed by any Environmental Laws. Debtor is not
subject to any judgment, decree, order or citation, or a party to (or threatened
with) any litigation or administrative proceeding, which asserts that Debtor (1)
has violated any Environmental Laws; (2) is required to clean up, remove or take
remedial or other action with respect to any Hazardous Substances (collectively
"Remedial Action"); or (3) is required to pay all or a portion of the cost of
any Remedial Action, as a potentially responsible party. There are not now, nor
to Debtor's knowledge after reasonable investigation, have there ever been, any
Hazardous Substances (or tanks or other facilities for the storage of Hazardous
Substances) stored, deposited, recycled or disposed of on, under or at any real
estate owned or occupied by Debtor during the periods that Debtor owned or
occupied such real estate, which if present on the real estate or in the soils
or ground water, could require Remedial Action. To Debtor's knowledge, there are
no proposed or pending changes in Environmental Laws which would adversely
affect Debtor or its business, and there are no conditions existing currently or
likely to exist during the term of this Agreement which would subject Debtor to
Remedial Action or other liability. Debtor currently complies with and will
continue to timely comply with all applicable Environmental Laws; and will
provide Lender, immediately upon receipt, copies of any correspondence, notice,
complaint, order or other document from any source asserting or alleging any
circumstance or condition which requires or may require a financial contribution
by Debtor or Remedial Action or other response by or on the part of Debtor under
any Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from Debtor for an alleged violation of any Environmental Laws.
<PAGE>
(o) Chattel Paper, Instruments, Etc. Chattel Paper, instruments, drafts, notes,
acceptances, and other documents which constitute Collateral shall be on forms
satisfactory to Lender. Debtor shall promptly mark all original chattel paper to
indicate conspicuously Lender's security interest therein, shall not deliver any
chattel paper or instruments to any other entity and, upon request, deliver all
original chattel paper, instruments, drafts, notes, acceptances and other
documents which constitute collateral to Lender.
(p) United States Government Contracts. If any accounts or contract rights arose
out of contracts with the United States or any of its departments, agencies or
instrumentalities, Debtor shall promptly notify Lender and execute any writings
required by Lender so that all money due or to become due under such contracts
shall be assigned to Lender under the Federal Assignment of Claims Act.
(q) Expenses and Fees. Debtor shall be responsible for the payment of all
expenses and fees of Lender and its personnel, Lender's corporate inside
counsel, retained outside counsel and other third parties, (including any
Participant) in connection with the Loan Documents, including, without
limitation: perfecting Lender's security interest in the Collateral and
confirming its priority; the internal reviews of Debtor's business operations
and the Collateral; appraisals and environmental audits; the closing,
administration, modification, defense of or enforcement of this Agreement and
the other Loan Documents; and the preservation, collection and/or liquidation of
the Collateral; in each case regardless of whether such expenses and fees arise
after termination of this Agreement or as part of a judicial or non-judicial
proceeding. Such expenses and fees may, at Lender's option, be debited to
Debtor's Loan Account Ledger and be in addition to the interest and Minimum
Monthly Charge referred to in Section 1. LOANS AND SECURITY INTEREST.
6. RIGHTS AND DUTIES OF LENDER
(a) Authority to Perform for Debtor. To facilitate application of the Collateral
against the Obligations, Debtor presently appoints any officer of Lender as
Debtor's attorney-in-fact (coupled with an interest and irrevocable while any
Obligations remain unpaid): to endorse the name of Debtor on any invoice or
document of title relating to accounts, drafts or notices to account debtors,
notes, acceptances, assignments of government contracts, instruments, financing
statements, checks, insurance claims or payments or other evidence of payment or
security interest related to the transactions under this Agreement or the other
Loan Documents; to perfect, protect and/or realize upon Lender's interest in the
Collateral; and to do all such other acts and things necessary to carry out
Debtor's obligations under this Agreement and the other Loan Documents,
including, upon default, to receive, open and dispose of all mail addressed to
Debtor, to notify the Post Office authorities to change the address for delivery
of mail addressed to Debtor to an address designated by Lender and to notify
(and Debtor hereby directs) each of Debtor's depository institutions to remit to
Lender, without liability to Debtor, all of Debtor's funds on deposit with such
institutions. All acts by Lender are hereby ratified and approved, and Lender
shall not be liable for any acts of commission or omission, nor for any errors
of judgment or mistakes of fact or law.
(b) Collateral Preservation. Lender shall use reasonable care in the custody and
preservation of any Collateral in its physical possession but in determining
such standard of reasonable care, Debtor expressly acknowledges that Lender has
no duty to: insure the Collateral against hazards; ensure that the Collateral
will not cause damage to property or injury to third parties; protect it from
seizure, theft or conversion by third parties, third parties' claims or acts of
God; give to Debtor any notices received by Lender regarding the Collateral;
perfect or continue perfection of any security interest in favor of Debtor;
perform any services, complete any work-in-process or take any other action in
connection with the management or maintenance of the Collateral; nor sue or
otherwise effect collection upon any accounts even if Lender shall have made a
demand for payment upon individual account debtors. Notwithstanding any failure
by Lender to use reasonable care in preserving the Collateral, Debtor agrees
that Lender shall not be liable for consequential or special damages arising
therefrom.
<PAGE>
(c) Setoffs. As additional security for the payment of the Obligations, Debtor
hereby grants to Lender a security interest in, a lien on and an express
contractual right to set off against all depository account balances, cash and
any other property of Debtor now or hereafter in the possession of Lender.
Lender may, at any time upon the occurrence of a default hereunder
(notwithstanding any notice requirements or grace/cure periods under this
Agreement or the other Loan Documents) set off against the Obligations whether
or not the Obligations (including future installments) are then due or have been
accelerated, all without any advance or contemporaneous notice or demand of any
kind to Debtor, such notice and demand being expressly waived.
7. OTHER LOAN PROVISIONS
(a) Participations, Participant Interest Rate. Debtor recognizes that an
integral part of the financing under this Agreement is Lender's participation
with ________________________________________________________________________
("Participant"), and Debtor consents to such participation, the extent of which
shall not exceed 50% of the advances under this Agreement or such dollar
limit as Lender and Participant may agree. Such participation is subject to the
execution of a participation agreement in a form satisfactory to Lender. The
annual rate of interest charged to Debtor on any advances subject to
participation shall be _____% plus the rate announced from time to time by
Lender as its "prime rate". Minor deviations above and below such rate of
interest will result from costs and fees provided for in this Agreement, timing
of the settlement with Participant on any particular day, clearance factors and
the time of day of the application of Collections. The time and manner of
settlement of any participation shall be within the sole determination of Lender
and Participant. In the event a participation is terminated for any reason, the
rate of interest charged Debtor by Lender on any advances in replacement of the
participated advances shall revert to that rate set forth in Section 1. LOANS
AND SECURITY INTEREST hereof; and Lender shall not be obligated to fund
Participant's prior share of the advances. Notwithstanding the existence of or
lack of any participation, Lender shall not at any time lend funds to Debtor in
excess of Lender's lending limits. Lender may distribute to Participant or
potential participants any information Lender may obtain regarding Debtor, the
Collateral, this Agreement and the Loan Documents between Debtor and Lender.
Debtor also agrees to furnish Participant, upon request, the same information
Debtor provides to Lender.
(b) Letters of Credit/Banker's Acceptances. From time to time, and subject to
execution of appropriate agreements, Debtor may request Lender's International
Banking Division, or another institutional lender (either hereinafter referred
to as "Issuer") to issue letters of credit and /or create banker's acceptances
for the account of Debtor (either hereinafter referred to as "Credit") in favor
of various beneficiaries. In order to support the issuance of such Credit by
Issuer and at Lender's option, Lender shall reduce the amount of funds Lender
may make available for borrowing by Debtor under Section 3.
COLLATERAL-OBLIGATION RATIO of this Agreement to the extent of the Issuer's
liability under such Credit or such lesser amount as Lender and the Issuer may
determine is required ("Collateral Reservation"). This Collateral Reservation
shall be deemed an "Obligation" under this Agreement, and at any time Lender is
called upon to advance funds to Issuer under any such Credit, the amount of
funds so advanced shall be charged against Debtor's Loan Account Ledger as a
loan, and interest will be charged thereon at the rate set forth under Section
1. LOANS AND SECURITY INTEREST of this Agreement. Lender shall charge Debtor a
fee for such Collateral Reservation in an amount and on terms mutually agreeable
to Lender and Debtor. Any fee for Collateral Reservation shall be in addition to
any fees or charges imposed by Issuer. Debtor shall not hold Lender liable nor
shall any advance made by Lender to any Issuer be subject to any contest, offset
or defense by virtue of Issuer's failure to comply with its obligations to
Debtor.
<PAGE>
(c) Return of Documents, Account Stated. Any documents, schedules, invoices or
other papers delivered to Lender by Debtor may be destroyed or otherwise
disposed of by Lender unless Debtor immediately requests in writing, the return
of said documents, schedules, invoices or other papers and makes arrangements
for such return, at Debtor's expense. Any statement of account rendered by
Lender to Debtor, including, without limitation, statements of balance owing,
accrued interest, expenses and costs, shall be deemed to be correct and
constitute an account stated unless, within 30 days after receipt thereof by
Debtor, Debtor shall deliver to Lender, by registered or certified mail, written
objection thereto specifying the errors, if any, contained in such statement.
(d) Loan Administration and Closing Fee. In addition to interest, the Minimum
Monthly Charge and other costs and fees referred to in this Agreement and while
this Agreement is in effect, Debtor * shall be assessed a loan administration
fee of $3,500.00 per quarter, and Debtor shall remit to Lender a loan
closing fee, payable at the initial funding, of $ N/A.
* and Featherlite Credit Corporation, in aggregate.
(e) Initial Funding. Initial funding under this and other agreements between
Debtor and Lender is, among other things, contingent upon (1) maintenance of
Debtor's business, financial condition and Collateral such that no material
adverse change will have occurred from the date hereof until the time of initial
funding; (2) no material change in the structure of the transaction under which
Lender might provide financing; (3) appropriate perfection of Lender's paramount
security interest in the Collateral; and (4) completion of all closing
requirements and execution of all closing documentation necessary and
satisfactory to Lender.
SECTION 8. DEFAULT
(a) Default. Debtor shall immediately notify the Lender, in writing, when Debtor
obtains knowledge of the occurrence of any default specified below. Regardless
of whether Debtor has given Lender the required notice, the occurrence of one or
more of the following shall constitute a default:
(1) Nonpayment. Debtor fails to pay when due any of the Obligations.
(2) Nonperformance. Debtor or any guarantor of Debtor's Obligations to
Lender ("Guarantor") shall fail to perform or observe any agreement, term,
provision, condition, or covenant (other than a default occurring under
(1), (3), (4), (5) or (6) of this section) required to be performed or
observed by Debtor or any Guarantor hereunder or under any other Loan
Document or other agreement with or in favor of Lender.
(3) Misrepresentation. Any financial information, statement,
certificate, representation or warranty given to Lender by Debtor or any
Guarantor (or any of their representatives) in connection with this
Agreement or the other Loan Documents and/or any borrowing thereunder, or
required to be furnished under the terms thereof, shall prove untrue or
misleading in any material respect (as determined by Lender in the exercise
of its judgment) as of the time when given.
(4) Default on Other Obligations. Debtor or any Guarantor shall be in
default under the other Loan Documents or any indebtedness in excess of
$10,000 owing by Debtor to any third party, and the period of grace, if
any, to cure said default shall have passed.
<PAGE>
(5) Judgments. Any judgment shall be obtained against Debtor or any
Guarantor which, together with all other outstanding unsatisfied judgments
against Debtor (or such Guarantor), shall exceed the sum of $10,000 and
shall remain unvacated, unbonded or unstayed for a period of 30 days
following the date of entry thereof.
(6) Inability to Perform; Bankruptcy/Insolvency. (i) Debtor or any
Guarantor shall die or cease to exist; or (ii) any Guarantor shall attempt
to revoke any guaranty of the Obligations described herein, or any guaranty
becomes unenforceable in whole or in part for any reason; or (iii) any
bankruptcy, insolvency or receivership proceedings, or an assignment for
the benefit of creditors, shall be commenced under any federal or state law
by or against Debtor or any Guarantor; or (iv) Debtor or any Guarantor
shall become the subject of any out-of-court settlement with its creditors;
or (v) Debtor or any Guarantor is unable or admits in writing its inability
to pay its debts as they mature.
(b) Termination of Loans; Additional Lender Rights. Upon termination of this
Agreement as provided in Section 9. TERMINATION below or the occurrence of any
default identified above and in the exercise of its discretion under this
Agreement, Lender may at any time (1) immediately cease making additional loans
to Debtor; (2) set off; and/or (3) take such other steps to protect or preserve
Lender's interest in the Collateral, including, without limitation, notifying
account debtors to make payment directly to Lender, advancing funds to protect
or preserve the Collateral and insuring the Collateral at Debtor's expense; ALL
WITHOUT DEMAND OR NOTICE OF ANY KIND, all of which are hereby waived.
(c) Acceleration, Expenses and Lender's Cumulative Remedies. Upon the occurrence
of any one of the above defaults or termination of this Agreement as provided in
Section 9. TERMINATION below, then at the option of Lender and upon written
notice to Debtor, all of the Obligations shall become immediately payable by
Debtor and fully accelerated and this Agreement shall be terminated. Debtor
shall also pay Lender all expenses incurred by Lender, including, without
limitation, those described in Section 5. DEBTOR'S WARRANTIES AND COVENANTS
above. Any termination of this Agreement shall also effect an acceleration of
all Obligations owed Lender (including, without limitation, any installment
obligations and other agreements between Debtor and Lender even if scheduled
payments thereunder would otherwise remain outstanding). Furthermore, Lender
shall have all rights and remedies for default provided by the Uniform
Commercial Code, as well as any other applicable law and this Agreement,
INCLUDING, WITHOUT LIMITATION, THE RIGHT TO REPOSSESS, RENDER UNUSABLE AND/OR
DISPOSE OF THE COLLATERAL WITHOUT JUDICIAL PROCESS. The rights and remedies
specified herein are cumulative and are not exclusive of any rights or remedies
which Lender would otherwise have. With respect to such rights and remedies:
(1) Assembling Collateral, Storage, Use of Debtor's Name/Other
Property. Lender may require Debtor to assemble the Collateral and to make
it available to Lender at any convenient place designated by Lender. Debtor
recognizes that Lender will not have an adequate remedy in law if this
obligation is breached and, accordingly, Debtor's obligation to assemble
the Collateral shall be specifically enforceable. Lender shall have the
right to take immediate possession of said Collateral; and Debtor
irrevocably authorizes Lender to enter any of the premises of Debtor or
wherever said Collateral shall be located, and to store (rent-free),
repair, maintain, assemble, manufacture, advertise and sell, lease or
dispose of (by public sale or otherwise) the same on said premises until
sold. Lender is hereby granted an irrevocable license to use, without
charge, Debtor's equipment, inventory, labels, patents, copyrights,
franchises, names, trade secrets, trade names, trademarks and advertising
matter and any property of a similar nature; and Debtor's rights under all
licenses and franchise agreements shall inure to Lender's benefit. Further,
Debtor releases Lender from obtaining a bond or surety with respect to any
repossession and/or disposition of the Collateral.
(2) Notice of Disposition. Written notice, when required by law, sent
to any address of Debtor in this Agreement, at least 10 calendar days
(counting the day of sending) before the date of a proposed disposition of
the Collateral is reasonable notice. Notification to account debtors by
Lender shall not be deemed a disposition of the Collateral.
<PAGE>
(3) Possession of Collateral; Commercial Reasonableness. Lender shall
not, at any time, be obligated to either take or retain possession or
control of the Collateral. With respect to Collateral in the possession or
control of Lender, Debtor and Lender agree that as a standard for
determining commercial reasonableness, Lender need not liquidate, collect,
sell or otherwise dispose of any of the Collateral if Lender believes, in
good faith, that disposition of the Collateral would not be commercially
reasonable, would subject Lender to third-party claims or liability or that
other potential purchasers could be attracted or a better price obtained if
Lender held the Collateral for up to 1 year; and Lender shall not then be
deemed to have retained the Collateral in satisfaction of the Obligations.
Furthermore, Lender may sell the Collateral on credit (and reduce the
Obligations only when payment is received from the buyer), at wholesale
and/or with or without an agent or broker; and Lender need not complete,
process or repair the Collateral prior to disposition.
(4) Interest After Maturity and Expenses. Upon maturity of any or all
of the Obligations, whether by default or otherwise, the unpaid Obligations
shall bear interest from and after maturity until paid at an annual rate
equal to 2% plus that rate of interest payable under Section 1. LOANS AND
SECURITY INTEREST.
(d) Waiver by Lender. Lender may permit Debtor to attempt to remedy any default
without waiving its rights and remedies hereunder, and Lender may waive any
default without waiving any other subsequent or prior default by Debtor.
Furthermore, delay on the part of Lender in exercising any right, power or
privilege hereunder or at law shall not operate as a waiver thereof, nor shall
any single or partial exercise of such right, power or privilege preclude other
exercise thereof or the exercise of any other right, power or privilege. For
purposes of this subsection, delays may include, but shall not be limited to,
Lender's failure to immediately enforce any warranty or covenant or to demand
immediate repayment of any Obligation in excess of the ratios set forth in
Section 3. COLLATERAL-OBLIGATION RATIO above, or of any other past-due
Obligation. No Waiver or suspension shall be deemed to have occurred unless
Lender has expressly agreed in writing specifying such waiver or suspension.
9. TERMINATION
(a) Term, Termination, Repayment. Absent a termination by default under Section
8. DEFAULT, this Agreement may be terminated at any time upon 90 days prior
written notice from Lender to Debtor. While this Agreement is in effect, Debtor
agrees to borrow funds and pay, at minimum, to Lender the Minimum Monthly Charge
specified in Section 1. LOANS AND SECURITY INTEREST of this Agreement for 4
years from the date of this Agreement, and from year to year thereafter, unless
Debtor notifies Lender that it does not intend to extend the Agreement for
another year by giving Lender written notice at least 90 days prior to the
expiration of the then existing term of this Agreement. In any event, Debtor
shall always have the unchallengeable right to fully prepay its Obligations to
Lender prior to the end of the term of this Agreement or any renewal term
provided, however, that Debtor gives Lender at least 90 days prior written
notice of such prepayment and pays Lender, in addition to all other Obligations
(including, without limitation, prepayment charges on fixed rate Obligations),
the Minimum Monthly Charge specified in Section 1. LOANS AND SECURITY INTEREST
above for each and every month from the month of prepayment until the expiration
of the then existing term of this Agreement. Said payment of the aggregate
Minimum Monthly Charge shall be discounted to its "present value" at a discount
rate equal to that price reported in The Wall Street Journal as the "Asked
(Discount)" price of 13-week United States Treasury Bills as sold in the most
current Monday auction preceding the date of prepayment by Debtor of all its
Obligations to Lender.
<PAGE>
(b) Survival of Security Interest, Duties and Warranties. Notwithstanding
termination of this Agreement by either Debtor or Lender, by default or
otherwise, Lender's security interest and all Debtor's duties, liabilities,
representations and warranties under this Agreement shall survive termination of
this Agreement and shall continue while any Obligation remains unsatisfied,
whether such Obligation arises under this Agreement or the other Loan Documents
or whether such Obligation is an advance made by Lender to Debtor following
either (1) a temporary zero credit balance in Debtor's Loan Account Ledger, or
(2) termination of this Agreement.
10. DEBTOR'S INDEMNIFICATION; WAIVER; LIMITATION OF DAMAGES
(a) Indemnification. Except for damages arising from Lender's willful
misconduct, Debtor hereby indemnifies and agrees to defend and hold Lender
harmless from any and all losses, costs, damages, claims and expenses of any
kind suffered by or asserted against Lender relating to claims by third parties
arising out of the financing provided by Lender to Debtor or related to the
Collateral. This indemnification and hold harmless provision shall survive the
termination of this Agreement and the satisfaction of the Obligations due
Lender.
(b) Notice of Claim; Waiver; Limitation of Damages. In order to allow Lender to
mitigate any alleged breach of this Agreement by Lender or its other duties to
Debtor, if any, Debtor agrees to give Lender written notice of any claim or
defense it has against Lender, whether in tort or contract, relating to any
action or inaction by Lender under this Agreement, or the transactions related
thereto, or of any defense to payment of the Obligations for any reason. Debtor
agrees to provide such notice to Lender within 60 days after Debtor has
knowledge of such action or inaction by Lender or has knowledge of such defense
to payment. The requirement of providing such notice to Lender represents
Debtor's agreed-to standard of performance. If Debtor does not timely deliver
such notice to Lender, Debtor shall not assert and shall be deemed to have
waived any such claim or defense. Notwithstanding any claim that Debtor may have
against Lender, Lender shall not be liable to Debtor for consequential and
special damages arising therefrom.
11. MISCELLANEOUS
(a) Relationship to other Documents. The warranties, covenants and other
obligations of Debtor (and the rights and remedies of Lender) that are outlined
in this Agreement and the other Loan Documents are intended to supplement each
other. In the event of any inconsistencies between any of the terms in this
Agreement and the other Loan Documents, all terms shall be construed so as to
give Lender the most favorable rights set forth in the conflicting documents,
except that if there is a direct conflict between any preprinted terms and
specifically negotiated terms (whether included in an addendum or otherwise),
the specifically negotiated terms will control.
<PAGE>
(b) Notices. Although any notice required to be given hereunder might be
accomplished by other means, notice to Debtor shall always be deemed given when
placed in the United States Mail, with postage prepaid, or sent by overnight
delivery service, or sent by telex or facsimile; in each case to the address set
forth below or as amended.
(c) Successors. The rights, options, powers and remedies granted in this
Agreement shall extend to Lender and to its successors, Participants and
assigns, shall be binding upon Debtor and its successors and assigns and shall
be applicable and to all renewals, amendments and/or extensions hereof.
(d) Order of Payment/Application of Proceeds. All payments received by Lender
under this Agreement or to other Loan Documents with Debtor, any Guarantor,
third parties or from the Collateral, may be applied against the Obligations in
any order and manner which Lender may choose.
(e) Applicable Law and Jurisdiction; Interpretation and Modification. This
Agreement and all other Loan Documents shall be governed by and interpreted in
accordance with the laws of the State of Wisconsin. Invalidity of any provision
of this Agreement shall not affect the validity of any other provision. The
provisions of the other Loan Documents shall not be altered, amended or waived
without the express written consent of Lender (and Debtor, when appropriate).
DEBTOR HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT SITUATED IN MILWAUKEE COUNTY, WISCONSIN, AND WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR
PROCEEDINGS RELATING TO THIS AGREEMENT, THE COLLATERAL, ANY OTHER LOAN DOCUMENT,
OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF
ANY OF THE FOREGOING. Nothing herein shall affect Lender's rights to serve
process in any manner permitted by law, or limit Lender's right to bring
proceedings against Debtor in the competent courts of any other jurisdiction or
jurisdictions. This Agreement, the other Loan Documents and any amendments
hereto (regardless of when executed) will be deemed effective only upon Lender's
receipt and acceptance of the executed originals thereof in Milwaukee,
Wisconsin.
(f) Waiver of Jury Trial. DEBTOR AND LENDER HEREBY JOINTLY AND SEVERALLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT, THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, THE COLLATERAL OR ANY
TRANSACTION ARISING THEREFROM OR CONNECTED THERETO. DEBTOR AND LENDER EACH
REPRESENTS TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY
GIVEN.
12. ADDITIONAL TERMS
See Exhibit A attached hereto.
<PAGE>
Signed in Milwaukee, Wisconsin, on September 24, 1998.
LENDER: DEBTOR:
FIRSTAR FINANCIAL SERVICES, FEATHERLITE, INC.
a division of Firstar Bank Milwaukee, N.A.
By: /s/ John H. Sturm By: /s/ Conrad D. Clement
Title: Vice President Title: President
777 East Wisconsin Avenue Address:
Milwaukee, Wisconsin 53202 Hwy. 63 & 9
Cresco, IA 52136
FIRSTAR
<PAGE>
EXHIBIT A
TO THE
REVOLVING LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
FIRSTAR BANK MILWAUKEE, N.A.,
THROUGH ITS FINANCIAL SERVICES DIVISION,
AND
FEATHERLITE, INC.
DATED: _____________________
1. The following are subsections (a), (b) and (c) of Section 3. COLLATERAL-
OBLIGATION RATIO:
(a) up to 85% of the amount owing on Qualified Accounts for the
Featherlite Manufacturing Division (minus payments on Qualified
Accounts which are in the process of collection by Lender); plus
(b) up to the lesser of $15,000,000.00 or those percentages of Qualified
Inventory, valued at cost or wholesale market value, whichever is
lower as reflected below:
Type of Featherlite Manufacturing Vantare Vogue
Qualified Inventory Division Division Division
Raw Materials 60% 50% 50%
Work-In-Process 20% 15% 20%
Sub Assembly
Finished Goods 60% 0 0
The inventory advances of all Work-In-Process should not exceed
$4,000,000.00; plus
(c) Up to $3,000,000.00, which amount may be subject to modification
as determined by Lender on or about each anniversary date of
this Agreement.
2. Notwithstanding the limitations upon obtaining additional secured financing
provided in this Agreement, Debtor may obtain real estate and fixtures
financing in Florida from the Huntington National Bank in an amount not to
exceed $6,000,000.00.
3. In addition to the financing contemplated by this Agreement and the related
installment term obligations, Lender will provide Debtor a $1,000,000.00
term facility for future construction for the building addition to existing
real estate of the Debtor. Such financing, to be provided upon completion
of the building addition, will be subject to satisfaction of Lender's
normal requirements for construction financing, including, without
limitation, a completed facility free and clear of all liens, encumbrances
and encroachments.
<PAGE>
4. Section 12., ADDITIONAL TERMS.:
(a) Authorization to Accept Electronic Transmissions. In the event
Debtor or Lender transmits any information, directions,
authorizations and/or documents to each other via electronic
transmission, including via facsimile, modem, computer and the like
("Electronic Communications"), Debtor and Lender agree that each may
rely and accept such Electronic Communications in lieu of written
communication and without any further written confimation, unless
requested in writing. Lender may rely on any Electronic
Communications transmitted, regardless of whether the transmitter of
such information is unauthorized to do so on behalf of Debtor and
regardless of any mistake, omission or transmission error. Due to
the potentially large amount of Electronic Communications received
and transmitted by Lender, and unless caused by Lender's willful
misconduct, Debtor agrees not to hold Lender liable for any error in
the transmission or contents of any Electronic Communications, and
Lender may retroactively correct or adjust such errors. Debtor
indemnifies Lender from any costs, liability, suits, actions or
other claims brought against Lender by others as a result of
Lender's reliance on such electronically transmitted information.
Lender may rely on any Electronic Communications regardless of
whether other resolutions or documents provide otherwise, or require
authorizations from persons other than the transmitter of such
Electronic Communications.
(b) Except as limited by the maximum limit of the Line of Credit,
Debtor shall use its best efforts to maintain a minimum availability
of $1,200,000.00 at all times, which amount Debtor may borrow unless
Lender, in its good faith business judgment, determines that
Debtor's current financial performance or changes in its business
do not support such additional borrowing.
Accepted by Initialing: CDC
JHS
<TABLE> <S> <C>
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<S> <C>
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<PERIOD-START> JAN-01-1998
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0
0
<COMMON> 16,403
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</TABLE>
