U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.: 0-24804
December 31, 1999
FEATHERLITE, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1621676
(State of Incorporation) (IRS Employer Identification Number)
Highways 63 and 9
Cresco, Iowa 52136
(319) 547-6000
(Address of principal executive offices;
Issuer's telephone number)
------------------------
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 7, 2000, was $12,113,000 (based on the last sale price of
the registrant's Common Stock on such date).
Shares of without par value Common Stock outstanding at March 7, 2000: 6,510,104
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated Part of
this Form 10-K: (1) Annual report to shareholders for the fiscal year ended
December 31, 1999 - Part II; (2) Proxy statement for 2000 Annual Meeting - Part
III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Featherlite, Inc. (formerly Featherlite Mfg., Inc.) was organized by
current management as a Minnesota corporation in 1988 to acquire the assets of a
non-affiliated business which manufactured trailers since the early 1970s under
the FEATHERLITE(R) brand name. The Company designs, manufactures and markets
over 400 models of both custom made and standard model specialty aluminum and
steel trailers primarily through a network of over 240 full-line dealers located
in the United States and Canada.
The Company markets its primary trailer products under the
FEATHERLITE(R) brand name. FEATHERLITE(R) trailers are made of aluminum, which
differentiates the Company from most of its competitors which primarily make
steel trailers. Aluminum trailers are superior to steel in terms of weight,
durability, corrosion resistance, maintenance and weight-to-load ratio. Although
the Company's focus is on manufacturing and marketing aluminum trailers, it also
markets a line of composite steel and aluminum trailers under the
FEATHERLITE-STL(R) series (replaced Econolite beginning in 1997) and DIAMOND
D(R) brands in order to provide dealers and customers with a high quality, but
less expensive, alternative to the aluminum trailer.
The Company began manufacturing and marketing a custom luxury
motorcoach in 1996 primarily through the acquisition of the assets of Vantare
International, Inc. In 1998, the Company expanded its presence in this market by
acquiring the assets of Mitchell Motorcoach Sales, Inc. Entry into the luxury
motorcoach market was consistent with Featherlite's long-term growth strategy of
product diversification. These motorcoaches were marketed under the trade name
"VANTARE by Featherlite(R)" and Featherlite VogueTM. Beginning in 1999, these
motorcoaches are being marketed under the trade names Featherlite VantareTM
Featherlite VogueTM and Featherlite Luxury CoachesTM.
Management believes that the Company's non-acquisition related growth
is being caused by overall market expansion, particularly in uses related to
entertainment and leisure. Demand for the Company's products is being
significantly driven by the lifestyles, hobbies and events that are important to
Featherlite's target customers. Growth in those product and service categories
which could use or require a high quality specialty trailer is creating
increased demand for the Company's products. Those categories and uses include
pickup trucks, sport utility vehicles, all-terrain-vehicles, personal watercraft
and snowmobiles; auto races, classic car shows and motorcycle rallies; hobby
farming and raising and showing horses; art and craft fairs and expositions; and
vending trailers for selling crafts, food and other concessions, such as
T-shirts or novelty items. Examples of other users of the Company's trailers
include lawn care services, house painters, construction crews, traveling museum
exhibitions, concert tours, musical groups and fiber optic utility crews that
require clean environments in which to splice and store cable. The number of
affluent retirees and business owners who represent the target market for luxury
motorcoaches produced by Featherlite is continuing to grow at a healthy pace.
The Company continually monitors the market for opportunities to
leverage the FEATHERLITE(R) brand name and its expertise. Featherlite pioneered
the introduction of standard model aluminum horse and livestock trailers, which
traditionally had been custom made. It has also responded to the increasing
demand for customizing the interiors of trailers, a capability which helps
distinguish the Company from its competition. Typical interiors range from a
simple interior, such as a dressing room, closet and mirror in the nose of a
horse trailer, to sophisticated, such as upholstered seating and sleeping areas,
kitchens, bathrooms and modern electronics, including fax machines, cellular
phones and satellite dishes, in race car transporters and luxury custom coaches.
In addition, Featherlite refines the products it already offers by introducing
new features to satisfy the increasing demands of its customers.
The Company pays special attention to its target customers and attempts
to reach them through a variety of media. Featherlite benefits from national
advertising and sponsorship of major events which are visible to its customers.
These sponsorships include Featherlite's designation as the "Official Trailer"
of NASCAR, CART, NHRA, IRL, ARCA, ASA, World of Outlaws, the Indianapolis Motor
Speedway and Speedway Motor Corporation's five race tracks. Featherlite has an
association with the All American Quarter Horse Congress, the National Western
Livestock Show and Rodeo, United States Team Roping Competition, Professional
Bull Riders, Black Hills Livestock Show and the National High School Finals
Rodeo. The Company's luxury motorcoach is the "Official Coach" of NASCAR, NHRA,
IRL and Sportscar.
1
<PAGE>
Specialty Trailer and Motorcoach Industry
The Company operates in two principal industries and business segments:
specialty trailers and motorcoaches, as discussed in the section labeled
"Management's Discussion and Analysis" which appears in the Company's Annual
Report to Shareholders for the year ended December 31, 1999 which is
incorporated herein by reference.
Specialty Trailer Industry
Specialty trailers are designed for specific hauling purposes rather
than for general commercial freight. The customers of the specialty trailer
industry consist of broad segments of the general public, such as hobbyists,
sports enthusiasts, farmers and ranchers, engaged in the activities for which
particular trailers are designed. In contrast, commercial freight trailers are
generally made for non-specific purposes and the customers are typically
trucking companies and manufacturers with fleets of trucks and trailers. Unlike
the commercial freight trailer industry which is dominated by a few large
manufacturers, the specialty trailer industry is comprised of many small
manufacturers. No published statistics are available on the size of the
specialty trailer industry or its subcategories. However, the Company believes
that there may be as many as 500 manufacturers of specialty steel trailers in
the United States, of which approximately 20 manufacture specialty aluminum
trailers.
Historically, specialty trailers were made of steel, principally
because they cost approximately 30% to 40% less than trailers made primarily of
aluminum. Entry into the production of steel trailers is relatively easy and
inexpensive because of the widespread availability of steel components and
simple production techniques. The relative lack of barriers to entry into the
steel trailer industry, differing regional demands for trailer types and the
relatively high cost of long distance delivery have contributed to the
fragmented status of the specialty trailer industry. As a result, specialty
trailer manufacturers generally produce relatively small numbers of trailers for
sale in limited geographical markets without the efficiencies of high volume
production, quality controls, significant warranty and service capabilities,
substantial dealer networks, or national advertising and marketing programs. In
comparison, production of aluminum trailers requires larger capital investment
in dies, extrusion molds and equipment, more sophisticated welding and
production techniques, and greater design capabilities to maximize the
strength-to-weight ratio advantage of aluminum over steel.
In dollar sales, the Company estimates that aluminum trailers presently
constitute five to ten percent of the total market for specialty trailers and
that this percentage is increasing. The trend of the trailer market to migrate
toward aluminum models is driven by a number of factors. Aluminum trailers offer
substantial advantages over steel trailers in weight, ease of maintenance,
durability and useful life. Aluminum trailers do not rust and weigh 30% to 40%
less than comparable steel models. Maintenance is substantially less on aluminum
trailers because of the absence of rust and because they typically are not
painted or are pre-painted with a baked-on enamel. As a result, aluminum
trailers can be offered with superior warranties and provide greater customer
satisfaction. The lighter weight of aluminum trailers reduces the demands on the
towing vehicle, affords better gas mileage and allows a greater percentage of
gross trailer weight for carrying cargo.
Motorcoach Industry
Bus conversion motorcoaches are the most luxurious of all recreational
vehicles. They represent a unique market niche, with selling prices ranging from
$400,000 to $1,000,000 or more. These motorcoaches are primarily converted from
a bus shell for conversions that is purchased and completed to provide an
interior area designed to the customer's specifications. It has been estimated
that this segment of the RV market experienced more than a 30% growth between
1990 and 1994 and this growth is expected to continue in the future. A large
part of the target market, the 45 to 64 age group, is expected to grow for the
next decade. Sales of these vehicles will be boosted because this group is
expected to retire earlier and have a greater affluence than previous
generations. The Company believes that there are presently seven or more
companies in this industry.
2
<PAGE>
Products and Services
The Company's primary business activity is the manufacture and sale of
specialty aluminum trailers under the FEATHERLITE(R) brand name. In 1996, the
Company began manufacturing and marketing a custom motorcoach under the name
"VANTARE BY FEATHERLITE(R)". In 1998, the Featherlite Vogue brand of
motorcoaches was added when the Company purchased the assets of Mitchell
Motorcoach Sales, Inc. These motorcoaches are now marketed under the trade names
FEATHERLITE VANTARETM, FEATHERLITE VOGUETM and FEATHERLITE LUXURY COACHESTM. In
addition, the Company manufactures and sells combination steel and aluminum
trailers under its FEATHERLITE-STL(R) series (formerly Econolite) and DIAMOND
D(R) brand names, sells replacement and specialty parts, and coordinates
delivery of completed trailers to customers. Rework and warranty services are
also provided for Company-built trailers at the Company's facilities and dealer
locations. For 1999, approximately 95% of the Company's revenues were derived
from trailer and motorcoach sales.
The following data illustrate the percentage of the Company's net sales
in 1997, 1998 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Trailers $ 93,608 69.6% $ 106,409 55.7% $ 108,961 48.2%
Motorcoaches 34,355 25.6% 76,522 40.1% 105,890 46.8%
Other 6,424 4.8% 7,943 4.2% 11,257 5.0%
-------- ------- --------- ------ --------- ------
Net Sales $134,387 100.0% $ 190,874 100.0% $ 226,108 100.0%
-------- ------- --------- ------ --------- ------
</TABLE>
Trailers
The Company is unique among trailer manufacturers because of the many
types of trailers it makes. The Company's FEATHERLITE(R), FEATHERLITE-STL(R)
series and DIAMOND D(R) trailers may be broadly classified into several trailer
types, which can be further subdivided into over 400 models depending on their
intended use and resulting design. The Company's primary trailer types are
horse, livestock, utility recreational, commercial and car trailers as well as
race car and specialty transporters. Within these broad product categories, the
Company generally offers different features, such as various lengths, heights
and widths, open and enclosed models, gooseneck and bumper pulls, straight and
slant loaders, and aluminum, steel, fiberglass and wood frames, floors, sides
and roofs. The Company believes FEATHERLITE(R) brand trailers, which are "all
aluminum" with the exception of steel axle and hitch parts, enjoy a premier
image in the industry. Sales of FEATHERLITE(R) brand trailers currently
represent approximately 90% of the Company's total trailer sales.
FEATHERLITE-STL(R) series and DIAMOND D(R) brand trailers, which generally are a
composite of steel frame, aluminum skin and galvanized roof, allow the Company
to place its product line at the lower-priced end of the market.
3
<PAGE>
FEATHERLITE(R), FEATHERLITE-STL(R) series and DIAMOND D(R) trailers are
built as standard models or to customer order from selected options. Depending
on the model, the Company's trailers generally include name brand tires,
reflectors and exterior running and license plate lights, sealed and enclosed
wires, and safety chains and breakaway switches. Popular options to standard
designs include paint schemes, logos, lettering and graphics, winches and
generators, viewing platforms, workbenches and cabinets, vents and other airflow
designs, roll-up doors, access and side doors and windows, aluminum wheels and
hubcaps, and hydraulic or air brakes.
Trailer design traditionally has been utilitarian. Recently, however,
the demand for trailers with special amenities and custom designed features has
increased dramatically. For that reason, the Company's Interiors Division offers
options ranging from simple shelves, cupboards, lockers and dressing rooms to
complete living quarters, including upholstered furniture, electronics, wood or
laminated Formica finishes, air conditioning, refrigerators, dinettes and bath
packages. The Company stresses its ability and willingness to build trailers
"from the ground up" with unique, even luxurious, custom designed features and
amenities tailored to customer specifications. This distinguishes the Company
from many other trailer manufacturers.
In addition to custom designed trailers, the Company manufactures
standard model trailers for inventory which are available for immediate delivery
to dealers. In an industry consisting primarily of manufacturers who custom
build trailers, the Company's introduction in 1991 of standard model aluminum
trailers represented an innovative step. Standard model trailer sales now
represent approximately 57% of the Company's total trailer sales. The Company's
dealer network has enthusiastically endorsed and supported the standard model
concept.
Retail prices for the Company's standard aluminum model trailers range
from approximately $1,200 for the least expensive snowmobile trailer to over
$300,000 for a custom built race car transporter and hospitality trailer.
Representative FEATHERLITE(R) aluminum trailer retail prices are approximately
$7,200 for a bumper pull livestock trailer, $8,200 for a two horse trailer, and
$16,000 for a gooseneck car trailer.
Motorcoaches
The Company offers different motorcoach body styles based on the XL and
the H models made by a single bus shell manufacturer (Prevost Car Company). Even
though the "H" body style is much taller and the layout is considerably
different than a typical XL motorcoach, it has become the most popular model
requested by customers. The Company offers a "slide-out" model which expands the
livable space within the motorcoach. With the addition of the Featherlite
Vogue(R) brand, the Company also offers a high quality Class A series
motorcoach, a living unit entirely constructed on a specially designed motor
vehicle chassis. The Company will be introducing two new luxury coach models to
its Featherlite Vogue line in the second half of 2000.
The Company's goal is to produce the best performing and most reliable
coach while keeping a low overall gross weight and extremely low ambient noise
level. It incorporates into motorcoaches many of the good features and quality
often present in luxury yachts which were previously developed by Vantare
International, Inc. when it was in the business of building yachts.
About two-thirds of the coaches are built to specific customer order
from selected options. The remainder are motorcoaches which are built for
demonstration at particular shows or events and resale purposes. Retail prices
range from about $400,000 to $1,000,000 or more. There is a risk that certain of
the coaches built on a speculative basis may not be sold on a timely basis and
at normal profit margins. This may require additional working capital investment
and incur additional interest and inventory carrying costs and have an adverse
impact on operating results.
The Company also sells used motorcoaches which are taken as trade-ins
from customers on new coaches or on a consignment basis. Repair services are
provided for coaches of customers and others at the Vantare facility in Sanford,
Florida and the Vogue facility in Pryor, Oklahoma, as well as at a Company
service center in Mocksville, North Carolina and Cresco, Iowa.
4
<PAGE>
Other Business Activities
In addition to the manufacture and sale of specialty trailers and
motorcoaches, the Company sells replacement and specialty trailer and coach
parts to its dealers and to others. It coordinates delivery of completed
trailers to customers and to dealers for a fee and in 1999 delivered
approximately 55% of the trailers sold to dealers, with the remainder picked up
at its Iowa facilities. The Company owns and maintains a fleet of trucks and
leases semi tractors for this purpose. The Company is a licensed aircraft dealer
and believes that dealing in used aircraft is complementary to its principal
business. Featherlite Aviation Company, a wholly-owned subsidiary of the
Company, conducts such aircraft dealer activities. Featherlite Aviation Company
normally holds for resale two used aircraft although it only held one at
December 31, 1999. The purchase, sale, use and operation of aircraft and the
volatility in the sales volume and value of aircraft create risks to the Company
and its operating results. The Company maintains liability insurance policies
relating to its aircraft in an amount it believes to be adequate, but there is
no assurance that its coverage will continue to be available at an acceptable
price or be sufficient to protect the Company from adverse financial effects in
the event of claims. Gains on aircraft sales are included in the "Other income"
caption in the Company's Consolidated Statements of Operations. The Company's
other business activities, excluding aircraft, in the aggregate, accounted for
approximately 4.8%, 4.2% and 5.0% of the Company's net sales for 1997, 1998 and
1999, respectively. These activities are included as part of the trailer and
motorcoach segments in Note 12 to the Company's Consolidated Financial
Statements.
Marketing and Sales
Dealer Network
The Company markets its products primarily through a network of over
240 full-line dealers and a number of limited-line dealers located in the United
States and Canada, and one distributor serving Alberta and British Columbia,
Canada. Dealers typically handle only a portion of the entire FEATHERLITE(R),
FEATHERLITE-STL(R) series and DIAMOND D(R) product lines and may sell other
steel trailer brands. Featherlite dealers are not prohibited by their agreements
with the Company from selling other brands of aluminum trailers but generally do
not do so. No single dealer represents more than 10% of the Company's net sales.
The Company's top 50 dealers accounted for approximately 50% of the Company's
net trailer sales for 1997, 1998 and 1999. For these periods, 78% or more of the
Company's trailer sales were made by its dealer network, with the remainder
representing direct Company sales to end users. Company sales to end users are
primarily drop deck trailers, specialty trailers and race car transporters. For
these periods, approximately 97% of the number of units sold were sold by the
dealer network.
Dealers and distributors sell FEATHERLITE(R), FEATHERLITE-STL(R) series
and DIAMOND D(R) products under contractual arrangements which can be terminated
by either party on specified notice. Laws in certain states govern terms and
conditions under which dealers and distributors may be terminated. Such laws
have not materially adversely affected the Company to date. Changes in dealers
and distributors take place from time to time. The Company believes that a
sufficient number of prospective dealers exists across the United States and
Canada to permit orderly transitions whenever necessary. The Company is
continually seeking to expand the size and upgrade the quality of its dealer
network. The Company believes that significant areas of the United States and
Canada are not served by a sufficient number of dealers and the Company intends
to increase substantially its number of dealers over the next several years.
The Company employs territory managers to assist in the marketing and
sales process. These managers assist the Company's dealers in coordinating the
selection of custom options by customers and the production of orders. They also
participate with the dealers at trade shows, fairs, rodeos, races and other
events to promote the FEATHERLITE(R) brand. Factory representatives also
actively seek out potential new dealers.
Substantially all motorcoaches are sold directly by Company personnel
to end user customers. In 1999, the Company established an exclusive
relationship with a dealer in seven Western states for sale of FEATHERLITE
VOGUETM 5000 line of luxury motorcoaches In September, 1999 the Company opened a
new sales and service center in Sanford, Florida, supporting all the and
FEATHERLITE LUXURY COACHTM product line. Company sales representatives
participate in trade shows, fairs, motorsports races and other events to promote
FEATHERLITE VANTARETM and FEATHERLITE VOGUETM motorcoaches.
5
<PAGE>
Financing
A substantial portion of the Company's sales of motorcoaches and
trailers are paid for within 10 days of invoicing. The Company has arrangements
with NationsCredit Commercial Corporation, Deutsche Financial Services Corp.
(formerly ITT Commercial Finance Corp.), Bombardier Capital, Green Tree
Financial Servicing Corporation and TransAmerica Commercial Finance Corp. to
provide trailer floor plan financing for its dealers. Green Tree Financial
Servicing Corporation and Featherlite Credit Corporation, a corporation owned by
certain of the Company's officers and directors, provides retail financing to
end user customers of the Company's dealers. Under these floor plan
arrangements, the Company is required in certain circumstances to repurchase for
the remaining unpaid balance, including finance charges plus costs and expenses,
any repossessed trailers financed through such arrangements. Although the
Company has not been required to make any significant payments or repurchases to
date (approximately $600,000 in 1999), there can be no assurance that such
obligations will not, in the future, adversely impact the Company. There is no
recourse to the Company on these retail financing arrangements.
The Company has arrangements with several companies to provide
motorcoach retail financing to end user customers. There is no recourse to the
Company on these retail financing arrangements. The Company has a wholesale
floor plan agreement with a company to finance a portion of the new and used
motorcoaches held in inventory.
Promotion
The Company's marketing activities are designed primarily to
communicate directly with consumers and to assist with selling and marketing
efforts of the dealer network. The Company promotes its products directly using
print advertising in user group publications, such as Quarter Horse Journal,
Successful Farming, Snowmobile, Sno Goer and National Association of Stock Car
Auto Racing ("NASCAR") Winston Cup Series event programs. A series of product
brochures, product videotapes and other promotional items are available for use
by the dealers. The Company also advertises on television, primarily on cable
television racing programs.
The Company promotes its motorcoaches directly in user group
publications, such as the Family Motorcoaching Magazine, The Robb Report, The
DuPont Registry and the RV Trader. In addition, the Company participates in the
Family Motor Coach Association rallies twice each year, the Tampa RV Show and
numerous other shows and rallies and is represented at motorsports events where
other Featherlite products are promoted and where Featherlite already has a
customer base.
An example of the Company's specialized niche market promotional
efforts is the motor sports industry. Featherlite currently is the "Official
Trailer" of NASCAR, CART, NHRA, IRL ARCA, ASA, NHRA, World of Outlaws, the
Indianapolis Motor Speedway and Speedway Motor Corporations race tracks and the
"Official Coach" of NASCAR, IRL, NHRA and Sportscar. Featherlite is the title
sponsor of the NASCAR Featherlite Southwest Tour and the NASCAR Featherlite
Modified Tour. The 1999 NASCAR Featherlite Southwest Tour is comprised of
nineteen events in various cities in Arizona, California, Utah, New Mexico,
Nevada and Colorado. The NASCAR Featherlite Modified Tour schedule takes place
primarily in the northeastern United States. The Company expects to continue to
design and build trailers to fit the needs of all types of racing, including
NASCAR, NHRA, Automobile Racing Club of America ("ARCA"), IndyCar, nostalgic,
sprint car, off road, powerboat, motorcycle and motocross.
In addition to the racing industry, the Company sponsors or is
associated with the All American Quarter Horse Congress, the Professional Bull
Riders Association, United States Team Roping Championship, Appaloosa Horse
Club, United States Combined Training Association, Scottsdate Arabian Horse
Show, National High School Rodeo Association and the National Western Livestock
Show as well as various rodeos and state and local fairs and expos. Annually,
Featherlite territory managers attend in excess of 250 races, rodeos, fairs,
trade shows and other special events. The Company's dealers attend approximately
1,200 to 1,400 such events each year.
6
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Competition - Specialty Trailers
The specialty trailer industry is highly competitive, especially with
respect to the most commonly sold models, such as one and two horse trailers.
Competition is based upon a number of factors, including brand name recognition,
quality, price, reliability, product design features, breadth of product line,
warranty and service. The primary competition to FEATHERLITE(R) aluminum
trailers are steel trailers, which typically sell for approximately 30% to 40%
less but are subject to rust and corrosion and are heavier. There are no
significant technological or manufacturing barriers to entry into the production
of steel trailers and only moderate barriers to the production of aluminum
trailers. Because the Company has a broad based product line, its competition
varies by product category. There is no single company that provides competition
in all product lines. Certain of the Company's competitors and potential
competitors are better established in segments of the Company's business. The
Company's principal competitors, all of which are located domestically, include
the following:
<TABLE>
<CAPTION>
Trailer Types Principal Competitors' Brands
- ------------- -----------------------------
<S> <C>
Horse and Livestock...................... 4 Star, Barrett, Sooner, Wilson, Sundowner, Kiefer Built, W-W, Exiss
Utility.................................. Wells Cargo, PACE, Haulmark
Car Trailers and
Race Car Transporters.................... HighTech, Competition, Concept, Wells Cargo, Haulmark, PACE, Sooner
</TABLE>
Competition - Motorcoaches
The motorcoach industry is highly competitive, particularly in XL and
high-end Class A models, with seven or more manufacturers. Featherelite Vantare
is the dominant producer of H model bus conversion coaches. Competition is based
primarily on quality and price although other factors such as brand name,
reliability, design features, warranty and service are also important. The brand
names of the Company's principal competitors in this industry, all of which are
located domestically, include, among others: Marathon, Liberty, Country Coach,
Angola, Monaco, and Custom.
Manufacturing
The Company manufactures substantially all of its trailers at plants
located in Cresco, Nashua and Shenandoah Iowa. It has an agreement with one
other company to manufacture certain trailers. Under the agreements, the Company
supplies trailer materials and specifications to those manufacturers. The
manufacturers, which are prohibited from manufacturing trailers for any other
entities without Featherlite's consent, cover labor and overhead expenses and
manufacture the trailers for contractually agreed upon prices. Such trailers
constituted less than 1% of net trailer sales for 1999.
Except for tires, brakes, couplers, axles and various other purchased
items, the Company fabricates its component parts for its trailers. Most raw
materials and standard parts, including aluminum extrusions and sheet metal, are
available from multiple sources. Prices of aluminum, the principal commodity
used in the Company's business, fluctuate daily in the open market. The Company
has obtained fixed price contracts from suppliers for 2000 to reduce the risk
related to fluctuations in the cost of aluminum. There is a risk to future
operating results if the Company is unable to obtain fixed contracts to reduce
the effect of fluctuations in the price of aluminum.
7
<PAGE>
The Company presently purchases substantial amounts of aluminum
extrusions from three major suppliers, Alumax Extrusions Inc., Tifton Aluminum
and Easco Aluminum, and the majority of its sheet metal from two large
suppliers, Reynolds Aluminum Co. and Samuel Whittar. The identity of particular
suppliers and the quantities purchased from each varies from period to period.
The Company has not engaged in hedging or the purchase and sale of future
contracts other than contracts for delivery to fill its own needs. The Company
has contracts with suppliers to fill a substantially all of its projected needs
for aluminum in 2000. In the event that one or more of the Company's suppliers
were unable to deliver raw materials to the Company for an extended period of
time, the Company's production and profits could be materially and adversely
affected if an adequate replacement supplier could not be found within a
reasonable amount of time. The Company has never been unable to obtain an
adequate supply of raw materials. Increases in prices of aluminum and other
supplies may adversely affect margins on the Company's products.
In addition to obtaining long-term contracts from suppliers, the
Company may in the future also try to reduce the price risk associated with
aluminum by buying London Metal Exchange hedge contracts or options for future
delivery. These contracts would "lock in" the aluminum cost for the Company for
anticipated aluminum requirements during the periods covered by the contracts.
There is a potential risk of loss related to such contracts if the quantity of
materials hedged significantly exceeds the Company's actual requirements and the
contract is closed without taking physical delivery of the aluminum or if there
is a substantial drop in the actual cost of aluminum in relation to the hedge
contract price which would affect the competitive price of the Company's
product.
In the manufacturing process, the Company seeks to maximize production
efficiency by using weekly production schedules which allocate scheduled
trailers to specific production lines within each plant. The Company generally
follows a build-to-order policy to control inventory levels. If orders cannot be
filled from any inventory maintained by the Company, they are scheduled for
production. Inventory pool trailers may be scheduled to maximize the efficiency
of the production lines.
The Company also utilizes certain production lines solely for standard
model trailers. The Company utilizes an independent outside contractor to
provide customer specified paint and graphic designs on specialty trailers.
There is a risk related to delays in completing trailer delivery to the customer
due to delays by the subcontractor. This could adversely affect reported sales
and operating income.
The Company manufactures all of its motorcoaches at plants located in
Sanford, Florida and Pryor, Oklahoma. Except for the coach shell, engines and
transmissions for Class A models and electronic equipment, various kitchen and
bathroom fixtures and accessories and other purchased items, the Company
fabricates all the components for its coaches, including building the chassis
for Class A type motorcoaches. The Company completes the conversion by finishing
the interior of the purchased shell to the layout and design requirements of the
customer or its specifications. All design engineering, plumbing, cabinetry and
upholstery required to complete the coach is done by Company personnel.
The Company purchases its motorcoach shells from one manufacturer,
Prevost Car Company, Inc. of Sainte-Claire, Quebec, Canada, although the Company
could purchase certain shells from other manufacturers. The Company does not
have any long or short-term manufacturing contracts with Prevost. However, the
Company provides Prevost with its estimated yearly motorcoach requirements. Once
Prevost releases an order to production, Prevost becomes obligated to fill the
order and the Company becomes obligated to take delivery of the order. In the
event Prevost was unable to deliver motorcoach shells to the Company, the
Company's revenues and profits could be materially and adversely affected.
The Company purchases engines and transmissions from local dealers. The
Company does have an informal commitment from the dealers for sufficient
transmissions and engines to meet projected requirements for 2000. In the event
the dealers are unable to deliver engines and transmissions to the Company, the
Company's revenues and profits could be materially and adversely affected.
8
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Backlog
At December 31, 1999 the Company had unfilled confirmed orders from its
customers in the amount of approximately $33 million, including $17 million in
motorcoach orders, compared with $31 million, including $19 million in
motorcoaches, at December 31, 1998. All orders in backlog at December 31, 1999
are expected to be filled during 2000.
Quality Assurance
The Company monitors quality at various points of the manufacturing
process. Due to the variety of custom products that the Company builds, employee
skill training and individual responsibility for workmanship are emphasized.
Inventory specialists assess the overall quality, physical dimensions, and
imperfections or damage to the raw materials. Extruded and sheet aluminum which
is outside of specified tolerances is rejected and replaced by the vendor. Line
foremen train and monitor work cells of employees. Quality control inspectors
inspect trailers for quality of workmanship, material quality and conformity of
options to order specifications.
Government and Industry Regulation
The Company and its products are subject to various foreign, federal,
state and local laws, rules and regulations. The Company builds its trailers and
motorcoaches to standards of the federal Department of Transportation. The
Company is a member of the National Association of Trailer Manufacturers
("NATM") and manufactures its trailers to NATM standards. The quality assurance
program in the Company's Interiors Division includes being a member of the
Recreational Vehicle Industry Association ("RVIA"), which requires plumbing,
electrical and gas testing on trailers with living quarters. These tests are
recorded before RVIA certification numbers are affixed to trailers. RVIA
inspectors periodically check the production facility and work in progress to
assure that codes and procedures are met. Infractions can lead to fines or loss
of RVIA membership. The Company is also governed by regulations relating to
employee safety and working conditions and other activities. A change in any
such laws, rules, regulations or standards, or a mandated federal recall by the
National Highway Transportation Safety Board, could have a material adverse
effect on the Company.
Patents and Trademarks
The Company has registered FEATHERLITE(R) as a trademark for use in
conjunction with trailers in the United States, Canada and Germany. It has also
requested this trademark for a variety of promotional items. In general, such
registrations are effective through the year 2001, with continuous ten-year
renewal periods thereafter. The Company has a United States trademark with
respect to FEATHERLITE-STL(R) series. In October 1995, the Company acquired the
rights to the DIAMOND D(R) trademark and has registered it as a trademark in the
United States and has a trademark application pending in Canada. In 1993, the
Company purchased the rights to two design patents, which expired in 1997,
relating to the V-nose design of certain of its horse, livestock and snowmobile
trailers. The Company believes that the patented designs are useful, but that
the expiration of the patents will not have a material effect on the Company. In
addition, the Company has obtained certain trailer design and utility patents
relating to race car transporters, snowmobile trailers and horse trailers.
The Company has a United States trademark for "VANTARE BY
FEATHERLITE(R)" for use in conjunction with motorcoaches and yachts in the
United States and is in the process of filing for and FEATHERLITE VOGUE(TM) for
motorcoaches in the United States. The Company is also in the process of
registering two new trademarks, "FEATHERLITE VANTARE(TM)" and "FEATHERLITE
LUXURY COACHES(TM", for motorcoaches in the United States.
9
<PAGE>
Warranty
The Company warrants the workmanship and materials of certain parts of
the main frame of its aluminum trailers under a limited warranty for a period of
six years and such parts of certain other Company trailers as well as other
products manufactured by the Company for periods of one to four years. The
limited warranty does not include normal wear items, such as brakes, bearings
and tires. The Company's warranty obligations are expressly limited to repairs
and replacement of parts. Historically, there have been no recalls of the
Company's trailers for replacement of major components or parts and the expense
of warranty claims for repairs or replacement of parts has been less than 1% of
the Company's net sales.
The Company warrants for one year the workmanship and materials related
to certain parts of the motorcoach conversion. Otherwise, warranties applicable
to components purchased from vendors are applicable. The warranty of the
manufacturers' of the shell, transmission and engine generally is for two years.
Product Liability
Although the Company has never been required to pay any significant
amount in a product liability action, as a manufacturing company it is subject
to an inherent risk of product liability claims. The Company maintains product
liability insurance policies in an amount it believes is adequate, but there is
no assurance that its coverage will continue to be available at an acceptable
price or be sufficient to protect the Company from adverse financial effects in
the event of product liability claims.
Employees
As of December 31, 1999, the Company had 1,797 employees, of whom 1,773
are full-time and 24 are part-time as follows: Production and production support
- - 1,611, Sales and Marketing - 75, and Administration - 111.
The Company is not a party to any collective bargaining agreement and
believes that it has good working relationships with its employees.
The Company's success is highly dependent on its senior management,
including Conrad D. Clement, President and Chief Executive Officer. The loss of
Mr. Clement's services could have a material adverse effect on the Company's
business and development. There can be no assurance that an adequate replacement
could be found for Mr. Clement in the event of his departure. The Company does
not carry any key man life insurance on any of its officers or employees.
The Company has two separate agreements with Iowa community colleges
which provided the Company approximately $870,000 for job training purposes over
a period from 1992 to 1999. The amounts are to be repaid, together with
interest, over a ten year period from state withholding taxes on employees at
the Company's Iowa facilities. The Company may be required to provide funds for
the repayment of these training credits if sufficient withholding and unused
training funds are not available.
Cautionary Statements
Featherlite wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, Featherlite's actual results and could cause Featherlite's actual
consolidated results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, Featherlite.
Forward-looking statements provide current expectations or forecasts of future
events and can be identified by the use of terminology such as "believe,"
"estimate," "expect," "estimate," "intend," "may," "could," "will," and similar
words or expressions. The Company's forward-looking statements generally relate
to its growth strategy, financial results, product development and sales
efforts. Forward-looking statements cannot be guaranteed and actual results may
vary materially due to the uncertainties and risks, known and unknown,
associated with such statements. The Company undertakes no obligations to update
any forward-looking statements.
10
<PAGE>
o A moderating growth rate or decline in the overall demand or in
specific market segment demand, in the US and to some extent Canada,
for existing models of aluminum or steel specialty trailers and
motorcoaches manufactured by Featherlite and in acceptance by the
market of new trailer models and luxury coaches introduced by
Featherlite; and general or specific economic conditions, pricing,
purchasing, operational, advertising and promotional decisions by
intermediaries in the distribution channels, which could affect their
supply or end user demand for Featherlite products;
o Increased competition from competitors and potential competitors which
have greater financial and other resources than Featherlite; and
competitors that are better established in segments of Featherlite's
business;
o Fluctuation in aluminum prices; inability of a major supplier of
aluminum extrusion or sheets utilized by Featherlite to deliver raw
materials on a timely basis;
o Inability of graphics/paint subcontractor to complete custom specified
paint and graphic designs could delay delivery of specialty trailers on
a timely basis;
o Inability of motorcoach shell manufacturer to deliver shells on a
timely basis; inability to sell motorcoaches made on a spec basis at
normal profit margins;
o Inability of engine and transmission manufacturers to deliver
engines/transmissions on a timely basis.
o The effects of changes within Featherlite's organization, including the
loss of the services of key management personnel, particularly Mr.
Conrad Clement, President and Chief Executive Officer.
o Continued availability of adequate financing and cash flow from
operations to support operations and expansion plans, including the
amount, type and cost of financing which Featherlite has and changes to
that financing;
o Continued pressure to increase the selling prices for Featherlite's
products to reduce the impact on margins of increasing aluminum and
other materials costs, labor rates and overhead costs related to the
expanded production facilities and organization to support expected
increases in sales; underutilization of Featherlite's manufacturing
facilities, resulting in production inefficiencies and higher costs;
o The inability to obtain adequate insurance coverage at an acceptable
price or in a sufficient amount to protect Featherlite from the adverse
effects of product and other liability claims;
o The risks related to being a licensed aircraft dealer which deals in
used business aircraft, including the purchase, sales, use and
operation of aircraft and the volatility in the sales volume and value
of aircraft;
o Payments or repurchases by Featherlite related to guarantees of debt or
the repurchase of trailers under certain circumstances in connection
with dealer and retail product financing arrangements;
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related,
or criminal), settlements and investigations, claims and changes in
those items;
o A change in foreign, federal, state and local laws, rules and
regulations related to Featherlite, its products, or activities.
The Company notes these factors as permitted by the Private Securities
Litigation Reform Act of 1995. It is not possible to foresee or identify all
factors that could cause actual results to differ from expected or historic
results. As such, investors should not consider any list of such factors to be
an exhaustive statement of all risks, uncertainties or potentially inaccurate
assumptions.
11
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ITEM 2 PROPERTIES
The Company's principal sales, marketing and executive offices are
located in a 20,000 square foot building owned by the Company near Cresco, Iowa.
Adjacent to it is a Company-owned 50,000 square foot (including 20,000 added in
1997) parts distribution center and a rework, maintenance and trailer
distribution facility, from which substantially all trailer deliveries to
dealers are made.
The Company has production and warehouse facilities in Cresco, Nashua
and Shenandoah, Iowa. The Cresco facilities presently consist of five buildings
and include approximately 258,000 square feet including a 140,000 square foot
expansion completed in March 1995 and a 20,000 square foot expansion in 1998.
Three buildings, totaling approximately 156,000 square feet of Company owned
space and 30,000 square feet of leased space, are used for production of
trailers and fabrication of components. A 58,000 square foot building is used,
pursuant to a lease, for custom interior finishing and a 14,000 square foot
building, which the Company owns, is used for storage of raw materials. In 1998,
the Company indefinitely deferred plans to build a warehouse facility for raw
material storage at its Cresco location. This project which would add
approximately 80,000 square feet of manufacturing and warehouse space, is now
being reconsidered for commencement near the end of the year 2000 at a cost of
approximately $3,000,000, including equipment.
The Shenandoah facilities include a 117,000 square foot manufacturing
facility purchased in October 1995 in connection with the DIAMOND D(R)
acquisition. The Company-owned Nashua facilities include a 51,000 square foot
manufacturing plant and an 18,000 square foot plant/office building. In 1998,
the Company sold two of the three buildings owned in Grand Meadow, Minnesota
that were used as the Company's corporate office and rework/distribution center
prior to the relocation of these activities to Iowa in 1993. The Company
currently is attempting to sell the remaining Grand Meadow facility which
consists of about 11 acres of land and a small warehouse facility.
In July 1996, the Company acquired office and production facilities and
other assets of Vantare International, Inc. in Sanford, Florida. This facility
includes approximately 55,000 square feet of production and office space and is
used for the manufacture of luxury motorcoaches. This facility is owned by
Seminole Port Authority and is being leased by the Company under the terms of an
operating lease which expires in 2007. These facilities were expanded in 1997 to
add 24,000 square feet to the production and office space as well as 6,000
square feet for outside service bays. In 1997, vacant land near the Vantare
facilities was purchased for future expansion and in October 1999, the Company
completed construction of an 18,000 square foot sales office and a 21,000 square
foot service center with seventeen service bays. The cost of this entire project
including land and development costs was approximately $5.5 million.
In September 1996, the Company leased property in Mocksville, North
Carolina, under the provisions of an operating lease which has an initial term
of ten years with options to extend the initial term up to ten years. These
facilities are being used to provide service for Featherlite trailers and
transporters and for the retail sale of Featherlite luxury coaches.
In May, 1998, the Company acquired office and production facilities and
other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma. (See Note 11
to consolidated financial statements). This facility includes approximately
150,000 square feet of production and office space and is used to manufacture
luxury motorcoaches. It is owned by Oklahoma Ordnance Works Authority and is
being leased to the Company under the terms of an operating lease which expires
in March, 2011.
In the future, the Company may determine to build or acquire existing
manufacturing facilities outside of Northeastern Iowa, which would create
additional risks to the Company's ability to manage growth.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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 consultation 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company:
Name of
Executive Officer Age Present Position with Company
----------------- --- -----------------------------
Conrad D. Clement 56 President, Chief Executive Officer and Director
Jeffery A. Mason 59 Chief Financial Officer and Director
Tracy J. Clement 33 Executive Vice President and Director
Gary H. Ihrke 53 Vice President of Operations & Secretary
Eric P. Clement 30 Vice President of Sales
Steven J. Sheldon 49 Vice President of Specialty Transporters
Larry D. Clement 54 Treasurer
The term of office of each executive officer is from one annual meeting
of directors until the next annual meeting of directors or until a successor is
elected.
The business experience of the executive officers during the past five
years is as follows:
Conrad D. Clement has been the Chairman, President and Chief Executive
Officer and a director of the Company since its inception in 1988. From 1969 to
1988, Mr. Clement was the President and principal owner of several farm
equipment and agricultural businesses. Mr. Clement is also the President and
Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an
affiliate of the Company ("Featherlite Credit"). Mr. Clement is the brother of
Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement.
Jeffery A. Mason has been the Chief Financial Officer and Controller of
the Company since August 1989 and has been a director of the Company since June
1993. From 1969 to 1989, Mr. Mason served in various financial management
capacities with several companies, including Arthur Andersen & Co. and Carlson
Companies. Mr. Mason is a certified public accountant.
Tracy J. Clement has been Executive Vice President and a director of
the Company since 1988. Prior to 1988, Mr. Clement was a shareholder and manager
of several farm equipment and agricultural businesses with his father, Conrad D.
Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit.
Gary H. Ihrke was appointed Secretary in August 1996 and Vice President
of Operations in March 1996 after service as Vice President of Manufacturing
13
<PAGE>
since June 1993 and was previously a director of the Company. From January 1989
to June 1993, Mr. Ihrke was the General Manager of the Company's Cresco, Iowa
facilities. From 1969 to 1989, he served as general manager and branch manager
of an agricultural equipment manufacturing company.
Eric P. Clement has been Vice President of Sales since March 1996 after
service as Vice President of Operations since January 1991 and was previously a
director of the Company. Prior to that time, Mr. Clement attended college and
worked part time for businesses owned by his father, Conrad D. Clement. Mr.
Clement is also an officer and shareholder of Featherlite Credit.
Steven J. Sheldon has been Vice President of Market Development since
March 1996 after service as Vice President of Sales since June 1993 and was
previously a director of the Company. From 1988 to June 1993, he was the
national sales manager of the Company.
Larry D. Clement has been Treasurer of the Company since 1988 and was
previously secretary and a director of the Company. He has also been the owner
and President of several auto and truck dealerships since 1971. Mr. Clement is
the President and Secretary of Clement Auto & Truck, Inc., a FEATHERLITE(R)
dealer. Mr. Clement is the brother of Conrad D. Clement.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to the section labeled "Corporate Information" and "Financial Information" which
appears in the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to "Selected Financial Information" which appears in the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis" which appears in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1999.
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7A is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis" which appears in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Except for the reports the Company' current independent public
accountants and previous independent auditors, which are set forth below, the
information required by Item 8 is incorporated herein by reference to the
consolidated financial statements and notes thereto which appear in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1999.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Featherlite, Inc.
We have audited the accompanying consolidated balance sheets of Featherlite,
Inc. ( a Minnesota corporation) and subsidiary as of December 31, 1999 and the
related statements of operations, shareholders' investment and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Featherlite, Inc.
and subsidiary as of December 31, 1999 and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 4, 2000
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Featherlite, Inc.
Cresco, Iowa
We have audited the accompanying consolidated balance sheets of Featherlite,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, shareholders' investment and cash flows for each of the two years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Featherlite, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
McGLADREY AND PULLEN, LLP
Rochester, Minnesota
February 8, 1999
16
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required in Item 9 is incorporated by reference to Item
4 of the Form 8-K report filed August 17, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Registrant" which is set forth at
the end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections labeled "Election of
Directors"and "Section 16(a) Beneficial Ownership Reporting Compliance" which
appear in the Company's definitive Proxy Statement for its 2000 Annual Meeting
of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the section labeled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section labeled "Certain Transactions" which appears in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Page
Report of Independent Pubic Accountants....................15
Report of Independent......................................16
Balance Sheets at December 31, 1999 and 1998................*
Statements of Operations for each of the years
ended December 31, 1999, 1998 and 1997.....................*
Statements of Cash Flows for each of the years
ended December 31, 1999, 1998 and 1997.....................*
Statements of Shareholders' Investment for each
of the years ended December 31, 1999, 1998 and 1997........*
Notes to Consolidated Financial Statements..................*
(2) Financial Statement Schedules: None
(3) Exhibits. See Exhibit Index on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the last quarter of the period covered by this report.
- --------------
* Incorporated by reference to the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, portions of
which are included with this Form 10-K as Exhibit 13.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FEATHERLITE, INC.
By:/s/ Conrad D. Clement
Conrad D. Clement
Date: March 23, 2000 President and Chief Executive Officer
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes CONRAD D. CLEMENT
and TRACY J. CLEMENT his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title Date
/s/ Conrad D. Clement President, Chief March 23, 2000
Conrad D. Clement Executive Officer and
Director (Principal
Executive Officer)
/s/ Jeffery A. Mason Chief Financial Officer March 23, 2000
Jeffery A. Mason and Director (Principal
Financial and Accounting
Officer)
/s/ Tracy J. Clement Executive Vice President March 23, 2000
Tracy J. Clement and Director
/s/ Donald R. Brattain Director March 23, 2000
Donald R. Brattain
/s/ Thomas J. Winkel Director
Thomas J. Winkel March 23, 2000
/s/ Kenneth D. Larson Director March 23, 2000
Kenneth D. Larson
/s/ Terry E. Branstad Director March 23, 2000
Terry E. Branstad
19
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED
DECEMBER 31, 1999
-------------------------
FEATHERLITE, INC.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated May 8, 1998 with Mitchell
Motorcoach Sales, Inc.-- incorporated by reference to Exhibit 10.10 to
Company's 10-Q for the quarter ended June 30, 1998*
2.2 Amendment to Agreement between the Company and Mitchell Motorcoach
Sales, Inc. dated December 31, 1998--incorporated by reference to
Exhibit 2.2 to the Company's 10K for the year ended December 31, 1998*
3.1 The Company's Articles of Incorporation, as amended-- incorporated by
reference to Exhibit 3.1 to Company's 10-Q for the quarter ended March
31, 1998*
3.2 The Company's Bylaws, as amended-- incorporated by reference to Exhibit
3.2 to Company's S-1 Registration Statement, Reg. No. 33-82564*
4.1 Specimen Form of the Company's Common Stock Certificate-- incorporated
by reference to Exhibit 4.1 to Company's S-1 Registration Statement,
Reg. No. 33-82564*
10.1 Agreements with Western Extrusions for aluminum purchases for the year
2000-- incorporated by reference to Exhibit 10.1 to Company's 10-Q for
the quarter ended March 31, 1999*
10.2 Agreement with Edgcomb Metals for aluminum purchases for the year 2000
-- incorporated by reference to Exhibit 10.2 to Company's 10-Q for the
quarter ended March 31, 1999*
10.3 Agreement with Reynolds Aluminum Supply Company-- incorporated by
reference to Exhibit 10.3 to Company's 10-Q for the quarter ended March
31, 1999*
10.4 Agreement with Vincent Metal Goods--incorporated by reference to
Exhibit 10.4 to Company's 10-Q for the quarter ended March 31, 1999*
10.5 Agreements with Aluminum Shapes for aluminum purchases for the year
2000 -- incorporated by reference to Exhibit 10.5 to Company's 10-Q for
the quarter ended March 31, 1999*
10.6 Agreement with Reynolds Aluminum Supply Company-- incorporated by
reference to Exhibit 10.6 to Company's 10-Q for the quarter ended March
31, 1999*
10.7 Revolving Loan and Security Agreement with Firstar Financial Services,
Division of Firstar Bank, Milwaukee, Wisconsin-- incorporated by
reference to Exhibit 10.1 to Company's 10-Q for the quarter ended
September 30, 1998*
20
<PAGE>
10.8 Amendment to Revolving Loan and Security Agreement between the Company
and Firstar Financial Services dated February 8, 1999-- incorporated by
reference to Exhibit 10.8 to Company's 10-K for the year ended December
31, 1998*
10.9 **1994 Stock Option Plan, including Form of Incentive Stock Option
Agreement -- incorporated by reference to Exhibit 10.2 to Company's S-1
Registration Statement, Reg. No. 82564*
10.10 Industrial New Jobs Training Agreement between the Company and
Northeast Iowa Community College-- incorporated by reference to Exhibit
10.10 to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.11 Industrial New Jobs Training Agreement between the Company and Hawkeye
Institute of Technology -- incorporated by reference to Exhibit 10.11
to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.12 Inventory Repurchase Agreement, dated September 12, 1990, between the
Company and NationsCredit Commercial Corporation (formerly Chrysler
First Commercial Corporation Limited) -- incorporated by reference to
Exhibit 10.12 to Company's S-1 Registration Statement, Reg. No.
33-82564*
10.13 Floorplan Agreement, dated March 27, 1992, between the Company and ITT
Commercial Finance Corp.-- incorporated by reference to Exhibit 10.13
to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.14 Agreement, effective January 1, 1995, between the Company and Polaris
Industries, L.P.-- incorporated by reference to Exhibit 10.15 to
Company's Form 10-K for the fiscal year ended December 31, 1998*
10.15 Inventory Repurchase Agreement, dated February 27, 1995, between the
Company and TransAmerica Commercial Finance Corporation -- incorporated
by reference to Exhibit 10.23 to Company's Form 10-K for the fiscal
year ended December 31, 1995*
10.16 Agreement for wholesale financing dated October 3, 1996 between the
Company and Deutsche Financial Services-- incorporated by reference to
Exhibit 10.22 to Company's 10-K for the fiscal year ended December 31,
1996*
10.17 **Amendment to 1994 Stock Option Plan dated May 14, 1996 --
incorporated by reference to Exhibit 10.23 to Company's 10-K for the
fiscal year ended December 31, 1996*
10.18 Construction Loan Agreement, dated November 30, 1998 between the
Company and First Union Bank--incorporated by reference to Exhibit
10.18 to the Company's 10-K for the year ended December 31, 1998*
10.19 Real Estate Promissory Note, dated November 30, 1998 in the amount of
$4,000,000 to First Union Bank--incorporated by reference to Exhibit
10.19 to the Company's 10-K for the year ended December 31, 1998*
- ------------
* Incorporated by reference to a previously filed document or report
(File # 0-24804, unless otherwise indicated).
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form 10-K
21
<PAGE>
10.20 Swap Transaction Confirmation dated November 30, 1998 between the
Company and First Union Bank incorporated by reference to Exhibit 10.20
to the Company's 10-K for the year ended December 31, 1998*
10.21 Lease Agreement with Clement Enterprises for Rental of Aircraft-
incorporated by reference to Exhibit 10.1 to Company's Form 10Q for the
quarter ended June 30,1999
10.22 Agreement with Clement Enterprises to Purchase Aircraft- incorporated
by reference to Exhibit 10.1 to Company's Form 10Q for the quarter
ended September 30, 1999
10.33 Amendment dated January 5, 2000 to Revolving Loan and Security
Agreement between Firstar Financial Services and the Company
10.34 Mortgage and Security Agreement dated October 15, 1999 between the
Company and First Union National Bank in the amount of $1,140,640.
13 Portions of annual report to shareholders for the fiscal year ended
December 31, 1999 incorporated by reference in this Form 10-K
21 Subsidiaries of the Company:
State of
Name Incorporation
Featherlite Aviation Company Minnesota
23.1 Consent of Arthur Andersen LLP
23.2 Consent of McGladrey & Pullen, LLP
24 Powers of Attorney of directors-- included under the "Signatures"
section of this Form 10-K
27 Financial Data Schedule (filed in electronic format only)
- ------------
* Incorporated by reference to a previously filed document or report
(File # 0-24804, unless otherwise indicated).
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form 10-K
22
Exhibit 10.33
January 5, 2000
Featherlite, Inc.
Hwy. 63 & 9
Cresco, IA 52136
Attn: Mr. Jeffrey Mason, CFO
Gentlemen:
Please refer to the Revolving Loan and Security Agreement by and between Firstar
Financial Services, a division of Firstar Bank Milwaukee, N.A. ("Firstar") and
Featherlite, Inc., dated September 24, 1998 ("Agreement") with amendments
thereto. This letter will serve to further amend the Agreement as follows.
Regarding Firstar's letter to you dated February 8, 1999, subsections which were
added to Section 2. DEFINITIONS shall be amended to correct the outline
numbering as follows; the content of said subsections remains unchanged:
(e) "Capital Expenditures"
(f) "Generally Accepted Accounting Principles"
(g) "Debt"
(h) "Debt To Tangible Net Worth Ratio"
(i) "Tangible Net Worth"
(j) "EBITDA"
(k) "Fixed Charge Coverage Ratio"
The first sentence of Section 3. COLLATERAL-OBLIGATION RATIO shall be amended to
read:
"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 $25,000,000.00; or:
<PAGE>
Featherlite, Inc.
January 5, 2000
Page 2
(a) up to 85% of the amount owing on Qualified Accounts (minus
payments on Qualified Accounts which are in the process of
collection by Lender); plus
(b) up to the lesser of $21,000,000.00 or those percentages of
Qualified Inventory at cost or wholesale market value,
whichever is lower, as reflected below:
Type of Qualified Featherlite
Inventory Manufacturing Division Vantare Division Vogue Division
Raw Materials 70% 70% 70%
Work-In-Process Sub- 70% 70% 70%
Assembly
Finished Goods 70% 0 0"
The first sentence of Section 7. OTHER LOAN PROVISIONS, subsection (a)
Participations, Participant Interest Rate shall be amended to read:
"(a) Participations, Participant Interest Rate. Debtor recognizes
that an integral part of the financing under this Agreement is
Lender's participation with LaSalle Business Credit, Inc.
("Participant"), and Debtor consents to such participation to
the extent of which shall not exceed 50% of the advances under
this Agreement or such dollar limit as Lender and Participant
may agree."
The third sentence of Section 7. OTHER LOAN PROVISIONS, subsection (a)
Participations, Participant Interest Rate shall be amended to read:
"The annual rate of interest charged to Debtor on any advances subject
to participation shall be .75% below the rate announced from time to
time by Lender as its "prime rate."
The following financial covenants in Section 12. ADDITIONAL TERMS, subsection
(d) Debt to Tangible Net Worth as follows:
"(d) Debt to Tangible Net Worth. Debtor shall maintain at all
times for the periods noted a ratio of Debt to Tangible Net
Worth (as defined in Section 2. DEFINITIONS) not greater
than 4.25 to 1 as of December 31, 1998; 4.0 to 1 for the six
month period ending June 30, 1999; 4.0 to 1 for the six month
period ending December 31, 1999; 4.0 to 1 for the six month
period ending June 30, 2000; and not greater than 3.5 to 1
for the six month periods ending December 31, 2000 and
thereafter, to be tested by Lender semi-annually, based on
Debtor's internally prepared financial statements and/or
Lender's or a certified public accounting firm's audit of
Debtor's financial records."
<PAGE>
Featherlite, Inc.
January 5, 2000
Page 3
In all other respects, the Agreement shall remain unchanged and in full force
and effect.
The foregoing amendments are contingent upon the approval of the participant in
this loan: LaSalle National Bank.
If the above agrees with your understanding and approval, please indicate same
by signing the original of this letter and returning it to the undersigned.
(NOTE: If you return executed documents via facsimile, you must also return the
original executed documents. You agree Firstar may rely on facsimile signatures
for all purposes and without any liability to you.) If the preconditions (if
any) to this amendment are not satisfied or if this amendment letter is not
executed and returned to Firstar on or before January 17, 2000, then the
proposed amendments herein may be withdrawn by Firstar by written notice to you.
The amendments set forth herein and any accompanying documents will be deemed
effective and accepted in Milwaukee, Wisconsin, upon our receipt of the executed
documents.
Sincerely,
/s/ James G. Tepp
James G. Tepp
Vice President
cag
Enclosure
cc: Nolan H. Zadra
Agreed to this 19 day of January, 2000.
FEATHERLITE, INC.
By: /s/ Conrad Clement
Name and Title: Conrad Clement, President
Exhibit 10.34
Prepared by and return to:
Thomas D. Scanlon
Carlton Fields
P.O. Box 1171
Orlando, FL 32802
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE executed October 15, 1999, by and between FEATHERLITE,
INC., formerly known as FEATHERLITE MFG., INC., a Minnesota corporation, whose
address for notice under this Mortgage is 1550 Dolgner Place, Sanford, Florida
32771 (hereinafter referred to as "Mortgagor"), and FIRST UNION NATIONAL BANK,
whose address is P.O. Box 1000, Orlando, Florida 32802 (hereinafter referred to
as the "Mortgagee").
W I T N E S S E T H:
That for good and valuable consideration and to secure the payment of
an indebtedness in the aggregate sum of ONE MILLION ONE HUNDRED FORTY THOUSAND
SIX HUNDRED FORTY AND NO/100 DOLLARS ($1,140,640.00), or so much thereof as may
be advanced, to be paid in accordance with a note of even date herewith
(hereinafter referred to as the "Note") which note has a maturity date of
October 15, 2004, together with interest thereon and any and all sums due or
which may become due from the Mortgagor to the Mortgagee, the Mortgagor does
grant, bargain, sell, alien, remise, release, convey and confirm unto the
Mortgagee its successors and assigns, in fee simple, all of that certain tract
of land of which the Mortgagor is now seized and possessed and in actual
possession, situate in the County of Seminole, State of Florida, which is more
fully described in Exhibit "A" attached hereto and made a part hereof, together
with the buildings and improvements thereon erected or to be erected
(hereinafter referred to as the "Premises");
TOGETHER with:
(i) all leasehold estate, and all right, title and interest of
Mortgagor in and to all leases or subleases covering the Premises or any portion
thereof now or hereafter existing or entered into, and all right, title and
interest of Mortgagor thereunder, including, without limitation, all cash or
security deposits, advance rentals, and deposits or payments of similar nature;
(ii) all right, title and interest of Mortgagor in and to all options
to purchase or lease the Premises or any portion thereof or interest therein,
and any greater estate in the Premises owned or hereafter acquired;
(iii) all easements, streets, ways, alleys, rights-of-way and rights
used in connection therewith or as a means of access thereto, and all tenements,
hereditaments and appurtenances thereof and thereto, and all water rights;
(iv) any and all buildings, structures and improvements now or
hereafter erected thereon, including, but not limited to the fixtures,
attachments, appliances, equipment, machinery, and other articles attached to
said buildings, structures and improvements (sometimes hereinafter referred to
as the "Improvements");
1
(v) all fixtures, appliances, machinery, equipment, furniture,
furnishings and articles of personal property now or hereafter affixed to,
placed upon or used in connection with the operation of any of said properties,
all gas, steam, electric, water and other heating, cooking, refrigeration,
lighting, plumbing, ventilating, irrigating and power systems, machines,
computer hardware or software, appliances, fixtures, and appurtenances which are
now or may hereafter pertain or be used with, in or on said premises, even
though they may be detached or detachable and all building improvement and
construction materials, supplies and equipment hereafter delivered to said land
contemplating installation or use in the constructions thereon and all rights
and interests of Mortgagor in any water and sewer capacity, reservations and
hook-ups, impact fee credits, building permits and architectural plans and
specifications relating to contemplated constructions or Improvements on said
Premises and all rights and interests of Mortgagor in present or future mortgage
loan commitments pertaining to any of said Premises or Improvements thereon;
(vi) all awards and proceeds of condemnation for the Premises or any
part thereof to which Mortgagor is entitled for any taking of all or any part of
the Premises by condemnation or exercise of the right of eminent domain. All
such awards and condemnation proceeds are hereby assigned to Mortgagee and the
Mortgagee is hereby authorized, subject to the provisions contained in this
Mortgage, to apply such awards and condemnation proceeds or any part thereof,
after deducting therefrom any expenses incurred by the Mortgagee in the
collection or handling thereof, toward the payment, in full or in part, of the
Note, notwithstanding the fact that the amount owing thereon may not then be due
and payable;
(vii) all rents, issues and profits of the Premises and all the
estate, right, title and interest of every nature whatsoever of the Mortgagor in
and to the same;
(viii) all accounts, inventory, equipment, contract rights, franchises,
licenses, water and sewer capacity, bills of sale, leases, conditional sales
contracts and general intangibles now owned or hereafter acquired by the
Mortgagor, whether or not located on the Mortgaged Property, as hereinafter
defined, including without limitation, all proceeds and choses in action arising
under any insurance policies maintained with respect to all or any part of the
Mortgaged Property; and,
(ix) all proceeds, products, replacements, additions, substitutions,
renewals and accessions of any of the foregoing items.
All of the items set forth in subparagraphs (v), (vi), (vii), (viii) and (ix)
above are hereinafter sometimes collectively referred to as the "Personal
Property." All of the foregoing real and personal property, including, without
limitation, the Premises, Improvements and Personal Property; and all rights,
privileges and franchises are collectively referred to as the "Mortgaged
Property."
TO HAVE AND TO HOLD all and singular the Mortgaged Property hereby
conveyed, and the tenements, hereditaments and appurtenances thereunto belonging
or in anywise appertaining, and the reversion and reversions, remainder and
remainders, rents, issues and profits thereof and also all the estate, right,
title, interest, property, possession, claim and demand whatsoever as well in
law as in equity of the said Mortgagor in and to the same and every part and
parcel thereof unto the said Mortgagee in fee simple.
2
<PAGE>
PROVIDED ALWAYS that if the Mortgagor shall pay to the Mortgagee any
and all indebtedness due by Mortgagor to Mortgagee (including the indebtedness
evidenced by the Note and any and all renewals of the same) and shall perform,
comply with and abide by each and every stipulation, agreement, condition, and
covenant of the Note and of this Mortgage; then this Mortgage and the estate
hereby created shall cease and be null and void. Provided, it is further
covenanted and agreed by the parties hereto that this Mortgage also secures the
payment of and includes all future or further advances as hereinafter set forth,
to the same extent as if such made on the date of the execution of this
Mortgage, and any disbursements made for the payment of tax, levies or insurance
on the Mortgaged Property, with interest on such disbursements at the Default
Rate as hereinafter defined.
To protect the security of this Mortgage, the Mortgagor further
covenants, warrants and agrees with the Mortgagee as follows:
ARTICLE I
COVENANTS AND AGREEMENTS OF MORTGAGOR
1.01 Payment of Secured Obligations. Mortgagor shall pay when due the
principal of, and the interest on, the indebtedness evidenced by the Note, and
the charges, fees and the principal of, and interest on, any future advances
secured by this Mortgage and shall otherwise comply with all the terms of the
Note, this Mortgage and all other documents executed by Mortgagor in connection
with the loan secured by this Mortgage, and that certain Construction Loan
Agreement between Mortgagor and Mortgagee dated November 2, 1998 (collectively
the "Loan Documents").
1.02 Warranties and Representations. Mortgagor hereby covenants with
Mortgagee that Mortgagor is indefeasibly seized of the Mortgaged Property in fee
simple; that the Mortgagor has full power and lawful right to convey the same in
fee simple as aforesaid; that it shall be lawful for Mortgagor at all times
peaceably and quietly to enter upon, hold, occupy and enjoy said Mortgaged
Property and every part thereof; that Mortgagor will make such further
assurances to perfect the lien interest in said Mortgaged Property in Mortgagee,
as may reasonably be required; and that Mortgagor does hereby fully warrant the
title to the Mortgaged Property and every part thereof and will defend the same
against the lawful claims of all persons whomever.
Mortgagor further represents and warrants to Mortgagee that all
information, reports, papers, and data given to Mortgagee with respect to
Mortgagor, and to the loan evidenced by the Note and Mortgage are accurate and
correct in all material respects and complete insofar as may be necessary to
give Mortgagee a true and accurate knowledge of the subject matter.
1.03 Ground Leases, Leases, Subleases and Easements. Mortgagor, at
Mortgagor's sole cost and expense, shall maintain and cause to be performed all
of the covenants, agreements, terms, conditions and provisions on its part to be
kept, observed and performed under any ground lease, lease, sublease or
easements which may constitute a portion of or an interest in the Premises,
shall require its tenants or subtenants to keep, observe and perform all the
covenants, agreements, terms, conditions and provisions on their part to be
kept, observed or performed under any and all ground leases, leases, subleases
3
<PAGE>
or easements; and shall not suffer or permit any breach or default to occur with
respect to the foregoing; and in default thereof the Mortgagee shall have the
right to perform or to require performance of any such covenants, agreements,
terms, conditions or provisions of any such ground lease, lease, sublease or
easements and to add any expense incurred in connection therewith to the debt
secured hereby, which such expense shall bear interest from the date of payment
to the date of recovery by the Mortgagee at the Default Rate as hereinafter
defined. Any such payment by the Mortgagee with interest thereon shall be
immediately due and payable. The Mortgagor shall not, without the consent of the
Mortgagee, consent to the modification, amendment, cancellation, termination or
surrender of any such ground lease, lease, sublease, or easement. No release or
forbearance of any of Mortgagor's obligation under any such ground lease, lease,
or sublease, shall release Mortgagor from any of its obligations under this
Mortgage.
1.04 Required Insurance. Mortgagor will, at Mortgagor's sole cost and
expense, maintain or cause to be maintained with respect to the Mortgaged
Property, and each part thereof, the following insurance:
(a) Insurance against loss or damage to the Improvements by fire and
any of the risks covered by insurance of the type now known as "fire and
extended coverage", in an amount not less than the full replacement cost of the
Improvements; and
(b) Such other insurance, and in such amounts, as may from time to time
be required by Mortgagee against the same or other hazards.
All policies of insurance required by the terms of this Mortgage shall
contain an endorsement or agreement by the insurer that any loss shall be
payable in accordance with the terms of such policy notwithstanding any act or
negligence of Mortgagor which might otherwise result in forfeiture of said
insurance and the further agreement of the insurer waiving all rights of set
off, counterclaim or deductions against Mortgagor.
Mortgagor may effect for its own account any insurance not required
under this Section 1.04, but any such insurance effected by Mortgagor on the
Premises, whether or not so required, shall be for the mutual benefit of
Mortgagor and Mortgagee and shall be subject to the other provisions of this
Mortgage.
1.05 Delivery of Policies, Payment of Premiums. All policies of
insurance shall be issued by companies and in amounts in each company
satisfactory to Mortgagee. All policies of insurance shall have attached thereto
a lender's loss payment endorsement for the benefit of Mortgagee in form
satisfactory to Mortgagee. Mortgagor shall furnish Mortgagee with an original
policy of all policies of required insurance. If Mortgagee consents to Mortgagor
providing any of the required insurance through blanket policies carried by
Mortgagor and covering more than one location, then Mortgagor shall furnish
Mortgagee with a certificate of insurance for each such policy setting forth the
coverage, the limits of liability, the name of the carrier, the policy number,
and the expiration date. At least thirty (30) days prior to the expiration of
each such policy, Mortgagor shall furnish Mortgagee with evidence satisfactory
to Mortgagee of the payment of premium and the reissuance of a policy continuing
insurance in force as required by this Mortgage. All such policies shall contain
a provision that such policies will not be canceled or materially amended, which
term shall include any reduction in the scope or limits of coverage, without at
least thirty (30) days prior written notice to Mortgagee. In the event Mortgagor
fails to provide, maintain, keep in force or deliver and furnish to Mortgagee
the policies of insurance required by this Section, Mortgagee may procure such
insurance or single-interest insurance for such risks covering Mortgagee's
4
<PAGE>
interest, and Mortgagor will pay all premiums thereon promptly upon demand by
Mortgagee, and until such payment is made by Mortgagor the amount of all such
premiums together with interest thereon at the Default Rate as hereinafter
defined.
1.06 Insurance Proceeds. After the happening of any casualty to the
Mortgaged Property or any part thereof, Mortgagor shall give prompt written
notice thereof to Mortgagee.
(a) In the event of any damage to or destruction of the Mortgaged
Property, Mortgagee shall have the option in its sole discretion of applying or
paying all or part of the insurance proceeds (i) to any indebtedness secured
hereby and in such order as Mortgagee may determine, or (ii) to the restoration
of the Improvements, or (iii) to Mortgagor; provided, however, that if no Event
of Default exists under the Note or this Mortgage and if the insurance proceeds
are sufficient to fully restore the Improvements, Mortgagee shall permit the use
of the insurance proceeds for restoration of the Improvements..
(b) In the event of such loss or damage, all proceeds of insurance
shall be payable to Mortgagee, and Mortgagor hereby authorizes and directs any
affected insurance company to make payment of such proceeds directly to
Mortgagee. Mortgagee is hereby authorized and empowered by Mortgagor to settle,
adjust or compromise any claims for loss, damage or destruction under any policy
or policies of insurance.
(c) Except to the extent that insurance proceeds are received by
Mortgagee and applied to the indebtedness secured hereby, nothing herein
contained shall be deemed to excuse Mortgagor from repairing or maintaining the
Mortgaged Property as provided in this Mortgage or restoring all damage or
destruction to the Mortgaged Property, regardless of whether or not there are
insurance proceeds available or whether any such proceeds are sufficient in
amount, and the application or release by Mortgagee of any insurance proceeds
shall not cure or waive any default or notice of default under this Mortgage or
invalidate any act done pursuant to such notice.
1.07 Assignment of Policies Upon Foreclosure. In the event of
foreclosure of this Mortgage or other transfer of title or assignment of the
Mortgaged Property in extinguishment, in whole or in part, of the debt secured
hereby, all right, title and interest of the Mortgagor in and to all policies of
insurance required by this Section shall inure to the benefit of and pass to the
successor in interest to Mortgagor or the purchaser or grantee of the Mortgaged
Property. Mortgagor hereby appoints Mortgagee its attorney-in-fact to endorse
any checks, drafts or other instruments representing any proceeds of such
insurance, whether payable by reason of loss thereunder or otherwise.
1.08 Taxes, Utilities and Impositions. Mortgagor will pay, or cause to
be paid and discharged, on or before the last day on which they may be paid
without penalty or interest, all such duties, taxes, sewer rents, charges for
water, or for setting or repairing of meters, and all other utilities on the
Mortgaged Property or any part thereof, and any assessments and payments, usual
or unusual, extraordinary or ordinary, which shall be imposed upon or become due
and payable or become a lien upon the Premises or any part thereof and the
sidewalks or streets in front thereof and any vaults therein by virtue of any
present or future law of the United States or of the State, County, or City
wherein the Premises are located (all of the foregoing being herein collectively
called "Impositions"). In default of any such payment of any Imposition,
Mortgagee may pay the same and the amount so paid by Mortgagee shall, at the
5
<PAGE>
Mortgagee's option, become immediately due and payable with interest at the
Default Rate and shall be deemed part of the indebtedness secured by this
Mortgage.
If at any time there shall be assessed or imposed (i) a tax or
assessment on the Premises in lieu of or in addition to the Impositions payable
by Mortgagor pursuant to this Section or (ii) a license fee, tax or assessment
imposed on Mortgagee and measured by or based in whole or in part upon the
amount of the outstanding obligations secured hereby, then all such taxes,
assessments or fees shall be deemed to be included within the term "Impositions"
as defined in this Section, and Mortgagor shall pay and discharge the same as
herein provided with respect to the payment of Impositions or, at the option of
Mortgagee, all obligations secured hereby, together with all accrued interest
thereon, shall immediately become due and payable. Anything to the contrary
herein notwithstanding, Mortgagor shall have no obligation to pay any franchise,
estate, inheritance, income, excess profits or similar tax levied on Mortgagee
or on the obligations secured hereby.
Mortgagor will pay all mortgage recording taxes and fees payable with
respect to this Mortgage or other mortgage or transfer taxes due on account of
this Mortgage or the Note secured hereby.
Mortgagor will exhibit to Mortgagee the original receipts or other
reasonably satisfactory proof of the payment of all Impositions which may affect
the Mortgaged Property or any part thereof or the lien of the Mortgage promptly
following the last day on which each Imposition is payable hereunder.
Notwithstanding the foregoing, Mortgagor shall have the right, after
prior written notice to Mortgagee, to contest at its own expense the amount and
validity of any Imposition affecting the Mortgaged Property by appropriate
proceedings conducted in good faith and with due diligence and to postpone or
defer payment thereof, if and so long as:
(a) Such proceedings shall operate to suspend the collection of such
Imposition from Mortgagor or the Mortgaged Property; or
(b) Neither the Mortgaged Property nor any part thereof would be in
immediate danger of being forfeited or lost by reason of such proceedings,
postponement or deferment; and
(c) In the case of any Imposition affecting the Mortgaged Property
which might be or become a lien, encumbrance or charge upon or result in any
forfeiture or loss of the Mortgaged Property or any part thereof, or which might
result in loss or damage to Mortgagor or Mortgagee, Mortgagor, prior to the day
such Imposition would become delinquent, shall have furnished Mortgagee with
security satisfactory to Mortgagee, and, in the event that such security is
furnished, Mortgagee shall not have the right during the period of the contest
to pay, remove or discharge the Imposition.
1.09 Maintenance, Repairs, Alterations. Mortgagor shall keep the
Mortgaged Property, or cause the same to be kept, in good condition and repair
and fully protected from the elements to the satisfaction of Mortgagee;
Mortgagor shall not commit nor permit to be committed waste thereon and shall
not do nor permit to be done any act by which the Mortgaged Property shall
become less valuable; Mortgagor will not remove, demolish or structurally alter
6
<PAGE>
any of the Improvements (except such alterations as may be required by laws,
ordinances or regulations) without the prior written permission of the
Mortgagee; Mortgagor shall complete promptly and in good and workmanlike manner
any building or other improvement which may be constructed on the Premises and
promptly restore in like manner any Improvements which may be damaged or
destroyed thereon and will pay when due all claims for labor performed and
materials furnished therefor; Mortgagor shall use and operate, and shall require
its lessees or licensees to use or operate, the Mortgaged Property in compliance
with all applicable laws, ordinances, regulations, covenants, conditions and
restrictions, and with all applicable requirements of any ground lease, lease or
sublease now or hereafter affecting the Premises or any part thereof. Unless
required by law or unless Mortgagee has otherwise agreed in writing, Mortgagor
shall not allow changes in the stated use of Mortgaged Property from that which
was disclosed to Mortgagee at the time of execution hereof. Mortgagor shall not
initiate or acquiesce to a zoning change of the Mortgaged Property without the
prior notice to and consent of Mortgagee. Mortgagee and its representatives
shall have access to the Premises at all reasonable times to determine whether
Mortgagor is complying with its obligations under this Mortgage, including, but
not limited to, those set out in this Section.
1.10 Eminent Domain. Should the Mortgaged Property, or any part thereof
or interest therein, be taken or damaged by reason of any public use or
improvement or condemnation proceeding, or in any other manner ("Condemnation"),
or should Mortgagor receive any notice or other information regarding such
Condemnation, Mortgagor shall give prompt written notice thereof to Mortgagee.
(a) Mortgagee shall be entitled to all compensation, awards and other
payments or relief granted in connection with such Condemnation, and shall be
entitled, at its option, to commence, appear in and prosecute in its own name
any action or proceedings relating thereto. Mortgagee shall also be entitled to
make any compromise or settlement in connection with such taking or damage. All
such compensation, awards, damages, rights of action and proceeds awarded to
Mortgagor (the "Proceeds") are hereby assigned to Mortgagee and Mortgagor agrees
to execute such further assignments of the Proceeds as Mortgagee may require.
(b) In the event any portion of the Mortgaged Property is so taken or
damaged, Mortgagee shall have the option in its sole and absolute discretion, to
apply all such Proceeds, after deducting therefrom all costs and expenses
(regardless of the particular nature thereof and whether incurred with or
without suit), including attorneys' and paralegals' fees and costs, incurred by
it in connection with such Proceeds, upon any indebtedness secured hereby, or to
apply all such Proceeds, after such deductions, to the restoration of the
Mortgaged Property upon such conditions as Mortgagee may determine. Such
application or release shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice.
(c) Any amounts received by Mortgagee hereunder (after payment of any
costs in connection with obtaining same), shall, if retained by Mortgagee, be
applied in payment of any accrued interest and then in reduction of the then
outstanding principal sum of the Note, notwithstanding that the same may not
then be due and payable. Any amount so applied to principal shall be applied to
the payment of installments of principal on the Note in inverse order of their
due dates.
1.11 Actions By Mortgagee To Preserve The Security Of This Mortgage. If
the Mortgagor fails to make any payment or to do any act as and in the manner
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provided for in this Mortgage or the Note, the Mortgagee, in its own discretion,
without obligation so to do and without notice to or demand upon Mortgagor and
without releasing Mortgagor from any obligation, may make or do the same in such
manner and to such extent as the Mortgagee may deem necessary to protect the
security hereof. Mortgagor will pay upon demand all expenses incurred or paid by
Mortgagee (including, but not limited to, attorneys' and paralegals' fees and
costs and court costs including those of appellate and bankruptcy proceedings)
on account of the exercise of any of the aforesaid rights or privileges or on
account of any litigation which may arise in connection with this Mortgage or
the Note or on account of any attempt, without litigation, to enforce the terms
of this Mortgage or said Note. In case the Mortgaged Property or any part
thereof shall be advertised for foreclosure sale and not sold, Mortgagor shall
pay all costs in connection therewith.
In the event that the Mortgagee is called upon to pay any sums of money
to protect this Mortgage and the Note as aforesaid, all monies advanced or due
hereunder shall become immediately due and payable, together with interest at
the Default Rate, computed from the date of such advance to the date of the
actual receipt of payment thereof by the Mortgagee.
1.12 Cost of Collection. In the event this Mortgage is placed in the
hands of an attorney for the collection of any sum payable hereunder, the
Mortgagor agrees to pay all costs of collection, including reasonable attorneys'
and paralegals' fees and costs including those in all appellate and bankruptcy
proceedings, incurred by the Mortgagee, either with or without the institution
of any action or proceeding, and in addition to all costs, disbursements and
allowances provided by law. All such costs so incurred shall be deemed to be
secured by this Mortgage.
1.13 Survival of Warranties. All representations, warranties and
covenants of Mortgagor contained herein or incorporated by reference shall
survive funding of the loan evidenced by the Note and shall remain continuing
obligations, warranties and representations of Mortgagor during any time when
any portion of the obligations secured by this Mortgage remain outstanding.
1.14 Additional Security. In the event Mortgagee at any time holds
additional security for any of the obligations secured hereby, it may enforce
the sale thereof or otherwise realize upon the same, at its option, either
before or concurrently herewith or after a sale is made hereunder.
1.15 Inspections. Mortgagee, or its agents, representatives or workmen,
are authorized to enter at any reasonable time upon or on any part of the
Premises for the purpose of inspection the same, and for the purpose of
performing any of the acts it is authorized to perform under the terms of this
Mortgage.
1.16 Liens. Mortgagor shall pay and promptly discharge, at Mortgagor's
cost and expense, all liens, encumbrances and charges upon the Mortgaged
Property or any part thereof or interest therein, except for the existing liens
in favor of Deutche Financial Services Corporation and Firstar Bank Iowa.
Mortgagor shall have the right to contest in good faith the validity of any such
lien, encumbrance or charge, provided Mortgagor shall first deposit with
Mortgagee a bond or other security satisfactory to Mortgagee in such amounts as
Mortgagee shall reasonably require, and provided further that Mortgagor shall
thereafter diligently proceed to cause such lien, encumbrance or charge to be
removed and discharged. If Mortgagor shall fail to discharge any such lien,
encumbrance or charge, then, in addition to any other right or remedy,
Mortgagee, may, but shall not be obligated to, discharge the same, either by
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paying the amount claimed to be due, or by procuring the discharge of such lien
by depositing in court a bond for the amount claimed or otherwise giving
security for such claim, or in such manner as is or may be prescribed by law.
Any amount so paid by the Mortgagee shall, at Mortgagee's option, become
immediately due and payable with interest at the Default Rate, and shall be
deemed part of the indebtedness secured by this Mortgage.
1.17 Future Advances. This Mortgage is given to secure not only
existing indebtedness, but also future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made within twenty (20) years from the date hereof, to the same extent as if
such future advances are made on the date of the execution of this Mortgage. The
total amount of indebtedness that may be so secured may decrease to a zero
amount from time to time, or may increase from time to time, but the total
unpaid balance so secured at one time shall not exceed twice the face amount of
the Note, plus interest thereon, and any disbursements made for the payment of
taxes, levies or insurance on the Mortgaged Property, with interest on such
disbursements at the Default Rate.
1.18 No Limitation of Future Advance Rights. Mortgagor covenants and
agrees with Mortgagee that:
(a) Mortgagor waives and agrees not to assert any right to limit future
advances under this Mortgage, and any such attempted limitation shall be null,
void and of no force and effect. Any correspondence by Mortgagor regarding the
future advances must be sent to Mortgagee at the address set forth above and to
Mortgagee's counsel: Thomas D. Scanlon, Carlton, Fields, P.O. Box 1171, Orlando,
Florida 32802.
(b) An event of default under the Mortgage shall automatically exist
(i) if Mortgagor executes any instrument which purports to have or would have
the effect of impairing the priority of or limiting any future advance which
might ever be made under the Mortgage, or (ii) if Mortgagor takes, suffers, or
permits any action of occurrence which would adversely affect the priority of
any future advance which might ever be made under the Mortgage.
1.19 Appraisals. Mortgagor consents and agrees that Mortgagee may
obtain an appraisal of the mortgaged property when required by regulations of
the Federal Reserve Board or the Office of the Comptroller of Currency. The cost
of such appraisals shall be borne by the Mortgagor. Mortgagor further agrees
that Mortgagee may obtain an appraisal at such other times Mortgagee may
reasonably require and that the cost of such appraisal shall be borne by the
Mortgagor, however, Mortgagor shall not be required to pay the cost of such
appraisal more than once every three (3) years. If requested by Mortgagee, the
Mortgagor shall execute an engagement letter addressed to the appraiser selected
by the Mortgagee. Mortgagor's failure or refusal to sign such engagement letter,
however, shall not impair Mortgagee's right to obtain such appraisal. Mortgagor
agrees to pay the cost for the appraisals set out above within ten (10) days
after receiving an invoice for such appraisal.
1.20 Transfer. In the event all or any part of the Mortgaged Property,
or any interest therein, is sold, conveyed, encumbered or otherwise transferred
by the Mortgagor, without Mortgagee's prior written consent, or, if Mortgagor is
a partnership or limited liability company, if any general partner or member
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owning 10% or more of the beneficial interest in the partnership or company
transfers such interest, or if any general partner or member of Mortgagor ceases
to be a general partner or member, or if Mortgagor is a corporation:
(a) if any shareholder of Mortgagor owning directly or indirectly 10%
or more of the issued and outstanding stock of Mortgagor as of the date hereof
transfers, during the term of this Mortgage, any of such stock, or
(b) if any additional stock of Mortgagor is issued after the date
hereof; then, and in the event any of the foregoing events occur, Mortgagee may,
in its sole discretion require a modification of the terms of the loan or loans
secured hereby (including without limitation those related to the rate of
interest and terms or schedule of repayment) in a manner satisfactory to
Mortgagee, and may charge an "assumption fee" or similar fee in consideration of
such modification or approval, or accelerate the indebtedness secured hereby and
declare the then outstanding balance, with all accrued interest to be
immediately due and payable.
1.21 Books and Records. Mortgagor shall keep books and records
reflecting its financial condition including, but not limited to, the operation
of the Mortgaged Property, in accordance with generally accepted accounting
principles consistently applied. Mortgagee shall have the right, from time to
time, and at all times, during normal business hours, to examine such books,
records and accounts at the offices of the Mortgagor or other person or entity
maintaining such books, records and accounts, and to make such copies thereof as
Mortgagee may desire.
1.22 Annual Statements. Mortgagor shall deliver to Mortgagee, within
120 days after the close of each fiscal year, audited financial statements
reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules and auditor's management letter, all in
reasonable detail, prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year. All
such statements shall be examined by an independent certified public accountant
acceptable to Mortgagee. The opinion of such independent certified public
accountant shall not be acceptable to Mortgagee if qualified due to any
limitations in scope imposed by Mortgagor. Any other qualification of the
opinion by the accountant shall render the acceptability of the financial
statements subject to Mortgagee's approval.
1.23 Other Indebtedness Secured. This Mortgage is also given as
security for any and all other sums, indebtedness, obligations and liabilities
of any and every kind now or hereafter during the term hereof owing and to
become due from Mortgagor to Mortgagee, however created, incurred, evidenced,
acquired or arising, whether under the Note or this Mortgage, or any other
instrument, obligation, contract, agreement or dealing of any and every kind now
or hereafter existing or entered into between Mortgagor and Mortgagee, or
otherwise, as amended, modified or supplemented from time to time, and whether
direct, indirect, primary, secondary, fixed or contingent, and any and all
renewals, modifications or extensions of any or all of the foregoing.
1.24 Funds Flow Coverage Ratio. Mortgagor shall, at all times, maintain
a Funds Flow Coverage Ratio of not less than 1.30 to 1.00. "Funds Flow Coverage
Ratio" shall mean the sum of net profit, depreciation and amortization minus all
dividends, withdrawals, and non-cash income for the previous four consecutive
fiscal quarters divided by the sum of all current maturities of long term debt
plus the current maturities of capital lease obligations.
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1.25 Cross Default. Mortgagor shall not permit the occurrence of any
event of default on any material contract with or obligation when due to a third
party or default in the performance of any obligation of a third party incurred
for borrowed money.
ARTICLE II
ASSIGNMENT OF LEASES, SUBLEASES,
FRANCHISES, RENTS, ISSUES AND PROFITS
2.01 Assignment of Rents. Mortgagor hereby assigns and transfers to
Mortgagee all the leases, subleases, franchises, rents, issues and profits of
the Mortgaged Property, and hereby gives to and confers upon Mortgagee the
right, power and authority to collect such rents, issues and profits as herein
set forth. Mortgagor irrevocably appoints Mortgagee its true and lawful
attorney-in-fact, at the option of Mortgagee, immediately and without further
legal action being necessary, to demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue, in the name of Mortgagor or
Mortgagee, for all such rents, issues and profits and apply the same to the
indebtedness secured hereby; provided, however, that Mortgagor shall have the
right to collect such rents, issues and profits (but not more than one month in
advance) prior to or at any time there is not an event of default under this
Mortgage.
2.02 Collection Upon Default. Upon any event of default under this
Mortgage, Mortgagee may, at any time without notice, either in person, by agent
or by a receiver appointed by a court, and without regard to the adequacy of any
security for the indebtedness hereby secured, enter upon and take possession of
the Mortgaged Property, or any part thereof, in its own name, sue for or
otherwise collect such rents, issues and profits, including those past due and
unpaid, and apply the same, less costs and expenses of operation and collection,
including attorneys' and paralegals' fees and costs, upon any indebtedness
secured hereby, and in such order as Mortgagee may determine. The collection of
such rents, issues and profits, or the entering upon and taking possession of
the Mortgaged Property, or the application thereof as aforesaid, shall not cure
or waive any default or notice of default hereunder or invalidate any act done
in response to such default or pursuant to such notice of default.
2.03 Restriction on Further Assignments, etc. Except as hereinafter
specifically provided, Mortgagor shall not, without the prior written consent of
the Mortgagee, assign the rents, issues or profits, or any part thereof, from
the Mortgaged Property or any part thereof; and shall not consent to the
modification, cancellation or surrender of any lease or sublease covering the
Mortgaged Property. An action of Mortgagor in violation of the terms of this
Section shall be void as against Mortgagee in addition to being a default under
this Mortgage.
The Mortgagor shall not, without the consent of the Mortgagee, consent
to the cancellation or surrender or, accept prepayment of rents, issues or
profits, other than rent paid at the signing of a lease or sublease, under any
lease or sublease now or hereafter covering the Mortgaged Property or any part
thereof, nor modify any such lease or sublease so as to shorten the term,
decrease the rent, accelerate the payment of rent, or change the terms of any
renewal option; and any such purported assignment, cancellation, surrender,
prepayment or modification made without the written consent of the Mortgagee
shall be void as against the Mortgagee. The Mortgagor shall, upon demand of the
Mortgagee, enter into an agreement with the Mortgagee with respect to the
provisions contained in the preceding provision regarding any lease or sublease
covering said Mortgaged Property or any part thereof, and the Mortgagor hereby
appoints the Mortgagee attorney-in-fact of the Mortgagor to execute and deliver
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any such agreement on behalf of the Mortgagor and deliver written notice thereof
to the tenant to whose lease such agreement relates.
The Mortgagor agrees to furnish to the Mortgagee a copy of any
modification of any lease presently in effect and copies of all future leases
affecting the Mortgaged Property covered by this Mortgage, and failure to
furnish to the Mortgagee a copy of any modification of a lease or a copy of any
future lease affecting said Mortgaged Property, shall be deemed a default under
this Mortgage and the Note, for which the holder of this Mortgage may, at its
option, declare the entire unpaid balance of the subject Mortgage and Note to be
immediately due and payable.
All leases or subleases hereafter entered into by Mortgagor with
respect to the Mortgaged Property or any part thereof, shall be subordinate to
the lien of this Mortgage unless expressly made superior to this Mortgage in the
manner hereinafter provided. At any time or times Mortgagee may execute and
record in the appropriate Office of the Register or County Clerk of the County
where the Premises are situated, a Notice of Subordination reciting that the
lease or leases therein described shall be superior to the lien of this
Mortgage. From and after the recordation of such Notice of Subordination, the
lease or leases therein described shall be superior to the lien of this Mortgage
and shall not be extinguished by any foreclosure sale hereunder.
ARTICLE III
ENVIRONMENTAL CONDITION OF PREMISES
3.01 Environmental Condition of Property. Mortgagor hereby warrants and
represents to Mortgagee after thorough investigation that:
(a) the Premises are now and at all times hereafter will continue to be
in full compliance with all Federal, State and local environmental laws and
regulations, including but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA), Public Law No.
96-510, 94 Stat. 2767, and the Superfund Amendments and Reauthorization Act of
1986 (SARA), Public Law No. 99-499, 100 Stat. 1613, and
(b) (i) as of the date hereof there are no hazardous materials,
substances, waste or other environmentally regulated substances (including
without limitation, any materials containing asbestos) located on, in or under
the Premises or used in connection therewith, or (ii) Mortgagor has fully
disclosed to Mortgagee in writing the existence, extent and nature of any such
hazardous material, substance, waste or other environmentally regulated
substance, currently present or which Mortgagor is legally authorized and
empowered to maintain on, in or under the Premises or use in connection
therewith, Mortgagor has obtained and will maintain all licenses, permits and
approvals required with respect thereto, and is and will remain in full
compliance with all of the terms, conditions and requirements of such licenses,
permits and approvals. Mortgagor further warrants and represents that it will
promptly notify Mortgagee of any change in the environmental condition of the
Premises or in the nature or extent of any hazardous materials, substances or
wastes maintained on, in or under the Premises or used in connection therewith,
and will transmit to Mortgagee copies of any citations, orders, notices or other
material governmental or other communication received with respect to any other
hazardous materials, substances, waste or other environmentally regulated
substance affecting the Premises.
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Mortgagor hereby indemnifies and holds harmless Mortgagee from and
against any and all damages, penalties, fines, claims, suits, liabilities,
costs, judgments and expenses (including attorneys', consultant's or expert's
fees) of every kind and nature incurred, suffered by or asserted against
Mortgagee as a direct or indirect result of:
(a) any warranty or representation made by Mortgagor in this paragraph
being or becoming false or untrue in any material respect or
(b) any requirement under the law, regulation or ordinance, local,
state or federal, regarding the removal or elimination of any hazardous
materials, substances, waste or other environmentally regulated substances.
Mortgagor's obligations hereunder shall not be limited to any extent by
the term of the Note, and, as to any act or occurrence prior to payment in full
and satisfaction of said Note which gives rise to liability hereunder, shall
continue, survive and remain in full force and effect notwithstanding
foreclosure of this Mortgage, where Mortgagee is the purchaser at the
foreclosure sale, or delivery of a deed in lieu of foreclosure to Mortgagee.
ARTICLE IV
SECURITY AGREEMENT
4.01 Creation of Security Interest. Mortgagor hereby grants to
Mortgagee a security interest in any and all Personal Property located on or at
the Premises, including without limitation any and all property of similar type
or kind hereafter located on or at the Premises for the purposes of securing all
obligations of Mortgagor set forth in this Mortgage. This instrument is a
self-operative security agreement with respect to the above described property,
but Mortgagor agrees to execute and deliver on demand such other security
agreements, financing statements and other instruments as Mortgagee may request.
4.02 Warranties, Representations and Covenants of Mortgagor. Mortgagor
hereby warrants, represents and covenants as follows:
(a) Except for the security interest granted hereby, Mortgagor is, and
as to portions of the Personal Property to be acquired after the date hereof
will be, the sole owner of the Personal Property, free from any adverse lien,
security interest, encumbrance or adverse claims thereon of any kind whatsoever,
except for the existing security interest of Deutche Financial Services
Corporation and Firstar Bank Iowa. Mortgagor shall notify Mortgagee of, and
shall defend the Personal Property against, all claims and demands of all
persons at any time claiming the same or any interest therein.
(b) Mortgagor shall not lease, sell, convey or in any manner transfer
the Personal Property without the prior written consent of Mortgagee, except for
the sale of inventory in the ordinary course of business.
(c) The Personal Property is not and shall not be used or bought for
personal, family or household purposes.
(d) The Personal Property shall be kept on or at the Premises and
Mortgagor will not remove the Personal Property from the Premises without the
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prior written consent of Mortgagee, except such portions or items of Personal
Property which are consumed or worn out in ordinary usage, all of which shall be
promptly replaced by Mortgagor.
(e) Mortgagor maintains a place of business in the State of Florida and
Mortgagor shall immediately notify Mortgagee in writing of any change in name or
Mortgagor's place of business as set forth in the beginning of this Mortgage.
(f) At the request of the Mortgagee, Mortgagor shall join Mortgagee in
executing one or more financing statements and renewals and amendments thereof
pursuant to the Uniform Commercial Code of Florida in form satisfactory to
Mortgagee, and will pay the cost of filing the same in all public offices
wherever filing is deemed by Mortgagee to be necessary or desirable.
(g) All covenants and obligations of Mortgagor contained herein
relating to the Mortgaged Property shall be deemed to apply to the Personal
Property whether or not expressly referred to herein.
(h) This Mortgage constitutes a Security Agreement as that term is used
in the Uniform Commercial Code of Florida.
ARTICLE V
REMEDIES UPON DEFAULT
5.01 Events of Default. Any one or more of the following shall
constitute a default under this Mortgage and the Note hereby secured:
(a) Failure of Mortgagor to make one or more payments required by the
Note on the due date thereof.
(b) Failure of Mortgagor to pay the amount of any costs, expenses or
fees (including counsel fees) of the Mortgagee, with interest thereon, as
required by any provision of this Mortgage.
(c) Failure to exhibit to the Mortgagee, within ten (10) days after
demand, receipts showing payment of real estate taxes and assessments.
(d) Except as hereinbefore permitted, the alteration, demolition or
removal of any building on the Premises without written consent of the
Mortgagee.
(e) Failure to maintain the Improvements on the Premises as herein
required, free of any liens placed during the term hereof.
(f) Failure to comply with any requirements or order or notice of
violation of law or ordinance issued by any governmental department claiming
jurisdiction over the Mortgaged Property within three (3)months from the
issuance thereof, or before any such violation becomes a lien against the
Mortgaged Property, whichever first occurs.
(g) Failure of Mortgagor or others to comply with or perform any other
warranty, covenant or agreement contained herein, in the Note, or in the Loan
Documents.
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(h) Any breach of any covenant or warranty or material untruth of any
representation of Mortgagor contained in this Mortgage, or the Note or any
guaranty executed in conjunction herewith.
(i) The institution of any bankruptcy, reorganization or insolvency
proceedings against the Mortgagor, the then owner or any person in possession of
the Mortgaged Property, or any guarantor, or the appointment of a receiver or a
similar official with respect to all or a substantial part of the properties of
the Mortgagor, the then owner or any person in possession of the Mortgaged
Property, and the failure to have such proceedings dismissed or such appointment
vacated within a period of forty-five (45) days.
(j) The institution of any voluntary bankruptcy, reorganization or
insolvency proceedings by the Mortgagor, the then owner or any person in
possession of the Mortgaged Property, or any guarantor, or the appointment of a
receiver or a similar official with respect to all or a substantial part of the
properties of the Mortgagor, the then owner or any person in possession of the
Mortgaged Property, and the failure to have such proceedings dismissed or such
appointment vacated within a period of forty-five (45).
(k) The imposition of any encumbrance, mortgage or security interest,
or the assertion or making of any levy, seizure, forfeiture action, mechanic's
or materialman's lien or attachment on the Mortgaged Property or any part
thereof.
(l) If default shall occur in any loan now or hereafter in existence
between Mortgagee and Mortgagor or any mortgage which the Mortgagor or any
guarantor has any interest whatsoever, and, conversely, the occurrence of an
event of default hereunder shall also constitute a default under any such other
loan.
(m) The occurrence of any event of default under the Note, or any Loan
Document, whether or not such event is specifically set forth herein.
(n) The occurrence of any event of default on any material contract
with or obligation when due to a third party or default in the performance of
any obligation to a third party incurred for money borrowed.
Provided, however, that Mortgagee shall give Mortgagor thirty (30) days
written notice of any non-monetary default before pursuing any remedy against
Mortgagor.
5.02 Default Rate. The Default Rate shall be the Contract Rate of
Interest provided in the Note, plus three percent (3%), provided, however, that
at no time shall any interest or charges in the nature of interest be taken,
exacted, received or collected which would exceed the maximum rate permitted by
law.
5.03 Judgment Rate. Any judgment rendered on the Note or this Mortgage
shall bear interest at the highest rate of interest permitted pursuant to
Chapter 687, Florida Statutes.
5.04 Acceleration Upon Default, Additional Remedies. In the event that
one or more defaults as above provided shall occur, the remedies available to
Mortgagee shall include, but not necessarily be limited to, any one or more of
the following:
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(a) Mortgagee shall declare the entire unpaid balance of the Note
immediately due and payable without notice.
(b) Mortgagee may take immediate possession of the Mortgaged Property
or any part thereof (which Mortgagor agrees to surrender to Mortgagee) and
manage, control or lease the same to such person or persons and at such rental
as it may deem proper and collect all rents, issues and profits, therefrom,
including those past due as well as those thereafter accruing, with the right in
the Mortgagee to cancel any lease or sublease for any cause which would entitle
Mortgagor to cancel the same; to make such expenditures for maintenance, repairs
and costs of operation as it may deem advisable; and after deducting the cost
thereof and a commission of five (5%) percent upon the gross amount of rents
collected, to apply the residue to the payment of any sums which are unpaid
hereunder or under the Note. The taking of possession under this paragraph shall
not prevent concurrent or later proceedings for the foreclosure sale of the
Mortgaged Property as provided elsewhere herein.
(c) Mortgagee may apply to any court of competent jurisdiction for the
appointment of a receiver or similar official to manage and operate the
Mortgaged Property, or any part thereof, and to apply the net rents and profits
therefrom to the payment of the interest and/or principal of said Note and/or
any other obligations of Mortgagor to Mortgagee hereunder. In the event of such
application, Mortgagor agrees to consent to the appointment of such receiver or
similar official, and agrees that such receiver or similar official may be
appointed without notice to Mortgagor, without regard to the adequacy of any
security for the debts and without regard to the solvency of Mortgagor or any
other person, firm or corporation who or which may be liable for the payment of
the Note or any other obligation of Mortgagor hereunder.
(d) Without declaring the entire unpaid principal balance due, the
Mortgagee may foreclose only as to the sum past due, without injury to this
Mortgage or the displacement or impairment of the remainder of the lien thereof,
and at such foreclosure sale the property shall be sold subject to all remaining
items of indebtedness; and Mortgagee may again foreclose, in the same manner, as
often as there may be any sum past due.
5.05 Additional Provisions. Mortgagor expressly agrees, on behalf of
itself, its successors and assigns and any future owner of the Mortgaged
Property, or any part thereof or interest therein, as follows:
(a) All remedies available to Mortgagee with respect to this Mortgage
shall be cumulative and may be pursued concurrently or successively. No delay by
Mortgagee in exercising any such remedy shall operate as a waiver thereof or
preclude the exercise thereof during the continuance of that or any subsequent
default.
(b) The obtaining of a judgment or decree on the Note, whether in the
State of Florida or elsewhere, shall not in any manner affect the lien of this
Mortgage upon the Mortgaged Property covered hereby, and any judgment or decree
so obtained shall be secured to the same extent as said Note is now secured. Any
judgment entered in connection with the Note shall bear interest on the judgment
amount at the highest rate of interest permitted under Chapter 687, Florida
Statutes, or any future successor or similar statute.
(c) In the event of any foreclosure sale hereunder, all net proceeds
shall be available for application to the indebtedness hereby secured whether or
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not such proceeds may exceed the value of the Mortgaged Property for unpaid
taxes, liens assessments and any other costs relating to the Mortgaged Property.
(d) The only limitation upon the foregoing agreements as to the
exercise of Mortgagee's remedies is that there shall be but one full and
complete satisfaction of the indebtedness secured hereby.
(e) The Mortgagor shall duly, promptly and fully perform each and every
term and provision of any Construction or other Loan Agreement which has been
executed and delivered by the parties hereto simultaneously with the execution
and delivery hereof, the terms of which Construction or other Loan Agreement are
incorporated herein by reference. The lien of this Mortgage secures the payment
of all sums payable to Mortgagee and the performance of all covenants and
agreements of Mortgagor under the terms of any Construction or other Loan
Agreement.
5.06 Remedies Not Exclusive. Mortgagee shall be entitled to enforce
payment and performance of any indebtedness or obligations secured hereby and to
exercise all rights and powers under this Mortgage or the Note or under any
other agreement or any laws now or hereafter in force, notwithstanding some or
all of the said indebtedness and obligations secured hereby may now or hereafter
be otherwise secured, whether by mortgage, deed of trust, pledge, lien,
assignment or otherwise. Neither the acceptance of this Mortgage nor its
enforcement shall prejudice or in any manner affect Mortgagee's right to realize
upon or enforce any other security now or hereafter held by Mortgagee, it being
agreed that Mortgagee shall be entitled to enforce this Mortgage and any other
security now or hereafter held by Mortgagee in such order and manner as
Mortgagee may in its absolute discretion determine. No remedy herein conferred
upon or reserved to Mortgagee is intended to be exclusive of any other remedy
herein or by law provided or permitted, but each shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute. Every power or remedy given to
Mortgagee or to which it may be otherwise entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by Mortgagee and it may pursue inconsistent remedies.
5.07 Waiver of Automatic Stay. The Mortgagor hereby agrees that, in
consideration of the Mortgagee funding the loan secured by this Mortgage, in the
event that the Mortgagor shall (i) file with any bankruptcy court of competent
jurisdiction or be the subject of any petition under Title 11 of the United
States Code, as amended ("Title 11"); (ii) be the subject of any order for
relief issued under Title 11; (iii) file or be the subject of any petition
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal or state act
or law relating to insolvency or bankruptcy, or other relief from creditors for
debtors; (iv) have sought or consented to or acquiesced in the appointment of
any trustee, receiver, conservator, or liquidator; (v) be the subject of any
order, judgment, or decree entered by any court of competent jurisdiction
approving a petition filed against such party for any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future federal or state act or law relating to
insolvency or bankruptcy, or other relief from creditors for debtors, the
Mortgagee shall thereupon be entitled to relief from any automatic stay imposed
by Section 362 of Title 11, or otherwise, on or against the exercise of the
rights and remedies otherwise available to the Mortgagee under this Mortgage and
the Loan Documents, and as otherwise provided by law.
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ARTICLE VI
MISCELLANEOUS
6.01 Valid Existence. So long as the Mortgaged Property shall be owned
or held by a corporation or partnership (whether limited or general), such
corporation or partnership shall at all times maintain its valid existence and
shall be fully authorized to do business in the State of Florida and shall
maintain in the State of Florida a duly authorized registered agent for the
service of process. Failure to comply with such obligations shall be a default
under this Mortgage. In the case of a corporation or limited partnership, within
ninety (90) days after the expiration of the time for filing its annual report
and the payment of the appropriate taxes in the State of Florida, Mortgagor will
furnish to Mortgagee a certificate of good standing or other evidence
satisfactory to Mortgagee to show compliance with the provisions of this
Section.
6.02 Statements by Mortgagor. Mortgagor, within three (3) days after
request in person or within ten (10) days after request by mail, will furnish to
Mortgagee or any person, firm or corporation designated by Mortgagee, a duly
acknowledged affidavit or certificate setting forth: (i) the amount of the debt
secured by this Mortgage (including all principal and accrued interest); (ii)
that no offsets, defenses or counterclaims exist against such debt, or, if such
offsets or defenses are alleged to exist, full information with respect to such
alleged offsets and/or defenses; and (iii) that the Mortgagor is not in default
under the Note, this Mortgage or the Security Documents, or, if such default is
alleged to exist, full information with respect to such alleged default.
6.03 Successors and Assigns. The provisions hereof shall be binding
upon and shall inure to the benefit of the Mortgagor, its successors and
assigns, including without limitation subsequent owners of the Premises or the
leasehold estate of the Premises or any part thereof; shall be binding upon and
shall inure to the benefit of Mortgagee, its successors and assigns and any
future holder of the Note, and any successors or assigns of any future holder of
the Note. In the event the ownership of the Mortgaged Property or any leasehold
estate that may be covered by this Mortgage becomes vested in a person other
than Mortgagor, Mortgagee may, without notice to Mortgagor, deal with such
successor or successors in interest with reference to this instrument and the
Note in the same manner as with the Mortgagor, and may alter the interest rate
and/or alter or extend the terms of payment of the Note without notice to
Mortgagor hereunder or under the Note hereby secured or the lien or priority of
this Mortgage with respect to any part of the Mortgaged Property covered hereby,
but nothing herein contained shall serve to relieve Mortgagor of any liability
under the Note or this Mortgage (or any other agreement executed in conjunction
therewith) unless Mortgagee shall expressly release Mortgagor in writing.
Mortgagor and any transferee or assignee shall be jointly and severally liable
for any documentary or intangible taxes imposed as a result of any transfer or
assumption.
6.04 Notices. All notices, demands and requests given by either party
hereto to the other party shall be in writing. All notices, demands and requests
by the Mortgagee to the Mortgagor shall be deemed to have been properly given if
sent by United States registered or certified mail, postage prepaid, addressed
to the Mortgagor at the address as the Mortgagor may from time to time designate
by written notice to the Mortgagee, given as herein required. All notices,
demands and requests by the Mortgagor to the Mortgagee shall be deemed to have
been properly given if sent by United States registered or certified mail,
postage prepaid, addressed to the Mortgagee, or to such other address as the
Mortgagee may from time to time designate by written notice to the Mortgagor
given as herein required. Notices, demands and requests given in the manner
18
<PAGE>
aforesaid shall be deemed sufficiently served or given for all purposes
hereunder at the time such notice, demand or request shall be deposited in any
post office of branch post office regularly maintained by the United States
Government.
The Mortgagor shall deliver to the Mortgagee, promptly upon receipt of
same, copies of all notices, certificates, documents and instruments received by
it which materially affect any part of the Mortgaged Property covered hereby,
including, without limitation, notices, notices from any lessee or sublessee
claiming that the Mortgagor is in default under any terms of any lease or
sublease.
6.05 Modifications in Writing. This Mortgage may not be changed,
terminated or modified orally or in any other manner than by an instrument in
writing signed by the party against whom enforcement is sought.
6.06 Captions. The captions or headings at the beginning of each
Section hereof are for the convenience of the parties and are not a part of this
Mortgage.
6.07 Invalidity of Certain Provisions. If the lien of this Mortgage is
invalid or unenforceable as to any part of the debt, or if the lien is invalid
or unenforceable as to any part of the Mortgaged Property, the unsecured portion
of the debt shall be completely paid prior to the payments of the secured
portion of the debt, and all payments made on the debt, whether voluntary or
otherwise, shall be considered to have been first paid on and applied to the
full payment of that portion of the debt which is not secured or fully secured
by the lien of this Mortgage.
6.08 No Merger. If both the lessor's and lessee's estates under any
lease or any portion thereof which constitutes a part of the Mortgaged Property
shall at any time become vested in one owner, this Mortgage and the lien created
hereby shall not be destroyed or terminated by application of the doctrine of
merger and, in such event, Mortgagee shall continue to have and enjoy all of the
rights and privileges of Mortgagee as to the separate estates. In addition, upon
the foreclosure of the lien created by this Mortgage on the Mortgaged Property
pursuant to the provisions hereof, any leases or subleases then existing and
created by Mortgagor shall not be destroyed or terminated by application of the
law of merger or as a result of such foreclosure sale unless Mortgagee shall so
elect. No act by or on behalf of Mortgagee or any such purchaser shall
constitute a termination of any lease or sublease unless Mortgagee or such
purchaser shall give written notice thereof to such tenant or subtenant.
6.09 Governing Law and Construction of Clauses. This Mortgage shall be
governed and construed by the laws of the State of Florida. No act of the
Mortgagee shall be construed as an election to proceed under any one provision
of the Mortgage or of the applicable statutes of the State of Florida to the
exclusion of any other such provision, anything herein or otherwise to the
contrary notwithstanding.
6.10 Year 2000 Compatibility. Mortgagor shall take all action necessary
to assure that Mortgagor's computer based systems are able to operate and
effectively process data including dates on and after January 1, 2000. At the
request of Mortgagee, Mortgagor shall provide Mortgagee with assurance
acceptable to Mortgagee of Mortgagor's Year 2000 compatibility.
19
<PAGE>
6.11 Arbitration. Upon demand of any party hereto, whether made before
or after institution of any judicial proceeding, any claim or controversy
arising out of, or relating to the Loan Documents between the parties hereto (a
"Dispute") shall be resolved by binding arbitration conducted under and governed
by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules")
of the American Arbitration Association (the "AAA") and the Federal Arbitration
Act. Disputes may include, without limitation, tort claims, counterclaims,
disputes as to whether a matter is subject to arbitration, claims brought as
class actions, or claims arising from documents executed in the future. A
judgment upon the award may be entered in any court having jurisdiction.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
Special Rules. All arbitration hearings shall be conducted in the city
in which the office of Mortgagee first stated above is located. A hearing shall
begin within 90 days of demand for arbitration and all hearings shall be
concluded within 120 days of demand for arbitration. These time limitations may
not be extended unless a party shows cause for extension and then for no more
than a total of 60 days. The expedited procedures set forth in Rule 51 et seq.
of the Arbitration Rules shall be applicable to claims of less than $1,000,000.
Arbitrators shall be licensed attorneys selected from the Commercial Financial
Dispute Arbitration Panel of the AAA. The parties do not waive applicable
Federal or state substantive law except as provided herein.
Preservation and Limitation of Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties agree to preserve, without
diminution, certain remedies that any party may exercise before of after an
arbitration proceeding is brought. The parties shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
Each party agrees that it shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute, whether the Dispute is resolved by
arbitration or judicially.
Waiver of Jury Trial. The parties acknowledge that by agreeing to
binding arbitration they have irrevocably waived any right they may have to a
jury trial with regard to a Dispute.
20
<PAGE>
IN WITNESS WHEREOF, Mortgagor has hereunto set hand and seal all done
as of the day and year first written above.
Signed, sealed and delivered in the presence of:
/s/ Stephen H. Coover FEATHERLITE, INC., formerly known as
Name: Stephen H. Coover FEATHERLITE MFG., INC.
/s/ Thomas D. Scanlon By: /s/ Norman B. Allen
Name: Thomas D. Scanlon Name: Norman B. Allen
Title: Vice President
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this 15 day of
October, 1999, by Norman B. Allen, as Vice President of FEATHERLITE, INC.,
formerly known as FEATHERLITE MFG., INC. He is [ ] personally known to me or [X]
has produced Fla. Driver's License as identification.
/s/ Thomas D. Scanlon
Name: Thomas D. Scanlon
Notary Public
21
<PAGE>
EXHIBIT "A"
Legal Description
Lot 1, 2, 3, 13, 14 and 15, and the East 104.41 feet of Lot 4 and the East 87.78
feet of Lot 12 of BELL'S SUBDIVISION, according to the Plat thereof as recorded
in Plat Book 6, Page 47, of the Public Records of Seminole County, Florida (less
that part thereof in State Road 400 as described in Official Records Book 220,
Page 405, Seminole County Records)
AND
Lot 27 of FLORIDA LAND AND COLONIZATION COMPANY LIMITED W. BEARDALL'S MAP OF ST.
JOSEPHS according to the Plat thereof as recorded in Plat Book 1, Page 114,
Public Records of Seminole County, Florida (less that part thereof in State Road
400 as described in Official Records Book 220, Page 405, Seminole County
Records).
AND
All that part of BELL ROAD, as shown on BELL'S SUBDIVISION, according to the
plat thereof as recorded in Plat Book 6, Page 47, of the Public Records of
Seminole County, Florida, lying East of the Southerly extension of the West Line
of the East 87.78 feet of Lot 12, said BELL'S SUBDIVISION, and lying West of the
West Right-of-Way Line of State Road No. 400 (Interstate Highway No. 4)
22
Selected Financial Information
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION (In thousands, except per share and stock price data)
- -------------------------------------------------------------------------------------------------------------
FIVE YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $226,108 $190,874 $134,387 $ 99,329 $ 69,159
Cost of goods sold 190,065 160,364 111,764 84,643 58,673
- -------------------------------------------------------------------------------------------------------------
Gross profit 36,043 30,510 22,623 14,686 10,486
Selling and administrative expenses 27,094 22,385 15,998 12,492 9,993
- -------------------------------------------------------------------------------------------------------------
Operating income 8,949 8,125 6,625 2,194 493
Interest expense (3,768) (2,961) (1,800) (1,450) (799)
Other income, net 1,229 823 646 660 1,478
- -------------------------------------------------------------------------------------------------------------
Income before taxes 6,410 5,987 5,471 1,404 1,172
Provision for Income taxes 2,436 2,337 2,189 562 471
- -------------------------------------------------------------------------------------------------------------
Net income $ 3,974 $ 3,650 $ 3,282 $ 842 $ 701
Net income per share - basic & diluted $ 0.61 $ 0.56 $ 0.52 $ 0.13 $ 0.12
=============================================================================================================
Cash distributions for taxes* $ - $ - $ - $ - $ 305
=============================================================================================================
Weighted average common shares outstanding
Basic 6,506 6,462 6,255 6,106 5,955
Diluted 6,545 6,559 6,314 6,107 6,006
=============================================================================================================
Balance Sheet Data (End of Period) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Working capital $ 32,065 $ 29,163 $ 21,643 $ 15,165 $15,360
Total assets 119,784 106,788 75,508 53,534 46,084
Total long-term debt, net current maturities 30,563 30,914 22,075 13,346 15,194
Total shareholders' investment 33,726 29,543 23,877 20,595 17,953
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Quarterly Financial Data (Unaudited)
Net Income Per Share Closing Stock Price
Gross Operating Net -------------------- --------------------
Net Sales Profit Income Income Basic Diluted High Low
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
- ----
First Quarter $59,422 $9,697 $3,062 $1,543 $0.24 $0.24 $6.63 $5.25
Second Quarter 56,295 8,820 2,370 1,010 0.15 0.15 7.00 5.13
Third Quarter 53,939 9,131 2,102 1,046 0.16 0.16 7.25 5.06
Fourth Quarter 56,452 8,395 1,415 375 0.06 0.06 7.00 4.91
- --------------------------------------------------------------------------------------------------------------------------
1998
- ----
First Quarter $41,742 $6,917 $2,256 $1,141 $0.18 $0.18 $9.00 $7.38
Second Quarter 49,294 7,389 2,113 1,005 0.16 0.15 12.50 $8.13
Third Quarter 48,895 7,529 1,630 524 0.08 0.08 12.38 $7.56
Fourth Quarter 50,943 8,675 2,126 980 0.15 0.15 7.63 $4.00
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"FTHR."
*Represent only distribution for estimated shareholders' federal and state
income tax liabilities from Company's status as S corporation prior to initial
public stock offering. No other dividends were paid. The Company is restricted
from paying dividends. See Liquidity & Capital Resources in MD&A for a
discussion of these restrictions.
<PAGE>
Management's Discussion and Analysis>
The following discussion pertains to the Company's results of
operations and financial condition, including information on the Company's two
principal business segments as set forth in Note 12 to the Consolidated
Financial Statements for the years ended December 31, 1999, 1998 and 1997.
Results of Operations
1999 vs. 1998
Sales in 1999 increased by 18.5% to $226.1 million compared to the
$190.9 million recorded in 1998, as a result of increased volume in each of the
Company's business segments and the full year effect of the acquisition of
Mitchell Motor Coach Sales, Inc. (Mitchell), which was consummated in 1998.
Trailer segment sales increased by 4% primarily due to greater sales of
car/racecar and specialty transporters and horse trailers. This increase was
offset by lower sales of livestock trailers because of economic difficulties
that began in 1998 in the farm and agricultural economy. Motorcoach segment
sales increased by 39% as the result of increased demand for both new and used
motorcoach units as well as the full year effect of the Mitchell acquisition.
There were no overall price increases on the Company's products in 1999 although
there were selective increases on certain products.
Gross profit margin in 1999 increased by 18.1% to $36.0 million from
$30.5 million in 1998, due to increased sales levels in both business segments.
As a percentage of sales, consolidated gross profit margin was 15.9% in 1999 and
16.0% in 1998. Trailer segment gross profit margins increased by almost one
percentage point as the result of lower aluminum costs as well as improvements
realized by continuing efforts to re-engineer and improve production methods.
Motorcoach segment margins declined by .3 percentage points in 1999 from 1998
primarily due to changes in sales mix.
Selling, delivery and administration expenses increased in total in
1999 by $4.7 million and as a percentage of sales to 12.0% from 11.7%. This
increase was primarily due to additional advertising and marketing costs and
increased personnel costs related to the expanding motorcoach segment as well as
the full year effect of the Mitchell acquisition.
Interest expense increased by 27% in 1999 over 1998 due to increased
borrowings for working capital and capital expenditures as well as higher
average interest rates in 1999. Interest expense related to the trailer segment
decreased by $412,000 in 1999 while it increased in the motorcoach segment by
$1.3 million. Other income increased by $406,000 in 1999 primarily due to
increased gains of $303,000 on sales of aircraft and other property in 1999 over
1998.
Income before taxes increased $423,000 or 7% in 1999 over 1998,
primarily due to the strong performance of the trailer segment. After allocation
of corporate selling and administrative expenses, trailer segment income before
taxes was up by $1.8 million while motorcoach segment income before taxes
declined by $2.0 million for the reasons discussed above. Unallocated corporate
expenses were $524,000 lower in 1999 than 1998 due to the increased gains on
aircraft sales in 1999.
The provision for income tax rate was reduced to 38% in 1999 compared
with 40% in 1998. This reduction was due to certain job related credits realized
in 1999 as a result the Company's activities in the state of Oklahoma.
<PAGE>
1998 vs. 1997
Sales for 1998 increased by 42% to $190.5 million from a level of
$134.4 million in 1997. This increase was the result of growth in both the
trailer and motorcoach segments as well as the acquisition of Mitchell
Motorcoach Sales, Inc. (Mitchell) in May, 1998. Trailer segment sales increased
by 13% in 1998, including increases in all product lines except livestock
trailers which declined slightly due to economic difficulties faced by family
farm owners and unfavorable livestock prices. A portion of the trailer segment
sales increase in 1998 was the result of price increases ranging from 2-5%
introduced in that year. Motorcoach segment sales in 1998 increased by $43.2
million or 124% over 1997, including sales of $23 million related to the Vogue
brand which was acquired from Mitchell.
Gross profit in 1998 increased by 35% to $30.5 million from $22.6
million in 1997. This was primarily the result of the expanded sales volume in
both business segments. As a percentage of sales, gross profit declined to 16.0%
in 1998 compared to 16.8% in 1997. This decrease in the gross profit percentage
was due mainly to the impact of the Vogue Division operations since it was
acquired. Trailer segment gross margin percentage was reduced in 1998 from
increased labor and overhead costs not fully covered by price increases and
efficiency improvements. Motorcoach segment gross profit margin percentage
improved in 1998 due to improvements in margin percentages realized in the
Vantare Division. These improvements were partially offset by lower than
normal gross profit margins on Featherlite Vogue(TM) motorcoaches, many of which
were sold at prices established before the acquisition of Mitchell. Used
motorcoach sales also had a dampening impact on the gross profit margin
percentage as they have a lower than average gross profit.
Selling and administrative expenses increased by $6.4 million in 1998
compared to 1997, but decreased as a percentage of sales to 11.7% in 1998 from
11.9% in 1997. This increase included $2.1 million for the trailer segment and
$4.1 million for the motorcoach segment and was due to greater personnel costs
as the organization continued to grow internally as well as through
acquisitions, and increased advertising and promotion costs to stimulate sales
and other increases consistent with the Company's sales growth.
Interest expense increased by $1.2 million in 1998 over 1997.
Substantially all of this increase related to the motorcoach segment which
required increased borrowings to support working capital growth in this segment.
Interest expense for the trailer segment increased by less than $100,000.
Other income was higher in 1998 than 1997 due to more fees received for
arranging retail finance contracts with finance companies. Gains on aircraft and
other property sales that are included in this caption were about the same
amounts in 1998 and 1997.
Income before taxes increased by $516,000, or almost 9% in 1998
compared to 1997, mainly due to the improved operating results of the motorcoach
segment as discussed above. After allocation of corporate selling and
administrative costs, the trailer segment's profit contribution decreased by
$1.4 million and the motorcoach segment's profit contribution improved by $1.9
million. Unallocated corporate administrative expenses remained about the same
in 1998 as 1997.
<PAGE>
Forward-looking Information and Risks
Certain statements in this section and elsewhere in this report and in
the Company's Form 10-K and other filings with the SEC, are forward-looking in
nature and relate to trends and events that may affect the Company's future
financial position and operating results. The words "expect," "anticipate,"
"intend," "project," and similar words and expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
annual report. The statements are based on current expectation, are inherently
uncertain, are subject to risks, and should be viewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including but not limited to: product demand and
acceptance of products in each segment of the Company's markets, fluctuations in
the price of aluminum, competition, facilities utilization, the availability of
additional capital required for growth and certain other unanticipated events
and conditions. It is not possible to foresee or identify all such factors. The
Company makes no commitment to update any forward-looking statement or to
disclose any facts, events, or circumstances after the date hereof that may
affect the accuracy of any forward-looking statement.
Sales are expected to improve in both business segments in the year
2000. The Company believes its name recognition and close affiliation with the
motorsports industry will continue to have a positive impact on its sales of
specialty trailers, transporters and luxury motorcoaches. With more than 75% of
its revenue from end users in motorsports and leisure and entertainment
categories, which also includes horse trailers, and with its strong position in
the livestock trailer market, the Company believes it is strategically
well-positioned to benefit from growth in these markets. The Company introduced
nine new models of horse and car trailers during 1999 and will continue to add
new models in 2000. New luxury coach models will also be added to the
Featherlite Vogue(TM) product line during the year. In 1999, the Company
combined the Vantare and Vogue Divisions into the Featherlite Luxury Coach
Division. In 2000 this consolidation is expected to achieve a unified sales and
marketing thrust for all motorcoach products.
There are a number of risk factors related to the future operating
results of the Company, including the following:
1. Aluminum is a commodity that is traded daily on the commodity markets
and fluctuates in price. The average Midwest delivered cash price per
pound for ingot aluminum during the three years ended December 31,
1999, as reported to the Company by its suppliers, was $.66 in 1999,
$.66 in 1998 and $.78 in 1997. The Company's cost of aluminum varies
from these market prices due to vendor processing charges, timing of
purchases, contractual commitments with suppliers for specific prices
and other factors. The Company has obtained commitments from suppliers
to provide, at an agreed upon fixed price, substantially all of its
anticipated requirements for 2000, which eliminates the risk of
aluminum cost fluctuations for next year. If the Company is unable to
obtain such commitments from suppliers or otherwise reduce the price
risk related to purchases of aluminum in years beyond 2000, this could
have an adverse impact on the Company's operating results if the cost
of aluminum increases significantly above levels "locked-in" for 2000.
The company does not engage in hedging transactions or other use of
derivatives in connection with its operations.
2. There is a risk related to losing a major supplier of aluminum. In the
past this risk has been relatively nominal as there have been alternate
sources of supply. In recent years, the number of alternate sources of
supply have been reduced due to mergers within the aluminum industry.
Also, it may take a little longer to replace an extruded aluminum
supplier due to the fact that dies are required and would have to be
made. The Company routinely tries to keep at least three suppliers of
each shape so it has a backup supplier if necessary.
<PAGE>
3. There is a risk related to the loss or interruption in the supply of
bus conversion shells from the Company's sole supplier of these shells.
The Company purchases all of its bus conversion shells from Prevost Car
Company located in Canada. The Company does have insurance to cover
certain losses it may sustain due to fire or other catastrophe at
Prevost's plant and it may be able to purchase shells from other
manufacturers if necessary.
4. The Company uses one subcontractor to provide paint and graphic design
work to meet customer specifications on certain custom trailers and
specialty transporters. There is a risk to the timely delivery of these
trailers if there would be an unforeseen interruption in the
subcontractor's ability to provide these services or if the customer
delays providing the specifications to the subcontractor.
5. The Company has made increased use of leverage and incurred greater
interest and related expenses in each of the three years ended December
31, 1999. Increased debt has been incurred in connection with financing
operations and facilities expansions at the Featherlite Luxury Coach
Division as well as financing its increased working capital
requirements. The Company may not be able to increase its current
borrowing limits for working capital or obtain additional funding for
future capital expenditures without the consent of its primary lender
due to certain loan covenants related to leverage and fixed charge
coverage. Increased leverage and related expenses create a risk to
future operating results of the Company.
6. Featherlite is exposed to market risks related to changes in U.S. and
International interest rates. Substantially all of the Company's debt
bears interest at a variable rate. To a limited extent, the Company
manages its interest rate risk through the use of interest rate swaps.
As of December 31, 1999, the fair value of interest rate swaps with a
notional amount of $4.0 million was approximately $150,000. An increase
in interest rates by one percentage point would reduce the Company's
future annual net income by approximately $300,000 at current debt
levels.
Impact of Year 2000
The Company has completed readying its hardware and software programs
in its information technology (IT) and non-IT systems for the year 2000. The
cost of making these changes was approximately $70,000. All of the Company's
hardware and software have been properly using the year 2000 dates since
December 31, 1999. The Company is not aware of any significant problems
associated with year 2000 issues that would adversely impact it and has not had
any problems related to the procurement of materials and supplies from vendors
or obtaining orders from its dealers.
<PAGE>
Liquidity and Capital Resources
In 1999 the Company's cash flow from operations before working capital
changes increased to $6.3 million from $6.0 million in 1998. This improvement
resulted from an increase of $300,000 in net income in 1999 over 1998. This
operating cash flow was utilized to finance substantially all of the Company's
increased investment in working capital in 1999, including a $13.3 million
increase in inventories. This 21% increase in inventories is slightly higher
than the rate of increase in total sales in 1999, and substantially all of this
growth occurred in the motorcoach segment that had an overall sales increase of
39% in 1999. The Company expects this trend may continue as its total sales
continue to increase.
The Company has two external lines of credit to supplement its
internally generated cash flow. The Company has a revolving loan agreement with
Firstar Bank, Milwaukee, WI (Firstar) which expires in September 2002 and
provides a working capital line of credit equal to the lesser of $25 million or
a defined percentage of eligible trade accounts receivable and inventory. The
borrowings under this line averaged $15.8 million in 1999. At December 31, 1999,
$25.0 million was available to borrow on this line and $17.7 million was
outstanding. The Company also has a wholesale finance agreement with a financial
services company that provides up to $23.7 million in financing for new and used
motorcoaches held in inventory. Borrowings against this line averaged $19.7
million in 1999 and at December 31, 1999, $22.9 million was outstanding. Both of
these lines of credit contain financial covenants which the Company must comply
with as discussed in Note 5 to Consolidated Financial Statements. The Company
was in compliance with these covenants at December 31, 1999.
The Company's capital expenditures for plant and equipment totaled $6.1
million in 1999, including $4.6 million for the Sales and Service Center in
Sanford, Florida. These expenditures were primarily financed with additional
borrowings from banks as discussed in Note 5 to the Consolidated Financial
Statements. The Company also has available through Firstar various term notes
totaling $3 million to finance future real estate projects and equipment. As of
December 31, 1999, $835,000 was borrowed on these notes. In the fourth quarter
of 1999, the Company sold an aircraft for $2.9 million and paid off related debt
of a similar amount. It is expected that another aircraft of comparable cost
will be acquired in the first quarter of 2000 and will be financed with bank
borrowings. The Company has made a commitment to the City of Cresco to construct
a hanger facility at a cost of approximately $300,000 as part of an airport
expansion project expected to be completed in 2000. The Company is also
considering the addition of manufacturing and warehouse facilities at its Cresco
location at an approximate cost of $3 million, including equipment. These
projects, if commenced, would begin in the last half of the year 2000, pending
the approval of bank financing.
The Company believes that its current cash balances, cash generated
from operations and available borrowing capacity will be sufficient to fund
operations and capital requirements for the next year. Significant growth of the
Company may necessitate additional sources of financing if such funding cannot
be arranged with the Company's current lenders. Such funding may be in the form
of debt, debt with equity features or a secondary offering of common stock. No
assurance can be given that such funding will be available to the Company.
<PAGE>
As discussed in Note 6 to Consolidated Financial Statements, the
Company is contingently liable under certain dealer floor plan and retail
financing arrangements. These contingent liabilities total approximately $14.5
million at December 31, 1999. Also, the Company is self-insured for a portion of
certain health benefit and workers' compensation insurance claims. At December
31, 1999, the Company's maximum annual exposure under these programs was
approximately $4.0 million. The Company has obtained an irrevocable standby
letter of credit in the amount of $1.7 million in favor of the workers'
compensation claim administrator.
In October 1997, the Company signed a joint venture agreement with GMR
Marketing to form Featherlite/GMR Sports Group, LLC. In January 2000, GMR
purchased the Company's interest in the joint venture in an amount equal to the
Company's capital contributions and terminated the joint venture relationship.
The Company leases certain office and production facilities and
vehicles under various leases that expire at varying dates through fiscal year
2011 as described more fully in Note 6 to Consolidated Financial Statements.
Minimum lease payments for 2000 are expected to total $1.1 million. The Company
may lease a new sales and service center in North Carolina in 2000 from an
entity owned by Conrad Clement, Tracy Clement and Eric Clement, principal
shareholders of the Company. This would replace another facility now being
leased and would be used for selling new and used motorcoaches and to provide
maintenance services for motorcoaches and Featherlite trailers and transporters.
The terms and conditions of this lease have not yet been finalized but are
expected to be comparable to those of the existing facility lease. It is
expected this facility will be completed in the second half of 2000.
The Company is the subject of an Internal Revenue Service examination
for the years ended December 31, 1995, 1996 and 1997. The IRS has proposed
adjustments related to the treatment of various incentive grants received in
connection with the Company's building expansion in prior years. The Company
believes its position is valid and intends to vigorously defend it. Any
additional tax due will result in the creation of a current tax liability and a
reduction in deferred tax liabilities.
For the foreseeable future, the Company does not plan to pay dividends
but instead will follow the policy of reinvesting earnings in order to finance
the expansion and development of its business. As discussed in Note 5 to
Consolidated Financial Statements, the Company is a party to certain loan
agreements which prohibit the payment of dividends without the lender's consent.
<PAGE>
Balance Sheets
<TABLE>
<CAPTION>
Featherlite, Inc.
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 248 $ 188
Receivables 8,915 10,332
Inventories 74,632 61,373
Prepaid expenses 1,547 1,522
Deferred income taxes 1,159 1,107
- ----------------------------------------------------------------------------------------------
Total current assets 86,501 74,522
- ----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land and improvements 4,477 3,042
Buildings and improvements 11,662 8,887
Machinery and equipment 13,256 11,763
- ----------------------------------------------------------------------------------------------
29,395 23,692
Less - accumulated depreciation (9,515) (7,824)
- ----------------------------------------------------------------------------------------------
Net property and equipment 19,880 15,868
- ----------------------------------------------------------------------------------------------
GOODWILL AND OTHER ASSETS, net 13,403 16,398
- ----------------------------------------------------------------------------------------------
$119,784 $ 106,788
==============================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,770 $ 1,241
Other notes payable 22,919 17,936
Trade accounts payable 18,664 18,221
Accrued liabilities 6,405 5,720
Customer deposits 4,678 2,241
- ----------------------------------------------------------------------------------------------
Total current liabilities 54,436 45,359
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT:
Bank line of credit 17,740 17,939
Other debt, net of current maturities 12,823 12,975
- ----------------------------------------------------------------------------------------------
Total long-term debt 30,563 30,914
- ----------------------------------------------------------------------------------------------
DEFERRED GRANT INCOME 120 164
DEFERRED INCOME TAXES 939 808
- ----------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Note 6)
SHAREHOLDERS' INVESTMENT
Common stock - 6,510 and 6,475 shares outstanding 16,445 16,236
Additional paid-in capital 4,062 4,062
Retained earnings 13,219 9,245
- ----------------------------------------------------------------------------------------------
Total shareholders' investment 33,726 29,543
- ----------------------------------------------------------------------------------------------
$ 119,784 $106,788
==============================================================================================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
Statements of Operations And Shareholders' Investment
Featherlite, Inc.
Consolidated Statements of Operations
For the years ended December 31, 1999,
1998 and 1997 (In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 226,108 $ 190,874 $134,387
Cost of sales 190,065 160,364 111,764
- ---------------------------------------------------------------------------------------------------------
Gross profit 36,043 30,510 22,623
Selling, general and administrative expenses 26,574 21,999 15,794
Amortization of intangibles 520 386 204
- ---------------------------------------------------------------------------------------------------------
Income from operations 8,949 8,125 6,625
- ---------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (3,768) (2,961) (1,800)
Gain on aircraft and property sales 434 133 264
Other income, net 795 690 382
- ---------------------------------------------------------------------------------------------------------
Total other expense (2,539) (2,138) (1,154)
- ---------------------------------------------------------------------------------------------------------
Income before taxes 6,410 5,987 5,471
Provision for income taxes 2,436 2,337 2,189
- ---------------------------------------------------------------------------------------------------------
Net income $ 3,974 $ 3,650 $ 3,282
=========================================================================================================
Net income per share (basic and diluted) $ 0.61 $ 0.56 $ 0.52
=========================================================================================================
</TABLE>
Consolidated Statements of Shareholders' Investment
For the years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
--Common Stock--
- ----------------------------------------------------------------------------------------------------------
Outstanding Additional Retained
Shares Amount Paid in Capital Earnings
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 6,255 $14,220 $4,062 $ 2,313
Net income for the period 3,282
- ----------------------------------------------------------------------------------------------------------
Balance December 31, 1997 6,255 $14,220 $4,062 $ 5,595
Net income for the period 3,650
Issuance of common stock 220 2,016
- ----------------------------------------------------------------------------------------------------------
Balance December 31, 1998 6,475 $16,236 $4,062 $ 9,245
Net income for the period 3,974
Issuance of common stock 35 209
- ----------------------------------------------------------------------------------------------------------
Balance December 31, 1999 6,510 $16,445 $4,062 $ 13,219
==========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Statements of Cash Flows
Featherlite, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $3,974 $3,650 $3,282
Adjustments to reconcile net income to net cash from (used for)
operating activities -
Depreciation and amortization 2,483 2,121 1,610
Amortization of prepaid advertising 277 287 254
Grant income (44) (73) (73)
Provision for deferred taxes 79 152 (260)
Gain on sales of aircraft and other property (434) (133) (264)
Changes in current operating items, net of effect of
business acquisitions
Receivables 1,417 (3,179) (268)
Inventories (13,479) (10,698) (15,093)
Prepaid expenses (76) (144) 104
Trade accounts payable 443 (278) 2,208
Accrued liabilities 685 616 1,400
Customer deposits 2,437 (3,197) 1,428
Income taxes payable - (870) 630
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for operations (2,238) (11,746) (5,042)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired - (374) -
Investment in joint venture, net of equity in earnings (35) 9 (11)
Purchases of property and equipment (6,071) (3,034) (2,973)
Proceeds from sale of equipment and facilities 303 487 57
Purchase of aircraft for resale (7,513) (2,901) (6,839)
Proceeds from sale of aircraft 10,482 3,074 3,166
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,834) (2,739) (6,600)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings on other notes payable 4,983 4,157 4,288
Net borrowings (repayments) on bank line of credit (199) 8,138 700
Proceeds from other long-term debt 11,965 10,857 12,641
Repayment of other long-term debt (11,588) (10,115) (4,611)
Payment of loan acquisition costs (88) - -
Proceeds from issuance of common stock 59 4 -
- -----------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 5,132 13,041 13,018
- -----------------------------------------------------------------------------------------------------------------------
Net cash increase (decrease) for period 60 (1,444) 1,376
Cash, beginning of the period 188 1,632 256
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of the period $ 248 $ 188 $1,632
=======================================================================================================================
Supplemental disclosures:
Interest payments, including $111 capitalized in 1999 $3,820 $2,810 $1,675
Trailers exchanged for advertising 32 419 664
Income tax payments 2,357 3,206 1,819
- -----------------------------------------------------------------------------------------------------------------------
Acquisition of business
Fair value of assets acquired - (18,639) -
Liabilities assumed - 16,253 -
Issuance of common stock - 2,012 -
- -----------------------------------------------------------------------------------------------------------------------
Cash used $ - $ (374) $ -
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Nature of Business
Featherlite, Inc. is engaged in the manufacture and distribution of
various types of specialty trailers and luxury motorcoaches as well as related
parts and accessories. Trailers are primarily sold to authorized dealers
throughout the United States and Canada. Terms and conditions for business are
defined by standard agreements with each authorized dealer. Luxury motorcoaches
are primarily sold directly to end-user customers. Featherlite Aviation Company,
a wholly-owned subsidiary, is involved in the purchase and resale of used
business class aircraft.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements
include the accounts of Featherlite, Inc. and its wholly-owned subsidiary,
Featherlite Aviation Company, which are referred to herein as the Company. All
material intercompany accounts and transactions are eliminated in consolidation.
Fair Values of Financial Instruments: The carrying values of cash,
accounts receivable and payable, short-term debt and accrued liabilities
approximate fair value due to the short-term maturities of these assets and
liabilities. The carrying value of long-term debt, including current maturities,
approximates its fair value because the related interest rates either fluctuate
with the lending bank's current prime rate or approximate current rates of debt
of a similar nature or maturity.
Financial Statement Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. The more significant estimates are used for such items as:
valuation of used trailer and motorcoach inventory, depreciable lives of
property and equipment, allowance for doubtful accounts, and reserves for excess
inventory, warranty and self insurance. As better information becomes available
or as actual amounts are determinable, the recorded estimates are revised.
Ultimate results could differ from these estimates.
Concentrations: The Company purchases all of its conversion motorcoach
shells from one supplier. Although there are a limited number of manufacturers
of motorcoach shells, management believes that the other suppliers could provide
similar shells on comparable terms. A change in suppliers, however, could cause
a delay in manufacturing and a possible loss of sales, which would affect
operating results adversely.
Receivables: Receivables are stated net of an allowance for doubtful
accounts of $65,000 and $143,000 at December 31, 1999 and 1998, respectively.
Inventories: Inventories are stated at the lower of cost, as determined
on a first-in, first-out (FIFO) basis, or market and includes materials, labor
and overhead costs. Inventories were as follows at December 31, 1999 and 1998
(in thousands):
1999 1998
- ---------------------------------------------------------------
Raw materials $14,195 $12,571
Work in progress 21,476 18,817
Finished trailers/motorcoaches 38,961 29,985
- ---------------------------------------------------------------
Total $74,632 $61,373
===============================================================
Property and Equipment: Property and equipment are stated at cost, while repair
and maintenance items are charged to expense as incurred. Depreciation is
provided for financial reporting purposes using straight-line and accelerated
methods over estimated useful lives of 31 to 39 years for buildings and
improvements, 15 years for land improvements and 5 to 7 years for machinery and
equipment.
<PAGE>
Long-lived Assets: The Company assesses long-lived assets for
impairment under SFAS Statement No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of." Under those
rules, property and equipment, goodwill associated with assets acquired in a
purchase business combination, idle facilities held for sale and any other
long-lived assets are included in the impairment evaluations when events or
circumstances exist that indicate the carrying amount of those assets many not
be recoverable.
Product Warranty: The Company's products are covered by product
warranties ranging from one to six years after the date sale. At the time of
sale, the Company recognizes estimated warranty costs, based on prior history
and expected future claims, by a charge to cost of sales.
Revenue Recognition: The Company recognizes revenue from the sale of
trailers and motorcoaches when title and risks of ownership are transferred to
the customer, which generally is upon shipment or customer pick-up. A customer
may be invoiced for and receive title prior to taking physical possession when
the customer has made a fixed, written commitment to purchase, the trailer or
motorcoach has been completed and is available for pick-up or delivery, and the
customer has requested the Company to hold the trailer or motorcoach until the
customer determines the most economical means of taking physical possession.
Upon such a request, the Company has no further obligation except to segregate
the trailer or motorcoach, issue its Manufacturer's Statement of Origin, invoice
the customer under normal billing and credit terms and hold for a short period
of time as is customary in the industry, until pick-up or delivery. Products are
built to customer specification and no right of return or exchange privileges
are granted. Accordingly, no provision for sales allowances or returns is
recorded.
Revenue from sales of parts is recognized when the part has been
shipped. Revenue from the delivery and servicing of trailers and motorcoaches is
recognized when the service is performed.
Delivery Income (Expenses): The Company delivers completed trailers to
its customers. Delivery revenue is included in net sales in the accompanying
consolidated statements of operations and was $3.2 million, $2.6 million, and
$2.5 million for 1999, 1998, and 1997, respectively. The corresponding delivery
expense is included in selling, general and administrative expenses and was $3.7
million in 1999, $3.2 million in 1998, and $2.7 million in 1997.
Deferred Grant Income: The Company recognizes revenue related to grants
received from various governmental units over the life of the assets to which
the funding relates or during the period in which the expense occurs for which
grants were received. Revenue recognition begins when there is reasonable
assurance that all conditions of the grants, principally job creation goals,
have been met.
Income Taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Note 3. Goodwill and Other Assets
Goodwill and other assets consist of the following at December 31, 1999
and 1998 (in thousands):
1999 1998
-----------------------
Goodwill, net $ 8,955 $ 9,126
Aircraft held for resale 4,088 6,676
Property held for sale 76 231
Advertising and other 284 365
- ---------------------------------------------------------------
Total $13,403 $ 16,398
===============================================================
<PAGE>
Goodwill: As discussed in Note 11, the excess of the total acquisition
cost of Vantare International, Inc. (Vantare) and Mitchell Motorcoach Sales,
Inc. (Vogue) and other prior acquisitions, over the fair value of the net assets
acquired is being amortized on a straight-line basis over periods of up to 20
years. Amortization was $510,000 in 1999, $386,000 in 1998 and $197,000 in 1997
and accumulated amortization was $1.2 million and $696,000 as of December 31,
1999 and 1998, respectively.
Aircraft Held for Resale: The Company is a licensed aircraft dealer and
markets used business-class aircraft. Aircraft purchased for resale are stated
at cost. The Company periodically evaluates the aircraft's net realizable value
and, if necessary, adjusts the carrying value. Gain or loss on the sale of
aircraft is included in other income (expense) during the period in which the
aircraft is sold. Aircraft held by the Company for resale are classified as
noncurrent as prior history indicates the aircraft may not be sold within twelve
months.
Property Held for Sale: The Company owns land and buildings at a site
that was previously used as its corporate headquarters and delivery/maintenance
facility. The net book value of these facilities was previously reclassified
from property and equipment to property held for sale, net of a provision to
reduce the facilities to their net realizable value. Depreciation of these
facilities ended at the time of reclassification. In 1998, a substantial part of
the property was sold on a contract for deed which was paid in full in 1999. The
remaining balance represents land and a warehouse.
Advertising and Other: The Company exchanged trailers and coaches for
future personal service, promotional and advertising services of an equivalent
value. These contracts were capitalized and are being amortized over the period
the services will be rendered. Amortization of these agreements to advertising
expense was $277,000 in 1999; $287,000 in 1998; and $254,000 in 1997. Total
advertising expense was $2.2 million in 1999; $2.0 million in 1998; and $1.4
million in 1997.
New Accounting Pronouncement: In June 1998, the Financial Accounting
Standards Board Released Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 also required that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains or losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No.133 (as amended) is effective for all quarters of
fiscal years beginning after June 15, 2000. While the Company does not expect
the adoption to materially impact its results of operations or financial
position, adoption of SFAS No. 133 could increase volatility in earnings for
periods subsequent to adoption.
Note 4: Income Tax Matters
The components of the income tax provision for the years ended December
31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
- --------------------------------------------------------------
Current
Federal $2,107 $1,962 $ 2,145
State 250 223 304
- -------------------------------------------------------------
Total $2,357 $2,185 $ 2,449
- -------------------------------------------------------------
Deferred
Federal $70 $137 $ (229)
State 9 15 (31)
- -------------------------------------------------------------
79 152 (260)
- -------------------------------------------------------------
Total $2,436 $2,337 $2,189
=============================================================
<PAGE>
A reconciliation of the provision for income taxes at the federal
statutory rate to the provision for income taxes in the consolidated financial
statements for the years ended December 31, 1999, 1998 and 1997 is as follows
(in thousands):
1999 1998 1997
- --------------------------------------------------------------
Provision at federal
statutory rate $2,179 $2,036 $1,910
State income taxes, net
of Federal income tax
benefit 171 187 253
Other 86 114 26
- --------------------------------------------------------------
Total $2,436 $2,337 $2,189
==============================================================
Deferred tax assets and liabilities consist of the following components
as of December 31, 1999 and 1998 (in thousands):
1999 1998
- -------------------------------------------------------------
Non-current deferred tax liabilities:
Depreciation $ (939) $ (808)
- -------------------------------------------------------------
Current deferred tax assets:
Accrued expenses 479 480
Accrued warranty reserve 363 289
Inventory allowances 253 261
Receivable allowances 64 77
- ------------------------------------------------------------
Total current 1,159 1,107
- ------------------------------------------------------------
Net deferred tax asset $ 220 $ 299
============================================================
<PAGE>
The Company's income tax returns for the years ended December 31, 1997,
1996 and 1995 have been examined by the Internal Revenue Service (IRS). The IRS
has proposed adjustments related to the treatment of various incentive grants
received in connection with the Company's building expansion in prior years. The
Company believes its position is valid and intends to vigorously defend it. No
assurance can be given that the Company will be successful in sustaining its
treatment of these grants. Any additional tax will result the creation of a
current income tax liability and a reduction in the deferred income tax
liability.
Note 5. Financing Arrangements
Other Notes Payable: Other notes payable primarily includes the unpaid
balances of the Company's motorcoach wholesale financing agreement with a
financial services company. This wholesale finance agreement provides for a
$23.7 million line of credit to finance completed new and used motorcoaches held
in inventory. Amounts borrowed are limited to defined percentages of eligible
inventory. Borrowings bear interest at prime (8.50% at December 31, 1999) and
are secured by the financed motorcoaches and other assets of the Company. The
agreement includes, among other covenants, maintaining of defined levels of
tangible net worth, leverage and working capital. The Company was in compliance
with these covenants as of December 31, 1999. This agreement is subject to
cancellation by either party on thirty days written notice after October 31,
1999. Outstanding borrowings against this note were $22.9 million at December
31, 1999.
Bank Line of Credit: In 1998, the Company entered into a Revolving Loan
and Security Agreement with Firstar Financial Services, a division of Firstar
Bank Milwaukee, WI. (Firstar), and paid off all of its borrowings under its
existing Credit Agreement with Firstar Bank of Iowa, N.A. The new agreement
provides a working capital line of credit equal to the lesser of $25 million or
a defined percentage of eligible trade accounts receivable and inventory.
Borrowings under this agreement, which bear interest at prime less .75% (7.75%
at December 31, 1999), are secured by substantially all assets of the Company.
The agreement includes, among other covenants, maintenance of defined levels of
tangible net worth and earnings before interest, taxes, depreciation and
amortization, and a fixed charge coverage ratio. The agreement also prohibits
the payment of dividends without Firstar's prior consent. The Company was in
compliance with these covenants as of December 31, 1999. Availability under this
line was $25 million at December 31, 1999, of which $17.7 million was borrowed.
These borrowings are classified as long-term debt as the agreement matures and
is subject to renewal on September 24, 2002.
<PAGE>
Other Long-Term Debt: Other long-term debt consisted of the following
at December 31, 1999 and 1998 (in thousands):
1999 1998
- -------------------------------------------------------------------
Bank notes payable; interest at prime less
.75% (7.75% at December 31, 1999)
payable in varying monthly installments
through 2008; contains same collateral
and covenant provisions as Revolving Loan
and Security Agreement $ 7,552 $ 7,817
Bank notes, interest at LIBOR plus 1.80
(8.28% at December 31, 1999) payable in
monthly installments through 2004;
collateralized by real estate 4,348 765
Bank notes payable; interest at prime
plus .75% adjusted quarterly (9.25% at
December 31, 1999); payable in
varying monthly installments through
January, 2001; collateralized by aircraft 2,412 5,215
Notes and capitalized leases to banks and
others, interest at 11.5%, payable in
varying monthly installments through
2003; collateralized by real estate 281 419
- -----------------------------------------------------------------
Total 14,593 14,216
Less current maturities (1,770) (1,241)
- -----------------------------------------------------------------
$12,823 $12,975
==================================================================
Interest Rate Swap Agreement: The Company is party to an interest rate
swap with First Union Bank. The agreement hedges a portion of its exposure to
fluctuations on one bank note. This agreement terminates in December 2003 and is
accounted for as a hedge, with any realized gains or losses recognized currently
as an adjustment to interest expense. The notional amount of the swap
transaction is $4.0 million at a fixed rate of 7.34%. At December 31, 1999, the
fair market value of the interest rate swap was approximately $150,000.
Annual maturities of total long-term debt during the five years
subsequent to December 31, 1999 are as follows (in thousands):
2000 $ 1,770
2001 1,741
2002 21,767
2003 4,596
2004 510
Thereafter $ 1,949
Note 6. Commitments and Contingencies
Pursuant to dealer inventory floor plan financing arrangements, the
Company may be required, in the event of default by a financed dealer, to
purchase certain repossessed products from the financial institutions or to
reimburse the institutions for unpaid balances including finance charges, plus
costs and expenses. The Company was contingently liable under these arrangements
for a maximum amount of $14.5 million at December 31, 1999.
The Company has three separate agreements which provided approximately
$870,000 for job training purposes from the state of Iowa. The amounts are to be
repaid, together with interest, over a ten-year period from state withholding
taxes on employees at the Company's Iowa facilities. The Company may be required
to provide funds for the repayment of these training credits if sufficient
withholding and unused training funds are not available.
The Company is partially self-insured for a portion of certain health
benefit and workers' compensation insurance claims. The Company's maximum annual
claim exposure under these programs is approximately $4.0 million, including
$1.3 million accrued for estimated unpaid claims at December 31, 1999. The
Company has obtained an irrevocable standby letter of credit in the amount of
$1.7 million in favor of the workers compensation claims administrator to
guaranty settlement of claims.
<PAGE>
The Company leases certain office and production facilities under
various operating leases that expire at varying dates through 2011. Rental
expense under these operating leases for the years ended December 31, 1999, 1998
and 1997 was approximately $1.0 million, $774,000, and $327,000, respectively.
The approximate annual minimum future lease payments under these operating
leases for the five years after December 31, 1999 are as follows (in thousands):
2000 $ 1,074
2001 892
2002 776
2003 758
2004 $ 739
The Company, in the course of its business, has been named as a
defendant in various legal actions. These actions are primarily 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 consultation with counsel, that the resolution of such suits will not have
a material adverse effect on the financial position of the Company.
The Company has obtained fixed price commitments from certain suppliers
for a substantial portion of its expected aluminum requirements in 2000 to
reduce the risk related to fluctuations in the cost of aluminum, the principal
commodity used in the Company's trailer segment. In certain instances there may
be a carrying charge added to the fixed price if the Company requests a deferral
of a portion of its purchase commitment to the following year.
Note 7. Deferred Grant Income
Deferred grant income consists of forgivable loans (grants) in an
aggregate amount of approximately $2 million provided to the Company by various
governmental units to assist with the establishment of the Company's
headquarters and production facility in Cresco, Iowa and its Nashua, Iowa
production facility. These loans are wholly or partially forgivable based on
fulfillment and retention of job creation goals through June 1999. The Company
is awaiting a forgiveness letter on the final grant. These grants are being
recognized as income as they are earned. Cumulative income recognized for these
grants was approximately $1.9 million at December 31, 1999, $1.9 million at
December 31, 1998, and $1.8 million at December 31, 1997.
Note 8. Employee Retirement Savings Plan
The Company sponsors a 401(k) employee retirement savings plan which
covers substantially all employees after one year of employment. The Company may
annually elect to match a portion of the each employee's contributions and has
elected to match a portion of the first 4 percent of such contributions in each
of the three years ended December 31, 1999. Its contributions to the plan were
$180,000, $128,000 and $102,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
Note 9. Related-Party Transactions
The Company recorded sales of approximately $4.0 million, $3.3 million
and $2.3 million in 1999, 1998, and 1997, respectively, to authorized
Featherlite dealers and Featherlite Credit Corporation which are related
entities under common ownership. The Company had a $57,000 receivable from these
related parties at December 31, 1999.
The Company has leased various equipment from certain shareholders
during current and prior periods. Payments related to these leases totaled
$24,000 in 1999, $24,000 in 1998, and $57,000 in 1997. During 1999, the Company
also leased various aircraft from certain shareholders. Payments for leased
aircraft totaled $77,000.
In 1997, the Company entered into agreements to compensate Featherlite
Credit Corporation for various credit-related services it provided for the
Company, including the development of the Featherlite Master Lease program.
Expenses under this agreement totaled $42,000 in 1997. Featherlite Credit
Corporation reimbursed the Company $58,000, $58,000, and $96,000 for salaries
and other costs paid by the Company in 1999, 1998, and 1997, respectively.
<PAGE>
Note 10. Shareholders' Investment
Capitalization: The Company's authorized capital is 40 million shares
of no par common stock and 10 million shares of undesignated stock. No shares of
undesignated stock are outstanding and no rights or preferences have been
established for these shares by the Board of Directors.
Stock Option Plan: At December 31, 1998, the Company reserved 1,100,000
shares of common stock for issuance as options under the Company's 1994 Stock
Option Plan (the Plan). These options may be granted to employees and directors
at the discretion of the Board of Directors, which may grant either incentive
stock options or non-statutory stock options.
All incentive options must be granted at no less than 100 percent of
the fair market value of the stock on the date of grant (110 percent for
employees owning more than 10 percent of the outstanding stock on the date of
grant). The options expire at varying dates, but do not exceed ten years from
date of grant and are non-transferable.
Grants under the Plan are accounted for using APB Opinion No. 25 and
related interpretations. No compensation cost has been recognized for grants
under the Plan. Had compensation cost for the Plan been based on the grant date
fair values of awards (the method prescribed by SFAS No. 123) reported net
income and earnings per share would have been reduced to the pro forma amounts
shown below.
1999 1998 1997
- --------------------------------------------------------------
Net income (000's)
As reported $ 3,974 $3,650 $ 3,282
Pro forma 3,764 3,263 3,164
- -------------------------------------------------------------
Basic earnings per share
As reported $ .61 $ .56 $ .52
Pro forma .58 .51 .51
- -------------------------------------------------------------
Diluted earnings per share
As reported $ .61 $ .56 $ .52
Pro forma .58 .50 .50
- -------------------------------------------------------------
The fair value of each option has been estimated at the grant date using
the Black-Scholes option-pricing model with the following assumptions for grants
in 1999, 1998, and 1997:
1999 1998 1997
- --------------------------------------------------------------
Dividend Rate 0% 0% 0%
Price Volatility - 5 year options 58.4% 45.2% 47.5%
Price Volatility - 10 year options 59.2% 60.8% 47.5%
Risk-free interest rate - 5 year
options 5.5% 5.5% 6.3%
Risk-free interest rate - 10 year
options 5.6% 4.7% 6.5%
Expected life - 5 year options 5 yrs. 5 yrs. 5 yrs.
Expected life - 10 year options 10 yrs. 10 yrs. 10 yrs.
<PAGE>
A summary of the status of the Plan at December 31, 1999, 1998, and
1997 and changes during the years ended on those dates are as follows:
Average
1997 Shares Exercise Price
- ------------------------------------------------------------------
Outstanding, beginning of year 249,380 $ 6.02
Granted 62,000 6.77
Exercised/forfeited - -
- ------------------------------------------------------------------
Outstanding, end of year 311,380 $ 6.17
- ------------------------------------------------------------------
Exercisable at end of year 228,380
- ------------------------------------------------------------------
Weighted average fair value per
share of options granted
during the year $3.87
- -----------------------------------------------------------------
1998
- ------------------------------------------------------------------
Outstanding, beginning of year 311,380 $ 6.17
Granted 218,500 6.24
Exercised/forfeited (500) 6.00
- ------------------------------------------------------------------
Outstanding, end of year 529,380 $ 6.20
Exercisable at end of year 308,180
Weighted average fair value per
share of options granted
during the year $4.28
- ------------------------------------------------------------------
1999
- ------------------------------------------------------------------
Outstanding, beginning of year 529,380 $ 6.20
Granted 27,000 5.99
Exercised/forfeited (20,220) 6.96
- ------------------------------------------------------------------
Outstanding, end of year 536,160 $ 6.16
- ------------------------------------------------------------------
Exercisable at end of year 371,260
- ------------------------------------------------------------------
Weighted average fair value per
share of options granted
during the year $3.63
- ------------------------------------------------------------------
<PAGE>
At December 31, 1999, the options outstanding have exercise prices
ranging from $5.50 to $10.00 and a weighted average remaining contractual life
of 6.6 years. All but 18,668 shares are exercisable at prices ranging from $5.50
to $7.25. Substantially all of the non-vested options are expected to eventually
vest.
Net Income Per Share: Following is a reconciliation of the weighted
average shares outstanding used to determine basic and diluted net income per
share for the years ended December 31, 1999, 1998, and 1997 ( in thousands,
except per share data):
1999 1998 1997
- --------------------------------------------------------------
Net income available to
common shareholders $ 3,974 $ 3,650 $ 3,282
- --------------------------------------------------------------
Weighted average number
of shares outstanding - basic 6,506 6,462 6,255
Dilutive effect of:
Stock Options 14 78 55
Contingent earnout shares 25 - -
Warrants - 19 5
- --------------------------------------------------------------
Weighted average number of
shares outstanding - diluted 6,545 6,559 6,315
- --------------------------------------------------------------
Net income per share - basic
and diluted $ .61 $ .56 $ .52
- --------------------------------------------------------------
Note 11. Business Combinations
In May 1998, the Company acquired substantially all the assets of
Vogue, a privately held manufacturer and converter of purchased bus shells into
luxury motorcoaches, in exchange for 219,551 shares of Company common stock with
an aggregate value of $2.0 million and the assumption of approximately $16.2
million of liabilities. Additional Company common stock with an aggregate value
of $4.0 million may be issued if Vogue achieves certain defined earnings levels
through December 31, 2001. As of December 31, 1999, these earnings levels have
not been achieved and no additional shares earned. This acquisition was
accounted for as a purchase and, accordingly, results of operations have been
included in the Company's operating statements since the acquisition date.
<PAGE>
The following unaudited pro forma summary presents consolidated results
of operations of the Company for the years ended December 31, 1998, and 1997 as
if the business combination had occurred on January 1, 1997 (in thousands,
except for per share data):
1998 1997
- ---------------------------------------------------------------
Revenue $ 203,612 $ 169,040
Net earnings 3,372 2,703
Earnings per share - diluted $ .51 $ .41
- ---------------------------------------------------------------
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 $6.1 million ($10.1 million if additional shares issued) to be
amortized over 20 years.
In 1996, the Company acquired all the assets of Vantare, a
privately-held converter of purchased bus shells into luxury motorcoaches, in
exchange for 300,000 shares of common stock. An additional 100,000 shares of the
Company's common stock may be issued if Vantare achieves certain defined net
earnings, as determined annually, through December 31, 2000. As of December 31,
1999, 50,000 additional shares have been earned and 25,000 of these shares
issued in 1999. An additional 25,000 shares will be issued in 2000. These shares
have been accounted for as additional purchase price when issued.
The former owner of Vantare is now a shareholder and employee of the
Company. In connection with the purchase of Vantare, the Company entered into a
non-compete agreement with the former owner that prohibits competition for a
period of three years after termination as an employee. Consideration for this
agreement not to compete is in the form of the right to purchase three
motorcoaches by the former owner of Vantare, at the Company's cost to
manufacture. One such coach was purchased from the Company in 1999. The former
owner of Vogue has a similar arrangement, although no coaches have been
purchased yet.
<PAGE>
Note 12. Segment Reporting
During fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 "Disclosure About Segments of an Enterprise and
Related Information," which requires that companies disclose segment data based
on how management makes decisions about allocating resources to segments and
measuring their performance. The Company has two principal business segments
that manufacture and sell trailers and luxury motorcoaches to many different
markets, including recreational, entertainment and agriculture. The Company's
sales are not materially dependent on a single customer or small group of
customers. Management evaluates the performance of each segment based on income
before taxes. Beginning in 1999, the Company began allocating corporate selling
and administrative expenses to each segment. Pro forma allocations have been to
each segment for the years 1998 and 1997, also, to make the segment operating
results comparable. The following table shows the Company's business segments
and related financial information for the years ended December 31, 1999, 1998
and 1997 (in thousands):
<TABLE>
<CAPTION>
Corporate
Trailers Motorcoaches and other Total
1999 -------- ------------ --------- -----
- ----
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers $117,896 $ 108,212 $ - $ 226,108
Interest expense 508 2,896 364 3,768
Depreciation and amortization 1,047 898 538 2,483
Income (loss) before taxes 7,270 (344) (516) 6,410
Identifiable assets 36,693 72,386 10,705 119,784
Capital expenditures 795 4,686 590 6,071
1998
- ----
Revenues from unaffiliated customers $113,017 $ 77,857 $ - $190,874
Interest expense 920 1,601 440 2,961
Depreciation and amortization 1,072 546 503 2,121
Income (loss) before taxes 5,404 1,623 (1,040) 5,987
Identifiable assets 41,605 54,430 10,753 106,788
Capital expenditures 1,120 881 1,033 3,034
1997
- ----
Revenues from unaffiliated customers $ 99,703 $ 34,684 $ - $134,387
Interest expense 839 574 387 1,800
Depreciation and amortization 713 270 627 1,610
Income (loss) before taxes 6,769 (303) (995) 5,471
Identifiable assets 39,491 21,882 14,135 75,508
Capital expenditures 1,382 588 1,003 2,973
</TABLE>
<TABLE>
<CAPTION>
Geographic information for the same years is as follows (in thousands):
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from unaffiliated customers
United States $221,710 $186,197 $129,569
Canada and other regions 4,398 4,677 4,818
- -----------------------------------------------------------------------------------------------------------------------
Consolidated $226,108 $190,874 $134,387
=======================================================================================================================
Long-lived assets
United States $ 33,283 $ 32,266 $ 25,228
Canada and other regions - - -
- -----------------------------------------------------------------------------------------------------------------------
Consolidated $ 33,283 $ 32,266 $ 25,228
=======================================================================================================================
</TABLE>
The accounting policies applied to determine segment information are the
9same as those described in the summary of significant accounting
policies.
<PAGE>
Report of Independent Public Accountants
To Featherlite, Inc.
We have audited the accompanying consolidated balance sheet of
Featherlite, Inc. (a Minnesota corporation) and subsidiary as of December 31,
1999 and the related statements of operations, shareholders' investment and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of
Featherlite, Inc. and subsidiary as of December 31, 1998 and 1997 were audited
by other auditors whose report dated February 8, 1999 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Featherlite,
Inc. and subsidiary as of December 31, 1999 and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 4, 2000
<PAGE>
Stock Market Information
The Nasdaq Stock Market
Symbol: FTHR
As of February 15, 2000, there were approximately 237
shareholders of record and approximately 2,100 beneficial
shareholders.
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports incorporated by reference in this Form 10-K, into the company's
previously filed Registration Statement File Nos. 33-90860, 333-65647 and
333-75255.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 28, 2000
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-90860 and No. 333-75255) of the Featherlite Inc.
1994 Stock Option Plan and Registration Statement on Form S-3 (No. 333-65647) of
our report, dated February 8, 1999, on the consolidated financial statements of
Featherlite Inc., which report is included in the Annual Report on Form 10-K for
the year ended December 31, 1999.
/s/ MCGLADREY & PULLEN, LLP
Rochester, Minnesota
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 248
<SECURITIES> 0
<RECEIVABLES> 8,915
<ALLOWANCES> 0
<INVENTORY> 74,632
<CURRENT-ASSETS> 86,501
<PP&E> 29,395
<DEPRECIATION> (9,515)
<TOTAL-ASSETS> 119,784
<CURRENT-LIABILITIES> 54,436
<BONDS> 30,563
0
0
<COMMON> 16,445
<OTHER-SE> 17,281
<TOTAL-LIABILITY-AND-EQUITY> 119,784
<SALES> 226,108
<TOTAL-REVENUES> 226,108
<CGS> 190,065
<TOTAL-COSTS> 27,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,768
<INCOME-PRETAX> 6,410
<INCOME-TAX> 2,436
<INCOME-CONTINUING> 3,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,974
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.61
</TABLE>
