<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File Number: 0-25038
----------------
THOMPSON PBE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4215913
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4553 GLENCOE AVENUE, SUITE 200
MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 306-7112
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 as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES X NO
--- ---
As of May 9, 1997, there were 8,645,084 shares of common stock outstanding.
Total number of sequential pages: 35
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1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash .................................................................... $ 74 $ 482
Accounts receivable (net of allowances
of $1,048 and $1,018) .................................................. 20,011 19,741
Inventory ............................................................... 32,153 31,440
Prepaid expenses and other current assets ............................... 4,443 4,505
Income tax refund receivable ............................................ 1,435 1,435
Deferred income taxes ................................................... 1,485 1,485
--------- ---------
Total current assets ................................................... 59,601 59,088
Property and equipment, net ............................................... 7,837 7,430
Intangible assets, net .................................................... 62,032 57,403
Other assets .............................................................. 303 459
--------- ---------
$ 129,773 $ 124,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and obligations ....................... $ 8,021 $ 7,013
Accounts payable ........................................................ 20,644 13,280
Accrued expenses and other current liabilities .......................... 7,018 8,546
--------- ---------
Total current liabilities .............................................. 35,683 28,839
Long-term debt and obligations, net ....................................... 42,671 44,307
Stockholders' equity:
Common stock ............................................................ 9 9
Additional paid-in capital .............................................. 61,121 61,479
Accumulated deficit ..................................................... (9,711) (10,254)
--------- ---------
Total stockholders' equity ............................................. 51,419 51,234
--------- ---------
$ 129,773 $ 124,380
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales ....................................... $51,441 $41,981 $99,209 $79,126
Cost of sales ................................... 33,727 26,479 64,300 49,678
------- ------- ------- -------
Gross profit .................................... 17,714 15,502 34,909 29,448
------- ------- ------- -------
Selling, general and administrative expenses .... 14,806 12,231 29,374 23,449
Depreciation .................................... 545 436 1,032 855
Amortization of intangible assets ............... 735 525 1,442 1,008
Interest expense ................................ 1,055 542 2,102 886
------- ------- ------- -------
Total ..................................... 17,141 13,734 33,950 26,198
------- ------- ------- -------
Income before provision for income taxes ........ 573 1,768 959 3,250
Provision for income taxes ...................... 252 734 416 1,349
------- ------- ------- -------
Net income ...................................... $ 321 $ 1,034 $ 543 $ 1,901
======= ======= ======= =======
Per Share Data:
Net income per common and common
equivalent share .............................. $ 0.04 $ 0.12 $ 0.06 $ 0.21
Weighted average common and
common equivalent shares ...................... 8,693 8,903 8,732 8,861
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
THOMPSON PBE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 543 $ 1,901
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 2,474 1,863
Changes in operating assets and liabilities ...... 4,541 (5,697)
-------- --------
Net cash provided by (used for) operating
activities ....................................... 7,558 (1,933)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................ (1,168) (994)
Cash paid to acquire companies ..................... (4,870) (11,064)
Increase in other assets ........................... 10 (26)
-------- --------
Net cash used for investing activities ............. (6,028) (12,084)
-------- --------
Cash flows from financing activities:
Net borrowings under line of credit ................ 190 16,092
Payment of financing fees and costs ................ (150) --
Repayment of long term debt and obligations ........ (1,826) (34,431)
Proceeds from payment of notes due from officer..... 146 --
Repurchase of common stock ......................... (426) --
Net proceeds from issuance of common stock ......... 128 33,225
-------- --------
Net cash provided by (used for) financing activities (1,938) 14,886
-------- --------
Net increase (decrease) in cash .................... (408) 869
Cash, beginning of period .......................... 482 665
-------- --------
Cash, end of period ................................ $ 74 $ 1,534
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL
The consolidated condensed financial statements include the accounts of
Thompson PBE, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. The interim consolidated condensed financial
statements are unaudited. In the opinion of management, such financial
statements include all adjustments, consisting of only normal recurring
entries, necessary for a fair presentation of the Company's financial position,
results of operations and cash flows. These consolidated condensed financial
statements and the accompanying notes should be read in conjunction with the
audited consolidated financial statements and the accompanying notes for the
fiscal year ended September 30, 1996 included in the Company's Annual Report on
Form 10-K. The results of operations for the three-month and six-month periods
presented are not necessarily indicative of results that may be expected for the
full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change of Fiscal Year - The Company changed its fiscal year end from
September 30 of each year to a 52/53 week fiscal year that ends on the Saturday
closest to September 30 of each year. The change became effective for the 1997
fiscal year which began on October 1, 1996 and which will end on September 27,
1997. For simplicity of presentation, the Company has described the thirteen
weeks and twenty-six weeks ended March 29, 1997 as the three months and six
months ended March 31, 1997.
3. COMPUTATION OF EARNINGS PER SHARE
Net income per share information is computed using the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares from stock options and warrants using the treasury stock method. Under
this method, primary net income per share is computed as if options and warrants
were exercised at the beginning of the period (or at time of issuance, if later)
and as if the funds obtained thereby were used to purchase common stock at the
average fair value per common share during the period.
4. STATEMENTS OF CASH FLOWS
Increases (decreases) in operating cash flows arising from changes in
operating assets and liabilities, net of the effect of businesses acquired,
consist of the following (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Accounts receivable ..................... $ 499 $ (286)
Inventory ............................... (276) (5,294)
Prepaid expenses and other current assets 66 (533)
Accounts payable ........................ 5,459 1,188
Accrued expenses and other liabilities .. (1,207) (772)
------- -------
$ 4,541 $(5,697)
======= =======
</TABLE>
Cash paid for interest during the six months ended March 31, 1997 and 1996,
was $2,075,000 and $767,000, respectively. Cash paid for income taxes during the
six months ended March 31, 1997 and 1996 was $603,000 and $1,204,000,
respectively. Cash paid for income taxes during the six months ended March 31,
1997 included income tax liabilities assumed in connection with the acquisition
of several business in 1996.
5
<PAGE> 6
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5. ACQUISITIONS OF COMPANIES
The Company acquired two businesses during the three months ended
December 31, 1996. The businesses acquired, the date of acquisition and the
geographic locations of the acquired businesses are as follows:
Northern California Division
- ----------------------------
J & M Paint Incorporated December 1996 San Leandro, California
Northeast Division
- -------------------
Auto Body Supply Corporation October 1996 Boston, Massachusetts
The acquired companies operated two distribution sites prior to their
acquisition by the Company, with historical annual revenues totaling
approximately $8 million.
6. LONG-TERM DEBT AND OBLIGATIONS
Long-term debt and obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
--------- ------------
<S> <C> <C>
1995 Credit Agreement with Heller Financial, Inc., as
agent and lender ........................................ $37,599 $36,855
Obligations under various covenant not to
compete agreements .................................... 301 340
Notes payable to sellers and capital lease obligations ... 12,792 14,125
------- -------
Total long-term debt and obligations ..................... 50,692 51,320
Less current portion of long-term debt and obligations ... 8,021 7,013
------- -------
Total long-term debt and obligations, less current portion $42,671 $44,307
======= =======
</TABLE>
At March 31, 1997 the Company had outstanding $37.6 million under its
credit agreement with Heller Financial, Inc. as agent and lender (as amended to
date, the "1995 Credit Agreement"). Borrowings under the 1995 Credit Agreement
are secured by substantially all of the Company's assets, and such agreement
contains significant restrictive covenants which, among other things, require
the Company to maintain certain financial ratios and which limit capital
expenditures, the incurrence of indebtedness and the payment of cash dividends.
Certain of the financial covenant ratios and certain other provisions of the
1995 Credit Agreement were amended effective September 30, 1996. Effective
January 1, 1997, the Company and the banks participating in the 1995 Credit
Agreement entered into a Waiver and Fourth Amendment to Credit Agreement (the
"Fourth Amendment") which, among other things, waived compliance with certain
provisions of the 1995 Credit Agreement and further amended certain of the
financial covenants contained therein. After giving effect to the Fourth
Amendment, the Company believes that it was in compliance with the 1995 Credit
Agreement as of March 31, 1997, although it remained near the limits provided
for in certain of the financial covenants.
6
<PAGE> 7
THOMPSON PBE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
7. SUBSEQUENT EVENT
On May 6, 1997 the Board of Directors declared a dividend distribution of
one Preferred Share Purchase Right (the "Rights") on each outstanding share of
common stock of the Company. If and when the Rights become exercisable, each
Right will entitle stockholders to buy one one-hundredth of a share of newly
created Series A Junior Participating Preferred Stock of the Company at an
initial exercise price of $25.00 per Right. The Rights will, subject to certain
exceptions, be exercisable if a person or group acquires 20% or more of the
Company's common stock or announces a tender offer for 20% or more of the common
stock. The Company's Board of Directors will be entitled to redeem the Rights at
$.01 per Right, payable in cash or stock.
The Rights are designed to assure that all Company stockholders receive fair
and equal treatment in the event of any proposed takeover of the Company and to
guard against partial tender offers, open market accumulations and other abusive
tactics to gain control of the Company without paying all stockholders a control
premium.
If a person acquires 20% or more of the outstanding common stock of the Company
(other than certain exempt persons), each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of shares of
Company common stock having a market value at that time of twice the Right's
exercise price. Rights held by the 20% holder will become void and will not be
exercisable to purchase shares at the bargain purchase price. If the Company is
acquired in a merger or other business combination transaction which has not
been approved by the Board of Directors, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the Right's
exercise price. The exercisability of the Rights will not be triggered by any
person who beneficially owns more than 20% of the Company's common stock at the
close of business on May 6, 1997, provided such exempt person acquires no more
than an additional 0.25% of the outstanding common stock (presently, slightly
more than 21,000 shares) after such date.
The dividend distribution will be payable to stockholders of record on May 29,
1997. The Rights will expire on May 6, 2007. The declaration of the Rights
dividend will not result in any charge to the Company's results of operations.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and accompanying notes, included in
Part I - Item 1 of this Quarterly Report, and the audited consolidated financial
statements and accompanying notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended September 30,
1996 contained in the Company's Annual Report on Form 10-K.
Information contained in this Report includes "forward-looking" statements
that are based largely on the Company's current expectations and are subject to
a number of risks and uncertainties. Forward-looking statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "anticipate," "estimate," "continue," "plans," "intends" or
other similar terminology. See Forward-looking Statements and Associated
Business Risks, and Item 1., "Business --Business Risks." in the Company's
Annual Report on Form 10-K.
A key component of the Company's business strategy has been to make add-on
acquisitions to augment its existing operations and to capitalize on
opportunities to enter new geographic markets. As described in Note 5 to the
Consolidated Condensed Financial Statements, the Company has completed
the acquisition of two businesses subsequent to September 30, 1996. The
businesses acquired had combined annual sales for their most recent fiscal years
of approximately $8.0 million. The Company's acquisition plan for 1997 is
presently expected to focus on selective acquisitions in existing markets. In
the ordinary course of its business, the Company regularly evaluates, and enters
into negotiations relating to, potential acquisition opportunities. See Note 5
to the Consolidated Condensed Financial Statements and "-- Liquidity and Capital
Resources."
SEASONALITY AND OTHER VARIATIONS IN BUSINESS RESULTS
The Company's sales and operating results have historically varied
substantially from quarter to quarter due to certain factors and the Company
expects certain of these fluctuations to continue. Among these factors have been
the timing of acquisitions, the promptness with which the Company integrates
acquired businesses, seasonal buying patterns of the Company's customers,
weather, and the timing and magnitude of supplier price increases and other
incentive programs. Historically, sales have slowed in the fall and early winter
of each year largely due to weather and the reduced number of business days
during the holiday season. As a result, financial performance for the Company's
distribution sites is generally lower during the first and second fiscal
quarters than during the other quarters of the fiscal year. During the most
recent fiscal quarter, the Company reduced its purchases in advance of scheduled
vendor price increases in connection with efforts to reduce inventory levels.
Also during the period, the Company received a smaller benefit from vendor
incentive programs than in prior periods. In addition, the timing of
acquisitions may cause substantial fluctuations of operating results from
quarter to quarter. The Company's sales and operating results also vary due to
changes affecting the domestic wholesale aftermarket for automotive paint and
related supplies, such as the volume of warranty repair work and the level of
new and used car sales.
RESULTS OF OPERATIONS
Net sales. For the three months ended March 31, 1997, net sales increased by
22.5% to $51.4 million from $42.0 million for the three months ended March 31,
1996. For the six months ended March 31, 1997, net sales increased by 25.4% to
$99.2 million from $79.1 million for the six months ended March 31, 1996. The
increases in revenue were primarily attributable to net sales related to
acquisitions completed since December 31, 1995. Sales in existing operations
were down slightly for the three months and six months ended March 31, 1997 from
the prior year comparable periods, with decreases in volume more than offsetting
increased selling prices. See "-- Seasonality and Other Variations in Business
Results."
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont.)
Gross profit. Gross profit for the three months and six months ended March
31, 1997 increased to $17.7 million and $34.9 million from $15.5 million and
$29.4 million, respectively, from the comparable periods in 1996. Gross profit
as a percentage of net sales of 34.4% for the three months ended March 31, 1997
decreased from gross profit as a percentage of net sales of 36.9% for the year
earlier period. Gross profit as a percentage of net sales of 35.2% for the six
months ended March 31, 1997 decreased from gross profit as a percentage of net
sales of 37.2% for the comparable period in 1996. The reduction in gross profit
margins was attributable to a change in the Company's inventory purchasing
patterns, including a reduction in inventory purchases in advance of scheduled
vendor price increases, a reduction in prompt payment discounts realized on
prepayment of inventory purchases made under extended payment terms and
increased customer support costs. To a lesser extent, competitive pressures also
contributed to the decline in gross profit margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 21.0% to $14.8 million for the three months
ended March 31, 1997 from $12.2 million in the year earlier period. Selling,
general and administrative expenses increased 25.3% to $29.4 million for the six
months ended March 31, 1997 from $23.4 million for the comparable period in
1996. The increase in absolute amounts from period to period reflects the
increase in costs necessary to support the Company's expanded operations arising
from its acquisition program. Selling, general and administrative expenses
decreased to 28.8% of net sales for the three months ended March 31, 1997 as
compared to 29.1% of net sales in the year earlier period. The decrease in
selling, general and administrative expenses as a percentage of net sales for
the three months ended March 31, 1997 as compared to the year earlier period is
primarily attributable to the effects of expense control efforts, including
the effects of decreased management infrastructure. Selling, general and
administrative expenses as a percentage of net sales of 29.6% for the six months
ended March 31, 1997 did not vary from the year earlier period, as the effect of
cost control efforts was offset by the effect of a decrease in sales in existing
operations.
Depreciation and Amortization expense. Depreciation expense increased to
$545,000 in the three months ended March 31, 1997 from $436,000 in the three
months ended March 31, 1996. Depreciation expense increased to $1,032,000 in the
six months ended March 31, 1997 from $855,000 in the six months ended March 31,
1996. The increase in depreciation expense is attributable to an increase in
fixed assets related to the expanded operations of the Company. Amortization
expense for the three months March 31, 1997 increased to $735,000 from $525,000
for the three months ended March 31, 1996. Amortization expense for the six
months March 31, 1997 increased to $1,442,000 from $1,008,000 for the six months
ended March 31, 1996. These results reflect the net effect of an increase in
amortization expense relating to goodwill recorded in connection with the
acquisition of companies. Depreciation and amortization expenses are expected to
continue to increase from period to period as a result of continued acquisition
activity by the Company.
Interest expense. Interest expense increased to $1,055,000 and $2,102,000
for the three months and six months ended March 31, 1997, respectively, from
$542,000 and $886,000 in the comparable periods in 1996. The increase in
interest expense reflects an increase in the average debt outstanding as
compared to the year earlier periods. Interest expense in future periods will be
dependent upon fluctuations in outstanding debt balances, prevailing interest
rates and changes in the Company's ratio of senior debt to operating cash flow.
See "-- Liquidity and Capital Resources."
Provision for income taxes. The provision for income taxes as a percentage
of income before income taxes increased to 44.0% for the three months ended
March 31, 1997 from 41.5% for the three months ended March 31, 1996. The
provision for income taxes as a percentage of income before income taxes
increased to 43.4% for the six months ended March 31, 1997 from 41.5% for the
six months ended March 31, 1996. The increase in the effective tax rate is a
result of an increase in nondeductible expenses as a percentage of income
before taxes, as compared to the year earlier periods. The effect of
nondeductible amortization of intangible assets arising from the acquisition of
the stock of certain acquired businesses in relation to the Company's income
before income taxes will continue to result in fluctuations in the Company's
effective tax rate as well as a tax rate in excess of the statutory rate.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been significantly
impacted by acquisitions commencing with the initial acquisition of Thompson
Lacquer Company in May 1989. The Company historically has financed its business
activities and acquisitions principally through a combination of secured,
subordinated and seller-provided borrowings, augmented by internally generated
cash flow. In addition, the Company has financed certain of its larger
acquisitions partially through the issuance of equity securities.
The Company had working capital of $23.9 million at March 31, 1997. In
addition to working capital, the Company's principal source of liquidity was the
1995 Credit Agreement, as amended, which provides for borrowings in an aggregate
amount not to exceed $70 million, consisting of (i) a revolving credit facility
of $18.0 million, limited to a borrowing base, (ii) a term loan of $30.0
million, and (iii) an acquisition loan facility of $27.0 million. Borrowings
under the 1995 Credit Agreement are secured by substantially all of the
Company's assets and such agreement contains significant restrictive covenants
which require the Company to maintain certain financial ratios and which limit,
among other things, capital expenditures, the incurrence of indebtedness and the
payment of cash dividends.
Effective January 1, 1997, the Company and the banks participating in the
1995 Credit Agreement entered into the Fourth Amendment which, among other
things, waived compliance with certain provisions of the 1995 Credit Agreement
and further amended certain of the financial covenants contained therein. After
giving effect to the Fourth Amendment, the Company believes that it was in
compliance with the 1995 Credit Agreement as of March 31, 1997, although it
remained near the limits provided for in certain of the financial covenants.
Failure to satisfy the financial covenants under the 1995 Credit Agreement could
result in a material adverse affect on the Company's financial position and
results of operations. In the event that the Company does not meet the amended
financial covenants contained in the 1995 Credit Agreement in future periods,
the Company could experience higher interest rates on debt outstanding under the
1995 Credit Agreement, a reduction of amounts available under the agreement,
other adverse changes in the terms under which outstanding debt is repaid, which
could be material, or an acceleration of the due dates of the borrowings.
As of March 31, 1997, the Company had available to borrow approximately $13
million of revolving credit loans under the 1995 Credit Agreement. As of March
31, 1997, the maximum amount available to borrow, in circumstances in which the
Company did not exceed financial covenant ratios contained within the 1995
Credit Agreement were acquisition loans of up to $23.3 million. However, as
noted above, the Company was near the limit of certain covenant ratios, and
accordingly, in the absence of increases in operating cash flow, future
borrowings may be restricted or may not be available.
On December 5, 1996, the Company announced that its Board of Directors had
approved a stock repurchase program of up to 500,000 shares of the Company's
Common Stock. Through December 16, 1996, the Company had repurchased 63,700
shares at an average price of $6.69 per share under the program. No further
repurchases have been made and any further such repurchases would, among other
things, require the prior consent of the lenders under the 1995 Credit
Agreement, and there can be no assurance that the lenders would grant such
consent if requested. Accordingly, the Company does not expect to repurchase
additional shares under this program at any time in the immediate future.
Cash provided by operations was $7.6 million for the six months ended March
31, 1997 as compared to cash used by operations of $1.9 million for the year
earlier period. Although net income decreased by $1.4 million during the six
months ended March 31, 1997 as compared to the year earlier period, an increase
in depreciation and amortization expense and an increase in cash provided by
changes in operating assets and liabilities resulted in the change in cash flow
from operating activities. During the six months ended March 31, 1996, changes
in inventory and accounts payable balances resulted in a use of cash of $4.1
million, whereas during the six months ended March 31, 1997, changes in
inventory and accounts payable balances resulted in a source of cash of $5.2
million.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (cont.)
The Company's investing activities used cash totaling $4.9 million to
acquire businesses during the six months ended March 31, 1997, as compared to a
use of cash of $11.1 million to acquire businesses during the six months ended
March 31, 1996. In addition, the Company had capital expenditures of $1.2
million and $1.0 million in the six months ended March 31, 1997 and 1996,
respectively. Capital expenditures were primarily for refurbishment of
distribution sites, upgrades of computer systems and the replacement of delivery
vehicles.
The Company's inventories at March 31, 1997 represented approximately 90
days' sales, as compared to 107 and 89 days' inventory on hand at March 31, 1996
and September 30, 1996, respectively. The decrease in days' inventory at March
31, 1997 as compared to March 31, 1996 is attributable to efforts to reduce
inventory which resulted in decreased large volume purchases of inventory from
certain manufacturers. Also during the period, the Company reduced its seasonal
buying although this change also reduced somewhat the supplier discounts and
rebates realized.
The Company's accounts payable at March 31, 1997 represented approximately
55 days' purchases, compared to 45 days at March 31, 1996. As a general matter,
the Company's level of accounts payable is favorably impacted by the Company's
ability to take advantage of periodic supplier incentive programs, which
programs often extend the payment date beyond normal terms with large volume
purchases. Accounts payable levels are also impacted by vendor programs allowing
the Company additional price discounts for prompt payment of purchases. Accounts
payable levels will continue to vary from period to period depending on which
vendor payment programs are available. Although there can be no assurance that
such extended programs will be continued, they have been commonplace in the
Company's industry for many years and have been routinely offered by each of its
principal suppliers. If, however, these programs changed or were terminated, the
Company's liquidity requirements could change materially.
Management of the Company presently believes that cash flow from operations,
together with present sources of liquidity and borrowing capacity under its 1995
Credit Agreement, will be sufficient to support operations and general business
and liquidity requirements for at least the next twelve months. The Company, in
the ordinary course of its business, regularly evaluates, and enters into
negotiations relating to, potential acquisition opportunities. To finance future
acquisitions, the Company expects to utilize its 1995 Credit Agreement, seller
financing and cash flow from operations. Depending on market conditions, the
Company may also incur additional indebtedness or issue equity securities. There
can be no assurance that such additional capital, if and when required, will be
available on terms acceptable to the Company, or at all.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED BUSINESS RISKS.
This Report contains certain forward-looking statements pertaining to, among
others things, the Company's future results of operations, growth plans, sales,
gross margin and expense trends, capital requirements, compliance with
contractual obligations and general business, industry and economic conditions
applicable to the Company. These statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from these forward-looking statements. In
addition to the other risks described elsewhere in this Report, important
factors to consider in evaluating such forward-looking statements include
changes in external market factors, changes in the Company's business strategy
or an inability to execute its strategy due to changes in its industry or the
economy generally, the emergence of new or growing competitors and various other
competitive factors. These and certain other significant business risks faced by
the Company are discussed in additional detail under the caption Item 1.,
"Business -- Business Risks" in the Company's Annual Report on Form 10-K for the
1996 fiscal year. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained or referred to in this
Report will in fact occur.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
(a) On May 6, 1997, the Board of Directors declared a dividend
of one Preferred Share Purchase Right on each outstanding
share of common stock of the Company. See Note 7 to the
Consolidated Condensed Financial Statements.
(b) Not applicable.
(c) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Registrant's annual meeting of stockholders was held on
February 26, 1997.
(b) The following directors were elected at the meeting:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Mortimer A. Kline, III 7,875,965 307,823
Frank C. Alexander 7,879,765 304,023
David L. Ferguson 7,879,965 303,823
D. Hunt Ramsbottom, Jr. 7,871,745 312,043
John D. Roach 7,877,965 305,823
Louis A. Simpson 7,879,965 303,823
</TABLE>
The foregoing matters are described in more detail in the Registrant's
definitive proxy statement for the Annual Meeting of Stockholders dated January
10, 1997.
ITEM 5. OTHER INFORMATION
None.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Sequential
Description Page Number
----------- -----------
<S> <C> <C>
Exhibit 11.1 Computation of Net Income per Common and Common
Equivalent Share. 15
Exhibit 10.54 Waiver and Fourth Amendment to Credit Agreement,
dated as of May 9, 1997 to the Credit Agreement dated as of
January 6, 1995 between the Company, Heller Financial, Inc.
and the banks named herein. 17
Exhibit 10.55 Executive Separation Agreement between the Company
and D. Hunt Ramsbottom, Jr. 30
</TABLE>
(b) REPORTS ON FORM 8-K
None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMPSON PBE, INC.
(Registrant)
Date: May 12, 1997 /s/ Michael O'Donovan
----------------------
Michael O'Donovan
Executive Vice President and
Chief Financial Officer
14
<PAGE> 1
Exhibit 11.1
THOMPSON PBE, INC.
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Common stock outstanding, beginning of period ............ 8,640,354 8,663,421
Issuance of common stock .................................. 4,730 --
Repurchase of Common Stock ................................ -- --
Exercise of options ....................................... -- --
----------- -----------
Common stock outstanding, end of period ................... 8,645,084 8,663,421
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding during the period,
assuming exercise of options and warrants ................. 8,703,835 9,195,427
Shares assumed to be repurchased under the treasury stock
method at an assumed average fair market value per share of
$5.78 and $13.94 in 1997 and 1996, respectively ........... (11,016) (292,523)
----------- -----------
Total shares used in computing Earnings Per Share data ...... 8,692,819 8,902,904
=========== ===========
Net income .................................................. $ 321,000 $ 1,034,000
=========== ===========
EARNINGS PER SHARE DATA:
Net income per common and common
equivalent share .......................................... $0.04 $0.12
</TABLE>
15
<PAGE> 2
Exhibit 11.1
THOMPSON PBE, INC.
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Common stock outstanding, beginning of period ............................... 8,692,438 6,391,946
Issuance of common stock in
connection with secondary public offering ................................ 2,271,475
Repurchase of outstanding common stock ...................................... (63,700) --
Exercise of options ......................................................... 16,346 --
----------- -----------
Common stock outstanding, end of period ..................................... 8,645,084 8,663,421
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding during the period,
assuming exercise of options and warrants ................................... 8,937,278 9,147,457
Shares assumed to be repurchased under the treasury stock method at an average
fair market value per share of $6.52 and $15.25
at March 31, 1997 and 1996, respectively ................................... (205,227) (286,849)
----------- -----------
Total shares used in computing Historical Per Share data .................... 8,732,051 8,860,608
=========== ===========
Net income .................................................................... $ 543,000 $ 1,901,000
=========== ===========
EARNINGS PER SHARE DATA:
Net income per common and common
equivalent share ............................................................ $0.06 $0.21
</TABLE>
16
<PAGE> 1
WAIVER AND FOURTH AMENDMENT
TO CREDIT AGREEMENT
This Waiver and Fourth Amendment to Credit Agreement, dated as of May
9th, 1997 (this "Agreement") by and among HELLER FINANCIAL, INC. ("Heller"), a
Delaware corporation with a place of business at 500 West Monroe Street,
Chicago, Illinois 60661, for itself, as Lender and as agent ("Agent") for all
Lenders and THOMPSON PBE, INC., a Delaware corporation ("Thompson"), with its
principal place of business at 4553 Glencoe Avenue, Suite 200, Marina del Rey,
California 90202, and ("Borrower").
WITNESSETH:
WHEREAS, Borrower and Agent, on behalf of the Lenders, are parties to
that certain Credit Agreement dated as of January 6, 1995 (as amended from time
to time, the "Credit Agreement"; capitalized terms not otherwise defined herein
shall have the definitions provided therefor in the Credit Agreement) and to
certain other documents executed in connection with the Credit Agreement; and
WHEREAS, the parties wish to amend the Credit Agreement as provided
herein;
NOW, THEREFORE, the parties agree as follows:
1. Amendments to the Credit Agreement.
A. Subsection 2.2(A)(1) of the Credit Agreement is hereby
amended by deleting the chart in its entirety and by substituting in its place
the following:
Ratio Percentage
----- ----------
Less than 2.00 to 1.00 0.00%
2.00 to 1.00 through 2.49 to 1.00 0.50%
2.50 to 1.00 through 2.99 to 1.00 0.75%
3.00 to 1.00 through 3.49 to 1.00 1.00%
3.50 to 1.00 or higher 1.25%
B. Subsection 2.2(A)(2) of the Credit Agreement is hereby
amended by deleting the chart in its entirety and by substituting in its place
the following:
Ratio Percentage
----- ----------
Less than 2.00 to 1.00 1.50%
2.00 to 1.00 through 2.49 to 1.00 1.75%
<PAGE> 2
2.50 to 1.00 through 2.99 to 1.00 2.00%
3.00 to 1.00 through 3.49 to 1.00 2.25%
3.50 to 1.00 or higher 2.50%
C. Subsection 6.2 of the Credit Agreement is hereby amended by
deleting the subsection in its entirety and by substituting in its place the
following:
"6.2 Total Interest Coverage. Borrower shall not permit Total
Interest Coverage for the twelve (12) month period ending on the last
day of each fiscal quarter during the periods set forth below to be less
than the amount set forth below for such period.
Period Amount
------ ------
1/1/97 through 3/31/97 2.25
4/1/97 through 6/30/97 2.25
7/1/97 and each quarter thereafter 3.00
D. Subsection 6.3 of the Credit Agreement is hereby amended by
deleting the subsection in its entirety and by substituting in its place the
following:
"6.3 Fixed Charge Coverage. Borrower shall not permit Fixed
Charge Coverage for the twelve (12) month period ending on the last day
of each fiscal quarter during the periods set forth below to be less
than the amount set forth below for such period.
Period Amount
------ ------
1/1/97 through 3/31/97 1.00
4/1/97 through 6/30/97 1.00
7/1/97 through 9/30/97 1.00
10/1/97 and each quarter thereafter 1.20
E. Subsection 6.4 of the Credit Agreement is hereby amended by
deleting the subsection in its entirety and by substituting in its place the
following:
"6.4 Senior Leverage. Borrower shall not permit the ratio of
Senior Debt as of the last day of each fiscal quarter during the periods
set forth below to Pro Forma Operating Cash Flow for the twelve (12)
month period ending on the last day of each fiscal quarter during the
periods set forth below to be greater than the ratio set forth for such
period.
2
<PAGE> 3
Period Ratio
------ ------------
3/1/97 through 8/31/97 4.00 to 1.00
9/1/97 through 9/30/98 3.50 to 1.00
10/1/98 through 9/30/99 3.25 to 1.00
10/1/99 through 9/30/00 2.75 to 1.00
10/1/00 and each month thereafter 2.25 to 1.00"
F. Subsection 6.5 of the Credit Agreement is hereby amended by
deleting the subsection in its entirety and by substituting in its place the
following:
"6.5 Total Indebtedness Leverage. Borrower shall not permit
the ratio of total Indebtedness of Borrower and its Subsidiaries on a
consolidated basis as of the last day of each fiscal quarter during the
periods set forth below to Pro Forma Operating Cash Flow for the twelve
(12) month period ending on the last day of each fiscal quarter during
the periods set forth below to be greater than the ratio set forth for
such period:
Period Ratio
------ ------------
3/1/97 through 8/31/97 5.50 to 1.00
9/1/97 through 9/30/98 4.00 to 1.00
10/1/98 through 9/30/99 3.75 to 1.00
10/1/99 through 9/30/00 3.25 to 1.00
10/1/00 and each month thereafter 2.75 to 1.00"
2. Waiver.
Subsections 6.2, 6.3, 6.4 and 6.5 of the Credit Agreement require that
Borrower maintain certain Total Interest Coverage ratios, Fixed Charge Coverage
ratios, Senior Leverage ratios and Total Indebtedness Leverage ratios,
respectively, as provided therein. For the period ended February 28, 1997,
Borrower did not meet the required levels as set forth in subsections 6.2, 6.3,
6.4 and 6.5, respectively.
Borrower's failure to comply with each of subsections 6.2, 6.3, 6.4 and
6.5 of the Credit Agreement for the period ended February 28, 1997 constitute
Events of Default under the Credit Agreement. In response to Borrower's request,
Lenders hereby waive such Events of Default for such period; provided that
nothing set forth herein shall be deemed to constitute a waiver of any other
Default or Event of Default that may heretofore or hereafter occur or have
occurred and be continuing.
3. Representations and Warranties. To induce Lenders to enter into
this Agreement, Borrower represents and warrants to Lenders that the execution,
3
<PAGE> 4
delivery and performance by Borrower of this Agreement are within its corporate
powers, have been duly authorized by all necessary corporate action and do not
and will not contravene or conflict with any provision of law applicable to
Borrower, the Certificate of Incorporation or Bylaws of Borrower, or any order,
judgment or decree of any court or other agency of government or any contractual
obligation binding upon Borrower; and the Credit Agreement as amended as of the
date hereof is the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms.
4. Conditions. The effectiveness of the amendments stated in this
Agreement is subject to each of the following conditions precedent or
concurrent:
(a) Fee. Borrower's payment to Lenders of a fee equal to
$50,000.
(b) Permitted Acquisitions. Borrower agrees that all
acquisitions (including Permitted Small Acquisitions) will require Requisite
Lenders' approval until such time as Borrower is in compliance with Senior
Leverage and Total Indebtedness Leverage ratios of 3.50 and 4.00, respectively.
(c) No Default. Except as set forth in Section 2 of this
Agreement, no other Default or Event of Default under the Credit Agreement, as
amended hereby, shall have occurred and be continuing.
(d) Warranties and Representations. The warranties and
representations of Borrower contained in this Agreement shall be true and
correct as of the effective date hereof, with the same effect as though made on
such date.
5. Miscellaneous.
(a) Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made
under and governed by the laws of the State of Illinois, without regard to
conflict of laws principles. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
Agreement.
4
<PAGE> 5
(d) Successors and Assigns. This Agreement shall be binding
upon Borrower and Lenders and their respective successors and assigns, and shall
inure to the sole benefit of Borrower and Lenders and the successors and assigns
of Borrower and Lenders.
(e) References. Any reference to the Credit Agreement
contained in any notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Agreement shall be
deemed to include this Agreement unless the context shall otherwise require.
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not intended to and do not
serve to effect a novation as to the Credit Agreement. The parties hereto
expressly do not intend to extinguish the Credit Agreement. Instead, it is the
express intention of the parties hereto to reaffirm the indebtedness created
under the Credit Agreement which is evidenced by the Notes and secured by the
Collateral. The Credit Agreement as amended hereby and each of the other Loan
Documents remains in full force and effect.
(g) Costs, Expenses and Taxes. Borrower affirms and
acknowledges that subsection 10.1 of the Credit Agreement applies to this
Agreement and the transactions and Agreements and documents contemplated
hereunder.
(h) Required Lender Approval. As required by Section 10.3 of
the Credit Agreement, this Fourth Amendment shall become effective as of the
date first set forth above upon execution by the Borrower and Requisite Lenders
and acknowledgement hereof by Grand Distributing Corp., Arnold Paint Company,
McNeil & Sons Auto Paint, Inc., Auto Body Supply Corporation, Automotive Paint
and Supply Company, Incorporated and Santa Clara Color Service, Inc. The Lenders
identified on the signature pages hereof constitute all of the Lenders as of the
date first set forth above.
(i) Ratification. The terms and provisions set forth in this
Fourth Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Credit Agreement and, except as expressly modified
and superseded by this Fourth Amendment, the terms and provisions set forth in
the Credit Agreement are ratified and confirmed and shall continue in full force
and effect. All representations, warranties, covenants and agreements of
Borrower set forth in the Credit Agreement, as modified hereby, are hereby
restated as of the date hereof.
(j) Amendment; Assignment. This Fourth Amendment may not be
modified, altered or amended except by an instrument in writing signed in
accordance with Section 10.3 of the Credit Agreement. Borrower may not sell,
assign or transfer this Fourth Amendment or any portion thereof, including,
5
<PAGE> 6
without limitation, any of Borrower's rights, titles, interests, remedies,
powers and/or duties hereunder or thereunder.
(k) Severability. If any provision of this Fourth Amendment or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Fourth Amendment and the application of
such provision to other Persons or circumstances will not be affected thereby
and the provisions of this Fourth Amendment shall be severable in any such
instance.
(l) Entire Agreement. This Fourth Amendment, including all
Exhibits and other documents attached hereto or incorporated by reference
herein, constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all other understandings, oral or written,
with respect to same.
Delivered at Chicago, Illinois, as of the day and year first above
written.
Signature Pages to Follow
6
<PAGE> 7
THOMPSON PBE, INC.
By: /s/ Michael O'Donovan
-------------------------------
Name: Michael O'Donovan
-----------------------------
Title: Executive Vice President and
Chief Financial Officer
----------------------------
HELLER FINANCIAL, INC., as Agent
By: /s/ Robert M. Horak
-------------------------------
Name: Robert M. Horak
-----------------------------
Title: Assistant Vice President
----------------------------
GIROCREDIT BANK
AKTIENGESELLSCHAFT DER SPARKASSSEN
By: /s/ Anca Trifan
-------------------------------
Name: Anca Trifan
-----------------------------
Title: Vice President
----------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Lawrence J. Placek
-------------------------------
Name: Lawrence J. Placek
-----------------------------
Title: Vice President
----------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
7
<PAGE> 8
FLEET NATIONAL BANK
By: /s/ Eric C. Vander Mel
-------------------------------
Name: Eric C. Vander Mel
-----------------------------
Title: Vice President
----------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Richard P. DeGrey
-------------------------------
Name: Richard P. DeGrey
-----------------------------
Title: Vice President
----------------------------
8
<PAGE> 9
ACKNOWLEDGEMENT
GRAND DISTRIBUTING CORP. acknowledges and consents to the terms of this
Fourth Amendment and hereby affirms, ratifies and confirms all of the terms of
its Continuing Guaranty dated January 5, 1995.
GRAND DISTRIBUTING CORP.
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
9
<PAGE> 10
ACKNOWLEDGEMENT
ARNOLD PAINT COMPANY acknowledges and consents to the terms of this
Fourth Amendment and hereby affirms, ratifies and confirms all of the terms of
its Continuing Guaranty dated February 16, 1995.
ARNOLD PAINT COMPANY
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
10
<PAGE> 11
ACKNOWLEDGEMENT
MCNEIL & SONS AUTO PAINT, INC. acknowledges and consents to the terms of
this Fourth Amendment and hereby affirms, ratifies and confirms all of the terms
of its Continuing Guaranty dated February 15, 1996.
MCNEIL & SONS AUTO PAINT, INC.
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
11
<PAGE> 12
ACKNOWLEDGEMENT
SANTA CLARA COLOR SERVICE, INC. acknowledges and consents to the terms
of this Fourth Amendment and hereby affirms, ratifies and confirms all of the
terms of its Continuing Guaranty dated February 15, 1996.
SANTA CLARA COLOR SERVICE, INC.
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
12
<PAGE> 13
ACKNOWLEDGEMENT
AUTO BODY SUPPLY CORPORATION acknowledges and consents to the terms of
this Fourth Amendment and hereby affirms, ratifies and confirms all of the terms
of its Continuing Guaranty dated October 4, 1996.
AUTO BODY SUPPLY CORPORATION
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
13
<PAGE> 14
ACKNOWLEDGEMENT
AUTOMOTIVE PAINT AND SUPPLY COMPANY, INCORPORATED acknowledges and
consents to the terms of this Fourth Amendment and hereby affirms, ratifies and
confirms all of the terms of its Continuing Guaranty dated April 19, 1996.
AUTOMOTIVE PAINT AND SUPPLY
COMPANY, INCORPORATED
By: /s/ Mortimer Kline
--------------------
Title: President
-----------------
14
<PAGE> 1
EXHIBIT 10.55
EXECUTIVE SEPARATION AGREEMENT
This Executive Separation Agreement (the "Agreement") is made
effective as of January 1, 1997 (the "Effective Date"), by and between D. Hunt
Ramsbottom, Jr. ("Ramsbottom") and Thompson PBE, Inc., a Delaware corporation
(the "Company").
RECITALS
A. The Company has employed Ramsbottom since May 1989
and Ramsbottom now serves as its Chairman of the Board, Chief Executive Officer
and Secretary.
B. Ramsbottom wishes to resign from his offices as
Chairman of the Board, Chief Executive Officer and Secretary of the Company and
as a director, officer and employee of each of its direct or indirect
subsidiaries, and the Company wishes to accept Ramsbottom's resignation, it
being understood that Ramsbottom shall remain a Director of the Company.
C. The Company wishes to provide Ramsbottom with
separation benefits upon the terms and subject to the conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Employment Status
(a) Resignation. Ramsbottom hereby confirms his
voluntary resignation from his positions as Chairman of the Board, Chief
Executive Officer and Secretary of the Company and as a director, officer and
employee of each direct or indirect subsidiary of the Company as of the
Effective Date; Ramsbottom shall remain a Director of the Company. No later
than the Effective Date, Ramsbottom shall return to the Company all Company
property in his possession, including without limitation, keys, credit cards,
telephone calling cards, manuals, books, notebooks, financial statements,
computer software, cellular and portable telephone equipment, reports and other
documents, except for those documents generally provided to the members of the
Company's Board of Directors.
(b) Separation Payments. Ramsbottom's employment
with the Company and each of the Company's direct and indirect subsidiaries
shall terminate as of the Effective Date. From the Effective Date through and
including December 31, 1998 (the "Separation Term"), the Company shall remit to
Ramsbottom a semi-monthly payment of $2,500 as a separation benefit (i.e., 48
monthly payments of $2,500 each). Such payments shall be made on a
semi-monthly basis, in arrears, on the fifteenth and last day of each month
during such Separation Term, commencing January 15, 1997. Such payments shall
be made to Ramsbottom at the address identified on the signature page hereof,
or at such other place or places as identified to the Company by Ramsbottom in
writing from time to time.
(c) Exclusive Separation Benefits. The benefits
payable to Ramsbottom under this Agreement shall be in lieu of any and all
other severance or termination benefits which would otherwise be payable to
Ramsbottom under any plan, policy, agreement or arrangement of the Company
including, without limitation, pursuant to that certain Employment Agreement,
dated as of October 14, 1993, by and between Ramsbottom and the Company's
predecessor (the "Employment Agreement"), which agreement the parties agree
shall terminate effective December 31, 1996 without further liability to either
party. Notwithstanding the foregoing, however, Ramsbottom shall be entitled,
from and after the Effective Date, to receive compensation as a non-employee
director of the Company pursuant to such arrangements of the Company as shall
be in place from time to time.
<PAGE> 2
(d) Transition Agreement. During the Separation
Term, Ramsbottom shall make himself available to the Company's Board of
Directors and its Chief Executive Officer as a consultant to the extent
reasonably requested by them, provided that such requests shall not interfere
with any other employment Ramsbottom may accept.
2. Welfare Benefits
The Company shall not provide any welfare benefits (including
any coverage under the Company's group medical and dental benefit plans and its
life and voluntary accidental death and dismemberment insurance plans), from
and after the Effective Date. The termination of Ramsbottom's coverage under
the Company's group medical plan pursuant to the preceding sentence shall
constitute a "qualifying event" for the purpose of Section 4980B of the
Internal Revenue Code of 1986, as amended, and Ramsbottom shall be entitled to
elect to continue such coverage, at his expense, pursuant to the terms and
conditions of such statute.
3. Ramsbottom's Rights Under Other Company Plans
(a) Vesting of Stock Options. In consideration
for the undertakings made by Ramsbottom herein, the Compensation Committee of
the Company's Board of Directors (the "Committee"), in its capacity as the Plan
Administrator of the Company's 1994 Stock Option Plan (the "1994 Plan"), has
approved the continued status of Ramsbottom as an eligible participant of the
1994 Plan for the Separation Term pursuant to Article I, Section (D)(1)(C) of
the Plan. During the Separation Term, all options held by Ramsbottom shall
continue to vest in accordance with their respective terms.
(b) Exercise Period. Pursuant to the authority
granted to the Committee in Article II, Section 3(c) of the 1994 Plan, all
options held by Ramsbottom under the 1994 Plan shall continue to be exercisable
for the full term provided in the respective option agreements to which he is a
party, notwithstanding any provision of the 1994 Plan or any such option
agreement to the contrary. The parties recognize, however, that commencing
three months after the Effective Date any options which are presently
"incentive stock options" shall be deemed to be "non-qualified stock options"
by operation of Section 422(a)(2) of the Internal Revenue Code of 1986, as
amended.
4. Promissory Note.
(a) Repayment Agreement. On or before March 31,
1997, Ramsbottom will cause all unpaid principal and interest on the promissory
notes due from him to the Company in the aggregate original principal amount of
$146,016 (the "Notes") to be repaid in full. At his option, Ramsbottom may
repay such Notes by: (i) remitting cash to the Company; (ii) delivering shares
of the Company's common stock, par value $.001 per share ("Common Stock"),
owned by him to the Company for cancellation as provided herein; or (iii) a
combination of (i) and (ii). In the event that Ramsbottom shall elect to repay
any of the Note by delivering shares of Common Stock, the amount of principal
and/or interest attributable to shares of Common Stock shall be equal to the
average last reported sales price of the Common Stock for the five trading days
prior to the date Ramsbottom irrevocably notifies the Company of his intention
to deliver such shares as payment on the Note. The underlying share
certificates shall be delivered to the Company promptly thereafter.
Notwithstanding the foregoing provisions of this Section 4, however, the option
of Ramsbottom to pay the Note by delivery of Common Stock is conditioned upon
the requirement that any such redemption of shares does not violate any
agreement to which the Company is then a party including, without limitation,
its Credit Agreement with Heller Financial, Inc. as lender and agent. In the
event of a conflict with any such agreement, the Company shall use reasonable
commercial efforts to obtain a consent to such restriction necessary to permit
Ramsbottom to redeem shares of Common Stock in payment of the Note, it being
understood, however, that the Company shall not be obligated to pay any
consideration for such a consent.
(b) Grant of Security Interest. As of the Effective
Date, Ramsbottom represents that he is the sole record and beneficial owner of
his interests in that certain Memorandum of Understanding and Stock
2
<PAGE> 3
Option Agreement (the "Stock Option"), dated as of June 29, 1994, by and among
Chase Venture Capital Associates, LP (formerly Chemical Venture Capital
Associates ("CVCA"), Wedbush Capital Partners ("Wedbush"), Ramsbottom and
Mortimer A. Kline, III ("Kline"). The Stock Option represents a presently
exercisable right of Ramsbottom to acquire, for an exercise price of $0.91 per
share, (i) 36,322 shares of Common Stock from CVCA and (ii) 11,817 shares of
Common Stock from Wedbush. As security for the prompt and complete repayment
of the Notes and all interest and other obligations in respect thereof,
Ramsbottom hereby grants to the Company a security interest in all right, title
and interest of Ramsbottom in, to, under or derived from the Stock Option
Agreement. Ramsbottom agrees that the Company may enforce this security
interest by any means permitted under applicable law and expressly consents to
the entry of a "stop-transfer" order on the books of the Company's transfer
agent to prevent the conveyance of any interest in the shares underlying the
Stock Option if any obligation under the Notes is still outstanding.
Ramsbottom, by his execution of this Agreement, hereby consents to the
amendment of the Stock Option to the extent necessary to permit the grant of
the foregoing security interest by Ramsbottom including, without limitation,
any necessary amendment to the "No Transfer" provision contained in Section 6
of the Stock Option. Ramsbottom shall take all further actions requested by
the Company to perfect the security interest granted in this Section 4(b)
including, without limitation, execution of any financing statements. This
security interest shall relate solely to Ramsbottom's interest in the Stock
Option and shall not affect in any way Kline's rights thereunder.
(c) Registration Agreement. The Company agrees that if,
on or before June 30, 1998, it has not provided Ramsbottom with the opportunity
to register and sell his interest in the shares of Common Stock underlying the
Stock Option, it will upon his written request use all reasonable commercial
efforts promptly to register the shares of Common Stock underlying his interest
in the Stock Option for resale under the Securities Act of 1933, as amended, on
Form S-3 or a similar "short-form." This agreement by the Company shall relate
solely to the registration for resale of such shares in market or privately
negotiated transactions, shall not be used in connection with an underwriting,
and shall be conditioned on the eligibility of the Company to use Form S-3 or a
similar "short-form." The procedures for registration provided in the
Registration Rights Agreement, dated as of March 31, 1994, as amended (the
"Registration Rights Agreement"), shall apply generally except that the Company
shall have no obligation to provide accountants' comfort letters, legal
opinions or other documentation to the selling stockholder that is customarily
provided in connection with underwritten offerings. The Company and Ramsbottom
acknowledge that the grant of registration rights under this Section 4(c) may
require the consent of other parties to the Registration Rights Agreement,
depending on when exercised, that these rights are subordinate to the
Registration Rights Agreement, and that the Company and Ramsbottom will use
commercially reasonable efforts to obtain any necessary consents. The June 30,
1998 date provided above shall be accelerated if the sale by Ramsbottom of his
interest in the Stock Option is necessary to facilitate his repayment of the
Notes or to satisfy other significant personal financial needs. In such event,
however, the Board of Directors may defer the initial filing of the
registration statement for up to 45-days if it reasonably deems such deferral
to be in the best interests of the Company and its stockholders, such
determination to be made in a written resolution; provided, however, that if
the election of such deferal by the Company materially impedes the repayment by
Ramsbottom of the Notes, then the repayment of the Notes shall be appropriately
deferred until the Company satisfies its registration obligations hereunder.
5. Release
For valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Ramsbottom, on behalf of his heirs and assigns, hereby
releases the Company, its associates, owners, stockholders, affiliates,
divisions, subsidiaries, predecessors, successors, heirs, assigns, agents,
directors, officers, partners, employees, insurers, representatives and lawyers
from all claims arising out of, based upon, or relating to his hire,
employment, remuneration or resignation from the Company. The foregoing shall
not affect any matters related to Ramsbottom's service as a Director of the
Company.
6. Confidentiality
3
<PAGE> 4
Ramsbottom understands that in the course of his employment
with the Company, he has acquired confidential information and trade secrets
concerning the operation of the Company and the Company's future plans and
methods of doing business, which information Ramsbottom understands and agrees
would be extremely damaging to the Company if disclosed to a competitor.
Ramsbottom understands and agrees that such information has been divulged to
Ramsbottom in confidence and Ramsbottom understands and agrees that Ramsbottom
will keep such information secret and confidential.
7. Non-Disparagement Covenant
Ramsbottom agrees not to make any statement, publicly or
privately, disparaging any of the persons identified in the release provided in
Section 5.
8. Specific Performance
Ramsbottom and the Company agree that the Company will be
irreparably harmed by any violation or threatened violation of any of the
provisions of Sections 6 or 7 if such provisions are not specifically enforced
and therefore that the Company shall be entitled to seek an injunction
restraining any violation of these paragraphs by Ramsbottom or any other
appropriate decree of specific performance. Such remedies shall not be
exclusive and shall be in addition to any other remedy to which the Company may
be entitled.
9. Waiver of Breach
A waiver by Ramsbottom or the Company of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by either party.
10. Enforcement of Agreement
If any party to this Agreement brings an action to enforce its
rights hereunder, the prevailing party shall be entitled to recover its costs
and expenses, including court costs and attorneys' fees, if any, reasonably
incurred in connection with such suit.
11. Construction of Agreement
This Agreement shall be construed in accordance with the laws
of the State of California, without regard to the conflicts of laws provisions
thereof.
12. Severability; Enforceability
If any provision of this Agreement, or the application
thereof, to any person, place, or circumstance, shall be held to be invalid,
unenforceable, or void such clause or provision shall be deemed eliminated from
this Agreement but the remaining provisions shall nevertheless be given full
force and effect. In the event this Agreement or any portion hereof is more
restrictive than permitted by the law of the jurisdiction in which enforcement
is sought, this Agreement or such portion shall be limited in that jurisdiction
only, and shall be enforced in that jurisdiction as so limited to the maximum
extent permitted by the law of that jurisdiction.
13. Amendment to Agreement
Any amendment to this Agreement must be in a writing signed by
duly authorized representatives of the parties hereto and stating the intent of
the parties to amend this Agreement.
14. Successors and Assigns
4
<PAGE> 5
This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Ramsbottom's heirs,
executors and administrators.
15. Entire Agreement
This Agreement sets forth the entire agreement between the
parties with respect to the termination of Ramsbottom's employment with the
Company and, except as otherwise expressly provided herein, supersedes all
other prior agreements, oral or written, between the parties (including,
without limitation, the Employment Agreement).
16. Counterparts
This Agreement may be executed in counterparts, each of which
shall be deemed an original and all which taken together shall constitute but
one and the same instrument.
17. Acknowledgement
Ramsbottom represents and agrees that he fully understands his
right to discuss all aspects of this Agreement with his private attorney, and
that to the extent, if any, that he desired, he availed himself of such right.
Ramsbottom further represents that he has carefully read and fully understands
all of the provisions of this Agreement, that he is competent to execute this
Agreement, that his agreement to execute this Agreement has not been obtained
by any duress and that he freely and voluntarily enters into it, and that he
has read this document in its entirety and fully understands the meaning,
intent and consequences of this document.
(Signature Page Follows)
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the Effective Date specified above.
/s/ Hunt Ramsbottom
--------------------------------------
D. Hunt Ramsbottom, Jr.
Address: 523 North Cliffwood
Los Angeles, CA 90049
THOMPSON PBE, INC.
By /s/ Charles E. Barrantes
------------------------------------
Authorized Signatory
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE THIRTEEN WEEKS ENDED MARCH 29 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 21,059
<ALLOWANCES> (1,048)
<INVENTORY> 32,153
<CURRENT-ASSETS> 59,601
<PP&E> 15,232
<DEPRECIATION> (7,395)
<TOTAL-ASSETS> 129,773
<CURRENT-LIABILITIES> 35,683
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 51,410
<TOTAL-LIABILITY-AND-EQUITY> 129,773
<SALES> 51,441
<TOTAL-REVENUES> 51,441
<CGS> 33,727
<TOTAL-COSTS> 16,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055
<INCOME-PRETAX> 573
<INCOME-TAX> 252
<INCOME-CONTINUING> 321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
