As filed with the Securities and Exchange Commission on November 20, 1997
REGISTRATION NO. 333-37291
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
TRAVIS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 5085 76-0206074
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
3000 Weslayan, Suite 350
Houston, Texas 77027
(713) 622-7475
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
Kirby Attwell
President and Chief Executive Officer
Travis International, Inc.
3000 Weslayan, Suite 350
Houston, Texas 77027
(713) 622-7475
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
Diana M. Hudson
Walter S. Keneally Kathleen S. Schoene
Mayor, Day, Caldwell & Keeton, L.L.P. Peper, Martin, Jensen, Maichel and Hetlage
700 Louisiana, Suite 1900 720 Olive Street, 24th Floor
Houston, Texas 77002-2778 St. Louis, Missouri 63101-2396
(713) 225-7000 (314) 421-3850
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OF THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OF THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION
DATED NOVEMBER 20, 1997
2,909,091 SHARES
[LOGO]
TRAVIS INTERNATIONAL, INC.
COMMON STOCK
------------
Of the 2,909,091 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 2,272,727 shares of Common Stock are being sold
by Travis International, Inc. (the "Company" or "Travis") and 636,364 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any of the proceeds from the sale of the shares by
the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied to have the Common
Stock approved for quotation and trading on the Nasdaq National Market under the
symbol "TRVI."
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
Per Share................... $ $ $ $
- --------------------------------------------------------------------------------
Total (3)................... $ $ $ $
================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $500,000, all of which are payable
by the Company.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 436,363 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders pursuant to the Underwriter's overallotment option,
if exercised. See "Underwriting" and "Principal and Selling Stockholders."
------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer or to reject any orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about , 1997.
A.G. EDWARDS & SONS, INC. CLEARY GULL REILAND & MCDEVITT INC.
The date of this Prospectus is , 1997.
<PAGE>
[Inside Front Cover]
[MAP TO COME]
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and with quarterly reports
containing unaudited consolidated financial information for the first three
quarters of each fiscal year.
----------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, (i) THE TERM
"COMPANY" REFERS TO TRAVIS INTERNATIONAL, INC. AND ITS SUBSIDIARIES AND (ii) ALL
INFORMATION IN THIS PROSPECTUS (a) ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT
OPTION IS NOT EXERCISED, AND (b) GIVES EFFECT TO THE RECAPITALIZATION OF THE
COMPANY'S COMMON STOCK, INCLUDING THE CONVERSION OF EACH SHARE OF THE COMPANY'S
CLASS A COMMON STOCK INTO ONE SHARE OF COMMON STOCK, THE CONVERSION OF TWO
SHARES OF THE COMPANY'S SERIES 2 PREFERRED STOCK INTO 6,120 SHARES OF COMMON
STOCK AND A 3.06-FOR-ONE STOCK SPLIT. SEE "UNDERWRITING" AND "DESCRIPTION OF
CAPITAL STOCK--RECAPITALIZATION."
THE COMPANY
The Company is a diversified wholesale distributor of specialty products
and provider of related value-added services. From 13 operating locations in
five states in the southern and western United States, the Company distributes
post-tension cable products, household fixture products, specialty industrial
products and telecommunications equipment. In addition, the Company provides
value-added services in connection with such products, including engineering and
design assistance, just-in-time delivery, fabrication, warranty repair,
installation and other technical assistance. During fiscal 1997, the Company
sold its products to over 8,700 customers located primarily in the United States
and, to a lesser extent, Canada, Mexico and other countries. The Company has
three principal categories of customers: (i) residential builders and commercial
construction contractors, (ii) distributors of industrial products and (iii)
operators of central office telephone systems.
The Company differs from many other distributors in that it operates
exclusively in specialty markets. The specialty markets sought by the Company
are defined by a number of characteristics that distinguish them from the
markets for commodity-type products. Although not all specialty markets exhibit
all of these characteristics, generally they include: (i) a small to medium
total market size, (ii) above average gross margins and returns on assets due to
the nature of the products or unique value-added services, (iii) a limited
number of competitors and the absence of a dominant, national competitor, and
(iv) a high degree of fragmentation at the distributor, supplier and customer
levels. The Company believes specialty markets are less capable of being served
by alternatives to wholesale distribution and offer greater opportunities than
commodity-type markets to obtain substantial market shares in the niches the
Company serves.
The Company's objective is to become a leading diversified wholesale
distributor of specialty products and related value-added services in the United
States. In pursuing this objective, the Company endeavors to achieve significant
product, customer, vendor and geographic diversity by establishing operations in
a limited number of niche markets and to increase the sales and net income of
those operations through further market penetration and the addition of
locations and products sold within such markets. The Company focuses on markets
where the demand for specialized products or value-added services offers
opportunities to obtain higher margins than those typically attainable in
markets for more standard, high-volume merchandise and where opportunities exist
for consolidation. The Company implements its strategy through new market
acquisitions that add new product groups, vendors and customers to the Company's
base, through fill-in acquisitions that establish new locations or complementary
product lines for its existing business and through internal development efforts
to increase penetration of the markets in which it operates. The Company
maintains a decentralized management structure that provides the managers of its
operating subsidiaries with discretion in conducting their respective operations
while affording them the benefits of the Company's executive management
expertise. The Company leverages the expertise of its executive and operating
managers to achieve commonalities among its operating subsidiaries that result
in management efficiencies and cost savings.
The Company believes that acquisitions are often the most cost-effective
means to enter new specialty markets or to expand geographically within existing
markets. Since 1994, the Company has completed ten acquisitions, two of which
were new market acquisitions and eight of which were fill-in acquisitions. The
Company has also grown through internal development. The Company has increased
sales to existing customers by periodically expanding into new product lines and
continually adding new products to existing lines. The Company also has added
new customers in existing markets through targeted sales programs and the
addition of new operating locations and sales offices. In addition, the
Company's internal development is enhanced by a continued emphasis
3
<PAGE>
on value-added services, which provide it the opportunity to expand gross
margins and to attract a more loyal and diverse group of customers.
Using this approach of balanced expansion through acquisitions and
internal development, the Company's revenues and operating income increased from
approximately $14.5 million and $2.1 million, respectively, in fiscal 1994 to
approximately $80.1 million and $6.1 million, respectively, in fiscal 1997.
The Company was organized as a Delaware corporation in 1986. The Company's
executive offices are located at 3000 Weslayan Street, Suite 350, Houston, Texas
77027, and its telephone number is (713) 622-7475.
THE OFFERING
Common Stock offered by the Company.......... 2,272,727
Common Stock offered by the Selling
Stockholders................................. 636,364
Common Stock outstanding after the Offering(1) 5,290,379
Use of Proceeds.............................. To repay approximately $10.4
million of outstanding
indebtedness, to pay
approximately $1.4 million to
retire future obligations under
certain employment, consulting
and non-competition agreements
relating to a previous
acquisition by the Company and
for general corporate purposes,
including working capital and
possible acquisitions. See "Use
of Proceeds."
Nasdaq National Market Symbol................ The Company has applied to
have its Common Stock approved
for quotation on the Nasdaq
National Market System under
the symbol "TRVI."
(1) Does not include (i) an aggregate of 91,800 shares of Common Stock
reserved for issuance upon exercise of outstanding warrants, (ii) an
aggregate of 76,500 shares of Common Stock reserved for issuance upon
conversion of the Company's Series 2 Preferred Stock, (iii) an aggregate
of 543,609 shares of Common Stock reserved for issuance upon exercise of
outstanding options granted under various stock option plans and (iv)
153,000 shares of Common Stock that may be issued from time to time in
connection with options not yet granted under such plans. Upon
consummation of the Offering, an aggregate of 356,325 options granted
under such plans will be vested and exercisable. See "Management--
Compensation Plans" and "Shares Eligible for Future Sale."
RISK FACTORS
Investors should consider carefully the risk factors related to a purchase
of Common Stock of the Company. See "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30,
------------------------------------
1995 1996 1997(1)
---------- ---------- ----------
STATEMENT OF INCOME DATA:
Sales ................................ $ 46,339 $ 65,813 $ 80,127
Gross profit ......................... 13,223 18,672 24,887
Operating income ..................... 3,601 4,923 6,100
Net income ........................... 1,882 2,605 3,003
Net income per common
and common equivalent share ........ $ 0.63 $ 0.84 $ 0.88
Average number of shares used to
compute net income per common
and common equivalent share ........ 2,986,403 3,103,390 3,427,652
SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(2)
------- ---------------
BALANCE SHEET DATA:
Working capital ......................... $17,034 $30,064
Total assets ............................ 45,703 56,731
Total debt .............................. 13,222 2,863
Stockholders' equity .................... 19,407 42,157
- --------------------------
(1) Includes one-time charge to general and administrative expenses of $1,158
in connection with the settlement of future obligations under certain
employment, consulting and noncompetition agreements. Excluding this
one-time charge, operating income, net income and net income per common
and common equivalent share would have been $7,259, $3,737 and $1.09,
respectively. The settlement of these future obligations was agreed to as
of September 30, 1997 (and recorded during fiscal year 1997), and will be
funded with a portion of the net proceeds of the Offering. See "Use of
Proceeds" and note 9 to the consolidated financial statements included
elsewhere herein.
(2) Gives effect to the sale of the shares of Common Stock offered by the
Company hereby and the application of the net proceeds therefrom as set
forth under "Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
NO ASSURANCE OF FUTURE GROWTH THROUGH ACQUISITIONS
Acquisitions are an important aspect of the Company's growth. While the
Company believes that the small- to medium-sized markets that it currently
serves and into which it may expand are highly fragmented and provide numerous
acquisition opportunities, there can be no assurance that suitable acquisition
candidates can be found. Even if such candidates are found, there can be no
assurance that the Company will have sufficient capital resources to complete
acquisitions, that acquisitions can be completed on terms acceptable to the
Company, that any acquisitions that are completed can be successfully integrated
into the Company, or that such integration will not result in unforeseen
operational difficulties or require a disproportionate amount of management's
attention. The Company also is likely to face competition from other companies
for acquisition opportunities that are available. Moreover acquisitions may be
financed through the issuance of debt or equity securities. The issuance of
Common Stock or securities convertible into Common Stock may be dilutive to the
Company's stockholders. While the Company continues to evaluate acquisition
opportunities, there are no material acquisitions pending as of the date of this
Prospectus. See "Business--Acquisitions."
DEPENDENCE ON CONSTRUCTION MARKETS
Demand for the Company's specialty builders' products depends to a
significant degree on the health of the single- and multi-family residential and
commercial construction markets, particularly in Texas where a significant
portion of the Company's sales of specialty builders' products are made.
Specialty builders' products accounted for approximately 64% of the Company's
overall sales for fiscal 1997. The level of activity in the commercial
construction markets depends largely on vacancy and absorption rates, interest
rates, regional economic outlooks, availability of financing and general
economic conditions. The level of activity in the residential construction
market depends on new single-family and multi-family housing starts, which are a
function of many factors, including interest rates, availability of financing,
housing affordability, vacancy rates, rental rates, unemployment, demographic
trends, gross domestic product growth and consumer confidence. These factors are
beyond the Company's control. The single- and multi-family residential markets
also are sensitive to cyclical changes in the economy that could negatively
affect the Company's operating results. Additionally, the Company's operating
results are negatively affected by seasonal declines in construction activities
during winter months due to the holidays and weather conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General" and "Business--Products and Services--Specialty
Builders' Products and Services."
COMPETITION
The markets in which the Company competes are highly fragmented,
consisting of many regional and local specialty suppliers of the products
distributed by the Company. Although the Company is not aware of any other
company that competes in all of its markets, some competitors within those
markets are substantially larger, better capitalized and have access to greater
resources than the Company and others are smaller and more specialized than the
Company. Larger competitors may achieve economies of scale not available to the
Company, and smaller competitors may have lower overhead costs and greater
flexibility than the Company. As a result, these competitors may be able to
offer lower prices than the Company. The entry of new companies or products into
the Company's markets could result in reductions in pricing of the products sold
by the Company that could materially and adversely affect the Company's
profitability. In addition, the Company's success in achieving increased market
penetration will depend, in part, on its ability to gain market share from
established competitors. There can be no assurance that the Company will be able
to compete successfully. See "Business--Competition."
RELIANCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
services of its officers, in particular its President and the presidents of each
of its subsidiaries, as well as upon other key personnel. The Company carries
key-man life insurance on its executive officers and certain officers of its
subsidiaries. In addition, the Company has employment agreements with all key
employees except Messrs. Fogelsong and Flesner, and maintains incentive
compensation programs designed to retain key employees, including options to
purchase shares
6
<PAGE>
of the Company's Common Stock which are subject to certain vesting requirements.
The terms of existing employment agreements extend through at least May 1999;
however, there can be no assurance that such agreements will be renewed on terms
acceptable to the Company or at all. The loss of the continuing services of the
Company's executive officers and its subsidiaries' officers and key personnel,
particularly to a competitor, could have an adverse effect on the Company's
operating results. See "Business--Strategy."
INTERRUPTION IN OR LOSS OF SOURCES OF SUPPLY
As is customary in its industry, the Company's relationships with its
vendors are not governed by long-term contracts which set prices, product
volumes or other terms. Although the Company's relationships with its key
vendors allow it to obtain terms that the Company believes are favorable, such
as volume discounts, the lack of long-term contracts permits vendors to increase
prices or terminate the relationship at any time. Many factors that would cause
such vendors to increase prices or terminate a relationship, such as higher raw
material costs or financial difficulties, are beyond the Company's control.
While the Company believes it has access to adequate substitutes for most of its
products from other vendors at competitive prices, any interruption in the
Company's sources of supply, particularly of the most specialized items, could
have a material adverse effect upon the Company's operating results. The Company
is also subject to the risks of obtaining products abroad, including adverse
fluctuations in currency exchange rates, increases in import duties, decreases
in quotas, increased customs regulations and political turmoil. The occurrence
of any one or more of such risks could increase the Company's cost of obtaining
such products or adversely affect their availability. See "Business--Vendors."
PRODUCT AND OTHER LIABILITY
Products fabricated and distributed by the Company are used by original
equipment manufacturers ("OEMs") in the manufacturing process, by industrial
companies for plant maintenance, repair and operations (the "MRO market"), by
residential builders and commercial construction contractors and by operators of
central office telephone systems. In addition, the Company provides value-added
services in connection with the distribution of its products, such as
engineering and design assistance, just-in-time delivery, fabrication, warranty
repair, installation and other technical services. The Company's employees
operate machinery and delivery vehicles daily, and some of the Company's
fabrication services involve the handling of materials which could be considered
harmful under certain circumstances. As a result, the Company may be subject to
claims by its employees resulting from such work-related risks and to claims by
third parties for personal injury or other damages resulting from the negligence
of the Company's employees in connection with performing such services. Although
there is no material litigation pending against the Company and the Company
maintains liability insurance in amounts and coverages believed to be usual and
customary in the industry, the imposition of a large judgment against the
Company or the costs of defending an uninsured claim could adversely affect its
financial condition or operating results. See "Business--Legal Proceedings and
Insurance."
FIRE AND OTHER HAZARDS
The Company's inventory and equipment are concentrated in relatively few
warehouse locations that are subject to the risk of fire and other hazards, such
as hurricanes, floods and earthquakes. The destruction of or significant damage
to one or more of these warehouses would likely interfere with the Company's
ability to deliver the products generally maintained at such locations on a
timely basis and to perform the value-added services required by its customers.
Although the Company carries fire, casualty and business interruption insurance
in amounts that management believes are sufficient to insure against property
losses due to such hazards, the Company's relationships with customers could be
irreparably harmed or the Company could sustain losses to its property or
operations beyond the limits of its policies in the event of such an occurrence.
See "Business--Products and Services" for a description of the Company's
operations.
CHANGES IN DISTRIBUTION CHANNELS
The distribution industry has experienced significant changes in recent
years. Capitalizing on the industry's fragmentation, some larger distributors
grew considerably through consolidation to achieve economies of scale and
increase efficiency. At the same time, customers have begun to seek lower cost
distribution alternatives such as integrated supply, outsourcing and
computerized ordering or other alternatives to wholesale distribution, including
catalogs and mass merchants, to fulfill their purchasing needs. If these trends
continue or accelerate, the Company's customer base could become more
concentrated, particularly in the markets for its specialty industrial
7
<PAGE>
products, as more products may flow through new channels or more manufacturers
sell directly to end users. In addition, although the Company believes that its
broad range of specialty products will allow it to compete successfully as a
secondary distributor to integrated suppliers, there can be no assurance that it
will be able to obtain favorable contracts with integrated suppliers, and the
Company may lose some customers completely. See "Business--Industry Overview."
SUBSIDIARIES' DEPENDENCE ON KEY CUSTOMERS
Some of the Company's subsidiaries have one or several key customers that
account for a meaningful share of its sales and net income. In general, there
are no long-term commitments by such customers to purchase products or services
from the Company's subsidiaries. Product sales by the Company's subsidiaries are
typically made on a purchase-order basis. While the loss by one of the Company's
subsidiaries of one of its key customers or the failure of one of its key
customers to pay accounts receivable on a timely basis could materially
adversely affect the financial condition and operating results of the
subsidiary, such an event is not likely to significantly affect the Company as
whole. However, the loss of several of the Company's largest customers or the
failure of several of such customers to pay accounts receivable on a timely
basis could have a material adverse effect on the Company's financial condition
and operating results. There can be no assurance that the Company's largest
customers will continue to place orders with the Company or that orders by such
customers will continue at their previous levels. See "Business--Customers."
NEED FOR ADDITIONAL FINANCING
The Company anticipates that its growth strategy will require an increase
in cash needed to finance acquisitions, for working capital and for capital
expenditures. At September 30, 1997, the Company had working capital of
approximately $17.0 million and current assets of approximately $31.3 million.
After exhausting the proceeds of the Offering, the Company must rely on
internally generated funds or additional financing to fund the cash component of
future acquisitions, for capital expenditures and to provide necessary working
capital. Although the Company currently believes it will be able to secure
necessary financing, there can be no assurance that it will be able to do so on
favorable terms, if at all. If the Company is unable to internally generate
funds or secure additional financing in the future, its ability to pursue its
business strategy and its results of operations for future periods may be
adversely affected. In addition, the Company may issue debt or equity securities
to the owners of the companies it acquires. The issuance of debt or equity
securities, either for cash or to owners in connection with acquisitions, could
have a material adverse impact on the value of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
CONTROL BY OFFICERS, DIRECTORS AND AFFILIATES
Upon consummation of the Offering, the Company's officers, directors and
their respective affiliates, including Bradford Venture Partners, L.P. and
Overseas Equity Investor Partners, will beneficially own approximately 42% of
the outstanding shares of the Company's Common Stock (assuming no exercise of
the over allotment option). Such persons, if acting together, will have
sufficient voting power to substantially influence the management and affairs of
the Company, and may be able to elect the Board of Directors of the Company and
to control the disposition of corporate actions submitted to the stockholders
for approval. As a result, certain transactions may not be possible without the
approval of such stockholders, including mergers involving the Company and
tender offers or other purchases of Common Stock that could give stockholders of
the Company the opportunity to realize a premium over the then-prevailing market
price for the Common Stock. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 2,381,288 of the outstanding shares of
Common Stock, 635,409 shares of Common Stock that may be issued upon exercise of
outstanding stock options and warrants, and shares of Common Stock issued in
connection with future acquisitions will become eligible for sale at prescribed
times in reliance on Rule 144 promulgated under the Securities Act or pursuant
to piggyback or demand registration rights in favor of certain stockholders. All
of the Company's stockholders prior to the Offering have been granted piggyback
registration rights with respect to Common Stock owned by such stockholders as
of such date. In general, such piggyback registration rights may be exercised by
such stockholders on each occasion after the Offering that the Company proposes
to register any public offering of shares of its capital stock under the
Securities Act. In addition
8
<PAGE>
to such piggyback registration rights, if and when the Company is qualified to
register Shares of its Common Stock on Form S-3, such stockholders may cause the
Company at certain times to register shares of Common Stock on Form S-3,
provided that the offering involves proceeds in excess of $1,000,000. Two
stockholders also have one right each to require the Company, subject to certain
conditions such as minimum ownership requirements and minimum aggregate offering
price, to register under the Securities Act up to 100% of the shares of Common
Stock held by such stockholder. All of the Company's stockholders prior to the
Offering and its executive officers and directors have agreed not to offer, sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of the Offering without the prior written consent of A.G. Edwards
& Sons, Inc. on behalf of the Underwriters. Following such period, these shares
will be eligible for sale in the public market without registration subject to
the conditions and restrictions of Rule 144. Sales of any of the shares
described above in the public market could adversely affect prevailing market
prices for the Common Stock. See "Shares Eligible for Future Sale."
ABSENCE OF PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock of the Company. There can be no assurance that, following the Offering, an
active trading market for the Common Stock will develop or be sustained or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations between the Company and the Representatives of the Underwriters,
and such price will not necessarily be indicative of the market price of the
Common Stock after the Offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. From
time to time, the stock market experiences significant price and volume
volatility, which could affect the market price of the Common Stock for reasons
that may be unrelated to the operating performance of the Company. In addition,
quarterly variations in the Company's financial results could cause the market
price of the Common Stock to fluctuate substantially.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will suffer an immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial offering price. See "Dilution."
DIVIDEND POLICY AND RESTRICTIONS
The Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future and anticipates that future earnings will be retained to
finance future operations and expansion. The Board of Directors is authorized,
without the approval of the holders of the Common Stock, to issue Preferred
Stock containing restrictions on the payment of dividends to holders of the
Common Stock. In addition, certain provisions of the loan documents relating to
the Company's credit facilities have the effect of restricting or, under certain
circumstances, prohibiting one or more of the Company's subsidiaries or the
Company from declaring or paying dividends. Further, if the Company obtains
additional financing to fund the cash component of future acquisitions or to
provide necessary working capital, the terms of such financing could restrict
the Company's ability to declare or pay dividends on its capital stock. See
"Dividend Policy."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Second Restated Certificate of
Incorporation, Restated Bylaws and certain provisions of the General Corporation
Law of Delaware (the state in which the Company is incorporated) may make it
difficult to change control of the Company and to replace incumbent management.
For example, the Company's Second Restated Certificate of Incorporation permits
the Board of Directors, without stockholder approval, to issue additional shares
of Common Stock or to establish one or more classes or series of Preferred Stock
having the number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations that the Board
of Directors fixes. This provision and the other provisions referred to above
could limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. See "Description of Capital Stock--Special
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."
9
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
Prospectus, including without limitation, statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," regarding planned capital expenditures,
the Company's financial position, business strategy, growth strategy and other
plans and objectives for future operations, are forward-looking statements. In
addition, the words "anticipate," "believe," "estimate," "expect" and similar
expressions as they relate to the Company or its management are intended to
identify forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Additional important factors that could cause actual results to differ
materially from the Company's expectations are disclosed under "Risk Factors"
and elsewhere in this Prospectus, including without limitation in conjunction
with the forward-looking statements included in this Prospectus. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by such
factors.
BACKGROUND OF THE COMPANY
The Company was incorporated in Delaware in September 1986 to acquire
American Packing and Gasket Company, Inc. ("APG"). APG was a fabricator and
master distributor of sealing products, hose couplings and glass to industrial
customers, primarily in Texas and other states along the Gulf Coast. During its
first five years the Company focused on enhancing APG's operations by, among
other things, establishing a management team, expanding profitable product
lines, upgrading fabrication equipment, implementing inventory and accounting
controls, installing computerized accounting and management information systems
and developing a comprehensive marketing program and business plan. When APG's
operations had been significantly improved, the Company's management was able to
pursue the goal of becoming a leading wholesale distributor in a limited number
of diversified specialty markets. Following the sale in May 1992 of a
controlling interest in the Company's stock to the Bradford Venture Partners,
L.P., Overseas Equity Investor Partners and certain other parties, the Company
embarked on an expansion program that has included both acquisitions and
internal development.
Since 1994, the Company has completed ten acquisitions, two of which were
new market acquisitions and eight of which were fill-in acquisitions. The
Company considers a new market acquisition to be one that adds a new product
group that is distinct from the Company's existing product groups. These new
market acquisitions are operated as subsidiaries of the Company. Fill-in
acquisitions generally are smaller and represent the addition of operations,
products or locations that are complementary to the Company's existing
operations. The businesses acquired as fill-in acquisitions usually have been
integrated with one of the Company's subsidiaries. See "Business--Acquisitions."
The Company has also grown through internal development. The Company has
increased sales to existing customers by periodically expanding into new product
lines and continually adding new products to existing lines. The Company also
has added new customers in existing markets through targeted sales programs and
in new markets through the addition of new operating locations and sales
offices. Using this approach of balanced expansion through acquisitions and
internal development, the Company's sales and operating income increased from
approximately $14.5 million and $2.1 million, respectively, in fiscal 1994 to
approximately $80.1 million and $6.1 million, respectively, in fiscal 1997. The
Company now has 13 operating locations and two sales offices in six states. See
"Business--Products and Services" and "--Facilities."
The Company distributes products and provides related services through
four operating subsidiaries. The Company's specialty builders' products business
is operated through De-Ro/Suncoast, Inc. ("DRS"). DRS, in turn, operates through
two divisions, Suncoast Postension ("Suncoast"), its post-tension products
division, and De-Ro Products ("De-Ro"), its household fixtures products
division. The Company's specialty industrial products business is operated
through two separately managed subsidiaries, American Packing and Gasket Company
("APG") and Mountain Empire Rubber & Specialty Co., Inc. ("MERSCO"). The
Company's telecommunications equipment business is operated through New West
Communications, Inc. ("New West").
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $22.8 million, after deducting estimated underwriting discount and
offering expenses and assuming an initial offering price of $11.00 per share.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
USE OF PROCEEDS. The Company intends to use a portion of the net proceeds
of the Offering to repay outstanding indebtedness in the aggregate amount of
$10.4 million under its subsidiaries' credit facilities. After such repayments,
the Company's aggregate outstanding indebtedness will be $2.9 million,
consisting primarily of subordinated debt incurred in connection with the
acquisitions of DRS and New West. The Company may in the future enter into new
credit facilities, either at the Travis or subsidiary level.
The Company also intends to use approximately $1.4 million of the net
proceeds of the Offering to retire future obligations under certain employment,
consulting and non-competition agreements entered into in connection with the
acquisition of DRS in 1994. Pursuant to agreements between the former owners of
DRS and the Company, the Company has agreed to pay $1.4 million to such persons,
representing a discount of approximately $400,000 calculated by the Company to
be owing under such agreements through the year 2002 (based on certain
assumptions made by the Company regarding the amount and timing of such
payments).
The Company plans to use the net proceeds remaining after the payments
described above for working capital purposes, including to add new locations and
product lines and to finance possible acquisitions. Although there are no
material acquisitions pending as of the date of this Prospectus, the Company is
routinely engaged in evaluating and holding preliminary discussions regarding
potential acquisitions and intends to pursue new market and fill-in acquisitions
as opportunities arise. See "Business--Acquisitions." Until used, the proceeds
of the Offering will be invested in short-term, investment-grade,
interest-bearing obligations.
SUMMARY OF CREDIT FACILITIES. At September 30, 1997, each of the Company's
subsidiaries maintained separate bank credit facilities with the same bank. All
of such facilities (described below) bear interest at a variable rate equal to
the bank's reference rate (equal to 8.50% at September 30, 1997) or the bank's
reference rate plus up to .50%, except for $1,000,000 of New West's term loan
facility (which bears interest at a fixed rate of 9.33%). All of such facilities
are secured by the equipment, inventory and accounts receivable of the
respective subsidiary and are not cross-collateralized. Availability under each
revolving credit facility is based upon a valuation of certain of the respective
subsidiary's inventory and accounts receivable. In addition, each revolving
credit facility matures on December 31, 1998. Travis does not maintain its own
credit facility but may in the future consolidate its subsidiaries' facilities
into one credit facility at the Travis level or obtain its own credit facility
if circumstances warrant.
DRS has a revolving credit facility, a term loan facility and a facility
for the purchase of equipment and vehicles. At September 30, 1997, the maximum
availability under the revolving credit facility was $7.5 million and $6.6
million was outstanding thereunder. DRS's term loan is payable in equal
quarterly installments of interest and principal through September 30, 2001. At
September 30, 1997, $865,510 remained outstanding under the term loan facility.
A maximum of $250,000 is available through December 31, 1998 under DRS's
facility for the purchase of equipment and vehicles. Each equipment advance is
payable in equal monthly installments over a five-year period and each vehicle
advance is payable in equal monthly installments over a two-to-four-year period.
As of September 30, 1997, $146,218 was outstanding under DRS's facility for the
purchase of equipment and vehicles.
APG has a revolving credit facility and a term loan facility. At September
30, 1997, the maximum availability under the revolving credit facility was $3.0
million and $1.0 million was outstanding thereunder. APG's term loan is payable
in quarterly installments of interest and principal through December 31, 1997.
At September 30, 1997, $9,401 remained outstanding under the term loan facility.
MERSCO has a revolving credit facility which provides for a line of credit
of up to $750,000 and is guaranteed by Travis. At September 30, 1997, $500,000
was outstanding under such facility.
New West has a revolving credit facility and term loan facility. Up to
$500,000 under these facilities is guaranteed by Travis. At September 30, 1997,
the maximum availability under the revolving credit facility was $1.1 million
and none was outstanding thereunder. New West's term loan is payable in
quarterly installments of interest
11
<PAGE>
and principal, with a final balloon payment due September 30, 2001. At September
30, 1997, $1.3 million remained outstanding under the term loan facility.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain any future earnings for reinvestment in the Company. The Board of
Directors is authorized, without the approval of the holders of the Common
Stock, to issue Preferred Stock containing restrictions on the payment of
dividends to holders of the Common Stock. In addition, certain provisions of the
loan documents relating to the Company's credit facilities have the effect of
restricting or, under certain circumstances, prohibiting one or more of the
Company's subsidiaries or the Company from declaring or paying dividends.
Further, if the Company obtains additional financing to fund the cash component
of future acquisitions or to provide necessary working capital, the terms of
such financing also could restrict the Company's ability to declare or pay
dividends on its capital stock. Any future determination as to the payment of
dividends will be subject to any such restrictions, will be at the discretion of
the Company's Board of Directors and will depend on the Company's results of
operations, financial condition, capital requirements and other factors deemed
relevant by the Board of Directors.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at September 30, 1997. The table also sets forth the short-term debt
and capitalization of the Company at September 30, 1997 on an as adjusted basis
to reflect the sale by the Company of 2,272,727 shares of Common Stock offered
hereby at an assumed offering price of $11.00 per share and the application of
the net proceeds therefrom as set forth in "Use of Proceeds."
SEPTEMBER 30, 1997
---------------------
ACTUAL AS ADJUSTED
------- -------
(IN THOUSANDS)
Current portion of long-term debt .................. $ 1,239 $ 601
------- -------
Total long-term debt, less current portion ......... 11,983 2,262
------- -------
Stockholders' equity:
Preferred Stock, par value $.01 per
share; 2,000 shares authorized, 27
shares issued and outstanding;
502,000 shares authorized, as
adjusted; 25 shares issued and
outstanding, as adjusted ..................... -- --
Common Stock, par value $.01 per
share; 4,590,000 shares
authorized; 2,308,050 shares
issued and outstanding; 12,000,000
shares authorized, as adjusted;
5,290,379 shares issued and
outstanding, as adjusted (1) ................. 23 53
Common Stock, Class A, par value $.01
per share; 1,530,000 shares
authorized; 703,482 issued and
outstanding; none authorized, as
adjusted ..................................... 7 --
Additional paid-in capital ......................... 6,218 28,945
Retained earnings .................................. 13,159 13,159
------- -------
Total stockholders' equity ...................... 19,407 42,157
------- -------
Total capitalization ......................... $32,629 $45,020
======= =======
(1) Excludes 718,029 shares of Common Stock issuable upon conversion of
outstanding preferred stock or exercise of outstanding stock options and
warrants. See "Management--Compensation Plans."
12
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1997 was $8,725,717, or $2.89 per share of Common Stock outstanding. Net
tangible book value per share of Common Stock represents the amount of the
Company's common stockholders' equity, less intangible assets, divided by
3,017,652 shares of Common Stock outstanding as of the close of the Offering.
Net tangible book value dilution per share of Common Stock represents the
difference between the amount per share paid by purchasers of shares of Common
Stock to be sold by the Company in the Offering and the net tangible book value
per share of Common Stock immediately after completion of the Offering. After
giving effect to the sale by the Company of 2,272,727 shares of Common Stock in
the Offering at an assumed offering price of $11.00 per share and the
application of the estimated net proceeds therefrom, the net tangible book value
of the Common Stock as of September 30, 1997 would have been $31,475,717, or
$5.95 per share of Common Stock. This represents an immediate increase in the
net tangible book value of $3.06 per share of Common Stock to existing common
stockholders and an immediate dilution in net tangible book value of $5.05 per
share of Common Stock to purchasers of Common Stock in the Offering. The
following table illustrates the dilution in the net tangible book value per
share to new investors:
Assumed initial public offering price per share .................. $11.00
Net tangible book value per share at September 30, 1997......... $2.89
Increase in net tangible book value per share attributable
to new investors............................................. 3.06
-----
Net tangible book value per share after the Offering.............. 5.95
-----
Dilution per share to new investors............................... $5.05
=====
The following table sets forth, as of the close of the Offering, the
number of shares of Common Stock issued by the Company, the total consideration
paid and the average price per share paid by both existing stockholders and by
new investors purchasing shares of Common Stock in the Offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED(1) CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders(1) .. 3,017,652 57.0% $ 5,851,180 19.0% $ 1.94
New investors(2) .......... 2,272,727 43.0% 24,999,997 81.0% $11.00
--------- ----- ----------- -----
Total ..................... 5,290,379 100.0% $30,851,177 100.0%
========= ===== =========== =====
</TABLE>
(1) Does not include 718,029 shares of Common Stock issuable upon conversion
of outstanding preferred stock or exercise of outstanding stock options
and warrants at a weighted average exercise price of $5.55 per share,
448,125 of which options and warrants are exercisable.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected statement of income and balance sheet data as of and for each
of the years in the three-year period ended September 30, 1997 are derived from
the Company's consolidated financial statements included elsewhere herein which
have been audited by Arthur Andersen LLP, independent public accountants, and
should be read in conjunction with such financial statements and the notes
thereto. The selected statement of income and balance sheet data as of and for
the years ended September 30, 1993 and 1994 are derived from the Company's
financial statements, audited by the Company's prior independent public
accountants and Arthur Andersen LLP, respectively, not included herein. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and "Risk
Factors" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales .......................... $ 13,697 $ 14,526 $ 46,339 $ 65,813 $ 80,127
Costs of goods sold ............ 8,068 8,541 33,116 47,141 55,240
---------- ---------- ---------- ---------- ----------
Gross profit ................... 5,629 5,985 13,223 18,672 24,887
Operating expenses ............. 3,391 3,580 9,317 13,467 18,388(1)
Amortization of intangibles .... 326 325 305 282 399
---------- ---------- ---------- ---------- ----------
Operating income ............... 1,912 2,080 3,601 4,923 6,100(1)
Interest expense ............... 108 96 525 673 1,107
---------- ---------- ---------- ---------- ----------
Income before income taxes ..... 1,804 1,984 3,076 4,250 4,993(1)
Income taxes ................... 681 781 1,194 1,645 1,990
---------- ---------- ---------- ---------- ----------
Net income ..................... $ 1,123 $ 1,203 $ 1,882 $ 2,605 $ 3,003(1)
========== ========== ========== ========== ==========
Net income per common and
common equivalent share ...... $ 0.48 $ 0.50 $ 0.63 $ 0.84 $ 0.88(1)
Average number of shares used to
compute net income per common
and common equivalent share .. 2,319,029 2,390,199 2,986,403 3,103,390 3,427,652
</TABLE>
SEPTEMBER 30,
---------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital .... $5,557 $6,091 $11,683 $14,789 $17,034
Total assets ....... 7,793 8,013 26,394 30,606 45,703
Total debt ......... 883 642 7,723 8,310 13,222
Stockholders' equity 5,757 6,348 12,454 15,210 19,407
(1) Includes one-time charge to general and administrative expenses of $1,158
in connection with the settlement of future obligations under certain
employment, consulting and noncompetition agreements. Excluding this
one-time charge, operating income, net income and net income per common
and common equivalent share would have been $7,259, $3,737 and $1.09,
respectively. The settlement of these future obligations was agreed to as
of September 30, 1997 (and recorded during fiscal year 1997), and will be
funded with a portion of the net proceeds of the Offering. See "Use of
Proceeds" and note 9 to the consolidated financial statements included
elsewhere herein.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and the
notes thereto and the Consolidated Financial Data included elsewhere herein.
Historical operating results are not necessarily indicative of the trends in
operating results for any future period.
GENERAL
The Company has experienced substantial growth in sales volume, gross
profit and operating income since 1994. The Company's sales increased from
approximately $14.5 million in fiscal 1994 to approximately $80.1 million in
fiscal 1997. Over this same period, gross profit and operating income increased
from approximately $6.0 million and $2.1 million to approximately $24.9 million
and $6.1 million, respectively. The Company accomplished this growth by
completing nine acquisitions between the beginning of fiscal 1994 and the end of
fiscal 1997 and through internal development of the Company's operations during
that period, including the operations of the companies which it acquired.
The Company's gross margins have been significantly affected by changes in
the percentage of its sales derived from the various specialty markets it serves
as a result of acquisitions and differing rates of internal development. For
example, in late 1994, the Company acquired two distributors of specialty
builders' products, which more than doubled the Company's sales and added its
second major specialty market. These acquisitions resulted in a substantial
decrease in gross margins in the 1995 fiscal year compared to the 1994 fiscal
year due to lower gross margins derived from sales of specialty builders'
products. In contrast, in fiscal 1997, gross margins rose to 31.0% from 28.4% in
fiscal 1996, primarily as a result of the Company's acquisition of its
telecommunications equipment product group, better product sourcing and
concentration on higher-margin business. While the Company prefers acquisition
candidates with higher gross margins, its primary focus is on operating margins
both in selecting acquisition candidates and in conducting its business
generally. Accordingly, the Company expects that its gross margins will continue
to fluctuate as a result of acquisitions and other changes in the number and
type of specialty markets in which it operates.
Demand for products in each of the markets currently served by the Company
is affected by different factors. Demand for the Company's specialty builders'
products is affected by general economic conditions, the level of new single and
multi-family building activity, weather conditions, interest rates and the
availability of credit, among other factors. While these factors are beyond the
Company's control, management believes that the strength of the economy as a
whole, particularly in the Sunbelt region where management has concentrated the
internal development efforts of its specialty builders' products operations,
should result in continuing growth in sales from these operations over the next
12 months. See "Risk Factors--Dependence on Construction Markets." Management
believes that a majority of the Company's sales of specialty industrial products
are made to the MRO market, including oil refineries, chemical plants,
manufacturing plants, power generation facilities, waste water treatment plants
and industrial equipment repair operations. Due to the Company's emphasis on the
MRO markets, demand for the Company's specialty industrial products has been and
is expected to be more stable than if sales were concentrated in the new
construction markets. Ultimately, demand for the Company's specialty industrial
products is affected by profitability of the end-users of the Company's products
and, to some extent, by the state of the energy industry, the level of general
economic activity and new requirements of governmental environmental and safety
regulations. Demand for the Company's telecommunications equipment, almost all
of which are related to the Lucent Technologies 5ESS central office switch, is
affected by the needs of the telephone operating companies in maintaining and
expanding their central office switching equipment and by Lucent's position and
strategy in the central office switch industry.
The Company's business is somewhat seasonal. The Company's first and
second fiscal quarter operating results typically are adversely affected by
winter construction cycles and weather patterns as the level of activity in new
home construction markets decreases. The Company's first fiscal quarter
operating results also are typically adversely affected by the holiday season
due to the decreased level of business activity and decreased number of billing
days during that quarter. Management closely monitors and controls variable
operating expenses and inventory levels during seasonally affected periods to
partially offset these factors. In addition, management believes that as the
Company implements its operating strategy, including new-market acquisitions,
the effects of seasonality on the Company's overall operating results should
diminish.
15
<PAGE>
The following table sets forth, for the periods indicated, the percentage
of sales represented by certain items in "Selected Consolidated Financial Data."
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1996 1997
------ ------ -----
Sales........................................ 100.0% 100.0% 100.0%
Gross profit................................. 28.5 28.4 31.1
Operating expenses........................... 20.1 20.5 23.0
Amortization of intangibles.................. 0.7 0.4 0.4
Operating income............................. 7.8 7.5 7.6
Interest expense............................. 1.1 1.0 1.4
Income before income taxes................... 6.6 6.5 6.2
Income taxes................................. 2.6 2.5 2.5
Net income................................... 4.1% 4.0% 3.7%
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996.
Sales increased by 21.7% to $80.1 million during the year ended September 30,
1997 from $65.8 million during the year ended September 30, 1996. Of such
increase, $4.7 million (approximately 33%) resulted from sales of
telecommunications equipment, a product group acquired October 1, 1996. The
Company posted broad-based sales increases of its specialty industrial products
of 16.2% to $24.2 million from $20.8 million in fiscal 1996. Sales of specialty
builders' products increased by 13.9% to $51.3 million from $45 million in
fiscal 1996, partially as a result of a fill-in acquisition and the opening of
new locations during fiscal 1997.
Gross profit increased by $6.2 million to $24.9 million in fiscal 1997
from $18.7 million in fiscal 1996. Of such increase, $2.5 million was
attributable to sales of telecommunications equipment and the balance resulted
from internal development and fill-in acquisitions. As a percentage of sales,
gross profit increased to 31.1% in fiscal 1997 from 28.4% in fiscal 1996.
Approximately one-half of the percentage increase was attributable to sales of
telecommunications equipment, which generates higher gross margins than most
other products distributed by the Company. The gross margins from sales of
specialty builders' products benefited in fiscal 1997 from better product
sourcing and a planned shift of market emphasis of the post-tension product
sales to higher-margin residential builders and commercial construction
contractors.
Operating expenses increased by $4.9 million to $18.4 million in fiscal
1997 from $13.5 million in fiscal 1996. Of such increase, $1.2 million resulted
from the retirement, at a discount, of future obligations under certain
employment, consulting and non-competition agreements. As a percentage of sales,
operating expenses, exclusive of the $1.2 million non-recurring charge mentioned
above, increased to 21.5% during in fiscal 1997 from 20.5% of sales during in
fiscal 1996, primarily reflecting the Company's investment in personnel and
overhead required to support future growth.
Amortization increased by $117,671 to $399,363 in fiscal 1997 from
$281,692 in fiscal 1996, primarily due to amortization of intangible assets
acquired in connection with the acquisition of the Company's telecommunications
equipment product group.
Interest expense increased by $434,399 to $1.1 million in fiscal 1997 from
$673,007 in fiscal 1996. The increase resulted primarily from debt incurred in
connection with the acquisition of the telecommunications equipment product
group and indebtedness incurred to finance working capital expansion and
equipment additions related to the Company's distribution of specialty builders'
products.
Income taxes increased by $345,174 to $2.0 million in fiscal 1997 from
$1.6 million in fiscal 1996. As a percent of pre-tax income, income taxes
increased to 39.9% in fiscal 1997 from 38.7% in fiscal 1996, primarily as a
result of higher state income tax rates on operations in California.
16
<PAGE>
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995.
Sales increased by 42.0% to $65.8 million in fiscal 1996 from $46.3 million in
fiscal 1995. This increase was primarily due to internal growth (including the
development of operations acquired in fiscal 1995), the inclusion of a full
year's sales of those operations acquired in fiscal 1995, and sales from new
operations acquired or opened during fiscal 1996.
Gross profit increased by $5.4 million to $18.7 million in fiscal 1996
from $13.2 million in fiscal 1995 primarily as a result of increased sales. As a
percentage of sales, gross profit remained relatively stable at 28.4% in fiscal
1996 compared to 28.5% in fiscal 1995.
Operating expenses increased by $4.2 million to $13.5 million in fiscal
1996 from $9.3 million in fiscal 1995. As a percentage of sales, operating
expenses increased to 20.5% in fiscal 1996 from 20.1% of sales in fiscal 1995,
primarily to support expansion related to the specialty builders' products
distributed by the Company, including new branch openings and the establishment
of a specialty hardware master distributor operation.
Amortization of intangibles decreased by $23,183 to $281,692 in fiscal
1996 from $304,875 in fiscal 1995.
Interest expense increased by $147,946 to $673,007 in fiscal 1996 from
$525,061 in fiscal 1995. The increase resulted primarily from the inclusion of a
full year's interest expense related to operations acquired in fiscal 1995 and
additional borrowings to finance working capital needs resulting from increased
sales. The increase in interest expense was partially offset by an increase of
$73,239 in interest income on funds held by Travis to $116,314 in fiscal 1996
from $43,075 in fiscal 1995.
Income taxes as a percentage of pre-tax income remained relatively
constant at 38.7% during fiscal 1996 compared to 38.8% in fiscal 1995.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in costs,
however, could have an impact on the Company. The Company believes that, to the
extent inflation affects its costs in the future, it can generally offset
inflation by increasing prices if competitive conditions permit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital resources are to finance
acquisitions, inventories, accounts receivable and, to a lesser extent, capital
expenditures. Borrowings for working capital typically increase during periods
of sales expansion when higher levels of inventory and receivables are needed
and decrease as inventories and receivables are converted to cash and are used
to pay down debt. Subsidiaries of the Company had $12.0 million of long-term
debt, less current maturities, outstanding at September 30, 1997, consisting of
the borrowings described below. See Note 2 to the Consolidated Financial
Statements of the Company for a discussion of borrowings as of September 30,
1997. Consistent with the Company's diversified and decentralized operating
strategy, all subsidiary debt obligations are separate with no
cross-collateralization, with the exception of the Company's guarantee of
certain New West and MERSCO obligations. See "Use of Proceeds."
CREDIT AGREEMENTS: Subsidiaries of the Company are parties to individual
credit agreements with the same bank. As of September 30, 1997, such credit
facilities: (i) permitted revolving borrowings up to an aggregate of $12.8
million, of which an aggregate of $12.3 million was available based on the
subsidiaries' borrowing base formulas and $8.1 million was outstanding; (ii)
included term loans with an aggregate of $2.2 million outstanding that are
repayable in quarterly installments aggregating $154,495, plus an annual cash
flow recapture provision of the New West loan which, based on fiscal 1997
operations, amounted to $148,566; and (iii) included a facility of up to
$250,000 to partially finance the purchase of equipment and vehicles with an
outstanding balance of $146,218. Borrowings under these credit facilities are
secured by the equipment, inventory and accounts receivable of the respective
subsidiaries. Borrowings outstanding under these agreements will be retired from
the proceeds of the Offering.
SUBORDINATED DEBT: As of September 30, 1997, subsidiaries of the Company
had an aggregate of $2.1 million of subordinated debt outstanding, consisting of
$879,822 of unsecured debt payable in quarterly installments to sellers of
businesses acquired by the Company and $1.3 million payable in equal monthly
installments to an
17
<PAGE>
institutional lender, secured by a second lien on substantially all the assets
of New West. The holder of New West's subordinated debt holds warrants to
purchase 91,800 shares of the Company's Common Stock at $7.35 per share, which
may be exercised through an offset of part or all of the outstanding balance of
the debt.
OTHER DEBT: As of September 30, 1997, subsidiaries of the Company also had
$733,183 of indebtedness outstanding to capital lessors in connection with
capital lease obligations, former owner of acquired operations and to financial
institutions for various equipment purchases. These obligations generally are
collateralized by certain assets of the subsidiaries.
Under the terms of the respective credit agreements, the Company's
subsidiaries are subject to various restrictive covenants regarding, among other
things, maintenance of working capital, net worth and other financial ratios,
incurrence of additional indebtedness, payment of management fees to the Company
and consummation of mergers and acquisitions. The respective financial ratios
may, under certain circumstances, have the effect of restricting or prohibiting
the declaration and payment of dividends by a subsidiary or the Company.
Net cash generated from (used in) operating activities was ($152,408),
$2.5 million and ($571,715) for fiscal years 1995, 1996 and 1997, respectively.
Cash required to finance increased accounts receivable and inventories, net of
accounts payable increases, aggregated $2.2 million, $1.9 million and $6.2
million for fiscal years 1995, 1996 and 1997, respectively. Changes in other
non-cash working capital accounts, other than deferred tax assets and the
current portion of long-term debt, provided (used) cash of ($317,507) in fiscal
1995, $1.3 million in fiscal 1996 and $2.1 million in 1997. Capital expenditures
were $660,679, $788,472 and $1.6 million for fiscal years 1995, 1996 and 1997,
respectively. Four acquisitions were made in fiscal 1995 requiring cash of $8.2
million, two acquisitions were made in fiscal 1996 requiring cash of less than
$200,000 and three acquisitions were made in fiscal 1997 requiring cash of $4.1
million.
The Company's acquisition strategy will require significant capital
resources and, as a result, the Company may need to incur additional
indebtedness. To pursue this strategy, the Company also may need to issue, in
public and private transactions, equity or debt securities, the terms of which
will depend on market and other conditions. The Company requires capital not
only for acquisitions, but also for the effective integration, operation and
expansion of existing businesses. The Company believes that the net proceeds of
the Offering, together with cash generated from operations and funds that may be
available under future credit facilities, will be adequate to support the
foreseeable capital requirements of the Company and its subsidiaries through
1998. There can be no assurance, however, that future credit facilities will be
available to the Company on acceptable terms or at all, and a large acquisition
or a number of smaller acquisitions may require funds in excess of available
capital.
18
<PAGE>
BUSINESS
GENERAL
The Company is a diversified wholesale distributor of specialty products
and provider of related value-added services. From 13 operating locations in
five states in the southern and western United States, the Company distributes
post-tension cable products, household fixture products, specialty industrial
products and telecommunications equipment. In addition, the Company provides
value-added services in connection with such products, including engineering and
design assistance, just-in-time delivery, fabrication, warranty repair,
installation and other technical assistance. During fiscal 1997, the Company
sold its products to over 8,700 customers located primarily in the United States
and, to a lesser extent, Canada, Mexico and other countries. The Company has
three principal categories of customers: (i) residential builders and commercial
construction contractors, (ii) distributors of industrial products and (iii)
operators of central office telephone systems.
The Company's objective is to become a leading diversified wholesale
distributor of specialty products and related value-added services in the United
States. In pursuing this objective, the Company endeavors to achieve significant
product, customer, vendor and geographic diversity by establishing operations in
a limited number of distinct niche markets and to increase the sales and net
income of those operations through further market penetration and the addition
of locations and products sold within such markets. The Company focuses on
markets where the demand for specialized products or value-added services offers
opportunities to obtain higher margins than those typically attainable in
markets for more standard, high-volume merchandise and where opportunities exist
for consolidation. The Company implements its strategy through new market
acquisitions that add new product groups, vendors and customers to the Company's
base, through fill-in acquisitions that establish new locations or complementary
product lines for its existing operations and through internal development
efforts to increase penetration of the markets in which it operates. The Company
maintains a decentralized management structure that provides the managers of its
operating subsidiaries with discretion in conducting their respective operations
while affording them the benefits of the Company's executive management
expertise. The Company leverages the expertise of its executive and operating
managers to achieve commonalities among its operating subsidiaries that result
in management efficiencies and cost savings.
INDUSTRY OVERVIEW
The Company operates in the distribution industry. Wholesale distribution
is one of the largest and most fragmented industries in the United States.
According to the U.S. Department of Commerce, aggregate sales of distributors
based in the United States in 1996 exceeded $2.5 trillion. The Company believes
that distributors generally add value to the supply chain for products by
reducing the cost of doing business for both their suppliers and customers.
Distributors may reduce the cost of their suppliers' operations by placing large
orders at regular intervals, which allows suppliers to plan production more
efficiently, by maintaining and financing inventories, and by providing
transportation, logistics, sales and marketing and customer support services
which these suppliers would otherwise be required to provide. Similarly,
customers receive inventory, logistics and technical support services from
distributors. These services may reduce operating costs of those customers as a
result of their ability to maintain lower levels of inventory, purchase from a
reduced number of suppliers and receive technical assistance and product
support.
The distribution industry has experienced significant changes in recent
years. Capitalizing on the industry's fragmentation, some larger distributors
grew considerably during the past decade through acquisitions to achieve
economies of scale and other advantages gained from higher sales volumes, wider
geographic range, added purchasing power and more sophisticated computer
systems. This consolidation trend has been accelerated by certain distribution
customers that have sought to reduce the total cost of their purchasing
activities by placing larger orders with fewer distributors or integrated
suppliers, by outsourcing their purchasing function to inventory management
firms or by investing in technology designed to maximize opportunities for
savings. At the same time, certain industries have developed effective
alternatives to wholesale distribution for the distribution of products, such as
catalogs, mass merchants and other retailers, and placing orders directly with
manufacturers through electronic commerce, including the Internet. The Company
believes these trends have been strongest in larger markets and markets for high
volume, low margin, commodity-type products, and have resulted in consolidation
and integrated supply alliances among distributors as they position themselves
to better serve their larger customers.
19
<PAGE>
The Company differs from many other distributors in that it operates
exclusively in specialty markets. The specialty markets sought by the Company
are defined by a number of characteristics that distinguish them from larger
markets and markets for commodity-type products. Although not all specialty
markets exhibit all of these characteristics, generally they include: (i) a
small to medium total market size, (ii) above-average margins and returns on
assets due to the nature of the products or unique value-added services offered,
(iii) a limited number of competitors and the absence of a dominant, national
competitor, and (iv) a high degree of fragmentation at the distributor, supplier
and customer levels. The Company believes specialty markets are less capable of
being served by alternatives to wholesale distribution and offer greater
opportunities than commodity-type markets to gain substantial market shares in
the niches the Company serves.
STRATEGY
The Company's objective is to become a leading diversified wholesale
distributor of specialty products and provider of related value-added services
in the United States. To achieve this objective, the Company's strategy includes
the following:
FOCUS ON DIVERSIFIED, SPECIALTY MARKETS. The Company focuses on operating
in specialty markets where it believes it can capitalize on its competitive
advantages relative to the smaller, local or regional distributors who have
traditionally served such markets. The Company believes that specialty markets
permit broader product, customer, vendor and geographic diversification because
initial entry into a number of such markets and subsequent geographic expansion
within those markets requires substantially less capital than is required to
penetrate larger markets. The markets targeted by the Company also involve
products requiring technical support or other value-added services which the
Company believes makes them less suitable for catalog, retail, electronic
commerce or other alternatives to traditional wholesale distribution. The
Company currently operates in three different markets and expects to enter other
distinct specialty markets over the next several years. By operating in a number
of different specialty markets, the Company believes it can more effectively
manage economic fluctuations than other distributors that may have a broad
geographic range and a large number of customers, but lack the Company's
product, customer and vendor diversity.
EMPHASIS ON VALUE-ADDED SERVICES. The Company seeks to provide superior
service to its customers by maintaining a broad inventory and providing
value-added services such as just-in-time delivery, technical assistance and
fabrication to customer specifications. The Company believes that the depth and
breadth of its inventory, combined with its just-in-time delivery services,
enable it to maintain its pricing structure, especially under circumstances
where product unavailability might result in shut-downs, delays or interruptions
in its customers' operations. The Company also offers a variety of other
value-added services in connection with its distribution activities, including
packaging, delivery, installation and warranty repair services for household
fixture products; design, engineering and in-field assistance for post-tension
cable systems; and fabrication of gaskets and other industrial rubber products,
industrial glass, plastics and mirrored by-pass doors. By providing such
services, the Company is typically able to generate above-average margins
without significant capital costs and to attract a more loyal and diverse group
of customers than would otherwise be possible.
EXPANSION THROUGH INTERNAL DEVELOPMENT. While the Company continually
searches for opportunities to expand existing operations through fill-in
acquisitions (see "--Acquisitions"), it balances its acquisition efforts with
internal development efforts. The Company's internal development goals are to
increase penetration of its existing geographic markets by adding new products
for sale to existing customers and to intensify efforts to sell to new customers
in those markets. The Company also pursues internal development by expanding
into new geographic markets through the addition of new production locations,
warehouses or sales offices in territories contiguous to existing operations.
For example, the Company recently established a sales office for its commercial
post-tension cable products and services in Orlando, Florida and a showroom for
its household fixture products and services in Austin, Texas. The Company
believes that its operating subsidiaries may expand internally at a faster pace
than most of their respective competitors because the Company can provide its
subsidiaries with the capital resources and corporate-level services that such
competitors often lack.
DECENTRALIZED, COMMON OPERATING APPROACH. The Company maintains a
decentralized operating structure that provides the managers of its subsidiaries
with discretion in conducting their respective operations while affording them
the benefits of the Company's executive management expertise. The Company's
executive management team performs all corporate-level executive functions of
the Company, including identifying acquisition targets, negotiating the terms of
acquisitions and related credit facilities and providing centralized
20
<PAGE>
administrative services, such as finance and insurance purchasing. This
structure allows the Company to spread the costs associated with administrative
services and other corporate-level functions while allowing its operating
managers the flexibility to maintain their focus on their respective businesses,
personally develop relationships with key customers and pursue opportunities in
their markets. In addition, the Company benefits from the efficiencies that can
be achieved through a common but flexible approach to several important
operational elements of wholesale distribution. The Company has implemented and
refined common sales techniques that include a combination of inside and outside
sales forces, telemarketing, direct mail programs and electronic catalogs. Each
of the Company's subsidiaries also has a computer operating system which
provides inventory and warehousing management, financial management reports,
accounts payable and receivable functions and computer-based ordering and
purchasing capabilities tailored for the individual requirements of the
subsidiary. The Company believes that its decentralized, common operating
approach can be successfully applied to most of the companies it may seek to
acquire, even though they may be at various stages of operational development.
ACQUISITIONS
The Company has relied on both new market and fill-in acquisitions in
connection with its efforts to become a leading diversified wholesale
distributor of specialty products and related value-added services. The Company
believes that acquisitions are often the most cost-effective means to enter new
specialty markets or to expand geographically within existing markets. To date,
the Company has established operations in three different specialty markets, and
intends to add operations in other new markets over the next several years. In
analyzing possible new market acquisitions, the Company considers candidates
that, like its previous new market acquisitions, exhibit some or all of the
following characteristics: (i) dominant local or regional competitor in a
specialty market, (ii) fragmented market with attractive opportunities for
consolidation, (iii) identifiable value-added services, (iv) high margins, (v)
above average return on assets and (vi) healthy earnings as a percentage of
sales. In addition, the Company generally requires that new market acquisition
candidates have experienced and dedicated managers willing to leverage the
business planning, operational experience, acquisition expertise, access to
capital and other advantages offered by the Company to obtain a substantial
share of the national market for their products and services.
After establishing operations in a new market, the Company seeks to
supplement its internal expansion within the market through fill-in
acquisitions. The Company believes that fill-in acquisitions can increase the
Company's sales without a proportionate increase in administrative costs. Since
1994, the Company has completed eight fill-in acquisitions and continually
searches for opportunities to add complementary product lines and extend its
reach into new territories utilizing fill-in acquisitions. In pursuing these
acquisitions, the Company typically considers smaller competitors that operate
in geographic areas contiguous to those in which the Company operates or that
distribute products within its existing territories that are related to the
Company's existing product lines and may be marketed effectively to its existing
customers.
The Company's general practice in connection with acquiring a new business
is to retain the services of its chief operating managers in order to capitalize
on their valuable understanding of the local or regional market and their
relationships with important customers. The Company's executive officers and new
operating managers jointly formulate business plans on an annual basis to target
areas for operational improvement. These plans identify opportunities for growth
and for implementing the Company's commonalities with respect to corporate-level
functions, marketing and MIS. In addition, in order to align the interests of
the Company's operating managers with those of the Company's stockholders, a
significant portion of the managers' compensation is based on the performance of
their respective businesses. Management believes that this partnership approach,
together with its access to capital and decentralized management structure, will
continue to attract qualified acquisition candidates to the Company.
21
<PAGE>
The following table summarizes the new market and fill-in acquisitions
completed by the Company since 1994:
ACQUISITION DATE TYPE LOCATION PRODUCTS
- ----------- ---- ---- -------- --------
MERSCO 10/94 Fill-in Johnson City, Specialty
Tennessee industrial
products
De-Ro(1) 12/94 New Market Houston, Texas Household
fixtures
Suncoast(1) 12/94 New Market Houston, Texas Post-tension
cable systems
Cable Systems, Inc.(2) 02/95 Fill-in Austin, Texas Post-tension
cable systems
Ameraflex Plastics(3) 03/95 Fill-in Houston, Texas Fabricated
plastic products
The Rebar Shop(2) 02/96 Fill-in Austin, Texas Reinforcing steel
bar and
accessories
Pine Top Mine 06/96 Fill-in Pine Top, Specialty
Supply(4) Kentucky industrial
products
New West 10/96 New Market San Luis Obispo, Refurbished
California telecommunica-
tions equipment
MD Steel(2) 05/97 Fill-in Ontario, Post-tension
California cable systems
Fabrication Plus(4) 06/97 Fill-in Hazard, Specialty
Kentucky industrial
products
Valley Seals(4) 10/97 Fill-in Johnson City, Specialty
Tennessee industrial
products
- ------------
(1) Although the Company acquired De-Ro and Suncoast in separate transactions,
the Company treats such acquisitions as one new market acquisition because
De-Ro and Suncoast both serve the specialty builders' products market.
(2) Purchased by DRS.
(3) Purchased by APG.
(4) Purchased by MERSCO.
The Company believes that there are many attractive acquisition candidates
in the wholesale distribution industry because of the highly fragmented nature
of specialty markets, industry participants' need for capital and their owners'
desire for liquidity. The Company believes that the proceeds of the Offering,
together with the availability of publicly traded stock following the Offering,
will enable it to pursue its acquisition program; however, there can be no
assurance that suitable candidates can be found or that the Company will have
the necessary resources to complete desirable acquisitions. See "Risk
Factors--No Assurance of Future Growth Through Acquisitions."
PRODUCTS AND SERVICES
The Company's products and services fall into three general categories:
(i) specialty builders' products and services, (ii) specialty industrial
products and services and (iii) telecommunications equipment. The following
table sets forth the approximate percentage of the Company's sales attributable
to these categories during each of its fiscal years since 1994.
22
<PAGE>
PERCENTAGE OF SALES
------------------------
PRODUCTS AND SERVICES YEAR ENDED SEPTEMBER 30,
- --------------------- ------------------------
1995 1996 1997
---- ---- ----
Specialty Builders' Products....................... 58% 68% 64%
Specialty Industrial Products...................... 42% 32% 30%
Telecommunications Equipment....................... - - 6%
------ ------ ------
100% 100% 100%
====== ====== ======
SPECIALTY BUILDERS' PRODUCTS AND SERVICES. The specialty builders'
products distributed by the Company are primarily comprised of (i) post-tension
cable products and (ii) household fixture products.
POST-TENSION CABLE PRODUCTS AND SERVICES. The Company distributes
post-tension cable to single-family residential contractors in the areas around
its distribution facilities in Houston, San Antonio and Austin, Texas, Ontario,
California and Phoenix, Arizona, as well as to commercial construction
contractors throughout the continental United States and in several foreign
countries. The Company generally does not compete for infrastructure
construction projects (roads, bridges and tunnels). The Company is the dominant
post-tension cable company serving the single-family residential construction
market in Houston. In addition, based on the volume of its steel cable
purchases, the Company believes it is one of the largest distributors of
post-tension cable to the residential and commercial construction markets (other
than infrastructure projects) in the United States. The Houston location is the
main production and engineering facility, housing two unbonded post-tension
cable extruders, two cable cutting lines and an engineering staff of 14. Each
of the Company's other operating locations, except the Phoenix location, has one
cutting line.
The products distributed by the Company's post-tension cable operations
are comprised primarily of unbonded post-tension cable tendons, reinforced steel
bar (rebar) and related anchors, and other accessories. Unbonded post-tension
cable is used by the Company's customers in connection with the post-tension
compression of pre-stressed concrete, particularly in connection with
slab-on-grade foundations and commercial concrete structures. The basic function
of pre-stressing concrete is to eliminate or greatly reduce the tensile stresses
to which crucial areas of concrete structures are subjected. This objective is
accomplished by stretching high-strength steel cable to induce compressive
stresses in concrete. Compressive stresses are induced in pre-stressed concrete
by either pre-tensioning or post-tensioning the steel cable. In post-tensioning,
the concrete is cast around, but not in contact with, unstretched steel cable.
The steel cable is stretched after the concrete has hardened by anchoring one
end against the concrete and using hydraulic jacks to pull the other. After
stretching, the second end also is anchored. The concrete in between the anchors
is consequently highly compressed. The strengthening effect of compression in
concrete acts like the horizontal squeeze that is applied to a row of books.
From each end, compressive stresses are applied throughout the entire row;
although the center volumes are unsupported, the books can be lifted and carried
horizontally.
Applying the post-tension cable system to slab-on-grade foundations
provides a floating slab less likely to crack in areas where soils are composed
primarily of clay or other sediments and are prone to shifting. In residential
slabs, the post-tension system allows use of less concrete than conventional
rebar foundations, typically resulting in savings to the builder of 10% to 15%.
The Company estimates that approximately 90% of the new residential construction
recently completed or commenced in the Houston area involved post-tension
slab-on-grade foundations. Use in other markets varies, but the Company believes
that the market for post-tension slab-on-grade foundations is growing at the
rate of 15% to 20% per year in some markets where a significant amount of new
housing development is in areas with unstable soils or the benefits of
post-tension cable systems otherwise have been recognized. In commercial
applications, pre-stressing of concrete can reduce limitations on the spans and
loads for many concrete structures, resulting in more economical designs. The
Company's commercial projects include parking garages, casinos, hotels,
condominium developments, apartment buildings, office towers and other concrete
buildings where the architectural plans call for large, open, covered spaces
where post-tension cable engineering is best applied.
23
<PAGE>
The Company is invited by commercial construction contractors to bid on
projects as a subcontractor and receives orders from residential and wholesale
customers by telephone and facsimile. Once an order is received, the Company
cuts the required lengths of cable at one of its locations and ships the order
for delivery to the job site. The Company uses its own fleet of trucks to
deliver its post-tension cable products to sites nearby its locations and uses
trucking services, freight trains or ships for post-tension cable deliveries to
other sites. The Company offers design, engineering and in-field assistance in
connection with most of its orders, and the Company believes that these
value-added services attract a significant number of its post-tension cable
product customers.
Since acquiring the post-tension cable product group in December 1994, the
Company has concentrated on decreasing reliance on distribution to the Texas
single-family market by expanding the geographic reach of its single-family
residential component throughout the southwestern United States and intensifying
its marketing to commercial construction contractors operating nationwide and
overseas. The Company has completed three fill-in acquisitions that established
its post-tension cable and rebar businesses in Austin, Texas and Ontario,
California, and opened its Phoenix location in August 1996. The Company has seen
growing demand for residential post-tension cable systems in each of these
metropolitan areas. In addition, the Company was the successful bidder recently
for four projects in Peru and one in Uruguay, and expects to continue to explore
opportunities in the rest of South America through a joint marketing arrangement
with one of its suppliers. In April 1997, the Company opened a sales office in
Orlando, Florida to begin marketing its commercial products and services in
central and southern Florida.
HOUSEHOLD FIXTURE PRODUCTS AND SERVICES. The Company currently
offers a wide range of household fixture products including locksets, door and
cabinet hardware, functional hardware, decorative bath accessories, storage and
closet systems, high-end plumbing fixtures, front doors and mirrored by-pass
doors. The Company's primary household fixture product is door hardware
(including handles and locksets). The Company offers a wide variety of
brand-name locksets, including Kwikset(R), Harloc(R), Schlage(R), Baldwin(R) and
Weiser,(R) as well as well-known brands of other household fixtures.
From three warehouse locations in Houston, Dallas and San Antonio, Texas,
the Company distributes household fixture products primarily to production and
custom builders serving the new single-family residential markets in Texas and
the new multi-family market (including apartments, assisted living centers,
retirement homes and motels) throughout the United States. The markets served by
the Company are distinct from the repair and remodel market for household
fixtures, where the customer base is generally composed of professional
contractors and homeowners. The Company also acts as a wholesale distributor of
some of its household fixture products to hardware stores, lumber yards and
other retail outlets, primarily in Texas.
The Company maintains a broad selection of household fixture inventory so
that it may provide a correctly assembled package of products, properly keyed,
just-in-time for installation at the customer's jobsite. The Company operates a
fleet of trucks and vans in order to provide superior delivery service in and
around its warehouses or ships the package by one- or two-day courier services
to more remote locations. In addition to ordering by telephone or facsimile,
household fixture customers may visit the Company's showrooms in Houston,
Dallas, San Antonio and Austin. These facilities attract designers and builders
who prefer the personalized service provided by the Company's showroom
salespeople or whose home-buyers want to personally select the household fixture
products that will be installed in their homes. The Company also provides
installation and warranty repair services for certain products and offers
assistance to builders and home-buyers in selecting appropriate products by
reviewing architectural plans.
Since acquiring the household fixture products product group in December
1994, the Company has focused on improving and internally expanding its
distribution capabilities in this area. The Company recently opened a custom
showroom in Austin, Texas and expanded its household fixture product offerings
by adding an array of front doors and high-end plumbing fixtures such as
bathtubs and sinks. In early 1996, the Company established the Express Lock(R)
division, which distributes locksets to other distributors in Texas, Oklahoma
and New Mexico. The Company plans to add other products to Express Lock(R)'s
wholesale distributor line over the next few years as opportunities arise.
SPECIALTY INDUSTRIAL PRODUCTS AND SERVICES. The Company distributes a
large variety of specialty industrial products, primarily industrial sealing and
hose products and related items, such as gaskets, compression packing, o-rings,
gasketing material, rubber hose and its APG(R) brand-name cam and groove hose
couplings. These industrial sealing and hose products, which are used
principally by process industries that use fluids in formulating
24
<PAGE>
their products, accounted for approximately 88% of the Company's sales of
specialty industrial products in fiscal 1997. The Company also sells industrial
glass manufactured by Corning(R), Schott(R) and others. These products are used
in various industrial processes requiring observation points. In fiscal 1997,
sales of all types of industrial glass accounted for approximately 5% of the
Company's specialty industrial products sales. In addition, the Company
distributes plastic lenses for sandblasting helmets, plastic safety visors,
plastic display arrangements and other fabricated plastic products.
Approximately 7% of the Company's specialty industrial product sales in fiscal
1997 were attributable to sales of these products.
The Company distributes specialty industrial products primarily from
warehouse/office locations in Houston, Texas, where it acts as a master
distributor of most products and serves customers nationwide, and in Johnson
City, Tennessee, where it generally sells products directly to OEMs and the MRO
market in eastern Tennessee, eastern Kentucky, southwestern Virginia and western
North Carolina. Customers purchasing the Company's specialty industrial products
may do so from catalogs by telephone or facsimile, through the Company's
computerized order system or in person. The Company promptly fabricates or
otherwise prepares the products to the customers' specifications and generally
ships them to their destination through one- or two-day courier service. The
Company's value-added services include custom gasket cutting (utilizing a die
library of over 10,000 dies); gasket material cutting, stripping and
fabrication; hose fabrication; o-ring vulcanization; glass cutting, grinding and
drilling; and plastics fabrication.
In early 1997, the Company added a new plastics press to its Houston
location, significantly increasing production capacity. During fiscal 1996, the
Company completed a fill-in acquisition which added its Pine Top, Kentucky
facility serving primarily the mining industry in eastern Kentucky. This
facility moved to Hazard, Kentucky in the summer of 1997 and was supplemented
with a complementary product line purchased from a local company. The Company
also recently completed the purchase of another complementary line of products
for its Johnson City, Tennessee location. The Company's sales of industrial
products to customers in Canada and Mexico has been growing slowly over the past
few years, and the Company is increasing its marketing efforts in those
countries.
TELECOMMUNICATIONS EQUIPMENT. The Company distributes telecommunications
equipment from one warehouse location in San Luis Obispo, California. This
equipment consists primarily of surplus and refurbished plug-in circuit boards
(PICs) for the Lucent Technologies 5ESS telecommunications central office
switch. Central office switches perform routing and switching tasks for
operators of large telephone systems, such as the regional Bell telephone
companies, cellular telephone companies, government agencies, universities and
large corporations. Each PIC is designed to control a different function
performed by the switch, such as line boards that control routing to a number of
different telephone lines and memory boards that control voice mail systems. The
switch's modular design extends its useful life because owners may expand its
capabilities easily by adding or replacing PICs and other components, which are
upgraded continuously by Lucent.
The Company obtains surplus and refurbished telecommunications equipment
directly from Lucent and other sources, and is able to offer the equipment to
its customers at significant cost savings over new components. The products
obtained from Lucent have been tested by Lucent and are accompanied by a
manufacturer's warranty. While the Company distributes almost all of the PICs
for the Lucent 5ESS switch, the PICs represent a small percentage of the
switch's components. Almost all of the Company's sales of telecommunications
equipment are attributable to PICs for the Lucent 5ESS switch.
The Company maintains a broad inventory of its telecommunications
equipment products at its warehouse and continually monitors available resources
to determine quantities and prices of other equipment in the market. The
Company's customers may order telecommunications equipment by telephone or
facsimile. The Company then fills the order from its inventory stock or by
purchasing from other sources and has the equipment delivered to the customer by
one- or two-day delivery service. The Company does not perform any refurbishing
or warranty repair services in connection with the distribution of
telecommunications equipment.
The Company plans to increase the number of salespeople marketing its
telecommunications equipment in order to reach a broader range of potential
customers, including large corporations, cellular phone companies, cable
companies and government agencies. The Company also plans to expand its
telecommunications equipment product range by offering other replacement parts
for the Lucent 5ESS switch and surplus and refurbished components for the Nortel
central office switch (one of the principal alternatives to the Lucent 5ESS
switch).
25
<PAGE>
COMPETITION
The markets in which the Company competes are highly fragmented,
consisting of many regional and local suppliers of the types of products
distributed by the Company. The Company is not aware, however, of any other
company that competes in all of its markets, and believes that the diversity of
its operations shelters it from many of the effects of industry-specific cycles
and general business cycles that impact its competitors.
The Company believes that the principal competitive factors in the
specialty wholesale distribution markets in which it competes are product
quality and selection, reliable immediate or next-day delivery, technical
value-added services, product pricing and customer relationships. The Company's
strategy includes elements that, in its view, position the Company to compete
effectively on these bases. See "--Strategy." Although there are a large number
of distributors of the products offered by the Company, based on industry
reports and its own experience, the Company believes that many of them carry
fewer products, operate in a more local area (often from a single location) and
have significantly lower sales than the Company. Nevertheless, the Company
encounters competition in each of its markets from larger companies with greater
resources and smaller companies with lower overhead.
CUSTOMERS
During fiscal 1997, the Company sold its products to over 8,700 customers
located throughout the United States and, to a lesser extent, Canada, Mexico and
other countries. The Company has three principal categories of customers: (i)
residential builders and commercial construction contractors, (ii) intermediate
distributors of industrial products and (iii) operators of central office
telephone systems. In fiscal 1997, the Company's top ten customers accounted for
approximately 17% of the Company's overall sales, and no customer accounted for
more than 3.1% of the Company's overall sales.
The majority of the Company's sales of specialty builders' products during
fiscal 1997 were attributable to sales to single-family residential builders in
Texas; however, the Company anticipates more sales outside of Texas as marketing
efforts are focused on commercial construction contractors, international
customers and the customers accessible from recently added and planned
locations. None of the Company's specialty builders' products customers was
responsible for more than 4.2% of the Company's sales of specialty builders'
products during fiscal 1996, nor more than 2.7% of the Company's overall sales
for such period. In fiscal 1997, the Company distributed its specialty
industrial products to more than 7,500 geographically diverse customers, none of
which accounted for more than 2.8% of sales of such products, nor more than 0.9%
of the Company's overall sales. The Company's telecommunications equipment is
distributed to approximately 15 different customers, primarily the regional Bell
telephone companies, none of which accounted for more than 3.1% of the Company's
overall sales.
VENDORS
The Company endeavors to maintain broad inventories of all of its
important products so that it may promptly fill and deliver customer orders. In
fiscal 1997, the Company placed aggregate orders exceeding $49.5 million with
600 different vendors. In general, the Company enters into non-exclusive,
short-term arrangements with vendors, typically extending up to a year, which
set prices and provide for shipping terms. In fiscal 1997, approximately 73% of
the Company's product costs were attributable to purchases from vendors in the
United States, with the balance attributable to purchases of foreign products,
including products manufactured in Venezuela, South Africa, Mexico, Taiwan,
China, Slovakia and Italy. While foreign sources may enable the Company to
source certain products at lower prices than those generally prevailing in the
U.S. market, the longer lead times for production and shipment by foreign
suppliers usually require the Company to carry a higher volume of inventory than
it otherwise might. In addition, while the Company avoids currency exchange
risks by purchasing in dollars, it is subject to political and other risks
associated with foreign purchasing.
In general, the Company believes that it has good relationships with its
vendors and, to date, has not experienced significant difficulty in obtaining
products in sufficient quantities. However, the Company purchases substantially
all of its telecommunications equipment from Lucent Technologies. Although the
Company has no reason to believe that its relationship with Lucent will change
materially in the near future, the Company has no control over Lucent's prices
or sales by Lucent to the Company's competitors. Similarly, the Company acquires
all of its APG(R) brand-name cam and groove couplings and related products from
a manufacturer in Taiwan. Sales of these products generated approximately 4.3%
of the Company's sales in fiscal 1997. While the Company believes
26
<PAGE>
that alternative sources for its APG(R) brand-name cam and groove couplings
exist, there can be no assurance that it could purchase couplings with the same
quality and special features as those currently available. In addition, the
Company believes it is one of the largest purchasers of raw steel cable for use
in post-tension cable systems in the United States. The Company has not
experienced interruptions in the supply of such steel cable in the past;
however, there are a limited number of companies that can supply the Company
with steel cable in the volumes it requires. Any interruption in the supply of
any of these and certain other products could negatively affect the Company's
operating results.
SALES AND MARKETING
The Company markets its products primarily through an experienced sales
force consisting on September 30, 1997 of approximately 36 field-based
salespersons and 35 inside salespersons, some of whom receive commissions or
bonuses based on sales or profits. The field-based sales force calls regularly
on construction, secondary distributor, industrial and corporate customers with
the objective of building strong sales relationships and ensuring that
customers' technical and product needs are satisfied. Inside salespersons handle
telephone inquiries, including responding to technical questions, and perform
other tasks such as order entry, expediting, invoicing and promotion of tools
and accessories related to products that have been ordered by customers. The
Company's salespersons receive regular training to develop their knowledge of
the Company's products and technical capabilities and to refine their customer
skills.
The Company supplements the efforts of its sales force through joint
marketing initiatives with suppliers, participation in industry trade shows and
conferences, direct mail programs, telemarketing and advertising in industry
publications. In addition, the Company promotes sales to existing customers
through paper and electronic catalogs, as well as through specific product
literature and newsletters. The Company updates all of its marketing materials
as necessary to keep customers informed of new and discontinued products. In
addition, the Company has recently created Internet home pages for two of its
four subsidiaries and is in the process of creating home pages for the others.
COMPUTER SYSTEMS
Each of the Company's operating subsidiaries other than New West utilizes
a computer software system developed for distribution companies. The Company
selected the system to improve the efficiency of its sales order entry,
purchasing, inventory management, expediting, quotation, credit granting and
management information reporting functions. In addition, a pricing module
provides contract pricing, pricing by specific customer and customer groups and
volume discount pricing. A built-in report feature, augmented by a report writer
module, provides flexible management reporting capabilities, including a daily
summary of sales, purchasing, inventory, accounts receivable and cash activity.
The system supports EDI and barcoding, and allows selected customers access via
modem to check stock and pricing and to place orders. New West does not maintain
a computer system because the small number of orders it possesses do not warrant
the expense.
The Company also has installed a personal computer network interfaced to
the primary distribution software system at APG. The network provides multiple
order entry sessions, faxing of scanned documents such as catalog information,
price lists and material specifications, access to personal productivity
software, freight rate shopping, order tracking via the freight manifest system,
and access to the Internet for e-mail and package tracking. The Company is
evaluating the benefits of installing similar networks at its other
subsidiaries' locations.
Management believes that Year 2000 issues, if any, will not materially
affect the Company's operations.
EMPLOYEES
As of September 30, 1997, the Company employed 380 individuals, 15 of
whom were executive or operations managers, 91 of whom were clerical;
administrative and technical personnel, 71 of whom were sales personnel and
203 of whom were warehouse, production and service personnel. Following the
Offering, the Company plans to expand its headquarters staff to manage the
increased financial reporting responsibilities of a publicly traded company and
the increasing administrative responsibilities associated with the Company's
growth. The Company's employees are not unionized. The Company considers its
relations with its employees to be good.
27
<PAGE>
FACILITIES
Other than its executive and sales offices, the Company's facilities
generally consist of warehouse and office space and fabrication or production
areas. All of such facilities are leased for terms ranging from one to five
years and expiring between January 1998 and July 2002. The Company's leases are
noncancelable prior to the expiration of their terms, and certain of the leases
contain renewal or purchase options. The Company believes its facilities are
adequate for its current and reasonably foreseeable needs and that suitable
additional or alternative space is or will be available as needed to replace
existing facilities or to accommodate future growth.
LEGAL PROCEEDINGS AND INSURANCE
From time to time the Company is involved in various legal proceedings
incidental to the ordinary conduct of its business. Management believes that the
legal proceedings in which the Company is currently involved will not have a
material effect on the Company's financial condition or results of operations.
The Company maintains comprehensive general liability insurance in scope and
amounts which it believes are customary for its industry. Although the Company
believes that most lawsuits against the Company will be covered by its
insurance, there can be no assurance that the coverage limits of such insurance
will be adequate to protect the Company against all claims. In addition, there
can be no assurance that the Company will be able to maintain comprehensive
liability insurance in the future on acceptable terms or with adequate coverage
against potential liabilities.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY MANAGERS
The following table sets forth certain information regarding the executive
officers, members of the Board of Directors and certain key managers of the
Company.
NAME AGE POSITION
---- --- --------
Barbara Mills Henagan(1)(2) . 38 Chairman of the Board
Kirby Attwell................ 62 President, Chief Executive Officer
and Director
Tim W. Fogelsong............. 54 Vice President-Finance, Treasurer
and Secretary
David K. Barth(1)............ 53 Director
Nolan Lehmann(1)(2).......... 53 Director
Irvin A. Levy(2) ............ 63 Director
Craig R. Cowan............... 34 President, New West
William G. Flesner........... 57 President, APG
Curtis R. Sprague............ 45 President, MERSCO
Larry E. Stadler............. 42 President, Suncoast
- -----------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
The Board of Directors consists of five members who hold office for one
year terms or until their successors are elected. Executive officers hold office
for one year terms or until their successors are elected.
Ms. Henagan has been Chairman of the Board of Directors of the Company
since 1992. Ms. Henagan has been a senior managing director of Bradford
Ventures, Ltd., a private investment firm, since 1992, and a general partner of
Bradford Associates, a private venture firm that is the general partner of
Bradford Venture Partners, L.P., since 1986. Ms. Henagan also is a director of
Central Sprinkler Corporation.
Mr. Attwell co-founded the Company in 1986 and has been a director and its
President and Chief Executive Officer since that time. In June 1997, he received
Ernst & Young's Houston 1997 Entrepreneur of the Year Award in the distribution
industry category. From 1979 to 1983, he was president and chief executive
officer of Supply Corporation International, a pipe, valve and fittings
supplier, and from 1965 to 1979, he held various positions, including president
and chief executive officer, with Lincoln Financial, Inc., a financial services
company. Prior to joining Travis, he operated his own financial and management
consulting company. Mr. Attwell also serves as a director of Vallen Corporation.
Mr. Fogelsong co-founded the Company in 1986 and has been Vice
President-Finance, Treasurer and Secretary of the Company since 1987. From 1979
to 1983, he was vice president/finance for Supply Corporation International,
which he left to join Equus Capital Corporation, an affiliate of Equus II
Incorporated. Mr. Fogelsong is a certified public accountant and, from 1970 to
1979, was a manager in the audit section of Arthur Young & Company.
Mr. Barth has been a director of the Company since 1992. He is the
president of Barth Smith Company, an investment and management consulting firm
specializing in strategy, marketing, operating and executive staffing issues
associated with various distribution channels, which he founded in 1991. Prior
to that time, he was vice president, planning and development of, and held
various other positions with, W.W. Grainger, Inc. Mr. Barth also is a director
of Industrial Distribution Group, Inc.
Mr. Lehmann has been a director of the Company since its founding in 1986.
Mr. Lehmann is also the president and a director of Equus II Incorporated, a
registered investment company whose stock is traded on the American Stock
Exchange. He has been president and a director of Equus Capital Management
Corporation, a registered investment adviser, since 1983. Prior to joining
Equus, Mr. Lehmann was employed by Service Corporation International, where he
held various positions including vice president-corporate development. Mr.
Lehmann also serves as a director of Allied Waste Industries, Inc., American
Residential Services, Inc., Brazos Sportswear, Inc., Drypers Corporation and
Garden Ridge Corporation. Mr. Lehmann is a certified public accountant.
29
<PAGE>
Mr. Levy has been a director of the Company since 1992. He is the chairman
and chief executive officer of Paper Group Holding, Inc. and affiliates, a group
of privately held manufacturing and distribution companies including
Redi-Packaging, Inc. and West-Star Packaging, Inc., of which Mr. Levy became
President in 1960.
Mr. Cowan co-founded New West in 1989 and has been its president since
that time. Prior to starting New West, Mr. Cowan was a real estate broker in the
San Luis Obispo, California area.
Mr. Flesner has been president of APG since August 1995. He has worked in
the oilfield service industry for over 25 years, including as president of each
of Ensco Tool & Supply Company (1983-1990), International Testing Services, Inc.
(1990-1992) and International Tool & Supply Company (1993-1995).
Mr. Sprague founded MERSCO in 1979 and has been its president since that
time. Prior to founding MERSCO, Mr. Sprague held various positions with Goodall
Rubber Company.
Mr. Stadler co-founded Suncoast in 1983 and has been its president since
that time. He has been an Executive Vice President of DRS since December 1994,
when Suncoast became a division of DRS. Prior to founding Suncoast, Mr. Stadler
was a regional sales manager in charge of sales to residential builders in the
southwestern United States for V.S.L. Corporation, a Swiss-owned post-tension
cable company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee was formed in 1988 and is responsible for reviewing
the Company's external auditing procedures and accounting controls and
recommending to the Board of Directors the engagement of the Company's
independent auditors. The current members of the Company's Audit Committee are
Ms. Henagan, Chairman of the Committee, and Messrs. Lehmann and Barth.
The Compensation Committee was formed in 1987 and is responsible for
reviewing and approving the amount and type of consideration to be paid to
executive officers and key employees and for administering the Company's stock
option and other compensation plans. See "--Compensation Plans." The current
members of the Company's Compensation Committee are Ms. Henagan, Chairman of the
Committee, and Messrs. Lehman and Levy.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no separate
compensation for their services as directors of the Company. Non-employee
directors of the Company receive $1,000 for each meeting of the Board of
Directors attended by them. All directors are reimbursed for expenses incurred
in connection with their attendance at meetings. In addition, directors who are
not employees of the Company may receive grants of non-qualified stock options
under the Company's 1993 Director Stock Option Plan at the discretion of the
full Board of Directors. Under the 1993 Director Stock Option Plan, the full
Board of Directors may issue options to purchase up to 61,200 shares of Common
Stock to such directors, and has granted options to purchase up to 10,710 shares
of Common Stock to each of Ms. Henagan and Messrs. Lehmann, Barth and Levy. Such
options were subject to a vesting schedule based on the Company's performance
and all of such options have vested. See "--Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, Ms. Henagan and Messrs. Lehmann and Levy served on the
Compensation Committee. None of these persons is employed by the Company or any
of its subsidiaries. Ms. Henagan is an officer, director and stockholder of the
corporate general partner of Bradford Investment Partners, L.P., an affiliate of
Bradford Ventures Partners, L.P., and Mr. Lehmann is president of Equus II
Incorporated. The Company is a party to a consulting agreement under which the
Company pays each of Bradford Investment Partners, L.P. and Equus II
Incorporated a fee in exchange for certain management and consulting services.
See "Certain Transactions."
30
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to the Company's Chief Executive Officer and its only other
executive officer (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION(1)
--------------------------- ---------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2)
- --------------------------- ---- ------ --------
<S> <C> <C> <C> <C>
Kirby Attwell............................. 1997 $150,000 $208,117 $79,858
President and
Chief Executive Officer
Tim W. Fogelsong.......................... 1997 92,700 112,063 48,469
Vice President-Finance,
Treasurer and Secretary
</TABLE>
- ------------
(1) Represents contributions made by the Company on behalf of the Named Officers
to the Company's Non-Qualified Executive Retirement Plan and income earned
by such plan during fiscal 1997. See "--Compensation Plans."
(2) To be paid in the 1998 fiscal year based on 1997 fiscal year operating
results pursuant to the Company's Incentive Compensation Plan. See
"--Compensation Plans."
EMPLOYMENT ARRANGEMENTS
The Company entered into an employment agreement with Mr. Attwell in May
1992. Under the provisions of the employment agreement, which has been renewed
several times, Mr. Attwell serves as the President and Chief Executive Officer
of Travis and, if requested by the Company, of any subsidiary of Travis until
May 15, 1999, unless such employment is earlier terminated in accordance with
the terms of the employment agreement. The employment agreement provides for an
annual base salary of $150,000, subject to upward adjustment at the discretion
of the Compensation Committee of the Board of Directors, payment of which
continues for a one year period after Mr. Attwell's termination. The employment
agreement also contains certain provisions prohibiting Mr. Attwell's
solicitation of the Company's employees in connection with any business that
competes with the Company.
COMPENSATION PLANS
STOCK OPTION PLANS. The Company currently maintains three stock option
plans in which executive officers, directors and key managers may participate:
the 1992 Incentive Stock Option Plan, the 1993 Director Stock Option Plan and
the 1995 Key Employee Stock Option Plan (collectively, the "Stock Option
Plans"). The objective of the Stock Option Plans is to provide additional
incentive to the Company's executive officers, non-employee directors and key
employees and to provide them with an opportunity to acquire or increase a
proprietary interest in the Company through the receipt of Common Stock options.
No additional options may be granted under the 1992 Incentive Stock Option Plan.
Options to purchase an aggregate of 153,000 additional shares of Common Stock
are available for future issuance under the other Stock Option Plans. In
addition, options to purchase an aggregate of 543,609 shares of Common Stock, at
prices ranging from $3.27 to $11.44 per share, were outstanding as of September
30, 1997, 320,455 of which were vested and exercisable as of that date.
INCENTIVE COMPENSATION PLAN. Effective beginning in the 1995 fiscal year,
the Compensation Committee of the Board of Directors adopted an Incentive
Compensation Plan (the "Incentive Compensation Plan") as an incentive to the
Company's executive officers. The Incentive Compensation Plan provides for
annual cash bonus determined in accordance with a formula based on the amount by
which the Company's after-tax return on equity exceeds a minimum of 15%. The
percentage of such excess return on equity paid as a bonus to executive officers
increases as such excess return on equity increases. Under the Incentive
Compensation Plan, the Company paid, or will pay, Messrs. Attwell and Fogelsong
an aggregate of $34,726, $155,757 and $320,180 for fiscal years 1995, 1996, and
1997, respectively.
31
<PAGE>
NON-QUALIFIED EXECUTIVE RETIREMENT PLAN. Effective October 1, 1994, the
Board of Directors adopted the Company's Non-Qualified Executive Retirement Plan
(the "Retirement Plan") as an incentive to Messrs. Attwell and Fogelsong. The
Retirement Plan is structured as an unfunded defined contribution plan for the
purpose of providing deferred compensation to Messrs. Attwell and Fogelsong, is
not qualified under sections 401(a) and 501(a) of the Internal Revenue Code and
is designed to be exempt from the participation and vesting, funding and
fiduciary responsibility rules of the Employee Retirement Income Security Act of
1974. The Retirement Plan is administered by the Board of Directors.
Under the Retirement Plan, the Board of Directors has discretion to set
aside on behalf of Messrs. Attwell and Fogelsong certain stipulated amounts each
year according to a fixed formula based on their compensation, expected Social
Security benefits and actuarial assumptions. For fiscal years 1995, 1996 and
1997, respectively, the amounts set aside pursuant to the Retirement Plan on
behalf of Messrs. Attwell and Fogelsong totalled $87,761, $88,453 and $128,327.
Each of Mr. Attwell and Mr. Fogelsong or his beneficiary will be entitled to
receive accrued benefits upon the earliest to occur of (i) reaching the age of
65, (ii) participating in the Retirement Plan for ten years and (iii) the
termination of employment (including by death or as a result of a disability).
Assuming the Board of Directors determines each year to set aside the stipulated
amounts set forth in the Retirement Plan, the estimated annual benefits payable
to Mr. Attwell (if he retires at age 70) and Mr. Fogelsong (if he retires at age
65) are approximately $83,000 and $65,000, respectively. If a change in control
of the Company occurs, each of Mr. Attwell, Mr. Fogelsong or his beneficiary
will be entitled to receive benefits in an amount that would result if the
Retirement Plan were a defined benefit plan with the same set formula, based on
the highest five years of his compensation. The Retirement Plan may be amended
(including to add other highly compensated executives of Travis) or terminated
at any time by the Board of Directors.
APG PROFIT SHARING PLAN. APG has adopted a Profit Sharing Plan and Trust
(the "APG Plan") generally covering all of its employees. In September 1993,
Travis adopted the APG Plan. The APG Plan allows for voluntary contributions on
behalf of eligible employees up to 15% of eligible compensation at the
discretion of the APG board of directors or, in the case of eligible Travis
employees, the Board of Directors. During fiscal years 1995, 1996 and 1997,
Travis contributed an aggregate of $26,175, $26,484, and $0, respectively, to
the APG Plan on behalf of Messrs. Attwell and Fogelsong.
FISCAL 1997 YEAR-END OPTION VALUES
The following table sets forth, with respect to the Named Officers,
certain information concerning fiscal year-end values of options granted by the
Company; during fiscal 1997, no options were exercised by either of the Named
Officers. For a description of the Company's stock option plans, see
"--Compensation Plans."
AGGREGATE FISCAL 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED "IN-THE-MONEY" OPTIONS
NAME OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
- ---- -------------------------- ----------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Kirby Attwell........... 201,280 0 $1,555,894 $ 0
Tim W. Fogelsong........ 50,319 0 388,966 0
</TABLE>
- ------------
(1) Computed based upon the difference between aggregate fair market value (at
$11.00 per share) and aggregate exercise price.
32
<PAGE>
CERTAIN TRANSACTIONS
In May 1992 the Company, Bradford Investment Partners, L.P., an affiliate
of Bradford Venture Partners, L.P., and Equus II Incorporated, entered into a
consulting agreement. Barbara M. Henagan is an officer, director and stockholder
of the corporate general partner of Bradford Investment Partners, L.P. and Nolan
Lehmann is president of Equus II Incorporated. Pursuant to the provisions of the
consulting agreement, the Company agreed to pay each of Bradford Investment
Partners, L.P. and Equus II Incorporated a management fee in exchange for
corporate advisory, financial and other consulting services for a period of ten
years. For the years ended September 30, 1995, 1996, and 1997, respectively, the
Company paid management fees under the consulting agreement of $56,250, $75,000,
and $75,000 to Bradford Investment Partners, L.P. and $18,750, $25,000 and
$25,000 to Equus II Incorporated.
33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 14, 1997 and
as adjusted to reflect the sale of the shares offered hereby for: (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each director of the Company, (iii) the Named Officers, (iv) all
directors and Named Officers as a group and (v) other Selling Stockholders. The
Company believes that each individual or entity named has sole investment and
voting power with respect to shares of Common Stock indicated as beneficially
owned by them, except as otherwise noted.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP SHARES BEING AFTER
STOCKHOLDER PRIOR TO OFFERING(1) OFFERED OFFERING(1)(2)
- ----------- --------------------------- ------------- -----------------------------
NUMBER NUMBER
OF SHARES PERCENTAGE OF SHARES PERCENTAGE
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Bradford Venture Partners, L.P.(3).......... 772,368 25.6% 285,198 487,170 9.2%
44 Nassau Street, Suite 365
Princeton, New Jersey 08542
Overseas Equity Investor Partners(4)........ 772,368 25.6 285,198 487,170 9.2
Clarendon House, Church Street
Hamilton 5-31, Bermuda
Barbara Mills Henagan(5).................... 1,637,864 54.1 0 1,067,468 20.1
35 Valley Road
Atlanta, Georgia 30305
Robert J. Simon (6)......................... 1,546,467 51.3 640 975,431 18.4
1212 Avenue of the Americas
Suite 1802
New York, New York 10036
Equus II Incorporated....................... 524,129 17.4 0 524,129 9.9
The America Tower, 25th Floor
2929 Allen Parkway
Houston, Texas 77019
Grumman Hill Investments, L.P............... 180,279 6.0 0 180,279 3.4
191 Elm Street
New Canaan, Connecticut 06840
Kirby Attwell(7)............................ 351,095 10.9 0 351,095 6.4
Tim W. Fogelsong(8)......................... 95,181 3.1 0 95,181 1.8
David K. Barth(9)........................... * * 0 * *
Nolan Lehmann(10)........................... 534,839 17.7 0 534,839 10.1
Irvin A. Levy(11)........................... * * 6,489 * *
All directors and Named Officers
as a group (6 persons)..................... 2,675,545 88.7 576,885 2,105,149 39.8%
</TABLE>
- ------------
* Less than 1%
(1) A person is deemed to have "beneficial ownership" of any security that such
person has a right to acquire within 60 days after such date. Shares which
each identified stockholder has the right to acquire within 60 days of the
date specified above are deemed outstanding in calculating the percentage
ownership of such stockholder, but are not deemed outstanding as to any
other person.
(2) For purposes of this table, information as to shares of Common Stock
assumes (i) the persons in the table do not purchase shares of Common Stock
in the Offering and (ii) no exercise of the Underwriters' overallotment
option.
(3) Bradford Venture Partners, L.P. is a limited partnership. Barbara M.
Henagan and Robert J. Simon are the general partners of Bradford
Associates, which is the sole general partner of Bradford Venture Partners,
L.P. and holds a 1% interest in the partnership (which may increase upon
the satisfaction of certain contingencies related to the overall
performance of the investment portfolio of Bradford Venture Partners,
L.P.).
(4) Overseas Equity Investor Partners is a general partnership with two
partners, Overseas Equity Investors Ltd., which is the managing corporate
partner and holds a 99% interest in the partnership, and Bradford
Associates, which holds a 1% interest in the partnership (which may
increase upon the satisfaction of certain contingencies related to the
overall performance of the investment portfolio of Overseas Equity
Investors Partners). Overseas Equity Investors Ltd. is a foreign
corporation with numerous foreign stockholders. Barbara M. Henagan and
Robert J. Simon are the general partners of Bradford Associates and serve
as co-chairs of the board of directors of Overseas Equity Investors Ltd.
Bradford Ventures, Ltd., an affiliate of Bradford Associates, acts as an
investment advisor for Overseas Equity Investor Partners.
(footnotes continued on next page)
34
<PAGE>
(5) Includes 772,368 shares owned of record by Bradford Venture Partners, L.P.,
772,368 shares owned of record by Overseas Equity Investor Partners and
82,418 shares owned of record by Mills Investment Partnership. Ms. Henagan
and Robert J. Simon are partners of Bradford Associates, the sole general
partner of Bradford Venture Partners, L.P., and co-chairs of the board of
directors of the corporation that acts as the managing partner of Overseas
Equity Investor Partners. Ms. Henagan may be deemed to share voting and
investment power with respect to the shares held by Bradford Venture
Partners, L.P. and Overseas Equity Investor Partners, but disclaims
beneficial ownership with respect to all of such shares. Ms. Henagan is the
Managing Partner of Mills Investment Partnership and has sole voting and
investment power with respect to the shares held by Mills Investment
Partnership. Includes options to purchase up to 10,710 shares of Common
Stock that are currently exercisable or will be exercisable within 60 days
of the date set forth above.
(6) Includes 772,368 shares owned of record by Bradford Venture Partners, L.P.
and 772,368 shares owned of record by Overseas Equity Investor Partners.
Mr. Simon and Barbara M. Henagan are partners of Bradford Associates, the
sole general partner of Bradford Venture Partners, L.P. and co-chairs of
the board of directors of the corporation that acts as the managing partner
of Overseas Equity Investor Partners. Mr. Simon may be deemed to share
voting and investment power with respect to the shares held by Bradford
Venture Partners, L.P. and Overseas Equity Investor Partners, but disclaims
beneficial ownership with respect to those shares.
(7) Includes 18,291 shares owned by record by Khleber V. Attwell Children's
Trust and 133,523 shares of Common Stock owned of record by KA, Ltd., a
limited partnership of which Mr. Attwell is the sole general partner. Mr.
Attwell is the beneficiary of the Khleber V. Attwell Children's Trust, but
does not have voting or investment power with respect to those shares. Mr.
Attwell has sole voting and investment power with respect to the shares
held by KA, Ltd.. Includes options to purchase up to 201,281 shares of
Common Stock that are currently exercisable or may be exercisable within 60
days of the date set forth above.
(8) Includes options to purchase up to 50,319 shares of Common Stock that are
currently exercisable or may be exercisable within 60 days of the date set
forth above.
(9) Includes options to purchase up to 10,710 shares of Common Stock that are
currently exercisable or will be exercisable within 60 days of the date set
forth above.
(10) Includes 524,129 shares owned of record by Equus II Incorporated, of which
Mr. Lehmann is president. Mr. Lehmann is deemed to have shared voting and
investment power with respect to the shares held by Equus II Incorporated,
but disclaims beneficial ownership with respect to those shares. Includes
options to purchase up to 10,710 shares of Common Stock that are currently
exercisable or will be exercisable within 60 days of the date set forth
above.
(11) Includes options to purchase up to 10,710 shares of Common Stock that are
currently exercisable or will be exercisable within 60 days of the date set
forth above.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
RECAPITALIZATION
As of the date of this Prospectus, the Company's authorized capital stock
consists of (i) 1,500,000 shares of Common Stock, $.01 par value per share,
754,269 of which are outstanding, (ii) 500,000 shares of Class A Common Stock,
$.01 par value per share, 185,667 of which are outstanding, (iii) 27 shares of
Series 2 Preferred Stock, $.01 par value per share, all of which are
outstanding, and (iv) 1973 additional shares of Preferred Stock, the terms and
provisions of which may be designated by the Board of Directors, none of which
are outstanding. The Company has 33 stockholders of record. Prior to the
Offering, the Company intends to effect a recapitalization of its capital stock,
which will: (i) increase the authorized number of shares of Common Stock to
12,000,000, (ii) convert each share of Class A Common stock into one share of
Common Stock, (iii) convert two shares of Series 2 Preferred Stock into 6,120
shares of Common Stock, (iv) increase the authorized number of shares of
Preferred Stock to 502,000 and (v) effect a 3.06-for-1 Common Stock split in the
form of a stock dividend. The following summary of the Company's capital stock
gives effect to the recapitalization and is qualified in its entirety by
reference to the Company's Second Restated Certificate of Incorporation and
Restated Bylaws that will be effective upon the recapitalization, the form of
each of which is filed as an exhibit to the registration statement of which this
Prospectus is a part. See "Available Information."
COMMON STOCK
The Company's Second Restated Certificate of Incorporation authorizes the
Company to issue 12,000,000 shares of Common Stock, $.01 par value per share.
Following the Offering, 5,290,379 shares of Common Stock will be issued and
outstanding. In addition, the Company has granted options to purchase up to
543,609 shares of Common Stock at an average exercise price of $5.25 per share
and may grant options to purchase up to an additional 153,000 shares pursuant to
certain stock option plans. In addition, 25 outstanding shares of the Series 2
Preferred Stock are convertible into 76,500 shares of Common Stock on the terms
described below. The Company has also issued warrants to purchase up to 91,800
shares of Common Stock at $7.35 per share. See "Capitalization."
Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote. Because holders of
Common Stock do not have cumulative voting rights, the holders of a majority of
the shares of Common Stock voting for the election of directors can elect all of
the members of the Board of Directors standing for election at any particular
meeting. A majority vote is also sufficient for other actions that require the
vote or concurrence of stockholders. The Common Stock is not redeemable and has
no conversion or preemptive rights. All of the outstanding shares of Common
Stock are, and all of the shares of Common Stock sold in this offering will be,
when issued and paid for, fully paid and non-assessable. In the event of the
liquidation or dissolution of the Company, subject to the rights of the holders
of any outstanding shares of the Company's Preferred Stock, if any, the holders
of Common Stock are entitled to share pro rata in any balance of the corporate
assets available for distribution to them. The Company may pay dividends if,
when and as declared by the Board of Directors from funds legally available
therefor, subject to the dividend provisions of the Company's Preferred Stock
and certain provisions of the Company's credit agreements that may have the
effect of restricting the declaration and payment of dividends by the Company's
subsidiaries or the Company. See "Dividend Policy."
PREFERRED STOCK
SERIES 2 PREFERRED STOCK. All of the 27 shares of Series 2 Preferred Stock
issued and outstanding as of the date of this prospectus are held by Curtis R.
Sprague, the president and former owner of MERSCO. The Series 2 Preferred Stock
has a face amount and liquidation preference of $1,000 per share and an
aggregate liquidation preference of $27,000. Shares of Series 2 Preferred Stock
are automatically convertible at the rate of 3,060 shares of Common Stock for
each share of Series 2 Preferred Stock (as adjusted from time to time, the
"Conversion Rate") either upon consummation of the Offering or within ten days
of October 18, 1999; in each case, the number of shares of Series 2 Preferred
Stock required to be converted into Common Stock is determined by a formula
based on the average annual net income of MERSCO. Based on such formula, two
shares of Series 2 Preferred Stock will be converted into 6,120 shares of Common
Stock upon consummation of the Offering, and 25 shares of Series 2 Preferred
Stock will remain outstanding following the Offering. Within ten days of October
18, 1999, such outstanding shares of Series 2 Preferred Stock will be either
converted into shares of Common Stock at the Conversion Rate (based on the
MERSCO net income formula) or redeemed by the Company (subject to applicable
36
<PAGE>
law) at the redemption price of $1,000 per share. The Series 2 Preferred Stock
is non-voting and ranks junior to all other Preferred Stock of the company.
Holders of shares of Series 2 Preferred Stock are entitled to receive, if, as
and when declared by the Board of Directors out of funds legally available
therefor, cash dividends, for each share of Series 2 Preferred Stock, equal to
dividends declared and paid with respect to 1701.36 shares of Common Stock.
OTHER PREFERRED STOCK. In addition to the Series 2 Preferred Stock, the
Company's Second Restated Certificate of Incorporation authorizes the Company to
issue up to 502,000 shares of Preferred Stock, par value $.01 per share. The
Company's Board of Directors is authorized to issue such additional Preferred
Stock in series and, with respect to each series, to determine the number of
shares in any such series and fix the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of shares of any series
of such Preferred Stock. The Board of Directors could, without stockholder
approval, issue Preferred Stock with voting and other rights that could
adversely affect the voting power of holders of Common Stock of the Company and
that could be used to prevent a third party from acquiring control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Certain provisions of the Company's Second Restated Certificate of
Incorporation and Restated Bylaws as well as certain provisions of Delaware law
may be deemed to have an anti-takeover effect or may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in such
stockholder's best interest, including those attempts that might result in a
premium over the market price for the shares held by a stockholder.
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the Delaware General
Corporation Law ("Section 203") generally provides that a person who, together
with affiliates and associates owns, or within three years did own, 15% or more
of the outstanding voting stock of a corporation (an "Interested Stockholder")
but less than 85% of such stock may not engage in certain business combinations
with the corporation for a period of three years after the date on which the
person became an Interested Stockholder unless (i) prior to such date, the
corporation's board of directors approved either the business combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
subsequent to such date, the business combination is approved by the
corporation's board of directors and authorized at a stockholders' meeting by a
vote of at least two-thirds of the corporation's outstanding voting stock not
owned by the Interested Stockholder. Section 203 defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
Interested Stockholder, including mergers, asset sales and other transactions in
which the Interested Stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders.
The provisions of Section 203, coupled with the Board's authority to issue
Preferred Stock without further stockholder action, could delay or frustrate the
removal of incumbent directors or a change in control of the Company. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. The Company's stockholders may adopt an amendment to its
certificate of incorporation, effective 12 months after such adoption, to elect
not to be governed by Section 203. Neither the Second Restated Certificate of
Incorporation nor the Restated Bylaws exclude the Company from the restrictions
imposed by Section 203.
NOTICE PROVISIONS. The Restated Bylaws provide that only business,
including director nominations, properly brought before an annual meeting of
stockholders may be conducted at such meeting. In order to propose business at
an annual meeting, a stockholder is required to provide written notice to the
Company at least 90 days prior to the annual meeting that describes the business
to be proposed at the annual meeting, the name and address of the stockholder
proposing the business, the class and number of shares of stock held by such
stockholder, any financial interest of the stockholder in the business to be
proposed at the meeting and a representation that such stockholder intends to
appear in person or by proxy to propose such business at the meeting. These
procedures may operate to limit the ability of stockholders to propose business
at an annual meeting, including with respect to the election of directors or
considering any transaction that could result in a change of control of the
Company.
TRANSFER AGENT
The Company's transfer agent and registrar for the Common Stock is
American Stock Transfer & Trust Company.
37
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
RULE 144
Upon completion of the Offering and assuming no exercise of outstanding
options, the Company will have outstanding 5,290,379 shares of Common Stock. Of
these shares, the 2,909,091 shares sold in the Offering will be immediately
eligible for resale in the public market without restriction under the
Securities Act, except for any shares purchased by an "Affiliate" (as that term
is defined under the Securities Act) of the Company, which will be subject to
the resale limitations of Rule 144 under the Securities Act. The remaining
2,381,288 shares of Common Stock outstanding following the Offering (the
"Previously Issued Shares") are deemed to be "restricted securities" within the
meaning of the Securities Act and may be publicly sold only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 promulgated under the
Securities Act.
All of the holders of the Previously Issued Shares have agreed to enter
into agreements with the Company ("Lock-up Agreements") pursuant to which they
will agree that, during the 180-day period after the date of this Prospectus,
they will not, except with the prior consent of A.G. Edwards & Son, Inc., offer,
sell, contract to sell or grant an option to purchase any of such Previously
Issued Shares. In addition, the Company has agreed that during such period it
will not, without the prior consent of A.G. Edwards & Sons, Inc., offer, sell,
contract to sell or grant an option to purchase any shares of Common Stock. See
"Underwriting." At the expiration of such lock-up period all of the Previously
Issued Shares will be eligible for sale, subject to the volume and other
limitations of Rule 144.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, an Affiliate of the Company or other person (or persons whose shares
are aggregated) who has beneficially owned Previously Issued Shares for at least
one year, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of the
Company's Common Stock (52,904 shares immediately after the Offering) or (ii)
the average weekly trading volume of the Company's Common Stock on the Nasdaq
National Market during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
have been an Affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at least
two years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations described above.
Previously Issued Shares may also be resold (i) to a person whom the
seller reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (ii) in an offshore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.
An employee of the company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting the
requirements of Rule 701 under the Securities Act is entitled to rely on the
resale provisions of Rule 701 under the Securities Act which permits Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
the holding period restrictions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, non-affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
Sales of substantial amounts of Common Stock of the Company in the public market
after the restrictions lapse could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
38
<PAGE>
REGISTRATION RIGHTS
Pursuant to the Company's Registration Rights Agreement, as amended, all
of the Company's stockholders prior to the Offering have been granted piggyback
registration rights with respect to Common Stock owned by such stockholders as
of such date. Such piggyback registration rights may be exercised by such
stockholders, subject to the Lock-up Period, on each occasion that the Company
proposes to register any public offering of shares of its capital stock under
the Securities Act and the Securities Act permits registration of shares held by
stockholders in connection with such registration.
In addition to such piggyback registration rights, subject to certain
conditions including minimum ownership and minimum aggregate offering price, two
stockholders have the right, exercisable on one occasion each, to require the
Company to register under the Securities Act up to 100% of such shares of Common
Stock. If and when the Company is qualified to register shares of Common Stock
pursuant to a registration statement on Form S-3, all of the Company's
Stockholders prior to the Offering may cause the Company at certain times to
register shares of Common Stock on Form S-3, provided that the offering involves
proceeds in excess of $1,000,000.
Upon the closing of the Offering, there will be 2,381,288 shares of Common
Stock subject to either piggyback or demand registration rights. The Company is
required to bear substantially all expenses of all such registrations, except
for underwriting discounts or commissions and fees and disbursements of counsel
for any stockholder.
UNDERWRITING
The Underwriters named below have severally agreed with the Company and
the Selling Stockholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase the respective numbers of shares of Common
Stock set forth opposite their names below:
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
A.G. Edwards & Sons, Inc. ........................................
Cleary Gull Reiland & McDevitt Inc................................
---------
TOTAL ..................................................... 2,909,091
=========
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock, if any are purchased.
Pursuant to the terms of the Underwriting Agreement, the Underwriters will
acquire the shares of the Common Stock offered by the Company and the Selling
Shareholders at the public offering price set forth on the cover page of this
Prospectus at the public offering price less the underwriting discount and
commissions set forth on the cover page. The Company and the Selling
Stockholders have been advised by A.G. Edwards & Sons, Inc. and Cleary Gull
Reiland & McDevitt Inc., the representatives of the Underwriters (the
"Representatives"), that the Underwriters propose to offer the Common Stock to
the public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $ per
share and that the Underwriters and such dealers may reallow a discount of not
in excess of $ per share to other dealers. The public offering price and the
concession and discount to dealers may be changed by the Representatives after
the shares are released to the public.
The Selling Stockholders have granted to the Underwriters an option,
expiring at the close of business on the 30th day subsequent to the date of the
Underwriting Agreement, to purchase up to 436,363 additional shares of Common
Stock at the public offering price, less the discount set forth on the cover
page of this Prospectus. The Underwriters may exercise the option only for the
purpose of covering overallotments, if any. To the extent the Underwriters
exercise such option, each of the Underwriters will have a firm commitment,
subject to certain
39
<PAGE>
conditions, to purchase approximately the same percentage of the option shares
as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to 436,363 and the Selling Stockholders will be obligated
to sell such shares to the Underwriters. See "Principal and Selling
Stockholders."
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company, all directors and the Named Officers of the Company and all
stockholders prior to the Offering have agreed that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire, Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of A.G. Edwards &
Sons, Inc.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M (pending effectiveness), pursuant to which such
persons may bid for or purchase Common Stock for the purpose of stabilizing its
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more Common Stock in connection with the Offering
than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 436,363 shares of Common Stock, by exercising the Underwriters'
overallotment option referred to above. In addition, A.G. Edwards & Sons, Inc.,
on behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Representatives have advised the Company and the Selling Stockholders
that they do not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The public offering price for the Common Stock will be determined by
negotiation among the Company, the Selling Stockholders and the Representatives.
Among the factors considered in determining the public offering price was the
history of and the future prospects for the Company and the industry in which it
operates, the past and present operating results of the Company and the trends
of such results, an assessment of the Company's management, the general
condition for the securities markets at the time of the Offering and the prices
for similar securities of comparable companies.
CERTAIN LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Mayor, Day, Caldwell & Keeton, L.L.P.,
Houston, Texas. Peper, Martin, Jensen, Maichel and Hetlage, St. Louis, Missouri,
will pass on certain legal matters for the Underwriters in connection with the
Offering.
EXPERTS
The audited Consolidated Financial Statements of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and included herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
40
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Commission under the Securities Act through the
Electronic Data Gathering and Retrieval ("EDGAR") system with respect to the
Common Stock offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Common Stock offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each such instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits and schedules forming a part thereof can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be
available for inspection and copying at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Registration statements, reports, proxy and information
statements filed through the EDGAR system are publicly available through the
Commission's Internet web site at http://www.sec.gov.
41
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Income..................................... F-4
Consolidated Statements of Stockholders' Equity....................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
<PAGE>
After the stock split discussed in Note 6 has been effected and properly
reflected in the Company's consolidated financial statements and related notes
thereto, we expect to be in a position to render the following audit report.
Arthur Andersen LLP
November 13, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Travis International, Inc.:
We have audited the accompanying consolidated balance sheets of Travis
International, Inc. (a Delaware corporation), and subsidiaries as of September
30, 1996 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Travis
International, Inc., and subsidiaries as of September 30, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
Houston, Texas
November 13, 1997, except
for the stock split described
in Note 6, as to which the
date is December ___, 1997
F-2
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1997
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 3,526,451 $ 2,158,106
Trade accounts receivable, net of allowance
for doubtful accounts of $202,742 and $71,402 ....... 9,298,395 14,585,037
Inventories ........................................... 9,265,471 13,333,266
Prepaid expenses ...................................... 76,460 277,513
Deferred tax asset .................................... 408,463 959,924
----------- -----------
Total current assets .............................. 22,575,240 31,313,846
PROPERTY AND EQUIPMENT, at cost, net of
depreciation of $1,018,960 and $1,615,792 ............. 2,175,107 3,148,847
INTANGIBLES, net of amortization of $833,169 and $949,128 5,855,716 11,239,866
----------- -----------
$30,606,063 $45,702,559
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt ................ $ 711,774 $ 1,239,314
Accounts payable ...................................... 4,736,353 7,843,818
Accrued liabilities ................................... 2,022,898 4,773,421
Federal and state income tax payable .................. 315,467 423,009
----------- -----------
Total current liabilities .......................... 7,786,492 14,279,562
LONG-TERM DEBT, net of current installments .............. 7,597,742 11,982,386
DEFERRED TAX LIABILITY ................................... 11,358 33,319
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series 2 Preferred Stock, $.01 par; 2,000
shares authorized; 27 shares outstanding ............ 1 1
Common Stock, $.01 par; 4,590,000 shares
authorized; 2,308,050 and 2,308,050 shares
outstanding ......................................... 23,081 23,081
Class A Common Stock, $.01 par; 1,530,000
shares authorized; 568,138 and 703,482
shares outstanding .................................. 5,681 7,035
Additional paid-in capital ............................ 5,025,817 6,218,064
Retained earnings ..................................... 10,155,891 13,159,111
----------- -----------
Total stockholders' equity ......................... 15,210,471 19,407,292
----------- -----------
$30,606,063 $45,702,559
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
SALES ........................................................ $46,338,621 $65,812,759 $80,126,595
COST OF GOODS SOLD ........................................... 33,115,765 47,141,135 55,239,584
----------- ----------- -----------
Gross profit ...................................... 13,222,856 18,671,624 24,887,011
OPERATING EXPENSES ........................................... 9,316,894 13,466,821 17,228,882
SETTLEMENT OF FUTURE OBLIGATIONS
UNDER CONSULTING AND COVENANT NOT TO
COMPETE AGREEMENTS ........................................ -- -- 1,157,740
AMORTIZATION OF INTANGIBLES .................................. 304,875 281,692 399,363
----------- ----------- -----------
Operating income .................................. 3,601,087 4,923,111 6,101,026
INTEREST EXPENSE ............................................. 525,061 673,007 1,107,406
----------- ----------- -----------
Income before income taxes ........................ 3,076,026 4,250,104 4,993,620
INCOME TAXES ................................................. 1,193,798 1,645,226 1,990,400
----------- ----------- -----------
Net income ........................................ $ 1,882,228 $ 2,604,878 $ 3,003,220
=========== =========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE ............ $ 0.63 $ 0.84 $ 0.88
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 2,986,403 3,103,390 3,427,652
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
--------------- ---------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ---------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1994 ..................... 188 $ 2 2,287,817 $ 22,878 -- $ -- $ 656,458
REDEMPTION OF PREFERRED STOCK ................... (188) (2) -- -- -- -- (187,998)
ISSUANCE OF PREFERRED STOCK IN
CONNECTION WITH THE ACQUISITION OF MERSCO .... 27 1 -- -- -- -- 237,000
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE ACQUISITION OF DE-RO AND SUNCOAST ........ -- -- 340,000 3,400 207,401 2,074 4,019,528
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
DRS' ACQUISITION OF CABLE SYSTEMS ............ -- -- -- -- 13,602 136 99,864
ISSUANCE OF COMMON STOCK TO AN OFFICER .......... -- -- -- -- 6,799 68 49,926
NET INCOME ...................................... -- -- -- -- -- -- --
---- ----- ---------- -------- -------- ------- -----------
BALANCE, September 30, 1995 ..................... 27 1 2,627,817 26,278 227,802 2,278 4,874,778
EXCHANGE OF COMMON STOCK FOR CLASS A COMMON STOCK -- -- (319,767) (3,197) 319,767 3,197 --
ISSUANCE OF COMMON STOCK TO OFFICERS ............ -- -- -- -- 20,569 206 151,039
NET INCOME ...................................... -- -- -- -- -- -- --
---- ----- ---------- -------- -------- ------- -----------
BALANCE, September 30, 1996 ..................... 27 1 2,308,050 23,081 568,138 5,681 5,025,817
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE ACQUISITION OF NEW WEST COMMUNICATIONS ... -- -- -- -- 135,999 1,360 998,630
ISSUANCE OF WARRANTS ............................ -- -- -- -- -- -- 160,000
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
DRS' ACQUISITION OF M D STEEL ................ -- -- -- -- 13,115 131 149,879
RETIREMENT OF CLASS A COMMON STOCK .............. -- -- -- -- (13,770) (137) (116,262)
NET INCOME ...................................... -- -- -- -- -- -- --
---- ----- ---------- -------- -------- ------- -----------
BALANCE, September 30, 1997 ..................... 27 $ 1 2,308,050 $ 23,081 703,482 $ 7,035 $ 6,218,064
==== ===== ========== ======== ======== ======= ===========
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
----------- ------------
<S> <C> <C>
BALANCE, September 30, 1994 ..................... $ 5,668,785 $ 6,348,123
REDEMPTION OF PREFERRED STOCK ................... -- (188,000)
ISSUANCE OF PREFERRED STOCK IN
CONNECTION WITH THE ACQUISITION OF MERSCO .... -- 237,001
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE ACQUISITION OF DE-RO AND SUNCOAST ........ -- 4,025,002
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
DRS' ACQUISITION OF CABLE SYSTEMS ............ -- 100,000
ISSUANCE OF COMMON STOCK TO AN OFFICER .......... -- 49,994
NET INCOME ...................................... 1,882,228 1,882,228
----------- ------------
BALANCE, September 30, 1995 ..................... 7,551,013 12,454,348
EXCHANGE OF COMMON STOCK FOR CLASS A COMMON STOCK -- --
ISSUANCE OF COMMON STOCK TO OFFICERS ............ -- 151,245
NET INCOME ...................................... 2,604,878 2,604,878
----------- ------------
BALANCE, September 30, 1996 ..................... 10,155,891 15,210,471
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
THE ACQUISITION OF NEW WEST COMMUNICATIONS ... -- 999,990
ISSUANCE OF WARRANTS ............................ -- 160,000
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
DRS' ACQUISITION OF M D STEEL ................ -- 150,010
RETIREMENT OF CLASS A COMMON STOCK .............. -- (116,399)
NET INCOME ...................................... 3,003,220 3,003,220
----------- ------------
BALANCE, September 30, 1997 ..................... $13,159,111 $ 19,407,292
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 1,882,228 $ 2,604,878 $ 3,003,220
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Depreciation and amortization ............................................ 622,605 740,320 1,034,170
Deferred federal income taxes ............................................ (131,495) (234,410) (529,500)
Loss on sale of equipment ................................................ 2,166 13,198 7,523
Change in assets and liabilities, net of effects from
business acquisitions (Note 9)-
Increase in trade accounts receivable .................................. (3,049,416) (921,627) (4,395,283)
Increase in inventories ................................................ (1,361,546) (1,068,354) (3,357,268)
Decrease (increase) in prepaid expenses ................................ 46,213 133,002 (184,835)
Decrease (increase) in prepaid federal income taxes .................... (182,432) 271,722 --
Increase in accounts payable ........................................... 2,200,557 68,603 1,527,102
(Decrease) increase in accrued liabilities ............................. (270,440) 732,366 2,218,974
Increase in federal and state income tax payable ....................... 89,152 153,330 104,182
----------- ----------- -----------
Total adjustments .............................................. (2,034,636) (111,850) (3,574,935)
----------- ----------- -----------
Net cash provided by (used in) operating activities ............ (152,408) 2,493,028 (571,715)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (660,679) (788,472) (1,570,857)
Proceeds from the sale of equipment .......................................... 7,500 3,300 24,127
Other asset additions ........................................................ (105,775) (145,095) (124,899)
Business acquisitions, net of cash acquired (Note 9) ....................... (8,172,824) -- (3,420,786)
----------- ----------- -----------
Net cash used in investing activities .......................... (8,931,778) (930,267) (5,092,415)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock ..................................................... 2,549,992 151,245 --
Redemption of Preferred Stock ................................................ (188,000) -- --
Redemption of Common Stock ................................................... -- -- (116,399)
Capital lease additions ...................................................... 55,441 -- 225,109
Advances on bank term loans and revolving credit loans ....................... 7,650,000 2,700,000 8,713,672
Issuance of subordinated debt ................................................ 1,475,000 -- 1,250,000
Equipment loan proceeds ...................................................... -- 124,356 224,284
Principal payments on bank term loans and revolving credit loans ............. (2,014,284) (1,914,284) (5,522,626)
Principal payments on subordinated debt ...................................... (162,321) (216,429) (216,428)
Principal payments on noncompete agreements, equipment and other loans ....... (138,551) (106,932) (261,827)
----------- ----------- -----------
Net cash provided by financing activities ...................... 9,227,277 737,956 4,295,785
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................ 143,091 2,300,717 (1,368,345)
CASH AND CASH EQUIVALENTS, beginning of year .................................... 1,082,643 1,225,734 3,526,451
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year .......................................... $ 1,225,734 $ 3,526,451 $ 2,158,106
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of interest .......................................................... $ 567,914 $ 791,394 $ 1,215,537
Payment of federal and state income taxes .................................... 1,283,980 1,669,413 2,429,736
Issuance of common stock in connection with acquisitions ..................... 1,625,004 -- 1,150,000
Issuance of preferred stock in connection with acquisition ................... 237,001 -- --
Issuance of common stock warrants ............................................ -- -- 160,000
Issuance of installment payable in connection with acquisition ............... -- -- 500,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE COMPANY
Travis International, Inc. (the Company), a Delaware corporation, was formed in
1986. The Company is a diversified wholesale distributor of specialty products
and provider of related value-added services. From 13 operating locations in
five states in the southern and western United States, the Company distributes
post-tension cable products, household fixture products, specialty industrial
products and telecommunications equipment. In addition, the Company provides
value-added services in connection with such products, including engineering and
design assistance, just-in-time delivery, fabricating, warranty repair,
installation and other technical assistance. The Company sells its products to
customers located primarily in the United States and, to a lesser extent,
Canada, Mexico and other countries. The Company currently operates through its
wholly owned subsidiaries, American Packing and Gasket Company (APG), Mountain
Empire Rubber & Specialty Company, Inc. (MERSCO), DE-RO/Suncoast, Inc. (DRS),
and New West Communications, Inc. (NWC).
In October 1997, the Company filed a registration statement on Form S-1 for the
sale of its shares of common stock (the Offering). An investment in shares of
common stock involves a high degree of risk including, among others, dependence
on construction markets, competition, changes in distribution channels, risks
relating to the Company's acquisition strategy, risks relating to acquisition
financing and reliance on key personnel. See "Risk Factors" included in this
Prospectus.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At September 30, 1996
and 1997, cash equivalents of $2,103,142 and $1,203,406, respectively, consisted
of obligations of the U.S. Government.
F-7
<PAGE>
INVENTORIES
Inventories consist principally of materials purchased and held for resale and
are stated at the lower of cost or market. Cost is determined on the first-in,
first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using the straight-line method over
estimated useful lives of three to fifteen years. The costs of ordinary
maintenance and repairs are charged to operations when incurred, while
replacements and betterments are capitalized.
At September 30, 1996 and 1997, property and equipment consisted of the
following:
ESTIMATED
SEPTEMBER 30, USEFUL
1996 1997 LIFE
------------ ------------ ---------
Vehicles........................... $ 488,587 $ 867,280 3-5 years
Leasehold improvements............. 321,801 479,758 5 years
Machinery and equipment............ 1,570,849 2,523,549 5-7 years
Furniture and fixtures............. 812,830 843,251 5 years
Building........................... - 50,801 15 years
------------ -------------
3,194,067 4,764,639
Less- depreciation and amortization (1,018,960) (1,615,792)
------------ -------------
$ 2,175,107 $ 3,148,847
============ ============
INTANGIBLES
At September 30, 1996 and 1997, intangibles consisted of the following:
ESTIMATED
SEPTEMBER 30, PERIOD
1996 1997 OF BENEFIT
------------ ------------- -----------
Goodwill.......................... $ 6,142,418 $ 11,581,971 10-35 years
Loan origination and other costs.. 321,467 607,023 1-7 years
Consulting/noncompete agreements.. 225,000 - 1-5 years
------------ -------------
6,688,885 12,188,994
Less- amortization................ (833,169) (949,128)
------------ -------------
$ 5,855,716 $ 11,239,866
============ ============
Amortization lives of intangibles and other assets are based on management's
estimate of the period to be benefited. Amounts capitalized as
consulting/noncompete agreements are being amortized over the life of the
agreements. Loan origination costs are amortized over the term of the debt.
F-8
<PAGE>
ACCRUED LIABILITIES
At September 30, 1996 and 1997, accrued liabilities consisted of the following:
SEPTEMBER 30,
---------------------------
1996 1997
---------- ----------
Profit sharing/bonuses ....................... $1,205,149 $2,601,198
Retirement contributions ..................... 176,214 501,043
Sales tax .................................... 202,045 269,496
Ad valorem taxes ............................. 141,917 185,606
Acquisition costs ............................ -- 315,593
Other ........................................ 297,573 900,485
---------- ----------
$2,022,898 $4,773,421
========== ==========
INCOME TAXES
The Company follows the asset and liability method of accounting for income
taxes whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Net Income Per Common and
Common Equivalent Shares
The average number of common and equivalent common shares includes the weighted
average number of common and Class A common shares outstanding, shares issued
pursuant to the assumed conversion of preferred stock and shares issuable
pursuant to the assumed exercise of stock options and warrants (by application
of the treasury stock method).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which
simplifies the standards required under current accounting rules for computing
earnings per share and replaces the presentation of primary earnings per share
and fully diluted earnings per share with a presentation of basic earnings per
share (basic EPS) and diluted earnings per share (diluted EPS). Basic EPS
excludes dilution and is determined by dividing income by the weighted average
number of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current accounting
rules. The implementation of SFAS No. 128 during fiscal 1998 is not expected to
have a material effect on the Company's earnings per share as determined under
current accounting rules.
F-9
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
receivables and debt. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
interest rates that approximate prevailing market rates unless otherwise
disclosed in these financial statements.
LONG-LIVED ASSETS
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment, intangibles or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is necessary. Adoption of this standard did not have
an effect on the financial position or consolidated results of operations of the
Company.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 is required for
financial statements for fiscal years beginning after December 15, 1995. SFAS
No. 123 permits, but does not require, a fair value-based method of accounting
for stock option plans which results in compensation expense recognition when
stock options are granted. The Company intends to continue to account for its
stock-based compensation plans under Accounting Principles Board, Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"); however,
as required by SFAS No. 123, the Company has provided disclosure of the pro
forma impact to net income in Note 7.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
F-10
<PAGE>
2. LONG-TERM DEBT:
At September 30, 1996 and 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 1997
----------- -----------
<S> <C> <C>
DRS revolving credit loan with interest
due monthly at prime plus .25% (8.5%
at September 30, 1996); refinanced in
February 1997 ....................................... $ 5,450,000 $ --
DRS revolving credit loan with interest
due monthly at prime plus .25% (8.75% at
September 30, 1997); principal due December 1998 ..... -- 6,551,855
Subordinated debt to former owners; due in
quarterly principal installments aggregating
$54,107 plus interest at 8.00% through
December 2001; unsecured ............................ 1,096,250 879,822
Bank term loan with interest due monthly at 9.61%;
principal due in quarterly installments of
$53,571; refinanced in February 1997 ................ 1,071,432 --
Bank term loan with interest at prime plus .25%
(8.75% at September 30, 1997); principal of
$57,501 plus interest due in quarterly
installments through September 2001 ................. -- 865,510
Bank term loan with interest due monthly at 8.00%;
principal due in quarterly installments of
$50,000; refinanced in February 1997 ................ 200,000 --
Bank term loan with interest at prime (8.50% at
September 30, 1997); principal plus interest
due December 1997 ................................... -- 9,401
APG revolving credit loan with interest due
monthly at prime (8.50% at September 30,
1997); principal due December 1998 .................. -- 1,000,000
Notes payable to bank; due in monthly installments
ranging from $188 to $1,033, plus interest at 8.25%
to 12.99%, through March 2003; secured by vehicles
and equipment ....................................... 164,596 290,573
MERSCO revolving credit loan with interest due monthly
at prime plus .50% (8.75% at September 30, 1996);
refinanced in February 1997 ......................... 300,000 --
MERSCO revolving credit loan with interest due monthly
at prime (8.50% at September 30, 1997); principal
due December 1998 ................................... -- 500,000
Bank term loan with interest due at prime plus .50%
(9.0% at September 30, 1997); principal of $53,572
plus interest due in quaraterly installments with
remaining balance, plus accrued
interest due September 2001 ......................... -- 1,285,712
Senior subordinated note to finance company with
interest due monthly at 12.50% through March 1998;
principal of $26,042 plus interest payable from April
1998 through March 2002; secured by a second lien on
the assets of NWC ................................... -- 1,250,000
Installment payable to stockholder ..................... -- 400,000
Other .................................................. 27,238 188,827
----------- -----------
8,309,516 13,221,700
Less- Current installments ............................. 711,774 1,239,314
----------- -----------
$ 7,597,742 $11,982,386
=========== ===========
</TABLE>
F-11
<PAGE>
Subordinated debt consists of indebtedness issued to former owners of a
subsidiary and to a finance company. Payment of principal and interest on
subordinated debt is subject to compliance with the respective revolving credit
loan and term loan agreements.
Aggregate maturities of notes payable for years subsequent to September 30,
1997, are as follows:
Year ending September 30-
1998............................. $ 1,239,314
1999............................. 9,271,405
2000............................. 1,155,181
2001............................. 1,318,965
2002............................. 225,887
Thereafter....................... 10,948
-------------
$ 13,221,700
=============
In February 1997, the Company entered into new loan agreements and amended the
loan agreements effective May 1997 and September 1997. APG and MERSCO entered
into new revolving credit loans with a financial institution and repaid the
balance outstanding on the former lines of credit. The APG and MERSCO credit
loans (APG/MERSCO Credit Loans) provide for maximum borrowings of $3,000,000 and
$750,000, respectively. The APG/MERSCO Credit Loans provide for a commitment fee
of .375 percent on the unused balance. In addition, DRS entered into $7,500,000
and $250,000 revolving credit loans (collectively, the DRS Credit Loans) and
repaid the former line of credit. The DRS Credit Loans have a commitment fee of
.375 percent on the unused balance. APG and DRS also entered into $151,067 and
$1,075,000 new term loans, respectively (collectively, the APG/DRS Term Loans),
and repaid the balance on the former term loans. Certain of the Company's loan
agreements contain requirements regarding working capital and other financial
ratios. The Company was in compliance with all provisions of its amended loan
agreements at September 30, 1997.
3. INCOME TAXES:
Actual income tax expense differs from the "expected" income tax expense
computed by applying the statutory federal income tax rate of 34 percent to
income before income taxes for the years ended September 30, 1995, 1996 and
1997, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Computed "expected" income tax ................ $ 1,045,849 $1,445,035 $ 1,697,831
State income/franchise tax,
net of federal tax benefit .................... 96,103 128,570 204,366
Intangible asset and other .................... 48,923 62,847 67,317
Nondeductible expenses ........................ 4,678 8,021 36,315
Other ......................................... (1,755) 753 (15,429)
----------- ---------- -----------
$ 1,193,798 $1,645,226 $ 1,990,400
=========== ========== ===========
</TABLE>
F-12
<PAGE>
The components of the Company's income tax provision (benefit) for the years
ended September 30, 1995, 1996 and 1997, are as follows:
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1996 1997
----------- ----------- -----------
Federal-
Current ............ $ 1,187,263 $ 1,681,636 $ 2,166,900
Deferred ........... (122,402) (218,410) (486,100)
----------- ----------- -----------
$ 1,064,861 $ 1,463,226 $ 1,680,800
=========== =========== ===========
State-
Current ............ $ 138,030 $ 198,000 $ 353,000
Deferred ........... (9,093) (16,000) (43,400)
----------- ----------- -----------
$ 128,937 $ 182,000 $ 309,600
=========== =========== ===========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liability at September 30, 1996 and
1997, are as follows:
SEPTEMBER 30,
----------------------
1996 1997
--------- ---------
Deferred tax assets-
Accounts receivable, principally due to
allowance for doubtful accounts ................ $ 76,422 $ 26,489
Effect of uniform capitalization of
inventory-related costs for tax purposes ....... 198,419 268,107
Accrued bonuses ................................... 113,712 647,529
Compensated absences .............................. 3,913 3,913
Other ............................................. 15,997 13,886
--------- ---------
Total deferred tax asset ....................... $ 408,463 $ 959,924
========= =========
Deferred tax liabilities-
Property and equipment, principally due to
differences in depreciation .................... $ 118,480 $ 114,612
Book vs. tax amortization of noncompete agreement . (47,789) (81,854)
Book vs. tax amortization of goodwill.............. -- 94,527
Non-qualified retirement plan...................... (59,333) (93,966)
--------- ---------
Total deferred tax liability ................... $ 11,358 $ 33,319
========= =========
4. COMMITMENTS AND CONTINGENCIES:
FACILITY LEASES
The Company leases equipment, office and warehouse space under noncancelable
operating lease agreements expiring at various times through 2000. Lease expense
totaled $387,900, $592,886 and $732,023 for the years ended September 30, 1995,
1996 and 1997, respectively.
F-13
<PAGE>
The minimum future rental payments under noncancelable operating leases are as
follows:
Year ending September 30-
1998............................... $ 764,295
1999............................... 581,736
2000............................... 374,738
2001............................... 177,609
Thereafter......................... 103,655
----------
$2,002,033
==========
Certain leases include options for renewal.
BONUS PLANS
The Company has bonus plans, some of which are discretionary and some of which
are based on a percentage of income, as defined in each plan, in excess of
specified hurdle rates or rates of return on equity.
PROFIT-SHARING PLAN
Subsidiaries of the Company maintain qualified profit-sharing plans (the Plans).
The Plans, as amended, include annual employer contributions of up to 15 percent
of compensation, as defined, at the discretion of the subsidiaries' board of
directors. Contributions for 1995, 1996 and 1997 were approximately $204,000,
$260,000 and $122,000, respectively.
OTHER
Management is unaware of any significant legal proceedings against the Company.
The Company maintains comprehensive general liability insurance in scope and
amounts which it believes are customary for its industry. There can be no
assurance that the coverage limits of such insurance will be adequate to protect
the Company against all future claims. In addition, there can be no assurance
that the Company will be able to maintain comprehensive liability insurance in
the future on acceptable terms or with adequate coverage against potential
liabilities.
5. PREFERRED STOCK:
Pursuant to a restated certificate of incorporation dated August 24, 1993, the
Company has the authority to issue a total of 2,000 shares of Series 2 preferred
stock (Preferred Stock). Dividends are payable as declared by the board of
directors.
At September 30, 1995, 1996 and 1997, 27 shares of $.01 par value nonvoting
Preferred Stock were issued and outstanding. Preferred Stock has a liquidation
preference and redemption value of $1,000 per share plus unpaid dividends.
The Series 2 Preferred Stock, all of which was issued in connection with the
acquisition of MERSCO, is mandatorily convertible, depending on MERSCO's
operating results, into a maximum of 82,620 shares of the Company's Class A
common stock (Class A Common Stock) in the event of a public offering or a
change in control of the Company within a five-year period. Based on MERSCO's
operating results, two of the shares of Preferred Stock will be converted into
6,120 shares of Common Stock contingent upon the effectiveness of the Offering
(see note 10). Any portion of the remaining 25 shares of Preferred Stock not
converted within the five-year period must be converted into shares of common
stock pursuant to a formula based on MERSCO net income or redeemed by the
Company at the redemption value of $1,000 per share plus accrued dividends. The
maximum redemption value of the remaining 25 shares of Preferred Stock is
$25,000 plus accrued dividends. As of September 30, 1997, no preferred dividends
had been declared.
F-14
<PAGE>
6. COMMON STOCK:
The Company has the authority to issue 6,120,000 shares of common stock
consisting of 4,590,000 shares of common stock (Common Stock) and 1,530,000
shares of Class A Common Stock. Every holder of outstanding shares of Common
Stock shall be entitled to 10 votes for each share of stock, and every holder of
outstanding shares of Class A Common Stock shall be entitled to one vote for
each share of such stock. As discussed in Note 10, the Class A Common Stock will
be converted on a 1-to-1 basis into Common Stock contingent upon the
effectiveness of the Offering.
Under the terms of an agreement executed in May 1992, if a stockholder desires
to dispose of all or a portion of his shares of Common Stock (offered shares),
the Company has exclusive right to purchase the offered shares within 10 days
from the stockholder. If the Company does not elect to purchase all or a portion
of the offered shares, the remaining stockholders have an additional 30 days to
purchase the portion of the offered shares not purchased by the Company.
However, the sale of Common Stock which results in the transfer of a majority
Common Stock of the Company is not subject to the above provisions. The
agreement will terminate automatically upon the consumation of the offering.
Company officers purchased 6,799 and 20,569 shares of Class A Common Stock
during 1995 and 1996, respectively.
In May 1997, the Company repurchased 13,770 shares of Class A Common Stock for
$116,399. The Company retired all the shares repurchased.
The board of directors has approved a 3.06-for-1 stock split upon the
effectiveness of the Offering. The effects of the stock split have been
retroactively reflected in the financial statements and related notes thereto
for all periods presented.
7. STOCK OPTIONS:
MANAGEMENT OPTION AGREEMENT
The Company established an incentive stock option plan in May 1992. Pursuant to
this plan, the Company entered into a management option agreement (the
Agreement) with certain key employees and granted options to purchase up to
251,599 shares of Common Stock at $3.27 per share. All of the options vest and
become exercisable on March 1, 2002. However, certain options will vest and
become exercisable, in increments from 1992 to 1997, if the Company's adjusted
earnings or cumulative adjusted earnings, as defined in the Agreement, achieve
certain predetermined targets. The remaining options will vest and become
exercisable upon the receipt by any one or more of certain stockholders of cash
or marketable securities, or both, in excess of $4,713,800 for Common Stock that
results from the sale, redemption or other transfer or from any dividends or
other distributions. At September 30, 1997, 251,599 options, were exercisable
under this incentive stock option plan. No options had been exercised as of
September 30, 1997.
DIRECTOR OPTION AGREEMENT
The Company also established an incentive stock option plan for nonemployee
directors in August 1993. Pursuant to such plan, the Company entered into a
director option agreement (the Option Plan) with certain nonemployee directors
and granted options to purchase up to 42,840 shares of Common Stock at $4.25 per
share. All of the options vest and become exercisable on May 25, 2003. However,
these options will vest and become exercisable, in increments from 1993 to 1997,
if the Company's earnings per share, as defined in the Option Plan, achieve
certain predetermined targets. At September 30, 1997, 42,840 options, were
exercisable under the Option Plan, as amended. No options had been exercised as
of September 30, 1997.
F-15
<PAGE>
KEY EMPLOYEE STOCK OPTION PLAN
The Company established the 1995 Key Employee Stock Option Plan (the Plan) in
February 1995. Under the Plan, 244,800 shares of Class A Common Stock are
available for purchase by key employees. As of September 30, 1997, 91,800 shares
have been granted under the Plan, at $7.35 per share, which become exercisable
over a period not to exceed 10 years. At September 30, 1997, 39,780 options,
were exercisable and no options had been exercised.
During 1997, 45,900 options were forfeited by employees in connection with their
separation from the Company.
OTHER OPTION PLANS
In October 1996 and May 1997, the Company established individual stock option
plans for the former owners of two businesses acquired during 1997. Under these
plans, options to purchase 153,000 and 4,370 shares of Class A Common Stock have
been granted at $7.35 and $11.44 per share, respectively, which become
exercisable over a period not to exceed ten years. At September 30, 1997 an
aggregate of 22,106 options were exercisable and no options had been exercised.
SUMMARY STOCK OPTION DISCLOSURES
A summary of the status of the various plans at September 30, 1996 and 1997, and
changes during the years then ended is presented in the table and narrative
below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1996 1997
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- ----- -------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of period ........... 401,539 $4.22 432,139 $4.67
Granted ...................................... 30,600 7.35 157,370 7.47
Exercised .................................... -- -- -- --
Canceled ..................................... -- -- (45,900) 7.35
------- ----- -------- -----
Outstanding at end of period ................. 432,139 4.67 543,609 5.25
======= ===== ======== =====
Exercisable at end of period ................. 217,838 3.61 356,325 4.17
Weighted average fair value of options granted $ 4.22 $ 4.23
</TABLE>
All of the options outstanding at September 30, 1997, have exercise prices
between $3.27 and $11.44, and a weighted average remaining contractual life of
6.38 years.
If the Company had recorded compensation costs for the various plans consistent
with SFAS No. 123, net income and net income per share would have been decreased
as indicated in the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net income attributable to common stockholders-
As reported .......................................... $ 2,604,878 $ 3,003,220
Pro forma ............................................ 2,527,141 2,602,484
Net income per share attributable to common stockholders-
As reported .......................................... $ 0.84 $ 0.88
Pro forma ............................................ 0.81 0.76
</TABLE>
F-16
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1997, respectively: risk-free interest
rates of 6.7 percent and 6.6 percent; zero expected dividend yields; expected
lives of 10 years; and expected volatility of 30 percent.
8. RELATED-PARTY TRANSACTIONS:
The Company pays management fees, in an amount which is subject to increases
with attainment of minimum levels of net income, to certain stockholders of the
Company under a consulting agreement executed in 1992. Amounts paid to related
parties under this agreement totaled $75,000, $100,000 and $100,000 for the
years ended September 30, 1995, 1996 and 1997, respectively.
APG leases a portion of its facilities from a director/stockholder under a lease
agreement. Amounts paid to the related party totaled $34,000 per year during the
years ended September 30, 1995, 1996 and 1997.
9. ACQUISITIONS:
DRS ACQUISITION
On December 2, 1994, the Company acquired all of the outstanding common stock of
DE-RO Products Co., Inc., and Suncoast Postension Corp. for $3,936,544 in cash,
notes to former owners totaling $1,375,000 (see Note 2) and 207,401 shares of
the Company's Class A Common Stock recorded at fair market value. The funds used
in the acquisition were provided by the issuance of debt and cash contributions
made by the Company. The acquisition has been accounted for as a purchase. The
cost of the acquisition has been allocated on the basis of the estimated fair
value of net assets acquired. The excess of the purchase price over fair value
of the net assets acquired is reflected as goodwill in the amount of $5,380,043,
is included in intangibles at September 30, 1997 (see Note 1), and is being
amortized over 35 years.
In addition, as part of the acquisition, DRS entered into noncompete, consulting
and employment agreements with certain former owners and an employee of DRS all
of whom continue to be involved in the business. The agreements require annual
payments aggregating $380,000 for a period of five years, which will be expensed
as paid. Additionally, they are entitled to receive annual bonus payments for a
period of seven years based on a percentage of pretax income in years in which
pretax income exceeds predetermined levels. Such bonus payments are limited to
an aggregate of $1,355,000. Bonuses aggregating approximately $91,000 and
$205,000 were accrued under this agreement for the years ended September 30,
1996 and 1997, respectively. The Company signed agreements on September 30,
1997, to retire the remaining obligations pursuant to consulting and
noncompetition agreements entered into in connection with the acquisition of DRS
in 1994. This settlement of $1,157,740 has been expensed as of September 30,
1997.
NEW WEST COMMUNICATIONS, INC. ACQUISITION
On October 1, 1996, the Company acquired substantially all of the assets and
liabilities of NWC for $4,000,000 in cash, $500,000 payable over five years,
135,999 shares of the Company Class A Common Stock recorded at fair market value
and $85,507 in transaction costs. Additionally, the former owner is entitled to
contingent purchase consideration based on a percentage of earnings (as defined)
over the next five years in years in which earnings exceed predetermined levels.
The aggregate contingent purchase consideration will be capitalized as goodwill
and is limited to an aggregate of $2,477,249.
F-17
<PAGE>
In connection with the acquisition of NWC, the Company entered into a $1,500,000
line of credit, a $1,500,000 term loan and a $1,250,000 senior subordinated note
(NWC Subordinate Note). In addition, the Company issued 91,800 warrants to
purchase the Company's common stock at an exercise price of $7.35 to the holder
of the NWC Subordinate Note. The warrants were valued at $160,000 and have been
recorded as additional paid-in capital.
This transaction has been accounted for utilizing the purchase method of
accounting, and the results of operations of the acquired business have been
included in the results of the Company from the date of acquisition. In
accordance with Accounting Principles Board Opinion No. 16, the purchase price
was allocated to the net assets acquired based on management's estimate of the
fair value of the acquired assets and liabilities at the date of acquisition, as
follows:
Cash paid .................................................. $ 4,000,000
Payable to former owner .................................... 500,000
Class A Common Stock issued ................................ 999,990
Transaction costs .......................................... 85,257
-----------
Total purchase price ......................... $ 5,585,247
===========
Net assets acquired-
Cash .................................................... $ 647,898
Receivables, net ........................................ 482,744
Inventory ............................................... 668,229
Prepaid expenses ........................................ 14,723
Property and equipment .................................. 29,011
Accounts payable and accrued liabilities ................ (1,315,519)
Other ................................................... 59,059
Goodwill ................................................ 4,999,102
-----------
Total purchase price ......................... $ 5,585,247
===========
Goodwill is being amortized over a 35-year period.
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and NWC as if such acquisition had taken place at the
beginning of fiscal 1996. Appropriate adjustments have been made to reflect the
accounting basis used in recording the acquisition. These pro forma results have
F-18
<PAGE>
been prepared for comparative purposes only and do not purport to be indicative
of the results of operations that would have resulted had the combination been
in effect on the date indicated, that have resulted since the date of
acquisition or that may result in the future.
Year Ended
September 30,
1996
-----------
(Unaudited)
Sales, net ............................................... $73,732,246
Net income ............................................... 3,922,661
Net income per common and common equivalent share ........ $ 1.21
Additionally, the Company has acquired several other businesses over the past
three years, none of which are material to the financial statements taken as a
whole.
10. RECAPITALIZATION (UNAUDITED):
The board of directors has approved, upon the closing of the Offering, a
conversion of each share of Class A Common Stock into one share of Common Stock
and a conversion of two shares of Preferred Stock into 6,120 shares of Common
Stock.
The pro forma balances of the stockholders' equity accounts at September 30,
1997, assuming these conversions, are as follows:
SEPTEMBER 30, 1997
------------------------------
ACTUAL PRO FORMA
----------- -----------
(Unaudited)
Preferred Stock .......................... $ 1 $ 1
Common Stock ............................. 23,081 30,177
Class A Common Stock ..................... 7,035 --
Additional paid-in capital ............... 6,218,064 6,218,003
Retained earnings ........................ 13,159,111 13,159,111
----------- -----------
Total .................................... $19,407,292 $19,407,292
=========== ===========
F-19
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary..................
Risk Factors........................
Background of the Company...........
Use of Proceeds.....................
Dividend Policy.....................
Capitalization......................
Dilution............................
Selected Consolidated Financial
Data..............................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.........
Business............................
Management..........................
Certain Transactions................
Principal and Selling Stockholders..
Description of Capital Stock........
Shares Eligible for Future Sale.....
Underwriting........................
Certain Legal Matters...............
Available Information...............
Experts.............................
Index to Consolidated Financial
Statements........................
------------
UNTIL ________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OF SUBSCRIPTIONS.
2,909,091 Shares
[logo]
TRAVIS INTERNATIONAL, INC.
Common Stock
----------
PROSPECTUS
----------
A.G. EDWARDS & SONS, INC.
CLEARY GULL REILAND & MCDEVITT INC.
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the shares of Common Stock being registered hereby, other than underwriting
discounts and commissions:
SEC Registration Fee............................................. $ 10,607
NASD Filing Fee.................................................. $ 4,000
Nasdaq Stock Market Listing Fee.................................. $ 33,456*
Printing and Engraving Expenses.................................. $ 80,000*
Legal Fees and Expenses.......................................... $200,000*
Accounting Fees and Expenses..................................... $150,000*
Transfer Agent and Registrar Fees and Expenses................... $ 2,500*
Miscellaneous.................................................... $ 19,437*
--------
Total............................................................ $500,000*
========
- ------------
* Estimate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Bylaws provide that the Company will indemnify each
of its directors and officers to the full extent permitted by the laws of the
State of Delaware and may indemnify certain other persons as authorized by the
Delaware General Corporation Law for liabilities and expenses incurred in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any criminal
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful.
As permitted by Section 102(b) of the Delaware General Corporation Law,
the Second Restated Certificate of Incorporation provides that to the full
extent permitted by Delaware law, directors of the Company shall have no
personal liability to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Section 102(b) of the Delaware General
Corporation Law provides such protection to directors, except (i) for any breach
of a director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which a director derived an
improper personal benefit.
The Underwriting Agreement contains reciprocal agreements of indemnity
between the Company and the Underwriters as to certain liabilities, including
liabilities under the Securities Act, and in certain circumstances provides for
indemnification of the Company's directors, officers and controlling persons.
The registration rights agreements between the Company and its
stockholders contains reciprocal agreements between the Company and such
stockholders as to certain liabilities, including liabilities under the
Securities Act, and in certain circumstances provide for indemnification of the
Company's directors, officers and controlling persons.
The Company maintains directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since November 20, 1994, the Company has issued the following securities
which were not registered under the Securities Act. In each case, exemption from
registration is claimed on the ground that the issuance of such securities did
not involve any public offering within the meaning of Section 4(2) of the
Securities Act.
II-1
<PAGE>
A. In connection with the Company's acquisitions of De-Ro Products, Inc.
and Suncoast Postension Corp. ("DRS"), on December 2, 1994, the Company issued
an aggregate of 153,000 shares of its Class A Common Stock to former owners of
DRS in exchange for all of the capital stock of DRS. Immediately prior to the
Offering, the Company will convert each share of such Class A Common Stock into
one share of Common Stock pursuant to agreements entered into at the time the
acquisition of DRS was closed. The acquisition of DRS was financed in part by
the Company's issuance of 340,000 shares of Common Stock on December 2, 1994 to
its existing stockholders in exchange for cash.
B. In connection with the Company's acquisition of Cable Systems, Inc.
("CSI"), on February 3, 1995, the Company issued 13,602 shares of the Company's
Class A Common Stock to the former owner of CSI in exchange for substantially
all of the assets of CSI. Immediately prior to the Offering, the Company will
convert each share of such Class A Common Stock into one share of the Company's
Common Stock pursuant to agreements entered into at the time the acquisition of
CSI was closed.
C. In March 1996, at the request of Equus II Incorporated ("Equus"), the
Company issued 319,767 shares of Class A Common Stock to Equus in exchange for
the cancellation of 319,767 shares of Common Stock then held by Equus.
D. In connection with the Company's acquisition of New West
Communications, Inc. ("New West"), on October 5, 1996, the Company issued
135,999 shares of its Class A Common Stock to the former owner of New West in
exchange for substantially all of the assets of New West. Immediately prior to
the Offering, the Company will convert each share of such Class A Common Stock
into one share of the Company's Common Stock pursuant to agreements entered into
at the time the acquisition of New West was closed. The acquisition of New West
was financed in part by the Company's issuance of warrants to purchase up to
91,800 shares of the Company's Class A Common Stock to Marwit Capital Company,
L.L.C. on October 5, 1996. Immediately prior to the Offering, the warrants will
be amended to provide for the purchase of Common Stock rather than Class A
Common Stock.
E. In connection with the Company's acquisition of MD Steel Company, Inc.
("MD Steel"), the Company issued 13,115 shares of its Class A Common Stock to
the former owner of MD Steel in exchange for substantially all of the assets of
MD Steel. Immediately prior to the Offering, the Company will convert each share
of such Class A Common Stock into one share of the Company's Common Stock
pursuant to agreements entered into at the time the acquisition of MD Steel was
closed.
F. In connection with the Offering, on ________________, 1997, the Company
effected a recapitalization of its capital stock which (i) increased the
authorized number of shares of Common Stock to 12,000,000, (ii) converted each
share of Class A Common stock into one share of Common Stock, (iii) converted
two shares of Series 2 Preferred Stock into 6,120 shares of Common Stock, (iv)
increased the authorized number of shares of Preferred Stock to 502,000 and (iv)
effected a 3.06-for-1 Common Stock split in the form of a stock dividend.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
1.1 Form of Underwriting Agreement
3.1 Second Restated Certificate of Incorporation
3.2 Restated Bylaws
3.3* Warrant to Purchase Class A Common Stock between Travis
International, Inc. and Marwit Capital Company, L.P. dated October
9, 1996
3.4* Registration Rights Agreement among Travis International, Inc. and
stockholders, dated May 28, 1992
3.5* First Amendment to Registration Rights Agreement dated December 2,
1994
II-2
<PAGE>
3.6* Second Amendment to Registration Rights Agreement dated February
3, 1995
3.7* Third Amendment to Registration Rights Agreement dated September
1, 1995
3.8* Fourth Amendment to Registration Rights Agreement dated June 18,
1996
3.9* Fifth Amendment to Registration Rights Agreement dated October 1,
1996
3.10* Sixth Amendment to Registration Rights Agreement dated October 9,
1996
4.1** Specimen Common Stock Certificate of the Registrant
5.1** Opinion of Mayor, Day, Caldwell & Keeton, L.L.P.
10.1* Employment Agreement between Travis International, Inc. and Kirby
Attwell dated May 28, 1992
10.2* Amendment to Employment Agreement between Travis International,
Inc. and Kirby Attwell dated May 15, 1996
10.3* Employment and Noncompetition Agreement between De-Ro/Suncoast,
Inc. and Larry Stadler dated December 2, 1994
10.4* First Amendment to Employment and Noncompetition Agreement between
De-Ro/Suncoast, Inc. and Larry Stadler dated February 9, 1996
10.5* Employment and Noncompetition Agreement between New West
Acquisition Corp. and Craig Cowan dated September 30, 1996
10.6* Travis International, Inc. 1992 Incentive Stock Option Plan
effective May 27, 1992
10.7* Travis International, Inc. 1995 Key Employee Stock Option Plan
effective February 2, 1995
10.8* Travis International, Inc. 1993 Director Stock Option Plan
effective July 29, 1993
10.9* Travis International, Inc. Non-Qualified Executive Retirement Plan
effective October 1, 1994
10.10* Memo from Kirby Attwell to Irvin Levy and Nolan Lehmann dated
January 4, 1995 regarding Travis International, Inc. Incentive
Compensation Plan
10.11* Asset Purchase Agreement among New West Acquisition Corp., New
West Communications, Inc. and Craig Cowan dated September 30, 1996
10.12* Business Loan Agreement dated February 24, 1997 between Bank of
America Texas, N.A. and De-Ro/Suncoast, Inc.
10.13* First Amendment to Business Loan Agreement dated May 30, 1997
between Bank of America Texas, N.A. and De-Ro/Suncoast, Inc.
10.14* Second Amendment to Business Loan Agreement dated September 29,
1997 between Bank of America Texas, N.A. and De-Ro/Suncoast, Inc.
II-3
<PAGE>
10.15* Business Loan Agreement dated February 24, 1997 between Bank of
America Texas, N.A. and American Packing and Gasket Company
10.16* First Amendment to Business Loan Agreement dated September 24,
1997 between Bank of America Texas, N.A. and American Packing and
Gasket Company
10.17* Business Loan Agreement dated February 24, 1997 between Bank of
America Texas, N.A. and Mountain Empire Rubber & Specialty Co.,
Inc.
10.18* First Amendment to Business Loan Agreement dated September 22,
1997 between Bank of America Texas, N.A. and Mountain Empire
Rubber & Specialty Co., Inc.
10.19* Business Loan Continuing Guarantee dated September 26, 1997 from
Travis International, Inc. to Bank of America Texas, N.A.
10.20* Business Loan Agreement dated May 30, 1997, between Bank of
America Texas, N.A. and New West Communications, Inc.
10.21* Business Loan Continuing Guaranty dated May 30, 1997 from Travis
International, Inc. to Bank of America Texas, N.A.
10.22* First Amendment to Business Loan Agreement dated September 25,
1997 between Bank of America of Texas, N.A. and New West
Communications, Inc.
10.23* Securities Purchase Agreement dated October 9, 1996 between New
West Acquisition, Inc. and Marwit Capital Company. L.P.
10.24* Senior Subordinated Note dated October 9, 1996 from New West
Acquisition Inc. to Marwit Capital Company, L.P.
10.25* Subordination Agreement between Bank of America and Marwit Capital
Company, L.P. and acknowledged by New West Communications, Inc.
dated September 30, 1996
10.26 Memoranda between Travis International, Inc. and Marwit Capital
Company, L.P. dated November 12, 1997 regarding amendments to
Securities Purchase Agreement and Senior Subordinated Note.
21.1* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2** Consent of Mayor, Day, Caldwell & Keeton, L.L.P. (Contained in
Exhibit 5.1)
24* Powers of Attorney (included on Signature Page)
- ------------
* Previously filed
** To be filed by amendment.
(b) Financial Statement Schedules.
Not applicable.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to its Second Restated Certificate of Incorporation,
Restated Bylaws, the Underwriting Agreement or otherwise, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 18th day of November, 1997.
TRAVIS INTERNATIONAL, INC.
By: /s/ KIRBY ATTWELL
Kirby Attwell
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Travis International, Inc. do
hereby constitute and appoint Kirby Attwell and Tim W. Fogelsong, and each of
them, with full power of substitution, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable Travis International, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for us, or any of us, in the capacities indicated below any and all
amendments (including pre-effective and post-effective amendments) hereto; and
we do hereby ratify and confirm all that such person or persons shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
President, Chief Executive Officer
/s/ KIRBY ATTWELL (Principal Executive Officer) and
Kirby Attwell Director November 18, 1997
*
Barbara Mills Henagan Chairman of the Board and Director November 18, 1997
Vice President-Finance (Principal
/s/ TIM W. FOGELSONG Accounting and Financial Officer),
Tim W. Fogelsong Treasurer and Secretary November 18, 1997
*
Nolan Lehmann Director November 18, 1997
*
David K. Barth Director November 18, 1997
*
Irvin A. Levy Director November 18, 1997
* /s/ TIM W. FOGELSONG
Tim W. Fogelsong Attorney-In Fact November 18, 1997
</TABLE>
II-6
EXHIBIT 1.1
DRAFT
TRAVIS INTERNATIONAL, INC.
_______SHARES
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
______, 1997
A.G. EDWARDS & SONS, INC.
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Travis International, Inc., a Delaware corporation (the
"Company") and the persons listed on Schedule I hereto (the "Selling
Shareholders"), hereby address you as the representatives (the
"Representatives") of each of the persons, firms and corporations listed on
Schedule II hereto (collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to the
Underwriters ___ shares of its Common Stock, par value $.01 per share, and the
Selling Shareholders propose to sell to the Underwriters a total of __ shares of
the Company's Common Stock, par value $0.01 per share, as set forth on Schedule
I hereto (such __ shares of Common Stock are herein referred to as the "Firm
Shares"). Solely for the purpose of covering over-allotments in the sale of the
Firm Shares, the Company and the Selling Shareholders further propose to grant
to the Underwriters the right to purchase up to an additional 15% of Firm Shares
of the Company Common Stock (the "Option Shares"), as provided in Section 3 of
this Agreement. The Firm Shares and the Option Shares are herein sometimes
referred to as the "Shares" and are more fully described in the Prospectus
hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees and each Selling
Shareholder agrees, severally and not jointly, to sell to the Underwriters, and
each such Underwriter agrees, severally and not jointly, (a) to purchase from
the Company and from each of the Selling Shareholders, pro rata, at a purchase
price of $__ per share, the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule II hereto and (b) to purchase from the Company and
the Selling Shareholders any additional number of Option Shares which such
Underwriter may become obligated to purchase pursuant to Section 3 hereof.
The Company and the Selling Shareholders will deliver definitive
certificates for the Firm Shares at the office of A.G. Edwards & Sons, Inc., 77
Water Street, New York, New York ("Edwards' Office"), or such other place as you
and the Company may mutually agree upon, for the accounts of the Underwriters
against payment to the Company and the Selling Shareholders of the purchase
price for the Firm Shares sold by them to the several Underwriters by wire
transfer in immediately available funds to
<PAGE>
bank accounts designated by the Company and Selling Shareholders, respectively.
The closing shall take place at A.G. Edwards & Sons, Inc., One North Jefferson
Avenue, St. Louis, Missouri 63103, or at such other place as may be agreed upon
between you and the Company (the "Place of Closing"), at 10:00 a.m., St. Louis
time, on the third (fourth, if pricing occurs after 3:30 p.m. St. Louis time)
full business day following the date of this Agreement, or at such other time
and date as you and the Company may agree, such time and date of payment and
delivery being herein called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior to
the Closing Date and will be in such names and denominations as you may request
at least two full business days prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall
not be obligated to) make payment on behalf of the other Underwriters whose
checks shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares
to the public upon the terms and conditions set forth in the Registration
Statement hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Company and the
Selling Shareholders hereby grant options to the Underwriters to purchase from
them on a pro rata basis up to __ and __ Option Shares, respectively, on the
same terms and conditions as the Firm Shares; provided, however, that such
options may be exercised only for the purpose of covering any over-allotments
which may be made by them in the sale of the Firm Shares. No Option Shares shall
be sold or delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The options are exercisable on behalf of the several Underwriters by
you, as Representatives, at any time, and from time to time, before the
expiration of 30 days from the date of this Agreement, for the purchase of all
or part of the Option Shares covered thereby, by notice given by you to the
Company and the Selling Shareholders in the manner provided in Section 13
hereof, setting forth the number of Option Shares as to which the Underwriters
are exercising the options, and the date of delivery of said Option Shares,
which date shall not be more than five (5) business days after such notice
unless otherwise agreed to by the parties. You may terminate the options at any
time, as to any unexercised portion thereof, by giving written notice to the
Company and the Selling Shareholders to such effect.
You, as Representatives, shall make such allocation of the Option
Shares among the Underwriters as may be required to eliminate purchases of
fractional Shares.
Delivery of the Option Shares with respect to which the options
shall have been exercised shall be made to or upon your order at Edwards' Office
(or at such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company and the Selling
Shareholders by wire transfer in immediately available funds to a bank account
designated by the Company and Selling Shareholders, respectively. Such payment
and delivery shall be made at 10:00 a.m., St. Louis time, on the date designated
in the notice given by you as above provided for, unless some other date and
time are agreed upon, which date and time of payment and delivery are called the
"Option Closing Date." The certificates for the Option Shares so to be delivered
will be made available to you for inspection at Edwards' Office at least one
full business day prior to the Option Closing Date and will be in such names
-2-
<PAGE>
and denominations as you may request at least two (2) full business days prior
to the Option Closing Date. On the Option Closing Date, the Company and the
Selling Shareholders shall provide the Underwriters such representations,
warranties, opinions and covenants with respect to the Option Shares as are
required to be delivered on the Closing Date with respect to the Firm Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDERS.
(a) The Company represents and warrants to and agrees with each
Underwriter that:
(i) A registration statement (Registration No. 333-______ ) on
Form S-1 with respect to the Shares, including a preliminary prospectus, and
such amendments to such registration statement as may have been required to the
date of this Agreement, has been carefully prepared by the Company pursuant to
and in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission under the Act. Copies of such registration
statement, including any amendments thereto, each related preliminary prospectus
(meeting the requirements of Rule 430 or 430A of the Rules and Regulations)
contained therein, the exhibits, financial statements and schedules have
heretofore been delivered by the Company to you. If such registration statement
has not become effective under the Act, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the Company
with the Commission. If such registration statement has become effective under
the Act, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement" as used herein
means the registration statement as amended at the time it becomes or became
effective under the Act (the "Effective Date"), including financial statements
and all exhibits and, if applicable, the information deemed to be included by
Rule 430A of the Rules and Regulations. The term "Prospectus" as used herein
means (i) the prospectus as first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations, or (ii) if no such filing is required, the
form of final prospectus included in the Registration Statement at the Effective
Date, or (iii) if a Term Sheet or Abbreviated Term Sheet (as such terms are
defined in Rules 434(b) and 434(c), respectively, of the Rules and Regulations)
is filed with the Commission pursuant to Rule 424(b)(7) of the Rules and
Regulations, the Term Sheet or Abbreviated Term Sheet and the last Preliminary
Prospectus filed with the Commission prior to the time the Registration
Statement became effective, taken together. The term "Preliminary Prospectus" as
used herein shall mean a preliminary prospectus as contemplated by Rule 430 or
430A of the Rules and Regulations included at any time in the Registration
Statement.
(ii) The Commission has not issued, and is not to the
knowledge of the Company threatening to issue, an order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus nor instituted
proceedings for that purpose. Each Preliminary Prospectus at its date of issue,
the Registration Statement and the Prospectus and any amendments or supplements
thereto contains or will contain, as the case may be, all statements which are
required to be stated therein by, and in all material respects conform or will
conform, as the case may be, to the requirements of, the Act and the Rules and
Regulations. Neither the Registration Statement nor any amendment thereto, as of
the applicable effective date, and neither the Prospectus nor any supplement
thereto contains or will contain, as the case may be, any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were
-3-
<PAGE>
made, not misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof.
(iii) The filing of the Registration Statement and the
execution and delivery of this Agreement have been duly authorized by the Board
of Directors of the Company; this Agreement constitutes a valid and legally
binding obligation of the Company enforceable in accordance with its terms
(except to the extent the enforceability of the indemnification and contribution
provisions of Section 7 hereof may be limited by public policy considerations as
expressed in the Act as construed by courts of competent jurisdiction, and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity); the issue and sale of the Shares by the
Company and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a violation of the Company's
Certificate of Incorporation or Bylaws or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or any of its subsidiaries under any statute, or under any
indenture, mortgage, deed of trust, note, loan agreement, sale and leaseback
arrangement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which any of them is bound or to which any of the
properties or assets of the Company or any of its subsidiaries is subject, or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or their properties,
except to such extent as does not materially adversely affect the business of
the Company and its subsidiaries taken as a whole; no consent, approval,
authorization, order, registration or qualification of or with any court or
governmental agency or body is required for the consummation of the transactions
herein contemplated, except such as may be required by the National Association
of Securities Dealers, Inc. (the "NASD") or under the Act or Rules and
Regulations or any state securities laws.
(iv) Except as described in the Prospectus, neither the
Company nor any of its subsidiaries has sustained since the date of the latest
audited financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree. Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company and its subsidiaries
taken as a whole have not incurred any material liabilities or material
obligations, direct or contingent, other than in the ordinary course of
business, or entered into any material transactions not in the ordinary course
of business, and there has not been any material change in the capital stock or
long-term debt of the Company and its subsidiaries taken as a whole or any
material adverse change in the condition (financial or other), net worth,
business, affairs, management, prospects or results of operations of the Company
and its subsidiaries taken as a whole. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax returns
and paid all taxes shown as due thereon; all tax liabilities are adequately
provided for on the books of the Company and its subsidiaries except to such
extent as would not materially adversely affect the business of the Company and
its subsidiaries taken as a whole; the Company and its subsidiaries have made
all necessary payroll tax payments and are current and up-to-date as of the date
of this Agreement; and the Company and its subsidiaries have no knowledge of any
tax proceeding or action pending or threatened against the Company or its
subsidiaries which might materially adversely affect their business or property.
-4-
<PAGE>
(v) Except as described in the Prospectus, there is not now
pending or, to the knowledge of the Company or any of its subsidiaries, or
threatened or contemplated, any action, suit or proceeding to which the Company
or any of its subsidiaries is a party before or by any court or public,
regulatory or governmental agency or body which might be expected to result
(individually or in the aggregate) in any material adverse change in the
condition (financial or other), business or prospects of the Company and its
subsidiaries taken as a whole, or might be expected to materially and adversely
affect (individually or in the aggregate) the properties or assets thereof.
(vi) The Company has duly and validly authorized capital stock
as described in the Prospectus; all outstanding shares of Common Stock of the
Company and the Shares conform, or when issued will conform, to the description
thereof in the Registration Statement and the Prospectus and have been, or, when
issued and paid for will be, duly authorized, validly issued, fully paid and
nonassessable; and the issuance of the Shares to be purchased from the Company
hereunder is not subject to preemptive rights. All offers and sales of the
securities of the Company during the past three (3) years were at all relevant
times duly registered or exempt from the registration requirements of the Act
and were duly registered or the subject of an exemption from the registration
requirements of applicable state securities laws. Except as set forth in the
Prospectus, the Company does not have outstanding, and at the Closing Date, will
not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts, or commitments to issue or sell any shares of Common Stock or any
such warrants, convertible securities or obligations. Except as disclosed in the
Prospectus, there are no contracts, agreements or understandings between the
Company and any person granting such person the rights to require the Company to
file a registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(vii) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of the states or other jurisdictions in which they are incorporated, with
full power and authority (corporate and other) to own, lease and operate their
properties and conduct their businesses as described in the Registration
Statement; the Company and its subsidiaries are duly qualified to do business as
foreign corporations in good standing in each state or other jurisdiction in
which their ownership or leasing of property or conduct of business legally
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the ability of the Company and its
subsidiaries to conduct its or their business as described in the Registration
Statement; and the outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company free and clear of any mortgage,
pledge, lien, encumbrance, charge or adverse claim and are not the subject of
any agreement or understanding with any person; no options, warrants or other
rights to purchase, agreement or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests in
the subsidiaries are outstanding.
(viii) Arthur Andersen LLP, the accounting firm which has
certified the financial statements filed with the Commission as a part of the
Registration Statement, is an independent public accounting firm within the
meaning of the Act and the Rules and Regulations.
(ix) The consolidated financial statements and schedules,
including the notes thereto, included in the Registration Statement and the
Prospectus are accurate and comply in all material respects with the Act and the
Regulations thereunder and present fairly the financial position of the
-5-
<PAGE>
Company and its subsidiaries as of the respective dates thereof and the related
statements of operations, cash flows and stockholders equity for the respective
periods specified and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The selected and summary
financial information with respect to the Company included in the Registration
Statement and the Prospectus present fairly the information set forth therein in
compliance with the applicable regulations of the Commission and have been
compiled on a basis consistent with that of the audited financial statements in
the Registration Statement and the Prospectus.
(x) Neither the Company nor any subsidiary is in default with
respect to any contract or agreement to which it is a party; provided that this
representation shall not apply to defaults which in the aggregate are not
materially adverse to the condition, financial or other, or the business or
prospects of the Company and its subsidiaries taken as a whole.
(xi) Neither the Company nor any subsidiary is in violation of
any laws, ordinances or governmental rules or regulations to which it is
subject, and neither the Company nor any subsidiary has failed to obtain any
license, permit, franchise, easement, consent, or other governmental
authorization necessary to the ownership, leasing and operation of its
properties or to the conduct of its business, which violation or failure would
materially adversely affect the business, operations, affairs, properties,
prospects, profits or condition (financial or other) of the Company and its
subsidiaries taken as a whole. Neither the Company nor any subsidiary has, at
any time during the past five (5) years, (a) made any unlawful contributions to
any candidate for any political office, or failed fully to disclose any
contribution in violation of law, or (b) made any payment to any state, federal
or foreign government official, or other person charged with similar public or
quasi-public duty (other than payment required or permitted by applicable law).
(xii) Except as described in the Prospectus, the Company and
its subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and trade names necessary to
conduct the business now operated by them, and neither the Company nor any
subsidiary has received any notice of infringement of or conflict with asserted
rights of others with respect to any patents, patent licenses, trademarks,
service marks or trade names which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material adverse
effect on the conduct of the business, operations, financial condition or income
of the Company and its subsidiaries taken as a whole.
(xiii) Neither the Company nor any of its subsidiaries owns
any real estate. The Company and its subsidiaries have good and marketable title
to all other property owned by them, free and clear of all liens, encumbrances,
restrictions and defects except such as are described in the Registration
Statement or do not interfere with the use made and proposed to be made of such
property; and any property held under lease or sublease by the Company or its
subsidiaries is held under valid, subsisting and enforceable leases or subleases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property by the Company and its subsidiaries and
neither the Company nor any subsidiary has notice or knowledge of any material
claim of any sort which has been, or may be, asserted by anyone adverse to the
Company's or any subsidiary's rights as lessee or sublessee under any lease or
sublease described above, or affecting or questioning the Company's or any
subsidiary's rights to the continued possession of the leased or subleased
premises under any such lease or sublease in conflict with the terms thereof.
-6-
<PAGE>
(xiv) Except as described in the Prospectus, there is no
factual basis for any action, suit or other proceeding involving the Company or
any subsidiary or any of their material assets for any failure of the Company or
any of its subsidiaries, or any predecessor thereof, to comply with any
requirements of federal, state or local regulation relating to air, water, solid
waste management, hazardous or toxic substances, or the protection of health or
the environment. Except as described in the Prospectus, none of the property
leased by the Company or any of its subsidiaries is, to the best knowledge of
the Company, contaminated with any waste or hazardous substances, and neither
the Company nor any of its subsidiaries may be deemed an "owner or operator" of
a "facility" or "vessel" which owns, possesses, transports, generates or
disposes of a "hazardous substance" as those terms are defined in ss.9601 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss.9601 ET SEQ.
(xv) No labor disturbance exists or is imminent with the
employees of the Company or its subsidiaries which would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Company's
Common Stock, and the Company is not aware of any such action taken or to be
taken by affiliates of the Company.
(xvii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xviii) The Company's and each of its subsidiaries' systems of
internal accounting controls are sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the Company's consolidated financial statements; and,
except as disclosed in the Prospectus, neither the Company nor any subsidiary
nor any employee or agent of the Company or any subsidiary has made any payment
of funds of the Company or any subsidiary or received or retained any funds in
violation of any law, rule or regulation, the receipt or payment of which could
have a material adverse effect on the Company and its subsidiaries taken as a
whole.
(xix) There is no document or contract of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described or filed as
required. All such contracts to which the Company or any subsidiary is a party
has been duly authorized, executed and delivered by the Company or its
subsidiary constitute valid and binding agreements of the Company or its
subsidiary and are enforceable by the Company or its subsidiary in accordance
with the terms thereof.
(xx) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company or
any subsidiary any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(b) Each Selling Shareholder severally represents and warrants to
and agrees with each Underwriter and the Company that:
(i) All authorizations and consents necessary for the
execution and delivery by it of this Agreement and the sale and delivery of the
Shares to be sold by such Selling Shareholder
-7-
<PAGE>
hereunder have been given and are in full force and effect on the date hereof
and will be in full force and effect on the Closing Date (and, if applicable,
the Option Closing Date).
(ii) Such Selling Shareholder has, and on the Closing Date
(and, if applicable, the Option Closing Date) will have good and valid title to
the Shares to be sold by such Selling Shareholder, free and clear of all liens,
mortgages, pledges, encumbrances, claims, equities and security interests
whatsoever, and will have, full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder,
the several Underwriters (assuming they are bona fide purchasers under the
Uniform Commercial Code) will acquire valid and unencumbered title to such
Shares to be sold by such Selling Shareholder hereunder, free and clear of all
liens, mortgages, pledges, encumbrances, claims, equities and security interests
whatsoever.
(iv) The consummation by such Selling Shareholder of the
transactions contemplated herein and the fulfillment by such Selling Shareholder
of the terms hereof will not result in a violation or breach of any terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, note, loan agreement, sale and leaseback arrangement or other agreement
or instrument to which such Selling Shareholder is a party, or of any order,
rule or regulation applicable to such Selling Shareholder of any court or of any
regulatory body of an administrative agency or other governmental body having
jurisdiction.
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to cause or result in stabilization or manipulation of the price of the
Company's Common Stock, and such Selling Shareholder is not aware of any such
action taken or to be taken by affiliates of such Selling Shareholder.
(vi) When the Registration Statement becomes effective and at
all times subsequent thereto, such information in the Registration Statement and
Prospectus and any amendments or supplements thereto as specifically refers to
such Selling Shareholder will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Shareholder hereunder have been placed in the
custody of ___________________ and ____________________ (the "Custodians") under
a Custody Agreement (the "Custody Agreement"), duly executed and delivered by
such Selling Shareholder, with the Custodians having the authority to deliver
the Shares to be sold by such Selling Shareholder hereunder, and that such
Selling Shareholder has duly executed and delivered a Power of Attorney (the
"Power of Attorney") appointing ______________________ and
_______________________ as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with the Attorneys-in-Fact having authority to execute and
deliver this Agreement on behalf of such Selling Shareholder, to determine the
purchase price to be paid by the Underwriters to the Selling Shareholders as
provided in Section 2, to authorize the delivery of the Shares to be sold by it
hereunder and otherwise to act on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement and such Custody
Agreement.
(viii) The Shares represented by the certificates held in
custody for such Selling Shareholder under the Custody Agreement are subject to
the interests of the Underwriters hereunder, and
-8-
<PAGE>
the arrangements made by such Selling Shareholder for such custody, and the
appointment by such Selling Shareholder of the Custodians under the Custody
Agreement and of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable.
(ix) The obligations of such Selling Shareholder hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Shareholder or by the occurrence of any other event,
and if any Selling Shareholder should die or become incapacitated, or if any
other such event should occur before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf of each
Selling Shareholder in accordance with the terms and conditions of this
Agreement and of the Custody Agreement, and actions taken by the Custodians
pursuant to the Custody Agreement or by the Attorneys-in-Fact pursuant to the
Power of Attorney shall be as valid as if such death, incapacity or other event
had not occurred, regardless of whether or not the Custodians or
Attorneys-in-Fact, or any of them, shall have received notice of such death,
incapacity or other event.
(x) Such Selling Shareholder is not prompted to sell shares of
Common Stock by any information concerning the Company which is not included in
the Registration Statement.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of the Selling
Shareholders as such and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by the Selling Shareholders to
each Underwriter as to the matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where expressly indicated, the
Selling Shareholders, covenant and agree with the several Underwriters that:
(a) If the Registration Statement is not effective under the Act,
the Company will use its best efforts to cause the Registration Statement to
become effective as promptly as possible, and it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration Statement has
become effective. The Company (i) will prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations, if required, a
Prospectus containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations or otherwise or a Term Sheet or Abbreviated Term Sheet, as
applicable; (ii) will not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriters shall not previously have
been advised and furnished with a copy or to which the Underwriters shall have
reasonably objected in writing or which is not in compliance with the Rules and
Regulations; and (iii) will promptly notify you after it shall have received
notice thereof of the time when any amendment to the Registration Statement
becomes effective or when any supplement to the Prospectus has been filed.
(b) The Company will advise the Underwriters promptly, after it
shall receive notice or obtain knowledge thereof, of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution or threatening of
any proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
-9-
<PAGE>
(c) The Company will cooperate with the Underwriters and their
counsel in endeavoring to qualify the Shares for sale under the securities laws
of such jurisdictions as they may have designated and will make such
applications, file such documents, and furnish such information as may be
necessary for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent or to subject itself to taxation as doing business in any
jurisdiction where it is not now so taxed. The Company will, from time to time,
file such statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the Underwriters
may reasonably request.
(d) The Company will deliver to, or upon the order of, the
Underwriters, without charge from time to time, as many copies of any
Preliminary Prospectus as they may reasonably request. The Company will deliver
to, or upon the order of, the Underwriters without charge as many copies of the
Prospectus, or as it thereafter may be amended or supplemented, as they may from
time to time reasonably request. The Company consents to the use of such
Prospectus by the Underwriters and by all dealers to whom the Shares may be
sold, both in connection with the offering or sale of the Shares and for such
other purposes and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with the offering or sale of the
Shares. The Company will deliver to the Underwriters at or before the Closing
Date two (2) signed copies of the Registration Statement and all amendments
thereto including all exhibits filed therewith, and will deliver to the
Underwriters such number of copies of the Registration Statement, without
exhibits, and of all amendments thereto, as they may reasonably request.
(e) If, during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, any event shall occur as a result
of which, in the judgment of the Company or in your judgment or in the opinion
of counsel for the Underwriters, it becomes necessary to amend or supplement the
prospectus in order to make the statements therein, in light of the
circumstances existing at the time the prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the prospectus so that the prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the prospectus will comply with law.
(f) The Company will make generally available to its stockholders
and will file as an exhibit in a report pursuant to the Securities and Exchange
Act of 1934, as amended (the "1934 Act"), as soon as it is practicable to do so,
but in any event not later than fifteen (15) months after the effective date of
the Registration Statement, an earnings statement in reasonable detail, covering
a period of at least twelve (12) consecutive months beginning after the
effective date of the Registration Statement, which earnings statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules
and Regulations and will advise the Underwriters in writing when such statement
has been so made available.
(g) The Company will, for a period of five (5) years from the
Closing Date, deliver to the Underwriters at their principal executive offices a
reasonable number of copies of annual reports, quarterly reports, current
reports and copies of all other documents, reports and information furnished by
the Company to its stockholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the Act
or the 1934 Act. The Company will deliver to the Underwriters similar reports
with respect to any significant subsidiaries, as that term is defined in the
Rules and Regulations, which are not consolidated in the Company's financial
statements. Any report, document
-10-
<PAGE>
or other information required to be furnished under this paragraph (g) shall be
furnished as soon as practicable after such report, document or information
becomes available.
(h) The Company will apply the proceeds from the sale of the Shares
as set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(i) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection with
the registration of the Shares under the Act.
(j) Prior to the Closing Date (and, if applicable, the Option
Closing Date), the Company will furnish to you, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company for any periods subsequent to the periods covered by the
consolidated financial statements appearing in the Registration Statement and
the Prospectus.
(k) Prior to the Closing Date (and, if applicable, the Option
Closing Date), neither the Company, any subsidiary nor any Selling Shareholder
will issue any press releases or other communications directly or indirectly and
will hold no press conferences with respect to the Company, any subsidiary, the
financial condition, results of operations, business, properties, assets or
liabilities of the Company or any subsidiary, or the offering of the Shares,
without your prior written consent.
(l) The Company will use its best efforts to obtain approval for,
and maintain the quotation of the Shares on, the Nasdaq National Market (the
"NNM").
(m) Except pursuant to this Agreement or with the prior written
consent of A.G. Edwards & Sons, Inc., the Company will not, and the Company has
provided agreements executed by each shareholder of the Company providing that
none of them will, and the Company will use its best efforts to cause its other
directors and officers to not, for a period of 180 days from the Effective Date,
directly or indirectly sell, contract to sell or otherwise dispose of any shares
of the Company's Common Stock, any securities exchangeable for Common Stock or
any other rights to acquire such shares without your prior written consent,
except for the Shares sold hereunder and except for sales of shares of Common
Stock to the Company's employees pursuant to the exercise of options under the
Company's stock option plans.
(n) For a period of 180 days from the Effective Date, the Selling
Shareholders will not directly or indirectly sell, contract to sell or otherwise
dispose of any shares of the Company's Common Stock or rights to acquire such
shares without your prior written consent, except for the Shares sold hereunder.
(o) The Company and its subsidiaries will maintain and keep accurate
books and records reflecting their assets and maintain internal accounting
controls which provide reasonable assurance that (i) transactions are executed
in accordance with management's authorization, (ii) transactions are recorded as
necessary to permit the preparation of the Company's consolidated financial
statements and to maintain accountability for the assets of the Company and its
subsidiaries, (iii) access to the assets of the Company and its subsidiaries is
permitted only in accordance with management's authorization, and (iv) the
recorded accounts of the assets of the Company and its subsidiaries are compared
with existing assets at reasonable intervals.
-11-
<PAGE>
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the
Underwriters to purchase and pay for the Shares, as provided herein, shall be
subject to the accuracy in all material respects, as of the date hereof and as
of the Closing Date (and, if applicable, the Option Closing Date), of the
representations and warranties of the Company and the Selling Shareholders
contained herein, to the performance in all material respects by the Company and
the Selling Shareholders of their covenants and obligations hereunder, and to
the following additional conditions:
(a) All filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have disclosed in writing to the Company on
or prior to the Closing Date (and, if applicable, the Option Closing Date), that
the Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the opinion of counsel to the
Underwriters, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing
Date), you shall have received the opinion of counsel for the Company, addressed
to you and dated the Closing Date (and, if applicable, the Option Closing Date),
to the effect that:
(i) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of the states or other jurisdictions in which they are incorporated with
the corporate power and authority to own, lease and operate their properties and
conduct their business as described in the Registration Statement; the Company
and its subsidiaries are duly qualified to do business as foreign corporations
in good standing in each state or other jurisdiction in which their ownership or
leasing of property or conduct of business legally requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the ability of the Company and its subsidiaries to conduct their
business as described in the Registration Statement; and the outstanding shares
of capital stock of the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and, to the knowledge of such
counsel after due inquiry, are owned by the Company free and clear of any
mortgage, pledge, lien, encumbrance, charge or adverse claim and are not the
subject of any agreement or understanding with any person; no options, warrants
or other rights to purchase, agreement or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the subsidiaries are outstanding.
(ii) The Company has duly and validly authorized capital stock
as set forth under the heading "Capitalization" in the Prospectus; all
outstanding shares of Common Stock of the Company and the Shares conform to the
description thereof in the Prospectus under the heading "Description of Capital
Stock," and the outstanding shares of Common Stock have been duly authorized and
are validly issued, fully paid and non-assessable; the Shares to be sold by the
Company have been duly authorized and, when delivered and paid for in accordance
with this Agreement, will be validly issued, fully paid and non-assessable, and
the shareholders of the Company have no preemptive rights with respect to the
Shares.
-12-
<PAGE>
(iii) Such counsel has been advised by the staff of the
Commission that the Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Act.
(iv) The Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or issue
dates, comply as to form and appear on their face to be appropriately responsive
in all material respects to the requirements of the Act and the applicable rules
and regulations (except that such counsel need express no opinion as to the
financial statements or other financial data).
(v) The descriptions in the Registration Statement and
Prospectus of contracts and other documents filed as exhibits to the
Registration Statement are accurate in all material respects; all other material
agreements between the Company and third parties expressly referenced in the
Prospectus are legal, valid and binding obligations of the Company.
(vi) No authorization, approval, consent, order, registration
or qualification of or with of any court or governmental body, authority or
agency is required with respect to the Company in connection with the
transactions contemplated by this Agreement, except such as may be required
under the Act or the Rules and Regulations or as may be required by the NASD or
under state securities laws in connection with the purchase and distribution of
the Shares by the Underwriters.
(vii) The filing of the Registration Statement has been duly
authorized by the Board of Directors of the Company. This Agreement has been
duly authorized, executed and delivered by the Company. The performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a violation of the Company's Certificate of Incorporation or Bylaws or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company or any of its
subsidiaries under, any statute, or under any indenture, mortgage, deed of
trust, note, loan agreement, sale and leaseback arrangement, or any other
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which they are bound or to which any of the
properties or assets of the Company or any of its subsidiaries are subject, or
any order, rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or its subsidiaries or their
properties, except, in the case of any such violation, breach, default, creation
or imposition, to such extent as does not materially adversely affect the
business of the Company and its subsidiaries taken as a whole.
(viii) To the knowledge of such counsel, (a) there are no
material (individually, or in the aggregate) legal, governmental or regulatory
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or of which the business or properties of the Company or
any of its subsidiaries is the subject which are not disclosed in the
Registration Statement and Prospectus; (b) there are no contracts or documents
of a character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which are
not described or filed as required; and (c) there are no statutes or regulations
required to be described in the Registration Statement or Prospectus which are
not described as required.
-13-
<PAGE>
(ix) To the knowledge of such counsel, the Company and each of
its subsidiaries holds all licenses, certificates, permits and approvals from
all state, federal and other regulatory authorities, and has satisfied in all
material respects the requirements imposed by regulatory bodies, administrative
agencies or other governmental bodies, agencies or officials, that are required
for the Company and its subsidiaries lawfully to own, lease and operate their
properties and conduct their business as described in the Prospectus, and, to
the knowledge of such counsel, each of the Company and its subsidiaries is
conducting its business in compliance in all material respects with all of the
laws, rules and regulations of each jurisdiction in which it conducts its
business.
(x) The statements made in the Registration Statement under
the captions "Dividend Policy", "Capitalization", "Description of Capital
Stock", and "Shares Available for Future Sale," to the extent that they
constitute summaries of documents referred to therein or matters of law or legal
conclusions, have been reviewed by such counsel and are accurate summaries and
fairly present the information disclosed therein.
(xi) The Company is not, and will not become as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the Investment Company Act
of 1940.
(xii) Except as described in the Registration Statement, there
are no contracts, agreements or understanding known to such counsel between the
Company or any subsidiary and any person granting such person the right to
require the Company to file a registration statement under the Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the Act.
(xiii) This Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel also shall confirm that in the course of its duties in
connection with the preparation of the Registration Statement and Prospectus,
nothing came to such counsel's attention that would lead them to believe that
either the Registration Statement or Prospectus or any amendment or supplement
thereto (other than the financial statements or other financial data as to which
such counsel need express no opinion) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering the foregoing opinion, such counsel may rely, provided
that the opinion shall state that you and they are entitled to so rely, (a) as
to matters involving laws of any jurisdiction other than Delaware, Texas or the
United States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Peper, Martin, Jensen, Maichel and Hetlage, and (b) as
to all matters of fact, upon certificates and written statements of the
executive officers of, and accountants for, the Company.
(d) On the Closing Date (and, if applicable, the Option Closing
Date), you shall have received the opinion of counsel to the Selling
Shareholders, addressed to you and dated the Closing Date (and, if applicable,
the Option Closing Date), to the effect that:
-14-
<PAGE>
(i) Each Selling Shareholder has duly authorized, executed and
delivered the Custody Agreement and Power of Attorney, appointing
__________________ and __________________ as such Selling Shareholder's
Custodians with authority to take custody of and deliver the Shares as
represented by certificates on behalf of such Selling Shareholder in connection
with the transactions contemplated by this Agreement and the Custody Agreement
and appointing __________________ and _____________ as such Selling
Shareholder's attorneys-in-fact with authority to execute and deliver this
Agreement on behalf of such Selling Shareholder and otherwise to act on behalf
of such Selling Shareholder in connection with the transactions contemplated by
this Agreement and the Power of Attorney.
(ii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders.
(iii) Each Selling Shareholder has full legal right, power and
authority to sell, assign, transfer and deliver the Shares to be sold by such
Selling Shareholder.
(iv) Each Selling Shareholder has good and valid title to the
Shares being sold by such Selling Shareholder hereunder, free and clear of all
liens, mortgages, pledges, encumbrances, claims, equities and security
interests, and (assuming the underwriters are bona fide purchasers within the
meaning of the Uniform Commercial Code) has transferred to the Underwriters good
and valid title to the Shares being sold by such Selling Shareholder on the
Closing Date, free and clear of all liens, mortgages, pledges, encumbrances,
claims, equities and security interests whatsoever.
(v) No consent, approval, authorization or order of any court,
or governmental agency or body is required for consummation of the transactions
contemplated by this Agreement in connection with the Shares to be sold by each
Selling Shareholder hereunder except such as may be required under the Act or
the Rules or Regulations or as may be required by the NASD.
In rendering the foregoing opinion, such counsel may rely, provided
that the opinion shall state that you and they are entitled to so rely, (a) as
to matters involving laws of any jurisdiction other than _______________ or the
United States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Peper, Martin, Jensen, Maichel and Hetlage, and (b) as
to all matters of fact, upon certificates and written statements of the Selling
Shareholders.
(e) You shall have received on the Closing Date (and, if applicable,
the Option Closing Date), from Peper, Martin, Jensen, Maichel and Hetlage,
counsel to the Underwriters, such opinion or opinions, dated the Closing Date
(and, if applicable, the Option Closing Date) with respect to the incorporation
of the Company, the validity of the Shares, the Registration Statement, the
Prospectus and other related matters as you may reasonably require; the Company
and Selling Shareholders shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass on such
matters.
(f) On the date of this Agreement and on the Closing Date (and, if
applicable, the Option Closing Date), you shall have received from Arthur
Andersen LLP, a letter or letters, dated the date of this Agreement and the
Closing Date (and, if applicable, the Option Closing Date), respectively, in
form and substance satisfactory to you, confirming that they are independent
public accountants with respect to the Company within the meaning of the Act and
the published Rules and Regulations, and the answer to
-15-
<PAGE>
Item 509 of Regulation S-K set forth in the Registration Statement is correct
insofar as it relates to them, and addressing the matters set forth in Schedule
III hereto.
(g) Except as contemplated in the Prospectus, (i) neither the
Company nor any of its subsidiaries shall have sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and (ii) subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries shall have incurred
any liability or obligation, direct or contingent, or entered into transactions,
and there shall not have been any change in the capital stock or long-term debt
of the Company or its subsidiaries or any change in the condition (financial or
other), net worth, business, affairs, management, prospects or results of
operations of the Company or its subsidiaries, the effect of which, in any such
case described in clause (i) or (ii), is in your judgment so material or adverse
as to make it impracticable or inadvisable to proceed with the public offering
or the delivery of the Shares being delivered on such Closing Date (and, if
applicable, the Option Closing Date) on the terms and in the manner contemplated
in the Prospectus.
(h) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or the establishing on such
exchanges by the Commission or by such exchanges of minimum or maximum prices
which are not in force and effect on the date hereof; (ii) a general moratorium
on commercial banking activities declared by either federal or state
authorities; (iii) the outbreak or escalation of hostilities involving or
affecting the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
clause (iii) in your judgment makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares in the manner
contemplated in the Prospectus; (iv) any calamity or crisis, change in national,
international or world affairs, act of God, change in the international or
domestic markets, or change in the existing financial, political or economic
conditions in the United States or elsewhere, if the effect of any such event
specified in this clause (iv) makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares in the manner
contemplated in the Prospectus; or (v) the enactment, publication, decree, or
other promulgation of any federal or state statute, regulation, rule, or order
of any court or other governmental authority, or the taking of any action by any
federal, state or local government or agency in respect of fiscal or monetary
affairs, if the effect of any such event specified in this clause (v) in your
judgment makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares in the manner contemplated in the
Prospectus.
(i) You shall have received certificates, dated the Closing Date
(and, if applicable, the Option Closing Date) and signed by the President and
the Chief Financial Officer of the Company stating that (i) they have carefully
examined the Registration Statement and the Prospectus as amended or
supplemented and nothing has come to their attention that would lead them to
believe that either the Registration Statement or the Prospectus, or any
amendment or supplement thereto as of their respective effective or issue dates,
contained, and the Prospectus as amended or supplemented at such Closing Date,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and, that (ii) all representations and warranties made herein by the
Company are true and correct in all material respects at such Closing Date, with
the same effect as if made on and as of such Closing Date, and all agreements
herein to be performed by the Company on or prior to such Closing Date have been
duly performed in all material respects.
-16-
<PAGE>
(j) The Company and each of the Selling Shareholders shall not have
failed, refused, or been unable, at or prior to the Closing Date (and, if
applicable, the Option Closing Date) to have performed in all material respects
any agreement on their part to be performed or any of the conditions herein
contained and required to be performed or satisfied by them at or prior to such
Closing Date.
(k) The Company and the Selling Shareholders shall have furnished to
you at the Closing Date (and, if applicable, the Option Closing Date) such other
certificates as you may have reasonably requested as to the accuracy, on and as
of such Closing Date, of the representations and warranties of the Company and
the Selling Shareholders herein and as to the performance by the Company and the
Selling Shareholders of their obligations hereunder.
(l) The Shares shall have been approved for trading upon official
notice of issuance on the NNM.
(m) The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
(n) The agreements described in Section 5(m) shall be in full force
and effect.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Peper, Martin, Jensen, Maichel and Hetlage, counsel for the
several Underwriters. The Company and Selling Shareholders will furnish you with
such conformed copies of such opinions, certificates, letters and documents as
you may request.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Closing Date (and, if applicable, the
Option Closing Date) or waived by you in writing, this Agreement may be
terminated by you on notice to the Company and the Selling Shareholders.
7. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter or such controlling person may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by you or by any Underwriter
through you, specifically for use in the preparation thereof; and provided,
further, that if any Preliminary Prospectus or the Prospectus contained
-17-
<PAGE>
any alleged untrue statement or allegedly omitted to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading and such statement or omission shall have been corrected in a
revised Preliminary Prospectus or in the Prospectus or in an amended or
supplemented Prospectus, the Company shall not be liable to any Underwriter or
controlling person under this subsection (a) with respect to such alleged untrue
statement or alleged omission to the extent that any such loss, claim, damage or
liability of such Underwriter or controlling person results from the fact that
such Underwriter sold Shares to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, such revised Preliminary
Prospectus or Prospectus or amended or supplemented Prospectus. This indemnity
agreement shall be in addition to any liabilities which the Company may
otherwise have.
(b) Each Selling Shareholder will indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company or any Underwriter by such Selling Shareholder
specifically for use in the preparation thereof; and will reimburse any legal or
other expenses reasonably incurred by each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity contained in this subsection (b) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) in
respect of any action or claim asserted by a person who purchased any Shares
from such Underwriter, if, within the time required by the Act such person was
not sent or given a copy of the Prospectus, as then amended or supplemented. In
no event, however, shall the liability of any Selling Shareholder for
indemnification under this Section 7(b) exceed the proceeds received by such
Selling Shareholder from the Underwriters in the offering. This indemnity
agreement shall be in addition to any liabilities which the Selling Shareholders
may otherwise have.
(c) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and, each person, if any, who controls the Company within the meaning
of the Act, and each Selling Shareholder, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer or controlling person or any such Selling Shareholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by any such Underwriter specifically for use
-18-
<PAGE>
in the preparation thereof; and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person or any such Selling Shareholder in connection with investigating or
defending any such loss, claim, damage, liability or action. The Company and
each Selling Shareholder acknowledge that the statements set forth under the
heading "Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information relating to the Underwriters furnished in
writing to the Company by the Underwriters expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus.
(d) Any party which proposes to assert the right to be indemnified
under this Section 7 shall, within ten (10) days after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party under this Section 7,
notify each such indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served, but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
such indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Section 7. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party at the expense of
the indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel in a written opinion
that there may be a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense, or certain aspects of the
defense, of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action with respect to those matters or
aspects of the defense on which a conflict exists or may exist on behalf of the
indemnified party) or (iii) the indemnifying party shall not in fact have
employed counsel to assume the defense of such action, in any of which events
such fees and expenses to the extent applicable shall be borne by the
indemnifying party. An indemnifying party shall not be liable for any settlement
of any action or claim effected without its consent. Each indemnified party, as
a condition of such indemnity, shall cooperate in good faith with the
indemnifying party in the defense of any such action or claim.
(e) If the indemnification provided for in this Section 7 is for any
reason, other than pursuant to the terms thereof, judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right to appeal) to be
unavailable to an indemnified party under subsections (a), (b) or (c) above in
respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the Selling
Shareholders and the Underwriters from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault, as
applicable, of the Company, the Selling
-19-
<PAGE>
Shareholders and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as other relevant equitable considerations. The
relative benefits received by, as applicable, the Company, the Selling
Shareholders and the Underwriters shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter; no Selling Shareholder shall be required to
contribute any amount in excess of the proceeds received by such Selling
Shareholder from the Underwriters in the offering; and, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company and the Selling
Shareholders contained in Sections 7 and 11 herein or in certificates delivered
pursuant hereto, and the agreements of the Underwriters contained in Section 7
hereof, shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person, the Company or any of its
officers, directors or any controlling persons, or the Selling Shareholders, and
shall survive delivery of the Shares to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six (36) hours after such default by
any Underwriter you do not arrange for the purchase of such Shares, then the
Company and the Selling Shareholders shall be entitled to a further period of
thirty-six (36) hours within which to procure another party or parties
reasonably satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Shareholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Shareholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Shareholders shall have the right to postpone the Closing Date for a period of
not more than seven (7) days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
-20-
<PAGE>
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any persons substituted under this Section 9 with like effect as
if such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Shareholders as provided in subsection (a) above, the
aggregate number of Shares which remains unpurchased does not exceed one tenth
(1/10) of the total Shares to be sold on the Closing Date, then the Company and
the Selling Shareholders shall have the right to require each non-defaulting
Underwriter to purchase the Shares which such Underwriter agreed to purchase
hereunder and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters made by you or the
Company and the Selling Shareholders as provided in subsection (a) above, the
number of Shares which remains unpurchased exceeds one tenth (1/10) of the total
Shares to be sold on the Closing Date, or if the Company and the Selling
Shareholders shall not exercise the right described in subsection (b) above to
require the non-defaulting Underwriters to purchase Shares of the defaulting
Underwriter or Underwriters, then this Agreement shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
and the Selling Shareholders except for the expenses to be borne by the Company
and the Underwriters as provided in Section 11 hereof and the indemnity and
contribution agreements in Section 7 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 1:00 p.m., St. Louis
time, on the first business day following the effective date of the Registration
Statement, or at such earlier time after the effective date of the Registration
Statement as you in your discretion shall first release the Shares for offering
to the public; provided, however, that the provisions of Section 7 and 11 shall
at all times be effective. For the purposes of this Section 10(a), the Shares
shall be deemed to have been released to the public upon release by you of the
publication of a newspaper advertisement relating to the Shares or upon release
of telegrams, facsimile transmissions or letters offering the Shares for sale to
securities dealers, whichever shall first occur.
(b) This Agreement may be terminated by you at any time before it
becomes effective in accordance with Section 10(a) by notice to the Company and
the Selling Shareholders; provided, however, that the provisions of this Section
10 and of Section 7 and Section 11 hereof shall at all times be effective. In
the event of any termination of this Agreement pursuant to Section 9 or this
Section 10(b) hereof, the Company and the Selling Shareholders shall not then be
under any liability to any Underwriter except as provided in Section 7 or
Section 11 hereof.
(c) This Agreement may be terminated by you at any time at or prior
to the Closing Date by notice to the Company and the Selling Shareholders if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
-21-
<PAGE>
(d) This Agreement also may be terminated by you, by notice to the
Company and the Selling Shareholders, as to any obligation of the Underwriters
to purchase the Option Shares, if any condition specified in Section 6 hereof
shall not have been satisfied at or prior to the Option Closing Date or as
provided in Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c)
or 10(d), you shall notify the Company and the Selling Shareholders by telephone
or telegram, confirmed by letter.
11. COSTS AND EXPENSES. The Company and the Selling Shareholders will bear
and pay the costs and expenses incident to the registration of the Shares and
public offering thereof, including, without limitation, (a) the fees and
expenses of the Company's accountants and the fees and expenses of counsel for
the Company, (b) the preparation, printing, filing, delivery and shipping of the
Registration Statement, each Preliminary Prospectus, the Prospectus and any
amendments or supplements thereto (except as otherwise expressly provided in
Section 5(d) hereof) and the printing, delivery and shipping of this Agreement,
the Agreement Among Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney, (c) the furnishing of copies of such
documents (except as otherwise expressly provided in Section 5(d) hereof) to the
Underwriters, (d) the fees payable to the NASD and the Commission in connection
with their review of the proposed offering of the Shares, (e) all printing and
engraving costs related to preparation of the certificates for the Shares,
including transfer agent and registrar fees, (f) all initial transfer taxes, if
any, (g) all fees and expenses relating to the authorization of the Shares for
trading on NNM, (h) all travel expenses, including air fare and accommodation
expenses, of representatives of the Company in connection with the offering of
the Shares and (i) all of the other costs and expenses incident to the
performance by the Company and Selling Shareholders of the registration and
offering of the Shares; provided, however, that the Underwriters will bear and
pay the fees and expenses of the Underwriters' counsel (other than fees and
disbursements relating to the qualification of the Shares for offering and sale
under the securities laws of the various states, if any, and qualifications
under NASD regulations), the Underwriters' out-of-pocket expenses, and any
advertising costs and expenses incurred by the Underwriters incident to the
public offering of the Shares; and provided, further, that the Selling
Shareholders will bear and pay the fees and expenses of the Selling
Shareholders' counsel.
If this Agreement is terminated by you in accordance with the
provisions of Section 10(c), the Company shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel to the Underwriters.
12. DEFAULT OF SELLING SHAREHOLDERS. Failure or refusal by any of the
Selling Shareholders to sell and deliver on the Closing Date the Shares agreed
to be sold and delivered by such Selling Shareholder shall in no manner relieve
the other Selling Shareholders or the Company of their respective obligations
under this Agreement. If any Selling Shareholder should fail or refuse to sell
and deliver his Shares, the remaining Selling Shareholders shall have the right
hereby granted to increase, pro rata or otherwise, the number of Shares to be
sold by them hereunder to the total number of Shares to be sold by all Selling
Shareholders as set forth in Schedule I. If the remaining Selling Shareholders
do not fully exercise the right to increase the number of Shares to be sold by
them, the Underwriters, at your option, will have the right to elect to purchase
or not to purchase the Shares to be sold by the Company and the remaining
Selling Shareholders. In the event the Underwriters purchase the Shares of the
Company and such other Selling Shareholders pursuant to this Section 12, the
Closing Date shall be postponed for a period of not more than seven days in
order that the Registration Statement and Prospectus or other documents may be
amended or supplemented to the extent necessary under the provisions of the Act
and the Rules and Regulations or
-22-
<PAGE>
under the securities laws of any jurisdiction. If the Underwriters determine not
to purchase the Shares of the Company and the other Selling Shareholders, if
any, this Agreement shall terminate and neither the Company nor the Underwriters
nor any other Selling Shareholder shall be under any obligation under this
Agreement except as provided in Section 7 hereof and except for the obligation
of the Company to pay for such expenses as are set forth in Section 11 hereof.
Nothing herein shall relieve a defaulting Selling Shareholder from liability for
his default or from liability under Section 7 hereof or for expenses imposed by
this Agreement upon such Selling Shareholder.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Syndicate, facsimile number (314)
955-7387, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at 3000
Weslayan, Suite 350, Houston, Texas 77027, Attention: Kirby Attwell, facsimile
number (713) _______ , or if sent to any Selling Shareholder shall be mailed,
delivered, sent by facsimile transmission or telegraphed and confirmed to such
Selling Shareholder, c/o the Attorney-in-Fact at ______________________________
______________________________. Notice to any Underwriter pursuant to Section 7
shall be mailed, delivered, sent by facsimile transmission, or telegraphed and
confirmed to such Underwriter's address as it appears in the Underwriters'
Questionnaire furnished in connection with the offering of the Shares or as
otherwise furnished to the Company and the Selling Shareholder.
14. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriters and the Selling Shareholders, and the Company and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, corporation or
other entity, other than the parties hereto and their respective successors and
assigns and the controlling persons, officers and directors referred to in
Section 7, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person, corporation or other entity. No purchaser of any
of the Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement you shall act on behalf of each of the several Underwriters. The
Company and the Selling Shareholders shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of the Underwriters, made or
given by you on behalf of the Underwriters, as if the same shall have been made
or given in writing by the Underwriters.
15. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
16. PRONOUNS. Whenever a pronoun of any gender or number is used herein,
it shall, where appropriate, be deemed to include any other gender and number.
17. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Missouri.
-23-
<PAGE>
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, each of the Selling
Shareholders and the Underwriters.
TRAVIS INTERNATIONAL, INC.
By: __________________________________
Title: President
Selling Shareholders Named in
Schedule I Hereto
By: __________________________________
Attorney-in-Fact
Accepted in St. Louis,
Missouri as of the date first
above written, on behalf of
ourselves and each of the
several Underwriters named in
Schedule II hereto.
A.G. EDWARDS & SONS, INC.
CLEARY GULL REILAND & McDEVITT INC.
By: A.G. Edwards & Sons, Inc.
By: _____________________________________
Title: Senior Vice President
-24-
<PAGE>
SCHEDULE I
NUMBER OF
SELLING SHAREHOLDERS FIRM SHARES
Total
-25-
<PAGE>
SCHEDULE II
NAME NUMBER OF SHARES
A.G. Edwards & Sons, Inc.
Cleary Gull Reiland & McDevitt Inc.
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
_______________________ _____
Total _____
-26-
<PAGE>
SCHEDULE III
Pursuant to Section 6(f) of the Underwriting Agreement, Arthur Andersen
LLP shall furnish letters to the Underwriters to the effect that:
1. In their opinion, the financial statements and any supplementary
financial information and schedules audited (including pro forma financial
information examined) by them and included in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Rules and Regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public Accountants
of the unaudited interim financial statements, selected financial data, pro
forma financial information, or condensed financial statements derived from
audited financial statements of the Company and its subsidiaries for the periods
specified in such letter, as indicated in their reports thereon, copies of which
have been furnished to the Representatives of the Underwriters (the
"Representatives").
2. On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below,
performing the procedures specified by the AICPA for a review of interim
financial information as discussed in SAS No. 71, Interim Financial Information,
on the latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(a) any material modifications should be made to the unaudited
balance sheet, statements of operations, statements of cash
flows, and statements of changes in shareholders' equity
included in the Prospectus for them to be in conformity
with generally accepted accounting principles, or such
unaudited statements, included in the Prospectus do not
comply as to form in all material respects with the
applicable accounting requirements of the Act and the
related published Rules and Regulations thereunder.
(b) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and
any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial
statements included in the Prospectus.
(c) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (a)
and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in
Clause (b) were not determined on a basis substantially
consistent with the basis for the audited consolidated
financial statements included in the Prospectus.
-27-
<PAGE>
(d) any unaudited pro forma condensed financial statements
included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder
or the pro forma adjustments have not been properly applied to
the historical amounts in the compilation of those statements.
(e) as of a specified date not more than five (5) days prior to
the date of such letter, there have been any changes in the
capital stock or any increase in the long-term debt of the
Company, or any decreases in working capital, net current
assets or net assets or other items specified by the
Representatives, or any changes in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter.
(f) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (e) there were any decreases in net
sales or income from operations or the total or pro forma
per share amounts of net income or any other changes in any
other items specified by the Representatives, in each case
as compared with the comparable period of the preceding
year and with any other period of corresponding length
specified by the Representatives, except in each case for
changes, decreases or increases which the Prospectus
discloses have occurred or may occur or which are described
in such letter.
3. In addition to the audit referred to in their report(s) included in the
Prospectus and the limited procedures, inspection of minute books, inquiries and
other procedures referred to in paragraph (2) above, they have carried out
certain specified procedures, not constituting an audit in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives, which
are derived from the general accounting records of the Company and its
subsidiaries for the periods covered by their reports and any interim or other
periods since the latest period covered by their reports, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain of such
amounts, percentages and financial information with the accounting records of
the Company and its subsidiaries and have found them to be in agreement.
-28-
EXHIBIT 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
TRAVIS INTERNATIONAL, INC.
TRAVIS INTERNATIONAL, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is "Travis International,
Inc." The Corporation was originally incorporated under the name "APG
Acquisition Corp." and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on September 8,
1986. The Company filed its Restated Certificate of Incorporation on August 24,
1993.
2. The shares of Class A Common Stock of the Company authorized by
the Restated Certificate of Incorporation and previously issued by the Company
have been surrendered to the Company and converted and exchanged for an equal
number of shares of Common Stock, and none of such shares of Class A Common
Stock is outstanding. The shares of Series 1 Preferred Stock authorized by the
Restated Certificate of Incorporation and previously issued by the Company have
been surrendered to the Company and cancelled, and none of such shares of Series
1 Preferred Stock is outstanding. The Company does not desire to issue further
shares of Class A Common Stock or Series 1 Preferred Stock; accordingly, the
Company desires to restate its certificate of incorporation to reflect a new
capital structure, including to increase the number of authorized shares of its
capital stock.
3. The Company filed its Certificate of Designation of Series 2
Preferred Stock on October 18, 1994 authorizing 2,000 shares of Series 2
Preferred Stock, par value $.01 per share. This certificate does not alter such
Certificate of Designation or otherwise affect the Series 2 Preferred Stock.
4. Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware and as duly adopted by the Board of Directors and the
stockholders of the Company in accordance with the provisions thereof, this
Second Restated Certificate of Incorporation restates and integrates and further
amends the provisions of the Certificate of Incorporation of the Corporation.
<PAGE>
The text of the Certificate of Incorporation as heretofore amended is
hereby restated and further amended to read in its entirety as follows:
FIRST. NAME. The name of the Corporation is Travis International, Inc.
SECOND. REGISTERED OFFICE AND AGENT. The address of the Corporation's
registered office in the State of Delaware is 1209 Orange Street, Wilmington,
New Castle County. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
THIRD. PURPOSE AND POWERS. The purpose for which the Corporation is
organized is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
FOURTH. CAPITAL. The total number of shares of stock that the Corporation
shall have authority to issue is Twelve Million Five Hundred Two Thousand
(12,502,000) shares, consisting of Twelve Million (12,000,000) shares of Common
Stock, par value $.01 per share (the "Common Stock") and Five Hundred Two
Thousand (502,000) shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of which 2,000 shares has previously been designated Series
2 Preferred Stock. All shares of stock of the Corporation shall have a par value
of $.01 per share.
The voting rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights, and other special and
relative rights of the classes of stock of the Corporation are as follows:
A. COMMON STOCK. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights and privileges.
B. PREFERRED STOCK. The Board of Directors of the Corporation shall have
the full authority permitted by law to fix by resolution full, limited or no
voting powers and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of any series of Preferred Stock that may be desired.
FIFTH. AMENDMENT OF BYLAWS. The Board of Directors shall have the
power, in addition to the stockholders, to make, alter or repeal the bylaws
of the Corporation.
SIXTH. LIMIT ON LIABILITY AND INDEMNIFICATION.
A. LIABILITY. To the full extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of directors or officers,
a director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages.
B. INDEMNIFICATION. To the full extent permitted by the General
Corporation Law of the State of Delaware, as it exists on the date hereof or may
hereafter be amended, and any other applicable law, the Corporation shall
indemnify a director or officer of the Corporation who is or
<PAGE>
was a party to any proceeding by reason of the fact that he is or was such a
director or officer or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Board of Directors is hereby
empowered to contract in advance to indemnify any director or officer.
SEVENTH. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders are granted subject to this
reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed and attested to this ___ day of ________________, 1997.
TRAVIS INTERNATIONAL, INC.
By:______________________________________
Kirby Attwell, President
Attest:
____________________________
Tim W. Fogelsong, Secretary
EXHIBIT 3.2
INTERNATIONAL, INC.
* * * * *
RESTATED BY-LAWS
* * * * *
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICE. The initial registered office shall be
the Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle, State of Delaware 19801, and the name of the initial registered
agent of the Corporation at such address shall be The Corporation Trust Company.
Section 2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of directors shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at such date and time (within 13 months subsequent to the last annual
meeting of stockholders) as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting, at which they shall elect
by a plurality vote a Board of Directors, and transact such other business as
may properly be brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of
<PAGE>
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. BUSINESS TO BE CONDUCTED. At an annual meeting of
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been brought before the annual meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of the giving of such
stockholder's notice provided for in this Section 5, who shall be entitled to
vote at such meeting and who complies with the requirements of this Section 5
and as shall otherwise be proper subjects for stockholder action and shall be
properly introduced at the meeting. For a proposal to be properly brought before
an annual meeting by a stockholder, in addition to any other applicable
requirements, the stockholder must have given timely advance notice thereof in
writing to the secretary of the corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the corporation not later than the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that with
respect to the annual meeting of stockholders to be held in 1998 or in the event
that the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the corporation. Any
such stockholder's notice to the secretary of the corporation shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (i) a
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business and any other stockholders known by such stockholder to
be supporting such proposal, (iii) the class and number of shares of the
corporation's stock which are beneficially owned by the stockholder on the date
of such notice, (iv) any financial interest of the stockholder in such proposal
and (v) a representation that the stockholder intends to appear in person or by
proxy at the meeting to bring the proposed business before the annual meeting.
The presiding officer of the annual meeting shall determine whether the
requirements of this Section 5 have been met with respect to any stockholder
proposal. If the presiding officer determines that a stockholder proposal was
not made in accordance with the terms of this Section 5, he shall so declare at
the meeting and any such proposal shall not be acted upon at the meeting.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board or
president and shall be called by the
2
<PAGE>
president or secretary at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 7. NOTICE OF SPECIAL MEETING. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 8. QUORUM; VOTING. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. When a quorum is present
at any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any questions
brought before such meeting, unless the question is one upon which by express
provision of the statutes, the certificate of incorporation or these by-laws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Unless otherwise provided in the
certificate of incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period.
Section 9. ACTION WITHOUT A MEETING. Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State,
its principal place of business or an officer or agent of the Corporation having
custody of the book in which in which proceedings of meetings of stockholders
are recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days
3
<PAGE>
after the earliest dated consent delivered in the manner required by this
Section to the Corporation, written consents signed by a sufficient number of
stockholders to take such action are delivered in the manner required by this
Section to the Corporation. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III.
DIRECTORS
Section 1. NUMBER AND TERM. The number of directors which shall
constitute the whole board shall be a minimum of one (1) and a maximum of seven
(7). The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten
percent of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 3. RESIGNATIONS. Any director may resign at any time by
giving written notice to the Board of Directors, the chairman of the board, if
there is one, the president, or the secretary. Such resignation shall take
effect at the time of receipt thereof or at any later time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 4. DIRECTION OF MANAGEMENT. The business of the corporation
shall be managed by or under the direction of its Board of Directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by the stockholders.
Section 5. PLACE OF MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
4
<PAGE>
Section 6. ANNUAL MEETINGS. The first meeting of each newly elected
Board of Directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the Board of Directors or president
on two (2) days' notice to each director, either personally (including
telephone) or in a manner specified in Article V, Section 1; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two directors.
Section 9. QUORUM; VOTING. At all meetings of the Board of Directors
or any committee thereof a majority of directors shall constitute a quorum for
the transaction of business of the Board of Directors or such committee and the
act of a majority of the directors present at any meeting of the Board of
Directors or such a committee at which there is a quorum shall be the act of the
Board of Directors or such committee, as the case may be, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the Board of
Directors or committee thereof, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 10. ACTION WITHOUT A MEETING. Unless otherwise restricted by
the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or committee
thereof, may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 11. PARTICIPATION IN MEETINGS. Members of the Board of
Directors, or any committee, may participate in a meeting of such Board of
Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 12. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more
5
<PAGE>
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise all of the powers and
authority of the Board of Directors, but no such committee shall have the power
or authority in reference to amending the Certificate of Incorporation (except
that a committee may, to the extent authorized in the resolution providing for
the issuance of shares of stock adopted by the Board of Directors, fix any
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
these by-laws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when requested.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or these by-laws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors, or committee thereof, and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or committee thereof. No such payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
ARTICLE IV.
NOTICES
Section 1. NOTICES. Whenever, under the provisions of the statutes
or of the certificate of incorporation or of these by-laws, notice is required
to be given to any director or stockholder, it shall not be construed to mean
personal notice. Such notice may in every instance be effectively given by
depositing a writing, in a post office or letter box, in a postpaid, sealed
wrapper, or by dispatching a prepaid telegram, cable, telecopy or telex or by
delivering a writing in a sealed wrapper prepaid to a courier service
guaranteeing delivery within two business days in each case addressed to such
director or stockholder, at his address as it appears on the records of the
corporation in the case of a stockholder and at his business address (unless he
shall have filed a written request with the secretary that notices be directed
to a different address) in the case of a director. Such notice shall be deemed
to be given at the time when it is so dispatched.
6
<PAGE>
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V.
OFFICERS
Section 1. NUMBER. The officers of the corporation shall be chosen
by the Board of Directors and shall be a president, a vice-president, a
secretary and a treasurer. The Board of Directors may also choose a chairman of
the board, a chief executive officer, a chief operating officer, a chief
financial officer, additional vice-presidents, and one or more assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person. The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
Section 2. ELECTION AND TERM OF OFFICE. The Board of
Directors shall elect the officers of the corporation. Officers shall hold
office at the pleasure of the Board of Directors.
Section 3. SALARIES. The salaries of all officers and agents
of the corporation shall be fixed by the Board of Directors or a committee
thereof.
Section 4. REMOVAL. The officers of the corporation shall
hold office until their successors are chosen and qualify. Any officer may
be removed at any time by the Board of Directors. Any vacancy occurring in
any office of the corporation shall be filled by the Board of Directors.
Section 5. CHAIRMAN OF THE BOARD. The chairman of the Board of
Directors, if there is one, shall preside at all meetings of the Board of
Directors and shall perform such other duties, if any, as may be specified by
the Board of Directors from time to time.
Section 6. CHIEF EXECUTIVE OFFICER. The chief executive officer of
the corporation, if there is one, shall be the chief executive officer of the
corporation, shall have general direction of the business and affairs of the
corporation and general supervision over its several officers, subject, however,
to the control of the Board of Directors, and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The chief
executive officer may sign, with the secretary or assistant secretary,
certificates representing shares of stock of the corporation. The chief
executive officer shall perform all duties incident to the office of the chief
executive officer and such other duties as from time to time may be assigned to
him by the Board of Directors or as presented by these by-laws.
Section 7. PRESIDENT. The president shall in the absence of the
chief executive officer perform the duties and exercise the power of the chief
executive officer and
7
<PAGE>
shall perform such other duties and have such other powers as the Board of
Directors or the chief executive officer may from time to time prescribe. The
president may sign, with the secretary or assistant secretary, certificates
representing shares of stock of the corporation.
Section 8. CHIEF OPERATING OFFICER. The chief operating officer
shall be the chief operating officer and shall have such other powers as the
Board of Directors or the chief executive officer may from time to time
prescribe. In the absence of the chief executive officer and president, the
chief operating officer shall have the duties and exercise the powers or the
chief executive officer.
Section 9. CHIEF FINANCIAL OFFICER. The chief financial officer of
the corporation shall be the chief financial officer of the corporation. The
chief financial officer shall perform such other duties and have such other
powers as the Board of Directors or the chief executive officer may from time to
time prescribe.
Section 10. VICE-PRESIDENTS. The vice-presidents shall perform
such duties and have such authority as may be specified in these by-laws or
by the Board of Directors of the chief executive officer.
Section 11. SECRETARY. The secretary shall give, or cause to be
given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or the chief executive officer.
Section 12. ASSISTANT SECRETARIES. The assistant secretary or
secretaries shall, in the absence or disability of the secretary, perform the
duties and exercise the authority of the secretary and shall perform such other
duties and have such other authority as the Board of Directors or the chief
executive officer may from time to time prescribe.
Section 13. TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designed by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors or the chief executive officer or the chief financial
officer, taking proper vouchers for such disbursements and shall render to the
Board of Directors when the Board of Directors so requires, an account of all
his transactions as treasurer and of the financial condition of the corporation.
Section 14. ASSISTANT TREASURER. The assistant treasurer or
treasurers shall, in the absence or disability of the treasurer, perform the
duties and exercise the authority of the treasurer and shall perform such other
duties and have such other authority as the Board of Directors or the chief
executive officer or the chief financial officer may from time to time
prescribe.
8
<PAGE>
ARTICLE VI.
INDEMNIFICATION
Section 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VI, the corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VI, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VI (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
9
<PAGE>
Section 1 or Section 2 of this Article VI, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such directors or if such
directors so direct, by independent legal counsel in a written opinion, or (iii)
by the stockholders. To the extent, however, that a director or officer of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
Section 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VI, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe such
person's conduct was unlawful, if such person's action is based on the records
or books of account of the corporation or another enterprise, or on information
supplied to such person by the officers of the corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
corporation or another enterprise or on information or records given or reports
made to the corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the corporation or another enterprise. The term "another enterprise" as used in
this Section 4 of this Article VI shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the corporation as a
director, officer, employee or agent. The provisions of this Section 4 of this
Article VI shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or Section 2 of this Article VI, as
the case may be.
Section 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VI, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article VI. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because such person has met the applicable
standards of conduct set forth in Section 1 or Section 2 of this Article VI, as
the case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VI nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the director
or officer seeking indemnification has not met any applicable standard of
conduct. Notice of any application for indemnification pursuant to this Section
5 of this Article VI shall be given to the Corporation promptly upon the filing
of such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
10
<PAGE>
Section 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding may be required by the Board of Directors to be paid
(upon such terms and conditions, if any, as the Board of Directors deems
appropriate) by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the corporation
as authorized in this Article VI.
Section 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in a person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VI shall be made to the
fullest extent permitted by law. The provisions of this Article VI shall not be
deemed to preclude the indemnification of any person who is not specified in
Section 1 of Section 2 of this Article VI but whom the corporation has the power
or obligation to indemnify under the provisions of the General Corporation Law
of the State of Delaware, or otherwise.
Section 8. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against such person and incurred by him in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article VI.
Section 9. CERTAIN DEFINITIONS. For purposes of this Article VI,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as such indemnification relates to such
person's acts while serving in any of the foregoing capacities, of such
constituent corporation, as such person would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VI, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director or
officer of the Corporation which imposes
11
<PAGE>
duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VI.
Section 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VI to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 5 of this Article
VI), the corporation shall not be obligated to indemnify any director or officer
in connection with a proceeding (or part thereof) initiated by such person
unless such proceeding (or part thereof) was authorized or consented to by the
Board of Directors of the corporation.
Section 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the corporation similar to those conferred in this
Article VI to directors and officers of the corporation.
12
<PAGE>
ARTICLE VII.
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock in the corporation
shall be entitled to have a certificate, in the form prescribed by the Board of
Directors signed in the name of the corporation by the chairman or the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him in the corporation. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 2. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. TRANSFER OF STOCK. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, and subject to applicable federal and state securities laws and
contractual obligations, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be (i) in the case of such a meeting of
stockholders, more than sixty (60) nor less than ten (10) days before the date
of the meeting of stockholders, or (ii) in the case of consents in writing
without a meeting, more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors, or (iii)
in other cases, more than sixty (60) days prior to the payment or allotment or
change, conversion or exchange or other action. A determination of stock-holders
of record entitled to notice of or to vote at a
13
<PAGE>
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 5. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
ARTICLE VIII.
AMENDMENTS
Section 1. AMENDMENTS TO BY-LAWS. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the stockholders or by the
Board of Directors at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
by-laws shall be contained in the notice of such special meeting. If the power
to adopt, amend or repeal by-laws is conferred upon the Board of Directors by
the certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
14
EXHIBIT 10.26
TO: Chris Britt, Marwit Capital Corp.
FROM: Tim Fogelsong
DATE: November 12, 1997
SUBJECT: New West Communications Subordinated Debt
This memo is intended to document our discussions concerning the changes to be
made to the New West Communications subordinated debt in the event of a
successful initial public offering by Travis International.
1. In the event the gross public offering proceeds are $20,000,000 or more,
Marwit's "put" of the Travis common stock will be extinguished.
2. New West will be allowed to retire its bank term loan without the
requirement of repaying the Marwit subordinated debt. New West will have
the right to retain or retire and reinstate a revolving credit secured by
a first lien on New West's assets and the debt due Marwit will be
subordinate to such revolving credit.
No new or replacement bank term indebtedness will be incurred by New West.
Commencement of principal payments on the Marwit Loan will be accelerated
by one year. Principal will be repayable in forty-eight consecutive equal
monthly payments of $26,041.67 beginning November 1, 1998 and on the first
day of the month thereafter.
Please call if you have any questions or comments.
Best regards,
Tim Fogelsong
<PAGE>
MARWIT CAPITAL
180 NEWPORT CENTER DRIVE, SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
714-640-6234 (PHONE)
714-720-8077 (FAX)
MEMO
To: Tim Fogelsong
From: Chris Britt, Marwit Capital
Date: November 12, 1997
FAX: (713) 622-7477
Thank you for your proposal regarding changes to our subordinated debt in
the event of a successful IPO by Travis. With one clarification and one slight
modification, we would be in agreement, as follows:
1. Agreed.
2. Agreed, provided that we are carrying forward the provision in our
existing Subordination Agreement with B of A (or other lender, if they are to be
replaced) to be subordinated to a maximum of $3.0 million of "Senior
Indebtedness". The Senior Indebtedness would be defined as the revolver. This
would enable New West to increase the revolver to $3.0 million from $1.5 million
to support the growth of the company.
Agreed that no new or replacement bank term indebtedness will be incurred
by New West.
With respect to the amortization, principal would be repaid in 48
consecutive equal monthly payments of $26,041.67 beginning April 1, 1998 and on
the first day of each month thereafter. All remaining principal and accrued
interest would be due on March 1, 2002 ("Due Date").
EXHIBIT 11.1
Travis International,
Inc.
Computation of Per Share Earnings
Year Ended September 30
------------------------------------
1995 1996 1997
---- ---- ----
Net income ......................... $1,882,228 $2,604,878 $3,003,220
========== ========== ==========
Average shares outstanding (1) ..... 2,750,236 2,862,921 3,012,723
Net effect of dilutive securities:
-preferred stock ............... 78,318 82,620 82,620
-options ....................... 157,865 157,865 299,537
-warrants ...................... -- -- 32,785
---------- ---------- ----------
Total .............................. 2,986,419 3,103,406 3,427,665
========== ========== ==========
Net income per share of common stock $ 0.63 $ 0.84 $ 0.88
========== ========== ==========
(1) Includes common stock and Class A common stock
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and all references to our Firm included in this registration statement on
Form S-1 filed by Travis International, Inc.
ARTHUR ANDERSEN LLP
Houston, Texas
November 20, 1997
