AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998
REGISTRATION NO. 333-37291
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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
(PRIMARY STANDARD
(STATE OR OTHER INDUSTRIAL
JURISDICTION CLASSIFICATION CODE (I.R.S. EMPLOYER
OF INCORPORATION) 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 KATHLEEN S. SCHOENE
WALTER S. KENEALLY PEPER, MARTIN, JENSEN, MAICHEL
MAYOR, DAY, CALDWELL & KEETON, L.L.P 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 OR 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 ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 26, 1998
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 overallotments, 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 ,
1998.
A.G. EDWARDS & SONS, INC. CLEARY GULL REILAND & MCDEVITT INC.
The date of this Prospectus is , 1998.
<PAGE>
[INSIDE FRONT COVER]
[MAP]
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.
3
<PAGE>
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 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 (including a one-time charge to
expenses of approximately $1.2 million in connection with the retirement, at a
discount, of future obligations under certain employment, consulting and
non-competition agreements), 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
current and 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) Excludes (i) up to 91,800 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants, (ii) 76,500 shares of Common Stock
reserved for issuance upon conversion of the Company's Series 2 Preferred
Stock, (iii) 543,610 shares of Common Stock reserved for issuance upon
exercise of outstanding options granted under various stock option plans and
(iv) 453,000 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 356,326 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 retirement, at a discount, 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 retirement 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."
6
<PAGE>
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 chief executive officer 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 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
7
<PAGE>
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 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
8
<PAGE>
approximately 41.8% of the outstanding shares of the Company's Common Stock, or
approximately 44.5% of such outstanding shares if Equus II Incorporated
purchases 5% of the Common Stock offered in the Offering (in each case, assuming
no exercise of the overallotment 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, 634,410 shares of Common Stock that may be issued upon exercise of
outstanding stock options and warrants, and shares of Common Stock issued
pursuant to stock options granted in the future under existing plans or 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 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. If Equus II Incorporated holds
more than 10% of the shares of the Company's outstanding Common Stock as a
result of its purchase of shares of Common Stock offered in the Offering or
otherwise, it also will have a right, subject to the same conditions, to require
the Company to register up to 100% of its unregistered shares of Common Stock.
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 "Principal and Selling Stockholders" and "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."
9
<PAGE>
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 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 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."
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.
10
<PAGE>
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 (including a one-time charge to
expenses of approximately $1.2 million in connection with the retirement, at a
discount, of future obligations under certain employment, consulting and
non-competition agreements), 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").
11
<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 current and 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 prepayment 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, holding preliminary discussions regarding and
presenting possible terms of 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 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.
12
<PAGE>
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............................... 11,982 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.......... $ 32,628 $45,020
========= ===========
- ------------
(1) Excludes 711,910 shares of Common Stock issuable upon conversion of
outstanding preferred stock or exercise of outstanding stock options and
warrants. See "Management -- Compensation Plans."
13
<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 immediately prior to 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>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRIE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............. 3,017,652 57.0% $ 5,851,180 19.0% $ 1.94
New investors........................ 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) Excludes 711,910 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, 402,226 of
which options and warrants are exercisable.
14
<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)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
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
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
</TABLE>
- ------------
(1) Includes one-time charge to general and administrative expenses of $1,158 in
connection with the retirement, at a discount, 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 retirement 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.
15
<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 (including a one-time charge to expenses of approximately $1.2
million in connection with the retirement, at a discount, of future obligations
under certain employment, consulting and non-competition agreements),
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 operations, 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. The Company's specialty builders' products
operations are 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.
16
<PAGE>
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. To the extent practicable, management 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.
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(1)
Amortization of intangibles............. 0.7 0.4 0.5
Operating income........................ 7.8 7.5 7.6(1)
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(1)
- ------------
(1) Includes one-time charge to general and administrative expenses of $1,158 in
connection with the retirement, at a discount, of future obligations under
certain employment, consulting and noncompetition agreements. Excluding this
one-time charge, operating expenses, operating income, and net income, each
as a percentage of sales, would have been 21.5%, 9.1% and 4.7% respectively.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
YEAR ENDED
SEPTEMBER 30,
--------------------
1996 1997 INCREASE
--------- --------- --------
(IN THOUSANDS)
SALES
Specialty builders' products............ $ 44,994 $ 51,258 $ 6,264
Specialty industrial products........... 20,819 24,191 3,372
Telecommunications equipment............ 0 4,678 4,678
--------- --------- --------
$ 65,813 $ 80,127 $ 14,314
========= ========= ========
Total sales increased 21.7% in fiscal 1997 compared to fiscal 1996. Sales
generated by the specialty builders' products operations increased by 13.9%,
primarily as a result of fill-in acquisitions and the opening of new locations
during fiscal 1997. The specialty industrial products operations posted broad-
based sales increases of 16.2%, substantially through internal growth. Sales
generated by the telecommunications equipment operations, acquired October 1,
1996, accounted for approximately 33% of the Company's total sales increase in
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 generated by the telecommunications equipment operations 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 the
telecommunications equipment operations. Gross margins of
17
<PAGE>
the specialty builders' products operations increased by 2.2% to 25.3% in fiscal
1997 from 23.1% in fiscal 1996, primarily as a result of better product sourcing
and a planned shift in market emphasis of post-tension product sales to
higher-margin residential builders and commercial construction contractors.
Gross margins of the specialty industrial products operations remained
relatively constant at 39.0% in fiscal 1997 compared to 39.8% in fiscal 1996.
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 a one-time charge relating to the retirement, at a discount, of future
obligations under certain employment, consulting and non-competition agreements.
Operating expenses of the specialty builders' products operations, exclusive of
the $1.2 million one-time charge mentioned above, increased by $2.5 million to
$10.5 million in fiscal 1997 and increased, as a percentage of sales, to 20.4%
in fiscal 1997 from 17.7% in fiscal 1996. This increase primarily reflects the
investment in personnel and overhead required to support future growth of the
specialty builders' products operations. Operating expenses of the specialty
industrial products operations increased by $481,225 to $5.9 million in 1997
resulting in a decrease, as a percentage of sales, of 1.6% to 24.2% in fiscal
1997 from 25.8% in fiscal 1996. Operating expenses of the telecommunications
equipment operations totaled $658,646 or 14.1% of sales.
Amortization of intangibles 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 operations.
YEAR ENDED
SEPTEMBER 30,
-------------------- INCREASE
1996 1997 (DECREASE)
--------- --------- ----------
(IN THOUSANDS)
OPERATING INCOME
Specialty builders' products......... $ 2,243 $ 1,150(1) $ (1,093)(1)
Specialty industrial products........ 2,821 3,507 686
Telecommunications equipment......... 0 1,671 1,671
Corporate............................ (141) (228) (87)
--------- --------- ----------
$ 4,923 $ 6,100 $ 1,177
========= ========= ==========
- ------------
(1) Includes one-time charge to general and administrative expenses of $1,158 in
connection with the retirement, at a discount, of future obligations under
certain employment, consulting and noncompetition agreements. Excluding this
one-time charge, operating income of the specialty builders' products
operations would have been $2,308, an increase of $65.
Operating income increased by 23.9% in fiscal 1997 compared to fiscal 1996.
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 operations
and indebtedness incurred to finance working capital expansion and equipment
additions of the Company's specialty builders' products operations.
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.
18
<PAGE>
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1996 INCREASE
--------- --------- ---------
(IN THOUSANDS)
SALES
Specialty builders' products......... $ 27,057 $ 44,994 $ 17,937
Specialty industrial products........ 19,282 20,819 1,537
--------- --------- ---------
$ 46,339 $ 65,813 $ 19,474
========= ========= =========
Total sales increased 42% in fiscal 1996 compared to fiscal 1995. Sales
generated by specialty builders' products operations increased by 66.3% in
fiscal 1996 over the prior year. 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 in fiscal 1996 as compared to approximately ten
months'sales in fiscal 1995, and sales from new operations acquired or opened
during fiscal 1996. Sales generated by the specialty industrial products
operations increased by 8%.
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 of the specialty builders' products operations
increased to 23.1% in fiscal 1996 from 20.0% in fiscal 1995, largely due to
better product sourcing and cost controls. Gross margins of the specialty
industrial products operations remained relatively stable at 39.8% in fiscal
1996 compared to 40.5% in fiscal 1995.
Operating expenses increased by $4.2 million to $13.5 million in fiscal
1996 from $9.3 million in fiscal 1995. Operating expenses of the specialty
builders' products operations increased by $3.4 million, to 17.7% of sales in
fiscal 1996 from 16.6% of sales in fiscal 1995, primarily to support expansion
that included new branch openings and the establishment of a specialty hardware
master distributor operation. Operating expenses of the specialty industrial
products operations increased by $526,473, representing a small increase as a
percentage of sales, to 25.8% in fiscal 1996 from 25.2% in fiscal 1995.
Amortization of intangibles decreased by $23,183 to $281,692 in fiscal 1996
from $304,875 in fiscal 1995.
YEAR ENDED
SEPTEMBER 30,
-------------------- INCREASE
1995 1996 (DECREASE)
--------- --------- ----------
(IN THOUSANDS)
OPERATING INCOME
Specialty builders' products......... $ 758 $ 2,243 $1,485
Specialty industrial products........ 2,806 2,821 15
Corporate............................ 37 (141) (178)
--------- --------- ----------
$ 3,601 $ 4,923 $1,322
========= ========= ==========
Operating income increased by 36.7% in fiscal 1996 compared to 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.
19
<PAGE>
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 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 up to 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 owners 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,
20
<PAGE>
$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.
21
<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
22
<PAGE>
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.
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
23
<PAGE>
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
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
24
<PAGE>
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.
The following table summarizes the new market and fill-in acquisitions
completed by the Company since 1994:
<TABLE>
<CAPTION>
ACQUISITION DATE TYPE LOCATION PRODUCTS
- ------------------------------------- ------ ------------ ------------------ -----------------------
<S> <C>
MERSCO 10/94 Fill-in Johnson City, Specialty industrial
Tennessee 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 Supply(4) 06/96 Fill-in Pine Top, Kentucky Specialty industrial
products
New West 10/96 New Market San Luis Obispo, Refurbished
California telecommunications
equipment
MD Steel(2) 05/97 Fill-in Ontario, Post-tension cable
California systems
Fabrication Plus(4) 06/97 Fill-in Hazard, Kentucky Specialty industrial
products
Valley Seals(4) 10/97 Fill-in Johnson City, Specialty industrial
Tennesseee products
</TABLE>
- ------------
(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."
25
<PAGE>
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.
PERCENTAGE OF SALES
------------------------
YEAR ENDED SEPTEMBER 30,
------------------------
PRODUCTS AND SERVICES 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
26
<PAGE>
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.
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 KwiksetT, HarlocT, SchlageT, BaldwinT and WeiserT, 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
27
<PAGE>
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 LockT
division, which distributes locksets to other distributors in Texas, Oklahoma
and New Mexico. The Company plans to add other products to Express LockT'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 APGT 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 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
CorningT, SchottTand 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. Almost all of the Company's sales of telecommunications
equipment are attributable to PICs for the Lucent 5ESS switch.
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<PAGE>
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 is evaluating the merits of
expanding its telecommunications equipment product range to include 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).
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 1997, 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.
29
<PAGE>
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 APGT 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 that alternative
sources for its APGT 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 (other than infrastructure projects) 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 35 field-based
salespersons and 36 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
30
<PAGE>
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.
FACILITIES
Other than its executive and sales offices, the Company's facilities
generally consist of warehouse and office space and fabrication or production
areas. Except for a small parcel of land with a building adjacent to APG's
existing facilities, which is not currently used by the Company, 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.
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<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
President, Chief Executive Officer and
Kirby Attwell.................. 62 Director
Vice President-Finance, Treasurer and
Tim W. Fogelsong............... 54 Secretary
David K. Barth(1).............. 54 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 W. 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
32
<PAGE>
Residential Services, Inc., Brazos Sportswear, Inc., Drypers Corporation and
Garden Ridge Corporation. Mr. Lehmann is a certified public accountant.
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."
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<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
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(1)
- ----------------------------- ----- -------- -------- ---------------
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
- ------------
(1) Represents contributions made by the Company on behalf of the Named Officers
to the Company's Non-Qualified Executive Retirement Plan and $39,048 in
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. Upon consummation of the Offering, the Company will
maintain four stock option plans in which executive officers, directors or key
managers may participate: the 1992 Incentive Stock Option Plan, the 1993
Director Stock Option Plan, the 1995 Key Employee Stock Option Plan and the 1997
Key Employee Stock Option Plan (collectively, the "Stock Option Plans"). The
1997 Key Employee Stock Option Plan was approved by the Company's stockholders
subject to the closing of the Offering. 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 453,000
additional shares of Common Stock are available for future issuance under the
other Stock Option Plans. In addition, options to purchase an aggregate of
543,610 shares of Common Stock, at prices ranging from $3.27 to $11.44 per
share, will be outstanding upon consummation of the Offering, 356,326 of which
will be vested and exercisable.
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.
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<PAGE>
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.
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. 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
VALUE OF
UNEXERCISED "IN-THE-MONEY"
NUMBER OF UNEXERCISED OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
---------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- ------------- ----------- -------------
Kirby Attwell...... 201,281 0 $ 1,555,902 $ 0
Tim W. Fogelsong... 50,319 0 388,966 0
- ------------
(1) Computed based upon the difference between aggregate fair market value (at
$11.00 per share) and aggregate exercise price.
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<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.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 15, 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 AFTER
PRIOR TO OFFERING(1) OFFERING(1)(2)
---------------------- ---------------------- OVER-
NUMBER SHARES BEING NUMBER ALLOTMENT
OF SHARES PERCENTAGE OFFERED OF SHARES PERCENTAGE OPTION
--------- ---------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bradford Venture Partners, L.P.(3)...... 772,368 25.6% 290,817 481,551 9.1% 215,590
44 Nassau Street, Suite 365
Princeton, New Jersey 08542
Overseas Equity Investor Partners(4).... 772,368 25.6 290,817 481,551 9.1 215,590
Clarendon House, Church Street
Hamilton 5-31, Bermuda
Barbara Mills Henagan(5)................ 1,637,864 54.1 581,634 1,056,230 19.9 0
35 Valley Road
Atlanta, Georgia 30305
Robert J. Simon(6)...................... 1,546,467 51.3 582,286 964,181 18.2 483
1212 Avenue of the Americas
Suite 1802
New York, New York 10036
Equus II Incorporated(7)................ 524,129 17.4 0 524,129 9.9 0
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 0
191 Elm Street
New Canaan, Connecticut 06840
Kirby Attwell(8)........................ 351,095 10.9 0 351,095 6.4 0
Tim W. Fogelsong(9)..................... 95,181 3.1 0 95,181 1.8 0
David K. Barth(10)...................... * * 0 * * 0
Nolan Lehmann(11)....................... 534,839 17.7 0 534,839 10.1 0
Irvin A. Levy(12)....................... * * 0 * * 0
All directors and Named Officers as a
group (6 persons)..................... 2,675,545 88.7 581,634 2,093,911 39.6
M. John O'Donoghue...................... 1,731 * 652 1,079 * 483
David Andryc............................ 1,508 * 568 940 * 421
Erwin Hosono............................ 348 * 131 217 * 97
Michael I. Barach....................... 302 * 114 188 * 0
Rodney A. Cohen......................... 691 * 260 431 * 0
Richard R. Davis........................ 3,466 * 1,305 2,161 * 967
Christopher F. O. Gabrieli.............. 18,109 * 6,818 11,291 * 0
Thomas F. Ruhm.......................... 1,123 * 423 700 * 313
Ward W. Woods........................... 8,665 * 3,262 5,403 * 2,419
Earl Dean Catlett....................... 76,500 2.5 15,300 61,200 1.2 0
Roger P. Lindstedt...................... 76,500 2.5 25,245 51,255 * 0
</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.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
37
<PAGE>
(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.
(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) Equus II Incorporated has advised the Representatives of its interest in
purchasing up to 5% of the Common Stock offered in the Offering.
Information as to shares of Common Stock in this table assumes that Equus
II Incorporated does not purchase any shares of Common Stock in the
Offering.
(8) Includes 16,291 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.
(9) 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.
(10) 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 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. Equus II Incorporated has advised the Representatives of its
interest in purchasing up to 5% of the Common Stock offered in the
Offering. Information as to shares of Common Stock in this table assumes
that Equus II Incorporated does not purchase any shares of Common Stock in
the Offering.
(12) 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.
38
<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) 1,973 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 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 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 543,610 shares of
Common Stock at an average exercise price of $5.25 per share and may grant
options to purchase up to an additional 453,000 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.
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
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<PAGE>
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 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 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 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 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,
40
<PAGE>
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.
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
41
<PAGE>
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.
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 Agreements, 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 Equus II Incorporated holds more than 10% of the shares of the
Company's outstanding Common Stock as a result of its purchase of shares of
Common Stock offered in the Offering or otherwise, it also will have a right,
subject to the same conditions, to require the Company to register up to 100% of
its unregistered 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.
42
<PAGE>
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 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
43
<PAGE>
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.
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.
44
<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>
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.
ARTHUR ANDERSEN LLP
Houston, Texas
November 13, 1997, except for
the stock split described
in Note 6, as to which
the date is January 26, 1998
F-2
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
------------------------------
1996 1997
-------------- --------------
ASSETS
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;
2,308,063 and 2,308,063 shares
outstanding.................... 23,081 23,081
Class A Common Stock, $.01 par;
1,530,000 shares authorized;
568,141 and 703,485 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
============== ==============
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 RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------- ------- --------- ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1994.......... 188 $ 2 2,287,817 $22,878 -- $ -- $ 656,458 $ 5,668,785
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........................... -- -- -- -- -- -- -- 1,882,228
------- ------- --------- ------- ------- ------- ---------- -----------
BALANCE, September 30, 1995.......... 27 1 2,627,817 26,278 227,802 2,278 4,874,778 7,551,013
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........................... -- -- -- -- -- -- -- 2,604,878
------- ------- --------- ------- ------- ------- ---------- -----------
BALANCE, September 30, 1996.......... 27 1 2,308,050 23,081 568,138 5,681 5,025,817 10,155,891
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........................... -- -- -- -- -- -- -- 3,003,220
------- ------- --------- ------- ------- ------- ---------- -----------
BALANCE, September 30, 1997.......... 27 $ 1 2,308,050 $23,081 703,482 $7,035 $6,218,064 $13,159,111
======= ======= ========= ======= ======= ======= ========== ===========
</TABLE>
TOTAL
STOCKHOLDERS'
EQUITY
--------------
BALANCE, September 30, 1994.......... $ 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
--------------
BALANCE, September 30, 1995.......... 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
--------------
BALANCE, September 30, 1996.......... 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
--------------
BALANCE, September 30, 1997.......... $ 19,407,292
==============
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
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
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
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 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.
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 15 years. The costs of ordinary maintenance
and repairs are charged to operations when incurred, while replacements and
betterments are capitalized.
F-7
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1996 and 1997, property and equipment consisted of the
following:
SEPTEMBER 30, ESTIMATED
---------------------------- 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:
SEPTEMBER 30, ESTIMATED
---------------------------- 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.
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.
F-8
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-9
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
2. LONG-TERM DEBT:
At September 30, 1996 and 1997, long-term debt consisted of the following:
SEPTEMBER 30,
----------------------------
1996 1997
------------ --------------
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 quarterly
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
============ ==============
F-10
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
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
============ ============ ============
F-11
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Nonqualified retirement plan
contributions................. (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-12
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 11). 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's 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-13
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 11, 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 consummation 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. 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-14
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 10 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:
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1996 1997
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- --------- ------- ---------
Outstanding at beginning
of period....................... 401,540 $4.22 432,140 $4.67
Granted........................... 30,600 7.35 157,370 7.47
Exercised......................... -- -- -- --
Canceled.......................... -- -- (45,900) 7.35
------- -------
Outstanding at end of period...... 432,140 4.67 543,610 5.25
======= =======
Exercisable at end of period...... 217,838 3.61 356,326 4.17
Weighted average fair value of
options granted................. $4.22 $4.23
All of the options outstanding at September 30, 1997, have exercise prices
between $3.27 and $11.44, with 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:
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
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
F-15
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Subsequent to September 30, 1997, the 1997 Key Employee Stock Option Plan
was adopted by the Company's stockholders subject to the closing of the
Offering. This plan provides for the reservation of up to 300,000 shares of
Common Stock for issuance to key employees.
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-16
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
F-17
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. BUSINESS SEGMENT INFORMATION:
The Company's operations are conducted principally in North America through
three related business segments: specialty builders' products, specialty
industrial products and telecommunications equipment. The specialty builders'
products segment consists primarily of the distribution of post-tension cable
products and household fixture products. The specialty industrial products
segment distributes primarily industrial sealing and hose products, industrial
glass and plastics. The telecommunications equipment segment distributes surplus
and refurbished plug-in circuit boards. There were no significant intersegment
sales or transfers during fiscal 1995, 1996 and 1997. Corporate operating
expenses are billed to the operating subsidiaries at predetermined amounts.
Summarized financial information by business segment for fiscal 1995, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Sales --
Specialty builders' products.... $ 27,056,695 $ 44,993,467 $ 51,258,156
Specialty industrial products... 19,281,926 20,819,292 24,190,345
Telecommunications equipment.... -- -- 4,678,094
-------------- -------------- --------------
$ 46,338,621 $ 65,812,759 $ 80,126,595
============== ============== ==============
Operating income --
Specialty builders' products.... $ 757,764 $ 2,242,602 $ 1,150,100(1)
Specialty industrial products... 2,805,839 2,821,128 3,507,778
Telecommunications equipment.... -- -- 1,670,900
Corporate....................... 37,484 (140,619) (227,752)
-------------- -------------- --------------
$ 3,601,087 $ 4,923,111 $ 6,101,026
============== ============== ==============
Total assets --
Specialty builders' products.... $ 15,382,389 $ 17,476,096 $ 24,230,261
Specialty industrial products... 9,842,215 10,807,614 12,472,903
Telecommunications equipment.... -- -- 7,058,994
Corporate....................... 1,169,575 2,322,353 1,940,401
-------------- -------------- --------------
$ 26,394,179 $ 30,606,063 $ 45,702,559
============== ============== ==============
Depreciation and amortization --
Specialty builders' products.... $ 324,212 $ 467,274 $ 580,929
Specialty industrial products... 293,972 268,566 285,701
Telecommunications equipment.... -- -- 163,046
Corporate....................... 4,421 4,480 4,494
-------------- -------------- --------------
$ 622,605 $ 740,320 $ 1,034,170
============== ============== ==============
Capital expenditures --
Specialty builders' products.... $ 387,123 $ 419,141 $ 1,048,059
Specialty industrial products... 269,973 366,885 512,863
Telecommunications equipment.... -- -- 800
Corporate....................... 3,583 2,446 9,135
-------------- -------------- --------------
$ 660,679 $ 788,472 $ 1,570,857
============== ============== ==============
</TABLE>
- ------------
(1) Operating income of the specialty builders' products operations was reduced
by $1,157,740 in fiscal 1997 for the settlement of future obligations under
certain consulting and covenant not-to-compete agreements.
F-18
<PAGE>
TRAVIS INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. 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...................... 3
Risk Factors............................ 6
Disclosure Regarding Forward-Looking
Statements............................ 10
Background of the Company............... 11
Use of Proceeds......................... 12
Dividend Policy......................... 13
Capitalization.......................... 13
Dilution................................ 14
Selected Consolidated Financial Data.... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 16
Business................................ 22
Management.............................. 32
Certain Transactions.................... 36
Principal and Selling Stockholders...... 37
Description of Capital Stock............ 39
Shares Eligible for Future Sale......... 41
Underwriting............................ 43
Certain Legal Matters................... 44
Experts................................. 44
Available Information................... 44
Index to Consolidated Financial
Statements............................ F-1
UNTIL , 1998 (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.
, 1998
================================================================================
<PAGE>
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................. $ 11,843
NASD Filing Fee...................... $ 4,515
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........................ $ 17,686*
----------
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
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 the effective date of the Company's
Registration Statement on Form S-1, 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 -- 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
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
II-2
<PAGE>
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.
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
II-3
<PAGE>
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.
10.27* -- Travis International, Inc. 1997 Key
Employee Stock Option Plan effective
December 12, 1997.
10.28 -- First Amendment to Securities Purchase Agreement
10.29 -- First Amended and Restated Senior Subordinated Note
10.30 -- First Amendment to Subordination Agreement
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
(b) Financial Statement Schedules.
Not applicable.
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 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-4
<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 26TH DAY OF JANUARY, 1998.
TRAVIS INTERNATIONAL, INC.
BY: /s/ KIRBY ATTWELL
KIRBY ATTWELL
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/KIRBY ATTWELL President, Chief January 26, 1998
KIRBY ATTWELL Executive Officer
(Principal Executive
Officer) and Director
* Chairman of the Board and January 26, 1998
BARBARA MILLS HENAGAN Director
/s/TIM W. FOGELSONG Vice President -- Finance January 26, 1998
TIM W. FOGELSONG (Principal Accounting and
Financial Officer),
Treasurer and Secretary
* Director January 26, 1998
NOLAN LEHMANN
* Director January 26, 1998
DAVID K. BARTH
* Director January 26, 1998
IRVIN A. LEVY
*/s/TIM W. FOGELSONG Attorney-In-Fact January 26, 1998
TIM W. FOGELSONG
II-5
EXHIBIT 1.1
DRAFT
TRAVIS INTERNATIONAL, INC.
2,909,091 SHARES
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
January , 1998
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 2,272,727 shares of its Common Stock, par value $.01 per share, and
the Selling Shareholders propose to sell to the Underwriters a total of 636,364
shares of the Company's Common Stock, par value $.01 per share, as set forth on
Schedule I hereto (such 2,909,091 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 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 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
<PAGE>
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 bank accounts designated by the
Company and Selling Shareholders, respectively. The closing shall take place at
Mayor, Day, Caldwell & Keeton, L.L.P., 700 Louisiana, 19th Floor, Houston, Texas
77002, or at such other place as may be agreed upon between you and the Company
(the "Place of Closing"), at 10:00 a.m., Houston time, on the third (fourth, if
pricing occurs after 3:30 p.m. Houston 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 Selling
Shareholders hereby grant options to the Underwriters to purchase from them on a
pro rata basis up to 436,363 Option Shares 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
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 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 Selling Shareholders by
wire transfer in immediately available funds to a bank account designated by the
Selling Shareholders. Such payment and delivery shall be made at 10:00 a.m.,
Houston 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
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<PAGE>
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 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 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 by the Selling Shareholders 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. 333-37291) 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
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<PAGE>
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 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 or the Selling Shareholders 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, except to such extent as would not
materially adversely affect the business of the Company and its subsidiaries
taken as a whole; 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
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<PAGE>
date of this Agreement, except to such extent as would not materially adversely
affect the business of the Company and its subsidiaries taken as a whole; 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.
(v) Except as described in the Prospectus, there is not now
pending or, to the knowledge of the Company or any of its subsidiaries,
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.
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<PAGE>
(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 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 for a small parcel of land adjacent to American
Packing and Gasket Company's facilities, 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; 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
reasonably be expected to 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 adversely 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.
(xiii) Except as described in the Prospectus, there is no
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,
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state or local regulation relating to air, water, solid waste management,
hazardous or toxic substances, or the protection of health or the environment,
nor, to the knowledge of the Company, is any such action, suit or proceeding
threatened. Except as described in the Prospectus, none of the property leased
by the Company or any of its subsidiaries is, to the knowledge of the Company,
contaminated with any waste or hazardous substances, and, to the knowledge of
the Company, 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.
(xiv) 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.
(xv) 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.
(xvi) 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.
(xvii) The Company and its subsidiaries maintain and keep
accurate books and records reflecting their assets and maintain internal account
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.
(xviii) 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.
(xix) 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 hereunder have been obtained and
are in full force and effect on the date hereof.
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<PAGE>
(ii) Such Selling Shareholder has 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 has all requisite 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 good and valid 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, 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) Such information in the Registration Statement and
Prospectus and any amendments or supplements thereto as specifically refers to
such Selling Shareholder does 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 the Company (the "Custodian") under a Custody Agreement (the "Custody
Agreement"), duly executed and delivered by such Selling Shareholder, with the
Custodian 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 Kirby Attwell
and Barbara Mills Henagan 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 the arrangements made by such
Selling Shareholder for such custody, and the appointment by such Selling
Shareholder of the Custodian under the Custody Agreement and of the
Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
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<PAGE>
(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 Custodian
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 Custodian 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.
(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
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<PAGE>
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, during the period in which delivery of a prospectus is required by
the Act, 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 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 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.
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<PAGE>
(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 reasonable 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, sales of shares of Common Stock in
connection with acquisitions by the Company or upon the exercise or conversion
of outstanding warrants or options described in the Registration Statement and
sales of shares of Common Stock to the Company's employees or directors 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.
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<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),
substantially 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 the states or other jurisdictions on the certificate
attached to the opinion, which are, to the knowledge of such counsel, the only
states or other jurisdictions 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,
are owned by the Company free and clear of any mortgage, pledge, lien,
encumbrance, charge or adverse claim; and, to the knowledge of such counsel, no
options, warrants or other rights to purchase, agreements 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
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<PAGE>
non-assessable, and the shareholders of the Company have no statutory preemptive
rights with respect to the Shares.
(iii) 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
threatened 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, statistical or accounting data).
(v) The statements in the Registration Statement and
Prospectus regarding contracts and other documents filed as exhibits to the
Registration Statement have been reviewed by such counsel and are accurate
statements and fairly present the information disclosed therein.
(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 and have been obtained or made (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, as to which
such counsel need express no opinion).
(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
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 (b)
there are no statutes or regulations required to be described in the
Registration Statement or Prospectus which are not described as required.
(ix) The statements made in the Registration Statement under
the captions "Dividend Policy", "Description of Capital Stock", and "Shares
Available for Future Sale," to the extent
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that they constitute matters of law or legal conclusions, have been reviewed by
such counsel and are accurate summaries and fairly present the information
disclosed therein.
(x) 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.
(xi) 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.
Such counsel shall also confirm that, based solely upon a search of
its internal records, it does not know of any 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 the Prospectus.
Such counsel also shall confirm that it has been advised by the
staff of the Commission that the Registration Statement has become effective
under the Act; and 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 (a) 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 and (b) the Company or any of its
subsidiaries does not hold all licenses, certificates, permits and approvals
from all state, federal and other regulatory authorities, and has not 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, (c) the Company or any of its subsidiaries is not 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.
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), substantially to the effect that:
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(i) The Custody Agreement and the Power of Attorney (a) has
been duly executed and delivered by or on behalf of each Selling Shareholder,
(b) has been duly authorized by Bradford Venture Partners L.P. and Overseas
Equity Investors Partners L.P., and (c) constitutes a valid and legally binding
agreement of such Selling Shareholder in accordance with its terms, except as
enforceability of the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other laws from time to
time in effect that affect creditors' rights generally and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(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) Assuming underwriters are bona fide purchasers within the
meaning of the Uniform Commercial Code, each Selling Shareholder 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.
(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 rely, (a) as to
matters involving laws of any jurisdiction other than 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 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.
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(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.
(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
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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 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
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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 subsection (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 Selling Shareholder will indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several,
to which the Company or such controlling person may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liability (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 by such Selling Shareholder specifically for use in the
preparation thereof; and will reimburse any legal or other expenses reasonably
incurred by the Company and each person, if any, who controls the Company within
the meaning of the Act, in connection with investigating or defending any such
loss, claim, damage, liability or action. In no event, however, shall the
liability of any Selling Shareholder for indemnification under this subsection
(c) exceed the proceeds received by such Selling Shareholder from the
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Underwriters in the offering. This indemnity agreement shall be in addition to
any liabilities which the Selling Shareholders may otherwise have.
(d) 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 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.
(e) 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, unless the indemnifying party was
unaware of such action, suit or proceeding and is materially prejudiced by such
failure to notify. 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
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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 the fees or
expenses of more than one law firm nor 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.
(f) 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 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
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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
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
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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.
(d) This Agreement also may be terminated by you, by notice to 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) or
10(c), 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 to you
or as directed by you 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.
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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 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) 622-7477, 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 3000 Weslayan, Suite 350,
Houston, Texas 77027, Attention: Kirby Attwell, facsimile number (713) 622-7477.
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
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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.
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 NUMBER OF
SELLING SHAREHOLDERS FIRM SHARES OPTION SHARES
-------------------- ----------- -------------
Bradford Venture Partners, L.P. ............ 290,817 215,590
44 Nassau Street, Suite 365
Princeton, New Jersey 08542
Overseas Equity Investor Partners .......... 290,817 215,590
Clarendon House, Church Street
Hamilton 5-31, Bermuda
Robert J. Simon ............................ 652 483
M. John O'Donoghue ......................... 652 483
David Andryc ............................... 568 421
Erwin Hosono ............................... 131 97
Michael I. Barach .......................... 114 0
Rodney A. Cohen ............................ 260 0
Richard R. Davis ........................... 1,305 967
Christopher F. O. Gabrieli ................. 6,818 0
Thomas F. Ruhm ............................. 423 313
Ward W. Woods .............................. 3,262 2,419
Earl Dean Catlett .......................... 15,300 0
Roger P. Lindstedt ......................... 25,245
------- -------
Total ...................................... 636,364 436,363
-25-
<PAGE>
SCHEDULE II
NAME NUMBER OF SHARES
- ---- ----------------
A.G. Edwards & Sons, Inc.
Cleary Gull Reiland & McDevitt Inc.
Total 2,909,091
-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
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
first Restated Certificate of Incorporation on May 28, 1992. The Company filed
its second Restated Certificate of Incorporation on August 24, 1993.
2. The shares of Class A Common Stock of the Company authorized by the
second 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 first and second Restated Certificates 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 27 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
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 27 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
2
<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 ________________, 1998.
TRAVIS INTERNATIONAL, INC.
By: ___________________________
Kirby Attwell, President
Attest:
___________________________
Tim W. Fogelsong, Secretary
3
EXHIBIT 4.1
TRAVIS INTERNATIONAL, INC.
TI
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 894920 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT _____________________________is the owner of ___________
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
TRAVIS INTERNATIONAL, INC. (the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are subject to all of the terms and conditions contained in
the Certificate of Incorporation and all amendments thereto. This Certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:______________
________________________________________
President
________________________________________
Secretary
COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK,
N.Y.) TRANSFER AGENT AND REGISTRAR BY ____________________________
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
For Value Received, hereby sell, assign and transfer unto (PLEASE PRINT OR
TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)____________
___________________________________________________________________________
___________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________
Attorney to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated _____________________________ ___________________________________
Signature(s) Guaranteed: ___________________________________
(Signatures)
___________________________________
NOTICE: THE SIGNATURE TO THIS
___________________________________ ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE
NOTICE: THE SIGNATURE(S) SHOULD BE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
WHATEVER. GUARANTEED BY AN ELIGIBLE ALTERATION OR ENLARGEMENT OR ANY CHANGE
GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT
______________________ Custodian ________________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
_________________________________
(State)
Additional abbreviations may also be used though not in the above list.
EXHIBIT 10.28
FIRST AMENDMENT
TO
SECURITIES PURCHASE AGREEMENT
THIS FIRST AMENDMENT ("FIRST AMENDMENT") TO SECURITIES PURCHASE AGREEMENT
DATED OCTOBER 9, 1996, ("AGREEMENT") is entered into by and among Travis
International, Inc., a Delaware corporation ("Shareholder"), Marwit Capital
Company, L.P. ("Marwit") and New West Communications, Inc.
("Company").
RECITALS
A. Shareholder is prepared to consummate a Registered Public Offering
as that term is defined in the Agreement.
B. In order to consummate a Registered Public Offering, the parties
agree to enter into this First Amendment.
C. This First Amendment shall be effective and subject to Shareholder's
consummating a Registered Public Offering on or before April 1,
1998, or such other date as Marwit may in writing or consent to. If
a Registered Public Offering does not occur by April ____ 1998 this
First Amendment and the consents granted herein shall be null and
void witness Marwit extends in writing the date on which such
Registered Public Offering should close.
1. AMENDMENT TO SECTION 7.4. Section 7.4 of the Agreement is hereby
amended to add the following provision:
(xvii) incur any debt other than a revolving line of credit of up to a
maximum of Three Million Dollars (3,000,000).
2. PUT OF CONVERSION COMMON STOCK. If Shareholder completes a Registered
Public Offering, the Agreement shall be hereby amended to delete Section 7.9
entitled "Put of Conversion Common Stock" in its entirety.
3. DELIVERY OF AMENDED NOTE. That certain Senior Subordinated Promissory
Note in the amount of One Million Two Hundred Fifty Thousand Dollars
($1,250,000) dated October 9, 1996, ("Original Note") delivered in conjunction
with the Agreement shall have been amended and restated and Company shall have
executed and delivered to Marwit an Amended and Restated Senior Subordinated
Note ("Replacement Note") in exchange for Marwit's delivery of the original
Note. Company and Shareholder represent and warrant that the Replacement Note
has been duly authorized by all corporate action.
<PAGE>
4. FULL FORCE AND EFFECT. Except as so amended, the Agreement shall remain
in full force and effect.
5. COUNTERPARTS. This First Amendment may be executed in two or more
identical counterparts, each of which when taken together shall constitute one
and the same agreement.
6. FEES. All fees and expenses of Marwit's counsel in conjunction with
this First Amendment shall be paid by Company and Shareholder.
IN WITNESS WHEREOF, the parities have executed this First Amendment on
January _____, 1998.
TRAVIS INTERNATIONAL, INC.
By:
Its:
NEW WEST COMMUNICATIONS, INC.
By:
Its:
MARWIT CAPITAL COMPANY, L.P.
By: Marwit Associates, Inc.
Its: General Partner
By:
Its:
2
EXHIBIT 10.29
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND
THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT AND SUCH LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS NOTE AND THE
INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATED, IN RIGHT OF PAYMENT, TO
THE PRIOR PAYMENT IN FULL OF THE INDEBTEDNESS OF COMPANY TO THE BANK OF AMERICA
TEXAS, N.A. AS SENIOR LENDER ("SENIOR LENDER") IN ACCORDANCE WITH THE TERMS OF
THE SUBORDINATION AGREEMENT, DATED OF EVEN DATE HEREWITH, BETWEEN SENIOR LENDER
AND HOLDER.
- --------------------------------------------------------------------------------
FIRST AMENDED AND RESTATED SENIOR SUBORDINATED NOTE
- --------------------------------------------------------------------------------
Due March 1, 2002
FOR VALUE RECEIVED, New West Communications, Inc., a Delaware
corporation ("Company"), hereby promises to pay to Marwit Capital Company, L.P.,
or its registered assigns ("Holder"), the sum of One Million two Hundred Fifty
Thousand Dollars ($1,250,000) and to pay interest thereon at the rate of twelve
and one half percent (12 1/2%) per annum from the date hereof.
Principal shall be payable in forty-eight (48) consecutive equal
monthly payments of $26,041.67 beginning April 1, 1998 and on the first day of
the month thereafter. In addition, interest on the unpaid amount outstanding
shall be paid beginning March 1, 1996, and on the first day of each consecutive
month thereafter. All remaining principal and accrued but unpaid interest
thereon shall be payable in full on March 1, 2002 ("Due Date"). Any payment of
principal or interest not paid within five (5) days of its due date shall be
subject to a five percent (5%) charge on the unpaid payment.
<PAGE>
In no event shall Holder be entitled to interest exceeding the
maximum rate permitted by law or under the regulations promulgated by the United
States Small Business Administration. If any excess of interest is provided for
or shall be adjudicated to be so provided for in this Note, then in such event:
(i) the provisions of this paragraph shall govern and control; (ii) Company
shall not be obligated to pay the amount of such interest to the extent that it
is in excess of the maximum amount permitted by law, and the same shall be
construed as a mutual mistake of the parties which shall not affect the
conversion right granted herein; and (iii) any such excess which may have been
collected or attributed shall be subtracted from the then unpaid principal
amount hereof, or refunded to Company.
Both principal hereof and interest thereon are payable in lawful
money of the United States of America at the offices of Holder as indicated in
the official records of Company. Interest hereunder shall be computed on the
basis of a year of three hundred sixty (360) days for the actual number of days
elapsed.
This Note is secured by that certain Security Agreement of even date
herewith executed by Company.
This Note is subject to he terms and conditions hereinafter set
forth:
1. DEFINITIONS. As used in this Note, the following terms shall
mean:
1.1 "Agreement" - shall mean the Securities Purchase Agreement
dated as the date hereof, by and among Company, Parent and Holder, as amended.
1.2 "Loan Documents" - shall refer to the Agreement and the
Security Agreement, executed at even date herewith and delivered pursuant to the
Agreement.
1.3 "Notes" - shall mean this Note and any notes delivered in
substitution or exchange therefor as provided herein and the other Notes issued
pursuant to the Agreement.
1.4 "Parent" shall refer to Travis International, Inc.
1.5 "Securities Act" - shall mean the Securities Act of 1933,
as amended.
1.6 "Senior Lender" - shall mean Bank of America Texas, N.A.
1.7 "Subordination Agreement" - shall refer to that certain
Subordination Agreement by and among Senior Lender, Company and Holder.
1.8 "Subsidiary" - shall mean any corporation, association or
other business entity at least fifty percent (50%) of the outstanding voting
stock of which is at the time owned or controlled directly or indirectly by
Company or by one or more of such subsidiary entities or both.
2
<PAGE>
2. PREPAYMENT OF NOTE.
2.1 MANDATORY PREPAYMENT.Except as set forth below and subject
to the Subordination Agreement, in the event of (i) a sale of all or
substantially all of the assets of Company, a merger, reorganization or
consolidation of Company with or into another entity other than Parent or a
wholly owned subsidiary of Company or Parent, or (ii) a transfer of a majority
of the outstanding voting securities of Company or, prior to a registered public
offering of Parent's securities, of Parent in a transaction or series of related
transactions, all principal and accrued but unpaid interest thereon on the Notes
shall immediately become due and payable without prepayment penalty or premium.
2.2 OPTIONAL PREPAYMENT. Company, at its option, may make
additional payments in reduction of the principal outstanding on this Note in
increments of $26,044.67 on thirty (30) days' written notice plus a prepayment
penalty equal to three percent (3%) of the amount prepaid if such prepayment is
made prior to the third anniversary date of this Note and one percent (1%) if
such prepayment is made after the third anniversary, but prior to the fifth
anniversary and zero percent (0%) thereafter. Such optional prepayments shall be
applied, in reverse order of maturity, to the required installments of principal
described herein above. Any prepayment made from life insurance proceeds on the
life of Craig Cowan or from proceeds of a registered public offering of Parent
or Company shall be free of any prepayment penalty or premium.
3. INTEREST ADJUSTMENT. The parties agree that if the warrants to
acquire 30,000 shares of Common Stock were not issued in conjunction with this
Note, the interest rate would be one percent (1%) higher.
4. REPLACEMENT OF NOTE. Upon receipt of evidence reasonably
satisfactory to Company of the ownership of and the loss, theft, destruction or
mutilation of this Note and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement in an amount reasonably satisfactory to
Company, or (in the case of mutilation) upon surrender and cancellation of the
mutilated Note, Company will execute and deliver, in lieu thereof, a new Note of
like tenor.
5. EVENTS OF DEFAULT. The occurrence of any of the following "Events
of Default" shall, at the option of the Holder make all sums of principal and
interest then remaining unpaid and all other amounts payable hereon due and
payable, all without demand, presentment, notice or protest, all of which hereby
are expressly waived, and permit Holder to exercise any other right available to
it at law or in equity, all of which rights and powers may be exercised
cumulatively and not alternatively.
(a) FAILURE TO PAY PRINCIPAL OR INTEREST. Failure to pay any
installment of interest or principal hereon when due and continuance thereof for
a period of five (5) days after receipt of written notice by the Company that
Holder has not received a payment when due.
(b) BREACH OF COVENANTS. The continuance for a period of ten
(10) days after notice to Company of (i) the material breach by Company of any
one of the covenants contained in the Agreement or (ii) a material breach of any
other covenant contained in the Loan Documents.
3
<PAGE>
(c) BREACH OF REPRESENTATIONS AND WARRANTIES. Any of Company's
representations or warranties made in the Loan Documents or in any statement or
certificate at any time given in writing to Holder pursuant to the Agreement or
this Note or in connection therewith or herewith, shall prove to have been false
or misleading in any material respect as of the date such representations and
warranties were made; PROVIDED, HOWEVER, that with respect to materially false
or misleading representations and warranties of New West Communications, Inc.,
or Craig Cowan incorporated by reference into Section 5.19 of the Agreement as
being made by the Company, no "Event of Default" shall have occurred hereunder
until the date that is 30 days after the date the Company delivers to New West
Communications, Inc., or Craig Cowan a notice claiming a breach of a material
representation or warranty and then only if the Company (i) has not, to the
satisfaction of the Holder, exercised the remedies available to it in respect of
such material representation or warranty or (ii) has not cured, to the
satisfaction of the Holder, or submitted a written plan of action as to such
cure or other satisfaction of such material representation or warranty, which
plan is satisfactory to Holder.
(d) JUDGMENTS. The making or filing of any money judgment,
writ or similar process individually or in the aggregate in excess of Fifty
Thousand Dollars ($50,000) involving other than trade creditors against Company
or Parent or any of its respective property or other assets which shall remain
unsatisfied, unvacated, unbonded or unstayed for a period of ten (10) days or in
the event no later than five (5) days prior to the date of any proposed sale
thereunder.
(e) DEFAULT OF OTHER AGREEMENTS. The occurrence of any event
of default under the Senior Lender's loan documents or any other note, agreement
or other instrument involving the issuance of indebtedness of Company, whether
such indebtedness now exists or may hereafter be created, if, as a result of
such event of default, the maturity of such indebtedness has been accelerated or
has otherwise become or been declared to be due prior to its stated maturity or
Company has been precluded from making payments or Holder receiving payments on
the Notes and the principal amount of such indebtedness which has been
accelerated or has otherwise become or been declared to be due exceeds,
individually or in the aggregate, Two Hundred Thousand Dollars ($200,000).
(f) ATTACHMENTS. The levying of any writ of attachment against
any property or other assets of Company valued individually or in the aggregate
at an amount equal to or greater than Fifty Thousand Dollars ($50,000) where
Company fails to post a bond or obtain other relief for the release of such
attachment within ten (10) days.
(g) BANKRUPTCY. The institution of bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors shall be instituted by
or against Company, which proceedings shall not have been vacated by appropriate
court order within sixty (60) days of such institution.
(h) DEATH. If the Company does not have in force a term life
insurance policy on the life of Craig Cowan in a minimum amount of $1,250,000
with the proceeds payable to Holder within fifteen (15) days of the date on
which the proceeds of such policy are paid, and if Company has failed to appoint
a replacement for such individual acceptable to the Holder in its sole
discretion who has commenced performing duties of the
4
<PAGE>
deceased within thirty (30) days following his death and continue to perform
such duties hereafter.
(i) DISSOLUTION. Any order, judgment or decree shall have been
entered against Company decreeing the dissolution or liquidation of Company and
such order shall remain undischarged or unstayed for a period of thirty (30)
days.
(j) INSOLVENCY, RECEIVER OR TRUSTEE. The making by Company of
an assignment for the benefit of creditors; or the making by Company of an offer
of settlement, composition or extension to the claims of all or substantially
all of Company's creditors or the application for or consent to the appointment
of a receiver or trustee for it or for a substantial part of its property or
business; or the appointment otherwise of such a receiver or trustee or a
committee of Company's creditors.
6. TRANSFER OF SECURITIES. Subject to the restrictions on transfer
contained in the Agreement, this Note and all rights hereunder are transferable
in whole on the books of Company maintained for such purpose at its principal
office referred to above by Holder in person or by duly authorized attorney,
upon surrender of this Note properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Each taker
and holder of this Note, by taking or holding the same, consents and agrees that
this Note when endorsed in blank shall be deemed negotiable and that when this
Note shall have been so endorsed, Holder hereof may be treated by Company and
all other persons dealing with this Note, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof on the books of Company, any notice to the contrary
notwithstanding; but until such transfer on such books, Company may treat Holder
hereof as the owner for all purposes. Notwithstanding the above, the original
Holder hereof shall not transfer this Note to a competitor of Company or Parent
without the prior written consent thereto from the Company, which consent shall
not be unreasonably withheld. Except as so limited, the Holder of this Note may
sell participations in or assign this Note, and may exchange financial
information about Company with actual or potential participants, or assignees;
PROVIDED, HOWEVER, that Holder shall remain the sole record holder hereof,
unless this Note and all rights hereunder have been transferred in accordance
with the provisions set forth above. If a participation is sold or the loan is
assigned, the assignee or participant shall have the right of set-off against
Company and shall be subject to the provisions of the Agreement and the Note.
7. NOTICES. Except as otherwise provided herein, any notice or
demand which, by the provisions hereof, is required or which may be given to or
served upon the parties hereto shall be in writing and, if by telegram, telecopy
or telex, shall be deemed to have been validly served, given or delivered when
sent, if by personal delivery, shall be deemed to have been validly served,
given or delivered upon actual delivery and, if mailed, shall be deemed to have
been validly served, given or delivered three (3) business days after deposit in
the United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice).
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If to Holder:
Marwit Capital Company, L.P.
180 Newport Center Drive, Suite 200
Newport Beach, California 92660
Attention: Matthew Witte
Facsimile: 714/720-8077
With copy to:
Arter & Hadden
5 Park Plaza, Suite 1000
Irvine, California 92614-9809
Attention: Michael P. Ridley, Esq.
Facsimile: 714/833-9604
If to Company:
New West Communications, Inc.
3000 Weslayan, Suite 350
Houston, Texas 77027
Attention: Kirby Attwell
Facsimile: 713/622-7477
With a copy to:
Mayor, Day, Caldwell & Keeton
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
Attention: B. Scott Aitken, Esq.
Facsimile: 713/225-7047
8. MISCELLANEOUS.
8.1 SURVIVAL OF COVENANTS. All agreements and covenants made
herein shall survive the execution and delivery hereof.
8.2 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any one or more of such failures or
delays constitute a course of performance or dealing on which Company is
entitled to rely, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercises thereof or of any other
right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
8.3 COST OF COLLECTION. If any default is made in the payment
of this Note, Company shall pay Holder all costs of collection, including,
without limitation, reasonable
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attorneys' and accountants' fees and costs of appeals and interest on any sums
actually disbursed at the rate set forth herein.
8.4 GOVERNING LAW. This Note has been executed in and shall be
governed by the laws of the State of California. As part of the consideration
for Holder's investment herein, Company and Holder hereby agree that all actions
or proceedings arising directly or indirectly hereunder, whether instituted by
Holder or Company, may, at the option of Holder, be litigated in courts having
situs within the State of California, County of Orange and Company hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon Company
wherever Company may be located, or by certified or registered mail directed to
Company at its last known address. Company and Holder waive trial by jury, any
objection based on FORUM NON CONVENIENS, and any objection to venue of any
action instituted hereunder.
8.5 MODIFICATION. Neither this Note nor any provision hereof
may be amended, modified, waived, discharged or terminated with respect to
Holder unless agreed to by the holders of a majority of the outstanding
principal balance of the Note except for an amendment which changes the Due Date
which shall require the consent of all of the holders of the Note.
8.6 SEVERABILITY. Whenever possible, each provision of this
Note will be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision of this Note is held to be prohibited by
or invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Note.
8.7 FURTHER ASSURANCE. At any time or from time to time upon
the request of Holder, Company will execute and deliver such further documents
and do such other acts and things as Holder may reasonably request in order
fully to effectuate the purposes of this Note, to provide for the payment of the
principal and interest due hereunder, and to facilitate, if required, the
exercise of Holder's conversion right.
8.8 SUCCESSORS. All the covenants, agreements, representations
and warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
8.9 HEADINGS. The section headings in this Note are inserted
for purposes of convenience only and shall have no substantive effect.
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IN WITNESS WHEREOF, New West Communications, Inc. has caused this
Note to be signed by its duly authorized officer and to be dated January 23,
1998.
NEW WEST COMMUNICATIONS, INC.
By:
Its:
8
EXHIBIT 10.30
FIRST AMENDMENT TO SUBORDINATION AGREEMENT
THIS FIRST AMENDMENT TO SUBORDINATION AGREEMENT (this "FIRST Amendment")
is entered into effective as of January 24, 1998, between BANK OF AMERICA TEXAS,
N.A. ("BOFA") and MARWIT CAPITAL COMPANY, L.P. ("Marwit"), and acknowledged by
New West Communications, Inc., a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, BofA and Marwit entered into that certain Subordination Agreement
(the "SUBORDINATION AGREEMENT") dated as of September 30, 1996, relating to
certain credit accommodations BofA and Marwit were each making to Borrower; and
WHEREAS, Marwit and Borrower have agreed to modify certain terms and
provisions of the Subordinated Note (as defined in the Subordination Agreement)
and have requested BofA's consent to such amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, BofA, Marwit and Borrower agree as follows:
1. CONSENT TO REPLACEMENT SUBORDINATED NOTE. BofA consents to the
execution of a replacement subordinated note (the "REPLACEMENT SUBORDINATED
NOTE") in the form attached hereto as EXHIBIT "A" and agrees that the term
"Subordinated Note" as defined in the Subordination Agreement shall be construed
to mean the Replacement Subordinated Note. The Replacement Subordinated Note and
all payments to be made thereunder shall be subject, in all respects, to the
terms and provisions of the Subordination Agreement.
2. NO TERM LOANS. So long as the Subordination Agreement is in effect,
BofA agrees that except for the Facility No. 2 Commitment under the Loan
Agreement (as defined in the Subordination Agreement), it will not make any
further Term Loans to Borrower; provided, however, the parties hereto agree that
notwithstanding the foregoing in the event any indebtedness or other obligation
of Borrower under the Loan Agreement is restructured, amended, or otherwise
modified to become debt of a term nature such as to comply with the definition
of a Term Loan as used herein, such restructured indebtedness or obligation
shall be deemed to be Senior Indebtedness under the Subordination Agreement
notwithstanding its recharacterization as a Term Loan.
The parties hereto acknowledge and agree that upon Borrower's repayment of
the Facility No. 2 Commitment to BofA under the Loan Agreement, no portion of
the Senior Indebtedness shall consist of a Term Loan.
As used herein, "Term Loan" means a loan made on a non-revolving basis
which at the time the first advance is made thereunder provides for a scheduled
amortization of the principal of such loan over a set period of time established
at the time the first funds are advanced. Under
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no circumstances shall any indebtedness originally advanced on a revolving basis
ever be construed to become a Term Loan.
3. CONTINUED EFFECT. Except as set forth above, the Subordination
Agreement shall continue in full force and effect in accordance with its
original provisions.
4. MISCELLANEOUS.
(a) SEVERABILITY. In case any of the provisions of this First
Amendment shall for any reason be held to be invalid, illegal, or unenforceable,
such invalidity, illegality, or unenforceability shall not affect any other
provision hereto and this First Amendment shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
(b) CAPITALIZED TERMS. Except as otherwise defined herein,
capitalized terms shall have the meanings specified in the Subordination
Agreement.
(c) EXECUTION IN COUNTERPARTS. This First Amendment may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument, and any party hereto may execute this First Amendment
by signing one or more counterparts.
(d) GOVERNING LAW. This First Amendment shall be construed in
accordance with and governed by the laws of the State of Texas and the United
States of America.
(E) COMPLETE AGREEMENT. THIS WRITTEN FIRST AMENDMENT AND THE OTHER
WRITTEN AGREEMENTS ENTERED INTO AMONG THE PARTIES REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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<PAGE>
Executed as of the day and year first above written.
BOFA:
BANK OF AMERICA TEXAS, N.A.
By:
Name:
Title:
MARWIT:
MARWIT CAPITAL COMPANY, L.P.
By: Marwit Associates, Inc.,
its general partner
By:
Name:
Title:
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<PAGE>
ACKNOWLEDGMENT BY BORROWER
Borrower hereby acknowledges receipt of a copy of the foregoing First Amendment
to Subordination Agreement, confirms that the Replacement Subordinated Note as
in effect on the date hereof is all of Borrower's existing indebtedness and
obligations to Marwit Capital Company, L.P., and agrees that it will not pay any
indebtedness subordinated by the Subordination Agreement, as amended by this
First Amendment, until all the Senior Indebtedness shall have been paid in full.
NEW WEST COMMUNICATIONS, INC.,
a Delaware corporation
By:
Name:
Title:
Page 4
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
January 26, 1998
