<PAGE> 1
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 27, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number 0-21677
PROSOURCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 65-0335019
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1500 San Remo Avenue, 3rd Floor, Coral Gables, FL 33146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305)740-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 5, 1997
<S> <C>
Class A Common Stock, $.01 par value 3,449,499 shares
Class B Common Stock, $.01 par value 5,903,756 shares
</TABLE>
<PAGE> 2
PROSOURCE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets -
September 27, 1997 and December 28, 1996...............................................3
Consolidated Statements of Operations -
For the periods ended September 27, 1997 and
September 28, 1996.....................................................................4
Consolidated Statements of Cash Flows -
For the periods ended September 27, 1997 and
September 28, 1996.....................................................................5
Notes to Consolidated Financial Statements.............................................6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................13
Item 5. Other Information.....................................................................13
Item 6. Exhibits and Reports on Form 8-K......................................................13
</TABLE>
2
<PAGE> 3
PROSOURCE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
1997 1996
---------- ---------
(UNAUDITED) *
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,194 2,763
Accounts receivable, net 195,810 219,340
Inventories 144,700 144,040
Deferred income taxes, net 11,003 10,914
Prepaid expenses and other current assets 9,616 7,373
--------- ---------
Total current assets 376,323 384,430
Property and equipment, net 65,139 49,637
Intangible assets, net 40,636 42,135
Deferred income taxes, net 19,120 16,100
Other assets 8,346 11,422
--------- ---------
Total assets $ 509,564 $ 503,724
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 233,882 $ 254,907
Accrued liabilities 31,580 42,475
Current portion of long-term senior debt -- 1,500
--------- ---------
Total current liabilities 265,462 298,882
Long-term senior debt, less current portion 165,300 111,084
Subordinated notes payable 500 500
Other noncurrent liabilities 5,613 14,743
--------- ---------
Total liabilities 436,875 425,209
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value -- --
Class A Common Stock, $.01 par value 34 34
Class B Common Stock, $.01 par value 59 60
Additional paid-in capital 104,720 105,256
Accumulated deficit (32,139) (26,901)
Accumulated foreign currency translation adjustments 15 66
--------- ---------
Total stockholders' equity 72,689 78,515
--------- ---------
Total liabilities and stockholders' equity $ 509,564 $ 503,724
========= =========
</TABLE>
* Note: The balance sheet at December 28, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 945,817 $ 1,053,537 $ 2,933,662 $ 3,067,611
Cost of sales 868,500 972,762 2,699,536 2,831,762
--------- ----------- ----------- -----------
Gross profit 77,317 80,775 234,126 235,849
Operating expenses 72,998 75,020 224,714 224,778
Loss on impairment of
long-lived assets -- -- -- 15,733
Restructuring charges -- -- -- 10,866
--------- ----------- ----------- -----------
Earnings (loss) from operations 4,319 5,755 9,412 (15,528)
Interest expense (3,178) (3,789) (8,736) (11,941)
Interest income 386 398 1,398 1,264
--------- ----------- ----------- -----------
Earnings (loss) before income taxes
and extraordinary item 1,527 2,364 2,074 (26,205)
Income tax (provision) benefit (809) (1,007) (1,050) 9,605
--------- ----------- ----------- -----------
Earnings (loss) before extraordinary
item 718 1,357 1,024 (16,600)
Extraordinary item, net of income
tax benefit of $4,073 in 1997 -- -- (6,262) --
--------- ----------- ----------- -----------
Net earnings (loss) $ 718 $ 1,357 $ (5,238) $ (16,600)
========= =========== =========== ===========
Net earnings (loss) per share:
Earnings (loss) before extraordinary
item $ 0.08 $ 0.25 $ 0.11 $ (3.13)
Net earnings (loss) $ 0.08 $ 0.25 $ (0.56) $ (3.13)
Weighted average number of
shares outstanding 9,326 5,355 9,334 5,304
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,238) $(16,600)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization of property and equipment 6,820 5,298
Amortization of intangible assets and deferred debt issuance costs 1,801 2,847
Bad debt expense 1,305 1,352
Extraordinary loss on early extinguishment of long-term debt 10,335 --
Loss on impairment of long-lived assets -- 15,733
Deferred income taxes (benefit) (3,109) (9,757)
Gain on sale of property and equipment (671) --
Changes in operating assets and liabilities:
Decrease in accounts receivable 22,225 28,153
(Increase) decrease in inventories (660) 8,616
Increase in prepaid expenses and other current assets (2,663) (2,565)
Increase in other assets (2,609) (12,848)
Decrease in accounts payable (21,025) (31,009)
(Decrease) increase in other accrued liabilities (10,877) 6,233
(Decrease) increase in other noncurrent liabilities (9,130) 10,135
--------- --------
Net cash (used in) provided by operating activities (13,496) 5,588
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (23,443) (12,725)
Proceeds from sale of property and equipment 1,792 --
--------- --------
Net cash used in investing activities (21,651) (12,725)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing from new long-term senior debt 165,300 --
Net (repayment) borrowing from former long-term senior debt (112,584) 7,798
Repayments of long-term debt to Onex -- (615)
Borrowings on long-term debt from Onex -- 378
Fees incurred in conjunction with long-term senior debt (4,532) --
Proceeds from issuance of common stock to Onex -- 615
Payments to acquire and retire treasury stock (555) (173)
--------- --------
Net cash provided by (used in) financing activities 47,629 8,003
--------- --------
Effect of exchange rate changes on cash (51) (12)
--------- --------
Net increase in cash and cash equivalents 12,431 854
Cash and cash equivalents at beginning of year 2,763 2,325
--------- --------
Cash and cash equivalents at end of year $ 15,194 $ 3,179
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD FOR:
Interest to Onex $ -- $ 1,904
Interest to others $ 8,681 $ 9,713
Income taxes, net of refunds $ 343 $ 134
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February 1996, Onex converted an $800 convertible subordinated note into
80 shares of the Company's class B common stock.
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report for the fiscal year ended December 28, 1996.
The Company operates on a 52-to 53-week accounting year ending on the last
Saturday of each calendar year. Operating results for the thirteen and
thirty-nine weeks ended September 27, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ended December 27, 1997 due, in
part, to seasonal fluctuations in the Company's business, the potential addition
or loss of customers, and changes in economic conditions.
Certain amounts previously presented in the financial statements of prior
periods have been reclassified to conform to the current period's presentation.
(2) EXTRAORDINARY ITEM
In March 1997, the Company entered into five-year loan agreements
aggregating $225 million with a financial institution to replace its existing
credit facility. In connection with the early extinguishment of the previous
credit facility, the Company recorded a pre-tax extraordinary charge of $10.3
million ($6.3 net of tax or $.67 per share) in the first quarter of 1997. This
charge reflected the write-off of deferred financing costs of $6.3 million,
prepayment penalties of $2.7 million and $1.3 million in costs associated with
the termination of interest-rate protection agreements.
The new agreements, which consist of a $150 million accounts receivable
securitization facility and a $75 million inventory revolving-credit facility,
bear interest based on either the prime rate or LIBOR plus an additional spread
based on certain financial ratios. As of September 27, 1997, the combined
effective rate on both facilities was 7.02%. The Company is required to comply
with various covenants in connection with these agreements and borrowings are
subject to calculations based on receivables and inventory. The credit
facilities are secured by liens on substantially all of the Company's assets and
contain various restrictions on, among other things, the Company's ability to
pay dividends and dispose of assets.
ProSource Receivables Corporation ("PRC"), a subsidiary within the
consolidated group, is the legal borrower for the accounts receivable
securitization facility. The creditor for this facility has security interests
in PRC's assets (consisting primarily of accounts receivable) and is entitled to
be satisfied by such assets prior to equity holders.
6
<PAGE> 7
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 128 "Earnings per Share"("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings share per share and "diluted" earnings per
share on the face of the income statement. Basic earnings per share is computed
by dividing the net income or loss attributable to common shareholders by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted earnings per share is computed similarly to fully diluted
earnings per share under APB Opinion No.15. SFAS 128 is effective for financial
statements for periods ending after December 15, 1997. The Company will adopt
SFAS 128 in the fourth quarter of the fiscal year ending December 27, 1997, as
early adoption is not permitted. Upon adoption, earnings per share data for
prior periods are required to be restated. The pro forma basic earnings (loss)
per share and diluted earnings (loss) per share calculated in accordance with
SFAS 128 for the thirteen and thirty-nine weeks ended September 27, 1997 and
September 26, 1996 are as follows :
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------- --------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRO FORMA BASIC EARNINGS PER SHARE:
Earnings (loss) before extraordinary item $0.08 $0.26 $ 0.11 $(3.13)
Net earnings (loss) $0.08 $0.26 $(0.56) $(3.13)
PRO FORMA DILUTED EARNINGS PER SHARE:
Earnings (loss) before extraordinary item $0.08 $0.25 $ 0.11 $(3.13)
Net earnings (loss) $0.08 $0.25 $(0.56) $(3.13)
</TABLE>
In February, 1997, SFAS No. 129, "Disclosure of Information about Capital
Structure" was issued. This statement establishes required disclosures about
capital structure that had been included in a number of previously existing
separate statements and opinions. As such, the issuance of SFAS No. 129 is not
expected to require significant revision of prior disclosures. The company will
adopt SFAS No. 129 in the fourth quarter of the fiscal year ending December 27,
1997.
In June 1997, SFAS No.130, "Reporting Comprehensive Income," was issued.
SFAS No.130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains
7
<PAGE> 8
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - (CONTINUED)
and losses) in a full set of general-purpose financial statements. SFAS No.130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No.130 requires that a company (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. SFAS No.130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management does not believe the effect of this
adoption will have a material impact on the consolidated results of operations
or the financial position of the Company.
In June 1997, SFAS No.131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No.131 establishes standards for the way
that public companies report selected information about operating segments in
annual financial statements and requires that those companies report selected
information about segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No.131, which supersedes
SFAS No.14, "Financial Reporting for Segments of a Business Enterprise", but
retains the requirement to report information about major customers, requires
that a public company report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No.131 requires that a public company report a measure of segment
profit or loss, certain specific revenue and expense items, and segment assets.
However, SFAS No.131 does not require the reporting of information that is not
prepared for internal use if reporting it would be impracticable. SFAS No.131
also requires that a public company report descriptive information about the way
that the operating segments were determined, the products and services provided
by the operating segments, differences between the measurements used in
reporting segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement of segment amounts from
period to period. SFAS No.131 is effective for financial statements for periods
beginning after December 15, 1997. Although management has not thoroughly
assessed the impact this statement will have on the Company's financial
statements, management does not believe it will be material.
(4) CUSTOMER DISTRIBUTION AGREEMENTS
In August 1997, the Company extended its distribution services contract
with Darden Restaurants, Inc. (owner of Red Lobster and Olive Garden
restaurants) until June 2002.
(5) CONTINGENCIES
The Company and its subsidiaries are parties to various legal actions
arising in the ordinary course of business. Management believes that the outcome
of such cases will not have a material adverse effect on the consolidated
results of operations or the financial position of the Company.
8
<PAGE> 9
PROSOURCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the Company's consolidated statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------- -----------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales 91.83 92.34 92.02 92.31
------ ------ ------ ------
Gross profit 8.17 7.66 7.98 7.69
Operating expenses 7.71 7.12 7.66 7.33
Loss on impairment of long-lived assets -- -- -- 0.51
Restructuring charges -- -- -- 0.35
------ ------ ------ ------
Earnings (loss) from operations 0.46 0.54 0.32 (0.50)
Interest expense, net (0.30) (0.32) (0.25) (0.35)
------ ------ ------ ------
Earnings (loss) before income taxes
and extraordinary item 0.16 0.22 0.07 (0.85)
Income tax (provision) benefit (0.08) (0.10) (0.03) 0.31
------ ------ ------ ------
Earnings (loss) before extraordinary
item 0.08 0.12 0.04 (0.54)
Extraordinary item, net -- -- (0.22) --
------ ------ ------ ------
Net earnings (loss) 0.08% 0.12% (0.18)% (0.54)%
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
PROSOURCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
In the following comparisons of the results of operations, the thirteen and
thirty-nine week periods ended September 27, 1997 and September 28, 1996 are
referred to as 1997 and 1996, respectively.
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997 COMPARED TO THIRTEEN WEEKS ENDED
SEPTEMBER 28, 1996
Net sales declined 10.2% to $945.8 million in 1997 from $1.1 billion in
1996. The Company's 1997 sales continue to be adversely affected by the
termination of its distribution contract with Arby's effective April 1, 1997 and
by a generally weak restaurant sales environment. In addition, sales to the
Burger King Corporation and its franchisees were negatively impacted by the
publicity surrounding Hudson Beef's decision to recall 25 million pounds of beef
in connection with an E.coli bacteria scare.
Gross profit decreased 4.3% to $77.3 million in 1997 from $80.8 million in
1996 as a result of the decrease in net sales. As a percentage, gross profit
increased to 8.2% in 1997 from 7.7% in 1996 reflecting a change in the sales mix
and the Company's initiative to increase its value added services, including
transportation services.
Operating expenses decreased $2.0 million, or 2.7%, to $73.0 million in
1997 from $75.0 million in 1996. As a percentage of net sales, operating
expenses increased to 7.7% in 1997 from 7.1% in 1996 due primarily to the impact
that certain fixed costs have on the lower sales volume.
Net interest expense decreased 17.7% from $3.4 million (.32% of net sales)
in 1996 to $2.8 million (.30% of net sales) in 1997 due to a lower effective
interest rate on borrowings. In March 1997, the Company replaced its existing
credit line agreement with two agreements from another financial institution.
The new agreements provide the Company with a lower borrowing rate and greater
financial flexibility.
The effective income tax rates for 1997 and 1996 were 53.0% and 42.6%,
respectively. The increased 1997 effective tax rate is due to the estimated
impact of permanent tax differences on a relatively low level of pretax
earnings. Such rates reflect the annual anticipated effective rates for the
respective fiscal years.
Overall the Company generated net earnings of $718,000 ($0.08 per share) in
1997 compared to $1.4 million ($0.25 per share) in 1996. The decline in net
earnings is the result of a lower gross profit (resulting primarily from the
Arby's contract termination) which was partially mitigated by decreases in
operating and interest expenses.
10
<PAGE> 11
PROSOURCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
SEPTEMBER 28, 1996
Net sales decreased $133.9 million, or 4.4%, to $2.934 billion in 1997 from
$3.068 billion in 1996. This decline is primarily attributed to the termination
of the Arby's distribution contract effective April 1, 1997.
Gross profit decreased slightly by 0.7% to $234.1 million in 1997 from
$235.8 million in 1996. The gross profit percent increased to 8.0% from 7.7% as
a result of the Company's efforts to increase its value added services and a
change in sales mix.
Operating expenses decreased slightly to $224.7 million in 1997 from $224.8
million in 1996. The $4.6 million increase in operating expenses noted in the
first quarter of 1997 has been mitigated by the $4.7 million decrease noted in
the second and third quarters of 1997. As a percentage, of net sales, operating
expenses increased to 7.7% in 1997 from 7.3% in 1996 due primarily to the impact
that certain fixed costs have on a lower sales volume.
Net interest expense decreased $3.3 million (or 31.3%) from $10.7 million
in 1996 to $7.3 million in 1997. This is due to the prepayment of indebtedness
in November 1996 with the proceeds of the Company's initial public offering as
well as the lower effective interest rate on the new credit facilities.
The effective income tax rates for 1997 and 1996 were 50.6% and 36.7%,
respectively. The increased 1997 effective tax rate is due to the estimated
impact of permanent tax differences on a relatively low level of pretax earnings
on an absolute dollar basis. Such rates reflect the annual anticipated effective
rates for the respective fiscal years.
For 1997, the Company's earnings before extraordinary item totaled $1.0
million ($0.11 per share) compared to a loss of $16.6 million ($3.13 per share)
in 1996. The operating results for 1996 included a loss on impairment of
long-lived assets of $15.7 million and restructuring charges of $10.9 million,
both of which were related to the Company's plan to consolidate and integrate
its corporate and distribution network operations. Excluding these non-recurring
items, the Company produced net income of $0.1 million ($0.02 per share) in
1996. The improvement in 1997's earnings is primarily the result of reduced
interest expense.
The extraordinary charge of $6.3 million, net of income tax benefit, in
1997 is related to the early extinguishment of the Company's credit facility in
March 1997. This charge reflects the write-off of deferred financing costs,
prepayment penalties and costs associated with the termination of interest rate
protection agreements.
Restaurants owned or franchised by Burger King Corporation collectively
accounted for 44.4% and 39.9% of the Company's sales in 1997 and 1996,
respectively. In addition, sales to Darden Restaurants, Inc. (owner of Red
Lobster and Olive Garden restaurants) accounted for 21.3% and 21.7% of the
Company's sales for 1997 and 1996, respectively.
11
<PAGE> 12
PROSOURCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its liquidity needs through cash provided by operations,
normal vendor trade credit terms, operating leases and borrowings under its
credit facilities. Excluding the $15.1 million of non-recurring payments for
acquisition, contract termination and restructure related items, the Company
generated net cash of $1.6 million from operating activities during the
thirty-nine week period.
The Company borrowed $52.7 million during the period from December 28, 1996
to September 27, 1997 to fund its operating and investing activities and
increased its cash and cash equivalents by $12.4 million. In addition, the
Company paid $4.5 million in fees associated with the early extinguishment of
its previous facility in March 1997. Approximately $0.6 million was used to
acquire and retire treasury stock.
The Company used $21.7 million in investing activities during the first
nine months of 1997. This is comprised of capital expenditures (primarily of
$9.6 million for computer system upgrades and $7.8 million for distribution
facilities and equipment). The Company anticipates capital expenditures of
approximately $30 million in 1997, connected primarily with the implementation
of its new distribution network, including the expansion of warehousing
facilities to accommodate expected growth, and for continued investment in
computer systems. There can be no assurance that capital expenditures will not
be higher than currently anticipated. The Company intends to finance such
capital expenditures with cash provided by operations and borrowings under its
credit facilities.
The Company is a holding company with no independent operations or assets
other than investment in its operating subsidiaries, and, as such, is dependent
on its operating subsidiaries to obtain cash flow. The Company's loan agreements
include certain restrictive covenants which limit the flow of funds from the
Company's subsidiaries to the parent company. Such covenants are not expected to
have a material effect on the ability of the parent to meet its cash
obligations.
The Company believes that the combination of cash flow generated from
operations and borrowings available under its credit facilities are sufficient
to satisfy its anticipated working capital needs for at least 12 months.
Management may determine that it is necessary or desirable to obtain financing
for growth through additional bank borrowings or the issuance of new debt or
equity securities.
12
<PAGE> 13
PROSOURCE, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various legal
actions arising in the ordinary course of business. Management
believes that the outcome of such cases will not have a
material adverse effect on the consolidated results of
operations or the financial position of the Company.
Item 5. Other Information
Forward Looking Statements
This quarterly report contains certain forward looking
statements within the meaning of Section 21E of the Security
Exchange Act of 1934 that involve risks and uncertainties. The
results of the Company are affected by economic trends
impacting its customers and impacting the quick service and
casual dining segments of the restaurant industry, in general.
Also, the Company is in a highly competitive business, is in
the process of integrating its operations, and is implementing
a strategic plan intended to expand its business through
acquisitions and internal growth and improve its cost
structure. There can be no assurance that in its highly
competitive business environment, the Company will achieve the
planned efficiencies and cost savings, successfully acquire
other distributors, or increase its business with new or
existing customers.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Vehicle Lease and Service Agreement
10.2 License Agreement
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the fiscal quarter ended September 27, 1997.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROSOURCE, INC.
Date: November 12, 1997 /s/ William F. Evans
----------------------------------------
William F. Evans
Executive Vice President, Chief
Financial Officer
Date: November 12, 1997 /s/ Marcelino Iturrey
----------------------------------------
Marcelino Iturrey
Vice President-Controller, Chief
Accounting Officer
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EXHIBIT INDEX
10.1 Vehicle Lease and Service Agreement
10.2 License Agreement
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
VEHICLE LEASE AND SERVICE AGREEMENT
THIS AGREEMENT is made as of the 9th day of June, 1997 between PENSKE TRUCK
LEASING CO., L.P. whose address is ROUTE 10, GREEN HILLS, READING, PA 19603-0563
(PENSKE) and PROSOURCE SERVICES CORPORATION, d/b/a PROSOURCE DISTRIBUTION
SERVICES whose address is 1500 San Remo Avenue, Suite 300, Coral Gables, FL
33146 (Customer).
This agreement shall constitute the entire agreement between the
parties and is inclusive of all Vehicle lease and service agreements, such lease
and service agreements covered under schedules A, E and M [Schedule(s)] or their
successor schedules, and any subsequent addendums to this agreement. The
equipment covered and terms as specified in this Vehicle Lease and Service
Agreement, including Parts I and II, follow and are mutually inclusive of the
entire agreement.
1. EQUIPMENT COVERED AND TERM
A. PENSKE agrees to service and maintain each of Customer's Vehicles
listed on attached Schedules "E" or "M" hereafter made a part of this Agreement
("Vehicle(s)"), as described on individual Schedule "S" attached and made a part
of this Agreement, by PENSKE's written acceptance from the Date of Commencement
("In Service Date") set forth on the schedule until terminated as provided
herein. PENSKE acknowledges that this Agreement does not grant PENSKE any title,
interest or proprietary rights to the Vehicles or any other property of
CUSTOMER.
B. PENSKE agrees to lease to Customer and Customer agrees to lease from
PENSKE the Vehicle(s) on attached Schedule A, hereafter made a part of this
Agreement ("Vehicle(s)"). Execution of a Schedule A constitutes Customer's
authorization to PENSKE to acquire the Vehicles selected by Customer. The
Agreement will become effective with respect to each Vehicle on the date
tendered by PENSKE to Customer "In Service" for use by Customer and continue for
the term specified on a Schedule A unless terminated earlier as provided in this
Agreement. Upon the execution of a Schedule A, PENSKE shall promptly order the
Vehicles from the Vehicle manufacturer. At Customer's request, PENSKE will rent
Customer an interim Vehicle, as nearly as practicable the same size and type as
the undelivered Vehicle, at a rate not to exceed the charge for the undelivered
Vehicle. An interim Vehicle, while in Customer's service, will be subject to all
the terms and conditions of this Agreement.
1) Acceptance of Vehicles listed on Schedule A tendered for
service by PENSKE constitutes Customer's acknowledgment of compliance with
Customer's specifications. Customer agrees to pay for any structural
alterations, which alterations shall not be made without PENSKE's prior written
consent (which consent shall not be unreasonably withheld), special equipment,
or material alteration in painting, lettering or art work thereafter required by
Customer. In the event that, subsequent to the date of execution of this
Agreement by PENSKE, any federal, state or local law, ordinance, regulation or
Customer need requires the installation of any additional equipment,
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Customer will be responsible for all reasonable costs thereof, including
installation expenses. PENSKE agrees to either install or arrange for such
installation. PENSKE will, upon the written agreement of PENSKE and Customer,
thereafter maintain the additional equipment.
2) Except as otherwise agreed to by Customer and PENSKE, each
Vehicle listed on Schedule A will be promptly returned by Customer to PENSKE's
facility specified on the appropriate Schedule or, at Customer's option, to the
PENSKE location servicing a re-domiciled Vehicle at the end of its lease term
unless Customer purchases the Vehicle as provided for hereinafter.
C. Excepting replacement of Vehicle(s) or Customer's default as
provided for herein, such default remaining uncured as provided for in Paragraph
23C of this agreement, PENSKE agrees that in the event PENSKE elects to cancel
any agreement(s) for Vehicles listed on any Schedule(s), such cancellation(s)
shall not exceed 10% of all Vehicles listed on all said schedule(s) within any
12 consecutive months period, unless PENSKE cancels the entire agreement as it
relates to all Vehicles on all schedules. Such cancellation shall be deemed as
Termination by PENSKE as provided for in this agreement. Notice of said
cancellation ("Notice") of the entire agreement shall be given at a minimum of
90 days in advance to allow Customer adequate time to seek another vendor's
services. Cancellation(s) of more than 10% of the Vehicles within a 12
consecutive months period, other than Cancellation due to replacement of
Vehicle(s) or default of this Vehicle Lease and Service Agreement by Customer as
provided for in Paragraph 23C, shall be deemed as "Notice" by PENSKE to cancel
this Agreement in its entirety for all Vehicles listed on all schedules, and
Customer will have no obligation to purchase any Vehicle(s) or have any other
further obligations to PENSKE, including making any further payments following
90 days from the point at which the 10% Cancellation limit was exceeded. PENSKE
will ensure that all Vehicles belonging to PENSKE are de-identified, and that
all Vehicles belonging to Customer are in "Trade Condition" as required
elsewhere in this agreement by the date of Termination. PENSKE agrees that
Customer may have the work required accomplished by another vendor in the event
PENSKE fails to accomplish all required services and repairs by the Termination
date, and that the costs for such services and repairs will be invoiced directly
to PENSKE or, at Customer's option, will be deducted from outstanding invoices
from PENSKE.
D. The term "Vehicles" or "Vehicle" shall include Tractors, Trailers,
Straight Trucks, Vans, Refrigeration units and Converter Dollies.
E. PENSKE agrees to pay Customer the sum of three hundred thousand
dollars ($300,000) as reimbursement associated with costs incurred in connection
with the transition of business to PENSKE. This sum is due as of the date of
signing of this agreement and payable within 30 days.
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2. OPERATION OF VEHICLES
The Vehicles will be used and operated by Customer only in the normal
and ordinary course of Customer's business, not in violation of any laws or
regulations, and Customer will indemnify and hold PENSKE harmless from any claim
or loss or damage arising out of any such violation.
3. MAINTENANCE AND REPAIRS TO VEHICLES
A. PENSKE agrees to provide at its sole cost and expense: (1)
Lubricants, tires, tubes and all other operating supplies necessary for the
Vehicles; (2) Inspections, maintenance and repair of the Vehicles in full
compliance with the Federal Motor Carrier Safety Regulations, Manufacturer's
approved maintenance and repair procedures, Customer's maintenance and repair
procedures as provided by Customer in writing and mutually agreed to by PENSKE
for Vehicles other than those owned by PENSKE, such agreement not unreasonably
withheld, including all labor and parts required to keep the Vehicles in good
operating condition; (3) Exterior washing as specified on the appropriate
Schedule; and (4) Road service for mechanical or tire failure, and road service
towing, except for any expenses of towing any mired Vehicle when not in PENSKE's
possession or on PENSKE's premises.
B. Customer agrees that only PENSKE or parties authorized by PENSKE
will make any repairs or adjustment to Vehicles. When repairs are necessary,
Customer will promptly notify PENSKE. PENSKE will not be responsible for the
cost of repairs or services not authorized by PENSKE, providing that PENSKE was
reasonably available to authorize and affect repairs to a Vehicle. Customer must
submit acceptable vouchers for such repairs or services not specifically
authorized by PENSKE. Emergency repairs costing less than $100.00 required while
a Vehicle is en route on dispatch can be authorized by Customer without prior
PENSKE approval.
C. Customer agrees to return each Vehicle to PENSKE for ordinary
maintenance and routine service at the facility stated on the appropriate
Schedule at such scheduled times as agreed to by the parties. PENSKE agrees to
notify Customer at the end of each week that certain Vehicle(s) will be due for
such service during the coming week by providing a written listing of those
Vehicle(s) and due date and time.
D. Where a Vehicle is operated by Customer in combination with a
tractor or other equipment not included on a Schedule and which is not
maintained by PENSKE under a separate agreement, Customer agrees that such
tractor and/or equipment will be in good operating condition, reasonable wear
and tear excepted. Notwithstanding any other provision of this Agreement,
Customer will indemnify and hold PENSKE harmless from any claim or loss or
damage caused by such tractor and/or equipment which is not maintained by
PENSKE, except to the extent that such loss or damage is caused by the
negligence of PENSKE.
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E. PENSKE will be responsible for all repairs and actions necessary to
return a Vehicle to service following an incident which renders the Vehicle
inoperable while in the care, custody and control of PENSKE.
F. PENSKE agrees that in the event PENSKE designates, or otherwise
authorizes, parties other than itself to make any repairs or adjustment to
Vehicles:
1) That said parties will accomplish said repairs or
adjustments to Vehicles in the same timely, accurate and professional manner,
and at the same cost to Customer as PENSKE, such timeliness being determined by
consultation of Manufacturer's or other agreed upon third-party repair manuals
to ascertain the required time to complete repair or maintenance.
2) That PENSKE assumes all liability for the work performed by
said parties.
3) That PENSKE will indemnify and hold Customer harmless from
and against any and all actions by said parties.
4) That any Vehicle tendered to such parties will be repaired
and returned to Customer for service no later than if the work had been
accomplished in the PENSKE location in which the Vehicle is domiciled, based on
that location's hours of operation, unless a Substitute Vehicle is provided
until the Vehicle is returned to Customer for service.
5) That all other provisions of this agreement will apply as
if PENSKE had retained the repair or adjustment of the Vehicle(s) in PENSKE's
own facility.
4. FUEL
A. When PENSKE is designated on a Schedule:
1) PENSKE will provide fuel for the Vehicles from its own or
other designated facilities which must be convenient for Customer. The charge
for fuel will vary over time and be billed to Customer in addition to the other
charges provided for, and be as favorable for Customer as the charges are to any
other most favored customer of PENSKE. The charge for fuel to Customer for all
fuel purchased is to consist of the distributor's actual invoice charge for fuel
to PENSKE, an environmental fee, and all applicable taxes and regulatory fees or
charges. No markup, pumping or other charges will be applied to the cost of
fuel. PENSKE shall provide monthly fuel supplier pricing and tracking reports,
including fuel distributor invoices when requested by Customer for audit
purposes. If PENSKE utilizes a subsidiary company of its own or its parent
company, PENSKE shall use the purchase cost of fuel by the subsidiary as the
basis for determining distributor invoice cost, without administrative costs or
other additional costs added.
2) If the Customer purchases fuel from sources other than
PENSKE's facilities or other PENSKE designated facilities, Customer will be
responsible for the charges for all such fuel.
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3) PENSKE will, where permitted by law, and where requested by
Customer, apply for fuel tax permits, prepare and file fuel tax returns, and pay
the taxes imposed upon the purchase and consumption of fuel by Customer, and
will hold Customer harmless from any claims or loss resulting from PENSKE's
failure to pay fuel taxes provided: (a) Customer provides PENSKE with all
documentation necessary to prepare the fuel tax returns on a timely basis and
will reimburse PENSKE for all charges incurred or credits disallowed as a result
of untimely or improper furnishing of such documents, and (b) Customer will
reimburse PENSKE for all such fuel taxes paid on Customer's behalf in excess of
those which would have been payable had the fuel consumed been purchased in the
state of consumption.
4) PENSKE will compute and advise Customer quarterly of fuel
tax credits and debits and notify Customer of opportunities to reduce tax
liabilities.
B. When "Customer" is designated on the Schedule, Customer will hold
PENSKE harmless from any claims or loss resulting from Customer's failure to pay
fuel taxes.
C. PENSKE agrees to provide fuel for all Vehicles owned or operated by
Customer regardless of any Schedule(s), except Vehicles rented or leased from,
or maintained by, a competing vendor from PENSKE's facilities in accordance with
A,1) of this Paragraph 4.
5. SUBSTITUTION
A. Unless specifically excluded on a Schedule, PENSKE agrees to furnish
a substitute Vehicle at no extra charge for any Vehicle listed on a Schedule
from PENSKE's rental fleet or from another source if there is not an available
Vehicle in its rental fleet, other than those excepted below, which may be
temporarily inoperable. The substitute is to be, as nearly as practical, the
same size and type as the inoperable Vehicle. The substitute will be furnished
to Customer where the Vehicle was disabled and will be returned by Customer to
the PENSKE facility that provided it. PENSKE further agrees that, in cases where
a PENSKE substitute is not available, PENSKE will find and rent a substitute
Vehicle. A substitute Vehicle provided by PENSKE, while in Customer's service,
will be subject to all the terms and conditions of this Agreement.
B. PENSKE will not furnish a substitute for any Vehicle that is out of
service for:
1) Ordinary maintenance and service time, so long as PENSKE
promptly accomplishes the required maintenance when Customer has released the
affected Vehicle for maintenance at the agreed upon time, and the ordinary
maintenance and service time does not exceed the time reasonably allocated by
PENSKE and agreed to by Customer (such reasonable time as may be determined by
consultation of Manufacturer's or other acceptable agreed upon third-party
repair manuals to resolve disputes of timeliness);
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2) Repair of any form of physical damage resulting from causes
including fire, collision, upset, loss, or theft; provided, however, that in the
event the Vehicle is out of service due to physical damage, fire, collision,
upset, loss or theft which occurs while the Vehicle is in PENSKE's sole care,
custody and control on and/or off PENSKE's premises, PENSKE shall furnish a
substitute for that Vehicle as long as it is out of service for that cause;
3) Repair or maintenance of special equipment for which PENSKE
is not responsible;
4) Customer's violation of any provisions of this Agreement.
C. PENSKE's failure to furnish a substitute Vehicle within two hours of
notification or recognition that maintenance will not be accomplished in the
agreed upon timely manner, except where road, weather or traffic conditions do
not permit, will cause the charges for the inoperable Vehicle to abate until the
Vehicle is returned to Customer's service or a substitute is available. PENSKE's
liability in the event of such a failure will be limited to abatement of charges
for the inoperable Vehicle.
6. EXTRA VEHICLES
PENSKE agrees to allow each Customer location to operate up to fifteen
percent (15%), rounded up to the next whole vehicle for any fraction of the
whole, of its total tractor fleet leased from PENSKE as extra Vehicles subject
to the same rates as per the average of Schedule A rates in effect and attached
hereto as part of this agreement. Additionally, PENSKE agrees to rent to
Customer upon Customer's request, extra Vehicles, of the same size and type as
is used by Customer, to be used in addition to those Vehicles covered by this
Vehicle Lease and Service Agreement. Customer and PENSKE agree to set a table of
rates for each domicile location on a calendar year basis, to remain in effect
for a period of twelve (12) months. The table of rates will include a daily,
weekly, monthly and mileage rate. The calculation for the weekly rate will be
the monthly lease rate times twelve (12) months, divided by fifty-two (52)
weeks. The calculation for the daily rate will be the weekly lease rate divided
by five (5) days.
In the event any required extra Vehicle is not available from PENSKE's
rental fleet to satisfy the fifteen percent (15%) requirement as stated above,
PENSKE agrees to locate and obtain the Vehicle for Customer from other sources
including competitors. The charges for Vehicles obtained from sources other than
PENSKE's rental fleet will be at the rental rates of PENSKE, as provided for in
this agreement, as if that Vehicle had been provided from PENSKE's own
inventory.
In the event any additional extra Vehicle(s) may be required in excess
of the fifteen percent (15%) requirement stated above, and is not available from
PENSKE's rental fleet, PENSKE agrees to locate and obtain the Vehicle(s) for
Customer from other sources including competitors. The charges for Vehicles
obtained from sources other than PENSKE's rental fleet will be at the actual
preferred rental rates of such source of the vehicle as billed to PENSKE. PENSKE
agrees that it shall ensure its own internal rental resources have been
exhausted, including obtaining the extra
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Vehicle from another nearby PENSKE location, prior to seeking the required extra
Vehicle from other sources.
A. Where Customer operates leased Vehicles, such extra Vehicles will be
charged to Customer at the average lease and mileage rate of such comparable
Vehicles as domiciled at Customer's location requesting extra Vehicles in
accordance with the provisions of this Paragraph Six (6).
B. Where Customer operates non-leased Vehicles, such extra Vehicles
will be charged to Customer at the agreed upon National rental rates, not to
exceed a rate equal to PENSKE's current Published Rental Rate less 25% including
fixed and variable charges, provided the Vehicles are available in PENSKE's
fleet.
C. While a Vehicle is out of service because of damage resulting from
any form of physical damage, PENSKE will rent Customer a replacement Vehicle, if
available, at a rate not higher than the charge for the inoperable lease Vehicle
or at the applicable rental rate for a non-leased Vehicle.
7. DRIVERS
A. Customer agrees that each leased Vehicle will only be operated by a
properly licensed driver, at least 21 years of age, who is the employee of or an
independent contractor retained by Customer, and that Customer will not
knowingly allow or abet the operation of the Vehicle by a driver in possession
of or under the influence of alcohol or any drug which may impair the driver's
ability. Customer agrees to reimburse PENSKE in full for loss or damage to
leased Vehicles, if said Vehicles are operated by drivers under 21 years of age.
Upon receipt of a written complaint from PENSKE specifying and reasonably
substantiating any reckless, careless, or abusive handling of a leased Vehicle
or any other incompetence by or of any driver, and requesting the driver's
removal as an operator of said leased Vehicles, Customer will promptly
investigate PENSKE's request and may decide whether or not to remove the driver
even though PENSKE has requested a driver's removal. However, if Customer does
not promptly remove the driver for any reason whatsoever: (1) Customer will,
notwithstanding any other provisions of this Agreement, reimburse PENSKE in full
for any loss and expense sustained by PENSKE for damage to any leased Vehicle
when being operated by such individual and Customer will indemnify and hold
PENSKE harmless from any claims or causes of action for death or injury to
persons or loss or damage to property arising out of the use or operation of any
leased Vehicle by such individual notwithstanding that PENSKE may be designated
on applicable Schedule A as responsible for furnishing and maintaining Liability
Insurance; provided, however, that Customer shall only release, indemnify and
hold PENSKE harmless to the extent that PENSKE has no current knowledge of
material defects with the leased Vehicle operated by such driver which
contribute to the accident in which such death, injury, loss or damage occur and
has not negligently maintained such Vehicles or engaged in any other act of
negligence or breach of the Vehicle Lease and Service Agreement which cause or
contribute to the accident resulting in the claim; and (2) PENSKE may, at its
election and at any time thereafter upon
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thirty (30) days' written notice to Customer, (a) terminate any Liability
Insurance coverage extended by PENSKE, and (b) with respect to each leased
Vehicle, increase the amount of Customer's physical damage responsibility to an
amount equal to the agreed value calculated in accordance with Paragraph 22B as
of the time of damage or loss.
B. PENSKE agrees to provide Customer assistance when requested, without
additional cost, in qualifying professional drivers, and developing and
implementing a driver education and safety program, including assisting with
Customer's quarterly safety meetings, providing accident investigation
assistance and assist as required in providing professional driver instruction.
C. Customer agrees that the Vehicles will not be operated in a reckless
or abusive manner, or off an improved road, or on a flat tire, or improperly
loaded, or loaded beyond the manufacturer's recommended maximum gross weight, or
to transport any property or material that is flammable, explosive or
fissionable. Notwithstanding any other provision of this Agreement, and
irrespective of which party is responsible for physical damage to Vehicles
pursuant to Paragraph 22B, Customer agrees to reimburse PENSKE in full for
damage to any Vehicle or substitute Vehicle, including expenses, resulting from
a violation of this provision, except to the extent that such damages are the
result of PENSKE's negligence or breach of this Vehicle Lease and Service
Agreement regarding its maintenance or repair obligations. Customer will be
responsible for all expenses of towing any mired Vehicle when not in PENSKE's
possession or on PENSKE's premises.
8. CHARGES
A. Customer agrees to pay PENSKE for all charges set forth on the
applicable Schedule(s) and all other charges which become payable under the
terms of this Agreement, within twenty (20) days of receipt of PENSKE's invoice.
Unless PENSKE or Customer is notified by the other party that any charge is
incorrect within 180 days of the date of any invoice, that invoice will be
conclusively presumed to be correct. Customer reserves the right to short pay
inaccurate or disputed invoices, provided, however, that Customer gives PENSKE
notice of the dispute and pays all other amounts not in dispute. The parties
agree to promptly negotiate disputed invoices or charges in good faith and be
bound by the Vehicle's manufacturer or other supplier of materials and services
agreeable to both parties to whom disputes may be referred.
B. Mileage will be determined for a powered Vehicle by an electronic
odometer reading or Customer's electronic on-board recorder. Mileage may be
determined for a non-powered Vehicle by hubodometer at PENSKE's option if
provided by PENSKE. If the odometer and electronic recorder fail to function,
Customer will promptly report it to PENSKE. The mileage for the period in which
the failure exists may then be determined at PENSKE's option from (1) Customer's
trip records; or (2) average of fuel consumed in the period divided by the miles
per gallon for the previous 30 days.
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C. Customer will provide PENSKE with reasonable financial information
on a confidential basis, as requested by PENSKE in order for PENSKE to make an
informed ongoing decision regarding Customer's creditworthiness.
9. ADJUSTMENT
A. The charges as set forth on the applicable Schedule(s) attached to
this Agreement are based on PENSKE's current cost of labor, parts and supplies.
These costs may fluctuate after the date of execution of this Agreement.
Customer agrees that for each rise or fall of 1% in the Revised Consumer Price
Index for Urban Wage Earners and Clerical Workers 1982 - 1984 base period,
published by U.S. Bureau of Labor Statistics, above or below the base index
figure on said Schedule(s), charges for each Vehicle will be adjusted upward or
downward as follows:
1) 1% of 50% of the Fixed Charge and 1% of 100% of the mileage
charge; provided, however, adjustments to the Fixed Charges and mileage charges
due to fluctuations in the Revised Consumer Price Index shall be limited on a
per Vehicle basis to 3% of the Fixed Charge and 3% of the mileage charge
annually.
2) Adjustments will not be cumulative and will be based on the
original charges stated in a Schedule (and not on current charges in effect at
any given time) and will be effective with respect to the Vehicles on a Schedule
each January 1st, commencing on the first January 1st that is at least twelve
months after the date of that Schedule, based on the latest index published
prior to such effective date. If the Revised Consumer Price Index for Urban Wage
Earners and Clerical Workers is discontinued, another mutually acceptable cost
adjustment index will be chosen. PENSKE agrees to give Customer a minimum of 90
days' written notice prior to the January 1st effective date of a proposed CPI
increase.
B. PENSKE and Customer agree that Vehicle charges will be rated
according to the annual miles or refrigeration hours anticipated. In the event
the actual annual mileage or hours of any of the Vehicles or Refrigeration units
varies from the estimated annual miles or hours for the Vehicles or
Refrigeration units listed on Schedules by twenty percent (20%) or more, the
Parties agree to negotiate an equitable (reasonable) adjustment to the Vehicles'
Fixed Weekly and Variable Mileage/Hourly Charge. The adjustment shall be made
following review of the miles and/or hours on each anniversary date of the
Vehicles listed on Schedules and effective on the following January 1st.
C. Customer agrees to pay for:
1) any sales, use, gross receipts or similar tax now or
hereafter imposed upon the use of the Vehicle or on the rental or other charges
accruing hereunder;
2) any increase in license or registration fees, Federal Heavy
Vehicle Use Taxes, Vehicle inspection fees, fuel tax permits and personal
property taxes; and
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3) any new or additional tax or governmental fees, other than
those imposed on income, adopted after the date of the execution of the
applicable Schedule.
D. Adjustment of charges for inoperable Vehicles:
1) While a leased Vehicle is out of service for repair of
physical damage, the charges applicable to it will not abate for thirty (30)
days.
2) The charges for a Vehicle listed on a Schedule "E" or "M"
involved in an accident which renders the Vehicle inoperable will abate
immediately upon written notification by Customer until the inoperable Vehicle
is returned to service and PENSKE is advised in writing to resume the
maintenance charges and services.
3) If PENSKE cannot complete repairs to a leased Vehicle
within thirty (30) days following receipt of written authorization from Customer
or Customer's designee to repair, Customer will only be responsible for the
fixed charges incurred by PENSKE, including but not limited to depreciation,
interest and legalization costs of said Vehicle until such Vehicle is returned
to service.
10. CARGO INSURANCE RESPONSIBILITY
A. Customer agrees to release, indemnify and otherwise hold PENSKE
harmless from and against all liability for loss or damage to any goods or other
property in or carried on any Vehicle or substitute Vehicle whether such loss or
damage occurs in a PENSKE facility or elsewhere, provided all maintenance has
been accomplished in an accurate and timely fashion, or except to the extent
such loss or damage is caused by the negligence of, or breach of this Vehicle
Lease and Service Agreement regarding its maintenance or repair obligations by
PENSKE. Customer agrees to hold PENSKE harmless from all liability for such loss
or damage to cargo for those amounts in excess of $20,000 per occurrence.
B. Customer agrees to reimburse PENSKE for loss of any tools,
tarpaulins, spare tires, or other similar equipment furnished by PENSKE, except
to the extent that such loss or damage is caused by the negligence of PENSKE.
11. DOMICILE CHANGES
Customer shall have the right at any time to change the domicile
location or to transfer any of the Vehicles listed on a Schedule of this
Agreement to another of PENSKE's maintenance locations in proximity to the
Customer's Vehicle domicile. Notice of the change in domicile location shall be
in writing to PENSKE no less than five (5) days prior to the domicile change and
without the need for execution of a formal amendment other than by notation of
the change of the domicile location and any change of legalization charges for
Vehicle(s), as required by applicable State law, on the respective Schedule. In
the event anticipated miles and/or hours of the re-domiciled
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Vehicle(s) change in excess of 20% of the miles or hours indicated on the
Schedule(s) for those Vehicles, charges related to rating of the miles and/or
hours of the affected Vehicle(s) will be re-negotiated accordingly and become
effective on the following full month after an agreement is reached and revised
Schedule(s) are executed by both parties. The domicile location change shall
presume, without exception by PENSKE, that the Vehicles meet the minimum
standards of acceptability without the need of an inspection or evaluation.
12. LEGALIZATION ASSISTANCE
A. At Customer's request, and where permitted by law, PENSKE will
provide legalization assistance to Customer for all Customer operated Vehicles
regardless of ownership or any maintenance Agreements, except Vehicles owned or
maintained by competing lease maintenance vendors. In addition to the actual
costs of legalization not otherwise provided for on Schedule(s), the charges for
such assistance shall be reimbursed on a per Vehicle basis as a "fixed" monthly
fee, based on the actual incremental administrative costs incurred in the course
of providing such services by PENSKE. Such legalization assistance shall
include, but is not limited to, preparation, reporting and/or payment in
Customer's behalf for: fuel taxes, licensing, permitting, registrations, prorate
or reciprocity plates and RS-3 filings, other taxes and fees as may be required
by authorized regulatory agencies. PENSKE will apply for fuel tax permits,
prepare and file fuel tax returns, and pay the taxes imposed upon the purchase
and consumption of fuel by Customer, and will hold Customer harmless from any
claims or loss resulting from PENSKE's failure to pay fuel taxes provided: (a)
Customer provides PENSKE with all documentation necessary to prepare the fuel
tax returns on a timely basis and will reimburse PENSKE for all charges incurred
or credits disallowed as a result of untimely or improper furnishing of such
documents, and (b) Customer will reimburse PENSKE for all such fuel taxes paid
on Customer's behalf in excess of those which would have been payable had the
fuel consumed been purchased in the state of consumption. PENSKE will compute
and advise Customer quarterly of fuel tax credits and debits and notify Customer
of opportunities to reduce tax liabilities.
B. PENSKE agrees to be responsible for any and all errors or omissions
in the course of providing legalization assistance, provided Customer has
provided required information or documentation as requested by PENSKE, and will
defend and indemnify Customer against any actions or remedies as may be
initiated due to said errors or omissions.
13. NON-CONTRACTUAL WORK
A. PENSKE agrees that all Non-Contractual ("Sales and Service") work
provided by PENSKE will be accomplished in a timely fashion, with the same
services and as high priority as would be assigned a Vehicle under Agreement and
designated on Schedule(s).
B. PENSKE agrees that Non-Contractual work performed on any Vehicle(s)
otherwise maintained in accordance with Schedule(s) on which said Vehicle(s) is
designated will be presented to Customer for review, discussion and approval
prior to invoicing Customer for the work to show
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cause and proof as to the reasons such repair or maintenance is the
responsibility of Customer. PENSKE and Customer agree that such Non-Contractual
work, if authorized by Customer, will utilize Customer's Purchase Order as
written proof of Customer's authorization, and that no payment of charges will
be paid without reference to said Purchase Order.
C. PENSKE agrees that charges for Non-Contractual work will not exceed
one and one-half times the internal labor rate of the PENSKE location that
provided it, and parts will be at actual invoice cost. Accordingly, PENSKE will
establish a table of "Sales and Service" labor rates, showing each component of
the labor rate, for each servicing location on an annual basis, by each November
1st, to be effective each January 1st.
D. Charges for Non-Contractual work at any repair or maintenance vendor
facility, other than PENSKE's, will be at the actual invoice cost of that vendor
without markup. PENSKE agrees to include a copy of the invoice from the outside
vendor with the PENSKE invoice to Customer for the repair or maintenance
performed.
E. In the event of dispute of time required to complete any repair or
maintenance items, a manufacturer's or other acceptable agreed upon third-party
repair manual will be consulted to ascertain the reasonable time required to
complete such repairs. Customer and PENSKE agree to be bound by the times
indicated in such third-party manuals.
14. ASSIGNMENT, NOTICES, PARAGRAPH HEADINGS, GENERAL PROVISIONS
This Agreement shall be binding on the parties hereto, their
successors, legal representatives and assigns. Neither party shall have the
right to assign this Agreement or any interest therein without the prior written
consent of the other party, which consent shall not unreasonably be withheld.
All notices provided for herein shall be in writing and mailed to PENSKE and/or
Customer as required at the respective addresses designated in writing by either
party.
AS TO PENSKE: PENSKE TRUCK LEASING CO., L.P.
Route 10, Green Hills
Reading, PA 19603-0563
Attn: President
AS TO CUSTOMER: ProSource Distribution Services
1500 San Remo Avenue
Suite 300
Coral Gables, FL 33146
Attn: Sr. Vice President of Operations Support
This Agreement shall not be binding upon either party until executed by
a duly authorized officer representative of each company, and shall constitute
the entire agreement and understanding between the parties, concerning the
Vehicles serviced and maintained hereunder, notwithstanding
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any previous writings or oral undertakings, and its terms shall not hereafter be
construed as altered by any oral agreement. Any alterations, additions, or
modifications of the terms of this Agreement or Vehicle Schedule(s) shall be
accomplished only by written endorsement executed by authorized officer
representatives of each company. Paragraph headings in this Agreement do not
constitute any part of this Agreement and shall not be considered in the
interpretation of this Agreement. As of the date hereof, all Vehicles leased by
PENSKE under any Truck Lease and Service Agreement or other Vehicle lease or
service agreement between PENSKE and Customer and the related Schedules A, E or
M including, but not limited to, the Truck Lease and Service Agreement and
applicable Schedules A, E or M originally between PENSKE and The Martin Brower
Company, which were partially assigned to Customer pursuant to an Assignment
Agreement dated as of 1995 (collectively as "Other Truck Lease and Service
Agreements"), are hereby transferred to, incorporated within, made subject to,
and exclusively governed by this Agreement. The terms of this Agreement will
supersede any Other Truck Lease and Service Agreements.
15. ATTORNEYS' FEES AND COSTS
In the event of litigation involving this Agreement, reasonable
attorneys' fees and court costs incurred (including appellate court fees and
costs, if any) to enforce the provisions of this Agreement shall be awarded to
the prevailing party.
16. GOVERNING LAW AND FORUM
A. This Agreement shall become valid when executed by the last party.
The parties agree that this Agreement shall be deemed to be made and entered
into in the State of Florida and shall be governed and construed under and in
accordance with the laws of the State of Florida.
B. The parties agree that a judicial court having jurisdiction for the
Southern District of Florida, or if such court lacks jurisdiction, a judicial
court having jurisdiction in and for Dade County, Florida, shall be the venue
and exclusive proper forum in which to adjudicate any controversy arising
directly or indirectly, in connection with this Agreement, and the parties
further agree that in the event of litigation arising out of or in connection
with this Agreement in such courts, they will not contest or challenge the
jurisdiction of such courts.
17. NON-WAIVER
The failure of either party to exercise any right or option provided
under this Agreement or the failure of either party to insist upon strict
compliance with the terms of this Agreement shall not constitute a waiver of any
terms and conditions of this Agreement with respect to any other or subsequent
breach of either party's rights at any time thereafter to require strict
compliance with the terms and conditions of this Agreement.
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18. LIMITATION OF LIABILITIES
Neither party shall be liable to the other for lost profits or
indirect, incidental, punitive, or consequential damages which are a result of
its failure or delay in its performance unless otherwise excepted in this
agreement or is in breach of this Vehicle Lease and Service Agreement.
19. FORCE MAJEURE
Both parties' obligations under this Agreement shall be suspended to
the extent performance of such obligations are prevented by a national
emergency, wars, hurricanes, riots, fires, federal, state, or local laws, rules,
regulations, shortages (local or national), or fuel allocations program, or
other cause beyond such party's control whether existing now or hereafter. In
the event that PENSKE is involved in a labor dispute, or is otherwise unable to
perform its maintenance obligations, PENSKE shall provide the maintenance of any
and all Vehicles at alternative site(s) which are within reasonable proximity to
the site(s) at which maintenance for the particular Vehicle would ordinarily be
performed; provided, however, that in the event PENSKE is unable to provide the
maintenance required pursuant to this Agreement, Customer's obligation to pay
shall be prorated accordingly, based on the extent of the services not
performed.
20. AGREEMENT "PARTS" SPECIFIC TO VEHICLE OWNERSHIP
PENSKE and Customer agree that the following Parts I and II are
inclusive of this agreement in their entirety and are intended to distinguish
between unique requirements and specifics of Vehicles that are owned by PENSKE
from those operated by Customer that are not owned by PENSKE.
A. Vehicle Lease and Service Agreement Part I - Vehicles
designated on Schedule A, "Full Service" lease.
B. Vehicle Lease and Service Agreement Part II - Vehicles
designated on Schedules E or M, "Contracted" maintenance and
services.
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VEHICLE LEASE AND SERVICE AGREEMENT - PART I
SCHEDULE "A" VEHICLES
21. LICENSES
A. PENSKE agrees to pay for the state motor vehicle license for the
licensed weight shown on Schedule A, personal property taxes and Vehicle
inspection fees for each Vehicle in the state of domicile, and Federal Heavy
Vehicle Use Tax, all at the rates and method of assessment in effect on the date
of execution of each Schedule A. PENSKE will hold Customer harmless from any
claims or loss resulting from PENSKE's failure to make such payments. Customer
will be responsible for any increases or changes in assessment of these items
thereafter. PENSKE will compute and pay all third-structure taxes, billing
lessee for actual taxes paid.
B. Where not prohibited by law, PENSKE will apply for Vehicle licenses
and prorate or state reciprocity plates at Customer's written request, which
services are included in the lease rate. The cost to be paid by Customer for
licenses will be the actual cost paid to governmental authorities by PENSKE.
C. Customer agrees to pay for any special license cost or pay any taxes
resulting from the operation and use of the Vehicles including mileage taxes,
ton mileage taxes, highway or bridge tolls. PENSKE shall have the right to
settle any claim or lien involving any Vehicle as a result of Customer's failure
to pay any such taxes. Notwithstanding the foregoing, PENSKE agrees to contact
Customer in writing prior to payment, giving Customer the opportunity to contest
any such claim or lien. Customer will reimburse PENSKE for any cost, damages, or
expenses resulting from Customer's failure to pay such taxes, but only after
resolution of the dispute.
22. INSURANCE
A. Liability Insurance Responsibility
1) A standard policy of automobile liability insurance
(hereafter "Liability Insurance") with limits specified on each Schedule A will
be furnished and maintained by the party designated on Schedule A at its cost,
written by a company satisfactory to PENSKE and Customer, covering the party
designated on Schedule A as the insured, with the other party as the additional
insured and loss payee for ownership, maintenance, use and operation of the
Vehicles and any extra or substitute Vehicles. Such policy will provide that the
coverage is primary and not additional, contributory, or excess coverage over
insurance otherwise available to either party and that it cannot be cancelled or
materially altered without thirty (30) days' prior written notice to both
parties. The party designated will furnish to the other certificates of
insurance to evidence compliance with this provision.
2) Upon not less than thirty (30) days' prior written notice
to Customer, PENSKE may terminate Liability Insurance coverage maintained by
PENSKE, and Customer will be obligated
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to procure and maintain Liability Insurance in the limits set forth on Schedule
A as of the effective date of termination and the charges will be adjusted
accordingly.
3) If Customer is obligated to procure and maintain Liability
Insurance and fails to do so, or fails to promptly furnish PENSKE the required
evidence of insurance, Customer agrees to indemnify and hold PENSKE harmless up
to the amount of the required insurance coverage from and against any claims or
causes of action for death or injury to persons or loss or damage to property
arising out of use or operation of the affected Vehicle(s) or substitute
Vehicle(s) by Customer or caused by the ownership or maintenance of a Vehicle,
except to the extent such claims are attributable to PENSKE's negligence or
breach of this Vehicle Lease and Service Agreement regarding its maintenance or
repair obligations. In the event Customer fails to fulfill its obligation to
procure and maintain Liability Insurance, PENSKE is authorized, but not
obligated, to procure such Liability Insurance without prejudice to any other
remedy PENSKE may have, and Customer will pay PENSKE, as additional rental, the
amount of the premium paid by PENSKE.
Customer agrees to release, indemnify and hold PENSKE harmless
from and against any and all claims or causes of action for death or injury to
persons or loss or damage to property in excess of the limits of Liability
Insurance for causes of action arising out of use or operation of the affected
Vehicle(s) or substitute Vehicle(s) by Customer or caused by the ownership or
maintenance of a Vehicle, except to the extent such claims are attributable to
PENSKE's negligence or breach of this Vehicle Lease and Service Agreement
regarding its maintenance or repair obligations, which PENSKE may be required to
pay as a result of any statutory requirements of insurance or as a result of the
insolvency of Customer's insurance company and for which PENSKE would not
otherwise, pursuant to the terms hereof, be required to pay.
4) If PENSKE is obligated to procure and maintain Liability
Insurance and fails to do so, or fails to promptly furnish Customer the required
evidence of insurance, PENSKE agrees to indemnify and hold Customer harmless up
to the amount of the required insurance coverage from and against any claims or
causes of action for death or injury to persons or loss or damage to property
arising out of or caused by the ownership, maintenance, use or operation of the
affected Vehicle(s) or substitute Vehicle(s) except to the extent caused by
Customer's negligent use or operation of said Vehicle(s). Customer is
authorized, but not obligated, to procure such Liability Insurance without
prejudice to any other remedy Customer may have, and PENSKE will pay Customer,
the amount of the premium paid by Customer.
5) PENSKE will, where required and not prohibited by law, at
Customer's written request and direction, file evidence of automobile liability
insurance required by federal or state governmental authorities when PENSKE is
designated as responsible for Liability Insurance.
6) Customer agrees to release, indemnify and hold PENSKE
harmless for death or injury to Customer, Customer's employees, drivers or
agents, arising out of the ownership, maintenance, use or operation of any
Vehicle or substitute Vehicle except to the extent due to PENSKE's negligence or
breach of this Vehicle Lease and Service Agreement regarding its maintenance or
repair obligations.
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<PAGE> 17
7) PENSKE agrees to release, indemnify and hold Customer
harmless for death or injury to PENSKE, PENSKE's employees, drivers or agents,
arising out of the ownership, maintenance, use or operation of any Vehicle or
substitute Vehicle, except to the extent due to Customer's negligence.
B. Physical Damage Responsibility
The party designated on Schedule A will pay for loss or
damages to any Vehicle or substitute Vehicle subject to the following:
The party designated on Schedule A will be responsible and pay
for all loss (including theft) or damage to any Vehicle or substitute Vehicle,
including related expenses arising from any cause and regardless of how or
where, including either party's premises, the loss or damage occurred, except to
the extent due to the other party's negligence or breach of this Vehicle Lease
and Service Agreement regarding its maintenance or repair obligations; each
party agrees to furnish the other party with evidence of physical damage
insurance coverage reasonably acceptable to the other party listed as a named
insured or endorsed as a loss payee. Each party will be responsible and pay for
all loss (including theft) or damage to any Vehicle or substitute Vehicle to the
extent due to such party's negligence or breach of this Vehicle Lease and
Service Agreement regarding its maintenance or repair obligations. When Customer
is the party designated on Schedule A, in the event of a total loss of a Vehicle
due to collision or upset or theft, Customer shall, except where such loss is
due to the negligence or breach of this Vehicle Lease and Service Agreement by
PENSKE regarding its maintenance or repair obligations, reimburse PENSKE in
accordance with Paragraph 23D of this Part I.
C. Notice of Accident
Customer agrees to promptly notify PENSKE, by direct
communication, of any accident, collision, loss (including theft), or damage
involving a Vehicle or substitute Vehicle; to cause the driver to make a
detailed report in person at PENSKE's office as soon as practical; and to render
all other assistance reasonably requested by PENSKE and the insurer in the
investigation, defense, or prosecution of any claims or suits.
D. Vehicle Theft or Destruction
1) If a Vehicle is lost or stolen and remains so for thirty
(30) days after PENSKE has been notified, the lease as to such Vehicle will then
terminate provided all charges for the Vehicle have been paid to that date and
provided any amounts due PENSKE pursuant to Paragraph 23B of this Part I have
been paid. PENSKE will not be obligated to provide a substitute Vehicle during
this thirty (30) day period. Customer will only be responsible for the fixed
charges incurred by PENSKE, including, but not limited to, depreciation,
interest and legalization costs of said Vehicle.
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2) If a Vehicle is, in PENSKE's and Customer's reasonable
opinion, damaged beyond repair, PENSKE or Customer will notify the other party
within 48 hours. Upon receipt of authorized insurance carrier's notice that the
Vehicle has been damaged beyond repair, provided all charges for the Vehicle
have been paid to the date of destruction and provided any amounts due PENSKE
pursuant to Paragraph 22B of this Part I hereof have been paid, the lease as to
such Vehicle will then terminate. Customer will only be responsible for the
fixed charges incurred by PENSKE, including but not limited to depreciation,
interest and legalization costs of said Vehicle from the date of incurred loss
to the date of termination.
23. TERMINATION
A. Either party may terminate the lease of any Vehicle prior to
expiration of its term at any time after the first anniversary date as indicated
on the Schedule A by giving to the other party at least sixty (60) days' prior
written notice. If termination is effected by PENSKE, except as provided for in
the default provisions of Paragraph 23C3, Customer will have the right, but not
the obligation, to purchase in accordance with Paragraph 23D of this Part I any
or all Vehicles with respect to which termination notice has been given on the
termination date(s). If termination is effected by Customer, Customer will, at
PENSKE's option, purchase in accordance with Paragraph 23D of this Part I any or
all Vehicles with respect to which termination notice has been given on the
termination date(s); subject, however, to any contrary conditions stated on the
applicable Schedule A. Additionally, in the event of valid business reasons
(excluding leasing or renting Vehicles from PENSKE's competitors) impacting
Customer's locations and necessitating a reduction in fleet size or equipment
requirements, Customer may terminate up to ten percent (10%), rounded up to the
next whole vehicle, of any Vehicles so affected without further obligation to
purchase equipment.
B. If Customer or PENSKE becomes insolvent, files a voluntary petition
in bankruptcy, makes an assignment for the benefit of creditors, is adjudicated
a bankrupt, permits a receiver to be appointed for its business, or permits or
suffers a material disposition or control of its assets, the lease of Vehicles
will terminate at the other party's option. Upon termination by PENSKE, PENSKE
may at its option demand that Customer purchase the Vehicle(s) within ten (10)
days in accordance with Paragraph 23D of this Part I. Upon termination by
Customer, Customer may at its option demand that PENSKE remove the Vehicle(s)
within ten (10) days, or, Customer may purchase the Vehicle in accordance with
Paragraph 23D of this Part I.
C. Breach or Default
1) If Customer breaches or is in default of any provision of
this Agreement and that breach or default is not cured within ten (10) days
after written notice has been mailed to Customer for the nonpayment of any money
due, and thirty (30) days after written notice has been mailed to Customer, for
any other breach or default, PENSKE may immediately, without further notice or
demand, take possession of the Vehicles. In such event, PENSKE will be entitled
to enter upon any premises where the Vehicles may be and remove them and refuse
to redeliver them to the Customer until such breach or default is cured without
any of such actions being deemed an act of
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termination and without prejudice to the other remedies PENSKE may have under
this Agreement and at law. Customer will continue to be liable for all charges
accruing during the period the Vehicles are retained by PENSKE.
2) In the event PENSKE takes possession of any Vehicle and
there is any property in or upon the Vehicle which belongs to or is in the
custody or control of Customer, PENSKE may take possession of such items and
either hold them for Customer until Customer claims them or place them in public
storage for Customer at Customer's expense.
3) If Customer's breach or default continues for ten (10) days
after written notice has been mailed to Customer for the nonpayment of any money
due, or thirty (30) days after written notice has been mailed to Customer for
any other breach or default, PENSKE may terminate this Agreement. Upon
termination, PENSKE may demand that Customer purchase within ten (10) days of
termination, any or all Vehicles in accordance with Paragraph 23D of this Part I
without prejudice to other remedies PENSKE may have under this Agreement and at
law.
D. Schedule A Values will be determined as the manufacturer's invoice
cost, net of any discounts, rebates, trade allowances or incentives to PENSKE,
plus ten percent (10%), less the depreciation factor for the period over which
the Vehicle was in use by Customer. PENSKE will warrant the Schedule A "buy out"
costs for any Vehicle terminated for any reason to be ten percent (10%) less
than the depreciated Schedule A value. In the event Customer (pursuant to
Paragraph 23A or 23B of this Part I) decides or is required to purchase any
Vehicle, or should PENSKE (pursuant to Paragraph 23C of this Part I) demand of
Customer that it purchase any Vehicle, Customer agrees to purchase each such
Vehicle for cash, within the period specified in the applicable provisions of
23A, 23B or 23C, at the depreciated Schedule A value, less ten percent (10%),
plus any unreimbursed, unexpired licenses, applicable taxes, including personal
property taxes and Federal Heavy Vehicle Use Taxes, any interest expense
shortfall and other prepaid expenses previously paid by PENSKE for the Vehicle
prorated to the date of sale, and will be responsible for any sales or use tax
arising from the purchase. Customer will have no obligation or right to purchase
any Vehicle as to which the term on Schedule A has expired. PENSKE agrees that,
for all such Vehicles purchased by Customer, all necessary preventive
maintenance and repair services will have been performed in accordance with
PENSKE's preventive maintenance program and the terms of the Agreement. At
minimum the Vehicle(s) will meet the generally accepted industry "trade
condition" standards, and that legible copies of all maintenance records will be
provided.
E. If PENSKE breaches or is in default of any provision of this
Agreement and that breach or default is not cured within thirty (30) days after
written notice has been mailed to PENSKE, Customer has the right to cancel its
obligations under this agreement thirty (30) days following Notice of
Cancellation to PENSKE, with right, but not obligation, to purchase any or all
Vehicles in accordance with Paragraph 23D. In the event such breach or default
by PENSKE is limited to a specific Vehicle(s), and remains uncured at the end of
the thirty (30) day period, Customer's right to cancel its obligations under
this agreement shall apply to the Vehicle(s) so affected.
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VEHICLE LEASE AND SERVICE AGREEMENT - PART II
SCHEDULE "E" OR "M" VEHICLES
24. MAINTENANCE AND REPAIR
A. PENSKE will paint or repaint and letter or re-letter the Vehicles in
accordance with the specifications and within the dollar limits set forth on any
Schedules "E" or "M".
B. Any included or excluded specific repairs and services are to be set
forth on Schedules "E" and "M" and attached if differing from full service,
guaranteed maintenance.
C. Customer agrees that the following maintenance and repairs are
Customer's responsibility and not PENSKE's responsibility pursuant to the terms
and conditions of this Agreement except as specified on Schedules "E" or "M" or,
resulting from PENSKE's breach of this Vehicle Lease and Service Agreement
regarding its maintenance or repair obligations or negligence or cause while in
the care, custody and control of PENSKE. Warrantable failures of any type shall
be governed by the terms of Paragraph 25 of this Part II.
1) Flares, fuses, safety triangles, fire extinguishers and
chains.
2) Tractor and straight truck cab and chassis damage including
seats, floor mats, engine covers, upholstery, glass, broken or cracked frame
rails and cross members not resulting from loose fasteners or other negligent
maintenance and repairs.
3) Trailer floors, cross members, side posts, outer sheet
metal, roof bows, roofs, FRP panels, doors, moveable bulkheads, load locks,
shoring bars and physical damage to interior not resulting from PENSKE's
negligence.
4) Refrigeration unit frame assembly and panels.
25. WARRANTY CLAIMS
PENSKE agrees to assist Customer in ascertaining warrantable failures
and, in documenting, completing and collecting on any warranty claims or recall
claim for parts or service on the Vehicles. Customer agrees to furnish or assign
to PENSKE, when permitted by manufacturers, all warranties applicable to the
Vehicles and to assist PENSKE in obtaining the benefits of such warranties.
PENSKE is entitled to receive and retain all monies paid against any warranty
claim filed by PENSKE for repairs which PENSKE is obligated to complete at
PENSKE's expense. Customer agrees to execute any documents for PENSKE necessary
to carry out the intent of this Paragraph.
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26. TERMINATION
A. Either Party may terminate this Agreement as to any Vehicle on any
Schedules "E" or "M" at any time after the first anniversary date of the
Commencement ("In Service") Date for that Vehicle by giving the other party
sixty (60) days prior written notice of its intent to do so. In the event of
valid business reasons (excluding placing Vehicles with PENSKE's competitors)
impacting Customer's locations and necessitating a reduction in fleet size or
equipment requirements, Customer may terminate any Vehicles so affected without
further obligation by notice to PENSKE in writing.
B. If any Vehicle listed on any Schedules "E" or "M" shall be destroyed
as a result of a collision and be so damaged that it cannot economically be
placed in good working order, the Vehicle shall be removed from the appropriate
Schedule effective the date the Vehicle can no longer be used by the Customer.
Furthermore, if a Vehicle is lost or stolen and remains so for 30 days after
Customer has notified PENSKE, this Agreement will terminate as to such Vehicle
as of the date of loss or theft.
C. If Customer or PENSKE becomes insolvent, files a voluntary petition
in bankruptcy, makes an assignment for the benefit of creditors, is adjudicated
a bankrupt, permits a receiver to be appointed for its business, or permits or
suffers a material disposition of its assets, the Agreement for all Vehicles
will terminate at the other party's option.
D. Breach or Default
1) If Customer breaches or is in default of any provision of
this Agreement and that breach or default is not cured within thirty (30) days
after written notice has been mailed to Customer for the nonpayment of any money
due, or, for any other breach or default, PENSKE may immediately, without
further notice or demand, terminate this Agreement.
2) If PENSKE breaches or is in default of any provision of
this Agreement and that breach or default is not cured within thirty (30) days
after written notice has been mailed to PENSKE, Customer has the right to cancel
its obligations under this agreement 30 days following Notice of Cancellation to
PENSKE without further obligation.
E. PENSKE agrees, except where mutually agreed upon in writing, as of
the Termination Date, each terminated Vehicle will meet the minimum standards of
mechanical condition generally known and accepted as "Trade Package" condition,
and that, all necessary preventive maintenance and repair services will have
been performed in accordance with the terms of this Agreement, and that legible
copies of all Maintenance Records will be provided to Customer upon the date of
Termination.
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27. VEHICLE APPRAISAL AND EVALUATION
A. At Takeover:
1) PENSKE and Customer shall have performed and/or confirmed
an inspection and evaluation of the Vehicles to be listed on Schedules "E" or
"M". The results of that inspection and evaluation for each of the Vehicles are
to be recorded and furnished to Customer and PENSKE on a Vehicle Appraisal Form.
The purpose of the form is to set forth with specificity the existing mechanical
and safety condition of the Vehicles, listing the needed parts and repairs and
approximate the cost of any service necessary to return the Vehicles to the
minimum standards of acceptability for the service and maintenance required.
Customer will be responsible for the agreed upon, estimated costs of said
repairs and up to an additional 10% of the estimated costs by PENSKE to bring
the Vehicles up to said minimum standards of acceptability.
2) Written acceptance by PENSKE and Customer of the Vehicle
Appraisal form shall constitute authorization for PENSKE to perform the repairs
and services necessary to return the Vehicles to the minimum standards mentioned
herein. In such event, PENSKE shall take appropriate action so that, when
completed, Customer Vehicles shall meet or exceed PENSKE's, Manufacturer's and
Customer's approved minimum standards and will then be entered on Schedules "E"
or "M" and become part of this Agreement.
3) In the event Customer elects not to authorize all or part
of the required repairs and services necessary to qualify the Vehicle for
listing on Schedule(s) "E", and PENSKE and Customer agree that PENSKE be
responsible for scheduling and performing necessary inspection, maintenance and
repair services to the Vehicles not listed on Schedule "E", then Customer and
PENSKE may mutually agree to list those certain Vehicles on a Schedule "M" to be
attached to and become a part of this Agreement. PENSKE agrees to provide
required inspections and maintenance and repairs to the Vehicles listed on the
Schedule "M". The maintenance and repair criteria, service rate and termination
standards mutually agreed to on a case by case basis shall be set forth on the
applicable Schedule "M". Labor rates provided for in a Schedule "M" shall not
exceed the rate for Non-Contractual work as provided for elsewhere in this
agreement.
4) PENSKE agrees that any Vehicle terminated from any Schedule
"E" due to mileage, hours of operation or term expiration, shall at Customer's
option be listed on a Schedule "M" without the need for inspection or
evaluation. The foregoing does not in any way relieve PENSKE from any
responsibilities relative to termination of any Vehicles listed on a Schedule
"E". Not withstanding anything in this Agreement to the contrary Vehicles listed
on a Schedule "M" shall be subject only to the termination standards set forth
on that specific Schedule "M".
5) PENSKE's obligations at takeover including the inspection
and repairs to bring the Vehicles to minimum standards shall be performed by
PENSKE within a reasonable period of time, not to exceed thirty (30) days after
the acceptance of the Vehicle Appraisal Form. Simultaneous with the completion
of the above described repairs PENSKE shall be authorized to enter the
completion date on Schedule "E" for the Vehicles described in the space provided
for
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Commencement ("In Service") Date. Thereafter, this Agreement shall be in full
force and effect for the Vehicles for the term as mutually agreed upon and
entered on Schedules "E" or "M".
6) PENSKE agrees to rent Customer a Vehicle from its rental
fleet, or from other sources, according to the terms of this agreement while a
Vehicle remains in PENSKE's possession for the purpose of performing the
services necessary to return the Vehicles to minimum standards of acceptability.
PENSKE agrees to perform the services necessary without delay, assigning high
priority to returning the Vehicle to service.
B. At Termination:
1) As of the date of Termination of this Agreement or the
termination or removal of any Vehicles from Schedule "E" for any reason other
than a Vehicle which is destroyed in an accident, PENSKE agrees that each of the
terminated Vehicles described will be in a mechanical condition meeting the
minimum standards as set forth by Manufacturer's recommended maintenance
practices and meet the generally accepted "Trade Package" condition.
2) PENSKE agrees that the following will be accomplished
within the 30 days preceding Termination.
a. Each of the Vehicles terminated will have had all
of the required preventive maintenance services, if they are within 10% of being
due or are overdue, performed.
b. All mileage or hourly scheduled component changes
and overhauls will have been accomplished as required, including starters,
alternators, batteries, water pump, thermostats, turbochargers and bearings,
according to PENSKE's standard preventive maintenance procedures, and according
to manufacturer's recommended procedures and practices.
c. Outstanding follow-up items from the last
preventive maintenance or other inspections are to be accomplished.
d. Driver "Vehicle Condition Report" discrepancies
have been adequately addressed or corrected.
e. There are to be no air, water, refrigerant or
lubricant leaks and specific attention given to wheel seals, pinion seals,
transmission seals, engine seals, power steering components, engine cylinder
head and valve cover and compressors.
f. Each individual tire must have a tread depth of
50% of original. Steering axle tires must be original tread and matching tread
design. Other tires may be recap, but the tread design must match and, by axle,
must be of matching tread depth. All tires must have sound casings with a
maximum of 2 caps.
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g. Brake activating mechanism will be within
manufacturer's dimensions and wear condition.
h. Brake blocks will have at least 50% of new or more
at the center and will be at least equivalent to the original specification and
of equivalent thickness per axle.
i. Brake drums will be within manufacturer's
specifications for dimensions and wear condition.
j. All instruments and controls and accessories must
function.
k. All mirrors and mirror mounts must function.
l. The engine and power train must meet
manufacturer's operating parameters and specifications while under full load.
PENSKE and Customer shall jointly arrange for a road test together with a full
chassis dynamometer test to be conducted by a factory authorized service dealer
and an oil analysis of the engine, transmission and all drive axles accomplished
via Fleetguard Monitor or equivalent which will determine the Vehicle's
condition. A copy of the completed tests and analysis will become a part of the
Vehicle Appraisal Form. PENSKE shall be responsible to insure that the tests and
analysis are conducted and that the results and subsequent repairs made at
PENSKE's expense are in compliance with the Vehicle manufacturer's
specifications. Customer agrees to make the Vehicles available to PENSKE for the
tests and repairs as required. As applicable to refrigeration equipment, this
paragraph also applies.
3) PENSKE and Customer further agree, in case of dispute
concerning the condition of any one or more of the Vehicles at Termination, both
parties agree to be bound by the Vehicle Manufacturer's appraisal of each
disputed component.
28. INSURANCE
A. Physical Damage Responsibility
Customer will be responsible for, and will pay for, all loss
(including theft) or damage to any Customer Vehicle, or any SUBSTITUTION for a
Customer Vehicle, or EXTRA VEHICLE; arising from any and all claims and causes
whatsoever, and hereby agrees to release and hold PENSKE harmless from any such
claim or cause of action for loss or damage to said Vehicle(s), except to the
extent that such losses or damages (a) are caused by PENSKE's breach of this
Vehicle Lease and Service Agreement regarding its maintenance or repair
obligations or negligence in failing to properly maintain a Vehicle,
SUBSTITUTION or EXTRA VEHICLE, or (b) occur while a Vehicle, SUBSTITUTION or
EXTRA VEHICLE is in the sole care, custody and control of PENSKE except to the
extent caused by the negligence or breach of this Vehicle Lease and Service
Agreement regarding its maintenance or repair obligations by Customer. PENSKE
will be responsible for, and will pay for, all loss or damage to any Vehicle,
SUBSTITUTION or EXTRA
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<PAGE> 25
VEHICLE arising from any and all claims and causes by PENSKE's breach of this
Vehicle Lease and Service Agreement regarding its maintenance or repair
obligations or negligence in failing to properly maintain a Vehicle,
Substitution or EXTRA VEHICLE, or which occur while a Vehicle, SUBSTITUTION or
EXTRA VEHICLE is in the sole care, custody and control of PENSKE except to the
extent caused by the negligence or breach of this Vehicle Lease and Service
Agreement regarding its maintenance or repair obligations by Customer. PENSKE
hereby agrees to release and hold Customer harmless from any such claim or cause
of action for loss or damage to the Vehicle, SUBSTITUTION or EXTRA VEHICLE.
PENSKE's liability to Customer for any such loss or damage will be limited to
the fair market value for the Vehicle.
B. PENSKE INSURANCE
PENSKE shall maintain, in full force and effect and at its
sole cost and expense, a standard insurance policy of Garage Liability Insurance
with limits in the amount of ONE MILLION DOLLARS ($1,000,000) combined single
limits for third party liability for personal injury and property damage arising
out of the negligent maintenance of the Vehicles. This Garage Liability
Insurance shall include coverage for Vehicles, Substitutions and EXTRA VEHICLES
furnished by PENSKE, and shall be written by a company or companies reasonably
satisfactory to Customer and shall list Customer as an additional insured as its
interests may appear to the extent that such losses or damages are caused by
PENSKE's breach of this Vehicle Lease and Service Agreement regarding its
maintenance or repair obligations or negligence in failing to properly maintain
a Vehicle, SUBSTITUTION or EXTRA VEHICLE. The Garage Liability Insurance shall
provide that coverage afforded cannot be canceled or materially altered by the
insurer or PENSKE without thirty (30) days prior written notice to Customer.
PENSKE shall deliver to Customer such insurance certificates as are necessary to
evidence compliance with the provisions of this Paragraph. PENSKE hereby agrees
to indemnify and hold Customer harmless from and against any claims or causes of
action for death or injury to persons, or loss or damage to property, to the
extent that such claim, loss or damage is caused by PENSKE's breach this Vehicle
Lease and Service Agreement regarding its maintenance or repair obligations or
negligence in properly maintaining a Vehicle, Substitution or EXTRA VEHICLE.
29. LEASED VEHICLE PURCHASE BY CUSTOMER
PENSKE agrees that in the event Customer exercises an option to
purchase, or is required to purchase, from PENSKE pursuant this Vehicle Lease
and Service Agreement between PENSKE and Customer that the Vehicle purchased by
Customer shall be listed on Schedule "E" of this Agreement without the need of
an inspection or evaluation. PENSKE shall accept the Vehicles as having met the
minimum standards of acceptability for the service and maintenance of the
Vehicle according to the terms of this Agreement.
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<PAGE> 26
AUTHORIZATION AND ACCEPTANCE OF AGREEMENT
<TABLE>
<CAPTION>
PENSKE TRUCK LEASING CO., L.P. PROSOURCE DISTRIBUTION SERVICES
<S> <C>
NAME /s/ C. Crockett NAME /s/ Dennis Andruskiewicz
----------------------------- -------------------------------------
TITLE Sr. VP-- Operations TITLE Sr. VP-- Purchasing and Materials
Management
----------------------------- -----------------------------------
WITNESS /s/ Robert Powell WITNESS /s/ Roger Hubbard
--------------------------- ----------------------------------
</TABLE>
26
<PAGE> 1
EXHIBIT 10.2
LICENSE AGREEMENT
THIS AGREEMENT ("Agreement") dated August 18, 1997 is made between
PROSOURCE SERVICES CORPORATION, a Delaware corporation ("Licensor") and Penske
Truck Leasing Co., L.P., a Delaware limited partnership ("Licensee") (Licensor
and/or Licensee are sometimes referred to herein as a "party" or the "parties").
Licensor hereby licenses to Licensee and Licensee hereby licenses from Licensor,
the Premises described below, subject to the terms, covenants and conditions
hereinafter set forth:
1. DEFINITIONS. Unless the context otherwise specifies or requires, the
following terms shall have the meanings herein specified:
1.1 License Fee: Shall be Six Thousand Dollars ($6,000.00) per annum,
payable in monthly installments of Five Hundred Dollars ($500.00)]. In the event
that the charges to Licensor are adjusted pursuant to Paragraph V of the Vehicle
Service Agreement, the License Fee hereunder shall be adjusted as follows:
Commencing September 1, 1998, the License Fee owed for each twelve (12) month
period ("Agreement Year") thereafter shall be adjusted to reflect any increase
in the cost of the Consumer Price Index ("CPI") for all Urban Consumers
(1982-1984 = 100) issued by the Bureau of Labor Statistics of the United States
Department of Labor. The CPI index for September 1997 shall be defined as the
"Basic Standard." The CPI index figure for September of each full Agreement Year
of the Term shall be defined as the "New Index Figure." The License Fee for each
subsequent Agreement Year of the Term ("New License Fee") shall be determined by
multiplying the License Fee equal to $6,000.00 for the first Agreement Year of
the Term by a fraction, the numerator of which shall be the New Index Figure and
the denominator of which shall be the Basic Standard.
New Index Figure
(Base Rent x Basic Standard = New License Fee)
Licensor shall notify Licensee of the amount of New License
Fee which shall be due on the first day of October of each succeeding Agreement
Year during the Term and shall continue each month thereafter until adjusted
again. However, in no event shall the License Fee due and payable hereunder be
less than the License Fee paid for the preceding Agreement Year or more than
three percent (3%) of the License Fee paid for the preceding Agreement year
regardless of the value of the dollar as reflected by the new CPI index figure.
In the event the amount of the CPI index figure increase is not known until
after the first month of the Agreement Year for which the adjustment is to be
made, due to delays in publications of the CPI index figure or any other reason,
then, upon notification of the increase by Licensor, Licensee shall pay the full
amount of the increase which is due for any prior months during the adjustment
period within fifteen (15) days following receipt of the Licensor's notice of
the amount due.
<PAGE> 2
1.2 Governmental Authority: Any federal, state, county, municipal or
other governmental department or entity, or any instrumentality of any of same.
1.3 Governmental Requirement: Any law, ordinance, regulation or
requirement of any Governmental Authority now existing or hereafter enacted or
issued applicable to the Premises.
1.4 Permitted Purpose: Storing, repairing and maintaining vehicles
owned or rented by Licensor ("Vehicles") as per the Vehicle Service Agreement
("Vehicle Service Agreement") attached hereto as Exhibit "A" and for no other
purpose. In the event that a vehicle not owned or leased by Licensor is in need
of emergency repairs, Licensee shall have the right to effect such repairs only
upon the express written consent of Licensor.
1.5 Permittees: The agents, employees, suppliers, vendors, contractors,
subcontractors and invitees of Licensee.
1.6 Premises: Collectively the land ("Land") and the two (2) bay
garage, office and parts storage room and limited parking located at 4278
Highway 78, Douglasville, Georgia, as outlined inside the cross-hatched area
depicted on Exhibit "B" attached hereto.
1.7 License Fee Commencement Date: The first calendar day of the Term.
1.8 Term: The Term of this Agreement shall commence on the date
Licensee begins servicing the Vehicles or August 15, 1997, whichever shall first
occur, and shall expire when the Vehicle Service Agreement shall expire or be
terminated or as otherwise provided herein.
2. USE/COMPLIANCE. Licensee shall use the Premises solely for the Permitted
Purpose. Licensee shall not fuel or wash any vehicle (including, without
limitation, the Vehicles) on the Premises. Licensee shall cause Vehicles to be
washed by a third party acceptable to Licensor. Licensee shall not do, bring,
keep or permit to be done in, on or about the Premises, anything which is
prohibited by any Governmental Requirement or Environmental Law (as defined in
Section 4.3 below). Licensee shall be responsible for procuring all permits and
complying with all Governmental Requirements relating to its use. Licensee shall
not commit any waste in or upon the Premises. Licensee shall be responsible for
the normal maintenance and repairs to the interior nonstructural portions of the
Premises.
3. LICENSE FEE. The term "License Fee" as used in this Agreement, shall include
the License Fee, together with all other amounts payable by Licensee to Licensor
under this Agreement. Licensee shall pay each monthly installment of the License
Fee in advance on the first calendar day of each month during the Term without
demand, deduction or set-off. Monthly installments for any fractional calendar
month, at the beginning or end of the Term, shall be prorated based on the
number of days in such month which fall within the Term. Licensee shall pay the
License Fee, to Licensor at the place specified for notice in Section 15 below.
4. DELIVERY OF POSSESSION.
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<PAGE> 3
4.1 Licensor shall put Licensee into exclusive physical possession of
the Premises on the first day of the Term and at the same time deliver to
Licensee a full set of keys to the Premises. In the event Licensor is unable to
deliver possession of the Premises to Licensee by the date above mentioned, and
such failure is due to a regional casualty (such as a hurricane, earthquake or
flood), or due to delays caused by strikes, lockouts, restrictions of any
Government Authority, inability to obtain materials or other causes of a like
nature beyond the reasonable control of Licensor, then the date set forth above
shall be subject to extension. In no event, however, shall the total extension
of time exceed three (3) months.
4.2 "Hazardous Substance" shall mean any substance, whether solid,
liquid or gaseous in nature: (i) which is or becomes defined as a "hazardous
substance", "hazardous waste", pollutant or contaminant under any Environmental
Law; (ii) the exposure to, or manufacture, possession, presence, use,
generation, storage, transportation, treatment, release, disposal, abatement,
cleanup, removal, remediation or handling of which is prohibited, controlled or
regulated by any Environmental Law; (iii) any toxic chemical, waste, byproduct,
pollutant, contaminant, compound, product or substance, including, without
limitation, asbestos, polychlorinated byphenyls, petroleum, petroleum
by-products (including crude oil or any fraction or byproduct thereof); or (iv)
the presence of which on the Premises causes or threatens to cause a nuisance
upon the Premises or to adjacent properties, or poses or threatens to pose a
hazard to the health or safety of persons on or about the Premises.
4.3 "Environmental Law" shall mean any Governmental Requirement
pertaining to protection of the environment, health or safety of persons,
natural resources, conservation, wildlife, waste management, and pollution,
including without limitation, regulation of releases and disposals to air, land,
water and ground water, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. 9601 et
seq., Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and Solid and Hazardous Waste Amendments of 1984, 42 U.S.C.
6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water
Act of 1977, 33 U.S.C. 1251 et seq., Clear Air Act of 1966, as amended, 42
U.S.C. 7401 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. 2601 et
seq., Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. 651 et
seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
11001 et seq., National Environmental Policy Act of 1975, 42 U.S.C. 300(f) et
seq., and all amendments as well as any similar state or local statute or code
and replacements of any of the same and rules, regulations, guidance documents
and publications promulgated thereunder.
5. UTILITIES. Licensor shall pay when due all bills ("Utility Bills") for water,
sewer, waste removal (limited to one (1) six-yard container per week) heat, gas
and electricity used at or on the Premises throughout the Term. Licensee shall
be responsible for all waste disposal and telephone charges. In no event shall
Licensor be responsible for any damage caused by utility stoppage or
interruption. In no event shall Licensee be liable to Licensor for damage
resulting from utility stoppage or interruption caused by the Licensor's failure
to timely pay the Utility Bills.
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<PAGE> 4
6. REPAIRS, CONFORMITY WITH THE LAW. Except as provided below, Licensee shall,
at Licensee's sole cost and expense, (i) make non-structural repairs and
replacements to the interior of the Premises and (ii) maintain in good condition
and repair all equipment used by Licensee, including, without limitation, all
lifts and pumps. Licensor, at Licensor's sole cost and expense, shall maintain
and repair all structural elements of the Premises not caused by the fault of
the Licensee or its Permittees, maintain in good condition and repair or replace
all mechanical, electrical, plumbing systems and utility lines serving the
Premises. Notwithstanding the above, Licensee shall make all repairs required by
causes that are the fault of Licensee. Licensee shall, at Licensee's expense,
properly remove and dispose of any Hazardous Substance introduced by Licensee or
its Permittees into or on the Premises. Licensee, at its expense, shall make all
changes and installations necessary to comply with all Government Requirements
regarding the conduct of Licensee's particular business at the Premises.
7. CASUALTY/DAMAGE AND DESTRUCTION.
7.1 Partial Damage: "Partial Damage" means damage or destruction to the
Premises to the extent that the cost of repair is less than fifty percent (50%)
but more than twenty percent (20%) of the fair market value of the Premises
immediately prior to such damage or destruction. If at any time during the Term
there is Partial Damage, Licensor may, at Licensor's option, either (i) repair
such damage, in which event this Agreement shall continue in full force and
effect, or (ii) within thirty (30) days after the occurrence of such damage give
notice to Licensee terminating this Agreement, which termination shall be
effective as of the date of the occurrence of such damage.
7.2 Total Destruction: "Total Destruction" means damage or destruction
to the Premises to the extent that the cost of repair is fifty percent (50%) or
more of the fair market value of the Premises immediately prior to such damage
or destruction. If at any time during the Term there is a Total Destruction,
Licensor or Licensee may, at either party's option, either (i) repair such
damage within six (6) months of the date of such damage, in which case this
Agreement shall continue in full force and effect, or (ii) within thirty (30)
days after the occurrence of such damage, terminate this Agreement as of the
date of such damage.
7.3 Abatement of License Fee: If Licensor repairs or restores the
Premises pursuant to the provisions of this Section, the License Fee payable
hereunder for the period during which such damages, repair or restoration
continues shall be abated in proportion to the degree to which Licensee's use of
the Premises is impaired. Except for abatement of the License Fee, if any,
Licensee shall have no claim against Licensor as a result of any such damage.
Furthermore, notwithstanding anything above to the contrary, Licensee shall not
be entitled to any abatement of the License Fee if such damage is in any way
caused by Licensee or its Permittees. Notwithstanding anything to the contrary
herein, Licensor's obligation to repair shall be limited to the extent of any
insurance proceeds collected. Any cancellation or abatement of this Agreement
pursuant to this Section 7 shall not relieve the parties of their obligations
under the Vehicle Service Agreement.
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<PAGE> 5
8. REAL ESTATE TAXES. Licensor shall pay the ad valorem real estate taxes
(including all special benefit taxes, impact fees and special assessments)
levied and assessed against the Premises during the Term.
9. ASSIGNMENT AND SUBLETTING. The identity and financial position of the
Licensee and the ability of the Licensee to service Licensor's vehicles is a
material consideration of Licensor in entering into this Agreement and in
agreeing to the amount of License Fee stated herein. Licensee shall not,
directly or indirectly, assign or sublet the Premises or any part thereof, nor
permit all or any part of the Premises to be used or occupied by another,
without first obtaining the written consent of Licensor, which consent shall not
be unreasonably withheld or delayed. However, it is expressly agreed between
Licensor and Licensee that Licensor's refusal to consent to assignment or
sublease to a third party that is unable to service the Vehicles as Licensee
has, or is unable to provide Licensor, in Licensor's sole discretion with
satisfactory assurance of its ability to comply with the terms of this
Agreement, including, without limitation all environmental provisions, shall be
deemed per se reasonable. Licensee and such third party shall provide such
assurances to Licensor of its ability to service the Vehicles as Licensee has
and the third party's ability to comply with the terms of this Agreement upon
request. Any mortgage, pledge or assignment of this Agreement, or if Licensee is
a corporation, any transfer of this Agreement by Licensee through any change in
the ownership of or power to vote the majority of the outstanding voting stock
of Licensee, shall constitute an assignment for the purposes of this Section.
Any assignment or subletting made without Licensor's consent, shall be voidable
by Licensor. To be effective, any assignment or sublease must be in writing and
signed by the Licensor, Licensee and assignee/subtenant, and shall set forth the
entire consideration being given and received. If Licensor shall consent to an
assignment or subletting, the assignee/subtenant shall assume all obligations of
Licensee hereunder and neither Licensee nor any assignee/subtenant shall be
relieved of any liability hereunder.
10. ALTERATIONS; LICENSEE PROPERTY.
10.1 Furnishings, trade fixtures and equipment owned and installed by
Licensee shall be the property of Licensee. On expiration or earlier termination
of the Term, Licensee shall remove any such property and shall repair the
Premises to the same condition as when the Term commenced, ordinary wear and
tear excepted, or reimburse Licensor for the cost of so repairing the Premises.
If Licensee fails to remove such property as required under this Agreement,
Licensor may do so and keep and use or dispose of the same in its sole
discretion without any liability to Licensor on account thereof, and further may
charge the cost of any such removal, storage or disposition to Licensee.
10.2 Licensee shall not make any structural alterations or additions to
the Premises without the prior written consent of Licensor which consent shall
not be unreasonably withheld or delayed. All structural alterations or additions
(except movable furniture and fixtures put in at the expense of Licensee and
removable without defacing or injuring the Premises), shall become the property
of Licensor at the expiration, cancellation or earlier termination of this
Agreement for any reason. All work performed shall be done in a good and
workmanlike manner and with materials of comparable quality and appearance to
those used elsewhere on the Premises.
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<PAGE> 6
10.3 If any mechanic's lien is recorded against the Premises by reason
or work, labor, services or materials supplied to or claimed to have been
supplied to Licensee (except if supplied by Licensor), Licensee shall, within
thirty (30) days after receipt of notice from Licensor cause such lien to be
discharged or recorded by payment, deposit, bond, order of a court of competent
jurisdiction, or otherwise.
11. LIENS. Licensee shall not have the power to subject the interest of Licensor
in the Premises to any mechanic's or materialmen's liens or liens of any kind,
nor shall any provision in this Agreement ever be construed as empowering
Licensee to encumber or cause Licensee to encumber the title or interest of
Licensor in the Premises. All parties with whom Licensee may deal are put on
notice that Licensee has no power to subject Licensor's interest to any claim or
lien of any kind or character, and all such persons so dealing with Licensee
must look solely to the credit of Licensee, and not to Licensor's interest or
assets. Licensee shall put all such parties with whom Licensee may deal on
notice of the terms of this Section. If at any time a lien or encumbrance is
filed against the Premises as a result of Licensee's work, materials or
obligations, Licensee shall promptly discharge or bond off said lien or
encumbrance, and if said lien or encumbrance has not been removed within thirty
(30) days from the date Licensee has notice of the date it is filed, Licensee
agrees to either bond off said lien or to deposit with Licensor cash in an
amount equal to one hundred and twenty-five percent (125%) the amount of any
such lien or encumbrance, to be held by Licensor until such lien is discharged.
12. DEFAULT AND REMEDIES.
12.1 The occurrence of any of the following shall constitute a default
under this Agreement by Licensee: (i) Licensee shall default in the payment of
any installment of the License Fee or any other charges hereunder, at the time
and in the amount as herein provided, and if Licensee shall fail to cure said
default within ten (10) days after notice of such default from Licensor; (ii)
Licensee violates or fails to perform any of the other terms, covenants or
conditions herein made by Licensee, and such violation or failure shall continue
for a period of thirty (30) days after notice to Licensee by Licensor or, if
such violation or failure shall reasonably require longer than thirty (30) days
to cure, if Licensee shall fail to commence to cure same within thirty (30) days
after notice thereof and continuously prosecute the curing of same to completion
with due diligence; (iii) Licensee makes a general assignment for the benefit of
its creditors or shall file or have filed involuntarily against Licensee a
petition for bankruptcy or other reorganization, liquidation, dissolution or
similar relief; (iv) a proceeding is filed against Licensee seeking any relief
mentioned in (iii) above and said proceeding is not discharged within ninety
(90) days of the filing thereof; (v) a trustee, receiver or liquidator is
appointed for Licensee on a substantial part of its property; (vi) Licensee
shall vacate or abandon the Premises; (vii) Licensee mortgages, assigns, sublets
or otherwise encumbers its interest other than as specifically permitted under
this Agreement; or (viii) Licensee is in default under the Vehicle Service
Agreement.
12.2 If a default by Licensee occurs, Licensor shall have all rights
and remedies that are available under applicable state and federal law,
including, without limitation, the right to (i) consider the Agreement
terminated and take possession of the Premises for Licensor's own purposes; (ii)
take possession of the Premises for Licensee's account and seek general damages.
All
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<PAGE> 7
of the remedies of Licensor herein enumerated shall be cumulative and none shall
exclude any other right or remedies allowed by law or in equity or under the
Vehicle Service Agreement. A default in, cancellation or termination of this
Agreement shall not relieve the parties of their respective obligations under
the Vehicle Service Agreement.
12.3 Any payments required to be made by Licensee under the provisions
of this Agreement not made by Licensee when and as due, or within the applicable
cure period, if any, shall bear interest at the highest rate allowable by
applicable state law from the date when the particular amount became due to the
date of payment thereof to Licensor.
13. INSURANCE; INDEMNITY. Licensee shall, at its sole cost and expense, procure
and maintain throughout the Term:
13.1 Comprehensive public liability insurance and automobile liability
insurance with respect to the Premises and Licensee's activities therein and
thereabout, insuring against liability for personal injury or death, property
damage or other loss in amounts no less than:
(a) $1,000,000.00 in underlying coverage with respect to
personal injury or death to any one person and not
less than $5,000,000.00 in excess coverage;
(b) $2,000,000.00 in underlying coverage with respect to
personal injury or death arising out of any one (1)
occurrence and not less than $5,000,000.00 in excess
coverage;
(c) $1,000,000.00 in underlying coverage with respect to
property damage or other loss arising out of any one
(1) occurrence and not less than $5,000,000.00 in
excess coverage; and
(d) Worker's Compensation Insurance in at least the
statutorily required amounts.
13.2 The above insurance shall be with a carrier licensed to transact
business in the state in which the Premises are located. Licensor and Licensor's
mortgagees, if any, shall be named as additional insured under Licensee's
insurance, and such insurance shall be primary and non-contributing with any
insurance carried by Licensor. If on account of the failure of Licensee to
comply with the above, Licensor is adjudged to be a coinsurer by its insurance
carrier, then any loss or damages Licensor may sustain by reason thereof shall
be borne by Licensee and shall be immediately paid by Licensee upon receipt of a
bill thereof. Licensee's insurance policies shall contain endorsements requiring
thirty (30) days' notice to Licensor and Licensor's mortgagees, if any, prior to
any cancellation or any reduction in amount of coverage. Licensee shall deliver
to Licensor as a condition precedent to its taking occupancy of the Premises
(but not to its obligations to pay License Fee) a certificate or certificates
evidencing such insurance acceptable to Licensor, and Licensee shall at least
thirty (30) days prior to the expiration of such policies, deliver to Licensor
certificates of insurance evidencing the renewal of such policies. Within
fifteen (15) days of occupancy, Licensee shall provide copies of all of the
above policies to Licensor.
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<PAGE> 8
13.3 Licensee, as a material part of the consideration to be rendered
to Licensor, hereby agrees that it will defend, indemnify and hold Licensor, its
officers, directors, employees, agents, attorneys, successors and assigns,
harmless from and against any and all claims, actions, damages, liability and
expense (including attorneys' fees and costs) in connection with loss of life,
personal injury and or damage to property arising from or out of any occurrence
in, upon or at the Premises, or the occupancy or use by Licensee or its
Permittees of the Premises or any part thereof, occasioned wholly or in part by
(i) any act or omission of Licensee and/or its Permittees, or (ii) any failure
on the part of the Licensee to perform or comply with any of the terms of this
Agreement. In addition to the above, in the event Licensor is made a party to
any litigation commenced by or against Licensee, then Licensee shall defend and
hold Licensor harmless and shall pay all costs, expenses and reasonable
attorney's fees incurred or paid by Licensor in connection with such litigation.
Notwithstanding anything to the contrary in this Section, the amounts of
insurance required of Licensee shall not be construed in any manner whatsoever
so as to limit Licensee's liability hereunder. Licensor agrees to indemnify,
defend and hold harmless Licensee, its partners, directors, officers, employees,
agents, attorneys and permitted successors and assigns, from and against all
claims, actions, damages, and expense (including attorneys' fees and costs) in
connection with loss of life, personal injury and or damage to property arising
from or out of any occurrence in, upon or at the Premises, occasioned wholly or
in part by (i) any act or omission on the part of Licensor or Licensor's agents
or employees, or (ii) any failure on the part of Licensor to perform or comply
with any of the terms of this Agreement. This section shall survive the
expiration, cancellation or earlier termination of this Agreement for any reason
and shall be cumulative with any other indemnification and/or remedies
available.
13.4 Licensee and Licensor release each other and waive any right of
recovery against each other for loss or damage to their respective property,
which occurs on or about the Premises (whether due to the negligence of either
party, their agents, employees, licensees, invitees or otherwise), to the extent
that such loss or damage is reimbursed by insurance proceeds. Licensee and
Licensor agree that all policies of insurance obtained by either of them in
connection with the Premises shall contain appropriate waiver of subrogation
clauses.
14. AMENDMENT; WAIVER; APPROVAL; CONSENT. This Agreement constitutes the entire
agreement between the parties. This Agreement shall not be amended or modified
except in writing signed by both parties. Failure of Licensor or Licensee to
exercise any of their rights in one or more instances shall not be construed as
a waiver of such party's right to strict performance of such rights or act as a
waiver of subsequent breach of any such rights. Wherever this Agreement requires
either the Licensor's or Licensee's consent or approval, such consent or
approval shall only be deemed given when in writing.
15. NOTICES. All notices, communications and statements required or permitted
under this Agreement shall be in writing, delivered by Express Mail or Federal
Express (or other similar national overnight courier service having a delivery
system which provides for or makes available a signed receipt of delivery) as
follows:
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<TABLE>
<CAPTION>
AS TO LICENSEE: WITH A COPY TO:
<S> <C>
Penske Truck Leasing Co., David J. Battisti, Counsel
a Delaware limited partnership c/o Penske Truck Leasing Co.
Route 10, Green Hills a Delaware limited partnership
P.O. Box 563 Route 10, Green Hills
Reading, PA 19603-0563 P.O. Box 563
Attn: Vice President of Reading, PA 19603-0563
Real Estate
AS TO LICENSOR: WITH A COPY TO:
John Foley Leslie Robert Evans &
Senior Vice President Associates, P.A.
ProSource Services Corporation 375 South County Road, Suite 218
1500 San Remo Avenue Palm Beach, Florida 33480
Coral Gables, Florida 33146
</TABLE>
Service shall be deemed effective upon receipt or refusal to accept receipt.
Either party by written notice to the other may designate additional parties to
receive copies of notices sent to it. Such designees may be changed by written
notice. Either party may at any time, in the manner set forth for giving notice
to the other, designate a different address to which notices, communication and
statements to it shall be sent.
16. ESTOPPEL CERTIFICATE. Within fifteen (15) days after request therefore by
either party, the non-requesting party shall execute and deliver (in recordable
form) a certificate to any proposed mortgagee or purchaser, and the requesting
party, together with a true and correct copy of this Agreement, certifying (with
such exceptions or modifications as may be the case) (i) that this Agreement is
in full force and effect without modification, (ii) that the requesting party
has performed all of its obligations due to be performed under this Agreement
and that there are no defenses, counterclaims, deductions or offsets outstanding
or other excuses for the requesting party's performance under this Agreement,
and (iii) any other fact reasonably requested by the requesting party or such
proposed mortgagee or purchaser. The requesting party may present to
non-requesting party a form of such certificate, and non-requesting party's
failure to properly execute and deliver such form of certificate (with such
exceptions or modifications noted therein as may be asserted by the
non-requesting party in good faith) within fifteen (15) days after request
therefore shall be conclusive upon such non-requesting party as to the truth of
all statements contained therein as presented by the requesting party and may be
relied on by any person holding or proposing to acquire an interest in the
Premises or any part thereof or this Agreement from or through the other party,
that this Agreement is unmodified and in full force and effect.
17. SURRENDER.
17.1 At the expiration, cancellation or earlier termination of this
Agreement, Licensee shall surrender immediate possession of the Premises in good
condition subject to reasonable wear
9
<PAGE> 10
and tear, and in the same condition as immediately prior to the execution of
this Agreement. Licensee shall remove all of Licensee's signage, fixtures and
equipment from the Premises and shall repair damage caused by the removal of
Licensee's fixtures, signage and equipment. In the event Licensee shall hold
over possession of the Premises after the expiration, cancellation or earlier
termination of the Agreement for any reason, Licensee shall pay an additional
License Fee equal to one hundred twenty-five percent (125%) of the monthly
License Fee in effect at the time of such expiration, cancellation or earlier
termination of the Agreement in addition to any other remedies available to
Licensor hereunder, at law or in equity.
17.2 At the expiration, cancellation or earlier termination of this
Agreement for any reason, Licensor may, in its sole discretion and its sole
expense, have conducted an additional Environmental Assessment of the Premises
by a consultant of the Licensor's choice. In the event the existence of any
Hazardous Substance in, on or under the Premises is detected, excluding those
specified in that certain Modified Phase I Environmental Site Assessment
conducted on the Premises by Dames & Moore Group, dated March 11, 1997), arising
out of or resulting from Licensee's operations or acts and/or omissions,
Licensee, at Licensee's sole cost and expense, shall properly and completely
remove and dispose of all Hazardous Substances, shall promptly perform all
remediation deemed necessary by any Government Authority and, shall take all
actions necessary to restore the Premises to the condition existing prior to the
introduction of such Hazardous Substances upon, about or under the Premises,
notwithstanding any lesser standard of redemption allowable under any Government
Requirement or Environmental Law. All such disposal and removal shall be
conducted in accordance with all Governmental Requirements pertaining to
Hazardous Substances. In the event of any such removal or disposal by Licensee
hereunder, upon completion of the same, Licensor, at Licensor's option may
conduct an additional Environmental Assessment of the Premises by a consultant
of Licensor's choice and the results delivered and recertified to Licensor. In
such event, Licensee shall also deliver evidence of necessary governmental
inspections and approvals deemed necessary by any Government Authority with
respect to such removal, remediation and disposal. This Section shall survive
the expiration, cancellation or earlier termination of this Agreement for any
reason.
18. ENVIRONMENTAL INDEMNITY.
18.1 In addition to any other indemnity provided for in this Agreement,
Licensor shall indemnify, defend, protect and hold harmless Licensee, its
officers, directors, employees, agents, attorneys, and permitted successors and
assigns, from and against any and all Environmental Damages arising from or
caused, in whole or in part, directly or indirectly, by (i) the presence in, on,
under or about the Premises, or any discharge or release in or from the
Premises, of any Hazardous Substance occurring during Licensor's ownership of
the Premises, or (ii) Licensor's failure to comply with any Environmental Law
occurring during Licensor's ownership of the Premises, except to the extent that
any such presence, discharge, release or failure is related to, arises out of or
is aggravated by Licensee's or its Permittee's acts or omissions, or Licensee's
or its Permittee's failure to comply with any Environmental Law. In addition to
any other indemnity from Licensee provided in this Agreement, Licensee shall
indemnify, defend, protect and hold harmless Licensor, its officers, directors,
employees, agents, attorneys, successors and assigns, from and against any and
all
10
<PAGE> 11
Environmental Damages arising from or caused, in whole or in part, directly or
indirectly, by the presence in, on, under or about the Premises of any Hazardous
Substance, any discharge or release in or from the Premises of any Hazardous
Substance or any storage, removal or transportation of any Hazardous Substance,
except to the extent that any such presence, discharge or release is caused or
aggravated by: (i) Licensor's acts or omissions on the Premises, (ii) Licensor's
failure to comply with any Environmental Law, or (iii) any Hazardous Substance
specified in that certain Modified Phase I Environmental Site Assessment ("DMG
Assessment") conducted on the Premises by Dames & Moore Group, dated March 11,
1997 except to the extent the presence of any such hazardous substance specified
in the DMG Assessment has been caused or aggravated by Licensee's or its
Permittee's acts or omissions. The obligations of the parties hereunder shall
survive the expiration, cancellation or earlier termination of this Agreement
for any reason and Licensee's obligations hereunder shall constitute obligations
that are independent and severable from Licensee's obligation to pay the License
Fee and Licensee's obligations under the Vehicle Service Agreement.
18.2 "Environmental Damages" shall mean: (i) any and all claims,
liabilities (including strict liability), penalties, fines, judgements,
forfeitures, losses, costs or expenses (including attorneys' fees, consultants'
fees and experts' fees) for the death of or injury to any persons or damage to
any properly whatsoever, including, without limitation, lost profits,
consequential damages, the cost of demolition and rebuilding of any improvements
on real property; (ii) interest, penalties and damages arising from claims
brought by or on behalf of employees of Licensee (with respect to which Licensee
waives any right to raise as a defense against Licensor any immunity to which it
may be entitled under any industrial or workers' compensation laws); (iii) fees,
costs or expenses incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs incurred in connection
with the investigation or redemption of such Hazardous Substances or violation
of such Environmental Law, including, but not limited to, the preparation of any
feasibility studies or reports or the performance of any cleanup, redemption,
removal, response, abatement, containment, closure, restoration or monitoring
work required by any Governmental Authority or reasonably necessary to make full
economic use of the Premises or any other property in a manner consistent with
its current use or otherwise expended in connection with such conditions, and
including without limitation, any attorneys' fees, costs and expenses incurred
in enforcing the provisions of this Agreement or collecting any sums due
hereunder; (iv) liability to any third person or Governmental Authority to
indemnify such person or Governmental Authority for costs expended in connection
with the items referenced above.
19. NOTICE OF ENVIRONMENTAL VIOLATION. Licensee covenants and agrees that in the
event that Licensee is placed on notice of any violation or threatened violation
of any Environmental Law, Licensee shall immediately notify Licensor and provide
details of same. Receipt of such notice shall not be deemed to create any
obligation on Licensor's part to defend or otherwise respond to such
notification.
20. SEVERABILITY. The parties intend this Agreement to be legally valid and
enforceable in accordance with all of its terms, covenants and conditions to the
fullest extent permitted by law. If any term, covenant or condition hereof shall
be invalid or unenforceable, the parties agree that such term, covenant or
condition shall be stricken from this Agreement, the same as if it never had
been
11
<PAGE> 12
contained herein. Such invalidity or unenforceability shall not extend to any
other term, covenant or condition of this Agreement, and the remaining terms,
covenants or conditions hereof shall continue in effect to the fullest extent
permitted by law, the same as if such stricken term, covenant and condition
never had been contained herein.
21. RECORDING/MEMORANDUM OF LICENSE AGREEMENT. At the option of Licensor, a
memorandum of Agreement may be recorded in the state and county where the
Premises are located. In no event shall this Agreement be recorded.
22. ACCESS. Licensee shall permit Licensor to enter the Premises at reasonable
times upon prior reasonable notice for purposes of showing, inspecting and/or
conducting testing on or about the Premises and of ascertaining compliance by
Licensee with the provisions of this Agreement. Licensor shall use reasonable
efforts so as to minimize any inconvenience to or disruption of Licensee.
23. LIMITATION OF LICENSOR'S LIABILITY. The term "Licensor" as used herein shall
mean only the owner or owners, at the time in question, of the fee title to the
Premises. In the event of any transfer of such title or interest, Licensor
herein named (and in the case of any subsequent transfers, then the grantor)
shall be relieved from and after the date of such transfer of all liability in
respect of Licensor's obligations thereafter to be performed, provided that any
funds in the hands of Licensor or the then grantor at the time of such transfer,
in which Licensee has an interest, shall be delivered to the grantee. The
obligations contained in this Agreement to be performed by Licensor shall,
subject to the above, be binding on Licensor's successor's and assigns, only
during their respective periods of ownership. The obligations of Licensor under
this Agreement do not constitute personal obligations of Licensor or the
individual partners, shareholders, directors, and officers, and Licensee shall
look solely to the Licensor's then existing interest in the Premises, and to no
other assets of Licensor, for satisfaction of any liability in respect of this
Agreement, and will not seek resource against the individual partners,
shareholders, directors, officers, or any of their personal assets for such
satisfaction. No other properties or assets of Licensor shall be subject to
levy, execution, or other enforcement procedures for the satisfaction of any
judgement (or other judicial process) or for the satisfaction of any other
remedy of Licensee arising out of or in connection with this Agreement, the
relationship of the parties or Licensee's use of the Premises.
24. SUBORDINATION. The rights of Licensee hereunder are and shall be, at the
election of any mortgagee, subject and subordinate to the lien of any mortgage
or mortgages, or the lien resulting from any other method of financing or
refinancing, now or hereafter in force against the Premises (or any portion(s)
thereof), and to all advances made or hereafter to be made upon the security
thereof ("Superior Instruments"). This Section shall be self-operative and no
further instrument of subordination shall be required by any mortgagee, but
Licensee agrees upon request of Licensor, from time to time, to execute whatever
documentation may be required to further effect the provisions of this Section.
12
<PAGE> 13
25. TIME. Time is of the essence of this Agreement and applies to all terms,
covenants, and conditions contained herein. All "days" set forth in this
Agreement shall be deemed to be "calendar days" unless specifically stated to
the contrary.
26. SUCCESSORS AND ASSIGNS. All terms, conditions to be observed and performed
hereunder shall be applicable to and binding upon the parties' respective heirs,
administrators, executors, and permitted successors and assigns.
27. RELATIONSHIP OF PARTIES. Anything in this Agreement to the contrary
notwithstanding, it is agreed that Licensor shall in no event be deemed to be a
partner or engaged in a joint venture with, or an associate of Licensee in the
conduct of its business nor shall Licensor be liable for any debts incurred by
Licensee in the conduct of its business. Nothing contained in this Agreement
shall be deemed or construed to confer upon Licensor any interest in the
business of the Licensee. The relationship of the parties during the Term shall
at all times be that of landlord and licensee.
28. CAPTIONS AND SECTION NUMBERS. The captions and section numbers are for
convenience of reference only and in no way shall be used to construe or modify
the provisions set forth in this Agreement.
29. AUTHORITY. If either party hereto signs as a corporation, partnership, or
other entity, each of the persons executing this Agreement, on behalf of such
party, does hereby covenant and warrant that such party is duly authorized to
transact business, is in good standing and existing, that such Licensee is
qualified to do business in the State within which the Premises are located,
such party has full right and authority to enter into this Agreement, and that
the persons signing on behalf of such party were authorized to do so.
30. GOVERNING LAW AND FORUM. This Agreement shall become valid when executed by
the last party. The parties agree that this Agreement shall be deemed to be made
and entered into the State of Florida and shall be governed and construed under
and in accordance with the laws of the State of Florida without regard to
conflicts of laws. The parties agree that the U.S. District Court for the
Southern District of Florida, or if such court lacks jurisdiction, the Eleventh
Judicial Circuit (or its successor) in and for Dade County, Florida, shall be
the venue and exclusive proper forum in which to adjudicate any controversy
arising, directly or indirectly, in connection with the Agreement, and the
parties further agree that in the event of litigation arising out of or in
connection with the Agreement in these courts, they will not contest or
challenge the jurisdiction of these courts. Should any provision of this
Agreement require judicial interpretation, it is agreed by the parties hereto
that the court interpreting or construing the same shall not apply a presumption
that any such provision shall be more strictly construed against the party who
itself or through its agent prepared the same, as all parties have participated
in the preparation of the provisions of this Agreement and that all terms,
covenants and conditions were negotiated.
31. BROKER INDEMNIFICATION. As part of the consideration for the granting of
this Agreement, Licensee and Licensor represent and warrant to each other that
no broker or agent
13
<PAGE> 14
negotiated or was instrumental in negotiating or consummating this Agreement and
each party agrees to indemnify the other party against any loss, expense
(including reasonable attorneys' fees), cost or liability incurred as a result
of a claim by any broker or finder claiming by through or under the indemnifying
party. The provisions of this Section shall survive the expiration, termination
or earlier cancellation of this Agreement.
32. EFFECT OF BANKRUPTCY. Licensee shall not assign, mortgage or encumber this
Agreement, nor sublet, nor suffer or permit the Premises or any part thereof to
be used by others, except as set forth in Section 9 above; provided, however,
that if this Agreement is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), any and all monies or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Licensor, shall be and remain the exclusive property of Licensor
and shall not constitute property of Licensee or of the estate of Licensee
within the meaning of the Bankruptcy Code. All monies or other considerations
constituting Licensor's property under the preceding sentence not paid or
delivered to Licensor shall be held in trust for the benefit of Licensor and be
promptly paid to or turned over to Licensor.
33. ATTORNEYS' FEES. If either party herein brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, on trial or appeal, shall be entitled to its costs and reasonable
attorney's fees from the non-prevailing party.
34. TENDER AND DELIVERY OF AGREEMENT. Submission of this Agreement does not
constitute an offer, right of first refusal, reservation of or option for the
Premises or any part thereof. This Agreement only becomes effective upon
execution and delivery by both Licensor and Licensee.
35. CONFIDENTIALITY. Licensor and Licensee acknowledge that the terms, covenants
and conditions of this Agreement have been negotiated based upon a variety of
factors occurring at a coincidental point in time, including, but not limited
to: (i) the individual principals involved and financial strength of Licensee,
(ii) the nature of Licensee's business and use of the Premises; and (iii) the
current market and economic conditions affecting occupancy rates. Therefore,
recognizing the totality, uniqueness, complexity and interrelation of the
aforementioned factors, Licensee and Licensor agree not to disseminate in any
manner whatsoever (whether by word of mouth, mechanical reproduction, physical
tender or by any other manner), the terms, covenants and conditions of this
Agreement to third parties without the consent of the other party hereto.
36. ENTIRE AGREEMENT: This Assignment contains the entire agreement between the
parties and supersedes all previous negotiations leading hereto, and may be
modified only by an agreement, in writing, signed by both Assignor and Assignee.
Assignee expressly agrees and acknowledges that Assignor, its agents, attorneys
and/or employees have not made any representations regarding the Sublessee,
including, without limitation, Sublessee's financial circumstances or ability to
perform its obligations under the Lease and that Assignee has been provided with
a copy of the Lease for its review prior to entering into this Assignment.
14
<PAGE> 15
WAIVER OF TRIAL BY JURY. IT IS MUTUALLY AGREED BY AND BETWEEN LICENSOR AND
LICENSEE THAT THE RESPECTIVE PARTIES HERETO SHALL AND HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
HERETO AGAINST THE OTHER ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT. LICENSEE FURTHER AGREES THAT IT SHALL NOT INTERPOSE ANY
COUNTERCLAIM OR COUNTERCLAIMS IN ANY SUMMARY PROCEEDING OR IN ANY ACTION BASED
UPON NON-PAYMENT OF LICENSE FEE OR ANY OTHER PAYMENT REQUIRED BY LICENSEE
HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
WITNESSES: LICENSOR:
/s/ Roger Hubbard ProSource Services Corporation
- ---------------------------------- 1500 San Remo Avenue
Coral Gables, Florida 33146
Roger Hubbard
- ----------------------------------
Print Name
By: /s/ Robert S. Donaldson
--------------------------------
Its: Senior V.P., Operations
----------------------------
/s/ Marylou Ladaga
- ----------------------------------
Marylou Ladaga
- ----------------------------------
Print Name
WITNESSES: LICENSEE:
/s/ Richard L. Kement Penske Truck Leasing Co., L.P.,
- ---------------------------------- a Delaware limited partnership
Route 10, Green Hills
Richard L. Kement P.O. Box 563
- ---------------------------------- Reading, PA 19603-0563
Print Name Attn: Vice President of Real Estate
/s/ Michael N. Kermit
- ----------------------------------
By: Penske Truck Leasing
Michael N. Kermit Corporation, general partner
- ----------------------------------
Print Name
By: /s/ Carlos Questell
--------------------------------
Its: Vice President of Real
Estate
----------------------------
15
<PAGE> 16
[FLOOR PLAN]
16
<PAGE> 1
EXHIBIT 11.1
PROSOURCE, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to common
stock $ 718 $1,357 $(5,238) $(16,600)
====== ====== ======= ========
Weighted average common shares
outstanding during the period 9,323 5,310 9,328 5,304
Add:
Common equivalent shares determined using
the "Treasury Stock" method representing
shares issuable upon exercise of stock
options, warrants and shares issuable under
contractual agreements, except during
periods in which they would be antidilutive 3 45 6 --
------ ------ ------- --------
Weighted average number of shares used in
calculation of primary earnings per share 9,326 5,355 9,334 5,304
====== ====== ======= ========
Primary earnings per common share $ 0.08 $ 0.25 $ (0.56) $ (3.13)
====== ====== ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PROSOURCE, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-27-1997 DEC-28-1996
<PERIOD-END> SEP-27-1997 SEP-28-1996
<CASH> 15,194,000 2,763,000
<SECURITIES> 0 0
<RECEIVABLES> 197,590,000 221,674,000
<ALLOWANCES> 1,780,000 2,334,000
<INVENTORY> 144,700,000 144,040,00
<CURRENT-ASSETS> 376,323,000 384,430,000
<PP&E> 92,534,000 77,131,000
<DEPRECIATION> 27,395,000 27,494,000
<TOTAL-ASSETS> 509,564,000 503,724,000
<CURRENT-LIABILITIES> 265,462,000 298,882,000
<BONDS> 165,800,000 113,084,000
0 0
0 0
<COMMON> 93,000 94,000
<OTHER-SE> 72,596,000 78,421,000
<TOTAL-LIABILITY-AND-EQUITY> 509,564,000 503,724,000
<SALES> 2,933,662,000 4,125,054,000
<TOTAL-REVENUES> 2,933,662,000 4,125,054,000
<CGS> 2,699,636,000 3,806,811,000
<TOTAL-COSTS> 2,699,536,000 3,806,811,000
<OTHER-EXPENSES> 224,714,000 345,494,000
<LOSS-PROVISION> 1,305,000 1,682,000
<INTEREST-EXPENSE> 8,736,000 14,824,000
<INCOME-PRETAX> 2,074,000 (40,381,000)
<INCOME-TAX> (1,050,000) 15,410,000
<INCOME-CONTINUING> 1,024,000 (24,971,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (6,262,000) 610,000
<CHANGES> 0 0
<NET-INCOME> (5,238,000) (24,361,000)
<EPS-PRIMARY> (0.56) (4.19)
<EPS-DILUTED> (0.56) (4.19)
</TABLE>
