-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0nmKEL/6j6TL2cGiRv0B/CfySX6AhUTlJjBuWN+U/WxoaY4VNAAvOjkxRZAD8Pa IkVLry6+Eo9Gh1+AhZcBjw== 0000950110-97-000510.txt : 19970327 0000950110-97-000510.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950110-97-000510 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BUILDINGS CO /DE/ CENTRAL INDEX KEY: 0000799208 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED METAL BUILDINGS & COMPONENTS [3448] IRS NUMBER: 630931058 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23688 FILM NUMBER: 97564076 BUSINESS ADDRESS: STREET 1: STATE DOCKS RD STREET 2: P O BOX 800 CITY: EUFAULA STATE: AL ZIP: 36027 BUSINESS PHONE: 3346872032 MAIL ADDRESS: STREET 1: STATE DOCKS ROAD STREET 2: P O BOX 800 CITY: EUFULA STATE: AL ZIP: 36027 10-K 1 FORM 10-K ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _________________ to _________________ COMMISSION FILE NUMBER 0-23688 --------------------------------- AMERICAN BUILDINGS COMPANY (Exact name of registrant as specified in its charter) --------------------------------- DELAWARE 63-0931058 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P. O. Box 800, State Docks Road, Eufaula, Alabama 36027 (Address of principal executive offices) (334) 687-2032 (Registrant's telephone number, including area code) --------------------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share --------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $133,865,082 as of the close of business on March 17, 1997. The number of shares of Common Stock, $.01 par value, outstanding as of March 17, 1997 was 5,316,243. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held on April 29, 1997, are incorporated by reference into Part III of this Report. ITEM 1. BUSINESS American Buildings Company ("ABC" or the "Company") is a diversified manufacturer and marketer of construction products and services for non-residential applications. The Company designs, manufactures and sells metal building systems, which consist of structural framing and wall and roof panels, for industrial, commercial and institutional markets. The Company's metal building systems are generally custom-designed to meet the specific needs of the end-user and to allow for easy on-site assembly by builders and independent erectors. The Company's metal building systems average approximately 12,000 square feet in size, although the Company frequently provides larger buildings of up to one million square feet or more. The Company markets its metal building systems nationwide through approximately 1,064 authorized builder/dealers. ABC has capitalized on its extensive builder/dealer network and engineering expertise to expand into the emerging metal roofing market. The Company has a separate roofing products' sales, engineering and customer service organization, which markets and sells the Company's roofing products to its builder/dealer network and approximately 368 preferred roofing contractors. In addition, the Company also provides specialty engineering services for large, complex building structures, manufactures and markets mini-warehouses to serve the growing self-storage market and secondary building components to serve the Company's builder/dealers and roofers as well as the general construction industry, and paints steel coils. The Company also operates an ICC-licensed trucking subsidiary, and has recently begun to manufacture and market modular structures and residential steel framing systems. ABC markets its products and services throughout North America and in selected international countries. The Company derived 95.2% and 95.0% of its respective 1995 and 1996 net sales from the sale of metal building systems and roofing and architectural products and secondary building components. INDUSTRY OVERVIEW Since the inception of the metal buildings industry in the 1940s, metal building systems have become a highly accepted method of construction for low-rise, non-residential structures, such as factories, warehouses, distribution centers, athletic and event centers, office buildings, retail establishments, banks and schools. Based upon information reported by the Metal Building Manufacturers Association ("MBMA"), an industry trade association, metal building systems accounted, on a square footage basis, for approximately 70% of low-rise, non-residential structures of up to 150,000 square feet constructed in 1996, compared to 65% in 1995 and 54% in 1987. The Company believes the cost of the metal building system generally represents approximately 15% of the total cost of constructing the building. In 1995, the non-residential market for metal buildings consisted primarily of three distinct markets: (1) commercial buildings, which accounted for approximately 36% of metal building systems industry sales; (2) manufacturing buildings, which accounted for approximately 40% of such industry sales; and (3) institutional buildings and other categories, which in the aggregate accounted for approximately 24% of such industry sales. Industry demand for metal building systems is cyclical and highly sensitive to overall economic conditions, dependent to a large degree upon the level of non-residential construction activity, the availability of financing for construction projects, interest rates and other factors that affect the construction industry. According to information reported by the MBMA, metal buildings industry sales increased from approximately $1.0 billion in 1982 to approximately $1.7 billion in 1989, but subsequently declined to approximately $1.3 billion in 1991. Demand in the metal buildings industry was flat in 1992 at approximately $1.3 billion, but increased -1- to approximately $1.5 billion in 1993, $1.9 billion in 1994, $2.2 billion in 1995 and $2.3 billion in 1996(1). The decline in industry volume during 1990 and 1991 and flatness during 1992 adversely impacted all manufacturers, and caused a number of them to close manufacturing facilities. The five largest manufacturers of metal buildings in the United States, including ABC, collectively accounted for approximately 68% of 1995 industry sales and approximately 69% of 1996 industry sales reported to the MBMA; the balance of the manufacturers are predominantly small or regional competitors. In the early years of the industry, metal building systems were most often used for factories, warehouses, distribution centers and other applications in which the exterior appearance of the building was not as significant a consideration to customers as construction cost, efficiency, speed of construction and other factors. Technological advances in products and materials, as well as the advent of modern computer-aided engineering and design techniques, have led to the development of structural and roofing systems that are compatible with more traditional construction materials. Architects and designers now often combine a metal building system with masonry, glass and wood exterior facades in order to meet the aesthetic requirements of building codes and potential customers while preserving the inherent favorable characteristics of metal building systems. As a result, the uses for metal building systems now include office buildings, showrooms, retail stores, banks, schools and other non-residential buildings for which aesthetics and architectural features are important considerations. The Company believes that competing in markets where customers seek unique aesthetic or functional features for a structure places a premium on the manufacturer's custom design and engineering capabilities, as well as the strength of its distribution network. The Company believes that, as a result of improvements in metal building design and engineering, metal systems construction have become more competitive with the more traditional forms of construction, although some customers may prefer other forms of construction for aesthetic reasons. Nevertheless, the Company believes that metal building systems have gained market share from the more traditional forms of construction for the following reasons: Short Construction Time. In many instances, it takes less time to construct a metal building system in comparison to other building types, in part due to the fact that a contractor can prepare the building site while the manufacturer designs and manufactures the building system. In addition, since most of the work is done in the factory, the likelihood of construction delays resulting from bad weather is reduced. - -------- (1) The market share information of ABC in the metal buildings industry (which is measured in terms of sales dollars shipped (as opposed to sales orders received)) and sales information for the metal buildings industry, including the total market and the market share and sales information for competitors of the Company, included herein are derived solely from data reported by the MBMA, an industry trade association, in February 1997. The Company believes that the 31 manufacturers of metal building systems who are currently members of and report information to the MBMA represent approximately 90% of the total industry sales. The sales data which the Company reports to the MBMA, and on which the Company's metal buildings industry market share information included herein is based, consist of sales of the Company's Construction Products Group (which are referred to herein collectively as "the Company's metal buildings industry sales"). In 1996 the Company created a Construction Products Group, which consists of the Company's metal buildings systems, roofing, mini-warehouse, heavy fabrication, components and international divisions. -2- Low Material Costs. Most metal building system manufacturers use computer-aided analysis and design to fabricate structural members with high strength-to-weight ratios, minimizing raw materials costs. Low Construction Costs. Factory labor rates are generally lower than field construction labor rates. Additionally, building system components produced in a controlled factory environment generally tend to be of higher quality than components built under the sometimes adverse weather conditions in the field. Ease of Expansion and Flexibility. Metal building systems can be modified quickly and economically before, during or after the building system is completed to accommodate expansion. Typically, a building system can be expanded by removing the end or side walls, erecting new framework, and adding matching wall and roof panels. Low Operating Costs. Metal will not deteriorate because of cracking, damp rot and insect damage and metal buildings are easy to insulate. Furthermore, factory applied roof and siding panel coatings resist cracking, peeling, chipping, chalking and fading. Improved Aesthetics. Metal building systems' aesthetic qualities have dramatically improved with advances in design, materials and coatings. Metal building systems can be combined with masonry, glass or wood facades in order to meet customers' aesthetic requirements while maintaining many of the basic advantages of metal buildings. The Company believes that an end-user's decision between metal buildings and buildings constructed with more traditional materials (e.g., wood, brick) is based on personal preferences for aesthetic features and price. The cost of metal building systems compares favorably to conventional construction primarily because the secondary structural framing and covering system are made from cold-formed steel products, thus reducing cost. The rigid primary structural framing is also manufactured in a low labor-intensive process, relying to a large extent on semi-automatic welding machinery to form the various structural parts. Cost competitiveness can vary based on the type and complexity of the building, including bay spacing, loads and cover system requirements. In addition to metal building systems, some metal building systems companies have targeted the non-residential roofing business as an opportunity to expand the applications of their base product. The development of the standing seam roof as an alternative to the traditional through-fastened metal roof and long life panel finishes have accelerated the growth of this market by providing the industry with a product to market as a replacement for built-up and single-ply roofs or as a retrofit over those roofs. Although the upfront costs of a metal roof are 20-25% greater than those of roofs constructed with more traditional materials, ABC believes that the cost savings over the 20-year life of the metal roof exceed 10% per year due to energy efficiencies and lower maintenance requirements. According to the National Roofing Contractors Association, the market for non-residential roofing in 1995 was approximately $13.2 billion, divided between retrofit roofing (approximately $9.9 billion) and -3- new roofing (approximately $3.3 billion)(2). Metal roofing in 1996 accounted for approximately 4.6% of the total non-residential roofing market. The non-residential construction industry is highly sensitive to overall economic conditions, and from time to time has been negatively impacted in numerous geographic regions by unfavorable economic conditions, relatively high vacancy rates, changes in tax laws impacting the real estate industry and the unavailability of financing. Demand for the Company's products may be adversely affected by the weakness of demand within particular customer groups or a recession in the construction industry or particular geographic regions, which may adversely affect the Company's results of operations. The timing and severity of future economic or industry downturns are not currently determinable, and any such downturn could have a material adverse effect on the Company's results of operations and business. COMPANY STRATEGY The Company's business strategy is focused on increasing long-term profitability through enhancement of its strong builder/dealer network, technological innovations, cost efficiencies, internal investment, capacity expansion and expansion into related lines of business. The Company believes that its recent growth and prospects for the future result from its implementation of the following strategies: Strong National Builder/Dealer Network: The Company has established, and continues to enhance, its strong builder/dealer network. ABC focuses on attracting design/build and negotiating contractors, which typically have higher margins than bid-oriented general contractors. In 1995 and 1996, ABC added 152 and 184 builders, respectively, to its builder/dealer network and dropped 238 poorly performing builders in aggregate during these years. In 1995, the 152 builders accounted for approximately 7% of the Company's metal buildings industry sales and approximately 25% of the $77.1 million increase in the Company's metal buildings industry sales. In 1996, the 184 builders accounted for approximately 9% of the Company's metal buildings industry sales. The Company believes that its product mix, which includes roofing and architectural products and its specialty engineering group responsible for the design of large, complex buildings, as well as its national accounts program, which focuses on developing business from large, frequent builders of metal building systems and relationships with major engineering, architectural and construction firms, will assist ABC in attracting and retaining the industry's highest caliber builders as well as establishing relationships with large frequent purchasers of metal building systems. The Company's relationship with its builder/dealers and preferred roofing contractors is non-exclusive. Technology Design Leadership: In 1991 the Company introduced Spectrum, a personal computer-based proprietary design, estimating and ordering software system which allows a builder to rapidly design projects and produce complete cost data and computer generated drawings for most of the Company's metal building systems. The Company believes that Spectrum's ease of use provides a competitive edge to ABC's builders. Approximately 86% of - -------- (2) The sales information for the roofing industry is derived from data published by the National Roofing Contractors Association ("NRCA"), an industry trade association, in March 1996, which compiles information from roofing contractors and makes certain extrapolations to determine the total market. The NRCA has informed the Company that it does not expect to publish 1996 data until mid-April 1997. -4- the Company's builders are currently trained and licensed to use Spectrum. Based upon the success of Spectrum, the Company introduced Summit, a personal computer-based proprietary design, estimating and ordering software system specifically designed for the metal roofing market, in April 1994. Approximately 72% of the Company's preferred roofing contractors are currently trained and licensed to use Summit. The Company intends to continue to enhance its technology to improve its ability to accurately and competitively price the Company's products and use this competitive strength to recruit new builders. Expansion of Non-Residential Metal Roofing Business: The Company has focused on expanding its roofing and architectural products business to take advantage of the rapid growth and acceptance of metal roofing in the $9.9 billion retrofit roofing and $3.3 billion new roofing markets. ABC devotes a separate sales, engineering and customer service organization for the distribution of non-residential roofing products. The Company believes that this division also offers a new product line to its builder/dealer network, and that this product line assists the Company in attracting and retaining the industry's highest quality builders. Internal Expansion: ABC opened the initial phase of its manufacturing facility in Virginia in October 1994, and completed this facility in December 1995. Because of the significance of freight and delivery charges to the delivered cost of metal building systems, the Company believes it is advantageous to sell and deliver its products within a 500 mile radius of its manufacturing facilities. The Company believes that locating a facility in Virginia has allowed it to meet increasing demand in the East Coast market while relieving capacity constraints at the Company's Alabama and Illinois facilities, allowing continued growth in the markets supplied by these facilities. In addition, during 1996 the Company increased the capacity of its Polymer Coil Coaters division by upgrading the line speed. Improvement of Manufacturing Efficiency and Productivity: Following the Company's recapitalization in January 1993 (see "--Company History"), the Company implemented a capital expenditure program to improve manufacturing efficiency and productivity. The Company spent $10.3 million in 1995 (including $5.3 million to complete the expansion of its Virginia facility) and $9.3 million during 1996 (including $3.6 million of capital expenditures for its Virginia facility, $2.9 million to increase capacity at its Polymer Coil Coaters division and $2.1 million for office expansion) and currently intends to spend $6.0 million during 1997 for new equipment, production controls and other capital expenditures which the Company believes will enhance the Company's overall profitability by improving manufacturing efficiency and productivity, reducing costs and increasing capacity to meet increasing demand. ABC is committed to ongoing reductions in its cost of producing metal building systems in order to increase its sales and market share in the metal buildings industry. International Opportunities: The Company intends to pursue international opportunities through export of its products and formation of joint ventures. The Company's joint venture, American Buildings Company Asia, L.P., was formed to pursue the manufacture and sale of metal building systems in The People's Republic of China and certain other countries in Southeast Asia. The Company is also currently marketing its products in Latin America. See "--International Opportunities." Expansion into Related Lines of Business. The Company intends to expand the construction products and services it offers, both through acquisition and internal development. In November 1996, ABC acquired the Liberty, North Carolina manufacturing facility of American Modular Technologies, L.L.C. for the manufacture of modular buildings. -5- In December 1996, the Company formed a new division to pursue the manufacture and marketing of steel framing for the residential market. CUSTOMERS AND DISTRIBUTION NETWORK The Company distributes its metal building systems through a nationwide network of approximately 1,064 authorized builder/dealers. ABC markets to builders through a sales force of approximately 45 persons located throughout the United States. The Company currently has an organization of approximately 368 preferred roofing contractors, including approximately 180 builders which are part of the Company's metal building systems builder/dealer network. The Roofing & Components Group primarily markets roofing products and secondary components through a separate sales force of 24 persons to ABC's builder/dealer network and preferred roofing contractors. In both cases, the Company's engineering, manufacturing and marketing personnel work directly with the builder and contractor to establish job specifications and modifications, determine the appropriate pricing for the Company's products and services, generate drawings and establish production and delivery schedules. The Company's relationship with its builder/dealers and preferred roofing contractors is non-exclusive. The Company's authorized builder/dealer organization consists of independent contractors who market ABC products to end-users. These builders usually erect the metal building system on the customer's site, and provide contracting and other ancillary services to the completion of the project. The Company prices its products to the builder, which usually marks up the price to its customer as part of the overall construction arrangement or bid with its customer. The Company focuses on developing relationships with the strongest builders in each market and recruiting design/build and negotiating contractors, which typically have higher margins than bid-oriented general contractors. Before a builder can become an authorized ABC builder, the Company performs a market analysis of the builder's region to determine their market share and position, as well as background and credit checks to ensure that the builder meets ABC's standards. ABC believes the reputation of the builder/general contractor, price and the ability to meet customer specifications and deliver on time are key factors utilized by end-users in selecting among competing metal building systems. Geographic location is also important to customer service, helping ensure reliable delivery and minimizing freight expense. During 1995 and 1996, the Company's largest builder accounted for approximately 2.1% and 1.5%, respectively, of the Company's total metal building systems sales, while the ten largest builders accounted for approximately 13.6% and 11.3%, respectively, of such sales. The Company has written agreements with its authorized builder/dealers which generally grant the builder the non-exclusive right to market the Company's products and are generally cancelable by either party on 90 days' notice (five days in the case of certain specified events). The agreements do not prohibit the builder from marketing metal building systems of other manufacturers, although as a matter of practice most of the Company's builders work only with ABC because of ABC's commitment to its builders. The Company provides its builders with sales and pricing information, design and engineering manuals, drawings and assistance, Spectrum for estimating and quoting jobs, advertising and promotional literature, a full-time customer service representative and training for the builder's personnel. The Company often participates on a limited basis with cooperative advertising arrangements, such as yellow pages advertisements, with its builders. The Company also sponsors periodic builders meetings at which it conducts seminars to assist builders in marketing the Company's -6- products. In 1993, the Company established the Golden Eagle program, designed to recognize and reward the Company's highest caliber, highest volume builders. For these builders, the Company provides special levels of support, including free upgrades on Spectrum, free access to the Company's training seminars, special customer service telephone lines and eligibility for incentive awards. Approximately 180 builders are currently participants in the Golden Eagle program. The builder functions as the Company's direct link to the end-user. The Company provides marketing support and engineering resources for its builders and relies upon each builder's knowledge of the local market. The Company believes that its builder relationships give it prompt and cost effective entry into a local market. The metal buildings industry generally has gravitated toward the builder-manufacturer relationship. However, two of the other three largest national manufacturers has its own construction company, circumventing local builders in the marketplace. This direct approach allows these manufacturers to compete for large projects without involving the services of a local builder. The Company believes that by not forming a construction subsidiary, it has strengthened its relationship with its builders, because it does not compete with them to construct buildings, and has encouraged builders to pursue a relationship with the Company. The Company continually seeks to enhance its strong builder/dealer network. The following table sets forth information relating to the total number of the Company's authorized builder/dealers, and the number of builder/dealers added to and terminated from its builder/dealer network, in each of the Company's last three fiscal years: Number of Builder/Dealers 1994 1995 1996 --------------- ---- ---- ---- At January 1,............. 982 966 983 Added..................... 136 152 184 Terminated................ 152 135 103 ------ -------- -------- At December 31, .......... 966 983 1,064 ====== ======== ======== Although some builder/dealers chose not to continue to be part of the Company's authorized builder/dealer network during this period, the substantial majority of builder/dealers who ceased to be part of the Company's authorized builder/dealer network were dropped by the Company for poor performance. In order to enhance its builder/dealer network, the Company began focusing in 1993 on identifying and dropping from its builder/dealer network poorly performing builders. The Company expects that it will continue to enhance its builder/dealer network by actively recruiting strong builders and dropping poorly performing builders. The Company anticipates that it will add approximately as many new authorized builders/dealers to its builder/dealer network as are terminated and, as a result, the Company expects the number of authorized builder/dealers will remain relatively constant over the next two years, although there can be no assurance of this. The Company's Heavy Fabrication division is a specialty engineering group that combines the Company's metal buildings technology with conventional construction techniques and applications to design and engineer large, complex buildings. This division markets primarily to major architectural and engineering firms, large general contractors and ABC -7- builder/dealers. The Company anticipates that its national accounts program will enhance the growth of the Heavy Fabrication division by assisting it in closing orders and developing relationships with prospective partners such as major engineering, architectural and construction firms. The Company also believes that its Heavy Fabrication division offers its builder/dealer network an additional service. The Company's Roofing & Components Group's sales force markets metal roofing products and secondary components to both the Company's authorized builder/dealer network and to preferred roofing contractors. The Company believes that roofing contractors are far more likely to be contacted by a building owner when a new roof is needed, and, accordingly, the Company established a network of preferred roofing contractors to market its metal roofs. The Company devotes a separate sales, engineering and customer service organization to the distribution of non-residential roofing products. By having a separate organization whose compensation is tied directly to the sales of roofing products, the Company believes it has created a more motivated work force than if it used its established metal building systems sales organization. As with its metal building systems builder/dealer network, the Company supports its contractors with sales and pricing information, design and engineering manuals, a full-time customer service representative and training for the roofer's personnel. In late 1992, the Company reinstated its national accounts program, which focuses on developing business from large, frequent builders and users of metal buildings and relationships with major engineering, architectural and construction firms. The Company believes that a national accounts program allows it to establish relationships with large industrial and retail companies on their specific projects, which it can then refer to local builders who may not have a relationship with such company at the corporate level. The Company believes this will further strengthen ABC's relationships with its strongest builders and assist in recruiting new builders. ABC believes this program benefits its Heavy Fabrication, Roofing, Components and Metal Building Systems divisions. DESIGN AND ENGINEERING The manufacture and marketing of metal building systems depend significantly upon engineering and design capability and capacity. Metal building systems must be designed to meet end-users' requirements and to satisfy applicable local building codes. The Company's metal building systems are typically planned and designed by the builder using Spectrum, which was introduced in 1991 to enhance the productivity of the sales and estimating functions. The Spectrum database, which is periodically updated, includes all local building codes, the Company's products and prices therefor, delivery costs and design features. The Spectrum software system allows a builder to produce complete cost data and computer generated drawings for most of the Company's metal building systems. Spectrum produces purchase order documentation, and supports builders by compiling specification reports, proposals and other sales related documentation designed to support the builder's selling efforts. Since the pricing of the building to the builder is included in the Spectrum software, the calculation of project costs is on-line, thereby eliminating the time consuming process of pricing a building component by component from a catalogue. The system further enables the Company's builder/dealer network to rapidly design projects and allows the Company and its builders to price projects to achieve desired margins. Furthermore, Spectrum provides builders with the flexibility to make modifications to the design of the project and receive instant cost data and project renderings reflecting such changes. Although several of -8- the Company's competitors have also introduced design, estimating and ordering software for use by their builders, the Company believes Spectrum's ease of use provides a competitive edge to ABC's builders. Approximately 86% of ABC's builders are currently trained and licensed to use Spectrum. Typically, a builder estimates a metal building system using Spectrum. However, there may be projects, generally for large or complex buildings, which require the builder to seek estimating and design assistance from the Company. In these cases, the initial Spectrum designs are improved upon by the Company's sales and engineering departments, working in close coordination with the builder, in an attempt to determine the most cost-effective design within the guidelines provided by the end-user or the architect or engineer working on the project. The Company has also developed a personal computer-based proprietary design, estimating and ordering software system, Summit, to enhance the productivity of the sales and estimating functions for the metal roofing market. Summit, which the Company introduced in April 1994, operates similarly to Spectrum. Approximately 72% of the Company's preferred roofing contractors are currently trained and licensed to use Summit. After receipt of an order that has been priced using the pre-design features of Spectrum, the Company's engineering department develops actual engineering design, construction and fabrication drawings to fulfill the order requirements. The engineering department ensures that the order, the drawings and the estimate agree. Change orders are developed to correct any discrepancies and to address any changes after the order is received. The project is then engineered to meet the local building code requirements, job specific characteristics and customer specifications. This includes, but is not limited to, addressing the member sizes needed to resist live loads, collateral loads, snow loads and seismic forces. This design data is then utilized to develop the construction drawings and fabrication drawings. The construction drawings are furnished to the builder for construction and permit purposes. The fabrication drawings are furnished to the plants, either in hard copy or electronically, as needed for fabrication. As part of a strategy to bring engineering services closer to its dealers, ABC operates eleven decentralized engineering services centers across the U.S. to increase the Company's ability to provide value added engineering support and increase flexibility in addressing dealers' and customers' needs. MANUFACTURING Once the specifications and designs of the customer's project have been finalized, the manufacturing process begins. The fabrication of the primary structural framing consists of a process in which pieces of rigid steel plates and bar stock are sheared and punched, routed through a semi-automatic welding machine and sent through further fitting and welding processes. This process is the most labor intensive in the fabrication of metal building systems. The secondary structural framing and the covering subsystem are roll-formed steel products. In roll forming, coils of steel are decoiled and passed through a series of progressive forming rolls which shape the steel into various profiles of medium-gauge structural shapes and light-gauge sheets and panels. The fabrication of the secondary framing and covering subsystems is more automated than that of the primary structural framing. -9- Structural framing members and covering subsystems are shipped to the job site for assembly by local builders or independent erectors. ABC generally is not responsible for any on-site construction, although employees of the Company's marketing and engineering departments may monitor the project until completion. The time elapsed between the Company's receipt of an order and shipment of a completed building system historically ranges from four to eight weeks, depending upon the backlog at each manufacturing facility and the time required for the builder to obtain all required governmental approvals as well as approval of the builder's architect. The Company operates seven manufacturing facilities. Because of the significance of freight and delivery charges to the delivered cost of metal building systems, the Company believes it is advantageous to sell and deliver its products within a 500 mile radius of its manufacturing facilities. Metal building systems and roofing and architectural products are manufactured at the Eufaula, Alabama; El Paso, Illinois; Carson City, Nevada; and La Crosse, Virginia plants. ABC's coil painting plant is located in Birmingham, Alabama. Modular systems are manufactured in Liberty, North Carolina. The components division operates out of a leased facility in Birmingham. See "Item 2. Properties." PRODUCTS AND SERVICES The Company conducts its business through ten operating divisions, Buildings, Roofing, Heavy Fabrication, Mini-Warehouse, Components, Polymer Coil Coaters, International, Modular Buildings, Residential Steel Framing and Transportation, which are organized by markets. These divisions complement each other through a combination of common distribution channels, common manufacturing facilities or vertical integration of products or services. The Construction Products Group, which consists of the Buildings Group (consisting of the Buildings, Heavy Fabrication, Mini-Warehouse and International divisions) and the Roofing & Components Group (consisting of the Roofing and Components divisions) all use as a distribution base the Company's nationwide network of approximately 1,064 authorized builder/dealers, with the Roofing & Components Group expanding from that base to other distribution networks. Products for these Groups are manufactured in the Company's four metal building systems manufacturing facilities. Because the primary structural framing is the most labor intensive portion of the manufacturing process, capacity for roofing and steel component parts exists even when the primary structural lines are operating at full capacity. In addition, the Company has a manufacturing facility devoted solely to the manufacture of components. The Polymer Coil Coaters division paints coils for both the Buildings and the Roofing & Components Groups. The Modular Buildings division, which was acquired in late November, 1996, manufactures and markets modular buildings for the non-residential market. ABC's residential steel framing division was formed in late 1996 to address the market for residential steel framing. The ABC Transportation division transports raw materials to the Company's manufacturing facilities and delivers finished products to customers throughout the United States. BUILDINGS GROUP The Buildings Group, which consists of the Buildings, Mini-Warehouse, Heavy Fabrication and International divisions, designs, engineers, manufactures and sells metal building systems for the low rise, non-residential construction market. Typical structures include factories, warehouses, distribution facilities, public buildings, schools, churches, healthcare facilities, aircraft hangars, showrooms, office buildings, retailing establishments, -10- self-storage mini-warehouses and numerous other private sector and community purposes. The Company's metal building systems are custom-designed and engineered to meet the specific needs of the end-user and to allow for easy on-site assembly by builders or independent erectors. Each building system is manufactured for a specific customer order. The Company's average order size is $47,900, representing a building of approximately 12,000 square feet in size, although the Company frequently provides larger buildings of up to one million square feet or more. The metal building systems manufactured by the Company are comprised of (1) primary structural framing, (2) secondary structural framing, and (3) the covering system, which includes the roof, walls and trim. The building system is designed to support externally applied loads. Primary Structural Framing. The primary structural framing, fabricated from steel plate and bar stock, supports the secondary structural framing, roof and walls. Through the primary framing, the force of all applied loads is structurally transferred to the foundation. Secondary Structural Framing. The secondary structural framing consists of medium-gauge, roll-formed steel components called purlins and girts. Purlins are attached to the primary frame to support the roof. Girts are attached to the primary frame to support the walls. The secondary structural framing is designed to strengthen the primary structural framing and efficiently transfer applied loads from the roof and walls to the primary structural framing. Covering System. The covering system consists of roof and wall panels. These panels not only lock out the weather but also contribute to the structural integrity of the overall building system. Roof and siding panels are fabricated from light-gauge, roll-formed steel. Accessory components, such as doors, windows, gutters and interior partitions, complete the metal building system. The Heavy Fabrication division is a specialty engineering group which is responsible for the design of large, complex building structures such as heavy industrial facilities, exhibition halls, athletic and event centers, airplane maintenance facilities and cogeneration and waste-to-energy facilities. This division's design/build approach combines conventional construction techniques and applications with the advantages of the Company's metal building systems to design and engineer large complex buildings. Typically, over one-half of the fabrication for these projects is done by the Company's plants and the balance by outside structural fabricators. In 1996, Heavy Fabrication's larger projects included two steel mills (one each in Indiana and Illinois) and a fiberboard plant in Arkansas. See "--International Opportunities" for a discussion of the Company's International division. ROOFING & COMPONENTS GROUP The Roofing division manufactures and markets metal roofing systems that can be installed on any type of building, metal systems construction or conventional, new or existing. The Company's engineers work closely with architects and contractors to design custom roofing systems according to exact building specifications. The Company's roofing systems can be adapted to suit a wide variety of architectural and design specifications. ABC's roofing systems -11- consist of secondary framing and roofing panels of coated cold-rolled steel. The roofing panels are galvanized or galvalume coated for higher corrosion resistance. Metal roofing systems can be painted in a number of colors, which is becoming an increasingly important trend in commercial and pubic sector construction. The majority of the Company's roofing systems are standing seam roofs which ABC believes have considerable advantages over conventional roofing materials. Standing seam roofs reduce the potential for leaks because there are fewer through-the-roof fasteners and the seams stand up to three inches above the roof drainage plane. By means of a substructure of light gauge steel members, slope can be imposed on any roof. Panels are locked together as a seam raised above the roof drainage plane. In addition, when required by design, the use of movable clips to attach the roof panels to the structural support system allows the roof surface to "float" over its structural supports, enabling the roof panels to expand and contract with fluctuations in temperature without developing cracks, fissures and other common causes of roof leakage. The increased longevity of standing seam metal roofing systems has led to greater market acceptance. The Company believes that such systems will continue to gain market share from conventional roofing materials. The following are the advantages of metal roofing systems over conventional roofing materials: Lower Lifecycle Cost - The total cost over the life of metal roofing systems is lower than that of conventional roofing systems for both new construction and replacement roofing. For new construction, the cost of installing metal roofing is equal to the cost of conventional roofing, and the longer life and lower maintenance costs of metal roofing make the total cost much more attractive. For replacement roofing, although installation costs are 60 to 70 percent higher for metal roofing due to the need for a sloping support system, the lower ongoing costs more than offset the initial expenditure. Longevity - Metal roofing systems last for twenty to thirty years without requiring major maintenance or replacement, compared to five to ten years for conventional roofs. The cost of leaks and roof failure can be very high, including damage to building interiors and disruption of the functional usefulness of the building. Metal roofing prolongs the intervals between costly and time-consuming repair work. Aesthetics - Metal roofing systems allow architects and builders to integrate colors and geometric design into the roofing of new and existing buildings, providing a new and increasingly fashionable means of enhancing a building's aesthetics. Conventional roofing material is generally unsightly tar paper or a gravel surface, and building designers tend to conceal roofs made with such materials. The Company's roofing systems meet all necessary and appropriate industry codes and specifications. All orders received by ABC for roofing and architectural products are fabricated in the Company's plants. The Components division manufactures and markets secondary components, which consist of wall and roofing panels, trim and other metal building accessories. This division primarily serves the general construction industry, frame fabricators who do not have production capability other than primary frames, and the Company's builder/dealer network. These customers use the components for repair and replacement jobs, or as parts for small buildings. -12- POLYMER COIL COATERS The Polymer Coil Coaters division paints steel coils. This division's facility is located in Birmingham, Alabama, adjacent to the U.S. Steel Division of USX Corp.'s plant, providing the Company with substantial cost advantages with respect to services performed for U.S. Steel. Approximately 27%, 30% and 25% of the division's gross sales for 1994, 1995 and 1996, respectively (before intercompany eliminations), were to the U.S. Steel Division for that division's customers who desired painted (as opposed to unpainted) coil. Approximately 41%, 43% and 51% of Polymer Coil Coaters' gross sales for 1994, 1995 and 1996, respectively (before intercompany eliminations), were to the Company and the balance to industrial customers. In October 1995, the Company began a $3.5 million capital expenditure program for new coater heads and a 40% increase in line speed to increase capacity at the facility, which was completed in January 1997. U.S. Steel recently added a new galvanizing/galvalume line at its Birmingham, Alabama plant. The Company believes its ability to add additional lines at its existing facility is limited by local environmental regulations, particularly those relating to air pollution. See "--Competition." TRANSPORTATION The ABC Transportation division transports raw materials to the Company's manufacturing plants and delivers finished goods to customers around the United States. This division operates approximately 135 leased truck cabs and approximately 350 leased flatbed trailers. The Company believes that operating its own transport service enhances the quality of services provided by it to its builder/dealer network. This division also transports materials for third party customers. The Company's ABC Transportation subsidiary is an ICC-licensed common carrier, licensed to carry all types of materials other than explosives and household goods. MODULAR BUILDINGS In November 1996 the Company acquired the Liberty, North Carolina manufacturing facility of American Modular Technologies, L.L.C. for the manufacture of modular buildings. This acquisition complements ABC's presence in the low-rise non-residential construction market with a modular approach used by major oil companies for convenience stores and canopy systems at their gas stations. The Company intends to expand this division's activities into other segments of the market where modular is an accepted form of construction, such as classrooms and correctional facilities. RESIDENTIAL STEEL FRAMING The Company formed this division in December 1996 to pursue the residential steel framing market. Although currently fewer than 25,000 of the approximately 1.4 million annual new housing starts have steel framing, steel framing has slowly been making inroads. Steel frames tend to have less price fluctuation than wood and have the inherent characteristics of added strength, particularly important in seismic and high wind areas. Steel frames are also superior to wood frames in areas where there are termites and high humidity. -13- INTERNATIONAL OPPORTUNITIES As part of its effort to increase the Company's presence in international markets, in August 1995 ABC and China Renaissance Industries, L.P., a partnership formed to invest in non-listed enterprises in The People's Republic of China, formed a joint venture to pursue the manufacture of metal building systems in the PRC and their sale throughout most of Southeast Asia (the "Territory"). ABC has a 30% interest in the joint venture, and exclusively licensed to the joint venture on a royalty-free basis the right to use certain of ABC's technology to pursue the manufacture and sale of metal building systems in the Territory. The joint venture completed its initial manufacturing facility in the PRC in October 1996. ABC will receive a technology license fee of $1.5 million, of which $750,000 was paid in 1995 and the remainder of which will be paid over a period of up to two years. ABC invested approximately $3.8 million in the joint venture through the end of 1996 and expects to invest up to an additional $0.7 million in 1997. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company is currently marketing its products in Asia and Latin America, and is currently developing a dealer network in Latin America to facilitate its sales there. SUPPLIERS The principal raw material used in the manufacture of metal buildings, metal roofing and components is steel. Components are fabricated from commonly available steel products produced by mills including bars, plates and cold rolled gauge and galvanized sheeting. In 1996, the Company purchased approximately 50% of its steel requirements from two steel companies, the largest of which accounted for approximately 30% of the Company's steel purchases. Since the steel required for the Company's operations currently is available from a number of domestic and foreign suppliers at competitive prices and the Company has not to date experienced any significant quality or delivery problems with its current suppliers, the Company has not traditionally maintained an inventory of steel in excess of its current production requirements. However, there can be no assurance that steel will remain available or that prices will remain stable. If the available supply of steel declines, or if one or more of the current sources for any reason is unable to meet the Company's requirements, the Company could experience price increases, a deterioration of service from its suppliers, or interruptions or delays that may cause the Company to fail to meet delivery schedules to its customers. The Company believes it obtains delivery and service benefits from its suppliers because it concentrates its purchases among a small number of them; nonetheless, there can be no assurance that these benefits will continue to be realized in the future. BACKLOG At December 31, 1996, the total backlog for orders believed by the Company to be firm was $79.9 million, all of which the Company expects to fill during the current fiscal year. This compares with a total backlog of $56.3 million at December 31, 1995 and $76.0 million at December 31, 1994. Job orders, including those believed by the Company to be firm, generally are cancelable by customers at any time for any reason, although the customer is obligated to pay any costs incurred by the Company prior to cancellation of an order. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." -14- WARRANTIES The Company provides three different warranties for its metal building products. First, the fabricated steel portion of the product carries a one-year warranty against defective material and workmanship. Second, an extended material warranty is provided by the Company's suppliers and passed through to the Company's customers. These material warranties relate to long-life paint (20 years), Premium 70, a prepainted galvanized steel (20-25 years), and galvalume aluminized or zincalume steel (20 years). Third, a twenty-year weather-tightness warranty against leaks under normal weather and atmospheric conditions is available for standing seam roofs. Historically, claims under these warranties have been immaterial. COMPETITION On the basis of data reported by the MBMA, the Company's 1996 sales of metal building systems products constituted approximately 11.4% of reported industry sales, placing it as the fourth largest domestic manufacturer behind the Building Systems division of Butler Manufacturing Company, NCI Building Systems, Inc. (including Mesco Metal Buildings, which was acquired in early 1996) and the Varco-Pruden Building Division of United Dominion Industries, Inc., which accounted for approximately 21.3%, 13.6% and 12.5%, respectively, of total 1996 industry sales reported by the MBMA. Other major competitors include the Star and Ceco Divisions of Robertson-Ceco Corp. and United Structures of America, Inc. Several of the Company's competitors have greater financial resources than the Company. The Company believes its American Buildings brand is the third largest brand behind the Butler and Varco-Pruden brands. Competition in the metal buildings industry is intense and is based primarily on price, service, quality of the builder/dealer network and the ability to provide added value in the design of a building. The Company's ability to expand its market share depends in part on its ability to persuade builders to market the Company's products in lieu of those of its competitors, attract conventional contractors to the metal buildings industry and develop a separate network of preferred roofing contractors to market its roofing products. In addition, the Company and others in the metal building systems industry compete with alternative methods of building construction. Although the Company maintains metal building manufacturing facilities in Alabama, Illinois, Nevada and Virginia, the Company's ability to quote competitive prices to customers located more than 500 miles from one of these facilities may be limited because of the significance of freight and delivery charges to the cost of metal buildings. Foreign companies are not presently a significant factor in the domestic marketplace, and the Company does not expect them to be in the near future, mainly because of transportation costs and the short lead times generally required by customers. There are currently four other companies engaged in painting steel coil in the southeastern United States. The Company believes that the recent addition of two of these facilities has resulted in overcapacity for steel coil painting in the southeastern United States and has created competitive pressure. However, the Company believes that its location adjacent to a U.S. Steel plant provides it with substantial cost advantages with respect to services performed for U.S. Steel. REGULATORY MATTERS The Company's manufacturing facilities are subject to many federal, state and local requirements relating to the protection of the environment. The Company believes it is in -15- compliance in all material respects with environmental standards applicable to its operations. The Company does not anticipate material capital expenditures to meet current environmental quality control standards, but there can be no assurance that more stringent regulatory standards will not be established which might require such expenditures. The metal building systems manufactured by the Company must meet zoning and building code requirements promulgated by local governmental agencies. The Company's operations are also governed by laws and regulations relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder which, among other requirements, establish noise and dust standards. Management believes that it is in substantial compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse effect on its results of operations, liquidity or financial condition. PATENTS, LICENSES AND PROPRIETARY RIGHTS The Company has a United States patent on its standing seam roof system. The Company uses various trade names and trademarks in the conduct of its business but has not registered such names or marks with any governmental authorities. EMPLOYEES At December 31, 1996, the Company employed approximately 1,900 people, of whom 97 were general and administrative personnel, approximately 80 were sales personnel, approximately 350 were engineering personnel, and the remainder were production workers (including drivers). The hourly production and maintenance employees of the Company's Polymer Coil Coaters Division are represented by a labor union; the remainder of the Company's employees are not represented by a labor union or a collective bargaining agreement. The Company regards its employee relations as excellent. COMPANY HISTORY The Company and its predecessors have been engaged in the manufacture and marketing of metal building systems since 1947. In July 1986, a management group led by the Company's chief executive officer at that time, together with a private investment firm, acquired the Company and Polymer Metals, Inc. from Cronus Industries, Inc. in a $106.1 million leveraged buyout (the "1986 LBO"). Financing for the 1986 LBO consisted of $51.5 million of senior debt, $45.0 million of senior and subordinated notes, $4.2 million of cash on hand, and approximately $5.4 million of equity. Following the 1986 LBO, the Company operated under significant cash constraints and, in response thereto, the Company sold certain of its non-core businesses, leased its Texas manufacturing facility, which took the Company out of a significant market and resulted in decreased sales and closed two manufacturing facilities in Iowa and Ohio in order to cut costs. During the period following the 1986 LBO until the Restructuring (defined below) was effected, the Company was able to retire $28.4 million of acquisition indebtedness through sales of assets and cash flow from operations. By the end of 1990, the Company was experiencing significant financial difficulties as a result of its negative net worth and substantial interest payments, which severely limited the Company's capital spending and working capital. As a result of the cash constraints and the general decline in total metal buildings industry sales, the Company's net sales decreased from $162.2 million in 1989 to $117.7 million in 1991, the Company incurred net losses in each of -16- 1989, 1990 and 1991, and the Company's metal buildings industry market share decreased from 8.9% in 1989 to 8.4% in 1990 before increasing to 8.6% in 1991. In March 1991, the Company's debt and equity holders completed a financial restructuring (the "Restructuring"), effective December 31, 1990, pursuant to which the Company restructured its senior term and revolving credit loans and $21.5 million of subordinated debt from the 1986 LBO was converted into 1,644,174 shares of Common Stock, representing 77.5% of the Company's then outstanding Common Stock. In the Restructuring, the subordinated debt holders gained control of the Company's Board of Directors. The Restructuring was accounted for as a "quasi-reorganization," an elective accounting procedure that permits a company emerging from financial difficulty to restate its accounts and establish a fresh start in an accounting sense. The Restructuring permitted ABC to meet all of its debt service obligations, although ABC remained highly leveraged. Despite the Company's continued capital constraints during 1992, the Company's revenues grew from $117.7 million in 1991 to $134.4 million in 1992, and the Company's metal buildings industry market share increased from 8.6% to 9.7%. In January 1993, ABC completed a recapitalization sponsored by Sterling Ventures Limited in conjunction with New Street Capital Corporation (the "Recapitalization"), which reduced interest expense, retired higher rate debt and provided the Company with greater operating flexibility to pursue its growth strategy and to invest in its businesses through its capital expenditures program. In May 1994, the Company completed an initial public offering of an aggregate of 1,825,000 shares of Common Stock at a purchase price of $10.00 per share in an underwritten public offering managed by Dean Witter Reynolds Inc. and Prudential Securities Inc. In addition, certain stockholders of the Company sold an aggregate of 1,016,757 shares of Common Stock in such offering. The net proceeds to the Company of the offering were used to repay long-term debt. The Company incurred an extraordinary loss of $2.4 million (net of applicable income tax benefit of $1.5 million) resulting from the write-off of the deferred financing costs and unamortized discount related to the early extinguishment of debt with the proceeds of the offering. In July 1995, certain stockholders of the Company sold an aggregate of 1,466,250 shares of Common Stock at a price of $22.00 per share in an underwritten public offering managed by Dean Witter Reynolds Inc. and Wheat First Butcher Singer. Beginning in 1992, following the 1991 Restructuring and the appointment of Robert Ammerman as Chief Executive Officer and accelerating in 1993, 1994 and 1995 with the financial flexibility provided by the Recapitalization and the Company's initial public offering, the Company began to pursue several strategic initiatives to strengthen its core operations and to rebuild its metal buildings industry market share. These strategic initiatives initially included aggressive pricing of its products, but subsequently focused on enhancement of ABC's builder/dealer network. The Recapitalization and the initial public offering have enabled the Company to pursue a business strategy focused on increasing long-term profitability through enhancement of its strong builder/dealer network, technological innovations, cost efficiencies, internal investment and capacity expansion. As a result, the Company's metal buildings industry sales increased 14.8% in 1992, while metal buildings industry sales were flat, and the Company's metal buildings industry sales increased 24.8%, 23.9% and 40.3% in 1993, 1994 and 1995, respectively, while metal buildings industry sales increased 16.1%, 26.0% and 18.1%, respectively, as the U.S. economy emerged from the economic recession that began in 1989. The Company's metal buildings industry sales decreased 3.9% in 1996, while metal buildings industry sales were flat. Furthermore, ABC's domestic metal buildings industry market share -17- (which is measured in terms of sales dollars shipped (as opposed to sales orders received)) increased from 8.6% in 1991 to 9.7% in 1992, and 10.4% in 1993, before decreasing to 10.2% in 1994. ABC's domestic metal buildings industry market share increased to 11.9% in 1995 but decreased to 11.6% in 1996. The decrease in market share in 1994 was primarily attributable to the high product demand which exceeded the Company's manufacturing and engineering capacity. The Company believes that the establishment of new engineering service centers as well as the completion of the Company's new Virginia facility in 1995, have alleviated these capacity constraints. The decrease in sales and market share in 1996 was primarily due to lower backlog at December 31, 1995 resulting from increased capacity in 1995 and lowering of sale prices in the first half of 1996 to stimulate new business. In addition, the unusually severe weather in the eastern half of the United States in early 1996 also adversely affected 1996 sales. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." EXECUTIVE OFFICERS OF THE COMPANY The executive officers and key employees of the Company are as follows: Name Age Present Position with the Company - ---- --- --------------------------------- Robert T. Ammerman 57 Chief Executive Officer and Director R. Charles Blackmon, Jr. 47 Executive Vice President--Chief Financial Officer Byron L. Brumfield 53 Vice President--Human Resources William R. Buchholz 53 Vice President--Operations Joseph M. Grigelevich, Jr. 54 President--American Modular Technologies Richard B. Haws 40 President--Residential Steel Framing Division Barry L. Milling 53 Vice President--Technical Services William W. Riley 64 President of ABC Transportation Company Anne M. Savage 41 Controller Roy L. Smith 58 Vice President--Polymer Division Joel R. Voelkert 48 President--Construction Products Group Mr. Ammerman has been Chief Executive Officer and a director since joining the Company in July 1992, and served as President from July 1992 through August 1996. From 1973 until he joined the Company, Mr. Ammerman was employed by United Dominion Industries, Inc. and its affiliates, including Varco-Pruden Buildings, a manufacturer of metal buildings. Mr. Ammerman served in various capacities, including Vice-President/General Manager Eastern Division of Varco-Pruden Buildings and President of the Buildings segment of United -18- Dominion Industries, Inc., which included Varco-Pruden Buildings, Stran Buildings and AEP/Span. Mr. Ammerman was Chairman and a member of the Executive Committee of the Metal Building Manufacturers Association in 1995. Mr. Blackmon has been Executive Vice President--Chief Financial Officer of the Company since August 1996. Mr. Blackmon served as Vice President--Chief Financial Officer of the Company from October 1994 to August 1996, as Vice President--Finance and Administration of the Company from May 1992 to October 1994, as Controller of the Company from 1982 to May 1992 and as Assistant Controller from 1981 to 1982. Mr. Blackmon is a CPA. Mr. Brumfield joined the Company as Vice President--Human Resources in August 1995. From July 1984 until he joined the Company, Mr. Brumfield served in various human resources corporate positions with Hercules Inc., a major chemical company. Prior to that he was employed in the aerospace, aluminum and hardboard industries for 20 years. Mr. Buchholz has been Vice President--Operations of the Company since January 1991. Mr. Buchholz is responsible for all manufacturing operations and purchasing. From May 1979 to December 1990, Mr. Buchholz served the Company in various capacities, including Manager of Industrial Engineering and plant manager of the Company's former Houston facility. Mr. Grigelevich has been President of American Modular Technologies since joining the Company in November 1996 in connection with the Company's acquisition of the Liberty, North Carolina manufacturing operations of American Modular Technologies, L.L.C. ("AMT"). Prior to joining the Company, Mr Grigelevich served as a management consultant in 1995, and consulted for AMT. From 1976 to 1995, Mr. Grigelevich served in various positions with Bird Corporation, including Vice President - Finance & Administration from 1993 to 1995 and Treasurer from 1990 to 1993. Mr. Haws joined the Company as President--Residential Steel Framing Division in December 1996. Prior to joining ABC, he was Manager-Light Construction of American Iron and Steel Institute from October 1990 to November 1996 and Senior Development Engineer for H.H. Robertson from March 1989 to September 1990. Mr. Milling has served as Vice President--Technical Services since joining the Company in October 1992, and is responsible for all functions of the Company's Engineering Department. Prior to joining ABC, Mr. Milling served as Vice President and General Manager of the Eastern Region of the Ceco-Building Division of Robertson-Ceco Corp. since November 1990, and prior thereto held various positions in operations, engineering, research and development, and customer service at Robertson-Ceco Corporation since 1969. Mr. Milling is a Registered Professional Engineer in a number of states. Mr. Riley has been President of ABC Transportation Company since November 1992, and served as Vice President/General Manager of ABC Transportation Company from September 1979 until his election as President. Ms. Savage has been Controller of the Company since January 1994. She joined the Company in April 1993 as Manager of Customer Financial Services. From May 1983 until she joined the Company, Ms. Savage was employed by United Dominion Industries, Inc. and held financial positions at its corporate office and two of its metal building industry operating divisions, -19- Varco-Pruden Buildings and Stran Buildings. Prior to joining United Dominion Industries, Ms. Savage was an audit manager at Ernst & Young. Ms. Savage is a CPA. Mr. Smith has been Vice President--Polymer Division since July 1986 and since January 1981 has also served as President of Polymer Coil Coaters and its predecessors. Prior to joining ABC, Mr. Smith was employed by United States Steel Corporation (now known as USX Corp.) for 15 years in various capacities including General Manager of Galvanizing Finishing. Mr. Voelkert has been President--Construction Products Group of the Company since August 1996. From April 1991 to August 1996 Mr. Voelkert served as Vice President--Sales and Marketing of the Company. Prior thereto, Mr. Voelkert served in various capacities with the Company since joining in 1976, including as General Sales Manager, General Manager of Marketing Services, Director of Marketing and District Sales Manager--Florida and the Caribbean. Mr. Voelkert was responsible for starting the roofing and architectural division in 1987. ITEM 2. PROPERTIES Because of the significance of freight and delivery charges to the delivered cost of metal building systems, the Company believes it is advantageous to sell and deliver its products within a 500 mile radius of its manufacturing facilities. The following sets forth certain information with respect to each of the Company's operating facilities: OWNED OR LOCATION/PURPOSE AREA LEASED ---------------- ---- -------- Eufaula, Alabama/Executive Office and 295,000 square feet Owned Manufacturing Facility.................. 48.2 acres El Paso, Illinois/Manufacturing Facility. 182,000 square feet Owned 10.3 acres Carson City, Nevada/Manufacturing 142,000 square feet Owned Facility................................ 18.8 acres Birmingham, Alabama/Manufacturing 84,000 square feet Owned Facility................................ 6.0 acres Birmingham, Alabama/Manufacturing Facility................................ 56,000 square feet Leased La Crosse, Virginia/Manufacturing 197,000 square feet Owned Facility................................ 28 acres Liberty, North Carolina/Manufacturing 160,000 square feet Owned Facility................................ 29.3 acres The Company also leases a 156,000 square foot facility in Jamestown, Ohio which is currently not being utilized in the Company's operations. This facility ceased operations in -20- October 1990 as part of ABC's cost cutting efforts in response to cash constraints resulting from its 1986 leveraged buyout. See "Item 1. Business--Company History" All of the Company facilities are in good operating condition. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened legal proceedings which the Company believes could reasonably be expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER Not Applicable. -21- PART II. ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED TOCKHOLDER MATTERS The Common Stock is quoted on the Nasdaq National Market under the symbol "ABCO". The Common Stock was initially offered to the public on April 28, 1994 at $10.00 per share. The following table sets forth for the periods indicated the high and low reported sale prices per share for the Common Stock as reported by the Nasdaq National Market. High Low ---- --- YEAR ENDED DECEMBER 31, 1995 ---------------------------- First Quarter................................ $18.375 $15.75 Second Quarter .............................. $19.625 $15.875 Third Quarter................................ $27.00 $17.375 Fourth Quarter............................... $26.00 $20.50 High Low ---- --- YEAR ENDED DECEMBER 31, 1996 ---------------------------- First Quarter................................ $24.375 $19.125 Second Quarter............................... $34.375 $22.00 Third Quarter................................ $29.75 $20.75 Fourth Quarter............................... $26.75 $19.75 The number of stockholders of record of Common Stock on March 17, 1997 was approximately 111. On March 17, 1997, the last reported sale price of the Common Stock as reported by the Nasdaq National Market was $26.00. The Company has never paid cash dividends on the Common Stock. -22- ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Net Sales .................................. $273,953 $281,450 $ 204,666 $ 166,805 $ 134,388 --------- --------- --------- --------- --------- Cost and expenses: Cost of sales ............................ 229,260 228,088 164,694 140,431 116,063 Selling, general and administrative ...... 24,311 26,567 21,830 18,282 12,923 --------- --------- --------- --------- --------- 253,571 254,655 186,524 158,713 128,986 --------- --------- --------- --------- --------- Operating income ........................... 20,382 26,795 18,142 8,092 5,402 Interest expense (income) .................. 143 (175) 1,369 3,362 5,972 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle ..................... 20,239 26,970 16,773 4,730 (570) --------- --------- --------- --------- --------- Provision for income taxes(1) .............. 7,792 9,380 6,318 1,921 100 --------- --------- --------- --------- --------- Income (loss) before extraordinary item and cumulative effect of change in accounting principle(1) .................. 12,447 17,590 10,455 2,809 (670) Extraordinary loss on early extinguishment of long-term debt(2) ..................... -- -- (2,425) (413) -- Cumulative effect of change in accounting for income taxes ......................... -- -- -- 1,022 -- --------- --------- --------- --------- --------- Net income (loss)(1) ....................... $ 12,447 $ 17,590 $ 8,030 $ 3,418 $ (670) ========= ========= ========= ========= ========= Income (loss) per common and common equivalent share: Income (loss) before extraordinary item and cumulative effect of change in accounting principle(1) ................ $ 2.06 $ 2.68 $ 1.81 $ 0.66 $ (0.31) Extraordinary loss on early extinguishment of long-term debt ....... -- -- (0.42) (0.10) -- Cumulative effect of change in accounting for income taxes ....................... -- -- -- 0.24 -- --------- --------- --------- --------- --------- Net income (loss) per common and common equivalent share(1) ............... $ 2.06 $ 2.68 $ 1.39 $ 0.80 $ (0.31) ========= ========= ========= ========= ========= Weighted average number of common and common equivalent shares outstanding .............................. 6,040 6,554 5,780 4,288 2,133 ========= ========= ========= ========= =========
-23-
As of December 31, ------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands) BALANCE SHEET DATA: Working capital..................... $13,710 $ 27,116 $18,182 $14,093 $13,723 Total assets........................ 101,970 101,343 85,149 60,744 58,224 Current maturities of long-term debt 1,051 970 1,863 6,636 5,180 Long-term debt, net of current maturities(3)..................... 10,872 7,760 12,376 18,071 36,850 Stockholders' equity (deficit)(4)... 41,466 53,511 37,075 12,822 (553)
- ------------------ (1) In 1995, the Company eliminated a valuation allowance on net operating loss carryforwards which resulted in a one-time reduction of its tax provision and corresponding increase in net income of $1,005,000, or $0.15 per share. (2) In 1994, the Company incurred an extraordinary loss of $2,425,000 (net of applicable tax benefit of $1,436,000), resulting from the write-off of the deferred financing costs and unamortized discount related to the early extinguishment of its remaining senior notes with the proceeds from the Company's initial public offering. In 1993, the Company extinguished $4,415,000 principal amount of senior notes prior to scheduled maturity, which resulted in an extraordinary loss of $413,000 (net of income tax benefit of $259,000). See Note 3 of Notes to Consolidated Financial Statements. (3) Net of unamortized discount of $3,875,000 on the Company's New Class A Notes and New Class B Notes at December 31, 1993, which notes were repaid from the net proceeds to the Company from the Company's initial public offering. Net of unamortized discount of $5,192,000 on the Company's 12% Class A and Class B Senior Notes at December 31, 1992. (4) Includes a reduction of $26,531,000 and $1,071,000 in 1996 and 1995, respectively, which represents the Company's purchases of Treasury Stock. -24- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements in this Annual Report on Form 10-K concerning the Company's business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; and product line growth, together with other statements that are not historical facts, are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, industry cyclicality, fluctuations in customer demand and order pattern, the seasonal nature of the business, changes in pricing or other actions by competitors, and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including this Annual Report on Form 10-K. RESULTS OF OPERATIONS 1996 COMPARED TO 1995 Net sales decreased 2.7% to $274.0 million in 1996 from $281.5 million in 1995. Backlog at December 31, 1996 was 41.9% higher than backlog at December 31, 1995. The Company's metal buildings industry domestic market share, which is measured in terms of sales dollars shipped by the Construction Products Group (consisting of the Company's Buildings Group and Roofing & Components Group), decreased slightly to 11.6% compared to 11.9% in 1995. Net sales in the Buildings Group (consisting of the Company's Metal Buildings, Heavy Fabrication, Mini-Warehouse and International divisions) were $215.5 million, down 4.7% from $226.1 million in 1995. This decrease was primarily the result of lower volume in the first quarter of 1996 which was caused by a combination of a low backlog coming into the year plus the effect of the severe weather conditions across most U.S. markets which caused customers to delay shipment of their orders as construction sites were not yet prepared. Also contributing to the decrease in net sales was lower per unit selling prices as a result of the pass-through of cost decreases from suppliers, compounded further by the aggressive pricing strategy implemented during the first half of 1996 to rebuild backlog. Net sales in the Roofing & Components Group (consisting of the Company's Roofing and Components divisions), increased 6.8% to $44.8 million from $41.9 million in 1995 due to continued increasing acceptance of metal in the roofing market and continued expansion of the preferred roofing contractor network. Gross sales of the Polymer Group increased .7% to $18.4 million from $18.3 million in 1995. This group has operated essentially at capacity for the last two years; consequently, a capital project was begun in late 1995 and completed in January 1997 which will increase the capacity of this group by approximately 40%. Net sales after eliminations in the Polymer Group decreased 14.0% to $9.0 million from $10.4 million in 1995 as proportionately more of the Group's resources were directed toward production for other divisions of the Company as opposed to third parties. Gross sales before eliminations in the Transportation Group increased 6.3% to $20.5 million from $19.3 million in 1995. Net sales after eliminations increased 27.6% to $3.8 million from $3.0 million in 1995 due to increased revenues from hauling of third party loads. Gross profit for 1996 decreased 16.3% to $44.7 million from $53.4 million in 1995. Gross margins decreased 14.0% to 16.3% in 1996 compared to 19.0% in 1995. This decrease was primarily caused by lower volume plus lower selling prices which were the result of the -25- Company's strategy through the first half of 1996 to be market and price aggressive in order to build backlog and better utilize expanded production capabilities. Selling, general and administrative expenses for 1996 decreased 8.5% to $24.3 million from $26.6 million in 1995. As a percentage of net sales, these expenses decreased to 8.9% in 1996 from 9.4% in 1995. The decrease resulted from the Company's strategy to mitigate the impact of reduced volume and selling prices by reducing costs wherever possible without adversely affecting its long-term growth objectives. The Company had net interest expense of $.1 million in 1996 compared to net interest income in 1995 of $.2 million. The increase in interest expense resulted primarily from the Company's repurchase of its common stock and, to a much lesser degree, the purchase of certain assets of American Modular Technologies' ("AMT") Liberty, North Carolina manufacturing operations which has caused it to incur borrowings under its Revolver. Additionally, the Company is currently earning less interest income on the unused proceeds from its Industrial Revenue Bond transaction which is included on the accompanying Consolidated Balance Sheets as Restricted Cash as most of these proceeds have now been invested in the Virginia manufacturing facility. Net income for 1996 was $12.4 million as compared to $16.6 million in 1995, which was net income before the $1.0 million one-time tax provision credit for the reversal of a valuation allowance on net operating loss carryforwards. Including this one-time credit, net income in 1995 was $17.6 million. 1995 COMPARED TO 1994 Net sales increased 37.5% to $281.5 million in 1995 from $204.7 million in 1994. The Company's metal buildings industry domestic market share, which is measured in terms of sales dollars shipped by the Construction Products Group, increased 17.0% to 11.9% in 1995 from 10.2% in 1994, primarily as a result of high product demand and the Company's additional capacity as a result of the addition of its new Virginia manufacturing facility. Backlog at December 31, 1995 was 26% lower than backlog at December 31, 1994. Net sales in the Buildings Group were up 43.4%, increasing to $226.1 million in 1995 from $157.7 million in 1994. This increase resulted from continued enhancement of the Company's builder/dealer network, increased demand for metal buildings, improved selling prices and the added capacity provided by the new Virginia manufacturing facility. Also contributing to the increase was the Heavy Fabrication division's increase of 212.0% to $14.0 million in net sales from $4.5 million in 1994, due primarily to the completion of much of its high backlog entering the year plus its booking and execution of a large contract for a steel mill in Ohio. Net sales in the Roofing & Components Group increased 25.9% to $41.9 million from $33.3 million in 1994, due to continued increasing acceptance of metal in the roofing market and expansion of the preferred roofing contractor network. Gross sales before eliminations in the Polymer Group increased 5.1% to $18.3 million in 1995 compared to $17.4 million in 1994. Net sales in the Polymer Group increased 1.5% to $10.4 million from $10.3 million, primarily due to product mix. Gross sales before eliminations in the Transportation Group increased 18.7% to $19.3 million in 1995 compared to $16.3 million in 1994 primarily as a result of the sales growth of the Construction Products Group. Net sales in the Transportation Group decreased 13.4% million to $3.0 million from $3.4 million due to decreased revenues from hauling of third party loads which was the result of its having to commit a greater proportion of its resources to hauling products shipped by the other divisions of the Company. -26- Gross profit for 1995 increased 33.5% to $53.4 million from $40.0 million in 1994. Gross margins decreased 2.9% to 19.0% in 1995 compared to 19.5% in 1994. This decrease was the result of a higher mix of Heavy Fabrication division sales in 1995 which by their nature carry lower margins. Excluding these sales, gross margins were approximately equal to those of 1994 as the improvement in margins resulting from improved selling prices and manufacturing efficiency improvements was offset by higher engineering costs which were incurred to support the Company's sales growth. Selling, general and administrative expenses for 1995 increased 21.7% to $26.6 million from $21.8 million in 1994. As a percentage of net sales, these expenses decreased to 9.4% in 1995 from 10.7% in 1994. The Company had net interest income in 1995 of $.2 million compared to net interest expense in 1994 of $1.4 million. The decrease in interest expense resulted primarily from the completion on May 5, 1994 of the Company's initial public offering of Common Stock and the resulting reduction in debt from the utilization of the net proceeds from the offering and also from the repayment on May 10, 1995 of an outstanding term loan. Additionally, the Company earned interest income on its excess cash as well as the unused proceeds from its Industrial Revenue Bond transaction which was closed on December 7, 1994 in order to provide financing for its new Virginia manufacturing facility. These unused proceeds are invested in highly liquid short-term investments and are included on the accompanying Consolidated Balance Sheets as Restricted Cash. Net income for 1995, before a $1.0 million one-time tax provision credit for the reversal of a valuation allowance on net operating loss carryforwards, was $16.6 million. This compares to $10.5 million in 1994 before an extraordinary loss on extinguishment of debt of $2.4 million. Including tax credits and extraordinary items net income for 1995 increased 119.1% to $17.6 million from $8.0 million in 1994. -27- The following table presents the Company's gross sales attributable to each of its operating divisions for the periods indicated:
Year Ended December 31, ------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (In thousands) Buildings Group .................. $ 215,456 $ 226,119 $ 157,661 $128,569 $103,490 Roofing & Components Group ....... 44,790 41,943 33,313 25,608 20,009 Transportation Group(1) .......... 20,535 19,314 16,272 13,430 11,252 Polymer Group(2) ................. 18,379 18,251 17,368 16,398 14,937 American Modular Technologies(3) ................. 962 -- -- -- -- --------- --------- --------- --------- --------- Gross Sales ...................... 300,122 305,627 224,614 184,005 149,688 Eliminations ..................... (26,169) (24,177) (19,948) (17,200) (15,300) --------- --------- --------- --------- --------- Net sales ........................ $ 273,953 $ 281,450 $ 204,666 $166,805 $134,388 ========= ========= ========= ========= =========
- --------------- (1) Includes intercompany sales of $16.7 million, $16.3 million, $12.8 million, $10.9 million and $9.3 million, respectively. (2) Includes intercompany sales of $9.4 million, $7.8 million, $7.1 million, $6.3 million and $6.0 million, respectively. (3) American Modular Technologies was purchased on November 26, 1996. The above represents net sales for the one-month period since the acquisition. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its operations from cash flows from operations, bank borrowings and sales of its debt and equity securities. Net cash provided by operations was $14.0 million, $24.2 million and $17.7 million in 1996, 1995 and 1994, respectively. Net income plus depreciation and amortization was $16.6 million, $20.9 million and $10.8 million in the same periods, respectively. For 1996, cash provided by continuing operations was lower than net income plus depreciation and amortization due to an increased investment in working capital which was required to support fourth quarter volume. For 1995, cash provided by operating activities exceeded net income plus depreciation and amortization primarily due to further improvement in working capital management which was partially offset by an increase in net noncurrent assets and liabilities. For 1994, cash provided by operating activities exceeded net income plus depreciation and amortization primarily due to improved working capital management and the extraordinary loss on the early extinguishment of debt, partially offset by an increase in net noncurrent assets and liabilities. Net cash used for investing activities was $9.6 million, $5.4 million and $16.2 million in 1996, 1995 and 1994, respectively. For 1996, this was primarily the result of additions to property, plant and equipment of $9.3 million, the purchase of certain assets of AMT for $2.0 million, and the investment in the China Joint Venture of $2.9 million partially offset by the application of $3.6 million of restricted cash to capital expenditures related to the Virginia manufacturing facility. The restricted cash resulted from the proceeds of the industrial revenue bond financing, which was completed on December 7, 1994, for the construction of the -28- new Virginia manufacturing facility. The restricted cash is drawn down as cash is expended and various phases of construction are completed on that facility. For 1995, this was primarily the result of additions to property, plant and equipment of $10.3 million partially offset by the application of $5.5 million of restricted cash to capital expenditures related to the Virginia manufacturing facility. For 1994, this was the result of additions to property, plant and equipment of $6.5 million and the investment of the $9.6 million of proceeds, net of closing costs of $0.1 million, from the industrial revenue bond financing of the construction of the Company's new Virginia manufacturing facility. Net cash (used for) provided by financing activities was ($21.5) million, ($6.7) million and $1.6 million for 1996, 1995 and 1994, respectively. For 1996, long-term debt repayments of $1.0 million and purchases of treasury stock of $25.5 million were funded by cash provided by operating activities and by borrowings under the Company's Revolver. For 1995, long-term debt repayments, payment of stock registration costs and purchases of treasury stock were funded by cash provided by operating activities. For 1994, long-term debt payments, paydown of the revolving credit line and payment of debt issuance costs were funded by cash provided by operating activities and net proceeds of $16.2 million from the issuance of Common Stock in the Company's initial public offering. Additionally, in December 1994, the Company borrowed $9.7 million from the Industrial Development Authority of Mecklenburg County, Virginia (the "IDA") to finance the construction of the Company's new Virginia manufacturing facility. The IDA financed the loan through the issuance of industrial development revenue bonds ("IDA Bonds"). The loan bears interest at a variable rate equal to the rate necessary to allow the IDA bonds to be sold at 100% of the principal amount thereof; the Company has the option to change the interest rate to a fixed rate for a specified term (which may be the remaining term of the IDA Bonds). The IDA Bonds mature December 1, 2004, are subject to mandatory sinking fund redemption of $970,000 per year, and are subject to mandatory redemption under certain circumstances. The Company has secured its obligations in respect of the IDA Bonds through the issuance of a letter of credit, which reduces each year by the amount of principal payments. The Company currently has budgeted an aggregate of $6.0 million for capital expenditures in 1997, consisting of $1.1 million to complete the Virginia manufacturing facility and Eufaula office expansion projects and $4.9 million primarily for machinery and equipment at its other existing facilities. The Company expects to be able to fund these expenditures from cash provided by operations, borrowings under its revolving credit facility and, in the case of its Virginia facility, the remaining proceeds from the IDA Bonds. There can be no assurance that budgeted capital expenditures will be made as planned or that additional capital expenditures will not be required. In January 1993, in connection with the Recapitalization, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with LaSalle Business Credit, Inc. ("LaSalle") and Continental Bank N.A. On May 10, 1995, the Company's Loan Agreement was amended to increase the revolving credit facility (the "Revolver"), lower the interest rate on the Revolver and reduce certain fees associated with the facility. Also, as of that date, the outstanding $4.2 million of term loans were repaid from cash from operations and LaSalle became the sole lender under the facility. The Loan Agreement as currently in effect provides the Company with a $33.0 million revolving credit facility. The Revolver expires on January 19, 1998 and is automatically renewable for successive one year periods unless terminated by the Company or LaSalle. Borrowings under the Revolver are subject to certain borrowing base limitations based on eligible accounts receivable and inventory less amounts outstanding under letters of credit. Loans under the Revolver bear interest at a rate equal to, at the option of the -29- Company, either (i) the sum of two and one-half percent plus the interest rate in the London interbank market for loans in an amount substantially equal to the amount of the borrowing and for the period of the borrowing selected by the Company or (ii) the sum of one percent plus LaSalle's reference rate (which is generally equivalent to the prime rate). In addition, the Company is required to pay LaSalle a fee of 0.25% per year for the unused amount under the Revolver and a 1.25% fee per annum on the average undrawn face amount of letters of credit. Up to $13.0 million of the Revolver at any one time outstanding is available for the issuance of letters of credit. The Revolver is secured by substantially all the assets of the Company. The amount of the Revolver is reduced each year by approximately $1.0 million in conjunction with the Company's repayment of approximately $1.0 million of IDA bonds, so that the total available facility, once the IDA Bonds are repaid, will be $25.0 million. The Loan Agreement limits the Company's ability to incur indebtedness, to create or incur liens on assets, to pay dividends and to purchase or redeem the Company's stock. In addition, the Loan Agreement requires that the Company meet certain financial tests, and provides LaSalle with the right to require the payment of all amounts outstanding under the Loan Agreement if a change in control of the Company occurs. At December 31, 1996, the Company had $4.0 million of outstanding borrowings under the Revolver and LaSalle had issued letters of credit aggregating $10.2 million, including a $7.8 million letter of credit in favor of the Trustee for the IDA Bonds. At December 31, 1996, the Company's outstanding debt (including current portion) was $11.9 million, which includes $7.8 million of IDA Bonds used to finance the Virginia manufacturing facility and $4.0 million under its Revolver. On November 26, 1996, the Company acquired certain assets of the Liberty, North Carolina facility of American Modular Technologies ("AMT") for $2.0 million which approximated the fair value of the assets acquired. AMT produces modular structures used for convenience stores which are sold to major oil companies and its technology has also been used for correctional facilities, schools and warehouses. During 1995 and 1996, the Board of Directors authorized the Company to repurchase up to 1.3 million shares of its Common Stock to be purchased at any time in the open market, subject to market conditions. At December 31, 1996 and 1995 the Company had repurchased 1.0 million shares costing $26.5 million and .046 million shares costing $1.1 million, respectively. These shares are reflected as Treasury Stock on the accompanying Consolidated Balance Sheets and were purchased from a combination of cash provided by operations and borrowings under the Company's Revolver. In August 1995, the Company entered into a joint venture with China Renaissance Industries, L.P. to pursue the manufacture of metal building systems in the People's Republic of China ("PRC") for sale throughout most of Southeast Asia. The Company has a 30% interest in the joint venture and exclusively licensed to the joint venture on a royalty-free basis the right to use certain elements of the Company's technology. The Company will receive a technology license fee of $1.5 million, of which it received $0.75 million during 1995. The joint venture completed construction of its initial manufacturing facility in the PRC in October 1996. At December 31, 1996 and 1995 the Company had $3.8 million and $.9 million invested in the joint venture, which was funded by cash provided by operating activities, and expects to invest up to an additional $.7 million in 1997. -30- The Company believes that the cash generated from operations and borrowings under the Revolver will be sufficient to meet its working capital and capital expenditure requirements, as well as the anticipated additional capital to be invested in its joint venture in China, through at least 1998. There can be no assurance that liquidity would not be impacted by a decline in general economic conditions and higher interest rates which would affect the Company's ability to obtain external financing. The Company carries insurance on its activities in scope and amounts which it believes are reasonable in light of the risks of the business. However, there can be no assurance that it will not incur a liability which is not covered or is in excess of coverage, which liability could have a material adverse effect on the Company. INFLATION The Company has from time to time in the past experienced increases in costs of sales and operating costs, including the costs of raw materials, supplies and labor due to inflation. The Company has generally been able to offset the effects of such inflation through periodic price increases. In recent years, the rate of domestic inflation has abated significantly. No assurance can be given, however, that the inflation rate will not increase in future years or that the Company will be able to increase prices to match increases in costs. FLUCTUATIONS OF QUARTERLY OPERATING RESULTS The metal buildings business is seasonal in nature in that shipments are normally lower in the first half of each year compared to the second half because of unfavorable weather conditions for construction, particularly in the northern portion of the United States, and normal business planning cycles affecting construction. This seasonality not only affects sales, but also profitability for the quarter. See Note 9 of Notes to Consolidated Financial Statements for selected unaudited quarterly financial data for the years ended December 31, 1996 and 1995. The quarterly data reflect, in the opinion of the Company, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the results of operations for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends. -31- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- The following consolidated financial statements of American Buildings Company and Subsidiaries are filed as part of this report. AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements -32- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of American Buildings Company: We have audited the accompanying consolidated balance sheets of AMERICAN BUILDINGS COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Buildings Company and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia February 10, 1997 -33- AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
1996 1995 -------- -------- CURRENT ASSETS: Cash $ 0 $ 17,100 Accounts receivable, net of allowance for doubtful accounts of $3,345 and $2,589 in 1996 and 1995, respectively 36,332 29,473 Inventories 19,823 15,088 Deferred income taxes 3,333 2,361 Other 1,084 468 -------- -------- Total current assets 60,572 64,490 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, AT COST 71,880 61,454 Less accumulated depreciation 38,686 35,585 -------- -------- 33,194 25,869 -------- -------- RESTRICTED CASH 466 4,100 -------- -------- DEFERRED INCOME TAXES 1,313 2,057 -------- -------- OTHER ASSETS, NET 6,425 4,827 -------- -------- $101,970 $101,343 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,051 $ 970 Accounts payable 32,306 23,579 Accrued liabilities 12,137 11,312 Accrued income taxes 1,368 1,513 -------- -------- Total current liabilities 46,862 37,374 -------- -------- LONG-TERM DEBT, NET OF CURRENT MATURITIES 10,872 7,760 -------- -------- OTHER NONCURRENT LIABILITIES 2,770 2,698 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 7) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 4,000 shares authorized, no shares issued and outstanding in 1996 and 1995 0 0 Common stock, $.01 par value; 25,000 shares authorized, 6,312 and 6,237 shares issued in 1996 and 1995, respectively 63 62 Additional paid-in capital 31,049 30,082 Retained earnings 36,885 24,438 -------- -------- 67,997 54,582 Less treasury stock, at cost (1,001 and 46 shares in 1996 and 1995, respectively) (26,531) (1,071) -------- -------- Total stockholders' equity 41,466 53,511 -------- -------- $101,970 $101,343 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -34- AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994 -------- -------- -------- NET SALES $273,953 $281,450 $204,666 -------- -------- -------- COSTS AND EXPENSES: Cost of sales 229,260 228,088 164,694 Selling, general, and administrative 24,311 26,567 21,830 -------- -------- -------- 253,571 254,655 186,524 -------- -------- -------- OPERATING INCOME 20,382 26,795 18,142 NET INTEREST EXPENSE (INCOME) 143 (175) 1,369 -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM 20,239 26,970 16,773 PROVISION FOR INCOME TAXES 7,792 9,380 6,318 -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 12,447 17,590 10,455 EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM DEBT, NET OF TAX BENEFIT OF $1,436 0 0 (2,425) -------- -------- -------- NET INCOME $ 12,447 $ 17,590 $ 8,030 ======== ======== ======== EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Income before extraordinary item $2.06 $2.68 $1.81 Extraordinary loss on early extinguishment of long-term debt 0.00 0.00 (0.42) -------- -------- -------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $2.06 $2.68 $1.39 ======== ======== ======== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 6,040 6,554 5,780 ======== ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -35- AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN THOUSANDS)
COMMON STOCK RETAINED ---------------- PAID-IN EARNINGS TREASURY SHARES AMOUNT CAPITAL (DEFICIT) (STOCK) TOTAL ------ ------- -------- --------- -------- -------- BALANCE, DECEMBER 31, 1993 4,398 $ 44 $13,960 $(1,182) $ 0 $ 12,822 Net income 0 0 0 8,030 0 8,030 Stock issued to employees 1 0 0 0 0 0 Issuance of common stock, net of issuance expenses 1,825 18 16,200 0 0 16,218 Exercise of stock options 1 0 5 0 0 5 ----- ------- ------- ------- -------- -------- BALANCE, DECEMBER 31, 1994 6,225 $ 62 $30,165 $ 6,848 $ 0 $ 37,075 Net income 0 0 0 17,590 0 17,590 Stock issued to employees 3 0 0 0 0 0 Exercise of stock options and related tax benefits 9 0 124 0 0 124 Stock registration costs 0 0 (207) 0 0 (207) Purchase of 46 shares of treasury stock 0 0 0 0 (1,071) (1,071) ----- ------- ------- ------- -------- -------- BALANCE, DECEMBER 31, 1995 6,237 $ 62 $30,082 $24,438 $ (1,071) $ 53,511 Net income 0 0 0 12,447 0 12,447 Exercise of stock options and related tax benefits 75 1 967 0 0 968 Purchase of 955 shares of treasury stock 0 0 0 0 (25,460) (25,460) ----- ------- ------- ------- -------- -------- BALANCE, December 31, 1996 6,312 $ 63 $31,049 $36,885 $(26,531) $ 41,466 ===== ======= ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated statements. -36- AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (IN THOUSANDS)
1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,447 $ 17,590 $ 8,030 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,128 3,353 2,775 Amortization of debt discount 0 0 124 Extraordinary loss on early extinguishment of long-term debt 0 0 2,425 Gain on sales of fixed assets (64) (102) 0 Gain on sales of nonoperating property 0 0 (7) Changes in assets and liabilities, net of assets of acquired businesses: Accounts receivable, net (6,859) (984) (1,467) Inventories (4,119) 1,226 (7,056) Accounts payable 8,549 (711) 9,745 Accrued liabilities and income taxes 452 5,726 2,543 Other working capital changes (616) (1,176) 1,482 Other, net 113 (695) (881) -------- -------- -------- Total adjustments 1,584 6,637 9,683 -------- -------- -------- Net cash provided by operating activities 14,031 24,227 17,713 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment (9,335) (10,316) (6,541) Purchase of American Modular Technologies (2,037) 0 0 Decrease (increase) in restricted cash 3,634 5,537 (9,637) Investment in China Joint Venture (2,940) (900) 0 Proceeds from sales of fixed assets 94 237 0 Proceeds from sales of nonoperating property, net 952 0 9 -------- -------- -------- Net cash used for investing activities (9,632) (5,442) (16,169) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of issuance costs 968 124 16,223 Long-term debt payments (970) (5,509) (14,353) Changes in revolving credit facility, net 3,963 0 (9,690) Proceeds from issuance of IDA bonds 0 0 9,637 Payment of debt issuance costs 0 0 (234) Payment of stock registration costs 0 (207) 0 Purchase of treasury stock (25,460) (1,071) 0 -------- -------- -------- Net cash (used for) provided by financing activities (21,499) (6,663) 1,583 -------- -------- -------- NET (DECREASE) INCREASE IN CASH (17,100) 12,122 3,127 CASH, BEGINNING OF PERIOD 17,100 4,978 1,851 -------- -------- -------- CASH, END OF PERIOD $ 0 $ 17,100 $ 4,978 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 559 $ 1,385 $ 808 ======== ======== ======== Cash paid for income taxes $ 7,748 $ 6,064 $ 10,562 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. -37- AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995, AND 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. ORGANIZATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of American Buildings Company and its wholly owned subsidiaries (the "Company"), after elimination of all material intercompany items. The Company is a diversified manufacturer and marketer of construction products and services for nonresidential and residential applications. The Company designs, manufactures, and sells metal building systems for industrial, commercial, institutional, and other nonresidential markets. Metal building systems consist of structural framing and wall and roof panels. The Company's metal building systems are generally custom-designed to meet the specific needs of the end user and to allow for easy on-site assembly. The Company markets its metal building systems nationwide through authorized builder/dealers. The Company has a separate roofing products' sales, engineering, and customer service organization, which markets and sells the Company's roofing products to its builder/dealer network and to preferred roofing contractors. In addition, the Company paints steel coils, manufactures and markets building components, mini warehouse systems, and provides specialty engineering services for large, complex building structures. The Company markets and produces modular structures and residential steel framing systems and also operates an ICC-licensed trucking subsidiary. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenue is primarily derived from the sale of metal buildings and components to customers and is recorded upon delivery of product to the customer. INVENTORIES Inventories are stated at the lower of cost or market. The last-in, first-out ("LIFO") method is used for determining the cost of substantially all raw material inventories and material costs included in work in process. The first-in, first-out method is used for determining the cost of all other inventories, including direct labor and overhead incurred in the manufacturing process. Market is defined as replacement cost for raw materials and net realizable value for work in process and finished goods. -38- Inventories consist of the following: 1996 1995 ------- ------- Raw materials $17,151 $13,846 Work in process 2,862 2,574 Finished goods 357 328 ------- ------- 20,370 16,748 Allowance to state inventories at LIFO costs (547) (1,660) ------- ------- $19,823 $15,088 ======= ======= PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation is provided for using the straight-line method over the estimated useful lives of 20 to 40 years for buildings, approximately 7 years for machinery and equipment, and 3 to 15 years for all other items. Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease. Property, plant, and equipment, at cost, consist of the following: 1996 1995 ------- ------- Land $ 938 $ 784 Buildings and leasehold improvements 20,710 16,778 Machinery and equipment 43,730 38,772 Furniture and fixtures 6,502 5,120 ------- ------- $71,880 $61,454 ======= ======= RESTRICTED CASH In December 1994, the Company obtained proceeds of $9,637, net of closing costs of $63, related to the issuance of industrial revenue bonds (Note 3). The proceeds, which have been invested in highly liquid short-term investments, are restricted to purchases of property, equipment, and buildings for the Virginia manufacturing facility. At December 31, 1996 and 1995, $466 and $4,100, respectively, of the proceeds were available for future purchases of property, equipment, and buildings. OTHER ASSETS The Company is the beneficiary of life insurance policies covering certain current and former management employees to fund the Company's obligations to such employees under a noncontributory retirement and death benefit plan (Note 6). The cash surrender value of these life insurance policies is $1,899 and $1,688 at December 31, 1996 and 1995, respectively, and is included in other assets in the accompanying balance sheets. These policies have been assigned as collateral for the Company's revolving credit facility (Note 3). -39- ACCRUED LIABILITIES The Company accrues estimated insurance claims for the self-insured portion of its workers' compensation, property and casualty, and health insurance plans. At December 31, 1996 and 1995, insurance claim reserves of $4,711 and $3,483, respectively, were included in accrued liabilities. STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets for which the Company's services are provided, as well as their dispersion across many different geographic areas. As a result, as of December 31, 1996, the Company does not consider itself to have any significant concentrations of credit risk. LONG-LIVED ASSETS The Company periodically reviews the values assigned to long-lived assets, such as property and equipment and other assets, to determine if any impairments are other than temporary. Management believes that the long-lived assets in the accompanying balance sheets are appropriately valued. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year presentation. -40- 3. LONG-TERM DEBT 1996 1995 ------- ------- Revolver balance $ 3,963 $ 0 IDA of Mecklenburg County, Virginia; Industrial Revenue Bonds 7,760 8,730 Other debt 200 0 ------- ------- 11,923 8,730 Less current maturities 1,051 970 ------- ------- $10,872 $ 7,760 ======= ======= The Company has a revolving credit facility which provides for maximum borrowings of $33,000 at December 31, 1996. Interest is payable monthly at an interest rate of prime plus 1% or LIBOR plus 2.5%, at the option of the Company. The revolving credit facility availability is based on eligible accounts receivable and inventory, less amounts outstanding under letters of credit. The Company can obtain up to $13,000 of letters of credit subject to availability under the facility. At December 31, 1996, $3,963 of the revolver was outstanding, $10,168 of letters of credit was outstanding, and $18,869 was available under the facility. The facility expires on January 19, 1998 and is automatically renewable for successive one-year periods unless terminated by the Company or the bank. The amount of the facility is reduced each year by approximately $1,000 in conjunction with the Company's annual repayment of $970 of IDA bonds, described below, so that the total available facility, once the IDA bonds are repaid, will be $25,000. The revolving credit facility is secured by a first lien on substantially all assets of the Company. In December 1994, the Company closed a $9,700 industrial revenue bond transaction with the Industrial Development Authority ("IDA") of Mecklenburg County, Virginia, for the purpose of financing its new manufacturing facility located in Virginia. The bonds bear interest at a variable rate (4% at December 31, 1996). Additionally, the Company pays a .25% remarketing fee on the bond balance. The bonds mature on December 1, 2004 and are subject to a mandatory sinking fund redemption of $970 per year and to a mandatory redemption under certain circumstances. The Company has secured its obligation with respect to the IDA bonds through the issuance of a letter of credit. The carrying amount of the bonds is assumed to approximate fair value due to the bonds' variable rate structure. During 1994, the Company extinguished $13,500 of senior notes with proceeds from the initial public offering discussed in Note 4; consequently, an extraordinary loss of $2,425 (net of income tax benefit of $1,436), or $.42 per share, resulted from the write-off of the debt issuance costs and unamortized discount. -41- 4. STOCKHOLDERS' EQUITY STOCK OFFERINGS In May 1994, the Company completed a public offering of its common stock. The offering consisted of 2,592 shares (excluding the underwriters' overallotment option from certain stockholders) of common stock, of which 1,825 shares were sold by the Company and 767 shares were sold by certain stockholders, at an initial public offering price of $10 per share. The net proceeds to the Company of $16,218 were used to reduce long-term debt (Note 3). In June 1994, certain stockholders sold an aggregate of 250 shares to the underwriters to cover overallotments. In July 1995, the Company completed a secondary public offering of its common stock which consisted of 1,275 shares (excluding the underwriters' overallotment option from a certain stockholder) of common stock which were sold by certain stockholders at a public offering price of $22 per share. The Company incurred offering expenses of $207 and did not receive any proceeds from the sale of the shares of common stock. Subsequently, a certain stockholder sold 191 shares to the underwriters to cover overallotments. PREFERRED STOCK In February 1994, the board of directors authorized 4,000 shares of preferred stock with $.01 par value. The board of directors has the authority to issue these preferred shares and to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. TREASURY STOCK In 1995, the board of directors authorized the Company to repurchase up to 300 shares of its outstanding common stock through October 1996, as deemed appropriate by management. During 1996, the board authorized the Company to repurchase an additional 1,000 shares of its outstanding common stock at any time, as directed by management. At December 31, 1996 and 1995, repurchases of 1,001 and 46 shares, respectively have been effected at prevailing market prices from time to time on the open market. These repurchased shares represent additions to treasury stock and are carried at cost in the accompanying balance sheets. STOCK OPTION PLANS In January 1993, the Company adopted the American Buildings Company Management Incentive Plan. The Company reserved 223 shares for issuance under the plan. Stock incentives granted pursuant to the plan may include (a) nonqualified stock options, (b) incentive stock options, or (c) restricted stock awards. All options were issued at an exercise price no less than fair value as of the date of grant. In February 1994, the board of directors approved the 1994 Employee Stock Option Plan. The plan, as amended, provides for the issuance of incentive and nonqualified stock options to acquire up to 480 shares of common stock. Options become exercisable as -42- determined at the date of grant by a committee of the board of directors. Options expire ten years after the date of grant unless an earlier expiration date is set at the time of grant. To date, the exercise price of all issuances of options have been at fair market value at the date of grant. In addition, the Company has a stock option plan for nonemployee directors which authorizes options to purchase up to 160 shares of common stock. The option price for future grants is to be determined by the board of directors but shall not be less than the fair market value of the common shares on the date the stock option is granted. Transactions under the Company's stock option plans during each of the two years ended December 31, 1996 are summarized as follows: NUMBER OF SHARES OPTION PRICE ------ ------------ Outstanding at December 31, 1994 617 $5.18-$16.38 Granted 115 $18.06-$24.50 Exercised (9) $5.18-$10.00 Canceled (1) $5.18 --- Outstanding at December 31, 1995 722 $5.18-$24.50 Granted 19 $21.13-$21.69 Exercised (75) $5.18-$18.06 Canceled (14) $10.00-$24.50 --- Outstanding at December 31, 1996 652 $5.18-$24.50 === Exercisable at December 31, 1996 402 $5.18-$24.50 === At December 31, 1996, options to purchase 126 shares were available for future grant under the above option plans. During 1995, the Financial Accounting Standards Board issued SFAS No. 123 ("Accounting for Stock-Based Compensation") which defines a fair value-based method of accounting for an employee stock option plan or similar equity instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensation plans under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options granted during 1995 and 1996 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions used for grants in 1995 and 1996: -43- Risk free interest rate 6.16% Expected dividend yield 0% Expected lives 5 years Expected volatility .35% The total values of the options granted during the year ended December 31, 1996 and 1995 were computed as approximately $133962 and $962133, respectively, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported pro forma net income and pro forma net income per common and common equivalent share for the years ended December 31, 1996 and 1995 would have decreased to the following pro forma amounts: 1996 1995 ------- ------- Net income: As reported $12,447 $17,590 Pro forma 12,285 17,540 Primary EPS: As reported 2.06 2.68 Pro forma 2.03 2.68 5. INCOME TAXES The provision for income taxes consists of the following: 1996 1995 1994 ------ ------- ------ Current: Federal $7,291 $10,194 $5,150 State 729 1,020 547 Deferred (228) (829) 875 Change in valuation allowance 0 (1,005) (254) ------ ------- ------ $7,792 $ 9,380 $6,318 ====== ======= ====== In addition to the above, the Company recorded a deferred income tax benefit of $1,436 in 1994 related to the extraordinary loss on early extinguishment of long-term debt. Under SFAS No. 109, a valuation allowance is recorded if it is "more likely than not" deferred tax assets will not be realized. Due to prior operating losses, a valuation allowance for available net operating loss carryforwards was established in connection with the adoption of SFAS No. 109 on January 1, 1993. During fiscal 1995, management determined expected future taxable income would be more than sufficient to utilize the remaining loss carryforwards. Accordingly, the valuation allowance was eliminated, which had the effect of reducing income tax expense by $1,005. -44- The provision for income taxes differs from the amounts resulting from multiplying the income before income taxes by the statutory federal income tax rate. The reasons for these differences are as follows: 1996 1995 1994 ---- ---- ---- Federal income tax provision at statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 4.0 4.0 4.5 Other (0.5) (0.5) (0.3) Valuation allowance 0.0 (3.7) (1.5) ---- ---- ---- 38.5% 34.8% 37.7% ==== ==== ==== The sources of the difference between the financial accounting and tax bases of the Company's assets and liabilities which give rise to the deferred tax assets and liabilities and the tax effects of each are as follows as of December 31, 1996 and 1995: 1996 1995 ------ ------ Deferred tax assets: Accrued liabilities $1,706 $1,355 Deferred compensation 1,138 1,096 Allowance for doubtful accounts 1,288 981 Reserves on nonoperating assets 417 760 Net operating loss carryforwards 497 751 Other 339 25 ------ ------ 5,385 4,968 ------ ------ Deferred tax liabilities: Property, plant, and equipment (496) (285) Other (243) (265) ------ ------ (739) (550) ------ ------ Net deferred tax asset $4,646 $4,418 ====== ====== As of December 31, 1996, net operating losses of approximately $1,293 are available for carryforward through 2007. 6. EMPLOYEE BENEFIT PLANS The Company has a contributory 401(k) plan, the American Buildings Company Savings Plan, under which all full-time employees are eligible to participate. The Company matches at least $.25 per $1 of eligible employee contributions and can make an additional contribution at the discretion of the board of directors. The plan requires a minimum company contribution of 1% of eligible gross payroll annually. Company contributions to this plan were $996, $1,214, and $990 for 1996, 1995, and 1994, respectively. -45- The Company has a noncontributory retirement and death benefit plan which covers certain management employees. The plan provides a death benefit prior to obtaining retirement age, as defined by the plan, to be paid over a minimum ten-year period and a mutually exclusive retirement benefit, after obtaining the defined retirement age, to be paid over a ten-year period. Benefits under this plan do not vest until retirement, and the Company has the right to modify or terminate this plan at any time. The Company's liability for benefits under this plan was $2,955 and $2,846 as of December 31, 1996 and 1995, respectively. This liability is based on the estimated present value of the retirement obligation, accrued over the estimated service period, and included in the accompanying balance sheets. The Company does not provide any other significant postretirement or postemployment benefits. 7. COMMITMENTS AND CONTINGENCIES RELATED-PARTY TRANSACTION In January 1993, the Company entered into a management consulting agreement with a certain stockholder. The agreement, as amended, calls for annual fees of $275 to be paid to the stockholder for providing financial and management consulting services. INSURANCE The Company participates in self-insured workers' compensation, general liability, and health insurance plans. Reserves are estimated for both reported and unreported claims using industry loss development factors. Revisions to estimated reserves are recorded in the period in which they become known. Estimated self-insurance reserves as of December 31, 1996 and 1995 totaling $4,711 and $3,483, respectively, represent management's best estimate. In the opinion of the Company's management, any future adjustments to estimated reserves will not have a material impact on the financial statements. LEASES The Company leases certain property, plant, and equipment under operating leases. Minimum future lease payments under operating leases with initial or remaining noncancelable lease terms in excess of one year are as follows: 1997 $1,027 1998 936 1999 860 2000 818 2001 818 Thereafter 1,763 ------ Total $6,222 ====== -46- Total rent expense for all operating leases was $3,811, $3,249, and $2,928 in 1996, 1995, and 1994, respectively. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with seven senior executives for terms expiring December 31, 1997. The agreements provide for severance, up to the longer of the remaining term of the agreement or one year, for termination of employment for any reason other than good cause. LITIGATION The Company is involved in various claims and lawsuits incidental to its business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material effect on the Company's financial position, liquidity, or results of operations. 8. ACQUISITIONS AND INVESTMENT IN JOINT VENTURE ACQUISITION On November 26, 1996, the Company acquired certain assets of the Liberty, North Carolina facility of American Modular Technologies ("AMT") for $2,037 which approximated the fair value of the assets acquired. The transaction was accounted for as a purchase. The financial statements include the operating results of AMT from the date of acquisition. AMT provides specialty modular building structures, primarily for the retail petroleum industry. JOINT VENTURE In August 1995, the Company entered into a joint venture with China Renaissance Industries, L.P. to pursue the manufacture and sale of metal building systems in the People's Republic of China ("PRC") and certain countries in Southeast Asia (the "Joint Venture"). The Company has a 30% interest in the Joint Venture and exclusively licensed to the Joint Venture on a royalty-free basis the right to use certain elements of the Company's technology. The Company will receive a technology license fee of $1,500, of which it received $750 during 1995. The Joint Venture completed construction of its initial manufacturing facility in the PRC during October 1996. At December 31, 1996 and 1995, the Company had $3,840 and $900, respectively, invested in the Joint Venture. -47- 9. QUARTERLY FINANCIAL DATA (UNAUDITED) 1996 ---------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- ------- -------- -------- Net sales $48,180 $66,302 $78,171 $81,300 Operating income 1,849 5,690 5,917 6,926 Interest (income) expense (175) 2 164 152 Net income 1,245 3,499 3,537 4,166 Net income per common and common equivalent share 0.19 0.56 0.61 0.74 1995 ------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- ---------- Net sales $62,298 $67,769 $80,182 $71,201 Operating income 4,518 6,396 8,024 7,857 Interest expense (income) 85 (9) (92) (159) Net income 2,748 3,970 4,938 5,934(1) Net income per common and common equivalent share 0.42 0.61 0.75 0.90(1) (1) During the fourth quarter 1995, the Company's valuation allowance on net operating loss carryforwards was eliminated, which had the effect of reducing income tax expense and therefore increasing net income by $1,005, or $.15 per share. 48 The accompanying notes are an integral part of these consolidated statements. AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (IN THOUSANDS)
Additions Balance at Charged Balance Beginning to Costs and at Fiscal Year Ended of Year Expense Deductions* End of Year ----------------- ---------- ------------ ----------- ----------- YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts $2,589 $1,667 ($311) $3,345 ------ ------ ----- ------ YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts $1,768 $1,577 ($756) $2,589 ------ ------ ----- ------ YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts $1,230 $1,136 ($598) $1,768 ------ ------ ----- ------
*Charges to the allowance for purposes for which the allowance was created. -49- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------------------- Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------------------------------------------------------------------------------- Directors The information set forth under the caption Proposal No. 1 - Election of Directors in the Company's definitive Proxy Statement to be used in connection with the 1997 Annual Meeting of Stockholders is incorporated herein by reference. Executive Officers See "Part I - Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------- The information set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement to be used in connection with the 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------------------------------------------------------------------------------- The information set forth under the caption "Principal Stockholders" in the Company's definitive Proxy Statement to be used in connection with the 1997 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------------------------- The information set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" in the Company's definitive Proxy Statement to be used in connection with the 1997 Annual Meeting of Stockholders is incorporated herein by reference. -50- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------------- (a) DOCUMENT LIST 1. Financial Statements The financial statements of the Company filed herewith are set forth in Part II, Item 8 of this Report. 2. Financial Statement Schedules The following financial statement schedule and opinion thereon are filed as a part of this Report: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibits Required by Securities and Exchange Commission Regulation S-K (a) The following exhibits are filed as part of this report or are incorporated herein by reference (Exhibit Nos. 10.2, 10.22, 10.25, 10.26, 10.27, 10.34, 10.35, 10.36, 10.37, 10.38, 10.39 and 10.46 are management contracts, compensatory plans or arrangements): Exhibit No. Description - ----------- ----------- 3.1 Restated Certificate of Incorporation, as amended.* 3.2 Amended and Restated By-laws.* 4. Form of Common Stock Certificate.* 10.1 Subscription Agreement, dated November 9, 1992, between Robert T. Ammerman and the Company.* 10.2 Stock Option Agreement, dated November 9, 1992, between Robert T. Ammerman and the Company, as amended.* 10.3 Amended and Restated Registration Rights Agreement, dated as of January 19, 1993, among the Company and certain of the Company's stockholders.* -51- 10.4 Management Agreement, dated as of January 19, 1993, between the Company and Sterling Ventures Limited, as amended.* 10.5 Loan and Security Agreement, dated as of January 19, 1993, among the Company, as Borrower, StanChart Business Credit, Inc. and Continental Bank N.A., as Lenders, and StanChart Business Credit, Inc., as Agent for the Lenders.* 10.6 Amendment No. 1 to Loan and Security Agreement dated as of May 6, 1994, among the Company, LaSalle Business Credit, Inc. (successor-in- interest to StanChart Business Credit, Inc.), Continental Bank, N.A. and LaSalle Business Credit, Inc., as Agent for the Lenders.** 10.7 Amendment No. 2 to Loan and Security Agreement dated as of December 6, 1994, among LaSalle Business Credit, Inc. (successor-in- interest to StanChart Business Credit, Inc.), Bank of America Illinois (successor-in-interest to Continental Bank, N.A.) and LaSalle Business Credit Inc., as Agent for the Lenders.*** 10.8 Guaranty and Security Agreements, dated as of January 19 1993, made by ABC Transportation Company and ABC Brokerage Co. in favor of StanChart Business Credit, Inc.* 10.9 Pledge and Security Agreement, dated as of January 19, 1993, made by the Company in favor of StanChart Business Credit, Inc.* 10.10 Pledge and Security Agreement, dated as of January 19, 1993, made by ABC Transportation Company in favor of the StanChart Business Credit, Inc.* 10.11 Patent Collateral Security Agreement, Patent Assignment of Security and Special Power of Attorney, dated as of January 19, 1993, between the Company and StanChart Business Credit, Inc.* 10.12 Net True Lease Agreement, dated September 22, 1986, between ABC Transportation Company and PACCAR Leasing Corporation and related Schedules.* 10.13 Master Maintenance Agreement between ABC Transportation Company and Eufaula Trucking Company.* 10.14 Term Lease Master Agreement, dated June 11, 1984, between American Buildings Company and IBM Credit Corporation and related Lease Supplements and Schedules.* 10.15 Commercial Building Lease, dated February 1, 1992, between USX Corporation and Polymer Coil Coaters, Inc. relating to Fairfield, Alabama leased real property.* 10.16 Commercial Building Lease, dated April 1, 1992, between USX Corporation and Polymer Coil Coaters, Inc., relating to Fairfield, Alabama leased real property.* -52- 10.17 Commercial Building Lease, dated April 17, 1985, between USX Corporation and Polymer Coil Coaters, Inc., relating to Fairfield, Alabama leased property.* 10.18 Form of Spectrum Software License Agreement.* 10.19 Form of Builder Agreement.* 10.20 Form of Roofing Contractor Agreement.* 10.21 Form of Indemnity Agreement.* 10.22 1994 Stock Option Plan.* 10.23 Form of Stock Option Agreement under 1994 Stock Option Plan.* 10.24 Stock Option Plan for Non-Employee Directors.*** 10.25 Incentive Bonus Plan.* 10.26 Management Security Plan.* 10.27 Form of Non-Plan Stock Option Agreement.* 10.28 Industrial Development Authority of Mecklenburg County, Virginia Purchase Contract dated November 22, 1994, with the Company and Merchant Capital Corporation.*** 10.29 Loan Agreement between Industrial Development Authority of Mecklenburg County, Virginia and the Company dated December 1, 1994.*** 10.30 Form of Note (included in Loan Agreement).*** 10.31 Remarketing Agreement dated as of December 1, 1994, among the Company, Merchant Capital Corporation, NationsBank of Virginia, N.A. and the Industrial Development Authority of Mecklenburg County, Virginia.*** 10.32 Indenture of Trust between Industrial Development Authority of Mecklenburg County, Virginia and NationsBank of Virginia, N.A., as Trustee.*** 10.33 Pledge Agreement, dated as of December 1, 1994, between the Company and LaSalle National Bank.*** 10.34 Employment Agreement, dated as of October 21, 1994, between the Company and Robert T. Ammerman.*** 10.35 Employment Agreement, dated as of October 21, 1994, between the Company and Joel R. Voelkert.*** 10.36 Employment Agreement, dated as of October 21, 1994, between the Company and Roy L. Smith.*** -53- 10.37 Employment Agreement, dated as of October 21, 1994, between the Company and Barry L. Milling.*** 10.38 Employment Agreement, dated as of October 21, 1994, between the Company and William R. Buchholz.*** 10.39 Amendment No. 3 to Loan and Security Agreement, dated May 10, 1995, between the Company and LaSalle Business Credit, Inc.**** 10.40 Second Amended and Restated Loan Note, dated May 10, 1995, in principal amount of $35 million.**** 10.41 Mortgage Modification Agreement, dated May 10, 1995, between the Company and LaSalle Business Credit, Inc.**** 10.42 Limited Partnership Agreement of American Buildings Company Asia, L.P., dated August 15, 1995.***** 10.43 Technology License Agreement between American Buildings Company Asia, L.P. and American Buildings Company International, Inc., dated August 15, 1995.***** 10.44 Amendment No. 2 to Management Agreement, dated as of October 11, 1995, between the Company and Sterling Ventures Limited.****** 10.45 Acquisition Agreement among AMT/Beaman Corporation, American Modular Technologies, LLC and Beaman Corporation, dated as of November 26, 1996. 10.46 Employment Agreement, dated as of November 27, 1996, between the Company and Joseph M. Grigelevich, Jr. 10.47 Description of Shareholder Value Added Plan 11 Computation of Earnings Per Share. 21 Subsidiaries of the Company.* 23.1 Consent of Arthur Andersen LLP. (b) Reports on Form 8-K. No reports on Form 8-K were filed from October 1, 1996 through December 31, 1996. (c) Exhibits. See (a)(3) above. 27. Financial Data Schedule - ---------------------- * Incorporated by reference to Exhibits to the Registration Statement on Form S-1 (Registration No. 33-76054). ** Incorporated by reference to Exhibits to the Quarterly Report on Form 10-Q for the period ended September 30, 1994. -54- *** Incorporated by reference to Exhibits to the Annual Report on Form 10-K for the year ended December 31, 1994. **** Incorporated by reference to Exhibits to the Registration Statement on Form S-3 (Registration No. 33-94082). ***** Incorporated by reference to Exhibits to the Quarterly Report on Form 10-Q for the period ended September 30, 1995. ****** Incorporated by reference to Exhibits to the Annual Report on Form 10-K for the period ended December 31, 1995. -55- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN BUILDINGS COMPANY By: /s/ ROBERT T. AMMERMAN ------------------------------------- Robert T. Ammerman, President and Chief Executive Officer March 24, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ ROBERT T. AMMERMAN - ------------------------------ President, Chief Executive March 24, 1997 Robert T. Ammerman Officer and Director /s/ R. CHARLES BLACKMON, JR. - ------------------------------ Executive Vice President - March 24, 1997 R. Charles Blackmon, Jr. Chief Financial Officer (principal financial officer) /s/ ANNE M. SAVAGE - ------------------------------ Controller (principal March 24, 1997 Anne M. Savage accounting officer) /s/ WILLIAM L. SELDEN - ------------------------------ Chairman of the Board March 24, 1997 William L. Selden and Director /s/ HAROLD LEVY - ------------------------------ Director March 24, 1997 Harold Levy /s/ DOUGLAS L. NEWHOUSE - ------------------------------ Director March 24, 1997 Douglas L. Newhouse - ------------------------------ Director March 24, 1997 Ralph Saul -56- Signature Title Date --------- ----- ---- /s/ ROBERT F. SHAPIRO - ------------------------------ Director March 24, 1997 Robert F. Shapiro /s/ KENDRICK WILSON, III - ------------------------------ Director March 24, 1997 Kendrick Wilson, III -57- EX-10.45 2 ACQUISITION AGREEMENT EXHIBIT 10.45 ================================================================================ ACQUISITION AGREEMENT BY AND AMONG AMT/BEAMAN CORPORATION AS "PURCHASER" AND AMERICAN MODULAR TECHNOLOGIES, LLC AND BEAMAN CORPORATION COLLECTIVELY, AS "SELLER" DATED AS OF NOVEMBER 26, 1996 ================================================================================ TABLE OF CONTENTS Page ---- I. DEFINITIONS .......................................................... 1 II. PURCHASE AND SALE OF ASSETS .......................................... 4 Section 2.1. Purchase and Sale of the Assets ..................... 4 Section 2.2. Excluded Assets ..................................... 5 Section 2.3. Assumption of Liabilities ........................... 6 Section 2.4. Excluded Liabilities ................................ 6 Section 2.5. Closing ............................................. 8 Section 2.6. Purchase Price ...................................... 8 Section 2.7. Post Closing Adjustments ............................ 9 Section 2.8. Delivery of Purchase Price and Transfer of Assets ... 10 Section 2.9. Allocation of Purchase Price ........................ 12 Section 2.10. Third Party Consents ................................ 12 Section 2.11. Further Assurances, Etc. ............................ 12 III. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER .................... 13 Section 3.1. Representations and Warranties Accurate ............. 13 Section 3.2. Performance by Seller ............................... 13 Section 3.3. Authorization ....................................... 13 Section 3.4. Certificate ......................................... 13 Section 3.5. Opinion of Counsel .................................. 13 Section 3.6. Legal Prohibition ................................... 13 Section 3.7. Legislation ......................................... 14 Section 3.8. Consents and Approvals .............................. 14 Section 3.9. No Material Adverse Change .......................... 14 Section 3.10. Governmental Licenses ............................... 14 Section 3.11. Closing Matters ..................................... 15 Section 3.12. Instruments of Transfer, Conveyance and Assignment .. 15 Section 3.13. Title ............................................... 15 Section 3.14. Lender Approval ..................................... 16 Section 3.15. [Deleted] ........................................... 16 Section 3.16. Accounts Payable Aging Report ....................... 16 Section 3.17. Delivery of Secretary's Certificate ................. 17 Section 3.18. Account Receivable Schedule ......................... 17 IV. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER ........................ 17 Section 4.1. Representations and Warranties Accurate ............. 17 Section 4.2. Performance by Purchaser ............................ 17 Section 4.3. Authorization ....................................... 17 Section 4.4. Certificate ......................................... 18 Section 4.5. Opinion of Counsel .................................. 18 Section 4.6. Legal Prohibition ................................... 18 i Section 4.7. Delivery of Secretary's Certificate ................. 18 V. REPRESENTATIONS AND WARRANTIES OF SELLER ............................. 18 Section 5.1. Organization and Qualification/Ownership of Seller .. 18 Section 5.2. Due Authorization ................................... 18 Section 5.3. No Conflict ......................................... 19 Section 5.4. Equity Investments .................................. 20 Section 5.5. Title to Properties ................................. 20 Section 5.6. Real Property; Encumbrances ......................... 20 Section 5.7. Environmental Matters ............................... 23 Section 5.8. Financial Statements and Related Matters ............ 25 Section 5.9. Absence of Undisclosed Liabilities .................. 26 Section 5.10. Absence of Certain Changes or Events ................ 26 Section 5.11. Insurance ........................................... 27 Section 5.12. Contracts, Obligations and Commitments .............. 28 Section 5.13. Litigation .......................................... 29 Section 5.14. Compliance with Law ................................. 30 Section 5.15. Licenses; Registrations; Permits; Etc. .............. 30 Section 5.16. Labor Matters ....................................... 31 Section 5.17. Personnel; Employee Plans ........................... 31 Section 5.18. Intellectual Property ............................... 32 Section 5.19. Property to Operate Business ........................ 33 Section 5.20. Related Transactions ................................ 33 Section 5.21. Brokers ............................................. 33 Section 5.22. AccountsEReceivable ................................. 33 Section 5.23. Product Warranties .................................. 33 Section 5.24. Taxes ............................................... 33 Section 5.25. Suppliers and Customers ............................. 34 Section 5.26. Beaman Corporation .................................. 35 Section 5.27. Disclosure .......................................... 35 VI. REPRESENTATIONS AND WARRANTIES OF PURCHASER ......................... 35 Section 6.1. Organization ........................................ 35 Section 6.2. Due Authorization ................................... 35 Section 6.3. No Conflict ......................................... 36 Section 6.4. Disclosure .......................................... 36 VII. AGREEMENTS PENDING CLOSING .......................................... 37 Section 7.1. Conduct and Preservation of Business ................ 37 Section 7.2. Access to Information ............................... 37 Section 7.3. Filings and Authorizations .......................... 37 Section 7.4. Public Announcements ................................ 38 Section 7.5. Schedules ........................................... 38 Section 7.6. Notice of Developments .............................. 38 Section 7.7. Updated Financial Statements ........................ 38 Section 7.8. No Shopping ......................................... 38 ii Section 7.9. Rally Buildings ..................................... 39 ................. VIII. POST-CLOSING MATTERS ............................................... 39 Section 8.1. Hiring of Employees ................................. 39 Section 8.2. Use of Name ......................................... 40 Section 8.3. Non-Competition/Non-Solicitation .................... 40 Section 8.4. Subrogation of Purchaser ............................ 40 Section 8.5. Payments Received ................................... 40 Section 8.6. Collection of Accounts Receivable/Payment of Trade Payables .......................................... 41 Section 8.8. Payment of Liabilities .............................. 42 Section 8.9. Sharing of Data ..................................... 42 Section 8.10. Change in Name ...................................... 42 IX. INDEMNIFICATION ..................................................... 43 Section 9.1. Survival of Representations and Warranties .......... 43 Section 9.2. Seller's Indemnity .................................. 43 Section 9.3. Purchaser's Indemnity ............................... 44 Section 9.4. Limitations ......................................... 44 Section 9.5. Notice and Defense of Claims ........................ 44 Section 9.6. Payment/Reimbursement ............................... 45 X. TERMINATION .......................................................... 46 Section 10.1. Termination Events .................................. 46 Section 10.2. Effect of Termination ............................... 46 XI. MISCELLANEOUS ....................................................... 47 Section 11.1. Expenses ............................................ 47 Section 11.2. Risk of Loss ........................................ 47 Section 11.3. Brokers' and Finders' Fees .......................... 48 Section 11.4. Amendment ........................................... 48 Section 11.5. Entire Agreement; Assignment ........................ 48 Section 11.6. Headings ............................................ 48 Section 11.7. Notices ............................................. 49 Section 11.8. Severability ........................................ 50 Section 11.9. Waiver .............................................. 50 Section 11.10. Counterparts ........................................ 50 Section 11.11. Governing Law ....................................... 50 Section 11.12. Third Parties 50 iii EXHIBITS Exhibit 2.8 Bill of Sale and Assumption Agreement Exhibit 3.5 Opinion of Seller's Counsel Exhibit 4.5 Opinion of Purchaser's Counsel SCHEDULES Schedule 2.1(a) Real Property Schedule 2.1(b) Fixed Assets Schedule 2.1(d) Asset Leases Schedule 2.1(g) Intellectual Property Schedule 2.1(h) Licenses/Permits Schedule 2.1(i) Prepaid Expenses Schedule 2.2(c) Rally's Buildings Schedule 2.2(d) Trucks Schedule 2.2(e) Causes of Action Schedule 2.3(a) Accounts Payable Aging Report Schedule 2.4(i) Liabilities Schedule 2.9 Allocation of Purchase Price Schedule 3.8 Material Assumed Contracts Schedule 5.1 Foreign Qualifications Schedule 5.3 Conflicts Schedule 5.5 Permitted Liens Schedule 5.6 Real Property Schedule 5.7 Environmental Matters Schedule 5.8 Financial Statements Schedule 5.9 Undisclosed Liabilities Schedule 5.10 Certain Changes or Events Schedule 5.11 Insurance Schedule 5.12 Contract Exceptions Schedule 5.13 Litigation Schedule 5.15 Licenses; Registrations; Permits; Etc. Schedule 5.16 Labor Matters Schedule 5.17 Personnel; Employee Plans Schedule 5.18 Intellectual Property Schedule 5.19 Property Schedule 5.20 Related Transactions Schedule 5.22 Accounts Receivable Schedule 5.23 Product Warranties Schedule 5.24 Taxes Schedule 5.25 Suppliers and Customers Schedule 5.26 Beaman Corporation Schedule 6.3 Conflicts Schedule 8.6 Trade Payables iv ACQUISITION AGREEMENT Acquisition Agreement, dated as of November 26, 1996, by and among AMT/Beaman Corporation, a Delaware corporation ("Purchaser"), and American Modular Technologies, LLC ("AMT"), a Texas limited liability company, and Beaman Corporation, a North Carolina corporation ("Beaman" and together with AMT, "Seller"). WHEREAS, Purchaser desires to purchase, and Seller desires to sell, all of the assets used or useful in connection with the conduct of the Business (as defined herein); and WHEREAS, in order to effectuate the sale and purchase of the Business as described herein, Seller shall sell and Purchaser shall purchase substantially all the assets, properties and rights of Seller used in the Business as a going concern, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in reliance upon the covenants and agreements set forth herein, the parties hereto agree as follows: I. DEFINITIONS The following terms shall have the following respective meanings for all purposes of this Agreement: "Account" has the meaning set forth in Section 2.6(a). "Accounts Receivable" has the meaning set forth in Section 3.18. "Acquisition Transaction" has the meaning set forth in Section 7.8. "Adjusted Net Book Value" has the meaning set forth in Section 2.7(f). "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes hereof, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings relative to the foregoing. "Agreement" means this Acquisition Agreement, as it may be from time to time amended. "Assets" has the meaning set forth in Section 2.1. "Assumed Contracts" has the meaning set forth in Section 5.12. "Assumed Liabilities" has the meaning set forth in Section 2.3. "Bill of Sale" has the meaning set forth in Section 2.8(b). "Business" means the business conducted by Seller at its Liberty, North Carolina manufacturing facility. "Closing" means the completion of the acquisition of the Assets pursuant to this Agreement. "Closing Date" means the date the Closing takes place. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. "Employee Plan" has the meaning set forth in Section 5.17. "Employees" has the meaning set forth in Section 8.1. "Environmental Laws" has the meaning set forth in Section 5.7. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" has the meaning set forth in Section 5.17. "Excluded Assets" has the meaning set forth in Section 2.2. "Excluded Liabilities" has the meaning set forth in Section 2.4. "Fixed Assets" has the meaning set forth in Section 2.1(b). "Governmental Entity" means any court, administrative agency or commission or other governmental authority or instrumentality. "Intellectual Property" means all industrial and intellectual property rights, including without limitation patents, patent applications, patent rights, trademarks, trademark applications, tradenames (including, without limitation, "Beaman"), service marks, service mark applications, copyrights, know-how, franchises, licenses, trade secrets, proprietary processes and formulae, methods, plans, research data, marketing plans and strategies, forecasts, product designs, fabrication data, research and development, operating rights, software (including without limitation all 2 source codes and object codes), permits and other similar intangible property and rights relating to the Business. "Interim Balance Sheet" has the meaning set forth in Section 5.8. "Interim Balance Sheet Date" has the meaning set forth in Section 5.8. "Inventory" has the meaning set forth in Section 2.1(c). "Laws" has the meaning set forth in Section 5.6. "Licenses" has the meaning set forth in Section 3.10. "Material Assumed Contracts" means the Assumed Contracts set forth in Section 3.8. hereto. "Person" means an individual, partnership, corporation, limited liability company, joint venture, unincorporated organization, trust, other legal entity, cooperative or a governmental entity or agency thereof. "Permitted Exceptions" has the meaning set forth in Section 3.13(a). "Permitted Liens" has the meaning set forth in Section 5.5. "Rally Buildings" has the meaning set forth in Section 2.2(c). "Real Property" has the meaning set forth in Section 2.1(a). "Taxes" has the meaning set forth in Section 5.24. "Title Company" has the meaning set forth in Section 3.13(a). "Title Exceptions" has the meaning set forth in Section 3.13(b). "Trade Payables" has the meaning set forth in Section 2.4(b). "Warranty Deed" has the meaning set forth in Section 2.8(b). "Warranty Deposit" has the meaning set forth in Section 2.6(a). "Warranty Liabilities" has the meaning set forth in Section 2.4(o). 3 II. PURCHASE AND SALE OF ASSETS Section 2.1. Purchase and Sale of the Assets. At the Closing, upon the terms and subject to the terms and conditions contained herein, Seller shall sell, transfer, convey, assign and deliver to Purchaser, effective as of the Closing, and Purchaser shall purchase and acquire from Seller, all of the properties, assets and rights of Seller used or useful in connection with the Business, of every kind and description, real, personal and mixed, tangible and intangible, wherever located, except the Excluded Assets, free and clear of all liens, mortgages, pledges, encumbrances and charges of every kind other than the Permitted Liens (collectively, the "Assets"). Without limiting the generality of the definition of the Assets being purchased by Purchaser, the Assets shall include the following: (a) all real property and interests therein of Seller used or held for use in the conduct of the Business and more fully described in Schedule 2.1(a) and all buildings, structures and improvements located thereon and appurtenances attached thereto including, without limitation, all air rights, subsurface rights, water rights, wells and all appurtenant development rights, if any, or easements, licenses, privileges, variances and other agreements used by Seller in the Business as presently conducted (the "Real Property"); (b) all machinery, equipment, inventory, molds, assembly machinery, fixtures, computers, computer hardware and software, tools, supplies, construction in progress, furniture, vehicles and other tangible personal property and assets of Seller related to the Business, all of which are described on Schedule 2.1(b), including without limitation Seller's rights under warranties (expressed and implied) relating thereto (the "Fixed Assets"); (c) all Seller's inventories of raw material, work in progress, finished products, supplies, catalogs and promotional and marketing materials used in the conduct of the Business (the "Inventory"); (d) all the interest of, and the rights and benefits accruing to, Seller as lessee under all leases or rental agreements covering machinery, equipment (including office equipment), computer hardware, tools, supplies, furniture and fixtures, vehicles and other tangible assets used in the Business including, without limitation, those described in Schedule 2.1(d); (e) all of the rights and benefits accruing to Seller under all Assumed Contracts; (f) all currently existing operating data and records of Seller relating to the Business, including without limitation, lists of all currently existing customers and all customer records, research and development reports and records, production reports and records, standard operating procedures, schematics, equipment logs, operating guides and manuals, part lists and specifications, vendor lists, copies of 4 personnel records of the Employees, correspondence and other similar documents and records relating to the foregoing; (g) all of the Intellectual Property of Seller, including, without limitation, all such property and rights listed in Schedule 2.1(g); (h) all licenses, permits, approvals, qualifications, consents and other authorizations necessary for the lawful conduct, ownership and operation of the Business including, without limitation, those listed on Schedule 2.1(h), other than those licenses, permits, approvals, qualifications, consents and other authorizations which by law are not transferable, as so indicated on Schedule 2.1(h); (i) all prepaid expenses, advances and deposits arising in the conduct of the Business, other than prepaid premiums related to insurance policies, all of which are listed on Schedule 2.1(i); (j) all goodwill and going concern value of the Business, including without limitation, the right to use, the names "Beaman" and "American Modular Technologies" and any derivatives thereof used by Seller; (k) all interests in and to telephone, telex and telecopier numbers and all listings in all telephone books and directories; (l) all stationery, forms, labels, catalogs, brochures, art work, photographs and advertising material; (m) all rights in and to insurance and indemnity claims, chooses in action, judgments, claims, demands and other rights of the Business or Seller (solely as it relates to the Business) against third parties (other than claims, chooses in action, judgments, claims, demands and other rights which are Excluded Assets or relate to Excluded Liabilities); (n) all assignable federal, state and local governmental licenses, permits, authorizations and approvals, if any, of, or relating to, the Business; and (o) lockbox account #___________________________________ at NationsBank. Section 2.2. Excluded Assets. Anything to the contrary in Section 2.1 notwithstanding, the Assets shall exclude and Purchaser shall not purchase the following property and assets used by Seller in connection with the conduct of the Business (collectively, the "Excluded Assets"): (a) all Accounts Receivable and all cash or cash equivalents in transit, in hand or in bank accounts arising in the conduct of the Business; 5 (b) the corporate minute books, stock books, tax returns or other records (other than the records relating to the Business included in the Assets pursuant to Section 2.1(f) hereof) of Seller; (c) all buildings constructed for Rally's Hamburgers, Inc. which are located on the Real Property, as more fully described on Schedule 2.2(c) (the "Rally Buildings"), it being understood that Seller does not own the Rally Buildings; (d) the trucks, and the leases related thereto, as more fully described on Schedule 2.2(d); (e) the causes of action against Seller's former employees, as set forth on Schedule 2.2(e); (f) all real property owned or leased by Seller which is located in South Carolina or California; (g) all prepaid expenses, advances and deposits arising in the conduct of the Business, other than those set forth on Schedule 2.1(i); and (h) the rights which accrue or will accrue to Seller under this Agreement. Section 2.3. Assumption of Liabilities. At the Closing, upon the terms and subject to the conditions contained herein, simultaneously with the transfer, conveyance and assignment to Purchaser of the Assets, Purchaser shall assume, effective as of the Closing, and discharge in accordance with their terms, only the obligations and liabilities of Seller under the Assumed Contracts to the extent that they shall remain uncompleted and outstanding at the Closing Date; provided, however, Purchaser expressly does not assume (i)Eany liabilities, duties or obligations of Seller under any Assumed Contracts which are performable or have arisen or may arise with respect to provisions of or any breaches of such contracts or agreements occurring before the Closing Date, or (ii)Eany damages or other sums that may be or become payable to third parties resulting from acts, events or omissions of any party under the Assumed Contracts occurring before the Closing Date. For convenience of reference, the foregoing liabilities and obligations of Seller being assumed by Purchaser are collectively referred to herein as the "Assumed Liabilities". Section 2.4. Excluded Liabilities. Purchaser shall not assume, pay, discharge, become liable for or perform when due, and Seller shall not cause Purchaser so to assume, pay, discharge, become liable for or perform, any liabilities (contingent or otherwise), debts, contracts, commitments and other obligations of Seller of any nature whatsoever other than the Assumed Liabilities. Without limitation of the foregoing, Purchaser shall not assume, pay or discharge, and shall not be liable for any liability, commitment or expense of Seller as a result of or arising from any of the following (collectively, the "Excluded Liabilities"): 6 (a) Seller's obligations and any liabilities arising under or related to this Agreement; (b) trade payables and similar liabilities incurred in the ordinary course of the Business prior to the Closing Date (collectively, "Trade Payables"); (c) any obligation of Seller for federal, state, local or foreign tax liability (including interest, penalties or additions to tax relating thereto) arising from the operation of the Business or ownership of the Assets up to the Closing Date or arising out of the consummation of the transactions contemplated hereby (including, without limitation, the sale by Seller of the Assets pursuant hereto); (d) any obligation of Seller for expenses incurred in connection with the sale of the Assets pursuant hereto including, without limitation, the fees and expenses of its counsel and independent auditors; (e) any liability or obligation including, without limitation, any liability for Seller's attorney's fees or expenses, relating to or arising out of any action, suit, claim, investigation, legal or administrative or arbitration proceeding or judgment, decree, injunction or order disclosed in Schedule 5.13; (f) any liability, contract, commitment or other obligation of Seller, known or unknown, fixed or contingent, the existence of which constitutes or will constitute a breach of any representation, warranty, covenant or agreement of Seller contained in or made pursuant to this Agreement or which Purchaser is not assuming hereunder; (g) any liabilities or obligations of Seller under any contracts or agreements relating to the Excluded Assets; (h) any liabilities or obligations of Seller to any Affiliate thereof; (i) any liabilities or obligations of Seller for borrowed money and guarantees of borrowed money or letters of credit, except as set forth on Schedule 2.4(i); (j) any liability, obligation, claim or demand of any nature whatsoever (including, without limitation, any liability, obligation, claim or demand in respect of personal injury, property damage, workers' or workmen's compensation, grievance proceeding or actual or threatened litigation, suit, claim, demand or governmental proceeding) arising out of the conduct of the Business prior to the Closing Date including, without limitation, liabilities and obligations arising out of transactions entered into prior to the Closing Date, any action or inaction prior to the Closing Date or any state of facts existing prior to the Closing Date (regardless of when asserted), not expressly assumed by Purchaser pursuant to this Agreement; 7 (k) any liability or obligation to any employee or former employee of Seller or to any third party, under any pension, insurance, bonus, profit-sharing or other employee benefit plan or arrangement or any obligation relating to salaries, bonuses, vacation or severance pay, or any obligation under any statute, rule or regulation, including without limitation, ERISA; (l) any liability, contract, commitment or other obligation of Seller, known or unknown, fixed or contingent, the existence of which constitutes or will constitute a breach of any representation or warranty of Seller contained in or made pursuant to this Agreement or which Purchaser is not assuming hereunder; (m) FICA and other employee withholding taxes; (n) any liability or obligation to any broker, finder, consultant, investment banker or other intermediary engaged by Seller in connection with the sale of all or any portion of the Business; and (o) liabilities and obligations of Seller under warranties given in respect of products manufactured or sold prior to the Closing Date ("Warranty Liabilities") Section 2.5. Closing. Subject to the provisions of Articles III and IV hereof, the Closing shall take place at 10:00 a.m., New York time, at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, no later than the second business day after satisfaction of the latest to occur of the conditions set forth in Articles III and IV hereof (other than the delivery of the officers' certificates and opinions referred to therein and other than any conditions which are waived in accordance with said Articles) or such other time, place or date as the Seller and Purchaser may mutually agree. Failure to consummate the transactions provided for in this Agreement on the date and time selected pursuant to this Section 2.5 shall not, except as permitted by Article X hereof, result in the termination of this Agreement and shall not relieve any party to this Agreement of any obligation hereunder. Section 2.6. Purchase Price. The aggregate purchase price for the Assets shall be as follows: (a) $1,800,000, of which $1,700,000 shall be paid by Purchaser to Seller at the Closing (the "Fixed Payment") and $100,000 (the "Warranty Deposit") shall be deposited in a bank account to be established by Seller at Eufaula Bank and Trust Company (the "Account"); (b) an amount in cash equal to the Adjusted Net Book Value of the Inventory; and (c) Purchaser's assumption of the Assumed Liabilities. 8 The amount of cash to be paid to Seller at Closing shall be reduced by the amount set forth on Schedule 2.4(i). Section 2.7. Post Closing Adjustments. (a) At least five (5) business days prior to the Closing Date, Seller shall prepare and deliver to Purchaser a good faith estimate, prepared in accordance with United States generally accepted accounting principles ("GAAP"), applied in a manner consistent with the preparation of the financial statements referred to in Section 5.8 hereof, except as otherwise expressly provided below, and accompanied by a certificate of the chief financial officer of Seller to that effect, of the aggregate amount of the Adjusted Net Book Value of the Inventory determined in accordance with clause (f) below (the "Estimated Amount") as of the Closing Date. (b) At Closing, Purchaser shall (i) deliver to Seller an amount equal to 80% of the Estimated Amount (the "Initial Payment Amount") and (ii) cause the Account to be credited with an amount equal to 20% of the Estimated Amount (the "Remaining Amount"). (c) On or about the Closing Date, Seller and Purchaser shall jointly conduct a physical count of all Inventory as of such date. The physical count of the Inventory shall be conducted in accordance with procedures to be mutually agreed upon by the parties. To the extent such count takes place on a day other than the Closing Date, the physical count shall be adjusted for receipts and usages of Inventory between the date of the physical count and the Closing Date. As promptly as practicable thereafter, but in no event more than thirty (30) days following the Closing Date, Purchaser shall prepare or cause to be prepared and shall deliver to Seller a reasonably detailed statement setting forth the Adjusted Net Book Value of the Inventory, determined in accordance with clause (f) below (the "Purchaser Statement"). Unless within thirty (30) days after its receipt of the Purchaser Statement Seller shall deliver to Purchaser a reasonably detailed statement describing its objections to the Purchaser Statement (a "Statement of Objection"), the amount of the Adjusted Net Book Value of the Inventory determined in accordance with this clause (c) shall be final and binding on the parties hereto and the Purchaser Statement shall be the final statement hereunder (the "Closing Date Statement"). (d) If Seller shall deliver to Purchaser a timely Statement of Objection, Purchaser and Seller shall negotiate in good faith and use reasonable best efforts to resolve any disputes. If a resolution is reached, such resolution shall be final and binding on the parties and Purchaser and Seller shall set forth the Adjusted Net Book Value of the Inventory on a mutually acceptable statement and such statement shall be the Closing Date Statement. If a final resolution is not reached within fifteen (15) days after Seller has submitted its Statement of Objection, any remaining disputes shall be resolved by a firm of independent accountants (the "Reviewing Accountants") selected jointly by the parties' independent accounting firms. The Reviewing Accountants shall be instructed to resolve any matters in dispute as promptly as practicable, but in no event more than thirty (30) days, and set forth their resolution 9 in a statement setting forth the Net Book Value of the Inventory (the "Accountant Statement"). In such event, the determination of the Reviewing Accountants shall be final and binding on the parties hereto and the Accountant Statement shall be the Closing Date Statement. (e) Seller and Purchaser each shall pay one-half of the fees and expenses of the Reviewing Accountants. Seller and the Purchaser shall cooperate with each other and the Reviewing Accountants in connection with the matters contemplated by this Section 2.7, including Purchaser's preparation of and Seller's review of the Closing Date Statement, including by furnishing such information and access to books, records (including accountants' work papers), personnel and properties as may be reasonably requested. (f) The "Adjusted Net Book Value" shall be equal to the tangible net book value of the Inventory, less mutually agreed upon reserves for slow moving, obsolete and damaged goods, as set forth on the Closing Date Statement. The Closing Date Statement shall be prepared in accordance with GAAP applied in a manner consistent with the financial statements referred to in Section 5.8 hereof, except as otherwise expressly set forth in this Section 2.7. (g) If the Adjusted Net Book Value set forth in the Closing Date Statement exceeds the Initial Payment Amount, Seller and Purchaser shall distribute to Seller in cash out of the Remaining Amount the amount of such excess and to Purchaser the remainder, if any, of the Remaining Amount. Interest earned on the Remaining Amount in the Account shall be distributed to Seller and Purchaser in proportion to the amount of the Remaining Amount paid to each of them, as the case may be. (h) If the Adjusted Net Book Value set forth in the Closing Date Statement is less than the Initial Payment Amount, Seller shall pay the difference to Purchaser in immediately available funds, plus interest on such amount from the Closing Date to the date of payment at the rate of 8% per annum. In such event, Seller and Purchaser shall pay the Remaining Amount to Purchaser. (i) If the Adjusted Net Book Value set forth in the Closing Date Statement exceeds the Estimated Amount, then, in addition to distribution of the Remaining Amount pursuant to clause (g) above, Purchaser shall pay the difference to Seller in immediately available funds, plus interest on such amount from the Closing Date to the date of payment at the rate of 8% per annum. (j) The Remaining Amount may only be disbursed from the Account upon the signature of one each of the Seller's Representatives and the Purchaser's Representatives. Section 2.8. Delivery of Purchase Price and Transfer of Assets. (a) On the Closing Date, Purchaser shall deliver (i) to Seller the Fixed Payment and the Initial 10 Payment Amount by wire transfer of immediately available federal funds to an account specified by Seller at least two business days prior to Closing and (ii) the Warranty Deposit to the Account. (b) At the Closing, Seller shall deliver to Purchaser (A) a Bill of Sale and Assumption Agreement, substantially in the form of Exhibit 2.8 hereof (the "Bill of Sale"), (B) a special warranty deed to the Real Property, subject to the exceptions permitted by this Agreement or otherwise approved by Purchaser (the "Warranty Deed"), (C) duly executed title and transfer documents covering any of the Assets for which there exists a certificate of title (provided, however, that certificates of title for the vehicles set forth on Schedule 2.1(b) shall be delivered to Purchaser on, or prior to, December 6, 1996), (D) duly executed assignments covering any of the Intellectual Property, in form and substance reasonably acceptable to Purchaser and in recordable form as appropriate, and (E) such other deeds, bills of sale, endorsements, assignments and other instruments of sale, conveyance, transfer and assignment, reasonably satisfactory in form and substance to Purchaser and its counsel, as shall be necessary and effective to transfer and assign to, and vest in, Purchaser all of Seller's right, title and interest in and to the Assets including, without limitation, (i) good and valid title in and to all of the Assets owned by Seller, (ii) good and valid leasehold interests in and to all of the Assets leased by Seller as lessee, and (iii) subject to Section 2.10 hereof, all of Seller's rights under all Assumed Contracts and, simultaneously with such delivery, all such steps will be taken as may reasonably be required to put Purchaser in actual possession and operating control of the Assets. (c) At the Closing, closing costs shall be paid and prorations made as follows: (i) Closing Costs. Purchaser and Seller shall each pay their own attorneys' fees. Seller shall pay documentary transfer taxes and recording charges customarily paid by Seller. Purchaser shall pay recording costs customarily paid by Purchaser and any costs for any title insurance coverage desired by Purchaser. (ii) Prorations. (A) Taxes. Real and personal property taxes and general and special assessments shall be prorated through the Closing Date on the basis of the fiscal year for such taxes and assessments. If the Closing Date shall occur before the real or personal property tax rate for such fiscal year is fixed, the apportionment of taxes shall be made on the basis of the taxes assessed for the preceding fiscal year. After the real and personal property taxes are finally fixed for the fiscal year in which the Closing Date occurs, Seller and Purchaser shall make a recalculation of the apportionment of such taxes, and Seller or Purchaser, as the case may be, shall make an appropriate payment to the other based on such recalculation. The provisions of this clause shall survive the Closing. 11 (B) Utilities. Charges and assessments for sewer and water and other utilities, including charges for consumption of electricity, steam and gas and any other receipts or charges which Purchaser has accepted hereunder, as applicable, and the value of fuel stored on the Real Property, at the price charged by Seller's supplier including any taxes, shall be apportioned by Purchaser and Seller as of the Closing Date. (C) Lease and Contract Payments. Payments by Seller under the leases and contracts set forth on Schedule 2.1(d) shall be apportioned by Purchaser and Seller as of the Closing Date. Section 2.9. Allocation of Purchase Price. The Purchase Price shall be allocated in its entirety among the Assets in accordance with Schedule 2.9 hereto and as required by Section 1060 of the Code. Seller and Purchaser shall file all information and tax returns (and any amendments thereto) in a manner consistent with this Section 2.9 and Section 1060 of the Code and comply with the applicable information reporting requirements of Section 1060 of the Code. If, contrary to the intent of the parties hereto as expressed in this Section 2.9, any taxing authority makes or proposes an allocation different from that contained in this Section 2.9, Seller and Purchaser shall cooperate with each other in good faith to contest such taxing authority's allocation (or proposed allocation); provided, however, that, after consultation with the party adversely affected by such allocation (or proposed allocation), another party hereto may file such protective claims or returns as may reasonably be required to protect its interests. Section 2.10. Third Party Consents. To the extent that Seller's rights under any Assumed Contract, or with respect to any Asset to be assigned to Purchaser hereunder, may not be assigned without the consent of another Person which has not been obtained prior to the Closing, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its expense, shall use its reasonable best efforts to obtain any such required consent(s) as promptly as possible after the Closing, but Seller shall not be obligated to pay any amounts to such Person to obtain such consent. Until any such consent shall be obtained or if any attempted assignment would be ineffective or would impair Purchaser's rights with respect to the Asset in question so that Purchaser would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by law and the Asset, shall act after the Closing as Purchaser's agent in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by law and the Asset, with Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser. Section 2.11. Further Assurances, Etc. Seller shall, at any time and from time to time after the Closing, upon the request of Purchaser and at the expense of Purchaser, do, execute, acknowledge and deliver, and cause to be done, executed, acknowledged or delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney or assurances as may be reasonably required for the 12 better transferring, assigning, conveying, granting, assuring and confirming to Purchaser, or for aiding and assisting in the collection, or reducing to possession by Purchaser, of the Assets, or to vest in Purchaser good and marketable title to the Assets. Each of the parties hereto will cooperate with the other and execute and deliver to the other such other instruments and documents and take such other actions as may be reasonably requested from time to time by the other party hereto as necessary to carry out, evidence and confirm the intended purposes of this Agreement. III. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER The obligation of Purchaser under this Agreement to consummate the purchase of the Assets at the Closing shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, to the satisfaction of Purchaser (any of which may be waived in writing in whole or in part by Purchaser): Section 3.1. Representations and Warranties Accurate. All representations and warranties of Seller contained in this Agreement (including the Schedules hereto), qualified as to materiality shall be true, complete and correct in all respects, and those not so qualified shall be true, complete and correct in all material respects, as of the date when made and on and as of the Closing Date with the same force and effect as though such representations and warranties were made on and as of the Closing Date. Section 3.2. Performance by Seller. Seller shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by Seller prior to or on the Closing Date. Section 3.3. Authorization. All action necessary to authorize the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby shall have been duly and validly taken, and Seller shall have full power and right to sell the Assets as contemplated hereby. Section 3.4. Certificate. Purchaser shall have received a certificate, dated as of the Closing Date, signed by an authorized officer of AMT, to the effect that the conditions set forth in Sections 3.1, 3.2, 3.3 and 3.9 (excluding the Real Property) have been satisfied and a certificate, dated as of the Closing Date, signed by an authorized officer of Beaman, to the effect that the conditions set forth in Sections 3.1, 3.2, 3.3 and 3.9 (with respect to the Real Property) have been satisfied. Section 3.5. Opinion of Counsel. Purchaser shall have received from Stutzman & Bromberg, counsel to Seller, a written opinion, dated the Closing Date, substantially in the form attached hereto as Exhibit 3.5. Section 3.6. Legal Prohibition. On the Closing Date, no injunction or order shall be in effect prohibiting consummation of the transactions contemplated hereby or 13 which would make the consummation of such transactions unlawful and no action or proceeding shall have been instituted and remain pending or threatened before a Governmental Entity to restrain or prohibit the transactions contemplated by this Agreement. Section 3.7. Legislation. No federal, state or local statute, rule or regulation shall have been enacted the effect of which would be to prohibit, restrict, impair or delay in any material respect the consummation of the transactions contemplated hereby or any of the conditions to the consummation of such transactions or restrict or impair in any material respect the ability of Purchaser to own or conduct the Business as currently conducted. Section 3.8. Consents and Approvals. All authorizations, consents, waivers, approvals, orders, registrations, qualifications, designations, declarations, filings or other action required with or from any federal, state or local Governmental Entity or third party (including, without limitation, all parties to each of the Assumed Contracts) in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly obtained and shall be reasonably satisfactory to Purchaser and its counsel, and copies thereof shall have been delivered to the Purchaser no later than three (3) days prior to the Closing. No such consent or approval (a)Eshall be conditioned on the modification, cancellation or termination of any Assumed Contract, or (b)Eshall impose on Purchaser any material condition or provision or requirement with respect to the Business or its operation, as currently conducted by Seller, that is more restrictive than or different from the conditions imposed upon such operation prior to Closing, unless Purchaser gives its prior written approval. With respect to any Assumed Contract, the assignment of which by its terms requires prior consent of the parties thereto, if such consent is not obtained prior to the Closing Date, Seller may satisfy this condition by delivering to Purchaser written documentation setting forth arrangements for the transfer of the economic benefits of such Assumed Contract(s) to Purchaser as of the Closing Date under terms and conditions reasonably acceptable to Purchaser. Notwithstanding anything to the contrary contained in this Section 3.8, if Seller is unable to deliver to Purchaser prior to the Closing Date a consent to the assignment of any of the Assumed Contracts that Purchaser deems to be material to the Business and has listed on Schedule 3.8 hereto (the "Material Assumed Contracts"), then this Section 3.8 shall not be deemed to be satisfied and Purchaser shall have the right to terminate this Agreement in accordance with Section 10.1 hereof. Section 3.9. No Material Adverse Change. There shall have been no material adverse change in the condition of the Assets or the operations of the Business from the date hereof to the Closing Date. Section 3.10. Governmental Licenses. Purchaser shall have obtained from all applicable Governmental Entities all approvals, authorizations, permits, licenses and consents necessary to conduct the Business as conducted on the date hereof (the "Licenses"). 14 Section 3.11. Closing Matters. All proceedings to be taken by the Seller in connection with the consummation of the transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Purchaser and its counsel. Section 3.12. Instruments of Transfer, Conveyance and Assignment. Purchaser shall have received a duly executed Bill of Sale and such other instruments of transfer, conveyance and assignment as are reasonably required to effect the sale, transfer, conveyance and assignment of the Assets to Purchaser in accordance herewith. Section 3.13. Title. (a) Purchaser shall have obtained a commitment for the issuance of a standard ALTA fee owner's title insurance policy, in an amount of coverage equal to the allocated value of the Real Property and all improvements thereon, from a nationally recognized title insurance company qualified to conduct title insurance business in the State of North Carolina (the "Title Company"), insuring that title to each parcel of the Real Property and improvements thereon shall be free and clear of all liens, assessments, restrictions, encumbrances, easements, leases, tenancies, claims or rights of use or possession and other title objections, except for (i) the standard exceptions normally contained in the ALTA owner's title insurance policy and any exceptions that are standard in the State of North Carolina, (ii) building and zoning laws, ordinances, state and federal regulations, (iii) restrictions of record relating to use or improvement of the premises without effective forfeiture provisions, and (iv) utility and other easements that do not materially adversely affect the intended use or the value of the Real Property in its current use (collectively, the "Permitted Exceptions"); provided, however, that Seller, at Purchaser's request, shall provide such affidavits to the Title Company or take such other actions as may be reasonably requested that would enable the Title Company to remove any of such standard exceptions. Purchaser shall also have obtained surveys of the Real Property made by a registered land surveyor bearing a certificate addressed to Purchaser and Purchaser's title insurance company, signed by the surveyor, certifying that the survey was actually made on the ground and that there are no encumbrances except as shown, and complying with the minimum detail requirements for land title surveys as adopted by the Land Title Association. Purchaser shall pay all premiums and other expenses relating to such surveys and title insurance policy commitment including, without limitation, the title insurance premium. (b) Seller shall have the right, but not the obligation, to remove any title exception ("Title Exception") which is not a Permitted Exception if so requested by Purchaser. In the event of Seller's election to take action to remove such Title Exception, Seller shall be entitled to one adjournment of the Closing Date for a period not to exceed sixty (60) days or such longer period as may be reasonably needed to cure such Title Exceptions, and such Closing Date shall be adjourned to such date as may be specified by Seller. If (i) for any reason whatsoever Seller shall not have succeeded in removing such Title Exceptions at the expiration of such adjourned period, or (ii) at such time prior thereto as Seller determines that it will not be able to satisfy the same, 15 Seller shall give Purchaser written notice thereof and Purchaser shall have five (5) business days from the expiration of such adjourned period or the receipt of such notice, as the case may be, to elect by written notice to Seller to purchase the Real Property subject to such Title Exceptions without abatement or reduction of the Purchase Price or any other liability of Seller. If Purchaser fails to make such election or shall otherwise be unwilling to waive the same and to close this transaction without abatement of the Purchase Price or allowance of any kind, this Agreement shall be and be deemed to be terminated in accordance with Section 10.1(d), and Seller shall reimburse Purchaser for all out of pocket expenses incurred by Purchaser in connection with the transactions contemplated hereby. Nothing herein contained shall obligate Seller to bring any action or proceeding or otherwise incur any expense in order to cure or remedy any defect in title. If on the Closing Date there may be any liens or encumbrances which Seller is obligated to pay or discharge in order to convey to Purchaser such title as is herein provided to be conveyed, Seller may use any portion of the Fixed Payment to satisfy the same, provided (i) Seller shall deliver to Purchaser on the Closing Date instruments in recordable form and sufficient to satisfy such liens or encumbrances of record, together with the cost of recording or filing said instruments or (ii) Seller, having made arrangements with the Title Company, shall deposit with the Title Company sufficient monies to insure the obtaining and the recording of such satisfaction(s) and removal of said liens or encumbrances as exceptions to the coverage of the policy of insurance issued by the Title Company. The existence of any such liens or encumbrances shall not be deemed objections to title if Seller shall comply with the foregoing requirements. (c) The acceptance of the deeds by Purchaser shall be deemed to be full performance and discharge of every agreement and obligation on the part of the Beaman to be performed herein pursuant to the terms of this Agreement with respect to the Real Property, except as to those which are specifically stated herein to survive the Closing, and except that nothing herein is intended to limit any obligation of Seller hereunder which is to be performed in whole or in part after the Closing. Section 3.14. Lender Approval. Purchaser shall have received the written approval of the senior lender(s) of American Buildings Company, Purchaser's parent company, authorizing Purchaser to consummate this Agreement and the transactions contemplated hereby. Purchaser agrees to use its reasonable best efforts to obtain such consent and to keep Seller informed with respect to the status of obtaining such consent. Section 3.15. [Deleted] Section 3.16. Accounts Payable Aging Report. Seller shall have delivered to Purchaser an Accounts Payable Aging Report that is dated the Closing Date and certified as true and correct by the Chief Financial Officer of Seller which lists the Trade Payables as of the Closing Date. 16 Section 3.17. Delivery of Secretary's Certificate. AMT shall have delivered to Purchaser a certificate of its Secretary with attached to such certificate (i) a copy of the Articles of Organization and Operating Agreement of AMT, (ii) a certified copy of a Certificate of Existence issued by the Secretary of State of Texas and the Secretary of State of North Carolina, dated no earlier than three (3) days before the Closing Date, and (iii) a certified copy of a Certificate of Tax Good Standing issued by the Secretary of State of Texas and the Secretary of State of North Carolina, dated no earlier than three (3) days before the Closing Date. Beaman shall have delivered to Purchaser a certificate of its Secretary with attached to such certificate (i) a copy of the Articles of Incorporation and Bylaws of Beaman, (ii) a certified copy of a Certificate of Existence issued by the Secretary of State of North Carolina, dated no earlier than three (3) days before the Closing Date, and (iii) a certified copy of a Certificate of Tax Good Standing issued by the Secretary of State of North Carolina, dated no earlier than three (3) days before the Closing Date. Section 3.18. Account Receivable Schedule. Seller shall have delivered to Purchaser a schedule of all notes and accounts receivable of Seller which have arisen in the ordinary course of the Business (the "Accounts Receivable"), together with an aging schedule of such Accounts Receivable, and such schedule shall show that there are Accounts Receivable not more than 30 days past due which aggregate at least the greater of (a) $1.5 million or (b) an amount equal to twice the amount of Trade Payables included on Schedule 8.6. IV. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER The obligation of Seller under this Agreement to consummate the sale of the Assets at the Closing shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, to the reasonable satisfaction of Seller: Section 4.1. Representations and Warranties Accurate. All representations and warranties of Purchaser contained in this Agreement qualified as to materiality shall be true, complete and correct in all respects, and those not so qualified shall be true, complete and correct in all material respects, as of the date when made and on and as of the Closing Date, with the same force and effect as though such representations and warranties were made on and as of the Closing Date. Section 4.2. Performance by Purchaser. Purchaser shall have performed and complied in all material respects with all agreements, covenants and conditions required by this Agreement to be performed and complied with by Purchaser prior to or on the Closing Date. Section 4.3. Authorization. All action necessary to authorize the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby shall have been duly and validly taken, and Purchaser shall have full power and right to acquire the Assets and assume the Assumed Liabilities as contemplated hereby. 17 Section 4.4. Certificate. Seller shall have received a certificate, dated as of the Closing Date, signed by an authorized officer of Purchaser, to the effect that the conditions set forth in Sections 4.1, 4.2 and 4.3 have been satisfied. Section 4.5. Opinion of Counsel. Seller shall have received from Fulbright & Jaworski L.L.P., counsel to Purchaser, a written opinion, dated the Closing Date, substantially in the form of Exhibit 4.5 hereto. Section 4.6. Legal Prohibition. On the Closing Date, no injunction or order shall be in effect prohibiting consummation of the transactions contemplated hereby or which would make the consummation of such transactions unlawful and no action or proceeding shall have been instituted and remain pending before a Governmental Entity to restrain or prohibit the transactions contemplated by this Agreement. Section 4.7. Delivery of Secretary's Certificate. Purchaser shall have delivered to Seller a certificate of its Secretary with attached to such certificate (i) a copy of the Certificate of Incorporation and Bylaws of Purchaser and (ii) a certified copy of a Certificate of Existence issued by the Secretary of State of Delaware, dated no earlier than three (3) days before the Closing Date. V. REPRESENTATIONS AND WARRANTIES OF SELLER AMT and Beaman jointly and severally represent, warrant and agree that: Section 5.1. Organization and Qualification/Ownership of Seller. (i)EAMT is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas, and has all requisite corporate power and authority and all material licenses and permits necessary to conduct the Business as presently conducted, and to own, lease and operate the properties and assets owned, leased or operated by it and used in connection therewith. Beaman is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina, and has all requisite corporate power and authority and all material licenses and permits necessary to own the Real Property. AMT is qualified as a foreign corporation in each jurisdiction required to conduct the Business as presently conducted or to own, lease or operate the Assets which are owned, leased or operated by it, all of which jurisdictions are listed in Schedule 5.1 hereto. Beaman is not qualified as a foreign corporation in any jurisdiction, and Beaman is not required to qualify or otherwise be authorized to do business as a foreign corporation in any jurisdiction. Seller has not knowingly taken any action, or failed to take any action, which action or failure will preclude or prevent Purchaser from conducting the Business substantially in the same manner in which Seller has heretofore conducted the same. Section 5.2. Due Authorization. (a) Seller has all requisite corporate power and authority to execute and deliver this Agreement, and all other agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate 18 the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement, and the other documents contemplated hereby, the performance by Seller of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly and validly executed by Seller and this Agreement is, and each other agreement contemplated hereby to which Seller is a party will be, upon execution and delivery thereof by Seller, a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms (except as the enforceability thereof may be limited by any applicable bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in equity or at law). (b) Seller has complete and unrestricted power and the unqualified right to sell, convey, assign, transfer and deliver the Assets to Purchaser (subject to any consents or waivers of third parties required in connection with such sale, conveyance, assignment, transfer and delivery of the Assets or any part thereof, all of which consent(s) or waiver(s) have been duly obtained by Seller, or have not been duly obtained and are set forth in Schedule 5.3), and the instruments of transfer, conveyance and assignment to be executed and delivered by Seller to Purchaser at the Closing will be, upon execution and delivery thereof, valid and binding obligations of Seller, enforceable in accordance with their respective terms, sufficient for purposes of recordation and filing where permitted by law, sufficient to transfer, convey and assign to Purchaser all right, title and interest of Seller in and to the Assets, and, except for the permits and registrations set forth in Schedule 5.3, sufficient to vest in Purchaser the full right, power and authority to conduct the Business as currently conducted. Section 5.3. No Conflict. Except as set forth in Schedule 5.3, neither the execution and delivery by Seller of this Agreement, the Bill of Sale or the Warranty Deed or any of the other documents contemplated hereby nor the consummation by Seller of the transactions contemplated hereby or thereby, nor compliance by Seller with any of the provisions hereof or thereof, will (a) conflict with, result in a breach or violation of or constitute (or with notice or lapse of time or both constitute) a default under, in any material respect, (i) the Articles of Organization and Operating Agreement of AMT, (ii) the Articles of Incorporation or Bylaws of Beaman, (iii) any law, statute, rule, regulation, order, judgment, decree, writ or injunction applicable to Seller, any of the Assets or the Business, or (iv) any of the terms, conditions or provisions of any note, bond, lease, mortgage, indenture, license or other instrument, contract or agreement to which Seller is a party or by which Seller (or any of the Assets) is subject or bound; (b) result in the creation of, or give any party the right to create, any lien, charge, option, security interest or other encumbrance upon the Assets; (c) terminate or modify, or give any third party the right to terminate or modify, the provisions or terms of any Assumed Contract; (d) require Seller or, to the best of Seller's knowledge, Purchaser to obtain any authorization, consent, approval or waiver from, or to make any filing with, any Governmental Entity or to obtain the approval or consent of any other Person; or (e) result in any suspension, revocation, impairment, forfeiture or 19 nonrenewal of any permit, license, qualification, authorization or approval applicable to Seller or the Business. No authorization, consent or approval by, or waiver from, or notification of or filing with, any Governmental Entity or approval or consent of any other Person is required to be obtained by Seller in connection with the execution, delivery and performance by Seller of this Agreement, the Bill of Sale, the Warranty Deed or the other documents contemplated hereby or thereby or the consummation by Seller of the transactions contemplated hereby and thereby, except as set forth in Schedule 5.3 and except for such authorizations, consents, approvals, waivers, notifications or filings, the failure of which to obtain or make will not have a material adverse effect on the Business or Seller's ability to consummate the transactions contemplated hereby and thereby. Section 5.4. Equity Investments. AMT does not own any capital stock or other proprietary interest, directly or indirectly, in any corporation, association, trust, partnership, joint venture or other entity which conducts a business constituting any portion or aspect of the Business except for Beaman. Beaman does not own any capital stock or other proprietary interest, directly or indirectly, in any corporation, association, trust, partnership, joint venture or other entity which conducts a business constituting any portion or aspect of the Business. Section 5.5. Title to Properties. Seller has good and valid title to, or valid and subsisting leasehold interests in or valid licenses to use, all of its properties and assets, real, personal and mixed, included in the Assets, free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and other encumbrances and defects of title of any nature whatsoever, except for (i) liens for current real or personal property taxes not yet due and payable, and (ii) liens disclosed on Schedule 5.5 hereto ("Permitted Liens"). None of the Assets are owned, leased or used by any Person other than Seller. Section 5.6. Real Property; Encumbrances. (a) Seller has not transferred any air rights or development rights relating to the Real Property. Except as set forth on Schedule 5.6, there are no outstanding contracts made by Seller for any improvements to the Real Property which have not been fully paid for. At the Closing, Seller shall cause to be discharged all mechanics' or materialmen's liens arising from any labor or materials furnished to the Real Property prior to the time of Closing. (b) Except as set forth on Schedule 5.6, and except for those matters which would be revealed by a reasonably diligent visual inspection (which Seller and Purchaser agree Purchaser has conducted), all buildings, structures, improvements, fixtures, facilities, equipment, all components of all buildings, structures and other improvements included within the Real Property, including but not limited to the roofs and structural elements thereof and the heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water, paving and parking equipment, systems and facility included therein, and other material items of tangible property and assets included in the Assets are, in the aggregate, in good operating condition and repair, subject to normal wear and maintenance, are usable in the regular and ordinary 20 course of business, and conform in all material respects to all applicable statutes, rules, regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards and restrictions of every Governmental Entity having jurisdiction over any of the Real Property or the Business, and every instrumentality or agency thereof (including, without limitation, applicable statutes, rules, regulations, orders and restrictions relating to zoning, land use, safety, health, environment, hazardous substances, pollution controls, employment and employment practices and access by the handicapped) (collectively, "Laws"). Except as set forth on Schedule 5.6, there are no unsatisfied requests for any repairs, restorations or improvements to the Real Property from any Person, including without limitation any Governmental Entity, there are no ongoing material repairs to the Real Property being made by or on behalf of Seller, and no maintenance or repair to the Real Property has knowingly been deferred. No person other than Seller owns any equipment or other tangible assets or properties situated on the Real Property or necessary to the operation of the Business, except for leased or licensed items and the Rally Buildings disclosed in Schedule 5.6 hereto. Except as set forth in Schedule 5.6 and except for those matters which would be revealed by a reasonably diligent visual inspection (which Seller and Purchaser agree Purchaser has conducted), the walls, roof and subterranean portions, if any, of the improvements on the Real Property presently are, and as of the Closing will be, sound and watertight and presently there is, and as of the Closing there will be, no water, chemical or gaseous seepage, diffusion or other intrusion into said buildings, including any subterranean portions which would impair Purchaser's beneficial use of the Real Property. (c) Except as set forth on Schedule 5.6, the construction, use and operation of the Real Property by Seller is in full compliance in all material respects with all Laws, covenants, conditions, restrictions, easements, disposition agreements and similar matters affecting the Real Property and, effective as of the Closing, Purchaser shall have the right under all Laws to continue the use and operation of the Real Property in the conduct of the Business in the manner it was conducted by Seller without dependence on the granting of any special permit, exception, approval or variance. Seller has not received any notice of any violation (or claimed violation) of or investigation regarding any Laws which has not been remedied or cured. (d) Except as set forth on Schedule 5.6, none of the buildings, structures and other improvements located on the Real Property, the appurtenances thereto or the equipment therein or the operation or maintenance thereof by the Seller in the conduct of the Business violates any restrictive covenant or encroaches on any property owned by others or any easement, right of way or other encumbrance or restriction affecting such Real Property in any manner which would have a material adverse effect on the ability of Purchaser to use such buildings, structures, improvements, appurtenances or equipment or to conduct the Business, nor does any building or structure of any third party encroach upon the Real Property or any easement or right of way benefitting the Real Property. The Real Property and its continued use, occupancy and operation as used, occupied and operated in the conduct of the Business do not constitute a nonconforming use under any Law. 21 (e) Except as set forth on Schedule 5.6, Seller has not received notice of, or otherwise has knowledge of, any condemnation, fire, health, safety, building, environmental, hazardous substances, pollution control, zoning or other land use regulatory proceedings, either instituted and currently pending or planned to be instituted, nor has Seller received notice of any special assessment proceedings affecting any of the Real Property. (f) Except as set forth on Schedule 5.6 hereto, all water, sewer, gas, electric, telephone and drainage facilities, and all other utilities required by any applicable law or by the use and operation of the Real Property in the conduct of the Business are installed to the property lines of the Real Property, are connected pursuant to valid permits to municipal or public utility services or proper drainage facilities, are fully operable and are adequate to service the Real Property in the operation of Business and to permit full compliance in all material respects with the requirement of all Laws and normal usage of the Real Property. No fact or condition exists which could result in the termination or material reduction of the current access from the Real Property to existing roads or to sewer or other utility services presently serving the Real Property. (g) All licenses, permits, certificates, easements and rights of way, including proof of dedication, required from all Governmental Entities having jurisdiction over the Real Property for the use and operation of the Real Property in the conduct of the Business and to ensure vehicular and pedestrian ingress to and egress from the Real Property have been obtained, except such thereof which, if not obtained, would not have a material adverse effect on the ability of the Purchaser to use and operate the Real Property and conduct the Business. (h) Seller has not received written notice and has no knowledge of any pending or threatened condemnation proceeding affecting the Real Property or any part thereof or of any sale or other disposition of the Real Property or any part thereof in lieu of condemnation. (i) Except as set forth on Schedule 5.6, no portion of the Real Property has suffered any material damage by fire or other casualty which has not heretofore been completely repaired and restored to its original condition in all material respects. (j) Except as set forth on Schedule 5.6, there are no encroachments or other facts or conditions affecting the Real Property that would be revealed by an accurate survey thereof which would, individually or in the aggregate, (i) interfere in any material respect with the use, occupancy or operation thereof as used, occupied and operated in the conduct of the Business or (ii) interfere in any material respect with receiving a title insurance policy. Seller has delivered to Purchaser true, correct and complete title policies and surveys in its possession with respect to the Real Property. Except as set forth on Schedule 5.6, no portion of any improvement encroaches upon 22 any property not included within the Real Property or upon the area of any easement burdening the Real Property. (k) Seller does not lease any real property in connection with the conduct of the Business. (l) Except as set forth in Schedule 5.6, Seller does not owe any money to any architect, contractor, engineer, subcontractor or materialman for labor or materials performed, rendered or supplied to or in connection with any Real Property. There is no work being done at, or materials being supplied to, any parcel of Real Property on the date hereof other than routine maintenance projects having an aggregate cost through completion of not more than $25,000. Section 5.7. Environmental Matters. (a) Seller has obtained all permits, licenses and other authorizations which are required to conduct the Business under all Federal, state, county and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, concessions, grants, franchises, agreements or governmental restrictions relating to the environment or the general treatment, storage, recycling, transportation, release or disposal of any materials into the environment (collectively, "Environmental Laws"). The Business is in compliance (i) with the terms and conditions of all such permits, licenses and authorizations and (ii) with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any Environmental Law applicable to it in connection with the conduct of the Business or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. In addition, except as set forth on Schedule 5.7, (i) no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best of Seller's knowledge, threatened by any Federal, regional, state, county or local government or any executive, legislative, judicial, regulatory or administrative entity, or other Governmental Entity with respect to any alleged failure by Seller to have any permit, license or authorization required in connection with the conduct of the Business or with respect to any generation, treatment, storage, recycling, transportation, release or disposal, or any release as defined in 42 U.S.C. Section 9601(22) ("Release") of any hazardous substance, waste or material regulated under Environmental Laws or other Hazardous Materials generated by Seller in the conduct of the Business. For the purposes of this Agreement, "Hazardous Materials" shall mean substances defined as "hazardous substances", "toxic substances" or "hazardous wastes" in the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"); the Federal Hazardous Materials Transportation Act, as amended; the Federal Resource Conservation and Recovery Act, as amended; oil and underground storage tanks; asbestos and material containing asbestos; those substances defined as "hazardous wastes", "hazardous materials" or "hazardous substances" under the laws of the State of North Carolina; and as such substances are defined under the regulations adopted and publications promulgated pursuant to said laws. 23 (b) Except as set forth on Schedule 5.7, Seller has not handled any Hazardous Material on any property now owned or leased by Seller with respect to the Business; and to the best of Seller's knowledge: (i) no PCB is or has been present at any property now owned or leased by Seller with respect to the Business; (ii) no asbestos is or has been present at any property now owned or leased by Seller with respect to the Business; (iii) there are no underground storage tanks for Hazardous Materials, active or abandoned, at any property now owned or leased by Seller with respect to the Business; (iv) no Hazardous Materials have been released by Seller, in a reportable quantity, where such a quantity has been established by statute, ordinance, rule, regulation or order, at, on or under any property now owned or leased by Seller with respect to the Business; and (v) no Hazardous Materials have been otherwise released by Seller at, on or under any property now owned or leased by Seller with respect to the Business, and no Hazardous Materials have ever been released at, on or under any property adjoining any property now or previously owned or leased by Seller with respect to the Business. (c) Except as set forth on Schedule 5.7, Seller has not transported or arranged for the transportation of any Hazardous Materials generated by Seller in the conduct of the Business to any location which is listed on the National Priorities List under CERCLA, listed for possible inclusion on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") by the Environmental Protection Agency or on any similar state list or which is the subject of Federal, state or local enforcement actions or other investigations which may lead to claims against Seller for clean-up costs, remedial work, damages to natural resources or personal injury claims, including, but not limited to, claims under CERCLA. (d) No Hazardous Material generated by Seller in the conduct of the Business has been recycled, treated, stored, disposed of or released by Seller at any location(s) other than those listed in Schedule 5.7 attached hereto. (e) Except as set forth as Schedule 5.7, no written or, to the best of Seller's knowledge, oral notification of a Release of a Hazardous Material has been filed by or on behalf of Seller with any Governmental Entity with respect to the Business and no property now or previously owned or, to the best of Seller's knowledge, leased by Seller with respect to the Business is listed or, to the best of Seller's knowledge, proposed for listing on the National Priorities List promulgated pursuant 24 to CERCLA, on CERCLIS or on any similar state list of sites requiring investigation or clean-up. (f) Except as set forth as Schedule 5.7, there are no encumbrances in favor of any Governmental Entity for (A) any liability under Environmental Laws or (B) damages arising from or costs incurred by such Governmental Entity in response to a Release or threatened Release of Hazardous Waste or any toxic waste, substance or constituent or other substance into the environment (collectively, "Environmental Encumbrances") arising under or pursuant to any Environmental Laws, and, to the best of Seller's knowledge, no governmental actions have been taken or are in process which could reasonably be anticipated to subject the Business to such Environmental Encumbrances. Section 5.8. Financial Statements and Related Matters. (a) Attached hereto as Schedule 5.8 are the unaudited balance sheets of Seller as of May 31, 1996 and September 30, 1996 (the "Interim Balance Sheet Date") and the unaudited income statements of Seller for the year ended May 31, 1996 and the four-month period ended on the Interim Balance Sheet Date (collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such statements, are true, correct and complete in all material respects in accordance with generally accepted accounting principles, are in accordance with the books and records of Seller, and present fairly, in accordance with generally accepted accounting principles consistently applied, the financial position of Seller on the dates as of which such statements are presented and the results of operations of Seller for each of the periods covered by such statements, subject to normal audit adjustments and the absence of footnotes normally associated with audited financial statements. The statements of operations included in the Financial Statements do not contain any material items of special or non-recurring income or other income not earned in the ordinary course of business of the Seller except as expressly specified therein. The balance sheet dated as of September 30, 1996 included in the Financial Statements is sometimes referred to herein as the "Interim Balance Sheet". (b) The inventory of the Business consists of raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete, damaged, or defective, except as set forth on Schedule 5.8. (c) All properties and tangible assets reflected in the Interim Balance Sheet have a fair market or realizable value at least equal to the value thereof as reflected therein. (d) The books, records, and accounts of Seller accurately and fairly reflect, in reasonable detail, the transactions and their assets and liabilities. Neither Seller nor any of its Affiliates has engaged in any transaction with respect to the 25 Business, maintained any bank account for the Business or used any of its funds in the conduct of the Business except for transactions, bank accounts and funds which have been and are reflected in its normally maintained books and records. Section 5.9. Absence of Undisclosed Liabilities. Except as set forth on Schedule 5.9, Seller has no liabilities or obligations with respect to the Business, either direct or indirect, matured or unmatured or absolute, contingent or otherwise, except: (a) those liabilities or obligations set forth on the Interim Balance Sheet (or liabilities or obligations which arose in the ordinary course of business (none of which is a liability for breach of contract, breach of warranty, tort, infringement claim or lawsuit) but are not required under generally accepted accounting principles to be disclosed on the Interim Balance Sheet) and not heretofore paid or discharged; (b) those liabilities or obligations arising in the ordinary course of business under any agreement, contract, commitment, lease or plan specifically disclosed on any Schedule hereto; and (c) those liabilities or obligations incurred, consistent with past business practice, in or as a result of the normal and ordinary course of the Business since the Interim Balance Sheet Date. Section 5.10. Absence of Certain Changes or Events. Except as set forth on Schedule 5.10, since the Interim Balance Sheet Date, Seller has not: (a) suffered any material adverse change in its condition (financial or otherwise), the Assets, the Business or the results of operations or prospects of the Business, and, to the knowledge of Seller, no fact or condition exists or is contemplated or threatened which could reasonably be anticipated to cause such a change in the future other than a result of changes which affect the economy generally; (b) suffered any damage, destruction or casualty loss, whether covered by insurance or not, which could materially and adversely affect the Assets, the Business or the results of operations or financial condition of the Business; (c) except in the ordinary course of business and consistent with past practice, increased the compensation payable to, or entered into any employment, bonus or compensation agreement with, any employees or consultants; (d) incurred any obligation or liability (absolute or contingent) in excess of $25,000, except liabilities and obligations incurred in the ordinary course of the Business and obligations under contracts entered into in the ordinary course of the Business; (e) made or suffered any amendment or termination of any Assumed Contract; 26 (f) sold, transferred or otherwise disposed of any assets or properties which, if the Closing had occurred on the date hereof, would have been included in the Assets, or entered into any agreement or commitment therefor, other than sales, transfers or other dispositions, or agreements or commitments therefor, entered into in the ordinary course of business and consistent with past practice; (g) received written notice of any actual or threatened labor dispute which could have an adverse effect on the conduct of the Business; (h) created, incurred, assumed or guaranteed any indebtedness or liability for money borrowed (other than trade payables incurred and leases of equipment entered into in the ordinary course of business), for itself, any Affiliate or others, or any commitment to borrow money, or to become obligated in any manner in respect of borrowed money, or mortgaged, pledged or subjected any of its Assets to any mortgage, lien, pledge, security interest, conditional sales contract or other encumbrance of any nature whatsoever, except for Permitted Liens; (i) made any payment, discharge or satisfaction of any claim in connection with the conduct of the Business outside of the ordinary course of business; (j) had any write-off in excess of reserves as uncollectible of any accounts or notes receivable of Seller, or any portion thereof, relating to the Business; (k) made any amendment, termination or waiver of any rights of the Business having a value in excess of $25,000; (l) relating to the Business, made any change in the accounting methods or practices followed by Seller relating to the Business or any change in depreciation or amortization policies or rates theretofore adopted; (m) issued or sold any stock, notes, bonds or other securities, or any option to purchase the same, or entered into any agreement with respect thereto; or (n) entered into any agreement or commitment outside of the ordinary course of the Business. Section 5.11. Insurance. Schedule 5.11 contains a true and complete list of all policies of liability, theft, fidelity, life, fire, product liability, medical coverage, workmen's compensation and other forms of insurance held by or applicable to the Business (specifying the insurer, amount of coverage, type of insurance and renewal or expiration date), and any pending claims thereunder. The policies listed on Schedule 5.11 are outstanding and duly in force and all premiums currently due and payable with respect to such policies have been paid. Except as set forth in Schedule 5.11, Seller has no reason to believe that, on the respective renewal dates thereof, any such policy of insurance will be canceled or subject to a material increase in the premium payable thereunder or a material reduction of the coverage provided thereby. Except as set 27 forth in Schedule 5.11, Seller has not, during the past three fiscal years, been denied or had revoked or rescinded any policy of insurance or made a claim in excess of $10,000 in resect of any such agreements or policies. Seller has heretofore made available to Purchaser true and correct copies of all policies set forth in Schedule 5.11. Section 5.12. Contracts, Obligations and Commitments. In connection with the Assets and the operation of the Business, Seller has no existing contract, obligation, commitment, agreement or other instrument (written or oral) of any nature including, without limitation, the following, except as set forth on Schedule 5.12 hereto: (a) contracts or commitments for the employment or severance of any employee or consultant or any other type of contract or understanding with any current employee or consultant; (b) profit-sharing, bonus, stock option, stock purchase, pension, retirement, disability, medical coverage, hospitalization, insurance or similar plan or agreement, formal or informal, providing benefits to any current or former employee or consultant; (c) loan or other agreements, notes, indentures, or instruments relating to or evidencing indebtedness for borrowed money or mortgaging, pledging or granting or creating a lien or security interest or other encumbrance on any of the Assets or any agreement or instrument evidencing any guaranty by Seller of payment or performance by any other person; (d) agreements with any labor union or collective bargaining organization or other labor agreements; (e) any contract or series of contracts with the same person for the furnishing or purchase of equipment, goods or services; (f) any contract or commitment for capital expenditures in excess of $25,000 in the aggregate; (g) any agreement or arrangement for the sale of any assets, properties or rights requiring the consent of any party to the transfer and assignment of such assets, properties and rights; (h) any joint venture contract or arrangement or other agreement involving a sharing of profits or expenses to which Seller is a party or by which it is bound; (i) any lease under which Seller is either lessor or lessee relating to the Assets or any property at which the Assets are located; 28 (j) any contract, commitment or arrangement not made in the ordinary course of business; or (k) any agreements with the federal government or any state or local government or any agency thereof. For purposes hereof, each purchase order, contract, agreement, arrangement, plan, lease or similar instrument listed in clauses (e) and (i) of Schedule 5.12 and each other contract, agreement, arrangement, plan, lease or similar instrument listed in Schedule 5.12 and designated as an Assumed Contract are collectively referred to herein as the "Assumed Contracts." Except as set forth on Schedule 5.12, each Assumed Contract is a valid and binding obligation of Seller and, to the best of Seller's knowledge, the other parties thereto, enforceable in accordance with its terms (except as the enforceability thereof may be limited by any applicable bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in equity or at law), and is in full force and effect (except for any Assumed Contracts which by their terms expire after the date hereof or are terminated after the date hereof in accordance with the terms thereof; provided, however, that Seller shall not terminate any Material Assumed Contract after the date hereof without the prior written consent of Purchaser), and, to the best of Seller's knowledge, neither Seller nor any other party thereto has breached any material provision of, nor, to the best of Seller's knowledge, is in default in any material respect under the terms of (and, to the best of Seller's knowledge, no condition exists which, with the passage of time, the giving of notice, or both, would result in a default under the terms of), any of the Assumed Contracts. Except as set forth in Schedule 5.12 hereto, each of the Assumed Contracts is validly assignable to the Purchaser without the consent of any other party thereto so that, after the assignment thereof to the Purchaser pursuant to this Agreement, the Purchaser will be entitled to the full economic and other benefits thereof. Seller shall give Purchaser prompt written notice of each Assumed Contract which is terminated after the date hereof. Seller has heretofore made available to Purchaser copies of all Assumed Contracts. Section 5.13. Litigation. Except as set forth on Schedule 5.13, (a) neither Seller, nor any current director, manager, officer, or employee of Seller, is a party to any pending or threatened action, suit, proceeding or investigation, at law or in equity or otherwise in, before or by any court or governmental board, commission, agency, department or office, or private arbitration tribunal related to the Business, nor does Seller know, after due inquiry, of any basis therefor, (i) arising in connection with the conduct by Seller of the Business, (ii) to restrain, prohibit or invalidate, or to obtain damages or other relief from Seller, or any of its current officers, directors, managers or employees, or equitable or other relief in respect of this Agreement or the transactions contemplated hereby, (iii) which arises out of any contract, agreement, letter of intent or arrangement alleged to have been entered into or agreed to by Seller and which conflicts with this Agreement or the transactions contemplated hereby, or gives rise to a claim or right of any kind of any person as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby, (iv) 29 which, if successful, could adversely affect the right of Purchaser after the Closing Date to own any of the Assets or to conduct the Business as currently conducted, or (v) to suspend, revoke, annul, limit, terminate, amend or modify any permit, license, consent, qualification, authorization or approval applicable to the Business as currently conducted; and (b) Seller is not a party or subject to any order, ruling, judgment, decree or stipulation which affects the Business, or which would prevent the transactions contemplated by this Agreement. To the best of Seller's knowledge after due inquiry, except as set forth on Schedule 5.13, no facts exist, and no investigation has been instituted by any Governmental Entity, which might result in any such action or proceeding. True, correct and complete copies of all pleadings and correspondence relating to each matter set forth on Schedule 5.13 have previously been delivered to Purchaser. Section 5.14. Compliance with Law. The Business has been conducted, and is now being conducted, in compliance with all applicable laws, rules, regulations and court or administrative orders and processes (including, without limitation, any that relate to consumer protection, health and safety, products and services, proprietary rights, anti-competitive practices, collective bargaining, ERISA, equal opportunity, improper payments and environmental regulation). Seller, and its current officers, directors and managers and the Employees, (i) are not, and during the past two years were not, in violation of, or not in compliance with, all such applicable laws, rules, regulations, orders and processes with respect to their conduct of the Business; (ii) have not received any notice from any Governmental Entity and, to the best of Seller's knowledge after due inquiry of its current officers, directors and managers and the Employees, none is threatened, alleging that Seller has violated, or not complied with, any of the above; and (iii) are not a party to any agreement or instrument, or subject to any judgment, order, writ, rule, regulation, code or ordinance which could adversely affect the Business. Section 5.15. Licenses; Registrations; Permits; Etc. Seller now has and, in a manner consistent with good business practices, will maintain in effect through the Closing Date all Licenses necessary to carry on, as currently conducted, the Business, which necessary Licenses are set forth on Schedule 5.15 hereto, and true, complete and correct copies of which Licenses have been made available to Purchaser. All such Licenses are in full force and effect as of the date hereof and, to the best of Seller's knowledge, no suspension or cancellation of any of them is threatened. Seller has complied in all material respects and will comply in all material respects with all terms of such Licenses and will take any and all actions necessary to ensure that all such Licenses remain in full force and effect and that the terms of such Licenses are not violated in any material respect through the Closing Date. To the best of Seller's knowledge, it is not in default in any material respect under any of such Licenses which default would result in the forfeiture of any such License necessary to carry on the Business as currently conducted and no event has occurred and no condition exists which, with the giving of notice, the passage of time, or both, would constitute a default thereunder the effect of which would result in a forfeiture thereof. Except as set forth in Schedule 5.15, all of such Licenses can be transferred to Purchaser. 30 Section 5.16. Labor Matters. Except as set forth on Schedule 5.16, there are not in existence or, to the best of Seller's knowledge, threatened any (a) work stoppages or material labor disputes respecting Employees; (b) unfair labor practice complaints against Seller in respect of Employees; or (c) any material grievance between Seller and its Employees. Except as set forth on Schedule 5.16, Seller is not delinquent in payments to any Employee for any wages, salaries, commissions, bonuses or other compensation for services performed by them prior to the date hereof or for amounts required to be reimbursed to such Employee, other than compensation to be paid at the end of the payroll period ending after the date hereof. Seller is in compliance in all material respects with all federal, state and local laws and regulations respecting labor, employment and employment practices, terms and conditions of employment and wages and hours. No representation question exists respecting the Employees nor, to the best of Seller's knowledge, has any application been filed, submitted or initiated with respect to the certification or recognition of the Employees as a collective bargaining unit, and no collective bargaining agreement is currently being negotiated by Seller with respect to the Employees. True and complete copies of the current written personnel policies, employee manuals and/or employee handbooks of Seller used in the Business have been made available to Purchaser. Section 5.17. Personnel; Employee Plans. Schedule 5.17 comprises a complete and correct list of (i) the names, titles, and current annual salary rates (as of November 15, 1996) and all other compensation and fringe benefits of each of the Employees or consultants of Seller who is engaged in the conduct of the Business, (ii) the amount of accrued bonuses, vacation, earned time, sick leave, maternity leave and other leave for such personnel as of November 15, 1996 and (iii) the persons who are currently on the Seller's payroll but not actively engaged in the conduct of the Business, indicating such persons. The Seller has not instituted any "freeze" of, or deferred or delayed the grant of, any cost-of-living or other salary adjustments for any of the Employees. With respect to each Employee hired after November 6, 1996, a copy of the Form I-9 completed pursuant to the Immigration Reform and Control Act of 1986, and the rules and regulations promulgated thereunder, has been made available to Purchaser. Except as set forth on Schedule 5.17, there are no employee benefit plans, contracts or arrangements of any type (including, without limitation, employee benefit plans described in Section 3(3) of ERISA and insurance, stock option, bonus, severance, incentive or other compensatory plans, contracts or arrangements which are not so described) which cover any current or former Employee or under which the Seller has or in the future may have, directly, or indirectly through any other person, firm or entity which is aggregated with the Seller under Section 414 of the Code (an "ERISA Affiliate"), any liability with respect to any current or former Employee or an ERISA Affiliate (each of which employee benefit plans, contracts and arrangements is herein referred to as an "Employee Plan"). With respect to each Employee Plan, Seller has made available to Purchaser correct and complete copies of the plan documents and agreements, as well as related trust agreements, insurance contracts, collective bargaining agreements and amendments of same. There are no pending claims against any Employee Plan (other than for benefits in accordance with its terms), nor has Seller received any written threat of a claim by any participant thereof or beneficiary 31 thereunder. Without limiting the generality of the foregoing, all Employee Plans are in compliance in all material respects with all applicable reporting, disclosure, filing and other administrative requirements pertaining to employee benefit plans set forth in the Code and ERISA and rules and regulations promulgated under either. Except as set forth on Schedule 5.17, neither Seller nor any ERISA Affiliate is or was at any time obligated to contribute to or is or was otherwise a party or subject to any employee pension benefit plan which is or was a pension plan covered by Title IV of ERISA, including, without limitation, a multiemployer plan within the meaning of Section 3(37) of ERISA. With respect to each Employee Plan which is an "employee benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within the meaning of Section 4975(e) of the Code, there has occurred no transaction which is prohibited by Section 406 of ERISA or which constitutes a "prohibited transaction" under Section 4975(c) of the Code and with respect to which a prohibited transaction exemption has not been granted and is not currently in effect. Section 5.18. Intellectual Property. Except as set forth on Schedule 5.18, Seller owns or is licensed or otherwise has the right to use all Intellectual Property necessary to permit Purchaser to carry on the Business as currently conducted by Seller. All licenses, if any, of Seller to use all Intellectual Property necessary to permit Purchaser to carry on the Business as currently conducted by Seller are in full force and effect and neither the Seller nor, to the best of Seller's knowledge, any of the other parties to such licenses are in breach in any material respect of any provision of, or in default in any material respect under any of the terms of, such licenses. Except as set forth on Schedule 5.18, Seller does not pay royalties to anyone for use of the Intellectual Property. Except as set forth on Schedule 5.18, Seller has not granted or otherwise transferred to any person any license or other right to use any of the Intellectual Property necessary to permit Purchaser to carry on the Business as currently conducted, whether requiring the payment of royalties or not. To the best of Seller's knowledge, no person is infringing upon, or is in violation of, any of Seller's Intellectual Property or rights thereto, except as set forth on Schedule 5.18. Except as set forth on Schedule 5.18, subsequent to the Closing, Seller shall not own or have the right to use any Intellectual Property which has been utilized in the Business. Schedule 5.18 sets forth all patents, trademarks, copyrights and service marks and applications for patents, trademarks, copyrights and service marks owned by or licensed to Seller for use in the Business and whether or not Seller has the exclusive right to use all such patents, trademarks, copyrights and service marks. To the best of Seller's knowledge, no product or service marketed or sold by Seller which utilizes any of the Intellectual Property violates or infringes any rights of another party, except as set forth on Schedule 5.18. There is no pending or, to the best of Seller's knowledge, threatened claim or litigation against Seller contesting the right to use its Intellectual Property in the conduct of the Business, asserting the misuse of any thereof or asserting that Seller has violated or infringed the rights of another party. This Agreement and the transactions contemplated hereby will not in any manner affect Purchaser's rights with respect to, or ability to use, the Intellectual Property necessary to permit Purchaser to carry on the Business as currently conducted, assuming all required consents, if any, 32 to assignment thereof are obtained. Seller shall deliver to Purchaser all documents relating to such Intellectual Property promptly after the date hereof. Section 5.19. Property to Operate Business. The Assets constitute, in the aggregate, all the assets and property (other than working capital) necessary for the conduct of the Business as currently conducted. All of the Assets are located at the Real Property, except as set forth on Schedule 5.19. The Bill of Sale, Warranty Deed, assignment(s) of Intellectual Property, agreements, contracts and other arrangements, and other instruments delivered to Purchaser by Seller on the Closing Date will be in form and substance sufficient to vest in the Purchaser good and marketable title to, and all rights necessary to utilize, the Assets, free and clear, except as otherwise permitted by this Agreement, of all liens, mortgages, pledges, encumbrances, charges, restrictions or rights of any other party whatsoever. Section 5.20. Related Transactions. Except as set forth in Schedule 5.20, and except for compensation to Employees for services rendered, no current officer or Employee or, to the best of Seller's knowledge former officer or employee, of Seller is, in each case in their individual capacity, presently a party to any material transaction with Seller (including, but not limited to, any contract, agreement or other arrangement providing for the furnishing of services by, or rental of real or personal property from, or otherwise requiring payments to, any such officer or Employee). Section 5.21. Brokers. Seller has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement. Section 5.22. Accounts Receivable. All Accounts Receivable have arisen in the ordinary course of the Business and are collectible in the ordinary course of the Business (recognizing Seller's usual experience for uncollectible accounts), in each case in the aggregate recorded amounts thereof, less the applicable reserves with respect thereto reflected on the Accounts Receivable Schedule delivered pursuant to Section 3.18 hereof. Seller has not factored, discounted or agreed to factor or discount any Accounts Receivable, except as set forth on Schedule 5.22. The values at which the Accounts Receivable are carried reflect the accounts receivable valuation policy of Seller that Seller has consistently applied. Section 5.23. Product Warranties. Schedule 5.23 sets forth Seller's standard form of product warranties and guarantees with respect to the products sold or leased by the Business. Except as set forth on Schedule 5.23, there are no outstanding claims of any Person against Seller, or to the best of Seller's knowledge any threatened claims, based on any warranty or guarantee or on any contention that products sold or leased in connection with the Business failed to meet quality standards with respect to such products. Section 5.24. Taxes. (a) Except as specifically set forth in Schedule 5.24, (i) Seller has filed on a timely basis (taking into account any extensions received from the 33 relevant taxing authorities) all returns and reports of all Federal, state, local and foreign income, profits, franchise, unincorporated business, capital, general corporate, sales, use, occupation, property, excise and any and all other taxes (all such taxes, irrespective of the period for which such taxes are payable or attributable, hereinafter referred to as "Taxes") relating to the Assets or the Business that are or were required to be filed by Seller (including any predecessor) with the appropriate taxing authorities in all jurisdictions in which such returns and reports are or were required to be filed, and all such returns and reports are true, correct and complete in all material respects, (ii) all Taxes (including interest, additions to tax and penalties thereon together with interest on such additions to tax and penalties) relating to the Assets or the Business that are due from or may be asserted against Seller (including deferred taxes) in respect of or attributable to all periods ending on or before the Closing Date have been fully paid, deposited or adequately provided for on the books and financial statements of Seller or are being contested in good faith by appropriate proceedings, (iii) no issues have been raised (or are currently pending) by any taxing authority in connection with any of the returns and reports referred to in clause (i) which might be determined adversely to Seller and which would have a material adverse effect on the Business, (iv) Seller has not given or been requested to give waivers or extensions of any statute of limitations with respect to the payment of Taxes relating to the Business, and (v) no tax liens which have not been satisfied or discharged by payment or concession by the relevant taxing authority or as to which sufficient reserves have not been established on the books and financial statements of Seller and the Business are in force as of the date hereof with respect to any of the assets of Seller and the Business. (b) Schedule 5.24 describes all adjustments to the returns and reports of Taxes relating to the Assets or the Business filed, or required to be filed, by Seller and the resulting deficiencies proposed with respect thereto in writing by the relevant taxing authorities which would have a material adverse effect on the Business. To the best of Seller's knowledge, all deficiencies proposed in writing by such taxing authorities which would have a material adverse effect on the Business have been paid, reserved against, settled or are being contested in good faith by appropriate proceedings. (c) All Taxes relating to the Assets or the Business that Seller is or was required by law to withhold, to deposit or to collect have been duly withheld, deposited or collected and, to the extent required, have been paid to the relevant taxing authority. (d) Seller is not acting as nominee or trustee for any person, corporation, partnership, trust or estate, but is acting solely in its individual capacity. Section 5.25. Suppliers and Customers. Schedule 5.25 lists all suppliers and customers of the Business since June 1, 1995. Seller does not have any information which might reasonably indicate that any of the customers or suppliers of the Business listed on Schedule 5.25 intend to cease purchasing from, selling to or dealing with the Business, nor has any information been brought to its attention which might reasonably 34 lead it to believe any such customer or supplier intends to alter in any material respect the amount of such purchases, sales or the extent of dealings with the Business or would alter in any material respect such purchases, sales or dealings in the event of the consummation of the transactions contemplated hereby. Seller does not have any information which might reasonably lead it to believe that, (i) any supplier will not be able to fulfill outstanding or currently anticipated purchase orders placed by the Business which, individually or in the aggregate, exceed $25,000, or (ii) any customer will cancel outstanding or currently anticipated purchase orders placed with the Business which, individually or in the aggregate, exceed $50,000. Section 5.26. Beaman Corporation. AMT owns all the issued and outstanding capital stock of Beaman Corporation, free and clear of all liens, security interests, pledges, restrictions on transfer and other encumbrances. Except as set forth on Schedule 5.26 hereto, Beaman currently conducts no business, has no assets other than the Real Property, and has no liabilities (direct or indirect, matured or unmatured or absolute, contingent or otherwise). Section 5.27. Disclosure. Seller has not failed to disclose to Purchaser any material information adverse to the Assets, liabilities, business, financial condition or results of operations of the Business, and no information furnished by or on behalf of Seller to Purchaser, contains any untrue statement of a material fact or omits to state a material fact necessary to make such statement, in the light of the circumstances under which it was made, not misleading. All such written information, in whatever form, furnished by Seller to Purchaser was true and correct as of its date and, except as the accuracy thereof is affected by the passage of time, remains true and correct as of the date hereof. VI. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: Section 6.1. Organization. Purchaser is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own or lease its properties and carry on its business as presently conducted; and Purchaser has all requisite corporate power and authority to enter into this Agreement, the Bill of Sale and all other agreements contemplated hereby to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Purchaser is, or prior to the Closing Date will be, licensed or qualified to transact business in the State of North Carolina. Section 6.2. Due Authorization. The execution and delivery by Purchaser of this Agreement, the Bill of Sale and the other documents contemplated hereby, the performance by Purchaser of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby have been duly and 35 validly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly and validly executed by Purchaser, and this Agreement is, and each other document contemplated hereby, when executed and delivered by Purchaser, will be, a legal, valid and binding obligation of Purchaser enforceable against it in accordance with its terms (except as the enforceability thereof may be limited by any applicable bankruptcy, insolvency or other laws affecting creditors' rights generally or by general principles of equity, regardless of whether such enforceability is considered in equity or at law). Section 6.3. No Conflict. Except as set forth on Schedule 6.3, neither the execution and delivery by Purchaser of this Agreement or any of the other documents contemplated hereby nor the consummation by Purchaser of the transactions contemplated hereby or thereby, nor compliance by Purchaser with any of the provisions hereof or thereof, will (a) conflict with, result in a breach or violation of or constitute (or with notice or lapse of time or both constitute) a default under, in any material respect, (i) the Certificate of Incorporation or Bylaws of Purchaser, (ii) any law, statute, rule, regulation, order, judgment, decree, writ or injunction applicable to Purchaser or (iii) any of the terms, conditions or provisions of any note, bond, lease, mortgage, indenture, license or other instrument, contract or agreement to which Purchaser is a party or by which it (or any of its properties or assets) is subject or bound and which is material; (b) result in the creation of, or give any party the right to create, any lien, charge, option, security interest or other encumbrance upon any property or asset of Purchaser or which would have a material adverse effect on the business of Purchaser; (c) terminate or modify, or give any third party the right to terminate or modify, the provisions or terms of any material agreement or commitment to which Purchaser is a party or by which it (or any of its properties or assets) is subject or bound; or (d) require Purchaser to obtain any authorization, consent or approval by, or waiver from, or notification of or filing with, any Governmental Entity, or the approval or consent of any other Person, in connection with the execution, delivery and performance by Purchaser of this Agreement or the other documents contemplated hereby or thereby or the consummation by Purchaser of the transactions contemplated hereby and thereby, except such authorizations, consents, approvals, waivers, notifications or filings, the failure of which to obtain or make will not have a material adverse effect on Purchaser's obligations hereunder and under the other documents contemplated hereby. Section 6.4. Disclosure. No representation or warranty by Purchaser in this Agreement or set forth in any document, instrument, certificate or schedule furnished pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make such statement, in the light of the circumstances under which it was made, not misleading. 36 VII. AGREEMENTS PENDING CLOSING Section 7.1. Conduct and Preservation of Business. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, Seller will cause the Business to be carried on in the ordinary course consistent with past practice. Seller shall not cause or allow to occur any of the events or occurrences described in Section 5.10 hereof. Without limiting the generality of the foregoing, (i) Seller shall use its reasonable best efforts to keep available the services of the present Employees for the Purchaser, to maintain the Business intact and to maintain the relations and goodwill with the Seller's suppliers and customers; (ii) Seller shall comply in all material respects with all laws, ordinances, rules, regulations and orders applicable to the Business or the Assets; (iii) Seller shall not take any action or omit to take any action which act or omission would result in the inaccuracy in any material respect of any of its representations and warranties made in Article V hereof if such representation or warranty were to be made immediately after the occurrence of such act or omission; and (iv) Seller shall repair and replace the Assets in accordance with the normal and customary requirements of the Business. Section 7.2. Access to Information. Between the date of this Agreement and the Closing Date, Seller will (i) permit Purchaser's authorized representatives and financing parties reasonable access, during normal business hours and upon reasonable notice, to all of the books, records, tax returns, reports and other tax related materials, offices and other facilities and properties of the Business; (ii) permit free and full access, during normal business hours and upon reasonable notice, to the work papers of the independent certified public accountants of Seller; (iii) permit Purchaser to make such inspections and copies thereof as Purchaser may reasonably request; and (iv) furnish Purchaser with such additional financial and operating data and other information with respect to the business, operations and properties of the Business as Purchaser may from time to time reasonably request; provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with the operations of the Business. Section 7.3. Filings and Authorizations. Each of Seller and Purchaser, as promptly as practicable, (i) will make, or cause to be made, all filings and submissions under laws, rules and regulations applicable to it, or to the Business, as may be required for it to consummate the transactions contemplated hereby; (ii) will use its reasonable best efforts to obtain, or cause to be obtained, all authorizations, approvals, consents and waivers from all Persons and Governmental Entities necessary to be obtained by it in order for it so to consummate such transactions; and (iii) will use its reasonable best efforts to take, or cause to be taken, all other actions necessary, proper or advisable in order for it to fulfill its obligations hereunder and to fulfill each closing condition contained in Articles III and IV hereof. Seller and Purchaser will coordinate and cooperate with one another in exchanging information and supplying such reasonable assistance as may be reasonably requested by each in connection with the foregoing. Purchaser shall use its reasonable efforts to assist Seller in obtaining all 37 consents required under the Assumed Contracts as a result of this Agreement and the transactions contemplated hereby. Section 7.4. Public Announcements. Each party hereto will agree in advance prior to the issuance by either of any press release or the making of any public statement (including, without limitation, statements to Employees, customers and suppliers) with respect to this Agreement and the transactions contemplated hereby and shall not issue any such press release or make any such public statement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. In the event that either party is required to issue a press release or make such a public statement by law, it will notify the other party of the contents thereof in advance (at least two days to the extent practicable) of the issuance or making thereof and will reasonably consider any comments received thereon. Section 7.5. Schedules. Seller shall have the continuing obligation to promptly supplement or amend the Schedules hereto with respect to any matter hereafter arising or discovered which, if existing or known at the date hereof, would have been required to be set forth or described in the Schedules. No supplement or amendment of the Schedules made pursuant to this Section shall be deemed to cure any breach of, affect or otherwise diminish any representation or warranty made in this Agreement unless Purchaser specifically agrees thereto in writing. Notwithstanding anything in this Section 7.5 to the contrary, Purchaser shall have the right, in accordance with Section 10.1 hereof, to terminate this Agreement in the event that any amendment or supplement to any Schedule in accordance with this Section 7.5 shall, individually or in the aggregate with other amendments or supplements to the Schedules, constitute a material adverse change in the condition or operations of the Assets or the Business after the date hereof. Section 7.6. Notice of Developments. Each of Purchaser and Seller shall give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Articles V or VI above. No disclosure by any party pursuant to this Section 7.6., however, shall be deemed to amend or supplement any Schedule or to prevent or cure any misrepresentation, breach of warranty or breach of covenant. Section 7.7. Updated Financial Statements. As soon as available and in any event within 30 days after the end of each month prior to the Closing Date, commencing with October 31, 1996, Seller shall deliver to Purchaser a balance sheet and related statements of operations and cash flows of Seller. All such financial statements shall be covered by and conform to the representations and warranties set forth in Section 5.8 hereof and shall be included in the term "Financial Statements" for purposes of this Agreement. Section 7.8. No Shopping. (a) From and after the date hereof until the earlier of (i) November 30, 1996 or (ii) termination of this Agreement, without the express written consent of Purchaser, Seller shall not, directly or indirectly, (i) solicit, 38 initiate discussions or engage in negotiations with any person (whether or not such negotiations are initiated by Seller), other than Purchaser, relating to the possible acquisition, whether by way of merger, reorganization, purchase of capital stock, purchase of assets or otherwise of a majority interest in the Business or the Assets (an "Acquisition Transaction"), (ii) provide information with respect to the Business or any Asset to any person, other than Purchaser, in connection with a possible Acquisition Transaction or (iii) enter into a transaction with any person, other than Purchaser, concerning a possible Acquisition Transaction. (b) The parties hereto recognize and acknowledge that a breach by Seller of this Section 7.8 will cause irreparable and material loss and damage to Purchaser as to which it will not have an adequate remedy at law or in damages. Accordingly, each party acknowledges and agrees that the issuance of an injunction or other equitable remedy is an appropriate remedy for any such breach. In addition, in the event of a breach of the foregoing which results in the consummation of an Acquisition Transaction, Seller shall promptly pay to Purchaser a breakup fee of $150,000. Section 7.9. Rally Buildings. On or before the Closing Date, Seller shall remove the Rally Buildings from the Real Property or Rally's Hamburgers, Inc. shall have entered into an agreement with Purchaser, reasonably satisfactory to Purchaser, regarding the continued storage of the Rally Buildings on the Real Property. VIII. POST-CLOSING MATTERS Section 8.1. Hiring of Employees. As of the Closing Date, Purchaser shall offer employment to, and Seller shall use its reasonable best efforts to assist Purchaser in employing as new employees of Purchaser, all persons presently engaged in the Business who are employed by Seller (the "Employees") as of the Closing Date, on terms and conditions not substantially less favorable in aggregate than those on which such Employees were employed by Seller immediately prior to the Closing Date. Seller shall assign to Purchaser, and Purchaser shall assume, effective as of the Closing Date, those employment agreements listed on Schedule 5.17 that Seller has with any of the Employees and that Purchaser has designated as Assumed Contracts. Nothing herein shall obligate Purchaser to retain in its employ from and after the Closing any Employee who accepts Purchaser's offer of employment, except to the extent of any such employment agreements. From and after the date hereof until the Closing, Seller shall continue to pay in the ordinary course of business the salaries and wages and provide the same benefits to its Employees. Notwithstanding anything in this Section 8.1 to the contrary, Purchaser shall not be obligated to offer employment to any Employee, including any Employee who is party to an employment agreement listed on Schedule 5.17, designated by Purchaser to Seller in writing at least three business days prior to the Closing Date. 39 Section 8.2. Use of Name. From and after the Closing Date, Seller will sign such consents and take such other action as Purchaser shall reasonably request in order to permit Purchaser to use the names "American Modular Technologies," "Beaman Corporation" and variants thereof. Section 8.3. Non-Competition/Non-Solicitation. Seller agrees that it will not, for a period of three (3)Eyears from the Closing Date, directly or indirectly, (i)Eown or operate any person, firm, corporation, business or other organization or enterprise engaged, directly or indirectly, primarily in the construction of modular buildings, (ii)Esolicit for employment any employee of Purchaser, or (iii)Einterfere with, disrupt or attempt to disrupt the relationship between the Purchaser and any of its respective licensors, licensees, customers or suppliers with respect to the Business. Seller expressly waives any right to assert inadequacy of consideration as a defense to enforcement of the non-competition provisions of this SectionE8.3 should such enforcement ever become necessary. Seller acknowledges that a remedy at law for any breach or attempted breach of this Section 8.3 will be inadequate and further agrees that any breach of this Section 8.3 will result in irreparable harm to the business of Purchaser; and Seller covenants and agrees not to oppose any demand for specific performance and injunctive and other equitable relief in case of any such breach or attempted breach. Whenever possible, each provision of this Section 8.3 shall be interpreted in such manner as to be effective and valid under applicable law but if any provision of this Section 8.3 shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Section 8.3. If any provision of this Section 8.3 shall, for any reason, be judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Section 8.3 but shall be confined in its operation to the provision of this Section 8.3 directly involved in the controversy in which such judgment shall have been rendered. In the event that the provisions of this Section 8.3 should ever be deemed to exceed the time or geographic limitations permitted by the applicable laws, then such provision shall be reformed to the maximum time or geographic limitations permitted by applicable law. Section 8.4. Subrogation of Purchaser. In the event Purchaser shall become liable for or suffer any damage with respect to any matter occurring on or before the Closing Date which was covered by insurance maintained by Seller on or prior to the Closing Date, Seller agrees that Purchaser shall be and hereby is, to the extent permitted under such policies, subrogated to any rights of Seller under such insurance coverage, and, in addition, Seller agrees to promptly remit to Purchaser any insurance proceeds which they may receive on account of any such liability or damage. Section 8.5. Payments Received. Except as set forth herein, Seller and Purchaser each agree that after the Closing they will hold and will promptly transfer and deliver to the other, from time to time as and when received by them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash), or other property that they may receive on or after the Closing which 40 properly belongs to the other party, including without limitation any insurance proceeds, and will account to the other for all such receipts. Notwithstanding anything herein to the contrary and without limiting the foregoing, effective upon the Closing, Seller hereby constitutes and appoints Purchaser, its successors and assigns, the true and lawful attorney of Seller with full power of substitution, in the name of Purchaser, or the name of Seller, on behalf of and for the benefit of Purchaser, to collect, at Seller's expense, (i) all items being transferred, conveyed and assigned to Purchaser as provided herein, and (ii) all Accounts Receivable, to endorse, without recourse, checks, notes and other instruments in the name of Seller, to institute and prosecute, at Seller's expense, all proceedings which Purchaser may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Assets and the Accounts Receivable, although Purchaser shall have no obligation to do so, to defend and compromise any and all actions, suits or proceedings in respect of any of the Assets and the Accounts Receivable, and to do all such acts and things in relation thereto as Purchaser may deem advisable. Seller agrees that the foregoing powers are coupled with an interest and shall be irrevocable by Seller, directly or indirectly, whether by the dissolution of Seller or in any manner or for any reason. Section 8.6. Collection of Accounts Receivable/Payment of Trade Payables. Seller hereby constitutes and appoints Purchaser to collect the Accounts Receivable and to use the proceeds thereof to pay the Trade Payables set forth on Schedule 8.6. (the "Specified Trade Payables"). Any direct expenses incurred by Purchaser which have been approved in advance by Seller shall be reimbursed by Seller. All funds received by Purchaser or Seller in respect of the Accounts Receivable shall immediately be transferred to the Account. From time to time Purchaser shall use the proceeds from the Accounts Receivable to pay the Specified Trade Payables. Purchaser shall, in collecting the Accounts Receivable, use the same methods it uses to collect its own receivables. Seller hereby agrees not to take any action to collect any Accounts Receivable without the prior written consent of Purchaser. Following payment in full of the Specified Trade Payables, Purchaser shall promptly deliver to Seller any proceeds from the collection of Accounts Receivable. Section 8.7. Payment of Warranty Liabilities. Purchaser shall fulfill each Warranty Liability and be reimbursed from the Warranty Deposit as follows: (i) Purchaser shall use reasonable efforts (which shall not require litigation) to first collect any amounts due under warranties from third parties, provided, however, that such amounts are collected by December 31, 1997; and (ii) Purchaser shall then be entitled to reimbursement from the Warranty Deposit at a rate equal Purchaser's cost of repair plus 10%, less any amounts collected from third parties. If any portion of the Warranty Deposit shall remain on December 31, 1997 then such portion of the Warranty Deposit shall be paid to Seller with interest earned thereon on 41 such date, provided, however, that Purchaser shall be entitled to retain in the Account any outstanding claims against the Warranty Deposit on such date. In all instances, funds may only be disbursed from the Warranty Deposit upon the signature of one each of the Seller's Representatives and the Purchaser's Representatives. Purchaser's claims for reimbursement from the Warranty Deposit shall not be disputed by Seller unless Purchaser does not act in good faith. For purposes hereof, the "Seller Representatives" shall be Joseph D. Vecchiolla or Richard Carpenter and the "Purchaser's Representatives" shall be Joseph Grigelevich, Jr. or R. Charles Blackmon, Jr. Section 8.8. Payment of Liabilities. Following the Closing Date each of Purchaser and Seller agrees to discharge in accordance with their terms the Assumed Liabilities and the Excluded Liabilities, respectively. Section 8.9. Sharing of Data. Purchaser shall have the right following the Closing Date to have reasonable access to those corporate minute books, stock books, tax returns and other corporate records and files of Seller that are retained by Seller pursuant to the terms of this Agreement to the extent any of the foregoing relates to the Business, is necessary in connection with the conduct of the Business or is otherwise needed by Purchaser in order to comply with its obligations under applicable securities, tax, environmental, employment or other laws and regulations. Seller shall have the right following the Closing Date to have reasonable access to those documents and records included in the Assets to the extent any such documents or records are needed by Seller in order to comply with its obligations under applicable securities, tax, environmental, employment or other laws and regulations. Seller, its insurers and their respective attorneys shall have the right following the Closing Date to have reasonable access to, and upon request, Purchaser shall provide Seller with copies of, medical records necessary to defend any litigation to which Seller may become a party. Section 8.10. Change in Name. Seller shall have delivered to Purchaser prior to December 6, 1996 (i)Ea certified copy of a Certificate of Amendment to the Certificate of Incorporation or Certificate of Formation, as the case may be, of each of Beaman Corporation and Seller and such other appropriate certifications, pursuant to which Seller has changed the name Beaman Corporation and its name to another name bearing no similarity to the name Beaman Corporation and "American Modular Technologies" and (ii)Ewritten evidence of Seller's abandonment of any similar assumed name(s). 42 IX. INDEMNIFICATION Section 9.1. Survival of Representations and Warranties. All representations and warranties contained in this Agreement shall survive the Closing and shall remain in full force and effect until March 31, 1998, regardless of any investigation made by Purchaser or Seller or on their respective behalf, except as to any matters with respect to which a bona fide written claim shall have been made or an action at law or in equity shall have commenced before such date, in which event survival shall continue (but only with respect to, and to the extent of, such claim) until the final resolution of such claim or action, including all applicable periods for appeal. Section 9.2. Seller's Indemnity. Subject to the limitations set forth in Section 9.4 hereof, Seller shall indemnify and hold harmless Purchaser and its successors and assigns at all times after the Closing Date against and in respect of: (a) any damage, loss, cost, expense or liability (including reasonable attorneys' fees) resulting to Purchaser from any false, misleading or inaccurate representation, breach of warranty or nonfulfillment of any agreement or covenant on the part of Seller under this Agreement or from any misrepresentation in or any omission from any certificate, list, schedule or other instrument to be furnished to Purchaser hereunder; (b) all liabilities and obligations of Seller (other than the Assumed Liabilities) of any kind or nature whatsoever, whether accrued, absolute, fixed, contingent, known or unknown, including without limitation the Excluded Liabilities; (c) any and all liabilities arising out of or in connection with (i) any violation of Environmental Laws existing on or in respect of the Real Property on or prior to the Closing Date; (ii)Ethe operation or ownership of the Business on or before the Closing Date; (iii) the handling, storage, treatment or disposal of any Hazardous Materials generated by the Business on or prior to the Closing Date; or (iv)Eany breach by Seller of any representation or warranty contained in SectionE5.7 hereof; (d) any loss, damage, cost or penalty incurred by Purchaser as a result of non-compliance by Seller with any applicable bulk transfer or similar law or by virtue of common law, statute or regulation imposing or attempting to impose transferee liability on Purchaser other than with respect to the Assumed Liabilities; and (e) all claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing. 43 This indemnity agreement in this Section 9.2 shall be in addition to any liability which Seller may incur to Purchaser and shall not foreclose any other rights or remedies Purchaser may have to enforce the provisions of this Agreement. Section 9.3. Purchaser's Indemnity. Subject to the limitations set forth in Section 9.4 hereof, Purchaser shall indemnify and hold harmless Seller and its successors and assigns at all times after the Closing Date against and in respect of: (a) any damage, loss, cost, expense or liability (including reasonable attorneys' fees) resulting to Seller from any false, misleading or inaccurate representation, breach of warranty or nonfulfillment of any agreement or covenant on the part of Purchaser under this Agreement or from any misrepresentation in or any omission from any certificate, list, schedule or other instrument to be furnished to Seller hereunder; (b) all Assumed Liabilities; (c) any liability or obligation arising out of the operation by Purchaser of the Assets following the Closing Date; and (d) all claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing. This indemnity agreement in this Section 9.3 shall be in addition to any liability which Purchaser may incur to Seller and shall not foreclose any other rights or remedies Seller may have to enforce the provisions of this Agreement. Section 9.4. Limitations. Notwithstanding anything to the contrary contained herein, no Indemnified Party shall be entitled to indemnification from an Indemnifying Party for a breach of any representation or warranty until the aggregate losses suffered by such Indemnified Party and for which indemnification is available hereunder exceeds $50,000, whereupon the Indemnified Party shall be entitled to claim indemnification for all losses suffered by such Indemnified Party and for which indemnification is available hereunder. Section 9.5. Notice and Defense of Claims. Each party entitled to indemnification under this ArticleEIX (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume, at the Indemnifying Party's expense, the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the 44 Indemnifying Party of its obligations under this Article IX. The Indemnifying Party, in the defense of any such claim or litigation, shall not, except with the consent of the Indemnified Party, consent to entry of any judgment or entry into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect to such claim or litigation. The Indemnified Party shall furnish such information regarding itself or the claim in question as the Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. Section 9.6. Payment/Reimbursement. At the time the amount of any liability on the part of the Indemnifying Party under this ArticleEIX is determined (which in the case of payment to third persons shall be the earlier of (i)Ethe date of such payments or (ii)Ethe date that a court of competent jurisdiction shall enter a final judgment, order or decree (after exhaustion of appeal rights) establishing such liability) (such loss or amount being hereinafter referred to as the "Indemnity Claim"), the Indemnifying Party shall forthwith, upon notice from the Indemnified Party, pay to the Indemnified Party the amount of the Indemnity Claim. If such amount is not paid forthwith, then the Indemnified Party may, at its option, take legal action against the Indemnifying Party for reimbursement in the amount of its Indemnity Claim. For purposes hereof the Indemnity Claim shall include the amounts so paid, or determined to be owing, by the Indemnified Party together with costs and reasonable attorney's fees associated with collecting such Indemnity Claim and interest on the foregoing items at the Prime Rate (as defined in the next paragraph) from the date the Indemnity Claim is due from the Indemnifying Party to the Indemnified Party as hereinabove provided, until the Indemnity Claim shall be paid. In addition to its other obligations under this Section 9.6, the Indemnifying Party agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding for which indemnification for attorney's fees and expenses may be required pursuant to this Article IX, it will reimburse the Indemnified Party on a monthly basis for all reasonable legal fees or other out-of-pocket expenses reasonably incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Indemnifying Party's obligation to indemnify the Indemnifying Party for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Indemnified Party shall promptly return it to the Indemnifying Party, together with interest determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Citibank, N.A. (the "Prime Rate"). Any such interim reimbursement payments which are not made to the Indemnified Party within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. 45 X. TERMINATION Section 10.1. Termination Events. Subject to the provisions of Section 10.2, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned: (a) By either Seller or Purchaser if a material default or breach shall be made by the other party with respect to the due and timely performance of any of its covenants and agreements contained herein, or with respect to the due compliance with any of the representations and warranties contained in Article V or VI, as the case may be, and such default cannot be cured and has not been waived; (b) By written mutual consent of Seller and Purchaser; (c) By either Seller or Purchaser if the Closing shall not have occurred, other than through failure of such party to fulfill its obligations hereunder, on or before November 30, 1996 or such later date as may be agreed upon by the parties; (d) By Purchaser, if the conditions set forth in Article III hereof shall not have been met (or shall not, in the reasonable judgment of Purchaser, be capable of being met), and Seller, if the conditions set forth in Article IV hereof shall not have been met (or shall not, in the reasonable judgment of Seller, be capable of being met), in each case by November 30, 1996; (e) By Purchaser if (i) Seller gives notice to Purchaser that it will not or cannot remove any Title Exception and (ii) within ten (10) business days after the date such notice is given Purchaser does not waive the requirement that Seller remove such Title Exception; or (f) By Purchaser if Seller amends or supplements any Schedule hereto in accordance with Section 7.5 hereof and such amendment or supplement constitutes, individually or in the aggregate with other amendments or supplements to the Schedules, a material adverse change in the condition or operations of the Assets or the Business after the date hereof. Section 10.2. Effect of Termination. In the event this Agreement is terminated pursuant to Section 10.1, all further obligations of the parties hereunder shall terminate and no party shall have any right against the other party hereto, except as set forth in this Section 10.2 and in Sections 3.13, 7.8 and 7.9, and each party shall bear its own costs and expenses, except that if this Agreement is so terminated by one party because one or more of the conditions to such party's obligations hereunder is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, it is expressly agreed and understood that the terminating party's right to pursue all legal remedies for breach of contract or otherwise, including, without limitation, damages relating thereto, shall survive such termination unimpaired. 46 XI. MISCELLANEOUS Section 11.1. Expenses. Except as provided in Section 10.2, each party to this Agreement shall pay its own costs and expenses (including all legal and accounting fees incurred by it) relating to this Agreement, the negotiations leading up to this Agreement and the transactions contemplated by this Agreement, whether or not the transactions herein contemplated shall be consummated. Section 11.2. Risk of Loss. The risk of loss or damage to any of the Assets, transfer of which is contemplated hereby, shall remain with Seller until the Closing and the Seller shall maintain its insurance policies covering the Assets through the Closing. With respect to the Assets: (a) If, prior to the Closing, all or any part of the Assets are destroyed or damaged by fire or the elements or by any other cause, Seller shall within ten (10) days provide written notice thereof to Purchaser and shall also provide Purchaser, together with such notice, copies of all insurance then in force relating to such Assets, whereupon Purchaser may, by written notice to Seller within twenty (20) days after receipt of notice of the occurrence, elect in writing not to purchase such Assets if such damage exceeds $50,000 and if Seller does not agree to repair, restore and replace such Assets to Purchaser's reasonable satisfaction and in compliance with all state licensing requirements and Laws within 60 days of the notice of the casualty delivered to Purchaser. Purchaser's election to so terminate may be exercised, however, if after Seller agrees to so repair, restore and replace, Seller fails to effect such repair, restoration and replacement within such 60 day period. Upon such election, this Agreement shall wholly cease and terminate. If all or any part of the Assets are so destroyed and Seller has not made the required repairs or restoration but this Agreement is not so terminated by Purchaser, this Agreement shall not be affected, but Seller, at the Closing, shall assign, transfer and set over to Purchaser all of Seller's right, title and interest in and to the policies of insurance insuring against the loss and Seller's interest in sums payable thereunder and Seller shall pay to Purchaser the amount of any deductibles under such insurance policies and any payments theretofore made on account of the destruction or damage. (b) In the event of the institution of any proceeding involving the proposed taking by eminent domain or a taking by eminent domain of all or any portion of the Real Property, which Purchaser, in its reasonable discretion deems relevant or which would materially alter the grade, or access to any street or would, in the reasonable judgment of Purchaser, otherwise injure, damage, or decrease the value of the Real Property or adversely affect the ability of Purchaser to conduct the business contemplated by it following the Closing, Purchaser shall have the right and option to elect to cancel and terminate this Agreement by giving Seller notice to such effect within thirty (30) days after its receipt of written notice of any such occurrence, whereupon this Agreement shall be deemed to be terminated. Seller shall within ten (10) days furnish Purchaser with written notice of any such occurrence and all available 47 data related thereto. Should Purchaser so terminate this Agreement, this Agreement shall cease and terminate. If Purchaser does not so terminate this Agreement, Purchaser shall accept conveyance of the Real Property subject to such proceeding or without the portion of the Real Property taken, and Seller shall thereupon, at the Closing, assign and transfer to Purchaser all of the right, title and interest of Seller, as owner of the Real Property, in and to such proceeding and the proceeds of the award to be made in such proceeding, and turn over to Purchaser the proceeds of any award (or payment made pending the making of the award) already received by Seller. Section 11.3. Brokers' and Finders' Fees. Seller shall indemnify and hold harmless Purchaser against any and all claims, losses, liabilities and expenses which may be asserted against or incurred by Purchaser as a result of Seller's dealings, arrangements or agreements with any Person who may be entitled to any brokerage or finder's fee or other commission in respect of the transactions contemplated hereby. Purchaser shall indemnify and hold harmless Seller against any and all claims, losses, liabilities and expenses which may be asserted against or incurred by Seller as a result of Purchaser's dealings, arrangements or agreements with any Person who may be entitled to any brokerage or finder's fee or other commission in respect of the transaction contemplated hereby. Section 11.4. Amendment. This Agreement shall not be amended or modified except by a writing duly executed by Seller and Purchaser. Section 11.5. Entire Agreement; Assignment. This Agreement, including the Exhibits and Schedules hereto and the other instruments, agreements and documents delivered pursuant to this Agreement contain all of the terms, conditions and representations and warranties agreed upon by the parties relating to the subject matter of this Agreement and supersedes all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter including, without limitation, that certain letter agreement, dated September 19, 1996, between American Building Company, parent company of the Purchaser, and Seller. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations of any party hereunder may be assigned by such party without the prior written consent of the other party hereto; provided, however, that Purchaser may assign its rights, interests and obligations hereunder to any Affiliate of Purchaser, but no such assignment shall relieve Purchaser of its obligations hereunder if such assignee does not perform such obligations. Section 11.6. Headings. The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the parties to this Agreement. 48 Section 11.7. Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered to the persons identified below, (b) seven calendar days after mailing if mailed, with proper postage, by certified or registered mail, return receipt requested, (c) on the date of receipt if sent by telex or telecopy, and confirmed in writing in the manner set forth in (b) on or before the next day after the sending of the telex or telecopy, or (d) one business day after delivered to a nationally recognized overnight courier service marked for overnight delivery, in each case addressed as follows: IF TO SELLER: American Modular Technologies, LLC c/o S.N. Phelps & Co. 55 Railroad Avenue Greenwich, Connecticut 06830 Attention: Executive Vice President Telephone: 203-622-4880 Telecopy: 203-622-4058 WITH A COPY TO: Stutzman & Bromberg 2200 Allianz Financial Center 2323 Bryan Dallas, Texas 75201 Attention: Richard Wallach, Esq. Telephone: 214-969-4400 Telecopy: 214-969-4994 IF TO PURCHASER: AMT/Beaman Corporation c/o American Buildings Company State Docks Road Eufaula, Alabama 36027 Attention: President Telephone: 334-687-2000 Telecopy: 334-687-7156 WITH A COPY TO: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Attention: Paul Jacobs, Esq. Telephone: 212-318-3000 Telecopy: 212-752-5958 Such addresses and numbers may be changed, from time to time, by means of a notice given in the manner provided in this Section. 49 Section 11.8. Severability. If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to this Agreement to the extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent possible. Section 11.9. Waiver. Waiver of any term or condition of this Agreement by any party shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition of this Agreement. Section 11.10. Counterparts. This Agreement may be signed in two or more counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement. Section 11.11. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of Alabama. Section 11.12. Third Parties. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person other than the parties hereto and their successors or assigns any rights or remedies under or by reason of this Agreement. [Signature Page follows] 50 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date set forth above. PURCHASER: AMT/Beaman Corporation By:_____________________________ Name: R. Charles Blackmon, Jr. Title: Vice President SELLER: AMERICAN MODULAR TECHNOLOGIES, LLC By:______________________________ Name:____________________________ Title:___________________________ BEAMAN CORPORATION By:______________________________ Name:____________________________ Title:___________________________ 51 EX-10.46 3 EMPLOYMENT AGREEMENT EXHIBIT 10.46 EMPLOYMENT AGREEMENT AGREEMENT made as of November 27, 1996, between AMT/BEAMAN CORPORATION, a Delaware corporation with an office at Old 421 Road, Liberty, North Carolina 27298 (the "Company"), and Joseph M. Grigelevich, Jr., residing at 19-F River Oaks Drive, Greensboro, North Carolina 27409 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires that Executive be employed to serve in a senior executive capacity with the Company, a wholly-owned subsidiary of American Buildings Company ("ABC"), and Executive desires to be so employed upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations and covenants herein contained, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive and Executive hereby accepts such employment, subject to the terms and conditions herein set forth. Executive shall hold the office of President of the Company reporting to the Chairman of the Board of the Company. 2. TERM. The initial term of employment under this Agreement shall begin on the date hereof (the "Employment Date") and shall continue until January 1, 2000, subject to prior termination in accordance with the terms hereof. Thereafter, this Agreement shall automatically be renewed for successive one year terms unless either party shall give the other ninety (90) days prior written notice of its intent not to renew this Agreement. 3. COMPENSATION. As compensation for the employment services to be rendered by Executive hereunder, including all services as an officer or director of the Company and any of its subsidiaries, the Company agrees to pay, or cause to be paid, to Executive, and Executive agrees to accept, payable in equal installments in accordance with Company 1 practice, an initial annual salary of $90,000. Executive's annual salary hereunder for the remaining years of employment shall be determined by the Board of Directors in its sole discretion, but shall not in any year be reduced below the rate for the previous year. In addition, Executive shall be entitled to bonuses from time to time in such amounts as may be determined by the Board of Directors in its sole discretion. 4. EXPENSES. The Company shall pay or reimburse Executive, upon presentment of suitable vouchers, for all reasonable business and travel expenses which may be incurred or paid by Executive in connection with his employment hereunder. Executive shall comply with such restrictions and shall keep such records as the Company may deem necessary to meet the requirements of the Internal Revenue Code of 1986, as amended from time to time, and regulations promulgated thereunder. 5. OTHER BENEFITS. Executive shall be entitled to such vacations and to participate in and receive any other benefits customarily provided by the Company to its senior management personnel (including any profit sharing, pension, short and long-term disability insurance, hospital, major medical insurance and group life insurance plans in accordance with the terms of such plans) and including stock option and/or stock purchase plans, all as determined from time to time by the Board of Directors of the Company and, in the case of stock options and/or stock purchase plans, the Board of Directors of ABC. 6. DUTIES. (a) Executive shall perform such duties and functions as the Chairman of the Board of Directors shall from time to time determine and Executive shall comply in the performance of his duties with the policies of the Board of Directors, and be subject to the direction of the Chairman of the Board of Directors. At the request of the Board of Directors, Executive shall serve as an executive officer and director of any subsidiary of the Company and, in the performance of such duties, Executive shall comply with the policies of the Board of Directors of each such subsidiary. (b) During the term of this Agreement, Executive shall devote substantially all of his time and attention, reasonable vacation time and absences for sickness excepted, to the business of the Company, as necessary to fulfill his duties. Executive shall perform the duties assigned to him with fidelity and to the best of his ability. Notwithstanding anything herein to the contrary, Executive may engage in other activities so long as such activities do not unreasonably interfere with Executive's performance of his duties hereunder and do not violate Section 9 hereof. (c) Nothing in this Section 6 or elsewhere in this Agreement shall be construed to prevent Executive from investing or trading in nonconflicting investments -2- as he sees fit for his own account, including real estate, stocks, bonds, securities, commodities or other forms of investments. 7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION. (a) Executive's employment hereunder may be terminated at any time upon written notice from the Company to Executive: (i) upon the determination by the Board of Directors that Executive's performance of his duties has not been fully satisfactory for any reason which would not constitute justifiable cause (as hereinafter defined) upon thirty (30) days' prior written notice to Executive; or (ii) upon the determination by the Board of Directors that there is justifiable cause (as hereinafter defined) for such termination upon ten (10) days' prior written notice to Executive. (b) Executive's employment shall terminate upon: (i) the death of Executive; or (ii) the "disability" of Executive (as hereinafter defined pursuant to subsection (c) herein) pursuant to subsection (f) hereof. (c) For the purposes of this Agreement, the term "disability" shall mean the inability of Executive, due to illness, accident or any other physical or mental incapacity, substantially to perform his duties for a period of three (3) consecutive months or for a total of six (6) months (whether or not consecutive) in any twelve (12) month period during the term of this Agreement, as reasonably determined by the Board of Directors of the Company after examination of Executive by an independent physician reasonably acceptable to Executive. (d) For the purposes hereof, the term "justifiable cause" shall mean and be limited to: any repeated wilful failure or refusal to perform any of his duties pursuant to this Agreement where such conduct shall not have ceased within 30 days following written warning from the Company; Executive's conviction (which, through lapse of time or otherwise, is not subject to appeal) of, pleading guilty to, or confession of any crime or offense involving money or other property of the Company or its subsidiaries or affiliates or which constitutes a felony in the jurisdiction involved; Executive's performance of any act or his failure to act, for which if Executive were prosecuted and convicted, a crime or offense involving money or property of the Company or its subsidiaries or affiliates, or which would constitute a felony in the jurisdiction involved, would have occurred; any unauthorized disclosure by Executive to any person, firm or corporation other than the Company, its subsidiaries or affiliates and its and their directors, officers and employees, of any confidential information or trade secret of -3- the Company, ABC or any of their respective subsidiaries or affiliates (collectively, the "ABC Group"); any attempt by Executive to secure any personal profit in connection with the business of any member of the ABC Group; Executive's engagement in a fraudulent act to the material damage or prejudice of any member of the ABC Group or in conduct or activities materially damaging to the property, business or reputation of any member of the ABC Group, all as determined by the Board of Directors in good faith; Executive's illegal use of controlled substances; any material act or omission by Executive involving malfeasance or negligence in the performance of Executive's duties to the material detriment of any member of the ABC Group, as determined by the Board of Directors of the Company or of ABC, as the case may be, in good faith, which has not been corrected by Executive within thirty (30) days after written notice from the Company of any such act or omission; the entry of an order of a court that remains in effect and is not discharged for a period of at least sixty (60) days, which enjoins or otherwise limits or restricts the performance by Executive under this Agreement, relating to any contract, agreement or commitment made by or applicable to Executive in favor of any former employer or any other person; or the engaging by Executive in any business other than the business of the ABC Group which unreasonably interferes with the performance of his duties hereunder. Upon termination of Executive's employment for justifiable cause, this Agreement shall terminate immediately and Executive shall not be entitled to any amounts or benefits hereunder other than such portion of Executive's annual salary and reimbursement of expenses pursuant to Section 4 hereof as has been accrued through the date of his termination of employment. (e) If Executive shall die during the term of his employment hereunder, this Agreement shall terminate immediately. In such event, the estate of Executive shall thereupon be entitled to receive such portion of Executive's annual salary and reimbursement of expenses pursuant to Section 4 as has been accrued through the date of his death. If Executive's death shall occur while he is on Company business, the estate of Executive shall be entitled to receive, in addition to the other amounts set forth in this subsection (e), an amount equal to one-half his then annual salary. (f) Upon Executive's "disability", the Company shall have the right to terminate Executive's employment. Notwithstanding any inability to perform his duties, Executive shall be entitled to receive his compensation (including bonus, if any) and reimbursement of expenses pursuant to Section 4 as provided herein until he begins to receive long-term disability insurance benefits under the policy provided by the Company pursuant to Section 5 hereof. Any termination pursuant to this subsection (f) shall be effective on the later of (i) the date 30 days after which Executive shall have received written notice of the Company's election to terminate or (ii) the date he begins to receive long-term disability insurance benefits under the policy provided by the Company pursuant to Section 5 hereof. (g) Notwithstanding any provision to the contrary contained herein, in the event that Executive's employment is terminated by the Company at any time for any reason other than justifiable cause, disability or death, the Company shall (i) pay -4- Executive, for a period equal to the longer of (1) the remaining term of this Agreement or (2) one year (such period being hereinafter referred to as the "Severance Period"), a monthly payment equal to one-twelfth of his then annual salary, which amount shall be in lieu of any and all other payments due and owing to the Executive under the terms of this Agreement (other than any payments constituting reimbursement of expenses pursuant to Section 4 hereof), and (ii) continue to allow Executive to participate, at the Company's expense, in the Company's health insurance and disability insurance programs, to the extent permitted under such programs, during the Severance Period (collectively, the "Severance Payments"); provided, however, that if such termination occurs within one (1) year following the effective date of a Change in Control of ABC (as hereinafter defined), the Company shall pay to Executive, in lieu of the amounts set forth in clause (i) above, in one lump sum, a severance payment equal to (i) two years' annual salary plus (ii) an amount equal to twice Executive's most recently declared bonus, if any. (h) For purposes of this Agreement, a "Change in Control of ABC" shall be deemed to occur if (i) there shall be consummated (x) any consolidation or merger of ABC in which ABC is not the continuing or surviving corporation or pursuant to which shares of ABC's Common Stock would be converted into cash, securities or other property, other than a merger of ABC in which the holders of ABC's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of ABC, or (ii) the stockholders of ABC shall approve any plan or proposal for liquidation or dissolution of ABC, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of ABC's outstanding Common Stock other than pursuant to a plan or arrangement entered into by such person and ABC, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors of ABC shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by ABC's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. (i) Notwithstanding any provision to the contrary contained herein, in the event the Company elects not to renew this Agreement (other than within one year following a Change in Control of ABC, which is covered in Section 7(g) above) the Company will pay Executive a severance payment equal to one year's annual salary. (j) Executive may terminate his employment at any time upon 30 days' prior written notice to the Company. Upon Executive's termination of his employment hereunder or his election not to renew this Agreement, this Agreement (other than Sections 4, 7, 9, 10, 11 and 12, which shall survive, if at all, in accordance with their terms) shall terminate; provided, however, that Section 9 shall not survive such -5- termination unless the Company pays to Executive during the Severance Period the Severance Payments. In such event, Executive shall be entitled to receive such portion of Executive's annual salary and bonus, if any, as has been accrued to date. Executive shall be entitled to reimbursement of expenses pursuant to Section 4 hereof and to participate in the Company's benefit plans to the extent participation by former employees is required by law or permitted by such plans, with the expense of such participation to be as specified in such plans for former employees. (k) If, in connection with a change of ownership or control of the Company or a change in ownership of a substantial portion of the assets of the Company (all within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), an excise tax is payable by Executive under Section 4999 of the Code, then the Company will pay to the Executive additional compensation which will be sufficient to enable Executive to pay such excise tax as well as the income tax and excise tax on such additional compensation, such that, after the payment of income and excise taxes, Executive is in the same economic position in which he would have been if the provisions of Section 4999 of the Code had not been applicable. The additional compensation required by this Section 7(k) will be paid to Executive promptly after the date or dates on which the amount of such additional compensation is determinable, in whole or in part. 8. REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE. (a) Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties hereunder. (b) Executive agrees to submit to a medical examination and to cooperate and supply such other information and documents as may be required by any insurance company in connection with the Company's obtaining life insurance on the life of Executive, and any other type of insurance or fringe benefit as the Company shall determine from time to time to obtain. 9. NON-COMPETITION. (a) Executive agrees that during his employment by the Company and during the Severance Period following the termination of Executive's employment hereunder (the "Non-Competitive Period"), Executive shall not, directly or indirectly, as owner, partner, joint venturer, stockholder, employee, broker, agent, principal, trustee, corporate officer, director, licensor, or in any capacity whatsoever engage in, become financially interested in, be employed by, render any consultation or business advice with respect to, or have any connection with, (i)Eany business which is competitive with products or services of the ABC Group in any geographic area in the United States of America, Central and South America and Canada where, at the time of the termination of his employment hereunder, the business of the ABC Group was being conducted or -6- was proposed to be conducted in any manner whatsoever or (ii)Eany business conducted under any corporate or trade name utilized by any member of the ABC Group or any name similar thereto without the prior written consent of the Company; provided, however, that Executive may own any securities of any corporation which is engaged in such business and is publicly owned and traded but in an amount not to exceed at any one time one percent (1%) of any class of stock or securities of such corporation. In addition, Executive shall not, directly or indirectly, during the Non-Competitive Period, request or cause any suppliers or customers with whom any member of the ABC Group has a business relationship to cancel or terminate any such business relationship with any member of the ABC Group, or solicit, interfere with or entice from the Company any employee (or former employee) of the ABC Group. (b) If any portion of the restrictions set forth in this Section 9 should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby be adversely affected. (c) Executive acknowledges that the ABC Group conducts business throughout the United States, that its sales and marketing prospects are for continued expansion throughout the United States, Central and South America and Canada and that, therefore, the territorial and time limitations set forth in this Section 9 are reasonable and properly required for the adequate protection of the business of the ABC Group. In the event any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, Executive agrees to the reduction of the territorial or time limitation to the area or period which such court shall deem reasonable. (d) The existence of any claim or cause of action by Executive against any member of the ABC Group shall not constitute a defense to the enforcement by the Company or any subsidiary or affiliate of the foregoing restrictive covenants, but such claim or cause of action shall be litigated separately. (e) In the event Executive's employment with the Company terminates for any reason other than termination by the Company within one year following a Change in Control of the ABC, the Company and Executive agree that in consideration of the payments being made to Executive during the Severance Period, Executive shall be available during the Severance Period to advise and consult with the Board of Directors, the President and other officers of the Company and its subsidiaries with respect to the affairs of the Company and its subsidiaries on a part-time basis, in response to requests for such advisory and consulting services by the Board of Directors, or other officers of the Company or its subsidiaries, subject to the conditions that (i) such services shall be performed within the United States of America, (ii) Executive shall not be required to devote a major portion of his time to such services, (iii) such services shall not unreasonably interfere with the performance of other employment or consulting duties Executive may have, (iv) Executive shall not be required to perform such services during usual vacation periods and reasonable periods of illness or other incapacitation, (v) such services shall be performed at times and -7- places as shall be chosen by Executive, and which will result in the least inconvenience to Executive, and (vi) all other provisions of this Section 9 shall apply. The Company shall reimburse Executive for actual out-of-pocket expenses incurred in rendering the services performed by Executive upon the request of the Board of Directors, or other officers of the Company or its subsidiaries, payable at the end of each month during such period. Notwithstanding the foregoing, in the event that Executive seeks full-time employment with a third party and such third party will not accept Executive's services for as long as he is committed under this subsection (e) to provide consulting services to the Company, then if the Board of Directors of the Company determines in its reasonable discretion that Executive's employment with the third party will not cause him to breach the provisions of Section 9 of this Agreement (other than this subsection (e)) and Executive provides the Board of Directors with a letter signed by the third party stating that such third party will not accept Executive's services as described above, the provisions of this subsection (e) shall immediately terminate and be of no further force or effect. (f) Notwithstanding anything herein to the contrary, this Section 9 shall automatically terminate if the Company terminates Executive's employment within one year following the effective date of a Change in Control of ABC, or if the Company fails to make any payments due to Executive under Sections 7(g), 7(i), 7(j) or 9(e). 10. INVENTIONS AND DISCOVERIES. (a) Executive shall promptly and fully disclose to the Company, and with all necessary detail for a complete understanding of the same, all developments, know-how, discoveries, inventions, improvements, concepts, ideas, writings, formulae, processes and methods (whether copyrightable, patentable or otherwise) made, received, conceived, acquired or written during working hours, or otherwise, by Executive (whether or not at the request or upon the suggestion of the Company) during the period of his employment with, or rendering of advisory or consulting services to, any member of the ABC Group, solely or jointly with others in or relating to any activities of the ABC Group known to him as a consequence of his employment or the rendering of advisory and consulting services hereunder (collectively the "Subject Matter"). (b) Executive hereby assigns and transfers, and agrees to assign and transfer, to the Company, all his rights, title and interest in and to the Subject Matter, and Executive further agrees to deliver to the Company any and all drawings, notes, specifications and data relating to the Subject Matter, and to execute, acknowledge and deliver all such further papers, including applications for copyrights or patents, as may be necessary to obtain copyrights and patents for any thereof in any and all countries and to vest title thereto to the Company. Executive shall assist the Company in obtaining such copyrights or patents during the term of this Agreement, and any time thereafter on reasonable notice and at mutually convenient times, and Executive agrees to testify in any prosecution or litigation involving any of the Subject Matter; provided, however, that Executive shall be compensated in a timely manner at the rate of $500.00 per day (or portion thereof), plus out-of-pocket expenses incurred in rendering such -8- assistance or giving or preparing to give such testimony if it is required after the Severance Period. 11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. (a) Executive shall not, during the term of this Agreement, or at any time following termination of this Agreement, directly or indirectly, disclose or permit to be known (other than as is required in the regular course of his duties (including without limitation disclosures to the Company's advisors and consultants) or is required by law (in which case Executive shall give the Company prior written notice of such required disclosure) or with the prior written consent of the Board of Directors of the Company), to any person, firm or corporation, any confidential information acquired by him during the course of, or as an incident to, his employment or the rendering of his advisory or consulting services hereunder, relating to the ABC Group, the directors of any member of the ABC Group, any client of the ABC Group, or any corporation, partnership or other entity owned or controlled, directly or indirectly, by any of the foregoing, or in which any of the foregoing has a beneficial interest, including, but not limited to, the business affairs of each of the foregoing. Such confidential information shall include, but shall not be limited to, proprietary technology, trade secrets, patented processes, research and development data, know-how, market studies and forecasts, competitive analyses, pricing policies, employee lists, personnel policies, the substance of agreements with customers, suppliers and others, marketing or dealership arrangements, servicing and training programs and arrangements, customer lists and any other documents embodying such confidential information. This confidentiality obligation shall not apply to any confidential information which thereafter becomes publicly available other than pursuant to a breach of this Section 11(a) by Executive. (b) All information and documents relating to the ABC Group as hereinabove described (or other business affairs) shall be the exclusive property of the ABC Group, and Executive shall use commercially reasonable best efforts to prevent any publication or disclosure thereof. Upon termination of Executive's employment with the Company, all documents, records, reports, writings and other similar documents containing confidential information, including copies thereof, then in Executive's possession or control shall be returned and left with the Company. 12. SPECIFIC PERFORMANCE Executive agrees that if he breaches, or threatens to commit a breach of, any of the provisions of Sections 9, 10 or 11 (the "Restrictive Covenants"), the Company shall have, in addition to, and not in lieu of, any other rights and remedies available to the Company under law and in equity, the right to injunctive relief and/or to have the Restrictive Covenants specifically enforced by an court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. Notwithstanding the foregoing, nothing herein -9- shall constitute a waiver by Executive of his right to contest whether a breach or threatened breach of any Restrictive Covenant has occurred. 13. AMENDMENT OR ALTERATION. No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina applicable to agreements made and to be performed therein. 15. SEVERABILITY. The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect. 16. NOTICES. Any notices required or permitted to be given hereunder shall be sufficient if in writing, and if delivered by hand or courier, or sent by certified mail, return receipt requested, to the addresses set forth above or such other address as either party may from time to time designate in writing to the other, and shall be deemed given as of the date of the delivery or at the expiration of three days in the event of a mailing. 17. WAIVER OR BREACH. It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party. 18. ENTIRE AGREEMENT AND BINDING EFFECT. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof, supersedes all prior agreements, both written and oral, between the parties with respect to the subject matter hereof, and may be modified only by a written instrument signed by each of the parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, distributors, successors and assigns, provided, however, that Executive shall not be entitled to assign or delegate any of his or her rights or obligations hereunder without the prior written consent of the Company. -10- 19. SURVIVAL. Except as otherwise expressly provided herein, the termination of Executive's employment hereunder or the expiration of this Agreement shall not affect the enforceability of Sections 4, 7, 9, 10, 11 and 12 hereof. 20. FURTHER ASSURANCES. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. 21. CONSTRUCTION OF AGREEMENT. No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision. 22. HEADINGS. The Section headings appearing in this Agreement are for the purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, demand or affect its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. AMT/BEAMAN CORPORATION [CORPORATE SEAL] By:___________________________ Name: Title: ATTEST: By:________________________ Name: Title: --------------------------- Joseph M. Grigelevich, Jr. -11- EX-10.47 4 DESCRIPTION OF SHAREHOLDER VALUE ADDED PLAN Exhibit 10.47 Description of Shareholder Value Added Plan In 1996, the Company adopted a Shareholder Value Added Plan that entitles participants to receive cash bonuses based on an annual aggregate award plus any deferred award balance from the award bank. Contributions to the annual aggregate award and the award bank are based on a fixed percentage of the Shareholder Value Added ("SVA") plus a fixed percentage of the annual change in SVA. SVA is defined as the amount that Net Operating Profit After Taxes exceeds a capital charge, which is calculated as Capital Employed multiplied by the associated Cost of Capital. Each participant's share is based on a specified percentage of their salary in relation to the other participants. EX-11.0 5 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.0 AMERICAN BUILDINGS COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Data)
For the Year Ended December 31, ---------------------------------- 1996 1995 1994 ------- ------- ------- PRIMARY EARNINGS PER SHARE: Income before extraordinary item and cumulative effect of change in accounting principle $12,447 $17,590 $10,455 Extraordinary loss on early extinguishment of long-term debt -- -- (2,425) Cumulative effective of change in accounting for income taxes -- -- -- ------- ------- ------- Net Income $12,447 $17,590 $ 8,030 ======= ======= ======= Weighted average common and common equivalent shares outstanding 5,699 6,231 5,600 Add - Dilutive effect of outstanding options (as determined by the application of the treasury stock method) 341 323 180 ------- ------- ------- Weighted average common and common equivalent shares outstanding 6,040 6,554 5,780 ======= ======= ======= Primary earnings per share: Income before extraordinary item and cumulative effect of change in accounting principle $ 2.06 $ 2.68 $ 1.81 Extraordinary loss on early extinguishment of long-term debt -- -- (0.42) Cumulative effect of change in accounting for income taxes -- -- -- ------- ------- ------- Net income $ 2.06 $ 2.68 $ 1.39 ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE: Weighted average common and common equivalent shares outstanding 5,699 6,231 5,600 Add - Dilutive effect of outstanding options (as determined by the application of the treasury stock method) 355 343 260 ------- ------- ------- Weighted average common and common equivalent shares outstanding 6,054 6,574 5,860 ======= ======= ======= Primary earnings per share: Income before extraordinary item and cumulative effect of change in accounting principle $ 2.06 $ 2.68 $ 1.78 Extraordinary loss on early extinguishment of long-term debt -- -- (0.41) Cumulative effect of change in accounting for income taxes -- -- -- ------- ------- ------- Net income $ 2.06 $ 2.68 $ 1.37 ======= ======= =======
Page 1 EX-23.1 6 CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8, File No. 33-86556, File No. 33-86558, and File No. 33-86560. ARTHUR ANDERSEN LLP Atlanta, Georgia March 24, 1997 EX-27 7 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY RERERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 0 0 39,677 3,345 19,823 60,572 71,880 38,686 101,970 46,862 10,872 0 0 63 41,403 101,970 273,953 273,953 229,260 253,571 0 1,067 143 20,239 7,792 12,447 0 0 0 12,447 2.06 0
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