-----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, G8UKrIujrzR4FgWiH7DPDe6iW0GX4ma3mIogGkQuICQUUdmC0mBJLOB244qe/9zg slAN+z+71dVUf0lPnutNWA== 0000914190-97-000153.txt : 19970329 0000914190-97-000153.hdr.sgml : 19970329 ACCESSION NUMBER: 0000914190-97-000153 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEATHERLITE MFG INC CENTRAL INDEX KEY: 0000928064 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK TRAILERS [3715] IRS NUMBER: 411621676 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-24804 FILM NUMBER: 97567262 BUSINESS ADDRESS: STREET 1: HIGHWAYS 63 & 9 STREET 2: PO BOX 320 CITY: CRESCO STATE: IA ZIP: 52136 BUSINESS PHONE: 3195476000 MAIL ADDRESS: STREET 1: HWY 63 & 9 STREET 2: PO BOX 320 CITY: CRESCO STATE: IA ZIP: 52136 10-K405 1 FORM 10-K405 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File No.: December 31, 1996 0-24804 FEATHERLITE MFG., INC. (Exact Name of Registrant as Specified in its Charter) Minnesota 41-1621676 (State of Incorporation) (IRS Employer Identification Number) Highways 63 and 9 Cresco, Iowa 52136 (319) 547-6000 (Address of principal executive offices; Issuer's telephone number) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, without par value 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 Common Stock held by non-affiliates of the registrant as of March 18, 1997, was $18,563,000 (based on the last sale price of the registrant's Common Stock on such date). Shares of without par value Common Stock outstanding at March 18, 1997: 6,255,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated Part of this Form 10-K: (1) Annual report to shareholders for the fiscal year ended December 31, 1996 - Part II; (2) Proxy statement for 1997 Annual Meeting - Part III. PART I ITEM 1. DESCRIPTION OF BUSINESS General Featherlite Mfg., Inc. was organized by current management as a Minnesota corporation in 1988 to acquire the assets of a non-affiliated business which manufactured trailers since the early 1970s under the FEATHERLITE(R) brand name. The Company designs, manufactures and markets over 400 models of both custom made and standard model specialty aluminum and steel trailers through a network of over 240 full-line dealers and over 600 limited-line utility dealers located in the United States and Canada. Its product lines vary from an eight-foot livestock trailer to a specially designed trailer which houses a rare traveling museum exhibition or a custom designed trailer to transport race cars, spare parts, tools and work shops of race car owners and drivers. In 1996, the Company began manufacturing and marketing a custom luxury motorcoach primarily through the acquisition of Vantare International, Inc., which is among the leaders and fastest growing companies in the motorcoach industry. Entry into the luxury motorcoach market was consistent with Featherlite's long-term growth strategy of product diversification. These motorcoaches are marketed under the trade name "VANTARE by Featherlite(TM)". The Company markets its primary products under the FEATHERLITE(R) brand name. FEATHERLITE(R) trailers are made of aluminum, which differentiates the Company from most of its competitors that primarily make steel trailers. Aluminum trailers are superior to steel in terms of weight, durability, corrosion resistance, maintenance and weight-to-load ratio. Although the Company's focus is on manufacturing and marketing aluminum trailers, it also markets a line of composite steel and aluminum trailers under the FEATHERLITE-STL(TM) series (replaced Econolite beginning in 1997) and DIAMOND D(R) brands in order to provide dealers and customers with a high quality, but less expensive, alternative to the aluminum trailer. Management believes that the Company's growth is being caused by overall market expansion, particularly in uses related to entertainment and leisure, and by the Company increasing its share of a fragmented market. Demand for the Company's products is being significantly driven by the lifestyles, hobbies and events that are important to Featherlite's target customers. Growth in those product and service categories which could use or require a high quality trailer is creating increased demand for the Company's products. Those categories and uses include pickup trucks, sport utility vehicles, all-terrain-vehicles, personal watercraft and snowmobiles; auto races, classic car shows and motorcycle rallies; hobby farming and raising and showing horses; art and craft fairs and expositions; and vending trailers for selling crafts, food and other concessions, such as T-shirts or novelty items. Examples of other users of the Company's trailers include lawn care services, house painters, construction crews, traveling museum exhibitions, concert tours, musical groups and fiber optic utility crews that require clean environments in which to splice and store cable. The Company continually monitors the market for opportunities to introduce new and innovative designs. Featherlite pioneered the introduction of standard model aluminum horse and livestock trailers, which traditionally had been custom made. It has also responded to the increasing demand for customizing the interiors of trailers, a capability which helps distinguish the Company from its competition. Typical interiors range from simple, such as a dressing room, closet and mirror in the nose of a horse trailer, to sophisticated, such as upholstered seating and sleeping areas, kitchens, bathrooms and modern electronics, including fax machines, cellular phones and satellite dishes, in race car transporters and luxury custom coaches. In addition, Featherlite refines the products it already offers by introducing new features to satisfy the increasing demands of its customers. The Company pays special attention to its target customers and attempts to reach them through a variety of media. Unlike most of its competition, Featherlite is large enough to benefit from national advertising and sponsorship of major events which are visible to its customers. These sponsorships include Featherlite's designation as the "Official Trailer of NASCAR, CART, IRL, ARCA, ASA, World of Outlaws and the Indianapolis Motor Speedway," a major sponsor of NHRA drag racing and association with the All American Quarter Horse Congress, the International Arabian Horse Association and others. Featherlite intends to expand its promotional activities as the Company enters new markets. Specialty Trailer and Motorcoach Industries The company operates in two principal industries and business segments: specialty trailers and motorcoaches, as discussed in the sections labeled "Management's Discussion and Analysis" which appears in Company's Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Specialty Trailer Industry Specialty trailers are designed for specific hauling purposes rather than for general commercial freight. The customers of the specialty trailer industry consist of broad segments of the general public, such as hobbyists, sports enthusiasts, farmers and ranchers, engaged in the activities for which particular trailers are designed. In contrast, commercial freight trailers are generally made for non-specific purposes and the customers are typically trucking companies and manufacturers with fleets of trucks and trailers. Unlike the commercial freight trailer industry which is dominated by a few large manufacturers, the specialty trailer industry is comprised of many small manufacturers. No published statistics are available on the size of the specialty trailer industry or its subcategories. However, the Company believes that there may be as many as 500 manufacturers of specialty steel trailers in the United States, of which approximately 20 manufacture specialty aluminum trailers. Historically, specialty trailers were made of steel, principally because they cost approximately 30% to 40% less than trailers made primarily of aluminum. Entry into the production of steel trailers is relatively easy and inexpensive because of the widespread availability of steel components and simple production techniques. The relative lack of barriers to entry into the steel trailer industry, differing regional demands for trailer types and the relatively high cost of long distance delivery have contributed to the fragmented status of the specialty trailer industry. As a result, specialty trailer manufacturers generally produce relatively small numbers of trailers for sale in limited geographical markets without the efficiencies of high volume production, quality controls, significant warranty and service capabilities, substantial dealer networks, or national advertising and marketing programs. In comparison, production of aluminum trailers requires larger capital investment in dies, extrusion molds and equipment, more sophisticated welding and production techniques, and greater design capabilities to maximize the strength-to-weight ratio advantage of aluminum over steel. In dollar sales, the Company estimates that aluminum trailers presently constitute five to ten percent of the total market for specialty trailers and that this percentage is increasing. The trend of the trailer market to migrate toward aluminum models is driven by a number of factors. Aluminum trailers offer substantial advantages over steel trailers in weight, ease of maintenance, durability and useful life. Aluminum trailers do not rust and weigh 30% to 40% less than comparable steel models. Maintenance is substantially less on aluminum trailers because of the absence of rust and because they typically are not painted or are pre-painted with a baked-on enamel. As a result, aluminum trailers can be offered with superior warranties and provide greater customer satisfaction. The lighter weight of aluminum trailers reduces the demands on the towing vehicle, affords better gas mileage and allows a greater percentage of gross trailer weight for carrying cargo. Motorcoach Industry Bus conversion motorcoaches are the most luxurious of all recreational vehicles. They represent a unique market niche, with selling prices ranging from $500,000 to $900,000 or more. These motorcoaches are made from a bus shell for conversions that is purchased and completed to provide an interior area designed to the customers specifications. It has been estimated that this segment of the RV market experienced more than a 30% growth between 1990 and 1994 and this growth is expected to continue in the future. A large part of the target market, the 45 to 64 age group, is expected to grow by 33% this decade alone. Sales of these vehicles will be boosted because this group is expected to retire earlier and have a greater affluence than previous generations. The Company believes that there are presently ten or more companies in this industry. Products and Services The Company's primary business activity is the manufacture and sale of specialty aluminum trailers under the FEATHERLITE(R) brand name. In 1996, the Company began manufacturing and marketing a custom motorcoach under the name "VANTARE by Featherlite(TM)". In addition, the Company manufactures and sells combination steel and aluminum trailers under its FEATHERLITE-STL(TM) series (formerly Econolite) and DIAMOND D(R) brand names, sells replacement and specialty parts, and coordinates delivery of completed trailers to customers. Rework and warranty services are also provided for Company built trailers at the Company's facilities and dealer locations. The Company and an affiliate provide dealer and retail product financing. For 1996, over 95% of the Company's revenues were derived from trailer and motorcoach sales. The following data illustrate the percentage of the Company's net sales by product type in 1994, 1995 and 1996 (dollars in thousands):
Years ended December 31 1994 1995 1996 Amount Percent Amount Percent Amount Percent* Horse $21,179 37.3% $23,985 36.8% $29,697 31.1% Livestock 14,590 25.7% 13,604 20.9% 17,789 18.6% Car and race car transporters 9,237 16.3% 14,333 22.0% 15,847 16.8% Utility and 2,600 4.5% 4,468 6.9% 7,206 7.5% recreational Commercial and semi 9,229 16.2% 8,786 13.4% 10,150 10.6% Motorcoaches --- --- --- --- 14,785 15.5% Net Trailer & Motorcoach Sales $56,835 100.0% $65,176 100.0% $95,474 100.0%
*Product mixed percentages in 1996 affected by addition of motorcoaches. Trailers The Company is unique among trailer manufacturers because of the many types of trailers it makes. The Company's FEATHERLITE(R), FEATHERLITE- STL(TM) series and DIAMOND D(R) trailers may be broadly classified into several trailer types, which can be further subdivided into over 400 models depending on their intended use and resulting design. The Company's primary trailer types are horse, livestock, utility and cargo, snowmobile and car trailers as well as race car transporters. Within these broad product categories, the Company generally offers different features, such as various lengths, heights and widths, open and enclosed models, gooseneck and bumper pulls, straight and slant loaders, and aluminum, steel, fiberglass and wood frames, floors, sides and roofs. The Company believes FEATHERLITE(R) brand trailers, which are "all aluminum" with the exception of steel axle and hitch parts, enjoy a premier image in the industry. Sales of FEATHERLITE(R) brand trailers currently represent over 82% of the Company's total trailer sales. FEATHERLITE-STL(TM) series and DIAMOND D(R) brand trailers, which generally are a composite of steel frame, aluminum skin and galvanized roof, allow the Company to place its product line at the lower-priced end of the market. FEATHERLITE(R), FEATHERLITE-STL(TM) series and DIAMOND D(R) trailers are built as standard models or to customer order from selected options. Depending on the model, the Company's trailers generally include name brand tires, reflectors and exterior running and license plate lights, sealed and enclosed wires, and safety chains and breakaway switches. Popular options to standard designs include paint schemes, logos, lettering and graphics, winches and generators, viewing platforms, workbenches and cabinets, vents and other airflow designs, rollup doors, access and side doors and windows, aluminum wheels and hubcaps, and hydraulic or air brakes. Trailer design traditionally has been utilitarian. Recently, however, the demand for trailers with special amenities and custom designed features has increased dramatically. For that reason, the Company's Interiors Division offers options ranging from simple shelves, cupboards, lockers and dressing rooms to complete living quarters, including upholstered furniture, electronics, wood or laminated Formica finishes, air conditioning, refrigerators, dinettes and bath packages. The Company stresses its ability and willingness to build trailers "from the ground up" with unique, even luxurious, custom designed features and amenities tailored to customer specifications. This distinguishes the Company from many other trailer manufacturers. In addition to custom designed trailers, the Company manufactures standard model trailers for inventory which are available for immediate delivery to dealers. In an industry consisting primarily of manufacturers who custom build trailers, the Company's introduction in 1991 of standard model aluminum trailers represented an innovative step. Standard model trailer sales now represent approximately 40% of the Company's total trailer sales. The Company's dealer network has enthusiastically endorsed and supported the standard model concept. Retail prices for the Company's standard aluminum model trailers range from approximately $1,200 for the least expensive snowmobile trailer to over $300,000 for a custom built race car transporter and hospitality trailer and over $900,000 for a luxury coach. Representative FEATHERLITE(R) aluminum trailer retail prices are approximately $7,200 for a bumper pull livestock trailer, $8,200 for a two horse trailer, and $16,000 for a gooseneck car trailer. Motorcoaches The Company offers three motorcoaches based on various models made from a single bus shell manufacturer (Prevost Car Company), the XL-40 and XL-45 and the H3-45. Even though the "H" body style is much taller and the layout is considerably different than a typical XL motorcoach, it has become the most popular model requested by customers. The Company also now offers a "slide-out" model which expands the livable space within the motorcoach. The Company's goal is to produce the best performing and most reliable coach while keeping a low overall gross weight and extremely low ambient noise level. It incorporates into motorcoaches many of the good features and quality often present in luxury yachts and which were previously developed by Vantare International, Inc. when it was in the business of building yachts. All coaches are built to customer order from selected options, except for show motorcoaches which are built for demonstration and resale purposes at particular shows or events. Retail prices range from $500,000 to $900,000 or more. The Company also sells used motorcoaches which are taken as trade-ins from customers on new coaches or on a consignment basis. Repair services are provided for coaches of customers and others at the Vantare facility in Sanford, Florida, as well as at a Company service center in Mocksville, North Carolina and Cresco, Iowa. Other Business Activities In addition to the manufacture and sale of specialty trailers and luxury motorcoaches, the Company sells replacement and specialty trailer parts to its dealers and to others. It coordinates delivery of completed trailers to customers and to dealers for a fee and in 1996 delivered approximately 50% of the trailers sold to dealers, with the remainder picked up at its Iowa facilities. The Company owns and maintains a fleet of trucks and leases semi tractors for this purpose. The Company is a licensed aircraft dealer and believes that dealing in used aircraft is complementary to its principal business. Featherlite Aviation Company, a wholly-owned subsidiary of the Company, conducts such aircraft dealer activities. Featherlite Aviation Company currently holds for resale three used aircraft. The purchase, sale, use and operation of aircraft and the volatility in the sales volume and value of aircraft, create risks to the Company and its operating results. The Company maintains liability insurance policies relating to its aircraft in an amount it believes to be adequate, but there is no assurance that its coverage will continue to be available at an acceptable price or be sufficient to protect the Company from adverse financial effects in the event of claims. The Company's other business activities, in the aggregate, accounted for approximately 5.6%, 5.8% and 3.9% of the Company's net sales for 1994, 1995 and 1996, respectively. Marketing and Sales Dealer Network The Company markets its products primarily through a network of over 240 full-line dealers and over 600 limited-line utility dealers located in the United States and Canada, one distributor serving the southeast region of the United States, and one distributor serving Alberta and British Columbia, Canada. Dealers typically handle only a portion of the entire FEATHERLITE(R), FEATHERLITE-STL(TM) series and DIAMOND D(R) product lines and may sell other steel trailer brands. Featherlite dealers are not prohibited by their agreements with the Company from selling other brands of aluminum trailers but generally do not do so. No single dealer represents more than 10% of the Company's net sales. The Company's top 50 dealers accounted for approximately 74%, 76% and 54% of the Company's net trailer sales for 1994, 1995 and 1996, respectively. For these periods, 79% or more of the Company's trailer sales were made by its dealer network, with the remainder representing direct Company sales to end users. Company sales to end users are primarily drop deck trailers, specialty trailers and race car transporters. The Company does not sell direct its horse and livestock trailers. For these periods, approximately 97% of the number of units sold were sold by the dealer network. Dealers and distributors sell FEATHERLITE(R), FEATHERLITE-STL(TM) series and DIAMOND D(R) products under contractual arrangements which can be terminated by either party on specified notice. Laws in certain states govern terms and conditions under which dealers and distributors may be terminated. Such laws have not materially adversely affected the Company to date. Changes in dealers and distributors take place from time to time. The Company believes that a sufficient number of prospective dealers exists across the United States and Canada to permit orderly transitions whenever necessary. The Company is continually seeking to expand the size and upgrade the quality of its dealer network. The Company believes that significant areas of the United States and Canada are not served by a sufficient number of dealers and the Company intends to increase substantially its number of dealers over the next several years. The Company employs territory managers to assist in the marketing and sales process. These managers assist the Company's dealers in coordinating the selection of custom options by customers and the production of orders. They also participate with the dealers at trade shows, fairs, rodeos, races and other events to promote the FEATHERLITE(R) brand and actively seek out potential new dealers. All motorcoaches are sold directly by Company personnel to end user customers. Company sales representatives participate in trade shows, fairs, motorsports races and other events to promote the "VANTARE by Featherlite(TM)" motorcoach. Financing A substantial portion of the Company's sales of trailers and motorcoaches are paid for within ten days of invoicing. The Company has arrangements with NationsCredit Commercial Corporation, Deutsche Financial Services Corp. (formerly ITT Commercial Finance Corp.), Bombardier Capital, and with TransAmerica Commercial Finance Corp. to provide trailer floor plan financing for its dealers. Featherlite Credit Corporation, a corporation owned by certain of the Company's officers and directors, provides retail financing to end user customers of the Company's dealers. Under these floor plan and retail financing arrangements, the Company is required in certain circumstances to guarantee certain debt, or repurchase for the remaining unpaid balance including finance charges plus costs and expenses, any repossessed trailers financed through such arrangements. Although the Company has not been required to make any such payments or repurchases to date, there can be no assurance that such obligations will not, in the future, adversely impact the Company. The Company has arrangements with several companies to provide motorcoach retail financing to end user customers. There is no recourse to the Company on these retail financing arrangements. The Company has a wholesale floor plan agreement with a company to finance a portion of the new and used motorcoaches held in inventory. Promotion The Company's marketing activities are designed primarily to communicate directly with consumers and to assist with selling and marketing efforts of the dealer network. The Company promotes its products directly using print advertising in user group publications, such as Quarter Horse Journal, Successful Farming, Snowmobile, Sno Goer and National Association of Stock Car Auto Racing ("NASCAR") Winston Cup Series event programs. A series of product brochures, product videotapes and other promotional items are available for use by the dealers. The Company also advertises on television, primarily on cable television racing programs. The Company promotes its motorcoaches directly in user group publications, such as the Family Motorcoaching Magazine, The Robb Report, The DuPont Registry and the RV Trader. In addition, the Company participates in the Family Motor Coach Association rallies twice each year, the Tampa RV Show and numerous other shows and rallies and is represented at motorsports events where other Featherlite products are promoted and where Featherlite already has a customer base. An example of the Company's specialized niche market promotional efforts is the motor sports industry. Featherlite currently is the "Official Trailer of NASCAR, CART, IRL, ARCA, ASA, World of Outlaws the Indianapolis Motor Speedway" and the title sponsor of the NASCAR Featherlite Southwest Tour and the NASCAR Featherlite Modified Tour, and a major sponsor of the National Hot Rod Association ("NHRA"). The 1996 NASCAR Featherlite Southwest Tour was comprised of sixteen events in various cities in Arizona, California, Nevada and Colorado. The NASCAR Featherlite Modified Tour schedule takes place primarily in the northeastern United States. The Company expects to continue to design and build trailers to fit the needs of all types of racing, including NASCAR, NHRA, Automobile Racing Club of America ("ARCA"), IndyCar, nostalgic, sprint car, off road, boat, motorcycle and motocross. In addition to the racing industry, the Company sponsors or is associated with the All American Quarter Horse Congress, the National Cutting Horse Association, the American Paint Horse Association and the National Western Livestock Show as well as various rodeos and state and local fairs and expos. Annually, Featherlite factory representatives attend in excess of 250 races, rodeos, fairs, trade shows and other special events. The Company's dealers attend approximately 1,200 to 1,400 such events each year. Competition - Specialty Trailers The specialty trailer industry is highly competitive, especially with respect to the most commonly sold models, such as one and two horse trailers. Competition is based upon a number of factors, including brand name recognition, quality, price, reliability, product design features, breadth of product line, warranty and service. The primary competition to FEATHERLITE(R) aluminum trailers are steel trailers, which typically sell for approximately 30% to 40% less but are subject to rust and corrosion and are heavier. There are no significant technological or manufacturing barriers to entry into the production of steel trailers and only moderate barriers to the production of aluminum trailers. Because the Company has a broad based product line, its competition varies by product category. There is no single company that provides competition in all product lines. Certain of the Company's competitors and potential competitors have greater financial and other resources than the Company. Furthermore, certain of the Company's competitors are better established in segments of the Company's business. The Company's principal competitors, all of which are located domestically, include the following: Trailer Types Principal Competitors' Brands Horse and Livestock 4 Star, Barrett, Sooner, Wilson, Sundowner, Kiefer Built, W-W Utility Wells Cargo, PACE, Haulmark, Sooner Drop Frame Vans Kentucky Car Trailers and Race Car Transporters HighTech, Competition, Concept, Wells Cargo, Haulmark, PACE, Sooner Competition - Motorcoaches The motorcoach industry is highly competitive, particularly in XL models, with ten or more manufacturers. Vantare is the dominant producer of H model coaches. Competition is based primarily on quality and price although other factors such as brand name, reliability, design features, warranty and service are also important. The brand names of the Company's principal competitors in this industry, all of which are located domestically, include, among others: Marathon, Liberty, Country Coach, Angola, Monaco, Vogue and Custom. Manufacturing The Company manufactures substantially all of its trailers at plants located in Cresco, Nashua and Shenandoah, Iowa. It has agreements with two companies to manufacture certain trailers. Under the agreements, the Company supplies trailer materials and specifications to those manufacturers. The manufacturers, which are prohibited from manufacturing trailers for any other entities without Featherlite's consent, cover labor and overhead expenses and manufacture the trailers for contractually agreed upon prices. Such trailers constituted approximately 3% of net trailer sales for 1996. Except for tires, brakes, couplers, axles and various other purchased items, the Company fabricates its component parts for its trailers. Most raw materials and standard parts, including aluminum extrusions and sheet metal, are available from multiple sources. Prices of aluminum, the principal commodity used in the Company's business, fluctuate daily in the open market. Costs of aluminum to the Company remained fairly stable during the period 1992 through 1994 due in part to the Company's practice during such period of negotiating annual pricing contracts with suppliers. Due to significant fluctuations in market aluminum prices during 1995, the Company was not able to contract for extended periods at acceptable prices for all of 1995. As discussed in the M D & A section of the Annual Report, fluctuations in aluminum prices did affect the Company's margins in 1995 and may do so again in the future. The Company has obtained fixed price contracts from suppliers for 1997 to reduce the risk related to fluctuations in the cost of aluminum. The Company presently purchases substantial amounts of aluminum extrusions from two major suppliers, Alumax Extrusions Inc. and Easco Aluminum, and the majority of its sheet metal from two large suppliers, Reynolds Aluminum Co. and Samuel Whittar. The identity of particular suppliers and the quantities purchased from each varies from period to period. The Company has not engaged in hedging or the purchase and sale of future contracts other than contracts for delivery to fill its own needs. The Company has contracts with suppliers to fill a substantial part of its projected need for aluminum in 1997. In the event that one or more of the Company's suppliers were unable to deliver raw materials to the Company for an extended period of time, the Company's production and profits could be materially and adversely affected if an adequate replacement supplier could not be found within a reasonable amount of time. The Company has never been unable to obtain an adequate supply of raw materials. Increases in prices of aluminum and other supplies may adversely affect sales of the Company's products. In addition to obtaining long term contracts from suppliers, the Company may in the future also try to reduce the price risk associated with aluminum by buying London Metal Exchange hedge contracts or options for future delivery. These contracts would "lock in" the aluminum cost for the Company for anticipated aluminum requirements during the periods covered by the contracts. There is a potential risk of loss related to such contracts if the quantity of materials hedged significantly exceeds the Company's actual requirements and the contract is closed without taking physical delivery of the aluminum or if there is a substantial drop in the actual cost of aluminum in relation to the hedge contract price which would affect the competitive price of the Company's product. In the manufacturing process, the Company seeks to maximize production efficiency by using weekly production schedules which allocate scheduled trailers to specific production lines within each plant. The Company generally follows a build-to-order policy to control inventory levels. If orders cannot be filled from any inventory maintained by the Company, they are scheduled for production. Inventory pool trailers may be scheduled to maximize the efficiency of the production lines. The Company also utilizes certain production lines solely for standard model trailers. The Company manufactures all of its motorcoaches at its plant located in Sanford, Florida. Except for electronic equipment, various kitchen and bathroom fixtures and accessories and other purchased items, the Company fabricates all the components for its coaches. When a customer order is received for a motorcoach, a coach shell is ordered by the Company from a manufacturer in accordance with the customer's order specifications. After the shell is received, the Company completes the conversion by finishing the interior of the shell to the layout and design requirements of the customer. All design engineering, plumbing, cabinetry and upholstery required to complete the coach is done by company personnel. The Company purchases its motorcoach shells from one manufacturer, Prevost Car, Inc. of Sainte-Claire, Quebec, Canada, although the Company could purchase certain shells from other manufacturers. The Company does not have any long or short term manufacturing contracts with Prevost. However, the Company provides Prevost with its estimated yearly motorcoach requirements. Once Prevost releases an order to production, Prevost becomes obligated to fill the order and the Company becomes obligated to take delivery of the order. In the event the Prevost was unable to deliver motorcoach shells to the Company, the Company's revenues and profits could be materially and adversely affected. Backlog At December 31, 1996 the Company had unfilled confirmed orders from its customers in the amount of approximately $28 million, including $16 million in motorcoach orders, and $7.2 million, at December 31, 1995. All orders at December 31, 1996 are expected to be filled during 1997. Quality Assurance The Company monitors quality at various points of the manufacturing process. Due to the variety of custom products that the Company builds, employee skill training and individual responsibility for workmanship are emphasized. Inventory specialists assess the overall quality, physical dimensions, and imperfections or damage to the raw materials. Extruded and sheet aluminum which is outside of specified tolerances is rejected and replaced by the vendor. Line foremen train and monitor work cells of employees. Quality control inspectors inspect trailers for quality of workmanship, material quality and conformity of options to order specifications. Government and Industry Regulation The Company and its products are subject to various foreign, federal, state and local laws, rules and regulations. The Company builds its trailers and motorcoaches to standards of the federal Department of Transportation. The Company is a member of the National Association of Trailer Manufacturers ("NATM") and manufactures its trailers to NATM standards. The quality assurance program in the Company's Interiors Division includes being a member of the Recreational Vehicle Industry Association ("RVIA"), which requires plumbing, electrical and gas testing on trailers with living quarters. These tests are recorded before RVIA certification numbers are affixed to trailers. RVIA inspectors periodically check the production facility and work in progress to assure that codes and procedures are met. Infractions can lead to fines or loss of RVIA membership. The Company is also governed by regulations relating to employee safety and working conditions and other activities. A change in any such laws, rules, regulations or standards, or a mandated federal recall by the National Highway Transportation Safety Board, could have a material adverse effect on the Company. Patents and Trademarks The Company has registered FEATHERLITE(R) as a trademark for use in conjunction with trailers in the United States, Canada and Germany. In general, such registrations are effective through the year 2001, with continuous ten-year renewal periods thereafter. The Company has a United States trademark application pending with respect to FEATHERLITE-STL(TM) series. In October 1995, the Company acquired the rights to the DIAMOND D(R) trademark and has registered it as a trademark in the United States and has a trademark application pending in Canada. In 1993, the Company purchased the rights to two design patents, which expire in 1997, relating to the V-nose design of certain of its horse, livestock and snowmobile trailers. The Company believes that the patented designs are useful, but that the expiration of the patents will not have a material effect on the Company. In addition, the Company has filed for certain trailer design and utility patents relating to race car transporters. The Company has a trademark application pending for VANTARE by Featherlite(TM) trade name for use in conjunction with motorcoaches and yachts in the United States. Warranty The Company warrants the workmanship and materials of certain parts of the main frame of its aluminum trailers under a limited warranty for a period of six years and certain parts of other Company trailers as well as other products manufactured by the Company for periods of one to four years. The limited warranty does not include normal wear items, such as brakes, bearings and tires. The Company's warranty obligations are expressly limited to repairs and replacement of parts. Historically, there have been no recalls of the Company's trailers for replacement of major components or parts and the expense of warranty claims for repairs or replacement of parts has been less than 1% of the Company's net sales. The Company warrants for one year the workmanship and materials related to certain parts of the motorcoach conversion. Otherwise, warranties applicable to components purchased from vendors are applicable. The warranty of the manufacturer of the shell generally is for two years. Product Liability Although the Company has never been required to pay any significant amount in a product liability action, as a manufacturing company it is subject to an inherent risk of product liability claims. The Company maintains product liability insurance policies in an amount it believes is adequate, but there is no assurance that its coverage will continue to be available at an acceptable price or be sufficient to protect the Company from adverse financial effects in the event of product liability claims. Employees As of December 31, 1996, the Company had 1127 employees, of whom 1018 are full-time and 19 are part-time as follows: Production and production support - 1022, Sales and Marketing- 60, and Administration - 45. The Company is not a party to any collective bargaining agreement and believes that it has good working relationships with its employees. The Company's success is highly dependent on its senior management, including Conrad D. Clement, President and Chief Executive Officer, and Michael Guth, President of the Vantare Division of Featherlite. The loss of Mr. Clement's or Mr. Guth's services could have a material adverse effect on the Company's business and development. There can be no assurance that an adequate replacement could be found for either individual in the event of his departure. The Company does not carry any key man life insurance on any of its officers or employees. The Company has two separate agreements with Iowa community colleges which provide approximately $620,000 for job training purposes. The amounts are to be repaid, together with interest, over a ten year period from state withholding taxes on employees at the Company's Iowa facilities. The Company may be required to provide funds for the repayment of these training credits if sufficient withholding and unused training funds are not available. Former S Corporation Status From February 1, 1989 to September 27, 1994, the Company was treated for federal income tax purposes as an S corporation under the Internal Revenue Code of 1986, as amended, and was treated on a similar basis for state income tax purposes under comparable state tax laws. As a result, the Company's earnings from such period were, for federal and certain state income tax purposes, taxed directly to the Company's shareholders rather than to the Company. The termination date of the Company's S corporation status occurred upon completion of the Company's initial public offering. The Company historically made distributions to its shareholders in amounts approximately equal to the shareholders' federal and state income tax liabilities arising from the Company's status as an S corporation. The amounts of these cash distributions were $1,795,000 and $305,000 in 1994 and 1995, respectively. The 1995 payment was accrued at December 31, 1994 and represents the final distribution to be made to S corporation shareholders. Cautionary Statements Featherlite desires to take advantage of the new "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Many of the following important factors discussed below have been discussed in Featherlite's prior SEC filings. Featherlite wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, Featherlite's actual results and could cause Featherlite's actual consolidated results for 1996 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Featherlite: o A moderating growth rate in the overall demand or in specific market segment demand, in the US and to some extent Canada, for existing models of aluminum or steel specialty trailers and motorcoaches manufactured by Featherlite and in acceptance by the market of new trailer models and luxury coaches introduced by Featherlite; and general or specific economic conditions, pricing, purchasing, operational, advertising and promotional decisions by intermediaries in the distribution channels, which could affect their supply or end user demand for Featherlite products; o Increased competition from competitors and potential competitors which have greater financial and other resources than Featherlite; and competitors that are better established in segments of Featherlite's business; o Fluctuation in aluminum prices; inability of a major supplier of aluminum extrusion or sheets utilized by Featherlite to deliver raw materials on a timely basis; o Inability of motorcoach shell manufacturer to deliver shells on a timely basis; o The effects of changes within Featherlite's organization, including the loss of the services of key management personnel, including Mr. Conrad Clement, President and Chief Executive Officer and Michael Guth, President of Vantare division of Featherlite; o Continued availability of adequate financing and cash flow from operations to support operations and expansion plans, including the amount, type and cost of financing which Featherlite has and changes to that financing; o Continued pressure to increase the selling prices for Featherlite's products to reduce the impact on margins of increasing aluminum and other materials costs, labor rates and overhead costs related to the expanded production facilities and organization to support expected increases in sales; underutilization of Featherlite's manufacturing facilities, resulting in production inefficiencies and higher costs; o The inability to obtain adequate insurance coverage at an acceptable price or in a sufficient amount to protect Featherlite from the adverse effects of product and other liability claims; o The risks related to being a licensed aircraft dealer which deals in used business aircraft, including the purchase, sales, use and operation of aircraft and the volatility in the sales volume and value of aircraft; o Payments or repurchases by Featherlite related to guarantees of debt or the repurchase of trailers under certain circumstances in connection with dealer and retail product financing arrangements; o The costs and other effects of legal and administrative cases and proceedings (whether civil, such as environmental and product-related, or criminal), settlements and investigations, claims and changes in those items; o A change in foreign, federal, state and local laws, rules and regulations related to Featherlite, its products, or activities. ITEM 2. PROPERTIES The Company's principal sales, marketing and executive offices are located in a 20,000 square foot building owned by the Company near Cresco, Iowa. Adjacent to it is a Company-owned 30,000 square foot parts distribution center and a rework, maintenance and trailer distribution facility, from which substantially all trailer deliveries to dealers are made. The Company has production and warehouse facilities in Cresco, Nashua and Shenandoah, Iowa. The Cresco facilities presently consist of five buildings and include approximately 238,000 square feet including a 140,000 expansion completed in March 1995. Three buildings, totaling approximately 136,000 square feet of Company owned space and 30,000 square feet of leased space, are used for production of trailers and fabrication of components. A 58,000 square foot building is used, pursuant to a lease, for custom interior finishing and a 14,000 square foot building, which the Company owns, is used for storage of raw materials. The Shenandoah facilities include a 117,000 square foot manufacturing facility for steel trailers acquired in October 1995 in connection with the Diamond D acquisition. All of the assets of Diamond D Trailer Manufacturing Inc., including the office and production facilities were purchased for $2.4 million, including the assumption of certain liabilities of $408,000 and the payment of $2.4 million in cash. The consideration paid was based primarily on the book value of the acquired assets on the date of purchase. The Company-owned Nashua facilities include a 51,000 square foot manufacturing plant and an 18,000 square foot plant office building. The Company also owns three buildings in Grand Meadow, Minnesota that were used as the Company's corporate office and rework/distribution center prior to the relocation of these activities to Iowa in 1993. The Company currently is attempting to sell the Grand Meadow facilities which are being leased on a short term basis to offset real estate taxes and other costs of holding the property. In July 1996, the Company acquired office and production facilities and other assets of Vantare International, Inc. in Sanford, Florida. (See Note 11 to financial statement). This facility includes approximately 55,000 square feet of production and office space and is used for the manufacture of luxury motorcoaches. This facility is owned by Seminole County Port Authority and is being leased by the Company under terms of an operating lease. These facilities are in the process of being expanded in 1997 to add 24,000 square feet to the production and office space as well as 6,000 square feet for outside service bays. The outside parking area is also being improved. The Company's profit margins will depend in part on its ability to increase unit sales volume to fully utilize its new facilities and integrate operations efficiently. In the future, the Company may determine to build or acquire existing manufacturing facilities outside of Northeastern Iowa, which would create additional risks to the Company's ability to manage growth. ITEM 3. LEGAL PROCEEDINGS Other than routine immaterial litigation incidental to the Company's business, there are no other legal proceedings pending or, to the Company's knowledge, threatened to which the Company is or may be a party or to which its property is or may be subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the Company: Name of Executive Officer Age Present Position with Company Conrad D. Clement 53 President, Chief Executive Officer and Director Jeffery A. Mason 56 Chief Financial Officer and Director Tracy J. Clement 30 Executive Vice President and Director Gary H. Ihrke 50 Vice President of Operations & Secretary Eric P. Clement 27 Vice President Sales Steven J. Sheldon 46 Vice President of Market Development Larry D. Clement 51 Treasurer The term of office of each executive officer is from one annual meeting of directors until the next annual meeting of directors or until a successor is elected. The business experience of the executive officers during the past five years is as follows: Conrad D. Clement has been the Chairman, President and Chief Executive Officer and a director of the Company since its inception in 1988. From 1969 to 1988, Mr. Clement was the President and principal owner of several farm equipment and agricultural businesses. Mr. Clement is also the President and Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an affiliate of the Company ("Featherlite Credit"). Mr. Clement is the brother of Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement. Jeffery A. Mason has been the Chief Financial Officer and Controller of the Company since August 1989 and has been a director of the Company since June 1993. From 1969 to 1989, Mr. Mason served in various financial management capacities with several companies, including Arthur Andersen & Co. and Carlson Companies. Mr. Mason is a certified public accountant. Tracy J. Clement has been Executive Vice President and a director of the Company since 1988. Prior to 1988, Mr. Clement was a shareholder and manager of several farm equipment and agricultural businesses with his father, Conrad D. Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit. Gary H. Ihrke was appointed Secretary in August 1996 and Vice President of Operations in March 1996 after service as Vice President of Manufacturing since June 1993 and was previously a director of the Company. From January 1989 to June 1993, Mr. Ihrke was the General Manager of the Company's Cresco, Iowa facilities. From 1969 to 1989, he served as general manager and branch manager of an agricultural equipment manufacturing company. Eric P. Clement has been Vice President Sales since March 1996 after service as Vice President of Operations since January 1991 and was previously a director of the Company. Prior to that time, Mr. Clement attended college and worked part time for businesses owned by his father, Conrad D. Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit. Steven J. Sheldon has been Vice President of Market Development since March 1996 after service as Vice President of Sales since June 1993 and was previously a director of the Company. From 1988 to June 1993, he was the national sales manager of the Company. Larry D. Clement has been Treasurer of the Company since 1988 and was previously secretary and a director of the Company. He has also been the owner and President of several auto and truck dealerships since 1971. Mr. Clement is the President and Secretary of Clement Auto & Truck, Inc., a FEATHERLITE(R) dealer. Mr. Clement is the brother of Conrad D. Clement. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is incorporated herein by reference to the sections labeled "Corporate Information" and "Financial Information" which appear in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated herein by reference to "Selected Financial Information" which appears in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is incorporated herein by reference to the section labeled "Management's Discussion and Analysis" which appears in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 is incorporated herein by reference to the consolidated financial statements, notes thereto and Independent Auditors' Report thereon which appear in the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Other than "Executive Officers of the Registrant" which is set forth at the end of Part I of this Form 10-K, the information required by Item 10 is incorporated herein by reference to the section labeled "Election of Directors" which appears in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the section labeled "Executive Compensation" which appears in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the sections labeled "Principal Shareholders" and "Management Shareholdings" which appear in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the section labeled "Certain Transactions" which appears in the Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: (1) Consolidated Financial Statements: Page Report of Independent Auditor * Balance Sheets at December 31, 1996 and 1995 * Statements of Operations for each of the years ended December 31, 1996, 1995 and 1994 * Statements of Cash Flows for each of the years ended December 31, 1996, 1995 and 1994 * Statements of Shareholders' Investment for each of the years ended December 31, 1996, 1995 and 1994 * Notes to Consolidated Financial Statements * (2) Financial Statement Schedules: Report of Independent Auditor Schedule II - Valuation and Qualifying Accounts (3) Exhibits. See Exhibit Index on page following signatures. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. * Incorporated by reference to the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996, a copy of which is included with this Form 10-K as Exhibit 13. MCGLADREY & PULLEN, LLP Certified Public Accountants and Consultants To the Board of Directors Featherlite Mfg., Inc. Cresco, Iowa Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This Schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ McGladrey & Pullen, LLP McGladrey & Pullen, LLP Rochester, Minnesota February 19, 1997 Schedule II - Valuation and Qualifying Accounts (In Thousands)
Additions Balance at Charged To Balance Beginning Costs Charged To at End Description of Period and Expenses Other Accounts Deductions(1) of Period Year ended December 31, 1994: Allowance for doubtful accounts $20 $25 $-- $ (5) $40 Allowance for inventory obsolescence 45 68 -- -- 113 Year ended December 31, 1995: Allowance for doubtful accounts $40 $16 $1 $(16) $41 Allowance for inventory obsolescence 113 -- -- (14) 99 Year ended December 31, 1996: Allowance for doubtful accounts $41 $16 $-- $(16) $41 Allowance for inventory obsolescence 99 101 -- (50) 150
(1) Write off of uncollectible accounts/obsolete inventory SIGNATURES In accordance with 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. FEATHERLITE MFG., INC. By: /s/ Conrad D. Clement Conrad D. Clement Date: March 18, 1997 President and Chief Executive Officer 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. POWER OF ATTORNEY Each person whose signature appears below constitutes CONRAD D. CLEMENT and TRACY J. CLEMENT his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Signature Title Date /s/ Conrad D. Clement President, Chief Executive March 18, 1997 Conrad D. Clement Officer and Director (Principal Executive Officer) /s/ Jeffery A. Mason Chief Financial Officer and March 18, 1997 Jeffery A. Mason Director (Principal Financial and Accounting Officer) /s/ Tracy J. Clement Executive Vice President and March 18, 1997 Tracy J. Clement Director /s/ Donald R. Brattain Director March 18, 1997 Donald R. Brattain /s/ Thomas J. Winkel Director March 18, 1997 Thomas J. Winkel /s/ Kenneth D. Larson Director March 18, 1997 Kenneth D. Larson /s/ John H. Thomson Director March 18, 1997 John H. Thomson SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBIT INDEX TO FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1996 FEATHERLITE MFG., INC. EXHIBIT NUMBER DESCRIPTION 2.1 Agreement between Diamond D Trailer Manufacturing Inc. and Featherlite Mfg., Inc. dated September 30, 1995 - incorporated by reference to Exhibit 10.21 of the Company's Form 10-K for the fiscal year ended December 31, 1995* 2.2 Agreement and Plan of Reorganization dated July 1, 1996, among the Registrant, Vantare International, Inc., and Michael Guth -- incorporated by reference to Exhibit 2 to the Company's Form 8-K filing dated July 1, 1996* 2.3 Amendment to agreement and Plan of Reorganization between Registrant, Vantare International, Inc. and Michael Guth dated December 30, 1996 3.1 The Company's Articles of Incorporation, as amended -- incorporated by reference to Exhibit 3.1 to Company's S-1 Registration Statement, Reg. No. 33-82564* 3.2 The Company's Bylaws, as amended--incorporated by reference to Exhibit 3.2 to Company's S-1 Registration Statement, Reg. No. 33-82564* 4.1 Specimen Form of the Company's Common Stock Certificate -- incorporated by reference to Exhibit 4.1 to Company's S-1 Registration Statement, Reg. No. 33-82564* 10.2** 1994 Stock Option Plan, including Form of Incentive Stock Option Agreement--incorporated by reference to Exhibit 10.2 to Company's S-1 Registration Statement, Reg. No. 33-82564* 10.10 Industrial New Jobs Training Agreement between the Company and Northeast Iowa Community College--incorporated by reference to Exhibit 10.10 to Company's S-1 Registration Statement, Reg. No. 33- 82564* 10.11 Industrial New Jobs Training Agreement between the Company and Hawkeye Institute of Technology--incorporated by reference to Exhibit 10.11 to Company's S-1 Registration Statement, Reg. No. 33-82564* 10.12 Inventory Repurchase Agreement, dated September 12, 1990, between the Company and NationsCredit Commercial Corporation (formerly Chrysler First Commercial Corporation Limited)--incorporated by reference to Exhibit 10.12 to Company's S-1 Registration Statement, Reg. No. 33-82564* 10.13 Floorplan Agreement, dated March 27, 1992, between the Company and ITT Commercial Finance Corp.--incorporated by reference to Exhibit 10.13 to Company's S-1 Registration Statement, Reg. No. 33- 82564* 10.15 Agreement, effective January 1, 1995, between the Company and Polaris Industries, L.P.--incorporated by reference to Company's Form 10- K for the fiscal year ended December 31, 1994 * 10.16 Inventory Repurchase Agreement, dated February 27, 1995, between Featherlite Mfg., Inc. and TransAmerica Commercial Finance Corporation --incorporated by reference to Company's Form 10-K for the fiscal year ended December 31, 1995* 10.17 Agreement between Featherlite Mfg., Inc. and Featherlite Credit Corporation--incorporated by reference to Company's 10-Q for the quarter ended March 31, 1996* 10.19 Agreement dated August 1, 1996 between the Company and Dolton Aluminum--incorporated by reference to Company's 10-Q for the quarter ended September 30, 1996.* 10.20 Agreement dated August 1, 1996 between the Company and Alumax Extrusions Inc.--incorporated by reference to the Company's 10-Q for the quarter ended September 30, 1996* 10.21 Amended and restated Credit and Security Agreement dated December 30, 1996 between Featherlite Mfg., Inc. and Firstar Bank 10.22 Agreement for wholesale financing dated October 3, 1996 between Deutsche Financial Services and Featherlite Mfg., Inc. 10.23** Amendment to 1994 Stock Option Plan dated May 14, 1996 10.24*** Agreement dated August 26, 1996 between the Company and Reynolds Aluminum 10.25*** Agreement dated September 13, 1996 between the Company and Samuel Whittar Inc. 10.26*** Agreement dated November 27, 1996 between the Company and Dolton Aluminum 10.27*** Agreement dated November 27, 1996 between the Company and Alumax Transportation Products 13 Portions of annual report to shareholders for the fiscal year ended December 31, 1996 incorporated as reference in this Form 10-K 21 Subsidiaries of the Company: State of Name Incorporation Featherlite Aviation Company Minnesota 23 Consent of Independent Auditors 24 Powers of Attorney of directors--included under the "Signatures" section of this Form 10-K 27 Financial Data Schedule (filed in electronic format only) * Incorporated by reference to a previously filed document or report (File #0-24804, unless otherwise indicated). ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. *** Portions of this documents have been omitted pursuant to a request for confidential treatment. EX-10.21 2 AMENDED & RESTATED CREDIT & SECURITY AGMT Exhibit 10.21 AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT This Amended and Restated Credit and Security Agreement dated as of November 30, 1996 (the "Restated Agreement") is by and between the following identified parties: Featherlite Mfg., Inc., a corporation duly organized and validly existing under the laws of the State of Minnesota, with its principal place of business at Highway 63 & 9, Cresco, Iowa 52136 ("Borrower"); Conrad Clement, Larry Clement, Kathy Clement, residents of Iowa, and Tracy Clement and Nancy Clement, residents of Minnesota (each a "Guarantor" and collectively the "Guarantors"); and Firstar Bank Iowa, N.A., a national banking institution ("Bank"), (successor in interest through merger of Firstar Bank Cedar Rapids, N.A.); RECITALS A. Borrower, Guarantors and the predecessor to Bank entered into a Credit and Security Agreement dated July 19, 1991 (the "Credit Agreement"). A First Amendment to Credit and Security Agreement was entered into by the parties on November 14, 1991; a Second Amendment to Credit and Security Agreement was entered into by the parties on July 20, 1992; a Third Amendment to Credit and Security Agreement was entered into by the parties on February 5, 1993; a Fourth Amendment to Credit and Security Agreement was entered into by the parties on August 20, 1993; a Fifth Amendment to Credit and Security Agreement was entered into by the parties on December 17, 1993; a Sixth Amendment to Credit and Security Agreement was entered into by the parties on July 20, 1994; a Seventh Amendment to Credit and Security Agreement was entered into by the parties on December 1, 1994; an Eighth Amendment to Credit and Security Agreement was entered into by the parties on July 20, 1995; a Ninth Amendment to Credit and Security Agreement was entered into by the parties on September 30, 1995; and a Tenth Amendment to Credit and Security Agreement was entered into by the parties on January 11, 1996. This Restated Agreement supersedes and replaces the Credit Agreement, as amended. B. Guarantors own stock of the Borrower and each Guarantor individually perceives substantial business advantage from the transaction outlined herein, including those transactions from which the individual Guarantors will not receive any direct economic benefit. C. Borrower and Guarantors have requested that Bank renew the $12,000,000 Revolving Line of Credit and amend certain terms and conditions. Guarantors have requested that their guarantees be released if Borrower achieves certain targets by June 30, 1997. D. Bank is willing to grant the requests subject to the terms of this Restated Agreement. - 1 - Therefore, the parties agree that the Credit Agreement, as amended by the First through Tenth Amendments, is amended and restated in its entirety as follows: 1. DEFINITIONS AND ACCOUNTING. As used in this Restated Agreement, and unless otherwise expressly indicated, or unless the context clearly requires otherwise, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined: "Accounts Receivable and Loan Reconciliation Certificate" means a certificate in substantially the form of Exhibit A, attached hereto, which will contain a loan covenant compliance calculation certified by an executive officer of the Borrower. "Accounts Payable" means trade payables under GAAP. "Bank" means Firstar Bank Iowa, N.A., a national banking institution. "Borrower" means Featherlite Mfg., Inc., a Minnesota corporation. "Borrowing Base" means an amount equal to the sum of 80 percent of Eligible Receivables of Borrower outstanding from time to time applicable thereto plus 65 percent of the Eligible Inventory of Borrower as Bank shall deem acceptable. Such Borrowing Base shall be determined by submission of a monthly Accounts Receivable and Loan Reconciliation Certificate by the end of each month, accurate to the first of such month. "Business Day" means a day other than a Saturday, Sunday or a day on which commercial banks are authorized or permitted to close in Cedar Rapids. "Collateral" shall have the meaning of the collateral described Section 3. "Customer" means a party indebted or obligated to Borrower or a party against which Borrower has a claim on a Receivable. "Eligible Inventory" means inventory valued at the lower of cost or market value on a "first in - first out" basis which is acceptable to Bank, in its sole discretion, and excludes inventory that is slow moving or obsolete (as determined by the Bank in its sole discretion), or on display, or on consignment. "Eligible Receivable" means a Receivable which is acceptable to Bank in its sole discretion, but at least is continuously in compliance with all of the following: (1) The Receivable is an account which arose in the ordinary course of the business of Borrower from or in connection with a bonafide sale of goods or rendition of services, performed in accordance with an order or contract, oral or written, wherein all obligations of Borrower regarding the shipment or delivery of such goods to Customer have been satisfied or the services have been performed for Customer or which are Receivables in accordance with GAAP; - 2 - (2) The rights of a Borrower in and to the Receivable and the proceeds thereof are not subject to any assignment, claim, lien, security interest, or other encumbrance; (3) The Receivable is not disputed nor subject to offset, credit allowance, contra account or adjustment by Customer, except discounts for prompt payment disclosed to Bank; (4) The Receivable has been due and payable for less than ninety (90) days from the invoice date; (5) The Customer is not a governmental agency, foreign company or controlled by, in control of, or under common control with, the Borrower. "Environmental Law" means any federal, state or local environmental statute, regulation, ordinance, law or decree presently in effect or that may be promulgated in the future, as such statutes, regulations, and ordinances may be amended from time to time, including without limitation, the Comprehensive Environmental Response Compensation Liability Act, as amended, 42 U.S.C. ss.9601 et seq., ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss.6901 ("RCRA"), and the common law. "Event of Default" means each and every event specified in Section 12 of this Restated Agreement. "GAAP" means generally accepted accounting principles consistently applied. "Guarantors" mean Conrad Clement, Larry Clement, Kathy Clement, Tracy Clement and Nancy Clement (each a "Guarantor"). "Guaranty" means a guaranty given by a Guarantor pursuant to Section 4 of this Restated Agreement and substantially in the form attached as Exhibit B. "Hazardous Substance" means any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous or toxic substance, or infectious material, substance or waste, or other similar term, by any Environmental Law or including, without limitation, asbestos, petroleum products, mining wastes, fly ash and agricultural chemical products. "Interest and Charges" means interest, charges, expenses and other items incurred by the Bank under the Loan Documents which are chargeable to the Borrower and which shall be billed directly to the Borrower. "Loan" means all loans from Bank to Borrower including all revolving credit facilities and all term facilities. "Notes" means all notes executed by Borrower in favor of Bank including but not limited to the Revolving Line of Credit Promissory Note and all term notes. - 3 - "Obligations" means any and all indebtedness, obligations, and liabilities of Borrower to Bank of every kind and description, direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising, regardless of how the same arise or by what instrument, agreement, or book account they may be evidenced, or whether evidenced by any instrument, agreement, or book account, including, without limitation: all loans (including any loan by renewal or extension); all indebtedness, all undertakings to take or refrain from taking any action; all indebtedness, liabilities or obligations owing from Borrower to others which Bank may have obtained by purchase, negotiation, discount, assignment, or otherwise; and all interest, taxes, fees, charges, expenses, and attorney's fees chargeable to Borrower or incurred by Bank under this Restated Agreement or in any other document or instrument delivered hereunder or as a supplement hereto. "Operating Cash Flow" means net income plus income taxes, interest expense, depreciation, amortization, and other non-cash items, adjusted to eliminate extraordinary items and adjusted on a consistent basis to reflect increases or decreases that result from acquisition sales, or exchanges of property and gains/losses on the sale of property. "Person" means an individual, a corporation, a voluntary association, a partnership, a trust, a limited liability company, an unincorporated organization or a governmental agency, instrumentality or political subdivision thereof. "Receivable" means all accounts and general intangibles, each as defined in the Uniform Commercial Code, of Borrower, constituting any right to the payment of money, including (but not limited to) all monies due and to become due to the Borrower in respect of any loans or advances for Inventory or Equipment or other goods sold by Borrower and all tax refunds. "Revolving Line of Credit" means the credit referred to in Section 5. "Revolving Line of Credit Borrowing Limit" means an amount equal to the lesser of: (1) $12,000,000 (2) the Borrowing Base. "Revolving Line of Credit Promissory Note" means the promissory note, in substantially the form of Exhibit C attached, to be delivered by Borrower to the Bank. "Revolving Line of Credit Termination Date" means the maturity date on the Revolving Line of Credit Promissory Note as it may be extended, amended or renewed from time to time at the sole discretion of Bank, or earlier accelerated upon the occurrence of an Event of Default or otherwise as provided herein. "Revolving Loans" means the credit referred to in Section 5. "Subsidiary" means, with respect to any Person (the "Parent"), any corporation or other business organization of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the - 4 - Board of Directors or comparable positions (irrespective of whether or not at the time any other class or classes of such stock or ownership interests of such corporation or other business organization shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Parent or one or more of the Subsidiaries of the Parent. "Tangible Net Worth" means the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with GAAP, excluding, however, from the determination of total assets, (i) all assets which would be classified as intangible assets under GAAP, including, without limitation, organization fees and expenses, goodwill, patents, trademarks, trade names, copyrights, and franchises, and (ii) all indebtedness to Borrower from any shareholder, director, officer or employee of Borrower or from any relative of such party (but net of any corresponding, offsetting indebtedness from Borrower to such individual). "Term Loans" means the credits referred to in Section 6. "Term Notes" means the notes evidencing the Term Loans. "Total Debt Service" means, during any period, all interest on and principal due of, all indebtedness which is due and payable during such period. "Total Expenditures" means all cash expenses (including debt service) and capital expenditures actually made. 2. REPRESENTATIONS AND WARRANTIES. As a material inducement to Bank to make loans to the Borrower under this Restated Agreement, Borrower represents and warrants to Bank, and such representations and warranties shall survive during the term of this Restated Agreement and so long thereafter as any Obligations shall remain outstanding, as follows: a. Corporate Standing and Power: The Borrower has been duly incorporated and organized and is existing as a corporation in good standing under the laws of Minnesota and is duly qualified and in good standing as a foreign corporation in those jurisdictions where the conduct of its business or the ownership of its properties requires qualification. The Borrower has the power and authority to own its properties and assets, to conduct its business, to enter into and perform this Restated Agreement, and any other document or instrument delivered in connection herewith, and to incur the Obligations. b. Trade Names, Business Changes: Except as may be set forth on Exhibit D attached, Borrower has utilized no trade names in the conduct of its business; has not changed its name, been the surviving entity in a merger, acquired any business, or changed the location of their chief place of business or chief executive office or the location of their records or the location of any of the Collateral. - 5 - c. No Defaults: Borrower is not in default with respect to any agreement to which it is a party or by which it is bound. The execution and performance of this Restated Agreement and any other document or instrument to be delivered hereunder or as a supplement hereto will not violate any law or the terms of the incorporation documents or bylaws of Borrower, nor will it violate or result in a default or in the creation or imposition of any lien or encumbrance upon any of the assets of Borrower (immediately, with the passage of time, or with the giving of notice and the passage of time) under any other contract, agreement or instrument to which Borrower is a party or by which Borrower is bound, nor will it result in the acceleration of any obligation under any mortgage, lien, lease, franchise, license, permit, agreement, instrument, order, arbitration award, judgment, or decree, or in the termination of any license, franchise, lease, or permit, to which Borrower is a party or by which it is bound; and it will not violate or conflict with any other restriction of any kind or character to which Borrower is subject. d. Authorization, Binding Effect: This Restated Agreement and any document or instrument to be delivered hereunder or as a supplement hereto and the transaction contemplated hereby or thereby have been duly authorized and/or executed and delivered, as appropriate, and constitute valid and legally binding obligations of the Borrower and are enforceable against the Borrower in accordance with their respective terms. e. No Claims: There is no claim, loss contingency, litigation, or proceeding whether or not pending, threatened, or imminent against or otherwise affecting the Borrower which involves the possibility of any judgment or liability not fully covered by insurance or which may result in a material adverse change in the business, properties, or condition, financial or otherwise, of the Borrower. f. Properties: The Borrower is the owner of its properties, free and clear of all security interests, encumbrances, or liens, except real estate or special improvement assessment liens which arise by operation of law with respect to obligations of the Borrower which are not yet due and payable and except such liens as may be listed in Exhibit E attached hereto; Borrower will defend its properties against all claims and demands of all persons at any time claiming an interest therein. Inventory is and shall at all times be of good and merchantable quality, free from all defects, encumbrances and liens except the lien granted to the Bank hereunder. g. Financial Statements: The financial statements of the Borrower for the fiscal year ended December 31, 1995 furnished to Bank by Borrower are complete and accurate representations of the financial condition of Borrower as of the respective dates thereof, and have been prepared in accordance with GAAP. Since the December 31, 1995 financial statements, there has been no material adverse change in the financial condition of Borrower and there has been no transaction other than in the ordinary course of the business of Borrower, except for the purchase of the Vantare assets in Florida. The financial statements furnished to Bank by the Guarantors are complete and accurate representations of the financial condition of the Guarantors as of their respective dates. h. Offices: The address of the chief executive office and chief place of business of Borrower is Highway 63 & 9, Cresco, Iowa 52136. All records pertaining to the Inventory and Receivables (including computer records) are kept at Borrower's chief place of business. - 6 - i. Taxes: The Borrower and Guarantors have filed all federal, state, and local tax returns and other reports they are required to file and have paid or made adequate provision for payment of all such taxes, assessments, and other governmental charges. j. Compliance: To the best of its knowledge after due inquiry, the Borrower has complied with all applicable statutes, regulations, ordinances, court decrees, or other directives of the United States of America, and all states, counties, municipalities, and agencies with respect to the manufacture and sale of its goods, the rendition of its services, and/or the conduct of its business. k. Consents, Approvals: No consent or approval of any person, no waiver of any lien or other similar right, and no consent, license, approval, authorization, or declaration of any governmental authority, bureau, or agency is or will be required in connection with the execution, delivery, performance, validity or enforcement or priority of this Restated Agreement or any other agreement, instrument or document to be executed or delivered in connection herewith. l. GAAP: Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and reports as to financial matters required to be delivered hereunder shall be prepared, in accordance with GAAP. m. Use of Property. None of the property of any Borrower has been used as a Hazardous Substance disposal site, as a landfill or as a dump. n. Hazardous Substances. To the best of its knowledge after due inquiry, no Hazard Substance or toxic substance has been stored, used, or disposed of on any property in which Borrower holds a real estate interest except as listed on the Hazardous Substance Certificate attached as Exhibit F. o. Subsidiaries. Borrower has only one Subsidiary; Featherlite Aviation Company. p. Federal Reserve Regulations. Borrower does not own any margin stock or intend to carry or purchase any margin stock or security within the meaning of Regulation U or the Securities Exchange Act of 1934, as amended. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. None of the transactions contemplated by this Restated Agreement including, without limitation, the use of proceeds of any loan advance, will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations pursuant thereto, including, without limitation, Regulations G, U or X of the Board of Governors of Federal Reserve System, as amended. None of the proceeds of any loan will be used to carry or purchase (or refinance any borrowing the proceeds of which were used to purchase or carry) any margin stock or any security within the meaning of the Securities Exchange Act of 1934, as amended. - 7 - q. Free Disclosure. This Restated Agreement and the other documents or instruments to be delivered hereunder or as a supplement hereto do not contain any known untrue statement of a material fact or omits to state a known material fact necessary in order to make the statements contained therein not misleading. There is no known material fact (other than general economic conditions or facts or information available to the public generally) that has not been disclosed in writing to the Bank that materially adversely affects, or as far as the Borrower can now reasonably foresee, may materially adversely affect, the business, operations, prospects, properties or assets of the Borrower or any Guarantor, or the ability of the Borrower or any Guarantor to perform its/their obligations under any document. 3. COLLATERAL. As security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, Borrower pledges and grants to Bank a security interest in the following property, whether now owned by Borrower or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): a. Receivables: All accounts and general intangibles (each as defined in the Uniform Commercial Code) of Borrower constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Borrower in respect of any loans or advances for Inventory or Equipment or other goods sold by Borrower and all tax refunds (collectively "Receivables"); b. Instruments: All instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Receivables, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (collectively "Instruments"), c. Inventory: All inventory (as defined in the Uniform Commercial Code) of Borrower, including all goods obtained by Borrower in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled herewith or added thereto (collectively "Inventory"); d. General Intangibles: All licenses, franchises, patents, trademarks, copyrights, trade names, goodwill and any and all items of Borrower which would be classified as general intangibles under the Uniform Commercial Code (collectively "General Intangibles"). e. Equipment: All equipment (as defined in the Uniform Commercial Code) of Borrower, including (but not limited to) all furniture, fixtures, trade fixtures, displays, counters, cash registers, motor vehicles, trucks and trailers (collectively "Equipment"); f. Contracts: Each contract and other agreement relating to the sale or other disposition of Inventory or Equipment; - 8 - g. Documents: All documents of title (as defined in the Uniform Commercial Code) or other receipts covering, evidencing or representing Inventory or Equipment (collectively "Documents"); h. Real Estate: All real estate in which the Borrower has an ownership interest (except homestead property) and all of the Borrower's right, title and interest in and to the buildings, improvements, ways, streets, alleys, passages, rights of way, waters, water courses, rights, liberties, privileges, tenements, hereditaments, and appurtenances now or hereafter hereunto appertaining to said real estate together with the rents, issues and profits thereof and the proceeds of the conversion therefore (collectively "Real Estate"); i. Fixtures: All fixtures (as defined in the Uniform Commercial Code) of the Borrower (collectively "Fixtures"). The security interest from Borrower to Bank in the Real Estate and Fixtures will, at the request of the Bank, in addition to other documentation which may be requested by Bank, be evidenced by Mortgage and Security Agreements, in a form requested by the Bank. j. Claims: All rights, claims and benefits of Borrower against any person arising out of, relating to or in connection with Inventory or Equipment purchased by Borrower, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; and, k. Leaseholds: All leasehold interests in real estate leases to which the Borrower is a party. The security interest from Borrower to Bank in the leasehold interest of Borrower will, in addition to the additions to the documents which may be requested by Bank, be evidenced by a collateral assignment of real estate leases. l. Proceeds: All proceeds, products and accessions of and to any of the property described in clauses (a) through (k) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and to the extent related to any property described in said clauses or in this clause, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of Borrower or any computer bureau or service company from time to time acting for Borrower. 4. GUARANTORS. Banks have required the participation of the Guarantors as a precondition to the availability of the credit arrangements established herein. The Guarantors, by their executions hereof, acknowledge that the obligations of the Borrower hereunder are enforceable in accordance with their terms, that such are obligations of the Guarantors under the personal guarantees and that the guarantees are in full force and effect, without amendment or defense of any description. Banks agree to release the guarantees if Borrower is in compliance with all loan and financial covenants and has a year to date actual cash flow to debt service ratio of 1.5:1 as of June 30, 1997. - 9 - 5. REVOLVING LINE OF CREDIT LOAN AND PAYMENT PROVISIONS. The Bank establishes the Revolving Line of Credit for the benefit of the Borrower for the purpose of supplying working capital as may reasonably be required from time to time by the Borrower. The Line of Credit is extended pursuant to the following provisions: a. Borrowing. Subject to the terms and conditions of this Restated Agreement, the Bank shall, in its sole discretion, make loans (each a "Revolving Loan") to the Borrower in such amounts as the Borrower may from time to time require in increments of at least $50,000 and at such intervals as the Bank may from time to time determine, provided that the aggregate principal amount of Revolving Loans outstanding hereunder, together with the principal amount of such Revolving Loan requested, shall not exceed the Borrowing Limit. (1) Oral Requests. Revolving Loan requests may be either written or oral, including a request made by telephone. In the case of an oral request, the Bank is authorized to make such requested advance and to rely upon the authority of the person making the request, unless the Borrower directs the Bank, in writing, not to honor oral requests except from certain identified persons. The authority of the person requesting the advance shall be conclusively deemed authorized by the Borrower. Oral requests must be received by the Bank prior to noon on the day of the requested advance. (2) Deposit of Loan Advances. All Revolving Loan advances shall be credited to an account of the Borrower at the Bank. (b) Promissory Note: The Borrower shall execute and deliver to the Bank the Revolving Line of Credit Promissory Note with this Restated Agreement. The Revolving Line of Credit Promissory Note, together with this Restated Agreement and other documents referred to herein, shall evidence the Borrower's indebtedness to the Bank in respect of the Revolving Loans and the Term Notes and the other documents referred to herein shall evidence the Borrower's indebtedness to the Bank in respect of the Term Loans. (c) Interest: In accordance with the Revolving Line of Credit Promissory Note, the Borrower shall pay interest to the Bank upon the outstanding daily principal balance of the Loan Account, which interest shall be computed at the close of each day, on the basis of actual days elapsed in the year of 360 days, at the interest rate specified in the Revolving Line of Credit Promissory Note. Until the Revolving Line of Credit Termination Date, such interest shall be paid monthly in arrears, commencing on the first day of the next succeeding month following the month in which this Restated Agreement is executed, and continuing on the first day of each successive month thereafter. At the Revolving Line of Credit Termination Date, all sums due hereunder shall be due and payable. All payments shall be made to the Bank on or before the required due dates in immediately available funds. (d) Debits: The Bank shall enter as debits to the Loan Account all loans and/or advances made pursuant to the Loan Documents, and Interest and Charges in accordance with the Loan Documents. The Bank shall enter as credits to the Loan Account all payments - 10 - made by the Borrower on account of indebtedness evidenced by the Loan Account, all net proceeds of Collateral which are finally paid to Bank in cash or solvent credits, and other appropriate credits. The debit balance of the Loan Account shall reflect the amount of indebtedness of the Borrower to the Bank from time to time by reason of loans and other appropriate charges under this Restated Agreement. (e) Line of Credit Account Imbalance: If at any time that portion of the debit balance of the Loan Account allocable to the Revolving Line of Credit Promissory Note exceeds the Borrowing Limit, at the option of the Bank, the Borrower shall (i) pledge, assign, and transfer to the Bank such additional collateral as the Bank shall request or (ii) pay cash to the Bank to be credited against the Revolving Line of Credit Promissory Note, in an amount sufficient to eliminate the excess. (f) Repayment: The Borrower promises to pay the debit balances of the Loan Account and accrued Interest and Charges to the Bank in accordance with the terms of the Notes and the other Loan Documents. (g) Application of Credits: All payments and/or proceeds of Collateral received by the Bank shall be applied to the payment of Interest and Charges, if any, to principal on the Revolving Line of Credit Promissory Note or any Term Loans in the Bank's discretion. The Borrower authorizes the Bank to charge the Interest and Charges to the Loan Account or to any deposit account maintained by the Borrower with the Bank. (h) Determination of Balances: The records of the Bank shall be prima facie evidence as to the amounts of advances, outstanding principal balance, and accrued Interest and Charges. 6. CONFIRMATION OF TERM LOANS AND PAYMENT PROVISIONS. a. Borrower is obligated to pay Bank under various agreements and notes (each a "Term Note") identified as: (i) a term loan in the original principal amount of $300,000 pursuant to a note dated February 2, 1993, maturing on July 1, 2008, payable to Firstar; (ii) a term loan in the original principal amount of $1,835,000 pursuant to a note dated July 20, 1994, maturing on July 20,1999, payable to Firstar; and (iii) a term loan in the original principal amount of $1,400,000 pursuant to a note dated September 30, 1995, maturing on September 20, 1999, payable to Firstar. b. Borrower and Guarantors acknowledge and agree that the notes referred to in Section 6(a) are Obligations of Borrower to the Bank and are cross-collateralized by the Collateral, and in the event of default under the terms of any Obligation of the Borrower or any obligation of any Guarantor, that such a default shall be deemed a default under any or all of - 11 - the Borrower's Obligations and under any or all of the obligations of Guarantors at the option of the Bank. 7. REPAYMENT TERMS. Interest and charges shall be paid to the Bank in accordance with the terms of this Restated Agreement, the notes and other loan documents. If any term of this Restated Agreement is in conflict with a term in any note regarding payment of principal, interest, fees or charges, the term of the applicable note shall apply. All payments shall be made timely in immediately available funds. The Bank shall account for loan advances and payments in accordance with its standard practices. The records of the Bank shall be prime face evidence as to the amount of advances, outstanding principal balances, and accrued interest and charges. Bank may make recourse against any security in any order or grouping it desires and apply the proceeds to any of Borrower' Obligations in its sole discretion. All payments by the Borrower shall be made without setoff, counterclaim or deduction of any kind. Payments received by Bank after 3:00 p.m. on any Business Day shall be deemed to be received on the next succeeding Business Day for the purpose of calculation of interest. 8. CONDITIONS PRECEDENT TO INITIAL AND SUBSEQUENT LOANS. Borrower shall satisfy each of the following conditions prior to the making of the initial loan and/or each subsequent loan by Bank hereunder, as follows: A. Initial Loan. (1) All of the representations and warranties of Borrower set forth in Section 2 hereof shall be true and correct as of the date of the initial loan. (2) Borrower shall be in full compliance with the terms and conditions hereof and no Event of Default shall have occurred and be continuing. (3) Borrower shall have delivered to Bank, all in form and substance satisfactory to Bank: a. A duly executed Accounts Receivable and Loan Reconciliation Certificate to be delivered and dated as of the date of the initial loan; b. A certificate of the Secretary or other like officer of Borrower containing copies of resolutions of the Board of Directors and, if applicable, Stockholders of Borrower authorizing the execution, delivery and performance of this Restated Agreement, any document or instrument to be delivered pursuant hereto or in connection herewith and the transactions contemplated herein and therein, and identifying the officer or officers authorized to execute this Restated Agreement and such other documents and to make requests for Loans hereunder; c. A certificate of reasonably recent date of the Secretary of State of the State of Iowa and a certificate of the Secretary of State of each state in which Borrower is - 12 - qualified to do business as a foreign corporation, certifying that Borrower is in good standing in each such jurisdiction; d. Financing statements necessary to perfect the security interest of Bank in the Collateral; e. Releases of all other security interests in the equipment of Borrower; f. Revolving Line of Credit Promissory Note; g. Execution and delivery of mortgage on property in Shenadoah, Iowa; h. Delivery of all original notes receivables from officers and employees; i. Delivery of an opinion letter of counsel for Borrower regarding authority, enforceability of documents and priority of liens; j. Evidence of all required insurance being in place; k. Such other documents or instruments as Bank shall reasonably request. B. Subsequent Loans and/or Advances. (1) All of the representations and warranties of Borrower set forth in Section 2 hereof shall be true and correct as of the date of each subsequent loan and/or advance. (2) Borrower shall be in full compliance with the terms and conditions hereof and no Event of Default shall have occurred and be continuing. (3) Borrower may request the making of any subsequent Revolving Loan, which amount in addition to the then outstanding balance of Revolving Loans shall not exceed the Borrowing Limit. Borrower's request may be either written or oral, including a request made by telephone. If an oral request, Bank is authorized to make such requested Loan and rely upon the authority of the person making the request, unless Borrower directs the Bank, in writing, not to honor a Loan request except from certain identified persons. The authority of the person requesting the Loan shall be conclusively deemed authorized by Borrower. Loan advances shall be credited to an account of the Borrower at the Bank. (4) Borrower shall have delivered to Bank, all in form and substance satisfactory to Bank, any documents or instruments as Bank shall request. - 13 - 9. NEGATIVE COVENANTS. Borrower and Guarantors agree that during the term of this Restated Agreement and so long thereafter as any Obligations remain outstanding, they will not, nor will they allow any subsidiary to, without the prior written consent of Bank: a. Corporate Changes: Enter into any merger or consolidation or effect any reorganization or recapitalization or create or fund any Subsidiary. b. Liens: Mortgage, pledge, grant or permit to exist a security interest in, or lien or encumbrance upon, any of their assets or property, real or personal, tangible or intangible, now owned or hereafter acquired in excess of $3,000,000 except: (i) liens in favor of Bank, (ii) liens arising by operation of law with respect to obligations of Borrower not yet due and payable; (iii) liens for aircraft financing obtained by a subsidiary; and (iv) $3,500,000 in floor plan financing for the Vantare division. c. Third Party Liabilities: Assume, endorse, guarantee, or otherwise become liable for or upon the obligations of any person, partnership, corporation or other entity (other than endorsements for deposit in the ordinary course of business) in excess of $7,500,000. d. Borrower Liabilities: Incur, create, assume, or permit to exist any indebtedness or liability for borrowed money in excess of $3,000,000 except: (i) indebtedness to Bank; (ii) financing for aircraft purchases by a subsidiary; and (iii) $3,500,000 in floor plan financing for Vantare division. e. Stock, Dividends: Redeem, purchase, or retire any of the capital stock of Borrower or declare or pay any dividends (other than stock dividends), or make any other payment or distribution upon any of the capital stock of Borrower. f. Investments: Make any investment in, or make any loan or advance to, any person, partnership, or corporation, including officers, stockholders, or directors of Borrower. g. Securities: Purchase of or otherwise invest in or hold securities, nonoperating real estate, or other non-operating assets, except direct obligations of the United States of America or certificates of deposit or equivalent securities issued by Bank. h. Disposal of Assets: Enter into any sale-leaseback transaction, or sell, lease, transfer, or otherwise dispose of all or any substantial portion of its assets, except that Borrower may sell inventory in the ordinary course of business, except a sale and lease back of the Vantare expansion project. i. Regulation U: Directly or indirectly use or apply all or any portion of the proceeds of any loans made hereunder to purchase or carry any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder, as amended. - 14 - j. Change in Business: Make or permit any substantial change in, or cease in whole or in part, the present business of Borrower, or engage in any other activities apart from its present business. k. Transfer of Inventory: Authorize, cause or permit the issuance or execution of any negotiable warehouse receipt or bill of lading representing any right, title, or interest in and to any Inventory, unless same are forthwith turned over to Bank so that Bank shall continue to have a perfected security interest in such inventory. l. Ownership: Make any change for any reason whatsoever in the majority ownership, or control of Borrower without the prior written consent of Bank. m. Payments on Indebtedness: Borrower will not make any payments in respect of principal or interest on any of its indebtedness to any Person (other than payments made on indebtedness required or permitted hereunder) prior to the stated maturity or other due date thereof or the scheduled payment date of any principal installment in respect of any of its indebtedness, except that Borrower may make (i) early payments on trade accounts in order to receive trade discounts offered in the ordinary course of business, and (ii) such other early payments for which the Bank gives their prior written consent. Borrower will not modify or enter into any agreement as a result of which the terms of payment or any such indebtedness to any Person are waived or modified, except that the Borrower may enter into refinancing of existing indebtedness if no more than $50,000 in additional liability is incurred by the Borrower. n. Amendment to Certificate of Incorporation: Borrower will not amend its certificate of incorporation, articles of incorporation or bylaws if any such amendment alone or in conjunction with any other amendment or amendments would have a material adverse affect on the ability of Borrower or the Guarantors to discharge their obligations to the Bank or on the ability of the Bank to collect, realize upon, or enforce payment of any obligation of any Borrower or any Guarantor to the Bank. Borrower shall furnish to the Bank a copy of any amendment to the certificate of incorporation, articles of incorporation or bylaws. o. Transactions with Affiliates: Borrower will not (nor will it permit any Subsidiary to) enter into or permit to remain in effect or outstanding any transaction (including, without limitation, the purchase, sale, lease or exchange of property, the rendering of any service, or the making of any loan or advance) with or to any affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the business of Borrower or such Subsidiary and such affiliate and upon terms found by the Board of Directors of the Borrower to be fair and reasonable and no less favorable to the Borrower or any such subsidiary than it would obtain in a comparable arms-length transaction with a person not affiliated or related or connected to the Borrower or any such Subsidiary. p. Aircraft Investment. Allow a subsidiary to incur or maintain any investment in aircraft in excess of $7,000,000. - 15 - 10. AFFIRMATIVE COVENANTS. Borrower and Guarantors covenant and agree with Bank that they will, during the term of this Restated Agreement and so long thereafter as any Obligations remain outstanding. a. Submissions to Bank: Furnish Bank: (1) Within 90 days after the last day of each fiscal year of Borrower, a balance sheet and related statements of income, retained earnings, and changes in financial position, each prepared in reasonable detail and in accordance with GAAP audited by an independent certified public accountant satisfactory to Bank and bearing an unqualified Opinion; (2) Within 30 days after the end of each month (except the last month of each fiscal year for which the time shall be 60 days), of each fiscal year of Borrower, a balance sheet as of the end of such month and statements of income and retained earnings for the period from the beginning of the fiscal year to the end of such month; (3) Within thirty days after the end of each calendar month, an Accounts Receivable and Loan Reconciliation Certificate; (4) A balance sheet and other statement of financial position as to each Guarantor, which statement shall be in form and substance satisfactory to Bank within sixty days after the last day of Borrower's fiscal year; (5) All public filings with the Securities & Exchange Commission and all shareholders communications at the same time they are filed or mailed; and (6) Promptly, and in form satisfactory to Bank, such other information as Bank may reasonably request from time to time. b. Insurance: Maintain casualty insurance coverage on its physical assets and other insurance against other risks, including public liability and product liability insurance in such amounts and of such types and, in any event, not less than as are ordinarily carried by similar businesses. In the case of all policies insuring property in which Bank shall have a security interest of any kind whatsoever, all such insurance policies shall provide that the proceeds thereof shall be payable to Borrower and Bank, as their respective interests may appear. All said policies or certificates thereof, including all endorsements thereof and those required hereunder, shall be deposited with Bank; and such policies shall contain provisions that no such insurance may be canceled or decreased without thirty (30) days prior written notice to Bank. In the event of acquisition of additional property, real or personal, or of incurrence of additional risks of any nature, Borrower shall cause such insurance coverage to be increased or amended in such manner and to such extent as prudent business judgment would dictate. If Borrower shall at any time or times hereafter fail to obtain and maintain any of the policies of insurance required herein, or fail to pay any premium in whole or in part relating to any such policies, Bank may, but shall not be obligated to, obtain and/or cause to be maintained insurance - 16 - coverage with respect to the assets of Borrower, including, at Bank's option, the coverage provided by all or any of the policies of Borrower and pay all or any part of the premium thereunder, without waiving any Event of Default by Borrower, and any sums disbursed by Bank shall be additional Obligations of Borrower to Bank payable on demand. Bank shall have the right to settle and compromise any and all claims under any of the policies required to be maintained by Borrower hereunder; to demand, receive, and receipt for all monies payable thereunder; and to execute in the name of Borrower or Bank or both any proof of loss, notice, or other instruments in connection with such policies or any loss thereunder. c. Collateral: Maintain Collateral which is tangible property in good condition and repair, defend at Borrower expense all Collateral from all adverse claims and shall not use any of the Collateral for any illegal purpose. d. Examinations: Permit Bank, through its authorized attorneys, accountants, and representatives, to examine the Inventory and the books, accounts, records, ledgers, and assets of every kind and description of Borrower at all reasonable times. e. Notice of Defaults: Promptly notify Bank of any condition or event which constitutes, or would constitute with the passage of time or giving of notice or both, a default under this Restated Agreement, and promptly inform Bank of any events or changes in the Business, properties, or condition, financial or otherwise, of Borrower, which individually or cumulatively when viewed in light of prior financial statements, may result in a material adverse change in the financial condition of Borrower. f. Corporate Status: Maintain in good standing its corporate existence in the State of Iowa and its status as a foreign corporation qualified to do business in those jurisdictions where it is required to be qualified. g. Accounts: Maintain their principal checking and business accounts at Bank and use Bank as their principal depository. h. ERISA: If Borrower shall now or hereafter maintain an employee benefit plan covered by 4021(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), relating to plan termination insurance, it shall: (1) furnish Bank a copy of each annual report, together with any schedules or other attachments thereto, required to be filed with the Secretary of Labor or any other governmental official pursuant to ERISA; (2) furnish Bank a copy of any notice of a reportable event required to be furnished to the Pension Benefit Guaranty Corporation (PBGC) or other governmental agency; (3) notify Bank of the filing of a notice with PBGC pursuant to 4041 of ERISA that the plan is to be terminated; and - 17 - (4) notify Bank of the institution of any proceedings by the PBGC under 4042 of ERISA promptly after the filing of such reports or notices or institution of such proceedings. i. Corporate Changes: Notify Bank not less than 30 days prior to (i) the change of its name or use of any trade names or (ii) any change in the address of the chief executive office and/or chief place of business of Borrower, the location of any records pertaining to the Receivables, and the address where any Inventory is or may be stored. j. Receivables: Promptly notify Bank of any disputes which shall arise in connection with a Receivable or if a Receivable is not paid when due, or if any petition in bankruptcy or under any other insolvency act for the relief of debtors with respect to a Customer is filed, or if a Customer makes an assignment for the benefit of creditors, becomes insolvent, ceases to carry on its business, or if a Borrower has notice of any facts or circumstances which could reasonably be expected to have a material adverse effect upon the ability of Customer to pay the Receivable. k. Confirmation: Upon the creation of a Receivable, or at such other intervals as Bank may hereafter determine, Borrower shall provide Bank, at its request, with confirmatory assignment schedules; copies of all invoices relating to the Receivable; evidence of shipment or delivery of Inventory; and such further information and/or schedules as Bank may reasonably require, all in a form satisfactory to Bank. l. Books and Records: Keep complete and accurate books and records with respect to the business of the Borrower and the Collateral consistent with good business practice including current stock, cost, and sales records of Inventory, accurately itemizing and describing the kinds, types, and quantities of Inventory, and the cost and selling price thereof. m. Instruments: At any time and from time to time upon request of Bank, execute and deliver to Bank, in form and substance satisfactory to Bank, negotiable promissory notes for any or all of the Obligations and/or such documents in respect of the Obligations as Bank shall deem necessary or desirable to evidence the Obligations or perfect or maintain perfected the security interest of Bank in the Collateral or which may be necessary to comply with the provisions of the law of the State of Iowa or the law of any other jurisdiction in which Borrower may then be conducting business or in which any of the Collateral may be located. n. Subsidiaries: Without limitation of any provision of this Restated Agreement which prohibits any person from becoming a subsidiary, forthwith upon any Person becoming a Subsidiary of any of the Borrower after the date hereof, such Borrower will cause such Person (1) to become a co-maker by executing and delivery to the Bank of such documents as the Bank may require, (2) to secure said Obligation with a first lien upon the types of Collateral described in Section 3. owned by the Subsidiary. - 18 - (3) to deliver to Bank executed filings of financing statements necessary to perfect said security interest, and, (4) to provide Bank with such other documents or instruments as Bank shall reasonably request, including obligating itself to all of the terms and conditions of this Restated Agreement. o. Compliance with Environmental Laws. Borrower will comply and cause each Subsidiary to comply with all applicable environmental, hazardous waste or substance, toxic substance and underground storage laws and regulations and will obtain any permits, licenses, or buildings, improvements, fixtures, equipment or property required by reason of any applicable environmental, hazardous waste or substance, toxic substance or underground storage laws or regulations. Borrower shall exercise due diligence in determining the applicability of the above laws and regulations and shall take the necessary steps to comply with such laws and regulations within a reasonable period of time after discovering any violations of such laws and statutes. p. Strategic Plans. Within sixty days after its fiscal year, Borrower will provide Bank annually a three-year business and financial plan which includes financial projections and capital expenditure budgets. 11. FINANCIAL COVENANTS OF BORROWER. So long as the Obligations shall remain unpaid or the Bank shall have any commitment under this Restated Agreement, Borrower will maintain the following: a. Minimum Working Capital: Maintain at all times an excess of current assets over current liabilities of not less than $8,000,000. b. Minimum Tangible Net Worth: Maintain at all times a Tangible Net Worth of not less than $16,500,000. c. Capital Expenditures: Refrain from making expenditures for fixed or capital assets which would cause the aggregate of all such expenditures made by Borrower to exceed $1,500,000 for fiscal 1996 or $2,000,000 during any subsequent fiscal year. d. Current Ratio: Maintain at all times a ratio of current assets to current liabilities of not less than 1.5 to 1. e. Leverage Ratio: Maintain at all times a ratio of total liabilities to Tangible Net Worth of not greater than 2.25 to 1 until March 31, 1997, and thereafter not greater than 2.0 to 1. f. Cash Flow/Debt: Beginning on December 31, 1996, maintain a ratio measured quarterly on a year to date actual basis, of Operating Cash Flow to Total Debt Service of not less than 1.25 to 1. As of June 30, 1997, maintain a ratio of 1.5 to 1 measured the same way. - 19 - As of September 30, 1997, and quarterly thereafter, maintain a ratio of 1.5 to 1 measured on a trailing four-quarter average basis. 12. EVENTS OF DEFAULT AND ACCELERATION. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder (each an "Event of Default"): a. Payments: Default in the payment of any principal, interest, or other charges in respect of any of the Obligations as and when due; or default in payment of any principal, interest or other charges by any Guarantor with respect to any of their obligations. b. Covenants: Default in the observance or performance of any covenant or agreement of any Borrower or Guarantor herein set forth or set forth in any agreement, note, or instrument heretofore, now or hereafter executed by Borrower or Guarantor in favor of Bank; c. Representations: If any representation, warranty, certificate, schedule, or other information made or furnished by any Borrower or Guarantor herein or pursuant hereto is or shall be untrue or misleading in any material respect; d. Third Party Obligations: Default in the performance of any material obligation of Borrower or Guarantor to any third party in excess of $250,000; e. Losses: Loss, theft, damage, or destruction of any substantial portion of the property of Borrower for which there is either no insurance coverage or for which, in the opinion of Bank, there is insufficient insurance coverage, or the making of any levy, seizure, or attachment upon the Collateral or upon any substantial portion of other property of Borrower by any third party; f. Insolvency: Insolvency of any Borrower or Guarantor or if a creditors committee is appointed for the business of any Borrower or Guarantor; or if any Borrower or Guarantor makes an assignment for the benefit of creditors, or is adjudicated bankrupt, or if a petition in bankruptcy or for reorganization or to effect a plan of arrangement with creditors is filed by or against any Borrower or Guarantor; or if any Borrower or Guarantor applies for or permits the appointment of a receiver or trustee for any of its property or assets, or if any such receiver or trustee is appointed for any of its property or assets; or if any of the above actions or proceedings whatsoever are commenced by or against any Borrower or any Guarantor of or any other party liable for any of the obligations; g. Dissolution: If a proceeding is filed or commenced by or against Borrower for its dissolution or liquidation; or if Borrower voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; h. Prohibition on Business: If Borrower is permanently enjoined, restrained, or in any way prevented by court order from conducting all or any material part of its business affairs; or - 20 - i. Termination of Guaranty: Termination for any reason of any guaranty of, or contract of surety for, the Obligations, or termination of any subordination agreement for the benefit of Banks. If any Event of Default shall occur, then or at any time thereafter, while such Event of Default shall continue, Bank may declare all Obligations to be due and payable, without notice, protest, presentment, or demand, all of which are hereby expressly waived by the Borrower. 13. RIGHTS AND REMEDIES. Bank shall have, by way of example and not of limitation, the rights and remedies set forth in Section 13 at all times prior to and/or after the occurrences of an Event of Default and shall have all of the rights and remedies enumerated herein after the occurrence of an Event of Default; a. Attorney in Fact: Without limiting any rights or powers granted by this Restated Agreement to the Bank while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Bank is hereby appointed the attorney-in-fact of the Borrower for the purpose of carrying out the provisions of this Restated Agreement and taking any action and executing any instruments which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Bank shall be entitled under this Restated Agreement to make collections in respect of the Collateral, the Bank shall have the right and power to receive, endorse, and collect all checks made payable to the order of the Borrower representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. b. Premises: Bank shall have the right to enter and/or remain upon the premises of any Borrower without any obligation to pay rent to such Borrower or others, or any other place or places where any of the Collateral is located and kept and: (i) remove Collateral therefrom to the premises of Bank or any agent of Bank, for such time as Bank may desire, in order to maintain, collect, sell and/or liquidate the Collateral or; (ii) use such premises, together with materials, supplies, books and records of Borrower, to maintain possession and/or the condition of the Collateral, and to prepare the Collateral for sale, liquidation, or collection. Bank may require Borrower to assemble the Collateral and make it available to Bank at a place to be designated by Bank which is reasonably convenient to both parties. c. Setoff: Bank shall have a right to set-off, without notice to the Borrower, any and all deposits or other sums at any time or times credited by or due from Bank to any of the Borrower, whether in a special account or other account or represented by a certificate of deposit (whether or not matured), which deposits and other sums shall at all times constitute additional security for the Obligations and may be set-off at any time against all or any part of the Obligations on which any of the Borrower is an obliger whether or not they are then due and whether other security held by Bank is deemed by it to be adequate. - 21 - d. Uniform Commercial Code Rights: Bank shall have, in addition to any other rights and remedies contained in this Restated Agreement, the Notes and any other agreements, guarantees, notes, instruments, and documents heretofore, now, or at any time or times hereafter executed by any of the Borrower and delivered to Bank, all of the rights and remedies of a secured party under the Uniform Commercial Code in force in the State of Iowa as of the date of this Restated Agreement, all of which rights and remedies shall be cumulative, and nonexclusive, to the extent permitted by law. e. Notice of Sale: Any notice required to be given by Bank of a sale or other disposition or other intended action by Bank with respect to any of the Collateral, or otherwise, made in accordance with the terms of this Restated Agreement at least fourteen (14) days prior to such proposed action, shall constitute fair and reasonable notice to Borrower of any such action. The net proceeds realized by Bank upon any such sale or other disposition, after deduction of the expenses of retaking, holding, preparing for sale, selling, or the like and reasonable attorneys' fees and other expenses incurred by Bank, shall be applied toward satisfaction of the Obligations hereunder. Bank shall account to Borrower for any surplus realized upon such sale or other disposition and the Borrower shall remain liable for any deficiency. The commencement of any action, legal or equitable, shall not affect the security interest of Bank in the Collateral until the Obligations hereunder or any judgment therefor are fully paid. f. Appointment: The Borrower hereby irrevocably appoints Bank its true and lawful attorney, with full power of substitution, in Bank's name or otherwise, for Bank's sole use and benefit, but at Borrower cost and expense, to exercise, if Bank shall elect after an event of default has occurred (whether or not Bank then elects to exercise any other of its rights arising upon default), all or any of the following powers with respect to all or any Accounts which are Collateral: 1. To execute on Borrower's behalf assignments of any or all Accounts which are Collateral to Bank, and to notify account debtors thereunder to make payments directly to Bank; 2. To demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due upon or by virtue thereof; 3. To receive, take, endorse, assign and deliver any and all checks, notes, drafts, documents and other negotiable and non-negotiable instruments and chattel paper taken or received by Bank in connection therewith; 4. To settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto; 5. To sell, transfer, assign or otherwise deal in or with the same or the proceeds thereof or the relative goods, as fully and effectually as if Bank were the absolute owner thereof; and - 22 - 6. To extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto. Any funds collected pursuant to such powers shall be applied to the payment of the Obligations. The exercise by Bank of, or failure to so exercise, any of the foregoing authority, shall in no manner affect Borrower's liability to Bank on any of the Obligations. Bank shall be under no obligation or duty to exercise any of the powers hereby conferred upon it and it shall be without liability for any act or failure to act in connection with the collection of or the preservation of any rights under such accounts. Bank shall not be bound to take any steps necessary to preserve rights in any instrument or chattel paper against prior parties. 14. TERM OF AGREEMENT. The term of this Restated Agreement shall commence on the Date of Agreement and shall continue in full force and effect until all Obligations shall have been fully paid and satisfied. No termination shall affect in any way the duties of the Borrower hereunder or the security interest of Bank in the Collateral so long as any Obligations are outstanding; and, notwithstanding such termination, Borrower shall continue to assign Receivables to Bank and turn over all collections to Bank as herein provided, and Bank shall retain the security interest, lien and rights granted to it hereunder until all the Obligations are paid in full and satisfied. 15. GENERAL PROVISIONS. a. No Waiver: The failure of Bank at any time or times hereafter to require strict performance by any Borrower of any of the provisions, warranties, terms, and conditions in this Restated Agreement or in any other agreement, guaranty, note, instrument, or document now or at any time or times hereafter executed by such Borrower and delivered to Bank shall not waive, affect, or diminish any right of Bank at any time or times hereafter to demand strict performance thereof. No rights of Bank hereunder shall be deemed to have been waived by any act or knowledge of Bank, its agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer of Bank. No waiver by Bank of any of its rights shall operate as a waiver of any other of its rights or any of its rights on a future occasion. b. Notice: Any demand or notice required or permitted to be given hereunder shall be deemed effective when deposited in the United States mail, addressed to Bank at Bank or to Borrower at the address shown in 2(h), or to such other address as may be provided in writing prior to the giving of such notice by the party to be notified. c. Entire Understanding: This Restated Agreement contains the entire understanding between the parties hereto with respect to the transactions contemplated herein and such understanding shall not be modified except in writing signed by or on behalf of the parties hereto. This Restated Agreement supersedes and replaces the 1991 Credit Agreement and all amendments thereto but does not in any way impair any previously executed promissory notes which are still outstanding nor discontinue or impair any previously granted Collateral. - 23 - d. Invalidity: Wherever possible, each provision of this Restated Agreement shall be interpreted in such manner as to be effective and valid under applicable law. Should any portion of this Restated Agreement be declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Restated Agreement, and the entirety of this Restated Agreement shall continue in full force and effect in all other jurisdictions and said remaining portions of this Restated Agreement shall continue in full force and effect in the subject jurisdiction as if this Restated Agreement had been executed with the invalid portions thereof deleted. e. Waiver of Bond: If Bank seeks to take possession of any or all of the Collateral by court process, the Borrower hereby irrevocably waive any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession, and waives any demand for possession prior to the commencement of any suit or action to recover with respect thereto. f. Successors and Assigns: The provisions of this Restated Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of Bank and the Borrower; provided, however, the Borrower may not assign any of their rights or delegate any of their obligations hereunder without the prior written consent of Bank. g. Choice of Law, Forum: This Restated Agreement is and shall be deemed to be a contract entered into and made pursuant to the laws of the State of Iowa and shall in all respects be governed, construed, applied, and enforced in accordance with the laws of said state and any action to enforce, construe, invalidate or modify this Restated Agreement shall be brought in a court of competent jurisdiction in Linn County, Iowa. Borrower waives the right to demand a trial by jury in any action hereunder. h. Fees: If, prior hereto and/or at any time or times hereafter, Bank shall employ counsel in connection with the execution and consummation of the transactions contemplated by this Restated Agreement or to commence, defend or intervene, file a petition, complaint, answer, motion or other pleadings, or to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) relating to this Restated Agreement, the Collateral, or any other agreement, guaranty, note, instrument, or document heretofore, now or at any time or times hereafter executed by any Borrower and delivered to Bank, or to protect, collect, lease, sell, take possession of or liquidate any of the Collateral, or to attempt to enforce or to enforce any security interest in any of the Collateral, or to enforce any rights of Bank hereunder, whether before or after the occurrence of any Event of Default, or to collect any of the Obligations, then in any of such events, all of the reasonable attorneys' fees arising from such services, and any expenses, costs and charges relating thereto, shall be part of the Obligations, payable on demand and secured by the Collateral. i. Counterparts: This Restated Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. j. References: Each reference herein to Bank shall be deemed to include its successors and assigns, and each reference to the Borrower and any pronouns referring thereto - 24 - as used herein shall be construed in the masculine, feminine, neuter, singular or plural, as the context may require, and shall be deemed to include the legal representatives, successors and assigns of the Borrower, all of whom shall be bound by the provisions hereof. k. Joint and Several: The term "Borrower" as used herein shall, if this Restated Agreement is signed by more than one borrower, means unless this Restated Agreement otherwise provides or unless the context otherwise requires, the "Borrower and each of them" and each and every representation, promise, agreement and undertaking shall be joint and several except that the granting of the security interest, right of set-off and lien, shall be by each Borrower in its respective properties. If there is more than one Borrower, any loan or advance hereunder shall be deemed to be made at the request of and for the benefit of each Borrower (since Borrower are affiliates and/or their respective businesses are closely integrated and interrelated). l. Headings: The section headings herein are included for convenience only and shall not be deemed to be a part of this Restated Agreement. m. Participations: Bank may, at its option, sell participations in or assign all or part of the Revolving Line of Credit or the Term Loans to another Bank or other entity. Bank may furnish any information concerning Borrower or any subsidiary of Borrower in the possession of Bank from time to time to such assignee or participant. Borrower shall not assign any rights or obligations hereunder without the prior written consent of Bank. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AMENDMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN AGREEMENT (EXCEPT THE CREDIT AGREEMENT AS PREVIOUSLY AMENDED AND DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT AS PREVIOUSLY AMENDED) MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT. FEATHERLITE MFG., INC. BY:/s/ Conrad Clement Conrad Clement, President BY:/s/ Tracy J. Clement Tracy J. Clement, Executive Vice President /s/ Conrad Clement Conrad Clement, individually (Signatures continue) - 25 - /s/ Larry Clement Larry Clement, individually /s/ Kathy Clement Kathy Clement, individually /s/ Tracy Clement Tracy Clement, individually /s/ Nancy Clement Nancy Clement, individually FIRSTAR BANK IOWA, N.A. BY:/s/ Mitch McElree Mitch McElree, Vice President - 26 - Exhibit A Accounts Receivable and Loan Reconciliation Certificate Exhibit B Guaranty Exhibit C Revolving Line of Credit Promissory Note Exhibit D Trade Names, Business Changes Exhibit E Liens Exhibit F Hazardous Substance Certificate - 27 - EXHIBIT "A" a. Receivables. All accounts and general intangibles (each as defined in the UCC) of the Borrower constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Borrower in connection with any loans or advances or for inventory or equipment or other goods sold by the Borrower and all tax refunds (collectively, "Receivables"); b. Instruments. All instruments, chattel paper or letters of credit (each as defined in the UCC) evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Receivables, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (collectively, "Instruments"); c. Inventory. All inventory (as defined in the UCC) of the Borrowers, including all goods obtained by the Borrower in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled therewith or added thereto (collectively, "Inventory"); d. General Intangibles. All franchises, patents, trademarks, goodwill and any and all items of the Borrower which would be classified as general intangibles under the UCC (collectively, "General Intangibles"). e. Documents. All documents of title (as defined in the UCC) or other receipts covering, evidencing or representing Inventory or Equipment (collectively, "Documents"); f. Real Estate and Fixtures. All Borrower's right, title and interest in and to the buildings, improvements, ways, streets, alleys, passages, rights of way, waters, water courses, rights, liberties, privileges, tenements, hereditaments, and appurtenances now or hereafter hereunto appertaining to (Describe Real Estate) (collectively, "Real Estate and Fixtures") (as defined in the UCC). The building is known as the Featherlite Rework and Delivery Building. See attached Exhibit F; h. Claims. All rights, claims and benefits of the Borrower against any Person arising out of, relating to or in connection with Inventory purchased by the Borrower, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; j. Proceeds. All proceeds, products and accessions of and to any of the property described in clauses (a) through (i) above in this section (including, without limitation, any proceeds of insurance thereon), and to the extent related to any property described in said clauses or in this clause all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Borrower or any computer bureau or service company from time to time acting for the Borrower. - 28 - And as additional collateral, all additions to and replacements of the collateral, and all accessories, accessions, parts and equipment now or hereafter affixed thereto or used in connection therewith and the proceeds and products from all such collateral. - 29 - EX-10.22 3 AGREEMENT FOR WHOLESALE FINANCING Exhibit 10.22 AGREEMENT FOR WHOLESALE FINANCING This Agreement for Wholesale Financing ("Agreement") is made as of October 31, 1996 between Deutsche Financial Services Corporation ("DFS") and Featherlite Mfg., Inc., a Minnesota corporation ("Dealer"), having a principal place of business located at Highways 63 & 9, Cresco, Iowa 52136 . 1. New Vantare Inventory Credit Facility. Subject to the terms of this Agreement, DFS may extend credit to Dealer for the purpose of financing completed motor coaches manufactured by Dealer's Vantare Division, located in Sanford, Florida ("Wholesale Facility"). The Wholesale Facility will be subject to the following terms: 1.1 Eligible Inventory/Advance Rates. Subject to the maximum amount of the Wholesale Facility, DFS will finance completed motor coaches manufactured by Dealer's Vantare Division in an amount not to exceed the lesser of: (1) $500,000 per completed unit, or (2) the sum of (a) eighty percent (80%) of the manufacturers invoice price (including freight) of the chassis, PLUS (b) sixty percent (60%) of the remainder of (i) the actual cost of manufacture of said motor coach as reflected on Dealer's invoice for such unit, LESS (ii) the manufacturer's invoice price (including freight) for the chassis. 1.2 Inspection/Documentation. Prior to funding a completed unit, Dealer will provide an invoice for the completed unit containing details of all equipment and options. Upon receipt of the invoice, DFS will arrange a physical inspection of the completed unit to verify completion. The manufacturer's statement of origin for both the chassis and the completed unit must be delivered to DFS prior to funding to be retained until funding of the retail sale of the unit. Upon funding, DFS may remit the portion of the advance allocated to the cost of the chassis directly to the manufacturer of the chassis. DFS must have a first perfected security interest in each motor coach financed and all proceeds thereof. 1.3 Curtailments. A curtailment payment of five percent (5%) of the original principal balance for each completed unit will be due and payable on the 90th and 180th day after the date the unit was financed. The completed unit will be due and payable in full 365 days after the date the completed unit was originally financed. 2. Used Inventory Credit Facility. Subject to the terms of this Agreement, DFS agrees to extend credit to Dealer for the purpose of financing used recreational vehicles ("Used Inventory Facility"). The term "used recreational vehicles" is defined as recreational vehicles which have been registered or titled in any state with the appropriate state authorities in accordance with applicable state law ("Used Vehicles"). Subject to the - 1 - limitations contained in this Section 2, Used Vehicles may consist of used motor coaches that were manufactured by or bear the trademark or tradename of Dealer's Vantare Division or its predecessor, Vantare International, Inc. ("Vantare"). As provided below, the terms for financing for Used Vehicles consisting of Vantare units may have different financing terms. The Used Inventory Facility will be subject to the following terms: 2.1. Qualifying Units. Used Vehicles for which Dealer may request a loan must be the current model year or no more than seven model years prior to the current model year, in good physical and mechanical condition, and subject to DFS' approval. 2.2 Advance. DFS, in its sole discretion, may loan to Dealer an amount up to (1) Eighty percent (80%) of the Base NADA average trade-in value, excluding the value of any added accessories, of Used Vehicles other than Vantare Used Vehicles; and (2) the applicable percentage of the original wholesale cost of Used Vehicles consisting of Vantare Used Vehicles in accordance with the schedule identified below, excluding the value of any added accessories: Number of Years Prior to Applicable Percentage of Current Model Year Original Wholesale Cost 1 85% 2 72% 3 62% 4 52% 5 42% 6 35% 7 28% 2.3 Curtailment Payments. Dealer will pay DFS ten percent (10%) of the principal amount of DFS' advance to Dealer for each Used Vehicle on the ninetieth (90th) and one hundred eightieth (180th) day following the date the Used Vehicle is financed. The balance of the amount financed will be due in full on the 270th day after the Used Vehicle is financed. 2.4 Financing Period. DFS' financing to Dealer shall be on terms not to exceed a two hundred seventy (270) day maturity, provided, however, that the full amount of the loan balance will be due in full immediately upon the sale, transfer, rent, lease or other disposition of the Used Vehicle or upon the loss, theft or damage of the Used Vehicle. 2.5 Financing Procedures. Dealer represents that all Used Vehicles to be financed by DFS are free and clear of all liens and encumbrances. Dealer will forward to DFS a copy of the bill of sale, title showing the transfer of title by the previous owner to Dealer and all other documentation evidencing the acquisition of the Used Vehicle by Dealer. Dealer will provide to DFS a written request for financing of each Used Vehicle, with such supporting information as DFS may - 2 - request, in form and substance satisfactory to DFS. Upon DFS' receipt of such documents and if approved by DFS, DFS will forward the loan amount to Dealer. 3. Financing Terms and Statements of Transaction. Upon agreeing to finance a particular item of inventory for Dealer, DFS will send Dealer a Statement of Transaction identifying such inventory and the applicable financial terms. Unless Dealer notifies DFS in writing of any objection within fifteen (15) days after a Statement of Transaction is mailed to Dealer: (a) the amount shown on such Statement of Transaction will be an account stated; (b) Dealer will have agreed to all rates, charges and other terms shown on such Statement of Transaction; (c) Dealer will have agreed that DFS is financing the items of inventory referenced in such Statement of Transaction at Dealer's request; and (d) such Statement of Transaction will be incorporated herein by reference, will be made a part hereof as if originally set forth herein, and will constitute an addendum hereto. If Dealer objects to the terms of any Statement of Transaction, Dealer agrees to pay DFS for such inventory in accordance with the most recent terms for similar inventory to which Dealer has not objected (or, if there are no prior terms, at the lesser of 16% per annum or at the maximum lawful contract rate of interest permitted under applicable law), but Dealer acknowledges that DFS may then elect to terminate Dealer's financing program pursuant to Section 19, and cease making additional advances to Dealer. However, such termination will not accelerate the maturities of advances previously made, unless Dealer shall otherwise be in default of this Agreement. 4. Grant of Security Interest. To secure payment of all of Dealer's current and future debts to DFS, whether under this Agreement or any current or future guaranty or other agreement, Dealer grants DFS a security interest in all of Dealer's inventory, equipment, fixtures, accounts, contract rights, chattel paper, security agreements, instruments, deposit accounts, reserves, documents, and general intangibles; and all judgments, claims, insurance policies, and payments owed or made to Dealer thereon; all whether now owned or hereafter acquired, all attachments, accessories, accessions, returns, repossessions, exchanges, substitutions and replacements thereto, and all proceeds thereof. All such assets are collectively referred to herein as the "Collateral". All of such terms for which meanings are provided in the Uniform Commercial Code of the applicable state are used herein with such meanings. All Collateral financed by DFS, and all proceeds thereof, will be held in trust by Dealer for DFS, with such proceeds being payable in accordance with Section 10. 5. Affirmative Warranties and Representation. Dealer warrants and represents to DFS that: (a) Dealer has good title to all Collateral; (b) DFS' security interest in the Collateral financed by DFS is not now and will not become subordinate to the security interest, lien, encumbrance or claim of any person; (c) Dealer will execute all documents DFS requests to perfect and maintain DFS' security interest in the Collateral; (d) Dealer will deliver to DFS immediately upon each request, and DFS may retain, each Certificate of Title or Statement of Origin issued for Collateral financed by DFS; (e) Dealer will at all times be duly organized, existing, in good standing, qualified and licensed to do business in each state, county, or parish, in which the nature of its business or property so requires; (f) Dealer has the right and is duly authorized to enter into this Agreement; (g) Dealer's execution of this Agreement does not constitute a breach of any agreement to - 3 - which Dealer is now or hereafter becomes bound; (h) there are and will be no actions or proceedings pending or threatened against Dealer which might result in any material adverse change in Dealer's financial or business condition or which might in any way adversely affect any of Dealer's assets; (i) Dealer will maintain the Collateral in good condition and repair; (j) Dealer has duly filed and will duly file all tax returns required by law; (k) Dealer has paid and will pay when due all taxes, levies, assessments and governmental charges of any nature; (1) Dealer will keep and maintain all of its books and records pertaining to the Collateral at its principal place of business designated in this Agreement; (m) Dealer will promptly supply DFS with such information concerning it or any guarantor as DFS hereafter may reasonably request; (n) all Collateral will be kept at Dealer's place of business of its Vantare Division at 1550 Dolgner Place, Sanford, Florida 32771, and with respect to such other locations, if any, of which Dealer has notified DFS in writing or as listed on any current or future Exhibit "A" attached hereto which written notice(s) to DFS and Exhibit A(s) are incorporated herein by reference; (o) Dealer will give DFS thirty (30) days prior written notice of any change in Dealer's identity, name, form of business organization, ownership, management, principal place of business, Collateral locations or other business locations, and before moving any books and records to any other location; (p) Dealer will observe and perform all matters required by any lease, license, concession or franchise forming part of the Collateral in order to maintain all the rights of DFS thereunder; (q) Dealer will advise DFS of the commencement of material legal proceedings against Dealer or any guarantor; and (r) Dealer will comply with all applicable laws and will conduct its business in a manner which preserves and protects the Collateral and the earnings and incomes thereof. 6. Negative Covenants. Dealer will not at any time (without DFS' prior written consent): (a) other than in the ordinary course of its business, sell, lease or otherwise dispose of or transfer any of its assets; (b) rent, lease, demonstrate, consign, or use any Collateral financed by DFS; or (c) merge or consolidate with another entity. 7. Insurance. Dealer will immediately notify DFS of any loss, theft or damage to any Collateral. Dealer will keep the Collateral insured for its full insurable value under an "all risk" property insurance policy with a company acceptable to DFS, naming DFS as a lender loss-payee or mortgagee and containing standard lender's loss payable and termination provisions. Dealer will provide DFS with written evidence of such property insurance coverage and lender's loss-payee or mortgagee endorsement. 8. Financial Statements. Dealer will deliver to DFS: (a) within ninety (90) days after the end of each of Dealer's fiscal years, a reasonably detailed balance sheet as of the last day of such fiscal year and a reasonably detailed income statement covering Dealer's operations for such fiscal year, in a form satisfactory to DFS; (b) within forty-five (45) days after the end of each of Dealer's fiscal quarters, a reasonably detailed balance sheet as of the last day of such quarter and an income statement covering Dealer's operations for such quarter, in a form satisfactory to DFS; and (c) within ten (10) days after request therefor by DFS, any other report requested by DFS relating to the Collateral or the financial condition of Dealer. Dealer warrants and represents to DFS that all financial statements and information relating to Dealer or any guarantor which have been or may hereafter be delivered by Dealer or any guarantor are true and correct and have been and - 4 - will be prepared in accordance with generally accepted accounting principles consistently applied and, with respect to such previously delivered statements or information, there has been no material adverse change in the financial or business condition of Dealer or any guarantor since the submission to DFS, either as of the date of delivery, or, if different, the date specified therein, and Dealer acknowledges DFS' reliance thereon. 9. Reviews. Dealer grants DFS an irrevocable license to enter Dealer's business locations during normal business hours without notice to Dealer to: (a) account for and inspect all Collateral; (b) verify Dealer's compliance with this Agreement; and (c) examine and copy Dealer's books and records related to the Collateral. Dealer may temporarily maintain up to two (2) motor coaches financed by DFS, whether new motor coaches or Used Vehicles, as demonstration units at locations other than Dealer's place of business in Sanford, Florida. If DFS conducts an inspection of Dealer's Collateral, Dealer must identify the locations where the demonstration units are located and such units must be returned to the Sanford, Florida location within forty-five (45) days of the inspection (subject to verification of return by DFS). 10. Payment Terms. Dealer will immediately pay DFS the principal indebtedness owed DFS on each item of Collateral financed by DFS (as shown on the Statement of Transaction identifying such Collateral) on the earliest occurrence of any of the following events: (a) when such Collateral is lost, stolen or damaged; (b) for Collateral financed under Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction identifying such Collateral), when such Collateral is sold, transferred, rented, leased, otherwise disposed of or matured; (c) in strict accordance with any curtailment schedule for such Collateral (as shown on the Statement of Transaction identifying such Collateral); (d) for Collateral financed under Scheduled Payment Program ("SPP") terms (as shown on the Statement of Transaction identifying such Collateral), in strict accordance with the installment payment schedule; and (e) when otherwise required under the terms of any financing program agreed to in writing by the parties. Regardless of the SPP terms pertaining to any Collateral financed by DFS, if DFS determines that the current outstanding debt which Dealer owes to DFS exceeds the aggregate wholesale invoice price of such Collateral in Dealer's possession, Dealer will immediately upon demand pay DFS the difference between such outstanding debt and the aggregate wholesale invoice price of such Collateral. If Dealer from time to time is required to make immediate payment to DFS of any past due obligation discovered during any Collateral audit, or at any other time, Dealer agrees that acceptance of such payment by DFS shall not be construed to have waived or amended the terms of its financing program. The proceeds of any Collateral received by Dealer will be held by Dealer in trust for DFS' benefit, for application as provided in this Agreement. Dealer will send all payments to DFS' branch office(s) responsible for Dealer's account. DFS may apply: (i) payments to reduce finance charges first and then principal, regardless of Dealer's instructions; and (ii) principal payments to the oldest (earliest) invoice for Collateral financed by DFS, but, in any event, all principal payments will first be applied to such Collateral which is sold, lost, stolen, damaged, rented, leased, or otherwise disposed of or unaccounted for. Any third party discount, rebate, bonus or credit granted to Dealer for any Collateral will not reduce the debt Dealer owes DFS until DFS has received payment therefor in cash. Dealer will: (1) pay DFS even if any Collateral is defective or fails to conform to any - 5 - warranties extended by any third party; (2) not assert against DFS any claim or defense Dealer has against any third party; and (3) indemnify and hold DFS harmless against all claims and defenses asserted by any buyer of the Collateral relating to the condition of, or any representations regarding, any of the Collateral. Dealer waives all rights of offset and counterclaims Dealer may have against DFS. 11. Calculation of Charges. Dealer will pay finance charges to DFS on the outstanding principal debt which Dealer owes DFS for each item of Collateral financed by DFS at the rate(s) shown on the Statement of Transaction identifying such Collateral, unless Dealer objects thereto as provided in Section 3. The finance charges attributable to the rate shown on the Statement of Transaction will: (a) be computed based on a 360 day year; (b) be calculated by multiplying the Daily Charge (as defined below) by the actual number of days in the applicable billing period; and (c) accrue from the invoice date of the Collateral identified on such Statement of Transaction until DFS receives full payment in good funds of the principal debt Dealer owes DFS for each item of such Collateral in accordance with DFS' payment recognition policy and DFS applies such payment to Dealer's principal debt in accordance with the terms of this Agreement. The "Daily Charge" is the product of the Daily Rate (as defined below) multiplied by the Average Daily Balance (as defined below). The "Daily Rate" is the quotient of the annual rate shown on the Statement of Transaction divided by 360, or the monthly rate shown on the Statement of Transaction divided by 30. The "Average Daily Balance" is the quotient of (i) the sum of the outstanding principal debt owed DFS on each day of a billing period for each item of Collateral identified on a Statement of Transaction, divided by (ii) the actual number of days in such billing period. Dealer will also pay DFS $100 for each check returned unpaid for insufficient funds (an "NSF check") (such $100 payment repays DFS' estimated administrative costs; it does not waive the default caused by the NSF check). The annual percentage rate of the finance charges relating to any item of Collateral financed by DFS will be calculated from the invoice date of such Collateral, regardless of any period during which any finance charge subsidy shall be paid or payable by any third party. Dealer acknowledges that DFS intends to strictly conform to the applicable usury laws governing this Agreement. Regardless of any provision contained herein or in any other document executed or delivered in connection herewith or therewith, DFS shall never be deemed to have contracted for, charged or be entitled to receive, collect or apply as interest on this Agreement (whether termed interest herein or deemed to be interest by judicial determination or operation of law), any amount in excess of the maximum amount allowed by applicable law, and, if DFS ever receives, collects or applies as interest any such excess, such amount which would be excessive interest will be applied first to the reduction of the unpaid principal balances of advances under this Agreement, and, second, any remaining excess will be paid to Dealer. In determining whether or not the interest paid or payable under any specific contingency exceeds the highest lawful rate, Dealer and DFS shall, to the maximum extent permitted under applicable law: (A) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest; (B) exclude voluntary pre-payments and the effect thereof; and (C) spread the total amount of interest throughout the entire term of this Agreement so that the interest rate is uniform throughout such term. - 6 - 12. Billing Statement. DFS will send Dealer a monthly billing statement identifying all charges due on Dealer's account with DFS. The charges specified on each billing statement will be: (a) due and payable in full immediately on receipt; and (b) an account stated, unless DFS receives Dealer's written objection thereto within 15 days after it is mailed to Dealer. If DFS does not receive, by the 25th day of any given month, payment of all charges accrued to Dealer's account with DFS during the immediately preceding month, Dealer will (to the extent allowed by law) pay DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the amount of such finance charges (payment of the Late Fee does not waive the default caused by the late payment). DFS may adjust the billing statement at any time to conform to applicable law and this Agreement. 13. Financial Covenants/Minimum Utilization Covenant. 13.1 Financial Covenants. Dealer will at all times maintain: (a) a Tangible Net Worth and Subordinated Debt in the combined amount of not less than FOURTEEN MILLION DOLLARS ($14,000,000.00); (b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth and Subordinated Debt of not more than TWO AND ONE HALF to ONE (2.5:1); and (c) a ratio of Current Tangible Assets to current liabilities of not less than ONE AND SEVENTY-FIVE HUNDREDTHS to ONE (1.75:1). For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of Dealer's assets less liabilities, excluding from such assets all Intangibles; (ii) "Intangibles" means and includes general intangibles (as that term is defined in the Uniform Commercial Code); accounts receivable and advances due from officers, directors, employees, stockholders and affiliates; leasehold improvements net of depreciation; licenses; good will; prepaid expenses; escrow deposits; covenants not to compete; the excess of cost over book value of acquired assets; franchise fees; organizational costs; finance reserves held for recourse obligations; capitalized research and development costs; and such other similar items as DFS may from time to time determine in DFS' sole discretion; (iii) "Debt" means all of Dealer's liabilities and indebtedness for borrowed money of any kind and nature whatsoever, whether direct or indirect, absolute or contingent, and including obligations under capitalized leases, guaranties or with respect to which Dealer has pledged assets to secure performance, whether or not direct recourse liability has been assumed by Dealer; (iv) "Subordinated Debt" means all of Dealer's Debt which is subordinated to the payment of Dealer's liabilities to DFS by an agreement in form and substance satisfactory to DFS; and (v) "Current Tangible Assets" means Dealer's current assets less, to the extent otherwise included therein, all Intangibles. The foregoing terms will be determined in accordance with generally accepted accounting principles consistently applied, and, if applicable, on a consolidated basis. 13.2 Minimum Utilization Covenant. Dealer will at all times maintain an average daily outstanding loan balance of FIVE HUNDRED THOUSAND DOLLARS ($500.000.00). - 7 - If Dealer fails to maintain such balance for any month, the interest rate charged to Dealer for such month shall be increased by one percent (1%). 14. Default. Dealer will be in default under this Agreement if: (a) Dealer breaches any terms, warranties or representations contained herein, in any Statement of Transaction to which Dealer has not objected as provided in Section 3, or in any other agreement between DFS and Dealer; (b) any guarantor of Dealer's debts to DFS breaches any terms, warranties or representations contained in any guaranty or other agreement between the guarantor and DFS; (c) any representation, statement, report or certificate made or delivered by Dealer or any guarantor to DFS is not accurate when made; (d) Dealer fails to pay any portion of Dealer's debts to DFS when due and payable hereunder or under any other agreement between DFS and Dealer; (e) Dealer abandons any Collateral; (f) Dealer or any guarantor is or becomes in default in the payment of any debt owed to any third party; (g) a money judgment issues against Dealer or any guarantor; (h) an attachment, sale or seizure issues or is executed against any assets of Dealer or of any guarantor; (i) the undersigned dies while Dealer's business is operated as a sole proprietorship, any general partner dies while Dealer's business is operated as a general or limited partnership, or any member dies while Dealer's business is operated as a limited liability company, as applicable; (j) any guarantor dies; (k) Dealer or any guarantor shall cease existence as a corporation, partnership, limited liability company or trust, as applicable; (l) Dealer or any guarantor ceases or suspends business; (m) Dealer, any guarantor or any member while Dealer's business is operated as a limited liability company, as applicable, makes a general assignment for the benefit of creditors; (n) Dealer, any guarantor or any member while Dealer's business is operated as a limited liability company, as applicable, becomes insolvent or voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, any state insolvency law or any similar law; (a) any receiver is appointed for any assets of Dealer, any guarantor or any member while Dealer's business is operated as a limited liability company, as applicable; (p) any guaranty of Dealer's debts to DFS is terminated; (q) Dealer loses any franchise, permission, license or right to sell or deal in any Collateral which DFS finances; or (r) Dealer or any guarantor misrepresents Dealer's or such guarantor's financial condition or organizational structure. 15. Rights of DFS Upon Default. In the event of a default: (a) DFS may at any time at DFS' election, without notice or demand to Dealer, do any one or more of the following: declare all or any part of the debt Dealer owes DFS immediately due and payable, together with all costs and expenses of DFS' collection activity, including, without limitation, all reasonable attorneys' fees; exercise any or all rights under applicable law (including, without limitation, the right to possess, transfer and dispose of the Collateral); and/or cease extending any additional credit to Dealer (DFS' right to cease extending credit shall not be construed to limit the discretionary nature of this credit facility). (b) Dealer will segregate and keep the Collateral in trust for DFS, and in good order and repair, and will not sell, rent, lease, consign, otherwise dispose of or use any Collateral, nor further encumber any Collateral. (c) Upon DFS' oral or written demand, Dealer will immediately deliver the Collateral to DFS, in good order and repair, at a place specified by DFS, together - 8 - with all related documents; or DFS may, in DFS' sole discretion and without notice of demand to Dealer, take immediate possession of the Collateral together with all related documents. (d) DFS may, without notice, apply a default finance charge to Dealer's outstanding principal indebtedness equal to the default rate specified in Dealer's financing program with DFS, if any, or if there is none so specified, at the lesser of 3% per annum above the rate in effect immediately prior to the default, or the highest lawful contract rate of interest permitted under applicable law. All of DFS' rights and remedies are cumulative. DFS' failure to exercise any of DFS' rights or remedies hereunder will not waive any of DFS' rights or remedies as to any past, current or future default. 16. Sale of Collateral. Dealer agrees that if DFS conducts a private sale of any Collateral by requesting bids from 10 or more dealers or distributors in that type of Collateral, any sale by DFS of such Collateral in bulk or in parcels within 120 days of: (a) DFS' taking possession and control of such Collateral; or (b) when DFS is otherwise authorized to sell such Collateral; whichever occurs last, to the bidder submitting the highest cash bid therefor, is a commercially reasonable sale of such Collateral under the Uniform Commercial Code. Dealer agrees that the purchase of any Collateral by a Vendor, as provided in any agreement between DFS and the Vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code, and no request for bids shall be required. Dealer further agrees that 7 or more days prior written notice will be commercially reasonable notice of any public or private sale (including any sale to a Vendor). Dealer irrevocably waives any requirement that DFS retain possession and not dispose of any Collateral until after an arbitration hearing, arbitration award, confirmation, trial or final judgment. If DFS disposes of any such Collateral other than as herein contemplated, the commercial reasonableness of such disposition will be determined in accordance with the laws of the state governing this Agreement. 17. Power of Attorney. Dealer grants DFS an irrevocable power of attorney to: execute or endorse on Dealer's behalf any checks, financing statements, instruments, Certificates of Title and Statements of Origin pertaining to the Collateral; supply any omitted information and correct errors in any documents between DFS and Dealer; initiate and settle any insurance claim pertaining to the Collateral; and do anything to preserve and protect the Collateral and DFS' rights and interest therein. 18. Information. DFS may provide to any third party any credit, financial or other information on Dealer that DFS may from time to time possess. DFS may obtain from any Vendor any credit, financial or other information regarding Dealer that such Vendor may from time to time possess. 19. Termination/Right of First Refusal. Dealer may not terminate this Agreement prior to the third anniversary of the date of this Agreement; provided, however, that Dealer may terminate this Agreement prior to such date if: (i) Dealer is provided with a written offer - 9 - for floorplan financing from another financial institution which sets forth reasonably detailed terms for the proposed floorplan credit facility; (ii) Dealer delivers a copy of said proposal to DFS and allows DFS thirty (30) days to determine whether to match the proposed floorplan financing program; and (iii) DFS elects not to offer the same floorplan financing program to Dealer. DFS may terminate this Agreement at any time. If DFS elects to terminate this Agreement, Dealer agrees that if Dealer: (a) is not in default hereunder, 30 days prior notice of termination is reasonable and sufficient (although this provision shall not be construed to mean that shorter periods may not, in particular circumstances, also be reasonable and sufficient); or (b) is in default hereunder, no prior notice of termination is required. Dealer will not be relieved from any obligation to DFS arising out of DFS' advances or commitments made before the effective termination date of this Agreement. It is understood that Dealer may elect to terminate this Agreement in its entirety only, no section or lending facility may be terminated singly. DFS will retain all of its rights, interests and remedies hereunder until Dealer has paid all of Dealer's debts to DFS. All waivers set forth within this Agreement will survive any termination of this Agreement. 20. Binding Effect. Dealer cannot assign its interest in this Agreement without DFS' prior written consent, although DFS may assign or participate DFS' interest, in whole or in part, without Dealer's consent. This Agreement will protect and bind DFS' and Dealer's respective heirs, representatives, successors and assigns. 21. Notices. Except as otherwise stated herein, all notices, arbitration claims, responses, requests and documents will be sufficiently given or served if mailed or delivered: (a) to Dealer at Dealer's principal place of business specified above; and (b) to DFS at 655 Maryville Centre Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel, or such other address as the parties may hereafter specify in writing. 22. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT DEALER AND DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. 23. Other Waivers. Dealer irrevocably waives notice of: DPS' acceptance of this Agreement, presentment, demand, protest, nonpayment, nonperformance, and dishonor. Dealer and DFS irrevocably waive all rights to claim any punitive and/or exemplary damages. 24. Severability. If any provision of this Agreement or its application is invalid or unenforceable, the remainder of this Agreement will not be impaired or affected and will remain binding and enforceable. - 10 - 25. Supplement. If Dealer and DFS have heretofore executed other agreements in connection with all or any part of the Collateral, this Agreement shall supplement each and every other agreement previously executed by and between Dealer and DFS, and in that event this Agreement shall neither be deemed a novation nor a termination of such previously executed agreement nor shall execution of this Agreement be deemed a satisfaction of any obligation secured by such previously executed agreement. 26. Receipt of Agreement. Dealer acknowledges that it has received a true and complete copy of this Agreement. Dealer acknowledges that it has read and understood this Agreement. Notwithstanding anything herein to the contrary: (a) DFS may rely on any facsimile copy, electronic data transmission or electronic data storage of this Agreement, any Statement of Transaction, billing statement, invoice from a Vendor, financial statements or other reports, and (b) such facsimile copy, electronic data transmission or electronic data storage will be deemed an original, and the best evidence thereof for all purposes, including, without limitation, under this Agreement or any other agreement between DFS and Dealer, and for all evidentiary purposes before any arbitrator, court or other adjudicatory authority. 27. Miscellaneous. Time is of the essence regarding Dealer's performance of its obligations to DFS notwithstanding any course of dealing or custom on DFS' part to grant extensions of time. Dealer's liability under this Agreement is direct and unconditional and will not be affected by the release or nonperfection of any security interest granted hereunder. DFS will have the right to refrain from or postpone enforcement of this Agreement or any other agreements between DFS and Dealer without prejudice and the failure to strictly enforce these agreements will not be construed as having created a course of dealing between DFS and Dealer contrary to the specific terms of the agreements or as having modified, released or waived the same. The express terms of this Agreement will not be modified by any course of dealing, usage of trade, or custom of trade which may deviate from the terms hereof. If Dealer fails to pay any taxes, fees or other obligations which may impair DFS' interest in the Collateral, or fails to keep the Collateral insured, DFS may, but shall not be required to, pay such taxes, fees or obligations and pay the cost to insure the Collateral, and the amounts paid will be: (a) an additional debt owed by Dealer to DFS, which shall be subject to finance charges as provided herein; and (b) due and payable immediately in full. Dealer agrees to pay all of DFS' reasonable attorneys' fees and expenses incurred by DFS in enforcing DFS' rights hereunder. This is an agreement regarding the extension of credit, and not the provision of goods or services. The Section titles used in this Agreement are for convenience only and do not define or limit the contents of any Section. 28. BINDING ARBITRATION. 28.1 Arbitrable Claims. Except as otherwise specified below, all actions, disputes, claims and controversies under common law, statutory law or in equity of any type or nature whatsoever (including, without limitation, all torts, whether regarding negligence, breach of fiduciary duty, restraint of trade, fraud, conversion, duress, interference, wrongful replevin, wrongful sequestration, fraud in the inducement, usury or any other tort, all contract actions, whether regarding express or implied terms, such as implied covenants of good faith, fair dealing, - 11 - and the commercial reasonableness of any Collateral disposition, or any other contract claim, all claims of deceptive trade practices or lender liability, and all claims questioning the reasonableness or lawfulness of any act), whether arising before or after the date of this Agreement, and whether directly or indirectly relating to: (a) this Agreement and/or any amendments and addenda hereto, or the breach, invalidity or termination hereof; (b) any previous or subsequent agreement between DFS and Dealer; (c) any act committed by DFS or by any parent company, subsidiary or affiliated company of DFS (the "DFS Companies"), or by any employee, agent, officer or director of a DFS Company whether or not arising within the scope and course of employment or other contractual representation of the DFS Companies provided that such act arises under a relationship, transaction or dealing between DFS and Dealer; and/or (d) any other relationship, transaction or dealing between DFS and Dealer (collectively the disputes), will be subject to and resolved by binding arbitration. 28.2 Administrative Body. All arbitration hereunder will be conducted in accordance with the Commercial Arbitration Rules of The American Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or becomes subject to any state or federal bankruptcy or insolvency proceeding, the parties will remain subject to binding arbitration which will be conducted by a mutually agreeable arbitral forum. The parties agree that all arbitrator(s) selected will be attorneys with at least five (5) years secured transactions experience. The arbitrator(s) will decide if any inconsistency exists between the rules of any applicable arbitral forum and the arbitration provisions contained herein. If such inconsistency exists, the arbitration provisions contained herein will control and supersede such rules. The site of all arbitration proceedings will be in the Division of the Federal Judicial District in which AAA maintains a regional office that is closest to Dealer. 28.3 Discovery. Discovery permitted in any arbitration proceeding commenced hereunder is limited as follows. No later than thirty (30) days after the filing of a claim for arbitration, the parties will exchange detailed statements setting forth the facts supporting the claim(s) and all defenses to be raised during the arbitration, and a list of all exhibits and witnesses. No later than twenty-one (21) days prior to the arbitration hearing, the parties will exchange a final list of all exhibits and all witnesses, including any designation of any expert witness(es) together with a summary of their testimony; a copy of all documents and a detailed description of any property to be introduced at the hearing. Under no circumstances will the use of interrogatories, requests for admission, requests for the production of documents or the taking of depositions be permitted. However, in the event of the designation of any expert witness(es), the following will occur: (a) all information and documents relied upon by the expert witness(es) will be delivered to the opposing party, (b) the opposing party will be permitted to depose the expert witness(es), (c) the opposing party will be permitted to designate rebuttal expert witness(es), and (d) the arbitration hearing will be continued to the earliest possible date that enables the foregoing limited discovery to be accomplished. - 12 - 28.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the authority to award exemplary or punitive damages. 28.5 Confidentiality of Awards. All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Agreement may be entered as a judgment or order in any state or federal court and may be confirmed within the federal judicial district which includes the residence of the party against whom such award or order was entered. This Agreement concerns transactions involving commerce among the several states. The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA") will govern all arbitration(s) and confirmation proceedings hereunder. 28.6 Prejudgment and Provisional Remedies. Nothing herein will be construed to prevent DFS' or Dealer's use of bankruptcy, receivership, injunction, repossession, repletion, claim and delivery, sequestration, seizure, attachment, foreclosure, dation and/or any other prejudgment or provisional action or remedy relating to any Collateral for any current or future debt owed by either party to the other. Any such action or remedy will not waive DFS' or Dealer's right to compel arbitration of any Dispute. 28.7 Attorneys' Fees. If either Dealer or DFS brings any other action for judicial relief with respect to any Dispute (other than those set forth in Section 28.6), the party bringing such action will be liable for and immediately pay all of the other party's costs and expenses (including attorneys' fees) incurred to stay or dismiss such action and remove or refer such Dispute to arbitration. If either Dealer or DFS brings or appeals an action to vacate or modify an arbitration award and such party does not prevail, such party will pay all costs and expenses, including attorneys' fees, incurred by the other party in defending such action. Additionally, if Dealer sues DFS or institutes any arbitration claim or counterclaim against DFS in which DFS is the prevailing party, Dealer will pay all costs and expenses (including attorneys' fees) incurred by DFS in the course of defending such action or proceeding. 28.8 Limitations. Any arbitration proceeding must be instituted: (a) with respect to any Dispute for the collection of any debt owed by either party to the other, within two (2) years after the date the last payment was received by the instituting party; and (b) with respect to any other Dispute, within two (2) years after the date the incident giving rise thereto occurred, whether or not any damage was sustained or capable of ascertainment or either party knew of such incident. Failure to institute an arbitration proceeding within such period will constitute an absolute bar and waiver to the institution of any proceeding, whether arbitration or a court proceeding, with respect to such Dispute. 28.9 Survival After Termination. The agreement to arbitrate will survive the termination of this Agreement. - 13 - 29. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. 30. Governing Law. Dealer acknowledges and agrees that this and all other agreements between Dealer and DFS have been substantially negotiated, and will be substantially performed, in the state of FLORIDA. Accordingly, Dealer agrees that all Disputes will be governed by, and construed in accordance with, the laws of such state, except to the extent inconsistent with the provisions of the FAA which shall control and govern all arbitration proceedings hereunder. IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the date first set forth hereinabove. THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE WAIVER PROVISIONS. DEUTSCHE FINANCIAL SERVICES FEATHERLITE MFG., INC. CORPORATION By: /s/ David O'Hare By: /s/ Conrad Clement Print Name: David O'Hare Print Name: Conrad Clement Title: Credit Manager Title: President ATTEST: /s/ Gary Ihrke (Assistant) Secretary Print Name: Gary Ihrke - 14 - EX-10.23 4 AMENDMENT NO. 1 TO 1994 STOCK OPTION PLAN Exhibit 10.23 AMENDMENT NO. 1 TO FEATHERLITE MFG., INC. 1994 STOCK OPTION PLAN This Amendment No. 1 to the Featherlite Mfg., Inc. 1994 Stock Option Plan (the "Plan") was adopted by the Board of Directors of the Company on May 14, 1996: 1. Section 5 of the Plan is amended in its entirety to read as follows: "SECTION 5. PARTICIPANTS The Board or the Committee, as the case may be, shall from time to time, at its discretion and without approval of the shareholders, designate those employees, directors, officers, consultants, and advisors of the Company or of any Subsidiary to whom nonqualified stock options shall be granted under this Plan; provided, however, that consultants or advisors shall not be eligible to receive stock options hereunder unless such consultant or advisor renders bona fide services to the Company or Subsidiary and such services are not in connection with the offer or sale of securities in a capital raising transaction. The Board or the Committee, as the case may be, shall, from time to time, at its discretion and without approval of the shareholders, designate those employees of the Company or any Subsidiary to whom incentive stock options shall be granted under this Plan. The Board or the Committee may grant additional incentive stock options or nonqualified stock options under this Plan to some or all participants then holding options or may grant options solely or partially to new participants. In designating participants, the Board or the Committee shall also determine the number of shares to be optioned to each such participant. The Board may from time to time designate individuals as being ineligible to participate in the Plan." 2. Paragraph (a) of Section 17 of the Plan is hereby amended in its entirety to read as follows: "(a) Grant of Nonqualified Stock Options. All grants of nonqualified stock options to Outside Directors under this Section 17 shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (1) No person shall have any discretion to select the Outside Directors that shall be eligible for nonqualified stock options pursuant to this Section 17 or to determine the number of shares of Common Stock to be subject to such options, the option price per share or the date of grant. (2) Initial Grants. Each Outside Director who becomes a member of the Board of Directors after the date this Amendment No. 1 is adopted by the - 1 - Board shall, on the date that such Outside Director is first elected to the Board of Directors by the shareholders of the Company, be granted a nonqualified stock option to purchase 3,000 shares of Common Stock of the Company. (3) Annual Grants. Each Outside Director shall, on the date of each annual meeting of the shareholders of the Company, be granted a nonqualified stock option to purchase 3,000 shares of Common Stock of the Company so long as such Outside Director continues to serve on the Board." 3. Except as otherwise amended or modified herein, all other provisions of the Plan shall remain in full force and effect. FEATHERLITE MFG., INC. By /s/ C. Clement Its President - 2 - EX-10.24 5 QUOTE Exhibit 10.24 Confidential portions of this document have been omitted and filed separately with the Commission. REYNOLDS ALUMINUM SUPPLY CO. 1801 BEDFORD AVENUE QUOTE N. KANSAS CITY, MO 64116 Phone (816) 842-2200/Fax (816) 471-2382 Toll Free (800) 821-2568 Bill To: Ship To: Quotation # : FEATHERLITE MFG., SAME Date: August 21, 1996 INC. HWY 63 & 9 Customer ID: S9288 CRESCO, IA 52136 ATTN: MR. GARY IHRKE END USE PACKING SALES REP. DELIVERY SHIP VIA PAYMENT ESTIMATED TERMS TERMS SHIPMENT ARO TRAILERS 2500# MAX STEVE FOB OUR TRUCK 1% - 10 SKIDS MERRYMAN CRESCO, NET 45 IA DAYS QTY PART # UNITS DESCRIPTION UNIT PR ********** ********* 3105H14MF - .040, .100, .125 GUAGES $*******/# to ********* + Not Purchased ********** - 10% ********** +******* + 3105h18PTD. - .030 & .040 GUAGES $*******/# to - 10% ********** PRICE FIRM THROUGH OCTOBER, 1997 BY MY SIGNATURE AND FEATHERLITE BLANKET PURCHASE ORDER, AS A AUTHORIZED AGENT OF FEATHERLITE MFG., WE ACCEPT THIS PROPOSAL AND ENTER INTO CONTRACT WITH REYNOLDS ALUMINUM SUPPLY CO FOR THE ABOVE ITEMS. PER THE ITEMS, PER THE TERMS AND CONDITIONS STATED IN THE QUOTATION. PER: /S/ GARY IHRKE GARY IHRKE PO NUMBER: DATE: 8/22/96 - 1 - THIS QUOTATION IS SUBJECT TO THE TERMS AND CONDITIONS STATED ON PAGE 2. Should you have any questions concerning this quotation or should you wish to place an order, please contact the undersigned. /s/ Steve Merryman THANK YOU FOR THE OPPORTUNITY TO QUOTE - 2 - EX-10.25 6 AGMT BETWEEN COMPANY & SAMUEL-WHITTAR Exhibit 10.25 Confidential portions of this document have been omitted and filed separately with the Commission. Featherlite Mfg., Inc. Hwy 63 & 9 Cresco, IA 52136 September 13, 1996 Samuel-Whittar Inc. 20091 Shorwood Avenue Detroit, Michigan 48234 Dear Norb: This letter will confirm our telephone conversation regarding Featherlite Mfg., Inc.'s purchase of aluminum shape products from Samuel-Whittar during the year 1997. 1. Featherlite's delivered price for 3105-H14 alloy aluminum is as follows: A. ********** pounds at $********** per pound for the first quarters of 1997. B ********** pounds at $********** per pounds for the fourth quarter of 1997. 2. Featherlite will place orders in truck load quantities (40,000+). 3. Samuel-Whittar will keep in stock one month of cut sheet pieces, which will be determined by Larry Balser and Craig Lepa and one month of coil in stock with one month of coil on order at the mill through out this contract. 4. Featherlite agrees to take any item Featherlite orders through out the contract, even if the item becomes obsolete. 5. Monthly orders will be an average only of ********** pounds. This number may go up and down as the year progresses. 6. The first three quarters of 1997 will be plus or minus 10% of the total pounds ordered. Therefore, Featherlite can order between ********** and ********** pounds for the first three quarters (plus or minus 10% of the total). 7. Credit terms are 45 days. 8. 2500 pound maximum skid weight. 9. No splices or skid stringers and stringers to be a minimum of 3 1/2" tall. 10. Certifications are required on all products purchased from Samuel-Whittar. 11. Billing weight is to be calculated off .099 theoretical weight. - 1 - I believe this to be a complete understanding as we agreed to on the telephone last week. If you have any questions regarding this matter please feel free to call me at 319-547-6000. Sincerely, /s/ Tracy Clement Tracy Clement Executive Vice President Agreed to this ____ day of September, 1996. Samuel-Whittar, Inc. /s/ Norb Niemier 10/1/96 Norb Niemier Vice President of Sales - 2 - EX-10.26 7 FIXED PRICE PURCHASE AND SALE AGREEMENT Exhibit 10.26 Confidential portions of this document have been omitted and filed separately with the Commission. FIXED-PRICE PURCHASE AND SALE AGREEMENT This Agreement ("Agreement") dated November 27, 1996 is between Dolton Aluminum Company, Inc. ("Seller") and FEATHERLITE TRAILERS ("Buyer"). Seller desires to sell certain goods to Buyer and Buyer desires to purchase certain goods from Seller. NOW, THEREFORE, in consideration of these premises and the following mutual agreements, the parties agree as follows: 1. Seller will sell to Buyer, and Buyer will purchase from Seller, the aluminum extrusions identified on Schedule A attached hereto ("Product"), subject to the terms contained in this Agreement and the attached Schedule A. The quantity, delivery dates, and prices, for Product are also set forth on Schedule A. 2. This Agreement shall have a term from the date hereof to December 31, 1997. This Agreement may not be canceled by either party prior to the termination date without the prior written consent of the other. Buyer acknowledges that Seller intends to rely on this Agreement in fixing the prices and delivery dates of its raw material purchases necessary to fulfill this Agreement and as such, Buyer agrees to pay for the quantity specified on Schedule A whether or not Buyer places specific orders with Seller as specified in Item 3 below. 3. Buyer agrees to place specific firm orders with Seller for the Product at least 28 days prior to the requested shipment date which shall specify the number of pounds, feet, or pieces of specific aluminum extrusion shapes. Seller will attempt to respond to Buyer's order requests with less than 28 day lead time but shall be under no obligation to do so. Seller is required to manufacture and ship only product for which Seller has timely received specific firm orders. 4. Seller's obligations hereunder are subject to Seller's credit approval with respect to each shipment and to the availability of financial information on Buyer which, in the Seller's opinion, is adequate to demonstrate the Buyer's financial condition, ability to pay for shipments in accordance with agreed terms of payment, and ability to support the volume of credit extended by the Seller. Payment terms for the Product shall be as set forth in Schedule A. Seller's obligation to continue shipments of Product is conditioned upon Buyer satisfying its payment obligations under this Item 4 in full within the time period specified. 5. Either party's failure, at any time or times hereafter, to require strict performance by the other party of any provision of this Agreement shall not constitute a waiver, or affect or diminish the right thereafter to demand strict compliance and performance of this Agreement. - 1 - Page 2 Fixed-Price Purchase and Sale Agreement 6. This Agreement (including Schedule A) shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall not apply to any purchases by Buyer in excess of the quantities set forth in Schedule A. The terms of any such excess purchases will be governed by separate agreement of the parties. Except as specified in this Agreement, the terms of sale and rights of the parties with respect to any specific order shall be as set forth in Seller's order acknowledgment as provided from time to time. By: Gary Ihrke By: Drago H. Kahanu Title: Vice President Title: Vice President Manufacturing Sales and Marketing Signature: /s/ Gary Ihrke Signature: /s/ Drago H. Kahanu FEATHERLITE TRAILERS DOLTON ALUMINUM CO., INC. (BUYER) (SELLER) Dated: 11/27/96 Dated: 11-27-96 - 2 - SCHEDULE A Material Description: This agreement covers custom and standard extrusions currently being supplied or quoted to FEATHERLITE TRAILERS (Buyer") by Dolton Aluminum Company, Inc. ("Seller") with specific pounds/pieces/feet by specific shape to be supplied by Buyer. Quantity: ********** pounds per calendar month for a total of ********** pounds. Delivery Period: January 1, 1997 through December 31, 1997. Price: $********** per pound for solid aluminum extrusions, add $********** per pound for hollows. Packaging: Standard - Bare Bundle. Tolerance: Aluminum Association standards to apply. FOB: FEATHERLITE TRAILERS, Cresco, IA. Total Dollar Value of Contract: Approximately $**********. Terms: Net 30 days. By: Gary Ihrke By: Drago Kahanu Title: Vice President Title: Vice President Marketing Signature: /s/ Gary Ihrke Signature: /s/ Drago Kahanu FEATHERLITE TRAILERS DOLTON ALUMINUM CO., INC. (BUYER) (SELLER) Dated: 11/27/96 Dated: 11-27-96 - 3 - EX-10.27 8 AGMT BETWEEN CO AND ALUMAX TRANSPORTATION Exhibit 10.27 Confidential portions of this document have been omitted and filed separately with the Commission. ALUMAX 2700 International Drive TRANSPORTATION PRODUCTS Suite 200 West Chicago, IL 60185 VIA FACSIMILE 319/547-6099 630/584-1000 November 27, 1996 Fax 630/584-1243 Mr. Gary Ihrke Vice President, Operations Featherlite Manufacturing, Inc. Box 320 Cresco, IA 52136 Dear Gary: This letter will confirm that Alumax Transportation Products agrees to supply and you agree to purchase ********** pounds of aluminum extrusions for delivery January, 1997 through December, 1997 via our assigned contract number ATP0078. Pricing during this contract period will be firm at $********** per pound. Based upon your commitment, Alumax Transportation Products has taken the necessary actions, via an established metal position, to provide a firm price for the duration of this agreement. It is expected that shipments of finished product will occur in a timely manner, which in this case equates to approximately ********** pounds on a monthly basis. In the event you do not fulfill the volume commitment during the contract period, you will be invoiced for and expected to pay an amount equal to any financial loss we incurred on the metal position we established in order to provide you with this firm price contract. The amount you would be invoiced would be calculated in accordance with the attached Alumax Extrusions, Inc. terms and conditions regarding firm priced contracts. We believe the above establishes the essence of our agreement and we request that you acknowledge receipt and forward a signed copy of this contract for our files. We appreciate your confidence in Alumax Transportation Products and look forward to the successful completion of this contract. Best regards, /s/ Ted E. Smothers ACKNOWLEDGED AND ACCEPTED: Ted E. Smothers /s/ Gary Ihrke 12/2/96 Vice President, Sales & Marketing Gary Ihrke Vice President, Operations Featherlite Manufacturing, Inc. - 1 - EX-13 9 PORTIONS OF ANNUAL REPORT Exhibit 13 Growing Through Diversity Featherlite Mfg., Inc. 1996 Annual Report Registrar and Stock Transfer Agent Firstar Trust Company Milwaukee, WI Independent Auditors McGladrey & Pullen, LLP Rochester, MN General Counsel Fredrikson & Byron, P.A. Minneapolis, MN Annual Meeting The Featherlite, Mfg., Inc. annual meeting will take place on May 7, 1997 at Corporate Headquarters at 7 p.m. Plant tours at 4 p.m. Availability of l0-K A copy of the Company's 1996 Annual Report on Form l0-K filed with the Securities and Exchange Commission will be made available to interested shareholders without charge upon written request to the Company or by calling Investor Relations at (319) 547-6000 or fax (319) 547-6099. Stock Market Information Nasdaq Stock Market: FTHR As of February 15, 1997, there were approximately 264 shareholders of record. SELECTED FINANCIAL INFORMATION (In thousands, except per share and stock price data)
FIVE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 Statement of Income Data: Net sales $99,329 $69,159 $60,172 $39,763 $29,383 Cost of goods sold 84,643 58,673 47,521 31,269 23,260 ------------------------------------------------------------------------------ Gross profit 14,686 10,486 12,651 8,494 6,123 Selling and administrative expenses 12,492 9,993 8,075 6,308 5,149 ------------------------------------------------------------------------------ Operating income 2,194 493 4,576 2,186 974 Interest expense (1,450) (799) (667) (550) (450) Other income, net 660 1,478 344 480 270 ------------------------------------------------------------------------------ Income before taxes 1,404 1,172 4,253 2,116 794 Provision for Income taxes 562 471 392 -- -- ------------------------------------------------------------------------------ Net income $ 842 $ 701 $ 3,861 $ 2,116 $ 794 ------------------------------------------------------------------------------ Pro Forma Statement of Income Data Net income, as reported $ -- $ -- $ 3,861 $ 2,116 $ 794 Pro forma provision for taxes -- -- 1,152 811 339 ------------------------------------------------------------------------------ Pro forma net income $ -- $ -- $ 2,709 $ 1,305 $ 455 ============================================================================== Net income per share $ 0.13 $ 0.12 $ 0.60 $ 0.33 $ 0.11 ============================================================================== Cash Distributions for taxes* $ -- $ 305 $ 1,795 $ 746 $ 146 ============================================================================== Weighted average number of common shares outstanding (000's) 6,106 5,955 4,509 4,000 4,000 ============================================================================== Balance Sheet Data (End of Period) 1996 1995 1994 1993 1992 Working capital $15,128 $15,360 $ 9,516 $ 782 $ 1,794 Total assets 53,534 46,084 33,258 19,098 13,586 Total long-term debt, net current maturities 13,356 15,194 5,282 4,230 3,559 Total shareholders' investment 20,595 17,953 17,252 4,517 3,615
Quarterly Financial Data (Unaudited) Operating Net Income Gross Income Net Income (Loss) Common Stock Price Net Sales Profit (Loss) (Loss) Per Share High Low 1996 First Quarter $19,976 $3,018 $ 302 $ 51 $0.01 $ 6.00 $4.63 Second Quarter 21,169 2,704 85 14 -- 6.38 $4.75 Third Quarter 28,384 3,938 690 206 0.03 6.88 $5.13 Fourth Quarter 29,800 5,026 1,117 571 0.09 6.25 $4.75 1995 First Quarter $18,214 $3,279 $ 970 $912 $0.15 $11.38 $9.00 Second Quarter 17,396 2,563 224 496 0.08 $ 9.88 $7.38 Third Quarter 16,164 2,180 (381) (332) (0.05) $ 8.13 $5.50 Fourth Quarter 17,385 2,464 (320) (375) (0.06) $ 6.25 $4.19
The Company's common stock trades on the Nasdaq National Market Stock tier of The NASDAQ Stock Market under the symbol "FTHR". *Represent only distribution for estimated shareholders' federal and state income tax liabilities from Company's status as S corporation prior to initial public stock offering. No other dividends were paid. The Company is restricted from paying dividends. See Liquidity & Capital Resources in MD&A for a discussion of these restrictions. Management's Discussion and Analysis The following discussion pertains to the Company's results of operations and financial condition for the years ended December 31, 1996, 1995 and 1994. Results of Operations Net Sales Featherlite Mfg., Inc. achieved a 43.6% increase in net sales to $99.3 million for the year ended December 31, 1996 following an increase of 15% to $69.2 million in 1995 from $60.2 million in 1994. These gains were the result of strong growth in all product lines in 1996 and 1995 as well as acquisitions in both years. In 1996, the Company acquired the assets of Vantare International, Inc., a converter of luxury motorcoaches and in 1995, the assets of Diamond D Trailer Manufacturing, Inc. which manufactures steel trailers. Gross Profit Significant sales expansion combined with lower aluminum costs caused gross profit to increase to $14.7 million in 1996 from $10.5 million in 1995 and $12.6 million in 1994. As a percentage of sales, gross profit margin was 14.8% in 1996 compared to 15.2% in 1995 and 21.0% in 1994. Following is a summary of components of the change in the gross profit margin percentage, by year, for the years 1994 through 1996: 1996 With Motor Trailers coaches Only Aluminum 7.2% 4.9% Other Materials (9.0) (3.8) Labor and overhead 1.4 (0.9) ----------------------- Gross Margin Inc(dec) (0.4%) (0.2%) ----------------------- 1995 1994 Aluminum (2.1)% (1.6)% Other Materials (1.2) .3 Labor and overhead (2.5) .9 ----------------------- Gross Margin Inc(dec) (5.8)% (0.4%) ----------------------- The gross margin decrease in 1996 relates primarily to the increased cost of luxury motorcoaches which offset the effect of aluminum cost decreases during the year. If motorcoaches are excluded, the gross profit margin for 1996 is comparable to 1995. Other materials related to trailers increased due to greater sales of utility trailers, steel horse and livestock trailers and other trailers which have a higher percentage of non-aluminum materials. In 1995 the gross margin was lower than 1994 due to the increased cost of aluminum and other materials as well as labor and overhead cost increases. Aluminum is a commodity which is traded daily on commodity markets and fluctuates in price. The average Midwest delivered market cash price per pound for ingot aluminum during the three years ended December 31, 1996, as reported to the Company by its suppliers, was $.72 in 1996, $.86 in 1995 and $.72 in 1994. The Company's cost of aluminum varies from these market prices due to vendor processing charges, timing of purchases, contractual commitments with suppliers for specific prices and other factors. Its average cost of aluminum, which peaked in the third and fourth quarters of 1995, was approximately 6% less in 1996 than in 1995 and 20% greater than in 1994. Selling, Administration and Other The significant sales growth, coupled with expense control also reduced selling and administrative costs as a percent of sales. Selling and administrative expenses decreased as a percentage of sales to 12.6% in 1996 compared with 14.5% in 1995 and 13.4% in 1994. These costs increased by $2.4 million to $12.4 million in 1996 from $10.0 million in 1995 and $8.1 million in 1994. This increase in 1996 mainly reflects sales and other personnel added throughout 1995 and 1994 to improve product exposure and to build a larger sales organization to support a higher sales volume and expanded dealer network. The acquisition of Vantare increased selling and administrative expenses by $692,000 in 1996. Interest expense increased in 1996 by $650,000 to $1.5 million from $799,000 in 1995 and $667,000 in 1994 as the result of increased levels of borrowings for working capital and aircraft in 1996 and 1995. Borrowings against the line of credit were reduced in the first half of 1995 as a portion of the proceeds from the initial public offering were available to finance 1995 working capital increase. Other income decreased by $853,000 in 1996 over 1995, substantially due to the non- recurrence in 1996 of a $750,000 development grant received in 1995 for working capital and operating costs related to the facilities expansion, and additional sales of aircraft in 1995 which realized gains of $525,000. Other income in 1996 also includes a litigation settlement in the amount of approximately $245,000. Provision for income taxes The provision for income taxes reflects an effective federal and state income tax rate of 40% in 1996 and 1995. In 1994, a pro forma provision for taxes was calculated using an effective rate of 36% as the Company was an S corporation for federal and state income tax purposes until its S election terminated in connection with a public offering of common stock in September, 1994. Segment information The following discussion pertains to information on the Company's principal business segments as set forth in Note 11 to the financial statements for the years ended December 31, 1996, 1995 and 1994. Trailer Segment 1996 1995 1994 Net sales (000's) $80,689 $65,176 $56,835 Segment income (000's) 5,085 2,764 6,395 Segment income percent 6.3% 4.2% 11.3% Net trailer sales increased by 23.8% in 1996 and 14.6% in 1995. The 1996 increase includes a 20% increase in the sales of Featherlite and Econolite trailers plus the added sales of Diamond D trailers (which was acquired in the 4th quarter of 1995). On a product line basis, there were significant gains in 1996 over 1995 in sales of horse and livestock trailers, which are each up more than 20%, and increased sales of snowmobile and other recreational/utility trailers, which are each up over 60% in 1996. Car trailer and race car transporter sales were up about 10% compared to last year. Commercial trailers were up by only 15% reflecting the expansion of drop frame moving and specialty van sales offset by the discontinuation of flatbed and drop deck semi-trailers during 1996. The sales increase in 1995 compared to 1994 included gains in sales in all product lines except sales of livestock trailers and commercial/semi-trailers which were down slightly. Other factors contributing to the trailer sales growth in 1995 and 1996 included: the introduction of new trailer models in existing product lines, the introduction of new product lines and the expanded use of specialty trailers in activities related to hobbies and entertainment of end user customers. A portion of the sales increase in 1996 and 1995 was the result of price increases ranging from 2-5% introduced in those years. Segment income increased in 1996 primarily due to higher sales volume, improved margins resulting from reduced aluminum costs and reduced marketing expenses. These improvements were partially offset by increases in other materials, and labor and overhead costs. In 1995 segment income decreased primarily due to increased aluminum and other material costs, as well as increased labor and overhead costs which were higher than 1994 due to increased average labor rates and greater overhead costs related to expanded plant capacity. Sales and marketing expenses also increased in 1995. Sales and marketing expenses related to this segment were 5.7% in 1996, 6.9% in 1995 and 6.0% in 1994. Motorcoach segment 1996 Net sales (000's) $14,785 Segment income (000's) 932 Segment income percent 6.3% The Company began developing and manufacturing luxury motorcoaches in 1995 and it acquired the assets of Vantare International, Inc., a luxury motorcoach converter, as of July 1, 1996. Net sales for 1996 include sales of used trade-ins in the amount of $5.2 million, which have a lower margin than new unit sales. Marketing and administrative expenses related to this segment were approximately 5.7% of segment income, including amortization of intangibles related to the acquisition of approximately $82,000 in 1996. Looking Forward The statements made in this annual report which are forward looking in time involve risks and uncertainties discussed here and in the Company's Form 10K and other filings with the SEC, including but not limited to: product demand and acceptance of new products in each segment of the Company's markets, fluctuations in the price of aluminum, competition, facilities utilization and aircraft purchases and sales. Sales are expected to continue to remain strong in 1997 in all product groups. The Vantare acquisition in 1996 will add significant luxury motorcoach sales volume as they expect to sell 42 new motorcoaches in 1997. Increases in livestock trailer sales are expected to continue as cattle prices have improved. Significant additional sales are expected from the sale of private label snowmobile trailers to Polaris dealers. Continued growth is expected in drop frame delivery and moving van sales which the Company introduced in late 1995. These sales are expected to substantially replace sales of semi-flat bed trailers which the Company has discontinued due to lower profit margins. These expectations may not be met if there are changes in the general economy or in the market for particular types of trailers or motorcoaches. Price increases ranging from 2 to 5% announced in midyear 1996 will be effective for all new orders received in 1997. The total sales order backlog at December 31, 1996 was approximately $28 million, including $16 million in Vantare orders, compared with $7.2 million at December 31, 1995. All of this backlog will be delivered in 1997. Continued decreases in the average cost of aluminum, which are expected to be approximately 10% less than the 1996 average cost, will have a positive impact on gross margins. The Company has obtained commitments from suppliers to provide, at an agreed upon fixed price, substantial portions of its total aluminum requirements for much of 1997. However, the overall gross margin percentage may not improve significantly as future Vantare sales may include a significant amount of used coach sales which have a low gross margin and will hold down improvement in the Company's overall gross margin percent. However, the effect of this on overall operating income should be partially reduced by lower than average sales and administration costs related to the Vantare operation. There is a risk to future operating results related to losing a major supplier of aluminum. This risk is relatively nominal as there are alternate sources of supply. It may take a little longer to replace an extruded aluminum supplier due to the fact that dies are required and would have to be made. The Company routinely tries to keep at least two suppliers of each shape so it has a backup supplier, if necessary. Many of these suppliers have multiple plants that can be used to produce the material the Company requires. There is also a risk if the Company were to lose its sole supplier of motorcoach conversion shells, Prevost Car Company, although the Company could purchase certain shells from other manufacturers. The Company does have business interruption insurance to cover all or a portion of the losses it may sustain if Prevost's plant is destroyed by fire or certain other catastrophies. Sales and administration expenses are expected to increase at a lower rate than sales growth as much of the organizational growth occurred in 1996 and 1995. Also, the addition of Vantare will not result in a significant increase in sales and administration expense, except for amortization of intangibles as discussed in Note 10 to the financial statements. Interest expense will likely remain higher in 1997 as the average level of debt is expected to be greater in 1997 than 1996. No significant amount of grant income will be realized in 1997. The Company has made increased use of leverage and incurred increased interest and related expenses in the three years ended December 31, 1996. Increased debt was incurred in connection with the acquisition of Diamond D (fourth quarter of 1995), financing operations of Vantare (third quarter of 1996) and financing additional working capital. The Company temporarily was out of compliance with certain covenants in its loan agreements in 1996 but is now in compliance and has extended its bank line of credit. Increased leverage and related expenses create a risk to future operating results of the Company. Liquidity and Capital Resources Operating activities used net cash of $214,000 for the year 1996, primarily for investment in working capital. Net income for the year ended December 31, 1996 provided cash of $842,000. This amount was increased by adjustments for depreciation of $1.5 million and reduced by other non-cash items in a net amount of $185,000. Increases in receivables and inventories and other working capital items used cash of $2.3 million, excluding the effect of the Vantare acquisition which increased receivables, inventories and prepaids by $5.8 million and accounts payable and accruals by $6.1 million. These increases in working capital reflect the Company's increased volume of sales and additional increases may be required in the future to support higher sales levels throughout the next year. Investing activities in the year ended December 31, 1996 provided cash of $1.6 million, net of $1.5 million used for plant and other improvements. Sales of aircraft provided $2.8 million, which will be reinvested in aircraft in 1997. The Company also made a non-cash acquisition of the assets of Vantare International, Inc. as of July 1, 1996. In connection with this purchase which is described in Note 10 to financial statements, the Company received cash and cash equivalents in the amount of $231,000 and equipment with a fair value of $330,000. Financing activities used net cash of $1.9 million after borrowing an additional $6.1 million and repaying $8.2 million of aircraft and other debt. In connection with the purchase of the assets of Vantare International, Inc. the Company issued 300,000 shares of common stock with an approximate value of $1.8 million and assumed debt in the amount of $1.7 million. An additional 100,000 shares of stock may be issued over the next four years if defined levels of net income are achieved by the Vantare operation. The Company has a working capital line of credit with its primary lender. This line has a borrowing limit of equal to the lessor of $12 million or a defined percentage of eligible receivables and inventory and an interest rate of prime. The maturity date of this line is July 31, 1998, subject to renewal and extension. The Company is required by the lender to maintain defined levels of working capital, tangible net worth and cash flow and to limit leverage and capital expenditures. Borrowings under the line are secured by substantially all the assets of the Company. There was $9.1 million borrowed against this line as of December 31, 1996. The Company also has a wholesale floor plan agreement with a finance company to borrow up to $3.5 million for financing new and used motorcoaches held in inventory. At December 31, 1996, $1.8 million was borrowed against this line. The Company believes that its current cash balances, cash flow generated from operations and available borrowing capacity will be sufficient to fund operations and capital requirements for the next year and the foreseeable future. As discussed in Note 6 to financial statements, the Company is contingently liable under certain dealer floor plans and retail financing arrangements and has guaranteed certain notes payable to Featherlite Credit Corporation, a related company. These contingent liabilities total approximately $6.1 million at December 31, 1996. Also, the Company is self-insured for a portion of certain health benefit and workers' compensation insurance claims. At December 31, 1996, the Company's maximum annual claim exposure under these programs is approximately $2.2 million. The Company has obtained an irrevocable standby letter of credit in the amount of $1,225,000 in favor of the workers' compensation claim administrator. The Company is expanding its production facility in Sanford, Florida. Upon completion, this expansion project will be sold, at its completed cost of approximately $855,000, to the Seminole County Port Authority, the present owner of the facility. The facility will then be leased back to the Company under the terms of a ten year capitalizable lease. During the construction period the Company will provide financing for the construction using funds obtained from a bank. The cost of this financing will be included in the total project cost. The Company has made a commitment to the City of Cresco to construct a hangar facility at a cost of approximately $300,000 as part of an airport expansion project in 1997 or 1998. For the foreseeable future, the Company does not plan to pay dividends but instead will follow the policy of reinvesting earnings in order to finance the expansion and development of its business. As discussed in Note 5 to financial statements, the Company is a party to certain loan agreements which prohibit the payment of dividends without the lender's consent. Featherlite Mfg., Inc. Consolidated Balance Sheets December 31, 1996 and 1995
1996 1995 ASSETS CURRENT ASSETS: Cash $ 256,128 $ 810,708 Trade accounts receivable 6,782,898 5,501,045 Refundable income taxes -- 466,411 Inventories 25,235,331 19,461,509 Prepaid expenses 1,093,463 787,657 Deferred taxes 481,410 430,410 ---------- ---------- Total current assets 33,849,230 27,457,740 ---------- ---------- PROPERTY AND EQUIPMENT: Land and improvements 1,111,212 1,071,100 Building and improvements 7,300,025 7,110,754 Machinery and equipment 9,275,861 7,932,603 Accumulated depreciation (4,914,212) (3,780,835) ---------- ---------- Net property and equipment 12,772,886 12,333,622 ---------- ---------- GOODWILL AND OTHER ASSETS 6,911,416 6,292,854 ---------- ---------- $53,533,532 $46,084,216 ========== ========== LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Current maturities of long-term debt $ 1,145,465 $ 1,094,769 Other notes payable 2,254,641 656,571 Trade accounts payable 9,776,106 8,418,101 Accrued liabilities 3,110,187 1,811,954 Customer deposits 2,157,412 116,395 Income taxes payable 240,298 -- ---------- ---------- Total current liabilities 18,684,109 12,097,790 ---------- ---------- LONG-TERM DEBT: Bank line of credit 9,100,000 7,600,000 Other debt, net of current maturities 4,245,592 7,594,173 ---------- ---------- Total long term debt 13,345,592 15,194,173 ---------- ---------- DEFERRED GRANT INCOME 310,170 383,362 DEFERRED INCOME TAXES 598,743 455,743 CONTINGENCIES AND COMMITMENTS (Note 6) ---------- ---------- SHAREHOLDERS' INVESTMENT Common stock 14,220,355 12,420,355 Additional paid-in capital 4,061,500 4,061,500 Retained earnings 2,313,063 1,471,293 ---------- ---------- Total shareholders' investment 20,594,918 17,953,148 ---------- ---------- $53,533,532 $46,084,216 ========== ==========
See Notes to Consolidated Financial Statements. Featherlite Mfg., Inc. Consolidated Statements of Operations For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 Net sales $99,328,995 $69,159,149 $60,171,843 Cost of sales 84,642,699 58,672,720 47,521,014 ---------- ---------- ---------- Gross profit 14,686,296 10,486,429 12,650,829 Selling, general and administrative expenses 12,372,360 9,979,389 8,008,036 Amortization of intangibles 119,610 14,462 66,407 ---------- ---------- ---------- Income from operations 2,194,326 492,578 4,576,386 ---------- ---------- ---------- Other income (expense): Interest expense (1,450,265) (798,530) (667,212) Grant income 73,192 823,192 88,646 Gain on aircraft and other sales 59,648 534,092 128,688 Other income, net 526,869 120,333 126,348 ---------- ---------- ---------- Total other income (expense) (790,556) 679,087 (323,530) ---------- ---------- ---------- Income before taxes 1,403,770 1,171,665 4,252,856 Provision for income taxes 562,000 471,000 392,000 ---------- ---------- ---------- Net income $ 841,770 $ 700,665 $ 3,860,856 ========== ========== ========== Pro forma data Net income as reported $ -- $ -- $ 3,860,856 Pro forma provision for income taxes -- -- 1,152,000 ---------- ---------- ---------- Pro forma net income $ -- $ -- $ 2,708,856 ========== ========== ========== Net income per share (Pro forma in 1994) $ 0.13 $ 0.12 $ 0.60 ========== ========== ========== Weighted average number of common shares outstanding 6,106,072 5,955,000 4,508,836 ========== ========== ==========
Consolidated Statements of Shareholders' Investment For the years ended December 31, 1996, 1995 and 1994
--Common Stock-- Outstanding Additional Retained Shares Amount Paid in Capital Earnings Balance December 31, 1993 4,000,000 $ 2,000,000 $2,516,802 Net income for the period 3,860,856 Distributions for shareholders' taxes (1,545,530) Sale of common stock, net 1,955,000 10,420,355 Reclassify undistributed previously taxed S corporation earnings 4,061,500 (4,061,500) --------- ---------- --------- --------- Balance December 31, 1994 5,955,000 $12,420,355 $4,061,500 $ 770,628 Net income for the period 700,665 --------- ---------- ---------- --------- Balance December 31, 1995 5,955,000 $12,420,355 $4,061,500 $1,471,293 Net income for the period 841,770 Issue of common stock 300,000 1,800,000 --------- ---------- ---------- --------- Balance December 31, 1996 6,255,000 $14,220,355 $4,061,500 $2,313,063 ========= ========== ========= =========
See Notes to Consolidated Financial Statements.
Featherlite Mfg., Inc. Consolidated Statements of Cash Flows For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994 CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES: Net income $ 841,770 $ 700,665 $3,860,856 Adjustments to reconcile net income to net cash from (used for) operating activities Depreciation and amortization 1,454,271 1,244,495 925,739 Trailers exchanged for advertising and related amortization (143,953) 98,546 38,487 Grant income (73,192) (823,192) (88,646) Deferred taxes 92,000 190,333 (165,000) (Gain) on sales of aircraft and other property (59,648) (534,092) (128,688) Changes in current operating items, net of effect of business acquisitions Trade accounts receivable (1,150,027) (1,657,627) (920,605) Refundable income taxes 466,411 (466,411) -- Inventories (285,297) (6,763,671) (5,009,675) Prepaid expense (147,755) (127,543) 92,381 Trade accounts payable (1,999,439) 1,895,513 2,684,551 Accrued liabilities 1,305,557 149,222 889,945 Customer deposits (755,080) (199,866) (35,948) Income taxes payable 240,298 -- -- --------- --------- --------- Net cash from (used for) operations (214,084) (6,293,628) 2,143,397 --------- --------- --------- CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES: Acquisition of business 231,365 (2,005,708) -- Purchases of property and equipment (1,542,899) (2,941,669) (3,811,728) Proceeds from sale of equipment 78,868 123,087 159,347 Purchase of airplanes for resale -- (5,513,773) (2,975,500) Proceeds from sale of airplanes 2,788,500 4,225,000 1,240,000 --------- --------- --------- Net cash (used for) investing activities 1,555,834 (6,113,063) (5,387,881) --------- --------- --------- CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES Distribution for shareholder taxes -- (305,000) (1,795,051) Short-term debt increase (decrease) 140,313 523,627 (2,198,962) Proceeds from long-term debt and grants 6,106,387 16,412,183 4,844,227 Repayment of long-term debt (8,143,030) (6,212,223) (4,289,779) Net proceeds from issuance of common stock -- -- 10,420,355 Checks issued not yet presented increase (decrease) -- -- (937,494) --------- --------- ---------- Net cash from (used for) financing activities (1,896,330) 10,418,587 6,043,296 --------- ---------- --------- Net cash increase (decrease) for period (554,580) (1,988,104) 2,798,812 Cash, beginning of the period 810,708 2,798,812 -- --------- --------- --------- Cash, end of the period $ 256,128 $ 810,708 $2,798,812 ========= ========= =========
Featherlite Mfg., Inc. Notes To Consolidated Financial Statements Note 1. Nature of Business Featherlite Mfg., Inc. (the Company) is engaged in the manufacturing of various types of specialty trailers and luxury motorcoaches as well as related parts and accessories. The trailers are primarily sold at wholesale to authorized dealers throughout the United States and Canada. Dealer terms and conditions for business are defined by standard agreements with each authorized dealer. The luxury motorcoaches are sold directly by the Company to end user customers. The Company is also involved in the purchase and resale of commercial type aircraft used for business purposes. Note 2. Summary of Significant Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Featherlite Aviation Company. All material intercompany accounts and transactions are eliminated in consolidation. Fair Values of Financial Instruments: The carrying values of cash, accounts receivable and payable, short-term debt and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amount of long term debt, including current maturities, approximates the fair value of long-term debt because the related interest rates either fluctuate with the lending bank's current prime rate or approximate current interest rates for debt of a similar nature and maturity. Financial Statement Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 these estimates. Cash: At December 31, 1996 and 1995, the Company had cash with a financial institution in excess of the Federal Deposit Insurance Corporation insurance coverage. The Company has performed an evaluation of the relative credit standing of this financial institution and believes it has limited its credit exposure accordingly. Inventories. Inventories are stated at lower of first-in, first-out (FIFO) cost or market and include materials, labor and overhead costs. Inventories were as follows: 1996 1995 Raw Materials $ 8,053,000 $ 6,886,000 Work in Progress 8,410,000 3,329,000 Finished Trailers & Motorcoaches 8,772,000 9,247,000 ---------- ---------- Total $25,235,000 $19,462,000 ========== ========== Aircraft Held for Resale: Aircraft held by the Company for resale are stated at cost. Charges for depreciation are not taken, but the Company periodically evaluates the aircraft's net realizable value and, if necessary, adjusts the carrying value by charges to operations. Gain or loss on the sale of aircraft is included in operations during the period in which the aircraft are sold. Aircraft held by the Company for resale are classified as noncurrent as prior history indicates that the aircraft may not be sold within the next twelve months. Property and Equipment: Property and equipment are capitalized at cost, while repair and maintenance items are charged to current operations. Depreciation is provided for financial reporting purposes using straight-line and accelerated methods over estimated useful lives of 31 to 39 years for building and improvements and 5 to 7 years for machinery and equipment. Product Warranty: The Company's products are covered by product warranties ranging from one to six years after date of purchase by the consumer. At the time of sale, the Company recognizes estimated warranty cost, based on prior history and expected future claims, by a charge to operations. Goodwill and Long-lived Assets: The Company assesses long-lived assets for impairment under FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under those rules, property and equipment, goodwill associated with assets acquired in a purchase business combination, idle facilities held for sale and any other long-lived assets are included in impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. Cash Flow Information: Cash payments for interest were $1,461,000, $770,000 and $662,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Cash payments for income taxes were $143,000 in 1996 and $825,000 in 1995. Cash provided by (used for) acquisition of businesses in 1996 and 1995 was as follows: 1996 1995 Fair Value of Assets Acquired $ 9,412,000 $ 2,414,000 Liabilities Assumed (7,843,000) (408,000) Issuance of Common Stock (1,800,000) -- --------- --------- Cash provided (used) $ 231,000 $(2,006,000) ========= ========= Revenue Recognition: The Company recognizes revenue, net of all anticipated discounts, when the title to the trailer or motorcoach passes, normally upon completion of production and issuance of an invoice and the Manufacturer's Statement of Origin. Deferred Grant Income: The Company recognizes revenue related to grants received from various governmental units over the life of the assets to which the funding relates or during the period in which the expense occurs for which grants were received. Revenue recognition begins when there is reasonable assurance that all conditions of the grants, principally job creation goals, have been met. Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Net Income Per Common Share: Net income per common share is computed based upon the weighted average number of common shares outstanding during each year. The dilutive effect of the stock options is not material and has not been included in the computation of weighted average earnings per share. Note 3. Goodwill and Other Assets Goodwill and Other assets consist of the following: 1996 1995 Goodwill, net $3,536,000 $ 220,000 Aircraft held for resale 2,815,000 5,514,000 Idle Facilities 522,000 522,000 Advertising and Other 39,000 37,000 --------- --------- Total $6,912,000 $6,293,000 ========= ========= Goodwill: As discussed in Note 10, the excess of the total acquisition cost of Vantare International, Inc. and Diamond D Trailer Manufacturing, Inc. over the fair value of the net assets acquired of $3,648,000 is being amortized on a straight-line basis over periods of up to 20 years. Amortization was $108,000 in 1996 and $4,000 in 1995 and accumulated amortization was $112,000 and $4000 at December 31, 1996 and 1995, respectively. Idle Facilities: The Company owns land and buildings in Grand Meadow, Minnesota that was previously used as its corporate headquarters and delivery/maintenance facility. The net book value of the facilities have been reclassified from property and equipment to other assets and a provision has been made to reduce the facility to its expected realizable value. Portions of these facilities are being rented under operating leases to cover costs related to holding these properties while they are being marketed for resale. Advertising and Other: In 1996, 1995 and 1994, the Company exchanged trailers and coaches (total sales value $276,000 in 1996, $155,000 in 1995 and $193,000 in 1994) for future personal appearances and specific promotional and advertising services of an equivalent value. These contracts were capitalized and are being amortized over the period the services will be rendered. Amortization of these agreements to advertising expense was $315,000 in 1996, $254,000 in 1995 and $231,000 in 1994. Advertising expense was $1,299,000 in 1996, $1,116,000 in 1995 and $955,000 in 1994. Note 4. Income Tax Matters Prior to the completion of the sale of 1,955,000 shares of its common stock to the public, as described in Note 9, the income and deductions of the Company were reported in the individual income tax returns of the shareholders under provision of Subchapter S of the Internal Revenue Code. Periodic distributions have been made to the Company's shareholders representing the estimated income tax liability on the S corporation earnings which were the responsibility of the individual shareholders. Final distributions for shareholders taxes were $305,000, which were accrued at December 31, 1994, were paid in 1995. The pro forma adjustments for the year ended December 31, 1994 to reflect income taxes in the accompanying statements of operations is for information purposes only and has been calculated based on the estimated effective tax rate in each year assuming the Company had been subject to corporate income taxes. The components of the income tax provision charged to operations in 1996, 1995 and 1994, after the sale of common stock, are as follows:
1996 1995 1994 Current Federal $425,000 $259,000 $412,000 State 45,000 22,000 64,000 ------- ------- ------- $470,000 $281,000 476,000 ------- ------- ------- Deferred Federal 82,000 $171,000 (75,600) State 10,000 19,000 (8,400) ------- ------- ------- 92,000 $190,000 $(84,000) ------- ------- ------- Total $562,000 $471,000 $392,000 ======= ======= =======
A reconciliation of the provision for income taxes at the federal statutory rate to the provision for income taxes in the financial statement is as follows:
1996 1995 1994 Provision at statutory rate $478,000 $421,000 $409,000 State income taxes, net of Federal income tax benefit 60,000 38,000 37,000 Change in valuation allowance -- -- (40,000) Other 24,000 12,000 (14,000) ------- ------- ------- Total $562,000 $471,000 $392,000 ======= ======= =======
Net deferred tax assets and liabilities consist of the following components as of December 31, 1996 and 1995:
1996 1995 Deferred Tax Liabilities: Depreciation $599,000 $456,000 ------- ------- Deferred Tax Assets: Accrued expenses $270,000 $245,000 Accrued warranty reserve 100,000 48,000 Inventory allowances 64,000 100,000 Receivable allowances 48,000 38,000 ------- ------- $482,000 $431,000 ======= ======= Net deferred tax (liabilities) $(117,000) $(25,000) ======= =======
Note 5. Financing Arrangements Other Notes Payable: At December 31, 1996 and 1995, other notes payable consisted of the following:
1996 1995 Wholesale floor plan line of credit* $1,817,000 -- Insurance premiums; interest at 6.0%, payable in monthly installments 438,000 657,000 --------- ------- $2,255,000 $657,000 ========= =======
*The Company has a wholesale finance agreement with a financial services company for a $3.5 million line of credit to finance completed new and used motorcoaches held in inventory. Amounts borrowed are subject to defined percentages of eligible inventory. Borrowings bear interest at prime plus .25% (8.5% at December 31, 1996) and are secured by the motorcoach financed and other assets of the Company. The agreement includes covenants requiring maintenance of defined levels of tangible net worth, leverage and working capital. The agreement is subject to renewal on October 31, 1999. Bank line of credit: The Company has a Credit Agreement with a bank that provides for a working line of credit to provide for borrowing equal to the lesser of $12,000,000 or a defined percentage of eligible trade accounts receivable and inventory. Borrowings under this arrangement, which bear interest at prime (8.25% at December 31, 1996 and 1995), are secured by substantially all assets of the Company, and are guaranteed by certain shareholders under defined circumstances. The agreement includes covenants requiring maintenance of defined levels of working capital, tangible net worth, leverage, and cash flow and prohibits the payment of dividends without approval of the bank. Borrowings against this line of credit were $9,100,000 and $7,600,000 at December 31, 1996 and 1995, respectively. These borrowings are classified as long-term debt as the Credit Agreement matures and is subject to renewal on July 31, 1998. Long-term debt: (In thousands) 1996 1995 Bank notes payable; interest at 8.75%, payable in varying monthly installments plus interest through 2000; contains same collateral and covenant provisions as bank line of credit $2,176 $2,696 Bank notes payable; interest at prime plus 1%, (9.25% at December 31, 1996 and 1995) adjusted quarterly; payable in varying monthly installments with interest through October, 2006; collateralized by aircraft 1,559 4,144 Notes and capitalized leases to banks and others, interest to 11.5%, payable in varying monthly installments through 2003; collateralized by real estate and partial shareholder and other guarantees. 1,656 1,849 ----- ----- Total 5,391 8,689 Less current maturities (1,145) (1,095) ----- ----- $4,246 $7,594 ===== ===== Annual maturities during the five years subsequent to December 31, 1996 are: (in thousands) 1997 - $1,145; 1998 - $2,222; 1999 - $712; 2000 - $802; and 2001 - $116. Note 6. Commitments and Contingencies Pursuant to dealer inventory floor plan financing arrangements, the Company may be required, in the event of default by a financed dealer, to repurchase products from the financial institutions or to reimburse the institutions for unpaid balances including finance charges, plus costs and expenses. The Company was contingently liable under these arrangements for a maximum amount of $6,059,000 at December 31, 1996. The Company has two separate agreements which provide approximately $620,000 for job training purposes. The amounts are to be repaid, together with interest, over a ten year period from state withholding taxes on employees at the Company's Iowa facilities. The Company may be required to provide funds for the repayment of these training credits if sufficient withholding and unused training funds are not available. The Company is partially self-insured for a portion of certain health benefit and workers' compensation insurance claims. The Company's maximum annual claim exposure under these programs is approximately $2.2 million, including $634,000 accrued for estimated unpaid claims at December 31, 1996. The Company has obtained an irrevocable standby letter of credit in the amount of $1,225,000 in favor of the workers compensation claim administrator. The Company is expanding its production facility in Sanford, Florida. Upon completion, this expansion project will be sold, at its completed cost of approximately $855,000, to the Seminole County Port Authority, the present owner of the facility. The facility will then be leased back to the Company under the terms of a ten year capitalized lease. During the construction period the Company will provide financing for the construction using funds borrowed from a bank. The cost of this financing will be included in the total project cost. There is a risk related to losing Prevost Car Company, the company's sole supplier of motorcoaches, although the Company could purchase certain motorcoach shells from other manufacturers. The Company does have business interruption insurance to cover all or a portion of the losses it may sustain if Prevost's plant was destroyed by fire or certain other catastrophes. Note 7. Deferred Grant Income Deferred grant income consists of forgivable loans (grants) in an aggregate amount of $2,030,000 provided to the Company by various governmental units to assist with the establishment of the Company's headquarters and production facility in Cresco, Iowa and its Nashua, Iowa production facility. These loans are wholly or partially forgivable based on fulfillment and retention of job creation goals through June, 1999. These grants are being recognized as income as they are earned. Accumulated income recognized for these grants was $1,719,000 at December 31, 1996, $1,646,000 at December 31, 1995 and $823,000 at December 31, 1994. On January 2, 1997, a loan originated in 1991 in the amount of $375,000 was forgiven. Note 8. Related Party Transactions The Company recorded sales to authorized Featherlite dealers and Featherlite Credit, that are related entities under common ownership, of $3,154,000, $1,276,000, and $1,633,000, in 1996, 1995, and 1994, respectively. The Company has leased various buildings and equipment and received interest bearing advances from certain shareholders during current and prior periods. Payments related to these leases and interest on these advances totaled $91,000 in 1996, $91,000 in 1995 and $135,000 in 1994. In 1996 and 1995, the Company entered into agreements with Featherlite Credit Corporation, related under common ownership, to compensate it for various credit related services it provided for the Company, including the development of the Featherlite Master Lease program. Expenses under this agreement totaled $100,000 in 1996 and $170,000 in 1995. Also under the terms of this agreement, Featherlite Credit reimbursed the Company $116,000 and $88,000 for salaries and other costs paid by the Company in 1996 and 1995, respectively. Note 9. Shareholders' Investment Capitalization: The Company's authorized capital is 40,000,000 shares of no par Common Stock and 10,000,000 shares of undesignated stock. In 1994, the Company completed an initial public offering of 1,955,000 shares of Common Stock including an over-allotment option to the underwriter for an additional 255,000 shares at a price of $6.00 per share. Upon the closing of the public stock offering, the Company's S corporation election terminated. At that time, the retained earnings balance of $4,061,500, representing undistributed earnings on which income taxes have been paid, was reclassified to paid-in capital as a constructive distribution to the shareholders followed by a contribution by them to the capital of the Company. Stock option Plan: At December 31, 1996, the Company has a stock option plan which reserves up to 550,000 shares of Common Stock for issuance as options. These options may be granted to employees and directors at the discretion of the Board of Directors, which may grant either incentive stock options or non-statutory stock options. All incentive options must be granted at no less than 100 percent of the fair market value of the stock on the date of grant, (110 percent for employees owning more than 10 percent of fair market value on the date of grant.) The options expire at varying dates generally not to exceed ten years from date of grant and are non-transferable. Grants under this plan are accounted for using APB Opinion No. 25 and related interpretations. Accordingly, no compensation cost has been recognized for grants under the stock option plan. Had compensation cost for the stock option plan been based on the grant date fair values of awards (the method described in FASB Statement No. 123), reported net income and earnings per share would have been reduced to the pro forma amounts shown below. 1996 1995 Net income (000's) As reported $842 $701 Pro forma 728 701 --- --- Primary earnings per share As reported $.13 $.12 Pro forma .12 .12 --- --- Fully diluted earnings per share As reported $.13 $.12 Pro forma .12 .12 --- --- The fair value of each option has been estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1996 and 1995, respectively: dividend rate of 0% for all years; price volatility of 48.5% and 50.2%, risk-free interest rates of 6.3% and 6.6% for the five year options and 6.8% for the ten year options and expected lives of 5 and 10 years for the five and ten year options respectively. A summary of the status of the stock option plan at December 31, 1996, 1995 and 1994 and changes during the years ended on those dates is as follows: 1996 Weighted Average Shares Exercise Price Outstanding, beginning of year 159,168 $6.28 Granted 90,212 5.54 Exercised/forfeited - - ------- ---- Outstanding, end of year 249,380 $6.02 ======= ==== Exercisable at end of year 158,755 ======= Weighted-average fair value per share of options granted during the year $3.73 ======== 1995 Weighted Average Shares Exercise Price Outstanding, beginning of year 152,500 $6.16 Granted 6,668 9.00 Exercised/forfeited - - ------- ---- Outstanding, end of year 159,168 $6.28 ======= ==== Exercisable at end of year 97,918 ======= Weighted-average fair value per share of options granted during the year $4.68 ======= 1994 Weighted Average Shares Exercise Price Outstanding, beginning of year - - Granted 152,500 $6.16 Exercised/forfeited - - ------- ---- Outstanding, end of year 152,500 $6.16 ======= ==== Exercisable at end of year 60,525 ======= At December 31, 1996, the options outstanding have exercise prices ranging from $5.50 to $9.00 and a weighted average remaining contractual life of 7.9 years. All but 6,668 shares are exercisable at prices ranging from $5.50 to $7.25. All of the non-vested options are expected to eventually vest. Note 10. Business Combination In July, 1996, the Company acquired all the assets of Vantare International, Inc., a privately-held converter of purchased bus shells into luxury motorcoaches, in exchange for 300,000 restricted shares of the Company's common stock with a value of approximately $1.8 million and the assumption of certain liabilities. An additional 100,000 shares may be issued pending the attainment of certain defined net earnings, as determined annually, through December 31, 2000. This acquisition was accounted for as a purchase and accordingly, results of operations of Vantare have been included in the accompanying statement of operations since July 1, 1996, the acquisition date. The Company recorded intangible assets of $3.2 million, including goodwill, tradename and certain other rights which are being amortized over 20 years. The following unaudited pro forma summary presents the consolidated results of operations of the Company for the year ended December 31, 1996 as if the business combination had occurred on January 1, 1995 (in thousands, except for per share data): 1996 1995 Revenue $111,509 $88,980 Net Earnings 583 497 Earnings per share .09 .08 ======= ====== In October, 1995, the Company acquired all the assets of Diamond D Trailer Manufacturing, Inc., a privately-held manufacturer of steel trailers, for approximately $2.4 million, including cash and the assumption of certain liabilities. This acquisition was accounted for as a purchase and accordingly, results of operations of the acquired company, which are not significant to the Company's operations, have been included in the accompanying consolidated financial statements since the acquisition date. The purchase price was allocated on the basis of the estimated fair value of assets acquired and liabilities assumed with the remaining excess purchase price of $356,000 to be amortized over 15 years. Note 11. Segment Reporting In 1996, the Company began operating in two principal business segments: trailers and motorcoaches. Prior to 1996, the Company only manufactured and distributed trailers. Sales to customers outside of the United States represent less than 10% of consolidated sales.
Information on business segments was as follows: (in thousands) 1996 1995 1994 Net sales Trailers $80,689 $65,176 $56,836 Motorcoaches 14,785 -- -- All other segments 3,855 3,983 3,336 ------ ------ ------ Total net sales $99,329 $69,159 $60,172 ====== ====== ====== Income from operations Trailers $5,085 $2,764 $6,395 Motorcoaches 932 -- -- All other segments 438 1,513 1,369 General corporate expenses (4,221) (3,784) (3,188) Other income/(expense) (830) 679 (323) ----- ----- ----- Income before income taxes $1,404 $1,172 $4,253 ===== ===== ===== Identifiable assets Trailers $31,327 $35,715 $23,603 Motorcoaches 13,646 968 -- All other segments 381 166 144 General corporate assets 8,180 9,235 8,914 ------ ------ ------ Total assets as reported $53,534 $46,084 $32,661 ====== ====== ====== Capital Expenditures Trailers $ 725 $2,004 $3,213 Motorcoaches 18 -- -- All other segments 309 62 -- Corporate 491 876 599 ----- ----- ----- Total capital expenditures $1,543 $2,942 $3,812 ===== ===== ===== Depreciation and Amortization Trailers $ 850 $ 848 $ 583 Motorcoaches 106 -- -- All other segments 95 63 58 Corporate 403 333 285 ---- ---- ---- Total Depreciation and Amortization $1,454 $1,244 $ 926 ===== ===== ====
To the Board of Directors Featherlite Mfg. Inc. Cresco, Iowa We have audited the accompanying consolidated balance sheets of Featherlite Mfg. Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' investment, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Featherlite Mfg. Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ McGLADREY & PULLEN, LLP Rochester, Minnesota February 19, 1997 EX-23 10 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 McGLADREY & PULLEN, LLP Certified Public Accountants and Consultants CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of Featherlite Mfg., Inc. for the year ended December 31, 1996 of our report on the consolidated financial statements dated February 19, 1997 which appears on page 21 of the annual report to shareholders for the year ended December 31, 1996. We also consent to the incorporation by reference in the Registration Satement on Form S-8 (No. 33-90860) of the Featherlite Mfg., Inc. 1994 Stock Option Plan and Registration Statement on Form S-3 (No. 333-20969) of our reports, each dated February 19, 1997, on the consolidated financial statements and schedule of Featherlite Mfg., Inc., which reports, statements and schedules appear, or are incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1996. /s/ McGLADREY & PULLEN, LLP Rochester, Minnesota March 28, 1997 EX-27 11 FDS FOR YEAR END 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM 10-K FOR THE FISCAL YEAR ENDED 12/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. Dollars Year DEC-31-1996 JAN-01-1996 DEC-31-1996 1 256 0 6783 0 25235 33849 17687 (4914) 53534 18684 14490 0 0 14220 6365 53534 99329 99329 84643 97145 0 0 1450 1404 562 842 0 0 0 842 .13 .13
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