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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended
December 31, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
______ to ______.
Commission File No. 1-8183
SUPREME INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 75-1670945
(State of Incorporation) (IRS Employer Identification No.)
P.O. Box 237, 65140 U.S. 33 East, Goshen, Indiana 46528
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) - (219) 642-3070
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock ($.10 Par Value) American Stock Exchange
(Title of each class) (Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 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 the registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K
or any amendment hereto. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant at February 26, 1999: $71,347,493
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 26, 1999
Class A Common Stock ($.10 Par Value) 9,819,305 shares
Class B Common Stock ($.10 Par Value) 1,682,328 shares
Documents Incorporated by Reference
Parts of Form 10-K Into Which the
Document Document is Incorporated
Portions of the Proxy Statement
for Annual Meeting of Shareholders
to be held on April 29, 1999 Part III
The Index to Exhibits is on page ___ in the sequential numbering system.
Total pages ___
Page 1 of 106
PART I
ITEM 1. BUSINESS.
History
Supreme Industries, Inc., a Delaware Corporation, formerly ESI Industries,
Inc. (the "Company") is one of the nation's leading manufacturers of
specialized vehicles, including truck bodies and shuttle buses. The Company
was incorporated in 1979 and originally had one operating subsidiary TGC
Industries, Inc., which was spun-off to stockholders of the Company effective
July 31, 1986.
Supreme Corporation, the Company's wholly-owned operating subsidiary, was
formed in January 1984 to acquire a company engaged in the business of
manufacturing, selling and repairing specialized truck bodies, shuttle buses
and related equipment.
In August 1994, the Company acquired the business operations and
substantially all of the operating assets of Murphy Body Company, Inc.,
Wilson, North Carolina. The acquisition provided additional refrigerated
product lines that the Company did not currently produce and added additional
capacity for the Company's existing product lines. The acquisition also
provided better market penetration for all of the Company's product lines
into Virginia and North and South Carolina.
During 1998 the Company reached the decision to close two operating
facilities. The paratransit van line acquired in March 1996 never reached
the volumes anticipated. In addition, as a result of the damage to the
Honduran infrastructure caused by Hurricane Mitch, the Company decided to
close its hardwood flooring operation in Honduras. Neither closing will have
a continuing unfavorable effect on the Company's operations.
Financial Information About Operating Segments
The Company has two operating segments, specialized vehicles and vertically
integrated fiberglass products. The vertically integrated fiberglass
products segment does not meet the qualifications thresholds for separate
disclosure.
General Description of the Company's Business
The specialized vehicle industry consists of companies that manufacturer
and/or distribute specialized truck bodies and shuttle buses. Depending on
the product, it is either built directly on a truck chassis or built
separately and installed at a later date. The truck chassis, which consists
of an engine, frame with wheels, and in some cases a cab, is manufactured by
third parties who are major automotive or truck companies. Such companies
typically do not build specialized truck bodies. See "Competition."
Supreme's products are medium-priced with prices generally ranging from
$1,000 to $80,000. Supreme's truck bodies and custom trailers are offered in
aluminum or fiberglass reinforced plywood panel ("FRP") construction and are
available in lengths of 9 to 45 feet and heights up to 13 feet, 6 inches.
Examples of optional equipment offered by Supreme include lift gates,
cargo-handling equipment, customized doors, special bumpers, ladder racks,
and refrigeration equipment, which are configured with the truck bodies to
meet the end-user's needs. Supreme also makes its own fiberglass wind
deflectors under the name of Fuel Shark, which reduce wind resistance and
improve fuel efficiency. Supreme is not in the business of manufacturing
recreational vehicles or long-distance truck-trailers. The following is a
brief summary of Supreme's products:
Page 2 of 106
Van bodies. Supreme's van bodies are typically fabricated up to 28 feet in
length with pre painted aluminum or FRP panels, aerodynamic front and side
corners, hardwood floors and various door configurations to accommodate
end-user loading and unloading requirements. This product is used for
diversified dry freight transportation.
Refrigerated Chiller (trademark) insulated van bodies. Chiller (trademark)
vans are insulated FRP bodies which can accommodate controlled temperature
and refrigeration needs of end-users. All fiberglass exterior laminated
walls are corrosion resistant and utilize foam insulation which permits
varying levels of temperature to as low as minus twenty degrees Fahrenheit.
Kold King (trademark) aluminum insulated van bodies. Supreme's advances in
insulated foam technology have created this aluminum insulated body with
greater strength, less weight and better thermal efficiency.
Iner-City (trademark) cutaway van bodies. Aluminum or FRP cutaway van bodies
are manufactured on cutaway chassis which are available with access to the
cargo area from the cab. The Iner-City (trademark) cutaway van body is
similar to the regular van body except for floor construction and shorter
lengths (10 feet to 15 feet) as compared with van bodies which are constructed
to lengths of up to 28 feet.
Iner-City (trademark) walk-in van bodies. Supreme manufactures its walk-in
vans on a rail truck chassis having no cab. Supreme fabricates the driver's
compartment and body using FRP panels and aluminum. Some uses for this
product include the distribution of food products and small packages.
Commander (trademark) fiberglass van bodies. The Commander (trademark) is a
one-piece fiberglass molded body used principally in the lawn care industry.
The corrosion resistant body has an interior design which helps control
chemical spills and enhances the clean-up process.
Pro Fleet commercial conversions. Supreme's Pro Fleet product line meets the
needs of a wide array of commercial users. Pro Fleet customizes Chrysler,
Ford, and General Motors full-size vans, minivans and a full line of trucks.
These products are used as mobile offices, mobile workstations, commuter and
executive vans as well as service and delivery vehicles.
Spartan mini-bodies. Spartan mini-bodies are produced in three different
configurations and designed to be mounted on small trucks for diversified
commercial use.
Armored Trucks. Supreme's armored trucks are built to customer
specifications in either aluminum, galvaneal or stainless steel.
Page 3 of 106
StarTrans (trademark) shuttle buses. The StarTrans (trademark) shuttle buses
have seating capacities for 12 to 29 people and are offered with a variety of
seating arrangements and with options such as wheelchair lifts, custom
interiors, and special exterior paint schemes. The shuttle bus line features
an improved aerodynamic exterior design and is intended for use by hotels,
nursing homes, car leasing companies, and airport-related users.
StarTrans (trademark) mid-size buses. Supreme's StarTrans (trademark) mid-
size buses are offered in lengths of up to 31 feet with capacities of up to
35 passengers. This product serves the public transit and tour markets and
provides the Company's dealer network with a more comprehensive product line.
StarTrans (trademark) Trolleys. Supreme's StarTrans (trademark) trolley line
is similiar in size to the mid-size bus line but resembles a San Francisco
trolley car. It is marketed to resort areas, theme parks and cities desiring
unique transportation vehicles.
Customized trailers. Supreme manufactures a variety of customized trailers
for special needs, including mobile laboratories, antique and race car
haulers, and trailers for the broadcasting industry.
Stake bodies. Stake bodies are flatbeds with various configurations of
removable sides. The stake body is utilized for a broad range of agricultural
transportation needs.
Chiller (trademark), Kold King (trademark), Nordica (trademark), Iner-City
(trademark), Commander (trademark), Spartan, StarTrans (trademark), Freedom
One (trademark), and Fuel Shark are trademarks used by Supreme in its
marketing of truck bodies and buses. Chiller (trademark), Kold King
(trademark), Nordica (trademark), Iner-City (trademark), Commander
(trademark), StarTrans (trademark) and Freedom One (trademark) are trademarks
registered in the U.S. Patent and Trademark Office.
Some examples of specialized vehicles that are not manufactured by Supreme
are dump bodies, utility bodies and garbage packers. Neither Supreme nor
any of its competitors manufacture every type of specialized vehicles.
Supreme intends to continue to expand its product line, but there is no
assurance that it will do so.
Manufacturing
Supreme's manufacturing facilities are located in Goshen and Ligonier
Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California;
Jonestown, Pennsylvania and Wilson, North Carolina. Supreme's management
estimates that the capacity utilization of its plants and equipment range
from 50% to 90% of capacity when annualized on a one-shift basis. During the
first and second quarter several of the Company's plants operate at 100%
capacity to meet fleet requirements.
Page 4 of 106
Supreme builds specialized truck bodies and installs other equipment on truck
chassis, most of which are provided by bailment pool arrangements or are
owned by dealers or end-users. These truck bodies are built on an assembly
line from engineered structural components, such as floors, roofs, and wall
panels. These components are manufactured from Supreme's proprietary designs
and are installed on the truck chassis. Supreme then installs optional
equipment and applies any special finishes that the customer has specified.
At each step of the manufacturing and installation process, Supreme conducts
quality control procedures to insure that the products meet its customers'
specifications. Supreme's products are generally produced to firm orders
and are designed and engineered by Supreme. Order levels will vary depending
upon price, competition, prevailing economic conditions and other factors.
Supreme has designed and built its own fabricating equipment for many of its
manufacturing processes. Supreme has its own fiberglass manufacturing
facilities that process and assemble the Fiberglass Reinforced Panel ("FRP")
and other fiberglass products as required. The Company's patented Fiberglass
Reinforced Panel ("FRP") manufacturing facility is operating on a two shift
basis. The Company's strong internal demand for FRP will utilize all of the
facility's capacity through the second quarter of 1999. The Company will
begin marketing excess capacity from the FRP facility to other companies in
the transportation industry during the latter half of 1999. The Company also
plans to explore developing new products and applications for use in other
industries.
Supreme provides limited warranties against construction defects in its
products. These warranties generally provide for the replacement or repair
of defective parts or workmanship for five years following the date of retail
sale.
Supreme generally does not purchase vehicle chassis for its inventory.
Supreme accepts shipment of vehicle chassis owned by dealers or end-users,
for the purpose of installing and/or manufacturing its specialized truck
bodies and buses on such chassis. In the event of a labor disruption or other
uncontrollable event adversely affecting the limited number of companies
which manufacture and/or deliver such chassis, Supreme's level of
manufacturing could be substantially reduced. The Company has established
relationships with all major chassis manufacturers and in the event of a
disruption in supply from one manufacturer the Company would attempt to
divert its demand to the other manufacturer. Approximately 20% of the
chassis involved in Supreme's manufacturing have been secured through
bailment or consignment agreements with three major chassis manufacturers
that provide for truck chassis pools at each of Supreme's manufacturing
facilities.
Raw Materials
Supreme does not have any long-term raw material contracts and is dependent
upon suppliers of lumber, fiberglass, aluminum and steel for its
manufacturing. However, there are several readily available sources for
these raw materials. Supreme's operations could be affected by labor
disruptions at its raw material suppliers or freight carriers.
Page 5 of 106
Marketing
Supreme normally sells the vehicle and/or equipment that has been installed
on the chassis to either truck equipment distributors, truck dealers or
directly to end-users. Truck bodies purchased by a truck dealer from Supreme
are sold by the dealer to its own customers. Since Supreme or its
distributors (and not the truck dealers) generally service all Supreme
products sold by the truck dealers, each truck dealer is normally located
within relatively close geographic proximity to Supreme or the distributor
supplying such dealer.
Supreme's distributor/dealer network consists of approximately 37 bus
distributors, 85 truck equipment distributors and 500 truck dealers.
Management believes that this large distributor/dealer network, coupled with
Supreme's geographically-dispersed plant and distribution sites, gives
Supreme a distinct marketing advantage over its competitors. Supreme
generally delivers its products within 3 to 6 weeks after the receipt of
orders.
Approximately 70 employees are engaged in direct sales. Supreme engages in
direct advertising in trade publications, trade shows and cooperative
advertising campaigns with distributors.
Competition
Specialized vehicles are produced by many companies, most of which compete on
a regional basis. Management believes that Supreme enjoys a competitive
advantage based upon its established distributor/dealer network and six
manufacturing facilities and eight distribution centers. Chassis
manufacturers have not generally shown an interest in manufacturing
specialized vehicles, including truck bodies and shuttle buses, because such
manufacturers' highly-automated assembly line operations do not lend
themselves to the efficient production of a wide variety of highly
specialized vehicles with various options and equipment.
Trademarks
The Company owns and maintains trademarks that are used in marketing
specialized products manufactured by Supreme. Management believes that these
trademarks have significant customer goodwill.
Working Capital
The Company utilizes its credit facilities to finance its accounts receivable
and purchase inventories. Pursuant to agreements with the holders of certain
long-term indebtedness, the Company is required to maintain a minimum working
capital of not less than $10 million.
Page 6 of 106
Major Customers
No single customer or group of customers under common control accounted for
10% or more of the Company's revenues for each of the three years in the
period ended December 31, 1998. The Company's export sales are not
significant.
Environment Regulation
The Company's manufacturing operations are subject to federal, state, and
local statutes and regulations relating to the protection of the environment,
work site safety standards, and product size and weight limitations. Such
regulations increase the Company's cost of doing business. Because other
companies are subject to similar regulations, such regulations are not
believed to have an adverse effect on the Company's competitive position.
Employees
As of December 31, 1998, the Company employed approximately 2,000 employees,
none of whom are represented by a collective bargaining unit. The Company
considers its relations with its employees to be satisfactory.
Back Log
The Company's backlog of firm orders was $57.0 million at December 31, 1998
compared to $52.0 million at December 31, 1997.
Executive Officers of the Registrant
The name, age, business background, position held with the Registrant and
tenure of each of the Registrant's executive officers are set forth below.
No family relationship exists among any of the executive officers.
Page 7 of 106
Served as
Executive Positions With
Name, Age, and Business Experience Officer Since Company
Herbert M. Gardner, 59 1979 Chairman of
Senior Vice President of Janney the Board,
Montgomery Scott Inc., investment President
bankers, since 1978; Chairman of the
Board of the Company since 1979 and
President since 1993; Nu Horizons
Electronics Corporation, Director,
an electronic component distributor;
Transmedia Network, Inc., Director,
a company that markets a charge card
offering savings to the company's
card members at participating
restaurants and also provides savings
on the purchase of certain other
products and services; Hirsch
International Corporation, Director,
importer of computerized embroidery
machines, supplies, and developer of
embroidery machine application
software and provider of other
value-added services to the embroidery
industry; TGC Industries, Inc.,
Director, a company engaged in the
geophysical services industry; Inmark
Enterprises, Inc., Director, a marketing
and sales promotion company.
Omer G. Kropf, 57 1984 Executive
Executive Vice President of the Company Vice President
since August 1985; President and Chief
Executive Officer of Supreme Corporation,
a subsidiary of the Company, since January
19, 1984.
Page 8 of 106
Served as
Executive Positions With
Name, Age, and Business Experience Officer Since Company
William J. Barrett, 59 1979 Secretary and
Senior Vice President of Janney Assistant
Montgomery Scott Inc., investment Treasurer
bankers, since 1976; Secretary and
Assistant Treasurer of the Company
and a Director since 1979; TGC
Industries, Inc., a Director since
1986, a geophysical services company;
and Director American Country Holdings
Company, Inc., a property and casualty
insurance holding company with focus on
transportation and hospitality markets.
Robert W. Wilson, 54 1990 Executive Vice
Treasurer, Executive Vice President, President,
and Chief Financial Officer of the Treasurer,
Company since December 1992; Vice Chief
President of Finance of Supreme Financial
Corporation since 1988. Officer, and
Assistant
Secretary
Page 9 of 106
ITEM 2. PROPERTIES.
Set forth below is a brief summary of the properties which are owned or
leased by the Registrant as of December 31, 1998.
Square Owned or Operating
Footage Leased Segment
Manufacturing of Products
Goshen, Indiana 198,556 Leased Specialized Vehicles
Goshen, Indiana 211,154 Owned Specialized Vehicles
Elkhart, Indiana 31,000 Leased Specialized Vehicles
Jonestown, Pennsylvania 181,580 Owned Specialized Vehicles
Wilson, North Carolina 113,694 Leased Specialized Vehicles
Moreno Valley, California 100,147 Owned Specialized Vehicles
Cleburne, Texas 115,060 Owned Specialized Vehicles
Griffin, Georgia 102,795 Leased Specialized Vehicles
---------
1,053,986
Manufacturing of Component Parts
Goshen, Indiana 57,570 Owned Fiberglass Products
Ligonier, Indiana 21,250 Owned Fiberglass Products
---------
78,820
---------
Distribution
St. Louis, Missouri 15,000 Leased Specialized Vehicles
Houston, Texas 12,841 Owned Specialized Vehicles
Denver, Colorado 12,500 Leased Specialized Vehicles
Woonsocket, Rhode Island 10,720 Owned Specialized Vehicles
San Antonio, Texas 7,000 Owned Specialized Vehicles
Louisville, Kentucky 6,664 Owned Specialized Vehicles
Apopka, Florida 5,196 Owned Specialized Vehicles
Vallejo, California 8,400 Leased Specialized Vehicles
---------
78,321
---------
Total square footage 1,211,127
---------
---------
Of the leased properties, approximately 280,000 square feet of buildings and
approximately 63 acres of land located in Goshen, Indiana and Griffin,
Georgia are leased from a limited partnership controlled by certain members
of the Company's Board of Directors. Such board members are herein referred
to as the "Affiliated Lessors."
The Company's leases with the Affiliated Lessors will continue through
July 25, 2000. Supreme has the right to renew the leases for one additional
five-year period through July 25, 2005.
Page 10 of 106
Supreme has an option to purchase all of the properties leased to Supreme by
the Affiliated Lessors any time during the lease period or renewal period.
The purchase price will be equal to the higher of: (a) $2,765,000; or (b)
$2,765,000 times the figure obtained as a result of dividing (i) the Consumer
Price Index for the month preceding the month during which the option is
exercised, by (ii) the Consumer Price Index for June 1988.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters may be
resolved unfavorably to the Company. The Company has established accruals
for matters that are probable and reasonably estimable. Management believes
that any liability that may ultimately result from the resolution of these
matters in excess of accruals and or amounts provided by insurance coverage
will not have a material adverse effect on the consolidated financial
position or results of operation of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted by the Company to a vote of the Company's security
holders, through the solicitation of proxies or otherwise, during the fourth
quarter of the year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Class A Common Stock is traded on the American Stock Exchange
(ticker symbol STS). The number of record holders of the Class A Common
Stock as of February 26, 1999 was approximately 423. Due to the number of
shares held in nominee or street name, it is likely that there are more than
423 beneficial owners of the Company's Class A Common Stock.
Page 11 of 106
The Company's Class A Common Stock closed at $10.125 on the American Stock
Exchange on February 26, 1999 on which date there were 9,819,305 shares of
Class A Common Stock outstanding. High and low closing prices of the Class A
Common Stock for the two year period ended December 31, 1998 were:
1998 1997
High Low High Low
1st Quarter 11 1/2 7 15/16 6 3/8 4 9/16
2nd Quarter 14 3/8 10 13/16 7 3/8 5 5/8
3rd Quarter 11 3/4 8 1/8 8 1/2 7 3/8
4th Quarter 9 15/16 7 3/8 9 5/16 7 5/8
All of the 1,682,328 outstanding shares of the Company's Class B Common Stock
were held by a total of 14 persons as of February 26, 1999. There is no
established trading market for the Class B Common Stock. Class B Common
Stock is freely convertible on a one-for-one basis into an equal number of
shares of Class A Common Stock and ownership of the Class B shares is deemed
to be beneficial ownership of the Class A shares under Rule 13d-3(d) (1)
promulgated under the Securities Exchange Act of 1934.
No cash dividends were paid in 1998 or 1997. The Company paid two 5% stock
dividends during 1997, one on May 19 and one on November 17 and two 5% stock
dividends during 1998, one on June 1 and one on November 20.
Page 12 of 106
ITEM 6. SELECTED FINANCIAL DATA.
For the Years Ended December 31,
Consolidated Income Statement
Data: (in millions, except
per share amounts)
1998 1997 1996 1995 1994
Net revenue $ 223.7 $ 198.0 $ 159.9 $ 164.5 $ 137.3
Net income 9.0 (a) 8.6 5.1 7.2 5.5
Net income per
share:(b)
Basic earnings
per share .79 .75 .46 .73 .56
Diluted earnings
per share .78 .74 .44 .66 .53
Consolidated Balance
Sheet Data: (in millions)
Working capital $ 39.3 $ 30.4 $ 23.4 $ 23.1 $ 20.0
Total assets 94.1 85.9 68.8 62.4 57.6
Long-term debt
(excluding current
maturities) 18.3 17.4 16.1 18.0 19.7
Stockholders' equity 53.5 44.5 35.8 28.8 20.0
(a) Net income for 1998 was reduced by a $1.3 million extraordinary loss
(see Note B of Notes to Consolidated Financial Statements).
(b) All per share amounts have been restated for all common stock
dividends paid.
Page 13 of 106
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Comparison of 1998 with 1997
Revenues increased $25.8 million to $223.7 million for the year ended
December 31, 1998 from $198.0 million for the year ended December 31, 1997.
The Company experienced revenue growth at each of its manufacturing
facilities. Additionally, each of the Company's major product lines
experienced growth when compared to 1997. New product lines, including
armored trucks, trolleys and Spartan service vans accounted for approximately
50% of the revenue growth in 1998. Actual units shipped increased 10% when
compared to 1997.
The Company's gross profit percentage increased 1.0% to 17.6% for 1998 from
16.6% in 1997. The Company experienced slight percentage declines in raw
material cost and overhead expenses while direct labor was unchanged as a
percentage of revenues.
Selling, general and administrative expenses were $20.7 million or 9.2% of
revenues in 1998 when compared to $17.2 million or 8.7% of revenues in 1997.
The $3.4 million increase was related to the increased revenues in 1998 as
well as a substantial commitment by the Company to upgrade its information
and operating systems.
Interest expense increased $.2 million to $1.6 million in 1998 from $1.4
million in 1997. The increase related to additional borrowings to finance
the higher levels of accounts receivable and inventories as well as increased
interest on the Company's chassis pools. Both these increases are result of
the increased revenues for 1998 when compared to 1997.
The Company's effective tax rate on income before extraordinary loss was
39.4% in 1998 and 39.5% in 1997.
In the fourth quarter of 1998, the Company recognized a $1.3 million
extraordinary loss, net of tax benefit, as a result of the closing of its
Honduran hardwood flooring manufacturing facility. Because of the damage to
the Honduran roads and bridges caused by Hurricane Mitch, the Company was
unable to cost effectively obtain raw materials for its hardwood flooring
plant and export finished product to its U.S. plants. The Company has
obtained other sources of hardwood flooring at competitive prices.
Comparison of 1997 with 1996
Revenues for 1997 increased 23.8% to $198.0 million from $159.9 million in
1996. Each of the Company's manufacturing facilities recorded revenue
increases over those recorded in 1996. The strongest revenue increases were
recorded at the Company's Goshen, Indiana and Jonestown, Pennsylvania
manufacturing facilities. Goshen is the Company's largest manufacturing
facility and offers the broadest product lines as compared to the other
locations that offer primarily dry freight or refrigerated product lines.
Pennsylvania's increase can be attributed to the fact it operates in the
largest market for the Company's products. Overall sales of the Company's
largest product line, dry freight vans, increased 21.3% over 1996. The
Company's StarTrans (trademark) line of shuttle and mid-size buses grew 28.2%
over 1996. The Company's new product lines (armored trucks, trolley buses and
service vans) contributed marginally to sales increases in 1997.
Page 14 of 106
The Company's gross profit percentage was relatively unchanged in 1997 when
compared to 1996. Both raw material and direct labor costs increased
nominally in 1997 when compared to 1996. Overhead expenses declined 1.5% as
a percentage of revenues compared to 1996, offsetting the increases in direct
labor and materials. The decline in overhead expenses is attributed to the
fixed nature of certain expenses in the overhead pool that do not change
proportionately when revenues increase as well as favorable variances between
1997 and 1996 in general insurance, workers compensation and group insurance
expenses. Start-up and training costs associated with the Company's three
new product lines contributed slightly to the increases in direct labor and
overhead. All are very labor intensive and also required an additional
investment in raw material inventories.
Selling, general and administrative expenses were $17.2 million or 8.7% of
revenue compared with $15.4 million or 9.7% of revenue in 1996. The increase
in selling, general and administrative expenses of $1.8 million can be
directly attributed to the increased revenue of $38.1 million. Employee
related costs accounted for approximately 49% of the $1.8 million increase in
1997 as compared to 1996. The percentage decline of 1.0% to 8.7% in 1997 as
compared to 9.7% in 1996 is attributed to those items in the selling, general
and administrative category that do not change in response to changes in
revenues.
Interest expense declined $.1 million to $1.4 million in 1997 from $1.5
million in 1996. This decline resulted from less use of the Company's
revolving credit facility during most of 1997 as compared to 1996, the
pay-off of $1.0 million in real estate loans during 1997 and the reduction of
$1.0 million in a term note. Offsetting these reductions was a full year's
interest on the Company's California facility purchased in April 1996.
The Company's effective income tax rate of 39.5% dropped 2.4% from the
comparable rate of 41.9% in 1996. The effective tax rate decreased as the
result of research and experimentation tax credits in the current year and
the fact that approximately 1% of 1996's effective tax rate was attributable
to the loss experienced at the Honduran subsidiary which generated no tax
benefit since the subsidiary operated in a government free zone.
Liquidity and Capital Resources
Cash flows from operations, availability under the Company's revolving credit
line and a $7.0 million term loan were the major sources of funds for
operations and capital expenditures during 1998. Cash flows from operating
activities were $5.1 million for the year ended December 31, 1998 compared to
$4.7 million and $7.5 million for the years ended December 31, 1997 and
December 31, 1996, respectively. Income before extraordinary loss of $10.3
million and depreciation and amortization of $3.0 million are the largest
components of operating cash flow. The increase in accounts receivable of
$5.9 million during 1998 is primarily attributed to the increased revenues.
Days sales outstanding were 43 at December 31, 1998 compared to 39 at
December 31, 1997 and 38 at December 31, 1996. The increase in 1998 was
caused by large state contracts for the Company's bus products which
typically take up to 60 days from invoice date to pay. Inventories increased
$1.0 million over 1997 and this increase is also attributed to the increased
revenues in 1998. The $6.7 million increase in accounts receivable and the
$7.2 million increase in inventories in 1997 were directly related to
increased revenues as well as the introduction of new product lines.
The Company used operating cash flows to reduce accounts payable and other
current liabilities in 1998, while in 1997 and 1996 operating cash flows were
reduced by the increases in accounts payable and other current liabilities.
Page 15 of 106
The Company invested $6.1 million in property, plant and equipment in 1998.
The Company completed a 52,000 sq.ft. production facility at its Goshen,
Indiana facility. It also acquired approximately 28 acres adjoining its
Goshen facility that is used for chassis parking and will also provide space
for the Company's office facility to be completed in 1999. During 1998, the
Company also invested $600,000 in financial and operating software that is
year 2000 compliant. Additionally, the Company made investments at its
Pennsylvania and Georgia manufacturing facilities that will provide
additional capacity and more efficient production of the Company's product
lines.
The major financing activities during the year were the use of the Company's
revolving line of credit and a $7.0 million term loan that, through the use
of a interest rate swap agreement, provides a fixed rate of 6.7%. The
Company amended its banking agreement on June 23, 1998 to increase its
borrowing availability to $18.0 million for the period July 1 through January
31 and to $25.0 million for the period February 1 through June 30 and to
provide for covenants more favorable to the Company. The credit agreement
was further amended on September 30, 1998 to provide for the $7.0 million
term loan. The Company paid off mortgages totaling $833,000 during the year
that were collateralized by certain facilities in Goshen, Indiana; Houston,
Texas; and Jonestown, Pennsylvania.
The Company realized proceeds of $.2 million in 1998 and $.1 million in 1997
from the exercise of stock options.
In September 1998, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of Class A Common Stock in open market
purchases or privately negotiated transactions through the close of business
on February 26, 1999. During 1998, the Company used $.3 million of cash for
the acquisition of treasury stock.
The Company anticipates that available funds, together with anticipated cash
flows generated from future operations and amounts available under its
revolving credit line will be sufficient to meet the Company's cash needs
during 1999.
Year 2000
The Company began preparation for the year 2000 issues during 1996. An
independent consulting group was engaged to conduct a complete analysis of
the Company's system and operating requirements. After review and approval
by management, this analysis formed the basis for a request for quotation
that was sent to several major software providers. The final decision was
made on the strength of the manufacturing software combined with the quality
and level of expertise the software provider could furnish.
The total cost of the operating software and consulting fees is approximately
$1,000,000. In addition the Company has spent $200,000 on hardware upgrades.
Page 16 of 106
The Company's goal is not only to be able to process transactions in the year
2000 but also to significantly improve its overall information systems. When
fully implemented the Company will have more detailed operating and financial
information by facility, product line and customer. For this purpose the
project was divided into two phases. Phase I provides year 2000 compliance
and Phase II develops the system and procedures necessary to provide the more
meaningful operating and financial information. Phase II will be an ongoing
project.
The Company has installed the new software on its main frame and has
successfully implemented it at its fiberglass manufacturing facility. The
Company is in the process of implementing its remaining operating facilities
and is scheduled to have all locations operating on the new software by
September 1, 1999. While the Company believes it will be fully 2000
compliant utilizing the new software by September of 1999 it has developed a
contingency plan that would enable the Company to remain on its existing
software.
The Company's major suppliers have indicated that they are year 2000
compliant. The Company believes because of the nature of its raw materials
and the multiple suppliers of raw materials, the Company will not have a
problem obtaining raw materials to build its products. The Company also
believes there is not significant risk from the failure of its customers to
become year 2000 compliant because of the large number of active accounts and
the fact that no single account is more than 6% of revenues.
Pending Accounting Pronouncements
The Company does not believe the implementation of pending accounting
pronouncements (see Note A of Notes to Consolidated Financial Statements) on
or before the effective date will have a significant effect on the Company's
financial reporting.
Forward-Looking Statements
This report contains forward-looking statements, other than historical facts,
which reflect the view of the Company's management with respect to future
events. Such forward-looking statements are based on assumptions made by and
information currently available to the Company's management. Although
management believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that the expectations
reflected in such forward-looking statements are reasonable, such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations include,
without limitation, limitations on the availability of chassis on which the
Company's product is dependent, availability of raw materials and severe
interest rate increases. The forward-looking statements contained herein
reflect the current views of the Company's management with respect to future
events and are subject to those factors and other risks, uncertainties and
assumptions relating to the operations, results of operations and financial
position of the Company. The Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could
differ from those contemplated by such forward-looking statements.
Page 17 of 106
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company are exposed to
fluctuations in interest rates. These fluctuations can vary the cost of
investing, financing and operating. The Company's primary risk exposure
results from changes in short-term interest rates. In an effort to manage
risk exposures, the Company strives to achieve an acceptable balance between
fixed and floating rate debt positions. The Company's revolving line of
credit is floating rate debt and bears interest at the bank's prime rate or
LIBOR plus certain basis points depending on the pricing option selected and
the Company's leverage ratio. On September 30, 1998, the Company entered
into an Interest Rate Swap Agreement (the "Swap Agreement") to reduce the
impact of changes in interest rates on a newly issued $7 million bank term
loan which bears interest at LIBOR plus certain basis points determined by
the Company's leverage ratio (effective rate of 6.38% at December 31, 1998).
The Swap Agreement is a contract to exchange floating rate for fixed rate
interest payments over the life of the Swap Agreement, which coincides with
the term of the related debt, without exchange of the underlying notional
amounts. The notional amounts of the Swap Agreement are used to measure
interest to be paid or received and does not represent the amount of exposure
of credit loss. The differential paid or received under the Swap Agreement
is recognized as an adjustment to interest expense. As of December 31, 1998,
under the Swap Agreement, the Company has exchanged $6.65 million notional
amount of floating rate debt for a fixed rate of 6.7% through September 30,
2003. Based on the Company's overall interest rate exposure at December 31,
1998, including floating rate debt and the interest rate swap, a hypothetical
10 percent change in interest rates applied to the fair value of the
financial instruments as of December 31, 1998, would have no material impact
on earnings, cash flows or fair values of interest rate risk sensitive
instruments over a one-year period.
Page 18 of 106
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements Page
Financial Statements:
Report of Independent Accountants 20
Consolidated Balance Sheets at December 31, 1998 and 1997 21
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 22
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 23
Condolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 24
Notes to Consolidated Financial Statements 25 - 38
Financial Statement Schedule:
For each of the three years in the period ended
December 31, 1998
II - Valuation and Qualifying Accounts 39
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Page 19 of 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Supreme Industries, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Supreme Industries, Inc. and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
South Bend, Indiana
January 29, 1999
Page 20 of 106
Supreme Industries, Inc. And Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
ASSETS
1998 1997
Current assets:
Cash and cash equivalents $ 185,424 $ 159,044
Accounts receivable, net of allowance for
doubtful accounts of $456,000 in 1998 and
$430,000 in 1997 28,709,559 23,188,066
Refundable income taxes 1,035,000 371,511
Inventories 28,792,650 28,404,786
Deferred income taxes 1,081,839 973,657
Other current assets 430,237 431,931
----------- -----------
Total current assets 60,234,709 53,528,995
Property, plant and equipment, net 31,342,322 29,560,441
Intangible assets, net 1,502,076 1,705,385
Other assets 991,947 1,079,491
----------- -----------
Total assets $ 94,071,054 $ 85,874,312
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,014,975 $ 2,119,692
Trade accounts payable 10,235,964 10,433,051
Accrued wages and benefits 4,568,062 3,611,691
Accrued income taxes 961,628 1,098,111
Customer deposits 147,875 2,718,463
Other accrued liabilities 3,020,261 3,184,032
---------- ----------
Total current liabilities 20,948,765 23,165,040
Long-term debt 18,303,207 17,359,703
Deferred income taxes 1,333,007 898,825
---------- ----------
Total liabilities 40,584,979 41,423,568
---------- ----------
Commitments and contingencies (Note J)
Stockholders' equity:
Preferred Stock, $1 par value; authorized
1,000,000 shares, none issued
Class A Common Stock, $.10 par value;
authorized 20,000,000 shares, issued
9,890,653 shares in 1998 and 8,855,990
shares in 1997 989,065 885,599
Class B Common Stock, convertible into Class
A Common Stock on a one-for-one basis,
$.10 par value; authorized 5,000,000 shares,
issued 1,688,328 shares in 1998 and
1,546,773 shares in 1997 168,833 154,677
Additional paid-in captial 44,107,645 31,743,249
Retained earnings 8,935,827 11,917,755
Treasury stock, Class A Common Stock, at cost,
75,934 shares in 1998 and 32,232 shares in 1997 (715,295) (250,536)
---------- ----------
Total stockholders' equity 53,486,075 44,450,744
---------- ----------
Total liabilities and stockholders'
equity $ 94,071,054 $ 85,874,312
---------- ----------
---------- ----------
The accompanying notes are a part of the consolidated financial statements.
Page 21 of 106
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements Of Income
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenue:
Net sales $ 222,566,601 $ 197,429,917 $ 159,214,622
Other income 1,161,320 538,242 661,486
------------- ------------- -------------
223,727,921 197,968,159 159,876,108
------------- ------------- -------------
Costs and expenses:
Cost of sales 184,433,390 165,197,662 134,153,108
Selling, general and
administrative 20,655,625 17,228,565 15,434,432
Interest 1,647,878 1,409,713 1,530,624
------------- ------------- -------------
206,736,893 183,835,940 151,118,164
------------- ------------- -------------
Income before income
taxes and extraordinary
loss 16,991,028 14,132,219 8,757,944
Income taxes 6,700,000 5,577,000 3,671,000
------------- ------------- -------------
Income before extraordinary
loss 10,291,028 8,555,219 5,086,944
Extraordinary loss, net of income
tax benefit of $860,000 1,280,115 - -
------------- ------------- -------------
Net income $ 9,010,913 $ 8,555,219 $ 5,086,944
------------- ------------- -------------
------------- ------------- -------------
Earnings per share - Basic:
Income before extraordinary loss $ .90 $ .75 $ .46
Extraordinary loss (.11) - -
------------- ------------- -------------
Net income $ .79 $ .75 $ .46
------------- ------------- -------------
------------- ------------- -------------
Earnings per share - Diluted:
Income before extraordinary loss $ .89 $ .74 $ .44
Extraordinary loss (.11) - -
------------- ------------- -------------
Net income $ .78 $ .74 $ .44
------------- ------------- -------------
------------- ------------- -------------
Shares used in the computation
of earnings per share:
Basic 11,455,739 11,421,251 11,000,525
Diluted 11,577,872 11,516,574 11,438,209
The accompanying notes are a part of the consolidated financial statements.
Page 22 of 106
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements Of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996
Total
Class A Common Stock Class B Common Stock Additional Retained Treasury Stockholders'
Shares Amount Shares Amount Paid-In-Capital Earnings Stock Equity
Balance, January 1,
1996 6,738,610 $ 673,861 1,801,663 $ 180,166 $ 18,911,421 $ 9,193,919 $ (156,486) $ 28,802,881
Net income - - - - - 5,086,944 - 5,086,944
Conversion of
398,688 shares
of Class B
Common Stock
to Class A
Common Stock 398,688 39,869 (398,688) (39,869) - - - -
Conversion of
$1,134,428 face
amount of 8.6%
convertible
Series B notes 263,262 26,326 - - 1,108,102 - - 1,134,428
Exercise of stock
options 30,580 3,058 - - 52,307 - - 55,365
Exercise and
exchange of
warrants 581,627 58,163 - - 3,829,757 (3,051,930) - 835,990
Acquisition of
17,100 shares
of treasury
stock - - - - - - (94,050) (94,050)
--------- ------- ---------- ------- ---------- ---------- -------- ----------
Balance, December 31,
1996 8,012,767 801,277 1,402,975 140,297 23,901,587 11,228,933 (250,536) 35,821,558
Net income - - - - - 8,555,219 - 8,555,219
Exercise of
stock options 21,505 2,150 - - 71,817 - - 73,967
5% Common Stock
dividends 821,718 82,172 143,798 14,380 7,769,845 (7,866,397) - -
--------- ------- --------- ------- ---------- ---------- -------- ----------
Balance, December 31,
1997 8,855,990 885,599 1,546,773 154,677 31,743,249 11,917,755 (250,536) 44,450,744
Net income - - - - - 9,010,913 - 9,010,913
Conversion of
16,165 shares
of Class B
Common Stock
to Class A
Common Stock 16,165 1,616 (16,165) (1,616) - - - -
Exercise of
stock options
(12,843 shares
of treasury
stock) 110,497 11,050 - - 391,127 - (185,950) 216,227
5% Common Stock
dividends 908,001 90,800 157,720 15,772 11,886,269 (11,992,841) - -
Tax benefit from
exercise of
stock options - - - - 87,000 - - 87,000
Acquisition of
30,859 shares
of treasury
stock - - - - - - (278,809) (278,809)
--------- ---------- --------- ---------- ------------- ------------ ------------ -------------
Balance, December 31,
1998 9,890,653 $ 989,065 1,688,328 $ 168,833 $ 44,107,645 $ 8,935,827 $ (715,295) $ 53,486,075
--------- ---------- --------- ---------- ------------- ------------ ------------ -------------
--------- ---------- --------- ---------- ------------- ------------ ------------ -------------
The accompanying notes are a part of the consolidated financial statements.
Page 23 of 106
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements Of Cash Flows
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net income $ 9,010,913 $ 8,555,219 $ 5,086,944
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss 1,280,115 - -
Depreciation and amortization 2,731,510 2,581,650 1,963,497
Amortization of intangibles 203,309 203,309 203,310
Provision for losses on
doubtful receivables 532,963 54,954 184,273
Deferred income taxes 326,000 78,000 (26,000)
Loss (gain) on sale of
property, plant and
equipment 139,496 47,234 (11,403)
Changes in operating assets
and liabilities, excluding
effects of acquisition and
disposition of businesses:
Accounts receivable (5,944,456) (6,686,762) (404,085)
Inventories (970,035) (7,196,079) (943,429)
Other current assets (667,776) (380,205) 41,246
Trade accounts payable (438,163) 3,654,109 435,176
Other current liabilities (1,054,471) 3,738,742 1,018,994
---------- ---------- ----------
Net cash provided by
operating activities 5,149,405 4,650,171 7,548,523
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 113,745 107,934 32,347
Additions to property, plant and
equipment (6,062,276) (5,867,622) (6,874,667)
Acquisition of business - - (221,725)
Increase in other assets (37,699) (40,744) (125,640)
---------- ---------- ----------
Net cash (used in)
investing activities (5,986,230) (5,800,432) (7,189,685)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from revolving line of
credit and other long-term debt 96,031,172 84,443,759 69,494,785
Repayments of revolving line of
credit and other long-term debt (95,192,385) (83,429,099) (70,536,990)
Proceeds from exercise of stock
options and warrants 216,227 73,967 891,355
Tax benefit from exercise of
stock options 87,000 - -
Acquisition of treasury stock (278,809) - (94,050)
---------- ---------- ----------
Net cash provided by
(used in) financing
activities 863,205 1,088,627 (244,900)
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents 26,380 (61,634) 113,938
Cash and cash equivalents,
beginning of year 159,044 220,678 106,740
---------- ---------- ----------
Cash and cash equivalents, end of
year $ 185,424 $ 159,044 $ 220,678
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $1,693,904 $1,500,077 $1,517,102
Income taxes 6,226,972 5,731,640 2,876,442
Noncash investing and financing
activities:
Common Stock dividends 11,992,841 7,866,397 -
Class A Common Stock exchanged
in exercise of stock options 185,950 - -
Conversion of Class B Common
Stock to Class A Common Stock 1,616 - 39,869
Conversion of convertible notes
to shares of Class A Common
Stock - - 1,134,428
Exchange of warrants for Class
A Common Stock - - 428,340
The accompanying notes are a part of the consolidated financial statements.
Page 24 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES.
Supreme Industries, Inc. and its subsidiaries (collectively the "Company")
manufacture specialized truck bodies that are mounted on new truck chassis
produced by others. The Company's truck body products include cut-away and
dry freight van bodies, refrigerated units, stake bodies and other
specialized trucks. The Company also manufactures shuttle buses and
trailers. At December 31, 1998, the Company has 16 manufacturing,
distribution and supply facilities. The Company's customers are located
principally in the United States.
The following is a summary of the significant accounting policies used in the
preparation of the accompanying consolidated financial statements:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Supreme Industries, Inc. and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition and Concentration of Credit Risk - The production
of specialized truck bodies and shuttle buses starts when an order is
received from the customer. Revenue is recognized when the unit is
shipped to the customer. Concentration of credit risk is limited due to
the large number of customers and their dispersion among many different
industries and geographic regions. The Company performs an ongoing
credit evaluation of its customers' financial condition, and credit is
extended to customers on an unsecured basis. Future credit losses are
provided for currently through the allowance for doubtful accounts and
actual credit losses are charged to the allowance when incurred.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Fair Value of Financial Instruments - The carrying amounts of cash and
cash equivalents, accounts receivable and trade accounts payable
approximated fair value as of December 31, 1998 and 1997 because of the
relatively short maturities of these instruments. The carrying amount
of long-term debt, including current maturities, approximated fair value
as of December 31, 1998 and 1997, based upon terms and conditions
available to the Company at those dates in comparison to terms and
conditions of the long-term debt. The estimated fair value of the
outstanding interest swap agreement (see Note J), based on current
market rates, approximated a net liability of $103,000 at December 31,
1998 which is not recorded on the consolidated balance sheet.
Inventories - Inventories are stated at the lower of cost or market,
with cost determined using the first-in, first-out method.
Page 25 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. For financial reporting purposes, depreciation is
provided based on the straight-line method over the estimated useful
lives of the assets. Amortization of leasehold improvements, for
financial reporting purposes, is determined by the straight-line method
over the lesser of the useful life of the asset or term of the lease.
Upon sale or other disposition of assets, the cost and related
accumulated depreciation and amortization are removed from the accounts
and any resulting gain or loss is reflected in operations.
Expenditures for maintenance and repairs are charged to operations as
incurred. Betterments and major renewals are capitalized and recorded
in the appropriate asset accounts.
Capitalized Interest - Interest costs capitalized during the
construction period of new buildings, machinery and equipment was
$199,000 for the year ended December 31, 1996.
Intangible Assets - Intangible assets consist of goodwill - $3,379,031
and patents - $325,000, and are recorded at cost and shown net of
accumulated amortization. Amortization of goodwill is provided using
the straight-line method over the estimated benefit period (16 to 25
years), and patents are amortized over seven years using the
straight-line method. Accumulated amortization at December 31, 1998 and
1997 was $2,201,955 and $1,998,646, respectively.
Evaluation of Impairment of Long-Lived Assets - In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of," the Company evaluates the carrying value of
long-lived assets whenever significant events or changes in
circumstances indicate the carrying value of these assets may be
impaired. The Company evaluates potential impairment of long-lived
assets by comparing the carrying value of the assets to the expected net
future cash inflows resulting from use of the assets. Management
believes that no impairment of long-lived assets has occurred, except as
discussed in Note B.
Stock-Based Compensation - The Company has adopted the disclosure only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
and, accordingly, accounts for its stock option plans under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
Warranty - Estimated warranty costs are provided at the time of sale
and are based upon historical experience and have averaged less than one
percent (1%) of net sales.
Income Taxes - Deferred income taxes are determined using the
liability method.
Page 26 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Comprehensive Income - The Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" effective January 1, 1998. The
adoption SFAS No. 130 had no impact on the Company's consolidated
financial statements since there are no components of comprehensive
income that are not already included in net income.
Earnings Per Share - Basic earnings per share is computed by dividing
net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share gives effect
to all potentially dilutive securities that were outstanding during
the period. The weighted average number of shares of common stock used
in the Company's computation of diluted earnings per share are as
follows:
Years Ended December 31,
1998 1997 1996
Net income $9,010,913 $8,555,219 $5,086,944
Interest expense reduction,
net of tax, from assumed
conversion of convertible
notes - - 22,705
---------- ---------- ----------
Net income as adjusted $9,010,913 $8,555,219 $5,109,649
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of
shares outstanding (used in
computation of basic earnings
per share) 11,455,739 11,421,251 11,000,525
Effect of dilutive securities:
Options and warrants 122,133 95,323 313,532
Convertible notes - - 124,152
---------- ---------- ----------
Diluted shares outstanding (used
in computation of diluted
earnings per share) 11,577,872 11,516,574 11,438,209
---------- ---------- ----------
---------- ---------- ----------
The computations of the number of shares used in the determination of
basic and diluted earnings per share give retroactive recognition to
all common stock dividends declared and paid during the periods.
Page 27 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Concluded.
Segment Information - In June 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This Statement changes the manner in which
public companies report segment information in annual reports and
requires companies to report selected segment information in interim
financial reports. SFAS No. 131 requires companies to report financial
and descriptive information about their operating segments. The
Company's principal business is manufacturing specialized vehicles.
Management has not separately organized the business beyond specialized
vehicles and vertically integrated fiberglass manufacturing processes.
The vertically integrated fiberglass manufacturing subsidiaries
constitutes a segment by definition of SFAS No. 131; however, this
segment does not meet the quantitative thresholds for separate
disclosure as set forth in this Statement. The vertically integrated
fiberglass manufacturing subsidiaries' revenues are less than 10 percent
of consolidated revenues, the absolute amount of their reported income is
less than 10 percent of the absolute amount of consolidated net income, and
finally, their assets are less than 10 percent of consolidated assets.
New Accounting Pronouncement - On June 15, 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending
on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company's interest
rate swap agreement (see Note J) is a derivative instrument and the
changes in fair value of this financial instrument, which is a cash flow
hedge, will be reported in other comprehensive income. Management of
the Company anticipates that, due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Company's financial position.
B. EXTRAORDINARY LOSS.
During the fourth quarter of 1998, the Company ceased manufacturing
operations at its subsidiary located in Honduras as a direct result of the
damage to the Honduran roads and bridges caused by Hurricane Mitch. Because
of the damage to the Honduran infrastructure, the Company was unable to
cost-effectively obtain raw materials for its hardwood flooring plant and
export finished product to its U.S. plants. The extraordinary loss of
$1,280,115, net of a $860,000 tax benefit, primarily represents the carrying
value of the abandoned inventory and machinery and equipment which the
Company is unable to remove from Honduras.
Page 28 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
C. INVENTORIES.
Inventories consist of the following:
1998 1997
Raw materials $ 18,419,217 $ 16,896,669
Work-in-progress 4,154,914 4,553,082
Finished goods 6,218,519 6,955,035
------------ ------------
Total $ 28,792,650 $ 28,404,786
------------ ------------
------------ ------------
D. PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment consists of the following:
1998 1997
Land and improvements $ 4,468,871 $ 3,294,309
Buildings and improvements 13,602,971 12,868,407
Leasehold improvements 6,773,141 5,966,798
Machinery and equipment 24,030,961 22,424,580
Construction in progress 1,154,962 1,529,250
----------- -----------
50,030,906 46,083,344
Less, Accumulated
depreciation and
amortization 18,688,584 16,522,903
----------- -----------
Property, plant
and equipment,
net $31,342,322 $29,560,441
----------- -----------
----------- -----------
Page 29 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
E. LONG-TERM DEBT.
Long-term debt consists of the following:
1998 1997
Revolving line of credit $ 9,419,820 $ 12,727,823
Term note, payable in monthly installments
of $116,667 plus interest at LIBOR
plus certain basis points determined
by the Company's leverage ratio
(6.38% at December 31, 1998), with
final maturity in September 2003 6,650,000 -
Term note, payable in monthly installments
of $83,333 plus interest at 6.4%, with
final maturity in April 1999 333,309 1,333,317
Obligations under industrial development
revenue bonds, variable rates, with
maturities in August 2010 and April 2011,
collateralized by specific real estate 3,403,525 3,676,723
Real estate mortgages, variable rate,
with maturity through July 2001 511,528 1,741,532
---------- ----------
Total 20,318,182 19,479,395
Less, Current maturities 2,014,975 2,119,692
---------- ----------
Long-term debt $ 18,303,207 $ 17,359,703
---------- ----------
---------- ----------
Page 30 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
E. LONG-TERM DEBT, Concluded.
The revolving line of credit, term notes and a letter of credit facility are
part of a master credit agreement (the "Credit Agreement"). All borrowings
under the Credit Agreement are unsecured. The Credit Agreement provides for
a credit facility as defined, up to $18 million and increasing to $25 million
during the period each year from February 1 to June 30. Interest on
outstanding borrowings under the revolving line of credit is based on the
bank's prime rate or certain basis points above LIBOR depending on the
pricing option selected and the Company's leverage ratio, as defined. The
weighted average interest rate on borrowings outstanding at December 31, 1998
and 1997 was 7.2% and 7.4%, respectively. The revolving line of credit also
requires a quarterly commitment fee ranging from 1/8% to 3/16% per annum
depending on the Company's leverage ratio and based upon the annualized
average unused portion. All amounts outstanding under the revolving line of
credit will be due at maturity, April 30, 2001.
Outstanding letters of credit, which reduce availability under the credit
facility, aggregated $1.2 million at December 31, 1998 and 1997. Under a
separate agreement, the Company has an outstanding $3.0 million irrevocable
letter of credit in favor of the bond trustee as a credit enhancement for
bondholders of one of the industrial development revenue bonds.
The Credit Agreement contains, among other matters, certain restrictive
covenants including maintenance of a minimum consolidated tangible net worth
of $30 million plus 50% of cumulative net income of the Company, as defined,
commencing with the year ended December 31, 1998 ($34.5 million at December
31, 1998), minimum consolidated working capital of $10 million and required
financial ratios.
The Company's cash management system and revolving line of credit are
designed to maintain zero cash balances and, accordingly, checks outstanding
in excess of bank balances are classified as additional borrowings under the
revolving line of credit. Checks outstanding in excess of bank balances at
December 31, 1998 and 1997 aggregated $4,320,000 and $4,228,000, respectively.
The Company's previously outstanding 8.6% convertible Series B notes were
converted into 263,262 shares of Class A Common Stock on May 21, 1996 at a
conversion price of $4.31. The subordinated debt was payable to a related
party (an entity which already had a direct and beneficial ownership interest
in the Company's Common Stock).
Maturities of long-term debt for each of the next five years are as follows:
1999 - $2,014,975; 2000 - $1,715,000; 2001 - $11,468,016; 2002 - $ 1,666,667
and 2003 - $1,283,332.
Page 31 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
F. RETIREMENT PLAN.
The Company maintains a defined contribution plan which covers substantially
all employees of the Company and its participating subsidiaries who have
reached the age of twenty-one years and have completed one year of credited
service. The plan provides that eligible employees can contribute from one to
fifteen percent of their annual compensation and the Company will match
twenty-five percent (fifteen percent prior to December 1, 1997) of employees'
contributions up to six percent of the employees' compensation. The Board of
Directors may increase or decrease the Company's contribution on a
year-by-year basis. Expense related to this plan for the years ended December
31, 1998, 1997 and 1996 was $317,632, $172,740 and $147,762, respectively.
G. STOCKHOLDERS' EQUITY.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock
($1 par value), of which none has been issued. The Board of Directors is
vested with the authority to determine and state the designations and
relative preferences, limitations, voting rights, if any, and other rights of
the preferred shares.
Common Stock
The Board of Directors approved the following 5% common stock dividends
during the years ended December 31, 1998 and 1997:
Declaration Record Paid
Date Date Date
April 29, 1997 May 12, 1997 May 19, 1997
October 29, 1997 November 10, 1997 November 17, 1997
May 12, 1998 May 25, 1998 June 1, 1998
October 29, 1998 November 13, 1998 November 20, 1998
All per share data have been adjusted to reflect the stock dividends on a
retroactive basis.
Convertible Class B Common Stock
Class B Common Stock is convertible into Class A Common Stock on a
one-for-one basis. Holders of Class A Common Stock are entitled to elect
one-third of the Board of Directors, rounded to the lowest whole number.
Holders of Class B Common Stock elect the remainder of the directors.
Page 32 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
G. STOCKHOLDERS' EQUITY, Continued.
Stock Options
During 1992, the Company adopted the 1992 Stock Option Plan under which
401,117 (adjusted for all subsequent stock dividends) shares of Class A
Common Stock were reserved for grant. On October 29, 1998, the Company's
Board of Directors approved, subject to ratification by the Company's
stockholders, the 1998 Stock Option Plan under which 682,500 (adjusted for
November 1998 stock dividend) shares of Class A Common Stock were reserved
for grant. Under the terms of the stock option plans, both incentive stock
options and non-statutory stock options can be granted by a specially
designated Stock Option Committee. No options may be exercised during the
first year after the date of grant. Options are exercisable cumulatively in
three installments of 33 1/3 % each year thereafter. Options granted under
the stock option plans expire five years after the date of grant.
The following table summarizes stock option activity:
Weighted -
Average
Number Exercise
of Shares Price
Outstanding, January 1, 1996 212,679 $ 3.11
Granted 60,767 5.86
Exercised (37,168) 1.49
---------
Outstanding, December 31, 1996 236,278 4.07
Granted 2,430 5.97
Exercised (25,403) 2.91
Expired or canceled (6,440) 4.72
---------
Outstanding, December 31, 1997 206,865 4.22
Granted 234,675 8.27
Exercised (117,040) 3.44
Expired or cancelled (22,972) 4.88
---------
Outstanding, December 31, 1998 301,528 7.64
---------
---------
As of December 31, 1998, 605,900 shares were reserved for the granting of
future stock options, compared to 135,103 shares at December 31, 1997.
Page 33 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
G. STOCKHOLDERS' EQUITY, Continued.
Options outstanding at December 31, 1998 are exercisable at prices ranging
from $4.49 to $8.27 and have a weighted-average remaining contractual life of
4.2 years. Information about stock options outstanding and exercisable at
December 31, 1998 is as follows:
Options Outstanding Options Exercisable
----------------------------------- ------------------------
Number Weighted - Number
Outstanding Average Weighted - Exercisable Weighted -
At Remaining Average At Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Price 1998 Life Price 1998 Price
- -------------- ------------ ----------- ---------- ------------ ----------
$4.49 - $5.97 72,103 2.07 years $5.61 51,710 $5.51
$8.27 229,425 4.83 years 8.27 - -
------- ------
301,528 51,710
------- ------
------- ------
At December 31, 1997 and 1996 there were exercisable options outstanding to
purchase 165,576 and 168,870 shares at a weighted-average exercise price of
$3.81 and $3.41, respectively.
The weighted-average grant-date fair values of options granted during the
years ended December 31, 1998, 1997 and 1996 were $2.87, $2.25 and $2.19,
respectively.
Had the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and net income per share
would have been:
1998 1997 1996
Pro forma net income $8,948,357 $8,538,715 $5,077,656
Pro forma net income per share:
Basic .78 .74 .46
Diluted .78 .74 .44
The pro forma amounts shown above and the weighted-average grant-date fair
values of options granted were estimated using the Black-Scholes
option-pricing model with the following assumptions:
1998 1997 1996
Risk free interest rate 4.5% 6.5% 6.3%
Expected life 5 years 5 years 5 years
Expected volatility 29.8% 28.4% 28.4%
Expected dividends - - -
Page 34 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
G. STOCKHOLDERS' EQUITY, Concluded.
Callable Warrants
At December 31, 1995, the Company had 2,480,762 outstanding 1993 Callable
Warrants. Each 1993 Callable Warrant entitled the holder to purchase .55
share of Class A Common Stock at an exercise price of $5.45 per whole share.
Effective February 16, 1996, the Board of Directors modified the exercise
provisions of the warrants to allow warrant holders the option of exchanging
5 warrants for 1 share of Class A Common Stock or to satisfy the exercise
price in cash. During the year ended December 31, 1996, 278,702 warrants
were exercised for cash, 2,141,705 warrants were exchanged for Class A Common
Stock on a 5 warrants for 1 share basis and 60,355 warrants expired on June
9, 1996.
H. INCOME TAXES.
Income taxes applicable to income before income taxes and extraordinary loss
consist of the following:
1998 1997 1996
Federal:
Current $ 5,099,000 $ 4,441,000 $ 3,051,000
Deferred 268,000 63,000 (21,000)
----------- ----------- -----------
5,367,000 4,504,000 3,030,000
----------- ----------- -----------
State:
Current 1,275,000 1,058,000 646,000
Deferred 58,000 15,000 (5,000)
----------- ----------- -----------
1,333,000 1,073,000 641,000
----------- ----------- -----------
Total $ 6,700,000 $ 5,577,000 $ 3,671,000
----------- ----------- -----------
----------- ----------- -----------
The components of the net deferred tax asset and the net deferred tax
liability were as follows:
1998 1997
Current deferred tax asset (liability):
Receivables $ 100,586 $ (148,983)
Inventories 197,588 247,283
Accrued liabilities 788,228 840,035
Other (4,563) 35,322
----------- ----------
Deferred tax asset $ 1,081,839 $ 973,657
----------- -----------
----------- -----------
Long-term deferred tax liability
(asset):
Depreciation $ 1,228,330 $ 900,605
Other 104,677 (1,780)
----------- -----------
Deferred tax liability $ 1,333,007 $ 898,825
----------- -----------
----------- -----------
Page 35 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
H. INCOME TAXES, Concluded.
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory Federal income tax rate (35% in 1998 and 1997 and 34%
in 1996) to income before income taxes and extraordinary loss is as follows:
1998 1997 1996
Income taxes at statutory rate $ 5,946,900 $ 4,946,300 $ 2,977,700
State income taxes, net of
federal benefit 866,500 697,500 423,100
Amortization of goodwill 36,900 36,900 35,800
Loss (earnings) of Honduran
subsidiary (operating in
government free zone), not
subject to U.S. income taxes (116,900) - 98,000
Other (33,400) (103,700) 136,400
----------- ----------- -----------
Total $ 6,700,000 $ 5,577,000 $ 3,671,000
----------- ----------- -----------
----------- ----------- -----------
I. ACQUISITION.
On February 28, 1996, the Company acquired the business operations and
operating assets of SD Enterprises, Inc., an Elkhart, Indiana company that
converts minivans for use by wheelchair-bound drivers and passengers. The
cash purchase price of $221,725 approximated the fair value of the acquired
assets. This acquisition was accounted for as purchase, and the net assets
and results of operations have been included in the Company's consolidated
financial statements from the acquisition date. Pro forma financial
information has not been presented as it is not materially different from the
Company's historical results.
J. COMMITMENTS AND CONTINGENCIES.
Lease Commitments and Related Party Transactions
The Company leases certain office and manufacturing facilities under
operating lease agreements which expire at various dates through May 2002.
Certain of the lease agreements are with a related party (a partnership in
which certain directors of the Company are the partners) for which related
party rent expense was $477,462, $478,162 and $478,162 for the years ended
December 31, 1998, 1997 and 1996, respectively.
The rent expense under all operating leases aggregated $1,026,699, $1,004,762
and $1,139,210 for the years ended December 31, 1998, 1997 and 1996,
respectively.
At December 31, 1998, future minimum annual rental payments under
noncancelable operating leases aggregated $1,301,400, and are payable as
follows: 1999 - $826,200; 2000 - $396,000; 2001 - $65,700 and 2002 - $13,500.
Page 36 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
J. COMMITMENTS AND CONTINGENCIES, Continued.
Lease Commitments and Related Party Transactions, Concluded
In addition to the above related party lease transaction, the Company
purchases delivery services from a company owned by an officer/director of
the Company. During the years ended December 31, 1998, 1997 and 1996, the
Company purchased delivery services from this related party aggregating
$2,498,000, $2,152,000 and $1,321,000, respectively.
Obligation To Purchase Consigned Inventories
The Company obtains vehicle chassis for its specialized vehicle products
directly from the chassis manufacturer under converter pool agreements.
Chassis are obtained from the manufacturers based on orders from customers,
and to a lesser extent, for unallocated orders. Although each manufacturer's
agreement has different terms and conditions, the agreements generally
provide that the manufacturer will provide a supply of chassis to be
maintained from time to time at the Company's various production facilities
under the conditions that the Company will store such chassis and will not
make any additions or modifications to such chassis and will not move, sell
or otherwise dispose of such chassis, except under the terms of the
agreement. The manufacturer does not transfer the certificate of origin to
the Company and, accordingly, the Company accounts for the chassis as
consigned inventory belonging to the manufacturer. Under these agreements if
the chassis is not delivered to a customer within 90 days of delivery to the
Company, the Company is required to pay a finance charge on the chassis. At
December 31, 1998 and 1997, chassis inventory, accounted for as consigned
inventory to the Company by the manufacturers, aggregated $17.9 million and
$28.2 million, respectively. Typically, chassis are converted and delivered
to customers within 90 days of the receipt of the chassis by the Company.
Self-Insurance
The Company is self-insured for a portion of product liability ($100,000 per
occurrence with an annual aggregate of $500,000), certain employee health
benefits ($75,000 annually per employee with an annual aggregate of
approximately $2,000,000) and workers' compensation in certain states
($250,000 per occurrence with an annual aggregate of approximately
$3,500,000). The Company accrues for the estimated losses occurring from
both asserted and unasserted claims. The estimate of the liability for
unasserted claims arising from incurred but not reported claims is based on
an analysis of historical claims data.
Stock Repurchase Program
On September 2, 1998, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of Class A Common Stock in open market
purchases or privately negotiated transactions through the close of business
on February 26, 1999. Through December 31, 1998, the Company has purchased
30,859 shares under the stock repurchase program.
Page 37 of 106
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financials, Concluded
J. COMMITMENTS AND CONTINGENCIES, Concluded.
Financial Instruments With Off Balance Sheet Risk
On September 30, 1998, the Company entered into an interest rate swap
agreement to reduce the impact of changes in interest rates on certain of its
floating rate debt (bank term note). The swap agreement is a contract to
exchange floating rate for fixed rate interest payments over the life of the
agreement (which generally coincides with the term of the related debt)
without exchange of the underlying notional amounts. The notional amounts of
the interest rate swap agreement is used to measure interest to be paid or
received and does not represent the amount of exposure of credit loss. The
differential paid or received under the interest rate swap agreement is
recognized as an adjustment to interest expense. As of December 31, 1998,
under a swap agreement, the Company has exchanged $6.65 million notional
amount of floating rate debt for a fixed rate of 6.7% through September 30,
2003.
The actual market or credit exposure of these types of financial instruments
are significantly less than the notional amounts. The primary risk
associated with the swaps is the inability of counterparties to meet the
terms of the contracts. The Company does not expect the counterparties to
fail to meet their respective obligations.
Other
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters may be
resolved unfavorably to the Company. The Company has established accruals
for matters that are probable and reasonably estimable. Management believes
that any liability that may ultimately result from the resolution of these
matters in excess of accruals and or amounts provided by insurance coverage
will not have a material adverse effect on the consolidated financial
position or results of operation of the Company.
Page 38 of 106
SUPREME INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Column C
Column B Additions
Balance Charged to Column E
Column A Beginning Costs and Column D Balance
Description Period Expenses Deductions End of Period
Year ended December 31,
1998:
Reserves and
allowances
deducted from
asset accounts:
Allowance for
doubtful
receivables: $ 555,000 $ 533,000 $ 397,000 (1) $ 691,000 (2)
Year ended December 31,
1997:
Reserves and
allowances
deducted from
asset accounts:
Allowance for
doubtful
receivables: $ 555,000 $ 55,000 $ 55,000 (1) $ 555,000 (2)
Year ended December 31,
1996:
Reserves and
allowances
deducted from
asset accounts:
Allowance for
doubtful
receivables: $ 555,000 $ 184,000 $ 184,000 (1) $ 555,000 (2)
(1) Uncollectible accounts written off, net of recoveries.
(2) Reflected in the consolidated balance sheet as follows: deducted from
accounts receivable - $456,000 at December 31, 1998 and $430,000 at December
31, 1997 and 1996; deducted from other receivables included in other assets -
$235,000 at December 31, 1998 and $125,000 at December 31, 1997 and 1996.
Page 39 of 106
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXRCUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors - Certain information required by Item 10 of Form 10-K is
hereby incorporated by reference from the Company's definitive proxy
statement, which will be filed pursuant to Regulation 14A within 120 days
after the Company's year end for the year covered by this report, under the
caption "Election of Directors" of the proxy statement.
(b) Executive Officers - See "Executive Officers of the Registrant" in Item
1 of Part 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for
the year covered by this report, under the caption "Executive Compensation"
of the proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for
the year covered by this report, under the caption "Security Ownership of
Certain Beneficial Owners and Management" of the proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for
the year covered by this report, under the caption "Transactions with
Management" of the proxy statement.
Page 40 of 106
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. The following financial statements and financial statement schedule
are included in Item 8 herein:
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
3. Exhibits:
See Index to Exhibits
b. Reports on Form 8-K
No report on Form 8-K was filed during the three-month period ended December
31, 1998.
Page 41 of 106
SIGNATURES
Pursuant to the requirements of the Section 13 and 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 authorize.
SUPREME INDUSTRIES, INC.
Date: March 26, 1999 By: /s/Herbert M. Gardner
Herbert M. Gardner, Chairman
of the Board
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 and in capacities and on the dates indicated.
/s/Herbert M. Gardner Chairman of the Board March 26, 1999
Herbert M. Gardner and President (Principal
Executive Officer)
/s/Omer G. Kropf Executive Vice President March 26, 1999
Omer G. Kropf and Director
/s/William J. Barrett Secretary, Assistant March 26, 1999
William J. Barrett Treasurer and Director
/s/Robert W. Wilson Executive Vice President March 26, 1999
Robert W. Wilson Treasurer, Chief Financial
Officer and Director
(Principal Financial and
Accounting Officer)
/s/Robert J. Campbell Director March 26, 1999
Robert J. Campbell
/s/Thomas Cantwell Director March 26, 1999
Thomas Cantwell
/s/Rice M. Tilley, Jr. Assistant Secretary March 26, 1999
Rice M. Tilley, Jr.
/s/H. Douglas Schrock Director March 26, 1999
H. Douglas Schrock
/s/Rick L. Horn Director March 26, 1999
Rick L. Horn
Page 42 of 106
INDEX TO EXHIBITS
Exhibit Description
3.1 Certificate of Incorporation of the Company, filed as Exhibit 3(a) to
the Company's Registration Statement on Form 8-A, filed with the Commission
on September 18, 1989, and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate of Incorporation of the Company
filed with the Secretary of State of Delaware on June 10, 1993 filed as
Exhibit 3.2 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference.
3.3 Certificate of Amendment of Certificate of Incorporation of the Company
filed with the Secretary of State of Delaware on May 29, 1996 filed as
exhibit 3.3 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1996, and incorporated herein by reference.
3.4 Bylaws of the Company, filed as Exhibit 3(b) to the Company's
Registration Statement on Form 8-A, filed with the Commission on September
18, 1989, and incorporated herein by reference.
4.1 Credit Agreement dated as of April 25, 1994, between the Company,
Supreme Corporation, and NBD Bank and signed in connection with certain long-
term indebtedness, filed as Exhibit 4.25 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994, and incorporated
herein by reference.
4.2 First Amendment to Credit Agreement dated April 25, 1994 filed as
exhibit 4.2 to the Company's annual report on form 10-K for the fiscal year
ended December 31, 1996, and incorporated herein by reference.
4.3 Second Amendment to Credit Agreement dated April 25, 1994 filed as
exhibit 4.3 to the Company's annual report on form 10-K for the fiscal year
ended December 31, 1996, and incorporated herein by reference.
4.4 Third Amendment to Credit Agreement dated June 23, 1998.
Page 43 of 106
4.5 Fourth Amendment to the Credit Agreement dated September 30, 1998 signed
in connection with certain long term indebtedness.
10.1 The Company's 1992 Stock Option Plan, filed as Exhibit 10.7 to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1992, and incorporated herein by reference.
10.2 Form of Stock Option grant agreement used to evidence options granted
under the Company's 1992 Stock Option Plan, filed as Exhibit 10.8 to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1992, and incorporated herein by reference.
10.3 The Company's 1998 Stock Option Plan.
10.4 Inventory Loan and Security Agreement dated October 12, 1988, among
General Motors Acceptance Corporation and the Company, its subsidiaries, and
certain subsidiaries of Supreme Corporation, filed as Exhibit 10.19 to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1988, and incorporated herein by reference.
10.5 Form of Demand Promissory Note dated September 28, 1988, from the
Company, and relating to the Agreement described 10.3 above, filed as Exhibit
10.20 to the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1988, and incorporated herein by reference.
10.6 Intercreditor Agreement dated as of December 31, 1991, among General
Motors Acceptance Corporation and Congress Financial Corporation, and
relating to the Agreement described in 10.3 above filed as Exhibit 10.14 to
the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1991, and incorporated herein by reference.
10.7 Pool Company Wholesale Finance Plan Application for Wholesale Financing
and Security Agreements, dated December 5, 1990, among Ford Motor Credit
Company and each of Supreme Corporation, Supreme Truck Bodies of California,
Inc., Supreme Corporation of Texas, and Supreme Mid-Atlantic Corporation,
filed as Exhibit 10.15 to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein by reference.
Page 44 of 106
10.8 Lease dated July 25, 1988, between Supreme Corporation and G-2, Ltd., a
Texas limited partnership, relating to Supreme Corporation's Goshen, Indiana
facilities, filed as exhibit 10.22 to the Company's annual report on Form
10-K for the fiscal year ended December 31, 1988, and incorporated herein by
reference.
10.9 Lease dated July 25, 1988, between Supreme Corporation and G-2, Ltd., a
Texas limited partnership, relating to Supreme Corporation's Griffin, Georgia
facilities, filed as Exhibit 10.23 to the Company's annual report on Form
10-K for the fiscal year ended December 31, 1988, and incorporated herein by
reference.
10.10 Lease dated August 27, 1990, between Supreme Truck Bodies of
California, Inc. and Edgar Maas, individually and as Trustee of the Marsha
Maas Testamentary Trust, relating to Supreme Corporation's Riverside,
California facility, filed as Exhibit 10.19 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1991, and incorporated
herein by reference.
10.11 License Agreement dated to be effective November 5, 1992, between
Supreme Corporation as licensee and ACCGRUPPENAB, a Swedish Corporation, as
licensor, with respect to certain know-how and patent rights, filed as
exhibit 10.19 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference.
10.12 Employment Contract dated to be effective May 1, 1998, between Supreme
Corporation and Omer G. Kropf.
10.13 Consulting Agreement dated to be effective January 1, 1993, between
the Company and William J. Barrett, filed as Exhibit 10.21 to the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
10.14 Consulting Agreement dated to be effective January 1, 1993, between
the Company and Herbert M. Gardner, filed as Exhibit 10.22 to the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
10.15 Consulting Agreement dated to be effective April 15, 1993, between the
Company and Rice M. Tilley, Jr., filed as Exhibit 10.23 to the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
Page 45 of 106
10.16 Consulting Agreement dated to be effective April 15, 1993, between the
Company and H. Douglas Schrock, filed as Exhibit 10.24 to the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
10.17 Employment Contract dated to be effective January 1, 1998, between
Supreme Corporation and Robert W. Wilson, filed as exhibit 10.16 to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1997, and incorporated herein by reference.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial data schedule.
Page 46 of 106
Exhibit 4.4
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of June 23, 1998 (this
"Amendment"), is among SUPREME INDUSTRIES, INC., a Delaware corporation
("SI") and SUPREME CORPORATION, a Texas corporation ("SC" and together with
SI referred to collectively as the "Borrowers" and each individually as a
"Borrower") and NBD BANK, an Indiana banking corporation (the "Bank").
RECITALS
A. The Borrowers and the Bank are parties to a Credit Agreement, dated as of
April 25, 1994, as amended by a First Amendment to Credit Agreement dated as
of February 20, 1996 and a Second Amendment to Credit Agreement dated as of
October 25, 1996 (as now and hereafter amended, the "Credit Agreement"),
pursuant to which the Bank agreed, subject to the terms and conditions
thereof, to extend credit to the Borrowers.
B. The Borrowers desire to amend the Credit Agreement and the Bank is willing
to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 The paragraph after "Introduction" shall be amended by deleting the
reference to "$14,000,000, increasing to $20,000,000 during the period each
year from February 1 through June 30" and inserting the following in place
thereof: "$18,000,000, increasing to $25,000,000 during the period each year
from February 1 through June 30".
1.2 Section 1.1 shall be amended as follows:
(a) The definition of "Applicable Margin" shall be deleted in its entirety
and the following shall be inserted:
Page 47 of 106
"Applicable Margin" shall mean the percentage per annum set forth in
accordance with the then-applicable Leverage Ratio:
Leverage Ratio Eurodollar Rate Loans Commitment Fee
Greater than or equal to 1.25 to 1.0 1.00% .1875%
Greater than 1.25 to 1.0 but less than
or equal to .75 to 1.0 .875% .125%
Less than .75 to 1.0 .75% .125%
(b) The definition of "Commitment" shall be deleted in its entirety and the
following shall be inserted in place thereof:
"Commitment" shall mean the commitment of the Bank to make Loans and Letter
of Credit Advances pursuant to Section 2.1 in amounts not exceeding an
aggregate principal amount outstanding at any time of $18,000,000, increasing
to $25,000,000 during the period each year from and including February 1 to
and including June 30, as such amount may be reduced from time to time
pursuant to Section 2.2. The Term Loan was disbursed by the Bank on the
Effective Date.
(c) The definition of "Termination Date" shall be amended by deleting the
reference in clause (a) to "April 30, 1999" and inserting "April 30, 2001" in
place thereof.
1.3 Section 2.3(a) shall be deleted in its entirety and the following shall
be inserted in place thereof:
(a) The Borrower agrees to pay to the Bank a commitment fee on the daily
average unused amount of the Commitment, for the period from the Effective
Date to but excluding the Termination Date, at a per annum rate equal to the
Applicable Margin. Accrued commitment fees shall be payable quarterly in
arrears on the last Business Day of each April, July, October and January,
commencing on the first such Business Day occurring after the date of this
Agreement, and on the Termination Date.
Page 48 of 106
1.4 Sections 5.2(b) and (c) shall be deleted in their entirety and the
following shall be inserted in place thereof:
(b) Working Capital. Permit or suffer the Consolidated Working Capital of
the Borrower and its Subsidiaries to be less than $10,000,000 as of the end
of any fiscal quarter of the Borrower, commencing with the fiscal quarter
ending June 30, 1998.
(c) Tangible Capital Funds. Permit or suffer Consolidated Tangible Capital
Funds of the Borrower and its Subsidiaries to be less than the sum of (i)
$30,000,000 plus (ii) an amount equal to 50% of Cumulative Net Income of the
Borrower and its Subsidiaries for each fiscal year of the Borrower commencing
with the fiscal year ending December 31, 1998.
1.5 Section 5.2(k) shall be deleted in its entirety and the following shall
be inserted in place thereof:
[Intentionally Reserved.]
1.6 Section 5.2(l) shall be deleted in its entirety and the following shall
be inserted in place thereof:
[Intentionally Reserved.]
1.7 The form of Revolving Credit Note attached as Exhibit A-1 shall be
substituted and replaced with the form of Revolving Credit Note attached
hereto (the "New Revolving Credit Note").
ARTICLE II. REPRESENTATIONS. Each Borrower represents and warrants to the
Bank that:
2.1 The execution, delivery and performance of this Amendment and the New
Revolving Credit Note are within its powers, have been duly authorized and
are not in contravention with any law, of the terms of its Articles of
Incorporation or By-laws, or any undertaking to which it is a party or by
which it is bound.
Page 49 of 106
2.2 This Amendment is and the New Revolving Credit Note when issued hereunder
will be, the legal, valid and binding obligations of the Company enforceable
against it in accordance with the terms thereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit
Agreement are true on and as of the date hereof with the same force and
effect as if made on and as of the date hereof.
2.4 No Event of Default or any event or condition which might become an Event
of Default with notice or lapse of time, or both, exists or has occurred and
is continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become
effective until each of the following has been satisfied:
3.1 This Amendment shall be signed by the Borrowers and the Bank.
3.2 The New Revolving Credit Note shall be signed and delivered by the
Borrowers to the Bank.
3.3 Each of the Guarantors shall have executed the Consent and Agreement at
the end of this Amendment.
ARTICLE IV. MISCELLANEOUS.
4.1 References in the Credit Agreement or in any note, certificate,
instrument or other document to the "Credit Agreement" shall be deemed to be
references to the Credit Agreement as amended hereby and as further amended
from time to time.
4.2 The Borrowers agree to pay and to save the Bank harmless for the payment
of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Bank in connection with
preparing this Amendment and the related documents.
4.3 Each Borrower acknowledges and agrees that the Bank has fully performed
all of their obligations under all documents executed in connection with the
Credit Agreement and all actions taken by the Bank are reasonable and
appropriate under the circumstances and within their rights under the Credit
Agreement and all other documents executed in connection therewith and
otherwise available. Each Borrower represents and warrants that it is not
aware of any claims or causes of action against the Bank, any participant
lender or any of their successors or assigns.
Page 50 of 106
4.4 Except as expressly amended hereby, each Borrower agrees that the Credit
Agreement, the Notes, the Security Documents and all other documents and
agreements executed by the Company in connection with the Credit Agreement in
favor of the Bank are ratified and confirmed and shall remain in full force
and effect and that it has no set off, counterclaim or defense with respect
to any of the foregoing. Terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment may be signed upon any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
WITNESS WHEREOF, the parties signing this Amendment have caused this
Amendment to be executed and delivered as of June 23, 1998.
SUPREME INDUSTRIES, INC.
By: ___________________________
Its: ______________________
SUPREME CORPORATION
By: ___________________________
Its: ______________________
Page 51 of 106
NBD BANK
By: ___________________________
Its: ______________________
Page 52 of 106
CONSENT AND AGREEMENT
As of the date and year first above written, each of the undersigned hereby:
(a) fully consents to the terms and provisions of the above Amendment and the
consummation of the transactions contemplated hereby and agrees to all terms
and provisions of the above Amendment applicable to it;
(b) agrees that each Guaranty and all other agreements executed by any of the
undersigned in connection with the Credit Agreement or otherwise in favor of
the Bank (collectively, the "Security Documents") are hereby ratified and
confirmed and shall remain in full force and effect, and each of the
undersigned acknowledges that it has no setoff, counterclaim or defense with
respect to any Security Document; and
(c) acknowledges that its consent and agreement hereto is a condition to the
Bank's obligation under this Amendment and it is in its interest and to its
financial benefit to execute this consent and agreement.
SUPREME CORPORATION OF TEXAS
By: ___________________________
Its: ______________________
Page 53 of 106
SUPREME TRUCK BODIES OF CALIFORNIA,
INC.
By: ____________________________
Its: _______________________
SUPREME MID-ATLANTIC CORPORATION
By: ____________________________
Its: _______________________
SC FREEDOM ONE, INC.
By: ___________________________
Its: ______________________
Page 54 of 106
ATLANTIC SALES CORPORATION
By: ___________________________
Its: ______________________
SUPREME/MURPHY TRUCK BODIES, INC.
By: ____________________________
Its: _______________________
SC TOWER LAMINATING, INC.
By: ____________________________
Its: _______________________
Page 55 of 106
Exhibit 4.5
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of September30, 1998
(this "Amendment"), is among SUPREME INDUSTRIES, INC., a Delaware corporation
("SI") and SUPREME CORPORATION, a Texas corporation ("SC" and together with
SI referred to collectively as the "Borrowers" and each individually as a
"Borrower") and NBD BANK, an Indiana banking corporation (the "Bank").
RECITALS
A. The Borrowers and the Bank are parties to a Credit Agreement, dated as of
April25, 1994, as amended by a First Amendment to Credit Agreement dated as
of February20, 1996, a Second Amendment to Credit Agreement dated as of
October25, 1996 and a Third Amendment to Credit Agreement dated as of June
23, 1998 (as now and hereafter amended, the "Credit Agreement"), pursuant to
which the Bank agreed, subject to the terms and conditions thereof, to extend
credit to the Borrowers.
B. The Borrowers desire to amend the Credit Agreement to provide for an
additional term loan in the original principal amount of $7,000,000 and the
Bank is willing to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 Section 1.1 shall be amended as follows:
(a) The definition of "Commitment" shall be amended by deleting the last
sentence and inserting the following in place thereof:
"Term Loan A was disbursed on the Effective Date and Term Loan B shall be
disbursed on the Fourth Amendment Effective Date in the original principal
amount of $7,000,000."
Page 56 of 106
(b) The definition of "Eurodollar Interest Period" shall be amended by adding
a new clause (d) to read as follows:
(d) the Eurodollar Interest Period for Term Loan B shall be one month.
(c) The definition of "Maturity Date" shall be deleted and the following
shall be inserted in place thereof:
"Maturity Date" shall mean, with respect to Term Loan A, April 30, 1999, and,
with respect to Term Loan B, September 30, 2003.
(d) The definitions of "Term Loan" and "Term Note" shall be deleted and the
following shall be inserted in place thereof:
"Term Loan" shall mean Term Loan A and Term Loan B.
"Term Note" shall mean any promissory note of the Borrower evidencing the
Term Loan in substantially the form annexed hereto as Exhibit A2 with respect
to Term Loan A ("Term Note A"), and Exhibit A3 with respect to Term Loan B
("Term Note B"), in each case as amended or modified form time to time and
together with any promissory note or notes issued in exchange or replacement
therefor.
(e) The following definitions shall be added in appropriate alphabetical
order:
"Fourth Amendment Effective Date" shall mean September30, 1998.
"Term Loan A" shall mean the borrowing under Section 2.4 evidenced by Term
Note A and made on the Effective Date pursuant to Section 2.1.
"Term Loan B" shall mean the borrowing under Section 2.4 evidenced by Term
Note B and made on the Fourth Amendment Effective Date pursuant to Section
2.1.
1.2 Section 2.1(b) shall be deleted and the following shall be inserted in
place thereof:
(b) Term Loan. The Bank made Term Loan A to the Borrower on the Effective
Date. The Bank further agrees, subject to the terms and conditions of this
Agreement, to make Term Loan B to the Borrower on the Fourth Amendment
Effective Date in an original principal amount of $7,000,000.
Page 57 of 106
1.3 Section 3.1(a)(ii) shall be amended by inserting "Term Loan A" for each
and every reference therein to "Term Loan" and by adding a new clause
3.1(a)(iii) at the end thereof to read as follows:
"and (iii) the Company shall pay to the Bank the outstanding principal amount
of Term Loan B in 59 equal monthly installments in the amount of $118,644
payable on the last Business Day of each month commencing on October 31, 1998
and a final installment on the Maturity Date, when the entire outstanding
principal amount of Term Loan B shall be due and payable.
1.4 Section 3.2 shall be amended by adding the following language at the end
of clause (a): "and Term Loan B" and by amending clause (b) to insert "Term
Loan A" in the place of the reference therein to "Term Loan".
1.5 Exhibit A3 shall be added to the Credit Agreement in the form attached
hereto as Exhibit A3.
ARTICLE II. REPRESENTATIONS. Each Borrower represents and warrants to the
Bank that:
2.1 The execution, delivery and performance of this Amendment and Term Note B
are within its powers, have been duly authorized and are not in contravention
with any law, of the terms of its Articles of Incorporation or By-laws, or
any undertaking to which it is a party or by which it is bound.
2.2 This Amendment is and the Term Note B when issued hereunder will be, the
legal, valid and binding obligations of the Borrower enforceable against it
in accordance with the terms thereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit
Agreement are true on and as of the date hereof with the same force and
effect as if made on and as of the date hereof.
2.4 No Event of Default or any event or condition which might become an Event
of Default with notice or lapse of time, or both, exists or has occurred and
is continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become
effective until each of the following has been satisfied:
3.1 This Amendment shall be signed by the Borrowers and the Bank.
3.2 Term Note B shall be signed and delivered by the Borrowers to the Bank.
3.3 Each of the Guarantors shall have executed the Consent and Agreement at
the end of this Amendment.
ARTICLE IV. MISCELLANEOUS.
Page 58 of 106
4.1 References in the Credit Agreement or in any note, certificate,
instrument or other document to the "Credit Agreement" shall be deemed to be
references to the Credit Agreement as amended hereby and as further amended
from time to time.
4.2 The Borrowers agree to pay and to save the Bank harmless for the payment
of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Bank in connection with
preparing this Amendment and the related documents.
4.3 Each Borrower acknowledges and agrees that the Bank has fully performed
all of their obligations under all documents executed in connection with the
Credit Agreement and all actions taken by the Bank are reasonable and
appropriate under the circumstances and within their rights under the Credit
Agreement and all other documents executed in connection therewith and
otherwise available. Each Borrower represents and warrants that it is not
aware of any claims or causes of action against the Bank, any participant
lender or any of their successors or assigns.
4.4 Except as expressly amended hereby, each Borrower agrees that the Credit
Agreement, the Notes, the Security Documents and all other documents and
agreements executed by the Company in connection with the Credit Agreement in
favor of the Bank are ratified and confirmed and shall remain in full force
and effect and that it has no set off, counterclaim or defense with respect
to any of the foregoing. Terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment may be signed upon any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have caused this
Amendment to be executed and delivered as of September 30, 1998.
SUPREME INDUSTRIES, INC.
By: ____________________________
Its: _______________________
SUPREME CORPORATION
By: ____________________________
Its: _______________________
Page 59 of 106
NBD BANK
By: ____________________________
Its: _______________________
Page 60 of 106
CONSENT AND AGREEMENT
As of the date and year first above written, each of the undersigned hereby:
(a) fully consents to the terms and provisions of the above Amendment and the
consummation of the transactions contemplated hereby and agrees to all terms
and provisions of the above Amendment applicable to it;
(b) agrees that each Guaranty and all other agreements executed by any of the
undersigned in connection with the Credit Agreement or otherwise in favor of
the Bank (collectively, the "Security Documents") are hereby ratified and
confirmed and shall remain in full force and effect, and each of the
undersigned acknowledges that it has no setoff, counterclaim or defense with
respect to any Security Document and that "Guaranteed Obligations", as
defined in the Guaranty, also includes Term Loan B; and
(c) acknowledges that its consent and agreement hereto is a condition to the
Bank's obligation under this Amendment and it is in its interest and to its
financial benefit to execute this consent and agreement.
SUPREME CORPORATION OF TEXAS
By: ____________________________
Its: _______________________
SUPREME TRUCK BODIES OF CALIFORNIA,
INC.
By: ____________________________
Its: _______________________
SUPREME MID-ATLANTIC CORPORATION
By: ____________________________
Its: _______________________
Page 61 of 106
SC FREEDOM ONE, INC.
By: ____________________________
Its: _______________________
ATLANTIC SALES CORPORATION
By: ____________________________
Its: _______________________
SUPREME/MURPHY TRUCK BODIES, INC.
By: ____________________________
Its: _______________________
SC TOWER LAMINATING, INC.
By: ____________________________
Its: _______________________
Page 62 of 106
EXHIBIT A-3
TERM NOTE B
$7,000,000 September 30, 1998
FOR VALUE RECEIVED, SUPREME INDUSTRIES, INC., a Delaware corporation, and
SUPREME CORPORATION, a Texas corporation (together, the "Borrower"), hereby
jointly and severally promise to pay to the order of NBD BANK, an Indiana
banking corporation (the "Bank"), at its principal office in the City of
Elkhart, Indiana , or such other place as the Bank or the holder hereof may
from time to time specify, in lawful money of the United States of America
and in immediately available funds, the principal sum of Seven Million
Dollars ($7,000,000), or such lesser amount as is recorded on the books and
records of the Bank in fifty-nine equal monthly installments of principal in
the amount of $118,644 payable on the last Business Day of each month,
commencing on the last Business Day of October, 1998 to and including the
Maturity Date when the entire outstanding principal amount of the Term Loan B
evidenced hereby, and all accrued interest thereon, shall be due and payable;
and to pay interest on the unpaid principal balance hereof from time to time
outstanding, in like money and funds, for the period from the date hereof
until the Term Loan B evidenced hereby shall be paid in full, at the rates
per annum and on the dates provided in the Credit Agreement referred to below.
The Bank is hereby authorized by the Borrower to record on its books and
records, the date and the amount of the Term Loan B, the applicable interest
rate and type and the duration of the related Interest Period (if
applicable), the amount of each payment or prepayment of principal thereon,
and the other information provided for on such books and records, which books
and records shall constitute prime facie evidence of the information so
recorded, provided, however, that any failure by the Bank to record any such
notation shall not relieve the Borrower of its obligation to repay the
outstanding principal amount of this Term Loan B, all accrued interest hereon
and any amount payable with respect hereto in accordance with the terms of
this Term Note B and the Credit Agreement.
The Borrower and each endorser or guarantor hereof waives presentment,
protest, notice of dishonor and any other formality in connection with this
Term Note B. Should the indebtedness evidenced by this Term Note B or any
part thereof be collected in any proceeding or be placed in the hands of
attorneys for collection, the Borrower agrees to pay, in addition to the
principal, interest and other sums due and payable hereon, all costs of
collection this Term Note B, including attorneys' fees and expenses.
This Term Note B evidences a Term Loan B made under a Credit Agreement, dated
as of April 25, 1994, as amended (as amended or modified from time to time,
the "Credit Agreement"), by and between the Borrower and the Bank, to which
reference is hereby made for a statement of the circumstances under which
this Term Note B is subject to prepayment and under which its due date may be
accelerated and a description of the collateral and security securing this
Term Note B. Capitalized terms used but not defined in this Term Note B
shall have the respective meanings assigned to them in the Credit Agreement.
This Term Note B is made under, and shall be governed by and construed in
accordance with, the laws of the State of Michigan in the same manner
applicable to contracts made and to be performed entirely within such State
and without giving effect to choice of law principles of such State.
Page 63 of 106
SUPREME INDUSTRIES, INC.
By: ___________________________
Its: ______________________
SUPREME CORPORATION
By: ___________________________
Its: ______________________
Page 64 of 106
Exhibit 10.3
1998 Stock Option Plan
of
Supreme Industries, Inc.
Page 65 of 106
Table of Contents
Page
Article I: Definitions
Sec. 1:1. Act 1
Sec. 1:2. Affiliates 1
Sec. 1:3. Agreement 2
Sec. 1:4. Board of Directors 2
Sec. 1:5. Code 2
Sec. 1:6. Committee 2
Sec. 1:7. Eligible Individuals 2
Sec. 1:8. Fair Market Value 2
Sec. 1:9. Holder 2
Sec. 1:10. Incentive Stock Options 2
Sec. 1:11. Nonstatutory Stock Options 2
Sec. 1:12. Options 2
Sec. 1:13. Stock 2
Article II: Stock and Maximum Number of Shares Subject to the Plan 3
Sec. 2:1. Description of Stock and Maximum Shares Allocated 3
Sec. 2:2. Restoration of Shares 3
Article III: Administration of the Plan 3
Sec. 3:1. Stock Option Committee 3
Sec. 3:2. Duration, Removal, Etc. 3
Sec. 3:3. Meetings and Actions of Committee 3
Sec. 3:4. Committee's Powers 3
Page 66 0f 106
Article IV: Eligibility and Participation 4
Sec. 4:1. Elibible Individuals 4
Sec. 4:2. No Right to Option 4
Article V: Grant of Options and Certain Terms of the Agreements 5
Sec. 5:1. Determination of Eligible Individuals 5
Sec. 5:2. Date of Grant
Sec. 5:3. Stock Option Agreement 5
Sec. 5:4. Forfeiture of Stock 5
Sec. 5:5. Cash Awards 5
Article VI: Terms and Conditions of Options 6
Sec. 6:1. Number of Shares 6
Sec. 6:2. Exercise Price 7
Sec. 6:3. Medium and Time of Payment, Method of
Exercise, and Withholding Taxes 7
Sec. 6:4. Terms, Time of Exercise, and Transferability
of Options 9
Sec. 6:5. Limitation on Aggregate Value of Shares That
May Become First Exercisable During Any
Calendar Year Under an Incentive Stock Option 12
Sec. 6:6. Adjustments Upon Changes in Capitalization,
Merger, Etc. 12
Sec. 6:7. Rights as a Shareholder 13
Sec. 6:8. Modification, Extension, and Renewal of Options 13
Sec. 6:9. Furnish Information 14
Sec. 6:10. Obligation to Exercise; Termination of
Employment 14
Sec. 6:11. Agreement Provisions 14
Page 67 of 106
Article VII: Duration of Plan 14
Article VIII: Amendment of Plan 15
Article IX: General 15
Sec. 9:1. Application of Funds 15
Sec. 9:2. Right of Company and Affiliates to
Terminate Employment 15
Sec. 9:3. No Liability for Good Faith Determinations 15
Sec. 9:4. Information Confidential 15
Sec. 9:5. Other Benefits 16
Sec. 9:6. Execution of Receipts and Releases 16
Sec. 9:7. No Guarantee of Interests 16
Sec. 9:8. Payment of Expenses 16
Sec. 9:9. Company Records 16
Sec. 9:10. Information 16
Sec. 9:11. No Liability of Company 16
Sec. 9:12. Company Action 16
Sec. 9:13. Severability 17
Sec. 9:14. Notices 17
Sec. 9:15. Waiver of Notice 17
Sec. 9:16. Successors 17
Sec. 9:17. Headings 17
Sec. 9:18. Governing Law 17
Sec. 9:19. Word Usage 17
Sec. 9:20. Remedies 18
Sec. 9:20. Remedies 18
Article X: Approval of Shareholders 18
Page 68 of 106
1998 Stock Option Plan
of
Supreme Industries, Inc.
This Supreme Industries, Inc. 1998 Stock Option Plan (the "Plan") provides
for the granting of:
(a) Incentive Stock Options (hereinafter defined) to certain key employees of
Supreme Industries, Inc., a Delaware corporation ("Company"), and/or its
Affiliates (hereinafter defined), and
(b) Nonstatutory Stock Options (hereinafter defined) to certain key employees
of Company, and/or its Affiliates, and to certain individuals who are not
employees of Company or its Affiliates.
The purpose of the Plan is to provide an incentive for key employees of
Company and/or its Affiliates, and for individuals who are not employees of
Company and/or its Affiliates but who from time to time provide substantial
advice or other assistance or services to Company and/or its Affiliates, to
remain in the service of Company and/or its Affiliates or continue to provide
such assistance, to extend to them the opportunity to acquire a proprietary
interest in Company so that they will apply their best efforts for the
benefit of Company, and to aid Company in attracting able persons to enter
the service of Company and/or its Affiliates or provide such assistance.
Page 69 of 106
Article I
Definitions
Sec. 1:1. Act. "Act" shall mean the Securities Exchange Act of 1934, as
amended.
Sec. 1:2. Affiliates. "Affiliates" shall mean: (a) any corporation, other
than Company, in an unbroken chain of corporations ending with Company if
each of the corporations, other than Company, owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain; and (b) any
corporation, other than Company, in an unbroken chain of corporations
beginning with Company if each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
Sec. 1:3. Agreement. "Agreement" shall mean the written agreement between
Company and a Holder evidencing the Option granted by Company and the
understanding of the parties with respect thereto.
Sec. 1:4. Board of Directors. "Board of Directors" shall mean the board of
directors of Company.
Sec. 1:5. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Sec. 1:6. Committee. "Committee" shall mean the committee designated in
Article III hereof by the Board of Directors to administer this Plan.
Sec. 1:7. Eligible Individuals. "Eligible Individuals" shall mean: (a) key
employees, including officers and/or directors who are also employees of
Company and/or of any of its Affiliates; and (b) individuals who are not
employees of Company and/or of its Affiliates but who from time to time
provide substantial advice or other assistance or services to Company and/or
its Affiliates.
Sec. 1:8. Fair Market Value. "Fair Market Value" shall mean, if the Stock is
traded on one or more established markets or exchanges, the mean of the
opening and closing prices of the Stock on the primary market or exchange on
which the Stock is traded, and if the Stock is not so traded or the Stock
does not trade on the relevant date, the value determined in good faith by
the Board of Directors. For purposes of valuing Incentive Stock Options, the
Fair Market Value of stock shall be determined without regard to any
restriction other than one which, by its terms, will never lapse.
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Sec. 1:9. Holder. "Holder" shall mean an Eligible Individual to whom an
Option has been granted.
Sec. 1:10. Incentive Stock Options. "Incentive Stock Options" shall mean
stock options that are intended to satisfy the requirements of Sec. 422 of
the Code.
Sec. 1:11. Nonstatutory Stock Options. "Nonstatutory Stock Options" shall
mean stock options that are not intended to be, or are not denominated as,
Incentive Stock Options.
Sec. 1:12. Options. "Options" shall mean either Incentive Stock Options or
Nonstatutory Stock Options, or both.
Sec. 1:13. Stock. "Stock" shall mean Company's authorized $.10 par value
Class A Common Stock.
Article II
Stock and Maximum Number of Shares Subject to the Plan
Sec. 2:1. Description of Stock and Maximum Shares Allocated. The Stock which
Options granted hereunder give a Holder the right to purchase may be unissued
or reacquired shares of Stock, as the Board of Directors may, in its sole and
absolute discretion, from time to time determine. Subject to the adjustments
in Sec.6.6 hereof, the aggregate number of shares of Stock to be issued
pursuant to the exercise of all Options granted hereunder may equal, but may
not exceed, 650,000 shares of Company's Stock.
Sec. 2:2. Restoration of Shares. If an Option hereunder expires, terminates,
or is not exercised for any reason during the term of this Plan, the shares
of Stock which were subject to such Option shall be "restored" to the Plan by
again being available for Options granted after the shares' restoration,
effective as of the first day of the year following such expiration,
termination, or non-exercise.
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Article III
Administration of the Plan
Sec. 3:1. Stock Option Committee. This Plan will be administered by a
Committee consisting of six members to be appointed by Company's Board of
Directors. The members of the Stock Option Committee must be members of the
Company's Board of Directors.
Sec. 3:2. Duration, Removal, Etc. The members of the Committee shall serve
at the pleasure of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from the Committee or to add
members thereto. Vacancies on the Committee, however caused, shall be filled
by the Board of Directors.
Sec. 3:3. Meetings and Actions of Committee. The Committee shall elect one
of its members as its Chairman and shall hold its meetings at such times and
places as it may determine. All decisions and determinations of the
Committee shall be made by the majority vote of all of its members present at
a meeting; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly called and held. The
Committee may make any rules and regulations for the conduct of its business
that are not inconsistent with the provisions hereof and with the Bylaws of
Company.
Sec. 3:4. Committee's Powers. Subject to the express provisions hereof, the
Committee shall have the authority, in its sole and absolute discretion to:
(a)adopt, amend, and rescind administrative and interpretive rules and
regulations relating to the Plan; (b) determine the terms and provisions of
the respective Agreements (which need not be identical), including provisions
defining or otherwise relating to: (i) subject to Article VI of the Plan,
the term and the period or periods and extent of exercisability of the
Options, (ii) the extent to which the transferability of shares of Stock
issued upon exercise of Options is restricted, (iii) the effect of
termination of employment upon the exercisability of the Options, and (iv)
the effect of approved leaves of absence (consistent with any applicable
regulations of the Internal Revenue Service); (c) accelerate the time of
exercisability of any Option that has been granted; (d) construe the
respective Option Agreements and the Plan; and (e) make all other
determinations and perform all other acts necessary or advisable for
administering the Plan, including the delegation of such ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any Agreement in the manner and to the extent it shall deem
expedient to carry it into effect, and it shall be the sole and final judge
of such expediency. The determination of the Committee on the matters
referred to in this Sec.3.4 shall be final and conclusive.
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Article IV
Eligibility and Participation
Sec. 4:1. Eligible Individuals. Options may be granted hereunder only to
persons who are Eligible Individuals at the time of the grant thereof.
Notwithstanding any provision contained herein to the contrary, a person may
not receive an Incentive Stock Option hereunder unless he or she is an
employee of Company and/or an Affiliate, nor shall a person be eligible to
receive an Incentive Stock Option hereunder if he or she, at the time such
Option is granted, would own (within the meaning of Secs. 422 and 424 of the
Code) stock possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of Company or an Affiliate,
unless at the time such Incentive Stock Option is granted the exercise price
per share is at least one hundred ten percent (110%) of the Fair Market Value
of each share of stock to which the Incentive Stock Option relates and the
Incentive Stock Option is not exercisable after the expiration of five (5)
years from the date it is granted.
Sec. 4:2. No Right to Option. The adoption of the Plan shall not be deemed
to give any person a right to be granted an Option.
Article V
Grant of Options and Certain Terms of the Agreements
Sec. 5:1. Determination of Eligible Individuals. Subject to the express
provisions hereof, the Committee shall determine which Eligible Individuals
shall be granted Options hereunder from time to time. In making grants, the
Committee shall take into consideration the contribution the potential Holder
has made or may make to the success of Company and/or its Affiliates along
with such other considerations as the Board of Directors may from time to
time specify. The Committee shall also determine the number of shares
subject to each of such Options and shall authorize and cause Company to
grant Options in accordance with such determinations.
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Sec. 5:2. Date of Grant. The date on which the Committee completes all
action constituting an offer of an Option to an individual, including the
specification of the number of shares of Stock to be subject to the Option,
shall be the date on which the Option covered by an Agreement is granted,
even though certain terms of the Agreement may not be determined at such time
and even though the Agreement may not be executed until a later time. For
purposes of the preceding sentence, an offer shall be deemed made if the
Committee has completed all such action and has communicated the grant
thereof to the potential Holder. In no event, however, may an Optionee gain
any rights in addition to those specified by the Committee in its grant,
regardless of the time that may pass between the grant of the Option and the
actual execution of the Agreement by Company and the Optionee.
Sec. 5:3. Stock Option Agreement. Each Option granted hereunder shall be
evidenced by an Agreement, executed by Company and the Eligible Individual to
whom the Option is granted, incorporating such terms as the Committee deems
necessary or desirable. More than one Option may be granted hereunder to the
same Eligible Individual and be outstanding concurrently hereunder. In the
event an Eligible Individual is granted both one or more Incentive Stock
Options and one or more Nonstatutory Stock Options, such grants shall be
evidenced by separate Agreements, one for each of the Incentive Stock Option
grants and one for each of the Nonstatutory Stock Option grants.
Sec. 5:4. Forfeiture of Stock. Each Agreement may provide for conditions
giving rise to the forfeiture of the Stock acquired pursuant to an Option
granted hereunder and/or such restrictions on the transferability of shares
of Stock acquired pursuant to an Option granted hereunder as the Committee in
its sole and absolute discretion deems proper or advisable. Such conditions
giving rise to forfeiture may include, but need not be limited to, the
requirement that the Holder render substantial services to Company and/or its
Affiliates for a specified period of time. Such restrictions on
transferability may include, but need not be limited to, options and rights
of first refusal in favor of Company.
Sec. 5:5. Cash Awards. In addition, the Board of Directors may authorize the
Committee to grant cash awards payable in connection with the exercise of an
Option upon such terms and conditions as are specified by the Board of
Directors; provided that no such cash award shall be effective unless it
complies with any applicable requirements for exemption from liability
pursuant to Rule 16b-3 promulgated under the Act.
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Article VI
Terms and Conditions of Options
All Options granted hereunder shall comply with, be deemed to include, and
shall be subject to, the following terms and conditions:
Sec. 6:1. Number of Shares. Each Agreement shall state the number of shares
of Stock to which it relates. Except to the extent an Agreement otherwise
provides, the following limitations shall apply to the exercise of each
Option:
A. First Year. A Holder may not exercise his or her Option during the first
twelve(12) month period following the date of grant of such Option.
B. After First Year. A Holder may exercise up to (but not more than) one-
third of the total shares of Stock subject to his or her Option at any time
after the first twelve (12) month period following the day of grant of such
Option.
C. After Second Year. A Holder may exercise up to (but not more than) two-
thirds of the total shares of Stock subject to his or her Option at any time
after the first twenty-four (24) month period following the date of grant of
such Option.
D. After Third Year. A Holder may exercise all of the shares of Stock
subject to his or her Option at any time after the first thirty-six (36)
month period following the date of grant of such Option.
E. Senior Status. Notwithstanding the limitations stated above, if a Holder
is sixty-five (65) years of age or older at the time his or her Option is
granted, such Holder may exercise up to (but not more than) one-half of the
total shares of Stock subject to such Option at any time during the first
twelve (12) month period following the date of grant of such Option and
thereafter may exercise all of the shares of Stock subject to such Option.
F. De Minimus Limitation. Subject to the limitations stated above, each
Option may be exercised at one time or on several successive occasions;
however, each Option may not be exercised in an amount less than one
hundred (100) shares at any one time (unless such exercise is being made as
to the entire portion of Stock which may be purchased pursuant to this Plan).
Sec. 6:2. Exercise Price. Each Agreement shall state the exercise price per
share of Stock. The exercise price per share of stock subject to an
Incentive Stock Option shall not be less than the greater of: (a) the par
value per share of the Stock; or (b) one hundred percent (100%) of the Fair
Market Value per share of Company's Stock on the date of the grant of the
Option. The exercise price per share of stock subject to a Nonstatutory
Stock Option shall not be less than fifty percent (50%) of the Fair Market
Value per share of the Stock on the date of the grant of the Option.
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Sec. 6:3. Medium and Time of Payment, Method of Exercise, and Withholding
Taxes.
A. Exercise of Option. Except as otherwise permitted below, the exercise
price of stock covered by an Option shall be payable upon the exercise of the
Option in cash, by certified or cashier's check. Exercise of an Option shall
not be effective until Company has received written notice of exercise. Such
notice must specify the number of whole shares to be purchased and be
accompanied by payment in full of the aggregate exercise price of the number
of shares purchased. Company shall not in any case be required to sell,
issue, or deliver a fractional share with respect to any Option.
1. Stock-for-Stock Exercise. With the consent of the Committee, the Holder
may pay the exercise price with shares of Stock of Company which have been
held by the Holder for at least six (6) months prior to the date of
exercise, or with the consent of the Committee, by a combination of cash and
such shares. Such Stock shall be duly endorsed for transfer to Company.
Such Stock shall be deemed to have a fair market value on the date of
delivery equal to the aggregate purchase price of the shares with respect to
which such Option or portion thereof is being exercised.
2. Cashless Exercise/Sale Method. With the consent of the Committee, payment
in full of the exercise price of the Option may be made through the Company's
receipt of a copy of instructions to a broker directing such broker to sell
the Stock for which the Option is being exercised, to remit to the Company an
amount equal to the aggregate exercise price of such Option, with the balance
being remitted to Holder.
3. Cashless Exercise/Net Method. With the consent of the Committee, payment
in full of the exercise price of the Option may be made, based on written
instructions received from the Holder, by Company's issuance to the Holder of
that number of shares of Stock having a fair market value equal to only the
"profit portion" of his, her, or its Option (i.e., the excess of the then
fair market value of the Stock over the Holder's exercise price).
B. New Options. In the event that a Holder pays the exercise price of his
Option, in whole or in part, with previously owned shares of Stock, pursuant
to the rules specified above, then, if and to the extent approved by the
Committee, in addition to the shares of Stock purchased pursuant to the
Option exercise, such Holder shall also receive a new Option, subject to the
terms and conditions set forth below and in the Holder's individual Stock
Option Agreement.
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Upon exercise of the Option with payment in the form of either shares of
Stock or a combination of cash and shares of Stock, the Committee may, in its
sole and absolute discretion, grant the Holder a new Option for shares of
Stock equal to the number of shares that were delivered by the Holder to
Company to pay, in whole or in part, the exercise price of the previous
Option. The exercise price of the new Option shall be equal to at least 100%
of the Fair Market Value per share of the Stock on the date of the exercise
of the previous Option. Provided, however, the new Option cannot be exercised
by the Holder until the later of: (1) the exercisability dates specified in
the individual Option Agreement; or (2) six (6) months after the date of
grant. As a further condition on the exercisability of the new Option, the
shares of Stock received by the Holder upon exercise of his or her previous
Option must be held by the Holder for at least six (6) months prior to any
sale of such shares by the Holder. Any sale of such shares by a Holder
prior to the expiration of the six (6) month holding period shall render the
new Option non-exercisable. Nothing in this paragraph shall prevent the
Committee from granting a Holder another new Option in the future when the
previous new Option is exercised by the Holder with the payment of previously
owned shares of Stock.
C. Withholding.
1. General. The Committee may, in its discretion, require a Holder to pay to
Company at the time of exercise of an Option (or portion thereof) the amount
that Company deems necessary to satisfy its obligation to withhold Federal,
state, or local income or other taxes incurred by reason of the exercise.
Upon the exercise of an Option requiring tax withholding, a Holder may make a
written request to have shares of stock withheld by Company from the shares
otherwise to be received. The number of shares so withheld shall have an
aggregate Fair Market Value on the date of exercise sufficient to satisfy the
applicable withholding taxes. The acceptance of any such request by a Holder
shall be at the sole discretion of the Committee, including, if deemed
necessary by the Committee, approval by the Securities and Exchange
Commission and the satisfaction of any additional requirements necessary to
obtain such approval.
2. Additional Sec. 16b Requirements. Currently, with respect to Option
holders subject to liability under Section 16b of the Act, such additional
requirements include the following: (1) any previously owned shares of Stock
used to satisfy the withholding obligation must have been held by the
taxpayer for at least six (6) months, and any Option shares otherwise
issuable hereunder to be withheld to satisfy such obligations may be so
withheld only if both the exercise of the Option and the election to have
shares withheld are made at least six (6) months after the date of grant; (2)
the Option holder's election must be made: (a) at
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least six (6) months less one day prior to the date on which the option
exercise becomes taxable, or (b) within a 10-day "window period" beginning on
the third business day following the release of Company's annual or quarterly
financial reports and ending on the twelfth day thereafter (but in no event
later than the date the option exercise becomes taxable); (3) Company has
been subject to the Act's reporting requirements for more than a year and has
filed all reports and statements required to be filed pursuant to Section 13
of the Act; (4)Company regularly issues quarterly or annual summary
statements of sales and earnings; (5) all members of the Committee
administering the Plan with respect to Option holders subject to liability
under Section 16b of the Act are "disinterested" in accordance with Rule
16b-3 promulgated under the Act; (6) the Committee will be empowered to
consent to or disapprove an Option holder's withholding election; and (7) any
withholding election will be required to be irrevocable.
Sec. 6:4. Terms, Time of Exercise, and Transferability of Options.
A. Decrease in Term of Option. In addition to such other terms and
conditions as may be included in a particular Agreement granting an Option,
an Option shall be exercisable during a Holder's lifetime only by him or her
or by his or her guardian or legal representative. An Option shall not be
transferrable other than by will or the laws of descent and distribution.
Each Option shall also be subject to the following terms and conditions
(except to the extent a Holder's Agreement otherwise provides):
1. Termination of Employment or Directorship.
a. Voluntary Termination. If a Holder ceases to be employed by at least one
of the employers in the group of employers consisting of Company and its
Affiliates because the Holder voluntarily terminates his or her employment
with such group of employers and the Holder does not remain or thereupon
become a director of Company or one or more of its Affiliates, or if a Holder
ceases to be a director of at least one of the corporations in the group of
corporations consisting of Company and its Affiliates and the Holder does not
remain or thereupon become an employee of Company or one or more of its
Affiliates, the portion (if any) of an Option that remains unexercised,
including that portion (if any) that pursuant to the Agreement is not yet
exercisable, as of the date of the Holder's termination of employment or
ceasing to be a director, whichever occurs later, shall terminate and cease
to be exercisable as of such date (or ninety [90] days prior thereto if the
Holder elected to exercise his or her Option in anticipation of such
termination [to be determined in the sole discretion of the Committee]).
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b. Termination for Cause. If a Holder ceases to be employed by at least one
of the employers in the group of employers consisting of Company and its
Affiliate because any of such entities terminates the Holder's employment for
cause, the portion (if any) of an Option that remains unexercised, including
that portion (if any) that pursuant to the Agreement is not yet exercisable,
at the time of the Holder's termination of employment, shall terminate and
cease to be exercisable immediately upon such termination (or ninety [90]
days prior thereto if the Holder elected to exercise his or her Option in
anticipation of such termination [to be determined in the sole discretion of
the Committee]). A Holder's employment shall be deemed terminated "for
cause" if terminated by the Board of Directors of Company (or the board of
directors of an Affiliate) because of incompetence, insubordination,
dishonesty, other acts detrimental to the interest of Company and/or its
Affiliates, or any material breach by the Holder of any employment,
nondisclosure, noncompetition, or other contract with Company and/or one of
its Affiliates. Whether "cause" exists shall be determined by such Board of
Directors in its sole discretion and in good faith. The exercise of an
option in anticipation of a termination for cause shall be null and void.
c. Termination Without Cause. If a Holder ceases to be employed by at least
one of the employers in the group of employers consisting of Company and its
Affiliates because one or more of such entities terminates the employment of
the Holder for otherwise than for "cause," and the Holder does not remain or
thereupon become a director of Company and/or one or more of its Affiliates,
the Holder shall have the right for thirty (30) days following such
termination to exercise the Option with respect to that portion thereof that
has become exercisable pursuant to Holder's Agreement as of the date of such
termination, and thereafter the Option shall terminate and cease to be
exercisable.
2. Disability. If a Holder ceases to be employed by at least one of the
employers in the group of employers consisting of Company and its Affiliates
by reason of disability (as defined in Sec.22(e)(3) of the Code) and does not
remain or thereupon become a director of Company or one or more of its
Affiliates, or if the Holder ceases by reason of such disability to be a
director of at least one of the corporations in the group of corporations
consisting of Company and its Affiliates,
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the Holder shall have the right for ninety (90) days after the date of
termination of employment with, or cessation of directorship of, such group
of employers by reason of disability, whichever occurs later, to exercise an
Option to the extent such Option is exercisable on the date of his or her
termination of employment, and thereafter the Option shall terminate and
cease to be exercisable.
3. Death. If a Holder dies while in the employ of Company or an Affiliate,
or dies while a director of Company or an Affiliate, his or her Option shall
be exercisable by his or her legal representatives, legatees, or distributees
for six (6) months following the date of the Holder's death to the extent
such Option is exercisable on the Holder's date of death, and thereafter the
Option shall terminate and cease to be exercisable.
B. Term of Option. Notwithstanding any other provision of this Plan,
including the provisions of Subsection A above, no Incentive Stock Option may
be exercised after the expiration of ten (10) years from the date it was
granted (or the period specified in Sec.4.1, if applicable). The Committee
may prescribe in any Agreement that the Option evidenced thereby may be
exercised in full or in part as to any number of shares subject thereto at
any time or from time to time during the term of the Option, or in such
installments at such times during said term as the Committee may prescribe.
Except as provided above and unless otherwise provided in any Agreement, an
Option may be exercised at any time or from time to time during the term of
the Option. Such exercise may be as to any or all whole (but no fractional)
shares which have become purchasable under the Option.
C. Issuance of Stock Certificates. Within a reasonable time, or such time as
may be permitted by law, after Company receives written notice that the
Holder has elected to exercise all or a portion of an Option, such notice to
be accompanied by payment in full of the aggregate exercise price of the
number of shares purchased, Company shall issue and deliver a certificate
representing the shares acquired as a result of the exercise and any other
amounts payable in consequence of such exercise. In the event that a Holder
exercises both an Incentive Stock Option, or portion thereof, and a
Nonstatutory Stock Option, or a portion thereof, separate Stock certificates
shall be issued, one for the Stock subject to the Incentive Stock Option and
one for the Stock subject to the Nonstatutory Stock Option. The number of
shares of Stock transferrable due to an exercise of an Option under this Plan
shall not be increased due to the passage of time, except as may be provided
in an Agreement.
D. Issuance in Compliance With Securities Laws. Nothing herein or in any
Option granted hereunder shall require Company to issue any shares upon
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exercise of any Option if such issuance would, in the opinion of counsel for
Company, constitute a violation of the Securities Act of 1933, as amended, or
any similar or superseding statute or statutes, or any other applicable
statute or regulation, as then in effect.
E. Investment Legend. At the time of exercise of an Option, Company may, as
a condition precedent to the exercise of such Option, require from the Holder
of the Option (or in the event of his or her death, his or her legal
representatives, legatees, or distributees) such written representations, if
any, concerning his or her intentions with regard to the retention or
disposition of the shares being acquired by exercise of such Option and such
written covenants and agreements, if any, as to the manner of disposal of
such shares as, in the opinion of counsel to Company, may be necessary to
ensure that any disposition by such Holder (or in the event of his or her
death, his or her legal representatives, legatees, or distributees), will not
involve a violation of the Securities Act of 1933, as amended, or any similar
or superseding statute or statutes, or any other applicable state or federal
statute or regulation, as then in effect. Certificates for shares of Stock,
when issued, may have the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
The shares of Stock evidenced by this certificate have been issued to the
registered owner in reliance upon written representations that these shares
have been purchased for investment. These shares may not be sold,
transferred, or assigned unless, in the opinion of Company and its legal
counsel, such sale, transfer, or assignment will not be in violation of the
Securities Act of 1933, as amended, applicable rules and regulations of the
Securities and Exchange Commission, and any applicable state securities laws.
Sec. 6:5. Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Stock Option. With
respect to any Incentive Stock Option granted under this Plan, to the extent
that the aggregate Fair Market Value of shares of Stock exceed $100,000, then
such excess over $100,000 shall not be considered as subject to an Incentive
Stock Option, but rather shall be considered as subject to a Nonstatutory
Stock Option. This rule shall be applied by taking shares of Stock subject to
Incentive Stock Options that are purchasable for the first time in the calendar
year into account in the order in which such Incentive Stock Options were
granted.
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Sec. 6:6. Adjustments Upon Changes in Capitalization, Merger, Etc.
A. Method of Adjustment. In the event of any change in the number of
outstanding shares of Stock effected without receipt of consideration
therefor by Company (other than as a result of the conversion of Company's
Class B Common Stock into Class A Common Stock) by reason of a stock
dividend, or split, combination, exchange of shares or other
recapitalization, merger, or otherwise, in which Company is the surviving
corporation, the aggregate number and class of the reserved shares, the
number and class of shares subject to each outstanding Option, and the
exercise price of each outstanding Option shall be automatically adjusted
to accurately and equitably reflect the effect thereon of such change
(provided that any fractional share resulting from such adjustment may be
eliminated). In the event of a dispute concerning such adjustment, the
decision of the Committee shall be conclusive. The number of reserved shares
or the number of shares subject to any outstanding Option shall be
automatically reduced by any fraction included therein which results from
any adjustment made pursuant hereto.
B. Termination of Option. The following provisions shall apply unless a
Holder's Agreement provides otherwise. A dissolution or liquidation of
Company; a sale of all or substantially all of the assets of Company where it
is contemplated that within a reasonable period of time thereafter Company
will either be liquidated or converted into a nonoperating company or an
extraordinary dividend will be declared resulting in a partial liquidation of
Company (but in all cases only with respect to those employees whom it is
anticipated will lose their employment with Company and its Affiliates as a
result of such sale of assets); a merger or consolidation (other than a
merger effecting a reincorporation of Company in another state or any other
merger or a consolidation in which the shareholders of the surviving
corporation and their proportionate interests therein immediately after the
merger or consolidation are substantially identical to the shareholders of
Company and their proportionate interests therein immediately prior to the
merger or consolidation) in which Company is not the surviving corporation (or
survives only as a subsidiary of another corporation in a transaction in
which the shareholders of the parent of Company and their proportionate
interests therein immediately after the transaction are not substantially
identical to the shareholders of Company and their proportionate interests
therein immediately prior to the transaction) shall cause every Option then
outstanding to terminate, but the Holders of each such then outstanding Option
shall, in any event, have the right, immediately prior to such dissolution,
liquidation, sale of assets, merger, consolidation, or transaction, to
exercise each such Option, to the extent not theretofore exercised, without
regard to the determination as to the periods and installments of
exercisability made pursuant to a Holder's Agreement if (and only if) such
Options have not at that time expired or been terminated.
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Sec. 6:7. Rights as a Shareholder. A Holder shall have no right as a
shareholder with respect to any shares covered by his or her Option until a
certificate representing such shares is issued to him or her. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash or
other property) or distributions or other rights for which the record date is
prior to the date such certificate is issued (except as provided in Sec. 6.6
hereof).
Sec. 6:8. Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, the Committee
may modify, extend, or renew outstanding Options granted under the Plan, or
accept the surrender of Options outstanding hereunder (to the extent not
theretofore exercised) and authorize the granting of new Options hereunder in
substitution therefor (to the extent not theretofore exercised). The
Committee may not, however, without the consent of the Holder, modify any
outstanding Incentive Stock Options so as to specify a lower exercise price
or accept the surrender of outstanding Incentive Stock Options and and
authorize the granting of new Options in substitution therefor specifying a
lower option price. In addition, no modification of an Option granted
hereunder may, wihtout the consent of the Holder, alter or impair any rights
or obligations under any Option theretofore granted hereunder to such Holder
under the Plan, except as may be necessary with respcet to Incentive Stock
Options to satisfy the requirements of Sec. 422 of the Code.
Sec. 6:9. Furnish Information. Each Holder shall furnish to Company all
information requested by Company to enable it to comply with any reporting or
other requirements imposed upon Company by or under any applicable statute
or regulation.
Sec. 6:10. Obligation to Exercise; Termination of Employment. The grantin of
an Option hereunder shall impose no obligation upon the Holder to exercise
the same or any part thereof. In the event of a Holder's termination of
employment with Company or an Affiliate, the unexercised portion of an Option
granted hereunder shall terminate in accordance with Sec. 6.4 hereof.
Sec.6:11. Agreement Provisions. The Agreements authorized under the Plan
shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions
upon the exercise of the Option and the retention or transfer of shares
thereby acquired) as the Committee deems advisable. Each Agreement shall
identify the Option evidenced thereby as an Incentive Stock Option or
Nonstatutory Stock Option, as the case may be, and no Agreement shall cover
both an Incentive Stock Option and Nonstatutory Stock Option. Except as
provided by SubsectionB of Sec. 6.6, each Agreement relating to an Incentive
Stock Option granted hereunder shall contain such limitations and
restrictions upon the exercise of the Incentive Stock Option to which it
relates as is necessary for the Incentive Stock Option to which such
Agreement relates to constitute an incentive stock option, as defined in Sec.
422 of the Code.
Page 83 of 106
Article VII
Duration of Plan
No Incentive Stock Options may be granted hereunder after the date that is
ten (10) years from the earlier of: (i) the date this Plan is adopted by the
Board of Directors; or (ii) the date this Plan is approved by Company's
shareholders. In addition, with respect to shares of Stock not currently
covered by an outstanding Option, this Plan may be terminated at any time by
the Board of Directors.
Article VIII
Amendment of Plan
The Board of Directors may, insofar as permitted by law, with respect to any
shares at the time are not subject to Options, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however,
that, without the approval of the holders of a majority of the outstanding
shares of voting stock of all classes of Company, no such revision or
amendment shall: (a) change the number of shares of the Stock subject to the
Plan, (b) change the designation of the class of employees eligible to
receive Options, (c) decrease the price at which Incentive Stock Options may
be granted, (d) remove the administration of the Plan from the Committee, or
(e) without the consent of the affected Holder, cause the Incentive Stock
Options granted hereunder and outstanding at such time that satisfied the
requirements of Sec. 422 of the Code to no longer satisfy such requirements.
Page 84 of 106
Article IX
General
Sec. 9:1. Application of Funds. The proceeds received by Company from the
sale of shares pursuant to Options shall be used for general corporate
purposes.
Sec. 9:2. Right of Company and Affiliates to Terminate Employment. Nothing
contained in the Plan, or in any Agreement, shall confer upon any Holder the
right to continue in the employ of Company or any Affiliate, or interfere in
any way with the rights of Company or any Affiliate to terminate his or her
employment at any time.
Sec. 9:3. No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for
any act, omission, or determination taken or made in good faith with respect
to the Plan or any Option granted under it, and members of the Board of
Directors and the Committee shall be entitled to indemnification and
reimbursement by Company in respect of any claim, loss, damage, or expense
(including attorneys' fees, the costs of settling any suit, provided such
settlement is approved by independent legal counsel selected by Company, and
amounts paid in satisfaction of a judgment, except a judgment based on a
finding of bad faith) arising therefrom to the full extent permitted by law
and under any directors and officers liability or similar insurance coverage
that may from time to time be in effect.
Sec. 9:4. Information Confidential. As partial consideration for the
granting of each Option hereunder, the Holder shall agree with Company that
he or she will keep confidential all information and knowledge that he or she
has relating to the manner and amount of his participation in the Plan;
provided, however, that such information may be disclosed as required by law
and may be given in confidence to the Holder's spouse, tax, and financial
advisors, or to a financial institution to the extent that such information
is necessary to secure a loan. In the event any breach of this promise comes
to the attention of the Committee, it shall take into consideration such
breach, in determining whether to recommend the grant of any future Option to
such Holder, as a factor militating against the advisability of granting any
such future Option to such individual.
Sec. 9:5. Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock option plan of Company or any
Affiliate or any old age benefit, insurance, pension, profit sharing
retirement, bonus, or other extra compensation plans which Company or any
Affiliate has adopted, or may, at any time, adopt for the benefit of its
employees.
Page 85 of 106
Sec. 9:6. Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his or her legal
representative, heir, legatee, or distributee, in accordance with the
provisions hereof, shall, to the extent thereof, be in full satisfaction of
all claims of such persons hereunder. The Committee may require any Holder,
legal representative, heir, legatee, or distributee, as a condition precedent
to such payment, issuance, or transfer, to execute a release and receipt
therefor in such form as it shall determine.
Sec. 9:7. No Guarantee of Interests. Neither the Committee nor Company
guarantees the Stock of Company from loss or depreciation.
Sec. 9:8. Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal
and accounting fees, shall be paid by Company or its Affiliates.
Sec. 9:9. Company Records. Records of Company or its Affiliates regarding
the Holder's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to
be incorrect.
Sec. 9:10. Information. Company and its Affiliates shall, upon request or as
may be specifically required hereunder, furnish or cause to be furnished, all
of the information or documentation which is necessary or required by the
Committee to perform its duties and functions under the Plan.
Sec. 9:11. No Liability of Company. Company assumes no obligation or
responsibility to the Holder or his or her personal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of,
the Committee.
Sec. 9:12. Company Action. Any action required of Company shall be by
resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
Sec. 9:13. Severability. If any provision of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable, and
the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
Sec. 9:14. Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered, or, whether
actually received or not, on the third business day after it is deposited in
the United States mail, certified or registered, postage prepaid, addressed
to the person who is to receive it at the address which such person has
theretofore specified by
Page 86 of 106
written notice delivered in accordance herewith. Company or a Holder may
change, at any time and from time to time, by written notice to the other,
the address which it or he had theretofore specified for receiving notices.
Until changed in accordance herewith, Company and each Holder shall specify
as its and his or her address for receiving notices the address set forth in
the Agreement pertaining to the shares to which such notice relates.
Sec. 9:15. Waiver of Notice. Any person entitled to notice hereunder may
waive such notice.
Sec. 9:16. Successors. The Plan shall be binding upon the Holder, his or her
heirs, legatees, and legal representatives, upon Company, its successors, and
assigns, and upon the Committee, and its successors.
Sec. 9:17. Headings. The titles and headings of Sections and Subsections are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
Sec. 9:18. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware except to the extent Delaware law is preempted by federal
law. Questions arising with respect to the provisions of an Agreement that
are matters of contract law shall be governed by the laws of the state
specified in the Agreement, except to the extent Delaware corporate law
conflicts with the contract law of such state, in which event Delaware
corporate law shall govern. The obligation of Company to sell and deliver
Stock hereunder is subject to applicable laws and to the approval of any
governmental authority required in connection with the authorization,
issuance, sale, or delivery of such Stock.
Sec. 9:19. Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates,
the plural shall be read as the singular and the singular as the plural.
Sec. 9:20. Remedies. Company may recover from a Holder reasonable attorneys'
fees incurred in connection with the enforcement of the terms and provisions
of the Plan and any Agreement whether by an action to enforce specific
performance or for damages for its breach or otherwise.
Page 87 0f 106
Article X
Approval of Shareholders
The Plan shall take effect on the date it is adopted by the Board of
Directors. However, if this Plan is not approved by the holders of a
majority of the outstanding shares of Company's ClassA and ClassB Common
Stock at the Annual Meeting of Shareholders scheduled to be held in 1999, any
Options granted hereunder shall be null, void, and of no force and effect as
of their grant date.
IN WITNESS WHEREOF, Supreme Industries, Inc., acting by and through its
officers hereunto duly authorized has executed this instrument to be
effective the 29th day of October, 1998.
SUPREME INDUSTRIES, INC.
By: _______________________
Herbert M. Gardner,
Chairman of the Board
Page 88 of 106
Exhibit 10.12
Employment Contract
Supreme Corporation
(Kropf)
This Contract is entered into between Supreme Corporation, a Texas corporation
(hereafter called "Company"), and OmerG. Kropf (hereafter called "Employee").
Company is engaged in the business of manufacturing and selling specialized
truck bodies. Company desires to obtain the services of Employee as one of
its key executives, and Employee is willing and able to perform in that
capacity.
Accordingly, in consideration of the mutual covenants herein contained, the
parties to this Contract agree as follows:
1. Employment. Company hereby employs Employee, and Employee hereby accepts
such employment from Company, pursuant to those provisions herein contained.
2. Term of Employment. Subject to the provisions for termination hereafter
provided, the term of this Contract shall be for a total of four (4) years
beginning on May1, 1998, and ending on April 30, 2002.
3. Duties of Employee. Employee is employed as President of Company. It is
understood and agreed that Employee is subject to the direction and control
of Company's Board of Directors, as required by the Texas Business
Corporation Act, and as a result Employee shall, if required by Company's
Board of Directors during the term of this Contract, serve in any other
executive capacity considering his experience and performance record to date
with Company. Employee shall devote substantially all of his time,
attention, best efforts, and energy to the business of Company, and may not,
during the term of this Contract, be engaged in any other material business
activities which interfere with his ability to carry out his obligations
hereunder. However, such restriction shall not be construed as preventing
Employee from making investments in (non-competitive) business enterprises so
long as Employee will not be required to render personal services to any such
business enterprises during Employee's normal business hours with Company.
Page 89 of 106
4. Compensation. To the extent Employee continues to comply with all of the
provisions of this Contract (including the covenants referenced in paragraph
8 below and contained in Exhibits "A" and "B" attached hereto):
a. Base Salary. For the first year of this Contract, Company shall pay to
Employee a minimum base salary of $190,000 per year payable $15,833.33 per
month (from which federal withholding and social security taxes will be
deducted) in the same manner as monthly salary payments are paid to other key
executives of Company. For the last three years of this Contract, Company
shall pay to Employee a minimum base salary of $240,000 per year payable
$20,000 per month (from which federal withholding and social security taxes
will be deducted) in the same manner as monthly salary payments are paid to
other key executives of Company; and
b. Pre-Tax Bonus. It is anticipated that at the end of each calendar year,
Employee, in his capacity as President of the Company, will request approval
of the Board of Directors for distribution from the Company's Bonus Payment
Plan, the amount of which will be dependent upon the operating results of the
Company for that year. It is also anticipated that Employee is authorized to
include himself as a recipient of a portion of such bonus pool. In such
event (and assuming approval by the Board of Directors of the portion of the
bonus which Employee recommends be distributed to himself), Employee shall be
entitled to receive, in addition to the base salary referred to above, a
pre-tax bonus in the amount so approved by the Board of Directors.
c. Increases. The Board of Directors of Company may, at any time, elect to
increase Employee's base salary and/or pre-tax bonus above the amounts
referred to in subparagraphs"a" and "b" above.
5. Fringe Benefits. During the period that Employee continues to comply
with all of the provisions of this Contract, Employee shall receive the
following fringe benefits:
a. Business Expenses. Employee may incur reasonable expenses, as determined
by the Chairman of the Board of Company, in connection with the promotion of
Company's business including expenses for entertainment, travel, and similar
items. Company agrees to reimburse Employee for all such reasonable expenses
upon the presentation by Employee, from time to time as required by Company,
of an itemized account of such expenditures; provided, however, Employee
shall not expend any sums in excess of those amounts permitted by the
Internal Revenue Code of 1986, as amended, without prior written approval
from the Chairman of the Board of Company;
Page 90 of 106
b. Medical Benefits. Employee may receive the same rights as have been
given to Company's employees of like stature and caliber as to group
hospitalization, accident, and major medical benefits for himself and the
members of his family, except that Employee shall be under the same
obligation to pay his pro-rata portion of such benefits as all other of
Company's employees in the event he desires to receive such benefits;
c. Paid Vacation. Each calendar year (or proportion thereof), Employee may
take a vacation of four (4) weeks during which time his compensation shall be
paid in full;
d. Dental Expenses. Company shall pay or reimburse Employee for all family
dental expenses up to a maximum of $5,000 per year;
e. Automobile. Company shall provide an automobile for Employee's use in
connection with the services to be rendered by Employee to Company. Company
shall pay or reimburse Employee for maintenance and repair expenses of the
automobile upon submission of vouchers or itemized lists of such expenses
prepared in compliance with Company's policy. For so long as Company owns
(or leases) the automobile, Company shall insure the automobile with the same
automobile insurance company coverage that is provided for executive officers
of Company. Company agrees that Employee shall be designated as an
additional insured on any Company provided policy providing liability
insurance coverage. In the event the automobile is damaged or destroyed by
reason of accident, theft, vandalism, or otherwise, Employee will not have
any liability to Company for any such loss or damage (including out-of-pocket
deductibles);
f. Life Insurance. During the term of this Contract, Company shall pay for
and keep in full force and effect accident and life insurance policies on the
life of, and with the proceeds payable to, Employee (or his estate), it being
understood that the proceeds payable under such life insurance policies
(whether provided by Company and/or any one or more of its subsidiaries)
shall at all times be a minimum of $1,500,000; and
g. Other Benefits. No provision of this Contract shall preclude Employee
from participating in any fringe benefit plan now in effect or hereafter
adopted by Company, but Company shall be under no obligation to provide for
his participation in, or to institute, any such plan or to make any
contribution under any such plan, unless such opportunities are provided to
all Company employees as a group, or to all of Company's senior officers as a
group.
Page 91 of 106
6. Key-Man Insurance. Company may, at any time during the term of this
Contract, apply for and procure as owner, and for its sole benefit, life
insurance on Employee's life in such amounts and in such forms as Company may
select. Employee hereby acknowledges the fact that he will have no interest
whatsoever in any such insurance policy. However, Employee agrees that he
shall, at Company's request, submit to such medical examinations, supply such
information, and execute such documents as may be requested by the insuring
companies.
7. Termination of Employment.
a. By Company.
1) Date of Termination. Company may at any time terminate this Contract, in
which event Employee shall leave the premises on such date (the "Date of
Termination") as is specified by Company in the notice of termination (which
date can be as early as the date of such notice).
2) For Cause. If such termination is "for cause," Company will have no
obligation to pay to Employee any compensation or fringe benefits following
the Date of Termination. For purposes of the preceding sentence, the phrase
"for cause" will be deemed to mean:
a) absence from Company's offices, physical or mental illness, or any other
reason, for any successive period of forty-five (45) days, or for a total
period of ninety (90) days in any one of Company's fiscal years (except that
any vacation periods, travel on Company business, or leaves of absence
specifically granted by Company's Board of Directors shall not be considered
as periods of absence from employment);
b) Employee's commission of an act of gross negligence in the performance of
his duties or obligations hereunder;
c) Employee's commission of any act of fraud, malfeasance, disloyalty, or
breach of trust against the Company, or Employee fails to observe any
covenant referenced in paragraph8 below or contained in Exhibits "A" or "B"
hereto;
d) Employee's refusal, or substantial inability, to perform the duties
assigned in good faith to him pursuant to paragraph 3 hereof;
Page 92 of 106
e) Employee dies or gives affirmative indication, in the opinion of a
majority of Company's Board of Directors, that he no longer intends to abide
by the terms of this Contract; or
f) Employee is guilty of acts of moral turpitude or dishonesty in Company's
affairs, gross insubordination or the equivalent, or Employee violates, or
fails to comply with, any of the provisions of this Contract.
3) Not For Cause. If such termination is based on any reason other than
"for cause," Company shall be obligated to pay to Employee his base salary
during the remainder of the term of this Contract (on a monthly basis at the
same rate as payable immediately before the Date of Termination). In
addition, within ninety(90) days after the end of the calendar year during
which occurred the event triggering such Date of Termination, Company shall
pay to Employee his Proportionate Share of the pre-tax bonus referred to in
paragraph4.b. above. For this purpose, Employee's "Proportionate Share" will
be a fraction the numerator of which is the number of days in such calendar
year ending with such Date of Termination and the denominator of which is the
total number of days in such calendar year.
a) Included within the definition of a termination of Employee other than
"for cause" will be a "Change in Control of Company." For purposes of this
Contract, the term "Change in Control of Company" will mean a change in
control of a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A under the Securities Exchange Act of
1934 (the "Exchange Act"); provided that, without limitation, such a change
in control will be deemed to have occurred if (Y) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than Company
or any "person" who on the date hereof is a director or officer of Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Company representing
25% or more of the combined voting power of Company's then outstanding
securities, or (Z) during any period of two consecutive calendar years during
the term of this Agreement, individuals who at the beginning of such period
constitute the Board of Directors of Company cease for any reason to
constitute at least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been approved in
advance by directors representing at least two-thirds of the directors then
in office who were directors at the beginning of the period.
Page 93 of 106
b) Company shall transfer the title (free and clear of any liens or other
encumbrances) to any automobile then owned (or leased) for use by, or
otherwise provided to, Employee upon the payment of One Dollar ($1.00) to
Company by Employee.
c) Employee shall not be required to mitigate the amount of any payment
provided for in this subparagraph3) by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this subparagraph3) be
reduced by any compensation earned by Employee as the result of self-
employment or employment by another employer.
b. By Employee. If such termination is caused by Employee for any reason,
Company will have no obligation to pay to Employee any compensation or fringe
benefits following the Date of Termination.
8. Disclosure of Confidential Information; Covenant Not To Compete. Company
possesses secret and confidential equipment, techniques, processes,
procedures, technical data and information, and customer lists used or
intended for utilization in its operations of which Employee has obtained or
may obtain knowledge, and Company would suffer serious harm if this
confidential information were disclosed or if Employee used this information
to compete against Company. Further, Employee in the performance of services
hereunder may develop or conceive new and additional inventions and
improvements with respect to such matters. Accordingly, Employee hereby
agrees that simultaneously with the execution of this Contract he shall
execute and deliver to Company and thereafter abide by the terms of a
"Confidentiality Agreement and Covenant Not to Compete" and "Disclosure and
Invention Agreement," copies of each of which are attached hereto
respectively as Exhibits "A" and "B" and incorporated herein by reference.
9. Remedies. Employee agrees that in the event of his breach of his
covenants and agreements contained or referenced in this Contract, Company
shall be entitled to obtain injunctive or similar relief from a court of
competent jurisdiction. The covenants contained in Exhibits "A" and "B"
hereof shall be construed as agreements independent of any other agreements
between Company and Employee, and the existence of any claim or cause of
action of Employee against Company, whether predicated on this Contract or
otherwise, shall not constitute a defense to the enforcement by Company of
those conveyances. Company shall be entitled to reasonable attorneys' fees
and related legal costs in the event of a breach, or attempted breach, of
such covenants by the Employee. The remedies of Company and Employee under
this Contract are cumulative and will not exclude any other remedies to which
any party may be entitled hereunder, including a right of offset, whether at
law or inequity.
Page 94 of 106
10. Notices. All notices allowed or required to be given hereunder must be
in writing and dispatched by United States certified mail, return receipt
requested, to the address of the party entitled to such notice shown at the
end of this Contract. Either party hereto may change the address to which
any such notice is to be addressed by giving notice in writing to the other
party of such change. Any time limitation provided for in this Contract
shall commence with the date that the party actually receives such written
notice, and the date or postmark of any return receipt indicating the date of
delivery of such notice to the addressee shall be conclusive evidence of such
receipt. In addition to the parties hereto, copies of all notices should be
sent to:
Mr. Herbert M. Gardner
26 Broadway, Eighth Floor
New York, NY 10004
Law, Snakard & Gambill
500 Throckmorton Street
Suite 3200
Fort Worth, TX 76102
Attn: Rice M. Tilley, Jr., Esq.
11. Assignment. Neither Employee nor anyone claiming under him may commute,
encumber, or dispose of the right to receive benefits hereunder. Such right
to receive benefits hereunder is expressly declared to be non-assignable and
non-transferable by Employee, and in the event of any attempted assignment or
transfer, Company shall have no further liability hereunder; provided,
however, the foregoing shall not apply to assignments by operation of law,
such as to a guardian or to an executor of Employee's estate.
12. Waiver. The waiver by Company of Employee's breach of any provision
hereof shall not operate or be construed as a waiver of any subsequent breach
by Employee.
13. Binding Effect. This Contract shall be binding upon the parties hereto
and their heirs, successors, executors, administrators, personal
representatives, and except as provided in paragraph11, assigns.
Page 95 of 106
14. Survival of Provisions. All provisions of this Contract, including all
representations, warranties, covenants, and agreements contained or
referenced herein, will survive the execution and delivery hereof and any
investigation of the parties with respect thereto. The provisions of
paragraphs8 and 9, and Exhibits"A" and "B," will survive the termination or
amendment of this Contract.
15. Validity. If any provision of this Contract is held by a court of law
to be illegal or unenforceable, the remaining provisions of the Contract will
remain in full force and effect. In lieu of such illegal or unenforceable
provision, there shall be added automatically as a part of this Contract a
provision as similar in terms to such illegal or unenforceable provision as
may be possible and be legal and enforceable.
16. Amendments. This Contract may be amended at any time and from time to
time in whole or in part by an instrument in writing setting forth the
particulars of such amendment and duly executed by Company and the Employee.
17. Duplicate Originals. This Contract has been executed in duplicate
originals, each of which for all purposes is to be deemed an original, and
all of which constitute, collectively, one agreement; but in making proof of
this Contract, it will not be necessary to produce or account for more than
one such duplicate.
18. Captions. The captions or section headings of this Contract are
provided for convenience and shall not limit or affect the interpretation of
this Contract.
19. Governing Law. This Agreement has been made in, and its validity,
interpretation, construction, and performance shall be governed by and be in
accordance with, the laws of the State of Indiana, without reference to its
laws governing conflicts of law. Each party hereby irrevocably agrees that
any legal action or proceedings with respect to this Agreement may be brought
in the courts of the State of Indiana, or in any United States District Court
of Indiana, and, by its execution and delivery of this Agreement, each party
hereby irrevocably submits to each such jurisdiction and hereby irrevocably
waives any and all objections which it may have as to venue in any of the
above courts. Each party further consents and agrees that any process or
notice of motion or other application to either of said Courts or any judge
thereof, or any notice in connection with any proceedings hereunder, may be
served inside or outside the State of Indiana by registered or certified
mail, return receipt requested, postage prepaid, and be effective as of the
receipt thereof, or in such other manner as may be permissible under the
rules of said Courts.
20. Complete Understanding. This Contract constitutes the complete
understanding between the parties hereto, except as otherwise expressly
provided or referenced herein, with respect to the employment of Employee.
This Contract supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof.
Page 96 of 106
Signed to be effective May 1, 1998.
COMPANY: EMPLOYEE:
SUPREME CORPORATION
By: ______________________ ______________________
Herbert M. Gardner Omer G. Kropf
Chairman of the Board 1077 East North Shore Drive
26 Broadway, 8th Floor Syracuse, IN 46567
New York, NY 10004
Page 97 of 106
Exhibit "A"
to
Employment Contract
Confidentiality Agreement and
Covenant Not To Compete
Omer G. Kropf (hereafter called "Employee") has entered into an Employment
Contract with Supreme Corporation, a Texas corporation (hereafter called
"Company"), which is in the business of manufacturing and selling specialized
truck bodies.
By signing this Agreement, Employee acknowledges his understanding of the
following:
A. All companies have information, generally not known outside the company,
called "confidential information." All companies must conduct their
businesses through their employees, and consequently many employees must have
access to confidential information. At times the employee himself may
generate confidential information as a part of his job;
B. The phrase "confidential information" as used in this Agreement includes
information known as, referred to, or considered to be, trade secrets, and
comprises, without limitation, any technical, economic, financial marketing,
computer program, computer software, computer data (regardless of the medium
on which they are stored), computer source and object programs or codes, job
operating control language procedures, data entry utility programs, sorts,
and miscellaneous utilities, disk record layouts, flow charts, data entry
input forms, operations and installation instructions, report samples, data
files, printouts, or other information about the Company or its business
which is not common knowledge among competitors or other companies who might
like to possess such confidential information or might find it useful. Some
examples of confidential information include customer lists, price lists,
items in research or development, methods of manufacture, scientific studies
or analyses, details of training methods, new products or new uses for old
products, refining technology, merchandising and selling techniques,
contracts, and licenses, purchasing, accounting, long-range planning,
financial plans and results, computer programs and operating manuals,
computer source codes, and any other information affecting or relating to the
business of the Company, its manner of operation, its plans or processes.
This list is merely illustrative and the confidential information covered by
this Agreement is not limited to such illustrations; and
Page 98 of 106
C. Company's confidential information, including information referred to as,
known as, or considered to be, trade secrets, represents the most important,
valuable, and unique aspect of Company's business, and it would be seriously
damaged if Employee breached the position of confidential trust in which
Company has placed him by disclosing such confidential information to others
or by departing and taking with him the aforesaid unique information compiled
over a period of time for the purpose of himself competing against Company or
disclosing such information to Company's competitors, now existing or
hereafter formed.
Accordingly, in consideration of ONE DOLLAR paid to Employee by Company, the
receipt and sufficiency of which are hereby acknowledged, and Company's
agreement to employ him, Employee agrees as follows (which will constitute an
agreement ancillary to Employee's Employment Contract with Company):
1. Confidential information, including information referred to as, known as,
or considered to be, trade secrets, is proprietary to Company. Employee
agrees to hold such information in strictest confidence, and not to make use
thereof except in performance of duties under the Employment Contract.
Whether during or after his employment with Company, Employee may not
disclose to others (excepting Company officers or employees having a need to
know who have also signed a written agreement expressly binding themselves
not to use or disclose it) any confidential information originated, known to,
or acquired by Employee while employed by Company. Employee further agrees
during such period not to remove from the premises any of Company's records
or other written or tangible materials, including without limitation computer
programs and floppy disks (whether prepared by Employee or others) containing
any confidential information, except as required for Employee to properly
perform his duties as an employee of the Company. Exceptions to these
restrictions may be made only by means of Company's permission given in
writing signed by the Chairman of the Board of Directors of Company's parent,
ESI Industries, Inc., pursuant to an affirmative approval by a majority of
ESI's Board of Directors granting permission to disclose.
2. During a period of two (2) years following the cessation of Employee's
employment with Company, Employee covenants that Employee, either
individually or in any capacity, including without limitation, as an agent,
consultant, officer, shareholder, or employee of any business enterprises or
person with which he may become associated or in which Employee may have a
direct or indirect interest, shall not, directly or indirectly for himself or
on behalf of any other person or business entity, engage in any business
venture or other undertaking which is directly or indirectly competitive with
the business or operations of Company (and/or any of its subsidiaries) as
generally conducted at, or prior to, the cessation of Employee's employment
with Company. Without limiting the generality of the foregoing, Employee
shall not (i) so compete with the Company or its subsidiaries, (ii) be
Page 99 of 106
employed by, (iii) be an affiliate (as defined by Securities and Exchange
Commission Rule 405 under the Securities Act of 1933), (iv) perform any
services for, or (v) have an equity or ownership interest in, any person,
firm, partnership, joint venture, or corporation that so competes, directly
or indirectly, with the Company or any of its subsidiaries. Further,
Employee will not solicit for employment or advise or recommend to any other
person that such person employ, or solicit for employment, any employee of
the Company or any of its subsidiaries who was an employee at, or prior to,
the cessation of Employee's employment with Company. The foregoing covenant
not to compete shall be limited to a territory consisting of those states in
which the Company had manufacturing facilities as of the time of cessation of
Employee's employment with Company. If for any reason any court of competent
jurisdiction finds these covenants to be unreasonable in duration or
geographic scope, the prohibitions herein contained shall be restricted to
such time and geographic areas as such court determines to be reasonable and
enforceable. However, the restrictions stated above will not apply if
Company liquidates or if Employee becomes employed by a company (or its
affiliate) which acquires (in a voluntary transaction) the stock or business
assets of Company.
3. Employee understands and agrees that his violation of any of the
provisions of this Agreement will constitute irreparable injury to Company
immediately authorizing it to enjoin Employee or the business enterprise with
which he may have become associated from further violations, in addition to
all other rights and remedies which Company may have under law and equity,
including recovery of damages from Employee and a right of offset.
4. Each party shall be entitled to receive from the other party reimbursement
of attorney's fees and related legal costs to the extent incurred in
connection with the successful enforcement or defense, as the case may be, of
the terms and conditions hereof.
5. The waiver by Company of Employee's breach of any provision hereof shall
not operate or be construed as a waiver of any subsequent breach by Employee.
This Agreement shall be binding upon the parties hereto and their heirs,
successors, executors, administrators, personal representatives, and assigns.
Employee may not assign to any person his covenants, obligations and duties
hereunder. All provisions of this Agreement shall survive the termination or
amendment of Employee's Employment Contract.
6. If any provision of this Agreement is held by a court of law to be illegal
or unenforceable, the remaining provisions of the Agreement shall remain in
full force and effect. In lieu of such illegal or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal or unenforceable provision as may be
possible and be legal and enforceable.
Page 100 of 106
7. This Agreement has been made in, and its validity, interpretation,
construction, and performance shall be governed by and be in accordance with,
the laws of the State of Indiana, without reference to its laws governing
conflicts of law. Each party hereby irrevocably agrees that any legal action
or proceedings with respect to this Agreement may be brought in the courts of
the State of Indiana, or in any United States District Court of Indiana, and,
by its execution and delivery of this Agreement, each party hereby
irrevocably submits to each such jurisdiction and hereby irrevocably waives
any and all objections which it may have as to venue in any of the above
courts. Each party further consents and agrees that any process or notice of
motion or other application to either of said Courts or any judge thereof, or
any notice in connection with any proceedings hereunder, may be served inside
or outside the State of Indiana by registered or certified mail, return
receipt requested, postage prepaid, and be effective as of the receipt
thereof, or in such other manner as may be permissible under the rules of
said Courts.
Signed to be effective May 1, 1998.
________________________
Omer G. Kropf
1077 East North Shore Drive
Syracuse, IN 46567
ACCEPTED:
SUPREME CORPORATION
By: ______________________
Herbert M. Gardner,
Chairman of the Board
26 Broadway, 8th Floor
New York, NY 10004
Page 101 0f 106
Exhibit "B"
to
Employment Contract
Disclosure and Invention Agreement
Omer G. Kropf (hereafter called "Employee") has entered into an Employment
Contract with Supreme Corporation, a Texas corporation (hereafter called
"Company"), which is in the business of manufacturing and selling specialized
truck bodies.
In consideration of TEN DOLLARS ($10.00) paid to Employee by Company, the
receipt and sufficiency of which are hereby acknowledged, and Company's
agreement to employ him pursuant to an Employment Contract (to which this
Exhibit "B" is attached) between Company and Employee the provisions of which
are herein fully incorporated by reference for all purposes, Employee agrees
as follows:
1. Employee shall communicate to Company promptly and fully all ideas and the
expressions thereof, conceptions, improvements, discoveries, methods,
techniques, processes, adaptations, creations, and inventions (whether
patentable or copyrightable or not) conceived or made by Employee (whether
solely by Employee or jointly with others) ("Ideas") from the time of
entering Company's employment until one year after Employee's employment is
terminated for any reason, or Employee resigns or retires for any reason, (a)
which involve or pertain to, directly or indirectly, the business, assets,
activities, computers or computer programs, or investigations of Company as
existed at or prior to the cessation of Employee's employment by Company, or
(b) which result from or are suggested by any work which Employee or other
employees or independent contractors perform for or on behalf of Company, in
whole or in part, as existed at or prior to the cessation of Employee's
employment by Company.
2. Employee shall assist Company during and subsequent to Employee's
employment in every proper way (solely at Company's expense) to obtain
patents and/or copyrights for its own benefit in any or all countries of the
world, and to sign all proper papers, patent applications, assignments, and
other documents necessary for this purpose, it being understood that such
Ideas will remain the sole and exclusive property of Company, and shall not
be disclosed to any person, nor used by Employee, except as expressly
permitted herein.
Page 102 of 106
3. Written records of Employee's Ideas in the form of notebook records,
sketches, drawings or reports, will remain the property of and be available
to Company at all times.
4. Employee represents that Employee has no agreements with or obligations to
others in conflict with the foregoing.
5. Employee understands that this Agreement may not be modified or released
except in writing signed by all members of the Company's Board of Directors.
6. Employee understands and agrees that his violation of any of the
provisions of this Agreement will constitute irreparable injury to Company
immediately authorizing it to enjoin Employee or the business enterprise with
which he may have become associated from further violations, in addition to
all other rights and remedies which Company may have at law and equity,
including recovery of damages from Employee and a right of offset. Each
party shall be entitled to recover from the other party reimbursement of
attorney's fees and related legal costs to the extent incurred in connection
with the successful enforcement or defense, as the case may be, of the terms
of conditions hereof.
7. This Agreement shall be binding upon the parties hereto and their
respective heirs, successors, executors, administrators, personal
representatives, and assigns. Employee may not assign his covenants, duties,
or obligations hereunder to any other person. The waiver by Company of
Employee's breach of any provision hereof shall not operate or be construed
as a waiver of any subsequent breach by Employee.
8. If any provision of this Agreement is held by a court of law to be illegal
or unenforceable, the remaining provisions of the Agreement shall remain in
full force and effect. In lieu of such illegal or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in terms to such illegal or unenforceable provision as may be
possible and be legal and enforceable.
9. This Agreement has been made in, and its validity, interpretation,
construction, and performance shall be governed by and be in accordance with,
the laws of the State of Indiana, without reference to its laws governing
conflicts of law. Each party hereby irrevocably agrees that any legal action
or proceedings with respect to this Agreement may be brought in the courts of
the State of Indiana, or in any United States District Court of Indiana, and,
by its execution and delivery of this Agreement, each party hereby
irrevocably waives any and all objections which it may have as to venue in
any of the above courts. Each party further consents and agrees that any
process or notice of motion or other application to either of said Courts or
any judge thereof or any notice in connection with any proceedings hereunder,
may be served inside or outside the State of Indiana by registered or
certified mail, return receipt requested, postage prepaid, and be effective
as of the receipt thereof, or in such other manner as may be permissible
under the rules of said Courts.
Page 103 of 106
Signed to be effective May 1, 1998.
________________________
Omer G. Kropf
1077 East North Shore Drive
Syracuse, IN 46567
ACCEPTED:
SUPREME CORPORATION
By: ____________________________
Herbert M. Gardner,
Chairman of the Board
26 Broadway, 8th Floor
New York, NY 10004
Page 104 of 106
Exhibit 21.1
Subsidiaries of the Registrant (a)
Supreme Corporation
Supreme Corporation of Texas, a Texas Corporation
Supreme Truck Bodies of California, Inc., a California Corporation
Supreme Mid-Atlantic Corporation, a Texas Corporation
Supreme/Murphy Truck Bodies, Inc., a North Carolina Corporation
Atlantic Sales Corporation, a Texas Corporation
Atlantic Wood Products, S.A.
PA Land Holding Corp., a Texas Corporation
SC Freedom One, Inc.
SC Tower Structural Laminating, Inc.
(a) All subsidiaries are 100% owned by the Registrant.
Page 105 of 106
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Supreme Industries, Inc. (formerly ESI Industries, Inc.) on Form S-8 (File
No. 33-64047) and on Form S-3 (File Nos. 33-59586; 33-49488 and 33-59343) and
in the related Prospectus of our report dated January 29, 1999, on our audits
of the consolidated financial statements and financial statement schedule of
Supreme Industries, Inc. and subsidiaries as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, which
report is included in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
South Bend, Indiana
March 24, 1999
Page 106 of 106