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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to
____________________
Commission file number 0-14714
ASTEC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0873631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 72787, 4101 Jerome Avenue, Chattanooga, Tennessee 37407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 867-4210
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
(Form 10-K Cover Page - Continued)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $558,547,413 based upon the closing sales
price reported by the NASDAQ National Market on
March 8, 1999, using beneficial ownership of stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by all directors and executive officers of the registrant, some
of whom may not be held to be affiliates upon judicial determination.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
As of March 8, 1999
Common Stock, par value $.20 - 19,014,380 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by
reference into the Parts of
this Annual Report on Form 10-K indicated:
Document Form 10-K
Proxy Statement relating to Part III
Annual Meeting of Shareholders
to be held on April 22, 1999
ASTEC INDUSTRIES, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Appendix A A-1
SIGNATURES
PART I
Item 1. BUSINESS
General
Astec Industries, Inc. (the "Company") is a Tennessee
corporation, which was incorporated in 1972. The Company designs, engineers,
manufactures, markets, and finances equipment and components used primarily
in road building and related construction activities. The Company's products
are used in each phase of road building, from quarrying and crushing
the aggregate to application of the road surface. In addition, the
Company is partner in a joint venture that makes testing and sampling equipment
for the asphalt mix and aggregate processing industries. The Company also
manufactures certain equipment and components unrelated to road construction,
including trenching and excavating equipment, environmental remediation
equipment, and industrial heat transfer equipment. The
Company holds 99 United States and 64 foreign patents, has 39 patent
applications pending, and has been responsible for many technological and
engineering innovations in the industry. The Company currently
manufactures over 150 different products, which it markets both
domestically and internationally. In addition to plant and equipment sales,
the Company manufactures and sells replacement parts for equipment in each of
its product lines. The distribution and sale of replacement parts is
an integral part of the Company's business.
The Company's nine manufacturing subsidiaries are: (i) Astec, Inc., which
manufactures a line of hot-mix asphalt plants, soil purification and
environmental remediation equipment and related components; (ii) Heatec,
Inc., which manufactures thermal oil heaters, asphalt heaters
and other heat transfer equipment used in the Company's asphalt
mixing plants and in other industries; (iii) CEI Enterprises, Inc., which
manufactures heat transfer equipment and recycled rubber blending systems for
the hot-mix asphalt industry; (iv) Telsmith, Inc., which manufactures
aggregate processing equipment for the production and classification
of sand, gravel, and crushed stone for road and other construction
applications; (v) Kolberg-Pioneer, Inc., which manufactures aggregate
processing equipment for the crushed stone, manufactured sand,
recycle, top soil and remediation markets; (vi) Johnson Crushers
International, Inc. ("JCI") which manufactures portable and stationary
aggregate and ore processing equipment; (vii) Production Engineered Products,
Inc., which designs, manufactures and markets high-frequency vibrating
screens for sand and gravel and asphalt operations; (viii) Roadtec,
Inc., which manufactures milling machines used to recycle asphalt and concrete,
asphalt paving equipment and material transfer vehicles; and (ix) Trencor,
Inc., which manufactures chain and wheel trenching equipment and excavating
equipment.
Astec Financial Services, Inc. ("AFS") was formed in June 1996
as a wholly-owned subsidiary of the Company to provide a wide range of
financing products for leasing or acquiring the Company's equipment. AFS, a
captive finance company, is dedicated to working exclusively with the
Company's subsidiaries and their customers in arranging financing for the
Company's equipment. AFS provides loans, operating leases, floor plans for
dealers, fleet rental plans, and other financing plans to meet the needs of the
industry.
The Company is a 50% shareholder of Pavement Technology, Inc.
("PTI"). PTI manufactures innovative testing and sampling equipment and
packages design laboratory products, which allows customers to purchase a
complete design laboratory from one source. The pavement analyzer
technology has captured the interest of state departments of
transportation and universities as a new standard for measuring
pavement performance of hot-mix asphalt. The pavement technology product line
enhances the services and equipment we are able to provide our customers.
The Company's strategy is to become the low-cost producer in
each of its product lines for any given product while continuing to develop
innovative new products and provide first class service for its customers.
Management believes that the Company is the technological
innovator in the markets in which it operates and is well positioned
to capitalize on the need to rebuild and enhance roadway infrastructure, both
in the United States and abroad.
Segment Reporting
In 1998, the Company adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which changes the way the
Company reports information about its operating segments. The information for
1996 and 1997 has been restated in order to conform to current presentation
requirements.
The Company's business units have separate management teams and
offer different products and services. The business units have been aggregated
into three reportable business segments based upon the nature of the product or
services produced, the type of customer for the products and the nature of the
production process. The reportable business segments are (i) Hot-mix Asphalt
Plant and Related Heat Transfer Equipment, (ii) Aggregate Processing
Equipment and (iii) Mobile Construction Equipment. All remaining
business units are included in the "Other" category for reporting.
Financial information in connection with the Company's financial
reporting for segments of a business under SFAS 131 is included in Note 12 to
"Notes to Consolidated Financial Statements - Operations by Industry Segment
and Geographic Area," appearing at Page A-23 of this report.
Hot-mix Asphalt Plants and Related Heat Transfer Equipment
The Hot-Mix Asphalt Plants and Related Heat Transfer Equipment
segment is made up of three business units-Astec, Inc., Heatec, Inc. and CEI
Enterprises, Inc. These business units design, manufacture and market a
complete line of asphalt plants and related components,
heating and heat transfer processing equipment and storage tanks for
the asphalt paving and other non-related industries.
Products
Astec, Inc. designs, engineers, manufactures and markets a complete
line of portable, stationary and relocatable hot-mix asphalt plants and related
components under the "ASTEC" trademark. An asphalt mixing plant typically
consists of heating and storage equipment for liquid
asphalt (manufactured by Heatec), cold feed bins for storing
aggregates, a drum mixer for drying, heating and mixing, a baghouse composed of
air filters and other pollution control devices, hot storage bins or silos for
temporary storage of hot-mix asphalt and a control house.
The Company introduced the concept of plant portability in 1979.
Its current generation of portable asphalt plants is marketed as the Six
PackTM and consists of six portable components, which can be disassembled and
moved to the construction site to reduce relocation expenses.
Plant portability represents an industry innovation developed and
successfully marketed by the Company. In 1996, an improved version of the Six
PackTM plant was developed, making it considerably more portable and
self-erecting. This design eliminated the use of cranes for
disassembly or erection. The enhanced version of the Six PackTM,
known as the Turbo Six PackTM, is a highly portable plant which is especially
useful in less populated areas where plants must be moved from job to job.
The components in Astec's asphalt mixing plants are fully
automated and use microprocessor-based control systems for efficient operation.
The plants are manufactured to meet or exceed federal and state clean air
standards.
The Company has also developed specialized asphalt recycling
equipment for use with its hot-mix asphalt plants. Many of its existing
products are suited for blending; vaporizing, drying and incinerating
contaminated products. As a result, Astec has developed a line of
thermal purification equipment for the remediation of petroleum
contaminated soil.
Heatec, Inc., designs, engineers, manufactures and markets a variety
of heaters and heat transfer processing equipment under the "HEATEC(r)"
trade mark for use in various industries, including the asphalt industry.
It manufactures a complete line of heating and liquid storage equipment for
the asphalt paving industry and heaters are offered in both direct-fired
and helical coil models. In addition, Heatec builds a wide variety
of industrial heaters to fit a broad range of applications, including equipment
for emulsion plants, roofing material plants, refineries, chemical processing,
rubber plants and the agribusiness. Heatec has the technical
staff to custom design heating systems and has systems operating as
large as 40,000,000 BTU's per hour. CEI Enterprises, Inc. (CEI), designs,
engineers, manufactures and markets heating equipment and storage tanks mainly
for the asphalt paving industry. While Heatec's equipment
employs a direct-fired and helical coil heating process, CEI's
equipment uses hot oil, direct fired or electric heating processes. CEI's
equipment includes portable and stationary tank models with capacities up to
35,000 gallons each.
Marketing
The Company markets its hot-mix asphalt and heat transfer products
both domestically and internationally. The principal purchasers of asphalt and
related equipment include highway contractors and foreign and domestic
governmental agencies. Asphalt equipment is sold
directly to its customers with domestic, soil remediation and
international sales departments. Outside dealers are not used to market
hot-mix asphalt products, but International agents are
used to market asphalt plants and their components.
Heatec equipment is marketed through both direct sales and dealer
sales. Approximately 18 manufacturers' representatives sell heating
products for applications in industries other than the asphalt industry with
such sales comprising approximately 20% of heating equipment volume during
1998. CEI equipment is marketed only through direct sales.
Direct sales employees are paid salaries and are generally entitled
to commissions after obtaining certain sales quotas.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from
steel mills and other sources. Raw materials for manufacturing are all readily
available and some steel is delivered on a "just-in-time" arrangement from
the supplier to reduce inventory requirements at the manufacturing facility.
Competition
This industry segment faces strong competition in price, service and
product performance and competes with both large publicly held companies
with resources significantly greater than those of the Company and with various
smaller manufacturers. Hot-mix asphalt plant competitors include CMI
Corporation; Cedarapids, Inc. a subsidiary of Raytheon Company;
and Gencor Industries, Inc. The market for the Company's heat
transfer equipment is diverse because of the multiple applications for such
equipment. Competitors for heating equipment include Gencor/Hyway Heat
Systems, American Heating, Gentec, and GTX Systems.
Employees
At December 31, 1998 the Hot-mix Asphalt Plant and Heat Transfer
Equipment segment employed 922 individuals, of which, 728 were engaged in
manufacturing, 73 in engineering and 121 in selling, general and administrative
functions.
Backlog
The backlog for the Hot-mix Asphalt and Heat Transfer Equipment
segment at December 31, 1998 and 1997 was approximately $56,520,000 and
$42,281,000, respectively.
Aggregate Processing Equipment
The Company's Aggregate Group is comprised of four business
units that are focused on the aggregate, metallic mining, and recycle markets.
Each subsidiary achieves its strength by distributing products into niche
markets and drawing on the advantages of brand recognition
in the global market. The business units in this group are Telsmith, Inc.,
Kolberg-Pioneer, Inc., Production Engineered Products, Inc. and Johnson
Crushers International, Inc.
Products
Telsmith, Inc. is the oldest subsidiary of the group, founded in
1906. The primary markets served under the Telsmith trade name are the
aggregate and metallic mining industries. Telsmith's core products are
the cone (Gyrasphere(r)), jaw and impact crushers, which are
recognized for their reliability. A wide range of vibrating feeders
for primary crushing operations are complemented with large vibrating screens
for the difficult scalping applications, and sizing screens to handle the
most rigorous specifications of finished aggregate products. Telsmith also
offers all their products as portables that are easily relocated to
quarry sites to minimize the costs of transporting crushed stone. Equipment
furnished by Telsmith can be purchased as individual components, as portable
plants for flexibility, or as completely engineered systems for
both portable and stationary applications.
The stringent demands for quality aggregate to meet the
specifications of the "Superpave" asphalt mixes has led to Telsmith's
development of the "Silver Bullet" narrow band
cone crusher, which provides unparalleled results in producing a
cubical product, as well as enhancing overall machine productivity.
In metallic mining operations, Telsmith(r) equipment is used in
primary crushing stages after the material has been blasted from the deposit.
Secondary and tertiary crushing equipment, as well as vibrating screens, are
employed in systems to reduce the material down to sizes for grinding mill
feed or leech bed processes.
In 1994, Telsmith received ISO 9001 certification, the
international standard of quality assurance in the design, development,
production, installation and servicing of their products.
This designation is recognition of the quality of Telsmith products
and services in the worldwide marketplace.
Kolberg-Pioneer, Inc. ("KPI") designs, manufactures and supports a
complete line of aggregate processing equipment for the sand and gravel,
mining, quarry and concrete recycle markets. KPI manufactures the
well-known Pioneer and Kolberg product lines.
Pioneer products include a complete line of primary, secondary,
tertiary and quaternary crushers, including jaws, cones, horizontal shaft
impactors, vertical shaft impactors and roll crushers. Kolberg-Pioneer rock
crushers are used by mining, quarry and sand and
gravel producers to crush oversized aggregate to salable size.
Feeders are used to transfer aggregate into crushing operations. Crusher
efficiency is increased as fines bypass the crusher.
Feeders include apron, vibrating grizzly, and heavy-duty models.
Kolberg's sand classifying and washing equipment is relied upon to
clean, segregate and re-blend deposits to meet the fineness modules and sand
equivalent specifications for critical applications. The product line includes
fine and coarse material washers, log washers
and blade mills. Screening plants are available in both stationary
and highly portable models. A full line of radial, stacking, overland and
specialty conveyors complete the aggregate equipment line of products.
Kolberg-Pioneer manufactures conveyors designed to move or store
aggregate and other bulk materials, typically in a radial cone-shaped
stockpile. Models offered include road portable, telescoping stationary,
and overland styles.
In addition, Kolberg manufactures pugmills which are highly
efficient homogenous mixing chambers consisting of twin shafts with timed,
overlapping paddles used for soil remediation, cement-treated base and cold-mix
asphalt. Pugmills are typically combined with either a bulk storage silo for
introducing dry additives, or with a pump for liquids.
Production Engineered Products, Inc. ("PEP") designs, manufactures,
and markets high-frequency vibrating screens for sand and gravel customers, as
well as customers engaged in asphalt production. In addition, PEP incorporates
the high-frequency screens into portable crushing and screening plants serving
he aggregate and industrial markets. High-frequency screens are adept in
separating out small mesh particles where conventional screens are not
ideally suited. The recent development of the "Fold 'n Go" plant
allows operators to separate sized and produce stockpiles with a minimum of
set-up time.
Johnson Crushers International, Inc. ("JCI") designs, manufactures
and distributes portable and stationary aggregate and ore processing
equipment. This equipment is used in the aggregate, mining and recycle
industries. The principal products are cone crushers, three shaft
horizontal screens, portable chassis and replacement parts for
competitive equipment. JCI offers completely re-manufactured, used cone
crushers and screens from its service repair facility.
JCI(tm) cone crushers are used primarily in secondary and tertiary
crushing applications, and come in both manual and remotely adjusted models.
Horizontal screens are low profile machines for use primarily in portable
applications. They are used to separate aggregate materials by sizes.
Portable plants combine various configurations of cone crushers, horizontal
screens, and conveyors mounted on a tow-away chassis.
Because today's transportation costs are high, producers use
portable equipment to operate nearer to their job site. Portable plants allow
the aggregate producers to quickly and efficiently move their equipment from
one location to another.
Marketing
Aggregate processing equipment is marketed domestically using
a leased sales branch in Lakeville, Massachusetts and direct and dealer sales.
Products are marketed internationally using direct sales and outside dealers.
Aggregate processing equipment is marketed by 28 direct sales employees and
by approximately 100 independent domestic distributors. Telsmith
and JCI share a leased sales office in Denver, Colorado from which
one inside salesman operates. The principal purchasers of aggregate processing
equipment include highway and heavy equipment contractors, open mine operators,
quarry operators and foreign and domestic governmental agencies.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from steel
mills and other sources. Raw materials for manufacturing are all readily
available.
Competition
The aggregate processing equipment segment faces strong
competition in price, service and product performance. Aggregate processing
equipment competitors include Svedala; Greystone; Cedarapids, Inc.; Nordberg,
Inc.; Powerscreen; Deister; Seco/Hewitt Robins; Eagle
Iron Works; Finley; Universal and other smaller manufacturers, both
domestic and international.
Employees
At December 31, 1998 the Aggregate Processing Equipment segment
employed 823 individuals, of which, 615 were engaged in manufacturing, 70 in
engineering and support functions, and 138 in selling, general and
administrative functions.
Backlog
At December 31, 1998 and 1997, the backlog for the Aggregate
Processing Equipment segment was approximately $28,900,000 and $20,713,000,
respectively. The 1997 backlog is adjusted for the acquisition of JCI, Inc.
Mobile Construction Equipment
The Mobile Construction Equipment includes the business unit
Roadtec, Inc. which designs, engineers, manufactures and markets asphalt
pavers, material transfer vehicles, and milling machines. Roadtec engineers
emphasize simplicity, productivity, versatility and accessibility in product
design and use.
Products
Roadtec's patented Shuttle Buggy is a mobile, self-propelled
material transfer vehicle which allows continuous paving by separating truck
unloading from the paving process while remixing the asphalt surface material.
A typical asphalt paver must stop paving to permit truck
unloading of asphalt mix. By permitting continuous paving, the
Shuttle Buggy allows the asphalt paver to produce a smoother road surface.
As a result of the pavement smoothness achieved with this machine, certain
states are now requiring the use of the Shuttle Buggy.
Recent studies using infrared technology have revealed problems
caused by differential cooling of the hot-mix during hauling. The Shuttle Buggy
remixes the material to a uniform temperature, eliminating the problem.
Asphalt pavers are used in the application of hot-mix asphalt to the
road surface. Roadtec pavers have been designed to minimize maintenance costs
while exceeding road surface smoothness requirements. Roadtec also manufactures
a paver model that must be used with the material transfer vehicle described
above.
Roadtec milling machines are designed to remove old asphalt
from the road surface before new asphalt mix is applied. They are manufactured
with a simplified control system, wide conveyors, direct drives and a wide
range of horsepower and cutting capabilities to provide
versatility in product application. Additional upgrades and options
are available to enhance the products and their capabilities.
Marketing
Mobile Construction Equipment is marketed both domestically
and internationally to highway and heavy equipment contractors, utility
contractors and foreign and domestic governmental agencies. Mobile
construction equipment is marketed both directly and through
dealers. This segment employs 13 direct sales staff, 29 foreign
independent distributors and 1 domestic independent distributor.
Raw Materials
Raw materials used in the manufacture of products include carbon
steel and various types of alloy steel, which are normally purchased from
steel mills and other sources. Raw materials for manufacturing are all readily
available.
Competition
The paving equipment segment faces equally strong competition
in price, service and performance, as do the Company's other operating segments.
Mobile equipment competitors include Caterpillar Paving Products, Inc., a
subsidiary of Caterpillar, Inc.; Blaw-Knox Construction Equipment Company, a
subsidiary of Ingersoll-Rand Company; and Cedarapids,
Inc. The segment's milling machine equipment competitors include CMI
Corporation; Cedarapids, Inc.; Caterpillar, Inc.; and Wirtgen America, Inc.
Employees
At December 31, 1998 the Mobile Construction Equipment segment
employed 300 individuals, of which, 226 were engaged in manufacturing, 19 in
engineering and support functions, and 55 in selling, general and
administrative functions.
Backlog
The backlog for the Mobile Construction Equipment segment at
December 31, 1998 and 1997 was approximately $4,200,000 and $2,200,000,
respectively.
Others Business Units
This category consists of the Company's four other business
units that do not meet the requirements for separate disclosure as an operating
segment. These other operating units include Trencor, Inc., Astec Financial
Services, Inc., Astec Transportation, Inc. and the parent company Astec
Industries, Inc. Revenues in this category are derived predominantly from the
sale of trenching and excavating equipment and from operating leases
owned by the Company's finance subsidiary.
Products
Trencor, Inc. designs, engineers, manufactures and markets
chain and wheel trenching equipment, canal excavators, rock saws, material
processors and road miners.
Trencor's chain trenching machines utilize a heavy-duty chain
(equipped with cutting teeth attached to steel plates) wrapped around a long
moveable boom. These machines, with weights up to 450,000 pounds, are capable
of cutting a trench up to eight feet wide and thirty-five feet deep through
rock. Trencor also makes foundation trenchers used in areas where
drilling and blasting are prohibited. In addition, the wheel
trenching machines are used in pipeline excavation in soil and soft rock.
The wheel trenchers weigh up to 390,000 pounds and have a trench capacity of
up to seven feet in width and ten feet in depth.
Trencor canal excavators are used to make finished and trimmed
trapezoidal canal excavations within close tolerances primarily for irrigation
systems. The rock saw is used to lay water and gas lines, fiber optic cable,
and for constructing highway drainage systems, among other applications.
Four Road Miner(r) models are available with an attachment that
allows them to cut a path up to twelve and a half feet wide and five feet deep
on a single pass. The Road Miner(r) has applications in the road
construction industry and in mining and aggregate processing operations.
Finally, Trencor manufactures a material processor which
includes a crusher that operates independently from the trencher to process
rock and related material (spoil) removed from the trench to make it suitable
for use as a filler around pipes, cables or other lines being installed.
Competition
Competition for sales of trenching and excavating equipment
includes Ditch Witch; J.I. Case; Tesmec; Vermeer and other smaller
manufacturers in the small utility trencher market. Competitors of the
captive finance company include General Electric Credit Corporation, The
CIT Group, and Safeco Credit Company, Inc., as well as local
financial institutions.
Common to All Operating Segments
Although the Company has three reportable business segments, certain
information applies to all operating segments of the Company the reportable
segments and those operations included in the "Other" category.
Regulations
None of the Company's operating segments operate within highly
regulated industries. However, air pollution equipment manufactured by the
Company, principally for hot-mix asphalt plants, must comply with certain
performance standards promulgated by the federal
Environmental Protection Agency under the Clean Air Act applicable
to "new sources" or new plants. Management believes that the Company's
products meet all material requirements of such regulations and of
applicable state pollution standards and environmental protection laws.
In addition, due to the size and weight of certain equipment,
the Company and its customers sometimes confront conflicting state regulations
on maximum weights transportable on highways and roads. This problem occurs
most frequently in the movement of portable asphalt mixing plants. Also,
some states have regulations governing the operation of asphalt
mixing plants and most states have regulations relating to the
accuracy of weights and measures, which affect some of the control systems
manufactured by the Company.
Requirement to comply with federal, state and local provisions
that regulate the discharge of materials into the environment or that
otherwise relate to the protection of the environment have no material
effect on capital expenditures, earnings, or the Company's competitive
position within the market.
Employees
At December 31, 1998 the Company and its subsidiaries employed
2,285 persons, of which 1,724 were engaged in manufacturing operations, 180 in
engineering, including support staff, and 381 in selling, administrative and
management functions. Telsmith has a labor agreement expiring on October 13,
2001. Except as set forth above, none of the Company's other employees are
covered by a collective bargaining agreement. Notwithstanding the current
proceeding before the National Labor Relations Board, the Company
considers its employee relations to be good.
On August 3, 1995, a union representation election was held at the
Trencor plant and a unit of Trencor production and maintenance employees voted
to be represented by the United States Steelworkers of American, AFL-CIO, CLC.
Trencor filed a Petition for Review with the United States Court of Appeals
for the Fifth Circuit and requested that the National Labor
Relation Board's certification of the election be overturned due to
alleged improper activity by the union. Trencor requested that a new
representation election be held. Recently, in response to
Trencor's appeal, the United States Court of Appeals for the Fifth
Circuit returned the matter to the National Labor Relations Board and ordered
that an evidentiary hearing on Trencor's complaints be held before an
administrative law judge. That hearing was held on January 15,
1998 with the administrative law judge rejecting Trencor's claims.
Consequently, Trencor appealed the decision to the National Labor Relations
Board which upheld the administrative law judge's ruling. Trencor appealed
to the U.S. Court of Appeals for the Fifth Circuit where it is still pending.
Risk Factors
Acquisition Strategy; Integration of Acquired Businesses
As part of its growth strategy, the Company intends to evaluate the
acquisitions of other companies, assets or product lines that would complement
or expand its existing businesses or broaden its customer relationships.
Although the Company conducts due diligence reviews of
potential acquisition candidates, the Company may not be able to
identify all material liabilities or risks related to potential acquisition
candidates. There can be no assurance that the Company
will be able to locate and acquire any business, retain key
personnel and customers of an acquired business or integrate any acquired
business successfully, including its recent acquisitions.
Competition
The Company faces strong competition in price, service and
product performance in each of its product lines. While the Company does not
compete with any one manufacturer in all of its product lines, it does
compete as to certain products with both large publicly-held
companies with resources significantly greater than the Company and
various smaller manufacturers. Furthermore, demand for the Company's products
is generally affected by economic conditions in the United States. A weak
domestic economy could result in increased competition and reduced margins on
sales of the Company's products.
Imports do not constitute significant competition for most of
the Company's products marketed in the United States. In connection with its
international sales, however, the Company generally competes with foreign
manufacturers which may have a local presence in the market
that the Company is attempting to penetrate. The competition of
foreign manufacturers and weak foreign economies could have a material impact
on the Company's international sales and results of operations.
Regulation
The Company does not operate within a highly regulated
industry. However, air pollution equipment manufactured by the Company
principally for hot mix asphalt plants must
comply with certain performance standards promulgated by the
Environmental Protection Agency under the Clean Air Act applicable to
"new sources" or new plants. While the Company's products are designed to meet
or exceed current regulatory requirements and
applicable state pollution standards and environmental protection
laws, there can be no assurance that any future changes to such requirements
will not adversely affect the Company. In addition, due the size and weight of
certain component equipment which the Company
manufacturers, the Company and its customers sometimes confront
conflicting state regulations on maximum weights transportable on highways and
roads. Also, some states have regulations governing the operation of the
Company's component equipment, including asphalt mixing plants and soil
remediation equipment, and most states have regulations relating to the
accuracy of weights and measures which affect some of the control systems
manufactured by the Company.
Year 2000 Compliance
Many existing computer systems and applications, and other
control devices use only two digits to identify a year in the date field,
without considering the impact of the upcoming
change in the century. As a result, such systems and applications
could fail or create erroneous results unless corrected so that they can
process data related to the year 2000. The Company
relies on its computer systems, applications and devices in
operating and monitoring all major aspects of its business. The Company has
for some time been pursuing a Year 2000 compliance program. The Company
believes that with modifications or replacements of existing
software and certain hardware, the Year 2000 issue will be
mitigated. However, if the Company is unable to make the required
modifications and replacements, or are if they are not made on a
timely basis, the Year 2000 issue could have a material impact on
the operations of the Company.
Product Liability
The Company is engaged in a business that could expose it to
possible liability claims for personal injury or property damage due to alleged
design or manufacturing defects in the Company's products. The Company
believes that it meets existing professional specification
standards recognized or required in the industries in which it
operates. Although the Company currently maintains product liability coverage
which it believes is adequate for the continued
operation of its business, such insurance may prove inadequate or
become difficult to obtain or unobtainable in the future on terms acceptable to
the Company.
Seasonality and Cyclicality in Operating Results
The Company's business can generally be characterized as
seasonal with sales tending to be stronger in the first and second quarters to
fill orders placed in the fourth quarter of the
preceding year in anticipation of warmer summer months when most
asphalt paving and heavy construction work is performed. The Company's
business is also somewhat cyclical with operating results typically affected by
general economic conditions and other factors affecting
the construction industry as a whole. Historically, during periods
of a weak domestic economy, economic pressures have adversely affected the
construction industry and have resulted in increased competition and reduced
margins on sales of the Company's products.
International Exposure
During fiscal year 1998, international sales represented
approximately 19.1% of the Company's total revenues. The Company anticipates
that international operations will continue
to account for a portion of its business for the foreseeable
future. As a result, the Company may be subject to certain risks, including
difficulty in managing distributors and dealers, adverse
tax consequences, political and economic instability of governments,
and difficulty in accounts receivable collection. The Company is subject to
the risks associated with the imposition of
protective legislation and regulations, including those relating to
import or export or otherwise resulting from trade or foreign policy, in the
nations in which it now or in the future will conduct
business. The Company cannot predict whether quotas, duties, taxes
or other charges or restrictions will be implemented by the U.S. or any other
country upon the import or export of the Company's products. There can be no
assurance that any of these factors, or the adoption of restrictive policies,
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
Intellectual Property Matters
The Company holds numerous patents covering technology and
applications related to various products, equipment and systems, and numerous
trademarks and trade names registered with the U.S. Patent and Trademark Office
and in various foreign countries. There can be no assurance as to the
breadth or degree of protection that existing or future patents or
trademarks may afford the Company, or that any pending patent or
trademark applications will result in issued patents or trademarks, or that the
Company's patents, registered trademarks or
patent applications, if any, will be upheld if challenged, or that
competitors will not develop similar or superior methods or products outside
the protection of any patents issued, licensed or
sublicensed to the Company. Although the Company believes that none
of its patents, technologies, products or trademarks infringe upon the patents,
technologies, products or trademarks of others, it is possible that its
existing patent, trademark or other rights may not be
valid or that infringement of existing or future patents, trademarks
or proprietary rights may occur. In the event that the Company's products are
deemed to infringe upon the patent or proprietary rights of others, the
Company could be required to modify the design of its products,
change the name of its products or obtain a license for the use of
certain technologies incorporated into its products. There can be no assurance
that the Company would be able to do any of the foregoing in a timely manner,
upon acceptable terms and conditions, or at all, and the failure to do so
could have a material adverse effect on the Company.
Dependence on Key Personnel
The success of the Company's business will continue to depend
substantially upon the efforts, abilities and services of its executive
officers and certain other key employees. The loss
of one or more key employees could adversely affect the Company's
operations. The Company's ability to attract and retain qualified engineers
and other professionals, either through direct hiring, or acquisition of other
businesses employing such professionals, will also
be an important factor in determining the Company's future success.
Anti-takeover Provisions
The Company's charter and its bylaws contain various
provisions that may have the affect, either alone or in combination with each
other, of making more difficult or discouraging a
business combination or an attempt to obtain control of the Company
that is deemed undesirable by the Board of Directors. These provisions include
(i) the right of the Board of Directors to issue shares of Preferred Stock and
one or more series and designate the number of shares of each such series and
the relative rights and preferences of such series, including
voting rights, terms of redemption, redemption prices and conversion
rights without further shareholder approval; (ii) a classified Board of
Directors elected in three year staggered terms;
(iii) prohibitions on the right of shareholders to remove directors
other than for cause, and any such removal requiring at least two-thirds of
the total number of shares issued and outstanding;
(iv) requirements for advanced notice of actions proposed by
shareholders for consideration at meetings of the shareholders; (v) limitations
on the right of shareholders to call a special
meeting of the shareholders or from acting by written consent in
lieu of a meeting unless all shareholders entitled to vote on such action
consent to taking such action without a meeting;
and (vi) an election to be governed by the Tennessee Control Share
Acquisition Act. The Company's charter and bylaws also limit the liability of
directors in certain cases and provide for the Company to indemnify its
directors and officers to the fullest extent permitted by applicable
law. In addition, as a Tennessee Corporation, the Company is
subject to the Tennessee Business Combination Act which may have the affect of
discouraging a non-negotiated bid or proposal to acquire the Company.
Manufacturing
The Company manufactures many of the component parts and
related equipment for its products while several large components of their
products are purchased "ready for use"; such
items include engines, axles, tires and hydraulics. In many cases,
the Company designs, engineers and manufactures custom component parts and
equipment to meet the particular needs of individual customers. Manufacturing
operations during 1998 took place at ten separate
locations. The Company's manufacturing operations consist primarily
of fabricating steel components and the assembly and testing of its products to
ensure quality control standards have been achieved.
Seminars and Technical Bulletins
The Company periodically conducts technical and service
seminars, which are primarily for contractors, employees and owners of asphalt
mixing plants. In 1998, approximately 375 representatives of contractors and
owners of hot-mix asphalt plants attended seminars held by
the Company in Chattanooga, Tennessee. These seminars, which are
taught by Company management and employees, cover a range of subjects
including technological innovations in the hot-mix asphalt, aggregate
processing, paving, milling, and recycle markets in which the
Company manufactures products.
The Company also sponsors executive seminars for the
management of the customers of Astec, Inc. The seminars are taught primarily
by the management of the Company, but
outside speakers are also utilized. In 1998, approximately 160
participants attended the executive seminars at the Company's state-of-the-art
training center.
The Company sponsors Paving Professionals workshops at its
training center for customers or potential customers of Roadtec, Inc. In 1998,
approximately 320 participants attended these classroom sessions. Actual
equipment application experience was provided at
the Roadtec facility. Service training seminars were also held at
the Roadtec facility for approximately 360 customer service representatives.
During 1998, Telsmith had technical seminars for 130 English-
speaking customer representatives and another multi-lingual seminar with 35
attendees.
In addition to seminars, the Company publishes a number of technical
bulletins detailing various technological and business issues relating to the
asphalt industry.
Patents and Trademarks
The Company seeks to obtain patents to protect the novel features of
its products. The Company and its subsidiaries hold 99 United States patents
and 64 foreign patents. There are 39 United States and foreign patent
applications pending.
The Company and its subsidiaries have approximately 59 trademarks
registered in the United States including logos for Astec, Telsmith, Roadtec
and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC, TRENCOR AND
KOLBERG. Eight trademarks are also registered in foreign countries, including
Canada, Great Britain, Mexico, New Zealand and Indonesia. The Company has
20 United States and foreign trademark applications pending.
The Company and its subsidiaries also license their technology to
other manufacturers.
Engineering and Product Development
The Company dedicates substantial resources to engineering and
product development. At December 31, 1998, the Company and its subsidiaries
had 180 full-time individuals employed domestically in engineering and design
capacities.
Seasonality and Backlog
During 1997 and 1998 the Company's business has become less
seasonal. In years prior, the sales volume was strong from January through
June in anticipation of the summer paving season, but currently, due mainly to
increased international sales, the formerly "slow" periods of business have
become typical periods of business for sales volume.
As of December 31, 1998, the Company had a backlog for
delivery of products at certain dates in the future of approximately
$92,590,000. At December 31, 1997, the total backlog, updated to include
Johnson Crushers International, Inc., was approximately $65,373,000.
The Company's contracts reflected in the backlog are not, by
their terms, subject to termination. Management believes that the Company is
in substantial compliance with all manufacturing and delivery timetables.
Competition
Each business segment operates in a highly competitive
domestic market in price, service and product quality. While specific
competitors are named within each business segment discussion, as a whole,
imports do not constitute significant competition in the United
States. However, in international sales, the Company generally
competes with foreign manufacturers that may have a local presence in the
market the Company is attempting to penetrate.
Also, asphalt and concrete are generally considered competitive
products as a surface choice for new roads and highways. A portion of the
interstate highway system is paved in concrete, but over 90% of all surfaced
roads in the United States are paved with asphalt. Although concrete is used
for some new road surfaces, asphalt is used for virtually all
resurfacing, even the resurfacing of most concrete roads.
Management does not believe that concrete, as a competitive surface choice,
materially impacts the Company's business prospects. Competition is
discussed in detail for each reportable segment.
All international sales efforts are decentralized, with each
business unit maintaining responsibility for its own international marketing
strategies and labors.
Item 2. PROPERTIES
The location, approximate square footage, acreage occupied and
principal function of the properties owned or leased by the Company are set
forth below:
Approximate Approximate
Location Square Footage Acreage Principal Function
Chattanooga, Tennessee 424,000 59.1 Corporate and subsidiary
offices, manufacturing
- Astec
Chattanooga, Tennessee --- 63.0 Storage yard - Astec
Chattanooga, Tennessee 84,200 5.0 Offices, manufacturing
- Heatec
Chattanooga, Tennessee 135,000 15.1 Offices, manufacturing
- Roadtec
Chattanooga, Tennessee 1,820 --- Leased offices - Astec
Financial Services
Cleveland, Tennessee 28,441 2.8 Offices and manufacturing
- Esstee division of
Astec
Chattanooga, Tennessee --- 1.7 Construction in Progress
- Offices for Astec
Financial Services
Mequon, Wisconsin 203,000 30.0 Offices and
manufacturing - Telsmith
Sterling, Illinois 32,000 7.5 Offices and manufacturing
- PEP
Rossville, Georgia 40,500 2.6 Manufacturing - Astec
Grapevine, Texas 175,513 51.7 Offices, manufacturing
- Trencor
Lakeville, Massachusetts 815 --- Leased sales and service
office - Telsmith
Eugene, Oregon 25,000 3.0 Leased offices,
manufacturing-Johnson
Crushers International
Eugene, Oregon 25,750 8.0 Leased offices,
manufacturing-Johnson
Crushers International
Odessa, Texas 4,072 0.8 Sales office and parts
warehouse - Trencor
Inman, South Carolina 13,600 8.0 Leased until September 30,
2000 with option to
buy (office and
warehouse of former Soil
Purification of Carolina)
Albuquerque, New Mexico 110,700 14.0 Offices and
manufacturing - CEI
Covington, Georgia 11,000 6.0 Offices and
manufacturing -
Pavement Technology
Denver, Colorado 2,500 --- Leased sales office
- Telsmith and JCI
Yankton, South Dakota 252,000 50.0 Offices and
manufacturing -
Kolberg-Pioneer
With the exception of JCI, which is seeking a suitable site on which to
build a manufacturing facility during 1999, management believes that each of
the Company's facilities provides office or manufacturing space suitable for
its current needs and considers the terms under which it leases facilities
to be reasonable.
Item 3. Legal Proceedings
Management has reviewed all claims and lawsuits and, upon the advice
of counsel, has made provision for any estimable losses; however, the Company
is unable to predict the ultimate outcome of the outstanding claims and
lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The name, title, ages and business experience of the executive
officers of the Company are listed below.
J. Don Brock, Ph.D., P.E., has been President and a Director
of the Company since its incorporation in 1972 and assumed the additional
position of Chairman of the Board in 1975. He was the Treasurer of the Company
from 1972 until 1994. From 1969 to 1972, Dr. Brock was
President of the Asphalt Division of CMI Corporation. He earned his
Ph.D. degree in mechanical engineering from the Georgia Institute of
Technology. Dr. Brock and Thomas R. Campbell, President of Roadtec, are
first cousins. He is 60.
Richard W. Bethea, Jr., became Vice President, Corporate
Counsel and Secretary on February 1, 1997.
Mr. Bethea has been a practicing lawyer since 1978. He has an
undergraduate degree in accounting from the University of Georgia. Before
joining the Company, Mr. Bethea was a member (stockholder) and partner with the
law firm Stophel & Stophel, P. C., in Chattanooga, Tennessee. He has served
0as the Company's litigation counsel since 1983. He is 46.
F. McKamy Hall, a Certified Public Accountant, became Chief
Financial Officer during 1998 and has served as Vice President and Treasurer
since April 1997. He has served as Corporate Controller of the Company
since May 1987. From 1985 to 1987, Mr. Hall was Vice President of Finance at
Quadel Management Corporation, a company engaged in real estate management.
Mr. Hall has an undergraduate degree in accounting and a Master of Business
Administration degree from the University of Tennessee at Chattanooga. He
is 56.
W. Norman Smith was appointed Group Vice President-Asphalt in
December, 1998 and has served as the President of Astec, Inc. since December 1,
1994. He formerly served as President of Heatec, Inc. from 1977 to 1994.
From 1972 to 1977, Mr. Smith was a Regional Sales Manager with the Company.
From 1969 to 1972, Mr. Smith was an engineer with the
Asphalt Division of CMI Corporation. Mr. Smith has also served as a
director of the Company since 1972. He is 59.
Robert G. Stafford was appointed Group Vice President-
Aggregate in December 1998. Prior to that time he served as President of
Telsmith, Inc. since April 1991. Between January
1987 and January 1991, Mr. Stafford served as President of Telsmith,
Inc., a subsidiary of Barber-Greene. From 1984 until the Company's acquisition
of Barber-Greene in December 1986, Mr. Stafford was Vice President - Operations
of Barber-Greene and General Manager of Telsmith. He became a director of the
Company in March 1988. He is 60.
Thomas R. Campbell has served as President of Roadtec, Inc.
since 1988. From 1981 to 1988 he served as Operations Manager of Roadtec.
Mr. Campbell and J. Don Brock, President of the Company, are first cousins.
He is 49.
Roger Sandberg has served as President of Trencor, Inc. since
October 1, 1996. Prior to that he served as Vice President of Sales and
Marketing at Roadtec, Inc. and Director of Marketing with Astec Inc. Before
joining the Company, Mr. Sandberg held various management
positions with Cedarapids, Inc. and Standard Havens, Inc. since
1971. He is 57.
James G. May has served as President of Heatec, Inc. since
December 1, 1994. From 1984 until 1994 he served as Vice President of
Engineering of Astec, Inc. He is 54.
Albert E. Guth has been President of Astec Financial Services,
Inc. since June 1996. He served as Chief Financial Officer of the Company
from 1987 through June 1996, as Senior Vice President since 1984, Secretary of
the Company since 1972, and Treasurer since 1994.
Mr. Guth, who has been a director since 1972, was the Vice President
of the Company from 1972 until 1984. From 1969 to 1972, Mr. Guth was the
Controller of the Asphalt Division of CMI Corporation. He is 59.
Richard A. Patek became President of Kolberg-Pioneer, Inc. on
December 2, 1997. From 1995 to 1997, he served as Director of Materials of
Telsmith, Inc. From 1992 to 1995, Mr. Patek was Director of Materials and
Manufacturing of the former Milwaukee plant location. From
1978 to 1992, he held various manufacturing management positions at
Telsmith. Mr. Patek is a graduate of Milwaukee School of Engineering.
He is 42.
Ronald B. DeDiemar, P.E., became President of Telsmith, Inc. on
January 4, 1999. From 1996 to 1998 he served as President of a consulting
company, Cal-Mar Technology, Inc. From 1978 to 1996 Mr. DeDiemar held various
executive positions with Process Technology Holdings, Inc., most recently as
President of the We-Kers and Tyler Divisions. From 1960 to 1978 he held
various engineering and marketing positions at Telsmith, a Division of Barber-
Greene. He is 60.
Robert R. Hoitt has been the President of Johnson Crushers
International, Inc., which was acquired by the Company on November 1, 1998,
since July 1995. From April 1966 through June 1995 he served in various
management positions, including General Manager and Vice
President of Cedarapids, Inc. in its Eljay division. He is 51.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
The Company's Common Stock is traded in the National
Association of Securities Dealers Automated Quotation System (NASDAQ)
National Market under the symbol "ASTE." The Company has never paid any
cash dividends on its Common Stock.
The high and low sales prices of the Company's Common Stock as
reported on the NASDAQ National Market for each quarter during the last two
fiscal years (adjusted to give effect to a two-for-one stock split which took
effect on January 18, 1999), are as follows:
Price Per Share
1998 High Low
1st Quarter 13-1/8 7-9/16
2nd Quarter 18-1/8 12-5/8
3rd Quarter 21-3/8 15-11/16
4th Quarter 28-3/4 17-3/4
Price Per Share
1997 High Low
1st Quarter 5-1/16 4-1/8
2nd Quarter 6-7/16 4-13/16
3rd Quarter 8-7/8 6-5/32
4th Quarter 9-3/16 7-11/16
The approximate number of shareholders of the Company's Common Stock
as of March 8, 1999 was approximately 4,156.
Item 6. Selected Financial Data
Selected financial data appear on page A-1 of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's discussion and analysis of financial condition
and results of operations appears on pages A-2 to A-7 of this Report.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information
appear on pages A-8 to A-25 of this Report.
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None required to be reported in this item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's directors included under
the caption "Election of Directors - Certain Information Concerning Nominees
and Directors" in the Company's definitive Proxy Statement to be delivered
to the shareholders of the Company in connection with the
Annual Meeting of Shareholders to be held on April 22, 1999, is
incorporated herein by reference. Required information regarding the
Company's executive officers is contained in Part I of this Report under the
heading "Executive Officers of the Registrant." Information
regarding compliance with Section 16(a) of the Exchange Act is
included under "Election of Directors - Section 16(a) Filing Requirements"
in the Company's definitive Proxy Statement, which is incorporated herein by
reference.
Item 11. Executive Compensation
Information included under the caption, "Election of Directors - Executive
Compensation" in the Company's definitive Proxy Statement to be
delivered to the shareholders of the Company in connection with the Annual
Meeting of Shareholders to be held on April 22, 1999 is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information included under the captions "Election of Directors - Certain
Information Concerning Nominees and Directors," "Election of Directors -
Common Stock Ownership of Management" and "Election of Directors - Common Stock
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement to be delivered to the shareholders of the
Company in connection with the Annual Meeting of Shareholders to be
held on April 22, 1999 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
On December 14, 1998, Edna F. Brock, the mother of Dr. J. Don
Brock, Chairman of the Board and President of the Company loaned $85,000 to the
Company to supplement its working capital revolving credit facility. The
Company executed a demand note payable to Mrs. Brock in
connection with this loan bearing interest at a rate equal to that
paid to First Chicago NBD under the Company's unsecured revolving line of
credit. At the time Mrs. Brock loaned these funds to
the Company, the Company's outstanding balance under its $22,000,000
revolving credit facility was $10,000,000. The Company is making monthly
interest payments to Mrs. Brock.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements and other
information appear in Appendix "A" to this Report and are filed as a part
hereof:
. Selected Consolidated Financial Data.
. Management's Discussion and Analysis of Financial
Condition and Results of
Operations.
. Report of Independent Auditors.
. Consolidated Balance Sheets at December 31, 1998 and
1997.
. Consolidated Statements of Income for the Years Ended December
31, 1998, 1997 and 1996.
. Consolidated Statements of Shareholders' 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 Consolidated Financial Statements.
(a)(2) Other than as described below, Financial Statement
Schedules are not filed with this Report because the Schedules are either
inapplicable or the required information is presented in the Financial
Statements or Notes thereto. The following Schedules appear in
Appendix "A" to this Report and are filed as a part hereof:
. Consent of Independent Auditors.
. Schedule II - Valuation and Qualifying Accounts.
(a)(3) The following Exhibits* are incorporated by reference
into or are filed with this Report:
3.1 Restated Charter of the Company (incorporated by
reference to the Company's Registration Statement on Form S-1, effective
June 18, 1986, File No. 33-5348).
3.2 Articles of Amendment to the Restated Charter of the
Company, effective September 12, 1988 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 0-14714).
3.3 Articles of Amendment to the Restated Charter of the
Company, effective June 8, 1989 (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 0-14714).
3.4 Amended and Restated Bylaws of the Company,
adopted March 14, 1990 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1989, File No. 0-14714).
4.1 Trust Indenture between City of Mequon and Firstar Trust
Company, as Trustee, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
4.2 Indenture of Trust, dated April 1, 1994, by and between
Grapevine Industrial Development Corporation and Bank One,
Texas, NA, as Trustee (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
4.3 Shareholder Protection Rights Agreement, dated December
22, 1995 (incorporated by reference to the Company's Current
Report on Form 8-K dated December 22, 1995, File No. 0-
14714).
10.75 Loan Agreement between City of Mequon, Wisconsin and
Telsmith, Inc. dated as of February 1, 1994 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 0-14714).
10.76 Credit Agreement by and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
10.77 Security Agreement by and between Telsmith, Inc. and M&I
Marshall & Ilsley Bank, dated as of February 1, 1994
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 0-
14714).
10.78 Mortgage and Security Agreement and Fixture Financing
Statement by and between Telsmith, Inc. and M&I Marshall &
Ilsley Bank, dated as of February 1, 1994 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, File No. 0-14714).
10.79 Guarantee of Astec Industries, Inc. in favor of M&I
Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14714).
10.83 Loan Agreement dated as of April 1, 1994, between
Grapevine Industrial Development Corporation and Trencor, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 0-
14714).
10.84 Letter of Credit Agreement, dated April 1, 1994, between
First Chicago NBD and Trencor, Inc. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.85 Guaranty Agreement, dated April 1, 1994, between Astec
Industries, Inc. and Bank One, Texas, NA, as Trustee
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 0-
14714).
10.86 Astec Guaranty, dated April 29, 1994, of debt of
Trencor, Inc. in favor of First Chicago NBD (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.87 Credit Agreement, dated as of July 20, 1994, between the
Company and First Chicago NBD (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14714).
10.89 Waiver for December 31, 1994, dated February 24, 1995
with respect to First Chicago NBD Credit Agreement dated July 20,
1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
File No. 0-14714).
10.90 First Amendment to Guaranty of Payment, dated March 21,
1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.;
Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.;
CEI Enterprises, Inc.; and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.91 First Amendment to Credit Agreement, dated May 22, 1995
between the Company and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.92 Second Amendment to Guaranty of Payment, dated May 22,
1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.;
Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.;
CEI Enterprises, Inc.; and First Chicago NBD (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.95 Waiver for December 31, 1995, dated November 10, 1995
with respect to First Chicago NBD Credit Agreement dated July 20,
1994, as amended (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14714).
10.97 Limited Consent of First Chicago NBD dated as of March
21, 1995 related to the acquisition of Trace Industries, Inc. and the
assignment of certain assets to Astec, Inc. (incorporated by
reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, File No. 0-14714).
10.98 Supplemental Executive Retirement Plan, dated February
1, 1996 to be effective as of January 1, 1995 (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 0-14714).
10.99 Trust under Astec Industries, Inc. Supplemental
Retirement Plan, dated January 1, 1996 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14714).
10.103 Amended and Restated Credit Agreement dated
November 27, 1997 between the Company, Astec Financial Services, Inc. and
First Chicago NBD (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-14714).
10.104 Asset Purchase Agreement dated October 16, 1997
between Portec, Inc. and Astec Industries, Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, File No. 0-14714).
10.105 Amendment to Asset Purchase Agreement dated
December 2, 1997 by and between Astec Industries, Inc. and Portec, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
0-14714).
10.106 Revolving Line of Credit Note dated December 2, 1997
between Kolberg-Pioneer, Inc. and Astec Holdings, Inc.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, File No. 0-14714).
10.107 Guaranty Joinder Agreement dated December 1997 between
Kolberg-Pioneer, Inc. and Astec Holdings, Inc. in favor of the
First National Bank of Chicago. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-14714).
10.108 Loan Agreement between the City of Yankton, South Dakota
and Kolberg-Pioneer, Inc. dated August 11, 1998 for
variable/fixed rate demand Industrial Development Revenue
Bonds, Series 1998.
10.109 Letter of Credit Agreement dated August 12, 1998 between the
First National Bank of Chicago and Astec Industries, Inc., Astec
Financial Services, Inc. and Kolberg-Pioneer, Inc.
10.110 Promissory Note dated December 14, 1998 between Astec
Industries, Inc. and Edna F. Brock.
10.111 Waiver for December 31, 1998, dated March 9, 1999, with
respect to The First National Bank of Chicago Second
Amended and Restated Credit Agreement, dated November 24,
1997.
10.112 Guaranty of Astec Industries, Inc., dated February 23, 1998,
of debt of Pavement Technology, Inc. in favor of Tucker Federal Bank.
10.113 Purchase Agreement dated October 30, 1998
and effective October 31, 1998 between Astec Industries, Inc. and Johnson
Crushers International, Inc.
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors
(b) No reports on Form 8-K were filed in the fourth quarter.
(c) The Exhibits to this Report are listed under Item
14(a)(3) above.
(d) The Financial Statement Schedules to this Report are
listed under Item 14(a)(2) above.
* The Exhibits are numbered in accordance with Item 601 of Regulation
S-K. Inapplicable Exhibits are not included in the list.
APPENDIX "A"
to
ANNUAL REPORT ON FORM 10-K
ITEMS 8 and 14(a)(1) and (2), (c) and (d)
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ASTEC INDUSTRIES, INC.
Contents Page
Selected Consolidated Financial Data A-1
Management's Discussion and Analysis of Financial Condition and
Results of Operations A-2
Consolidated Balance Sheets at December 31, 1998 and 1997 A-8
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996 A-9
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 A-10
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996 A-11
Notes to Consolidated Financial Statements A-13
Report of Independent Auditors A-26
Schedule II - Valuation and Qualifying Accounts A-27
FORWARD-LOOKING STATEMENTS
The Company may, from time to time, make forward-looking statements,
including statements contained in the Company's filings with the Securities and
Exchange Commission (the "Commission") and its reports to shareholders.
Statements made in this annual report on Form
10-K, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties.
Such forward-looking statements are made based on management's belief as of the
date thereof, as well as assumptions made by, and information currently
available to management, pursuant to "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including, without
limitation: the effects of future economic conditions; the amount of
federal, state and local governmental revenues to support road building and
related activities; and the effects of competition in the design,
engineering and manufacturing of equipment and components used in
road building and various other construction activities. The
Company does not undertake to update any forward-looking statement that may
be made from time to time by, or on behalf of, the Company.
PAGE A-1
Selected Consolidated Financial Data
(in thousands, except as noted*)
Consolidated Income Statement Data
1998 1997 1996 1995 1994
Net sales $363,945 $265,365 $221,413 $242,601 $213,806
Selling, general and
administrative
expenses 46,796 36,125 35,082 34,326 31,142
Research and
development 4,681 3,707 5,868 5,128 3,166
Patent suit damages and
expenses (net recoveries
and accrual adjustments) 264 699 (14,947)
Loss on abandonment of
foreign subsidiary 7,037
Income from operations 40,427 24,661 8,051 2,566 27,236
Interest expense 2,709 2,398 1,656 2,125 713
Net income 24,436 13,809 4,345 4,560 23,436
Earnings per common share*(1)
Basic 1.30 .72 .22 .23 1.19
Diluted 1.26 .71 .21 .23 1.18
Consolidated Balance Sheet Data
Working capital $ 81,865 $ 71,459 $ 69,884 $ 58,015 $ 53,000
Total assets 249,164 192,243 167,853 154,356 155,964
Total short-term debt 646 500 2,051 774 8,573
Long-term debt, less
current maturities 47,220 35,230 30,497 17,150 16,155
Shareholders' equity 132,658 105,612 99,393 95,901 90,373
Book value per common
share at year-end*(1) 7.44 6.12 5.37 4.75 4.52
Quarterly Financial
Highlights (Unauditied) First Second Third Fourth
Quarter Quarter Quarter Quarter(2)
1998
Net sales $ 88,164 $ 108,124 $ 88,798 $ 78,860
Gross profit 22,304 25,826 22,175 21,599
Net income 5,559 7,389 5,779 5,709
Earnings per common share*(1)
Basic .30 .39 .31 .30
Diluted .29 .38 .30 .29
1997
Net sales $ 62,980 $ 73,159 $ 65,040 $ 64,186
Gross profit 15,875 17,765 14,633 16,220
Net income 3,525 4,625 2,821 2,838
Earnings per common share*(1)
Basic .18 .24 .15 .15
Diluted .18 .24 .15 .15
Common Stock Price*(1)
1998 High 13-1/8 18-1/8 21-3/8 28-3/4
1998 Low 7-9/16 12-5/8 15-11/16 17-3/4
1997 High 5-1/16 6-7/16 8-7/8 9-3/16
1997 Low 4-1/8 4-13/16 6-5/32 7-11/16
The Company's common stock is traded on the National Association of
Securities Dealers
Automated Quotation (NASDAQ) National Market under the symbol ASTE. Prices
shown are the high and low bid prices as announced by NASDAQ. The Company has
never paid any dividends on its common stock. The number of common
shareholders is approximately 4,156.
(1) Restated to retroactively reflect the two-for-one stock split effected
in the form of a dividend on January 18, 1999.
(2) Positive physical inventory adjustments, offset by certain other fourth
quarter charges, increased earnings per share in the fourth quarter
of 1997 by approximately $.02 per share.
PAGE A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1998 vs. 1997
Results of Operations Net income for 1998 was
$24,436,000, or $1.26 per share diluted, compared to
net income of $13,809,000, or $0.71 per share
diluted, in 1997, restated to reflect the two-for-
one stock split that took effect on January 18,
1999.
Net sales for 1998 were $363,945,000, an
increase of $98,580,000, or 37.1%, compared to 1997.
The 1998 international sales increased $10,613,000,
or 18.0%, to approximately $69,515,000 compared to
1997 international sales of $58,902,000. The 1998
domestic sales increased from $206,463,000 to
$294,430,000, or $87,967,000, for a 42.6% increase
from 1997. The increase in domestic sales is
principally attributed to increased sales in asphalt
plants, mobile equipment and aggregate processing.
A strong domestic economy and expectation of the
initiation of spending under the new six-year
highway bill which authorized a record $217 billion
in federal investment through 2003 for road repair,
improvement and other federal highway and transit
projects are the primary impetus of the domestic
sales. Approximately 59% of the sales growth was
generated internally, with 41% being from
acquisitions.
In 1998, the Company experienced an increase
in international sales of $10,613,000. Due to the
economic instability of certain parts of the world
during 1998, the Company redirected sales efforts
toward countries that were financially capable of
purchasing its equipment. As a result, the
$9,183,000 decrease in sales in Southeast Asia was
more than offset by increased sales of asphalt
plants and trenching equipment, primarily in Central
and South America and Canada. International sales
by domestic subsidiaries represented 19.1% and 22.2%
of total sales in 1998 and 1997, respectively.
The gross profit margin was 25.3% in 1998
compared to 24.3% in 1997. The improvement was
primarily related to increased sales volume. It can
also be attributed to improved manufacturing
processes, better product design and the Company's
continuing efforts to minimize sales discounts and
control costs.
In 1998, selling, general, and administrative
expenses decreased to 12.9% of net sales from 13.6%
of net sales in 1997. The volume increase in net
sales is the primary factor responsible for the
decreased percentage. Approximately 42% of the
increase in dollars related to expenses of acquired
operations. The single largest increase in
expenses not related to acquisitions was selling
expenses.
Research and development expenses
decreased to 1.3% of net sales in 1998 from 1.4% in
the prior year. The increase in sales volume is the
primary reason for the reduction in the percentage.
Acquisitions accounted for 81% of the increase in
dollars of research and development.
Interest expense for 1998 decreased to 0.7% of
sales from 0.9% of sales for 1997. The increase in
dollars related primarily to borrowings required for
the growing captive finance company and for
acquisitions.
Income tax expense for 1999 was $15,126,381,
or 38.2% of pre-tax income, compared to $9,156,977
for 1997, or 39.9% of pre-tax income. The reduction
is the result of Kolberg-Pioneer being located in a
state with no corporate income tax and the Company's
increased utilization of a foreign sales
corporation.
The backlog at December 31, 1998 was
$95,665,000 compared to $67,435,000, restated for
acquisitions. This represents a 41.9% increase over
1997. The 1997 backlog without taking into account
backlog associated with Johnson Crushers
International and EssTee was $61,381,000. The
increase is principally attributed to increased
asphalt plant and aggregate processing orders. The
Company is unable to determine whether this increase
in backlog was experienced by the industry as a whole
or whether it reflects an increase of market share.
The expectation of future business
growth by our customers has had a positive impact on
our backlog, but we are unable to assess the amount of
the increase attributable to the TEA21 legislation which was
effective October 1998. While this backlog reflects a positive
development, management cannot confirm that this increase
represents a trend, but the sales volume seems to be less
seasonal based on 1997 and 1998 quarters. International
sales tend to be stronger in the third and fourth quarters,
offsetting
normal slowing of domestic sales in those quarters.
Hot-mix Asphalt Plant and Related Heat Transfer Equipment
Segment: This segment had increases in sales of $30,271,000,
or 22.8%, and segment profit of $7,455,000, or 52.8%, over
1997. The primary reason for the increase in volume was a
strong economy accompanied by the expected impact of the
TEA21 legislation effective October 1998 upon future customer
business. International sales increased by 26.0% in 1998 over 1997.
Aggregate Processing Segment: The 1998 sales in this segment
increased $57,343,000, or 103.6%, over 1997, primarily due to
the acquisition of Kolberg-Pioneer, Inc. in December 1997 and
Johnson Crushers International, Inc. at November 1, 1998, while
segment profit increased $6,888,000, or 88.2%. The growth due
to acquisitions for 1998 over 1997 was approximately 35%.
International sales for this segment decreased approximately
12.1%.
Mobile Construction Equipment Segment: The 1998 sales in
this segment increased $11,830,000, or 24.4% over 1997.
Segment profit also increased $3,369,000, or 51.7%. The
primary increase in sales volume comes from an increase in
units of the patented material transfer vehicle. International
sales increased 6.7%. The increase in profit was primarily a
result of increased volume coupled with gross margin
improvement.
Results of Operations
1997 vs. 1996
Net income for 1997 was $13,809,000, or $0.71 per share
diluted, compared to net income of $4,345,000, or $0.21 per
share diluted, in 1996 restated to reflect the two-for-one
stock split that took effect on January 18, 1999. The effect of
the Company's purchase of its common shares in the second
quarter of 1997 increased diluted net income per share by $.04.
The 1996 results included approximately $3,000,000 of charges
related to the discontinuance and writedown of a
newly-developed mining machine product line, increases in
inventory reserves related to the log loader business and
litigation expenses.
Net sales for 1997 were $265,365,000, an increase of
$43,952,000, or approximately 19.9% compared to 1996. The
1997 international sales increased by $20,593,000, or 53.8%, to
approximately $58,902,000 compared to 1996 international
sales of $38,309,000. The 1997 international sales represented
a return to within $63,000 of the 1995 international sales
volume. The 1997 domestic sales increased from $183,104,000
to $206,463,000, or $23,359,000, for a 12.8% increase from
1996. The increase in domestic sales is principally attributed
to increased sales in asphalt plants and mobile equipment.
The increase in international sales was attributed to all
subsidiaries increasing their sales, with asphalt plants,
mobile equipment and rock crushing equipment being the
leaders. International sales by domestic subsidiaries in 1997
were 22.2% of total sales compared to 17.3% in 1996.
The gross profit margin was 24.3% in 1997 compared to 22.3%
in 1996. The improvement was generated primarily from
increased volumes in the asphalt plant and mobile equipment
operations and efficiencies being realized from capital
expenditures made over the last few years.
In 1997, selling, general, and administrative expenses decreased
to 13.6% of net sales from 15.8% of net sales in 1996. The
volume increase in net sales, coupled with significant
reductions in legal expenses from 1996, are the primary factors
responsible for the decreased percentage.
Results of Operations
1997 vs. 1996
Research and development expenses decreased to 1.4% of net
sales in 1997 from 2.7% in the prior year. Research and
development expenses decreased from 1996 to 1997 primarily
because of the product development expenses related to the
mining machine in 1996, which were approximately $2,300,000.
The reduction in expenses, coupled with the increase in sales
volume, impacted the percentage of research and development
expenses to net sales.
Interest expense for 1997 increased to .9% of sales from .8% of
sales for 1996. The increase related primarily to borrowings
required for the captive finance company, which completed its
first full year of operations in 1997 and funds needed for the
purchase of shares under the Company's dutch tender offer
completed in May 1997.
Income tax expense for 1997 was $9,156,977, or 39.9% of
pre-tax income, compared to $2,673,000 for 1996, or 38.1% of
pre-tax income.
The backlog at December 31, 1997 was $61,387,000 (including
$8,022,000 for Kolberg-Pioneer) compared to $54,298,000 at
December 31, 1996. This represents a 13.1% increase over 1996.
The backlog without Kolberg-Pioneer at December 31, 1996 was
$44,911,000. The increase was principally attributed to
increased asphalt plant orders. The Company was unable to
determine whether this increase in backlog was experienced by
the industry as a whole or whether it reflected an increase of
market share.
Hot-mix Asphalt Plant and Related Heat Transfer Equipment Segment:
Sales in 1997 increased by $16,452,000, or 14.1%, over 1996, while segment
profit increased $6,577,000, or 87.3%, during the same period. International
sales in 1997 increased $14,029,000 over 1996. The strong economy was the
primary reason for the sales increase. The net income increased as a
result of both volume increases and margin improvement.
Aggregate Processing Segment:
Sales in 1997 increased $2,623,000, or 5.0%, compared to 1996 primarily due
to the acquisition of Production Engineered Products in January 1996.
Segment profit for 1997 decreased $402,000, or 5.5%, compared
to 1996. Net income decreased due to erosion of gross margins
and some increase in expenses. International sales in 1997
increased $2,385,000 over 1996.
Mobile Construction Equipment Segment:
Sales in 1997 increased $10,661,000, or 28.2%, and segment profit increased
$4,579,000, or 235.9%, over 1996. International sales for 1997
increased $2,822,000 over 1996. The improvement in operating
profits resulted principally from significant efficiencies
achieved in the manufacturing process and increased sales
volume.
Liquidity and Capital
During 1998, the Company continued to maintain a strong financial position,
funding capital projects and working capital needs principally with cash
provided by operations, while utilizing low interest rate industrial revenue
bonds and bank borrowings to fund business combinations and the growth of the
Company's captive finance subsidiary. At December 31, 1998, working capital
totaled $81,865,000 compared to $71,459,000 at December 31, 1997. The working
capital increase was primarily the result of strong fourth quarter sales
that led to a $6,231,000 increase in trade receivables net of customer
deposits, a $2,426,000 increase in cash, and a $1,977,000
increase in refundable income taxes. Other items that had a
positive impact on operating cash flow included improved days
sales in receivables (46 in 1998 compared to 49 in 1997),
improved inventory turnover (3.9in 1998 compared to 3.4 in 1997), and
planned inventory increases to service sales projections for the first and
second quarters of 1999.
The Company has an unsecured $70,000,000 revolving credit loan
agreement with First Chicago NBD which expires on November 22,
2002. At December 31, 1998, the Company was utilizing
$26,520,000 of the amount available under the agreement for
borrowing and an additional $19,975,000 to support outstanding
letters of credit (primarily for industrial revenue bond issues).
Principal covenants under the loan agreement include (i) the maintenance of
certain levels of net worth and compliance with certain net worth, leverage
and interest coverage ratios, (ii) a limitation on capital expenditures
and rental expense, (iii) a prohibition against the payment of
dividends, and (iv) a prohibition on large acquisitions except upon the
consent of the lenders.
The revolving credit loan agreement with First Chicago NBD
provides for a segregated portion of $30,000,000 for use by the
Company's captive finance subsidiary, Astec Financial Services
("AFS"). Advances under this portion of the loan agreement are
limited to the "Eligible Receivables" of AFS as defined in the
loan agreement. At December 31, 1998, AFS borrowings
represented $16,300,000 of the total $26,520,000 outstanding
under the loan agreement.
The Company considers the unused portion of its revolving credit
loan agreement with First Chicago NBD, coupled with cash
expected to be generated by operations, adequate to meet its
foreseeable funding needs, including planned 1999 capital
expenditures (excluding those for equipment leased to others) of
approximately $18,000,000. Capital expenditures (excluding
those for equipment leased to others) were $18,465,000 in 1998
and $9,044,000 in 1997.
For additional information on current and long-term debt, see
Note 6 to the Consolidated Financial Statements.
Contingencies
See Note 9 to Consolidated Financial Statements for information
on certain pending litigation and contingent liabilities arising
from recourse financing arrangements.
Environmental Matters Based on information available, management believes the
Company has adequately reserved for potential environmental liabilities
and does not believe the potential liability will materially impact the
future position of the Company.
Impact of Year 2000
The Company recognizes the need to ensure its operations will
not be adversely impacted by Year 2000 software failures. The
term "Year 2000" is a general term used to describe the various
problems that may result from the improper processing of dates
and date-sensitive calculations by computers and other
machinery as the year 2000 is approached and reached. Many
computer systems process dates using two digits rather than
four to define a specific year. Absent corrective actions, a
program may recognize a date using "00" as the year 1900
rather than the year 2000. Such an occurrence could result in
system failures or miscalculations causing disruptions to
various activities. Software failures due to processing errors
potentially arising from calculations using the Year 2000 date
are a known risk.
Management presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 issue will be mitigated.
However, in the unlikely event such modifications and replacements are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: assessment, remediation, testing and
implementation. With the exception of a newly-acquired
aggregate processing manufacturer and the third-party inquiries
of Year 2000 compliance, assessment of all systems that could
be significantly affected by the Year 2000 is 100% complete. In
connection with the ongoing information systems management,
the Company has previously modified or replaced a portion of the
key financial information and operational systems and a
Impact of Year 2000 significant number of personal computers. Completion of
all modifications or replacements of personal computers and
related testing is scheduled for June 1999. The Company's
assessment indicated that updating key financial systems, such
as general ledger and invoicing systems, and ensuring operating
equipment was Year 2000 compliant were the major hurdles
prior to the millennium. Since manufactured products use either
internally or externally developed software that is susceptible
to Year 2000, diligent efforts began in early 1998 to notify
customers of products that contain software that should be
updated. The Company has gathered information about the Year
2000 compliance status of its significant suppliers and
sub-contractors and continues to monitor their compliance. To
date, substantial progress has been made toward completion of
the Year 2000 project. The Company does not expect the
financial impact of making the required system changes for Year
2000 compliance to have a material effect on the financial
statements.
As related to information technology exposure, the Company is
approximately 80% complete in remediation and approximately
70% complete in testing and implementation. The Company
completed the installation of two major financial operating
systems during 1998 and will complete the implementation of
one additional system during 1999 at a subsidiary currently
without a Year 2000 compliant financial operating system. The
Company is utilizing both internal and external resources to
identify, correct or reprogram, and test its systems for Year
2000 compliance.
A limited amount of operating equipment, mainly used in
manufacturing, is date sensitive. Manufacturers of the affected
equipment were contacted and the Company has either already
installed update modifications or has the appropriate
modification on order to install and test prior to September 30,
1999. The remediation phase of updating the operating
equipment is more than 95% complete, and the testing and
implementation phases of modifying the operating equipment is
approximately 80% complete.
The Company manufactures products that use either internally or
externally developed software that is susceptible to Year 2000.
For customers with products which contain externally developed
software, the Company is notifying them by mail that it does not
own the source code to these specific software products and
cannot provide a Year 2000 update. A version of internally
generated software to replace that provided with the original
equipment is offered to the customer for a fee. Some internally
developed equipment software was designed to be Year 2000
compliant. For customers with products purchased within the
last five years that contain internally developed software that
is not Year 2000 compliant, the Company is sending out disks to
update the software for Year 2000. If the equipment was
purchased more than five years earlier, the software is updated
for a fee.
In addition, a portion of the manufactured products are
automated and utilize personal computers to operate. Beginning
in 1998 and forward, the computer equipment installed in the
Company's products was Year 2000 compliant. For equipment
purchased by customers prior to 1998, the Company is mailing
instructions to test the product's computer for Year 2000
compliance. If the computer is not Year 2000 compliant, the
customers are instructed to contact the Company for
instructions to update their computer. Due to the nature of
products, updates and information produced following the initial
information letters is based upon individual inquiry. The
Company is more than 95% complete in the remediation, testing
and implementation phases of modifying product systems.
Furthermore, the Company is in the process of querying its
significant suppliers and any other external agents (no external
agents share information systems with the Company). The
assessment phase of querying significant third party
associations is approximately 80% complete and the
remediation, testing and implementation phases are
appproximately 75% complete. To date, the Company is not aware
of any external agents with a Year 2000 issue that would
materially impact the results of operations, liquidity or capital
resources. However, the Company has no means of ensuring that
external agents will be Year 2000 ready and the effect of any
non-compliance by external agents is not determinable. The
query of third-party associations is scheduled to be completed
by June 30, 1999.
The Company's newest subsidiary began its Year 2000 project in
January 1999. Currently, this subsidiary is approximately 60%
complete in its assessment of IT systems and approximately
30% complete in the remediation, testing and implementation
phases of modifying the necessary systems. The same
subsidiary is approximately 90% complete in the assessment of
its operating equipment, while it is just under 50% complete in
the remediation, testing and implementation phases of
modifying its operating equipment. This subsidiary has not
begun to assess its product lines, although it does not
manufacture equipment that is date sensitive. In addition, it has
not begun to inquire of its third-party associations of their Year
2000 compliance status. The new company began its
comprehensive Year 2000 project and is scheduled to complete
all phases of the plan by September 30, 1999.
The total cost of the Year 2000 project is estimated to be
approximately $3,000,000 and is being funded through operating
cash flows. To date, the Company has incurred approximately
$2,200,000, related to all phases of the Year 2000 project, with
approximately $1,900,000 being capitalized during 1998. Of the
total remaining project costs, approximately $620,000 is
attributable to the purchase of new hardware, software and
operating equipment, which will be capitalized. The remaining
$180,000 is related to modification of hardware and software
and will be expensed as incurred.
The systems replaced in 1998 were planned before the Year
2000 project, but assessments and implementations were
accelerated due to Year 2000 issues. The Year 2000 budget
includes the costs related to replacement of the mainframe
systems and are capitalized.
Management of the Company believes it has an effective program
in place to timely resolve the Year 2000 issue. In the event that
the Company does not complete any additional phases, the
Company could lose revenues due to inability to manufacture its
product to specified quality or deliver equipment as scheduled.
Year 2000 issues could also hinder the Company's ability to
provide customer technical support or to provide customer parts
orders as quickly as necessary, among other potential risks. In
addition, the Company could be subject to litigation for
computer systems product failure or for failure to properly date
business records. Also, for applications using software and
systems dependent on outside technical support, depending upon
demand, technical support may not be available with sufficient
time to prevent adverse effects on operations. The amount of
potential liability and lost revenues cannot be reasonably
estimated at this time.
The Company does not currently have a fully documented
contingency plan in place in the event it does not complete all
phases of the Year 2000 project, but it has begun to investigate
and document prudent preventive measures that can be
undertaken to secure operational capabilities in case of their
failure. These measures include identifying secondary sources
for raw materials, goods and services; identifying alternate
manufacturing routing methods; stocking additional critical raw
materials; printing of paper documents and reports as reference
tools; and performing disaster recovery testing for potential
power interruptions of machine failures. The Company plans to
evaluate the status of completion of the Year 2000 project after
March 1999 and determine whether a full contingency plan is
necessary.
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
Assets
Current assets:
Cash and cash equivalents Note 1 $ 5,352,739 $ 2,926,294
Trade receivables less allowance for
doubtful accounts of $1,460,000 in
1998 and $1,342,000 in 1997
44,922,366 33,945,574
Finance receivables Note13 6,189,285 4,074,230
Notes and other receivables 1,315,650 751,235
Inventories Note 1, 3 76,728,969 69,395,351
Prepaid expenses 2,717,896 1,985,197
Refundable income taxes 1,168,056
Deferred tax asset Note 8 6,480,217 5,536,666
Other current assets 7,303 7,550
Total current assets 144,882,481 118,622,097
Property and equipment, net Note 4 81,142,117 61,605,153
Other assets:
Goodwill 12,511,530 8,226,831
Finance receivables Note 13 7,120,082 670,801
Notes receivable 1,054,987 1,261,985
Deferred tax asset Note 8 788,318 711,987
Other 1,664,436 1,144,245
Total other assets 23,139,353 12,015,849
Total $ 249,163,951 $ 192,243,099
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of
long-term debt Note 6 $ 646,060 $ 500,000
Accounts payable 27,418,287 21,421,882
Customer deposits 11,210,413 6,464,842
Accrued product warranty 3,624,252 3,206,372
Accrued payroll and related
liabilities 11,516,286 8,291,876
ncome taxes payable 809,384
Deferred tax liability Note 8 55,357 275,687
Liabilities related to abandoned
subsidiary 125,000 360,760
Other accrued liabilities 8,421,594 5,832,716
Total current liabilities 63,017,249 47,163,519
Long-term debt, less current
maturities Note 6 47,220,000 35,230,000
Deferred tax liability Note 8 3,879,787 3,216,948
Deferred retirement costs Note 7 970,866 320,314
Other 1,417,914 700,155
Total liabilities 116,505,816 86,630,936
Shareholders' equity: Note 1, 10
Preferred stock - authorized 4,000,000
shares of $1.00 par value; none issued
Common stock - authorized 40,000,000
shares of $.20 par value; issued
and outstanding - 18,967,232 in 1998
and 18,641,160 in 1997 3,793,446 3,728,232
Additional paid-in capital 44,332,177 41,787,534
Retained earnings 84,532,512 60,096,397
Total shareholders' equity 132,658,135 105,612,163
Total $ 249,163,951 $ 192,243,099
See Notes to Consolidated Financial Statements.
Consolidated Statements of Income
Year Ended December 31,
1998 1997 1996
Net sales $ 363,945,191 $ 265,365,312 $ 221,412,796
Cost of sales 272,040,941 200,872,181 172,147,913
Gross profit 91,904,250 64,493,131 49,264,883
Selling, general and
administrative expenses 46,796,409 36,124,728 35,081,800
Research and development
expenses 4,681,019 3,706,909 5,867,909
Patent suit damages and
expenses 263,978
Income from operations 40,426,822 24,661,494 8,051,196
Other income (expense):
Interest expense (2,708,981) (2,397,902) (1,656,466)
Interest income 101,208 259,388 386,646
Other income - net 1,668,869 347,253 247,434
Equity in income
(loss) of joint
venture Note 1 74,578 96,158 (10,652)
Income before
income taxes 39,562,496 22,966,391 7,018,158
Income taxes Note 8 15,126,381 9,156,977 2,673,282
Net income $ 24,436,115 $ 13,809,414 $ 4,344,876
Earnings per Common Share
Net income:
Basic $ 1.30 $ .72 $ .22
Diluted 1.26 .71 .21
Weighted average number of
common shares outstanding: Note 1
Basic 18,799,063 19,111,880 20,094,884
Diluted 19,441,184 19,452,192 20,317,316
See Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders' Equity
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
Balance
December 20,184,398 $4,036,880 $49,922,140 $41,942,107 $ 95,901,127
31, 1995
Net income 4,344,876 4,344,876
Minimum
pension
liability
adjustment $(127,150) (127,150)
Comprehensive
income 4,217,726
Issuance of
common
stock 18,000 3,600 38,475 42,075
Repurchase and
retirement
of common
stock (128,000) (25,600) (742,400) (768,000)
Balance
December
31, 1996 20,074,398 4,014,880 49,218,215 46,286,983 (127,150) 99,392,928
Net income 13,809,414 13,809,414
Minimum
pension
liability
adjustment 127,150 127,150
Comprehensive
income 13,936,564
Issuance of
common stock 20,000 4,000 60,975 64,975
Repurchase and
retirement of
common
stock (1,453,238) (290,648) (7,491,656) (7,782,304)
Balance
December 31, 18,641,160 3,728,232 41,787,534 60,096,397 105,612,163
1997
Net and
comprehensive
income 24,436,115 24,436,115
Issuance of
common
stock 326,072 65,214 2,544,643 2,609,857
Balance
December 31, 18,967,232 $3,793,446 $44,332,177 $84,532,512 $ 0 $132,658,135
31, 1998
[FN] See Notes to Consolidated Financial Statements.
Year Ended December 31,
1998 1997 1996
Cash Flows From Operating Activities
Net income $24,436,115 $13,809,414 $ 4,344,876
Activities
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 8,129,585 6,944,918 5,812,723
Provision for doubtful accounts 1,092,185 272,578 157,183
Provision for inventory reserves 1,289,740 418,906 1,231,828
Provision for warranty 4,048,899 2,811,009 3,018,990
(Gain) loss on sale of
fixed assets (341,575) 747,112 59,118
(Gain) loss on sale of
equipment on
operating lease (956,271) (505,473)
(Gain) on sale of finance
receivables (278,824) (158,043) (67,492)
Equity in (income) loss
of joint venture (74,578) (96,158) 10,652
(Increase) decrease in:
Receivables (11,352,173) 1,005,946 (3,855,177)
Inventories (3,717,271) (1,833,029) (1,353,245)
Prepaid expenses (703,735) (2,010) (991,145)
Deferred tax asset (723,156) 209,978 1,349,773
Other assets (444,725) 261,094 196,607
Increase (decrease) in:
Accounts payable 2,664,949 3,867,396 (1,383,256)
Customer deposits 4,094,466 4,285,052 (2,838,705)
Accrued product warranty (3,828,493) (2,143,242) (3,127,860)
Income taxes payable (817,515) 2,880,447 270,786
Other accrued liabilities 5,977,639 1,885,445 (3,723,984)
Total adjustments 4,059,147 20,851,926 (5,233,204)
Net cash provided (used) by
operating activities 28,495,262 34,661,340 (888,328)
Cash Flows from Investing Activities
Proceeds from sale of property
and equipment - net 992,841 459,025 1,202,335
Expenditures for property
and equipment (18,465,257) (9,043,675) (6,826,216)
Proceeds from sale
of equipment
on operating lease 22,609,684 15,400,539
Expenditures for
equipment on
operating lease (28,015,599) (16,295,790) (1,881,771)
Additions to finance
receivables (18,398,321) (13,480,827) (8,333,293)
Collections of finance
receivables 365,514 1,349,934 536,089
Proceeds from sale of
finance receivables 9,820,384 12,769,861 2,638,739
Additions to notes
receivable (12,386) (116,536) (60,000)
Repayments on notes
receivable 229,454 758,076 901,233
Investment in joint venture (100,000)
Cash payments in connection
with business combinations,
net of cash acquired (8,506,458) (22,383,071) 164,794
Net cash (used) by investing
activities (39,380,144) (30,582,464) (11,758,090)
Cash Flows From Financing Activities
Repurchase and retirement of
common stock (7,782,304) (768,000)
Proceeds from issuance of
common stock 1,350,510 64,975 42,075
Net borrowings under revolving
credit loan 3,290,000 9,908,000 11,680,000
Principal repayments
of industrial bonds,
loans and notes payable (614,183) (6,725,737) (1,027,023)
Proceeds from debt
and notes payable 9,285,000 2,968,780
Net cash provided
(used) by financing
activities 13,311,327 (4,535,066) 12,895,832
Increase (decrease)
in cash and cash
equivalents 2,426,445 (456,190) 249,414
Cash and cash equivalents,
beginning of period 2,926,294 3,382,484 3,133,070
Cash and cash equivalents\
end of period $ 5,352,739 $ 2,926,294 $ 3,382,484
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 2,778,422 $ 2,369,389 $ 1,572,642
Income taxes $ 16,545,127 $ 8,142,405 $ 3,466,100
Excluded from the
Consolidated
Statements of
Cash Flows were
the following
effects of non-cash
investing and
financing activities:
Non-cash business combination:
Investment in subsidiary $ 2,405,145
Accrued liability (2,405,145)
Non-cash transfer of assets:
Trade receivables $ 1,200,000
Notes receivables (1,200,000)
Tax benefits related to
stock options:
Refundable income
taxes 1,159,925
Deferred tax asset 99,422
Additional paid-in capital (1,259,347)
See Notes to Consolidated Financial Statements.
Notes To Consolidated Financial Statements
for the Years Ended December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of Astec Industries, Inc. and its subsidiaries. The Company's
Accounting wholly-owned subsidiaries at December 31, 1998 are as follows:
Astec, Inc. Kolberg-Pioneer, Inc.
Astec Financial Services, Inc. Production Engineered Products,Inc.
CEI Enterprises, Inc. Roadtec, Inc.
Heatec, Inc. Telsmith, Inc.
Johnson Crushers International, Inc. Trencor, Inc.
All significant intercompany transactions have been eliminated in
consolidation. The Company's investment in a 50% owned joint venture,
Pavement Technology, Inc., is accounted for on an equity
basis.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents - The Company considers all highly liquid instruments
purchased with a maturity of less than three months to be cash
equivalents. At December 31, 1998, the Company's cash and cash
equivalent balance included $940,000 of unexpended industrial revenue
bond proceeds. As required by the related trust indenture agreement,
these funds have been invested in liquid, highly rated securities and are
carried at cost which approximates market value. Inventories - Inventories
(excluding used equipment) are stated at the lower of first-in, first-out
cost or market. Used equipment inventories are stated at the lower of
specific unit cost or market.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is calculated for financial reporting purposes using the
straight-line method based on the estimated useful lives of the assets as
follows: buildings (40 years) and equipment (3 to 10 years). Both
accelerated and straight-line methods are used for tax reporting purposes.
Goodwill - Goodwill represents the excess of cost over the fair value of net
assets acquired. Goodwill amounts are being amortized using the
straight-line method over 20 years. Additions to goodwill reflect the
purchase of Johnson Crushers International, Inc. in 1998 and the purchase
of certain assets and assumption of certain liabilities of the Construction
Equipment Division of Portec, Inc. in 1997 (See Note 2). Accumulated
amortization balances netted against goodwill were $1,898,000 and
$1,320,000 at December 31, 1998 and 1997, respectively.
Product Warranty - The Company provides product warranties against
defects in materials and workmanship for periods ranging from ninety
days to one year following the date of sale. Estimated costs of product
warranties are charged to cost of sales in the period of the sale.
Income Taxes - The Company accounts for income taxes using the liability
method in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes.
Revenue Recognition - A portion of the Company's equipment sales
represents equipment produced in the Company's plants under short-term
contracts for a specific customer project or equipment designed to meet a
customer's specific requirements. Equipment revenues are recognized in
compliance with the terms and conditions of each contract, which is
ordinarily at the time the equipment is shipped. Certain contracts include
terms and conditions through which the Company recognizes revenues upon
completion of equipment production which is subsequently stored at the
Company's plant at the customer's request. Revenue is recorded on such
contracts upon the customer's assumption of title and all risks of ownership.
Note To Consolidated Financial Statements
Advertising Expense - The cost of advertising is expensed as incurred. The
Company incurred $3,052,000, $2,054,000 and $2,661,000 in advertising
costs during 1998, 1997 and 1996, respectively.
Stock Based Compensation - The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock
options in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees and, accordingly, recognizes no compensation expense
for the stock option grants. The Company adopted SFAS No. 123, Accounting
for Stock-based Compensation, in 1996 and is utilizing the disclosure only
option permitted by the statement. See Note 10.
Common Stock - On December 10, 1998, the Board of Directors declared a
two-for-one split of the Company's common stock, effected in the form of
a stock dividend payable on January 18, 1999, to stockholders of record on
December 31, 1998. All agreements concerning stock options and other
commitments payable in shares of the Company's common stock provide
for the issuance of additional shares due to the declaration of the stock
split. This stock split has been reflected in the Consolidated Statements
of Shareholders' Equity at December 31, 1995. All references to number
of shares, except shares authorized, and to per share information in the
accompanying consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis.
Earnings Per Share - Basic and diluted earnings per share are calculated in
accordance with SFAS No. 128, Earnings per Share. Basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities.
The following table sets forth the computation of basic and diluted
earnings per share:
Year Ended December 31,
1998 1997 1996
Numerator:
Net income $ 24,436,115 $ 13,809,414 $ 4,344,876
Denominator:
Denominator for basic
earnings per share 18,799,063 19,111,880 20,094,884
Effect of dilutive securities:
Employee stock options 642,121 340,312 222,432
Denominator for diluted
earnings per share 19,441,184 19,452,192 20,317,316
Earnings per common share:
Basic $ 1.30 $ .72 $ .22
Diluted $ 1.26 $ .71 $ .21
Comprehensive Income - In 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. The adoption of the
new statement had no impact on the Company's net income or shareholders'
equity. Prior years' financial statements have been reclassified to
conform to the new requirements.
Segment Information - Effective December 31, 1998, the Company adopted
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. The new statement generally requires that companies report
segment information for operating segments which are revenue producing
components and for which separate financial information is produced
internally. Prior years' segment information has been updated to conform
to the new requirements.
Pensions and Other Post-retirement Benefit Plans - Effective December 31,
1998, the Company adopted SFAS No. 132, Employers' Disclosures About
Pensions and Other Post-retirement Benefits. The new statement
standardizes the disclosure requirements for pension and other post-
retirement benefits, but does not change the measurement or recognition
of the related benefit obligations, plan assets, or periodic benefit costs.
Prior years financial statements have been reclassified to conform to the
new requirements.
Derivatives and Hedging Activities - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in
years beginning after June 15, 1999. Because of the Company's minimal
use of derivatives, management does not anticipate that the adoption of
the new statement will have a significant effect on the Company's
earnings or financial position.
Reclassifications - Certain amounts for 1997 have been reclassified to
conform with the 1998 presentation.
2. Business Combinations
On November 1, 1998, the Company acquired substantially all of the assets
and liabilities of Johnson Crushers International, Inc. ("JCI") for
$8,000,000 in cash. The transaction was accounted for as a purchase and,
accordingly, the operating results of JCI have been included in the
Company's consolidated statement of income from the date of acquisition.
That portion of the purchase price in excess of the fair market value of
the assets acquired was recorded as goodwill and is being amortized using
the straight-line method over 20 years.
The terms of the JCI acquisition agreement provide for additional
consideration to be paid to the former shareholders over the next three
years if JCI's results of operations exceed certain targeted levels. Such
consideration is payable, at the Company's option, in cash or up to 50% in
the Company's common stock and will be recorded as additional purchase
price when earned. The maximum amount of contingent consideration to
be paid is $6,660,000.
On December 2, 1997, the Company acquired certain assets and liabilities of
the Construction Equipment Division of Portec, Inc. for $19,978,176 in
cash. The transaction was accounted for as a purchase and, accordingly,
the operating results of the new company, Kolberg-Pioneer, Inc. ("KPI"),
have been included in the Company's consolidated statements of income
from the effective date of acquisition. That portion of the purchase price
in excess of the fair market value of the assets acquired was recorded as
goodwill and is being amortized using the straight-line method over 20
years. The purchase was initially financed under the Company's revolving
credit agreement but was partially refinanced in 1998 using industrial
revenue bonds.
In connection with the acquisition, the Company and KPI entered into an
equipment lease with First Chicago NBD under which the Company and KPI
lease machinery and equipment. The terms of the equipment leases range
from 36 to 84 months, with total monthly lease payments of approximately
$69,000. These are included in the lease commitments in Note 5.
Effective December 1, 1997, the Company acquired the operating assets and
liabilities of Production Engineered Products, Inc. ("PEP") in exchange for
$2,405,145 in cash. The operations of PEP are included in the
consolidated statements of income from the effective date of acquisition.
The transaction was accounted for as a purchase and the purchase price of
$2,405,145 was allocated to the net tangible assets acquired based on the
estimated fair market value of the assets acquired. The excess of the
purchase price over the fair market value of PEP's net tangible assets was
recorded as goodwill and is being amortized using the straight-line
method over 20 years.
A summary of the net assets acquired is as follows:
JCI KPI PEP
Current assets $ 5,138,492 $ 16,530,866 $ 1,292,161
Property, plant
and equipment 1,796,739 4,714,500 551,289
Other assets 1,035,735
Current liabilities (3,743,685) (5,032,911) (243,511)
Other liabilities (5,894) (492,000) (1,094,453)
Goodwill 4,814,348 3,221,736 1,734,865
Net assets acquired
excluding cash 8,000,000 19,977,926 2,240,351
Cash 250 164,794
Net assets acquired $ 8,000,000 $ 19,978,176 $ 2,405,145
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions discussed above had occurred
at the beginning of the periods presented. The unaudited pro forma results
have been prepared for comparative purposes only and include certain
adjustments, such as goodwill amortization expenses and interest expense
on acquisition debt. They do not purport to be indicative of the
results that would have occurred had the acquisitions taken place at the
beginning of the periods presented or of results which may occur in the future.
Year Ended December 31,
1998 1997 1996
Net sales $ 381,192,000 $ 314,314,000 $ 257,913,000
Income from
operations 43,161,000 28,142,000 10,372,000
Net income 25,775,000 14,609,000 4,275,000
Per common share outstanding:
Basic $ 1.37 $ .76 $ .21
Diluted $ 1.33 $ .75 $ .21
3. Inventories
Inventories consisted of the following:
December 31,
1998 1997
Raw materials and parts $ 35,275,208 $ 27,986,696
Work-in-process 18,138,057 15,920,137
Finished goods 15,807,998 19,911,602
Used equipment 7,507,706 5,576,916
Total $ 76,728,969 $ 69,395,351
4. Property and Equipment
Property and equipment consisted of the following:
December 31,
1998 1997
Land, land improvements
and buildings $ 48,436,468 $ 42,659,308
Equipment 61,370,775 48,175,111
Less accumulated depreciation (36,460,807) (31,339,876)
Land, buildings and
equipment - net 73,346,436 59,494,543
Rental property:
Equipment 8,439,708 2,517,574
Less accumulated depreciation (644,027) (406,964)
Rental property - net 7,795,681 2,110,610
Total $ 81,142,117 $ 61,605,153
5. Leases
The Company leases certain land, buildings and equipment which are used in
its operations. Total rental expense charged to operations under operating
leases was approximately $2,597,000, $1,569,000 and $1,272,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Minimum rental commitments for all noncancelable operating leases at
December 31, 1998 are as follows:
1999 $ 2,259,177
2000 1,844,977
2001 705,747
2002 423,127
2003 342,601
Thereafter 185,630
The Company also leases equipment to customers under short-term
contracts generally ranging from two months to forty-eight months.
Rental income under such leases was $1,994,000, $1,181,000 and
$2,073,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Minimum rental payments to be received for equipment leased to others at
December 31, 1998 are as follows:
1999 $ 1,353,909
2000 1,352,291
2001 1,349,261
2002 1,302,166
2003 1,124,433
Thereafter 1,434,005
6. Long-term Debt
Long-term debt consisted of the following:
December 31,
1998 1997
Revolving credit loan of
$70,000,000 at December 31,
1998, available through
November 22, 2002, at
interest rates from 5.75%
to 7.25% at December 31,
1998, and at interest rates
from 6.7% to 8.25% at
December 31, 1997 $ 26,520,000 $ 23,230,000
Industrial Development
Revenue Bonds payable in
annual installments through
2006 at weekly negotiated
interest rates 4,000,000 4,500,000
Industrial Development
Revenue Bonds due in
2019 at weekly negotiated
interest rates 8,000,000 8,000,000
Industrial Development
Revenue Bonds due in
2028 at weekly negotiated
interest rates 9,200,000
Other current notes payable 146,060
Total long-term debt 47,866,060 35,730,000
Less current maturities 646,060 500,000
Long-term debt less
current maturities $ 47,220,000 $ 35,230,000
The Company has a $70,000,000 revolving line of credit with First Chicago
NBD. The agreemen contains borrowing sub-limits which allow the
Company and its subsidiary, Astec Financial Services, Inc., to borrow up to
$50,000,000 and $30,000,000 respectively, not to exceed the total
commitment amount. Advances under Astec Financial's sub-limit are
limited to eligible receivables as defined in the agreement. Amounts
outstanding under the agreement bear interest, at the Company's option,
at a rate from .25% below prime to prime plus .50%, or from .75% to 2.00%
above the London Interbank Offering Rate. The interest rate applied to
borrowings is based upon a leverage ratio, calculated quarterly, as defined
by the credit agreement. The credit agreement contains certain
restrictive covenants relative to operating ratios and capital
expenditures and also restricts the payment of dividends. The Company
was in compliance with all financial covenants related to the above loan
agreement at December 31, 1998, except for exceeding the capital
expenditure limit by $268,000. The bank has granted a waiver for this
covenant.
The aggregate of all maturities of long-term debt in each of the next
five years is as follows:
1999 646,060
2000 500,000
2001 500,000
2002 27,020,000
2003 500,000
For 1999, the weighted average interest rate on short-term borrowings,
which includes current maturities of Industrial Revenue Bonds, was 4.3%.
7. Retirement Benefits
The Company sponsors a defined benefit pension plan that covers all
employees of its Kolberg-Pioneer subsidiary. Benefits paid under this
plan are based on years of service multiplied by a monthly amount. In
addition, the Company also sponsors two post-retirement medical and
life insurance plans covering the employees of its Kolberg-Pioneer and
Telsmith subsidiaries and retirees of its former Barber-Greene subsidiary.
The Company's funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
Prior to 1998, the Company also sponsored a defined benefit pension plan
that covered certain employees of its Telsmith subsidiary hired prior to
October 14, 1987, who chose not to participate in the Company's 401(k)
savings plan. During the third quarter of 1998, the Company recognized
an after-tax curtailment/settlement loss of approximately $702,000, or
$0.04 per share, related to the termination of this plan.
The following provides information regarding benefit obligations, plan
assets and the funded status of the plans:
Pension Benefits Other Benefits
1998 1997 1998 1997
Change in benefit obligation
Benefit obligation at
beginning of year $ 9,571,211 $ 3,128,593 $1,270,785 $ 790,602
Service cost 315,111 15,382 74,681 56,468
Interest cost 647,654 222,812 87,419 55,241
Actuarial gain 386,433 131,824 24,506 -
Participant contributions - - 74,542 -
Acquisition of
Kolberg-Pioneer - 6,297,131 - 500,482
Benefits paid (582,080) (224,531) (68,431) (132,008)
Effect of termination (3,389,415) - - -
Benefit obligation at
end of year $ 6,948,914 $ 9,571,211 $1,463,502 $ 1,270,785
Change in plan assets
Fair value of plan assets at
beginning of year 9,394,007 2,583,682 - -
Actual return on plan
assets 629,415 623,731 - -
Acquisition of
Kolberg-Pioneer - 6,411,125 - -
Benefits paid (582,080) (224,531) - -
Effect of termination (2,833,798) - - -
Fair value of plan assets
at end of year $ 6,607,544 9,394,007 - -
Funded
status (underfunded) (341,320) (177,204) (1,463,502) (1,270,785)
Unrecognized net actuarial
(gain) loss 315,446 (111,809) 492,636 501,625
Unrecognized prior
service cost - 109,591 - -
Prepaid (accrued)
benefit cost $ (25,874) $ (179,422) $ (970,866) $ (769,160)
Weighted-average assumptions as of December 31
Discount rate 6.75% 7.30% 6.75% 7.30%
Expected return on
plan assets 9.00% 9.00% - -
Rate of compensation
increase 4.00% 4.00% - -
The weighted average annual assumed rate of increase in per capita health
care costs is 7.7% for 1999 and is assumed to decrease gradually to 5.9%
for 2003 and remain at that level thereafter. A 1% increase or decrease
in the medical inflation rate would not have a significant effect on
either the benefit obligation or the aggregate service and interest cost
components of net periodic benefit cost.
Net periodic benefit cost for 1998, 1997 and 1996 included the following
components:
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
Components of net periodic benefit cost
Service cost $315,111 $15,382 $20,986 $74,681 $56,468 $64,700
Interest cost 647,654 222,812 227,815 87,419 55,241 48,300
Expected return
on plan assets (797,619) (226,050) (142,221) - - -
Amortization of
prior service
cost 19,614 19,614 19,613 - - -
Amortization of
transition
obligation - - - 33,700 33,700 33,700
Recognized net
actuarial
(gain) loss - - - (205) (1,473) -
Curtailment/
settlement loss 1,136,000 - - - - -
Net periodic
benefit cost $ 1,320,760 $ 31,758 $126,194 $195,595 $143,936 $146,700
8. Income Taxes
For financial reporting purposes, income before income taxes includes the
following components:
Year Ended December 31,
1998 1997 1996
United States $39,318,695 $22,738,605 $6,655,652
Foreign:
License income 243,801 227,786 362,506
Income before income taxes $39,562,496 $22,966,391 $7,018,158
The provision for income taxes consisted of the following:
Year Ended December 31,
1998 1997 1996
Current $ 15,849,539 $ 9,264,743 $ 1,416,242
Deferred provision (benefit) (723,158) (107,766) 1,257,040
Total provision for
income taxes $ 15,126,381 $ 9,156,977 $ 2,673,282
A reconciliation of the provision for income taxes at the statutory Federal
rate to those provided is as follows:
Year Ended December 31,
1998 1997 1996
Tax at statutory rates $ 13,846,874 $ 8,038,237 $ 2,386,174
Benefit from
foreign sales
corporation (620,000) (360,000) (125,000)
State taxes, net of federal
income tax benefit 1,377,000 912,000 424,000
Income taxes of other countries 11,000 38,000 20,000
Other items 511,507 528,740 (31,892)
Income taxes $ 15,126,381 $ 9,156,977 $2,673,282
At December 31, 1998, the Company had long-term capital loss carry
forwards of approximately $80,000 expiring in 2000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
At December 31, 1998, the Company had deferred tax assets of approximately
$7,268,500, and deferred tax liabilities of approximately $3,935,100, related
to temporary differences and tax loss carry forwards.
Significant components of the Company's deferred tax liabilities and
assets are as follows:
Year Ended December 31,
1998 1997
Deferred tax assets:
Inventory reserves $ 1,444,700 $ 1,878,300
Warranty reserves 1,250,600 1,098,400
Bad debt reserves 524,400 507,000
Other accrued expenses 3,889,500 2,516,500
Alternative minimum tax credit 98,500
Other credit carryforwards 159,300 150,000
Total deferred tax assets 7,268,500 6,248,700
Deferred tax liabilities:
Property and equipment 3,879,800 3,176,300
Other 55,300 316,300
Total deferred tax liabilities 3,935,100 3,492,600
Net deferred tax asset $ 3,333,400 $ 2,756,100
9. Contingencies Management has reviewed all claims and lawsuits and, upon
the advice of counsel, has made provision for any estimable losses. However,
the Company is unable to predict the ultimate outcome of the outstanding
claims and lawsuits.
Recourse Customer Financing - Certain customers have financed purchases
of the Company's products through arrangements in which the Company
is contingently liable for customer debt aggregating approximately
$1,271,000 and $1,793,000 at December 31, 1998 and 1997, respectively.
These obligations average five years in duration and have minimal risk.
Astec Financial Services, Inc. has sold both finance and operating leases
with limited recourse, subject to elimination of recourse
responsibilities through remarketing of equipment. The limited recourse
would not exceed 15% of the purchase price.
Other - The Company is contingently liable for letters of credit of
approximately $19,975,000 issued for bid bonds and performance bonds.
10. Shareholders'Equity
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under SFAS No. 123,
Accounting for Stock-based Compensation, requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, when the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is generally recognized.
The Company has reserved shares of common stock for exercise of
outstanding non-qualified options and incentive options of officers and
employees of the Company and its subsidiaries at prices determined by the
Board of Directors. The shares reserved under the various stock option
plans are as follows: (1) 1992 Stock Option Plan - 49,600, (2) 1998
Long-term Incentive Plan - 2,336,200, and (3) Executive Officer Annual
Bonus Equity Election Plan - 300,000.
In addition, a Non-employee Directors Stock Incentive Plan has been
established to allow non-employee directors to have a personal financial
stake in the Company through an ownership interest. Directors may elect to
receive their compensation in common stock, deferred stock or stock
options. All options granted have ten-year terms and vest and become fully
exercisable immediately.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996, 1997 and 1998, respectively;
risk-free interest rates of 6.04%, 5.78% and 4.70%; volatility factors of the
expected market price of the Company's common stock of .275, .281 and
.329; and a weighted-average expected life of the option of four and
one-half years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The Company's pro
forma information follows.
1998 1997 1996
Pro forma net income $ 23,179,000 $ 13,782,000 $ 3,734,000
Pro forma earnings per share:
Basic $ 1.23 $ .72 $ .19
Diluted $ 1.19 $ .71 $ .19
A summary of the Company's stock option activity and related information
for the years ended December 31, 1998, 1997 and 1996 follows:
Year Ended December 31
1998 1997 1996
Weighted Avg. Weighted Avg. Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
Options outstanding,
beginning
of year 1,052,000 $ 4.64 1,098,000 $ 4.62 616,000 $ 4.17
Options granted 663,800 $ 17.53 20,000 $ 4.57 500,000 $ 5.09
Options forfeited 46,000 $ 4.70
Options exercised 326,000 $ 4.31 20,000 $ 3.25 18,000 $ 2.34
Options outstanding
and exercisable,
end of year 1,389,800 $10.87 1,052,000 $ 4.64 1,098,000 $ 4.62
The weighted average fair value of options granted whose exercise price was
equal to the market price of the stock on the grant date was $5.71, $2.07
and $1.99 for the years ended December 31, 1998, 1997 and 1996. The
weighted average fair value of options granted whose exercise price
exceeded the market price of the stock on the grant date was $8.36 and
$1.57 for the years ended December 31, 1998 and 1996. The range of
exercise prices for options outstanding and exercisable as of December 31,
1998 are as follows: 726,000 options from $0.69 to $7.43 and 663,800
options from $17.38 to $19.11.
The Company has adopted a Shareholder Protection Rights Agreement and
declared a distribution of one right (the "Right") for each outstanding share
of Company common stock, par value $0.20 per share (the "Common Stock").
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share (a "Unit") of Series A Participating Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), at a purchase
price of $18.00 per Unit, subject to adjustment. The rights currently attach
to the certificates representing shares of outstanding Company Common
Stock, and no separate Rights certificates will be distributed. The Rights
will separate from the Common Stock upon the earlier of ten business days
(unless otherwise delayed by the Board) following the (i) public
announcement that a person or group of affiliated or associated persons
(the "Acquiring Person") has acquired, btained the right to acquire, or
otherwise obtained beneficial ownership of 15% or more of the then
outstanding shares of Common Stock, or (ii) commencement of a tender
offer or exchange offer that would result in an Acquiring Person
beneficially owning 15% or more of the then outstanding shares of Common
Stock. The Board of Directors may terminate the Rights without any
payment to the holders thereof at any time prior to the close of business
ten business days following announcement by the Company that a person has
become an Acquiring Person. The Rights, which do not have voting power
and are not entitled to dividends, expire on December 21, 2005. In the event
of a merger, consolidation, statutory share exchange or other transaction in
which shares of Common Stock are exchanged, each Unit of Preferred Stock
will be entitled to receive the per share amount paid in respect of each
share of Common Stock.
11. Financial Instruments
Credit Risk - The Company sells products to a wide variety of customers. The
Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains an allowance
for doubtful accounts at a level which management believes is sufficient to
cover potential credit losses. As of December 31, 1998, concentrations of
credit risk with respect to receivables are limited due to the wide variety
of customers.
Fair Value of Financial Instruments - The book value of the Company's
financial instruments approximates their fair value. Financial instruments
include cash, accounts receivable, finance receivables, accounts payable,
long- and short-term debt and an interest rate swap agreement.
Substantially all of the Company's short- and long-term debt is floating
rate debt and, accordingly, book value approximates its fair value.
Interest Rate Swap Agreement - During 1998, the Company's captive finance
subsidiary, Astec Financial Services ("AFS"), entered into an interest rate
swap agreement with a notional amount of $10,000,000 to fix interest
rates on variable rate debt and reduce exposure to interest rate
fluctuations. The swap agreement is effective for five years. At December
31, 1998, AFS paid a fixed rate of 5.185% and received an initial floating
rate of 5.22%. The swap agreement requires exchange of interest payments
based on the fixed and floating rates without exchange of the underlying
notional amount. The Company evaluates the credit quality of the counter
party and does not believe there is a significant risk of nonperformance.
12. Operations by Industry Segment and Geographic Area
The Company has three reportable operating segments. These segments are
combinations of business units that offer different products and services.
The business units are each managed separately because they manufacture
and distribute distinct products that require different marketing
strategies. A brief description of each segment is as follows:
Hot-mix Asphalt Plant and Related Heat Transfer Equipment - This segment
consists of three operating units that design, manufacture and market a
complete line of portable, stationary and relocatable hot-mix asphalt
plants and related components and a variety of heaters, heat transfer
processing equipment and thermal fluid storage tanks. The principal
purchasers of these products are asphalt producers, highway and heavy
equipment contractors and foreign and domestic governmental agencies.
Aggregate Processing Equipment - This segment consists of four operating
units that design, manufacture and market a complete line of rock crushers,
feeders, conveyors, screens and washing equipment. The principal
purchasers of these products are open mine and quarry operators.
Mobile Asphalt Construction Equipment - This segment consists of one
operating unit that designs, manufactures and markets asphalt pavers,
asphalt material transfer vehicles and milling machines. The principal
purchasers of these products are highway and heavy equipment
contractors and foreign and domestic governmental agencies.
All Others - This category consists of the Company's four other
business units that do not meet the requirements for separate disclosure as an
operating segment. Revenues in this category are derived primarily from
the sale of trenching and excavating equipment and from operating leases
owned by the Company's finance subsidiary.
The Company evaluates performance and allocates resources based on profit
or loss from operations before federal income taxes and corporate overhead.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
Intersegment sales and transfers are valued at prices comparable to those for
unrelated parties. For management purposes, the Company does not allocate
Federal income taxes or corporate overhead (including interest expense
related to the Company's revolving line of credit with First Chicago NBD) to
its business units.
Segment information for 1998
Hot-mix Aggregate Mobile Asphalt
Asphalt Processing Construction
Plants Equipment Equipment All Others Total
Revenues from external
customers $163,234,857 $112,705,508 $ 60,324,759 $ 27,680,067 $363,945,191
Intersegment
revenues 11,316,496 7,039,559 662,270 7,952,842 26,971,167
Interest expense 10,397 333,186 38,698 2,326,700 2,708,981
Depreciation and
amortization 3,236,621 1,662,560 1,019,281 2,211,123 8,129,585
Segment profit 21,565,578 12,961,727 9,890,188 (18,799,821) 25,617,672
Segment assets 129,794,248 115,980,822 35,649,089 189,045,689 470,469,848
Capital expenditures 10,899,368 4,930,963 2,347,673 1,199,737 19,377,741
Segment information for 1997
Hot-mix Aggregate Mobile Asphalt
Asphalt Processing Construction
Plants Equipment Equipment All Others Total
Revenues from external
customers $132,964,101 $55,362,319 $ 48,495,151 $ 28,543,741 $265,365,312
Intersegment
revenues 8,808,916 1,536,222 1,491,976 3,476,457 15,313,571
Interest expense 130,788 251,376 56,142 1,959,596 2,397,902
Depreciation and
amortization 2,819,408 1,038,511 834,845 2,252,154 6,944,918
Segment profit 14,110,492 6,888,381 6,520,863 (12,746,808) 14,772,928
Segment assets 101,877,245 86,902,667 27,909,735 155,226,915 371,916,562
Capital expenditures 3,361,074 1,797,757 1,515,724 589,854 7,264,409
Segment information for 1996
Hot-mix Aggregate Mobile
Asphalt Processing Construction
Plants Equipment Equipment All Others Total
Revenues from external
customers $116,511,909 $52,738,995 $ 37,834,591 $ 14,327,301 $221,412,796
Intersegment
revenues 5,920,266 1,095,556 2,100,686 2,808,187 11,924,695
Interest expense 230,652 312,001 738,668 375,145 1,656,466
Depreciation and
amortization 2,583,463 933,053 824,003 1,472,204 5,812,723
Segment profit 7,533,888 7,290,797 1,941,735 (12,188,840) 4,577,580
Segment assets 82,345,298 53,364,460 25,009,154 123,981,551 284,700,463
Capital expenditures 4,974,497 164,990 430,755 341,047 5,911,289
Reconciliations of the reportable segment totals for revenues, profit or loss,
assets, interest expense, depreciation and amortization and capital
expenditures to the Company's consolidated totals are as follows:
Year Ended December 31,
1998 1997 1996
Revenues:
Total external revenues
for reportable segments $336,265,124 $236,821,571 $207,085,495
Intersegment revenues
for reportable segments 19,018,325 15,313,571 9,116,508
Other revenues 27,680,067 28,543,741 14,327,301
Elimination of
intersegment revenues (19,018,325) (15,313,571) (9,116,508)
Total consolidated revenues $363,945,191 $265,365,312 $221,412,796
Profit:
Total profit for
reportable segments $ 44,417,493 $ 27,519,736 $ 16,766,420
Other profit (loss) (18,799,821) (12,746,808) (12,188,840)
Equity in income of
joint venture 74,578 96,158 (10,652)
Elimination of
intersegment profit (1,256,135) (1,059,672) (222,052)
Total consolidated net income $ 24,436,115 $ 13,809,414 $ 4,344,876
Assets:
Total assets for
reportable segments $281,424,159 $216,689,647 $160,718,912
Other assets 189,045,689 155,226,915 123,981,551
Elimination of intercompany
profit in inventory and
leased equipment (2,410,064) (592,475) (264,993)
Elimination of intercompany
receivables (118,730,950) (101,660,138) (61,988,906)
Elimination of investment
in subsidiaries (84,228,341) (76,228,341) (55,089,815)
Other eliminations (15,936,542) (1,192,509) (1,575,097)
Total consolidated assets $249,163,951 $192,243,099 $165,781,652
Interest expense:
Total interest expense for
reportable segments $ 382,281 $ 438,306 $ 1,281,321
Other interest expense 2,326,700 1,959,596 375,145
Total consolidated
interest expense $ 2,708,981 $ 2,397,902 $ 1,656,466
Depreciation and amortization:
Total depreciation and
amortization for
reportable segments $ 5,918,462 $ 4,692,764 $ 4,340,519
Other depreciation
and amortization 2,211,123 2,252,154 1,472,204
Total consolidated
depreciation and
amortization $ 8,129,585 $ 6,944,918 $ 5,812,723
Capital expenditures:
Total capital expenditures
for reportable segments $ 18,178,004 $ 6,674,555 $ 5,570,242
Other capital expenditures 1,199,737 2,515,144 341,047
Total consolidated capital
expenditures (excluding
those for equipment leased
to others) $ 19,377,741 $ 9,189,699 $ 5,911,289
International sales by domestic subsidiaries by major geographic region
were as follows:
Year Ended December 31,
1998 1997 1996
Asia $ 5,363,481 $ 2,820,044 $ 1,743,839
Southeast Asia 2,214,930 11,397,733 10,596,291
Europe 3,471,656 3,076,510 8,792,885
South America 20,712,903 10,000,648 6,889,869
Canada 12,072,217 8,618,053 3,852,792
Australia 1,467,738 4,298,554 1,760,828
Africa 2,668,923 444,313 1,131,318
Central America 11,893,005 7,461,261 1,381,030
Middle East 6,164,493 5,224,857 467,146
West Indies 3,176,713 2,998,406 1,692,600
Other 308,542 2,561,868 0
Total $69,514,601 $58,902,247 $38,308,598
13. Finance Receivables
Finance receivables are receivables of Astec Financial Services, Inc.
Contractual maturities of outstanding receivables at December 31, 1998
were:
Financing
Amounts Due In Leases Notes Total
1999 $ 1,990,857 $ 6,141,699 $ 8,132,556
2000 960,702 761,665 1,722,367
2001 1,001,580 593,833 1,595,413
2002 753,185 494,133 1,247,318
2003 870,009 451,092 1,321,101
Thereafter 632,469 25,138 657,607
6,208,802 8,467,560 14,676,362
Less unearned income (874,947) (492,048) (1,366,995)
Total $ 5,333,855 $ 7,975,512 $ 13,309,367
Receivables may be paid prior to contractual maturity generally by payment
of a prepayment penalty. At December 31, 1998, there were no impaired
loans or leases. Recognition of income on finance receivables is suspended
when management determines that collection of future income is not
probable. Accrual is resumed if the receivable becomes contractually
current and collection doubts are removed. Previously suspended income is
recognized at that time.
The Board of Directors and Shareholders
Astec Industries, Inc.
We have audited the accompanying consolidated balance sheets of Astec
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Astec Industries, Inc. and subsidiaries at December 31, 1998
and 1997 and the consolidated 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.
Chattanooga, Tennessee
February 19, 1999
Corporate Information
Corporate and Subsidiary Executive Officers
J. Don Brock Chairman of the Board and President
Richard W. Bethea, Jr. Vice President, Corporate Counsel and Secretary
F. McKamy Hall Vice President, Chief Financial Officer and Treasurer
Robert G. Stafford Group Vice President - Aggregate
Thomas R. Campbell President, Roadtec, Inc.
Ronald B. DeDiemar President, Telsmith, Inc.
Robert R. Hoitt President, Johnson Crushers International, Inc.
W. Norman Smith President, Astec, Inc. and Group Vice President-Asphalt
Richard A. Patek President, Kolberg-Pioneer, Inc.
Roger Sandberg President, Trencor, Inc.
James G. May President, Heatec, Inc.
Albert E. Guth President, Astec Financial Services, Inc.
Board of Director
J. Don Brock +#Chairman of the Board and President
George C. Dillon *Former Chairman, Manville Corporation
Robert Dressler #^Managing Dir. of Corporate Finance, Raymond James
& Assoc., Inc.
Ronald W. Dunmire *=# Former President of Cedarapids, Inc.
Daniel K. Frierson +=^Chairman and CEO, Dixie Group, Inc.
Albert E. Guth +President, Astec Financial Services, Inc.
G. W. Jones =Former President of APAC, Inc.
William B. Sansom *^Chairman and CEO , The H.T. Hackney Co.
E.D. Sloan, Jr. =Chairman of the Board, Nolas Trading Co, Inc.
W. Norman Smith +#President, Astec, Inc.
Robert G. Stafford #Group Vice President - Aggregate
*Member of Audit Committee
+Member of Executive Committee
=Member of Compensation Committee
#Member of Technical Committee
^Member of Nominating Committee
Subsidiaries
Astec, Inc. Chattanooga, Tennessee
Astec Financial Services, Inc. Chattanooga, Tennessee
CEI Enterprises, Inc. Albuquerque, New Mexico
Heatec, Inc. Chattanooga, Tennessee
Johnson Crushers International, Inc. Eugene, Oregon
Kolberg-Pioneer, Inc. Yankton, South Dakota
Production Engineered Products, Inc. Sterling, Illinois
Roadtec, Inc. Chattanooga, Tennessee
Telsmith, Inc. Mequon, Wisconsin
Trencor, Inc. Grapevine, Texas
Transfer Agent Reggistrar Chase Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Stock Exchange NASDAQ National Market - ASTE
Auditors Ernst & Young LLP
Chattanooga, Tennessee
General Counsel and Litigation Chambliss, Bahner & Stophel P.C.
Chattanooga, Tennessee
Securities Counsel Alston & Bird LLP
Atlanta, Georgia
Corporate Office Astec Industries, Inc.
4101 Jerome Avenue
P.O. Box 72787
Chattanooga, Tennessee 37407
Telephone, 423-867-4210
www.astecindustries.com
The Form 10-K, as filed with the Securities and Exchange Commission, may
be obtained at no cost by any shareholder upon written request to Astec
Industries, Inc., attention Shareholder Relations.
The Annual Meeting will be held at 10:00 a.m. on Thursday, April 22,
1999, in the Training Center at the Corporate office located at 4101
Jerome Avenue, Chattanooga, Tennessee.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Astec Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Astec Industries, Inc. and subsidiaries and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Astec Industries, Inc. and subsidiaries at
December 31, 1998 and 1997, and the consolidated 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. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Chattanooga, Tennessee
February 19, 1999
A-23
ASTEC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE (II)
VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
ADDITIONS
CHARGES TO
BEGINNING COSTS & OTHER ENDING
DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE
December 31, 1998:
Reserves deducted from assets to which they apply:
Allowance for
doubtful
accounts $ 1,553,237 $ 1,092,185 $ $1,185,422 (1) $1,460,000
Reserve for
inventory $ 4,328,170 $ 1,289,740 $ $1,934,618 $3,683,292
Other Reserves:
Product
warranty $ 3,206,372 $ 4,048,899 $ $3,580,106 (2) $3,675,165
December 31, 1997:
Reserves deducted from assets to which they apply:
Allowance for
doubtful
accounts $ 1,266,939 $ 272,578 $523,507 (3) $ 509,787 (1) $1,553,237
Reserve for
inventory $ 4,873,922 $ 418,906 $ $ 964,658 $4,328,170
Other Reserves:
Product
warranty $ 2,364,705 $ 2,811,009 $ 173,900 (3) $2,143,242(2) $3,206,372
December 31, 1996:
Reserves deducted from assets to which they apply:
Allowance for
doubtful
accounts $ 1,278,638 $ 157,183 $ $168,882(1) $1,266,939
Reserve for
inventory $ 5,438,510 $ 1,231,828 $ $1,796,416 $4,873,922
Other Reserves:
Product
warranty $ 2,470,775 $ 3,018,990 $ $3,125,060(2) $ 2,364,705
(1) Uncollectible accounts written off, net of recoveries.
(2) Warranty costs charged to the reserve.
(3) Represents reserve balances of subsidiaries acquired in the year.
Schedule (II)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Astec Industries, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ASTEC INDUSTRIES, INC.
BY: /s/ J. Don Brock
J. Don Brock, Chairman of the
Board and President (Principal
Executive Officer)
BY: /s/ F. McKamy Hall
F. McKamy Hall, Chief Financial
Officer, Vice President, and Treasurer
(Principal Financial and Accounting
Officer)
Date: March 10, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by a majority of the Board of Directors
of the Registrant on the dates indicated:
SIGNATURE TITLE DATE
/s/ J. Don Brock Chairman of the Board March 10, 1999
J. Don Brock and President
/s/ Albert E. Guth President, Astec Financial March 10, 1999
Albert E. Guth Services, Inc. and Director
/s/ W. Norman Smith President - Astec, Inc. March 10, 1999
W. Norman Smith Group Vice Presiednt - Asphalt
and Director
/s/Robert G. Stafford Group Vice President-Aggregate March 10, 1999
Robert G. Stafford and Director
/s/ E.D. Sloan Jr. Director March 10, 1999
E.D. Sloan, Jr.
/s/ William B. Sansom Director March 10, 1999
William B. Sansom
/s/ Ronald W. Dunmire Director March 10, 1999
Ronald W. Dunmire
/s/ George C. Dillon Director March 10, 1999
George C. Dillon
/s/ G.W. Jones Director March 10, 1999
G.W. Jones
/s/ Daniel K. Frierson Director March 10, 1999
Daniel K. Frierson
/s/ Robert Dressler Director March 10, 1999
Robert Dressler
Commission File No. 0-14714
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS FILED WITH ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
ASTEC INDUSTRIES, INC.
4101 Jerome Avenue
Chattanooga, Tennessee 37407
ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX TO EXHIBITS
Sequentially
Exhibit Number Description Numbered Page
Exhibit 10.108 Loan Agreement between the City of Yankton,
South Dakota and Kolberg-Pioneer, Inc. dated
August 11, 1998 for variable/fixed rate demand
Industrial Development Revenue Bonds, Series 1998.
Exhibit 10.109 Letter of Credit Agreement dated August 12, 1998
between the First National Bank of Chicago and
Astec Industries, Inc., Astec Financial Services, Inc.
and Kolberg-Pioneer, Inc.
Exhibit 10.110 Promissory Note dated December 14, 1998
between Astec Industries, Inc. and Edna F. Brock.
Exhibit 10.111 Waiver for December 31, 1998, dated March 9,
1999, with respect to The First National Bank of
Chicago Second Amended and Restated Credit
Agreement, dated November 24, 1997.
Exhibit 10.112 Guaranty of Astec Industries, Inc., dated
February 23, 1998, of debt of
Pavement Technology, Inc. in favor of Tucker Federal Bank.
Exhibit 10.113 Purchase Agreement dated October 30, 1998
and effective October 31,
1998 between Astec Industries, Inc. and Johnson Crushers
International, Inc.
Exhibit 22 Subsidiaries of the registrant.
Exhibit 23 Consent of independent auditors.
____________________
For a list of certain Exhibits not filed with this Report that are
incorporated by reference into this Report, see Item 14(a)(3).
EXHIBIT 22
Subsidiaries of the Registrant
LIST OF SUBSIDIARIES
Jurisdiction of
Name Owned Incorporation
Astec, Inc. 100 Tennessee
Astec Financial Services, Inc. 100 Tennessee
Astec Holdings, Inc. 100 Tennessee
Astec Transportation, Inc. 100 Tennessee
CEI Enterprises, Inc. 100 Tennessee
Heatec, Inc. 100 Tennessee
Kolberg-Pioneer, Inc. 100 Tennessee
Roadtec, Inc. 100 Tennessee
Telsmith, Inc. 100 Delaware
Trencor, Inc. 100 Texas
Production Engineered Products, Inc. 100 Nevada
Johnson Crushers International, Inc. 100 Tennessee
Pavement Technology, Inc. 50 Georgia
EXHIBIT 23
Consent of Independent Auditors
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-14738 and 0-14714)
pertaining to the Astec Industries, Inc. 1986 and 1992 Stock
Option Plans, and to the 1998 Long-Term Incentive Stock Plan of
our report dated February 19, 1999, with respect to the
consolidated financial statements and schedule of Astec
Industries, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 18, 1999
EXHIBIT 10.108
Loan agreement between the City of Yankton, South Dakota and
Kolberg-Pioneer, Inc. dated August 11, 1998 for variable/fixed rate demand
Industrial Development Revenue Bonds, Series 1998.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR
THE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC ( AND ANY PAYMENT
IS MADE TO CEDE & CO. OR THE SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNITED STATES OF AMERICA
STATE OF SOUTH DAKOTA
No. 1 $9,200,000
CITY OF YANKTON, SOUTH DAKOTA
VARIABLE/FIXED RATE DEMAND
INDUSTRIAL DEVELOPMENT REVENUE BOND
(KOLBERG-PIONEER, INC. PROJECT)
SERIES 1998
MATURITY DATE DATED DATE CUSIP
August 1, 2028 August 12, 1998 984817 AT3
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: NINE MILLION TWO HUNDRED THOUSAND DOLLARS
City of Yankton, South Dakota, a political subdivision and body
corporate and politic created and existing under the constitution and laws of
the State of South Dakota, hereby promises to pay, solely from the sources
described in this Bond, to the Registered
Owner identified above, or registered assigns, on the Maturity Date
stated above (or if this Bond is called for earlier redemption as described
herein, on the redemption date) the principal amount identified above and to
pay interest and premium, if any, as provided in this Bond.
1. Indenture; Loan Agreement. This Bond is one of the
bonds (the "Bonds"), limited to $9,200,000 in aggregate principal amount,
issued under the Indenture of Trust dated as of August 1, 1998 (the
"Indenture") between the City of Yankton, South Dakota (the "Issuer") and
The First National Bank of Chicago, as trustee (the "Trustee"). The
terms of the Bonds include those in the Indenture. Bondholders are
referred to the Indenture for a statement of those terms. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Indenture.The Issuer will lend the proceeds of the Bonds to
Kolberg-Pioneer, Inc., a Tennessee corporation (the "Company"), pursuant to a
Loan Agreement dated as of August 1, 1998 (the "Loan Agreement") between the
Issuer and the Company. The Company will use the proceeds of the Bonds to
purchase buildings and equipment on the
site of an existing manufacturing plant located in Yankton, South
Dakota and to finance certain rehabilitation expenditures, including additions
and improvements to the building and production and manufacturing equipment
used in the operation of the manufacturing
facilities being acquired by the Company and located at the plant
site (the "Project"). The Company has agreed in the Loan Agreement to pay the
Issuer amounts sufficient to pay all amounts coming due on the Bonds, and the
Issuer has assigned its right to such
payments under the Loan Agreement to the Trustee as security for the Bonds.
The Indenture and the Loan Agreement may be amended, and references to them
include any amendments.
The Issuer has established a book-entry only system of registration for the
Bonds (the "Book-Entry System"). Except as specifically provided
otherwise in the Indenture, the Securities Depository (or its nominee) will be
the Registered Owner of this Bond. By
acceptance of a confirmation of purchase, delivery or transfer, the
Beneficial Owner of this Bond shall be deemed to have agreed to this
arrangement. The Securities Depository
(or its nominee), as Registered Owner of this Bond, shall be treated
as its owner for all purposes.
2. Source of Payments. The Bonds are issued pursuant to
and in full compliance with the Constitution and laws of the State of South
Dakota, particularly
Chapter 9-54 of the South Dakota Codified Laws (the "Act"), and
pursuant to a resolution adopted by the Issuer on July 13, 1998, which
resolution authorizes the execution and delivery of the Loan Agreement and the
Indenture. The Bonds are limited obligations of the Issuer and, as provided
in the Indenture, are payable solely from
payments to be made by the Company under the Loan Agreement, from a
Letter of Credit as described below (but only so long as a Letter of Credit is
in effect) and from any other moneys held by the Trustee under the Indenture
for such purpose, and other than as
provided in the Loan Agreement, there shall be no recourse against
the Issuer or any other property now or hereafter owned by it. The Bonds are
not general obligations of the Issuer nor shall they be payable in any manner
by taxation. The Bonds are issued in
conformity with the provisions, restrictions and limitations of the
Act and the Bonds and the interest thereon are to be paid from the revenue
received from the Project financed, in whole or in part, by the issuance of the
Bonds.
3. Interest Rate. Interest on this Bond will be paid at
the lesser of (a) a Daily Rate, a Weekly Rate, a Commercial Paper Rate or a
Long-Term Interest Rate, as selected
by the Company and as determined in accordance with the Indenture,
and (b) 12% per annum or, when a Letter of Credit secures the Bonds, such lower
maximum rate as may be specified in the Letter of Credit. Interest will
initially be payable at a Weekly Rate as set forth in the Indenture.
The Company may change the interest rate determination
method from time to time. A change in the interest rate
determination method will result in the Bonds becoming subject to mandatory
tender for purchase on the effective date of
such change (see "Mandatory Tenders" below).
When interest is payable at a Daily, Weekly or Commercial Paper
Rate, it will be computed on the basis of the actual number of days elapsed
over a year of 365 days (366 in leap years), and when payable at a Long-Term
Interest Rate, it will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on overdue
principal and, to the extent lawful, on overdue premium and interest will be
payable at the interest rate on each Bond in effect on the day before the
default occurred.
4. Interest Payment and Record Dates. Interest will accrue on the unpaid
portion of the principal of this Bond from the last date to which
interest was paid or, if no interest has been paid, from the date of the
original issuance of the Bonds until the entire
principal amount of this Bond is paid. When interest on this Bond
is payable at the rate shown in the first column below, interest accrued during
the period (an "Interest Period") shown in the second column below will be paid
on the date (an "Interest
Payment Date") shown in the third column below to the Registered
Owner on the date (a "Record Date") shown in the fourth column below:
INTEREST RATE
Daily*
INTEREST PERIOD
First Business Day
of each calendar
month through the
day prior to the
first Business Day
of the next
succeeding calendar
month
INTEREST DATE
First Business Day of the
next succeeding Interest
Period
RECORD DATE
Last Business
Day before
Interest Payment
Date
INTEREST RATE
Weekly*
INTEREST PERIOD
First Business Day of each
calendar month through the day
prior to the first Business Day of
the next succeeding calendar month
INTEREST DATE
First Business Day of the
next succeeding Interest Period
RECORD DATE
Last Business Day before
Interest Payment Date
Commercial Paper From one to 270 days as determined for each Bond
pursuant to Section 2.02(a)(3) of the Indenture ("Commercial Paper Period")
Day after the last day of Commercial Paper Period
Last Business Day before Interest Payment Date
Long-Term** Six-month period or portion thereof ending January 31 or July 31
Next February 1 or August 1 Fifteenth of the month before the
Interest Payment Date (January 15 or July 15)***
"Business Day" is defined in the Indenture. Any interest on this
Bond which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date will forthwith cease to be payable to the Registered
Owner on the relevant Record Date and
will be paid to the Registered Owner on the fifth Business Day
preceding the date of payment of such defaulted interest.
5. Method of Payment. Owners must surrender Bonds to the
Trustee to collect principal at maturity or upon redemption. See "Tenders"
below for the method of collecting the payment of the purchase price of
tendered Bonds. Interest on Bonds bearing interest at a Commercial Paper Rate
is payable only upon presentation of such
Bonds to the Trustee. Interest on Bonds bearing interest at a Daily
Rate, Weekly Rate or Long-Term Interest Rate will be paid to the Registered
Owner as of each Record Date by check mailed by first-class mail on the
Interest Payment Date to such Registered Owner's
registered address. A Registered Owner of $1,000,000 or more in
aggregate principal amount of Bonds may be paid interest at a Daily Rate,
Weekly Rate or Commercial Paper Rate by wire transfer to an account in the
continental United States if such Registered
Owner makes written request to the Trustee (in form satisfactory to
the Trustee) at least five Business Days before the Record Date specifying the
account number and address. The notice may provide that it will remain in
effect for all later interest payments until
changed or revoked by another written notice. Principal, premium,
if any, and interest will be paid in money of the United States that at the
time of payment is legal tender for
payment of public and private debts. If any payment on the Bonds is
due on a non-Business Day, it will be made on the next Business Day, and no
interest will accrue as a result of such later payment.
6. Tenders. "Tender" means to require, or the act of
requiring, the Trustee to purchase a Bond (but only from funds provided to the
Trustee for such purchase as set forth in the Indenture) at its Owner's option
or pursuant to mandatory tender under the
provisions of this Section 6 at 100% of the principal amount thereof
(unless a premium is required as described below under "Mandatory Tenders")
plus accrued interest, if any, to the Purchase Date. After the Record Date
for any Interest Period, such accrued interest
shall not include the interest in respect of such Interest Period
(which shall be paid as provided in Section 5), but only interest accruing for
the period beginning on the day after
the last day of such Interest Period and ending on the day
immediately preceding the Purchase Date.
Daily Rate Tender. When interest on the Bonds is payable at a Daily Rate
and the Book-Entry System is in effect, a Beneficial Owner of a Bond may tender
such Bond (or any portion thereof in an authorized denomination) by
delivering an irrevocable written notice or an irrevocable telephone notice,
promptly confirmed in writing, to the Trustee by 10:00 a.m., New York City
time, on any Business Day, stating the principal amount of the Bond (or portion
thereof) being tendered, the name, address and taxpayer identification number
of such Beneficial Owner, payment instructions for the purchase price and the
Business Day (which may be the date the notice is delivered) on which such Bond
(or portion thereof) is to be purchased. The Beneficial Owner shall effect
delivery of such Bonds by
causing its direct Participant to transfer its interest in the Bonds
equal to such Beneficial Owner's interest on the records of the Securities
Depository to the participant account of the Trustee with the Securities
Depository. When interest on the Bonds is payable at a Daily Rate and the Book-
Entry System is not in effect, an Owner of a Bond may tender such Bond (or
any portion thereof in an authorized denomination) by delivering a notice as
described above (which shall include the certificate number of such Bond), and
shall also deliver such Bond to the Trustee by 1:00 p.m., New York City time,
on the Purchase Date (see Section 7).
Weekly Rate Tender. When interest on the Bonds is payable at a Weekly
Rate and the Book-Entry System is in effect, a Beneficial Owner of a
Bond may tender such Bond (or any portion thereof in an authorized
denomination) by delivering an irrevocable written notice or an irrevocable
telephone notice, promptly confirmed in writing, to the Trustee on any Business
Day, stating the principal amount of the Bond (or portion thereof) being
tendered, the name, address and taxpayer identification number of such
Beneficial Owner, payment instructions for the purchase price and the date
(which must be a Business Day at least seven days after the notice is
delivered) on which such Bond (or portion
thereof) is to be purchased. The Beneficial Owner shall effect
delivery of such Bonds by causing such direct Participant to transfer its
interest in the Bonds equal
to such Beneficial Owner's interest on the records of the Securities
Depository to the participant account of the Trustee with the Securities
Depository. When interest on the Bonds is payable at a Weekly Rate and the
Book-Entry System is not in effect, an Owner of a Bond may tender such
Bond (or any portion thereof in an authorized denomination) by delivering a
notice as described above (which shall include the certificate number of such
Bond), and shall also deliver such Bond to the Trustee by 10:00 a.m., New York
City time, on the Purchase Date (see Section 7).
Limitation on Optional Tenders. No Bonds may be tendered while they bear
interest at a Commercial Paper Rate or a Long-Term Interest Rate or
during the existence of an Event of Default under Section 8.01(h) or (i) of the
Indenture which has led to an acceleration of the Bonds.
Mandatory Tender. Bonds are subject to mandatory tender for
purchase in whole at a purchase price equal to 100% of the principal amount of
such Bonds (unless a
premium is required as described below) plus accrued interest, if
any, to the Purchase Date, as follows:
Mandatory Tender Upon a Change in the Method of Determining the
Interest Rate on the Bonds. On the effective date of any change in
the method of determining the interest rate on the Bonds, the Bonds will be
subject to mandatory tender on the effective date of such change, when the
Bonds bear interest at a Long-Term Interest Rate and if such effective date is
before the day after the last
day of the then current Long-Term Interest Rate Period, the Bonds
will be purchased at the percentage of their principal amount which would be
payable upon a redemption described under "Optional Redemption During Long-
Term Interest Rate Period" below.
Mandatory Tender Upon Expiration or Termination of Letter of Credit.
The Bonds will be subject to mandatory tender on the Interest
Payment Date next preceding the (i) Expiration Date of the Letter of Credit
unless the Trustee has received written notice from the Bank that the Letter of
Credit has been extended as provided in the Indenture or (ii) Termination Date
of the Letter of Credit
(unless the Bonds have been accelerated because of an Event of
Default under the Indenture). When the Bonds bear interest at a Long-Term
Interest Rate, the Bonds will be purchased at the percentage of their principal
amount which would be payable upon a redemption described under "Optional
Redemption During Long-Term Interest Rate Period" below.
Mandatory Tender Upon Delivery of an Alternate Letter of Credit. The
Bonds will be subject to mandatory tender on the Interest Payment
Date next preceding the effective date of any Alternate Letter of Credit
delivered to the Trustee. When the Bonds bear interest at a Long-Term Interest
Rate, the Bonds will be purchased at the percentage of their principal amount
which would be payable upon a redemption described under "Optional Redemption
During Long-Term Interest Rate Period" below. If the Bonds are purchased
pursuant to this paragraph, they will not be purchased pursuant to the previous
paragraph in connection with the termination of the Letter of Credit which the
Alternate Letter of Credit is replacing.
Mandatory Tender at Beginning of a New Long-Term Interest Rate
Period. When the Bonds bear interest at a Long-Term Interest Rate
and a new Long-Term Interest Rate Period is to be determined, the Bonds will
be subject to mandatory tender on the first day of the new Long-Term Interest
Rate Period. If such first day is before the day after the last day of the
then current Long-Term Interest Rate Period, the Bonds will be purchased at the
percentage of their principal amount which would be payable at such time upon a
redemption described under "Optional Redemption During Long-Term Interest Rate
Period" below.
Mandatory Tender on Each Interest Payment Date During Commercial
Paper Mode. When the Bonds bear interest at a Commercial Paper Rate, each
Bond will be subject to mandatory tender on the Interest Payment
Date of such Bond.
Notice of Mandatory Tender. At least 20 days but not more than 30 days before
each mandatory Purchase Date, other than a mandatory Purchase Date
on an Interest Payment Date during a Commercial Paper Mode, the Trustee will
mail a notice of mandatory tender by first-class mail to each registered owner
at the registered owner's registered address. Failure to give any required
notice of mandatory tender as to any
particular Bonds will not affect the validity of the purchase of any
Bonds in respect of which no such failure has occurred. Any properly mailed
notice will be conclusively presumed to have been given whether or not actually
received by any holder.
Payment of Purchase Price; Delivery Requirements. The purchase
price for a tendered Bond will be paid by the Trustee upon delivery of such
Bond, in immediately available funds to the Owner of the Bond by 2:00 p.m., New
York City time, on the Purchase Date within the continental United States,
provided that the Trustee shall have
been provided with wire transfer instructions and payment no later
than 1:00 p.m., New York City time, on the date of payment; provided, however,
if the Purchase Date is not a
Business Day, the purchase price shall be payable on the next
Business Day. No purchase of Bonds by the Trustee or the Company or advance
use of any funds to effectuate any such purchase shall be deemed to be a
payment or redemption of the Bonds
or any portion thereof, and such purchase will not operate to
extinguish or discharge the indebtedness evidenced by such Bonds.
When a Book-Entry System is not in effect, all tendered Bonds must
be delivered to the Trustee at such times as shall be specified by the
Remarketing Agent in a notice to the Bondholders prior to the date the
Book-Entry System is discontinued. Such Bonds
shall be accompanied by an instrument of transfer satisfactory to
the Trustee, executed in blank by the owner, with all signatures guaranteed by
a bank, trust company or member firm of the New York Stock Exchange, Inc.
The Trustee may refuse to accept delivery of
any Bond for which an instrument of transfer satisfactory to it has
not been provided and shall have no obligation to pay the purchase price of
such Bond until a satisfactory instrument is delivered.
When a Book-Entry System is in effect, the requirement for physical
delivery of the Bonds under this paragraph 6 shall be deemed satisfied when the
ownership rights in the Bonds are transferred by direct Participants on the
records of the Securities Depository.
7. Delivery Address; Additional Delivery Requirements.
Notices in respect of tenders and Bonds tendered must be delivered to the
Trustee as follows:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Telephone: 312-407-5483
Fax: 312-407-1708
The address of the Trustee may be changed by notice mailed by first-
class mail to the Bondholders at their registered addresses.
Irrevocable Notice Deemed to Be Tender of Bond; Undelivered Bonds.
The giving of any notice of tender by a Beneficial Owner of a Bond as
provided in Section 6 or the occurrence of a mandatory tender as provided in
Section 6 constitutes the irrevocable tender for purchase of each such Bond,
irrespective of whether such Bond is delivered as provided in Section 6.
If any Beneficial Owner of a Bond who gives notice of tender or
whose Bond is subject to mandatory tender fails to deliver such Bond to the
Trustee at the place and on
the applicable date and time specified, or fails to deliver such
Bond properly endorsed or with a proper instrument of transfer, such Bond shall
constitute an Undelivered Bond as
described in the Indenture. BY ACCEPTANCE OF THIS BOND, THE OWNER
AGREES TO SELL AND SURRENDER THIS BOND, PROPERLY ENDORSED OR WITH A PROPER
INSTRUMENT OF TRANSFER, TO THE TRUSTEE AFTER THE GIVING OF IRREVOCABLE NOTICE
OF TENDER FOR PURCHASE OR UPON THE OCCURRENCE OF A MANDATORY TENDER AS
DESCRIBED ABOVE.
8. Redemptions. The Bonds will be redeemed at a redemption price of 100% of
the principal amount of the Bonds being redeemed (plus any premium
required as provided below), plus accrued interest, if any, to the relevant
redemption date; provided, however, that installments of interest which shall
have become due and payable on or prior to such redemption date shall be
payable to the Owners of the Bonds being
redeemed (or any predecessor Bonds) as of the relevant Record Date.
The redemption price will be paid in funds immediately available on the
redemption date. Bonds tendered
for purchase on a date after a call for redemption but before the
redemption date will be purchased pursuant to the tender.
Optional Redemption During Daily or Weekly Rate Period. When
interest on the Bonds is payable at a Daily Rate or Weekly Rate, the Bonds may
be redeemed, without premium, at the option of the Company, in whole or in
part, on any Business Day. Optional Redemption During Long-Term Interest Rate
Period. During any Long-Term Interest Rate Period, the Bonds may be redeemed
at the option of the Company, in whole at any time or in part from time to
time, as follows:
(a) until interest on the Bonds shall have been payable at the same
Long-Term Interest Rate for more than 10 consecutive years, the
Bonds will not be redeemable pursuant to this option; and
(b) after the elapse of such 10-year period, the Bonds may be
redeemed at the redemption price specified in the introductory
paragraph of this Section 8, plus a premium of 2% of the principal amount
thereof during the first year after such 10-year period, a premium of 1% of the
principal amount thereof during the second year after such 10-year period and
thereafter without premium. Upon receipt by the Trustee of a Favorable Opinion
of Tax Counsel, the redemption periods and prices required by the preceding
paragraph may be changed by the Remarketing Agent (with the written consent of
the Company) with respect to any Long-Term Interest Rate Period prior to the
establishment thereof. In order to effectuate
such a change, the Remarketing Agent will determine and certify to
the Trustee, on a date which is no later than the date of establishment of the
related Long-Term Interest Rate, the period during which the Bonds will not be
subject to redemption (the "Call Protection Period"), the redemption premium or
premiums (the "Call Premiums"), if
any, applicable to the redemption of the Bonds after the Call
Protection Period and the period or periods during which the Call Premiums
shall be effective (the "Call Premium Periods").
Extraordinary Optional Redemption. The Bonds may be redeemed, without
premium, at the option of the Company, in whole at any time within
180 days of the occurrence of any of the following:
(a) all or substantially all of the Project shall be damaged
or destroyed and the Company shall determine that it is not practicable or
desirable to rebuild, repair and restore the Project; or
(b) all or substantially all of the Project shall be
condemned or such use or control thereof shall be taken by eminent domain as to
render the Project unsatisfactory to the Company for continued operation; or
(c) unreasonable burdens or excessive liabilities shall be imposed
upon the Issuer or the Company with respect to the Project or the
operation thereof; or
(d) as a result of any changes in the Constitution of South
Dakota or in the Constitution of the United States of America or of
legislative or administrative action (whether state or federal), or by final
decree, judgment or order of any court or administrative body (whether state or
federal) entered after the contest
thereof by the Company in good faith, the Loan Agreement shall have
become impossible of performance in accordance with the intent and purposes
of the parties as expressed in the Loan Agreement.
Mandatory Redemption on Determination of Taxability. The Bonds will
be redeemed, without premium, in whole (or in part as provided below)
on any day within 120 days after the Company receives written notice from a
Beneficial Owner or former Beneficial Owner or the Trustee of a final
determination by the Internal Revenue Service
or a court of competent jurisdiction that, as a result of a failure
by the Company to perform any of its agreements in the Loan Agreement or the
Tax Agreement or the
inaccuracy of any of its representations in the Loan Agreement or
the Tax Agreement, the interest paid or to be paid on any Bond (except to a
"substantial user" of the Project or a
"related person" within the meaning of Section 147(a) of the Code)
is or will be includible in the gross income of the Beneficial Owner thereof
for federal income tax purposes. No such determination will be considered
final unless the Beneficial Owner or
former Beneficial Owner involved in the determination gives the
Company and the Trustee prompt written notice of the commencement of the
proceedings resulting in such determination and offers the Company, subject to
the Company's agreeing to pay all reasonable expenses of the proceedings and to
indemnify such Beneficial Owner or former Beneficial Owner against all
liabilities that might result from it, the opportunity to
control the defense of the proceedings and either the Company does
not agree within 30 days to pay such reasonable expenses, to so indemnify and
to control the defense or the Company exhausts or chooses not to exhaust
available procedures to contest or obtain
review of the result of the proceedings. Fewer than all the Bonds
may be redeemed if redemption of fewer than all would result in the interest
payable on the Bonds remaining
Outstanding being not includible in the gross income for federal
income tax purposes of any Beneficial Owner other than a "substantial user" or
"related person." If fewer than all Bonds are redeemed, the Trustee will
select the Bonds to be redeemed as provided in
the Indenture and as may be specified in an Opinion of Tax Counsel.
BY PURCHASE AND ACCEPTANCE OF THIS BOND, THE BONDHOLDER AND ANY BENEFICIAL
OWNER AGREE THAT THE REDEMPTION OF THE BONDS AT 100% OF THEIR PRINCIPAL AMOUNT
AS DESCRIBED HEREIN SHALL BE COMPLETE AND TOTAL LIQUIDATED DAMAGES in the event
that the interest paid or to be paid on any Bond (except to a "substantial
user" of the Project or a "related person" within the meaning of Section 147(a)
of the Code) is or was determined by the Internal Revenue Service to be
includible in the gross income of the Bond's owner
for federal income tax purposes.
Notice of Redemption. The Trustee will mail a notice of redemption
by first-class mail to each Bondholder at its registered address at least 30
days before each redemption
of the Bonds. Failure to give any required notice of redemption as
to any particular Bonds will not affect the validity of the call for redemption
of any Bonds in respect of which no such failure has occurred. Any notice
mailed as provided in this paragraph will
be conclusively presumed to have been given, whether or not actually
received by the addressee.
Effect of Notice of Redemption. When notice of redemption is duly
given, all Bonds called for redemption will become due and payable on the
redemption date at the applicable redemption price, and, when funds are
deposited with the Trustee sufficient for such redemption, interest on the
Bonds to be so redeemed will cease to accrue as of the
date of such redemption.
9. Letter of Credit. The Bonds are initially secured by a
letter of credit issued by The First National Bank of Chicago in favor of the
Trustee. This letter of credit entitles the Trustee to draw an amount
sufficient to pay the principal of the Bonds, plus
an amount equal to 45 days' interest accrued on the Bonds at a
maximum rate of 12% and during a Long-Term Interest Rate Period, the applicable
premium, if any. It expires November 21, 2002, or on the earlier occurrence of
events specified in it. On its expiration, the Bonds will be subject to
mandatory tender (see "Mandatory Tenders" above).
10. Denominations; Transfer; Exchange. The Bonds are
issuable in registered form without coupons in denominations as follows:
(1) when interest is payable at a Long-Term Interest Rate, $5,000 and integral
multiples of $5,000 up to $100,000 and integral multiples of $100,000
thereafter; and (2) when interest is payable at a Daily Rate,
Weekly Rate or Commercial Paper Rate, $100,000 or any integral
multiple of $100,000. An Owner may transfer or exchange Bonds in accordance
with the Indenture. The Trustee may require an Owner, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the
Indenture. Except in connection with the purchase of tendered
Bonds, the Trustee shall not be required to transfer or exchange any Bond which
has been called for redemption or during the period beginning 15 days before
the mailing of a notice calling the Bonds or
any portion of the Bonds for redemption and ending on the redemption
date.
11. Persons Deemed Owners. The Registered Owner of this
Bond will be treated as the owner for all purposes, and all payments of
principal, premium, interest and purchase price shall be made only to or upon
the written order of the Registered Owner or the Registered Owner's legal
representative.
12. Unclaimed Money. If money for the payment of principal, premium, interest
or purchase price with respect to this Bond remains unclaimed for
two years, the Trustee will pay the money to or for the account of the Company.
After such payment, the persons entitled to such money must look only to the
Company (unless an abandoned property law designates another person) and not to
the Trustee, the Issuer, the Bank or the Remarketing Agent for payment.
13. Discharge Before Redemption or Maturity. If the Company
at any time deposits with the Trustee moneys or U.S. Government Obligations as
described in the Indenture sufficient to pay at maturity or on redemption the
principal of and premium, if any, and interest on the Outstanding Bonds, and if
the Company also pays all other sums
then payable by the Company under the Indenture, the lien of the
Indenture will be discharged. After discharge, Bondholders must look only to
the deposited moneys and securities for payment. U.S. Government Obligations
means (i) noncallable direct obligations of the United States of America for
which its full faith and credit are pledged, (ii) noncallable obligations of a
person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of
America, or (iii) securities or receipts evidencing ownership
interests in obligations or specified portions (such as principal or interest)
of obligations described in clause (i) or (ii).
14. Amendment, Supplement. Subject to certain exceptions,
the Indenture, the Loan Agreement and the Bonds may be amended or supplemented
with the consent of the Owners of a majority in aggregate principal amount of
the Bonds then Outstanding. Any
such consent shall be irrevocable and shall bind any subsequent
Owner of this Bond or any Bond delivered in substitution for this Bond.
Without the consent of any Bondholder, the Issuer may amend or supplement the
Indenture, the Loan Agreement and
the Bonds as described in the Indenture, among other things, to cure
any ambiguity, inconsistency or formal defect or omission, to provide for
uncertificated Bonds in addition to or in place of certificated Bonds, to
provide for the Book-Entry System for the
Bonds, to make any change necessary to secure from a Rating Agency a
rating on these Bonds equal to the rating on the unsecured indebtedness of the
Bank (or the parent company of the Bank) or to make any change that does not
materially adversely affect the rights of any Bondholder.
15. Defaults and Remedies. The Indenture provides that the
occurrence of certain events constitute Events of Default. If an Event of
Default has occurred and is
continuing, the Trustee, the Bank or the holders of at least 25% in
principal amount of the Bonds then Outstanding may declare the principal of all
the Bonds to be due and payable
immediately. An Event of Default and its consequences (including
any acceleration) may be waived as provided in the Indenture. Bondholders may
not enforce the Indenture or the Bonds except as provided in the Indenture.
Except as specifically provided in the
Indenture, the Trustee may refuse to enforce the Indenture or the
Bonds unless it receives indemnity satisfactory to it. Subject to certain
limitations, Owners of a majority in
aggregate principal amount of the Bonds then Outstanding may direct
the Trustee in its exercise of any trust or power.
16. No Recourse Against Others. No recourse shall be had
for the payment of the principal of, or the premium, if any, and interest on,
this Bond or for any claim based
hereon or upon any obligation, covenant or agreement contained in
the Indenture, the Loan Agreement or the Tax Agreement against any past,
present or future member, officer, official, director, agent or employee of the
Issuer, as such, either directly or
through the Issuer, under any rule of law or equity, statute or
constitution or by the enforcement of any assessment or penalty or otherwise,
and all such liability of any such member, officer, official, director, agent
or employee as such is hereby expressly waived
and released as a condition of and consideration for the execution
of the Indenture, the Loan Agreement, the Tax Agreement and the issuance of the
Bonds.
17. Authentication. This Bond shall not be valid or become
obligatory for any purpose or be entitled to any security or benefit under the
Indenture until the certificate of authentication hereon shall have been duly
executed by the Trustee.
18. Abbreviations. Customary abbreviations may be used in the name of the
Registered Owner or an assignee, such as TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act). A copy of the Indenture may be inspected at
the office of the Trustee located at One First National Plaza, Chicago,
Illinois 60670-0126.
IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts,
conditions and things required to exist, happen and be performed precedent to
and in the execution and delivery of the Indenture and the issuance of this
Bond do exist, have happened and have
been performed in due time, form and manner as required by law; and
the issuance of this Bond and the issue of which it forms a part, together with
all other obligations of the
Issuer, does not exceed or violate any constitutional or statutory limitation.
IN WITNESS WHEREOF, the City of Yankton, South Dakota has caused
this Bond to be executed in its name by its Mayor by his manual or facsimile
signature and to be countersigned by the manual or facsimile signature of its
Acting City Finance Officer and an attorney actually residing in the State of
South Dakota and duly licensed to practice therein, and has caused its
corporate seal to be hereunto affixed or printed.
CITY OF YANKTON, SOUTH DAKOTA
By Mayor [SEAL]
COUNTERSIGNED:
By:_/s/
Acting City Finance Officer
By:__/s/
Attorney
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Date of Authentication: August 12, 1998.
THE FIRST NATIONAL BANK OF
CHICAGO, Trustee, certifies that this
is one of the Bonds referred to in the
Indenture.
By /s/
Authorized Signatory
The following abbreviations, when used in the inscription on the
face of the within Bond,
shall be construed as though they were written out in full according
to applicable laws or
regulations:
TEN COM-as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT - ____________Custodian_________ (Cust) (Minor) under
Uniform Gifts to Minors Act ________________________
(State)
Additional abbreviations may also be used though not in list above.
ASSIGNMENT FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
(Name and Address of Assignee)
the within Bond and does hereby irrevocably constitute and appoint
attorney to transfer the said Bond on the books kept for
registration thereof with
full power of substitution in the premises.
Dated: _________________________
Signature guaranteed:
_______________________________
NOTICE: The signature to this assignment
must correspond with the name of
the registered owner as it appears
upon the face of the within Bond in
every particular, without alteration
or enlargement or any change
whatever. Signatures must be
guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Trustee, which
requirements include membership
or participation in the Securities
Transfer Agents Medallion
Program ("STAMP"), the Stock
Exchange Medallion Program
("SEMP") or the New York Stock
Exchange, Inc. Medallion
Signature Program ("MSP").
EXHIBIT 10.109
Letter of Credit Agreement dated August 12, 1998 between
The First National Bank of Chicago and Astec Industries, Inc.,
Astec Financial Services, Inc. and Kolberg-Pioneer, Inc.
ACKNOWLEDGMENT AND AGREEMENT
RE: FACILITY LETTER OF CREDIT FOR BENEFIT OF
KOLBERG-PIONEER, INC.
This ACKNOWLEDGMENT AND AGREEMENT (the
"Acknowledgment"), dated as of August 12, 1998, is among Astec
Industries, Inc., a
Tennessee corporation ("Astec"); Astec Financial Services, Inc., a
Tennessee corporation
("AFS"); Kolberg-Pioneer, Inc., a Tennessee corporation ("KPI"); the
Guarantors under
and as defined in the Credit Agreement described and defined below
which are parties
hereto and identified on the signature pages hereto; the Lenders
under and as defined in
the Credit Agreement which are parties hereto and identified on the signature
pages hereto; and The First National Bank of Chicago, a national banking
association ("FNBC"), individually and in its capacity as Agent under the
Credit Agreement. Capitalized terms used in this Acknowledgment and not
specifically defined have the meaning assigned such terms in the Credit
Agreement.
RECITALS
A. Astec, AFS, the Lenders named therein and the Agent have entered into
that certain Second Amended and Restated Credit Agreement, dated as
of November 24, 1997 (as amended, modified, restated or supplemented from time
to time, the "Credit Agreement"), pursuant to which FNBC as Issuer may issue
from time to time Facility Letters of Credit.
B. Astec has requested that FNBC issue a Facility Letter of
Credit, concurrently with the date of delivery of this Acknowledgment, in
the initial stated available amount of $9,338,000 (the "Letter of Credit") in
order to provide credit and liquidity enhancement for the $9,200,000 City of
Yankton, South Dakota Variable/Fixed Rate Demand Industrial Development Revenue
Bonds (Kolberg-Pioneer, Inc. Project), Series 1998 (the "Bonds"), the proceeds
of which Bonds are to be loaned to KPI, Astec's
wholly-owned subsidiary and itself a Guarantor under the Credit Agreement.
C. The parties hereto wish to acknowledge that the Letter of
Credit is being issued as a Facility Letter of Credit under the Credit
Agreement, and enter into the associated agreements and understandings further
set forth below.
AGREEMENT
In consideration of the recitals and the mutual acknowledgments,
representations, covenants and agreements contained herein, in the Credit
Agreement and in the Guaranty, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby acknowledge and agree as follows:
1. Letter of Credit as Facility Letter of
Credit. The Letter of Credit constitutes a Facility Letter of Credit under and
within the meaning of the Credit
Agreement, which Facility Letter of Credit and Obligations under the
Credit Agreement associated therewith are and remain subject to all the terms
and conditions of the Credit Agreement applicable thereto, including without
limitation the reimbursement provisions set forth in Section 2.11.4 of the
Credit Agreement. The parties hereto agree that no
separate Reimbursement Agreement is being entered into, nor is one
required, in connection with the Letter of Credit.
2. Guaranty Obligations Remain in Effect. The obligations of the
Guarantors under the Guaranty remain and will remain in full force
and effect in accordance with their terms after giving effect to the issuance
by FNBC of the Letter of Credit as a Facility Letter of Credit.
3. Remedies for Default Include Right to Give Termination Notice
Under Letter of Credit. As provided and contemplated in the Letter
of Credit, upon a failure to pay associated Reimbursement Obligations when due
or other Default under the
Credit Agreement, FNBC is entitled under the Letter of Credit to
give a written notice to
the indenture trustee for the Bonds (the "Trustee") as beneficiary
of the Letter of Credit
that there has been such failure to reimburse or other Default. The
effect of such notice
under the Letter of Credit will be, under the terms of the related
Bond indenture (the
"Indenture"), to require an acceleration of the Bonds, triggering a
drawing under the
Letter of Credit prior to its termination in an amount sufficient to
pay amounts on the
Bonds due upon such acceleration. The parties hereto agree that the
giving of such notice
by FNBC shall constitute a remedy for Default contemplated under
Article VIII of the
Credit Agreement exercisable by the Required Lenders through their
direction or
authorization to the Agent (which direction or authorization of the
Required Lenders to
the Agent shall similarly constitute direction and authorization to
FNBC in its capacity as
Issuer to exercise such remedy).
4. Pledge of Bonds Purchased With Draws Under Letter of Credit".
(a) The Indenture provides that under certain circumstances Bonds
tendered by the holders thereof are to be purchased with the
proceeds of drawings under
the Letter of Credit and that Bonds so purchased will be held by the
Trustee as
pledgeholder for the benefit of FNBC (or, if the Bonds are held in a
book-entry system,
that such Bonds shall be recorded on the books of the relevant
securities depository for
the account of the Trustee and shall be deemed pledged to FNBC)
(such Bonds in either
case being "Pledged Bonds"). It is hereby acknowledged and agreed
among the parties
hereto that such Bonds are to be held for the benefit of FNBC in its
separate capacity as
Agent, and each of the Borrowers and KPI (to the extent of their
interest therein) (in such
capacity, collectively, the "Pledgor") hereby pledge to the Agent,
and grant to the Agent
a security interest in, all of its right, title and interest in and
to the Pledged Bonds (or
beneficial interests therein for Bonds held in book-entry form) and
the certificates, if any,
representing the Pledged Bonds, as the same may be from time to time
tendered by the
holders thereof, and any interest of the Pledgor in the entries on
the books of any
financial intermediary pertaining to the Pledged Bonds, and all
interest, cash, instruments
and other property from time to time received, receivable or
otherwise distributed in
respect of or in exchange for any or all of the Pledged Bonds, and
all proceeds of any and
all of the foregoing (the "Pledged Collateral"). The pledge and
security interest granted
by the Pledgor to the Agent hereunder secures the payment and
performance of all
Obligations of the Pledgor now or hereafter existing under or in
connection with the
Credit Agreement and/or the Guaranty.
(b) It is acknowledged that the Trustee under the Indenture as
described above is holding such Bonds or interests therein as agent
and custodian for the
Agent for the purposes of perfection of the Agent's security
interest therein. Pledged
Bonds shall be released from the security interest described herein
upon reimbursement to
the Agent of the amount of the associated drawing under the Letter
of Credit, together
with all accrued interest thereon payable under the Credit
Agreement, or upon receipt of
remarketing proceeds upon a remarketing of the Bonds as described in
Section 3.08(a)(3)
of the Indenture and as described in the related reinstatement
provisions of the Letter of Credit.
(c) All rights of the Pledgor (if any) to exercise with respect to
Pledged Bonds voting and other consensual rights which it would
otherwise be entitled to
exercise and to receive the interest payments which it would
otherwise be authorized to
receive and retain shall cease, and all such rights shall thereupon
become vested in the
Agent who shall thereupon (until such Bonds have been released as
described above)
have the sole right to exercise such voting and other consensual
rights and to receive and
hold as Pledged Collateral such interest payments.
(d) If any Default shall have occurred and be continuing, the Agent
may exercise in respect of the Pledged Collateral, in addition to
other rights and remedies
provided for in the Credit Agreement or otherwise available to it,
all the rights and
remedies of a secured party on default under the Uniform Commercial
Code (the "UCC") in effect in the State of Illinois at that time.
5. Miscellaneous.
(a) Severability of Provisions. Any provision in this
Acknowledgment that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining
provisions in that jurisdiction or the operation, enforceability, or
validity of that provision
in any other jurisdiction, and to this end the provisions of this
Agreement are declared to be severable.
(b) CHOICE OF LAW. THIS ACKNOWLEDGMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE
LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO
FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
(c) Counterparts. This Acknowledgment may be executed in any
number of counterparts, all of which taken together shall constitute
one instrument.
[signatures follow]
EXHIBIT 10.110
Promissory Note dated December 14, 1998 between Astec Industries, Inc.
And Edna F. Brock
PROMISSORY NOTE
$85,000.00 December 14, 1998 Chattanooga, Tennessee
ASTEC INDUSTRIES, INC. (the "Undersigned"), a Tennessee corporation,
hereby promises to pay upon demand to the order of EDNA F. BROCK,
the sum of Eighty-Five Thousand Dollars ($85,000.00), with interest at the same
rate paid from time
to time by the Undersigned to The First National Bank of Chicago
pursuant to the Undersigned's credit facility with such bank.
Accrued interest shall be monthly, and shall be paid by the
tenth (10th) day of thefollowing month until all principal and interest has
been paid in full.
The Undersigned shall have the right to prepay the amount owed under
this note in whole or in part, without penalty or premium, at any time. All
payments hereunder shall be applied first to interest, then to principal.
In the event of default by the Undersigned under this note, the
Undersigned shall
pay all expenses, including reasonable attorneys' fees, incurred or
paid by the holder in attempting to collect funds due under this note.
The Undersigned hereby waives presentment, dishonor, notice of
dishonor, and protest.
This note has been executed and delivered in the state of
Tennessee and shall begoverned in construed in accordance with the laws of the
state of Tennessee.
ASTEC INDUSTRIES, INC.
By: /s/ Richard W. Bethea, Jr.
Richard W. Bethea, Jr.
Title: Secretary
EXHIBIT 10.111
Waiver for December 31, 1998, dated March 9, 1999, with respect to
The First National Bank of Chicago Second Amended and Restated
Credit Agreement dated November 24, 1997.
WAIVER TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
THIS WAIVER TO SECOND AMENDED AND RESTATED CREDIT
AGREEMENT (this "Waiver") dated as of March 9, 1999 is by and among Astec
Industries, Inc., a Tennessee corporation ("Astec"), Astec Financial
Services, Inc., a
Tennessee corporation ("AFS"; Astec and AFS are sometimes referred
to herein individually as "Borrower" and collectively as "Borrowers"), the
financial institutions
parties hereto in their capacities as lenders hereunder
(collectively, the "Lenders", and
each individually, a "Lender"), The First National Bank of Chicago,
as agent (in its individual capacity, "FNBC"), for itself, as Lender, and as
administrative agent for the other Lenders ("Agent").
RECITALS
WHEREAS, Borrowers, Lenders, and Agent entered into a certain Second
Amended and Restated Credit Agreement dated as of November 24, 1997,
as amended by that certain First Amendment and Waiver to Second Amended and
Restated Credit Agreement dated as of October 30, 1998 (the "Credit Agreement";
all capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed thereto
in the Credit Agreement), pursuant to which Lenders provided certain
revolving credit and swing line facilities to Borrowers which facilities were
guaranteed by certain guarantors defined therein; and
WHEREAS, the parties hereto wish to waive certain provisions of the
Credit Agreement on the terms and conditions set forth herein as of
the date first written above.
NOW, THEREFORE, for and in consideration of the terms and conditions
contained herein, and other good and valuable consideration the
receipt and sufficiency of
which is hereby acknowledged, Borrowers, Agent and Lenders hereby
agree as follows:
1. Waiver. The Agent and the Lenders hereby waive any non-
compliance that exists under Section 6.23 of the Credit Agreement
for the fiscal year ended December 31, 1998. This waiver is specifically
limited as set forth above and does not constitute a waiver of any provisions
of the Credit Agreement in connection with any other fiscal year.
2. Reference to and Effect on the Credit Agreement.
2.1. Except as specifically amended above, the Credit Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
2.2. Except as specifically provided herein, the execution,
delivery and effectiveness of this Waiver shall not operate as a waiver of any
right, power or remedy of Agent or Lenders under the Credit Agreement or any of
the other Loan Documents, or constitute a waiver of any provision of the Credit
Agreement or any of the other Loan Documents. Upon the effectiveness of this
Waiver, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," or words of
similar import shall mean and be a reference to the Credit Agreement as
modified hereby.
2.3. Each Guarantor joins in this Waiver solely for the purpose of
consenting to the terms hereof, and each Guarantor hereby
unconditionally consents to the terms of this Waiver and fully ratifies and
affirms the Second Amended and Restated Guaranty, taking into account this
Waiver.
3. Representations and Warranties. To induce Agent and Lenders
to execute this Waiver, the Borrowers represent and warrant to Agent
and Lenders as follows:
3.1. The Borrowers have all requisite power and authority to
execute, deliver and perform this Waiver.
3.2. The execution, delivery and performance of this Waiver (i) has
been duly authorized by all requisite action of Borrowers and (ii)
will not (A) violate (1) any provision of law, statute, rule or regulation or
the articles/certificate of incorporation
or other constitutive documents or the by-laws or regulations of
Borrowers, (2) any order of any court, or any rule, regulation or order of any
other agency of government binding
upon Borrowers, or (3) any provisions of any material indenture,
agreement or other instrument to which Borrowers are a party, or by which
Borrowers or any of their
properties or assets is or may be bound, (B) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under any indenture,
agreement or other instrument referred to in clause (ii)(A)(3) above.
3.3. This Waiver constitutes the legal, valid and binding
obligation of Borrowers enforceable in accordance with its terms.
3.4. The representations and warranties in the Loan Documents are
true and correct in all material respects with the same effect as though
made on and as of this date.
4. Compliance. Borrowers are in compliance with all of the terms
and provisions set forth in the Credit Agreement and the other Loan
Documents and no Default or Unmatured Default has occurred and is continuing.
Borrowers further acknowledge and agree that as of the date hereof they have no
offsets or claims against Agent or Lenders under the Loan Documents or under
other agreements between Borrowers and Lenders, or any defenses to Agent's or
Lenders' enforcement of their rights and remedies under the Loan Documents.
5. Miscellaneous.
5.1. Entire Agreement. This Waiver, including all schedules and other
documents attached hereto or incorporated by reference herein,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other
understandings, oral or written, with respect to the subject matter hereof.
5.2. Counterparts. This Waiver may be executed in any number of
counterparts, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument.
5.3. Costs and Expenses. In accordance with Section 9.7 of the Credit
Agreement, Borrower agrees to promptly pay all reasonable fees,
costs and expenses incurred by Agent in connection with the preparation,
execution and delivery of this Waiver.
5.4. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN
THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL
BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW
OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL
LAWS APPLICABLE TO NATIONAL BANKS.
5.5. Headings. Section headings in this Waiver are included herein for
convenience of reference only and shall not constitute a part of
this Waiver for any other purpose.
5.6. Successors and Assigns. This Waiver shall be binding upon each
of the parties hereto and their respective successors and assigns,
except that Borrower may not assign its rights or obligations hereunder without
the written consent of Agent and Lenders.
[SIGNATURE PAGES TO FOLLOW]
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Guarantors and
the Agent have executed this Waiver as of the date first above
written.
ASTEC INDUSTRIES, INC.
By: /s/ Richard W. Bethea, Jr.
Print Name: Richard W. Bethea, Jr.
Title: Secretary
Address: 4101 Jerome Avenue
Chattanooga, Tennessee
37407
Telecopy: (423) 867-4127
Telephone: (423) 867-4210
Attention: F. McKamy Hall
ASTEC FINANCIAL SERVICES, INC.
By: /s/ Albert E. Guth
Print Name: Albert E. Guth
Title: President
Address: 6400 Lee Highway, Suite 107
Chattanooga, Tennessee 37421
Telecopy: (423) 899-4456
Telephone: (423) 899-5898
Attention: Albert E. Guth
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Guarantors and
the Agent have executed this Waiver as of the date first above
written.
HEATEC, INC.
By: /s/Richard W. Bethea, Jr.
Its:
TELSMITH, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
ROADTEC, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
ASTEC TRANSPORTATION, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
TRENCOR, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
PRODUCTION ENGINEERED
PRODUCTS, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
ASTEC, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
CEI ENTERPRISES, INC.
By: /s/Richard W. Bethea, Jr.
Its:
KOLBERG-PIONEER, INC.
By: /s/Richard W. Bethea, Jr.
Its:
ASTEC HOLDINGS, INC.
By: /s/ Richard W. Bethea, Jr.
Its:
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Guarantors and
the Agent have executed this Waiver as of the date first above
written.
THE FIRST NATIONAL BANK OF
CHICAGO, individually and as Agent
By: /s/ David McNeela
Print Name: David McNeela
Title: Vice President
Address: One First National Plaza
Chicago, Illinois 60670
Telecopy: (312) 732-5296
Telephone: (312) 732-5730
Attention: David T. McNeela
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Guarantors and
the Agent have executed this Waiver as of the date first above
written.
FIRST AMERICAN NATIONAL BANK
By: /s/ David McNeela
Print Name: David McNeela
Title: Vice President
Address: One Union Square, Suite 100
Chattanooga, Tennessee
37402
Telecopy: (423) 755-6014
Telephone: (423) 755-6022
Attention: Michael Metcalf
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Guarantors and
the Agent have executed this Waiver as of the date first above
written.
AMSOUTH BANK
By: /s/
Print Name:
Title: Vice President
Address: 601 Market Center
Chattanooga, Tennessee
37402
Telecopy: (423) 752-1558
Telephone: (423) 752-1623
Attention: Steven Anderson
EXHIBIT 10.112
Guaranty of Astec Industries, Inc., dated February 23, 1998, of debt
of Pavement Technology, Inc. in favor of Tucker Federal Bank.
STATE OF GEORGIA
COUNTY OF DEKALB
GUARANTY
To induce TUCKER FEDERAL BANK (the "Lender"), a corporation doing
business under the laws of the State of Georgia to extend credit to
Pavement Technology, Inc. (the "Principal"), in an original loan amount of
$1,443,500.00, evidenced by a Line
of Credit in the amount of $750,000.00, a Construction Loan in the
amount of $537,000.00, and a Machinery and Equipment Loan in the amount of
$156,500.00 and in
such amounts and under such terms as exist under the terms of the
"Note", "Security Deed" and other loan documents, or under the terms of any
renewals, modifications or
extensions, and to renew or extend the time of payment for any
credit now existing or
thereafter extended to the Principal, and for Ten Dollars ($10.00)
and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the
Undersigned (which term, when two or more execute same, refers both
to each of the
Undersigned individually and to all or any two or more jointly) do
hereby jointly and severally:
1. Unconditionally, Irrevocably and absolutely guarantee the due and punctual
performance and observance by the Principal and all times hereafter
of each and every
term covenant and condition of all documents and agreements
evidencing or securing
any indebtedness of the Principal to the Lender, whether now
existing or hereafter
incurred, whether according to the present terms thereof or pursuant
to any extension
of time, renewal or rearrangement thereof, or to any change or
changes in the terms,
covenants or conditions thereof now or at any time hereafter made or granted
(the foregoing documents, agreements and any and all changes thereto
being hereinafter
referred to collectively as the "Credit Agreement"), including
specifically, but without
limitation, the prompt payment in full of all amounts owed by the
Principal or which
the Principal has agreed to pay pursuant to the Credit Agreement,
and agree that if
such payments are not made by the Principal when due, the
Undersigned will
immediately, on demand, make such payments. This is a guaranty of performance
and payment and not of collection.
2. Consent or any and all changes in the terms, covenants and
conditions of the Credit
Agreement hereafter made or granted, without notice to or further consent
from the Undersigned, it being the intention hereof that any such extension
or change shall not in any way affect the liability of the Undersigned
hereunder.
3. Agree that the liability of the undersigned on this Guaranty
shall be direct and
immediate, and that Guaranty may be enforced by the Lender without
having first to
proceed against the Principal or any other person, and the
Undersigned hereby waives
any right to require that any action be brought against the
Principal or any other
person or to demand that the Lender first resort to or exhaust any other remedy
available to it. If the obligations hereby guaranteed are partially
paid through the
election of the Lender to pursue any remedy against the Principal or
are otherwise
partially paid, the Undersigned shall remain liable for the balance
of the obligations
guaranteed hereby. This Guaranty shall be effective regardless of
the solvency or
insolvency of the Principal or any changes in the composition,
nature, personnel or location of the Principal.
4. Agree that the Undersigned shall have no recourse or action
against the Lender by reason of any action the Lender may take or omit to take
in connection with the Credit Agreement or this Guaranty, the collection of
any sums or amounts due thereunder, or
any security or other guaranty at any time existing therefor.
5. Consent and agree that the Lender may at any time, either with or without
consideration, release any guarantor (whether or not a party hereto)
of the Credit Agreement, without notice to or further consent from the
Undersigned, and such
release shall not in any way affect the liability of the Undersigned hereunder.
6. Agree that in the event this Guaranty is collected by or through
an attorney at law, the
Undersigned will reimburse the Lender for all costs of collection,
when incurred, including, but not limited to, any and all court costs and a sum
equal to fifteen percent (15%) of the amount then due the Lender hereunder as
attorney's fees.
7. Agree that this Guaranty shall be to the benefit of and may be
enforced by the Lender
and its legal representatives, successors and assigns and shall be
binding upon and
enforceable against the Undersigned and its respective legal
representatives, succors,
heirs, and assigns, and that this guaranty shall be assignable,
transferable and
negotiable by the Lender with the same force and effect and to the
same extent as the
Credit Agreement, or any part thereof, and in the event of the
assignment or transferee
in connection with such assignment or transfer, have and may
exercise all of the
rights granted to the Lender under this Guaranty to the extent of
the interest thus
assigned or transferred to such assignee or transferee, and the
Undersigned expressly
waives notice of assignment or transfer of the Credit Agreement or
any part thereof or
of this Guaranty or any rights of the Lender hereunder or thereunder.
8. Agree that the obligations hereunder are independent of the
obligations of the
Principal, and that a separate action or actions may be brought and
prosecuted against
the Undersigned, whether or not any action is brought against the
Principal or any other guarantor be joined in such action or actions.
9. Agree that if any provisions of this Guaranty or any paragraph,
sentence, clause,
phrase or word, or the application thereof in any circumstances, is
held invalid or
unenforceable, the validity and enforceability of the remainder of
this Guaranty and of
the application of any such provisions, paragraph, sentence, clause,
phrase or word in
other circumstances, shall not be affected thereby, it being agreed
that all rights,
powers and privileges of the Lender hereunder shall be enforceable
to the fullest extent permitted by law.
10. Acknowledge and agree that this Guaranty has been made and
delivered in the State
of Georgia and shall be governed by, and construed in accordance
with, the laws of
the State of Georgia. The Undersigned hereby submit to personal
jurisdiction in the
State of Georgia for the enforcement of this Guaranty and hereby
waive any and all
claims of rights under the laws of the State of Georgia, or of the
United States or of
any state or country, to object to jurisdiction within the State of
Georgia for the
purpose of litigation to enforce this Guaranty. In the event such
litigation is
commenced, the Undersigned agree that service of process may be made and
personal jurisdiction over the Undersigned obtained by serving a copy of the
summons and complaint upon any agent of the Undersigned. Nothing contained
herein, however, shall prevent the Lender from bringing any action or
exercising any rights against the
Undersigned personally, or against any property of the Undersigned,
within any other
county, state or country. Initiating such proceeding or taking such
action in any other
county, state or country shall not constitute a waiver of the
agreement contained
herein that the laws of the State of Georgia shall govern the rights
of the Undersigned
and the Lender hereunder or of the submission herein made by the
Undersigned to
personal jurisdiction within the State of Georgia. The means of
obtaining personal
jurisdiction and perfecting service of process set forth above are
not intended to be
exclusive but are cumulative and in addition to all other mean of
obtaining personal
jurisdiction and perfecting service of process now or hereafter.
11. Acknowledge and agree that the liability of the Undersigned
hereunder is primary and
unconditional and shall not be subject to any claim of offset,
counterclaim or defense,
except for any claim of offset, counterclaim or defense that is at
the time available to
the Principal. The undersigned herein specifically waives any
defense of usury and
waiver its right to require the Lender to take action against the
Principal or other
obligor as provided for in O.C.G.A. Section 10-7-24.
12. Acknowledge and agree that this Guaranty shall be irrevocable,
absolute and
unconditional and shall remain in full force and effect as to the
Undersigned until
such time as all obligations of the Principal under this Credit
agreement shall have
been performed. No delay or failure on the part of the Lender in
the exercise of any
right or remedy or failure by the Lender to notify the Undersigned of any
nonperformance of the Principal shall operate as a waiver thereof,
and no single or
partial exercise by the Lender of any right or remedy shall preclude
other or future
exercise thereof or the exercise of any other right or remedy.
13. Agree that the terms, conditions, agreements and stipulations of
the Credit
Agreement, and of all notes or other evidences of indebtedness
guaranteed hereby,
heretofore, or hereafter executed, shall be and become a part of
this Guaranty, with
the Undersigned hereby ratifying, adopting and conforming all such
terms, conditions, agreements and stipulations.
14. Acknowledge and agree that this Guaranty covers all obligations
to the Lender
purporting to be made on behalf of the Principal by any officer or
agent of the
Principal, without regard to the actual authority of such officer or agent.
15. Acknowledge and agree that this Guaranty, with each of the
foregoing incorporations,
contains the entire contract, that there is no understanding that any person or
corporation other that the Undersigned shall execute this Guaranty,
and that the
decision of the Undersigned to execute this Guaranty was not based
upon any facts or
materials provided by the Lender, nor was said decision based upon
any representation, statement or analysis made by the Lender.
16. Acknowledge and agree that this Guaranty constitutes a
continuing agreement and
shall remain in force until a written notice revoking it has been
received by the
Lender, but that such revocation shall not release the Undersigned
from liability for
any and all obligations of the Principal under the Credit Agreement
then in existence,
or from any renewals, extensions or modifications thereof, in whole
or in part, and
whether such renewals, extensions or modifications are made before
or after such revocation.
17. The liability of the Undersigned hereunder is unlimited and
includes, without
limitation, any unpaid interest, attorney's fees or other fees owed
by the Principal to
the Lender and arising from the extension of credit by the Lender,
all payable in legal
tender of the United States of America. Any payment of the
Undersigned against
such liability may be applied to any indebtedness of the Principal
to the Lender that
the Lender may choose. The liability of the Undersigned hereunder
is cumulative of
and in addition to and shall not supersede or amend or be superseded
or amended by
any other instrument, surety or guaranty signed by the Undersigned
that the Lender
may now or hereafter hold relative to any obligation of the
Principal to the Lender.
The liability of the Undersigned hereunder (subject to any
limitation hereinbefore
stated) shall apply to the entire indebtedness hereby guaranteed and
shall continue until such entire indebtedness is paid in full.
IN WITNESS WHEREOF, the Undersigned has executed this Guaranty under
seal, this 23rd of February, 1998.
Address:
2058 SIGMAN ROAD/ PO BOX 80730
CONYERS, GA 30207
/s/ Robert R. Collins
ROBERT R. COLLINGS
/s/ Martha T. Collins
MARTHA T. COLLINS
EXHIBIT 10.113
Purchase Agreement dated October 30, 1998 and effective October 31,
1998 between Astec Industries, Inc. and Johnson Crushers International, Inc.
Exhibit 10.113
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, (this "Agreement"), by and among ASTEC
INDUSTRIES, INC., a Tennessee corporation ("Astec"), JOHNSON CRUSHERS
INTERNATIONAL, INC., an Oregon corporation (the "Seller") and ROBERT
R. HOITT, DAVID F. PEAKS, TERRY W. CUMMINGS, ROGER M. CLARK, RANDY G. ORRE and
ALLEN L. LASKEY (collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, Seller and Shareholders engage in the business of
designing, manufacturing
and marketing aggregate processing equipment, including horizontal
screens, cone crushers and
stationary and portable screening plants (collectively, the
"Business"); and
WHEREAS, the Buyer (as defined below) desires to purchase from
the Seller, and the
Seller desires to sell, assign and transfer to the Buyer, certain
assets and property held in
connection with, necessary for, or used in the businesses and
operations of, the Business, and
the Buyer has agreed to assume the Assumed Liabilities (as defined
below), subject to the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, covenants and agreements hereinafter contained, the
parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, unless the context clearly
indicates otherwise, the
following terms shall have the following meanings:
"Accounts Receivable" means any and all of Seller's accounts
receivable, loans
receivable and any advances or forms of obligation arising out of
the sales or rendering of services by Seller in the Business.
"Adjustments" has the meaning set forth in Section 3.3 of this Agreement.
"Affiliate" as to any Person means any other Person that
directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with, such Person.
"Allocation" has the meaning set forth in Section 11.3 of this Agreement.
"Assignment and Assumption Agreement" has the meaning set
forth in Section 2.4 of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 2.4
of this Agreement.
"Astec" has the meaning set forth in the introductory
paragraph of this Agreement.
"Business" has the meaning set forth in the "WHEREAS" clauses
of this Agreement.
"Business Day" means any day except a Saturday, Sunday or
other day on which
commercial banking institutions in the City of Chattanooga,
Tennessee are authorized by law or executive order to close.
"Buyer" means Astec, unless Astec designates in writing to
Seller that a wholly owned
subsidiary of Astec shall be the Buyer pursuant to this Agreement.
If such written designation is
provided to Seller prior to the Closing Date, then "Buyer" shall
mean such wholly owned
subsidiary, and Astec shall guarantee the performance of Buyer's
duties and obligations to Seller pursuant to this Agreement.
"Buyer Indemnitees" has the meaning set forth in Section 12.1
of this Agreement.
"Buyer's Appraisal" has the meaning set forth in Section 11.3
of this Agreement.
"Buyer's Event of Breach" has the meaning set forth in Section
12.2 of this Agreement.
"CERCLA" has the meaning set forth in Section 6.20 of this Agreement.
"CERCLIS" has the meaning set forth in Section 6.20 of this Agreement.
"Claims" means, whether or not formally asserted, all demands,
claims, actions or causes of action, assessments, suits, proceedings,
mediations, arbitrations, disputes, investigations,
losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties,
charges, or amounts paid in settlement, including without limitation
costs, fees and expenses of
attorneys, court costs, arbitrators, mediators, experts,
accountants, appraisers, consultants,
witnesses, investigators or any other Persons employed or retained
in connection with any of the foregoing.
"Closing" has the meaning set forth in Article 5 of this
Agreement.
"Closing Date" has the meaning set forth in Article 5 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" has the meaning set forth in Section 6.16 of this Agreement.
"Earn-Out" has the meaning set forth in Section 4.1 of this Agreement.
"Effective Date" has the meaning set forth in Article 5 of this Agreement.
"Employees" has the meaning set forth in Section 10.1 of this Agreement.
"Environment" has the meaning set forth in Section 6.20 of this Agreement.
"Environmental Laws" means all laws, regulations and other requirements of any
governmental or regulatory authority, domestic or foreign, and any
judicial or administrative
interpretation thereof, any duties under the common law, any orders,
decrees, judgments,
agreements or recorded covenants, conditions, restrictions or
easements in any way relating to
the protection of the environment, human health, public safety or
welfare, or natural resources.
"Equipment and Machinery" means (i) all the equipment,
machinery, fixtures, tooling, jigs,
dies, forms, spare parts, supplies and vehicles owned or leased by
the Seller with respect to the
operations of the Business on the Closing Date, (ii) all the
replacements for any of the foregoing
owned or leased by the Seller, (iii) any rights of the Seller to the
warranties (to the extent
assignable) and licenses received from manufacturers and sellers of
the aforesaid items, and (iv)
any related Claims, credits, rights of recovery and set-off with respect
thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Estimated Purchase Price" has the meaning set forth in
Section 3.2 of this Agreement.
"Excluded Assets" has the meaning set forth in the definition
of Purchased Assets.
"Excluded Liabilities" has the meaning set forth in Section
2.5 of this Agreement.
"Files and Records" means all files and records, whether in
hard copy or electronic
format, of the Sellers relating to the Business, the Purchased
Assets or the Transferred
Employees, including without limitation all records and files
relating to the Sellers' customers and
books of account, customer files, equipment maintenance records,
warranty records for
equipment, maintenance records and sales tax exemption certificates.
"Financial Statements" has the meaning set forth in Section 6.6 of this
Agreement.
"GAAP" means the generally accepted accounting principles for
financial reporting in the United States.
"Hazardous Substance" shall mean any pollutants, contaminants,
or any substance which
is regulated under any Environmental Law including without
limitation, in whatever form, any oil,
petroleum, chemicals, asbestos, polychlorinated biphenyls, or any
flammable, explosive or
radioactive materials or any "Hazardous Wastes", "Hazardous
Materials," or "Toxic Substances"
as those terms are used in any Environmental Law.
"Hold-Back Account" has the meaning set forth in Section 3.4 of this Agreement.
"Information Technology" has the meaning set forth in Section
6.27 of this Agreement.
"Intangible Assets" means all intangible personal property
rights of the Business, including
without limitation, in each case in connection with the Business,
(i) the right to use Seller's
corporate name and all variations thereof; (ii) all rights on the
part of the Seller to proceeds of any
insurance policies or to any Tax refund, (iii) all Claims on the
part of the Seller for recoupment,
reimbursement and coverage under any insurance policies, (iv) all
intellectual property, (v) all
rights accrued or accruing under Contracts assumed by the Buyer
pursuant to this Agreement, (vi)
all rights under cooperative advertising arrangements entered into
by the Seller and (vii) all goodwill of the Seller relating to the Business.
"Intellectual Property" has the meaning set forth in Section
6.25 of this Agreement.
"June Statement" has the meaning set forth in Section 2.5 of this Agreement.
"Licensed Intellectual Property" has the meaning set forth in
Section 6.25 of this
Agreement.
"Licenses and Permits" has the meaning set forth in Section
6.14 of this Agreement.
"Lien" means any lien, mortgage, deed of trust, security
interest, charge, pledge, retention
of title agreement, title defect, easement, encroachment, condition,
reservation, restriction,
covenant or other encumbrance affecting title.
"Losses" has the meaning set forth in Section 12.1 of this Agreement.
"NLRB" has the meaning set forth in Section 6.16 of this Agreement.
"October Statement" has the meaning set forth in Section 2.5
of this Agreement.
"Organizational Documents" means the Certificate of
Incorporation, By-Laws and similar
organizational documents, with all amendments thereto to the date hereof.
"Party's Event of Breach" has the meaning set forth in Section
12.3 of this Agreement.
"Party Indemnitee" has the meaning set forth in Section 12.3
of this Agreement.
"Person" means any individual, corporation, partnership,
limited liability company, joint
venture, association, joint-stock company, trust, unincorporated
organization or any department,
agency or instrumentality of government or of any state, city,
county or town thereof.
"Plans" has the meaning set forth in Section 6.18 of this Agreement.
"Proprietary Intellectual Property" has the meaning set forth
in Section 6.25 of this Agreement.
"Purchased Assets" means all the non-cash business assets,
rights, properties, and
goodwill of every nature, kind and description, tangible or
intangible, wheresoever located,
whether or not carried or reflected on the books and records of
Seller, whether now existing or
hereafter acquired relating to or used or held for use in connection
with the Business as currently
conducted, including without limitation Accounts Receivable,
Contracts, Equipment and
Machinery, Files and Records, Intangible Assets, Intellectual
Property, Licenses and Permits (to
the extent transferable by the Seller), and any prepaid expenses;
provided, however, that cash,
organization costs, amounts due or to become due to Seller, if any, from
workman's compensation insurance, Organizational Documents and other items
associated with the organization of Seller (the "Excluded Assets") shall not be
deemed Purchased Assets.
"Purchase Price" has the meaning set forth in Section 3.1 of this Agreement.
"Real Property" means the real property situated in Eugene,
Oregon, being more
particularly described on Schedule C.
"Required Consents" has the meaning set forth in Section 14.3
of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Indemnitees" has the meaning set forth in Section 12.2 of this
Agreement.
"Seller" has the meaning set forth in the introductory
paragraph of this Agreement.
"Seller Parties" means the Seller, the Shareholders and their
respective partners and Affiliates, and their respective successors and
assigns.
"Seller's Event of Breach" has the meaning set forth in
Section 12.1 of this Agreement.
"Shareholders" has the meaning set forth in the introductory
paragraph of this Agreement.
"Target" has the meaning set forth in Section 4.1(b) of this Agreement.
"Taxes" means all federal, state, local, foreign and other
taxes, however denominated,
including without limitation any interest, penalties or additions to
tax that may become payable in
respect thereof, imposed by any governmental authority, which taxes
shall include without
limitation all income taxes, payroll and employee withholding taxes,
unemployment insurance,
social security, sales and use taxes, excise taxes, franchise taxes,
gross receipts taxes,
occupation taxes, real and personal property taxes, stamp taxes,
transfer taxes, workmen's
compensation taxes and other obligations of the same or a similar
nature; and "Tax" shall mean any one of them.
"Tax Returns" means any return, report, information return or
other document (including
any related or supporting information) filed or required to be filed
with any governmental authority
in connection with the determination, assessment, collection or
administration of any Taxes.
"Third Party" has the meaning set forth in Section 8.4 of this Agreement.
"Transferred Employees" has the meaning set forth in Section
10.1 of this Agreement.
"Transfer Taxes" has the meaning set forth in Section 11.1 of
this Agreement.
"WARN" has the meaning set forth in Section 10.1 of this Agreement.
ARTICLE 2
PURCHASE AND SALE OF THE PURCHASED ASSETS
SECTION 2.1 Transfer of Assets. Subject to the terms and
conditions set forth in this
Agreement, Seller shall sell, convey, transfer, assign and deliver
to the Buyer, and the Buyer shall
purchase and accept from the Seller, on the Effective Date, all
right, title and interest of the Seller
in and to the Purchased Assets, wherever located.
SECTION 2.2. Conveyances at Closing Date. The sale,
transfer, conveyance,
assignment and delivery by the Seller of the Purchased Assets to the
Buyer shall be executed on
the Closing Date by bills of sale, endorsements, assignments and
other instruments of transfer
and conveyance satisfactory in form and substance to counsel for the
Buyer, and shall be
effective and risk of loss shall transfer as of the Effective Date.
Such sale, transfer, conveyance,
assignment and delivery by the Seller shall be made free and clear
of all liabilities and obligations
and subject to no Liens, except as permitted by this Agreement.
SECTION 2.3. Subsequent Documentation. At any time
within five (5) years following
the Closing Date, the Seller and the Shareholders shall, upon the
request of the Buyer, execute,
acknowledge and deliver, or cause to be executed, acknowledged and
delivered, all such further
deeds, assignments, transfers and Conveyances as the Buyer may
reasonably deem necessary
or desirable for the better assigning, transferring, granting,
conveying and confirming to the Buyer
or its successors and assigns, or for aiding and assisting in
collecting and reducing to possession,
any or all of the Purchased Assets. The Seller and the Shareholders
hereby constitute and
appoint, effective as of the Closing Date, the Buyer, its successors
and assigns as the true and
lawful attorneys of the Seller and the Shareholders with full power
of substitution in the name of
the Buyer or in the name of any of the Seller and the Shareholders,
but for the benefit of the
Buyer, to institute and prosecute all proceedings which the Buyer
may in its discretion deem
proper in order to assert or enforce any right, title or interest
in, to or under the Purchased Assets
and to defend or compromise (subject to Article 12, if applicable)
any and all actions, suits or
proceedings in respect of any of the Purchased Assets. The Buyer
shall be entitled to retain for
its own account any amounts collected pursuant to the foregoing
powers, including without
limitation any amounts payable as interest in respect thereof.
SECTION 2.4. Assumption of Liabilities. From and after
the Effective Date, the Buyer
shall assume, pursuant to a Bill of Sale, Assignment and Assumption
Agreement substantially in
the form and substance set forth on Exhibit 2.4 hereto (the
"Assignment and Assumption
Agreement"), and the Buyer hereby agrees to pay, perform and
discharge when due any and all
liabilities, obligations and commitments of Seller not excluded
under Section 2.5 below including,
without limitation, any and all express or implied warranty
obligations not expressly excluded in
Section 2.5 below, arising out of or relating to sales made by
Seller in the ordinary course of
business prior to the Effective Date (the "Assumed Liabilities").
SECTION 2.5. Excluded Liabilities. Notwithstanding the
provisions of Section 2.4, any
other provisions of this Agreement, or any schedule or exhibit
hereto, the Buyer shall not assume
any potential or existing liabilities, obligations or commitments
which are known to Seller but not
disclosed herein or on Seller's June 30, 1998 Financial Statements
(the "June Statement") or
October 31, 1998 Financial Statements (the "October Statement"),
including, without limitation,
any unusual warranty liabilities that are inconsistent with Seller's
usual warranty experience
(collectively, the "Excluded Liabilities"). Except as otherwise
specifically provided herein, for the
purposes of this Agreement, "knowledge" means actual knowledge or
knowledge that would exist
upon reasonable inquiry. Seller's knowledge shall specifically
include the actual knowledge of any
Shareholder or knowledge that would exist upon reasonable inquiry by
any Shareholder.
ARTICLE 3
PURCHASE PRICE
SECTION 3.1. Purchase Price. Subject to the terms and
conditions set forth in this
Agreement, the purchase price to be paid for the Purchased Assets
(the "Purchase Price")shall be
equal to the sum of the following:
(a) the net book value on the Effective Date of all Seller's
depreciable assets calculated in
a manner mutually acceptable to Buyer and Seller;
(b) plus the gross amount of Seller's Accounts Receivable as
of the Effective Date;
(c) plus Seller's inventories as of the Effective Date
determined in the manner described
in Section 3.3;
(d) plus Seller's prepaid expenses as of the Effective Date
calculated in accordance with
GAAP;
(e) less the total liabilities as of the Effective Date as
shown in the October Statement;
(f) plus goodwill in the amount of Five Million Dollars
($5,000,000).
SECTION 3.2 Payment of the Purchase Price. Payment of the
Purchase Price shall be made as follows:
(a) At Closing, Buyer shall make a payment to Seller in the
amount of Seven Million Three
Hundred Twelve Thousand Eight Hundred Ninety Six Dollars
($7,312,896) (the "Estimated
Purchase Price"), which amount represents the sum of the following:
(i) the net book value of
all Seller's depreciable assets as reflected in the June Statement;
(ii) plus the gross amount of
Seller's Accounts Receivable as reflected in the June Statement;
(iii) plus Seller's inventories as
reflected in the June Statement; (iv) plus Seller's prepaid expenses
as reflected in the June
Statement; (v) plus goodwill in the amount of Five Million Dollars
($5,000,000); (vi) less total
liabilities as reflected in the June Statement.
(b) Six Million Eight Hundred Twelve Thousand Eight Hundred
Ninety-six Dollars
($6,812,896) of the Estimated Purchase Price shall be paid to Seller
at Closing in immediately
available funds. The remaining Five Hundred Thousand Dollars
($500,000) of the Estimated
Purchase Price shall be deposited into the Hold-Back Account
pursuant to Section 3.4.
(c) Immediately after the post-Closing Adjustments have been
made pursuant to Section
3.3, Buyer shall make payment to Seller in immediately available
funds equal to any additional
portion of the Purchase Price owed to Seller.
SECTION 3.3 Post-Closing Adjustments. Following the Closing,
the Estimated
Purchase Price will be adjusted as follows (collectively, the
"Adjustments"):
(a) The Estimated Purchase Price shall be adjusted upward or
downward, as applicable,
by the difference between (i) the net book value on the Effective
Date of all Seller's depreciable
assets calculated in a manner mutually acceptable to Buyer and
Seller, and (ii) the net book value
of all Seller's depreciable assets as reflected in the June
Statement.
(b) The Estimated Purchase Price shall be adjusted upward or
downward, as applicable,
by the difference between (i) the gross amount of Seller's Accounts
Receivable as of the Effective
Date, and (ii) the gross amount of Seller's Accounts Receivable as
reflected in the June
Statement. The Estimated Purchase Price shall be further reduced by
an amount equal to the
value of any Accounts Receivable purchased by Buyer pursuant to the
Agreement which are not
paid within ninety (90) days after the Effective Date. During the
ninety (90) day period following
the Effective Date, Buyer shall use its best efforts to collect all
Accounts Receivable purchased
from Seller. At the end of the ninety (90) day period, Buyer shall
assign to Seller any such
Accounts Receivable which remain unpaid.
(c) The Estimated Purchase Price shall be adjusted upward or
downward, as applicable,
by the difference between (i) the value of Seller's inventories as
of the Effective Date, and (ii) the
value of Seller's inventories as reflected in the June Statement.
The value of Seller's inventories
as of the Effective Date shall be determined by a physical inventory
to be conducted by Seller
beginning on or about November 2, 1998, using procedures reasonably
acceptable to Buyer, to
be observed by Buyer and Buyer's auditors.
(d) The Estimated Purchase Price shall be adjusted upward or
downward, as applicable,
by the difference between (i) Seller's prepaid expenses as reflected
in the October Statement, and
(ii) such prepaid expenses as reflected in the June Statement.
(e) The Estimated Purchase Price shall be adjusted upward or
downward, as applicable,
by the difference between (i) Seller's total liabilities as
reflected in the October Statement and (ii)
such total liabilities as reflected in the June Statement.
Seller shall prepare the October Statement in a manner
mutually acceptable to Buyer and
Seller. Buyer will make available to Seller those employees of
Buyer who were previously
employees of Seller at no cost to Seller to complete the October
Statement. Seller shall deliver
the October Statement to Buyer within thirty (30) days after the
Effective Date. Buyer shall have
twenty (20) days from receipt of the October Statement to review,
analyze, audit and propose
changes to the October Statement. If any changes are proposed,
Buyer and Seller shall in good
faith as soon as reasonably possible reach agreement on the October
Statement and determine
the Adjustments and the Purchase Price. If they are unable to do so,
the specific matters in
dispute shall be submitted to a Big Six independent accounting firm
(other than Ernst & Young,
L.L.P.) as may be approved by Seller and Buyer. As expeditiously as
possible, and in any event
within ten (10) days of submission, such independent accounting firm
will deliver to Seller and
Buyer its determination of the specified matters in dispute, which
determination shall be final and
binding on the parties hereto. The fees and expenses of such
independent accounting firm shall
be borne on-half by Seller and one-half by Buyer. Immediately
thereafter, the remaining portion of
the Purchase Price owed to Seller, if any, shall be distributed from
the Hold-Back Account to
Seller, and the remaining balance of the Hold-Back Account shall be
distributed to Buyer. If the
Adjustments cause the Purchase Price to exceed the Estimated
Purchase Price by more than the
Five Hundred Thousand Dollars ($500,000) of Buyer's funds deposited
into the Hold-Back
Account by Buyer at the Closing Date, Buyer shall pay such
additional amount to Seller within ten
(10) days. If the Adjustments cause the Estimated Purchase Price to
exceed the Purchase Price
by more than the Five Hundred Thousand Dollars ($500,000) of the
Estimated Purchase Price
deposited into the Hold-Back Account at the Closing Date, Seller
shall pay such additional amount
to Buyer within ten (10) days.
SECTION 3.4. Hold-Back Account. On or before the Closing
Date, Buyer shall deposit
Five Hundred Thousand Dollars ($500,000) of the Estimated Purchase
Price plus an additional
Five Hundred Thousand Dollars ($500,000) into an escrow account held
by a mutually agreeable
escrow agent (the "Hold-Back Account") until the Adjustments have
been completed. The Hold-
Back Account shall be subject to the terms and conditions of an
Escrow Agreement in the form
attached hereto as Exhibit 3.4 and this Agreement.
ARTICLE 4
EARN-OUT PAYMENT
SECTION 4.1. Earn-Out. Seller (or any assignee
designated in writing by Seller) may be
entitled to receive additional payments from the Buyer which will be
based on the earnings of the
Business during the calendar years 1999, 2000 and 2001 (the "Earn-
Out"). The Earn-Out shall be
specifically allocable to goodwill, with the exception of that
portion that is required to be allocated
to original issue discount under the Internal Revenue Code and
related regulations. The Earn-Out
shall be determined and paid as follows:
(a) The Earn-Out shall be based on the net income of the
Business before income
tax. The net income shall be calculated using GAAP. In computing
net income for purposes of
the Earn-Out only, the following shall apply:
(i) Sales by the Business of its products to other Astec
subsidiaries or
Affiliates shall be valued at the Business' Dealer Net Price, unless
otherwise
agreed. Purchases by the Business of the products of other Astec
subsidiaries or
Affiliates shall be valued at the manufacturer's cost plus ten
percent (10%),
unless otherwise agreed.
(ii) The portion of the Purchase Price paid by Buyer to
Seller for goodwill
shall be amortized over twenty (20) years.
(iii) No interest, other than interest incurred on
obligations undertaken by
the Business from sources other than Astec, its subsidiaries or
Affiliates
(excluding Astec Financial Services, Inc.) shall be treated as an
expense. Only
general administrative or overhead expenses at the corporate level
of Astec
which are directly attributable to the Business shall be treated as
expenses.
(iv) Employee bonus payments, if any, calculated under
the Astec
subsidiary performance bonus plan, as in effect from time to time,
shall not be
treated as an expense.
(v) For calendar year 1999 only, fifty percent (50%) of
the amortized
portion of the purchase price allocated to goodwill will be added to
the net
income, and outside auditing fees allocated to the Business will not
exceed Fifty
Thousand Dollars ($50,000).
(b) The target net income (the "Target") before income tax
is as follows:
Year Target
1999 $3,120,000
2000 3,510,000
2001 3,900,000
(c) The base amount of the Earn-Out is One Million Eight
Hundred Fifty Thousand
Dollars ($1,850,000) per calendar year. In Buyer's discretion, the
Earn-Out may be paid in cash
or up to fifty percent (50%) in Astec's common stock. Any such
stock shall be subject to then-
current federal and state securities laws governing its disposition.
The Earn-Out shall be
distributed by March 31 (or as soon as practicable thereafter upon
completion of the annual audit)
following the end of the calendar year in which the Earn-Out was
earned. If the Earn-Out, or any
portion of it, is paid in Buyer's common stock, the value of the
stock shall be the closing market
price on the last trading day immediately before the effective date
of distribution.
(d) Seller shall receive a percentage of the Earn-Out equal
to the percentage of the
Target achieved; provided, however, if the net income of the
Business before income tax in any
calendar year is less than eighty percent (80%) of the Target,
Seller shall receive no Earn-Out for
such calendar year; further provided, however, that in no event
shall Seller receive more than one
hundred twenty percent (120%) of the Earn-Out in any calendar year.
SECTION 4.2. Continuation of Business and Seller. Buyer
shall operate the Business
as a separate legal entity until at least December 30, 2001.
ARTICLE 5
CLOSING
The closing of the sale and purchase of the Purchased Assets
and the assumption of the
Assumed Liabilities contemplated hereby (the "Closing") shall take
place at the offices of Arnold
Gallagher Saydack Percell & Roberts, P.C., 800 Willamette Street,
Suite 800, Eugene, Oregon
97400 at 10:00 a.m. on October 30, 1998 (the "Closing Date"), or at
such other time or place as
Seller and Buyer may mutually agree. The Closing shall be effective
at 12:01 a.m., Pacific Time,
on November 1, 1998 (the "Effective Date").
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE SHAREHOLDERS
The Seller and each Shareholder, jointly and severally,
represent and warrant to and
covenant with the Buyer as follows:
SECTION 6.1. Corporate Organization. Seller is a
corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation, and has all
requisite corporate power and authority to own its properties and
assets and to conduct its
businesses as now conducted. Seller is duly qualified to do
business as a foreign corporation and
is in good standing in every jurisdiction in which the character or
location of the assets owned or
leased by it or the nature of the business conducted by it makes
such qualification necessary.
SECTION 6.2 Subsidiaries. Seller has no interest, direct or
indirect, and has no
commitment to purchase any interest, direct or indirect, in any
other corporation, limited liability
company, partnership, joint venture or other business enterprise or
entity. The Business has not
been conducted through any direct or indirect subsidiary or
Affiliate of any of the Shareholders.
SECTION 6.3. Authorization and Validity of Agreements.
Seller has all requisite
corporate power and authority to enter into, execute and deliver
this Agreement and the other
agreements and instruments delivered by the Seller pursuant to this
Agreement and to carry out
its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the
other agreements and instruments delivered by the Seller pursuant to
this Agreement and the
performance of Seller's obligations hereunder and thereunder have
been duly authorized by all
necessary corporate action by the Shareholders and board of
directors of Seller, and no other
corporate proceedings on the part of Seller or the Shareholders are
necessary to authorize such
execution, delivery and performance. This Agreement and the other
agreements and instruments
delivered by the Seller and the Shareholders pursuant to this
Agreement have been duly executed
and delivered by Seller and the Shareholders and constitute the
legal, valid and binding obligation
of Seller and the Shareholders, enforceable against each Seller and
each Shareholder in accordance with its terms.
SECTION 6.4. No Conflict or Violation. The execution,
delivery and performance by
Seller and the Shareholders of this Agreement and the other
agreements and instruments
delivered by the Seller and the Shareholders pursuant to this
Agreement does not and will not
violate or conflict with, constitute a breach of or default under,
result in the loss of any benefit
under, or permit the acceleration of any obligation under (i) any
provision of any Seller's
Organizational Documents, (ii) any provision of law, or any order,
judgment or decree of any court
or other governmental or regulatory authority, domestic or foreign,
(iii) except with respect to
Assumed Liabilities, any contract, commitment, lease, loan agreement
or other agreement or
instrument to which Seller is a party or to which any of the
properties or assets of any Seller is
subject, (iv) result in the creation or imposition of any Lien upon
any of the Purchased Assets, or
(v) result in the cancellation, modification, revocation or
suspension of any of the Licenses and Permits.
SECTION 6.5. Consents and Approvals. Except as set forth
on Schedule 6.5, there are
no consents, orders, waivers, authorizations or approvals of any
governmental agency or public or
regulatory unit, agency, body or authority, or of any other Person,
that are required in connection
with (i) the execution and delivery by Seller and the Shareholders
of this Agreement and (ii) the
performance by Seller and the Shareholders of its obligations hereunder.
SECTION 6.6. Financial Statements. Attached as Schedule
6.6 are true and complete
copies of (i) the unaudited balance sheets of the Business of Seller
as of December 31, 1995,
1996 and 1997, the unaudited statements of earnings and source and
application of funds for the
periods ended on such dates, together with any notes and schedules
thereto, and (ii) the
unaudited balance sheet of the Business of Seller as of June 30,
1998, and the unaudited
statements of earnings and source and application of funds for such
period ended on such date.
The financial statements described in this Section 6.6, including
any notes and schedules thereto,
are referred to herein collectively as the "Financial Statements."
The Financial Statements
(i) present fairly the financial position, results of operations and
cash flows of the Business of
Seller as of the dates thereof and for the periods then ended in all
material respects, (ii) are
complete, correct and in accordance with the books of account and
records of Seller in all
materials respects, (iii) except for the June Statement, can be
legitimately reconciled with the
financial records maintained and the accounting methods applied by
it for federal income tax
purposes, and (iv) except for the June Statement and as otherwise
disclosed to Buyer in writing,
are prepared in accordance with GAAP, consistently applied.
SECTION 6.7. Absence of Certain Changes or Events. Since
June 30, 1998, there has
not been: (i) any material adverse change in the business,
operations, properties, condition
(financial or other) or prospects of the Business, taken as a whole,
and no factor or condition
exists and no event has occurred that would be likely to result in
any such change, (ii) any
material loss, damage, or other casualty to the Purchased Assets,
(iii) any loss of the
employment, services or benefits of any key Employee of any of the
Business, or (iv) any material
increase in compensation payable or benefits to directors, executive
officers or key Employees of
the Business. Since June 30, 1998 the Seller has operated the
Business in the ordinary course of
business consistent with past practice and has not: (i) incurred or
failed to pay or satisfy any
material obligation or liability (whether accrued, contingent or
otherwise) relating to the operations
of the Business except in the ordinary course of business consistent
with past practice,
(ii) incurred or failed to discharge or satisfy any Lien other than
Liens arising in the ordinary
course of business that do not, individually or in the aggregate,
interfere with the use, operation,
enjoyment or marketability of any of the Purchased Assets, all of
which shall be released as of the
Closing Date, (iii) sold or transferred any of the assets of the
Business or canceled any debts or
Claims or waived any rights material to the Business relating to the
operations of the Business,
(iv) defaulted on any material obligation relating to the operations
of the Business, or amended or
terminated any arrangement material to the Business or relating to
the Business, except in the
ordinary course of business consistent with past practice, or (vi)
entered into any agreement or
made any commitment to do any of the foregoing.
SECTION 6.8. Tax Matters. The Seller has provided true
and complete copies of all Tax
Returns filed since Seller's organization. All Tax Returns required
to be filed prior to or on the
Effective Date in respect of the Business have been (or will have
been by the Effective Date) filed,
and the Seller has (or will have by the Effective Date) paid,
accrued or otherwise adequately
reserved for the payment of all Taxes required to be paid in respect
of the periods covered by
such returns and has (or will have by the Effective Date) adequately
reserved for the payment of
all Taxes with respect to periods ended on or before the Effective
Date for which Tax Returns
have not yet been filed. The Seller has withheld and paid over all
Taxes which the Seller is
obligated to withhold from amounts paid or owing to any Employee,
independent contractor,
Shareholder, creditor or other third party. All of the Seller's
Taxes in respect of the Business have
been paid or adequately provided for and the Seller and Shareholders
know of no proposed
additional tax assessment against the Seller not adequately reserved
for in the Financial
Statements. There are no Liens on any of the assets of the Business
that arose in connection
with any failure (or alleged failure) to pay any Tax other than
Liens for Taxes not yet due. The
Seller has furnished to the Buyer correct and complete copies of all
notices and correspondence
sent or received since Seller's organization by the Seller to or
from any federal, state, local or
foreign tax authority with respect to the Business. The Seller is
not a party to any agreement with
respect to the sharing or allocation of Taxes or Tax costs.
SECTION 6.9. Compliance with Law. The operations of the
Business have been
conducted in accordance with all applicable laws, regulations,
orders and other requirements of all
courts and other governmental or regulatory authorities, domestic or
foreign, having jurisdiction
over Seller and its assets, properties and operations. Seller has
not received notice of any
violation of any such law, regulation, order or other legal
requirement, and is not in default with
respect to any order, writ, judgment, award, injunction or decree of
any national, state or local
court or governmental or regulatory authority or arbitrator,
domestic or foreign, applicable to the
Business or the Purchased Assets.
SECTION 6.10. Operation of the Business; Sufficiency of
Purchased Assets. No part of
the Business is operated by Seller through any Person other than
itself. Except as set forth
below, the Seller has good and marketable title to, or valid
leasehold interests in, all the
Purchased Assets and, upon consummation of the transactions
contemplated by this Agreement,
the Buyer will acquire good and marketable title to all the
Purchased Assets, free and clear, on the
Effective Date, of all Claims, Liens and objections or equities of
any kind except for the Assumed
Liabilities. The Purchased Assets comprise all assets and services
required for the continued
conduct of the Business by the Buyer as now being conducted. The
Purchased Assets are
adequate for the purposes for which such assets are currently used
or are held for use, and are in
good repair and operating condition (subject to normal wear and
tear) and there are no facts or
conditions affecting the Purchased Assets which could, individually
or in the aggregate, interfere
with the use or operation thereof as currently used or operated, or
their adequacy for such use.
Provided, however, that the parties acknowledge that, by letter to
the Seller dated September 25,
1998, Louis Johnson stated that he has withdrawn the use of the name
"Johnson" from Seller's or
Buyer's use in the Business. While Seller, on the advice of
counsel, believes the Buyer will have
the right to use the names "Johnson" and "Johnson Crushers
International" in the Business,
neither Seller nor the Shareholders warrant that Buyer will have the
use of such names free and
clear of any Claim or objection by Louis Johnson. Seller and each
of the Shareholders agree to
cooperate in all respects in Buyer's defense of any such Claim or
objection by Louis Johnson, or
in the prosecution of any Claim or objection by the Buyer against
Louis Johnson as a result of his
use of such names in a business similar to the Business. Further,
Seller and the Shareholders
agree that all reasonable expenses incurred by Buyer arising out of
such defense or prosecution
of Claims or objections shall be treated as expenses for purposes of
computing the Earn-Out
under Section 4.1(a) of this Agreement.
SECTION 6.11. Equipment and Machinery. Schedule 6.11 sets
forth a substantially
complete and substantially correct list of each item of the Seller's
Equipment and Machinery which
shall be made complete and correct as of the Closing Date. The
Seller has (or will have at the
time of the Closing) good title, free and clear of all Claims,
Liens, title defects and objections or
equities of any kind to the Equipment and Machinery and other
Purchased Assets owned by them
except for the Assumed Liabilities. Except as set forth on Schedule
6.11, the Seller holds good
and transferable leaseholds in all of the Equipment and Machinery
leased by the Seller, in each
case under valid and enforceable leases. Seller is not in default
with respect to any item of
Equipment and Machinery purported to be leased by it, and no event
has occurred that constitutes
or with due notice or lapse of time or both may constitute a default
under any lease thereof.
SECTION 6.12. Accounts Receivable. Schedule 6.12 sets forth
a complete and correct
list of all of Seller's Accounts Receivable, together with detailed
information as to each such
receivable which has been outstanding for more than thirty (30)
days.
SECTION 6.13. Customers. Schedule 6.13 sets forth the
names and addresses of all of
the Seller's customers as of June 30, 1998. None of the customers
as of the date hereof has
changed significantly, or, to the best knowledge of Seller, intends
to terminate or change
significantly its relationship with the Business. Schedule 6.13
shall be provided to Buyer at
Closing.
SECTION 6.14. Licenses and Permits. Schedule 6.14 sets
forth a true and complete list
of all of the licenses, permits, franchises, authorizations,
registrations, approvals and certificates
of occupancy (or their equivalent) issued or granted to the Seller
with respect to the Business by
the government of the United States or of any state, city,
municipality, county or town thereof, or
of any foreign jurisdiction, or any department, agency, board
division, subdivision, audit group or
procuring office, commission, bureau or instrumentality of any of
the foregoing (the "Licenses and
Permits"), and all pending applications therefor. Except as set
forth on Schedule 6.14, to the best
knowledge of Seller, each of the Seller's Licenses and Permits has
been duly obtained, is valid
and in full force and effect, and is not subject to any pending or
threatened administrative or
judicial proceeding to revoke, cancel, suspend or declare such
Licenses and Permits invalid in
any respect.
SECTION 6.15. Litigation. Except as set forth on Schedule
6.15, there are no Claims
pending or, to the best knowledge of Seller, threatened, before any
national, state or local court or
governmental or regulatory authority, domestic or foreign, or before
any mediator or arbitrator of
any nature, brought by or against Seller or its respective
Shareholders, officers, directors,
employees, agents or Affiliates involving, affecting or relating to
the Business, the Purchased
Assets or the transactions contemplated by this Agreement, nor is
any basis known to Seller or
the Shareholders for any such Claim. Neither the Business nor the
Purchased Assets are subject
to any order, writ, judgment, award, injunction or decree of any
national, state or local court or
governmental or regulatory authority or arbitrator, domestic or
foreign, that affects or might affect
any of the Business or the Purchased Assets, or that would or might
interfere with the transactions
contemplated by this Agreement.
SECTION 6.16. Contracts. To the best of Seller's
knowledge, Schedule 6.16 sets forth a
complete and correct list of Seller's contracts, agreements and
other instruments and
arrangements (whether written or oral) (a) by which any of the
Purchased Assets are bound or
affected, or (b) to which Seller or any Shareholder is a party or by
which it is bound, in connection
with the Business or the Purchased Assets (the "Contracts"),
including but not limited to: (i)
arrangements with customers in which the value of the goods sold or
service performed does or
will exceed $5,000 or extend more than three months; (ii) leases,
licenses, permits, insurance
policies and other arrangements concerning or relating to real
estate; (iii) employment, consulting,
collective bargaining or other similar arrangements relating to or
for the benefit of current, future or
former employees, agents, and independent contractors or
consultants; (iv) agreements and
instruments relating to the borrowing of money or obtaining of or
extension of credit; (v) brokerage
or finder's agreements; (vi) contracts involving a sharing of
profits or expenses of the Business;
(vii) acquisition or divestiture agreements; (viii) service
agreements, manufacturer's representative
agreements, dealer agreements or distributorship agreements; (ix)
arrangements limiting or
restraining Seller with respect to the Business from engaging or
competing in any lines of
business or with any Person; and (x) any other agreements or
arrangements material to the
Business.
All of the Contracts are in full force and effect and are
valid, binding and enforceable
against the parties thereto in accordance with their terms. Seller
has and, to the best knowledge
of Seller, each other party to the Contracts has, performed all
obligations required to be performed
by it to date under, and are not in default or delinquent in
performance, status or any other respect
(claimed or actual) in connection with, the Contracts, and no event
has occurred which, with due
notice or lapse of time or both, would constitute such a default.
The enforceability of the
Contracts will not be affected in any manner by the execution,
delivery and performance of this
Agreement. To the best knowledge of Seller, the Seller has
delivered to the Buyer or its
representatives true and complete originals or copies of all the
Contracts.
SECTION 6.17. Labor Matters. Except as set forth in
Schedule 6.17, Seller is not (i) a
party to any employment agreements with employees that are not
terminable at will, or that
provide for the payment of any bonus or commission, (ii) a party to
any agreement, policy or
practice that requires it to pay termination or severance pay to
salaried, non-exempt or hourly
employees of the Business (other than as required by law, (iii) a
party to any collective bargaining
agreement or other labor union contract applicable to employees of
the Business nor does Seller
know of any activities or proceedings of any labor union to organize
any such employees, and (iv)
a party to or subject to any conciliation agreements, consent
decrees or settlements with respect
to the Business or its employees.
Except as set forth in Schedule 6.17: (i) the Seller is in
compliance with all applicable laws
relating to employment and employment practices, wages, hour, and
terms and conditions of
employment in each case relating to the Business, (ii) there is no
unfair labor practice charge or
complaint pending before the National Labor Relations Board ("NLRB")
relating to the Business,
or, to the best knowledge of Seller, threatened against any of the
Business, (iii) there is no labor
strike, material slowdown or material work stoppage or lockout
pending or, to the best knowledge
of Seller, threatened against or affecting the Business, and Seller
has not experienced any strike,
slowdown or work stoppage, lockout or other collective labor action
by or with respect to
employees of the Business, (iv) there is no representation, Claim or
petition pending before the
NLRB or any similar agency and no question concerning representation
exists relating to the
employees of the Business, (v) there are no charges with respect to
or relating to the Business
pending before the Equal Employment Opportunity Commission or any
other federal, state or local
agency responsible for the prevention of unlawful employment
practices, and (vi) Seller has not
received notice from any national, state or local agency responsible
for the enforcement of labor
or employment laws of an intention to conduct an investigation of it
relating to the Business and no
such investigation is in progress.
Seller has previously provided Buyer with copies of all
employee manuals, policies,
procedures and work-related rules that apply to employees of the
Business.
SECTION 6.18. Employee Plans. Except as set forth in
Schedule 6.18, Seller does not
maintain or have any obligation to contribute to any pension,
savings, retirement, health, life,
disability, other insurance, severance, bonus, incentive
compensation, stock option or other
equity-based or other employee benefit or fringe benefit plans with
respect to the Business
(collectively referred to herein as the "Plans"). Seller has
incurred no liability under Title IV of
ERISA or Section 412 of the Code, except for any such liability
which has been satisfied in full,
and no events have occurred and no circumstances exist that could
reasonably be expected to
result in any such liability to Seller.
SECTION 6.19. Insurance. Schedule 6.19 lists all fire,
theft, casualty, liability and other
insurance policies insuring Seller or its properties or interests
therein, specifying with respect to
each such policy the name of the insurer, the risk insured against,
the limits of coverage, the
deductible amount (if any), the premium rate and the date through
which coverage will continue by
virtue of premiums already paid. The Seller shall maintain the
coverage under all policies listed in
Schedule 6.19 in full force and effect through the Effective Date,
shall comply with Section 8.13
below, and shall also assist Buyer with arrangements to have
ownership of all of Seller's
insurance transferred to Buyer as of the Effective Date.
SECTION 6.20. Environmental Matters. For the purposes of
this Section 6.20 only,
"knowledge" means: (1) actual knowledge at any time or (2) knowledge
that would exist upon
reasonable inquiry while the Real Property was under Seller's
control. To Seller's knowledge, the
Real Property, and all uses and conditions of the Real Property and
the Business, have been and
are in compliance with all Environmental Laws, and neither the
Seller nor the Shareholders have
received any notice of violation or other communication or have
knowledge of any facts or
circumstances concerning any alleged violation or liability arising
under any Environmental Law
with respect to the Real Property or the Business or any use or
condition thereof. To Seller's
knowledge, all Licenses and Permits, if any, required under all
Environmental Laws have been
obtained and maintained in effect for the Business and the Purchased
Assets. To Seller's
knowledge, Seller has not performed or suffered any act which would
give rise to, or has
otherwise incurred, liability to any Person under the Comprehensive
Environmental Response,
Compensation and Liability, Act, 42 U.S.C. 9601 et seq ("CERCLA")
or any other Environmental
Law, nor has Seller received notice of any such liability or any
Claim therefor or submitted notice
pursuant to Section 103 of CERCLA to any governmental agency nor
provided information in
response to a request for information pursuant to Section 104(e) of
CERCLA or any analogous
state or local information gathering authority. To Seller's
knowledge, as of the date hereof, and as
of the Effective Date, no Hazardous Substance has been released,
placed, dumped or otherwise
come to be located on, at, beneath or near any of the properties
presently or previously owned or
leased by Seller or any surface waters or ground waters thereon or
thereunder; provided,
however, that Buyer acknowledges receiving notice from Seller of
remediation activities previously
conducted by Cedar Rapids in connection with a tank removal on the
property currently leased by
Seller and located at 3440 Franklin Blvd., Eugene, Oregon. Except
as aforesaid and as set forth
in Schedule 6.20, as of the date hereof, and as of the Effective
Date, to Seller's knowledge there
have been and are no above-ground or underground storage tanks or
asbestos-containing
materials located at or within the properties presently or
previously owned or leased by Seller. To
Seller's knowledge, as of the date hereof, and as of the Effective
Date, no properties owned or
leased (or previously owned or leased, if any) by the Seller are
identified or proposed for listing on
the National Priorities List under 40 C.F.R. 300 Appendix B, the
Comprehensive Environmental
Response Compensation and Liability Inventory System ("CERCLIS") or
any analogous list of any
state or foreign government and Seller, as of the date hereof, and
as of the Effective Date, has no
knowledge of any conditions on such properties which, if known to a
governmental authority,
would qualify such properties for inclusion on any such list. The
Seller has furnished the Buyer
with copies of all environmental studies, assessments or reports, if
any, with respect to the
Business. To Seller's knowledge, as of the date hereof, and as of
the Effective Date, none of the
properties leased or previously owned or leased by Seller, or any
current or previous business
operations conducted by Seller, are the subject of any investigation
respecting any violation of any
Environmental Law, or any releases of Hazardous Substances into any
surface water, ground
water, drinking water supply, land surface or subsurface strata, or
ambient air. Seller has not
reported any material violation of any applicable Environmental Law
to any governmental
authority. To Seller's knowledge, Seller has not sent, transported,
or directly arranged for the
transport of any garbage, solid waste or Hazardous Substance,
whether generated by it or
another Person to any site listed on the National Priorities List or
proposed for listing on the
National Priorities List or to a site included on the CERCLIS list,
or any state list of sites requiring
investigation or remedial action as a result of environmental
issues. To Seller's knowledge, as of
the date hereof, and as of the Effective Date, there is not now, nor
has there ever been on or in
any properties previously leased or owned by Seller, any generation,
treatment, recycling, storage
or disposal of any hazardous waste, as that term is defined under 40
C.F.R. Part 261 or any state
equivalent. Seller has, from time to time maintained and utilized
certain Hazardous Substances in
the ordinary course of its business and, to Seller's knowledge, the
storage and use of any and all
such substances have been in compliance with all applicable
Environmental Laws.
SECTION 6.21. Shareholders. Each Shareholder is the
lawful record and beneficial
owner of the number of shares of Seller's capital stock set opposite
his name on Schedule 6.21,
free and clear of any liens, claims, encumbrances or any
restrictions of any kind, and all such
shares are validly issued and outstanding.
SECTION 6.22. Solvency. Seller is not insolvent and will
not be rendered insolvent as a
result of the sale and transfer of the Purchased Assets to Buyer and
the consummation of the
transactions contemplated by this Agreement.
SECTION 6.23. Absence of Undisclosed Liabilities. To the
best of Seller's knowledge,
Seller and each Shareholder have no potential or existing
liabilities or obligations with respect to
the Business, either direct or indirect, matured or unmatured or
absolute, contingent or otherwise,
except those liabilities or obligations set forth on the June and
October Statements. For purposes
of this Agreement, the term "liabilities" shall include, without
limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation
or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
SECTION 6.24. Books of Account. The books, records and
accounts of Seller maintained
with respect to the Business accurately reflect, in reasonable
detail, the transactions and the
assets and liabilities of Seller with respect to the Business.
Seller has not engaged in any
transaction with respect to the Business, maintained any bank
account for the Business or used
any of its funds in the conduct of the Business except for
transactions, bank accounts and funds
which have been and are reflected in the normally maintained books
and records of the Business.
SECTION 6.25. Intellectual Property Matters. Schedule
6.25 sets forth the correct and
complete list of (i) all patents, trademarks, trade names and
registered copyrights owned by the
Seller or any Shareholder and used in the Business (collectively,
the "Proprietary Intellectual
Property") and (ii) all patents, trademarks, trade names,
copyrights, technology and processes
used by the Seller pursuant to a license or other right granted by a
third party (collectively, the
"Licensed Intellectual Property", and together with the Proprietary
Intellectual Property herein
referred to as "Intellectual Property"). The Seller owns, or has
the right to use pursuant to valid
and effective agreements, all Intellectual Property, and the
consummation of the transactions
contemplated hereby will not alter or impair any such rights. No
claims are pending or, to the best
knowledge of Seller, threatened against the Seller by any person
with respect to the use of any
Intellectual Property or challenging or questioning the validity of
the effectiveness of any license or
agreement relating to the same. The current use by Seller of the
Intellectual Property does not
infringe on the rights of any person. There are no pending claims
or charges brought by the Seller
against any person with respect to the use of any Intellectual
Property or the enforcement of any
of the Seller's rights relating to the Intellectual Property.
SECTION 6.26. Real Property. The Real Property is
currently zoned so as to allow Seller
to conduct the Business as it is presently conducted and, to the
best knowledge of Seller, there
are no threatened changes in such zoning. Seller has not assigned,
transferred, conveyed,
leased, subleased, licensed, mortgaged, deeded in trust or
encumbered any interest in the Real
Property; except as set forth in Schedule 6.14, all facilities
located on the Real Property have
received all approvals of governmental authorities (including
Licenses and Permits) required in
connection with the operation thereof and have been operated and
maintained in accordance with
applicable laws, rules and regulations; and all facilities located
on the Real Property are supplied
with utilities and other services necessary for the operation of
said facilities after the Effective
Date, have adequate ingress and egress and there are no pending, or
to the best knowledge of
Seller, threatened condemnation, proceedings or other actions or
events which would limit or
otherwise threaten ingress, egress or access to the facilities.
SECTION 6.27 Year 2000 Compliance. To the best knowledge
of Seller, the computer
software, computer hardware (whether general or specific purpose),
imbedded microcontrollers in
non-computer equipment, and other similar and related items of
automated, computerized, or
software systems (collectively, "Information Technology") that are
used or relied on by the Seller
in the conduct of the Business, is designed to be used prior to,
during, and after the calendar year
2000 A.D., and the Information Technology used during each such time
period will accurately
receive, provide and process date/time data (including, but not
limited to, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-
first centuries, including the
years 1999 and 2000, and leap-year calculations and will not
malfunction, cease to function, or
provide invalid or incorrect results as a result of date/time data,
to the extent that other Information
Technology, used in combination with the Information Technology of
the Seller, properly
exchanges date/time data with it.
SECTION 6.28. Accuracy of Information. No
representations, warranties or statements
made by the Seller in this Agreement, in the schedules and exhibits
hereto or in any other
document delivered to the Buyer in connection with the transactions
contemplated by this
Agreement, contain any untrue statement of a material fact or omit
to state any material fact
necessary in order to make any of such representations, warranties
or statements, in light of the
circumstances under which they were made, not misleading. All
information relating to the
Business that is known or would on reasonable inquiry be known to
Seller and that may be
material to a purchaser of the Purchased Assets has been disclosed
in writing to the Buyer and
any such information arising on or before the Effective Date will
forthwith be disclosed in writing to
the Buyer.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as
follows:
SECTION 7.1. Corporation Organization. The Buyer is a
corporation duly organized and
validly existing under the laws of the State of Tennessee, and has
all requisite corporate power
and authority to own its properties and assets and to conduct its
businesses as now conducted.
SECTION 7.2. Authorization and Validity of Agreements.
The Buyer has all requisite
corporate power and authority to enter into this Agreement and the
other agreements and
instruments delivered by the Buyer under this Agreement and to carry
out its obligations
hereunder and thereunder. The execution and delivery of this
Agreement and the other
agreements and instruments delivered by the Buyer under this
Agreement and the performance of
the Buyer's obligations hereunder and thereunder have been duly
authorized by all necessary
corporation action by the board of directors of the Buyer, and no
other corporate proceedings on
the part of the Buyer are necessary to authorize such execution,
delivery and performance. This
Agreement and the other agreements and instruments delivered by the
Buyer under this
Agreement have been duly executed by the Buyer and constitute its
legal, valid and binding
obligations, enforceable against it in accordance with their
respective terms.
SECTION 7.3. No Conflict or Violation. The execution,
delivery and performance by the
Buyer of this Agreement and the other agreements and instruments
delivered by the Buyer under
this Agreement do not and will not violate or conflict with any
provision of the Organizational
Documents of the Buyer and do not and will not violate any provision
of law, or any order,
judgment or decree of any court or other governmental or regulatory
authority, nor violate nor will
result in a breach of or constitute (with due notice or lapse of
time or both) a default under any
contract, lease, loan agreement, mortgage, security agreement, trust
indenture or other
agreement or instrument to which the Buyer is a party or by which it
is bound or to which any of its
properties or assets is subject.
ARTICLE 8
COVENANTS OF THE SELLER
SECTION 8.1 Conduct of Business Before the Effective Date.
(a) Without the prior written consent of the Buyer,
between the date hereof
and the Effective Date, Seller shall not, except as required or
expressly permitted pursuant to the
terms hereof (in each case with respect to the Business):
(i) make any sale, transfer, or other conveyance
of the Purchased
Assets or any part thereof, except transactions pursuant to the
Contracts, dispositions of
worn-out or obsolete Equipment and Machinery for fair or reasonable
value or otherwise
in the ordinary course of business consistent with past practice;
(ii) subject any of the Purchased Assets to any Lien;
(iii) take any action that would cause any of the
representations and
warranties made by it in this Agreement not to remain true and correct;
(iv) write down or write off as uncollectible any
Accounts Receivable
except in the ordinary and regular course of business, consistent
with past practice;
(v) settle, release or forgive any Claim or
litigation or waive any right thereto with respect to the Business;
(vi) make, enter into, modify, amend in any
material respect or terminate
any of the Contracts, bids or expenditures with respect to the
Business involving an expenditure of more than $5,000;
(vii) make, change or revoke any election or
method of accounting with
respect to Taxes affecting or relating to the Business;
(viii) enter into, or permit to be entered into,
any closing or other
agreement or settlement with respect to Taxes affecting or relating
to the Business, or
(ix) amend its Certificate of Incorporation or Bylaws;
(x) redeem, purchase or otherwise acquire any
shares of the capital
stock or other securities of the Seller or rights or obligations
convertible into and
exchangeable for any shares of the capital stock or other securities
of the Seller or
obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(xi) acquire or enter into any agreement to
acquire, by merger,
consolidation or purchase of stock or assets, any business or entity; and
(xii) commit to do any of the foregoing.
(b) From and after the date hereof through the Effective Date, Seller shall:
(i) carry on the Business in the ordinary and
regular course of business,
consistent with past practice and in substantially the same manner
as heretofore conducted;
(ii) use its best efforts to preserve intact the
corporate existence, good
will and business organization of the Seller, to keep the officers
and employees of the
Seller available to the Buyer and to preserve the relationships of
the Seller with suppliers,
customers and others having business relations with any of them;
(iii) continue to maintain, in all material
respects, the Purchased Assets
in accordance with present practice in a condition suitable for
their current use;
(iv) file, when due or required, national,
state, foreign and other Tax
Returns required to be filed and pay when due all Taxes, unless the
validity thereof is
contested in good faith and by appropriate proceedings diligently conducted;
(v) keep the Files and Records in the ordinary
course of business consistent with past practice;
(vi) provide to the Buyer all regular financial
reports distributed,
which shall, at a minimum, include monthly (A) balance sheets, (B)
reconciliations of bank
accounts, (C) summary of monthly updated customer account status reports, and
(D) monthly gross revenues and expenses (i.e., a profit and loss statement); and
(vii) notify the Buyer no later than three (3)
Business Days following the
date of any notice or other communication from any governmental or
regulatory authority,
in connection with the transactions contemplated by this Agreement.
SECTION 8.2. Consents and Approvals. Between the date
hereof and the Effective
Date, Seller (a) shall, at its cost and expense, use its reasonable
best efforts to obtain all
necessary consents, waivers, and approvals of any party including,
without limitation, any lessors
or owners of Real Property or any governmental and regulatory
authorities, and of all other
Persons required in connection with the execution, delivery and
performance by it of this
Agreement, and (b) shall diligently assist and cooperate with the
Buyer in preparing and filing all
documents, including permit, transfers, modifications and
applications required to be submitted by
the Buyer to any governmental or regulatory authority, in connection
with such transactions and in
obtaining any governmental consents, waivers, authorizations or
approvals which may be required
to be obtained by the Buyer in connection with such transactions
(which assistance and
cooperation shall include without limitation timely furnishing to
the Buyer determines is required to
be included in such documents or would be helpful in obtaining any
such consent, waiver,
novation, authorization or approval).
SECTION 8.3 Access to Properties and Records. Seller shall
afford to the Buyer, and
to the accountants, counsel, agents and representatives of the
Buyer, upon reasonable notice, full
access during normal business hours throughout the period from the
date hereof through the
Effective Date (or the earlier termination of this Agreement
pursuant to Article 15) to all properties,
books, Contracts and Files and Records (including but not limited to
Tax Returns and
correspondence with accountants) of the Seller relating to the
Business and, during such period,
shall furnish promptly to the Buyer all other information concerning
the Business and any of the
Seller's properties and personnel as the Buyer may reasonably
request; provided, that no
investigation or receipt of information pursuant to this Section 8.3
shall qualify any representation
or warranty of the Seller or the conditions to the obligations of
the Buyer. The Seller shall afford to
the Buyer full access to the Business, all operations of the
Business and to all the Purchased
Assets throughout the period from the date hereof through the
Effective Date. In addition to the
foregoing, the Seller shall provide to the Buyer all environmental
studies and reports, if any,
pertaining to the Business or the Purchased Assets and Seller
acknowledges that the Buyer's
investigation pursuant to this Section 8.3 may include without
limitation testing of the soil,
groundwater, building components, tanks and other equipment.
SECTION 8.4. Acquisition Proposals. During the period
prior to the Effective Date,
neither the Seller nor any of their respective officers,
shareholders, directors, employees or
agents shall, directly or indirectly, through any officer,
shareholder, director, agent, representative
(including, without limitation, investment bankers, attorneys and
accountants) or otherwise, (i)
solicit, initiate or encourage submission of inquiries, proposals or
offers from any person,
corporation, partnership or other entity or group other than the
Buyer (a "Third Party"), relating to
any acquisition or purchase of all or a portion of the Purchased
Assets or any equity interest in the
Seller; or (ii) participate in any discussions or negotiations
regarding, or furnish to any Third Party
any information with respect to, or otherwise cooperate in any way
with, or assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to
do or seek any of the foregoing.
The Seller shall promptly notify the Buyer if any such proposal or
offer, or any inquiry or contact
with any Third Party with respect thereto, is made, and shall in any
such notice set forth in
reasonable detail the identity of the Third Party and the terms and
conditions of such inquiry,
proposal or offer.
SECTION 8.5. Further Assurances. Without limiting the
provisions of Section 8.5 hereof,
at any time prior to five (5) years from the Effective Date, upon
the request of the Buyer at any
time after the Effective Date, the Seller and the Shareholders shall
execute and deliver, without
any payment by the Buyer, such further instruments of assignment,
transfer, conveyance,
endorsement, direction or authorization and other documents as the
Buyer or its counsel may
request to perfect title of the Buyer and its successors and assigns
to the Purchased Assets or
otherwise to effectuate the purposes of this Agreement.
SECTION 8.6. Best Efforts. Subject to the terms and
conditions set forth in this
Agreement, the Seller shall use its reasonable best efforts to take,
or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or
advisable consistent with
applicable law to consummate and make effective in the most
expeditious manner practicable the
transactions contemplated hereby.
SECTION 8.7. Employment Agreements. On or before the
Closing Date, each of the
Shareholders shall execute an Employment Agreement with Buyer's
designee in form
substantially similar to that attached hereto as Exhibit 8.7.
SECTION 8.8. Non-Solicitation of Employees. The Seller
and the Shareholders and
each Affiliate of the Seller or the Shareholders acknowledges and
agrees that the value to the
Buyer of the transactions contemplated by this Agreement would be
substantially diminished if the
Seller or any of their Affiliates were to solicit the employment of
certain employees of the Seller
who are employed in the Business. The Seller and the Shareholders
agree, for the five (5) year
period commencing on the Effective Date, not to make, offer, solicit
or induce any person who
was, on the date hereof, an employee of the Seller to enter into any
written or oral arrangement,
agreement or understanding regarding employment or retention as a
consultant without the prior
written consent of the Buyer.
SECTION 8.9. Notice of Breach. Through the Effective
Date, the Seller and each
Shareholder shall promptly give the Buyer written notice with
particularity upon having knowledge
of any matter that may constitute a breach of any representation,
warranty, agreement or
covenant contained in this Agreement.
SECTION 8.10. Assignment of Contracts and Warranties. At
the Closing and effective as
of the Effective Date, the Seller shall assign to the Buyer all its
rights under the Contracts
specifically designated by the Buyer to the Seller. Notwithstanding
the foregoing, this Agreement
shall not constitute an agreement to assign or transfer any Contract
if an assignment or transfer or
an attempt to make such an assignment or transfer without the
consent of a third party would
constitute a breach or violation thereof or affect adversely the
rights of the Buyer or Seller
thereunder; and any transfer or assignment to the Buyer by Seller of
any interest under any such
Contract that requires the consent or approval of a third party
shall be made subject to such
consent or approval being obtained. In the event any such consent
or approval is not obtained on
or prior to the Closing Date and the Buyer waives as of the Closing
Date the condition that such
consent or approval be obtained, the Seller shall continue to use
all reasonable efforts to obtain
any such consent or approval after the Closing Date until such time
as such consent or approval
has been obtained, and Seller will cooperate with the Buyer in any
lawful arrangement to provide
that the Buyer shall receive the interest of Seller in the benefits
under any such Contract;
provided, however, that the Buyer shall undertake to pay or satisfy
the corresponding liabilities for
the enjoyment of such benefit to the extent the Buyer would have
been responsible therefor
hereunder if such consent or approval had been obtained as of the
Closing Date. Except with
respect to Assumed Liabilities, the Seller shall pay and discharge,
and shall indemnify and hold
the Buyer harmless from and against, any and all out-of-pocket costs
of seeking to obtain or
obtaining any such contractual consent or approval whether before or
after the Closing Date.
Nothing in this Section 8.10 shall be deemed a waiver by the Buyer
of its right to have received on
or before the Closing Date an effective assignment of all of the
Contracts it has requested be
assigned to it nor shall this Section 8.10 be deemed to constitute
an agreement to exclude any
Contracts from the terms of this Agreement.
SECTION 8.11. Bulk Sales Compliance. Buyer and Seller
hereby waive compliance with
the "Bulk Transfer" provisions of the Uniform Commercial Code and
any other applicable bulk
sales laws of any state with respect to the transactions
contemplated by this Agreement. Seller
agrees to indemnify and hold Buyer harmless from any Claims relating
to the failure to comply
with such laws.
SECTION 8.12. Use of Name. Except to the extent
reasonably necessary to permit Seller
to defend itself from any pending or future Claim for which it is
obligated to provide a defense
hereunder, if any, as of the Effective Date, Seller shall cease
using the names "Johnson Crushers
International" and "JCI" without the prior written approval of
Buyer. Accordingly, Seller shall
amend its charter effective as of the Effective Date to eliminate
such names and any confusingly
similar names from its corporate name. Seller shall deliver such
amendment to Buyer at Closing.
SECTION 8.13. Insurance Coverage. Effective no later than
the Closing Date, Seller
shall cause Buyer to be named as an additional insured with respect
to the policies of insurance
described on Schedule 6.19 and, at Closing, shall furnish Buyer with
certificates of insurance
evidencing such insurance coverage.
SECTION 8.14. Discharge of Business Obligations. On or
before the Closing Date, Seller
shall pay and discharge all Excluded Liabilities. Provided,
however, that in the case of those
Excluded Liabilities not known at the Closing Date, Seller shall
immediately pay and discharge
such Excluded Liabilities upon Seller's knowledge thereof. Seller
shall indemnify and hold Buyer
harmless from any Claims relating to the failure to pay and
discharge such Excluded Liabilities.
SECTION 8.15. Payments Received. Seller and Buyer each
agree that after the Closing
they will hold and will promptly transfer and deliver to the other,
from time to time as and when
received by them, any cash, checks with appropriate endorsements
(using their best efforts not to
convert such checks into cash), or other property that they may
receive on or after the Closing
which properly belongs to the other party including, without
limitation, any insurance proceeds.
After the Closing, Buyer shall have the right and authority to
endorse without recourse the name
of Seller on any check or any other evidences of indebtedness
received by Buyer on account of
the Business and the Purchased Assets transferred to Buyer
hereunder.
SECTION 8.16. Inquiries. After the Effective Date, Seller
will promptly refer all inquiries
with respect to ownership of the Purchased Assets or the Business to
Buyer.
ARTICLE 9
COVENANTS OF THE BUYER
SECTION 9.1. Actions Before the Effective Date. Prior to
the Effective Date, the Buyer
shall not take any action which shall cause it to be in breach of
any of its representations,
warranties, covenants or agreements contained in this Agreement.
The Buyer shall use its
reasonable efforts to perform all obligations and satisfy all
conditions to Closing to be performed
or satisfied by the Buyer under this Agreement as soon as
practicable, but in no event later than
the Closing Date.
SECTION 9.2. Consents and Approvals. The Buyer shall, at
its cost and expense, use
its reasonable efforts to obtain all necessary consents and
approvals of third parties required to be
obtained by the Buyer to effect the transactions contemplated by
this Agreement.
SECTION 9.3. Best Efforts. Subject to the terms and
conditions set forth in this
Agreement, the Buyer shall use its reasonable best efforts to take,
or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or
advisable consistent with
applicable law to consummate and make effective in the most
expeditious manner practicable the
transactions contemplated hereby.
SECTION 9.4. Notice of Breach. Through the Effective
Date, the Buyer shall promptly
give Seller written notice with particularity upon having knowledge
of any matter that may
constitute a breach of any representation, warranty, agreement or
covenant contained in this
Agreement.
ARTICLE 10
EMPLOYEES AND EMPLOYEE PLANS
SECTION 10.1. Offer of Employment. The Buyer may, but
shall not be required to, offer
employment to non-Shareholder individuals who are employees of the
Business effective as of the
Effective Date ("Employees") in accordance with Buyer's normal
hiring practices. Seller shall
cooperate with all requests made by the Buyer for the purpose of
facilitating the Buyer's hiring of
such Employees. For purposes of this Agreement, "Transferred
Employees" shall mean all such
Employees to whom employment is offered as provided above and who
accept employment with
the Buyer, including without limitation those on medical, disability
or other leave of absence,
provided that Employees on leave shall not be considered Transferred
Employees until the date
on which each such Employee is released by the Employee's physician
to return to work and the
Employee actually returns to work. Seller shall be responsible for
giving any notices required
under the Worker Adjustment and Retraining Notification Act ("WARN")
to employees of the
Business terminated on or prior to the Effective Date, and who do
not immediately become
Transferred Employees. Seller shall terminate its 401(k) retirement
plan effective as of the
Effective Date, and shall take appropriate action to obtain Internal
Revenue Service approval of
such termination.
SECTION 10.2. Rights. Nothing herein expressed or implied
shall confer upon any
Transferred Employee or other non-Shareholder employee or former
employee of the Seller or
legal representatives thereof, any rights or remedies, including
without limitation any right to
employment or continued employment for any specified period, of any
nature or kind whatsoever,
or any right to specific terms or conditions of employment
(including rate of pay, fringe benefits or
position) under or by reason of this Agreement.
ARTICLE 11
TAXES
SECTION 11.1. Taxes. The Buyer shall timely pay any and
all sales, use, transfer, or
similar Taxes ("Transfer Taxes") which result from the transfer of
the Purchased Assets, Assumed
Liabilities or the Business pursuant to this Agreement and shall
prepare and file any related Tax
Returns required to be filed in connection with the payment of such
Transfer Taxes on a timely
basis.
SECTION 11.2. Cooperation on Tax Matters. The Buyer and
the Seller agree to furnish
or cause to be furnished to each other, as promptly as practicable,
such information and
assistance relating to the Business as is reasonably necessary for
the preparation and filing of
any Tax Return, Claim for refund or other required or optional
filings relating to tax matters, for the
preparation for and proof of facts during any tax audit, for the
preparation for any tax protest, for
the prosecution or defense of any suit or other proceeding relating
to tax matters and for the
answer to any governmental or regulatory inquiry relating to tax
matters.
The Buyer agrees to retain possession of all accounting,
business, financial and tax
records and information (i) relating to the Business in existence on
the Effective Date transferred
to the Buyer hereunder and (ii) coming into existence after the
Effective Date which relate to the
Business prior to or on the Effective Date, for the period not to
exceed six (6) years from the
Effective Date. In addition, from and after the Effective Date, the
Buyer agrees that it will not
unreasonably withhold access by the Seller and its attorneys,
accountants and other
representatives (after reasonable notice and during normal business
hours and with reasonable
charge, except no charge shall be owed for access to 1998 payroll
and income tax matters), to
such personnel, books, records, documents and any or all other
information relating to the
Business as the Seller may reasonably deem necessary to properly
prepare for, file, prove,
answer, prosecute or defend any such Tax Return, filing, audit,
protest, Claim, suit, inquiry or
other proceeding. Such access shall include without limitation
access to any computerized
information retrieval systems relating to the Business.
SECTION 11.3. Allocation of Purchase Price and Purchase
Price Allocation Forms. The
Buyer and the Seller shall have prepared a preliminary allocation of
the Purchase Price and the
Assumed Liabilities among the Purchased Assets (any agreed
allocation hereinafter referred to as
the "Allocation") prior to the Closing Date. The Buyer and the
Seller agree that the final Allocation
shall be made pursuant to the following procedure: after Payment of
the Purchase Price, the
Buyer shall deliver to the Seller an allocation of the Purchase
Price and Assumed Liabilities
among the Purchased Assets ("Buyer's Appraisal"). The Seller shall
accept and agree to the
Allocation unless such Allocation is manifestly unreasonable, in
which case the Seller shall deliver
written notice to the Buyer within 30 days after the Seller's
receipt of the Buyer's Appraisal. If the
Seller so objects to the Allocation based upon the Buyer's
Appraisal, the Seller and the Buyer
shall prepare separate Allocations of the Purchase Price and Assumed
Liabilities among the
Purchased Assets. The Buyer and the Seller further agree to act in
accordance with the
Allocation, if any, in any Tax Returns or similar filings. In the
event that any tax authority disputes
the Allocation, if any, the Seller or the Buyer, as the case may be,
shall promptly notify the other party of the nature of such dispute.
SECTION 11.4. Proration of Personal Property Taxes.
Personal property taxes and
assessments on the Purchased Assets shall be prorated between the
Buyer and the Seller as of
the Effective Date. All such prorations shall be allocated so that
items relating to time periods
ending on or prior to the Effective Date shall be allocated to the
Seller and items relating to time
periods beginning after the Effective Date shall be allocated to the
Buyer. The amount of all such
prorations shall be settled and paid on the Closing Date, provided
that final payments with respect
to prorations that are not able to be calculated as of the Closing
Date shall be calculated and paid as soon as practicable thereafter.
ARTICLE 12
INDEMNIFICATION
SECTION 12.1. Indemnification by the Seller and the
Shareholders. Notwithstanding the
Closing or the delivery of the Purchased Assets and regardless of
any investigation at any time
made by or on behalf of the Buyer or of any knowledge or information
that the Buyer may have,
the Seller and the Shareholders shall jointly and severally
indemnify and fully defend, save and
hold the Buyer, any Affiliate of the Buyer and their respective
directors, officers, shareholders,
employees, agents and attorneys (the "Buyer Indemnitees") harmless
if any Buyer Indemnitee
shall at any time suffer any damage, liability, loss, cost, expense
(including all reasonable
attorneys', experts' and consultants' fees), deficiency, interest,
penalty, impositions, assessments
or fines (collectively, "Losses") arising out of or resulting from,
or shall pay or become obliged to
pay any sum on account of, Seller's Event of Breach. As used
herein, "Seller's Event of Breach"
shall be and mean any one or more of the following:
(a) any material untruth or inaccuracy in any representation
of Seller or any
Shareholder or the breach of any warranty of Seller or any
Shareholder, including, without
limitation, any material misrepresentation in, or omission from, any
statement, certificate,
schedule, exhibit, annex or other document furnished pursuant to
this Agreement by Seller (or its
representatives) to the Buyer (or any representative of the Buyer)
and any material
misrepresentation in or omission from any document furnished to the
Buyer in connection with the
transaction contemplated by this Agreement;
(b) any failure of Seller or any Shareholder duly to perform
or observe any term,
provision, covenant, agreement or condition contained in this
Agreement on the part of such
Seller or such Shareholder to be performed or observed; and
(c) any Claim or cause of action by any party against any
Buyer Indemnitee with respect to the Excluded Liabilities.
SECTION 12.2. Indemnification by the Buyer.
Notwithstanding the Closing or the delivery
of the Purchased Assets, the Buyer shall indemnify and fully defend,
save and hold the Seller and
the Shareholders, any Affiliate of Seller, and their respective
directors, officers, employees, agents
and attorneys (the "Seller Indemnitees"), harmless if Seller
Indemnitees shall at any time or from
time to time suffer any Losses arising out of or resulting from, or
shall pay or become obligated to
pay any sum on account of, any Buyer's Event of Breach. As used
herein, "Buyer's Event of
Breach" shall be and mean any one or more of the following:
(a) any untruth or inaccuracy in any representation of the
Buyer or the breach of any
warranty of the Buyer contained in this Agreement,
(b) any failure of the Buyer duly to perform or observe any
term, provision, covenant,
agreement or condition contained in this Agreement on the part of
the Buyer to be performed or observed, and
(c) any Claim or cause of action by any party against Seller
Indemnitee with respect to Assumed Liabilities.
SECTION 12.3. Procedures for Indemnification. If a
Seller's Event of Breach or a Buyer's
Event of Breach (a "Party's Event of Breach") occurs or is alleged
and a Buyer or a Seller
Indemnitee (a "Party Indemnitee") asserts that the other party has
become obligated to it pursuant
to Section 12.1 or 12.2, or if any Claim is begun, made or
instituted as a result of which the other
party may become obligated to a Party Indemnitee hereunder, such
Party Indemnitee shall give
prompt notice to the other party. The Party Indemnitee shall permit
the other party (at its
expense) to assume the defense of any Claim; provided, however, that
(a) the counsel for the
other party who shall conduct the defense shall be reasonably
satisfactory to the Party
Indemnitee, (b) the Party Indemnitee may participate in such defense
at its expense, and (c) the
omission by the Party Indemnitee to give notice as provided herein
shall not relieve the other party
of its indemnification obligation except to the extent that such
omission results in a failure of actual
notice to the other party and the other party is materially damaged
as a result of such failure to
give notice. Except with the prior written consent of the Party
Indemnitee, the other party shall
not, in the defense of any such Claim, consent to entry of any
judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief
affecting the Party Indemnitee
or that does not include as an unconditional term thereof the giving
by each claimant or plaintiff to
such Party Indemnitee of a release from all liability with respect
to such Claim or litigation. In the
event that the Party Indemnitee shall in good faith determine that
the conduct of the defense of
any Claim subject to indemnification hereunder or any proposed
settlement of any such Claim by
the other party might be expected to affect adversely the ability of
the Party Indemnitee to conduct
its business, or that the Party Indemnitee may have available to it
one or more defenses or
counterclaims that are inconsistent with one or more of those that
may be available to the other
party in respect of such Claim relating thereto, the Party
Indemnitee shall have the right at all
times to take over and assume control over the defense, settlement,
negotiations or litigation
relating to any such Claim at the sole cost of the other party
(including without limitation
reasonable attorneys' fees and disbursements and other amounts paid
as the result of such
Claim); provided, however, that if the Party Indemnitee does so take
over and assume control, the
Party Indemnitee shall not settle such Claim without the prior
written consent of the other party,
such consent not to be unreasonably withheld. In the event that the
other party does not accept
and continue the defense of any matter as provided above, the Party
Indemnitee shall have the
full right to defend against any such Claim and shall be entitled to
settle or agree to pay in full such Claim.
SECTION 12.4. Specific Performance. The parties
acknowledge that a refusal by another
party to consummate the transactions contemplated by this Agreement
will cause irreparable
harm to the non-breaching party for which there may be no adequate
remedy at law and for which
the ascertainment of damages would be difficult. Therefore, the
non-breaching party shall be
entitled to specific performance of this Agreement (in addition to,
and without having to prove the
inadequacy of, other remedies at law) and appropriate injunctive
relief (without being required to
post bond or other security).
SECTION 12.5. Indemnification Payments; Purchase Price
Adjustment. Any losses or
damages required to be paid by the Seller under this Article 12
shall be satisfied by payment from
the Seller and the Shareholders, or any one of them, in cash upon
demand by the Buyer. Buyer
and Seller shall have all statutory and common law rights of setoff
regarding indemnification. The
Buyer and the Seller shall treat any payments under this Article 12
as an adjustment to the
Purchase Price for all federal, state and local income tax purposes.
ARTICLE 13
CONDITIONS PRECEDENT TO PERFORMANCE BY THE SELLER
The obligations of the Seller to consummate the transactions
contemplated by this
Agreement are subject to the fulfillment, at or before the Closing
Date, of the following conditions,
any one or more of which may be waived by the Seller in its sole
discretion:
SECTION 13.1. Representations and Warranties of the Buyer.
The representations and
warranties of the Buyer contained in this Agreement shall be true
and correct at and as of the date
hereof, and shall be repeated and shall be true and correct on and
as of the Closing Date with the
same effect as though made on and as of the Closing Date.
SECTION 13.2. Performance of the Obligations of the Buyer.
The Buyer shall have
performed in all material respects all obligations required under
this Agreement to be performed
by the Buyer on or before the Closing Date.
SECTION 13.3. Consents and Approvals. All consents,
waivers, authorizations and
approvals of any governmental or regulatory authority required or
desired in connection with the
execution, delivery and performance of this Agreement shall have
been duly obtained and shall be
in full force and effect on the Closing Date.
SECTION 13.4. No Violation of Orders. No preliminary or
permanent injunction or other
order issued by any court or other governmental or regulatory
authority, domestic or foreign, nor
any statute, rule, regulation, decree or executive order promulgated
or enacted by any
governmental or regulatory authority, domestic or foreign, that
declares this Agreement invalid or
unenforceable in any respect or which prevents the consummation of
the transactions
contemplated hereby shall be in effect, and no action or proceeding
before any court or regulatory
authority, domestic or foreign, shall have been instituted or
threatened by any government or
governmental or regulatory authority, domestic or foreign, which
seeks to prevent or delay the
consummation of the transactions contemplated by this Agreement or
which challenges the
validity or unenforceability of this Agreement, and which in any
such case has a reasonable
likelihood of success in the opinion of counsel to the Seller.
ARTICLE 14
CONDITIONS PRECEDENT TO PERFORMANCE BY THE BUYER
The obligations of the Buyer to consummate the transactions
contemplated by this
Agreement are subject to the fulfillment, at or before the Closing
Date, of the following conditions,
any one or more of which may be waived by the Buyer in its sole discretion:
SECTION 14.1. Representations and Warranties of the
Seller. The representations and
warranties of the Seller and the Shareholders contained in this
Agreement shall be true and
correct at and as of the date hereof, and shall be repeated and
shall be true and correct in all
material respects on and as of the Closing Date with the same effect
as though made on and as of the Closing Date.
SECTION 14.2. Performance of the Obligations of the
Seller. The Seller and the
Shareholders shall have performed in all material respects all
obligations required under this
Agreement to be performed by it on or before the Closing Date.
SECTION 14.3. Consents and Approvals. All consents,
waivers, novations,
authorizations and approvals of any party including without
limitation any lessors or owners of
Real Property or any governmental or regulatory authority
(collectively, "Required Consents"),
required or desired in connection with the execution, delivery and
performance by the Seller and
the Shareholders of this Agreement and the other agreements and
instruments delivered by the
Seller and the Shareholders under this Agreement shall have been
duly obtained and shall be in
full force and effect on the Closing date.
SECTION 14.4. Authorization of Merger. All corporate
action necessary by Seller to
authorize the execution, delivery and performance of this Agreement
and the consummation of
the transactions contemplated hereby shall have been duly and validly taken.
SECTION 14.5. No Violation of Orders. No preliminary or
permanent injunction or other
order issued by any court or governmental or regulatory authority,
domestic or foreign, nor any
statute, rule, regulation, decree or executive order promulgated or
enacted by any governmental
or regulatory authority, domestic or foreign, that declares this
Agreement invalid in any respect or
that prevents the consummation of the transactions contemplated
hereby, or that materially and
adversely affects the assets, properties, operations, prospects, net
income or financial condition
of the Business shall be in effect, and no action or proceeding
before any court or governmental
or regulatory authority, domestic or foreign, shall have been
instituted or threatened by any
governmental or regulatory authority, domestic or foreign, which
seeks to prevent or delay the
consummation of the transactions contemplated by this Agreement or
which challenges the
validity or enforceability of this Agreement, and which in any such
case has a reasonable
likelihood of success in the opinion of counsel to the Buyer.
SECTION 14.6. No Material Adverse Change. During the
period from June 30, 1998
through the Closing Date, there shall not have been any material
adverse change in the business,
operations, prospects, or financial condition of any of the Business.
SECTION 14.7. Employment Agreements. The Shareholders
shall have entered into
employment agreements with Buyer effective as of the Effective Date
in substantially the form attached hereto as Exhibit 8.7.
SECTION 14.8. Opinion of Seller's Counsel. The Buyer
shall have received an opinion of
Arnold Gallagher Saydack Percell & Roberts, P.C., dated the Closing
Date, substantially in form and substance attached hereto as Exhibit 14.8.
SECTION 14.9. Certificate. The Seller shall furnish the
Buyer with a certificate of its
appropriate officers as to the compliance with the conditions set
forth in Sections 14.1 through 14.6.
SECTION 14.10. Other Closing Documents. The Buyer shall
have received such
other certificates, instruments and documents in confirmation of the
representations and
warranties of the Seller or in furtherance of the transactions
contemplated by this Agreement as the Buyer or its counsel may reasonably
request.
ARTICLE 15
TERMINATION
SECTION 15.1. Conditions of Termination. Notwithstanding
anything to the contrary
contained herein, this Agreement may be terminated at any time
before the Closing Date; (a) by
mutual consent of the Seller and the Buyer, (b) by either the Seller
or the Buyer if the other party
shall have breached this Agreement in any material respect and such
breach continues for a
period of ten (10) days after the receipt of a written notice of the
breach from the non-breaching
party, (c) by the Seller if, at November 30, 1998, any of the
conditions set forth in Article 13 shall
not have been met, unless the Seller's breach of this Agreement is
the reason for the failure of
such conditions to be satisfied, or (d) by the Buyer if, at November
30, 1998, any of the conditions
set forth in Article 14 shall not have been met, unless the Buyer's
breach of this Agreement is the
reason for failure of such conditions to be satisfied.
SECTION 15.2. Special Termination Right. Notwithstanding
any investigation made by or
information known to the Buyer prior to the date hereof, in addition
to the termination rights set
forth in Section 15.1, the Buyer shall have the right at any time
prior to Closing to terminate this
Agreement if the Buyer shall identify any circumstance which (i) is
inconsistent in any material
adverse respect with the representations and warranties of the
Seller contained in this Agreement
taken as a whole, or (ii) materially and adversely affects any of
the Business, operations, financial
condition or results of operations of the Seller or the Business.
The Buyer may exercise such right by written notice to the Seller.
SECTION 15.3. Effect of Termination. In the event of
termination pursuant to Section
15.1 or Section 15.2, this Agreement shall become null and void and
have no effect, with no
liability on the party of the parties, or their directors, officers,
agents or stockholders, with respect
to this Agreement, except for the (i) liability of a party for
expenses pursuant to Section 15.4 and
(ii) liability for breach of this Agreement.
SECTION 15.4. Expenses. Seller and Buyer shall pay their
own respective costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby,
including fees and expenses of their own respective financial
advisors, accountants and counsel;
provided, however, that if the Closing does not occur as a direct
result of material breach by any
party of a representation, warranty, covenant or agreement of such
party set forth herein, then the
breaching party shall be obligated to reimburse the non-breaching
parties for all out-of-pocket
costs and expenses incurred by the non-breaching parties in
connection with this Agreement or
the transactions contemplated hereby.
ARTICLE 16
MISCELLANEOUS
SECTION 16.1. Survival of Provisions. The respective
representations, warranties,
covenants and agreements of each of the parties to this Agreement
made herein or in any
certificate or other instrument delivered by one of the parties to
this Agreement (except covenants
and agreements which are expressly required to be performed and are
performed in full on or
before the Closing Date), shall be considered to have been relied
upon by the other party to this
Agreement, as the case may be, and shall survive the Effective Date
and the consummation of
the transactions contemplated by this Agreement for a period of four (4) years.
SECTION 16.2. Successors and Assigns. Except as otherwise
provided in this
Agreement, no party hereto shall assign this Agreement or any rights
or obligations hereunder
without the prior written consent of the other party hereto (such
consent to not be unreasonably
withheld, and any such attempted assignment without such prior
written consent shall be void and
of no force and effect; provided, however, that the Buyer may assign
its rights hereunder, whether
before or after the Effective Date, to one or more of its Affiliates
and to any party providing
financing in connection with the transactions contemplated hereby;
provided further, that no such
assignment shall reduce or otherwise vitiate any of the obligations
of the Buyer hereunder. This
Agreement shall inure to the benefit of and shall be binding upon
the successors and permitted assigns of the parties hereto.
SECTION 16.3. Governing Law; Jurisdiction. This Agreement
shall be construed,
performed and enforced in accordance with, and governed by, the laws
of the State of Tennessee, without giving effect to the principles of conflicts
of laws thereof.
SECTION 16.4. Arbitration Clause. Any dispute shall be
referred to arbitration at the
request of either party before a single arbitrator. In any
arbitration both parties shall be entitled to
be legally represented. This matter shall be arbitrated solely
under Title 35 United States Code,
as interpreted by the United States Court of Appeals for the Federal
Circuit, and pursuant to Title
9 United States Code, the Federal Arbitration Act. The Arbitration
Rules of the Center for Public
Resources, New York, New York, for Non-Administered Arbitration of
Business Disputes, as they
existed on the date of this Arbitration Agreement, are adopted as
the rules governing this
arbitration. Interpretation and enforcement of this instrument and
all questions, issues or claims
regarding the performance of the parties hereunder shall be
controlled and governed by the law of
the State of Tennessee. The arbitration shall take place in Eugene,
Lane County, Oregon, at a mutually agreeable site.
SECTION 16.5. Expenses. The Buyer shall pay all recording
and filing fees that may be
imposed by reason of the sale, transfer, assignment and delivery of
the Purchased Assets.
SECTION 16.6. Broker's and Finder's Fees. Each of the
parties represents and warrants
that it has dealt with no broker or finder in connection with any of
the transactions contemplated
by this Agreement and insofar as it knows, no other broker or other
person is entitled to any
commission or finder's fee in connection with any of the
transactions contemplated hereby.
SECTION 16.7. Public Announcements. The Seller and the
Buyer shall consult with each
other before issuing, and provide each other the opportunity to
review and comment upon, any
press release or other public statements with respect to the
transactions contemplated by this
Agreement, and shall not issue any such press release or make any
such public statement prior
to such consultation, except as may be required by applicable law or
government regulation or
decree, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
SECTION 16.8. Severability. In the event that any part of
this Agreement is declared by
any court or other judicial or administrative body to be null, void
or unenforceable, said provision
shall survive to the extent it is not so declared, and all of the
other provisions of this Agreement shall remain in full force and effect.
SECTION 16.9. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the
date of service if served personally on the party to whom notice is
to be given, (ii) on the date of
transmission if sent via facsimile transmission to the facsimile
number given below, (iii) on the day
after delivery to an overnight courier service, or (iv) on the fifth
day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered
or certified, postage prepaid and properly addressed, to the party as follows:
If to Seller Johnson Crushers International, Inc.
or Shareholders: 2435 Prairie Road
Eugene, OR 97402
Attn: Robert R. Hoitt
Telecopy: (541)461-8480
Copy to: Arnold Gallagher Saydack Percell & Roberts, P.C.
P.O. Box 1758
800 Willamette Street, Suite 800
Eugene, OR 97400-1758
Attn: Rohn M. Roberts, Esq.
Telecopy: (541)484-0536
If to Buyer: Astec Industries, Inc.
P.O. Box 72787
Chattanooga, TN 37407
Attention: Richard W. Bethea, Jr., Esq.
Telecopy: (423)827-1818
Copies to: Chambliss, Bahner & Stophel, P.C.
1000 Tallan Building
Two Union Square
Chattanooga, TN 37402
Attention: E. Stephen Jett, Esq.
Telecopy: (423)265-9574
Either party may change its address for the purpose of this
Section by giving the other
party written notice of its new address in the manner set forth
above.
SECTION 16.10. Amendments, Waivers. This Agreement may be amended or
modified, and any of the terms, covenants, representations,
warranties or conditions hereof may
be waived, only by a written instrument executed by the parties
hereto, or in the case of a waiver,
by the party waiving compliance. Any waiver by any party of any
condition, or of the breach of
any provision, term, covenant, representation or warranty contained
in this Agreement, in any one
or more instances, shall not be deemed to be nor construed as a
further or continuing waiver of
any such condition, or of the breach of any other provision, term,
covenant, representation or warranty of this Agreement.
SECTION 16.11. Entire Agreement. This Agreement contains
the entire
understanding between the parties hereto with respect to the
transactions contemplated hereby
and supersedes and replaces all prior and contemporaneous agreements
and understandings,
oral or written, with regard to such transactions.
SECTION 16.12. Section and Paragraph Headings. The section
and paragraph
headings in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
SECTION 16.13. Counterparts. This Agreement may be
executed in counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF: the parties hereto have executed this
Agreement as of the 30 day of October, 1998.
ASTEC:
ASTEC INDUSTRIES, INC.
By: /s/ Richard W. Bethea, Jr.
Title: Secretary
SELLER:
JOHNSON CRUSHERS INTERNATIONAL, INC.
By: /s/ Robert R. Hoitt
Title: Partner
SHAREHOLDERS:
/s/ Robert R. Hoitt
ROBERT R. HOITT
/s/ David F. Peaks
DAVID F. PEAKS
/s/ Terry W. Cummings
TERRY W. CUMMINGS
/s/ Roger M. Clark
ROGER M. CLARK
/s/ Randy G. Orre
RANDY G. ORRE
/s/ Allen L. Laskey
ALLEN L. LASKEY
* If there shall be a change from a Daily Rate or a Weekly Rate
on a day other than the first
Business Day of a calendar month, the then current Interest Period
relating to such Daily Rate or Weekly
Rate shall end on the day immediately preceding the date on which
the new interest rate on the Bonds shall
become effective, which date shall be the Interest Payment Date for
such Interest Period, for which the
Record Date shall be the immediately preceding Business Day. If
such new interest rate shall be a Daily
Rate or a Weekly Rate, the first Interest Period relating thereto
shall begin on the effective date of such
new interest rate and end on the day prior to the first Business Day
of the next succeeding calendar month,
for which the Interest Payment Date and the Record Date shall be as
prescribed in this Table.
** If there shall be a change from a Long-Term Interest Rate on a
day other than the day after the last
day of the then current Long-Term Interest Rate Period, or if there
shall be an early termination of such
Long-Term Interest Rate Period and a new Long-Term Interest Rate
shall be set, such Long-Term Interest
Rate Period shall end on the day immediately preceding the date on
which the new interest rate shall
become effective, which date shall be the Interest Payment Date for
such Long-Term Interest Rate Period,
for which the Record Date shall be 15 days prior to such Interest
Payment Date or, if sooner, the first day
of such Long-Term Interest Rate Period. If such new interest rate
shall be a Daily Rate or a Weekly Rate,
the first Interest Period relating thereto shall begin on the
effective date of such new interest rate and end
on the day prior to the first Business Day of the next succeeding
calendar month, for which the Interest
Payment Date and the Record Date shall be prescribed in this Table.
*** If an Interest Payment Date occurs less than 15 days after the
first day of a Long-Term Interest
Rate Period, the first day of such Long-Term Interest Rate Period is
the Record Date for such Interest
Payment Date.