<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 333-09951
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(Amendment No. 2)
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EAGLE SUPPLY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5033 13-3889248
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
122 EAST 42ND STREET
SUITE 1116
NEW YORK, NEW YORK 10168
(212) 986-6190
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
DOUGLAS P. FIELDS
CHIEF EXECUTIVE OFFICER
EAGLE SUPPLY GROUP, INC.
122 EAST 42ND STREET
SUITE 1116
NEW YORK, NEW YORK 10168
(212) 986-6190
------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT PEREZ, ESQ. DAVID A. CARTER, P.A.
Gusrae, Kaplan & Bruno 2300 Glades Road, Suite 210W
120 Wall Street Boca Raton, Florida 33431
New York, New York 10005 Tel No. (561) 750-6999
Tel No. (212) 269-1400 Fax No. (561) 367-0960
Fax No. (212) 809-5449
</TABLE>
------------------------
(CONTINUED ON FOLLOWING PAGE)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value 2,300,000(2) $ 5.00 $ 11,500,000 $ 3,392.50
Redeemable Common Stock Purchase Warrants 2,875,000(3) $ .125 $ 359,375 $ 106.02
Common Stock, $.0001 par value(4) 2,875,000 $ 5.00 $ 14,375,000 $ 4,240.63
Underwriter's Stock Warrants(5) 200,000 $ .0001 $ 20 $ .01
Common Stock, $.0001 par value(6) 200,000 $ 8.25 $ 1,650,000 $ 486.75
Underwriter's Warrants(7) 250,000 $ .0001 $ 20 $ .01
Common Stock Purchase Warrants(8) 250,000 $ .20625 $ 51,563 $ 15.21
Common Stock, $.0001 par value(9) 250,000 $ 8.25 $ 2,062,500 $ 608.44
Common Stock, $.0001 par value(10) 300,000 $ 5.00 $ 1,500,000 $ 442.50
Common Stock, $.0001 par value(11) 2,300,000 $ 5.00 $ 11,500,000 $ 3,392.50
TOTALS $ 42,998,478 $12,684.57*
</TABLE>
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* Filing Fee of $7,401.26 paid with initial filing on August 12, 1996;
additional fee of $5,283.31 paid immediately prior to this filing.
SEE FOOTNOTES ON FOLLOWING PAGE.
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<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 shares of Common Stock subject to the Underwriter's
overallotment option and assumes the overallotment option is exercised in
full.
(3) Includes 375,000 Redeemable Common Stock Purchase Warrants subject to the
Underwriter's overallotment option and assumes the overallotment option is
exercised in full.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
referred to in the prior note.
(5) To be issued to the Underwriter, entitling the Underwriter to purchase up to
200,000 shares of Common Stock.
(6) Issuable upon the exercise of the Underwriter's Stock Warrants.
(7) To be issued to the Underwriter, entitling the Underwriter to purchase up to
250,000 Common Stock Purchase Warrants.
(8) Issuable upon the exercise of the Underwriter's Warrants.
(9) Issuable upon the exercise of the Common Stock Purchase Warrants identified
in the prior note.
(10) Issuable upon the exercise of the Redeemable Common Stock Purchase Warrants
which are to be sold by the Selling Securityholders.
(11) Issuable in connection with acquisitions to occur contemporaneously with
the closing of the public securities offering discussed herein.
Pursuant to Rule 416, there are also being registered such additional but
indeterminate number of shares as may become issuable pursuant to anti-dilution
provisions of the Redeemable Common Stock Purchase Warrants and the
Underwriter's Stock Warrants and Underwriter's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ii
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus") and one to be used
in connection with the sale of (a) shares of the Company's Common Stock
underlying Warrants by certain selling securityholders and (b) shares of the
Company's Common Stock to be issued in connection with certain acquisitions by
the Company (the "Selling Securityholders' and Acquisitions' Prospectus"). The
Prospectus and the Selling Securityholders' and Acquisitions' Prospectus will be
identical in all respects except for the alternate pages for the Selling
Securityholders' and Acquisitions' Prospectus included herein which are labeled
"Alternate Page(s) for Selling Securityholders' and Acquisitions' Prospectus".
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 1, 1998
PROSPECTUS
EAGLE SUPPLY GROUP, INC.
2,000,000 SHARES OF COMMON STOCK AND
2,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Eagle Supply Group, Inc. (the "Company") is offering hereby 2,000,000 shares
of Common Stock (the "Common Stock") and 2,500,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") of the Company (hereinafter the "Public
Offering"). The Common Stock and the Warrants (collectively, the "Securities")
are being separately offered and are separately transferable at any time from
the date of this Prospectus (the "Effective Date"). Each Warrant entitles the
registered holder thereof to purchase, at any time during the period commencing
on the Effective Date, one share of Common Stock at a price of $5.00 per share,
subject to adjustment under certain circumstances, for a period of five years
from the Effective Date. The Warrants offered hereby are not exercisable unless,
at the time of exercise, the Company has a current prospectus encompassing the
shares of Common Stock issuable upon exercise of the Warrants and such shares
have been registered, qualified or deemed to be exempt under the securities laws
of the states of residence of the exercising holders of the Warrants. Commencing
after the Effective Date, the Warrants are subject to redemption by the Company
at $.25 per Warrant on 30 days' prior written notice if the market price (as
defined herein) for the Company's Common Stock, as reported on in the
over-the-counter market on the OTC Bulletin Board maintained by the National
Association of Securities Dealers, Inc. (the "OTC Bulletin Board") or a national
or regional securities exchange, as applicable, for 30 consecutive trading days
ending within 10 days of the notice of redemption of the Warrants averages at
least $10.00 per share. The Company is required to maintain an effective
registration statement with respect to the Common Stock underlying the Warrants
at the time of redemption of the Warrants. Prior to the first anniversary of the
Effective Date, the Warrants will not be redeemable by the Company without the
written consent of Barron Chase Securities, Inc. (the "Underwriter").
The offering price of the Common Stock and Warrants as well as the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and the Underwriter, and bear no relationship to the
Company's asset value, net worth or other established criteria of value. See
"RISK FACTORS" at page 16, and "Underwriting." After completion of the Public
Offering, the Company's current officers and directors and their affiliates will
have voting control of approximately 66% of the outstanding shares of Common
Stock. See "Principal Stockholders."
Simultaneously with the Public Offering, 300,000 shares of Common Stock
underlying Warrants held by certain individuals (hereinafter the "Selling
Securityholders" and "Selling Securityholders' Offering") are being offered for
resale from time to time. To permit such resale, the Company has included the
said Selling Securityholders' securities in the Company in the Registration
Statement of which this Prospectus forms a part and are to be offered by the
Selling Securityholders by a separate prospectus also included therein. The
Selling Securityholders may not sell or otherwise dispose of their shares of
Common Stock underlying their Warrants for a period of fifteen months from the
Effective Date without the Underwriter's prior written consent. See "Selling
Securityholders."
The registration statement of which this Prospectus forms a part also is
being used by the Company to register the issuance of 2,300,000 shares of the
Company's Common Stock in connection with the acquisition by the Company of
Eagle Supply, Inc. and JEH/Eagle Supply, Inc. occurring simultaneous with the
Public Offering ("The Acquisitions Offering"). The acquirers of said 2,300,000
shares have agreed not to sell or otherwise dispose all such shares and all
other shares of the Company's Common Stock owned by them on the date hereof for
a period of two years from the date of this Prospectus without the Underwriter's
prior written consent. See "The Acquisitions Offering."
Prior to the Public Offering, there has been no public market for the Common
Stock or the Warrants. Although it is anticipated that the Common Stock and the
Warrants will be traded on the over-the-counter market on the OTC Bulletin
Board, there can be no assurance that a trading market in the Company's Common
Stock or Warrants will develop or if it does develop that it will be sustained.
The closing of the Public Offering is subject to the simultaneous acquisition by
the Company of Eagle Supply, Inc. and JEH/Eagle Supply, Inc.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK, IMMEDIATE AND SUBSTANTIAL
DILUTION AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 15 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO PUBLIC DISCOUNT(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share...................................... $5.00 $0.50 $4.50
Per Warrant.................................... $0.125 $0.0125 $0.1125
Total(3)....................................... $10,312,500.00 $1,031,250.00 $9,281,250.00
</TABLE>
See footnotes on following page of this Prospectus
BARRON CHASE SECURITIES
The date of this Prospectus is , 1998
<PAGE>
[INSIDE FRONT COVER PAGE OF PROSPECTUS]
(1) Does not include additional compensation in the form of (i) a
non-accountable expense allowance of $309,375 ($355,781 if the Underwriter's
overallotment option is exercised in full); (ii) warrants to purchase up to
200,000 shares of Common Stock and 250,000 warrants at an exercise price
equal to 165% of the initial public offering prices of the Common Stock and
Warrants, during the five year period commencing on the Effective Date (the
"Underwriter's Warrants"); and (iii) a financial advisory agreement for the
Underwriter to act as an investment banker for the Company at a fee of
$108,000 payable at the closing of the Public Offering. In addition, the
Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
at $535,625 (approximately 5.2% of the gross proceeds of the Public
Offering), excluding the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriters an option, exercisable within
forth-five (45) days of the Effective Date, to purchase up to 300,000
additional shares of Common Stock and 375,000 additional Warrants on the
same terms and conditions as set forth above to cover overallotments, if any
(the "Overallotment Option"). If all such additional Securities are
purchased, the Price to Public, Underwriting Discount and Proceeds to
Company will be increased to $11,859,375, $1,185,938 and $10,673,437,
respectively. See "Underwriting."
The Securities are offered subject to prior sale, when, as and if delivered
to and accepted by the Underwriter and subject to the approval of certain legal
matters by counsel and certain other conditions. It is expected that delivery of
certificates representing the Securities sold in the Public Offering will be
made at the offices of Barron Chase Securities, Inc., 7700 W. Camino Real, Boca
Raton, Florida 33433-5541, on or about , 1998.
The Company is not presently required to file, and has not filed, periodic
reports with the Securities and Exchange Commission (the "Commission").
Following consummation of the Public Offering, the Company intends to furnish to
its stockholders annual reports containing financial statements audited and
reported on by independent auditors and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year.
Stockholders will be able to obtain the most recent such reports by making
written request therefor to the Company's stockholder relations officer at the
Company's principal executive offices located at 122 East 42nd Street, Suite
1116, New York, New York 10168.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICES OF THE SHARES AND THE
WARRANTS, INCLUDING PURCHASES OF SHARES, WARRANTS, OR BOTH TO STABILIZE THEIR
RESPECTIVE MARKET PRICES, PURCHASES OF THE SHARES AND THE WARRANTS TO COVER SOME
OR ALL OF A SHORT POSITION THEREIN MAINTAINED BY THE UNDERWRITER, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
[END OF INSIDE FRONT COVER PAGE]
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN
ITS ENTIRETY. EXCEPT AS OTHERWISE INDICATED HEREIN, THE INFORMATION CONTAINED IN
THIS PROSPECTUS GIVES NO EFFECT TO THE EXERCISE OF (I) THE OVERALLOTMENT OPTION,
(II) THE UNDERWRITER'S WARRANT, (III) ALL OTHER WARRANTS ISSUED AND OUTSTANDING
ON THE DATE OF THIS PROSPECTUS OR (IV) OPTIONS GRANTED OR TO BE GRANTED UNDER
THE COMPANY'S STOCK OPTION PLAN.
THE COMPANY WOULD LIKE TO CAUTION READERS REGARDING CERTAIN FORWARD-LOOKING
STATEMENTS IN THE PROSPECTUS AND THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART. STATEMENTS THAT ARE BASED ON MANAGEMENT'S PROJECTIONS,
ESTIMATES AND ASSUMPTIONS ARE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVE,"
"EXPECT," "ANTICIPATE," AND SIMILAR EXPRESSIONS GENERALLY IDENTIFY
FORWARD-LOOKING STATEMENTS. WHILE THE COMPANY BELIEVES IN THE VERACITY OF ALL
STATEMENTS MADE HEREIN, FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED UPON A
NUMBER OF ESTIMATES AND ASSUMPTIONS THAT, WHILE CONSIDERED REASONABLE BY THE
COMPANY ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES. MANY OF THESE UNCERTAINTIES AND CONTINGENCIES
CAN AFFECT THE COMPANY'S ACTUAL RESULTS AND COULD CAUSE ITS ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE
BY, OR ON BEHALF OF, THE COMPANY. SOME OF THE FACTORS THAT COULD CAUSE ACTUAL
RESULTS OR FUTURE EVENTS TO DIFFER MATERIALLY INCLUDE THE COMPANY'S INABILITY TO
FIND SUITABLE ACQUISITION CANDIDATES ON TERMS COMMERCIALLY REASONABLE TO THE
COMPANY, INTERRUPTION OR CANCELLATION OF EXISTING SOURCES OF SUPPLY, THE PRICING
OF AND DEMAND FOR DISTRIBUTED PRODUCTS AND THE PRESENCE OF COMPETITORS WITH
GREATER FINANCIAL RESOURCES. PLEASE SEE "RISK FACTORS" FOR A DESCRIPTION OF
SOME, BUT NOT ALL, OF THESE UNCERTAINTIES AND CONTINGENCIES.
THE COMPANY
The Company was organized to raise capital and acquire, own, integrate and
operate seasoned, privately-held companies engaged in the wholesale distribution
of roofing supplies and related products industry and companies which
manufacture products for or supply products to such industry. Simultaneously
with the closing of the Public Offering, the Company will acquire all of the
issued and outstanding equity securities of Eagle Supply, Inc. ("Eagle") and
JEH/Eagle Supply, Inc. ("JEH Eagle") (the "Acquisitions") from TDA Industries,
Inc. ("TDA"), the Company's current majority stockholder.
Eagle was acquired by TDA in 1973, and JEH Eagle was established by TDA to
acquire the business and substantially all of the assets of JEH Company, Inc.
("JEH Co."). That acquisition was consummated by TDA and JEH Eagle in July 1997.
The product lines, types of customers, vendors, business philosophies, internal
and external expansion plans, and quality of management and personnel of Eagle
and JEH Eagle are generally, substantially similar. Together, Eagle and JEH
operate a network of twenty-six branches in seven states extending from Florida
to Colorado and back to Virginia, specializing in the wholesale distribution of
roofing supplies and related products.
Eagle, which was founded in Florida in 1905, distributes roofing supplies
and related products to contractors and subcontractors engaged in commercial and
residential roofing repair and the construction of new residential and
commercial properties. Eagle sells to more than 2,300 customers in Florida,
Alabama and the southern portions of Georgia and Mississippi using its own
direct sales force. Products distributed by Eagle include equipment, tools and
accessory products for the removal of old roofing, re-roofing and roof
construction, and related materials such as insulation, shingles, tiles, liquid
roofing materials, fasteners, ventilation materials and sheet metal of the type
used in the roofing industry. JEH Eagle sells to more than 2,700 customers in
Texas, Colorado, Indiana and Virginia through its own distribution facilities
and direct sales force. Products distributed by JEH Eagle include roofing
supplies and related products, including equipment, tools and accessory products
for the removal of old roofing, re-roofing and roof construction, and related
materials such as insulation, shingles, tiles, liquid roofing materials,
fasteners, ventilation materials, dry wall and plywood used in the construction
industry. Upon
3
<PAGE>
consummation of the Acquisitions, Eagle and JEH Eagle will become wholly-owned
subsidiaries of the Company and will constitute the business operations of the
Company until and unless the Company consummates additional acquisitions. See
"Risk Factors" and "Business."
During Eagle's fiscal years ended June 30, 1996 and 1997, Eagle had revenues
of approximately $59,262,000 and $57,576,000, respectively, and net income of
approximately $1,315,000 and $192,000, respectively. For the eight-month period
ended February 28, 1998, Eagle had revenues and a net loss of approximately
$36,126,000 and $18,700, respectively. There can be no assurance that the
historical level of Eagle's revenues and net income will continue to be achieved
in the future. See "Risk Factors" and "Business."
During JEH Co.'s fiscal year ended December 31, 1996 and JEH Eagle's
eight-month period ended February 28, 1998, JEH Co. and JEH Eagle had revenues
of approximately $74,893,000 and $44,787,000, respectively, and net income of
approximately $171,000 and $295,000, respectively.
Based upon its management's experience in the industry, the Company believes
that the roofing supplies and related products distribution industry is
fragmented and has the potential for consolidation in response to the
competitive disadvantages faced by smaller distributors. The Company believes
that the industry is characterized by a large number of relatively small local
distribution companies, a few very large, multi-center and multi-regional
distributors and a large national multi-center distributor. Roofing supplies
products distributors are overwhelmingly privately owned, relationship-based
companies that emphasize service, delivery and reliability as well as
competitive pricing and breadth of product line to their customers. The Company
believes that the competitive environment faced by small distributors, coupled
with the desire of many owners of such distributors for liquidity, has prompted
a trend toward industry consolidation that offers significant opportunities for
expansion oriented distributors. The Company believes that there are
opportunities for a company which has the capability to source and distribute
products effectively to serve the roofing supplies and related products markets
and to effect cost savings and increased profit opportunities through
efficiencies of scale which can be applied to companies that may be acquired in
the roofing supply distribution and related products industry. The Company
intends to provide expansion capital, if necessary, and administrative and
management services to acquired companies. See "Risk Factors" and "Business."
Although the Company does not currently have any agreements, arrangements or
commitments with respect to any proposed acquisition, other than the
Acquisitions, based upon its management's experience in the industry, the
Company believes that there are a number of suitable acquisition candidates that
may meet its criteria. The Company intends to seek out prospective acquisition
candidates in businesses that complement or are otherwise related to the
businesses of Eagle and JEH Eagle. Although the primary focus of the Company's
expansion and acquisition program will be on seeking suitable acquisition
candidates which are engaged in the wholesale distribution of roofing supplies
and related products, the Company will consider the purchase of manufacturers or
vendors of products which may be distributed through its wholesale distribution
business. The Company anticipates that it will finance future acquisitions, if
any, through a combination of cash (including approximately 30% of the net
proceeds of the Public Offering), issuances of shares of capital stock of the
Company, and additional equity or debt financing. There can be no assurance that
the Company will be able to consummate the acquisition of any companies or
additional equity or debt financing on terms acceptable to the Company or at
all.
Management intends to pursue expansion of Eagle's and JEH Eagle's operations
by adding new distribution centers by internal growth. During Eagle's fiscal
year ended June 30, 1997, JEH Co.'s fiscal year ended December 31, 1996 and the
Combined Entities' eight-month period ended February 28, 1998, Eagle, JEH Co.
and the Combined Entities opened three new distribution centers, although one of
those centers has subsequently been closed, and are currently exploring the
possibility of opening several more distribution centers in current market areas
and in market areas adjacent to their existing distribution centers.
4
<PAGE>
TDA is a holding company which operates five business enterprises, including
Eagle and JEH Eagle, and real estate investment companies. At the current time,
Eagle and JEH Eagle are wholly-owned by TDA, and their revenues constitute a
majority of TDA's consolidated revenues. After the completion of the Public
Offering and consummation of the Acquisitions, TDA will own approximately 60% of
the Company's Common Stock. Certain of the Company's officers and directors are
also officers and directors of TDA (or affiliates of TDA), Eagle and/or JEH
Eagle. See "Management," "Principal Stockholders," "The Acquisitions" and
"Certain Transactions."
In connection with the Acquisitions, TDA will be issued 2,000,000 shares of
the Company's Common Stock and James E. Helzer, the former owner of JEH Co. and
the President of the Company, Eagle and JEH will be issued 300,000 shares of the
Company's Common Stock. As part of the Acquisitions, Eagle and JEH Eagle
combined will have a book value of no less than $1,000,000 after Eagle cancels,
in the form of a non-cash dividend, all indebtedness of TDA to Eagle with TDA
contributing sufficient cash or assets to achieve that book value in the event
of a deficiency. At February 28, 1998 TDA's indebtedness to Eagle was
approximately $2,839,000. It is anticipated that no such contribution will be
required by TDA. The number of shares of the Company's Common Stock to be issued
to TDA in connection with the Acquisitions was determined by negotiations among
the Company, TDA and the Underwriter. Factors considered in such negotiations
included but were not limited to (a) the historical results of the combined
entities, (b) their future business prospects, (c) their industry position,
principally on a combined basis, (d) their product line breadth, (e) their
customer bases, (f) the experience of their management and personnel, (g) the
locations of their distribution facilities, and (h) their net worth. The number
of shares to be issued to Mr. Helzer were determined by negotiations between JEH
Eagle and JEH Co. at the time of the acquisition of substantially all of the
business and assets of JEH Co. by JEH Eagle. The consideration to be paid by the
Company to TDA for the Acquisitions was determined by negotiations among the
Company, TDA and the Underwriter without independent appraisal. If effected as
of February 28, 1998, the amount of the non-cash dividend from Eagle to TDA
would have been approximately $2,839,000. Any payment to Eagle or JEH Eagle by
TDA to satisfy the $1,000,000 combined book value requirement set forth above
will be paid to Eagle or JEH Eagle by TDA within 45 days of the closing of the
Public Offering and consummation of the Acquisitions.
In the past, a subsidiary of TDA has leased to Eagle several of Eagle's
distribution centers on a month to month basis pursuant to oral agreements. Rent
expense for these distribution centers was approximately $782,000 for Eagle's
fiscal year ended June 30, 1997. Upon completion of the Public Offering and
consummation of the Acquisitions, Eagle will enter into ten year leases for said
distribution centers. Although the written leases are to be on substantially
similar economic terms as the past oral agreements, Eagle will then be committed
to pay rent for these distribution centers for a minimum of ten years. JEH Eagle
leases several of its distribution centers from James E. Helzer pursuant to five
year leases expiring on June 30, 2002. Rent expense for these distribution
centers was approximately $321,000 for JEH Eagle's eight-month period ended
February 28, 1998. James E. Helzer currently has a five-year employment
agreement with JEH Eagle and an "at will" agreement with Eagle which provides
him with annual salaries of $250,000 and $50,000, respectively. James E. Helzer
and E.G. Helzer serve as Eagle's President and Senior Vice President-Operations
of Eagle on an "at will" basis at salaries of $50,000 and $25,000 per year,
respectively. Pursuant to their "at will" arrangements with Eagle, James E.
Helzer and E.G. Helzer are also entitled to receive 20% and 6%, respectively, of
Eagle's income before taxes in excess of $600,000 per year. Upon completion of
the Public Offering and consummation of the Acquisitions, the Company will enter
into (a) five-year employment agreements with its Chairman of the Board and
Chief Executive Officer, Douglas P. Fields, and its Executive Vice President,
Treasurer and Secretary, Frederick M. Friedman, pursuant to which each of such
persons, who are also executive officers and directors of TDA, will receive a
salary of $200,000 per year plus substantial additional benefits, although
neither of them have committed any specified amount of time to the Company's
affairs; and (b) a month to month administrative services agreement with TDA
requiring a $3,000 monthly payment to TDA. Similar agreements have already been
entered into between JEH Eagle and each of Messrs. Fields and Friedman providing
annual
5
<PAGE>
base salaries of $60,000 to each of Messrs. Fields and Friedman, and JEH Eagle
and TDA have already entered into an agreement pursuant to which TDA provides
certain services to JEH Eagle for a five-year term expiring in June 2002
requiring a $3,000 monthly payment to TDA through December 1999 and a $15,000
monthly payment to TDA thereafter. The payments by JEH Eagle to Messrs. Fields
and Friedman and TDA shall commence upon completion of the Public Offering and
consummation of the Acquisitions. Furthermore, as part of the Acquisitions, TDA
or its relevant subsidiaries will agree to indemnify Eagle for any payment that
Eagle will be required to make pursuant to mortgages underlying Eagle's
Birmingham, Alabama, distribution center and the mortgage and lease underlying
Eagle's former Fort Lauderdale, Florida, distribution center.
The Company was incorporated under the laws of the State of Delaware on May
1, 1996, and its operations to date have included, among other things: raising
capital, negotiation of "The Acquisitions" and establishing a management team
for the Company. Certain administrative services are provided to the Company by
TDA. The Company has funded itself since inception by initial minimal borrowing
from TDA, selling 300,000 shares of its Common Stock and 300,000 Warrants in a
private offering of the Company's securities (the "Private Placement") and
recent borrowings from TDA and two other private investors which are also
stockholders of the Company. The Company's executive office is located at 122
East 42nd Street, Suite 1116, New York, New York 10168, and its telephone number
is (212) 986-6190. See "Business" and "Certain Transactions."
6
<PAGE>
THE PUBLIC OFFERING
<TABLE>
<S> <C>
Securities Offered................ 2,000,000 shares of Common Stock and 2,500,000 Warrants.
Each Warrant entitles the holder to purchase one share
of Common Stock at a price of $5.00 during the five-year
period commencing on the Effective Date. The exercise
price and the number of shares issuable upon exercise of
the Warrants are subject to adjustment in certain
circumstances. See "Description of Securities."
Common Stock Outstanding
Before Offering................. 4,700,000 shares(1)
After Offering.................... 6,700,000 shares(1)(2)
Use of Proceeds................... To finance acquisitions of companies operating primarily
in the roofing supplies and related products indus-try,
expand Eagle's and JEH Eagle's operations, repayment of
indebtedness and for working capital purposes, including
general corporate purposes of the Company, Eagle and JEH
Eagle. See "Use of Proceeds," "Capital-ization" and
"Certain Transactions."
Risk Factors...................... Investment in the Securities offered hereby involves a
high degree of risk and immediate substantial dilution.
See "Risk Factors" and "Dilution."
Proposed Symbols: (3)
Common Stock....................
Warrants.......................... W
</TABLE>
- ------------------------
(1) Includes 2,000,000 and 300,000 shares of Common Stock to be issued to TDA
and James E. Helzer, respectively, in connection with the Acquisitions. See
"Certain Transactions" and "The Acquisitions Offering."
(2) Includes the 2,000,000 shares of Common Stock to be issued in the Public
Offering but does not include (i) 300,000 shares of Common Stock, 375,000
Warrants and 375,000 shares of Common Stock underlying such Warrants subject
to the Underwriter's Overallotment Options; (ii) 2,500,000 shares of Common
Stock issuable upon the exercise of the Warrants; (iii) 300,000 shares of
Common Stock issuable upon the exercise of the Company's outstanding
Warrants; (iv) 450,000 shares of Common Stock issuable upon the exercise of
the Underwriter's Warrant and Stock Warrant; and (v) 1,000,000 shares of
Common Stock reserved for issuance pursuant to the Company's stock option
plan of which 700,000 shares of Common Stock are reserved for options to be
granted upon completion of the Public Offering. See "Management," "Certain
Transactions," "Underwriting," "Description of Securities," "The
Acquisitions," "Selling Securityholders" and "The Acquisitions Offering."
(3) There is no assurance that a trading market will develop for the Company's
Common Stock and Warrants or that, if developed, it will be sustained.
7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED(1)
---------------------------------------------------------------------------
EIGHT MONTHS
ENDED
YEAR ENDED JUNE 30, FEBRUARY 28,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 66,552 $ 53,925 $ 50,483 $ 59,262 $ 57,576 $ 36,964 $ 80,913
Gross Profit............................... 14,933 10,658 9,740 12,577 11,471 7,636 17,721
Income From Operations..................... 4,159 743 833 2,689 907 443 1,540
Net Income (Loss).......................... 2,622 464 353 1,315 (127) 37 276
Basic Net Income (Loss) Per Share..........
Weighted Average Number of Shares
outstanding(2)...........................
Diluted Net Income (Loss) Per Share........
Weighted Average Number of Shares
outstanding and Dilutive Warrants(2).....
Other Financial Data:
EBITDA(3).................................. $ 4,718 $ 1,454 $ 1,389 $ 3,251 $ 1,206 $ 857 $ 2,270
<CAPTION>
PRO FORMA(6)
--------------------------
EIGHT MONTHS
YEAR ENDED ENDED
JUNE 30 FEBRUARY 28,
----------- -------------
1997 1998
----------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................... $ 128,092 $ 80,913
Gross Profit............................... 27,761 17,721
Income From Operations..................... (266) 1,054
Net Income (Loss).......................... (303) 44
Basic Net Income (Loss) Per Share.......... $ (.05) $ .01
----------- -------------
----------- -------------
Weighted Average Number of Shares
outstanding(2)........................... 5,568,728 5,766,825
----------- -------------
----------- -------------
Diluted Net Income (Loss) Per Share........ $ (.05) $ .01
----------- -------------
----------- -------------
Weighted Average Number of Shares
outstanding and Dilutive Warrants(2)..... 5,568,728 6,006,825
----------- -------------
----------- -------------
Other Financial Data:
EBITDA(3).................................. $ 2,273 $ 1,851
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
-------------
COMBINED(1) FEBRUARY 28,
JUNE 30, 1998
--------------------------------------------------------- -------------
1993 1994 1995 1996 1997 HISTORICAL
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficiency)............. $ 5,963 $ 4,785 $ 5,665 $ 4,539 $ 6,296 $ (25)
Total Assets............................. 17,190 12,947 17,831 19,066 17,948 394
Long Term Debt........................... -- -- 6,290 5,164 6,693 --
Total Liabilities........................ 13,450 9,385 14,338 15,061 15,320 419
Stockholders Equity (deficiency)......... 3,720 3,562 3,493 4,005 2,628 (25)
<CAPTION>
AS ADJUSTED(4) PRO FORMA(5)
------------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficiency)............. $ 8,411 $ 21,084
Total Assets............................. 8,830 47,063
Long Term Debt........................... -- 17,995
Total Liabilities........................ 419 36,151
Stockholders Equity (deficiency)......... 8,411 10,912
</TABLE>
- ------------------------
(1) Prior to the contemplated Acquisitions, the Company has had limited
operations. The historical financial data included in the statement of
operations data has been prepared on a basis which combines the Company
(organized May 1, 1996), Eagle Supply, Inc. ("Eagle"), and JEH/Eagle Supply,
Inc. ("JEH Eagle") (acquired on July 1, 1997) as three entities controlled
by TDA Industries, Inc. ("TDA"), because the separate financial data of the
Company would not be meaningful. Information with respect to the Company is
included from May 1, 1996 (inception), information for Eagle is included for
all periods presented and information with respect to JEH Eagle is included
from July 1, 1997.
(2) Basic income (loss) per Common Share is based on the weighted average number
of shares outstanding and includes 2,100,000 shares issued in connection
with the Company's initial capitalization, 300,000 shares issued as part of
the Company's Private Placement and 2,000,000 and 300,000 shares to be
issued to TDA and James E. Helzer, respectively, in connection with the
Acquisitions and 1,066,825 and 868,728 shares ("Additional Shares") in the
eight months ended February 28, 1998 and year ended June 30, 1997,
respectively, for the shares assumed to be issued in the Public Offering,
the proceeds of which would be used to retire $2,000,000 of debt and replace
the capital in excess of the respective period's earnings, which is
represented by the non-cash dividend. Dilutive net income (loss) per Common
Share for the eight months ended February 28, 1998 also includes the
dilutive effect of the 300,000 Warrants issued in the Private Placement. The
computation excludes shares to be issued in connection with the Public
Offering in excess of the Additional Shares. The Underwriter's Warrant and
options to be granted upon the closing of the Public Offering pursuant to
the Company's 1996 Stock Option Plan are not dilutive and have not been
included. See "Risk Factors," "Certain Transactions," "The Acquisitions" and
the Financial Statements and the Notes thereto.
(3) As used herein, EBITDA reflects net income (loss) increased by the effects
of interest expense, income tax provisions, depreciation and amortization
expense. EBITDA is used by management, along with other measures of
performance, to assess the Company's financial performance. EBITDA should
not be considered in isolation or as an alternative to measures of operating
performance or cash flows pursuant to generally accepted accounting
principles. In addition, this measure of EBITDA may not be comparable to
similar measures reported by other companies.
(4) Reflects the Private Placement, the Public Offering of 2,000,000 shares of
Common Stock and 2,500,000 Warrants at initial public offering prices of
$5.00 per share of Common Stock and $.125 per Warrant and the application of
the net proceeds therefrom. See the Unaudited Pro Forma Condensed
Consolidated Balance Sheet, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Transactions" and
the Financial Statements and the Notes thereto.
(5) Reflects the Private Placement, the Public Offering of 2,000,000 shares of
Common Stock and 2,500,000 Warrants at initial public offering prices of
$5.00 per share of Common Stock and $.125 per Warrant, the application of
the net proceeds therefrom and the consummation of the Acquisitions. See the
Unaudited Pro Forma Condensed Consolidated Balance Sheet, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Transactions" and the Financial Statements and the Notes thereto.
(6) See Unaudited Pro Forma Condensed Consolidated Statements of Operations.
8
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE MADE BY ANY INVESTOR WHO CANNOT
AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. EACH PROSPECTIVE PURCHASER SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS AND SPECULATIVE FACTORS ASSOCIATED WITH
THIS OFFERING, AS WELL AS OTHER FACTORS DESCRIBED ELSEWHERE IN THIS PROSPECTUS,
BEFORE MAKING AN INVESTMENT.
NO ASSURANCE OF PROFITABLE OPERATIONS. Eagle has experienced substantial
revenue fluctuations in the past. For Eagle's fiscal years ended June 30, 1993,
1994, 1995, 1996 and 1997 its revenues were approximately $66,552,000,
$53,925,000, $50,483,000, $59,262,000 and $57,576,000, respectively, and its net
income for those fiscal years were approximately $2,622,000, $464,000, $353,000,
$1,315,000 and $192,000, respectively. For Eagle's eight-month period ended
February 28, 1998, Eagle had revenues of approximately $36,126,000 and a net
loss of $18,700. Eagle's results of operations for its fiscal year ended June
30, 1994 were negatively impacted by a business slowdown following the prior
year's increase in business resulting from Hurricane Andrew. Hurricane Andrew
also caused a substantial increase in competition in the South Florida area
resulting in the reduced profitability of Eagle's operations in South Florida
and their discontinuance during Eagle's fiscal year ended June 30, 1994.
Additionally, during Eagle's fiscal year ended June 30, 1995, Eagle's
Jacksonville, Florida, distribution center was sold as a result of increased
competition in that market area. Also, Eagle closed its distribution center in
Fort Pierce, Florida, immediately after it was opened in 1996, as operating
prospects for that center were not anticipated to be satisfactory to management.
Furthermore, during Eagle's fiscal year ended June 30, 1996, the damage caused
by hurricanes increased business for Eagle's distribution centers located in the
Florida panhandle and in Alabama. Eagle's revenues and income decreased during
Eagle's fiscal year ended June 30, 1997 from Eagle's fiscal year ended June 30,
1996 as a result of a decrease in storm related business; an increase in
operating expenses as a percentage of revenues because of the decline in
revenues; and expenses related to new branch locations, among other factors.
Similarly, during JEH Co.'s fiscal year ended December 31, 1995, JEH Co.
sustained a net loss of approximately $123,000, while during JEH Co.'s fiscal
year ended December 31, 1996, JEH Co. reported net income of approximately
$171,000 upon revenues that were fairly constant in both said fiscal years.
These results are after payment of compensation to JEH Co.'s owner of
approximately $3,988,000 and $2,330,000 during JEH Co.'s fiscal years ended
December 31, 1995 and 1996, respectively.
Revenues and operating income of both Eagle and JEH Eagle are impacted by
weather phenomena, such as hailstorms and hurricanes, which have the result of
increasing business at the time of the event of the weather phenomena and
shortly thereafter but have the effect frequently of resulting in a slowdown of
business thereafter.
There can be no assurance that, in the future, unforeseen developments,
increased competition, losses incurred by new businesses that may be acquired or
branches that may be opened, weather phenomena and other circumstances may not
have a material adverse affect on Eagle's and/or JEH Eagle's operations in their
current market areas of operations or areas into which Eagle's, JEH Eagle's or
the Company's operations may be expanded by acquisition or otherwise. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Financial Statements and the notes thereto.
REPAYMENT OF INDEBTEDNESS. Approximately $2,000,000 and $325,000 of the net
proceeds of this Public Offering, representing approximately 27.6% of such net
proceeds, will be used to reduce Eagle's and/or JEH Eagle's borrowings under
their revolving credit facilities and to repay interim financial indebtedness of
the Company, respectively. As a result, said net proceeds will not be available
for use in the business operations of the Company, Eagle or JEH Eagle. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
9
<PAGE>
BROAD DISCRETION IN USE OF PROCEEDS; UNKNOWN ACQUISITIONS.
The Company has broad discretion with respect to the specific allocation of
a substantial portion of the net proceeds. Such net proceeds are intended to be
applied toward consummating acquisitions in accordance with the Company's
business strategy, support Eagle's and JEH Eagle's expansion efforts by the
establishment of additional distribution centers and for working capital
purposes. Although management of the Company will endeavor to evaluate the risks
inherent in any particular acquisition or the establishment of new distribution
centers for Eagle and JEH Eagle, there can be no assurance that the Company will
properly or accurately ascertain all such risks. Management of the Company will
have virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates and establishing new distribution centers. Locations
selected for expansion efforts will be made at the discretion of management and
will not be subject to stockholder approval. Additionally, the Company does not
intend to seek stockholder approval for any acquisitions unless required by
applicable law and regulations, and stockholders will most likely not have an
opportunity to review financial information on an acquisition candidate prior to
consummation of an acquisition. Thus, purchasers of the Securities offered
hereby will be entrusting their funds to the Company's management, upon whose
judgment the investor must depend, with only limited information concerning
management's specific intentions. Except for the Acquisitions, the Company does
not currently have any agreements, commitments or arrangements with respect to
any proposed acquisitions, and there can be no assurance that any such
acquisitions will be consummated. See "Use of Proceeds."
THE WHOLESALE DISTRIBUTION OF ROOFING SUPPLIES BUSINESS SUBJECT TO ECONOMIC
AND OTHER CHANGES.
The wholesale distribution of roofing supplies industry is cyclical and is
affected by weather and changes in general economic conditions. An economic
downturn in one or more of the markets currently served by Eagle and/or JEH
Eagle or to be served by the Company, Eagle and/or JEH Eagle as a result of
acquisitions or expansion efforts could have a material adverse effect on the
operations of the Company, Eagle and/or JEH Eagle.
VENDORS. Eagle and JEH Eagle distribute products manufactured by a number
of major vendors. GAF Corporation, a supplier of residential and commercial
roofing materials, is Eagle's largest supplier, accounting for approximately
21%, 23% and 23% of Eagle's purchases during Eagle's fiscal years ended June 30,
1996 and 1997 and eight-month period ended February 28, 1998, respectively.
During Eagle's fiscal years ended June 30, 1996 and 1997 and eight-month period
ended February 28, 1998, three other vendors' products accounted for an
aggregate of approximately 23%, 32% and 18%, respectively, of Eagle's purchases.
Similarly, Atlas Roofing Corp., a supplier of roofing materials, is JEH Eagle's
largest supplier, accounting for approximately 22%, 15% and 14% of JEH Co.'s
purchases during JEH Co.'s fiscal years ended December 31, 1995 and 1996 and JEH
Eagle's eight-month period ended February 28, 1998, respectively. During JEH
Co.'s fiscal years ended December 31, 1995 and 1996 and JEH Eagle's eight-month
period ended February 28, 1998, three other vendors' products accounted for an
aggregate of approximately 31%, 34% and 29%, respectively, of JEH Co.'s and JEH
Eagle's purchases. Eagle and JEH Eagle have no written agreements with any of
their vendors. Management believes that in the event of any interruption of
product deliveries from any of its vendors, Eagle and JEH Eagle will be able to
secure suitable replacement supplies on acceptable terms. However, there can be
no assurance of the continued availability of supplies of residential and
commercial roofing materials at acceptable prices or at all. See "Business."
COMPETITION. Eagle and JEH Eagle currently face substantial competition in
the wholesale distribution of roofing supplies from relatively smaller
distributors but also face competition from retail distribution centers and from
a number of multi-regional and a national wholesale distributor of building
products including suppliers which are larger than Eagle and JEH Eagle combined
(the "Combined Entities") and have greater financial resources than the Combined
Entities. The Combined Entities currently compete in the wholesale distribution
of roofing supplies on the basis of competitive pricing, service, breadth of
10
<PAGE>
product line, prompt delivery, providing discounts for prompt payment and on the
abilities of its personnel. There can be no assurance that Eagle or JEH Eagle
will be able to continue to compete effectively with such competitors. During
Eagle's last three fiscal years Eagle has closed and/or sold certain
distribution centers as a result of such competition. To a substantially lesser
degree, Eagle and JEH Eagle also compete with larger, higher volume, discount
general building supply stores selling standardized products, sometimes at lower
prices. See "--No Assurance of Profitable Operations of Eagle" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company anticipates that it may experience competition from entities and
individuals (including venture capital partnerships and corporations, equity
funds, blind pool companies, competing wholesale roofing supply distribution
companies, large industrial and financial institutions, small business
investment companies and wealthy individuals) which are well-established and
have greater financial resources and more extensive experience than the Company
and the Combined Entities in connection with identifying and effecting
acquisitions of the type sought by the Company. Many of such competitors possess
greater financial, technical, personnel and other resources than the Company and
the Combined Entities, and there can be no assurance that the Company will be
able to compete successfully in connection with identifying and effecting
acquisitions of the type sought by the Company. The Company's, Eagle's and JEH
Eagle's combined financial resources will be limited in comparison to those of
many of such competitors. Such competition could result in the loss of an
acquisition candidate or an increase in the price the Company would be required
to pay for such acquisitions. See "Business."
NEED FOR ADDITIONAL FUTURE FINANCING; POSSIBLE ADDITIONAL DILUTION AND/OR
FINANCIAL RESTRICTIONS.
The Company may require additional equity or debt financing in order to
consummate an acquisition or for additional working capital if either of the
Combined Entities suffer losses or if the Company completes the acquisition of a
business that subsequently suffers losses. Any additional equity financing that
may be obtained may dilute the voting power and equity interests of the
Company's stockholders. Any additional debt financing that may be obtained may
impair or restrict the Company's ability to declare dividends or may impose
financial restrictions on the Company's ability to make acquisitions or
implement the expansion efforts of the Combined Entities. There can be no
assurance that the Company will be able to obtain additional financing on terms
acceptable to the Company or at all. In the event additional financing is
unavailable to the Company, the Company may be materially adversely affected.
See "Use of Proceeds."
UNPROVEN BUSINESS STRATEGY OF THE COMPANY. Although the Company's
Acquisitions of the Combined Entities will occur simultaneously with the closing
of the Public Offering, the Company has not yet commenced operations. A
significant element of the Company's business strategy is to acquire additional
companies engaged in the wholesale distribution of roofing supplies and related
products industry and companies which manufacture products for or supply
products to such industry. The Company's strategy is unproven and based on
unpredictable and changing events. Although the Company believes that suitable
candidates for potential acquisition exist, there can be no assurance that any
acquisitions, if successfully consummated, will be successfully integrated into
the Company or operations of the Combined Entities, will perform as expected,
will not result in significant unexpected liabilities or will ever contribute
significant revenues or profits to the Company and/or either of the Combined
Entities. In addition, if the Company is unable to manage growth effectively,
the Company's operating results could be materially adversely effected. See
"Business."
CONTROL BY MANAGEMENT AND TDA. Upon closing of the Public Offering and
consummation of the Acquisitions, TDA will own approximately 60% of the issued
and outstanding Common Stock of the Company. Douglas P. Fields, the Company's
Chief Executive Officer and Chairman of the Company's Board of Directors, is
also Chairman of the Board of Directors, President and the Chief Executive
Officer of TDA as well as a principal stockholder of TDA. Frederick M. Friedman,
the Executive Vice President, Treasurer, Secretary and a Director of the Company
is also the Executive Vice President, Chief Financial
11
<PAGE>
Officer, Treasurer and a Director of TDA as well as a principal stockholder of
TDA. John E. Smircina is a Director Nominee of the Company and a director of
TDA. Accordingly, Messrs. Fields, Friedman and Smircina will control
approximately 60% of the issued and outstanding shares of Common Stock of the
Company after the closing of the Public Offering and consummation of the
Acquisitions. As a result, the foregoing officers and directors, if they were to
act in concert, would be in a position to control the composition of the Board
of Directors of the Company, and, therefore the business, policies and affairs
of the Company and the outcome of issues which may be subject to a vote of the
Company's stockholders. See "Principal Stockholders," "Management" and "Certain
Transactions."
POTENTIAL CONFLICTS OF INTEREST. Certain executive officers and directors
of the Company are also officers, directors and/or principal stockholders of TDA
and its affiliates and, consequently, may be able, through TDA and its
affiliates, to direct the election of the Company's directors, effect
significant corporate events and generally direct the affairs of the Company.
Eagle has been dependent on TDA for certain administrative services, and TDA
also furnishes certain services to JEH Eagle. Following completion of the Public
Offering and the consummation of the Acquisitions, TDA will provide the Company
with certain administrative services. Furthermore, a subsidiary of TDA and James
E. Helzer, the President of the Company, Eagle and JEH Eagle, lease
approximately one-half of Eagle's and JEH Eagle's facilities to them,
respectively. Conflicts of interest may arise in the future with respect to such
leases and possible renewal terms and conditions. The Company does not intend to
enter into any material transaction with TDA or its affiliates in the future
unless such transaction is fair and reasonable to the Company and is approved by
a majority of the independent members of the Board of Directors of the Company.
Notwithstanding the foregoing, there can be no assurance that future
transactions, if any, will not result in conflicts of interest which will be
resolved in a manner favorable to the Company. See "--Control by Management and
TDA," "Management," "Principal Stockholders" and "Certain Transactions."
DEPENDENCE UPON KEY PERSONNEL; CONFLICTS OF INTEREST.
The success of the Company and either of the Combined Entities may depend
upon the continued contributions of their officers. The business of the Company
could be adversely affected by the loss of the services of Douglas P. Fields,
the Chief Executive Officer and Chairman of the Boards of Directors of the
Company and each of the Combined Entities, Frederick M. Friedman, the Executive
Vice President, Secretary and Treasurer of the Company and each of the Combined
Entities or James E. Helzer, the President of the Company and each of the
Combined Entities. Although JEH Eagle has "key person" life insurance on the
life of James E. Helzer in the amount of $2,000,000 naming JEH Eagle as
beneficiary, and the Company has "key person" life insurance in the amount of
$1,000,000 on each of the lives of Messrs. Fields and Friedman, there can be no
assurance that the foregoing amounts will be adequate to compensate JEH Eagle
and/or the Company, in the event of the loss of any of their lives.
Additionally, the employment agreements already entered into and to be entered
into with Messrs. Fields and Friedman do not and will not require either of them
to devote a specified amount of time to the Company's or the Combined Entities'
affairs. Each of Messrs. Fields, Friedman and Helzer have significant business
interests outside of the Company, including but not limited to TDA and its
subsidiaries, as to Messrs. Fields and Friedman. Accordingly, Messrs. Fields,
Friedman and Helzer may have conflicts of interest in allocating time among
various business activities. There can be no assurance that any such conflicts
will be resolved in a manner favorable to the Company. See "Management."
NO ASSURANCE OF CONTINUATION OF CREDIT FACILITIES. Both Eagle and JEH Eagle
have substantial credit facilities that are needed to finance their operations.
Both credit facilities are guaranteed by TDA, and the institutions providing the
credit facilities will be required to consent to the completion of the Public
Offering and consummation of the Acquisitions. Assuming the required consents
from the lending institutions are obtained and the Public Offering and the
Acquisitions are completed and consummated, TDA has advised the Company that
after January 1, 2002 it may seek releases from its current guarantees from the
lending institutions for Eagle's and JEH Eagle's credit facilities. If either of
the lending
12
<PAGE>
institutions agree to such a release, restrictive terms and conditions may be
imposed upon the credit facilities including, but not limited to, a reduction in
the maximum amount of funds available under a credit facility, additional and/or
higher interest rates and charges and more restrictive financial terms and
conditions. Any of the foregoing could have a material adverse effect upon the
Company, Eagle and/or JEH Eagle. Alternatively, if after January 1, 2002 the
lending institutions refuse to release TDA from its guarantees, TDA has advised
the Company that it may seek compensation from the Company for continuing its
guarantees to the lending institutions. Although no such compensation has been
agreed upon, such compensation, if paid, could be materially adverse to the
Company, Eagle and/or JEH Eagle and could be a material benefit to TDA and
certain officers and directors of the Company, who are also officers, directors
and stockholders of TDA. See "--Control by Management and TDA," "--Potential
Conflicts of Interest," "--Transactions With and For the Benefit of Affiliates,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Acquisitions," "Management," "Principal Stockholders" and
"Certain Transactions."
TRANSACTIONS WITH AND FOR THE BENEFIT OF AFFILIATES.
Messrs. Fields and Friedman, the Company's Chief Executive Officer and
Chairman of its Board of Directors; and Executive Vice President, Treasurer,
Chief Financial Officer and a Director of the Company, respectively, are also
executive officers, directors and principal stockholders of TDA and have and
will or may be deemed to benefit, directly or indirectly, from the Company's and
each of the Combined Entities' transactions with TDA. James E. Helzer, the
Company's President and the nominee Vice Chairman of the Company's Board of
Directors, previously owned JEH Co. and has and will or may be deemed to
benefit, directly from his and JEH Eagle's transactions with the Company. See
"Management," "Certain Transactions" and "Principal Stockholders."
Eagle and JEH Eagle have revolving credit facilities, in the amounts of
$7,500,000 and $20,000,000, respectively, guaranteed by TDA. To the extent these
credit facilities are reduced or repaid, TDA will derive an indirect benefit.
During Eagle's June 30, 1995 fiscal year, Eagle used its borrowings under this
revolving credit facility to repay approximately $2,326,000 of its indebtedness
to TDA and to advance approximately $3,309,000 to TDA. As part of the
Acquisitions, Eagle and JEH Eagle combined will have a book value of not less
than $1,000,000 after Eagle cancels, in the form of a non-cash dividend, all
indebtedness of TDA to Eagle, approximately $2,839,000 at February 28, 1998. To
the extent TDA's indebtedness to Eagle is so cancelled, TDA will directly, and
Messrs. Fields and Friedman will indirectly, derive a benefit. During Eagle's
fiscal years ended June 30, 1996 and 1997 and the eight-month period ended
February 28, 1998, Eagle made dividend payments to TDA of $1,097,000, $1,250,000
and $750,000, respectively. After February 28, 1998, Eagle intends to continue
to make dividend payments to TDA until the completion of the Public Offering and
consummation of the Acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management" and "Certain
Transactions."
TDA, through a wholly-owned subsidiary, has rented to Eagle the premises for
several of Eagle's distribution facilities and Eagle's executive offices. Upon
completion of the Public Offering and the consummation of the Acquisitions,
Eagle and TDA intend to enter into lease agreements which will provide rental
arrangements for such facilities which the Company believes to be fair and
reasonable to Eagle. Similarly, Mr. Helzer has rented to JEH Eagle the premises
for several of JEH Eagle's distribution facilities pursuant to five year leases
at an approximate annual cost of $486,000 to JEH Eagle which the Company
believes to be fair and reasonable to JEH Eagle. See "The Acquisitions,"
"Business," "Certain Transactions" and Financial Statements and the notes
thereto.
Eagle is responsible to make payments due on the mortgage underlying its
Birmingham, Alabama, distribution center. That property is owned by a
wholly-owned subsidiary of TDA. Such mortgage requires a "balloon" payment in
April 1999. TDA's wholly-owned subsidiary which owns this property intends to
obtain replacement financing when the "balloon" payment is due. There can be no
assurance that such
13
<PAGE>
financing will be available on acceptable terms. Eagle also remains responsible
for lease payments to a TDA subsidiary under a lease for Eagle's former
distribution center in Fort Lauderdale, Florida, including a "balloon" payment
due on May 1, 1999, the lease expiration date, relating to industrial revenue
bonds used to acquire and develop the Fort Lauderdale, Florida, realty. Eagle
presently subleases this property to an unrelated third party. In the event the
unrelated third party subleasee fails to perform its obligations under the
sublease, Eagle is required to make rental payments to the TDA subsidiary, and,
in any event, will be required to make the "balloon" payment. However, through
February 28, 1998, Eagle had been making pro-rata payments upon the "balloon"
payment to the TDA subsidiary owning the Fort Lauderdale, Florida, realty, and
these payments, together with anticipated sublessee rental payments, are
currently projected to fully fund the "balloon" payment. Upon completion of the
Public Offering and as part of the Acquisitions, TDA or its relevant
subsidiaries will agree to indemnify Eagle for any payments that Eagle is
required to make which are in excess of its obligations under its leases for the
foregoing properties. In the event of the failure of Eagle, TDA and/or TDA's
subsidiary to perform Eagle's obligations under said mortgage and lease, Eagle
could be subject to substantial judgments that would have a material adverse
effect on Eagle and its financial condition.
The mortgage underlying Eagle's Birmingham, Alabama, distribution center
requires monthly payments of approximately $4,700 through April 1999 and a
"balloon" payment of approximately $440,000 on that date. The lease for Eagle's
former Fort Lauderdale, Florida, distribution center requires variable monthly
payments and a "balloon" payment of approximately $580,000 on May 1, 1999. See
"Certain Transactions."
Upon completion of the Public Offering and consummation of the Acquisitions,
TDA will provide office space and administrative services to the Company at
TDA's offices in New York City pursuant to an administrative services agreement
to be entered into by the Company and TDA, and Messrs. Fields' and Friedman's
employment agreements with the Company and Eagle will become effective. Messrs.
Fields and Friedman have already entered into employment agreements with JEH
Eagle which will remain effective. TDA also provides certain services to JEH
Eagle pursuant to a five-year agreement requiring monthly payments to TDA of
$3,000 through December 1999 increasing to $15,000 per month in January 2000.
The payments required to be made to Messrs. Fields and Friedman and to TDA
pursuant to their respective agreements with JEH Eagle will commence upon
completion of the Public Offering and consummation of the Acquisitions. See
"Business," "Management," "Certain Transactions" and Financial Statements and
the notes thereto.
SUBSTANTIAL POTENTIAL FUTURE FINANCIAL BENEFITS TO PRIOR OWNER OF
ACQUISITION CANDIDATE NOW AFFILIATED WITH THE COMPANY.
In July 1997, JEH Eagle acquired substantially all of the assets and the
business of JEH Co., a Texas corporation, wholly owned by James E. Helzer, now
the President of the Company, Eagle and JEH Eagle. At that time, a tentative
purchase price of $14,850,000 was established and was subject to final
adjustments. Of the tentative purchase price, $13,850,000 was paid to JEH Co.,
and JEH Co. was issued a note in the principal sum of $1,000,000 bearing
interest at the rate of 6% per annum and due July 1, 2002, with the final
adjusted purchase price to be established. Subsequent to the closing of the
acquisition by JEH Eagle, the purchase price was adjusted to the amount of
$14,473,032 by decreasing the principal amount of the note to $873,032 and
establishing a receivable due on demand from JEH Co. in the amount of $250,000.
Certain, potentially substantial, contingent payments, as additional future
consideration to JEH Co., or its designee, are to be paid by JEH Eagle. JEH Co.
is to receive a percentage of the EBITDA or the modified EBITDA (as defined) of
the business acquired (the "JEH EBITDA") on a per year non-cumulative basis for
each of JEH Eagle's fiscal years ending on June 30 of 1998 through 2002 (the
"Applicable Period"). If the JEH EBITDA reaches $3,000,000, $4,000,000 and
$5,000,000 in the foregoing fiscal years, JEH Co. or its designee is to receive
35%, 40% and 50%, respectively, of that fiscal year's JEH EBITDA. If the JEH
EBITDA (plus $50,000 of Mr. Helzer's compensation under his employment
agreement) (x) for any fiscal
14
<PAGE>
year in the Applicable Period is not less than $4,400,000, JEH Eagle is to pay
JEH Co. or its designee $1,000,000, provided that the aggregate amounts of such
payments is not to exceed $2,000,000; and (y) in the aggregate during the
Applicable Period is not less than $20,000,000, JEH Eagle is to pay JEH Co. or
its designee the sum of $1,350,000 plus the amount of the difference, if any,
between $2,000,000 and the amount to be paid under (x). Additionally, with
respect to certain Total Accounts Receivable Reserves, as defined (the "JEH
Reserves") which were established at the date of acquisition, if JEH Eagle
reduces the amount of the JEH Reserves in any fiscal year during the Applicable
Period, JEH Co. or its designee is to be paid 100% of the reduction until the
JEH Reserves are not less than $2,500,000 and 50% of the reduction in the JEH
Reserves below $2,300,000 down to $600,000. Both of the immediately foregoing
percentage payments to JEH Co. or its designee are subject to adjustment in
certain events. Additionally, if this Public Offering is completed prior to June
30, 2002 and in the event certain JEH EBITDA levels are reached for JEH Eagle
during the period from July 1, 1997 through the date of consummation of this
Public Offering, JEH Co. or its designee will be entitled to receive $1,000,000
or $1,350,000 (either in cash or in shares of the Company's Common Stock valued
at its public offering price) depending upon the JEH EBITDA level. The Company
will issue 300,000 shares of its Common Stock to James E. Helzer in fulfillment
of the obligation set forth above, even if the JEH EBITDA does not reach the
required levels. The foregoing may result in substantial financial benefits to
James E. Helzer, and may materially and adversely effect the financial condition
and income of JEH Eagle and the Company. See "The Acquisitions" and "Certain
Transactions."
DILUTION. As a result of the sale of the Securities offered in the Public
Offering and the consummation of the Acquisitions, there will be immediate and
substantial dilution to public investors in that the pro forma net tangible book
value per share of the Company's Common Stock after the Public Offering and
consummation of the Acquisitions will be approximately $1.63 per share, or
approximately $3.37 (67%) less than the $5.00 Public Offering price per share.
All of the Company's present stockholders purchased their shares at a price
substantially less than the Public Offering price per share. See "Dilution."
PRIOR ABSENCE OF WRITTEN LEASES WITH AFFILIATES; WRITTEN LEASES TO BE
ENTERED INTO.
Several of Eagle's distribution centers are leased from a subsidiary of TDA
on a month to month basis without formal written lease agreements. Upon
completion of the Public Offering and consummation of the Acquisitions, the
subsidiary of TDA and Eagle intend to enter into written leases for such
distribution centers. Although the written leases are expected to be on
substantially equivalent economic terms as Eagle's prior oral agreements, the
written leases will be for ten-year terms. As a result, Eagle will then be
committed to pay rent for such distribution centers for a minimum of ten (10)
years. See "Business."
PENNY STOCK REGULATIONS; ADDITIONAL REQUIREMENTS ON BROKER-DEALER SALES OF
SECURITIES.
The Company applied for the listing of its securities on the NASDAQ's
National Market System ("NMS") and was denied listing as its securities did not
meet certain criteria and for other reasons as discussed herein. Thereafter, The
Company applied for listing of its securities on NASDAQ's Small Capital Market
("Small Cap"). The Company's application for inclusion in the NASDAQ Small Cap
system was denied. While The Company met the financial and other objective
criteria for inclusion on the NASDAQ Small Cap system, the Company's application
for listing was denied based upon concerns relating to securities law violations
that occurred more than 25 years ago by two of the Company's executive officers
and directors who are also the controlling shareholders of TDA. The Company
appealed that decision to the Commission which has recently remanded the matter
to NASDAQ for a more definite and complete statement of its reasoning. No
assurance can be given that the Company's securities will ever be approved for
inclusion on the NASDAQ Small Cap system. Unless the Company's securities
qualify for and are approved for inclusion in the NASDAQ Small Cap system and
are so listed, the Company's securities are anticipated to be traded in the
over-the-counter markets through the "pink sheets" or on the NASD's OTC Bulletin
Board. During periods when the Company's securities do not qualify for inclusion
15
<PAGE>
on the NASDAQ Small Cap system, the Company's securities may become subject to
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors. For transactions covered by such rules, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the transaction. Additionally, for
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Finally, monthly statements must
be sent disclosing recent price information for the penny stock held in a
customer's account and information on the limited market in penny stocks.
Certain broker-dealers are precluded from acting as market makers for non-NASDAQ
securities and such securities may be ineligible for margin loans. Consequently,
the penny stock rules may affect the ability of broker-dealers to sell the
Company's securities and may also affect the ability of stockholders to sell the
Securities in any secondary market, should such a market develop.
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE.
Prior to the offering, there has been no market for any of the Company's
securities. The initial public offering price of the Securities and the exercise
price and other terms of the Warrants have been arbitrarily determined by
negotiations between the Company and the Underwriter and such prices and terms
are not necessarily related to the Company's asset value, net worth or other
established criteria of value. In addition, there can be no assurance that a
trading market will develop after the Public Offering for any of the Company's
Securities or that, if developed, it will be sustained. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. In general, under Rule 144, a person which
has satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period a number of shares of common stock that does not
exceed the greater of 1% of the then outstanding shares of common stock or the
average weekly trading volume in such shares during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity or other limitation by a person which is not an
affiliate of an issuer and which has satisfied a two-year holding period. The
holders of approximately 4,400,000 and 300,000 shares of the Company's Common
Stock, after giving effect to the Acquisitions, have agreed not to sell,
transfer, hypothecate or otherwise dispose of the shares of the Company's Common
Stock owned by them on the date hereof for a period of two years and fifteen
months, respectively, from the date of this Prospectus without the prior written
consent of the Underwriter.
After giving effect to the Acquisitions, the Company will have 4,700,000
shares of Common Stock outstanding that are "restricted securities," as that
term is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). The Company also has outstanding Warrants to
purchase 300,000 shares of Common Stock which shares of Common Stock underlying
the Warrants are being registered under the Registration Statement of which this
Prospectus forms a part for sale by the Selling Securityholders. Investors
should be aware that sales of the Company's securities may have a depressive
effect on the price of the Company's securities in any market which may develop
for such securities. See "--Effect of Options, Warrants and Registration
Rights," "Shares Eligible for Future Sale" and "Selling Securityholders."
EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS.
For the respective terms of the Underwriter's Warrant and Stock Warrants and
Warrants sold as part of the Public Offering and issued by the Company in the
Private Placement and any options granted and that may be granted by the Company
under the Company's stock option plan, the holders thereof are given an
opportunity to profit from a rise in the market price of the Common Stock, with
a resulting dilution in the interests of the other stockholders. Further, the
terms on which the Company may obtain additional financing during the exercise
periods of said warrants and options may be adversely effected by the existence
of such warrants, options and plan. The holders of options or warrants to
purchase Common
16
<PAGE>
Stock may exercise such options or warrants at a time when the Company might be
able to obtain additional capital through offerings of securities on terms more
favorable than those provided by such options or warrants. In addition, the
holders of the Underwriter's Warrant and Stock Warrants have demand and
"piggyback" registration rights with respect to their securities. Exercise of
such registration rights may involve substantial expense to the Company. See
"Management," "The Acquisitions," "Certain Transactions," "Description of
Securities," "Underwriting" and "Selling Securityholders."
NO CASH DIVIDENDS. The Company has not paid any dividends to date. The
Company's Board of Directors does not presently intend to declare any dividends
in the foreseeable future but instead intends to retain all earnings, if any,
for use in the business operations of the Company and the Combined Entities. See
"Description of Securities."
ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS.
The Company's Certificate of Incorporation permits its directors to
designate the terms of and issue shares of preferred stock. The issuance of
shares of preferred stock by the Board of Directors could adversely effect the
rights of holders of Common Stock by, among other matters, establishing
preferential dividends, liquidation rights and voting power. Although the
Company has no present intention to issue shares of preferred stock, the
issuance thereof might render it more difficult, and therefore discourage, an
unsolicited takeover proposal such as a tender offer, proxy contest or the
removal of incumbent management, even if such actions would be in the best
interest of the Company's stockholders. The Company has agreed not to issue any
shares of Preferred Stock until the third anniversary date of this Prospectus
without the Underwriter's written consent. See "Description of Securities."
DIRECTORS' LIABILITY LIMITED.
The Company's Certificate of Incorporation provides that its directors will
not be held liable to the Company or its stockholders for monetary damages upon
breach of a director's fiduciary duty with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. See "Management."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS.
The Warrants are not redeemable prior to the first anniversary date of this
Prospectus without the written consent of the underwriter. The Warrants may be
redeemed by the Company at a redemption price of $.25 per Warrant upon 30 days
prior written notice if the market price (as herein defined) of the Common Stock
averages at least $10.00 per share for 30 consecutive trading days ending within
10 days of the notice. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the current
market price for the Warrants when they might otherwise wish to hold the
Warrants, or to accept the redemption price, which may be substantially less
than the market value of the Warrants at the time of redemption. See
"Description of Securities."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS.
Holders of the Warrants will have the right to exercise the Warrants for the
purchase of shares of Common Stock only if a current prospectus relating to such
shares is then in effect and only if the shares are qualified for sale under the
securities laws of the states in which the warrantholders reside. Although the
Company intends to maintain such a current prospectus and to seek to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the Common Stock and Warrants are to be offered, there is no assurance that it
will be able to do so. The Warrants may be deprived of any value if the current
prospectus encompassing the shares underlying the Warrants is not kept effective
or if such underlying shares are not or cannot be registered in the states in
which warrantholders reside. See "Description of Securities."
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<PAGE>
DILUTION
The initial offering price per share of Common Stock is substantially higher
than the average price per share paid by the Company's existing stockholders.
Based on an initial public offering price of $5.00 per share, purchasers of the
Common Stock in the Public Offering will experience an immediate and substantial
dilution in net tangible book value of approximately 67% or $3.37 per share. For
the purposes of this discussion, it is assumed that no Warrants will be
exercised, and, accordingly, no value is attributed to the Warrants.
The following table presents certain information concerning the net tangible
book value per share of the Company's Common Stock as of February 28, 1998, as
adjusted to give effect to the sale of 2,000,000 shares of Common Stock by the
Company in the Public Offering (at an initial public offering price of $5.00 per
share and after deducting the estimated underwriting discounts and estimated
offering expenses payable by the Company) and the consummation of the
Acquisitions:
<TABLE>
<S> <C> <C> <C>
Initial Public Offering price.......................................... $ 5.00 $ 5.00
Net tangible book value per share before the Public Offering and the
Acquisitions(1)...................................................... $ (.01)
Increase per share attributable to new investors....................... 1.99
--------- --------- ---------
Pro forma net tangible book value per share after the Public Offering
and before the Acquisitions.......................................... 1.98 1.98
Dilution per share to new investors before the Acquisitions............ $ 3.02
--------- --------- ---------
--------- --------- ---------
Decrease per share attributable to the Acquisitions.................... (.35)
--------- --------- ---------
Pro forma net tangible book value per share after the Public Offering
and the Acquisitions................................................. 1.63
--------- --------- ---------
Total dilution per share to new investors(2)........................... $ 3.37
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Net tangible book value per share is determined by dividing the Company's
net tangible book value (total assets less intangible assets and total
liabilities) at February 28, 1998 by the number of shares of Common Stock
then outstanding.
(2) Dilution per share is determined by subtracting pro forma net tangible book
value per share after the Public Offering and the Acquisitions from the
initial public offering price per share. The foregoing table also assumes no
exercise of the Underwriter's Warrant, the Warrants issued in the Private
Placement or options to purchase 700,000 shares of Common Stock to be
granted upon the closing of the Public Offering pursuant to the Company's
1996 Stock Option Plan.
In the event the Underwriter exercises its Overallotment Option in full, the
pro forma net tangible book value per share after the Public Offering and the
Acquisitions would be $1.75 which would result in dilution to new investors of
$3.25 per share.
The following table sets forth, on a pro forma basis as of the date of this
Prospectus, the respective positions of the Company's existing stockholders and
new investors with respect to the number of shares of Common Stock purchased
from the Company, the total cash consideration paid and the average price per
18
<PAGE>
share paid by the existing stockholders and by the new investors with respect to
the 2,000,000 shares of Common Stock to be issued by the Company at an initial
public offering price of $5.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
APPROXIMATE APPROXIMATE AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
Existing stockholders(1)............................... 4,700,000 70% $ 1,300,210 12% $ .28
New investors.......................................... 2,000,000 30% 10,000,000 88% $ 5.00
---------- --- ------------- --- -----
Total.................................................. 6,700,000 100% $ 11,300,210 100%
---------- --- ------------- --- -----
---------- --- ------------- --- -----
</TABLE>
- ------------------------
(1) Includes 2,000,000 and 300,000 shares of Common Stock to be issued to TDA
and James E. Helzer, respectively, in connection with the Acquisitions.
The foregoing table assumes no exercise of any Warrants or options to
purchase 700,000 shares of Common Stock to be granted upon the closing of the
Public Offering pursuant to the Company's 1996 Stock Option Plan.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock and 2,500,000 Warrants offered hereby are estimated to be approximately
$8,436,250 ($9,782,031 if the Underwriter's Overallotment Option is exercised in
full) after deducting underwriting commissions and discounts and other expenses
of the Public Offering. The Company expects to use the net proceeds over the
next twelve to twenty-four months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR AMOUNT APPROXIMATE
OF NET PERCENTAGE OF
APPLICATION OF NET PROCEEDS PROCEEDS NET PROCEEDS
- ----------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Finance the cash portion of potential acquisitions(1).............................. $ 2,500,000 29.6%
Additional Eagle and JEH Eagle distribution centers(2)............................. $ 2,176,000 25.8%
Reduce Eagle's and JEH Eagle's credit facility balances(3)......................... $ 2,000,000 23.7%
Capital Expenditures(4)............................................................ $ 700,000 8.3%
Repayment of Private Financing(5).................................................. $ 325,000 3.9%
Working Capital.................................................................... $ 720,875 8.6%
-------------- -----
Totals......................................................................... $ 8,436,250 100.0%
</TABLE>
- ------------------------
(1) Represents the approximate amount that may be used to fund the potential
acquisition of businesses in accordance with the Company's current strategy
which is subject to change from time to time.
(2) Represents the approximate amount that may be used to expand Eagle's and JEH
Eagle's operations which is subject to change from time to time. The Company
estimates that the foregoing allocation will be sufficient to enable Eagle
and JEH Eagle to establish approximately six new distribution centers and
will be used principally to carry accounts receivable and purchase
inventory. The foregoing allocation excludes the purchase of trucks,
forklifts and similar equipment identified in note (4).
(3) To be used to reduce Eagle's and JEH Eagle's outstanding balance of
borrowings under their credit facilities. At February 28, 1998, Eagle had
borrowed approximately $5,831,000 under its credit facility. During Eagle's
June 30, 1995 fiscal year, Eagle used its borrowing under its credit
facility to repay approximately $2,326,000 of its indebtedness to TDA and to
advance approximately $3,309,000 to TDA. The remainder of the outstanding
balance of the credit facility was used to fund continuing operations. At
February 28, 1998, JEH Eagle had borrowed approximately $14,209,000 under
its credit facility of which approximately $12,500,000 was used to pay a
part of the purchase price of JEH Co.'s business and the balance was used
for JEH Eagle's working capital.
(4) To be used for leasehold improvements for existing distribution centers and
to purchase, if necessary, trucks, forklifts and similar equipment to
support additional distribution centers for Eagle and JEH Eagle.
(5) To be used to repay $300,000 in principal and interest on borrowings made by
the Company in February 1998 pursuant to promissory notes issued to TDA
($150,000) and two other stockholders of the Company. Said notes bear
interest at the rate of 15% per year through June 30, 1998 which decreases
to 6% per year after that date. The notes mature on the earlier of thirty
months after issuance or the closing of this Public Offering. The proceeds
from the issuance of the foregoing notes have and are being used to pay
certain expenses relating to the Public Offering, legal fees and expenses in
connection with seeking the listing of the Company's securities on NASDAQ
and the Acquisitions.
The Company currently estimates that the net proceeds of the Public Offering
will be sufficient to fund its planned operations, including the cash portion of
potential acquisitions, if any, and expansion efforts for approximately twelve
to twenty-four months from the date of this Prospectus. The net proceeds
20
<PAGE>
may be sufficient for a greater or lesser period of time depending on the extent
of the Company's expansion efforts and on the number of acquisitions, if any,
that the Company consummates during the next twelve to twenty-four months and
the portion of the purchase price of such acquisitions paid in cash. In
addition, the Company may require additional financing prior to or following
such period if Eagle or JEH Eagle suffer losses or if the Company effects the
acquisition of a business that subsequently suffers losses. The Company has no
commitments or arrangements for any such additional financing and there can be
no assurance that the Company will be able to obtain additional financing on
terms acceptable to the Company or at all. If required, the Company may seek to
finance the purchase price of acquisitions by purchase money indebtedness,
asset-based financing and/or issuances of its own securities; and to open
additional Eagle and JEH Eagle distribution centers by obtaining short-term
vendor inventory financing (inventory purchased on extended payment terms),
asset-based financing and/or equipment leasing/ financing. As each potential
acquisition will be individually negotiated, the Company is unable to estimate
the cash or other portions of a potential acquisition's purchase price. In the
event additional financing is unavailable to the Company, the Company may be
materially adversely affected.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Public Offering. Future events, as well as changes in
economic, regulatory or competitive conditions or the Company's business or
Eagle's or JEH Eagle's business and the results of the Company's, Eagle's or JEH
Eagle's activities may make shifts in the allocation of funds within the
described categories or to other purposes necessary or desirable. In the event
the Company is unable to fund the cash portion of potential acquisitions with
the net proceeds allocated above, Eagle or JEH Eagle suffer losses or the
Company completes an acquisition that subsequently suffers losses, the Company
may draw upon the net proceeds of the Public Offering allocated to expand the
number of Eagle's and JEH Eagle's distribution centers, purchase equipment to
support that expansion and/or working capital. The Company estimates that the
net proceeds of the Public Offering allocated to expand the number of Eagle's
and JEH Eagle's distribution centers and to support that expansion will be
sufficient to establish approximately six new distribution centers at an average
cost of approximately $415,000 for each new distribution center. In the event
the per distribution center costs are greater than estimated, Eagle and JEH
Eagle may establish less than six new distribution centers, the Company may seek
vendor financing of inventory, asset-based financing and/or equipment
leasing/financing, or draw upon the net proceeds of the Public Offering
allocated to working capital. In the event the per distribution center costs are
less than estimated, a portion of the net proceeds of the Public Offering
allocated for such purposes will be reallocated to finance acquisitions or for
working capital. In order to conduct its proposed expansion, the Company intends
to use a significant portion of the net proceeds of the Public Offering for the
acquisition of businesses or assets that are consistent with the Company's
current strategy, which is subject to change from time to time. With the
exception of the Acquisitions, the Company does not currently have any
agreements, commitments or arrangements with respect to any proposed
acquisitions nor has it identified or negotiated with any potential acquisition
candidates, and there can be no assurance that any acquisitions will be
consummated. Except for the Acquisitions, the Company has no present intention
to use the net proceeds of the Public Offering to acquire assets from any of its
affiliates.
Prior to expenditure, proceeds will be invested principally in high grade,
short-term, interest-bearing investments. Any proceeds received upon exercise of
the Overallotment Option or any of the Warrants will be used to finance
potential acquisitions or for working capital. There can be no assurance that
the Overallotment Option or any of the Warrants will be exercised.
21
<PAGE>
CAPITALIZATION
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table sets forth the capitalization of the Company as of February
28, 1998 (i) on an actual basis, (ii) as adjusted to give effect to the Public
Offering of 2,000,000 shares of Common Stock and 2,500,000 Warrants at initial
public offering prices of $5.00 per share and $.125 per Warrant and the
application of the net proceeds therefrom and (iii) on a pro forma basis,
assuming the consummation of the Acquisitions as of such date. The Acquisitions
will be treated as a combination of entities under common control similar to the
pooling-of-interests method of accounting. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Unaudited Pro Forma Condensed Consolidated
Balance Sheet, "Certain Transactions" and the Financial Statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-----------------------------------
<S> <C> <C> <C>
ACTUAL AS ADJUSTED PRO FORMA
$ $ AS ADJUSTED
--------- ----------- -----------
Long-Term Debt..................................................................... -- -- $ 19,007
Stockholders' Equity:
Preferred Stock, $.0001 par value; 2,500,000 shares authorized; no shares issued
and outstanding................................................................ $ -- $ -- $ --
Common Stock, $.0001 par value; 25,000,000 shares authorized; 2,400,000 shares
issued and outstanding (actual); 4,400,000 shares issued and outstanding (as
adjusted)(1); 6,700,000 shares issued and outstanding (pro forma)(2)(3).......... --(4) --(4) --(4)
--------- ----------- -----------
Additional Paid-in Capital......................................................... 294 8,730 12,640
Retained Earnings (Deficit)........................................................ (319) (319) (1,728)
--------- ----------- -----------
Total Stockholders' Equity (Deficit)............................................... (25) 8,411 10,912
--------- ----------- -----------
Total Capitalization............................................................... $ (25) $ 8,411 $ 29,919
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
See footnotes on following page.
(1) Includes 2,000,000 shares of Common Stock to be issued in the Public
Offering.
(2) Includes, in the pro forma column, 2,000,000 and 300,000 shares of Common
Stock to be issued to TDA and James E. Helzer, respectively, simultaneously
with the closing of the Public Offering in connection with the Acquisitions.
See "Certain Transactions."
(3) Does not include (i) 300,000 shares of Common Stock and 375,000 Warrants and
375,000 shares of Common Stock underlying such Warrants subject to the
Underwriter's Overallotment Option; (ii) 2,500,000 shares of Common Stock
issuable upon the exercise of the Warrants; (iii) 300,000 shares of Common
Stock issuable upon the exercise of the Company's outstanding Warrants; (iv)
450,000 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants and Stock Warrants; and (v) 1,000,000 shares of
Common Stock reserved for issuance pursuant to the Company's stock option
plan of which 700,000 shares of Common Stock are reserved for options to be
granted upon completion of the Public Offering. See "Management,"
"Underwriting," "Description of Securities" and "Selling Securityholders."
(4) Amounts are less than $1,000.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements are presented to illustrate the effects of certain adjustments to the
historical financial statements of the Company, Eagle and JEH Eagle that would
result from the completion of the Public Offering and the Acquisitions and are
presented as if these transactions had occurred on the first day of the earliest
period presented in the Unaudited Pro Forma Condensed Consolidated Statements of
Operations and the last day of the eighth month of the current fiscal year for
the Unaudited Pro Forma Condensed Consolidated Balance Sheet.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the notes thereto and also in conjunction with the respective
audited and unaudited historical financial statements and notes thereto of the
Company, Eagle and JEH Eagle appearing elsewhere herein.
The unaudited pro forma condensed consolidated financial statements are
presented for illustrative purposes only and do not purport to represent the
actual results and financial position of the consolidated entities had the
Public Offering and the Acquisitions occurred on the dates described above, nor
are they necessarily indicative of the future operating results or financial
position of the consolidated entities after the Public Offering and the
Acquisitions.
The Acquisitions will be accounted for as the combining of three entities
under common control similar to the pooling-of-interests method of accounting
with the net assets of Eagle and JEH Eagle recorded at historical carryover
values. The 2,000,000 shares of Common Stock to be issued to TDA will be
recorded at Eagle's and JEH Eagle's historical book values at the date of the
Acquisitions. Accordingly, these transactions will not result in any
re-evaluation of the Company's, Eagle's or JEH Eagle's assets or the creation of
additional goodwill. The 300,000 shares of the Company's Common Stock to be
issued to James E. Helzer will be accounted for as additional purchase price in
connection with the Acquisition by JEH Eagle of JEH Co. and such shares will be
valued at the public offering price of $5.00 per share.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
(HISTORICAL)
----------------------------------------
EAGLE
THE SUPPLY, JEH/EAGLE, PRO FORMA
COMPANY INC. INC. COMBINED ADJUSTMENTS PRO FORMA
------- ------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................. $ 223 $ 18 $ 21 $ 262 $ 6,111(1) $ 6,373
Accounts and notes receivable--net.... 7,718 10,224 17,942 17,942
Inventories........................... 4,998 8,488 13,486 13,486
Deferred tax asset.................... 213 134 347 347
Due from related party................ 250 250 250
Other current assets.................. 171 471 123 765 765
------- ------- ---------- -------- ----------- ----------
Total current assets.............. 394 13,418 19,239 33,052 6,111 39,163
IMPROVEMENTS AND EQUIPMENT--Net......... 1,039 2,157 3,196 3,196
EXCESS COST OF INVESTMENT OVER NET ASSET
ACQUIRED--Net......................... 2,757 2,757 1,500(4) 4,257
DEFERRED FINANCING COSTS................ 252 252 252
------- ------- ---------- -------- ----------- ----------
TOTAL ASSETS............................ $ 394 $14,457 $24,405 $39,257 $ 7,611 $46,868
------- ------- ---------- -------- ----------- ----------
------- ------- ---------- -------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable...................... $ 8,567 $ 5,793 $14,360 $14,360
Accrued expenses and other current
liabilities......................... $ 119 553 1,500 2,172 (25)(1) 2,147
Current portion of long-term debt..... 1,012 1,012 1,012
Notes Payable--stockholders........... 300 300 (300)(1) 0
Loan Payable--affiliated company...... 400 400 400
Federal and state income taxes due to
Parent.............................. 4 156 160 160
------- ------- ---------- -------- ----------- ----------
Total current liabilities......... 419 9,524 8,461 18,404 (325) 18,079
LONG TERM DEBT.......................... 5,831 14,164 19,995 (2,000)(1) 17,995
DUE TO TDA INDUSTRIES, INC AND
AFFILIATED COMPANIES.................. -- -- 115 115 115
DEFERRED TAX LIABILITIES................ 58 19 77 77
------- ------- ---------- -------- ----------- ----------
Total liabilities....................... 419 15,413 22,759 38,591 (2,325) 36,266
SHAREHOLDERS' EQUITY
Preferred shares...................... 0
Common shares......................... 60 60 (60)(1) 0
Additional paid-in capital............ 294 1,000 1,350 2,644 8,436 (1)(3 12,640
60(1)
1,500(4)
Retained earnings..................... (319) 825 295 801 (2,529)(2) (1,728)
------- ------- ---------- -------- ----------- ----------
(25) 1,885 1,645 3,505 7,407 10,912
Less: Due From TDA Industries, Inc.
and Affiliated Companies........ -- (2,839) -- (2,839) 2,529(2) (310)
------- ------- ---------- -------- ----------- ----------
Total shareholders' equity
(deficiency)........................ 394 (454) 1,645 666 9,936 10,603
------- ------- ---------- -------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY................................ $ 394 $14,459 $24,404 $39,257 $ 7,611 $46,868
------- ------- ---------- -------- ----------- ----------
------- ------- ---------- -------- ----------- ----------
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Reflects the Public Offering of 2,000,000 shares of Common Stock at an
offering price of $5.00 per share and 2,500,000 Warrants at an offering
price of $.125 per Warrant including the application of cash toward the
aggregate offering expenses of approximately $1,876,000 and the planned
reduction of debt of $2,000,000. See "Underwriting" and "Use of Proceeds."
(2) Reflects the consummation of the Acquisitions. Upon the closing of the
Public Offering, Eagle and JEH Eagle combined will have no less than
$1,000,000 in book value. See "Risk Factors," "The Acquisitions" and
"Certain Transactions."
(3) Amounts are less than $1,000. Certain column totals contain small
differences due to rounding.
(4) Reflects the issuance of 300,000 shares of Common Stock to be issued to
James E. Helzer. Such shares will be accounted for as additional purchase
price in connection with the acquisition by JEH Eagle of JEH Co. and has
been valued at the public offering price of $5.00 per share.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FEBRUARY 28, 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EAGLE JEH/EAGLE
THE SUPPLY, SUPPLY, PRO FORMA
COMPANY(9) INC. INC. COMBINED ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
REVENUES..................................... $ -- $ 36,126 $ 44,787 $ 80,913 $ 80,913
COST OF SALES................................ -- 28,517 34,675 63,192 63,192
----- ----------- ----------- ----------- ----------- -----------
-- 7,609 10,112 17,721 17,721
$ 24(4)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... -- 6,943 8,542 15,485 347(1)
48(2) 15,904
DEPRECIATION AND AMORTIZATION................ -- 310 386 696 67(3) 763
----- ----------- ----------- ----------- ----------- -----------
-- 7,253 8,928 16,181 486 16,667
----- ----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS....................... -- 356 1,184 1,540 (486) 1,054
OTHER INCOME (EXPENSE)
Interest income.............................. -- 17 17 34 34
Interest expense............................. -- (388) (750) (1,138) 120(5) (1,018)
----- ----------- ----------- ----------- ----------- -----------
-- (371) (733) (1,104) 120 (984)
INCOME BEFORE PROVISION FOR INCOME TAXES..... -- (15) 451 436 (366) 70
PROVISION FOR INCOME TAXES................... -- 4 156 160 (134)(7) 26
----- ----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME............................ $ -- $ (19) $ 295 $ 276 $ (232) $ 44
----- ----------- ----------- ----------- ----------- -----------
----- ----------- ----------- ----------- ----------- -----------
Basic Net Income per Share(8)................ $ 0.01
-----------
-----------
Weighted Average Number of Shares
Outstanding(8)............................. 5,766,825
-----------
-----------
Diluted Net Income per Share(8).............. $ 0.01
-----------
-----------
Weighted Average Number of Shares Outstanding
and Dilutive Warrants(8)................... 6,006,825
-----------
EBITDA (11).................................. $ 1,851
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated statements of
operations.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EAGLE
THE SUPPLY, JEH PRO FORMA
COMPANY(9) INC. COMBINED COMPANY(10) ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ------------- ----------- -----------
<CAPTION>
(HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
REVENUES.................................... $ -- $ 57,576 $ 57,576 $ 70,516 $ 128,092
COST OF SALES............................... -- 46,105 46,105 54,226 100,331
----- ----------- ----------- ------------- -----------
-- 11,471 11,471 16,290 27,761
----- ----------- ----------- ------------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. $ 36(4) 36
520(1) 520
-- 9,969 9,969 16,686 72(2) 24,643
(2,084)(6)
DEPRECIATION AND AMORTIZATION............... -- 594 594 583 100(3) 1,277
----- ----------- ----------- ------------- ----------- -----------
-- 10,563 10,563 17,269 (1,356) 26,476
----- ----------- ----------- ------------- ----------- -----------
INCOME FROM OPERATIONS...................... 908 908 (979) 1,356 1,285
OTHER INCOME (EXPENSE)
Interest income........................... 22 22 7 29
Interest expense.......................... (599) (599) (843) 180(5) (1,262)
Registration expense........................ (318) 0 (318) 0 (318)
----- ----------- ----------- ------------- ----------- -----------
(318) (577) (895) (836) 180 (1,551)
----- ----------- ----------- ------------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
(318) 332 13 (1,815) 1,536 (266)
PROVISION FOR INCOME TAXES.................. -- 140 140 (671) 568 37
----- ----------- ----------- ------------- ----------- -----------
NET INCOME.................................. $ (318) $ 192 $ (127) $ (1,144) $ 968 $ (303)
----- ----------- ----------- ------------- ----------- -----------
----- ----------- ----------- ------------- ----------- -----------
Basic Net Income per Share(8)............... $ (0.05)
-----------
-----------
Weighted Average Number of Shares
Outstanding(8)............................ 5,568,728
-----------
-----------
Diluted Net Income per Share(8)............. $ (0.05)
-----------
-----------
Weighted Average Number of Shares
Outstanding and Dilutive Warrants(8)...... 5,568,728
-----------
-----------
EBITDA(11).................................. $ 2,273
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated statements of
operations.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S> <C>
(1) To reflect the compensation payable pursuant to employment agreements with Messrs.
Fields and Friedman which commence upon closing of the Public Offering and
consummation of the Acquisitions. See "Management" and "Certain Transactions."
(2) To reflect amounts payable pursuant to the administrative and strategic services
agreements with TDA for office space, administrative, financial and strategic
consulting services, which commence upon completion of the Public Offering and
consummation of the Acquisitions.
(3) Reflects amortization over a 15 year period of the additional purchase price resulting
from the issuance of 300,000 shares to James E. Helzer in connection with the
acquisition by JEH Eagle of JEH Co.
(4) Reflects the amount payable in connection with the Underwriter's financial consulting
agreement.
(5) Reflects the reduction in interest expense in connection with the assumed pay-down of
long-term debt. See "Use of Proceeds."
(6) Reflects the compensation differential between James E. Helzer's aggregate salary and
S corporation distributions during the period prior to the sale of JEH Co. to JEH
Eagle and the contractual amount of Mr. Helzer's compensation subsequent thereto. See
"Certain Transactions."
(7) To reflect income taxes relating to the foregoing adjustments.
(8) Basic income (loss) per Common Share is based on the weighted average number of shares
outstanding and includes 2,100,000 shares issued in connection with the Company's
initial capitalization, 300,000 shares issued as part of the Company's Private
Placement 2,000,000 and 300,000 shares to be issued to TDA and James E. Helzer,
respectively, in connection with the Acquisitions and 1,066,825 and 868,728 shares
("Additional Shares") in the eight months ended February 28, 1998 and year ended June
30, 1997, respectively, for the shares assumed to be issued in the Public Offering,
the proceeds of which would be used to retire $2,000,000 of debt and replace the
capital in excess of the respective period's earnings, which is represented by the
non-cash dividend. Dilutive net income (loss) per Common Share for the eight months
ended February 28, 1998 also includes the dilutive effect of the 300,000 Warrants
issued in the Private Placement. The computation excludes shares to be issued in
connection with the Public Offering in excess of the Additional Shares. The
Underwriter's Warrant and options to be granted upon the closing of the Public
Offering pursuant to the Company's 1996 Stock Option Plan are not dilutive and have
not been included. See "Risk Factors," "Certain Transactions," "The Acquisitions" and
the Financial Statements and the Notes thereto.
(9) The Company was formed on May 1, 1996 and has had limited operations through February
28, 1998.
(10) Reflects the operations of JEH Co. for the year ended June 30, 1997 prior to its
Acquisition by JEH Eagle as of July 1, 1997.
(11) As used herein, EBITDA reflects net income (loss) increased by the effects of interest
expense, income tax provisions, depreciation and amortization expense. EBITDA is used
by management, along with other measures of performance, to assess the Company's
financial performance. EBITDA should not be considered in isolation or as an
alternative to measures of operating performance or cash flows pursuant to generally
accepted accounting principles. In addition, this measure of EBITDA may not be
comparable to similar measures reported by other companies.
</TABLE>
28
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Prior to the contemplated Acquisitions, the Company has had limited
operations. The historical selected financial information included in the
statement of operations has been prepared on a basis which combines the Company
(organized on May 1, 1996), Eagle Supply, Inc. ("Eagle") and JEH/Eagle Supply,
Inc. ("JEH Eagle") (acquired on July 1, 1997) as three entities controlled by
TDA Industries, Inc. ("TDA") because the separate financial data of the Company
would not be meaningful. Information with respect to the Company is included
from May 1, 1996 (inception), information for Eagle is included for all periods
presented and information with respect to JEH Eagle is included from July 1,
1997.
The selected financial information presented below should be read in
conjunction with the consolidated financial statements and the notes thereto,
the unaudited financial statements and the notes thereto and the unaudited pro
forma condensed consolidated financial statements included elsewhere herein. The
historical information contained in the table at and for the fiscal years ended
June 30, 1997, 1996 and 1995 has been derived from audited financial statements,
and is qualified in its entirety by, and should be read in connection with the
audited financial statements (and the notes thereto) appearing elsewhere in this
Prospectus. The historical information at and for the fiscal years ended June
30, 1994 and 1993 have been derived from audited financial statements which are
not included in this Prospectus. The historical information at and for the eight
months ended February 28, 1998 and 1997 have been derived from unaudited
financial statements which, in the opinion of management, include all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial condition and results of operations. The
unaudited financial statements are included elsewhere in this Prospectus. The
results of interim periods are not necessarily indicative of the results to be
obtained in a full fiscal year. The selected financial information pro forma is
derived from the Unaudited Pro Forma Condensed Consolidated Financial Statements
appearing elsewhere herein. The following financial information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Unaudited Pro Forma Condensed Consolidated
Financial Statements."
29
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED(1)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO
FORMA(6)
-----------
<CAPTION>
EIGHT MONTHS
ENDED
YEAR ENDED JUNE 30, FEBRUARY 28, YEAR ENDED
----------------------------------------------------- -------------------- JUNE 30
1993 1994 1995 1996 1997 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 66,552 $ 53,925 $ 50,483 $ 59,262 $ 57,576 $ 36,964 $ 80,913 $ 128,092
Gross Profit..................... 14,933 10,658 9,740 12,577 11,471 7,636 17,721 27,761
Income From Operations........... 4,159 743 833 2,689 907 443 1,540 (266)
Net Income (Loss)................ 2,622 464 353 1,315 (127) 37 26 (303)
Basic Net Income (Loss) Per
Share.......................... $ (.05)
-----------
-----------
Weighted Average Number of Shares
Outstanding(2)................. 5,568,728
-----------
-----------
Diluted Net Income (Loss) Per
Share.......................... $ (.05)
-----------
-----------
Weighted Average Number of Shares
Outstanding and Dilutive
Warrants(2).................... 5,568,728
-----------
-----------
Other Financial Data:
EBITDA(3)........................ $ 4,718 $ 1,454 $ 1,389 $ 3,251 $ 1,206 $ 857 $ 2,270 $ 2,273
<CAPTION>
<S> <C>
EIGHT MONTHS
ENDED
FEBRUARY
28, 1998
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 80,913
Gross Profit..................... 17,721
Income From Operations........... 1,054
Net Income (Loss)................ 44
Basic Net Income (Loss) Per
Share.......................... $ .01
-------------
-------------
Weighted Average Number of Shares
Outstanding(2)................. 5,766,825
-------------
-------------
Diluted Net Income (Loss) Per
Share.......................... $ .01
-------------
-------------
Weighted Average Number of Shares
Outstanding and Dilutive
Warrants(2).................... 6,006,825
-------------
-------------
Other Financial Data:
EBITDA(3)........................ $ 1,851
</TABLE>
<TABLE>
<CAPTION>
COMBINED(1) THE COMPANY
JUNE 30 FEBRUARY 28, 1998
----------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 HISTORICAL AS ADJUSTED(4)
--------- --------- --------- --------- --------- ------------- ---------------
BALANCE SHEET DATA:
Working Capital (Deficiency)............. $ 5,963 $ 4,785 $ 5,665 $ 4,539 $ 6,296 $ (25) $ 8,411
Total Assets............................. 17,190 12,947 17,831 19,066 17,948 394 8,830
Long Term Debt........................... -- -- 6,290 5,164 6,693 -- --
Total Liabilities........................ 13,450 9,385 14,338 15,061 15,320 419 419
Stockholders Equity (Deficiency)......... 3,720 3,562 3,493 4,005 2,628 (25) 8,411
<CAPTION>
<S> <C>
PRO FORMA(5)
-------------
BALANCE SHEET DATA:
Working Capital (Deficiency)............. $ 21,084
Total Assets............................. 47,063
Long Term Debt........................... 17,995
Total Liabilities........................ 36,151
Stockholders Equity (Deficiency)......... 10,912
</TABLE>
- ------------------------
(1) Information with respect to the Company is included in the statement of
operations data from May 1, 1996 (inception), information for Eagle is
included for all periods presented and information with respect to JEH Eagle
is included from July 1, 1997.
(2) Basic income (loss) per Common Share is based on the weighted average number
of shares outstanding and includes 2,100,000 shares issued in connection
with the Company's initial capitalization, 300,000 shares issued as part of
the Company's Private Placement and 2,000,000 and 300,000 shares to be
issued to TDA and James E. Helzer, respectively, in connection with the
Acquisitions and 1,066,825 and 868,728 shares ("Additional Shares") in the
eight months ended February 28, 1998 and year ended June 30, 1997,
respectively, for the shares assumed to be issued in the Public Offering,
the proceeds of which would be used to retire $2,000,000 of debt and replace
the capital in excess of the respective period's earnings, which is
represented by the non-cash dividend. Dilutive net income (loss) per Common
Share for the eight months ended February 28, 1998 also includes the
dilutive effect of the 300,000 Warrants issued in the Private Placement. The
computation excludes shares to be issued in connection with the Public
Offering in excess of the Additional Shares. The Underwriter's Warrant and
options to be granted upon the closing of the Public Offering pursuant to
the Company's 1996 Stock Option Plan are not dilutive and have not been
included. See "Risk Factors," "Certain Transactions," "The Acquisitions" and
the Financial Statements and the Notes thereto.
(3) As used herein, EBITDA reflects net income (loss) increased by the effects
of interest expense, income tax provisions, depreciation and amortization
expense. EBITDA is used by management, along with other measures of
performance, to assess the Company's financial performance. EBITDA should
not be considered in isolation or as an alternative to measures of operating
performance or cash flows pursuant to generally accepted accounting
principles. In addition, the measure of EBITDA may not be comparable to
similar measures reported by other companies.
30
<PAGE>
(4) Reflects the Private Placement, the Public Offering of 2,000,000 shares of
Common Stock and 2,500,000 Warrants at initial public offering prices of
$5.00 per share of Common Stock and $.125 per Warrant and the application of
the net proceeds therefrom. See the Unaudited Pro Forma Condensed
Consolidated Balance Sheet, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Transactions" and
the Financial Statements and the Notes thereto.
(5) Reflects the Private Placement, the Public Offering of 2,000,000 shares of
Common Stock and 2,500,000 Warrants at initial public offering prices of
$5.00 per share of Common Stock and $.125 per Warrant, the application of
the net proceeds therefrom and the consummation of the Acquisitions. See the
Unaudited Pro Forma Condensed Consolidated Balance Sheet, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Transactions" and the Financial Statements and the Notes thereto.
(6) See Unaudited Pro Forma Condensed Consolidated Statements of Operations.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
Prior to the contemplated Acquisitions, the Company has had limited
operations. All comparisons in Results of Operations and Liquidity and Capital
Resources relate to the combined activities of the Company, Eagle and JEH Eagle,
subsequent to its acquisition which was effective as of July 1, 1997, as three
entities under common control. The separate financial information for the
Company is not meaningful.
INTRODUCTION
The Company was organized on May 1, 1996 to raise capital and acquire, own,
integrate and operate seasoned, privately-held companies engaged in the
wholesale distribution of roofing supplies and related products industry and
companies which manufacture products for or supply products to such industry.
Simultaneously with the closing of the Public Offering, the Company will
consummate the Acquisitions. Although the primary focus of the Company's
expansion and acquisition program will be on seeking suitable acquisition
candidates which are engaged in the wholesale distribution of roofing supplies
and related products, the Company will consider the purchase of manufacturers or
vendors of products which may be distributed through its wholesale distribution
business.
Eagle, which was founded in Florida in 1905, distributes roofing supplies
and related products to contractors and subcontractors engaged in commercial and
residential roofing repair and the construction of new residential and
commercial properties. JEH Co. was founded in 1982 by James E. Helzer and
substantially all of the assets and business of JEH Co. was sold to JEH Eagle in
July of 1997. JEH Eagle distributes roofing supplies, drywall and plywood to
roofing contractors, builders, and developers engaged primarily in the
construction industry. Both Eagle and JEH Eagle rely on their own direct sales
forces and distribution facilities to generate sales. Historically, neither
Eagle nor JEH Eagle have entered into any arrangements with its customers on an
exclusive or "firm" basis. In connection with the Acquisi-tions, TDA and James
E. Helzer will be issued 2,000,000 and 300,000 shares of the Company's Common
Stock, respectively. The foregoing number of shares of the Company's Common
Stock to be issued to TDA was determined by negotiations among the Company, TDA
and the Underwriter. Factors considered in said negotiations included but were
not limited to (a) the historical results of the Combined Entities, (b) their
future business prospects, (c) their position in their industry principally on a
combined basis, (d) the breadth of their product lines, (e) their customer
bases, (f) the experience of their management and personnel, (g) the locations
of their distribution facilities, and (h) their net worth. The number of shares
of the Company's Common Stock to be issued to Mr. Helzer were determined by
negotiations between JEH Eagle and JEH Co. at the time of JEH Eagle's
acquisition of substantially all of the business and assets of JEH Co.
Additionally, as part of the Acquisitions, TDA guarantees that Eagle and JEH
Eagle will have a combined book value of no less than $1,000,000 after Eagle
cancels, in the form of a non-cash dividend, all indebtedness of TDA to Eagle,
with TDA contributing cash or assets sufficient to achieve that book value in
the event of a deficiency. Any payment to Eagle or JEH Eagle by TDA to satisfy
the $1,000,000 combined book value requirement set forth above will be paid to
Eagle or JEH Eagle by TDA within 45 days of the closing of the Public Offering
and consummation of the Acquisitions.
In the past, a subsidiary of TDA has leased to Eagle several of Eagle's
distribution centers on a month to month basis pursuant to oral agreements. Rent
expense for these distribution centers was approximately $782,000 for Eagle's
fiscal year ended June 30, 1997 and eight month period ended February 28, 1998,
respectively. Upon completion of the Public Offering and consummation of the
Acquisitions, Eagle will enter into ten-year leases for said distribution
centers. Although the written leases are to be on substantially similar economic
terms as the past oral agreements, Eagle will then be committed to pay rent for
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these distribution centers for a minimum of ten--years. At that same time, the
Company will enter into (a) five-year employment agreements with its Chairman of
the Board and Chief Executive Officer and its Executive Vice President,
Treasurer and Secretary, pursuant to which each of such persons, who are also
executive officers and directors of TDA, will receive a salary of $200,000 per
year plus substantial additional benefits, although neither of them have
committed any specified amount of time to the Company's affairs; and (b) a month
to month administrative services agreement with TDA requiring a $3,000 monthly
payment to TDA. Similar agreements have already been entered into between JEH
Eagle and each of Messrs. Fields and Friedman providing annual base salaries of
$60,000 to each of Messrs. Fields and Friedman, and JEH Eagle and TDA have
already entered into an agreement pursuant to which TDA provides certain
services to JEH Eagle for a five-year term expiring in June 2002 requiring a
$3,000 monthly payment to TDA through December 1999 and a $15,000 monthly
payment to TDA thereafter. The payments by JEH Eagle to Messrs. Fields and
Friedman and TDA shall commence upon completion of the Public Offering and
consummation of the Acquisitions. Furthermore, as part of the Acquisitions, TDA
or its relevant subsidiaries will agree to indemnify Eagle for any payment that
Eagle will be required to make pursuant to mortgage underlying Eagle's
Birmingham, Alabama, distribution center and the mortgage and lease underlying
Eagle's former Fort Lauderdale, Florida, distribution center. See "Certain
Transactions." Upon consummation of the Acquisitions, Eagle and JEH Eagle will
become wholly-owned subsidiaries of the Company and will constitute the only
business operations of the Company until and unless the Company consummates
additional acquisitions.
The Company has funded itself since inception by (i) selling 300,000 shares
of its Common Stock and 300,000 Warrants in the Private Placement pursuant to
which the Company derived aggregate gross proceeds of $300,000; (ii) issuing
$300,000 in principal amount of its promissory notes to TDA ($150,000) and two
other stockholders and (iii) incidental other borrowings from TDA.
RESULTS OF OPERATIONS
EIGHT-MONTH PERIOD ENDED FEBRUARY 28, 1998 COMPARED TO
EIGHT-MONTH PERIOD ENDED FEBRUARY 28, 1997
Revenues of the Company during the eight-month period ended February 28,
1998 increased by approximately $43,949,000 (118.9%) compared to the 1997
eight-month period. This increase is due entirely to the acquisition of JEH
Eagle in July 1997 by TDA. Sales of JEH Eagle during the 1998 eight-month period
were approximately $44,787,000. Excluding the sales of JEH Eagle, revenues of
the Company would have been approximately $36,126,000 in the 1998 eight-month
period, a decrease of approximately $838,000 (2.3%) from the comparable 1997
eight-month period. Sales of both Eagle and JEH Eagle during the 1998
eight-month period were adversely effected by the "El Nino" weather patterns.
Unusually heavy and record rainfall in the southeast and the paucity of hail
storms in the southwest negatively impacted sales of Eagle and JEH Eagle,
respectively.
Cost of goods sold increased between the 1998 and 1997 eight-month periods
at a lesser rate than the increase in revenues between these eight-month
periods. Accordingly, cost of goods sold as a percentage of revenues decreased
to 78.1% in the eight-month period ended February 28, 1998 from 79.3% in the
eight-month period ended February 28, 1997, and gross profit as a percentage of
revenues increased to 21.9% in the eight-month period ended February 28, 1998
from 20.7% in the eight-month period ended February 28, 1997. This increase in
gross profit margin may be attributed primarily to the increase in the 1998
eight-month period in sales to customers out of warehouse inventory which carry
a higher gross profit margin than direct sales shipments to customers from
vendors. Whereas a significant amount of the sales to Eagle's customers are
direct shipments from vendors, almost all of the sales to customers of JEH Eagle
are out of warehouse inventory.
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Operating expenses (including selling, general and administrative expenses,
depreciation, and amortization of cost of investment over net assets acquired
and deferred financing costs) increased by approximately $8,988,000 (125%)
between the 1998 and 1997 eight-month periods. This increase is due almost
entirely to the acquisition of JEH Eagle. Operating expenses of JEH Eagle during
the 1998 eight-month period were approximately $8,928,000, including
approximately $128,000 of amortization of cost of investment over net assets
acquired (goodwill) and approximately $39,000 of amortization of deferred
financing costs attributable to the acquisition. Excluding the operating
expenses of JEH Eagle, operating expenses of the Company would have been
approximately $7,254,000 in the 1998 eight-month period, a slight increase of
approximately $61,000 (less than 1%) from the 1997 eight-month period, and such
operating expenses as a percentage of revenues would have been 20% in the 1998
period compared to 19.5% in the 1997 eight-month period.
Interest expense increased by approximately $742,000 between the 1998 and
1997 eight-month periods. This increase is due principally to the interest
expense incurred by JEH Eagle on its long-term debt used primarily to fund its
acquisition in July 1997 of JEH Co.
FISCAL YEAR ENDED JUNE 30,1997 COMPARED TO
FISCAL YEAR ENDED JUNE 30, 1996
Revenues of the Company during the fiscal year ended June 30, 1997 decreased
by approximately $1,687,000 (2.8%) compared to the 1996 fiscal year. This
decrease was primarily due to the decrease in revenues derived from storm
related business in fiscal 1996 from Hurricane Opal. This decrease in revenues
was partially offset by additional revenues generated in fiscal 1997 from
distribution centers opened in fiscal 1996.
At June 30, 1997, all of the Company's fifteen distribution centers had been
in operation for at least one year ("Operating Centers").
Cost of goods sold decreased between the fiscal years 1997 and 1996 at a
lesser rate than the decrease in revenues between these fiscal years.
Accordingly, cost of goods sold as a percentage of revenues increased to 80.1%
in the fiscal year 1997 from 78.8% in the fiscal year 1996, and gross profit as
a percentage of revenues decreased to 19.9% in the fiscal year 1997 from 21.2%
in the fiscal year 1996. This decrease in gross profit margin may be attributed
primarily to the decrease in fiscal 1997 in sales generated at distribution
centers which benefitted from storm related business and sales to customers out
of warehouse inventory which carry a higher gross profit margin than direct
sales shipments to customers from vendors.
Operating expenses increased by approximately $675,000 (6.8%) between the
fiscal years 1997 and 1996. Operating expenses in fiscal 1997 includes
approximately $546,000 of operating expenses attributable to distribution
centers opened in fiscal 1996. Operating expenses as a percentage of revenues
were 18.3% in the fiscal year 1997 compared to 16.7% in the fiscal year 1996.
Other expenses of approximately $318,000 in fiscal 1997 represents
registration costs and expenses incurred by the Company in connection with the
filing in 1996 of its registration statement for an initial public offering of
its securities.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO
FISCAL YEAR ENDED JUNE 30, 1995
Revenues of the Company during the fiscal year ended June 30, 1996 increased
by approximately $8,779,000 (17.4%) compared to the 1995 fiscal year. This
increase was primarily due to revenues in the aggregate amount of approximately
$4,057,000 generated from new branches opened during fiscal 1996, improvement in
business in market areas served by seasoned branches, and additional business
resulting
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from Hurricane Opal. The 1995 fiscal year includes revenues of approximately
$4,625,000 from a branch that was sold as of June 30, 1995.
At June 30, 1996, the Company had ten Operating Centers. The Company's
Operating Center revenue during the fiscal year ended June 30, 1996 increased by
approximately $9,327,000 (20.3%) from the fiscal year ended June 30, 1995. This
increase in Operating Center revenue may be attributed to an improvement in
business in general and the additional business resulting from the hurricane
damage occurring in Florida in the late summer and fall of 1995.
Cost of goods sold increased between the fiscal years 1996 and 1995 at a
lesser rate than the increase in revenues between these fiscal years.
Accordingly, cost of goods sold as a percentage of revenues decreased to 78.8%
in the fiscal year 1996 from 80.7% in the fiscal year 1995, and, accordingly,
gross profit as a percentage of revenues increased to 21.2% in the fiscal year
1996 from 19.3% in the fiscal year 1995. This increase in gross profit margin
may be attributed primarily to the increase in fiscal 1996 in sales to customers
out of warehouse inventory which carry a higher gross profit margin than direct
sales shipments to customers from vendors. The Company's management is unable to
determine if the increase in revenues during the fiscal year ended June 30,
1996, as compared to its fiscal year ended June 30, 1995, was the result of unit
price increases to any significant extent as opposed to increased sales volume.
The Company's management is unable to predict if sales to customers out of
warehouse inventory is a trend that will continue in the future.
Operating expenses increased by approximately $981,000 (11%) between the
fiscal years 1996 and 1995 at a lesser rate than the increase in revenues
between these fiscal years. Operating expenses in fiscal 1995 includes
approximately $1,064,000 of operating expenses attributable to the branch that
was sold as of June 30, 1995; and fiscal 1996 includes approximately $1,007,000
of start-up costs and expenses attributable to new branch operations, and
increased operating expenses in the aggregate amount of approximately $1,039,000
comprised primarily of payroll and related costs and transportation expenses
directly related to the increase in business in fiscal 1996. Operating expenses
as a percentage of revenues were 16.7% in the fiscal year 1996 compared to 17.6%
in the fiscal year 1995.
Interest expense increased by approximately $316,000 between fiscal 1996 and
1995. Interest expense in fiscal 1995 is for less than a full year since
borrowings under Eagle's revolving credit facility commenced in December 1994.
See "--Liquidity and Capital Resources."
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO
FISCAL YEAR ENDED JUNE 30, 1994
Revenues of the Company during the fiscal year ended June 30, 1995 decreased
by approximately $3,442,000 (6.4%) compared to the 1994 fiscal year. This
decrease was primarily due to the disposition in fiscal 1994 of two distribution
centers located in south Florida which were not profitable but generated
revenues in the aggregate amount of approximately $6,704,000 in that fiscal
year. This decrease in revenues was partially offset from revenues in the
aggregate amount of approximately $2,810,000 generated in fiscal 1995 from two
distribution centers opened in July 1994.
At June 30, 1995, the Company had eight Operating Centers. The Company's
Operating Center revenue during the fiscal year ended June 30, 1995 increased
only nominally from the fiscal year ended June 30, 1994.
Cost of goods sold decreased between the fiscal years 1995 and 1994 at a
lesser rate than the decrease in revenues between these fiscal years.
Accordingly, cost of goods sold as a percentage of revenues increased to 80.7%
in the fiscal year 1995 from 80.2% in the fiscal year 1994, and, accordingly,
gross profit as a percentage of revenues decreased to 19.3% in the fiscal year
1995 from 19.8% in the fiscal year 1994. This decrease in gross profit margin
may be attributed primarily to the decrease in fiscal 1995 in sales to
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customers out of warehouse inventory which carry a higher gross profit margin
than direct sales shipments to customers from vendors.
Operating expenses decreased by approximately $1,008,000 (10.2%) between the
fiscal years 1995 and 1994 at a greater rate than the decrease in revenues
between these fiscal years. Operating expenses in fiscal 1994 includes
approximately $2,416,000 of operating expenses attributable to the two disposed
south Florida distribution centers; and operating expenses in fiscal 1995
includes approximately $985,000 of start-up costs and expenses attributable to
new distribution center operations and costs and expenses incurred in connection
with winding down the operations in south Florida. Operating expenses as a
percentage of revenues were 17.6% in the fiscal year 1995 compared to 18.4% in
the fiscal year 1994.
Interest expense increased by approximately $254,000 between the fiscal
years 1995 and 1994. During the fiscal year ended June 30, 1995, the Company
paid interest on the amount of Eagle's borrowings under its revolving credit
facility which commenced in December 1994. See "--Liquidity and Capital
Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through operating cash
flow, support from TDA or affiliates of TDA and the proceeds from the Company's
June 1996 private placement and February 1998 issuance of promissory notes.
Eagle is a party to a Loan Agreement (the "Eagle Facility") which expires in
2002 and provides for secured borrowing consisting of a revolving credit
facility in the amount of $7.5 million. The initial borrowing, in the amount of
approximately $4.6 million, was advanced to TDA partially in payment of
intercompany debt. TDA has guaranteed the obligations of Eagle under the Loan
Agreement. At June 30, 1997 and February 28, 1998, Eagle's borrowings under its
revolving credit facility were $6,693,236 and $5,830,760, respectively.
The Company's working capital was approximately $14,648,000 at February 28,
1998 (including approximately $10,778,000 of working capital of JEH Eagle)
compared to $6,296,000 at June 30, 1997. At February 28, 1998, the Company's
current ratio was 1.8 to 1 compared to 1.74 to 1 at June 30, 1997.
During the eight-month period ended February 28, 1998, cash flows used in
operations approximated $614,000. Such amount consisted primarily of net income
of $276,000, depreciation and amortization of $696,000, increased levels of
accounts and notes receivables of ($1,543,000), decreased levels of trade
accounts payable of ($881,000), a net increase in amounts due from parent and
affiliated companies of ($682,000) and decreased inventories of $428,000 and
other assets of $782,000. During the fiscal year ended June 30, 1997, cash flows
provided by operating activities approximated $531,000. Such amount consisted
primarily of decreased inventories of $320,000, a net decrease in amounts due
from parent and affiliated companies of $1,246,000, depreciation and
amortization of $594,000, offset by a net loss of ($127,000), decreased levels
of trade accounts payable of ($430,000) increased levels of accounts and notes
receivable of ($223,000), other current assets of ($56,000) and other current
liabilities of ($162,000) and a decreased level in federal and state taxes due
to Parent of ($653,000).
Capital expenditures approximated $296,000, $900,000 and $615,000 during the
fiscal years ended June 30, 1997 and 1996 and eight-month period ended February
28, 1998, respectively. Management of the Company presently anticipates a
significant increase in such expenditures in the next twelve months of not less
than approximately $2,000,000, of which approximately $1,600,000 will be
financed.
During Eagle's fiscal years ended June 30, 1996 and June 30, 1997, Eagle
made dividend payments of $1,097,000 and $1,250,000, respectively, to TDA. After
June 30, 1997 through February 28, 1998, Eagle made dividend payments of
$750,000 to TDA and will continue to make dividend payments to TDA until the
Public Offering is completed and the Acquisitions are consummated. Additionally,
during each of said fiscal years, TDA allocated to Eagle the sum of $50,000 for
accounting and auditing fees. Upon the closing
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of the Public Offering and consummation of the Acquisitions all such accounting
and auditing fees will be incurred directly by Eagle. See "Certain
Transactions."
Upon closing of the Public Offering and consummation of the Acquisitions,
Eagle and JEH Eagle combined will have no less than $1,000,000 in book value
after Eagle cancels, in the form of a non-cash dividend, all indebtedness of TDA
to Eagle with TDA contributing sufficient cash or non-cash assets to Eagle and
JEH Eagle to achieve that book value in the event of a deficiency. If effected
as of February 28, 1998, the amount of such non-cash dividend from Eagle to TDA
would have been approximately $2,839,000. Any payment to Eagle or JEH Eagle by
TDA to satisfy the $1,000,000 combined book value requirement set forth above
will be paid to Eagle or JEH Eagle by TDA within 45 days of the closing of the
Public Offering and consummation of the Acquisitions. See "Certain
Transactions."
As Eagle has historically made dividend payments to TDA, the current monthly
dividend payments to TDA are not anticipated to vary Eagle's cash sufficiency
from it's historical levels and, as the dividend payments to TDA will cease upon
the closing of the Public Offering and consummation of the Acquisitions, it is
anticipated that Eagle's available funds from operations will be increased. It
can be anticipated that this increase in available funds will be partially
offset by the salaries to be paid to Messrs. Fields and Friedman in the future
and the amounts payable to TDA pursuant to the services agreements with the
Company and JEH Eagle. See "Management" and "Certain Transactions."
Although a portion of the net proceeds of the Public Offering are to be used
for inventory purchases for new distribution centers, the Company does not
presently intend to increase the inventory levels at Eagle's present
distribution centers with such proceeds. See "Use of Proceeds."
The Company believes that its existing sources of liquidity, including its
present availability under its revolving credit facilities and its current cash
flows, will be adequate to sustain its normal operations and to satisfy its
current working capital and capital expenditure requirements.
In July 1997 JEH Eagle acquired substantially all of the assets and the
business of JEH Co., a Texas corporation, wholly owned by James E. Helzer, now
the President of the Company, Eagle and JEH Eagle. At that time, a tentative
purchase price of $14,850,000 was established and is subject to final
adjustments. Of the tentative purchase price, $13,850,000 has been paid to JEH
Co., and JEH Co. was issued a note in the principal sum of $1,000,000 bearing
interest at the rate of 6% per year and due July 1, 2002, with the final
adjusted purchase price to be established. Subsequent to the closing of the
acquisition by JEH Eagle, the purchase price was adjusted to the amount of
$14,473,032 by decreasing the principal amount of the note to $873,032 and
establishing a receivable due on demand from JEH Co. in the amount of $250,000.
Certain, potentially substantial, contingent payments, as additional future
consideration to JEH Co., or its designee, are to be paid by JEH Eagle. JEH Co.
is to receive a percentage of the EBITDA or the modified EBITDA (as defined) of
the business acquired (the "JEH EBITDA") on a per year non-cumulative basis for
each of JEH Eagle's fiscal years ending on June 30 of 1998 through 2002 (the
"Applicable Period"). If the JEH EBITDA reaches $3,000,000, $4,000,000 and
$5,000,000 in the foregoing fiscal years, JEH Co. or its designee is to receive
35%, 40% and 50%, respectively, of that fiscal year's JEH EBITDA. If the JEH
EBITDA (plus $50,000 of Mr. Helzer's compensation under his employment
agreement) (x) for any fiscal year in the Applicable Period is not less than
$4,400,000, JEH Eagle is to pay JEH Co. or its designee $1,000,000, provided
that the aggregate amount of such payments is not to exceed $2,000,000; and (y)
in the aggregate during the Applicable Period is not less than $20,000,000, JEH
Eagle is to pay JEH Co. or its designee the sum of $1,350,000 plus the amount of
the difference, if any, between $2,000,000 and the amount to be paid under (x).
Additionally, with respect to certain Total Accounts Receivable Reserves, as
defined (the "JEH Reserves") which were established at the date of the
acquisition, if JEH Eagle reduces the amount of the JEH Reserves, in any fiscal
year during the Applicable Period, JEH Co. or its designee is to be paid 100% of
the reduction until the JEH Reserves are not less than $2,500,000 and 50% of the
reduction in the JEH Reserves below $2,300,000 down to $600,000. Both of the
immediately foregoing percentage payments to JEH Co. or its designee are subject
to adjustment in certain events. Additionally, if
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this Public Offering is completed prior to June 30, 2002 and in the event
certain JEH EBITDA levels are reached for JEH Eagle during the period from July
1, 1997 through the date of consummation of this Public Offering, JEH Co. or its
designee will be entitled to receive $1,000,000 or $1,350,000 (either in cash or
in shares of the Company's Common Stock valued at its public offering price)
depending upon the JEH EBITDA level. The Company will issue 300,000 shares of
its Common Stock in fulfillment of the obligation set forth in the immediately
preceding sentence, even if the JEH EBITDA does not reach the required levels.
James E. Helzer and E.G. Helzer serve as Eagle's President and Senior Vice
President-Operations of Eagle on an "at will" basis at salaries of $50,000 and
$25,000 per year, respectively. Pursuant to their "at will" arrangements with
Eagle, James E. Helzer and E.G. Helzer are also entitled to receive 20% and 6%,
respectively, of Eagle's income before taxes in excess of $600,000 per year.
In order to pay a substantial portion of the purchase price for the
acquisition of JEH Co.'s business and to provide working capital for JEH Eagle,
JEH Eagle in July 1997 entered into a five year loan agreement for a credit
facility of up to $20,000,000 (the "JEH Facility") guaranteed by TDA and
collateralized by substantially all of the assets of JEH Eagle. The JEH Facility
consists of a $3,000,000 term loan, a $1,725,000 equipment loan and, the
balance, a revolving credit loan. The principal amount of the term loan is
payable in 48 equal monthly installments of $62,500. The term loan is due on the
earlier of August 1, 2001 or the loan agreement's termination. The outstanding
balance of the term loan at February 28, 1998 was $2,562,500. The term loan
bears interest at the Libor rate plus 325 basis points or the lender's prime
rate plus 150 basis points, as JEH Eagle may elect. The principal amount of the
equipment loan is payable in equal consecutive monthly installments of $20,536
based upon an 84 month amortization schedule with any remaining principal amount
due upon the earlier of August 1, 2004 or the end of the loan agreement's
initial or renewal term. The outstanding balance of the equipment loan at
February 28, 1998 was approximately $1,581,500. The equipment loan bears
interest at the Libor rate plus 250 basis points or the lender's prime rate plus
50 basis points, as JEH Eagle may elect. The principal amount of the revolving
credit loan is payable upon the earlier of the loan agreement's termination or
other stated events. The outstanding balance on the revolving credit loan at
February 28, 1998 was approximately $10,065,000. The revolving credit loan bears
interest at the Libor rate plus 250 basis points or the lender's prime rate plus
50 basis points, as JEH Eagle may elect. All interest payments under the
foregoing loans are payable monthly in arrears. The maximum amount borrowable
under the JEH Facility is determined by a Borrowing Base as defined in the JEH
Facility.
Of the $13,850,000 initial cash payment portion of the $14,850,000 JEH Co.
tentative purchase price, approximately $12,500,000 was supplied pursuant to the
JEH Facility and approximately $1,350,000 was contributed to JEH Eagle by TDA as
equity capital. In connection with the acquisition of JEH Co.'s business and
assets, JEH Eagle paid TDA a financing fee of $150,000.
For the Company to acquire JEH Eagle, the JEH Facility lending institution's
consent will be required. Similarly, for the Company to acquire Eagle, the Eagle
Facility lending institution's consent will be required. See "The Acquisitions"
and "Certain Transactions."
IMPACT OF INFLATION
General inflation in the economy has driven the operating expenses of many
businesses higher, and, accordingly, each of the Combined Entities have
increased salaries and bore higher prices for supplies, goods and services. The
Combined Entities continuously seek methods of reducing costs and streamlining
operations while maximizing efficiency through improved internal operating
procedures and controls. While each of the Combined Entities is subject to
inflation as described above, the Company, Eagle and JEH Eagle believe that
inflation currently does not have a material effect on Eagle's or JEH Eagle's
operating results, but there can be no assurance that this will continue to be
so in the future.
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YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
In 1997, Eagle commenced the upgrade of its data processing equipment and a
conversion to new software programs that are Year 2000 compliant. Additionally,
management has started to integrate and centralize certain of Eagle's and JEH
Eagle's administrative functions, including data processing, and JEH Eagle will
be utilizing and adopting Eagle's upgraded data processing equipment and new
software programs. Accordingly, management has determined that the Year 2000
Compliance issue will not pose significant operational problems for its computer
systems.
The Company is in the process of initiating formal communications with all
of its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 Compliance issue. There can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems.
The Company will utilize both internal and external resources to reprogram,
or replace and test the software for the Year 2000 modifications. The Company
anticipates completing the Year 2000 project not later than January 1, 1999,
which is prior to any anticipated impact on its operating systems. The total
cost of the project is estimated at $300,000 and is being expensed over the
three-year term of the operating lease for the equipment and software.
The estimated cost of the project and the date on which the Company believes
it will complete the Year 2000 modifications and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved, and actual results could differ
materially from those anticipated.
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THE ACQUISITIONS
Simultaneously with the closing of the Public Offering, the Company will
consummate the Acquisitions. The Underwriter and the Company have agreed that at
the consummation of the Acquisitions, the Combined Entities have a book value of
$1,000,000, after Eagle cancels, in the form of a non-cash dividend, all
indebtedness of TDA to Eagle, with TDA contributing sufficient cash or assets to
achieve the $1,000,000 book value in the event of a deficiency. Upon
consummation of the Acquisitions, Eagle and JEH Eagle will become wholly-owned
subsidiaries of the Company and will constitute the only business operations and
sources of revenue of the Company until such time, if any, as the Company
consummates additional acquisitions. As part of the acquisition of Eagle, all of
TDA's indebtedness to Eagle will be dividended by Eagle to TDA in the form of
cancellation of such indebtedness to Eagle. Any payment to Eagle or JEH Eagle by
TDA to satisfy the $1,000,000 combined book value requirement set forth above
will be paid to Eagle or JEH Eagle by TDA within 45 days of the completion of
the Public Offering and consummation of the Acquisitions.
TDA, through a wholly-owned subsidiary, has rented to Eagle on a
month-to-month basis without formal written leases the premises for several of
Eagle's distribution facilities and Eagle's executive offices at aggregate
annual rentals of approximately $709,000 and $782,000 during its fiscal years
ended June 30, 1996 and 1997, respectively. Upon successful completion of the
Public Offering and the consummation of the Acquisitions, Eagle and TDA intend
to enter into ten-year leases for said premises on economic terms substantially
similar to current arrangements. However, the leases will now be written on a
long-term, ten-year basis, and it is anticipated that TDA will derive a profit
therefrom.
Eagle had purchased the premises for its Birmingham, Alabama, distribution
center from an unrelated third party in April 1994, with a purchase money
mortgage and promissory note in the principal amount of $550,000 to be paid in
fifty-nine equal monthly installments of approximately $4,700 and a "balloon"
payment of approximately $440,000 in April 1999. The mortgage and promissory
note for the Birmingham, Alabama, premises bears interest at the lending bank's
fluctuating prevailing prime rate. Prior to June 30, 1994, Eagle transferred
this property to TDA in partial repayment of intercompany debt, and TDA then
transferred the property to a wholly-owned subsidiary. Eagle remains liable for
the payments under this mortgage and, in the event of a default under the
mortgage by the relevant TDA subsidiary, Eagle could be held liable for the
monthly and "balloon" mortgage payments in addition to its rental payments.
Eagle's rental payments to the TDA subsidiary for the Birmingham, Alabama,
property have exceeded the mortgage payments for this property and have not
required Eagle to pay any sums in excess of its rental payments. See "Business,"
"Certain Transactions" and Financial Statements and the notes thereto.
Eagle also remains responsible to a wholly-owned subsidiary of TDA pursuant
to a lease for Eagle's former Fort Lauderdale, Florida, distribution center
expiring on May 1, 1999, which requires annual rental payments and a "balloon"
payment of approximately $580,000 due on May 1, 1999 for an industrial revenue
bond underlying these premises. These premises have been subleased by Eagle to
an unrelated third party at an annual rental in excess of Eagle's lease
obligation. The payments by Eagle to the TDA subsidiary have included through
February 28, 1998 a ratable share of the "balloon" payment. These payments,
together with anticipated sublessee rental payments, are currently projected by
the Company to fully fund the "balloon" payment.
Upon completion of the Public Offering and consummation of the Acquisitions,
TDA or its relevant subsidiaries will agree to indemnify Eagle for any payments
that Eagle is required to make which are in excess of Eagle's obligations under
the foregoing properties.
In July 1997 JEH Eagle acquired substantially all of the assets and the
business of JEH Co., a Texas corporation, wholly-owned by James E. Helzer, now
the President of the Company, Eagle and JEH Eagle. At that time, a tentative
purchase price of $14,850,000 was established and was subject to final
adjustments. Of the tentative purchase price, $13,850,000 has been paid to JEH
Co., and JEH Co. was issued a note in
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the principal sum of $1,000,000 bearing interest at the rate of 6% per year and
due July 1, 2002, with the final adjusted purchase price to be established.
Subsequent to the closing of the acquisition by JEH Eagle, the purchase price
was adjusted to the amount of $14,473,032 by decreasing the principal amount of
the note to $873,032 and establishing a receivable due on demand from JEH Co. in
the amount of $250,000. Certain, potentially substantial, contingent payments,
as additional future consideration to JEH Co., or its designee, are to be paid
by JEH Eagle. JEH Co. is to receive a percentage of the EBITDA or the modified
EBITDA (as defined) of the business acquired (the "JEH EBITDA") on a per year
non-cumulative basis for each of JEH Eagle's fiscal years ending on June 30 of
1998 through 2002 (the "Applicable Period"). If the JEH EBITDA reaches
$3,000,000, $4,000,000 and $5,000,000 in the foregoing fiscal years, JEH Co. or
its designee is to receive 35%, 40% and 50%, respectively, of that fiscal year's
JEH EBITDA. If the JEH EBITDA (plus $50,000 of Mr. Helzer's compensation under
his employment agreement) (x) for any fiscal year in the Applicable Period is
not less than $4,400,000, JEH Eagle is to pay JEH Co. or its designee
$1,000,000, provided that the aggregate amounts of such payments is not to
exceed $2,000,000; and (y) in the aggregate during the Applicable Period is not
less than $20,000,000, JEH Eagle is to pay JEH Co. or its designee the sum of
$1,350,000 plus the amount of the difference, if any, between $2,000,000 and the
amount to be paid under (x). Additionally, with respect to certain Total
Accounts Receivable Reserves, as defined (the "JEH Reserves") which were
established at the date of the Acquisition, if JEH Eagle reduces the amount of
the JEH Reserves, in any fiscal year during the Applicable Period, JEH Co. or
its designee is to be paid 100% of the reduction until the JEH Reserves are not
less than $2,500,000 and 50% of the reduction in the JEH Reserves below
$2,300,000 down to $600,000. Both of the immediately foregoing percentage
payments to JEH Co. or its designee are subject to adjustment in certain events.
Additionally, if this Public Offering is completed prior to June 30,2002 and in
the event certain JEH EBITDA levels are reached for JEH Eagle during the period
from July 1, 1997 through the date of consummation of this Public Offering, JEH
Co. or its designee will be entitled to receive $1,000,000 or $1,350,000 (either
in cash or in the Company's Common Stock valued at its public offering price)
depending upon the JEH's EBITDA level. The Company will issue 300,000 shares of
its Common Stock to James E. Helzer in fulfillment of the obligation set forth
in the immediately preceding sentence, even if the JEH EBITDA does not reach the
required levels. James E. Helzer and E.G. Helzer serve as Eagle's President and
Senior Vice President-Operations of Eagle on an "at will" basis at salaries of
$50,000 and $25,000 per year, respectively. Pursuant to their "at will"
arrangements with Eagle, James E. Helzer and E.G. Helzer are also entitled to
receive 20% and 6%, respectively, of Eagle's income before taxes in excess of
$600,000 per year.
In order to pay a substantial portion of the purchase price for the
acquisition of JEH Co.'s business and to provide working capital for JEH Eagle,
JEH Eagle in July 1997 entered into a five year loan agreement for a credit
facility of up to $20,000,000 (the "JEH Facility") guaranteed by TDA and
collateralized by substantially all of the assets of JEH Eagle. Of the
$13,850,000 initial cash payment portion of the $14,850,000 JEH Co. tentative
purchase price, approximately $12,500,000 was supplied pursuant to the JEH
Facility and approximately $1,350,000 was contributed to JEH Eagle by TDA as
equity capital. In connection with the acquisition of JEH Co., JEH Eagle paid
TDA a financing fee of $150,000.
For the Company to acquire JEH Eagle, the JEH Facility lending institution's
consent will be required. Similarly for the Company to acquire Eagle, the Eagle
Facility lending institution's consent will be required.
Assuming the required consents from the lending institutions are obtained
and the Public Offering and the Acquisitions are completed and consummated, TDA
has advised the Company that after January 1, 2002 it may seek releases from its
current guarantees to the lending institutions which granted the Eagle Facility
and JEH Eagle Facility. If either of the lending institutions agree to such a
release, restrictive terms and conditions may be imposed upon the credit
facilities including, but not limited to, a reduction in the maximum amount of
funds available under a credit facility, additional and/or higher
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interest rates and charges and more restrictive financial terms and conditions.
Any of the foregoing could have a material adverse effect upon the Company,
Eagle and/or JEH Eagle. Alternatively, if after January 1, 2002 the lending
institutions refuse to release TDA from its guarantees, TDA has advised the
Company that it may seek compensation from the Company for continuing its
guarantees to the lending institutions. No such compensation has been agreed
upon, could be material to the Company, Eagle and/or JEH Eagle and result in a
material benefit to TDA and certain officers and directors of TDA.
James E. Helzer had rented to JEH Co. and continues to rent to JEH Eagle,
pursuant to five-year written leases, the premises for several of JEH Eagle's
executive offices at aggregate annual rentals of approximately $486,000. Rental
payments to Mr. Helzer for the several distribution facilities he leases to JEH
Eagle aggregated $428,000 and $321,000 for JEH Co.'s fiscal year ended December
31, 1996 and JEH Eagle's eight-month period ended February 28, 1998,
respectively.
TDA and JEH Eagle have entered into an agreement pursuant to which TDA
provides JEH Eagle with certain services including (i) managerial, (ii)
strategic planning, (iii) banking negotiation, (iv) investor relations, and (v)
advisory services relating to acquisitions for a five-year term which commenced
in July 1997. The monthly fee, the payment of which is to commence upon the
closing of the Public Offering and the consummation of the Acquisitions, for the
foregoing services is $3,000 increasing to $15,000 per month in January 2000.
Upon completion of the Public Offering and consummation of the Acquisitions,
TDA will provide office space and administrative services to the Company at
TDA's offices in New York City pursuant to an administrative services agreement
to be entered into by the Company and TDA. The term of the administrative
services agreement will be on a month-to-month basis. The fee payable by the
Company to TDA for such administrative services will be $3,000 per month. Prior
to the date of this Prospectus, the Company utilized office space and
administrative services provided by TDA without charge.
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BUSINESS
INTRODUCTION
The Company was organized to raise capital and acquire, own, integrate and
operate seasoned, privately-held companies engaged in the wholesale distribution
of roofing supplies and related products industry and companies which
manufacture products for or supply products to such industry. Simultaneously
with the closing of the Public Offering, the Company will consummate the
Acquisitions of Eagle and JEH Eagle. The Company and the Underwriter have agreed
that the Combined Entities have a book value of not less than $1,000,000. See
"Certain Transactions." Eagle was founded in Florida in 1905. Eagle is a general
wholesale distributor of a complete line of roofing supplies and related
products through its own sales force and distribution facilities to roofing
supply and related products contractors and sub-contractors in the geographic
areas where Eagle has distribution centers. Such contractors and sub-contractors
are engaged in commercial and residential roofing repair and the construction of
new residential and commercial properties. JEH Co. was founded in 1982 and
substantially all of its business and assets was sold to JEH Eagle in July of
1997. Similar to Eagle, JEH Eagle is a general wholesale distributor of roofing
supplies within the geographic areas of its distribution facilities using
similar sales methods. JEH Eagle also distributes drywall and plywood to
contractors, builders, and developers primarily engaged in the construction
industry while Eagle only recently added drywall products at several of its
distribution centers. Upon consummation of the Acquisitions, Eagle and JEH Eagle
will become wholly-owned subsidiaries of the Company and will constitute the
only business operations of the Company until and unless the Company consummates
additional acquisitions. Although the primary focus of the Company's expansion
and acquisition program will be on seeking suitable acquisition candidates which
are engaged in the wholesale distribution of roofing supplies and related
products, the Company will consider the purchase of manufacturers or vendors of
products which may be distributed through its wholesale distribution business.
During Eagle's fiscal year ended June 30, 1997 and eight-month period ended
February 28, 1998, Eagle had revenues of approximately $57,576,000 and
$36,126,000, respectively, and net income and a net loss of approximately
$192,000 and $18,700, respectively. During JEH Co.'s fiscal year ended December
31, 1996 and JEH Eagle's eight month period ended February 28, 1998, JEH Eagle
had revenues of approximately $74,893,000 and $44,787,000, respectively, and net
income of approximately $171,000 and $295,000, respectively. The results for JEH
Co. for its fiscal year ended December 31, 1996 were after payment of
compensation to its owner of approximately $2,330,000. There can be no assurance
that the recent levels of revenues or net income will continue to be achieved in
the future. See "Certain Transactions."
The Company's activities to date have been limited primarily to its initial
organization, negotiating the terms and conditions of the Public Offering and
the Acquisitions and obtaining initial financing.
STRATEGY
Based upon its management's experience in the industry, the Company believes
that the roofing supplies and related products distribution industry is
fragmented and has the potential for consolidation in response to the
competitive disadvantages faced by smaller distributors. The Company believes
that the industry is characterized by a large number of relatively small local
distribution companies and a few very large, multi-branch and multi-regional
distributors and a large, national multi-branch distributor. Roofing supplies
products distributors are overwhelmingly privately owned, relationship-based
companies that emphasize service, delivery and reliability as well as
competitive pricing and breadth of product line to their customers. The Company
believes that the competitive environment faced by small distributors, coupled
with the desire of many owners of such distributors for liquidity, has prompted
a trend toward industry consolidation that offers significant opportunities for
expansion oriented distributors, such as the Company. The Company believes that
there are opportunities for a company which has the capability to source and
distribute products effectively to serve the roofing supplies and related
products markets and to
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effect cost savings and increased profit opportunities through efficiencies of
scale which can be applied to companies acquired in the roofing supplies and
related products industry.
The Company plans to seek acquisition candidates primarily in the roofing
supplies and related products industry throughout the United States, with
greater emphasis on the Southeastern, Midwestern and Western regions and less
emphasis on the Northeastern region of the United States. However, the Company
may consider acquisition candidates in any of the foregoing regions of the
United States if an exceptional opportunity arises. Initial acquisition
candidates will be sought in the roofing supply industry, and the factors that
the Company may consider in reviewing a potential acquisition candidate include,
but are not limited to, the following: (i) geographical locations; (ii)
operations contiguous to current areas of operations; (iii) members of its
management; (iv) economic viability; (v) the experience of management; (vi)
revenues; (vii) historical profitability; (viii) balance sheet quality; (ix)
product lines carried; (x) type of customers; (xi) qualities of fleet; (xii)
size and number of locations; and (xiii) vendors. As the characteristics of
potential acquisition candidates can vary widely, the Company is unable to
indicate the weight to be given to the foregoing and other factors, and the
foregoing factors should not be considered to be set forth in the Company's
order of priority. Acquisition candidates will be sought by members of the
management team and the officers of the Company, Eagle and JEH Eagle.
Additionally, potential acquisition candidates may be made known to the Company
from various sources such as business brokers, venture capitalists, members of
the financial community, vendors, others who may present unsolicited proposals
and through industry associations. In certain circumstances, the Company may
agree to pay a finder's fee for services provided by persons who are not
currently executive officers of the Company, Eagle or JEH Eagle, or executive
officers or directors of TDA, which submit acquisition candidates to the Company
that are subsequently acquired by the Company. However, in the event an
acquisition candidate is submitted to and acquired by the Company by a director
of the Company, Eagle or JEH Eagle who is not an executive officer of the
Company, Eagle or JEH Eagle, the Company anticipates that it may pay any such
person a finder's fee the same as if such person were an independent third
party. Any such finder's fee will be paid at the then prevailing market rates as
determined by the Company's executive officers and be subject to approval by the
Company's Board of Directors if such a fee is to be paid to an affiliate of the
Company. No such finder's fee will be paid to TDA or persons who are officers or
directors of TDA. Purchase prices for the Company's potential acquisition
candidates will be determined by negotiations conducted by the Company's
management with the prospective sellers. The Company's management will conduct a
review of a potential acquisition candidate's business operations and historical
financial information in connection with the negotiating process. The Company
intends to attempt to make such acquisitions at an amount related to the
candidate's book value. However, the Company may pay a sum in excess of a
candidate's book value if the Company's assessment of the candidate's product
lines, geographic market area, competitive position in that market, customer mix
(commercial or residential), the fair market value of its assets or perceived
potential future profit warrants such a premium.
The Company anticipates that it will be able to enhance the profit potential
of acquired companies by combining their operations with the operations of Eagle
and/or JEH Eagle. It is anticipated that acquired companies should be able to
take advantage of (as well as, by becoming affiliated with Eagle and/or JEH
Eagle, enhance) Eagle's and/or JEH Eagle's ability to obtain volume discounts
and other favorable terms (many of which are dependent on the volume of
purchases) from vendors, enabling the acquired companies to obtain better
purchasing terms and thereby offer more competitive pricing to customers as a
result of Eagle's and JEH Eagle's practice of negotiating prices and terms from
vendors on a company-wide or multi-center basis. Additionally, it is anticipated
that acquired companies should also be able to take advantage of Eagle's
centralized administrative and data processing systems which provide real-time
management information systems and centralized administrative functions, thereby
relieving acquired companies of some record keeping and administrative functions
and enabling them to reduce personnel and overhead expenses. Also, acquired
companies should be able to use Eagle's centralized administrative and data
processing systems, among other things, to monitor inventory levels and sales by
distribution center, allowing each distribution center manager to better assure
that his center has sufficient and
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balanced product inventory to meet the customer needs in that market area. JEH
Eagle and Eagle have begun to integrate their computer systems with the
objective to fully integrate their systems by the end of 1998 to allow for
certain administrative, purchasing, billing, collection, credit control and
other similar functions to be combined at one location. The Company anticipates
that any future acquisitions will have their similar administrative and other
functions integrated with this combined facility. The operations of acquired
companies may be enhanced by expanding the product lines that they carry, if
they carry fewer product lines than Eagle or JEH Eagle currently carry. Acquired
companies may also be able to draw upon the industry experience of Eagle's or
JEH Eagle's management to improve their product knowledge, training of branch
managers and sales personnel, and ability to service customers. The Company
intends to provide expansion capital, if necessary, and administrative and
management services to acquired companies.
The Company considers suitable acquisition candidates to be privately-owned
companies having a history of profitable operations or for which profitable
potential is perceived by the Company's management. Additionally, as roofing and
related products distributors are overwhelmingly relationship based, suitable
acquisition candidates should have key managerial personnel willing to continue
their employment after the acquisition and a stable sales force that the
Company's management anticipates to remain substantially in place after the
acquisition. Suitable acquisition candidates may also include the assets and
sites of entities which may not be currently profitable or which may be
underperforming but located in a geographical market area that the Company's
management believes to have profitable potential when restructured and placed
under new management. The Company has no present intention to make any
acquisitions from any of its affiliates other than the Acquisitions.
In formulating its acquisition strategy, the Company's has relied upon the
experience of management in the wholesale distribution of roofing supplies and
related products industry. The majority of distribution center managers have
been associated with Eagle or JEH Eagle for more than ten years. James E.
Helzer, the President of the Company, Eagle and JEH Eagle, founded JEH Co. in
1982 and was its owner and chief executive officer until substantially all of
its business and assets were acquired by JEH Eagle. E.G. Helzer, Senior Vice
President-Operations of the Company, Eagle and JEH Eagle was associated with JEH
Co. since its inception in 1982. In 1982, JEH Co. commenced operations and by
the time of its acquisition in July 1997, it had eleven distribution centers.
Douglas P. Fields and Frederick M. Friedman, executive officers and directors of
the Company, Eagle and JEH Eagle, have been executive officers and directors of
Eagle for approximately twenty-five years. In 1973, at the time Eagle was
acquired by TDA, it had one distribution center. Eagle now has fifteen
distribution centers.
The Combined Entities have an aggregate of approximately 61 managerial
employees. It is planned that the managerial staffs of the Combined Entities,
other members of their staffs and the Company's executive officers, other than
Messrs. Fields and Friedman, will principally provide administrative and
management services to any acquired companies with Messrs. Fields and Friedman
providing oversight of such management and administrative assistance expertise
in evaluating and negotiating and financing acquisitions. Messrs. Fields and
Friedman each have more than twenty-five years experience in the management of
acquisition oriented companies. Under their management, TDA acquired Eagle, JEH
Eagle, a distributor of flooring products, a tennis facility, a number of
distributors of plumbing, heating, electrical and hardware supplies, a
manufacturer of electrical products, a number of other companies and various
real estate. James E. Helzer, an executive officer of the Company, Eagle and JEH
Eagle founded JEH Co. and developed it into a roofing supply distributor with
eleven distribution centers in six states. Although Messrs. Fields and Friedman
have not agreed to devote any specified amount of time to the Company and the
Combined Entities, they intend to devote such time as is necessary to perform
the foregoing services. James E. Helzer has agreed to devote a substantial
amount of his time to the Company, Eagle and JEH Eagle. See "Management".
Although the Company has not specifically identified any probable
acquisition candidates nor has it negotiated with any such acquisition
candidates and does not currently have any agreements, arrangements
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or commitments with respect to any proposed acquisition in place, other than the
Acquisitions, based upon its management's experience in the industry, it
believes that there are a number of suitable acquisition candidates that may
meet its criteria. However, there can be no assurance that any additional
acquisitions will be consummated. The Company intends to seek out prospective
acquisition candidates in businesses that complement or are otherwise related to
the business of Eagle and/or JEH Eagle. The Company anticipates that it will
finance future acquisitions, if any, through a combination of cash (including a
substantial portion of the net proceeds of the Public Offering), issuances of
shares of capital stock of the Company and additional equity or debt financing.
There can be no assurance that the Company will be able to obtain additional
equity or debt financing on terms acceptable to the Company or at all.
EXPANSION
Management intends to pursue expansion of the operations of the Combined
Entities by adding new distribution centers with the proceeds of the Public
Offering and by internal growth. During the 1997 calendar year, the Combined
Entities opened one (1) new distribution center and is exploring the possibility
of opening several more distribution centers during calendar year 1998.
The Company has allocated approximately $2,176,000 from the net proceeds of
the Public Offering to establish six new distribution centers and approximately
$700,000 to make leasehold improvements to existing distribution centers and to
purchase equipment (trucks, forklifts and similar items) to support the planned
six additional distribution centers which are intended to be opened within
twenty-four months following the completion of the Public Offering and
consummation of the Acquisitions. The Company presently anticipates that the six
additional distribution centers will be leased from third parties not affiliated
with the Company, Eagle or JEH Eagle. There can be no assurance that any or all
of such new distribution centers will be opened within such twenty-four month
period or at all.
BUSINESS
Eagle and JEH Eagle are general wholesale distributors of a complete line of
roofing supplies and related products through their own sales forces to roofing
supply and related products contractors and sub-contractors in the geographic
areas where they have distribution centers. Such contractors and sub-contractors
are engaged in commercial and residential roofing repair and the construction of
new residential and commercial properties.
Eagle also distributes sheet metal products used in the roofing repair and
construction industries and has begun the distribution of drywall products. JEH
Eagle also distributes drywall, plywood and related products to the construction
industry. In general, products distributed include equipment, tools and
accessory products for the removal of old roofing, re-roofing and roof
construction, and related materials such as shingles, tiles, insulation, liquid
roofing materials, fasteners, ventilation materials, sheet metal of the type
used in the roofing industry, drywall and plywood.
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The following chart indicates the approximate percentage of the indicated
product categories sold by Eagle and JEH Eagle for the periods indicated:
<TABLE>
<CAPTION>
RESIDENTIAL COMMERCIAL
ROOFING ROOFING SHEET METAL DRYWALL AND PLYWOOD
------------- ------------- --------------- ---------------------
<S> <C> <C> <C> <C>
EAGLE
FISCAL YEAR ENDED JUNE 30,
1995................................................. 48% 34% 16% N/A
1996................................................. 57% 31% 12% N/A
1997................................................. 55% 32% 13% N/A
Eight Months Ended February 28, 1998................. 59% 27% 13% 1%
JEH EAGLE
FISCAL YEAR ENDED DECEMBER 31,
1995................................................. 83% 4% N/A 13%
1996................................................. 81% 5% N/A 14%
1997................................................. 79% 6% N/A 15%
Six Months Ended June 39, 1997....................... 79% 6% N/A 15%
Eight Months Ended February 28, 1998................. 78% 6% N/A 16%
</TABLE>
Eagle has grown from nine distribution centers at June 30, 1991, including
locations in Florida (seven) and Alabama (two), to its current level of fifteen
distribution centers including locations in Florida (eleven), Alabama (three)
and Mississippi (one). Eagle has pursued its expansion activities by opening new
distribution centers. Similarly, JEH Co. grew from six distribution centers in
1990, including locations in Texas (five) and Colorado (one) to eleven
distribution centers, including locations in Texas (five), Colorado (four),
Indiana (one) and Virginia (one). After opening a new distribution center, the
initial focus is to develop a customer base, to develop and improve the
distribution center's market position and operational efficiency and then to
expand its customer base.
After a distribution center is opened, the policy of the Combined Entities
is to continue to assess each distribution center's performance and
profitability. As a result of this ongoing assessment, the Combined Entities
have on occasion sold or closed certain distribution centers.
OPERATING STRATEGY
Key elements of the current operating strategy of the Combined Entities are
as follows:
PURCHASING ECONOMIES. Eagle, JEH Eagle and, where possible, the Combined
Entities negotiate with suppliers to obtain volume discounts and other favorable
terms. Individual distribution center managers are responsible within their
inventory budgets for selecting and ordering inventory tailored to the varied
needs of customers in their local markets. Management believes the Combined
Entities are able to obtain competitive pricing and purchasing terms, maintain a
broad and balanced product line, ensure timely delivery of products, maintain
appropriate inventory levels and maintain satisfactory relationships with
vendors.
CENTRALIZING MANAGEMENT INFORMATION SYSTEMS AND ADMINISTRATION. Eagle
maintains centralized computer and data processing systems to support decision
making throughout its organization including what management believes to be an
in-depth credit analysis of its customers. Distribution centers are equipped
with on-line, real time management information systems. Eagle's management
information systems enable management to perform, control and monitor accounts
receivable, inventory levels, order entry, invoicing, sales and profitability by
distribution center. Each Eagle distribution center is, therefore, able to
respond to specific customer needs and overall market demand and to monitor the
effects of actions or decisions on performance and profitability. Eagle has also
centralized many administrative functions, such as payroll
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and employee benefits, credit and collection, insurance, accounting and internal
auditing, cash management, human resources, fleet management safety and legal,
both to achieve economies of scale and to help managers remain focused on
maximizing profitability of their distribution centers. Following JEH Eagle's
acquisition of JEH Co.'s distribution centers in July of 1997, Eagle and JEH
Eagle began to integrate their computer, data processing and management
information systems, and it is anticipated that by the end of calendar year
1998, Eagle and JEH Eagle will be functioning on the same computer hardware and
software systems. See "--Strategy."
DECENTRALIZING OPERATIONS. The Combined Entities have adopted a
decentralized operating philosophy to maximize responsiveness to customers'
varied needs and to give distribution center managers a sense of responsibility
for the performance of their own operations and the Combined Entities as a
whole. While the Combined Entities negotiate purchase prices and terms for many
products from many vendors on a joint or multi-center basis and each uses
central management information systems to achieve economies of scale, each
distribution center manager is responsible for selecting and ordering inventory
to meet the needs of his customers, for staffing, for controlling all line item
expenses (other than central administration allocated items), for product
pricing and profit margins, and for creating his annual budget. Further, each
distribution center manager has individual profit and loss responsibility for
his distribution center and receives incentive compensation based upon the
profitability of his distribution center.
PRODUCTS
Eagle and JEH Eagle distribute a variety of roofing supplies and related
products and accessories for use in the commercial and residential roofing
repair and construction industries.
RESIDENTIAL ROOFING PRODUCTS. Shingles (asphalt, ceramic, slate, concrete,
fiberglass and fiberglass combined with asphalt), tiles, felt, insulation,
waterproof underlaying, ventilation systems and skylights.
COMMERCIAL ROOFING PRODUCTS. Asphalt, cements, tar, other coatings,
modified bitumen and roll roofings.
SHEET METAL PRODUCTS. These products are sold principally by Eagle and
include aluminum, copper, galvanized and stainless sheet metal.
DRYWALL/PLYWOOD PRODUCTS. These products are sold principally by JEH Eagle
and include sheet rock and plywood. They have been introduced into two of
Eagle's distribution centers since the fall of 1997.
Eagle and JEH Eagle also sell accessory products related to each of the
foregoing, including, but not limited to, roofing equipment, power and hand
tools and fasteners.
VENDORS
The Combined Entities distribute products manufactured by a number of major
vendors. GAF Corporation, a supplier of residential and commercial roofing
materials, is Eagle's largest supplier, accounting for approximately 21%, 23%,
and 23% of Eagle's sales during its fiscal year ended June 30, 1997 and
eight-month period ended February 28, 1998, respectively. During the foregoing
periods, three other vendors' products accounted for an aggregate of
approximately 23%, 32%, and 18%, respectively, of Eagle's sales. Atlas Roofing
Corp., a supplier of residential and commercial roofing materials, is JEH
Eagle's largest supplier, accounting for approximately 22%, 15%, and 14% of JEH
Co.'s sales during its fiscal years ended December 31, 1995 and 1996 and JEH
Eagle's sales during the eight-month period ended February 28, 1998,
respectively. During the foregoing periods, three other vendors products
accounted for an aggregate of approximately 31%, 34%, and 29%, respectively, of
JEH Co.'s and JEH Eagle's sales. Neither of the Combined Entities have written
long term supply agreements with any vendors. Management believes that in the
event of any interruption of product deliveries from any
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suppliers, they will be able to secure suitable replacement suppliers on
acceptable terms. There can be no assurance that they will be able to secure
suitable replacement suppliers on acceptable terms or at all.
CUSTOMERS, SALES AND MARKETING
The Combined Entities sell and distribute roofing supplies and related
products to approximately 5,000 customers engaged in commercial and residential
roofing repair and the construction of new residences and commercial properties
from distribution centers in seven states. During Eagle's, JEH Co.'s, and JEH
Eagle's eight-month periods ended February 28, 1997 and 1998, practically all of
their customers purchased products pursuant to short-term credit arrangements.
Sales efforts are primarily directed through their salespersons assigned to
their distribution centers including "inside" counter persons who serve walk-in
and call-in customers and "outside" salespersons calling upon past, current and
potential customers. Salespersons rely upon a range of selling techniques all
based upon personal and telephone contact, which techniques include but are not
limited to "cold calling" for new customers, maintaining relationships with
current and former customers, and arranging or locating projects for customers.
Neither of the Combined Entities have long term written supply agreements with
any of their customers. No Eagle customer accounted for more than 3% of Eagle's
sales during either of its fiscal year ended June 30, 1997 or eight-month period
ended February 28, 1998. Similarly, no JEH Co. or JEH Eagle customer accounted
for more than 4% of JEH's, JEH Co.'s or Eagle's sales during either of its
fiscal year ended December 31, 1996 or eight-month period ended February 28,
1998, respectively.
COMPETITION
Each of the Combined Entities faces substantial competition in the wholesale
distribution of roofing supplies from relatively smaller distributors but also
faces competition from retail distribution centers and from a number of
multi-regional and national wholesale distributors of building products
including suppliers of roofing products which are larger than the Combined
Entities, including American Builders & Contractors Supply Co., Inc., Cameron
Ashley Building Products, Inc., Allied Building Products and Bradco Supply
Corporation, which have greater financial resources than the Combined Entities.
Each of the Combined Entities currently competes in the wholesale distribution
of roofing supplies on the basis of competitive pricing, breadth of product
line, prompt delivery, service, providing discounts for prompt payment and on
the abilities of its personnel. To a substantially lesser degree, they also
compete with larger high volume discount general building supply stores selling
standardized lower priced products, sometimes at lower prices, but not carrying
the breadth of product lines or offering the same service as provided by full
service wholesale distributors such as the Combined Entities. Each of the
Combined Entities competes with its competitors on the basis of product
delivery, credit extension, customer service and breadth of product line.
The Company anticipates that it may experience competition from entities and
individuals (including venture capital partnerships and corporations, equity
funds, blind pool companies, competing wholesale roofing supply distribution
centers, large industrial and financial institutions, small business investment
companies and wealthy individuals) which are well-established and have greater
financial resources and more extensive experience than the Company, Eagle and
JEH Eagle combined in connection with identifying and effecting acquisitions of
the type sought by the Company. The Company's, Eagle's and JEH Eagle's combined
financial resources will be limited in comparison to those of many of such
competitors. Such competition could result in the loss of an acquisition
candidate or an increase in the price the Company would be required to pay for
such acquisitions.
BACKLOG
The businesses of the Combined Entities are conducted on the basis of
short-term orders and prompt delivery schedules precluding any substantial
backlog.
49
<PAGE>
EMPLOYEES
At February 28, 1998, the Combined Entities employed approximately 367
full-time employees, including 6 executives, 61 managerial employees, 80
salespersons (including 37 "inside" salespersons), 185 warehouse persons,
drivers and helpers, and 35 clerical and administrative persons. Both Eagle and
JEH Eagle have experienced difficulties in retaining drivers and helpers but
suitable replacements have been readily available without economic impact.
Neither of the Combined Entities is subject to any collective bargaining
agreement, and each believes that its relationship with its employees is good.
The Company has no employees. The Company's management currently consists of
five officers, including two officers, Douglas P. Fields and Frederick M.
Friedman, neither of whom are required to commit a specific amount of their time
to the affairs of the Company. Each of Messrs. Fields and Friedman have
significant business interests outside of the Company, including but not limited
to TDA and its subsidiaries. Messrs. Fields and Friedman currently devote
substantially all of their business time to TDA and its subsidiaries, with
approximately 5% to 10% of that time being devoted to the Combined Entities.
Accordingly, Messrs. Fields and Friedman may have conflicts of interest in
allocating their time among various business activities. However, Messrs. Fields
and Friedman will devote no less time than they deem reasonably necessary to
carry out their duties to the Company, including the evaluation and negotiation
of potential acquisitions. See "Management, "The Acquisition" and "Certain
Transactions."
50
<PAGE>
FACILITIES
EAGLE
Eagle leases approximately 15,000 square feet of executive office space
located at 1451 Channelside Drive, Tampa, Florida 33629, from a wholly-owned
subsidiary of TDA, at an approximate annual rental of $120,000. Approximately
7,500 square feet of such space is subleased by Eagle to an unrelated third
party tenant. See "Certain Transactions."
The following tables list the locations of Eagle's showroom and distribution
centers.
LOCATIONS OWNED BY AND LEASED FROM A WHOLLY-OWNED TDA SUBSIDIARY
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE BASE
CITY AND STATE SQUARE FOOTAGE ANNUAL RENTAL
- ------------------------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Tampa, Florida................................................................. 69,000 $ 173,000
St. Petersburg, Florida........................................................ 25,000 $ 88,000
Holiday, Florida............................................................... 16,000 $ 56,000
Fort Myers, Florida............................................................ 16,000 $ 56,000
Lakeland, Florida.............................................................. 13,000 $ 57,000(1)
Pensacola, Florida............................................................. 26,000 $ 90,000(2)
Birmingham, Alabama............................................................ 39,000 $ 127,000(2)
Mobile, Alabama................................................................ 24,000 $ 65,000
</TABLE>
- ------------------------
(1) Currently leased from a third party, but to be relocated to a 22,000 square
foot facility in May 1998 which will be leased from a subsidiary of TDA at
an approximate base annual rental of $66,000.
(2) See "Certain Transactions."
As part of the foregoing arrangements, additional undeveloped land is leased
to Eagle from the TDA subsidiary. That undeveloped land is used for storage or
reserved for future use. The locations and approximately acreage of the
undeveloped land are as follows: Tampa (one); St. Petersburg (two); Holiday
(three); Ft. Myers (one and a third); Pensacola (two and a half); and Birmingham
(one).
As Eagle has been a wholly-owned subsidiary of TDA since 1973, generally
there has been no need for Eagle to enter into written leases with the
subsidiary of TDA which owns Eagle's foregoing distribution centers. All of the
foregoing current distribution centers of Eagle leased from TDA's subsidiary
have been leased pursuant to oral agreements. Eagle has not entered into any
written leases for the foregoing premises. Upon the closing of the Public
Offering and consummation of the Acquisitions, Eagle will enter into written
ten-year leases with a subsidiary of TDA which will provide for base annual
rentals substantially similar to those set forth above for the first five years
of such leases with provisions for increases in rent based upon the consumer
price index at the beginning of the sixth year of such ten-year leases and with
provisions for five-year renewal options, increases in rent based upon the
consumer price index, and lease terms, additional rental and other charges
customarily included in such leases, including provisions requiring Eagle to
insure and maintain and pay real estate taxes on the premises as is currently
required. Such leases will be on terms no less favorable than Eagle could obtain
from independent third parties. See "The Acquisitions" and "Certain
Transactions."
51
<PAGE>
<TABLE>
<CAPTION>
LOCATIONS LEASED FROM THIRD PARTIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE APPROXIMATE BASE
CITY AND STATE SQUARE FOOTAGE ANNUAL RENTAL
- ------------------------------------------------------------------------------- --------------- ----------------
Clearwater, Florida............................................................ 5,000 $ 23,000(1)
Montgomery, Alabama............................................................ 24,000 $ 44,000(2)
Panama City, Florida........................................................... 5,000 $ 63,000(3)
Fort Walton Beach, Florida..................................................... 8,000 $ 36,000(4)
Crystal River, Florida......................................................... 12,600 $ 42,000(5)
Lakeland, Florida.............................................................. 13,000 $ 57,000(6)
Tallahassee, Florida........................................................... 15,000 $ 45,000(7)
Gulfport, Mississippi.......................................................... 13,000 $ 32,000(8)
</TABLE>
- ------------------------
(1) The lease for the Clearwater, Florida, premises expires on or about August
31, 1998 and provides for a five-year renewal option with increased renewal
term rental payments based upon the Consumer Price Index ("CPI"), but not to
exceed 5%. Pursuant to this lease, Eagle is required to pay all municipal,
county and state taxes , maintain and carry comprehensive public liability
insurance on the premises.
(2) The lease for the Montgomery, Alabama, premises is on a month-to-month
basis. Pursuant to this lease, Eagle is required to pay its pro rata share
(as defined) of increases in certain taxes, such as property and taxes on
rentals, and premium increases for fire, casualty and other types of
coverage that the landlord maintains for these premises.
(3) The lease for the Panama City, Florida, premises expires on or about
February 15, 2001 and provides for a five-year renewal option at an
increased rental based on the CPI. Pursuant to this lease, Eagle is required
to maintain the premises and provide fire, windstorm and other insurance.
Additionally, Eagle is required to pay all sales and use taxes imposed upon
the rental payments for the premises. Eagle has the right of first refusal
to purchase these premises in certain events.
(4) The lease for the Fort Walton Beach, Florida, premises expires on or about
December 31, 1998 and provides for a five-year renewal option at increased
rent based upon the CPI along with applicable sales and use taxes. Eagle is
also required to maintain liability insurance on the premises.
(5) The lease for the Crystal River, Florida, premises expires on June 30, 1998
and requires annual rental increases based upon the CPI. This lease provides
for a two-year renewal option. Eagle is also required to maintain the
premises, pay certain taxes (sales, use, rent, receipts) and pay public
liability insurance premiums.
(6) The lease for the Lakeland, Florida, premises is on a month-to-month basis.
This facility is to be relocated in May 1988 to a 22,000 square foot
facility owned by a subsidiary of TDA.
(7) The lease for the Tallahassee, Florida, premises expires on July 31, 1999
and provides for two five-year renewal options with the base rental
escalating at the rate of three percent per year during option years and a
right of first refusal to purchase the premises. This lease requires Eagle
to pay any real estate and sales taxes, maintain the premises and provide
liability insurance.
(8) The lease for the Gulfport, Mississippi, premises expires on May 31, 1998
and provides for a five-year renewal option on terms and conditions to be
negotiat-ed. This lease requires Eagle to maintain liability insurance on
the premises, maintain the premises and pay any real estate and personal
property taxes.
JEH EAGLE
JEH Eagle leases approximately 8,000 and 10,000 square feet of executive
office and showroom space located at 2500 U.S. Highway 287, Mansfield, Texas
76063 and 8221 E. 96th Avenue, Henderson, Colorado 80640, respectively, from
James E. Helzer, the President of the Company, Eagle and JEH Eagle. The
52
<PAGE>
annual aggregate rental for the foregoing premises is combined with the rentals
of relevant distribution centers discussed below.
The following tables list the locations of JEH Eagle's distribution centers.
<TABLE>
<CAPTION>
LOCATIONS OWNED BY AND LEASED FROM JAMES E. HELZER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE APPROXIMATE BASE
CITY AND STATE SQUARE FOOTAGE ANNUAL RENTAL
- ------------------------------------------------------------------------------- -------------- ----------------
Henderson, Colorado............................................................ 100,000 $ 108,000
Colorado Springs, Colorado..................................................... 3,000 $ 19,000
Mansfield, Texas............................................................... 48,000 $ 213,000
Colleyville, Texas............................................................. 7,000 $ 42,000
Frisco, Texas.................................................................. 17,000 $ 60,000
Mesquite, Texas................................................................ 10,000 $ 43,000
</TABLE>
The foregoing premises are leased to JEH Eagle from James E. Helzer pursuant
to five-year leases expiring in June 2002 providing the indicated base annual
rentals with provisions for five percent (5%) increases effective July 2000.
Except for the Frisco, Texas, premises, said leases grant JEH Eagle two five-
year renewal options providing for five percent (5%) increases in the base
annual rent during certain renewal years. Additional rental and other charges
for the foregoing leases include provision for JEH Eagle to insure and maintain
and pay all taxes on the premises. JEH Eagle also has a right of first refusal
to purchase the foregoing premises. The Company believes that such leases are on
terms no less favorable than JEH Eagle could have obtained from independent
third parties.
As part of the foregoing leases, additional undeveloped land is leased to
JEH Eagle from James E. Helzer. That undeveloped land is used for storage or
reserved for future use. The locations and approximate acreage of the
undeveloped land is as follows: Henderson (six), Colorado Springs (three),
Mansfield (twelve and a half), Colleyville (one and a half), Frisco (two and a
half) and Mesquite (two).
<TABLE>
<CAPTION>
LOCATIONS LEASED FROM THIRD PARTIES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE APPROXIMATE BASE
CITY AND STATE SQUARE FOOTAGE ANNUAL RENTAL
- ------------------------------------------------------------------------------- --------------- ----------------
Eagle, Colorado................................................................ 10,000 $ 72,000(1)
Fort Collins, Colorado......................................................... 9,000 $ 32,000(2)
Indianapolis, Indiana.......................................................... 15,000 $ 66,000(3)
Austin, Texas.................................................................. 56,000 $ 96,000(4)
Norfolk, Virginia.............................................................. 19,000 $ 55,000(5)
</TABLE>
- ------------------------
(1) The lease for the Eagle, Colorado, premises expires in April 1999 but may be
terminated by JEH Eagle on thirty days notice and provides for two two-year
renewal options. Pursuant to this lease, JEH Eagle is required to pay all
utility bills and assessments and maintain and carry comprehensive public
liability insurance on the premises.
(2) The lease for the Fort Collins, Colorado, premises is on a month-to-month
basis. JEH Eagle is required to pay its proportionate share of taxes,
insurance and maintenance charges for these premises and maintain the
portion of the premises it occupies.
(3) The lease for the Indianapolis, Indiana, premises expires in March 2002 and
requires JEH Eagle to pay real estate taxes and carry comprehensive public
liability insurance on the premises.
(4) The lease for the Austin, Texas, premises expired and continues on a
month-to-month basis and requires JEH Eagle to pay all real estate taxes and
carry comprehensive public liability insurance on the premises.
53
<PAGE>
(5) The lease for the Norfolk, Virginia, premises expires in June 1998 and
requires JEH Eagle to pay all real estate taxes and assessments and maintain
and carry comprehensive public liability insurance on the premises.
At the time Eagle opened its former Fort Lauderdale, Florida, distribution
center, in the early part of the 1980s, TDA established a subsidiary to acquire
that facility which was financed by the issuance of an industrial revenue bond.
The financial institution providing the industrial revenue bond required a
written lease between the TDA subsidiary and Eagle as a precondition to the
issuance of that bond. The term of Eagle's lease for the Fort Lauderdale,
Florida, premises continues through May 1, 1999 even though Eagle has vacated
those premises. Upon completion of the Public Offering and consummation of the
Acquisitions, TDA or its relevant subsidiary will agree to indemnify Eagle for
any payments that Eagle is required to make which are in excess of Eagle's
obligations under the foregoing lease. The Fort Lauderdale, Florida, premises
has been sublet to an entity not otherwise affiliated with Eagle or TDA for a
term expiring on May 1, 1999. See "The Acquisitions" and "Certain Transactions."
TDA will provide office space and administrative services to the Company at
its offices in New York City pursuant to an administrative services agreement to
be entered into by the Company and TDA upon the closing of the Public Offering
and consummation of the Acquisitions. The term of the administrative services
agreement will be on a month-to-month basis. The fee payable by the Company to
TDA for such administrative services will be $3,000 per month. Prior to the
closing of the Public Offering, the Company utilized office space and
administrative services provided by TDA without charge. See "Certain
Transactions."
LEGAL PROCEEDINGS
Neither the Company, Eagle, nor JEH Eagle are subject to any material legal
proceedings.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Douglas P. Fields(1)...................... 55 Chairman of the Board and Chief Executive Officer
James E. Helzer(1)........................ 57 President and Director Nominee, Vice Chairman Nominee of the
Board of Directors(4)
Frederick M. Friedman(1).................. 57 Executive Vice President, Treasurer, Secretary and a Director
E.G. Helzer............................... 46 Senior Vice President-Operations
Steven R. Andrews(2)(4)................... 43 Vice President--Legal and a Director
Paul D. Finkelstein(3)(4)................. 55 Director Nominee
John E. Smircina(1)(2)(3)(4).............. 66 Director Nominee
George Skakel III(2)(4)................... 47 Director Nominee
</TABLE>
- ------------------------
(1) Upon successful completion of the Public Offering and consummation of the
Acquisitions, said persons are anticipated to become members of the
Executive Committee of the Company's Board of Directors.
(2) Upon successful completion of the Public Offering and consummation of the
Acquisitions, said persons are anticipated to become members of the Audit
Committee of the Company's Board of Directors.
(3) Upon successful completion of the Public Offering and consummation of the
Acquisitions, said persons are anticipated to become members of the
Compensation Committee of the Company's Board of Directors.
(4) Upon successful completion of the Public Offering and consummation of the
Acquisitions, said person is anticipated to become the Company's Vice
President-Legal or a member of the Company's Board of Directors, as the case
may be.
Set forth below is a brief background of the executive officers, directors
and director nominees of the Company, based on information supplied by them.
Douglas P. Fields has been the Chairman of the Board of Directors, Chief
Executive Officer and a Director of the Company since inception. From the
Company's inception until July 1996, Mr. Fields also served as its President.
For more than the past five years, Mr. Fields has been the Chairman of the Board
of Directors, President and Chief Executive Officer of TDA and Chief Executive
Officer and a Director of each of its subsidiaries, including Eagle, Cooper
Flooring International, Inc ("CFI") and Northeastern Plastics, Inc ("NPI")
(which was a subsidiary of TDA until August 1996 when it was acquired by
Acqueren, Inc. ("AI") of which TDA currently owns 45% and of which Mr. Fields
remains Chief Executive Officer). Since February 1996, Mr. Fields has served as
AI's Chief Executive Officer and is required to devote 25% of his time to that
corporation. Since July 1997, Mr. Fields has held the positions of Chairman of
the Board and Chief Executive Officer of JEH Eagle. TDA is a holding company
whose operating subsidiaries are engaged primarily in the wholesale distribution
of building supplies and home furnishing products (Eagle, JEH Eagle and CFI),
the distribution of a variety of electrical devices (NPI), the operation of an
indoor tennis facility and the management of real estate. Upon successful
completion of the Public Offering and consummation of the Acquisitions, it is
anticipated that Mr. Fields will devote no less time to the Company's affairs
than he deems reasonably necessary to discharge his duties to the Company. Mr.
Fields received a Master's degree in Business Administration from the Harvard
University Graduate School of Business Administration in 1966 and a B.S. degree
from Fordham University in 1964.
55
<PAGE>
Frederick M. Friedman has been Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company since inception. For
more than the past five years, Mr. Friedman has been Executive Vice President,
Chief Financial Officer, Treasurer, Secretary and a Director of TDA and Vice
President, Chief Financial Officer, Treasurer, Secretary and a Director of each
of its subsidiaries, including Eagle, CFI and NPI (which was a subsidiary of TDA
until August 1996 when it was acquired by AI). Since February 1996, Mr. Friedman
has held similar positions with AI and is required to devote 25% of his time to
that corporation. Since July 1997, Mr. Friedman has held the same position with
JEH Eagle. Upon successful completion of the Public Offering and consummation of
the Acquisitions, it is anticipated that Mr. Friedman will devote no less time
to the Company's affairs than he deems reasonably necessary to discharge his
duties to the Company. Mr. Friedman received a B.S. degree in Economics from The
Wharton School of the University of Pennsylvania in 1962.
James E. Helzer has been the President of JEH Eagle since July 1997 and
President of the Company and Eagle since December 1997. From 1982 until July
1997, Mr. James E. Helzer was the owner and Chief Executive Officer of JEH Co.
E.G. Helzer has been the Senior Vice President-Operations of JEH Eagle,
Eagle and the Company since July 1997, December 1997 and December 1997,
respectively. From 1994 until July 1997, Mr. E.G. Helzer was the Vice President
of Operations and Colorado Manager of JEH Co. From 1982 until 1994, he was JEH
Co.'s Manager Production and Service.
Steven R. Andrews has been a Director of the Company since May 1996. For
more than the past five years, Mr. Andrews has been engaged in the private
practice of law. Mr. Andrews received a Juris Doctor degree and an L.L.M. degree
in 1977 and 1978 from Stetson University and New York University, respectively.
Mr. Andrews has agreed to serve as the Company's Vice President-Legal upon the
consummation of this Public Offering and the Acquisitions. In his capacity as
the Company's Vice President-Legal, Mr. Andrews has entered into an agreement
with the Company requiring him to review the Company's and its officers' and
directors' compliance with their obligations under federal and state securities
laws. Mr. Andrews will be required to report his findings to the Audit Committee
of the Company's Board of Directors on a periodic basis. The Company's agreement
with Mr. Andrews does not require him to devote any minimum amount of time to
the foregoing obligations and provides him with compensation of $1,000 per
month.
Paul D. Finkelstein has been the president and director of the Regis
Corporation, an operator of beauty salons and a cosmetic sales company, for more
than the past five years and that corporation's Chief Executive Officer since
July 1996. Mr. Finkelstein received a Master's degree in Business Administration
from the Harvard University Graduate School of Business Administration in 1966
and a B.S. degree in Economics from The Wharton School of the University of
Pennsylvania in 1964.
John E. Smircina has been a partner in the law firm of Wade, Hughes and
Smircina, P.C since April 1993. From prior to 1991 to March 1993, Mr. Smircina
was self-employed as a consultant. For more than the past five years, Mr.
Smircina has been a Director of TDA, and he became a director of AI in February
1996. Mr. Smircina received a Master's degree in Industrial Management from Ohio
University in 1954 and a B.A. degree in Political Science from Ohio University
in 1953.
George Skakel III has been a private investor for more than the past five
years. Mr. Skakel received a B.S. degree in Economics from the University of
Delaware in 1973 and a master's degree in Business Administration from the
Harvard University Graduate School of Business Administration in 1978.
Directors of the Company serve until the next annual meeting of stockholders
of the Company and until their successors are elected and duly qualified.
Officers of the Company will be elected annually by the Board of Directors and
serve at the discretion of the Board of Directors.
The Board of Directors has established an Executive Committee which is
composed of Douglas P. Fields and Frederick M. Friedman. The Board of Directors
of the Company can delegate to the Executive
56
<PAGE>
Committee all of the powers and authority (other than those reserved by statute
to the full Board of Directors) of the full Board of Directors in the management
of the business and affairs of the Company.
In connection with certain transactions which occurred in 1971 and 1973,
Messrs. Fields and Friedman and TDA, then a public company, without admitting or
denying the allegations set forth in a civil action commenced by the Commission,
in 1976 consented to a final judgement of permanent injunction which, in
summary, provided that Messrs. Fields and Friedman and TDA were permanently
enjoined from violating the registration, reporting, proxy and the anti-fraud
provisions of the federal securities laws and rules. Additionally, Messrs.
Fields and Friedman agreed to certain ancillary relief which included their
agreements, for a period of two years, to resign as directors of TDA and a
publicly held subsidiary of TDA and not to vote any securities of TDA and the
subsidiary owned or controlled by them. The Commission's complaint alleged,
among other things, that in 1973 TDA and Messrs. Fields and Friedman, in
connection with TDA's acquisition of Eagle, caused an improper finder's fee to
be paid to Messrs. Fields' and Friedman's designee with a portion of such
finder's fee being paid back to Mr. Friedman. Based upon facts related to the
injunctive action, in 1979, Messrs. Fields and Friedman were found guilty of
conspiring to violate the federal securities laws and making false statements in
filings made with the Commission. Messrs. Fields and Friedman were sentenced to
six and three months incarceration, respectively, and both were fined. Also, on
facts related to the injunctive action, Mr. Friedman was found guilty of mail
and wire frauds. Mr. Friedman was sentenced to one month incarceration on each
of three counts.
KEY PERSON LIFE INSURANCE
JEH Eagle maintains a "key person" life insurance policy in the amount of
$2,000,000 on the life of James E. Helzer, the President of the Company, Eagle
and JEH Eagle, naming JEH Eagle beneficiary of such policy. The Company
maintains "key person" life insurance policies in the amount of $1,000,000 on
each of the lives of Douglas P. Fields, its Chairman of the Board and Chief
Executive Officer, and Frederick M. Friedman, its Executive Vice President,
Chief Financial Officer, Treasurer, Secretary and a Director of the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation paid by the Company, Eagle or JEH Eagle for services rendered
in all capacities to each of these entities during each of their last two fiscal
years by those persons indicated. Neither the Company, Eagle nor JEH Eagle have
had any other executive officer whose total annual salary and bonus exceeded
$100,000 for either of said fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR
NAME AND ENDED
PRINCIPAL POSITION JUNE 30, SALARY($) BONUS($)
- ------------------------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Thomas W. Havnes,.............................................................. 1997 $ 120,000 -0-
former executive officer 1996 $ 104,200 -0-
</TABLE>
Mr. Havnes was the President of Eagle from February 1994 until December
1997, Senior Vice President of Eagle from December 1997 until February 1998. Mr.
Havnes had also been the Company's President from July 1996 until December 1997
and its Senior Vice President until February 1998.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The Company, Eagle and JEH Eagle have entered into agreements with four
persons who are anticipated to receive cash compensation in excess of $100,000
per year.
57
<PAGE>
The Company and Eagle have entered into employment agreements with Messrs.
Fields and Friedman, to become effective upon closing of the Public Offering and
consummation of the Acquisitions, pursuant to which they will act as Chairman of
the Board and Chief Executive Officer, and Executive Vice President, Chief
Financial Officer, Treasurer, Secretary and a Director of the Company and Eagle,
respectively, for a five-year period, at annual salaries of $200,000 each,
subject to annual increases or bonuses as may be determined by the Board of
Directors. Pursuant to their employment agreements, Messrs. Fields' and
Friedman's written consent is required if they are to be employed other than in
proximity to their residences. Messrs. Fields and Friedman reside in Connecticut
and New York, respectively. The employment agreements require the Company and
Eagle to provide their beneficiaries and each of them, respectively, with
twelve-months salary in the event of death or disability and indemnify them the
full extent permitted under the Delaware General Corporation Law. Their
employment agreements do not require either Messrs. Fields or Friedman to commit
a specific amount of their time to the affairs of the Company. However, Messrs.
Fields and Friedman will devote no less time than they deem reasonably necessary
to carry out their duties to the Company, including the evaluation and
negotiation of potential acquisitions.
JEH Eagle has entered into agreements with Messrs. Fields and Friedman,
pursuant to which they act as Chairman of the Board of Directors and Chief
Executive Officer, and Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and a Director of JEH Eagle, respectively, for a five-year
period which commenced in July 1997, at annual salaries of $60,000 each, subject
to annual increases and bonuses as may be determined by JEH Eagle's Board of
Directors. The compensation payable to Messrs. Fields and Friedman under their
employment agreements shall commence upon the closing of the Public Offering and
consummation of the Acquisitions. Pursuant to their agreements, Messrs. Fields'
and Friedman's written consent is required if they are to be employed other than
in proximity to their residences. The agreements require JEH Eagle to provide
their beneficiaries and each of them, respectively, with twelve months salary in
the event of death or disability and indemnify Messrs. Fields and Friedman to
the full extent permitted under the Delaware General Corporation Law. Their
agreements do not require either Messrs. Fields or Friedman to commit a specific
amount of their time to the affairs of JEH Eagle. However, Messrs. Fields and
Friedman will devote no less time than they deem reasonably necessary to carry
out their duties to JEH Eagle.
The Company's and JEH Eagle's agreements with Messrs. Fields and Friedman
contain provisions for payments of salary and benefits following a change of
control (as defined) of the Company or JEH Eagle, the failure to reappoint
either of them to his position, a salary reduction or the Company or JEH Eagle's
failure to perform its obligation under their respective agreements. In general,
under such circumstances, each of Messrs. Fields and Friedman would be entitled
to a cash payment equivalent to his salary for the remaining term of his
agreement, and continued life, health and disability insurance benefits for a
period of two years.
JEH Eagle has also entered into agreements with Messrs. James E. Helzer and
E.G. Helzer pursuant to which they serve as executive officers of JEH Eagle for
terms of five and three years, respectively, which commenced in July 1997, at
annual salaries of $250,000 and $125,000 as to Mr. James E. Helzer and Mr. E.G.
Helzer, respectively, subject to annual review by JEH Eagle's Board of
Directors. Additionally, as of January 1, 1998, James E. Helzer has accepted the
positions of President of the Company and Eagle. James E. Helzer will continue
as the President of JEH Eagle and will become Vice Chairman of the Company's
Board of Directors upon closing of the Public Offering and consummation of the
Acquisitions. As additional compensation, James E. Helzer's salary was increased
by $50,000 to $300,000 per year and he is required to devote approximately 80%
of his working time to the Company, Eagle and JEH Eagle. Additionally, E.G.
Helzer is to continue as the Senior Vice President-Operations of JEH Eagle and
has agreed to accept the positions of Senior Vice President-Operations of Eagle
and the Company as of January 1, 1998, and his salary was increased by $25,000
to $150,000 per year. Additionally, James E. Helzer and E.G. Helzer are entitled
to receive 20% and 6%, respectively, of Eagle's earnings before taxes
58
<PAGE>
in excess of $600,000 per year. James E. Helzer and E.G. Helzer are employed as
President and Senior Vice President-Operations, respectively, of the Company and
Eagle on an "at will" basis. See "The Acquisitions" and "Certain Transactions."
Upon the closing of the Public Offering and consummation of the
Acquisitions, pursuant to the Company's 1996 Stock Option Plan, the Company
intends to grant to each of Messrs. Douglas P. Fields, Frederick M. Friedman,
James H. Helzer and E.G. Helzer options exercisable to purchase 35,000, 35,000,
100,000 and 50,000 shares of Common Stock, respectively. Such options will have
a term of ten years and will be exercisable at the offering price of the Common
Stock sold pursuant to the Public Offering. Such options will vest as to 20% of
the underlying shares of Common Stock on each successive anniversary of the date
of grant commencing one year from the date of the closing of the Public
Offering, provided that they are employees of the Company on such dates.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for their services as
directors; however, the Board of Directors may authorize the payment of
compensation to directors for their attendance at regular and special meetings
of the Board and for attendance at meetings of committees of the Board as is
customary for similar companies. Directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company. Upon completion of the Public Offering and consummation of the
Acquisitions, all non-officer directors and director nominees, except for Mr.
Andrews and Mr. Smircina, of the Company will each receive options to purchase
10,000 shares of the Company's Common Stock, exercisable at $5.00 per share.
LIMITATION ON LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation or to its stockholders for monetary damages for breach of
fiduciary duty of care as a director, with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. The Company's Certificate of Incorporation
exonerates its directors from monetary liability to the extent permitted by this
statutory provision. The Company has been advised that it is the position of the
Commission that, insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, that provision is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
STOCK OPTION PLAN
In August 1996, the Board of Directors adopted and the stockholders approved
the Company's 1996 Stock Option Plan (the "1996 Stock Option Plan"). The 1996
Stock Option Plan provides for the grant of (i) options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422A of the Internal Revenue Code, as amended (the "Code"),
to certain employees, directors and consultants and (ii) options not intended to
so qualify ("Non-Qualified Stock Options") to employees (including directors and
officers who are employees of the Company), directors and consultants. The total
number of shares of Common Stock for which options may be granted under the 1996
Stock Option Plan is 1,000,000 shares. Upon the closing of the Public Offering
and consummation of the Acquisitions, the Company intends to grant options
exercisable into 700,000 shares of Common Stock to various of its employees,
including options to purchase an aggregate of 220,000 shares which will be
issued to Messrs. Fields, Friedman, James E. Helzer, and E.G. Helzer. The
exercise price of these options will be the price to the public of the shares of
Common Stock offered in the Public Offering.
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<PAGE>
Upon the closing of the Public Offering and consummation of the
Acquisitions, Messrs. Finkelstein and Skakel, director nominees of the Company,
will each be granted options to purchase 10,000 shares of Common Stock pursuant
to the Company's 1996 Stock Option Plan. Such options will have a term of ten
years and will be exercisable at $5.00 per share and will vest on the first
anniversary of the date of grant.
The 1996 Stock Option Plan is to be administered by the Board of Directors
or a committee appointed by the Board of Directors which will determine the
terms of options granted, including the exercise price, the number of shares
subject to the option and the terms and conditions of exercise. No option
granted under the 1996 Stock Option Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1996 Stock Option
Plan must be at least equal to the fair market value of such shares on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting rights of all classes of the Company's outstanding capital
stock, the exercise price of any Incentive Stock Option must be not less than
110% of the fair market value on the date of grant. The term of each option
granted pursuant to the 1996 Stock Option Plan may be established by the Board
of Directors or a committee of the Board of Directors, in its sole discretion;
provided, however, that the maximum term of each Incentive Stock Option granted
pursuant to the 1996 Stock Option Plan is ten years. With respect to any
Incentive Stock Option granted to a participant who owns stock possessing more
than 10% of the voting rights of all classes of the Company's outstanding
capital stock, the maximum term is five years. Options shall become exercisable
at such times and in such installments as the Board of Directors or a committee
of the Board of Directors shall provide in the terms of each individual option.
OPTIONS GRANTED PURSUANT TO THE 1996 STOCK OPTION PLAN TO EXECUTIVE OFFICERS,
DIRECTORS AND DIRECTOR NOMINEES OF THE COMPANY
The table below shows, as to each of the executive officers, Directors and
Director Nominees of the Company and as to all executive officers, Directors and
Director Nominees of the Company as a group, the following information with
respect to stock options to be granted under the 1996 Stock Option Plan: (i) the
aggregate amounts of shares of Common Stock subject to options to be granted on
the closing date of the Public Offering and consummation of the Acquisitions;
and (ii) the price or range per share option exercise price for options to be
granted on the closing date of the Public Offering and consummation of the
Acquisitions for these individuals. No other options for these individuals have
been issued or will be issued and outstanding on the closing date of the Public
Offering and consummation of the Acquisitions.
<TABLE>
<CAPTION>
NAMES OF EXECUTIVE OFFICERS, SHARES SUBJECT PER SHARE
DIRECTORS AND DIRECTOR NOMINEES TO OPTIONS EXERCISE PRICE
- ----------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Douglas P. Fields(1)............................................................... 35,000 $ 5.00
Frederick M. Friedman(1)........................................................... 35,000 $ 5.00
James E. Helzer(1)................................................................. 100,000 $ 5.00
E.G. Helzer(1)..................................................................... 50,000 $ 5.00
Paul D. Finkelstein(2)............................................................. 10,000 $ 5.00
George Skakel III(2)............................................................... 10,000 $ 5.00
All Executive Officers, Directors and Director Nominees as a group (8 persons)..... 240,000 $ 5.00
</TABLE>
- ------------------------
(1) All of the options to be granted to Messrs. Fields, Friedman, James E.
Helzer and E.G. Helzer will vest at a rate of 20% per year from the closing
date of the Public Offering, limited, however, such that the total amount of
all options granted to each of them and vesting in any single year does not
exceed $100,000 at the exercise price.
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<PAGE>
(2) The options to be granted to Messrs. Finkelstein and Skakel will not vest
until one year from the closing date of the Public Offering.
OTHER COMPENSATION
Eagle and JEH Eagle provide basic health, major medical and life insurance
for its employees, including its executive officers. Eagle and JEH Eagle have
also adopted 401(K) Retirement Savings Plans for eligible employees, as
described below. No other retirement, pension or similar program has been
adopted by the Company, Eagle or JEH Eagle. These and other benefits may be
adopted by the Company for its employees in the future.
In July 1992 and January 1998, Eagle and JEH Eagle adopted 401(K) Retirement
Savings Plans for employees of Eagle and JEH Eagle, respectively (the "401(K)
Plan"). Eligible employees include all employees of Eagle and JEH Eagle who have
completed one year of employment and have attained the age of 21. The 401(K)
Plan permits employees to make voluntary contributions to the 401(K) Plan up to
a dollar limit set by law. Eagle and JEH Eagle may contribute discretionary
matching contributions equal to a determined percentage of the employees'
contributions. Benefits under the 401(K) Plan are distributable upon retirement,
disability, termination of employment or certain financial hardship, subject to
regulatory requirements. Each participant's share of Eagle's and JEH Eagle's
contributions vests at the rate of 20% per year until after six years of
service, at which time the participant becomes fully vested.
A $9,000 contribution to the 401(K) Plan was made by Eagle during its fiscal
year ended June 30, 1997. Amounts to be contributed in the future are at the
discretion of Eagle's and JEH Eagle's Boards of Directors. Accordingly, it is
not possible to estimate the amount of benefits that will be payable to
participants in the 401(K) Plan upon their retirement. The trustees under the
401(K) Plan are Robert L. Noojin and Dennis J. Paliaga.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, after
giving effect to the Acquisitions as if they had occurred on that date, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each executive officer, director and
director nominee of the Company, and (iii) all officers, directors and director
nominees of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE APPROXIMATE PERCENTAGE OF APPROXIMATE PERCENTAGE OF
OF BENEFICIAL COMMON STOCK OWNED COMMON STOCK OWNED
OWNERSHIP BEFORE PUBLIC OFFERING AFTER PUBLIC OFFERING(5)
---------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
TDA Industries, Inc.(1).............. 4,000,000(2) 85.1% 59.7%
Douglas P. Fields(1)................. 4,000,000(2)(3) 85.1% 59.7%
Frederick M. Friedman(1)............. 4,000,000(2)(3) 85.1% 59.7%
James E. Helzer(1)................... 300,000(3)(4) 6.4% 4.5%
E.G. Helzer(1)....................... 0(3) * *
Steven R. Andrews(1)................. 100,000 2.1% 1.5%
Paul D. Finkelstein(1)............... 0(3) * *
John E. Smircina(1).................. 4,000,000(2) 85.1% 59.7%
George Skakel III(1)................. 0(3) * *
All executive officers, directors and
director-nominees as a group (9
persons)........................... 4,400,000(2)(3) 93.6% 65.7%
</TABLE>
* Denotes less than 1%.
- ------------------------
(1) The address for TDA Industries, Inc. is 122 East 42nd Street, New York, New
York 10168. The address for Messrs. Fields and Friedman is c/o Eagle Supply
Group, Inc. at the foregoing street address, Suite 1116. The address for Mr.
Andrews is 822 North Monroe Street, Tallahassee, Florida 32303. The address
for Messrs. Helzer is 2500 U.S. Highway 287, Mansfield, Texas 76063. The
address for Mr. Finkelstein is c/o Regis Corp., 7201 Metro Boulevard,
Minneapolis, Minnesota 55439-2130. The address for Mr. Smircina is 616 N.
Washington Street, Alexandria, Virginia 22314. The address for Mr. Skakel is
333 Ludlow Street, Stamford, Connecticut 06902.
(2) Includes 2,000,000 shares of Common Stock currently owned by TDA. Also
includes 2,000,000 shares of Common Stock to be issued to TDA upon
consummation of the Acquisitions. Messrs. Fields and Friedman are officers
and directors and principal stockholders of TDA. Mr. Smircina is a director
of TDA. Each of Messrs. Fields, Friedman and Smircina may be deemed to
exercise voting control over securities of the Company owned by TDA.
(3) Does not include options granted under the Company's 1996 Stock Option Plan.
See "Management."
(4) Includes 300,000 shares of Common Stock to be issued to James E. Helzer in
connection with the Acquisitions.
(5) All approximate percentages after the Public Offering give effect to the
issuance of the foregoing 2,000,000 and 300,000 shares of the Company's
Common Stock to TDA and James E. Helzer, respectively.
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<PAGE>
CERTAIN TRANSACTIONS
Simultaneously with the closing of the Public Offering, the Company will
consummate the Acquisitions. The Underwriter and the Company have agreed that at
the consummation of the Acquisitions, the Combined Entities have a book value of
not less than $1,000,000 after Eagle cancels, in the form of a non-cash
dividend, all indebtedness of TDA to Eagle with TDA contributing sufficient cash
or assets to achieve the $1,000,000 book value in the event of a deficiency. The
number of shares of the Company's Common Stock to be issued to TDA in connection
with the Acquisitions was determined by negotiations among the Company, TDA and
the Underwriter. Factors considered in such negotiations included but were not
limited to (a) the historical results of the combined entities, (b) their future
business prospects, (c) their industry position, principally on a combined
basis, (d) their product line breadth, (e) their customer bases, (f) the
experience of their management and personnel, (g) the locations of their
distribution facilities, and (h) their net worth. The number of shares to be
issued to James E. Helzer were determined by negotiations among JEH Eagle and
JEH Co. at the time of the acquisition of substantially all of the business and
assets of JEH Co. by JEH Eagle. The consideration to be paid by the Company to
TDA for the Acquisitions was determined by negotiations among the Company, TDA
and the Underwriter, without independent appraisal. If effected as of February
28, 1998, the amount of the non-cash dividend from Eagle to TDA would have been
approximately $2,839,000. Any payment to Eagle or JEH Eagle by TDA to satisfy
the $1,000,000 combined book value requirement set forth above will be paid to
Eagle or JEH Eagle by TDA within 45 days of the closing of the Public Offering
and consummation of the Acquisitions. Upon consummation of the Acquisitions,
Eagle and JEH Eagle will become wholly-owned subsidiaries of the Company and
will constitute the only business operations and sources of revenue of the
Company until such time, if any, as the Company consummates additional
acquisitions. See "The Acquisitions."
TDA is a holding company which operates five business enterprises, including
Eagle, JEH Eagle and real estate investment companies. At the date of this
Prospectus, Eagle and JEH Eagle are wholly owned by TDA. See "Principal
Stockholders." For TDA's fiscal years ended June 30, 1996 and 1997, Eagle's
revenues constituted a majority of TDA's revenues.
On or about December 23, 1994, Eagle secured a four year revolving credit
facility in the amount of $7,500,000, guaranteed by TDA (the "Eagle Facility").
Eagle's obligations under the Eagle Facility are collateralized by certain
tangible and intangible current assets of Eagle with borrowings based on a
formula relating to certain levels of receivables and inventory, as defined
therein. By June 30, 1995, Eagle used its borrowings under this revolving credit
facility to repay $2,325,533 of its indebtedness to TDA and to advance
$3,308,681 to TDA. The Eagle Facility requires TDA's reaffirmation of its
guaranty in certain events including, but not limited to, the event that TDA or
TDA's stockholders cease to own all of Eagle's securities. See Financial
Statements and the notes thereto.
TDA, through a wholly-owned subsidiary, has rented to Eagle on a month-to-
month basis without formal written leases the premises for several of Eagle's
distribution facilities and Eagle's executive offices at aggregate annual
rentals of approximately $709,000 and $782,000 during its fiscal years ended
June 30, 1996 and 1997, respectively. The Company believes that the amounts of
these rental payments are fair and reasonable to Eagle and are not in excess of
what Eagle would be required to pay independent third parties for comparable
facilities. Upon successful completion of the Public Offering and the
consummation of the Acquisitions, Eagle and TDA intend to enter into ten-year
leases for said premises on economic terms substantially similar to current
arrangements. However, the leases will now be written and on a long-term, ten
(10) year basis, and it is anticipated that TDA will derive a profit therefrom.
See "Business."
Eagle had purchased the premises for its Birmingham, Alabama, distribution
center from an unrelated third party in April 1994, with a purchase money
mortgage and promissory note in the principal amount of $550,000 to be paid in
fifty-nine equal monthly installments of approximately $4,700 and a "balloon"
payment of approximately $440,000 due in April 1999. The mortgage and promissory
note for the Birmingham, Alabama, premises bears interest at the lending bank's
fluctuating prevailing prime rate.
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<PAGE>
Prior to June 30, 1994, Eagle transferred this property to TDA in partial
repayment of intercompany debt, and TDA then transferred the property to a
wholly-owned subsidiary. Eagle remains liable for the payments under this
mortgage, and, in the event of a default under the mortgage by the relevant TDA
subsidiary, Eagle could be held liable for the monthly and "balloon" mortgage
payments in addition to its rental payments. See "Business" and Financial
Statements and the notes thereto.
Eagle's rental payment obligations to the TDA subsidiary for the Birmingham,
Alabama property, which is one of the premises leased by Eagle from a subsidiary
of TDA for use as a distribution center, have exceeded the amounts due to the
mortgage holder for this property and have not required Eagle to pay any sums in
excess of its rental payments. Eagle also remains responsible to a wholly-owned
subsidiary of TDA pursuant to a lease for Eagle's former Fort Lauderdale,
Florida, distribution center expiring on May 1, 1999, which requires approximate
annual rental payments including a "balloon" payment of approximately $580,000
due on May 1, 1999 for an industrial revenue bond underlying these premises.
These premises have been subleased by Eagle to an unrelated third party at an
approximate annual rental of $240,000, which amount is approximately equal to
Eagle's lease obligation. The payments by Eagle to the TDA subsidiary have
included through February 28, 1998, a ratable share of the "balloon" payment.
These payments, together with anticipated sublessee rental payments, are
currently projected by the Company to fully fund the "balloon" payment. Upon
completion of the Public Offering and consummation of the Acquisitions, TDA or
its relevant subsidiaries will agree to indemnify Eagle for any payments that
Eagle is required to make which are in excess of Eagle's obligations under the
foregoing properties.
During its fiscal years ended June 30, 1996 and 1997, Eagle made dividend
payments to TDA of $1,097,000 and $1,025,000, respectively. After June 30, 1997,
Eagle has continued to make dividend payments of approximately $750,000 through
February 28, 1998 to TDA. During each of Eagle's last three fiscal years, Eagle
was allocated by TDA the amounts of $50,000 for accounting and auditing fees.
Upon a closing of the Public Offering and consummation of the Acquisitions, all
such dividends will cease and such accounting and auditing fees will be incurred
directly by Eagle. See Financial Statements and the notes thereto.
In or about May 1996, the Company sold 2,000,000 shares of its Common Stock
to TDA and 100,000 shares of its Common Stock to Steven R. Andrews for the
aggregate sum of $210. TDA and Mr. Andrews were the Company's founding
stockholders and are also the principal stockholder and a Director of the
Company, respectively. In connection with the Acquisition, TDA will be issued
2,000,000 shares of the Company's Common Stock.
During its fiscal year ended June 30, 1996, Eagle lent $300,000 to a TDA
subsidiary which was repaid in that same fiscal year together with interest at
the rate of 9 1/4% per year. During the eight-month period ended February 28,
1998, a TDA subsidiary lent Eagle $400,000 repayable on demand but without
interest, which amount remains outstanding as of February 28, 1998.
In June and July 1996, the Company sold an aggregate of 300,000 shares of
its Common Stock and a like number of Warrants to 12 private investors for
aggregate gross proceeds of $300,000. See "Selling Securityholders."
In July 1997, JEH Eagle acquired substantially all of the assets and the
business of JEH Co., a Texas corporation, wholly-owned by James E. Helzer, now
the President of the Company, Eagle and JEH Eagle. At that time, a tentative
purchase price of $14,850,000 was established and is subject to final
adjustments. Of the tentative purchase price, $13,850,000 has been paid to JEH
Co., and JEH Co. was issued a note in the principal sum of $1,000,000 bearing
interest at the rate of 6% per year and due July 1, 2002, with the final
adjusted purchase price to be established. Subsequent to the closing of the
acquisition by JEH Eagle, the purchase price was adjusted to the amount of
$14,473,032 by decreasing the principal amount of the note to $873,032 and
establishing a receivable due on demand from JEH Co. in the amount of $250,000.
Certain, potentially substantial, contingent payments, as additional future
consideration to JEH Co., or its designee, are to be paid by JEH Eagle. JEH Co.
is to receive a percentage of the EBITDA or the modified
64
<PAGE>
EBITDA (as defined) of the business acquired (the "JEH EBITDA") on a per year
non-cumulative basis for each of JEH Eagle's fiscal years ending on June 30 of
1998 through 2002 (the "Applicable Period"). If the JEH EBITDA reaches
$3,000,000, $4,000,000 and $5,000,000 in the foregoing fiscal years, JEH Co. or
its designee is to receive 35%, 40% and 50%, respectively, of that fiscal year's
JEH EBITDA. If the JEH EBITDA (plus $50,000 of Mr. Helzer's compensation under
his employment agreement) (x) for any fiscal year in the Applicable Period is
not less than $4,400,000, JEH Eagle is to pay JEH Co. or its designee
$1,000,000, provided that the aggregate amounts of such payments is not to
exceed $2,000,000; and (y) in the aggregate during the Applicable Period is not
less than $20,000,000, JEH Eagle is to pay JEH Co. or its designee the sum of
$1,350,000 plus the amount of the difference, if any, between $2,000,000 and the
amount to be paid under (x). Additionally, with respect to certain Total
Accounts Receivable Reserves, as defined (the "JEH Reserves") which were
established at the date of the acquisition, if JEH Eagle reduces the amount of
the JEH Reserves in any fiscal year during the Applicable Period, JEH Co. or its
designee is to be paid 100% of the reduction until the JEH Reserves are not less
than $2,500,000 and 50% of the reduction in the JEH Reserves below $2,300,000
down to $600,000. Both of the immediately foregoing percentage payments to JEH
Co. or its designee are subject to adjustment in certain events. Additionally,
if this Public Offering is completed prior to June 30, 2002 and in the event
certain JEH EBITDA levels are reached for JEH Eagle during the period from July
1, 1997 through the date of consummation of this Public Offering, JEH Co. or its
designee will be entitled to receive $1,000,000 or $1,350,000 (either in cash or
in the Company's Common Stock valued at its public offering price) depending
upon the JEH EBITDA level. The Company will issue 300,000 shares of its Common
Stock to James E. Helzer in fulfillment of the obligation set forth in the
immediately preceding sentence, even if the JEH EBITDA does not reach the
required levels. James E. Helzer and E.G. Helzer serve as Eagle's President and
Senior Vice President-Operations of Eagle on an "at will" basis at salaries of
$50,000 and $25,000 per year, respectively. Pursuant to their "at will"
arrangements with Eagle, James E. Helzer and E.G. Helzer are also entitled to
receive 20% and 6%, respectively, of Eagle's income before taxes in excess of
$600,000 per year.
In order to pay a substantial portion of the purchase price for the
acquisition of JEH Co.'s business and to provide working capital to JEH Eagle,
JEH Eagle in July 1997 entered into a five year loan agreement for a credit
facility of up to $20,000,000 (the "JEH Facility") guaranteed by TDA and
collateralized by substantially all of the assets of JEH Eagle. The JEH Facility
consists of a $3,000,000 term loan, a $1,725,000 equipment loan and, the
balance, a revolving credit loan. The principal amount of the term loan is
payable in 48 equal monthly installments of $62,500. The term loan is due on the
earlier of August 1, 2001 or the loan agreement's termination. The outstanding
balance of the term loan at February 28, 1998 was $2,562,500. The term loan
bears interest at the Libor rate plus 325 basis points or the lender's prime
rate plus 150 basis points, as JEH Eagle may elect. The principal amount of the
equipment loan is payable in equal consecutive monthly installments of $20,536
based upon an 84 month amortization schedule with any remaining principal amount
due upon the earlier of August 1, 2004 or the end of the loan agreement's
initial or renewal term. The outstanding balance of the equipment loan at
February 28, 1998 was $1,581,500. The equipment loan bears interest at the Libor
rate plus 250 basis points or the lender's prime rate plus 50 basis points, as
JEH Eagle may elect. The principal amount of the revolving credit loan is
payable upon the earlier of the loan agreement's termination or other stated
events. The outstanding balance of the revolving credit loan at February 28,
1998 was approximately $10,065,000. The revolving credit loan bears interest at
the Libor rate plus 250 basis points or the lender's prime rate plus 50 basis
points, as JEH Eagle may elect. All interest payments under the foregoing loans
are payable monthly in arrears. The maximum amount borrowable under the JEH
Facility is determined by a Borrowing Base as defined in the JEH Facility.
Of the $13,850,000 initial cash payment portion of the $14,850,000 JEH Co.
tentative purchase price, approximately $12,500,000 was supplied pursuant to the
JEH Facility and approximately $1,350,000 was contributed to JEH Eagle by TDA as
equity capital. In connection with the acquisition of JEH Co., JEH Eagle paid
TDA a financing fee of $150,000. For the Company to acquire JEH Eagle, the JEH
Facility lending institution's consent will be required.
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<PAGE>
James E. Helzer had rented to JEH Co. and continues to rent to JEH Eagle,
pursuant to five-year written leases, the premises for several of JEH Eagle's
distribution centers and JEH Eagle's executive offices at aggregate annual
rentals of approximately $486,000. Rental payments to Mr. Helzer for the several
distribution facilities he leases to JEH Eagle aggregated $428,000 and $321,000
for JEH Co.'s fiscal year ended December 31, 1996 and JEH Eagle's eight month
period ended February 28, 1998, respectively. The Company believes that the
amounts of these rental payments are fair and reasonable to JEH Eagle and are
not in excess of what JEH Eagle would be required to pay independent third
parties for comparable facilities. See "The Acquisitions" and "Business."
TDA and JEH Eagle have entered into an agreement pursuant to which TDA
provides JEH Eagle with certain services including (i) managerial, (ii)
strategic planning, (iii) banking negotiation, (iv) investor relations, and (v)
advisory services relating to acquisitions for a five-year term which commenced
in July 1997. The monthly fee, the payment of which is to commence upon the
closing of the Public Offering and the consummation of the Acquisitions, for the
foregoing services is $3,000 through December 1999 increasing to $15,000 per
month in January 2000.
In February of 1998, the Company sold an aggregate of $300,000 in principal
amount of its promissory notes to three of its stockholders, including TDA, for
aggregate gross proceeds of $300,000. TDA purchased $150,000 of said notes. Said
notes bear interest at the rate of 15% per year through June 30, 1998 which
decreases to 6% per year after that date. The notes mature on the earlier of
thirty months after issuance or the closing of this Public Offering. The Company
intends to repay said notes in full with the net proceeds of this Public
Offering.
Upon completion of the Public Offering and consummation of the Acquisitions,
TDA will provide office space and administrative services to the Company at
TDA's offices in New York City pursuant to an administrative services agreement
to be entered into by the Company and TDA. The term of the administrative
services agreement will be on a month to month basis. The fee payable by the
Company to TDA for such administrative services will be $3,000 per month. Prior
to the date of this Prospectus, the Company utilized office space and
administrative services provided by TDA without charge.
The foregoing transactions that Eagle and JEH Eagle have engaged in with TDA
have benefitted or may be deemed to have benefitted TDA directly or indirectly.
Messrs. Fields and Friedman, the Company's Chief Executive Officer and Chairman
of its Board of Directors and Executive Vice President, Chief Financial Officer,
Treasurer, Secretary, and a Director of the Company, respectively, are also
executive officers, directors and principal stockholders of TDA and have
benefitted or may be deemed to have benefitted, directly or indirectly, from
Eagle's and JEH Eagle's transactions with TDA. TDA is a holding company which,
among other things, owns Eagle, JEH Eagle, a distributor of home furnishing
products, a distributor of electrical devices, an indoor tennis facility and
owns and manages commercial and undeveloped real estate. TDA and/or certain of
its subsidiaries derive funds from all of the foregoing sources, including
dividend and lease payments from Eagle. These sources pay TDA's operating
expenses, including the payment of salaries and benefits to Messrs. Fields and
Friedman.
The foregoing transactions that Eagle and JEH Eagle have engaged in with
James E. Helzer have benefitted or may be deemed to have benefitted Mr. Helzer,
directly or indirectly. James E. Helzer is the President of the Company, Eagle
and JEH Eagle. See "The Acquisitions" and "Management."
Messrs. Fields and Friedman are also officers, directors and principal
stockholders of TDA, and Mr. Smircina is an officer and director of TDA, and,
consequently, they will be able, through TDA, to direct the election of the
Company's directors, effect significant corporate events and generally direct
the affairs of the Company. The Company does not intend to enter into any
material transactions with TDA and its affiliates in the future unless such
transaction is fair and reasonable to the Company and is on terms no less
favorable than could be obtained from unaffiliated third parties. See
"Management."
Each of TDA and Messrs. Fields and Friedman may be deemed to be a "promoter"
of the Company as such term is defined under the federal securities laws.
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DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.0001 par value per share, 2,400,000 of which are issued and outstanding as of
the date of this Prospectus. The holders of Common Stock are entitled to receive
dividends equally when, as and if declared by the Board of Directors, out of
funds legally available therefor.
Subject to the rights that may be designated by the Board of Directors to
the holders of any shares of Preferred Stock, the holders of the Common Stock
have voting rights, one vote for each share held of record, and are entitled
upon liquidation of the Company to share ratably in the net assets of the
Company available for distribution. Shares of the Company's Common Stock do not
have cumulative voting rights. Therefore, the holders of a majority of the
shares of Common Stock may elect all of the directors of the Company and control
its affairs and day to day operations. The shares of Common Stock are not
redeemable and have no preemptive or similar rights. All 2,400,000 outstanding
shares of the Company's Common Stock are fully paid and non-assessable.
2,000,000 shares of the Company's Common Stock are owned by TDA and 100,000
shares are owned by Steven R. Andrews, Esq. TDA and Mr. Andrews purchased their
shares of the Company's Common Stock at the per share par value. The remaining
300,000 shares of the Company's Common Stock were sold in the Private Placement.
In connection with the Acquisitions, TDA and James E. Helzer will be issued
2,000,000 and 300,000 shares of the Company's Common Stock, respectively.
PREFERRED STOCK
The Company is authorized to issue 2,500,000 shares of Preferred Stock, par
value $.0001 per share ("Preferred Stock"). The Board of Directors of the
Company, without further stockholder action, may issue shares of Preferred Stock
in any number of series and may establish as to each such series the designation
and number of shares to be issued and the relative rights and preferences of the
shares of each series, including provisions regarding voting powers, redemption,
dividend rights, rights upon liquidation and conversion rights. The issuance of
shares of Preferred Stock by the Board of Directors could adversely affect the
rights of holders of Common Stock by, among other matters, establishing
preferential dividends, liquidation rights and voting power. The Company has not
issued any shares of Preferred Stock and has no present intention to issue
shares of Preferred Stock. The issuance thereof could discourage or defeat
efforts to acquire control of the Company through acquisition of shares of
Common Stock. The Company has agreed not to issue any shares of Preferred Stock
until the third anniversary of the date of this Prospectus without the
Underwriter's written consent.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The Company has authorized the issuance of up to 2,875,000 Redeemable Common
Stock Purchase Warrants to be sold in the Public Offering. As of the date of
this Prospectus, the Company had 300,000 Warrants issued and outstanding. Said
300,000 issued and outstanding Warrants were sold as part of the Private
Placement.
The following statements and summaries of the material provisions of the
Warrants are subject to the more detailed provisions of the Warrants, a copy of
which has been included as an Exhibit to the Registration Statement of which
this Prospectus forms a part.
RIGHTS TO PURCHASE SHARES OF COMMON STOCK
Each Warrant entitles the registered holder to purchase from the Company one
share of Common Stock at an exercise price of $5.00 per share during the period
commencing on the date of this Prospectus and ending on the fifth anniversary of
such date, except for the 300,000 Warrants sold as part of the Private
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Placement which expire on the third anniversary of such date. The exercise price
is subject to adjustment in certain circumstances as defined herein.
EXERCISE
Each holder of a Warrant may exercise such Warrant, in whole or in part, by
surrendering the certificate evidencing such Warrant, with the form of election
to purchase attached to such certificate properly completed and executed,
together with payment of the exercise price and any required transfer taxes, to
the Company. No Warrants may be exercised unless at the time of exercise there
is a current prospectus encompassing the shares of Common Stock issuable upon
the exercise of such Warrants under an effective registration statement. The
Company will endeavor to maintain an effective registration statement, including
such current prospectus, so long as any of the exercisable Warrants remain
outstanding. While it is the Company's intention to comply with this intention,
there can be no assurance that it will be able to do so.
The exercise price and any required transfer taxes will be payable in cash
or by certified or official bank check payable to the Company. If fewer than all
of the Warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of Warrants. Certificates
evidencing the Warrants may be exchanged for new certificates of different
denominations by presenting the Warrant certificate at the offices of the
Company's Warrant Agent.
ADJUSTMENTS
The exercise price and the number of shares of Common Stock purchasable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events including stock dividends, reclassifications, reorganizations,
consolidations, mergers, and certain issuances and redemptions of Common Stock
and securities convertible into or exchangeable for Common Stock excluding the
Company's 2,100,000 shares of Common Stock issued to TDA and Mr. Andrews, any
issuances of the Company's securities in connection with the Private Placement,
the Public Offering and the Company's stock option plan. No adjustments in the
exercise price will be required to be made with respect to the Warrants until
cumulative adjustments amount to $.05. In the event of any capital
reorganization, certain reclassifications of the Common Stock, any consolidation
or merger involving the Company (other than (i) a consolidation or merger which
does not result in any reclassification or change in the outstanding shares of
Common Stock or (ii) the Acquisitions or the acquisition of any other business),
or sale of the properties and assets of the Company, as, or substantially as, an
entirety to any other corporation, Warrants will thereupon become exercisable
only for the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares of Common Stock of the Company
purchasable (at the time of such reorganization, reclassification,
consolidation, merger or sale) upon exercise of such Warrants would have been
entitled upon such reorganization, reclassification, consolidation, merger or
sale.
OTHER RIGHTS
In the event of an adjustment in the number of shares of Common Stock
issuable upon exercise of the Warrants, the Company will not be required to
issue fractional shares of Common Stock upon exercise of the Warrants. In lieu
of fractional shares of Common Stock, there will be paid to the holders of the
Warrants, at the time of such exercise, an amount in cash equal to the same
fraction of the current market price of a share of Common Stock of the Company.
Warrantholders do not have voting or any other rights of stockholders of the
Company and are not entitled to dividends, if any.
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REDEMPTION OF WARRANTS
If the market price of the Common Stock shall have averaged at least $10.00
per share for a period of thirty consecutive trading days at any time after the
date of this Prospectus, the Company may redeem the Warrants by paying holders
$.25 per Warrant, provided that notice of such redemption is mailed not later
than 10 days after the end of such period and prescribes a redemption date at
least thirty days thereafter. For these purposes, the market price of the Common
Stock, if the Common Stock is listed on a national securities exchange, shall be
determined by the closing sales price on the primary exchange on which the
Common Stock is traded, or if not so listed, by the average of the closing
prices in the over-the-counter market. Warrantholders will be entitled to
exercise Warrants at any time up to the business day next preceding the
redemption date. The Warrants are not redeemable prior to the first anniversary
of the date of this Prospectus without the written consent of the Underwriter.
Additionally, the Warrants may not be redeemed unless at the time of redemption
there is a current prospectus encompassing the shares of Common Stock issuable
upon exercise of such Warrants under a registration statement effective and
current under the Securities Act and the "Blue Sky" laws then applicable to the
holders of the warrants.
WARRANT AGREEMENT
Upon the closing of the Public Offering and consummation of the
Acquisitions, the Company will enter into a warrant agreement ("Warrant
Agreement") with Continental Stock Transfer & Trust Company, as warrant agent
("Warrant Agent"). It is anticipated that the Warrant Agreement will contain
provisions permitting the Company and the Warrant Agent, without the consent of
the Warrant holders, to supplement or amend the Warrant Agreement in order to
cure any ambiguity or defect or to make any other provisions in regard to
matters or questions arising thereunder that the Company and the Warrant Agent
may deem necessary or desirable and that does not adversely affect the interests
of the Warrantholders.
UNDERWRITER'S WARRANT AND STOCK WARRANTS
The Company has agreed to grant the Underwriter a Warrant and Stock Warrants
entitling the holders thereof to purchase an aggregate of 450,000 shares of the
Company's Common Stock. See "Underwriting."
DIVIDEND POLICY
The Company has not paid dividends to date. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors. The
payment of dividends, if any, in the future will depend upon the Company's
earnings, capital requirements and financial conditions and other relevant
factors. The Company's Board of Directors does not presently intend to declare
any dividends in the foreseeable future but instead intends to retain all
earnings, if any, for use in the Company, Eagle's and JEH Eagle's business
operations.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Company's Warrants is Continental Stock Transfer & Trust Company, New York,
New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Public Offering and consummation of the Acquisitions,
the Company will have 6,700,000 shares of Common Stock outstanding (7,000,000
shares if the Underwriter's Overallotment Option is exercised in full). All of
the shares of Common Stock sold in the Public Offering will be freely tradeable
without restriction or further registration under the Securities Act, except for
any shares
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purchased by an "affiliate" of the Company which will be subject to certain
limitations of Rule 144 adopted under the Securities Act.
2,100,000 of the 2,400,000 presently outstanding shares of Common Stock and
the 2,300,000 shares of Common Stock to be issued to TDA and James E. Helzer in
connection with the Acquisitions will be restricted securities and will be
subject to the resale limitations provided for in Rule 144. Under Rule 144, as
currently in effect, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, which has owned restricted shares
of Common Stock beneficially for at least one year, is entitled to sell, within
any three month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class or, if the Common
Stock is quoted on an exchange, the average weekly trading volume during the
four calendar weeks preceding the sale. A non-affiliate which has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and which has beneficially owned such shares for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above. In meeting the one and two year holding periods
described above, a holder which has purchased shares can include the holding
periods of a prior owner which was not an affiliate of the Company.
The holders of approximately 4,400,000 (including the 2,000,000 and 300,000
shares of Common Stock to be issued to TDA and James E. Helzer in connection
with the Acquisitions) and 300,000 shares of the Company's Common Stock have
agreed not to sell, for periods of two years and fifteen months, respectively,
from the date of this Prospectus, any shares of the Company's Common Stock owned
by them on the date hereof without the prior written consent of the Underwriter.
Furthermore, in connection with the Public Offering, the Underwriter has
been granted warrants to purchase up to 200,000 shares of Common Stock and up to
250,000 Warrants to purchase up to an additional 250,000 shares of Common Stock.
The holders thereof have the right to require the Company to register said
Underwriter's Warrants and/or the underlying securities under certain
circumstances. In addition, the holders of said warrants have the right to
"piggy-back" said Underwriter's Warrants and/or underlying securities on
registration statements of the Company. Any exercise of such registration rights
may result in dilution in the interest of the Company's stockholders, may hinder
efforts by the Company to arrange future financing and may have an adverse
effect on the market price for the Company's securities.
Prior to the Public Offering, there has been no market for any securities of
the Company. The effect, if any, of public sales of any of the Company's
securities by present securityholders or the availability of such securities for
future sale at prevailing market prices cannot be predicted. Nevertheless, the
possibility that substantial amounts of the Company's securities may be resold
in the public market may adversely affect prevailing market prices for the
Company's securities, if any such market should develop.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Barron
Chase Securities, Inc. (the "Underwriter") has agreed to purchase from the
Company an aggregate of 2,000,000 Shares and 2,500,000 Purchase Warrants
(collectively, the "Securities"). The Securities are offered by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to approval of certain legal matters by counsel and
certain other conditions. The Underwriter is committed to purchase all
Securities offered by this Prospectus, if any are purchased (other than those
covered by the Overallotment Option described below).
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Securities to the public at the offering prices set forth
on the cover page of this Prospectus. The Underwriter has advised the Company
that the Underwriter proposes to offer the Securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members of
the NASD and who agree to sell the Securities in conformity with the NASD's
Conduct Rules. Such concessions will not exceed the amount of the underwriting
discount that the Underwriter is to receive.
The Company has granted to the Underwriter an Overallotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
300,000 Shares and an additional 375,000 Purchase Warrants at the respective
public offering prices less the Underwriting Discounts set forth on the cover
page of this Prospectus. The Underwriter may exercise this option solely to
cover overallotments in the sale of the Securities being offered by this
Prospectus.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this Offering and to purchase Securities either through the
Underwriter or through participating dealers. In this connection, no Securities
have been reserved for those purchases and officers and directors will not
receive any commissions or any other compensation.
The Company has agreed to pay to the Underwriter a commission of ten percent
(10%) of the gross proceeds of this Offering (the "Underwriting Discount"),
including the gross proceeds from the sale of the Overallotment Option, if
exercised. In addition, the Company has agreed to pay to the Underwriter the
Non-Accountable Expense Allowance of three percent (3%) of the gross proceeds of
this Offering, including proceeds from any Securities purchased pursuant to the
Overallotment Option. The Company has paid to the Underwriter a $50,000 advance
in respect of the Non-Accountable Expense Allowance. The Underwriter's expenses
in excess of the Non-Accountable Expense Allowance will be paid by the
Underwriter. To the extent that the expenses of the Underwriter are less than
the amount of the Non-Accountable Expense Allowance received, such excess shall
be deemed to be additional compensation to the Underwriter. The Underwriter has
informed the Company that it does not expect sales to discretionary accounts to
exceed five percent (5%) of the total number of Securities offered by the
Company hereby.
The Company has agreed to engage the Underwriter as a financial advisor at a
fee of $108,000, which is payable to the Underwriter on the Closing Date.
Pursuant to the terms of a financial advisory agreement, the Underwriter has
agreed to provide, at the Company's request, advice to the Company concerning
potential merger and acquisition and financing proposals, whether by public
financing or otherwise. The Company has also agreed that if the Company
participates in any transaction which the Underwriter has introduced in writing
to the Company during a period of five years after the Closing (including
mergers, acquisitions, joint ventures and any other business transaction for the
Company introduced in writing by the Underwriter), and which is consummated
after the Closing (including an acquisition of assets or stock for which it
pays, in whole or in part, with shares or other securities of the Company), or
if the Company retains the services of the Underwriter in connection with any
such transaction (an "Introduced Consummated Transaction"), then the Company
will pay for the Underwriter's services an amount equal to 5% of up to one
million dollars of value paid or received in the transaction, 4% of the next
million of such value, 3% of the next million of such value, 2% of the next
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million of such value, and 1% of the next million dollars of such value and of
all such value above $4,000,000.
Prior to this Offering, there has been no public market for the shares of
Common Stock or the Purchase Warrants. Consequently, the initial public offering
prices for the Securities, and the terms of the Purchase Warrants (including the
exercise price of the Purchase Warrants), have been determined by negotiation
between the Company and the Underwriter. Among the factors considered in
determining the public offering prices were the history of, and the prospects
for, the Company's business, an assessment of the Company's management, the
Company's past and present operations, its development and the general condition
of the securities market at the time of this Offering. The initial public
offering prices do not necessarily bear any relationship to the Company's
assets, book value, earnings, or other established criteria of value. Such
prices are subject to change as a result of market conditions and other factors,
and no assurance can be given that a public market for the Shares or the
Purchase Warrants will develop after the Closing, or if a public market in fact
develops, that such public market will be sustained, or that the Shares or the
Purchase Warrants can be resold at any time at the offering or any other price.
See "Risk Factors."
At the Closing, the Company will issue to the Underwriter and/or persons
related to the Underwriter, for nominal consideration, the Common Stock
Underwriter Warrants to purchase up to 200,000 shares of Common Stock (the
"Underlying Shares") and the Warrant Underwriter Warrants to purchase up to
250,000 warrants (the "Underlying Warrants"). The Common Stock Underwriter
Warrants, the Warrant Underwriter Warrants and the Underlying Warrants are
sometimes referred to in this Prospectus as the "Underwriter Warrants." The
Common Stock Underwriter Warrants and the Warrant Underwriter Warrants will be
exercisable for a five-year period commencing on the Effective Date. The initial
exercise price of each Common Stock Underwriter Warrant shall be $8.25 per
Underlying Share (165% of the public offering price). The initial exercise price
of each Warrant Underwriter Warrant shall be $.20625 per Underlying Warrant
(165% of the public offering price). Each Underlying Warrant will be exercisable
for a five-year period commencing on the Effective Date to purchase one share of
Common Stock at an exercise price of $8.25 per share of Common Stock. The
Underwriter Warrants will be restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the Effective Date by the
holder, except (i) to officers of the Underwriter and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law.
The Common Stock Underwriter Warrants and the Warrant Underwriter Warrants
contain provisions providing for appropriate adjustment in the event of any
merger, consolidation, recapitalization, reclassification, stock dividend, stock
split or similar transaction. The Underwriter Warrants contain net issuance
provisions permitting the holders thereof to elect to exercise the Underwriter
Warrants in whole or in part and instruct the Company to withhold from the
securities issuable upon exercise, a number of securities, valued at the current
fair market value on the date of exercise, to pay the exercise price. Such net
exercise provision has the effect of requiring the Company to issue shares of
Common Stock without a corresponding increase in capital. A net exercise of the
Underwriter Warrants will have the same dilutive effect on the interests of the
Company's shareholders as will a cash exercise. The Underwriter Warrants do not
entitle the holders thereof to any rights as a shareholder of the Company until
such Underwriter Warrants are exercised and shares of Common Stock are purchased
thereunder.
The Underwriter Warrants and the securities issuable thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7) years
from the Effective Date, to include in such registration statement or offering
statement the Underwriter Warrants and/or the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request by the holders of 50% or more of the Underwriter Warrants
during the period commencing one
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year from the Effective Date and expiring four years thereafter, the Company
will, under certain circumstances, register the Underwriter Warrants and/or any
of the securities issuable upon their exercise.
In order to facilitate the offering of the Common Stock and Purchase
Warrants, the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Common Stock and Purchase Warrants.
Specifically, the Underwriter may overallot in connection with the Offering,
creating a short position in the Common Stock and Purchase Warrants for its own
account. In addition, to cover overallotments or to stabilize the price of the
Common Stock and Purchase Warrant, the Underwriter may bid for, and purchase,
shares of Common Stock and Purchase Warrants in the open market. Finally, the
Underwriter may reclaim selling concessions allowed to a dealer for distributing
the Common Stock and Purchase Warrant in the Offering, if the Underwriter
repurchases previously distributed Common Stock or Purchase Warrants in
transactions to cover the Underwriter's short position in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Stock and Purchase Warrants above independent market
levels. The Underwriter is not required to engage in these activities, and may
end any of these activities at any time.
The Company has agreed to indemnify the Underwriter against any costs or
liabilities incurred by the Underwriter by reason of misstatements or omissions
to state material facts in connection with the statements made in the
Registration Statement filed by the Company with the Commission under the
Securities Act (together with all amendments and exhibits thereto, the
"Registration Statement") and this Prospectus. The Underwriter has in turn
agreed to indemnify the Company against any costs or liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the Registration Statement and this Prospectus, based on
information relating to the Underwriter and furnished in writing by the
Underwriter. To the extent that these provisions may purport to provide
exculpation from possible liabilities arising under the federal securities laws,
in the opinion of the Commission, such indemnification is contrary to public
policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
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SELLING SECURITY HOLDERS
Concurrently with this Public Offering, 300,000 shares of Common Stock
underlying Warrants sold in the Company's Private Placement have been registered
for immediate resale. To the best of the Company's knowledge, none of the
holders of such securities or their affiliates has ever held any position or
office with the Company or had any other material relationship with the Company.
The holders of such securities have agreed not to sell, transfer, hypothecate or
otherwise dispose of, for a period of fifteen months from the date of this
Prospectus, an aggregate of 300,000 shares of Common Stock and 300,000 Warrants
and the 300,000 shares of Common Stock underlying said Warrants without the
prior written consent of the Underwriter.
THE ACQUISITIONS OFFERING
Also concurrently with this Public Offering and to consummate the
Acquisitions, the Company will issue 2,000,000 and 300,000 shares of Common
Stock to TDA and James E. Helzer, respectively, and the transaction by which
said shares will be issued have been registered. TDA is the Company's majority
stockholder, it will be selling the Acquisitions to the Company, and certain of
its executive officers and directors are also executive officers and directors
of the entities to be acquired. James E. Helzer is an executive officer of the
Company and the entities to be acquired. TDA and James E. Helzer have derived
and will derive significant financial benefits in transactions with the Company,
Eagle and JEH Eagle. As TDA and Mr. Helzer are affiliates of the Company, such
shares will remain "restricted" securities as such term is defined in the
Securities Act and the rules and regulations promulgated thereunder.
Additionally, TDA and James E. Helzer have agreed not to sell, transfer,
hypothecate or otherwise dispose of, for a period of two years from the date of
this Prospectus, any shares of the Company's Common Stock owned by them on the
date hereof and to be acquired in connection with the Acquisitions without the
prior written consent of the Underwriter.
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LEGAL MATTERS
The validity of the issuance of the securities offered in the Public
Offering will be passed upon for the Company by Gusrae, Kaplan & Bruno, Esqs.,
New York, New York. Certain legal matters in connection with the Public Offering
will be passed upon for the Underwriter by David A. Carter, P.A., Boca Raton,
Florida.
EXPERTS
The balance sheets of the Company as of June 30, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for the year ended June 30, 1997 and the period May 1, 1996
(inception) to June 30, 1996 appearing in this Prospectus and Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and has been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The balance sheets of Eagle Supply, Inc. as of June 30, 1997 and 1996 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1997 appearing in
this Prospectus and Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and has been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The balance sheets of the JEH Company for the six months ended June 30, 1997
and years ended December 31, 1996 and 1995 and the related statements of
operations, retained earnings and cash flows for the six months ended June 30,
1997 and each of the years in the three year period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Waters, Murray & Associates, independent auditors, as set forth in their report
thereon appearing elsewhere herein and has been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. office of the Commission a
Registration Statement (the "Registration Statement") under the Securities Act
with respect to the Securities offered by this Prospectus. This Prospectus does
not contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge or copies made
at prescribed rates from the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its Northeast Regional Office located
at Seven World Trade Center, New York, New York 10048. Statements contained in
the Prospectus as to the contents of any contract or other document are not
necessarily complete and reference is made to each such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
Upon effectiveness of the Registration Statement, of which this Prospectus
forms a part, the Company will be subject to the reporting requirements of the
Exchange Act and in accordance therewith will file reports and other information
with the Commission. Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at the following addresses: Northeast Regional
Office, Seven World Trade Center, New York, New York 10048; and Midwest Regional
Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a website that contains reports, proxies and information
statements and other information regarding issuers that file electronically with
the Commission. The Commission's website is located at http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EAGLE SUPPLY GROUP, INC.
INDEPENDENT AUDITORS' REPORT.............................................................................. F-3
Balance Sheets at June 30, 1997 and 1996................................................................ F-4
Statements of Operations for the Year Ended June 30, 1997 and the Period May 1, 1996 (inception) to June
30, 1996.............................................................................................. F-5
Statements of Shareholders' Equity (Deficiency) for the Year Ended June 30, 1997 and the Period May 1,
1996 (inception) to June 30, 1996..................................................................... F-6
Statements of Cash Flows for the Year Ended June 30, 1997 and the Period May 1, 1996 (inception) to June
30, 1996.............................................................................................. F-7
Notes to Financial Statements for the Year Ended June 30, 1997 and the Period May 1, 1996 (inception) to
June 30, 1996......................................................................................... F-8
Unaudited Balance Sheet at February 28, 1998............................................................ F-11
Unaudited Statements of Operations and Deficiency for the Eight Months Ended February 28, 1998 and
1997.................................................................................................. F-12
Unaudited Statements of Cash Flows for the Eight Months Ended February 28, 1998 and 1997................ F-13
Notes to Unaudited Financial Statements for the Eight Months Ended February 28, 1998 and 1997........... F-14
EAGLE SUPPLY, INC.
INDEPENDENT AUDITORS' REPORT.............................................................................. F-17
Balance Sheets at June 30, 1997 and 1996................................................................ F-18
Statements of Operations for the Years Ended June 30, 1997, 1996 and 1995............................... F-19
Statements of Shareholder's Equity for the Years Ended June 30, 1997, 1996 and 1995..................... F-20
Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995............................... F-21
Notes to Financial Statements for the Years Ended June 30, 1997, 1996 and 1995.......................... F-22
Unaudited Balance Sheet at February 28, 1998............................................................ F-28
Unaudited Statements of Operations and Retained Earnings for the Eight Months Ended February 28, 1998
and 1997.............................................................................................. F-29
Unaudited Statements of Cash Flows for the Eight Months Ended February 28, 1998 and 1997................ F-30
Notes to Unaudited Financial Statements for the Eight Months Ended February 28, 1998 and 1997........... F-31
JEH COMPANY, INC.
INDEPENDENT AUDITORS' REPORT.............................................................................. F-33
Balance Sheet at June 30, 1997.......................................................................... F-34
Statements of Operations and Retained Earnings for the Six-Month Periods Ended June 30, 1997 and
Unaudited June 30, 1996............................................................................... F-35
Statements of Cash Flows for the Six-Month Periods Ended June 30, 1997 and Unaudited June 30, 1996...... F-36
Notes to Financial Statements for the Six-Month Periods Ended June 30, 1997 and Unaudited June 30,
1996.................................................................................................. F-37
INDEPENDENT AUDITORS' REPORT.............................................................................. F-42
Balance Sheets at December 31, 1996 and 1995............................................................ F-43
Statements of Operations and Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994..... F-44
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994........................... F-45
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Notes to Financial Statements for the Years Ended December 31, 1996, 1995 and 1994...................... F-46
JEH/EAGLE SUPPLY, INC.
Unaudited Balance Sheet at February 28, 1998............................................................ F-52
Unaudited Statement of Operations for the Eight Months Ended February 28, 1998.......................... F-53
Unaudited Statement of Cash Flows for the Eight Months Ended February 28, 1998.......................... F-54
Notes to Unaudited Financial Statements for the Eight Months Ended February 28, 1998.................... F-55
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Eagle Supply Group, Inc.
We have audited the accompanying balance sheets of Eagle Supply Group, Inc.
(a majority-owned subsidiary of TDA Industries, Inc.) as of June 30, 1997 and
1996 and the related statements of operations, shareholders' equity (deficiency)
and cash flows for the year ended June 30, 1997 and the period May 1, 1996
(inception) to June 30, 1996. These financial statements are the responsibility
of 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, such financial statements present fairly, in all material
respects, the financial position of Eagle Supply Group, Inc. as of June 30, 1997
and 1996, and the results of its operations and its cash flows for the year
ended June 30, 1997 and the period May 1, 1996 (inception) to June 30, 1996, in
conformity with generally accepted accounting principles.
/s/Delotte & Touche LLP
September 12, 1997
(November 13, 1997 as to the second paragraph and
February 9, 1998 as to the third paragraph of Note 6
and December 12, 1997 as to the first paragraph of Note 4)
New York, New York
F-3
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CASH.................................................................................... $ 5,366 $ 243,960
STOCK SUBSCRIPTIONS RECEIVABLE.......................................................... -- 56,250
DEFERRED REGISTRATION COSTS............................................................. 52,289 --
----------- -----------
$ 57,655 $ 300,210
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
CURRENT LIABILITIES:
Accrued expenses and other current liabilities........................................ $ 82,289 $ --
Loan payable to shareholder........................................................... -- 6,105
----------- -----------
Total current liabilities......................................................... 82,289 6,105
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 6)
SHAREHOLDERS' (DEFICIENCY) EQUITY (Note 4):
Preferred shares, $.0001 par value per share, 2,500,000 shares authorized, none issued
and outstanding..................................................................... -- --
Common shares, $.0001 par value per share, 25,000,000 shares authorized, 2,400,000
issued and outstanding.............................................................. 240 240
Additional paid-in capital............................................................ 293,865 293,865
Retained earnings..................................................................... (318,739) --
----------- -----------
Total shareholders' (deficiency) equity........................................... (24,634) 294,105
----------- -----------
$ 57,655 $ 300,210
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997 AND THE PERIOD MAY 1, 1996 (INCEPTION)
TO JUNE 30, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ADMINISTRATIVE EXPENSES................................................................. $ 675 $ --
----------- -----------
LOSS FROM OPERATIONS.................................................................... (675) --
----------- -----------
OTHER EXPENSE:
Registration expenses (Note 6)........................................................ (318,064) --
----------- -----------
NET LOSS................................................................................ $ (318,739) $ --
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED JUNE 30, 1997 AND THE PERIOD MAY 1, 1996 (INCEPTION)
TO JUNE 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON SHARES PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 1, 1996................................. -- $ -- $ -- $ -- $ --
Proceeds from sale of common shares................ 2,100,000 210 -- -- 210
Proceeds from private placement, net of related
expenses......................................... 300,000 30 293,865 -- 293,895
BALANCE, JUNE 30, 1996............................... 2,400,000 240 293,865 -- 294,105
Net loss........................................... -- -- -- (318,739) (318,739)
---------- ----- ---------- ----------- -----------
BALANCE, JUNE 30, 1997............................... 2,400,000 $ 240 $ 293,865 $ (318,739) $ (24,634)
---------- ----- ---------- ----------- -----------
---------- ----- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1997 AND THE PERIOD MAY 1, 1996 (INCEPTION)
TO JUNE 30, 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................... $ (318,739) $ --
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued expenses and other current liabilities......................... 82,289 --
----------- ----------
Net cash used in operating activities............................................ (236,450)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) proceeds from loan payable to shareholder................................. (6,105) 6,105
Proceeds from sale of common shares.................................................... -- 210
Proceeds from private placement........................................................ -- 300,000
Decrease (increase) in stock subscriptions receivable.................................. 56,250 (56,250)
Increase in deferred registration costs................................................ (52,289) --
Costs associated with private placement................................................ -- (6,105)
----------- ----------
Net cash (used in) provided by financing activities.............................. (2,144) 243,960
----------- ----------
NET (DECREASE) INCREASE IN CASH.......................................................... (238,594) 243,960
CASH, BEGINNING OF YEAR/PERIOD........................................................... 243,960 --
----------- ----------
CASH, END OF YEAR/PERIOD................................................................. $ 5,366 $ 243,960
----------- ----------
----------- ----------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1997 AND PERIOD MAY 1, 1996 (INCEPTION) TO JUNE 30, 1997
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION--Eagle Supply Group, Inc. (the "Company") is a
majority-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent") and
was organized to acquire, integrate and operate seasoned, privately-held
companies operating in the roofing supplies and related products distribution
industry and companies which manufacture products for or supply products to such
industry.
ACQUISITIONS--Upon completion of the Offering described in Note 6, the
Company will acquire all of the issued and outstanding common shares of Eagle
Supply, Inc. ("Eagle") and JEH/Eagle Supply, Inc. ("JEH Eagle") (the
"Acquisitions") from TDA for consideration consisting of 2,000,000 of the
Company's common shares. The Acquisitions will be accounted for as the combining
of three entities under common control, similar to a pooling of interests, with
the net assets of Eagle and JEH Eagle recorded at historical carryover values.
The 2,000,000 common shares to be issued to TDA will be recorded at Eagle's and
JEH Eagle's historical net book value at the date of acquisition. Accordingly,
this transaction will not result in any revaluation of Eagle's or JEH Eagle's
assets or the creation of any goodwill. Upon the consummation of the
Acquisitions, Eagle and JEH Eagle will become wholly-owned subsidiaries of the
Company and will constitute the sole business operations of the Company until
such time, if any, as the Company consummates additional acquisitions. Eagle and
JEH Eagle operate in a single industry segment.
The Company is dependent on its ability to raise funds through debt or
equity financing in order to meet its obligations and accomplish its acquisition
objectives.
INCOME TAXES--The Company is included in the consolidated Federal and state
income tax returns of its Parent. Income taxes are calculated on a separate
return filing basis.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES
During the period ended June 30, 1996, TDA advanced $6,105 to the Company
which was used by the Company to pay certain costs and expenses related to its
private placement in June 1996 described in Note 6. This advance was repaid to
TDA in July 1996.
3. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES
TDA will provide office space and administrative services to the Company at
its offices in New York City pursuant to an administrative services agreement to
be entered into by the Company and TDA upon the closing of the Offering
described in Note 6 and consummation of the Acquisitions described in Note 1.
The administrative services agreement will be on a month-to-month basis, and the
fee payable by the Company to TDA for such services will be $3,000 per month.
Further, TDA and JEH Eagle have entered into an agreement pursuant to which TDA
provides JEH Eagle with certain management services. This agreement is for a
period of five years and commenced in July 1997. The fee payable to TDA for such
services, to commence upon the completion of the Offering and the consummation
of the Acquisitions, is $3,000 per month through December 1999 and $15,000 per
month thereafter.
F-8
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997 AND PERIOD MAY 1, 1996 (INCEPTION) TO JUNE 30, 1997
3. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Eagle operates a substantial portion of its business from facilities which
it leases from a subsidiary of TDA on a month-to-month basis. Upon completion of
the Offering and the consummation of the Acquisitions, Eagle and TDA intend to
enter into ten-year leases for such facilities.
The Chief Executive Officer and Chairman of the Board of Directors of the
Company is an officer and a director of TDA, Eagle and JEH Eagle. Additionally,
the Executive Vice President, Secretary, Treasurer and a director of the Company
is an officer and a director of TDA, Eagle and JEH Eagle. A director nominee of
the Company is also a director of TDA.
The Company and Eagle have entered into employment agreements with their
Chief Executive Officer and their Executive Vice President, Secretary and
Treasurer, to become effective upon closing of the Offering and consummation of
the Acquisitions, for a five-year period at annual salaries of $200,000 each,
subject to annual increases or bonuses as may be determined by the Board of
Directors. Further, in July 1997, JEH Eagle entered into five-year employment
agreements with such officers at annual salaries of $60,000 each. The payment of
such salaries by JEH Eagle shall commence upon completion of the Offering and
the consummation of the Acquisitions. The employment agreements provide for,
among other things, payments of salary and continued benefits, under certain
conditions.
4. SHAREHOLDERS' EQUITY (DEFICIENCY)
INITIAL CAPITALIZATION--In May 1996, the Company approved the issuance of
2,000,000 of its common shares to TDA (a founding shareholder) for a
subscription price of $200 and 100,000 common shares to another founding
shareholder and director for a subscription price of $10.
On December 12, 1997 the Company increased its authorized number of shares
from 17,000,000 to 27,500,000. The number of preferred shares were increased
from 2,000,000 to 2,500,000 and the number of common shares were increased from
15,000,000 to 25,000,000. There was no change in the par value per share.
PREFERRED SHARES--The preferred shares may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by shareholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking fund
provisions.
COMMON SHARES--Holders of common shares are entitled to one vote for each
share held of record on each matter submitted to a vote of shareholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred shares which may from time to time be outstanding,
holders of common shares are entitled to receive dividends when and if declared
by the Board of Directors out of funds legally available thereof and, upon the
liquidation, dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and payment of
accrued dividends and liquidation preferences on the preferred shares, if any.
Holders of common shares have no pre-emptive rights and have no rights to
convert their common shares into any other securities.
WARRANTS--Each warrant entitles the registered holder to purchase one common
share at an exercise price of $5.00 per share (subject to adjustment) for three
years commencing on the date of the Offering, provided that during such time a
current prospectus relating to the common shares is then in effect and the
F-9
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997 AND PERIOD MAY 1, 1996 (INCEPTION) TO JUNE 30, 1997
4. SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
common shares are qualified for sale or exempt from qualification under
applicable state securities laws. The warrants that will be included in the
Offering are transferable separately from the common shares (Note 6).
STOCK OPTION PLAN--In August 1996, the Board of Directors adopted and
shareholders approved the Company's 1996 Stock Option Plan (the "1996 Stock
Option Plan"). The 1996 Stock Option Plan provides for the grant of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422A of the Internal Revenue Code, as amended (the
"Code"), to certain employees, officers and directors. The total number of
common shares for which options may be granted under the 1996 Stock Option Plan
is 1,000,000 common shares. Upon the closing of the Offering, the Company
intends to grant options exercisable into 700,000 common shares to various of
its employees and certain of its officers and directors. All of such options
will have a term of ten years. The exercise price of these options will be the
price to the public of the common shares offered in the Offering and will vest
at a rate of no more than 20% per year commencing on the first anniversary of
the date of grant.
5. PRIVATE PLACEMENT
In June 1996, the Company sold an aggregate of 300,000 common shares and
300,000 warrants to private investors for aggregate gross proceeds of $300,000.
6. INITIAL PUBLIC OFFERING
In April 1996, the Company signed a letter of intent with an underwriter for
an initial public offering. This offering was not consummated, and the
registration expenses incurred by the Company in connection with the filing of
its registration statement for that offering were expensed in fiscal 1997.
In September 1997, as amended in November 1997, the Company signed a new
letter of intent with the same underwriter for an initial public offering (the
"Offering"). The Offering is expected to be for 2,000,000 common shares, par
value $.0001 per share, of the Company and 2,500,000 redeemable common share
purchase warrants.
In February 1998, the Company borrowed an aggregate of $300,000 pursuant to
promissory notes issued to TDA ($150,000) and two other shareholders of the
Company. The promissory notes provide for interest at the rate of 15% per annum
through June 30, 1998 and 6% per annum thereafter. The promissory notes mature
on the earlier of August 9, 2000 or upon the closing of the Offering described
above. The proceeds from the issuance of the promissory notes are being used to
pay certain costs and expenses relating to the Offering.
The costs incurred with the Offering will be offset against the proceeds at
the closing.
* * * * *
F-10
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED BALANCE SHEET
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS
CASH.............................................................................. $ 223,073
DEFERRED REGISTRATION COSTS....................................................... 171,277
---------
$ 394,350
---------
---------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accrued expenses and other current liabilities.................................. $ 118,984
Notes payable--shareholders..................................................... 300,000
---------
Total current liabilities................................................... 418,984
---------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 6)
SHAREHOLDERS' DEFICIENCY (Note 4):
Preferred shares, $.0001 par value per share, 2,500,000 shares authorized, none
issued and outstanding........................................................ --
Common shares, $.0001 par value per share, 25,000,000 shares authorized,
2,400,000 issued and outstanding.............................................. 240
Additional paid-in capital...................................................... 293,865
Deficiency...................................................................... (318,739)
---------
Total shareholders' deficiency.............................................. (24,634)
---------
$ 394,350
---------
---------
</TABLE>
See notes to unaudited financial statements.
F-11
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENTS OF OPERATIONS AND DEFICIENCY
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
ADMINISTRATIVE EXPENSES..................................................................... $ -- $ 421
----------- ---------
LOSS FROM OPERATIONS........................................................................ -- (421)
DEFICIENCY, BEGINNING OF PERIOD............................................................. (318,739) --
----------- ---------
DEFICIENCY, END OF PERIOD................................................................... $ (318,739) $ (421)
----------- ---------
----------- ---------
</TABLE>
See notes to unaudited financial statements.
F-12
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................................. $ -- $ (421)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued expenses and other current liabilities........................ 36,695 --
----------- -----------
Net cash used in operating activities........................................... 36,695 (421)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable--shareholders................................. 300,000 --
Decrease in stock subscriptions receivable............................................ -- 56,250
Increase in deferred registration costs............................................... (118,988) (281,602)
Repayment of loan payable to shareholder.............................................. -- (6,105)
----------- -----------
Net cash provided by (used in) financing activities............................. 181,012 (231,457)
----------- -----------
NET INCREASE (DECREASE) IN CASH......................................................... 217,707 (231,878)
CASH, BEGINNING OF PERIOD............................................................... 5,366 243,960
----------- -----------
CASH, END OF PERIOD..................................................................... $ 223,073 $ 12,082
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited financial statements.
F-13
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements of Eagle Supply Group, Inc. (the "Company"), a
majority-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent") have
been prepared by the Company, which is responsible for their integrity and
objectivity, without audit. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of financial position, results of operations and cash flows have been included.
These financial statements, which, to the best of management's knowledge and
belief, were prepared in accordance with generally accepted accounting
principles, should be read in conjunction with the financial statements of the
Company for the fiscal years ended June 30, 1997 and 1996 and notes thereto
included elsewhere in this Prospectus. Operating results for the interim period
are not necessarily indicative of results for the entire year.
2. ACQUISITIONS
Upon completion of the Offering described in Note 6, the Company will
acquire all of the issued and outstanding common shares of Eagle Supply, Inc.
("Eagle") and JEH/Eagle Supply, Inc. ("JEH Eagle") (the "Acquisitions") from TDA
for consideration consisting of 2,000,000 of the Company's common shares. The
Acquisitions will be accounted for as the combining of three entities under
common control, similar to a pooling of interests, with the net assets of Eagle
and JEH Eagle recorded at historical carryover values. The 2,000,000 common
shares to be issued to TDA will be recorded at Eagle's and JEH Eagle's
historical net book value at the date of acquisition. Accordingly, this
transaction will not result in any revaluation of Eagle's or JEH Eagle's assets
or the creation of any goodwill. Upon the consummation of the Acquisitions,
Eagle and JEH Eagle will become wholly-owned subsidiaries of the Company and
will constitute the sole business operations of the Company until such time, if
any, as the Company consummates additional acquisitions. Eagle and JEH Eagle
operate in a single industry segment.
3. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES
TDA will provide office space and administrative services to the Company at
its offices in New York City pursuant to an administrative services agreement to
be entered into by the Company and TDA upon the closing of the Offering
described in Note 6 and the consummation of the Acquisitions described in Note
2. The administrative services agreement will be on a month-to-month basis, and
the fee payable by the Company to TDA for such services will be $3,000 per
month. Further, TDA and JEH Eagle have entered into an agreement pursuant to
which TDA provides JEH Eagle with certain management services. This agreement is
for a period of five years and commenced in July 1997. The fee payable to TDA
for such services, to commence upon the completion of the Offering and the
consummation of the Acquisitions, is $3,000 per month through December 1999 and
$15,000 per month thereafter.
Eagle operates a substantial portion of its business from facilities which
it leases from a subsidiary of TDA on a month-to-month basis. Upon completion of
the Offering and the Acquisitions, Eagle and TDA intend to enter into ten-year
leases for such facilities.
The Chief Executive Officer and Chairman of the Board of Directors of the
Company is an officer and a director of TDA, Eagle and JEH Eagle. Additionally,
the Executive Vice President, Secretary, Treasurer and a director of the Company
is an officer and a director of TDA, Eagle and JEH Eagle. A director nominee of
the Company is also a director of TDA.
F-14
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
3. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Company and Eagle have entered into employment agreements with their
Chief Executive Officer and their Executive Vice President, Secretary and
Treasurer, to become effective upon closing of the Offering and consummation of
the Acquisitions, for a five-year period at annual salaries of $200,000 each,
subject to annual increases or bonuses as may be determined by the Board of
Directors. Further, in July 1997, JEH Eagle entered into five-year employment
agreements with such officers at annual salaries of $60,000 each. The payment of
such salaries by JEH Eagle shall commence upon completion of the Offering
described in Note 6 and the consummation of the Acquisitions described in Note
2. The employment agreements provide for, among other things, payments of salary
and continued benefits, under certain conditions.
4. SHAREHOLDERS' DEFICIENCY
INITIAL CAPITALIZATION--In May 1996, the Company approved the issuance of
2,000,000 of its common shares to TDA (a founding shareholder) for a
subscription price of $200 and 100,000 common shares to another founding
shareholder and director for a subscription price of $10.
On December 12, 1997 the Company increased its authorized number of shares
from 17,000,000 to 27,500,000. The number of preferred shares were increased
from 2,000,000 to 2,500,000 and the number of common shares were increased from
15,000,000 to 25,000,000. There was no change in the par value per share.
PREFERRED SHARES--The preferred shares may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by shareholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking fund
provisions.
COMMON SHARES--Holders of common shares are entitled to one vote for each
share held of record on each matter submitted to a vote of shareholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred shares which may from time to time be outstanding,
holders of common shares are entitled to receive dividends when and if declared
by the Board of Directors out of funds legally available thereof and, upon the
liquidation, dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and payment of
accrued dividends and liquidation preferences on the preferred shares, if any.
Holders of common shares have no pre-emptive rights and have no rights to
convert their common shares into any other securities.
WARRANTS--Each warrant entitles the registered holder to purchase one common
share at an exercise price of $5.00 per share (subject to adjustment) for three
years commencing on the date of the Offering, provided that during such time a
current prospectus relating to the common shares is then in effect and the
common shares are qualified for sale or exempt from qualification under
applicable state securities laws. The warrants that will be included in the
Offering are transferable separately from the common shares (Note 6).
STOCK OPTION PLAN--In August 1996, the Board of Directors adopted and
shareholders approved the Company's 1996 Stock Option Plan (the "1996 Stock
Option Plan"). The 1996 Stock Option Plan provides for the grant of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422A of the Internal Revenue Code, as amended (the
"Code"), to certain
F-15
<PAGE>
EAGLE SUPPLY GROUP, INC.
(A MAJORITY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
4. SHAREHOLDERS' DEFICIENCY (CONTINUED)
employees, officers and directors. The total number of common shares for which
options may be granted under the 1996 Stock Option Plan is 1,000,000 common
shares. Upon the closing of the Offering, the Company intends to grant options
exercisable into 700,000 common shares to various of its employees and certain
of its officers and directors. All of such options will have a term of ten
years. The exercise price of these options will be the price to the public of
the common shares offered in the Offering and will vest at a rate of no more
than 20% per year commencing on the first anniversary of the date of grant.
5. PRIVATE PLACEMENT
In June 1996, the Company sold an aggregate of 300,000 common shares and
300,000 warrants to private investors for aggregate gross proceeds of $300,000.
6. INITIAL PUBLIC OFFERING
In April 1996, the Company signed a letter of intent with an underwriter for
an initial public offering. This offering was not consummated, and the
registration expenses incurred by the Company in connection with the filing of
its registration statement for that offering were expensed in fiscal 1997.
In September 1997, as amended in November 1997, the Company signed a new
letter of intent with the same underwriter for an initial public offering (the
"Offering"). The Offering is expected to be for 2,000,000 common shares, par
value $.0001 per share, of the Company and 2,500,000 redeemable common share
purchase warrants.
In February 1998, the Company borrowed an aggregate of $300,000 pursuant to
promissory notes issued to TDA ($150,000) and two other shareholders of the
Company. The promissory notes provide for interest at the rate of 15% per annum
through June 30, 1998 and 6% per annum thereafter. The promissory notes mature
on the earlier of August 9, 2000 or upon the closing of the Offering described
above. The proceeds from the issuance of the promissory notes are being used to
pay certain costs and expenses relating to the Offering.
The costs incurred with the Offering will be offset against the proceeds at
the closing.
* * * * *
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Eagle Supply, Inc.
We have audited the accompanying balance sheets of Eagle Supply, Inc. (a
wholly-owned subsidiary of TDA Industries, Inc.) as of June 30, 1997 and 1996
and the related statements of operations, shareholder's equity and cash flows
for each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of 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 consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Eagle Supply, Inc. as of June 30, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
September 3, 1997
(November 13, 1997 as to Note 8)
Tampa, Florida
F-17
<PAGE>
EAGLE SUPPLY , INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................. $ 1,029,774 $ 198,441
Accounts receivable--trade (net of allowance for doubtful accounts--
1997--$450,000; 1996--$465,000) (Note 3)....................................... 8,530,600 8,291,831
Inventories (Note 3)............................................................. 4,505,534 4,825,902
Deferred tax asset (Note 5)...................................................... 188,558 193,528
Other current assets............................................................. 539,696 535,731
------------- -------------
Total current assets......................................................... 14,794,162 14,045,433
IMPROVEMENTS AND EQUIPMENT (net of accumulated depreciation and amortization)
(Notes 2 and 3).................................................................. 1,054,309 1,433,099
------------- -------------
$ 15,848,471 $ 15,478,532
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 7,763,779 $ 8,193,812
Accrued expenses and other current liabilities................................... 569,569 814,158
Federal and state income taxes due to Parent..................................... 140,000 793,000
------------- -------------
Total current liabilities.................................................... 8,473,348 9,800,970
LONG-TERM DEBT (Note 3)............................................................ 6,693,236 5,163,529
DEFERRED TAX LIABILITY (Note 5).................................................... 70,912 90,339
------------- -------------
Total liabilities............................................................ 15,237,496 15,054,838
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 4, 6 and 8)
SHAREHOLDER'S EQUITY:
Common shares, $100 par value per share, 1,500 shares authorized, 593 issued and
outstanding.................................................................... 59,300 59,300
Additional paid-in capital....................................................... 1,000,000 1,000,000
Retained earnings................................................................ 1,593,802 2,652,026
------------- -------------
2,653,102 3,711,326
Less: Due from Parent and affiliated companies (Note 4)...................... (2,042,127) (3,287,632)
------------- -------------
Total shareholder's equity................................................... 610,975 423,694
------------- -------------
$ 15,848,471 $ 15,478,532
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
F-18
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES............................................................ $ 57,575,712 $ 59,262,226 $ 50,483,469
COST OF SALES....................................................... 46,104,588 46,685,356 40,743,901
------------- ------------- -------------
11,471,124 12,576,870 9,739,568
------------- ------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ( including a provision
for doubtful accounts of $299,433, $203,133 and $403,169 in 1997,
1996 and 1995, respectively (Notes 4, 6, 7 and 9)................. 9,968,759 9,348,749 8,373,548
DEPRECIATION........................................................ 593,720 538,831 532,906
------------- ------------- -------------
10,562,479 9,887,580 8,906,454
------------- ------------- -------------
INCOME FROM OPERATIONS.............................................. 908,645 2,689,290 833,114
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income..................................................... 22,217 23,250 22,511
Interest expense (Note 3)........................................... (599,086) (604,505) (288,036)
------------- ------------- -------------
(576,869) (581,255) (265,525)
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES............................ 331,776 2,108,035 567,589
PROVISION FOR INCOME TAXES (Note 5)................................. 140,000 793,000 215,000
------------- ------------- -------------
NET INCOME.......................................................... $ 191,776 $ 1,315,035 $ 352,589
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-19
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
DUE FROM
COMMON SHARES ADDITIONAL PARENT AND
---------------------- PAID-IN RETAINED AFFILIATED
SHARES AMOUNT CAPITAL EARNINGS TOTAL COMPANIES TOTAL
----------- --------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994......... 593 $ 59,300 $ 1,000,000 $ 2,502,937 $ 3,562,237 $ -- $ 3,562,237
Net income.................... -- -- -- 352,589 352,589 -- 352,589
Due from Parent and affiliated
companies-- net.............. -- -- -- -- -- (3,336,475) (3,336,475)
Dividend paid to Parent....... -- -- -- (421,535) (421,535) -- (421,535)
--- --------- ------------ ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1995........ 593 59,300 1,000,000 2,433,991 3,493,291 (3,336,475) 156,816
Net income.................... -- -- -- 1,315,035 1,315,035 -- 1,315,035
Due from Parent and affiliated
companies-- net.............. -- -- -- -- -- 48,843 48,843
Dividend paid to Parent....... -- -- -- (1,097,000) (1,097,000) -- 1,097,000
--- --------- ------------ ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1996........ 593 59,300 1,000,000 2,652,026 3,711,326 (3,287,632) 423,694
Net income.................... -- -- -- 191,776 191,776 -- 191,776
Due from Parent and affiliated
companies-- net.............. -- -- -- -- -- 1,245,505 1,245,505
Dividend paid to Parent....... -- -- -- (1,250,000) (1,250,000) -- 1,250,000
--- --------- ------------ ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 1997........ 593 $ 59,300 $ 1,000,000 $ 1,593,802 $ 2,653,102 $ (2,042,127) $ 610,975
--- --------- ------------ ------------- ------------- ------------- -------------
--- --------- ------------ ------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-20
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 191,776 $1,315,035 $ 352,589
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation............................................................ 593,720 538,831 532,906
Deferred income taxes................................................... (14,457) 84,017 (21,580)
(Decrease) increase in allowance for doubtful accounts.................. (15,550) (286,215) 74,049
Loss (gain) on sale of equipment........................................ 710 (975) (29,561)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............................ (223,219) 755,529 (1,673,344)
Decrease (increase) in inventories.................................... 320,368 (1,306,440) (363,528)
(Increase) decrease in other current assets........................... (3,965) (210,264) 209,103
(Decrease) increase in accounts payable............................... (430,033) 739,801 1,011,027
(Decrease) increase in accrued expenses and other current
liabilities......................................................... (244,589) 331,519 133,302
Decrease (increase) in due from Parent and affiliated
companies--net...................................................... 1,245,505 48,843 (5,657,634)
(Decrease) increase in federal and state taxes due to Parent.......... (653,000) 578,000 45,000
---------- ---------- ----------
Net cash provided by (used in) operating activities................. 767,266 2,587,681 (5,387,671)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................... (296,071) (900,498) (339,628)
Proceeds from sale of equipment........................................... 80,431 37,050 98,873
---------- ---------- ----------
Net cash used in investing activities............................... (215,640) (863,448) (240,755)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) from long-term debt--net............................ 1,529,707 (1,126,924) 6,290,453
Dividend paid to Parent................................................... (1,250,000) (1,097,000) (421,535)
---------- ---------- ----------
Net cash provided by (used in) financing activities................. 279,707 (2,223,924) 5,868,918
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH............................................. 831,333 (499,691) 240,492
CASH, BEGINNING OF YEAR..................................................... 198,441 698,132 457,640
---------- ---------- ----------
CASH, END OF YEAR........................................................... $1,029,774 $ 198,441 $ 698,132
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................................... $ 599,086 $ 604,505 $ 288,036
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid to Parent............................................... $ 140,000 $ 793,000 $ 215,000
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of leasehold improvements in payment of intercompany debt........ $ -- $ -- $ 90,204
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-21
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION--Eagle Supply, Inc. (the "Company") is a wholly-owned
subsidiary of TDA Industries, Inc. ("TDA" or the "Parent) and is engaged in the
wholesale distribution of roofing supplies and related products utilized
primarily in the construction industry throughout Florida, Alabama and
Mississippi. The Company operates in a single industry segment.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined by using the last-in, first-out (LIFO) method. If inventories had
been valued at the lower of first-in, first-out (FIFO) cost or market,
inventories would be higher by approximately $511,000, $510,000 and $527,000 for
fiscal 1997, 1996 and 1995, respectively, and income before provision for income
taxes would have increased by approximately $1,000 and decreased by
approximately $17,000 and $30,000 in fiscal 1997, 1996 and 1995, respectively.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization of improvements
and equipment are provided principally by an accelerated method at various rates
calculated to extinguish the carrying values of the respective assets over their
estimated useful lives.
INCOME TAXES--The Company is included in the consolidated Federal and state
income tax returns of its Parent. Income taxes are calculated on a separate
return filing basis.
LONG-LIVED ASSETS--Financial Accounting Standards Board Statement Number
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" requires that they be stated at the lower of the
expected net realizable value or cost. The carrying value of long-lived assets
is periodically reviewed to determine whether impairment exists. The review is
based on comparing the carrying amount of the asset to the undiscounted
estimated cash flows over the remaining useful lives. No impairment is indicated
as of June 30, 1997. The Company has adopted this statement and the impact has
not been significant,
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED
EXPENSES--The carrying amounts of these items are a reasonable estimate of their
fair value.
F-22
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-TERM DEBT--Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues for which no market quotes are available.
The carrying amount of this item is a reasonable estimate of fair value.
The fair value estimates presented herein are based on pertinent information
available to management as of June 30, 1997. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.
2. IMPROVEMENTS AND EQUIPMENT
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30, ESTIMATED
-------------------------- USEFUL
1997 1996 LIVES
------------ ------------ ----------
<S> <C> <C> <C>
Automotive equipment..................................................... $ 1,953,036 $ 2,404,487 5 years
Furniture, fixtures and equipment........................................ 2,155,812 2,063,708 5-7 years
Leasehold improvements................................................... 597,890 587,226 10 years
------------ ------------
4,706,738 5,055,421
Less: Accumulated depreciation and amortization.......................... 3,652,429 3,622,322
------------ ------------
$ 1,054,309 $ 1,433,099
------------ ------------
------------ ------------
</TABLE>
3. LONG-TERM DEBT
The Company is a party to a Loan Agreement, which provides for secured
borrowing consisting of a four-year revolving credit facility in the amount of
$7,500,000, guaranteed by the Parent. This facility expires in December 1998.
Obligations under the revolving credit facility are collateralized by certain
current assets of the Company (aggregating approximately $13,036,000 at June 30,
1997). Borrowings are based on a formula relating to certain levels of
receivables and inventory, as defined. Interest only is payable monthly at a
floating rate equal to the lender's prime rate, plus one-half percent, or at the
London interbank offered rate, plus two and one-half percent, at the option of
the Company.
4. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES
During fiscal 1994, the Company purchased land and a building in Birmingham,
Alabama, for $735,000, of which $550,000 was financed by a first mortgage. The
mortgage is repayable in fifty-nine equal monthly installments of approximately
$4,700 each and a balloon payment of approximately $440,000 due in April 1999.
During fiscal 1994, the Company transferred this property, including related
improvements (at a net book value of $2l6,189, net of the mortgage), to the
Parent in partial repayment of intercompany debt. The Company remains the
primary obligor on the first mortgage which had a balance due of $512,927 and
$525,713 at June 30, 1997 and 1996, respectively.
F-23
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
4. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES (CONTINUED)
The Company is liable for certain lease payments to a subsidiary of the
Parent under a lease for a former distribution center in Fort Lauderdale,
Florida, including a balloon payment due May 1, 1999 in the approximate amount
of $580,000 relating to industrial revenue bonds issued to acquire and develop
the Fort Lauderdale property. The lease expires on May 1, 1999. These premises
have been subleased to an unrelated third party at an annual rental in excess of
the Company's annual lease obligation. The payments by the Company have
included, through June 30, 1997, a ratable share of the balloon payment.
The Company operates a substantial portion of its business from facilities
which it has been leasing from a subsidiary of the Parent on a month-to-month
basis. The Company intends to enter into long-term leases for these facilities.
Rent expense for these facilities, net of sublease income of approximately
$200,000, including taxes and other occupancy costs, aggregated approximately
$782,000, $709,000 and $710,000 in fiscal 1997, 1996 and 1995, respectively.
The approximate future minimum rental commitments under these leases, net of
sublease income of approximately $200,000, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 790,000
1999............................................................................ 790,000
2000............................................................................ 790,000
2001............................................................................ 790,000
2002............................................................................ 790,000
------------
$ 3,950,000
------------
------------
</TABLE>
Fees of $50,000 have been charged to the Company by the Parent in each of
fiscal 1997, 1996 and 1995. Such fees represent audit fees and accounting
services incurred on behalf of The Company.
During fiscal 1997 and 1996, the Company loaned various amounts for varying
periods to a subsidiary of the Parent. The highest balance outstanding at any
time during fiscal 1997 and 1996 was $300,000. Such amounts were repaid prior to
June 30, 1997 with interest computed at the rate of 9 1/4% per annum.
The following is a reconciliation of the activity in the Due from Parent and
Affiliated Companies account for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ -------------
Balance, beginning of year........................................ $ 3,287,632 $ 3,336,475 $ (2,217,159)
Fees for auditing and accounting services......................... (50,000) (50,000) (50,000)
Interest expense paid to Parent................................... (30,484) -- --
Transfer of property to Parent.................................... -- -- 90,204
Cash advances--net................................................ (1,165,021) 1,157 5,513,430
------------ ------------ -------------
Balance, end of year.............................................. $ 2,042,127 $ 3,287,632 $ 3,336,475
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-24
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
5. INCOME TAXES
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
Current:
Federal.................................................................. $ 134,457 $ 609,000 $ 203,131
State and local.......................................................... 20,000 99,983 33,449
Deferred................................................................. (14,457) 84,017 (21,580)
---------- ---------- ----------
$ 140,000 $ 793,000 $ 215,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A reconciliation of income taxes at the Federal statutory rate to amounts
provided is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
Tax provision at statutory rate.......................................... $ 112,804 $ 716,732 $ 193,468
State and local income taxes............................................. 13,000 60,000 19,866
Other--net............................................................... 14,196 16,268 1,666
---------- ---------- ----------
$ 140,000 $ 793,000 $ 215,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Temporary differences which give rise to net deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Deferred tax assets:
Reserve for bad debts..................................................................... $ 170,852 $ 176,762
Inventory capitalization.................................................................. 17,706 16,766
---------- ----------
188,558 193,528
Deferred tax liability:
Depreciation.............................................................................. (70,912) (90,339)
---------- ----------
Net deferred tax asset.................................................................... $ 117,646 $ 103,189
---------- ----------
---------- ----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is committed to unrelated parties for long-term leases for
property, automotive and data processing equipment. The leases expire on various
dates through 2002. Certain of the leases for property include renewal options
and provide for the payment of taxes and other occupancy costs.
F-25
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The approximate future minimum rental commitments under these leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------------------------------------------------------------------------- ------------
<S> <C>
1998......................................................................... $ 1,591,000
1999......................................................................... 1,264,000
2000......................................................................... 1,073,000
2001......................................................................... 790,000
2002......................................................................... 790,000
------------
$ 5,508,000
------------
------------
</TABLE>
Rent expense for the property and equipment under these leases amounted to
approximately $853,000, $371,000 and $191,000 in fiscal 1997, 1996 and 1995,
respectively, and includes certain occupancy costs.
During the fiscal years ended June 30, 1997, 1996 and 1995, the Company
purchased approximately 23%, 21% and 19%, respectively, of its product lines
from one supplier. Since similar products are available to the Company from
other suppliers, the loss of this supplier would not have a material adverse
effect on the business of the Company.
The Company has a 401 (k) plan covering eligible employees (the "Plan"). The
Plan provides for contributions at the Company's discretion. A contribution in
the amount of $9,000 was made to the Plan in fiscal 1997. No contribution was
made to the Plan in fiscal 1996 or 1995.
7. BRANCH OPENING AND CLOSING COSTS
The Company's result of operations in fiscal 1997 include start-up costs and
operating losses of approximately $273,000 attributable to new branches; and
additional expenses in the amount of approximately $80,000 attributable to the
operations of branches disposed of in prior fiscal years.
During fiscal 1996, the Company opened four new branches, one of which was
closed prior to the end of the fiscal year, and commenced the distribution of a
new product line. The Company's results of operations in fiscal 1996 include
start-up costs and operating losses of approximately $290,000 attributable to
these four branches and the introduction of the new product line; and additional
expenses in the amount of approximately $32,000 attributable to the operations
of branches disposed of in prior fiscal years.
During fiscal 1995, the Company opened two new branches and discontinued
operating one additional branch. The Company's results of operations in fiscal
1995 include start-up costs and operating losses in the aggregate amount of
approximately $418,000 attributable to these branches and additional expenses in
the amount of approximately $252,000 attributable to the operations of branches
disposed of in prior fiscal years.
F-26
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
8. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES
In September 1997, as amended in November 1997, Eagle Supply Group, Inc.
("Eagle"), a majority-owned subsidiary of TDA, signed a letter of intent with an
underwriter for an initial public offering (the "Offering"). The Offering is
expected to be for 2,000,000 common shares, par value $.0001 per share, of Eagle
and 2,500,000 redeemable common share purchase warrants.
Upon closing of the Offering, Eagle will acquire all of the issued and
outstanding capital stock of the Company from its Parent. The acquisition will
be accounted for as the combining of two entities under common control, similar
to a pooling of interests, and will not result in any revaluation of the
Company's assets or the creation of goodwill. Upon the consummation of the
acquisition, the Company will become a wholly-owned subsidiary of Eagle.
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
YEAR ENDING BEGINNING BALANCE AT
JUNE 30, OF YEAR PROVISION WRITEOFFS END OF YEAR
- --------------------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1995................................... $ 677,327 $ 403,169 $ (329,120) $ 751,376
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
1996................................... $ 751,376 $ 203,133 $ (489,348) $ 465,161
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
1997................................... $ 465,161 $ 299,433 $ (314,983) $ 449,611
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
* * * * *
F-27
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED BALANCE SHEET
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................................... $ 17,639
Accounts receivable--trade (net of allowance for doubtful accounts of
$515,000) (Note 3)......................................................... 7,718,128
Inventories (Note 3)......................................................... 4,998,224
Deferred tax asset........................................................... 213,406
Other current assets......................................................... 470,800
----------
Total current assets..................................................... 13,418,197
IMPROVEMENTS AND EQUIPMENT (net of accumulated depreciation and amortization)
(Note 2)..................................................................... 1,039,421
----------
$14,457,618
----------
----------
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
CURRENT LIABILITIES:
Accounts payable............................................................. $8,566,757
Accrued expenses and other current liabilities............................... 552,962
Loan payable--affiliated company (Note 4).................................... 400,000
Federal and state income taxes due to Parent................................. 4,000
----------
Total current liabilities................................................ 9,523,719
LONG-TERM DEBT (Note 3)........................................................ 5,830,760
DEFERRED TAX LIABILITY......................................................... 57,961
----------
Total liabilities........................................................ 15,412,440
----------
COMMITMENTS AND CONTINGENCIES (Notes 4)
SHAREHOLDER'S DEFICIENCY:
Common shares, $100 par value per share, 1,500 shares authorized, 593 issued
and outstanding............................................................ 59,300
Additional paid-in capital..................................................... 1,000,000
Retained earnings.............................................................. 825,053
----------
1,884,353
Less: Due from Parent and affiliated companies (Note 4).................. (2,839,175)
----------
Total shareholder's deficiency........................................... (954,822)
----------
$14,457,618
----------
----------
</TABLE>
See notes to unaudited financial statements.
F-28
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
REVENUES........................................................................... $ 36,126,188 $ 36,963,819
COST OF SALES...................................................................... 28,516,725 29,327,441
------------- -------------
7,609,463 7,636,378
------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ( including a provision for doubtful
accounts of $170,509 and $181,793 in 1998 and 1997, respectively) (Note 5)....... 6,943,826 6,794,619
DEPRECIATION....................................................................... 309,843 398,416
------------- -------------
7,253,669 7,193,035
------------- -------------
INCOME FROM OPERATIONS............................................................. 355,794 443,343
------------- -------------
OTHER INCOME (EXPENSE):
Interest income.................................................................. 17,323 15,924
Interest expense................................................................. (387,866) (395,940)
------------- -------------
(370,543) (380,016)
------------- -------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES.................................... (14,749) 63,327
PROVISION FOR INCOME TAXES......................................................... 4,000 26,000
------------- -------------
NET (LOSS) INCOME.................................................................. (18,749) 37,327
RETAINED EARNINGS, BEGINNING OF PERIOD............................................. 1,593,802 2,652,026
DIVIDEND PAID TO PARENT............................................................ (750,000) (850,000)
------------- -------------
RETAINED EARNINGS, END OF PERIOD................................................... $ 825,053 $ 1,839,353
------------- -------------
------------- -------------
</TABLE>
See notes to unaudited financial statements.
F-29
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................................................... $ (18,749) $ 37,327
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation....................................................................... 309,843 398,416
Deferred income taxes.............................................................. (37,799) (76,259)
Increase in allowance for doubtful accounts........................................ 65,389 148,103
Changes in operating assets and liabilities:
Decrease in accounts receivable.................................................. 747,083 407,109
Increase in inventories.......................................................... (492,690) (225,131)
Decrease (increase) in other current assets...................................... 68,896 (95,939)
Increase (decrease) in accounts payable.......................................... 802,981 (1,401,834)
Decrease in accrued expenses and other current liabilities....................... (16,607) (271,005)
Decrease (increase) in due from Parent and affiliated companies--net............. (797,048) 1,391,145
Decrease in federal and state income taxes due to Parent......................... (136,000) (767,000)
----------- -----------
Net cash provided by (used in) operating activities............................ 495,299 (455,068)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................. (294,958) (102,768)
----------- -----------
Net cash used in investing activities.......................................... (294,958) (102,768)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) proceeds from long-term debt--net....................................... (862,476) 1,235,932
Proceeds from loan payable -affiliated company....................................... 400,000 --
Dividend paid to Parent.............................................................. (750,000) (850,000)
----------- -----------
Net cash (used in) provided by financing activities............................ (1,212,476) 385,932
----------- -----------
NET DECREASE IN CASH................................................................... (1,012,135) (171,904)
CASH, BEGINNING OF PERIOD.............................................................. 1,029,774 198,441
----------- -----------
CASH, END OF PERIOD.................................................................... $ 17,639 $ 26,537
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................................. $ 387,866 $ 395,940
----------- -----------
----------- -----------
Income taxes paid to Parent.......................................................... $ 4,000 $ 26,000
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited financial statements.
F-30
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements of Eagle Supply, Inc. (the "Company"), a
wholly-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent") have
been prepared by the Company, which is responsible for their integrity and
objectivity, without audit. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of financial position, results of operations and cash flows have been included.
These financial statements, which, to the best of management's knowledge and
belief, were prepared in accordance with generally accepted accounting
principles, should be read in conjunction with the financial statements of the
Company for the fiscal years ended June 30, 1997 and 1996 and notes thereto
included elsewhere in this Prospectus. Operating results for the interim period
are not necessarily indicative of results for the entire year.
2. IMPROVEMENTS AND EQUIPMENT
The major classes of property, plant and equipment at February 28, 1998 are
as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
-----------
<S> <C> <C>
Automotive equipment............................................... $ 1,942,690 5 years
Furniture, fixtures and equipment.................................. 2,209,758 5- 7 years
Leasehold improvements............................................. 716,053 10 years
------------
4,868,501
Less: Accumulated depreciation and amortization.................... 3,829,080
------------
$ 1,039,421
------------
------------
</TABLE>
3. LONG-TERM DEBT
The Company is a party to a Loan Agreement which provides for secured
borrowing consisting of a four-year revolving credit facility in the amount of
$7,500,000, guaranteed by TDA. On April 27, 1998, this facility was extended to
the year 2002. Obligations under the revolving credit facility are
collateralized by certain current assets of the Company. Borrowings are based on
a formula relating to certain levels of receivables and inventory, as defined.
Interest only is payable monthly at a floating rate equal to the lender's prime
rate, plus one-half percent, or at the London interbank offered rate, plus two
and one-half percent, at the option of the Company.
4. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES
During the eight months ended February 28, 1998, a subsidiary of TDA made a
loan to the Company in the amount of $400,000 as a short-term working capital
advance. This loan is non-interest bearing and is due on demand. Fees of
approximately $33,000 have been charged to the Company by TDA in each of the
eight-month periods ended February 28, 1998 and 1997. Such fees represent audit
fees and accounting services incurred on behalf of the Company.
During the eight-month period ended February 28, 1997, the Company loaned
various amounts for varying periods to a subsidiary of TDA. The highest balance
outstanding at any time during such periods
F-31
<PAGE>
EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998 AND 1997
4. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES (CONTINUED)
was $250,000. Such amounts were repaid prior to February 28, 1997 with interest
computed at the rate of 9 1/4% per annum. No such loans were made during the
eight-month period ended February 28, 1998.
The following is a reconciliation of the activity in the Due from Parent and
Affiliated Companies account for the eight-month period ended February 28, 1998:
<TABLE>
<S> <C>
Balance, beginning of period................................ $2,042,127
Fees for auditing and accounting services................. (33,333)
Cash advances--net........................................ 830,381
----------
Balance, end of period...................................... $2,839,175
----------
----------
</TABLE>
5. CONTEMPLATED AND OTHER TRANSACTIONS WITH RELATED PARTIES
The Company's President and Senior Vice President--Operations receive, on an
"at will" basis, salaries of $50,000 and $25,000 per year, respectively.
Pursuant to their "at will" arrangements, these individuals are also entitled to
receive 20% and 6%, respectively, of the Company's income before taxes in excess
of $600,000 per year.
In September 1997, Eagle Supply Group, Inc. ("Eagle"), a majority-owned
subsidiary of TDA, signed a letter of intent with an underwriter for an initial
public offering (the "Offering"). The Offering is expected to be for 2,000,000
common shares, par value $.0001 per share, of Eagle and 2,500,000 redeemable
common share purchase warrants.
Upon closing of the Offering, Eagle will acquire all of the issued and
outstanding capital stock of the Company from its Parent. The acquisition will
be accounted for as the combining of two entities under common control, similar
to a pooling of interests, and will not result in any revaluation of the
Company's assets or the creation of goodwill. Upon the consummation of the
acquisition, the Company will become a wholly-owned subsidiary of Eagle.
6. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
PERIOD ENDING BEGINNING BALANCE AT
FEBRUARY 28, OF PERIOD PROVISION WRITE-OFFS END OF PERIOD
- --------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
1997........ $ 751,376 $ 181,793 $ (319,905) $ 613,264
---------- ---------- ----------- -------------
---------- ---------- ----------- -------------
1998........ $ 449,611 $ 170,509 $ (105,120) $ 515,000
---------- ---------- ----------- -------------
---------- ---------- ----------- -------------
</TABLE>
* * * * *
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
JEH Company, Inc.
We have audited the accompanying balance sheet of JEH Company, Inc. (a Texas
corporation) as of June 30, 1997, and the related statement of operations and
retained earnings, and cash flows for the six months then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JEH Company, Inc. as of June
30, 1997, and the results of its operations and its cash flows for the six
months then ended in conformity with generally accepted accounting principles.
/s/ Waters, Murray & Associates
August 20, 1997
F-33
<PAGE>
JEH COMPANY, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 284,428
Accounts receivable-trade, net of allowance for doubtful accounts of
$2,554,056 (Notes C and G)................................................. 8,127,463
Accounts receivable--related party (Note B).................................. 138,654
Inventories (Notes A and G).................................................. 9,409,302
Other receivables............................................................ 664,696
----------
Total current assets....................................................... 18,624,543
FIXED ASSETS--NET OF ACCUMULATED DEPRECIATION (NOTES A,D, F AND G)............. 2,114,523
OTHER ASSETS (NOTE E).......................................................... 1,029,648
----------
TOTAL ASSETS................................................................... $21,768,714
----------
----------
LIABILITIES & SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable............................................................. $7,575,628
Accrued expenses............................................................. 1,476,133
Current portion of long-term debt (Note G)................................... 8,450,642
Obligation under capital leases-current portion.............................. 19,299
----------
Total current liabilities.................................................. 17,521,701
----------
LONG-TERM LIABILITIES
Note payable to shareholder (Note B)......................................... 3,486,991
----------
Total long-term liabilities................................................ 3,486,991
----------
TOTAL LIABILITIES.............................................................. 21,008,692
----------
COMMITMENTS AND CONTINGENCIES (NOTE H)
SHAREHOLDER'S EQUITY...........................................................
Common stock, $1 par value, 100,000 shares authorized, 1,000 issued and
outstanding................................................................ 1,000
Additional paid in capital................................................... 126,967
Retained earnings............................................................ 632,054
----------
Total shareholder's equity................................................. 760,021
----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY....................................... $21,768,714
----------
----------
</TABLE>
See accompanying notes and auditor's report
F-34
<PAGE>
JEH COMPANY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
NET SALES.......................................................................... $ 28,978,685 $ 32,860,284
COST OF SALES...................................................................... 21,354,749 25,775,974
------------- -------------
Gross profit..................................................................... 7,623,936 7,084,310
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................... 8,331,690 5,887,103
------------- -------------
(Loss) income from operations.................................................... (707,754) 1,197,207
------------- -------------
OTHER INCOME (EXPENSE)
Other income..................................................................... 1,384 6,166
Interest expense................................................................. (472,926) (396,858)
------------- -------------
(471,542) (390,692)
------------- -------------
Net (loss) income................................................................ (1,179,296) 806,515
RETAINED EARNINGS:
Beginning of period.............................................................. 1,811,350 1,640,461
------------- -------------
End of period.................................................................... $ 632,054 $ 2,446,976
------------- -------------
------------- -------------
</TABLE>
See accompanying notes and auditor's report
F-35
<PAGE>
JEH COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................................................... $ (1,179,296) $ 806,515
Adjustments to reconcile net (loss) income to cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 277,387 307,471
Gain on sale of assets........................................................ (16,278) (27,570)
Changes in assets and liabilities
Accounts receivable......................................................... 983,397 (2,438,493)
Inventory................................................................... (1,400,333) (1,847,217)
Accounts payable and accrued expenses....................................... 2,814,718 2,799,223
Other assets................................................................ (622,337) 102,860
Related party receivable.................................................... 8,652 (72,453)
-------------- --------------
Total adjustments........................................................... 2,045,206 (1,176,179)
-------------- --------------
Net cash provided by (used in) operating activities............................. 865,910 (369,664)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (435,860) (55,450)
Proceeds from sale of assets.................................................... 42,839 84,200
Increase in other non-current assets............................................ (56,655) (85,572)
-------------- --------------
Net cash (used in) provided by investing activities............................. (449,676) (56,822)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal borrowings on long-term debt.......................................... 16,848,841 16,217,940
Principal reductions on long-term debt.......................................... (15,943,456) (14,870,984)
Principal borrowings on capital leases.......................................... 8,713 --
Principal reductions on capital leases.......................................... (5,431) (12,245)
Principal reductions on note payable to shareholder............................. (1,238,414) (1,656,448)
-------------- --------------
Net cash used in financing activities........................................... (329,747) (321,737)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................................... 86,487 (748,223)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 197,941 1,038,229
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 284,428 $ 290,006
-------------- --------------
-------------- --------------
SUPPLEMENTAL INFORMATION
Cash paid for interest expense.................................................. $ 472,926 $ 396,858
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes and auditor's report
F-36
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of JEH Company, Inc. (the
Company), is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
The statements of operations and retained earnings and cash flows for the
six months ended June 30, 1996 are unaudited. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for the fair
presentation of results of operations and cash flows have been included. These
unaudited financial statements, which to the best of management's' knowledge and
belief, were prepared in accordance with generally accepted accounting
principles, should be read in conjunction with the financial statements of the
Company for the years ended December 31, 1996, 1995 and 1994 and the notes
thereto included elsewhere in this Prospectus. Operating results for the interim
periods are not necessarily indicative of results for the entire year.
ORGANIZATION
The Company, a Texas corporation, was incorporated in May 1982. The Company
is engaged primarily in the sale of building materials to roofing contractors.
The Company's home office and primary outlet is in Mansfield, Texas, with other
locations in Texas, Colorado, Virginia, Indiana and Iowa. The accompanying
financial statements are prepared utilizing the accrual method of accounting
whereby revenue is recognized when earned and expenses are recognized when
incurred.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents.
INVENTORIES
Inventories, which consist primarily of roofing materials, are stated at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments". The estimated fair value amounts have been determined by
the companies, using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
companies could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
F-37
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Transportation equipment, furniture and fixtures, and equipment are carried
at cost. Expenditures for renewals and betterments are capitalized and
maintenance and repairs are expensed as incurred. Depreciation is computed using
the straight-line method over the useful life of the depreciable asset.
Leasehold improvements are carried at cost and are amortized using the
straight-line method over the estimated useful life of the related asset.
INCOME TAXES
In July 1990, the Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the shareholder
is liable for individual income taxes on the Company's taxable income. Although
the income recognition timing differences originating before attaining S
corporation status will reverse, they will not generate a tax liability at the
Company level so long as S corporation status is maintained.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for the six months ended June 30, 1996 have been
reclassified to conform to the June 30, 1997 presentation. The reclassifications
have no effect on the results of operations for the six months ended June 30,
1996.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leases its office facilities in Mansfield, Frisco, Mesquite and
Colleyville, Texas, and in Colorado Springs and Henderson, Colorado, from the
Company's shareholder. No long-term lease agreements exist for these sites.
Facility rent paid during the six-month periods ended June 30, 1997 and 1996
amounted to approximately $228,000 and $223,000, respectively.
The Company transacts business with other companies which are either owned
by the Company's shareholder, or owned by relatives of the Company's
shareholder. A summary of these transactions in the six-month period ended June
30, 1997 is as follows:
<TABLE>
<CAPTION>
RELATED
TOTAL SALES RECEIVABLES
----------- -----------
<S> <C> <C>
$ 326,824 $ 138,654
----------- -----------
----------- -----------
</TABLE>
Amounts due to the Company's shareholder approximated $3,487,000 at June 30,
1997.
F-38
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
NOTE B--RELATED PARTY TRANSACTIONS (CONTINUED)
Compensation paid to the Company's sole shareholder during the six-month
periods ended June 30, 1997 and 1996 was approximately $120,000 and $116,000,
respectively.
Related companies participate with the Company in its employee benefit
programs; costs associated with the related companies are reimbursed to the
Company. (See Note I).
NOTE C--CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company sells primarily to
customers in Texas and Colorado. A summary of these transactions for the
six-month period ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
TOTAL SALES:
<S> <C>
Texas...................................................................... $ 17,895,853
Colorado................................................................... 9,161,018
Indiana.................................................................... 1,888,289
Virginia................................................................... 33,525
-------------
$ 28,978,685
-------------
-------------
Accounts Receivable--Net:
Texas...................................................................... $ 5,625,048
Colorado................................................................... 4,501,130
Indiana.................................................................... 660,470
Virginia................................................................... 33,525
-------------
$ 10,820,173
Less: Related party........................................................ (138,654)
Less: Allowance for doubtful accounts...................................... (2,554,056)
-------------
$ 8,127,463
-------------
-------------
</TABLE>
NOTE D--FIXED ASSETS
Fixed assets, which are stated at cost, at June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
----------------
<S> <C> <C>
Transportation equipment..................................... $ 2,994,473 5 to 7 years
Furniture & fixtures......................................... 140,716 5 to 7 years
Leasehold improvements....................................... 578,991 5 to 31.5 years
Equipment.................................................... 996,755 5 to 10 years
------------
4,710,935
Less: Accumulated depreciation............................... (2,596,412)
------------
$ 2,114,523
------------
------------
</TABLE>
F-39
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
NOTE E--OTHER ASSETS
The Company's other assets at June 30, 1997 consist of the following:
<TABLE>
<S> <C>
Cash surrender value of life insurance.......................... $ 808,400
Notes receivable................................................ 189,252
Deposits and prepayments........................................ 31,996
---------
$1,029,648
---------
---------
</TABLE>
The above Cash Surrender Value of Insurance represents the cash value of
several insurance policies carried on the life of the Company's shareholder. The
combined face values of the policies are $10,064,007 of which the Company is the
owner and primary beneficiary.
NOTE F--CAPITAL LEASES
Certain equipment is being held under a number of noncancelable capital
leases with terms ranging from thirty-six to sixty months. These assets are
stated on the balance sheet with equipment and amounted to $29,630. Accumulated
depreciation on these assets amounted to $27,157.
NOTE G--LONG-TERM DEBT
The Company's long-term debt at June 30, 1997 consist of the following:
<TABLE>
<S> <C>
$7,500,000 revolving line of credit to bank, secured by inventory and accounts
receivable; interest payable at 8.25% per annum; matures in June, 1997,
repaid on July 8, 1997....................................................... $7,500,000
Equipment note payable to bank, payable monthly with interest at 9.5% per annum
through July, 1997; collateralized by equipment.............................. 323,149
Equipment note payable to bank, payable monthly with interest at 9% per annum
through July, 1999; collateralized by equipment.............................. 366,659
Equipment note payable to bank, payable monthly with interest at 7% per annum
through July, 1997; collateralized by equipment.............................. 260,834
---------
8,450,642
Less: Current portion.......................................................... 8,450,642
---------
Long-term portion.............................................................. $ --
---------
---------
</TABLE>
NOTE H--LEASE COMMITMENTS
The Company leases certain office and warehouse facilities under
noncancelable operating leases which expire on various dates through 2002. Total
rent expense to unrelated third parties for the six-month periods ended June 30,
1997 and 1996 was approximately $106,000 and $175,000, respectively.
F-40
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND UNAUDITED JUNE 30, 1996
NOTE H--LEASE COMMITMENTS (CONTINUED)
Future minimum annual rentals are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997............................................................................. $ 269,000
1998............................................................................. 134,000
1999............................................................................. 67,000
2001............................................................................. 67,000
2002............................................................................. 17,000
----------
$ 554,000
----------
----------
</TABLE>
NOTE I--DEFINED CONTRIBUTION PLAN
Employees of the Company are eligible to be participants in the retirement
plan of JEH Company, Inc. The plan is a non-qualified defined contribution plan
to which the Company contributes an amount equal to 50% of the employee's
contribution up to a total company contribution of $50 per month on after tax
basis. The Company contributed approximately $3,900 and $4,100 in 1997 and 1996,
respectively.
NOTE J--SUBSEQUENT EVENT
In early July 1997, the Company sold its roofing business including most of
its operating assets in exchange for $14,850,000 and the buyer assumed most of
its trade payables and accrued liabilities.
A summary of the transaction, which was effective as of July 1, 1997, is as
follows:
<TABLE>
<S> <C> <C>
Total operating assets sold..................... $20,771,000
Debt assumed by purchaser....................... (8,816,000)
----------
Net assets sold............................. $11,955,000
----------
Sale price
Cash........................................ $13,850,000
Five-year note.............................. 1,000,000
----------
$14,850,000
----------
----------
</TABLE>
In connection with the closing of this transaction, the Company repaid its
notes payable and capital lease obligations to other than related parties
(approximately $8,560,000).
NOTE K--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
PERIOD ENDED BEGINNING RECOVERIES/ BALANCE AT
JUNE 30, OF PERIOD PROVISION (WRITE-OFFS) END OF PERIOD
- ---------------------------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
1996.............................. $ 181,336 $ 328,060 $ 8,634 $ 518,030
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
1997.............................. $ 181,336 $ 2,383,218 $ (10,498) $ 2,554,056
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
</TABLE>
* * * * *
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
JEH Company, Inc.
We have audited the accompanying balance sheets of JEH Company, Inc. (a
Texas corporation) as of December 31, 1996 and 1995, and the related statements
of operations and retained earnings, and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JEH Company, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ Waters, Murray & Associates
August 20, 1997
F-42
<PAGE>
JEH COMPANY, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................ $ 197,943 $ 1,038,229
Accounts receivable-trade, net of allowance for doubtful accounts of $321,718 in
1996 and $181,336 in 1995 (Notes C and G)...................................... 9,128,164 7,343,865
Accounts receivable--related party (Note B)...................................... 130,002 133,476
Inventories (Notes A and G)...................................................... 8,008,969 7,152,389
Other receivables................................................................ 42,359 135,630
------------- -------------
Total current assets........................................................... 17,507,437 15,803,589
FIXED ASSETS--NET OF ACCUMULATED DEPRECIATION (NOTES A,D, F AND G)................. 1,982,610 2,555,356
OTHER ASSETS (NOTE E).............................................................. 972,993 783,171
------------- -------------
TOTAL ASSETS....................................................................... $ 20,463,040 $ 19,142,116
------------- -------------
------------- -------------
LIABILITIES & SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable................................................................. $ 8,114,195 $ 6,319,214
Accrued expenses................................................................. 912,071 916,954
Current portion of long-term debt (Note G)....................................... 4,380,179 5,091,985
Obligation under capital leases-current portion (Note F)......................... 9,942 19,341
------------- -------------
Total current liabilities...................................................... 13,416,387 12,347,493
------------- -------------
LONG-TERM LIABILITIES
Long-term debt less current portion (Note G)..................................... 375,856 387,342
Obligation under capital leases (Note F)......................................... 6,075 15,965
Note payable to shareholder (Note B)............................................. 4,725,405 4,622,887
------------- -------------
Total long-term liabilities.................................................... 5,107,335 5,026,194
------------- -------------
TOTAL LIABILITIES.................................................................. 18,523,723 17,373,687
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE H)
SHAREHOLDER'S EQUITY
Common stock, $1 par value, 100,000 shares authorized, 1,000 issued and
outstanding.................................................................... 1,000 1,000
Additional paid in capital....................................................... 126,967 126,967
Retained earnings................................................................ 1,811,350 1,640,461
------------- -------------
Total shareholder's equity..................................................... 1,939,317 1,768,428
------------- -------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY........................................... $ 20,463,040 $ 19,142,116
------------- -------------
------------- -------------
</TABLE>
See accompanying notes and auditor's report
F-43
<PAGE>
JEH COMPANY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 74,893,485 $ 73,821,881 $ 58,301,755
Cost of sales....................................................... 59,142,963 57,422,141 46,530,465
------------- ------------- -------------
Gross profit...................................................... 15,750,521 16,399,741 11,771,290
Selling, general and administrative expenses........................ 14,818,402 15,984,277 11,304,852
------------- ------------- -------------
Income from operations............................................ 932,119 415,464 466,438
------------- ------------- -------------
Other income (expense)
Interest income................................................... 5,217 11,049 13,684
Interest expense.................................................. (766,448) (549,681) (441,340)
------------- ------------- -------------
(761,230) (538,632) (427,656)
------------- ------------- -------------
Net income (loss)................................................. 170,889 (123,169) 38,782
Retained Earnings:
At beginning of year.............................................. 1,640,461 1,763,630 1,724,848
------------- ------------- -------------
At end of year.................................................... $ 1,811,350 $ 1,640,461 $ 1,763,630
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes and auditor's report
F-44
<PAGE>
JEH COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 170,889 $ (123,169) $ 38,782
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization.................................... 613,169 642,595 529,716
Gain on sale of assets........................................... (32,968) (35,913) (7,337)
Changes in assets and liabilities
Accounts receivable............................................ (1,924,680) (1,554,563) (2,163,480)
Inventory...................................................... (856,580) (1,640,702) (1,106,752)
Accounts payable and accrued expenses.......................... 1,681,862 (108,235) 2,273,790
Other assets................................................... 292,269 (59,733) (307,050)
Related party receivable....................................... 3,474 135,178 (184,170)
------------- ------------- -------------
Total adjustments............................................ (223,454) (2,621,373) (965,283)
------------- ------------- -------------
Net cash used in operating activities................................ (52,565) (2,744,542) (926,501)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (155,803) (575,982) (1,746,406)
Proceeds from sale of assets....................................... 127,936 114,250 62,635
Decrease in notes receivable-related party......................... -- 523,137 46,863
------------- ------------- -------------
Net cash (used in) provided by investing activities.......... (27,867) 61,405 (1,636,908)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal borrowings on long-term debt............................. 39,090,625 29,252,866 36,606,449
Principal reductions on long-term debt............................. (39,813,916) (28,298,968) (34,133,190)
Principal reductions on capital leases............................. (19,019) (44,537) (59,464)
Principal reductions on note payable to shareholder................ (3,095,847) (3,084,854) (1,759,820)
Borrowings under note payable to shareholder....................... 3,078,302 5,412,180 1,803,250
------------- ------------- -------------
Net cash (used in) provided by financing activities.......... (759,854) 3,236,687 2,457,225
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (840,286) 553,550 (106,184)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,038,229 484,679 590,863
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 197,943 $ 1,038,229 $ 484,679
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest expense..................................... $ 766,448 $ 549,681 $ 441,340
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes and auditor's report
F-45
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of JEH Company, Inc. (the
Company), is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
ORGANIZATION
The Company, a Texas corporation, was incorporated in May 1982. The Company
is engaged primarily in the sale of building materials to roofing contractors.
The Company's home office and primary outlet is in Mansfield, Texas, with other
locations in Texas, Colorado, Virginia, Indiana and Iowa. In 1995 and 1994, the
Company also had locations in Oklahoma and Kansas. The accompanying financial
statements are prepared utilizing the accrual method of accounting whereby
revenue is recognized when earned and expenses are recognized when incurred.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents.
INVENTORIES
Inventories, which consist primarily of roofing materials, are stated at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments". The estimated fair value amounts have been determined by
the companies, using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
companies could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
FIXED ASSETS
Transportation equipment, furniture and fixtures, and equipment are carried
at cost. Expenditures for renewals and betterments are capitalized and
maintenance and repairs are expensed as incurred. Depreciation is computed using
the straight-line method over the useful life of the depreciable asset.
Leasehold improvements are carried at cost and are amortized using the
straight-line method over the estimated useful life of the related asset.
F-46
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
In July 1990, the Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the shareholder
is liable for individual income taxes on the Company's taxable income. Although
the income recognition timing differences originating before attaining S
corporation status will reverse, they will not generate a tax liability at the
Company level so long as S corporation status is maintained.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for the years ended December 31, 1995 and 1994 have been
reclassified to conform to the December 31, 1996 presentation. The
reclassifications have no effect on the results of operations for the years
ended December 31, 1995 and 1994.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leases its office facilities in Mansfield, Frisco, Mesquite and
Colleyville, Texas, and in Colorado Springs and Henderson, Colorado, from the
Company's shareholder. No long-term lease agreements exist for these sites.
Facility rent paid during each of the years ended December 31, 1996, 1995 and
1994 amounted to approximately $428,000, $331,000 and $259,000, respectively.
The Company transacts business with other companies, which are either owned
by the Company's shareholder, or owned by relatives of the Company's
shareholder. A summary of these transactions in each of the years ended December
31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDED DECEMBER 31, TOTAL SALES RECEIVABLES
- --------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
1996................................................................................... $ 992,565 $ 130,002
------------ -----------
------------ -----------
1995................................................................................... $ 1,627,855 $ 133,476
------------ -----------
------------ -----------
1994................................................................................... $ 5,539,712 $ 268,564
------------ -----------
------------ -----------
</TABLE>
Amounts due to the Company's shareholder approximated $4,725,000,
$4,623,000, and $2,296,000 at December 31, 1996, 1995 and 1994, respectively.
Compensation paid to the Company's sole shareholder during each of the years
ended December 31, 1996, 1995 and 1994 was approximately $2,330,000, $3,988,000,
and $2,350,000, respectively. Such compensation included a base salary plus a
discretionary bonus.
F-47
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE B--RELATED PARTY TRANSACTIONS (CONTINUED)
Related companies participate with the Company in its employee benefit
programs; costs associated with the related companies are reimbursed to the
Company. (See Note I).
NOTE C--CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company sells primarily to
customers in Texas and Colorado. A summary of these transactions for each of the
years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
TOTAL SALES: 1996 1995 1994
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Texas............................................................... $ 50,972,325 $ 57,104,971 $ 44,108,845
Colorado............................................................ 20,433,490 16,716,910 8,798,940
Indiana............................................................. 3,487,670 -- --
Oklahoma & Kansas................................................... -- -- 5,393,970
------------- ------------- -------------
$ 74,893,485 $ 73,821,881 $ 58,301,755
------------- ------------- -------------
------------- ------------- -------------
Accounts Receivable--Net:
Texas............................................................... $ 4,895,660 $ 5,035,349
Colorado............................................................ 4,414,432 2,617,777
Indiana............................................................. 269,792 --
Oklahoma & Kansas................................................... -- 5,551
------------- -------------
$ 9,579,884 $ 7,658,677
Less: Related party................................................. (130,002) (133,476)
Less: Allowance for doubtful accounts............................... (321,718) (181,336)
------------- -------------
$ 9,128,164 $ 7,343,865
------------- -------------
------------- -------------
</TABLE>
NOTE D--FIXED ASSETS
Fixed assets, which are stated at cost, consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1996 1995 LIVES
------------ ------------ ---------------
<S> <C> <C> <C>
Transportation equipment............................................. $ 2,648,369 $ 2,806,317 5 to 7 years
Furniture & fixtures................................................. 132,003 132,003 5 to 7 years
Leasehold improvements years......................................... 578,991 578,991 5 to 31.5 years
Equipment............................................................ 977,005 1,079,091 5 to 10 years
4,336,368 4,596,402
Less: Accumulated depreciation....................................... (2,353,758) (2,041,046)
------------ ------------
$ 1,982,610 $ 2,555,356
------------ ------------
------------ ------------
</TABLE>
F-48
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE E--OTHER ASSETS
The Company's other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash surrender value of insurance..................................... $ 725,647 $ 553,504
Note receivable....................................................... 212,940 206,361
Deposits and prepayments.............................................. 34,406 23,306
---------- ----------
$ 972,993 $ 783,171
---------- ----------
---------- ----------
</TABLE>
The above Cash Surrender Value of Insurance represents the cash value of
several insurance policies carried on the life of the Company's shareholder. The
combined face values of the policies are $10,064,007 of which the Company is the
owner and primary beneficiary.
NOTE F--CAPITAL LEASES
Certain equipment is being held under a number of noncancelable capital
leases with terms ranging from thirty-six to sixty months. These assets are
stated on the balance sheet with equipment and amounted to $126,252 in 1996 and
$210,490 in 1995. Accumulated depreciation on these assets amounted to $95,570
in 1996 and $124,507 in 1995.
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Year ending December 31,
1996............................................................ $ -- $ 33,612
1997............................................................ 10,620 10,620
1998............................................................ 6,075 5,310
--------- ---------
Total lease payments............................................ 16,695 49,542
Less amount representing interest............................... 678 14,236
--------- ---------
Present value of future minimum lease payments.................. $ 16,017 $ 35,306
--------- ---------
--------- ---------
</TABLE>
This amount is stated on the balance sheet as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Obligations under capital leases........................................ $ 16,017 $ 35,306
Less: Current portion................................................... (9,942) (19,341)
--------- ---------
Long-term portion....................................................... $ 6,075 $ 15,965
--------- ---------
--------- ---------
</TABLE>
F-49
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE G--LONG-TERM DEBT
The Company's long-term debt consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
$6,000,000 revolving line of credit to bank, secured by inventory
and accounts receivable; interest payable at 8.25% per annum;
matures in June, 1997........................................... $ 3,970,618 $ 4,300,000
Equipment note payable to bank, payable monthly with interest at
9.5% per annum through June, 1999; collateralized by
equipment....................................................... 403,274 553,309
Equipment note payable to bank, payable monthly with interest at
7% per annum through June, 1998; collateralized by equipment.... 382,143 617,467
Other note payable................................................ -- 8,551
------------ ------------
4,756,035 5,479,327
Less: Current portion............................................. 4,380,179 5,091,985
------------ ------------
Long-term portion................................................. $ 375,856 $ 387,342
------------ ------------
------------ ------------
</TABLE>
Aggregate maturities under this debt for the years subsequent to December
31, 1996, are as follows:
<TABLE>
<S> <C>
1997............................................................ $4,380,179
1998............................................................ $ 297,976
1999............................................................ 77,880
---------
$4,756,035
---------
---------
</TABLE>
NOTE H--LEASE COMMITMENTS
The Company leases certain office and warehouse facilities under
noncancelable operating leases, which expire on various dates through 2002.
Total rent expense to unrelated third parties for the years ended 1996, 1995 and
1994 was approximately $189,000, $207,000 and $275,000, respectively.
Future minimum annual rentals are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997...................................................... $ 275,000
1998...................................................... 269,000
1999...................................................... 135,000
2000...................................................... 67,000
2001...................................................... 67,000
2002...................................................... 17,000
---------
$ 830,000
---------
---------
</TABLE>
F-50
<PAGE>
JEH COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE I--DEFINED CONTRIBUTION PLAN
Employees of the Company are eligible to be participants in the retirement
plan of JEH Company, Inc. The plan is a non-qualified defined contribution plan
to which the Company contributes an amount equal to 50% of the employee's
contribution up to a total company contribution of $50 per month on after tax
basis. The Company contributed approximately $5,300, $9,000 and $8,000 in 1996,
1995 and 1994, respectively.
NOTE J--SUBSEQUENT EVENT
In early July 1997, the Company sold its roofing business including most of
its operating assets in exchange for $14,850,000 and the buyer assumed most of
its trade payables and accrued liabilities.
A summary of the transaction, which was effective as of July 1, 1997, is as
follows:
<TABLE>
<S> <C> <C>
Total operating assets sold........................ $20,771,000
Debt assumed by purchaser.......................... (8,816,000)
----------
Net assets sold.................................. $11,955,000
----------
----------
Sale price
Cash............................................. $13,850,000
Five-year note................................... 1,000,000
----------
$14,850,000
----------
----------
</TABLE>
In connection with the closing of this transaction, the Company repaid its
notes payable and capital lease obligations to other than related parties
(approximately $8,560,000).
NOTE K--ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
YEAR ENDED BEGINNING BALANCE AT
DECEMBER 31, OF YEAR PROVISION WRITE-OFFS END OF YEAR
- ------------------------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1994....................................... $ 184,905 $ 255,638 $ (259,207) $ 181,336
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
1995....................................... $ 181,336 $ 334,732 $ (334,732) $ 181,336
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
1996....................................... $ 181,336 $ 844,235 $ (703,853) $ 321,718
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
* * * * *
F-51
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED BALANCE SHEET
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................... $ 20,812
Accounts receivable--trade (net of allowance for doubtful accounts of
$332,000) (Note 4)......................................................... 10,223,830
Inventories (Note 4)......................................................... 8,488,117
Deferred tax asset........................................................... 133,833
Due from related party (Note 2).............................................. 250,000
Other current assets......................................................... 122,752
----------
Total current assets....................................................... 19,239,344
IMPROVEMENTS AND EQUIPMENT (net of accumulated depreciation and amortization)
(Note 3)..................................................................... 2,156,556
EXCESS COST OF INVESTMENT OVER NET ASSETS ACQUIRED (net of accumulated
amortization) (Note 2)....................................................... 2,757,077
DEFERRED FINANCING COSTS (Note 2).............................................. 251,600
----------
$24,404,577
----------
----------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $5,792,726
Accrued expenses and other current liabilities............................... 1,500,350
Current portion of long-term debt (Note 4)................................... 1,012,370
Federal and state income taxes due to Parent................................. 156,000
----------
Total current liabilities.................................................. 8,461,446
LONG-TERM DEBT (Note 4)........................................................ 14,164,276
DUE TO PARENT AND AFFILIATED COMPANIES (Note 5)................................ 114,833
DEFERRED TAX LIABILITY......................................................... 19,000
----------
Total liabilities.......................................................... 22,759,555
----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6)
SHAREHOLDER'S EQUITY (Note 1):
Common shares, $.01 par value per share, 3,000 shares authorized, issued and
outstanding................................................................ 30
Additional paid-in capital................................................... 1,349,970
Retained earnings............................................................ 295,022
----------
Total shareholder's equity................................................. 1,645,022
----------
$24,404,577
----------
----------
</TABLE>
See notes to unaudited financial statements.
F-52
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENTS OF OPERATIONS
EIGHT MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C>
REVENUES....................................................................... $44,787,018
COST OF SALES.................................................................. 34,674,992
----------
10,112,026
----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ( including a provision for
doubtful accounts of $332,068)............................................... 8,542,077
DEPRECIATION................................................................... 219,056
AMORTIZATION OF EXCESS OF COST OF INVESTMENT OVER NET ASSETS ACQUIRED.......... 128,326
AMORTIZATION OF DEFERRED FINANCING COSTS....................................... 38,708
----------
8,928,167
----------
INCOME FROM OPERATIONS......................................................... 1,183,859
----------
OTHER INCOME (EXPENSE):
Interest income................................................................ 16,779
Interest expense............................................................... (749,616)
----------
(732,837)
----------
INCOME BEFORE PROVISION FOR INCOME TAXES....................................... 451,022
PROVISION FOR INCOME TAXES..................................................... 156,000
----------
NET INCOME..................................................................... $ 295,022
----------
----------
</TABLE>
See notes to unaudited financial statements.
F-53
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
UNAUDITED STATEMENT OF CASH FLOWS
EIGHT MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 295,022
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation............................................................... 219,146
Amortization of excess of cost of investment over net assets acquired...... 128,236
Amortization of deferred financing costs................................... 38,708
Deferred income taxes...................................................... (114,833)
Increase in allowance for doubtful accounts................................ 332,190
Changes in operating assets and liabilities:
Increase in accounts receivable.......................................... (2,289,904)
Decrease in inventories.................................................. 921,185
Decrease in other current assets......................................... 713,191
Decrease in accounts payable............................................. (1,683,842)
Increase in accrued expenses and other current liabilities............... 24,216
Increase in due to Parent and affiliated companies--net.................. 114,833
Increase in federal and state income taxes due to Parent................. 156,000
-----------
Net cash used in operating activities.................................. (1,145,852)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................................... (319,757)
Payment for purchase of JEH Eagle (Note 2)................................... (1,943,441)
-----------
Net cash used in investing activities.................................. (2,263,198)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt--net............................................ 1,795,434
Capital contribution from Parent............................................. 1,350,000
-----------
Net cash provided by financing activities.............................. 3,145,434
-----------
NET DECREASE IN CASH........................................................... (263,616)
CASH, BEGINNING OF PERIOD...................................................... 284,428
-----------
CASH, END OF PERIOD............................................................ $ 20,812
-----------
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................................... $ 749,616
-----------
-----------
Income taxes paid to Parent.................................................. $ 156,000
-----------
-----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of JEH Eagle:
Fair value of assets acquired.............................................. $24,027,355
Liabilities assumed........................................................ (8,960,882)
Due from related party..................................................... 250,000
Note issued to seller...................................................... (873,032)
Bank debt incurred......................................................... (12,500,000)
-----------
Cash paid...................................................................... $ 1,943,441
-----------
-----------
</TABLE>
See notes to unaudited financial statements.
F-54
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED FEBRUARY 28, 1998
1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
The financial statements of JEH/Eagle Supply, Inc. (the "Company"), a
wholly-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent") have
been prepared by the Company, which is responsible for their integrity and
objectivity, without audit. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of financial position, results of operations and cash flows have been included.
These financial statements, which, to the best of management's knowledge and
belief, were prepared in accordance with generally accepted accounting
principles. Operating results for the interim period are not necessarily
indicative of results for the entire year.
In July, 1997, the Company was formed for the purpose of acquiring the
assets and business of JEH Company, Inc. ("JEH Co."). The Company received an
initial capital contribution from TDA of $1,350,000.
BUSINESS DESCRIPTION--JEH/Eagle Supply, Inc. (the "Company") is a
wholly-owned subsidiary of TDA Industries, Inc. ("TDA" or the "Parent) and is
engaged in the wholesale distribution of roofing supplies and related products
utilized primarily in the construction industry throughout Texas, Colorado,
Indiana and Virginia. The Company operates in a single industry segment.
INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined by using the first-in, first-out (FIFO) method.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization of improvements
and equipment are provided principally by an accelerated method at various rates
calculated to extinguish the carrying values of the respective assets over their
estimated useful lives.
INCOME TAXES--The Company is included in the consolidated Federal and state
income tax returns of its Parent. Income taxes are calculated on a separate
return filing basis.
LONG-LIVED ASSETS--Financial Accounting Standards Board Statement Number
121, "Accounting for the Impairment of Long-Lived assets and for Long-Lived
Assets to be Disposed of" requires that they be stated at the lower of the
expected net realizable value or cost. The carrying value of long-lived assets
is periodically reviewed to determine whether impairment exists. The review is
based on comparing the carrying amount of the asset to the undiscounted
estimated cash flows over the remaining useful lives. No impairment is indicated
as of June 30, 1997. The Company has adopted this statement and the impact has
not been significant.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value Of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that
F-55
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998
1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED
EXPENSES--The carrying amounts of these items are a reasonable estimate of their
fair value.
LONG-TERM DEBT--Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues for which no market quotes are available.
The carrying amount of this item is a reasonable estimate of fair value.
The fair value estimates presented herein are based on pertinent information
available to management as of February 28, 1998. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
2. ACQUISITION
On July 8, 1997, effective as of July 1, 1997, the Company acquired
substantially all of the assets and business of JEH Co., engaged in the
wholesale distribution of roofing supplies and related products utilized
primarily in the construction industry. The purchase price, as adjusted, was
$14,473,032 consisting of $13,600,000 in cash, net of $250,000 due from JEH Co.,
and a five-year, 6% per annum note in the principal amount of $873,032. The
purchase price and the note are subject to further adjustment under certain
conditions. Further, the Company is obligated for potentially substantial
additional payments if, among other factors, the business of the Company attains
certain levels of income, as defined, during the five-year period ending June
30, 2002. More specifically, JEH Co. or its designee is to receive a percentage
of the EBITDA or the modified EBITDA (as defined) of the Company (the "JEH
EBITDA") on a per year non-cumulative basis for each of the Company's fiscal
years ending on June 30 of 1998 through 2002 (the "Applicable Period"). If the
JEH EBITDA reaches $3,000,000, $4,000,000 and $5,000,000 in the foregoing fiscal
years, JEH Co. or its designee is to receive 35%, 40% and 50%, respectively, of
that fiscal year's JEH EBITDA. If the JEH EBITDA (plus $50,000 attributable to
an employment agreement) (x) for any fiscal year in the Applicable Period is not
less than $4,400,000, the Company is to pay JEH Co. or its designee $1,000,000,
provided that the aggregate amount of such payments is not to exceed $2,000,000;
and (y) in the aggregate during the Applicable Period is not less than
$20,000,000, the Company is to pay JEH Co. or its designee the sum of $1,350,000
plus the amount of the difference, if any, between $2,000,000 and the amount
paid under (x). Additionally, with respect to certain Total Accounts Receivable
Reserves, as defined (the "JEH Reserves"), which were established at date of
acquisition, if the Company reduces the amount of the JEH Reserves in any fiscal
year during the Applicable Period, JEH Co. or its designee is to be paid 100% of
the reduction until the JEH Reserves are not less than $2,500,000 and 50% of the
reduction in the JEH Reserves below $2,300,000 down to $600,000. Both of the
immediately foregoing percentage payments to JEH Co. or its designee are subject
to adjustment in certain events. Additionally, if the Offering described in Note
6 is consummated prior to June 30, 2002 and in the event certain JEH EBITDA
levels are reached for the Company during the period July 1, 1997 through the
date of consummation of the Offering, JEH Co. or its designee will be entitled
to receive $1,000,000 or $1,350,000 (either in cash or in common shares of the
Company valued at the public offering price) depending upon the JEH EBITDA
level. Upon consummation of the Offering and the sale of the Company as
described in
F-56
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998
2. ACQUISITION (CONTINUED)
Note 6, the Company will issue 300,000 of its common shares in fulfillment of
the obligation set forth in the immediately preceding sentence, even if the JEH
EBITDA does not reach the required levels.
The foregoing transaction was accounted for as a purchase and, accordingly,
the results of the operations acquired from JEH Co. have been included in the
statement of operations from the effective date of the acquisition. This
transaction gave rise to approximately $2,885,000 of goodwill which is being
amortized over a fifteen-year period.
The following unaudited pro forma operating information assumes that the
acquisition of JEH Eagle had instead occurred on July 1, 1996. Such pro forma
operating information does not purport to represent the actual results of
operations of the Company for the eight months ended February 28, 1997, nor is
it indicative of future operating results.
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
FEBRUAY 28, 1998
----------------
<S> <C>
Revenues.................................................................... $ 49,515,413
----------------
----------------
Income from operations...................................................... $ 2,365,796
----------------
----------------
Net income.................................................................. $ 1,161,903
----------------
----------------
</TABLE>
3. IMPROVEMENTS AND EQUIPMENT
The major classes of property, plant and equipment at February 28, 1998 are
as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
----------
<S> <C> <C>
Automotive equipment................................................ $ 1,513,221 5 years
Furniture, fixtures and equipment................................... 432,075 5-7 years
Leasehold improvements.............................................. 429,695 10 years
------------
2,374,991
Less: Accumulated depreciation and amortization..................... 218,435
------------
$ 2,156,556
------------
------------
</TABLE>
4. LONG-TERM DEBT
At February 28, 1998, long-term debt consists of the following:
<TABLE>
<S> <C>
Revolving credit loan (A)...................................... $10,065,463
Term loan (A).................................................. 2,562,500
Equipment loan (A)............................................. 1,581,500
6% promissory note due July 2002 (Note 2)...................... 873,032
Equipment notes--other......................................... 94,151
----------
15,176,646
Less: Current portion of long-term debt........................ 1,012,370
----------
$14,164,276
----------
----------
</TABLE>
F-57
<PAGE>
JEH/EAGLE SUPPLY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TDA INDUSTRIES, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
EIGHT MONTHS ENDED FEBRUARY 28, 1998
4. LONG-TERM DEBT (CONTINUED)
A) In order to finance the purchase of the assets and business of JEH Co.
and to provide for working capital needs, the Company entered into an agreement
for a five-year credit facility in the aggregate amount of $20 million which is
collateralized by substantially all of the tangible and intangible assets of the
Company. The credit facility consists of a $3,000,000 term loan, a $1,725,000
equipment loan, and the balance in the form of a revolving credit loan. The term
loan is payable in 48 equal monthly installments, each in the amount of $62,500;
the equipment loan is payable in equal monthly installments, based on a
seven-year amortization schedule, each in the amount of $20,536, with a balloon
payment of $492,840 due on the earlier of August 1, 2004 or the end of the loan
agreement's initial or renewal term. The equipment and revolving credit loans
bear interest at the lender's prime rate, plus one-half percent, or at the
London interbank offered rate, plus two and one-half percent, at the option of
the Company. The term loan bears interest at the lender's prime rate, plus one
and one-half percent, or at the London interbank offered rate, plus three and
one-quarter percent, at the option of the Company. The credit facility has been
guaranteed by TDA.
5. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES
JEH Eagle paid $150,000 to TDA for arranging the acquisition financing to
acquire JEH Co.'s business. Such amount is included in deferred financing costs
and is being amortized over the term of the credit facility.
6. CONTEMPLATED TRANSACTIONS WITH RELATED PARTIES
In September 1997, Eagle Supply Group, Inc. ("ESG"), a majority-owned
subsidiary of TDA, signed a letter of intent with an underwriter for an initial
public offering (the "Offering"). The Offering is expected to be for 2,000,000
common shares, par value $.0001 per share, of Eagle and 2,500,000 redeemable
common share purchase warrants.
Upon closing of the Offering, ESG will acquire all of the issued and
outstanding capital stock of the Company from its Parent. The acquisition will
be accounted for as the combining of two entities under common control, similar
to a pooling of interests, and will not result in any revaluation of the
Company's assets or the creation of additional goodwill. Upon the consummation
of the acquisition, the Company will become a wholly-owned subsidiary of ESG.
7. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
PERIOD ENDING BEGINNING BALANCE AT
FEBRUARY 28, OF PERIOD PROVISION RECOVERIES END OF PERIOD
- -------------------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
1998.......................................................... $ -- $ 332,068 $ 122 $ 332,190
---------- ---------- ----- -------------
---------- ---------- ----- -------------
</TABLE>
* * * * *
F-58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Dilution........................................
Use of Proceeds.................................
Capitalization..................................
Unaudited Pro Forma Condensed Consolidated
Financial Statements..........................
Selected Financial Information..................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
The Acquisitions................................
Business........................................
Management......................................
Principal Stockholders..........................
Certain Transactions............................
Description of Securities.......................
Shares Eligible for Future Sale.................
Underwriting....................................
Selling Securityholders.........................
The Acquisitions Offering.......................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements...................
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
EAGLE SUPPLY GROUP, INC.
2,000,000 SHARES OF
COMMON STOCK AND
2,500,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
BARRON CHASE SECURITIES
7700 W. Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Atlanta, Georgia
Beverly Hills, California
Boston, Massachusetts
Chicago, Illinois
Clearwater, Florida
Duluth, Georgia
East Boca Raton, Florida
Edison, New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
LaJolla, California
Minneapolis, Minnesota
Naples, Florida
New York, New York
Orlando, Florida
Sarasota, Florida
Tampa, Florida
Tulsa, Oklahoma
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE COVER PAGE FOR SELLING SECURITYHOLDERS' AND ACQUISITIONS' PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 1, 1998
EAGLE SUPPLY GROUP, INC.
300,000 SHARES OF COMMON STOCK
---------------------
2,300,000 SHARES OF COMMON STOCK
---------------------
This Prospectus relates to the potential sale by certain selling
securityholders (the "Selling Securityholders") of 300,000 shares of common
stock (the "Common Stock") of Eagle Supply Group, Inc., a Delaware corporation
(the "Company"). None of the proceeds from the sale of the shares of the
Company's Common Stock by the Selling Securityholders will be received by the
Company. The Company will bear all expenses (other than selling commissions and
fees and expenses of counsel or other advisors to the Selling Securityholders)
in connection with the registration and sale of the Common Stock being offered
by the Selling Securityholders. The Selling Securityholders may not sell or
otherwise dispose of their shares of Common Stock underlying their Warrants for
a period of fifteen months from the date of this Prospectus without the
Underwriter's prior written consent.
The Common Stock will be offered by the Selling Securityholders in
transactions in the over-the-counter market, in negotiated transactions or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Securityholders
may effect such transactions by selling the Common Stock to or through
broker/dealers, and such broker/dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Common Stock for whom such broker/dealers may act as agent
or to whom they sell as principal, or both. The Selling Securityholders may be
deemed to be "underwriters" as defined in the Securities Act of 1933, as amended
(the "Securities Act"). If any broker/dealers are used by the Selling
Securityholders, any commission paid to broker/dealers and, if broker/ dealers
purchase any Common Stock as principals, any profits received by such
broker/dealers on the resales of the Securities may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any profits
realized by the Selling Securityholders may be deemed to be underwriter
commissions. All costs, expenses and fees in connection with the registration of
the Common Stock offered by Selling Securityholders will be borne by the
Company. Brokerage commissions, if any, attributable to the sale of the Common
Stock will be borne by the Selling Securityholders. See "Selling
Securityholders" and "The Acquisitions Offering."
This Prospectus also relates to the sale by the Company of 2,000,000 and
300,000 shares of the Company's Common Stock to be issued to TDA Industries,
Inc. ("TDA") and James E. Helzer, respectively, in connection with the
Acquisitions by the Company of Eagle Supply, Inc. and JEH/Eagle Supply, Inc.
occurring simultaneously with the Public Offering (as defined herein). TDA and
James E. Helzer have agreed not to sell or otherwise dispose of all such shares
and all other shares of the Company's Common Stock owned by them on the date
hereof without the Underwriter's prior written consent. See "The Acquisitions
Offering."
Concurrently with the commencement of this offering, the Company is
offering, by separate Prospectus, 2,000,000 shares of Common Stock and 2,500,000
Warrants (the "Public Offering") through Barron Chase Securities, Inc. the
Underwriter. It is anticipated that the offering by the Selling Securityholders
will not be commenced by any of the Selling Securityholders unless the Public
Offering is successfully completed, as unless it is so completed there will be
no expectation of a market developing for any of the Company's securities.
Prior to the Public Offering, there has been no public market for the Common
Stock or the Warrants. Although it is anticipated that the Common Stock and the
Warrants will be traded on the over-the-counter market on the OTC Bulletin
Board, there can be no assurance that a trading market in the Company's Common
Stock or Warrants will develop or if it does develop that it will be sustained.
The closing of the Public Offering is subject to the simultaneous acquisition by
the Company of Eagle Supply, Inc. and JEH/Eagle Supply, Inc.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 16 AND
"DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' AND ACQUISITIONS'
PROSPECTUS]
<TABLE>
<S> <C>
Securities Offered........................... 300,000 shares of Common Stock by the Selling
Securityholders and 2,300,000 shares of the
Company's Common Stock to be offered by the
Company in connection with the Acquisitions.
See "Description of Securities," the "Selling
Security-holders" and "The Acquisitions
Offering."
Common Stock Outstanding.....................
Before Public Offering..................... 4,700,000 shares(1)
After Public Offering...................... 6,700,000 shares(1)(2)
Use of Proceeds.............................. The Company will not receive any cash
proceeds from the Selling Securityholders
offering or the Acquisitions Offering.
However, the 2,300,000 shares of the
Company's Common Stock to be issued in the
Acquisitions Offering constitute part of the
consideration for the Acquisitions. See "Use
of Proceeds," "Capitalization," "Certain
Transactions," "Selling Securityholders" and
"The Acquisitions Offering."
Risk Factors................................. Investment in the Securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Symbols:(3)
Common Stock...............................
Warrants................................... W
</TABLE>
- ------------------------
(1) Includes 2,000,000 and 300,000 shares of Common Stock to be issued to TDA
and James E. Helzer, respectively, in connection with the Acquisitions. See
"Certain Transactions" and "The Acquisitions Offering."
(2) Includes the 2,000,000 shares of Common Stock to be issued in the Public
Offering but does not include (i) 300,000 shares of Common Stock, 375,000
Warrants and 375,000 shares of Common Stock underlying such Warrants subject
to the Underwriter's Overallotment Option; (ii) 2,500,000 shares of Common
Stock issuable upon the exercise of the Warrants to be sold in the Public
Offering; (iii) 300,000 shares of Common Stock issuable upon the exercise of
the Selling Securityholders' Warrants; (iv) 450,000 shares of Common Stock
issuable upon the exercise of the Underwriter's Warrant and Stock Warrant;
and (v) 1,000,000 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plan of which 700,000 shares of Common Stock are
reserved for options to be granted upon completion of the Public Offering.
See "Public Offering," "Management," "Certain Transactions," "Description of
Securities," the "Selling Securityholders" and "The Acquisitions Offering."
(3) There is no assurance that a trading market will develop for the Company's
Common Stock and Warrants or that, if developed, it will be sustained.
7
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS'
AND ACQUISITIONS' PROSPECTUS]
PUBLIC OFFERING
Concurrently with the Selling Securityholders' and The Acquisitions
Offerings, the Company is offering 2,000,000 shares of its Common Stock and
2,500,000 Warrants in the Public Offering through the Underwriter.
USE OF PROCEEDS
The Company will not receive any proceeds from the Selling Securityholders
or the Acquisitions Offering, although it will receive funds upon the exercise
of any of the Selling Securityholders' Warrants. The net proceeds to the Company
from the sale of 2,000,000 shares of Common Stock and 2,500,000 Warrants in the
Public Offering are estimated to be approximately $8,421,875 ($9,767,656 if the
Underwriter's Overallotment Option is exercised in full) after deducting
underwriting commissions and discounts and other expenses of the Public
Offering. The Company expects to use the net proceeds of the Public Offering
over the next twelve to twenty-four months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR AMOUNT APPROXIMATE
OF NET PERCENTAGE OF
APPLICATION OF NET PROCEEDS PROCEEDS NET PROCEEDS
- ----------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Finance the cash portion of potential acquisitions(1).............................. $ 2,500,000 29.6%
Additional Eagle and JEH Eagle distribution centers(2)............................. $ 2,176,000 25.8%
Reduce Eagle's and JEH Eagle's credit facility balances(3)......................... $ 2,000,000 23.7%
Capital Expenditures(4)............................................................ $ 700,000 8.3%
Repayment of Private Financing(5).................................................. $ 325,000 3.9%
Working Capital.................................................................... $ 720,875 8.6%
-------------- -----
Totals........................................................................... $ 8,436,250 100.0%
</TABLE>
- ------------------------
(1) Represents the approximate amount that may be used to fund the potential
acquisition of businesses in accordance with the Company's current strategy
which is subject to change from time to time.
(2) Represents the approximate amount that may be used to expand Eagle's and JEH
Eagle's operations which is subject to change from time to time. The Company
estimates that the foregoing allocation will be sufficient to enable Eagle
and JEH Eagle to establish approximately six new distribution centers and
will be used principally to carry accounts receivable and purchase
inventory. The foregoing allocation excludes the purchase of trucks,
forklifts and similar equipment identified in note (4).
(3) To be used to reduce Eagle's and JEH Eagle's outstanding balance of
borrowings under their credit facilities. At February 28, 1998, Eagle had
borrowed approximately $5,831,000 under its credit facility. During Eagle's
June 30, 1995 fiscal year, Eagle used its borrowing under its credit
facility to repay approximately $2,326,000 of its indebtedness to TDA and to
advance approximately $3,309,000 to TDA. The remainder of the outstanding
balance of the credit facility was used to fund continuing operations. At
February 28, 1998, JEH Eagle had borrowed approximately $14,209,000 under
its credit facility of which approximately $12,500,000 was used to pay a
part of the purchase price of JEH Co.'s business and the balance was used
for JEH Eagle's working capital.
(4) To be used for leasehold improvements for existing distribution centers and
to purchase, if necessary, trucks, forklifts and similar equipment to
support additional distribution centers for Eagle and JEH Eagle.
(5) To be used to repay $300,000 in principal and interest on borrowings made by
the Company in February 1998 pursuant to promissory notes issued to TDA
($150,000) and two other stockholders of the Company. Said notes bear
interest at the rate of 15% per year through June 30, 1998 which
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
20
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
decreases to 6% per year after that date. The notes mature on the earlier of
thirty months after issuance or the closing of the Public Offering. The
proceeds from the issuance of the foregoing notes have and are being used to
pay certain expenses relating to the Public Offering, legal fees and
expenses in connection with seeking the listing of the Company's securities
on NASDAQ and the Acquisitions.
The Company currently estimates that the net proceeds of the Public Offering
will be sufficient to fund its planned operations, including the cash portion of
potential acquisitions, if any, and expansion efforts for approximately twelve
to twenty-four months from the date of this Prospectus. The net proceeds may be
sufficient for a greater or lesser period of time depending on the extent of the
Company's expansion efforts and on the number of acquisitions, if any, that the
Company consummates during the next twelve to twenty-four months and the portion
of the purchase price of such acquisitions paid in cash. In addition, the
Company may require additional financing prior to or following such period if
Eagle or JEH Eagle suffer losses or if the Company effects the acquisition of a
business that subsequently suffers losses. The Company has no commitments or
arrangements for any such additional financing and there can be no assurance
that the Company will be able to obtain additional financing on terms acceptable
to the Company or at all. If required, the Company may seek to finance the
purchase price of acquisitions by purchase money indebtedness, asset-based
financing and/or issuances of its own securities; and to open additional Eagle
and JEH Eagle distribution centers by obtaining short-term vendor inventory
financing (inventory purchased on extended payment terms), asset-based financing
and/or equipment leasing/ financing. As each potential acquisition will be
individually negotiated, the Company is unable to estimate the cash or other
portions of a potential acquisition's purchase price. In the event additional
financing is unavailable to the Company, the Company may be materially adversely
affected.
21
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' AND ACQUISITIONS' PROSPECTUS]
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Public Offering. Future events, as well as changes in
economic, regulatory or competitive conditions or the Company's business or
Eagle's or JEH Eagle's business and the results of the Company's, Eagle's or JEH
Eagle's activities may make shifts in the allocation of funds within the
described categories or to other purposes necessary or desirable. In the event
the Company is unable to fund the cash portion of potential acquisitions with
the net proceeds allocated above, Eagle or JEH Eagle suffer losses or the
Company completes an acquisition that subsequently suffers losses, the Company
may draw upon the net proceeds of the Public Offering allocated to expand the
number of Eagle's and JEH Eagle's distribution centers, purchase equipment to
support that expansion and/or working capital. The Company estimates that the
net proceeds of the Public Offering allocated to expand the number of Eagle's
and JEH Eagle's distribution centers and to support that expansion will be
sufficient to establish approximately six new distribution centers at an average
cost of approximately $415,000 for each new distribution center. In the event
the per distribution center costs are greater than estimated, Eagle and JEH
Eagle may establish less than six new distribution centers, the Company may seek
vendor financing of inventory, asset-based financing and/or equipment
leasing/financing, or draw upon the net proceeds of the Public Offering
allocated to working capital. In the event the per distribution center costs are
less than estimated, a portion of the net proceeds of the Public Offering
allocated for such purposes will be reallocated to finance acquisitions or for
working capital. In order to conduct its proposed expansion, the Company intends
to use a significant portion of the net proceeds of the Public Offering for the
acquisition of businesses or assets that are consistent with the Company's
current strategy, which is subject to change from time to time. With the
exception of the Acquisitions, the Company does not currently have any
agreements, commitments or arrangements with respect to any proposed
acquisitions nor has it identified or negotiated with any potential acquisition
candidates, and there can be no assurance that any acquisitions will be
consummated. Except for the Acquisitions, the Company has no present intention
to use the net proceeds of the Public Offering to acquire assets from any of its
affiliates.
Prior to expenditure, proceeds will be invested principally in high grade,
short-term, interest-bearing investments. Any proceeds received upon exercise of
the Overallotment Option or any of the Warrants will be used to finance
potential acquisitions or for working capital. There can be no assurance that
the Overallotment Option or any of the Warrants will be exercised.
2
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS'
AND ACQUISITIONS' PROSPECTUS]
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part also covers
the offering of 300,000 shares of Common Stock, underlying a like number of
Warrants owned by the Selling Securityholders. The resale of such securities by
the Selling Securityholders is subject to prospectus delivery and other
requirements of the Securities Act.
The Company's securities are being offered by the following Selling
Securityholders in the amounts set forth below.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
SELLING BENEFICIALLY REGISTERED
SECURITYHOLDER OWNED(1) HEREIN(2)
- ---------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Nina Allen.................................................................. 50,000 25,000
William C. Bossung.......................................................... 50,000 25,000
James A. Croson............................................................. 50,000 25,000
D&R Partnership............................................................. 50,000 25,000
Eugene Geller............................................................... 25,000 12,500
Warren & Marianne Gilbert................................................... 50,000 25,000
HiTel Group, Inc............................................................ 100,000 50,000
Paul Schmidt................................................................ 62,500 31,500
Harry Falterbauer........................................................... 50,000 25,000
Florence & Eric Stein....................................................... 50,000 25,000
William Tonyes.............................................................. 50,000 25,000
Kenneth Zengage............................................................. 12,500 6,250
</TABLE>
- ------------------------
(1) The Number of shares of Common Stock Beneficially Owned herein as set forth
above includes equal amounts of shares of Common Stock and shares of Common
Stock issuable on the exercise of Warrants.
(2) Such shares of Common Stock are receivable upon exercise of the Selling
Securityholders' Warrants.
After the completion of the sale by the respective Selling Securityholders
of the number of shares of Common Stock set forth opposite their names in the
second column above, none of the Selling Securityholders will beneficially own
1% or greater of shares of the Company's Common Stock.
The foregoing persons and entities have agreed not to sell, transfer,
hypothecate or otherwise dispose of, for a period of fifteen months from the
date of this Prospectus, an aggregate of 300,000 shares of Common Stock, 300,000
Warrants and the 300,000 shares of Common Stock underlying said Warrants which
are the subject of the Selling Securityholders' offering without the
Underwriter's prior written consent.
The shares of the Company's Common Stock underlying such Warrants may be
sold from time to time directly by the Selling Securityholders. Alternatively,
the Selling Securityholders may from time to time offer such securities through
underwriters, dealers or agents. The distribution of securities by the Selling
Securityholders may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more broker-dealers
for resale of such shares as principals, at market prices prevailing at the time
of sale. Commissions may be paid by the Selling Securityholders in connection
with such sales. The Selling Securityholders and intermediaries through whom
such securities are sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. The Company
will derive proceeds
74
<PAGE>
from exercises of the Warrants but will not derive any proceeds from the sale of
the Company's securities by the Selling Securityholders. There can be no
assurance that any of the Selling Securityholders' Warrants will be exercised.
At a time an offer of securities is made by or on behalf of a Selling
Securityholder, it is the Company's intent that a prospectus be distributed
setting forth, based upon information provided by the Selling Securityholder,
the number of securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, if any, the purchase
price paid by any underwriter for securities purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
re-allowed or paid to dealers, and the proposed selling price to the public.
Sales of securities by the Selling Securityholders could have an adverse
effect on the market prices of the securities offered pursuant to the Public
Offering.
THE ACQUISITIONS OFFERING
Upon completion of the Public Offering and to consummate the Acquisitions,
the Company will issue 2,000,000 and 300,000 shares of its Common Stock to TDA
and James E. Helzer, respectively. The offering of said shares will be made by
the Company's officers and directors directly to TDA and Mr. Helzer without the
services of any broker-dealer, agent or finder and no commissions or other
remuneration will be paid in connection with such sales. As TDA and Mr. Helzer
are affiliates of the Company, such shares will remain "restricted" securities
as such term is defined in the Securities Act and the rules and regulations
promulgated thereunder. Additionally, TDA and James E. Helzer have agreed not to
sell, for a period of two years from the date of this Prospectus, any shares of
the Company's Common Stock owned by them on the date hereof and to be acquired
in connection with the Acquisitions without the prior written consent of the
Underwriter.
LEGAL MATTERS
The validity of the issuances of the securities offered hereby will be
passed upon for the Company by Gusrae, Kaplan & Bruno, Esqs., New York, New
York.
EXPERTS
The balance sheets of the Company as of June 30, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for the year ended June 30, 1997 and the period May 1, 1996
(inception) to June 30, 1996 appearing in this Prospectus and Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and has been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The balance sheets of Eagle Supply, Inc. as of June 30, 1997 and 1996 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1997 appearing in
this Prospectus and Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and has been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The balance sheets of the JEH Company for the six months ended June 30, 1997
and years ended December 31, 1996 and 1995 and the related statements of
operations and cash flows for the six months ended June 30, 1997 and each of the
years in the three year period ended December 31, 1996 appearing in this
Prospectus and Registration Statement have been audited by Waters, Murray &
Associates, independent auditors, as set forth in their report thereon appearing
elsewhere herein and has been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
75
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. office of the Commission a
Registration Statement (the "Registration Statement") under the Securities Act
with respect to the Securities offered by this Prospectus. This Prospectus does
not contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge or copies made
at prescribed rates from the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its Northeast Regional Office located
at Seven World Trade Center, New York, New York 10048. Statements contained in
the Prospectus as to the contents of any contract or other document are not
necessarily complete and reference is made to each such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
Upon effectiveness of the Registration Statement, of which this Prospectus
forms a part, the Company will be subject to the reporting requirements of the
Exchange Act and in accordance therewith will file reports and other information
with the Commission. Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at the following addresses: Northeast Regional
Office, Seven World Trade Center, New York, New York 10048; and Midwest Regional
Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a website that contains reports, proxies and information
statements and other information regarding issuers that file electronically with
the Commission. The Commission's website is located at http://www.sec.gov.
76
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS'
AND ACQUISITIONS' PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Dilution........................................
Public Offering.................................
Use of Proceeds.................................
Capitalization..................................
Unaudited Pro Forma Condensed
Consolidated Financial Statements...............
Selected Financial Information..................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
The Acquisitions................................
Business........................................
Management......................................
Principal Stockholders..........................
Certain Transactions............................
Description of Securities.......................
Shares Eligible for Future Sale.................
Underwriting....................................
Selling Securityholders.........................
The Acquisitions Offering.......................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements...................
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
EAGLE SUPPLY GROUP, INC.
2,300,000 SHARES OF COMMON STOCK
- ---------------------------------
300,000 SHARES OF COMMON STOCK
- ---------------------------------
2,300,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering, all of which are to be paid by the
Registrant, in connection with the issuance and distribution of the Securities
being registered, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee......................................... $12,685.00
NASD Filing Fee.............................................. 4,800.00
Printing and Engraving Expenses.............................. 100,000.00*
Accounting Fees and Expenses................................. 125,000.00*
Legal Fees and Expenses...................................... 225,000.00*
Blue Sky Fees and Expenses................................... 45,000.00*
Transfer and Warrant Agent Fees and Expenses................. 7,500.00*
Miscellaneous Expenses....................................... 15,700.00*
Subtotal..................................................... $535,625.00
----------
Underwriter's Non Accountable Expense Allowance.............. 309,375.00(1)*
Total........................................................ $845,000.00
----------
----------
</TABLE>
- ------------------------
(1) Assumes no exercise of overallotment option.
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, Section 145 of the Delaware General Corporation Law provides
that persons who are officers or directors of a corporation may be indemnified
by the corporation for acts performed in their capacities as such. The
Registrant's By-Laws authorize indemnification in accordance with and to the
extent permitted by said statute.
The Registrant's Certificate of Incorporation and By-Laws provide for
indemnification to the fullest extent permitted by law.
Reference is also made to Section 6 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold the following securities within the past three
years:
A
<TABLE>
<CAPTION>
DATE PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- --------- -------------------------- -------------------------- -----------------
<C> <S> <C> <C>
05/17/96 TDA Industries, Inc. 2,000,000 shares of $ 200.00
Common Stock
06/06/96 Steven R. Andrews 100,000 shares of Common $ 10.00
Stock
</TABLE>
II-1
<PAGE>
In June and July 1996, the Company sold, to the persons and entities
identified below, the securities of the Company for the consideration indicated
opposite their names:
B
<TABLE>
<CAPTION>
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- ------------------------------- ------------------------------------------------------------- -----------------
<S> <C> <C>
Nina Allen..................... One Unit of the Company's Securities* $ 25,000.00
William C. Bossung............. One Unit of the Company's Securities* $ 25,000.00
James A. Croson................ One Unit of the Company's Securities* $ 25,000.00
D&R Partnership................ One Unit of the Company's Securities* $ 25,000.00
Eugene Geller.................. One Half of a Unit of the Company's Securities* $ 12,500.00
Warren & Marianne Gilbert One Unit of the Company's Securities* $ 25,000.00
HiTel Group, Inc. Two Units of the Company's Securities* $ 50,000.00
Paul Schmidt One and One-Fourth of a Unit of the Company's Secuties* $ 31,250.00
Donald & Linda Silpe One Unit of the Company's Securities* $ 25,000.00
Florence & Eric Stein One Unit of the Company's Securities* $ 25,000.00
William Tonyes One Unit of the Company's Securities* $ 25,000.00
Ken Zengage One Fourth of a Unit of the Company's Securities* $ 6,250.00
-----------------
TOTAL $ 300,000.00
-----------------
-----------------
</TABLE>
- ------------------------
* Each Unit consisting of 25,000 shares of Common Stock and 25,000 Redeemable
Common Stock Purchase Warrants.
These transactions were exempt from registration under the Securities Act of
1933, as amended (the "Act"), under Section 4(2) of that Act as not involving a
public offering, and as to those sales set forth under subsection B above,
reliance is placed upon Rule 506 of Regulation D and Section 4(6) of the Act. No
underwriter was engaged by the Company in connection with the issuances
described above. The recipients of all of the foregoing securities represented
that such securities were being acquired for investment and not with a view to
the distribution thereof. In addition, the certificates evidencing such
securities bear restrictive legends.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
(A)
- -----------
<C> <S>
1.1 (Revised) Forms of Underwriting Agreement and Selected Dealers Agreement(1)
3.1 Registrant's Articles of Incorporation(2)
3.1(A) Amendment to Registrant's Articles of Incorporation(1)
3.2 Registrant's By-Laws(2)
4.1 (Revised) Form of Underwriter's Warrant Agreement with Form of Warrant Certificate(1)
4.2 (Revised) Form of Financial Advisory Agreement to be entered into by and between the Registrant and the
Underwriter(1)
4.3 (Revised) Form of Merger and Acquisition Agreement to be entered into by and between the Registrant and
the Underwriter(1)
4.4 Form of Common Stock Certificate(2)
4.5 Form of Redeemable Stock Purchase Warrants delivered to Selling Securityholders(2)
4.6 Form of Redeemable Common Stock Purchase Warrants (printed version)(2)
4.7 Form of Warrant Agreement between Registrant and Continental Stock Transfer & Trust Company(2)
5.1 Opinion of Gusrae, Kaplan & Bruno(3)
10.1 (Revised) Form of Stock Purchase Agreement between the Registrant and TDA Industries, Inc. ("TDA")(3)
10.2 Form of Employment Agreement between Registrant and Douglas P. Fields(2)
10.3 Form of Employment Agreement between Registrant and Frederick M. Friedman(2)
10.4 Eagle Supply, Inc. Mortgage and Note regarding its Birmingham, Alabama, Distribution Center(2)
10.5 Eagle Supply, Inc. Mortgage, Deed and Purchase Agreement regarding its Pensacola, Florida, Distribution
Center(2)
10.6 Eagle Supply, Inc. Lease, as Amended, regarding its former distribution center located in Fort
Lauderdale, Florida(2)
10.7 Eagle Supply, Inc. Credit Facility(2)
10.8 Form of Lease to be entered into with wholly-owned subsidiary of TDA(2)
10.9 Registrant's Stock Option Plan(2)
10.10 Form of Administrative Services Agreement to be entered into by and between Registrant and TDA(2)
10.11 Asset Purchase Agreement among JEH/Eagle Supply, Inc. (formerly known as JEH Acquisition Corp.), James
E. Helzer and others(1)
10.12 JEH/Eagle Supply, Inc. Credit Facility(1)
10.13 JEH/Eagle Supply, Inc. Employment Agreement with Douglas P. Fields, as amended(1)
10.14 JEH/Eagle Supply, Inc. Employment Agreement with Frederick M. Friedman, as amended(1)
10.15 JEH/Eagle Supply, Inc. Employment Agreement with James E. Helzer(1)
10.16 JEH/Eagle Supply, Inc. Employment Agreement with E.G. Helzer(1)
10.17 JEH/Eagle Supply, Inc. Strategic Services Agreement with TDA Industries, Inc., as amended(1)
10.18 JEH/Eagle Supply, Inc. leases with James E. Helzer for premises located in
(A) Henderson, Colorado(1)
(B) Colorado Springs, Colorado(1)
(C) Mansfield, Texas(1)
(D) Colleyville, Texas(1)
(E) Frisco, Texas(1)
(F) Mesquite, Texas(1)
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1)(3)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
(A)
- -----------
<C> <S>
23.2 Consent of Deloitte & Touche LLP(1)
23.3 Consent of Paul D. Finkelstein(2)
23.4 Consent of John E. Smircina(2)
23.5 Consent of George Skakel III(2)
23.6 Consent of Waters, Murray & Associates(1)
23.7 Consent of James E. Helzer(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
(3) To be Filed by Amendment.
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of New York, State of New York, on the 1st day of May, 1998.
<TABLE>
<S> <C> <C>
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------
Douglas P. Fields,
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
/s/ DOUGLAS P. FIELDS Directors, Chief
- ------------------------------ Executive Officer and May 1, 1998
Douglas P. Fields Director (Principal
Executive Officer)
Executive Vice President,
/s/ FREDERICK M. FRIEDMAN Treasurer, Secretary and
- ------------------------------ Director (Principal May 1, 1998
Frederick M. Friedman Financial and Accounting
Officer)
/s/ STEVEN R. ANDREWS
- ------------------------------ Director April 28, 1998
Steven R. Andrews
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 (Revised) Forms of Underwriting Agreement and Selected Dealers Agreement(1)
3.1 Registrant's Articles of Incorporation(2)
3.1(A) Amendment to Registrant's Articles of Incorporation(1)
3.2 Registrant's By-Laws(2)
4.1 (Revised) Form of Underwriter's Warrant Agreement with Form of Warrant Certificate(1)
4.2 (Revised) Form of Financial Advisory Agreement to be entered into by and between the Registrant and the
Underwriter(1)
4.3 (Revised) Form of Merger and Acquisition Agreement to be entered into by and between the Registrant and
the Underwriter(1)
4.4 Form of Common Stock Certificate(2)
4.5 Form of Redeemable Stock Purchase Warrants delivered to Selling Securityholders(2)
4.6 Form of Redeemable Common Stock Purchase Warrants (printed version)(2)
4.7 Form of Warrant Agreement between Registrant and Continental Stock Transfer & Trust Company(2)
5.1 Opinion of Gusrae, Kaplan & Bruno(3)
10.1 (Revised) Form of Stock Purchase Agreement between the Registrant and TDA Industries, Inc. ("TDA")(3)
10.2 Form of Employment Agreement between Registrant and Douglas P. Fields(2)
10.3 Form of Employment Agreement between Registrant and Frederick M. Friedman(2)
10.4 Eagle Supply, Inc. Mortgage and Note regarding its Birmingham, Alabama, Distribution Center(2)
10.5 Eagle Supply, Inc. Mortgage, Deed and Purchase Agreement regarding its Pensacola, Florida, Distribution
Center(2)
10.6 Eagle Supply, Inc. Lease, as Amended, regarding its former distribution center located in Fort
Lauderdale, Florida(2)
10.7 Eagle Supply, Inc. Credit Facility(2)
10.8 Form of Lease to be entered into with wholly-owned subsidiary of TDA(2)
10.9 Registrant's Stock Option Plan(2)
10.10 Form of Administrative Services Agreement to be entered into by and between Registrant and TDA(2)
10.11 Asset Purchase Agreement among JEH/Eagle Supply, Inc. (formerly known as JEH Acquisition Corp.), James
E. Helzer and others(1)
10.12 JEH/Eagle Supply, Inc. Credit Facility(1)
10.13 JEH/Eagle Supply, Inc. Employment Agreement with Douglas P. Fields, as amended(1)
10.14 JEH/Eagle Supply, Inc. Employment Agreement with Frederick M. Friedman, as amended(1)
10.15 JEH/Eagle Supply, Inc. Employment Agreement with James E. Helzer(1)
10.16 JEH/Eagle Supply, Inc. Employment Agreement with E.G. Helzer(1)
10.17 JEH/Eagle Supply, Inc. Strategic Services Agreement with TDA Industries, Inc., as amended(1)
10.18 JEH/Eagle Supply, Inc. leases with James E. Helzer for premises located in
(A) Henderson, Colorado(1)
(B) Colorado Springs, Colorado(1)
(C) Mansfield, Texas(1)
(D) Colleyville, Texas(1)
(E) Frisco, Texas(1)
(F) Mesquite, Texas(1)
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1)(3)
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Deloitte & Touche LLP(1)
23.3 Consent of Paul D. Finkelstein(2)
23.4 Consent of John E. Smircina(2)
23.5 Consent of George Skakel III(2)
23.6 Consent of Waters, Murray & Associates(1)
23.7 Consent of James E. Helzer(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Previously filed.
(3) To be Filed by Amendment.
ii
<PAGE>
Exhibit 1.1
EAGLE SUPPLY GROUP, INC.
2,000,000 SHARES OF COMMON STOCK AND
2,500,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
, 1998
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
Eagle Supply Group, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to Barron Chase Securities, Inc. (the "Underwriter")
for sale in a proposed public offering pursuant to the terms of this
Underwriting Agreement (the "Agreement"), on a "firm commitment" basis,
2,000,000 shares of Common Stock (the "Shares") at $5.00 per Share and 2,500,000
Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per Warrant.
The Shares and the Warrants are collectively referred to as the "Securities".
Each Warrant is exercisable to purchase one (1) share of Common Stock (the
"Common Stock") at $5.00 per share at any time during the period between the
Effective Date and five (5) years from the Effective Date. The date upon which
the Securities and Exchange Commission ("Commission") shall declare the
Registration Statement of the Company effective shall be the "Effective Date".
The Warrants are subject to redemption under certain circumstances. In addition,
the Company proposes to grant to the Underwriter the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 300,000 additional
Shares and/or 375,000 additional Warrants (the "Option Securities").
The Underwriter has advised the Company that the Underwriter desires to
purchase the Securities, and that the Underwriter is authorized to execute this
Agreement. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter, as follows:
1
<PAGE>
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the Underwriter
as of the Effective Date (as defined above), the Closing Date (as hereinafter
defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-09951) on Form S-1 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to the Underwriter,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration statement,
including a final form of Prospectus, copies of which shall be delivered to the
Underwriter. "Preliminary Prospectus" shall mean each prospectus filed pursuant
to the Rules and Regulations under the Act prior to the Effective Date. The
registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are respectively referred to as the "Registration Statement" and the
"Prospectus", except that (i) if the prospectus first filed by the Company
pursuant to Rule 424(b) of the Rules and Regulations shall differ from said
prospectus as then amended, the term "Prospectus" shall mean the prospectus
first filed pursuant to Rule 424(b), and (ii) if such registration statement or
prospectus is amended or such prospectus is supplemented, after the effective
date of such registration statement and prior to the Option Closing Date (as
hereinafter defined), the terms "Registration Statement" and "Prospectus" shall
include such registration statement and prospectus as so amended, and the term
"Prospectus" shall include the prospectus as so supplemented, or both, as the
case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with salesDealers: (i) the
Registration Statement and Prospectus will in all respects conform to the
requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein, in light of the circumstances under
which they are made, not misleading; provided, however, that the Company makes
no representations, warranties or agreement as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by the Underwriter
2
<PAGE>
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and regarding the identity of counsel to the Underwriter
under the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriter for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or wil duly authorized, validly issued and fully paid and
non-assessable; the issuances and sales of all such securities complied in all
material respect with, or were exempt from, applicable Federal and state
securities laws; the holders thereof have no rights of rescission against the
Company with respect thereto, and are not subject to personal liability by
reason of being such holders; none of such securities were issued in violation
of the preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company; except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any securities of the Company have been granted or entered into
by the Company; and all of the securities of the Company, issued and to be
issued as set forth in the Registration Statement, conform to all statements
relating thereto contained in the Registration Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been
3
<PAGE>
duly authorized, validly issued and delivered and will constitute valid and
legally binding obligations of the Company entitling the holders to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement will be duly and
validly authorized, validly issued, fully paid and non-assessable, free of
pre-emptive rights, and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Underwriter. The Warrant Agreement has been duly authorized and, when executed
and delivered pursuant to this Agreement, will have been duly executed and
delivered and will constitute the valid and legally binding obligation of the
Company enforceable in accordance with its terms.
The Common Stock Underwriter Warrants, the Warrant Underwriter
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Underwriter Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Underwriter's Warrant Agreement described in Section 11 herein), have been duly
authorized and, when issued, delivered and paid for, will be validly issued,
fully paid, non-assessable, free of pre-emptive rights and no personal liability
will attach to the ownership thereof, and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms
and entitled to the benefits provided by the Underwriter's Warrant Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Underwriter's Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement by
the other party hereto, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and lawful
authority to authorize, issue and sell the Securities to be sold by it hereunder
on the terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be issued
pursuant to the Underwriter's Warrant Agreement, except such as may be required
under the Act or state securities laws, or as otherwise have been obtained.
4
<PAGE>
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any material lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary or any of the terms or provisions of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any subsidiary is a party or by which the
Company or any subsidiary may be bound or to which any of the property or assets
of the Company or any subsidiary is subject, nor will such action result in any
material violation of the provisions of the Articles of Incorporation or By-Laws
of the Company or any subsidiary, as amended, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Deloitte & Touche LLP, who has given its report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are includpany, independent public accountants
as required by the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with
5
<PAGE>
related notes, set forth in the Prospectus and the Registration Statement
present fairly the financial condition, results of operations and cash flows of
the Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said financial
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
material reportable condition relating to the Company's internal accounting
procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change ng-term debt by, the Company or any subsidiary; (iv)
neither the Company nor any subsidiary has issued any options, warrants or other
rights to purchase the capital stock of the Company or any subsidiary; and (v)
there has not been and will not have been any material adverse change in the
business, financial condition or results of operations of the Company or any
subsidiary, or in the book value of the assets of the Company or any subsidiary,
arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state
6
<PAGE>
and foreign income and franchise tax returns and has paid all taxes shown as due
thereon; and there is no tax deficiency which has been or to the knowledge of
the Company might be asserted against the Company or any subsidiary that has not
been provided for in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly,
at any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the Underwriter hereunder will
have been fully paid or provided for by the Company, and all laws imposing such
taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
7
<PAGE>
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 15 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursua as a finder in connection with the proposed
offering, and the Company agrees to indemnify and hold harmless the Underwriter
against any losses, claims, damages or liabilities, which shall include, but not
be limited to, all costs to defend against any such claim, so long as such claim
arises out of agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Underwriter in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect
8
<PAGE>
affiliation or association with any NASD member except as disclosed to the
Underwriter in writing. The Company will advise the Underwriter and the NASD if
any five percent (5%) or greater shareholder of the Company or any subsidiary is
or becomes an affiliate or associated person of an NASD member participating in
the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning f the Company or any subsidiary and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or any subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any
subsidiary, if any.
(aa) Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan", an "employee welfare benefit plan", or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which any of
them was a general partner at or within two years before the time
of such filing, or any corporation or business association of
which any of them was an executive officer at or
9
<PAGE>
within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of
a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any
of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any
conduct or practice in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for more
than sixty (60) days their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the
10
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Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and based
upon the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriter an aggregate of
2,000,000 Shares at $4.50 per Share and 2,500,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)) at the place and
time hereinafter specified. The price at which the Underwriter shall sell the
Securities to the public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433 (or at such other place as may be designated by the Underwriter)
at 10:00 a.m., Eastern Time, on such date after the Registration Statement has
become effective as the Underwriter shall designate, but not later than ten (10)
business days (holidays excepted) following the first date that any of the
Securities are released to the Underwriter, such time and date of payment and
delivery for the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and based upon the representations, warrantie purchase all or any
part of an aggregate of an additional 300,000 Shares and 375,000 Warrants at the
same price per Share and Warrant as the Underwriter shall pay for the Securities
being sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Securities being referred to herein as the "Option Securities"). This
option may be exercised within forty-five (45) days after the Effective Date of
the Registration Statement upon notice by the Underwriter to the Company
advising as to the amount of Option Securities as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates are
to be delivered. Such time and date shall be determined by the Underwriter but
shall not be later than ten (10) full business days after the exercise of said
option, nor in any event prior to the Closing Date, and such time and date is
referred to herein as the "Option Closing Date". Delivery of the Option
Securities against payment therefor shall
11
<PAGE>
take place at the offices of the Underwriter. The Option granted hereunder may
be exercised only to cover overallotments in the sale by the Underwriter of the
Securities referred to in subsection (a) above. In the event the Company
declares or pays a dividend or distribution on its Common Stock, whether in the
form of cash, shares of Common Stock or any other consideration, prior to the
Option Closing Date, such dividend or distribution shall also be paid on the
Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to the Underwriter for inspection at least two (2) full
business days prior to the Closing Date at the offices of the Underwriter, and
such certificates shall be registered in such names and denominations as the
Underwriter may request. Time shall be of the essence and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the purchase
prices by the Underwriter by certified or bank cashier's checks in New York
Clearing House funds payable to the order of the Company or by wire transfer in
New York Clearing House funds to the account of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made payable in New York Clearing House funds at the offices of the Underwriter,
or by wire transfer, at the time and date of delivery of such Securities as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Securities by the Underwriter for the account of the
Underwriter registered in such names and in such denominations as the
Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement is declared
effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise the Underwriter and
will not at any time, whether before or after the Effective Date, file any
amendment to the Registration Statement or supplement to the Prospectus of which
the Underwriter shall not previously been advised and furnished with a copy or
to which the Underwriter or the Underwriter's counsel shall have objected in
writing, acting reasonably, or which is not in compliance with the
12
<PAGE>
Act and the Rules and Regulations. At any time prior to the later of (i) the
completion by the Underwriter of the distribution of the Securities as
contemplated hereby; or (ii) 25 days after the date on which the Registration
Statement shall have become or been declared effective, the Company will prepare
and file with the Commission, promptly upon the Underwriter'srospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Underwriter.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise the Underwriter, and confirm the advice in writing, of
the receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to the Underwriter copies of
each Preliminary Prospectus and Definitive Prospectus, and the Company has
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and Selected
Dealers to use the Prospectus in connection with the sale of the Securities for
such period as in the opinion of counsel to the Underwriter the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales by
the Underwriter or Selected Dealers, of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriter, should be set forth in an amendment to the Registration Statement
or a supplement to the Prospectus, in order to make the statements therein not
then misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered curities, or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with the
Act and the Rules and Regulations, the Company will notify the Underwriter
promptly and forthwith prepare and furnish to the Underwriter copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such
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<PAGE>
quantities as the Underwriter may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue statement
of a material fact or omit to state any material facts necessary in order to
make the statements in the Prospectus, in the light of the circumstances under
which they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriter.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with the Underwriter and the Underwriter's counsel to qualify to
register the Securities for sale under the securities or "blue sky" laws of
such jurisdictions as the Underwriter may designate and will make such
applications and furnish such information as may be required for that purpose
and to comply with such laws, provided the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or to execute a
general consent to service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Securities. The Company
will, from time to time, prepare and file such statements and reports as are
or may be required to continue such qualification in effect for so long a
period as the Underwriter may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not
limited to, all such expenses itemized in Section 8(a) and 8(c) hereof, and
either (i) the out-of-pocket expenses of the Underwriter, not to exceed the
$50,000 previously paid if the Underwriter elects to terminate the offering
for any reason; or (ii) the out-of-pocket expenses of the Underwriter if the
Company elects to terminate the offering for any reason. For the purposes of
this sub-section, the Underwriter shall be deemed to have assumed such
expenses when they are billed or incurred, regardless of whether such
expenses have been paid. The Underwriter shall not be responsible for any
expenses of the Company or others, or for any charges or claims relative to
the proposed public offering if it is not consummated.
(d) The Company will deliver to the Underwriter at or before the
Closing Date two signed copies of the Registration Statement, including all
financial statements and exhibits filed therewith, and of each amendment or
supplement thereto. The Company will deliver to or upon the order of the
Underwriter, from time to time until the Effective Date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission
14
<PAGE>
prior to the Effective Date of the Registration Statement as the Underwriter may
reasonably request. The Company will deliver to the Underwriter on the Effective
Date of the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Definitive Prospectus, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Underwriter during the period ending five (5) years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet of
the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available,-confidential documents,
including annual reports, periodic reports and financial statements, furnished
to or filed with the Commission under the Act and the 1934 Act; (iv) copies of
each press release, news item and article with respect to the Company's affairs
released by the Company; and (v) such other information as the Underwriter may
from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to the Underwriter as soon
as it is practicable, but in no event later than the first day of the sixteenth
full calendar month following the Effective Date, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to and will have obtained approval for
the listing of the Shares and Warrants on The Nasdaq Small Cap Market System,
and will use its best efforts to maintain such listing for at least seven (7)
years from the date of this Agreement.
(i) For a period of seven (7) years following the Effective Date, the
Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of
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<PAGE>
the Company's fiscal years and, within nine (9) months after the end of each of
the Company's fiscal years will provide the Company's stothe fiscal year just
completed prior thereto. Such financial statements shall be those required by
Rule 14a-3 under the 1934 Act and shall be included in an annual report pursuant
to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon the Underwriter's request, prepare
and file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action, which
in the reasonable opinion of counsel to the Underwriter and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to the
Underwriter the Underwriter's Warrant Agreement. The Underwriter's Warrant
Agreement and Warrant Certificates will be substantially in the form of the
Underwriter's Warrant Agreement filed as an exhibit to the Registration
Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrants outstanding from time to time.
(n) All existing beneficial owners of the Company's securities
(including warrants, options and common stock of the Company), as of the
Effective Date, shall agree in writing, in a form satisfactory to the
Underwriter, not to sell, transfer or otherwise dispose of any of such
securities or underlying securities for a period of twenty-four (24) months from
the Effective Date, or any longer period required by the NASD, Nasdaq, or any
State. For a period of two (2) years following the Effective Date, all sales of
the Company's securities by officers and/or directors of the Company shall be
effected through the Underwriter.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on each of the lives of Douglas P. Fields and Frederick M.
Friedman in an amount of not less than $1,000,000 each, and will use its best
efforts to maintain such insurance for
16
<PAGE>
a period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Underwriter may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years. The Company shall take such action as may be
reasonably requested by the Underwriter to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Underwriter.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Underwriter, grant options or warrants to purchase the Company's Common Stock at
a price less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any
subsidiary will issue, directly or indirectly, without the Underwriter's
prior consent, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering of
the Securities other than routine customary advertising of the Company's pf
any relevant regulatory authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter as a
non-exclusive financial advisor to the Company for a period of twelve (12)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Underwriter on the Closing Date. The financial advisory
agreement will provide that the Underwriter shall, at the Company's request,
provide advice and consulting services to the Company concerning potential
merger and acquisition proposals and the obtaining of short or long-term
financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial
17
<PAGE>
information, the filing of the Company's quarterly report and the mailing of
quarterly financial information to stockholders.
(u) The Company shall retain Continental Stock Transfer & Trust Company
as the transfer agent for the securities of the Company, or such other transfer
agent as the Underwriter may agree to in writing. In addition, the Company shall
direct such transfer agent to furnish the Underwriter with daily transfer sheets
as to each of the Company's securities as prepared by the Company's transfer
agent and copies of lists of stockholders and warrantholders as reasonably
requested by the Underwriter, for a five (5) year period commencing from the
Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to furnish special security position
reports ("DTC Tracking Reports") to the Underwriter on a daily and weekly basis
at the expense of the Company, for a five (5) year period from the Effective
Date. It is anticipated that the DTC Tracking Reports may cost up to $10,000 for
the initial two (2) month period from the Effective Date, after which time the
Company's obligation to furnish such tracking reports will be reviewed by the
Company and the Underwriter.
(w) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Underwriter shall designate and the Company may
reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Underwriter shall have the opportunity to invite an observer to attend Board of
Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to the
Underwriter a non-exclusive M/A Agreement with the Underwriter in a form
satisfactory to the Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of from five
percent (5%) of the first $1,000,000 ranging in $1,000,000 increments
down to one percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced by the Underwriter
(including mergers, acquisitions, joint ventures, and any other
business for the Company introduced by the Underwriter) consummated by
the Company, as an "Introduced, Consummated Transaction", by which the
Underwriter introduced the other party to the Company during a period
ending five (5) years from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Underwriter
18
<PAGE>
will be paid in cash or stock as mutually agreed at the closing of
the particular Introduced, Consummated Transaction for which the
finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish the
Underwriter and each dealer as many copies of each such Prospectus as the
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statement shall also include the Underwriter's
Warrants and all the securities underlying the Underwriter's Warrants. The
Company shall not call for redemption any of the Warrants unless a Registration
Statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, the Warrants shall not be redeemable during the
first year after the Effective Date without the written consent of the
Underwriter.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the Underwriter a
written opinion detailing those states in which the Shares and Warrants of the
Company may be traded in non-issuer transactions under the Blue Sky laws of the
fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market
Trading Opinion shall be delivered to the Underwriter on the Effective Date, and
the Company shall continue to update such opinion and deliver same to the
Underwriter on a timely basis, but in any event at the beginning of each fiscal
quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Underwriter or counsel to the Underwriter.
4. Conditions of Underwriter's Obligations. The obligation of the
Underwriter to purchase and pay for the Securities which the Underwriter has
agreed to purchase hereunder from the Company is subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the execution of this
Agreement by the
19
<PAGE>
Underwriter, to the continuing accuracy of, and compliance with, the
representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as the Underwriter may agree to in writing;
(ii) at or prior to the Closing Date, no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securiti(whether or not a jurisdiction which the Underwriter
shall have specified) shall be threatened or to the knowledge of the Company
contemplated by the authorities of any such jurisdiction or shall have been
issued and in effect; (iv) any request for additional information on the part of
the Commission or any such authorities shall have been complied with to the
satisfaction of the Commission and any such authorities, and to the satisfaction
of counsel to the Underwriter; and (v) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to the Underwriter and the Underwriter
did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any material subsidiary except as set forth
in or contemplated by the Registration Statement, (ii) there shall not have been
any material adverse change in the general affairs, business, properties,
condition (financial or otherwise), management, or results of operations of the
Company or any subsidiary, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement or Prospectus; (iii) neither the
Company nor any subsidiary shall have sustained any material interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the
20
<PAGE>
requirements thereof, and neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), busineerties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At the Closing Date, the Underwriter shall have received the
opinion, dated as of the Closing Date, from Gusrae, Kaplan & Bruno, counsel for
the Company, in form and substance satisfactory to counsel for the Underwriter,
which in the aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the ownership or leasing
of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company and other securities have not been
issued
21
<PAGE>
in violation of the preemptive rights of any stockholder and the
stockholders of the Company do not have any preemptive rights or, to
such counsel's knowledge, other rights to subscribe for or to purchase
securities of the Company, nor, to such counsel's knowledge, are there
any restrictions upon the voting or transfer of any of the securities
of the Company, except as disclosed in the Prospectus; the Common
Stock, the Shares, the Warrants, and the securities contained in the
Underwriter's Warrant Agreement conform to the respective descriptions
thereof contained in the Prospectus; the Common Stock, the Shares, the
Warrants, the shares of Common Stock to be issued upon exercise of the
Warrants and the securities contained in the Underwriter's Warrant
Agreement, have been duly authorized and, when issued, delivered and
paid for, will be duly authorized, validly issued, fully paid,
non-assessable, free of pre-emptive rights and no personal liability
will attach to the ownership thereof; no stockholders of the Company
have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Underwriter Warrants, and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those which have
been waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement have been duly and validly authorized, executed and delivered
by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Underwriter, are the valid and
legally binding obligations of the Company, enforceable in accordance
with their terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which effect creditors' rights
generally; and (b) no opinion is expressed as to the enforceability of
the indemnity provisions or the contribution provisions contained in
this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth
in the Prospectus, there is not pending, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against
the Company or any subsidiary or any of the officers of directors of
the Company or any subsidiary, nor any material action, suit,
proceeding,
22
<PAGE>
inquiry, arbitration, or investigation, which might materially and
adversely affect the condition (financial or otherwise), business
prospects, net worth, or properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement, and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to the
best of such counsel's knowledge, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company or any subsidiary is a party or by which it or any of
its material properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality or court,
domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements,
other financial data, other financial information and arithmetic
calculations contained therein, or omitted therefrom, as to which such
counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Underwriter's Warrants or the Securities underlying the
Underwriter's Warrants, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky
laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such
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opinion, such counsel may rely upon certificates of any officer of the Company
or public officials as to matters of fact; and may rely as to all matters of
law, upon opinions of counsel satisfactory to the Underwriter and counsel to the
Underwriter. The opinion of such counsel to the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Underwriter and they are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact requird to be stated therein
or necessary to make statements therein, in light of the circumstances under
which they are made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and other
financial information, arithmetic calculations, and statistical data
contained therein, as to which such counsel need express no opinion).
(f) The Underwriter shall have received on the Closing Date a
certificate dated as of the Closing Date, signed by the Chief Executive Officer
and the Chief Financial Officer of the Company and such other officers of the
Company as the Underwriter may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in
effect and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any
officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their
24
<PAGE>
knowledge, neither the Registration Statement nor the Prospectus nor
any amendment or supplement to either of the foregoing contains an
untrue statement of any material fact or omits to state any material
fact required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus, and except as so reflected or
contemplated since such date, there has not been any material
transaction entered into by the Company or any subsidiary;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has
complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and other tax return or the payment of any
federal, state or other taxes; they know of no proposed redetermination
or re-assessment of taxes, adverse to the Company or any subsidiary,
and the Company and each subsidiary has paid or provided by adequate
reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, the
Company's Articles of Incorporation or By-Laws, any indenture,
mortgage, lease, deed of trust, bank loan or credit agreement or any
other material agreement or undertaking of the Company or any
subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any material right and/or obligations by
succession or otherwise;
25
<PAGE>
(ix) The financial statements and schedules filed with and as part
of the Registration Statement present fairly the financial position of
the Company as of the dates thereof all in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the periods involved. Since the respective dates of such financial
statements, there have been no material adverse change in the condition
or general affairs of the Company, financial or otherwise, other than
as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein or contemplated thereby, neither the
Company nor any subsidiary has, prior to the Closing Date, either (i)
issued any securities or incurred any material liability or obligation,
direct or contingent, for borrowed money, or (ii) entered into any
material transaction other than in the ordinary course of business. The
Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company,
and all information contained therein is true and accurate; and
(xii) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either of
them was a general partner at or within two years before the time
of such filing, or any corporation or business association of
which either of them was an executive officer at or within two
years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of
a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any
of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage
26
<PAGE>
transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated person
of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice
in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of federal or state securities
law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for more
than sixty (60) days their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriter shall have received from Deloitte & Touche LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined
27
<PAGE>
by them and, in their opinion, comply as to form in all material
respects with the applicable accounting requirements of the Act, the
Rules and Regulations and instructions of the Commission with respect
to Registration Statements on Form S-1;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
review of minutes of all meetings of the stockholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, stockholder's equity, working capital or in any other item
appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the most
recent financial statements in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or loss
before extraordinary items or net income or loss, or any other
material change in such other items appearing in the Company's
financial statements as to which the Underwriter may request
advice, in each case as compared with the fiscal period ended as
of the date of the most recent financial statements in the
Prospectus, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will
occur;
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and
28
<PAGE>
the Prospectus (if any) do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles and practices on a basis substantially consistent with
the audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letters and found them to be in agreement; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases in
the items set forth in such letters which, in the judgment of the Underwriter,
are materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the Underwriter to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to the
Underwriter's knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the part
of the Commission for additional information shall have been complied
with to the satisfaction of counsel to the Underwriter.
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<PAGE>
(ii) At the Option Closing Date, there shall have been delivered
to the Underwriter the signed opinions from Gusrae, Kaplan & Bruno,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriter, which
opinions shall be substantially the same in scope and substance as the
opinions furnished to the Underwriter at the Closing Date pursuant to
Section 4(e) hereof, except that such opinions, where appropriate,
shall cover the Option Securities.
(iii) At the Option Closing Date, there shall have been delivered
to the Underwriter a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriter,
substantially the same in scope and substance as the certificate
furnished to the Underwriter at the Closing Date pursuant to Section
4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to the Underwriter a letter in form and substance satisfactory to the
Underwriter from Deloitte & Touche LLP, independent auditors to the
Company, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required
to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Securities shall
be satisfactory in form and substance to the Underwriter, and the
Underwriter and counsel to the Underwriter shall have been furnished
with all such documents, certificates, and opinions as the Underwriter
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Underwriter
30
<PAGE>
of any NASD affiliations of any of its officers, directors, or stockholders or
their affiliates in accordance with Section 1(y) of this Agreement.
(j) At the Effective Date, the Underwriter shall have received from
counsel to the Company, dated as of the Effective Date, in form and substance
satisfactory to counsel for the Underwriter, a written Secondary Market Trading
Opinion detailing those states in which the Shares and Warrants may be traded in
non- issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with Section 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-section.
(l) Prior to the Effective Date, the Underwriter shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the Underwriter under this Agreement may be canceled at, or at any time prior
to, the Closing Date and/or the Option Closing Date by the Underwriter notifying
the Company of such cancellation in writing or by facsimile at or prior to the
applicable Closing Date or Option Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Underwriter may agree
in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided
31
<PAGE>
for in this Section have been fulfilled on the Closing Date but are not
fulfilled after the Closing Date and prior to the Option Closing Date, then only
the obligation of the Company to sell and deliver the Securities on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
baged untrue statement or omission or alleged omission made in reliance upon and
in conformity with written information furnished to the Company by the
Underwriter specifically for use in the Registration Statement or any amendment
or supplement thereof or any Blue Sky Application or any Preliminary Prospectus
or the Prospectus or any such amendment or supplement thereto. Notwithstanding
the foregoing, the Company shall have no liability under this Section if such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is not delivered to the person or persons alleging
the liability upon which indemnification is being sought. This indemnity will be
in addition to any liability which the Company may otherwise have.
(b) The Underwriter indemnifies and holds harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of the persons who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and
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<PAGE>
investigation and all attorneys' fees) to which the Company or any such
director, signer of the Registration Statement, officer or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statements or allegeission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in such
Registration Statement or Prospectus. Notwithstanding the foregoing, the
Underwriter shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof nvestigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees
33
<PAGE>
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Underwriter, it is advisable for the Underwriter or such Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnifying party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnifying and indemnified parties.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution uthe Underwriter, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) in either such case (after contribution from others)
in such proportions that the Underwriter is responsible in the aggregate for
that portion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discount per Share appearing on the cover page
of the Prospectus bears to the public offering price appearing thereon, and the
Company shall be responsible for the remaining portion, provided, however, that
if such allocation is not permitted by applicable law then the relative fault of
the Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the
34
<PAGE>
Underwriter and its controlling persons in the aggregate were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations he first sentence of this Section. No
person ultimately determined to be guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not ultimately determined to be guilty of
such fraudulent misrepresentation. As used in this Section, the term
"Underwriter" includes any officer, director, or other person who controls the
Underwriter within the meaning of Section 15 of the Act, and the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the full extent
permitted by law. This foregoing agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party which did
not consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of rs, Inc. ("NASD") in connection with the
filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and legal
fees of counsel to the Underwriter who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the Securities
under the state securities or blue sky laws (which legal fees shall be payable
by the Company in the sum of $27,500, of which $15,000 has been paid); the cost
of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriter and its counsel bound volumes
containing copies of all documents and appropriate correspondence filed with or
received from the Commission and the NASD and all closing documents; and the
fees and disbursements of
35
<PAGE>
the transfer agent for the Company's securities. The Company shall pay any and
all taxes (including any original issue, transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales to the Underwriter hereunder.
The Company will also pay all costs and expenses incident to the furnishing of
any amended Prospectus or of any supplement to be attached to the Prospectus.
The Company shall also engage the Company's counsel to provide the Underwriter
with a written Secondary Market Trading Opinion in accordance with paragraphs
3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the Underwriter
at the Option Closing Date an additional amount equal to three percent (3%) of
the gross proceeds received upon exercise of the overallotment option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter against any losses, claims, damages or liabilities,
which shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fees, to which the
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date. The Agreement shall become effective upon its
execution except that the Underwriter may, at the Underwriter's option, delay
its effectiveness until 11:00 a.m., Eastern time, on the first full business day
following the execution of this Agreement; or at such earlier time after the
Effective Date of the Registration Statement as the Underwriter in the
Underwriter's discretion shall first commence the public offering of any of the
Securities. The time of the public offering shall mean the time after the
effectiveness of the Registration Statement when the Securities are first
generally o. This Agreement may be terminated by the Underwriter at any time
before it becomes effective as provided above, except that Sections 3(c), 6, 7,
8, 12, 13, 14, 15, 16 and 17 shall remain in effect notwithstanding such
termination.
10. Termination. (a) This Agreement, except for Sections 3(c),
6, 7, 8, 12, 13, 14, 15, 16, and 17 hereof, may be terminated
36
<PAGE>
at any time prior to the Closing Date, and the option referred to in Section
2(b) hereof, if exercised, may be cancelled at any time prior to the Option
Closing Date, by the Underwriter if in the Underwriter's judgment it is
impracticable to offer for sale or to enforce contracts made by the
Underwriter for the resale of the Securities agreed to be purchased hereunder
by reason of: (i) the Company having sustained a material adverse loss,
whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action,
order or decree; (ii) trading in securities on the New York Stock Exchange or
the American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof); (iv) a banking
moratorium having been declared by Federal or New York or Florida state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred; (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably
believed likely by the Underwriter to have a material adverse impact on the
business, financial condition or financial statements of the Company or the
market for the Securities offered hereby; (vii) any material adverse change
in the financial or securities markets beyond normal market fluctuations
having occurred since the date of this Agreement; (viii) any material adverse
change having occurred, since the respective dates as of which information is
given in the Registration Statement and Prospectus, in the earnings, business
prospects or general condition of the Company, financial or otherwise,
whether or not arising in the business; (ix) a pending or threatened legal or
governmental proceeding or action relating generally to the Company's
business, or a notification having been received by the Company of the threat
of any such proceeding or action, which could, in the reasonable judgment of
the Underwriter, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; or (xi) the Company shall not have complied in all material
respects with any term, condition or provisions on its part to be performed,
complied with or fulfilled (including but not limited to those set forth in
this Agreement) within the respective times therein provided.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company shall be promptly notified by the Underwriter, by telephone, telegram or
facsimile, confirmed by letter.
11. Underwriter's Warrant Agreement. At the Closing Date,
the Company will issue to the Underwriter and/or persons related to
37
<PAGE>
the Underwriter, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Underwriter's Warrant Agreement annexed as
an exhibit to the Registration Statement, Underwriter Warrants to purchase up to
an aggregate of 200,000 Shares and 250,000 Warrants, in such denominations as
the Underwriter shall designate. In the event of conflict in the terms of this
Agreement and the Underwriter's Warrant Agreement, the language of the form of
Underwriter's Warrant Agreement shall control.
12. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where a this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of the Underwriter, the Company or any of its officers or directors or
any controlling person and will survive delivery of and payment for the
Securities and the termination of this Agreement.
13. Notice. All communications hereunder will be in writing
and, except as otherwise expressly provided herein, will be mailed,
delivered or telefaxed, and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Douglas P. Fields, Chief Executive Officer
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
Copy to: Robert Perez, Esq.
Gusrae, Kaplan & Bruno
120 Wall Street
New York, New York 10005
14. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the Underwriter, the Company and, to the extent
expressed, any person controlling the Company or the Underwriter, and
directors of the Company, nominees for director (if any) named in the
Prospectus, each person who has signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The
term "sucessors and assigns" shall not include any purchaser of the
Securities, as such purchaser, from the Underwriter.
38
<PAGE>
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
16. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
17. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
EAGLE SUPPLY GROUP, INC.
BY:
-------------------------------------
Douglas P. Fields
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
-------------------------------------
Robert T. Kirk, President
39
<PAGE>
EAGLE SUPPLY GROUP, INC.
2,000,000 Shares of Common Stock and
2,500,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
_____________, 1998
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering for
sale an aggregate of 2,000,000 Shares of Common Stock (the "Shares") and
2,500,000 Warrants (the "Warrants") (collectively the "Firm Securities") of
Eagle Supply Group, Inc. (the "Company"), which the Underwriter has agreed to
purchase from the Company, and which are more particularly described in the
Registration Statement, Underwriting Agreement and Prospectus. In addition, the
Underwriter has been granted an option to purchase from the Company up to an
additional 300,000 Shares and an additional 375,000 Warrants (the "Option
Securities") to cover overallotments in connection with the sale of the Firm
Securities. The Firm Securities and any Option Securities purchased are herein
called the "Securities". The Securities and the terms under which they are to be
offered for sale by the Underwriter is more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the Underwriter at
the price per Share and price per Warrant set forth on the cover page of the
Prospectus (the "Public Offering Price"), in accordance with the terms of
offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof, is
offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its
possessions and not registered as brokers or dealers under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), who have agreed not to
make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein (such dealers
who shall agree to sell Securities herering price, less a selling concession
(which may be changed) of not in excess of $ per Share and/or $ per
Warrant payable as hereinafter provided, out of which concession an amount
not exceeding $ per Share and/or $ per
1
<PAGE>
Warrant may be reallowed by Selected Dealers to members of the NASD or foreign
dealers qualified as aforesaid. The Selected Dealers who are members of the NASD
agree to comply with all of the provisions of the NASD Conduct Rules. Foreign
Selected Dealers agree to comply with the provisions of Rule 2740 of the NASD
Conduct Rules, and, if any such dealer is a foreign dealer and not a member of
the NASD, such Selected Dealer also agrees to comply with the NASD's
Interpretation with Respect to Free-Riding and Withholding, and to comply, as
though it were a member of the NASD, with the provisions of Rules 2730 and 2750
of the NASD Conduct Rules, and to comply with Rule 2420 thereof as that Rule
applies to non-member foreign dealers. The Underwriter has agreed that, during
the term of this Agreement, it will be governed by the terms and conditions
hereof.
4. The Underwriter shall act as Underwriter and shall have full
authority to take such action as it may deem advisable in respect to all matters
pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer and purchase any of the
Securities, your application should reach us promptly by facsimile, letter or
telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the right
to reject subscriptions in whole or in part, to make allotments, and to close
the subscription books at any time without notice. The Securities allotted to
you will be confirmed, subject to the terms and conditions of this Selected
Dealers Agreement (the "Agreement").
6. The privilege of subscribing for the Securities is extended to you
only on the condition that the Underwriter may lawfully sell the Securities to
Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased by
you hereunder which, prior to the completion of the public offering as defined
in paragraph 8 below, we may purchase or contract to purchase for our account
and, in addition, we may charge you with any broker's commission and transfer
tax paid in connection with such purchase or contract to purchase. Certificates
for Securities delivered on such repurchases need not be the identical
certificates originally purchased.
2
<PAGE>
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of the
Underwriter, you will, forthwith upon our request, grant to us for the account
of the Underwriter the right, exercisable promptly after receipt of notice from
you that such right has been granted, to purchase, at the Public Offering Price
less the selling concession or such part thereof as we shall determine, such
number of Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you will
be paid when such Securities are delivered to you. However, you shall pay any
transfer tax on sales of Securities by you and you shall pay your proportionate
share of any transfer tax (other than the single transfer tax described above)
in the event that any such tax shall from time to time be assessed against you
and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we
have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and, in
arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
3
<PAGE>
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility as
to the right of any Selected Dealer to sell the Securities in any state or other
jurisdiction or as to the eligibility of the Securities for sale therein. We
will, if requested, file a Further State Notice in respect of the Securities
pursuant to Article 23-A of the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make any
representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We shall not be under any liability for or in respect of
value, validity or form of the Securities, or the delivery of the certificates
for the Securities, or the performance by anyone of any agreement on its part,
or the qualification of the Securities for sale under the laws of any
jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly assumed
by us or by the Underwriter in this Agreement and no obligation on our part
shall be implied herefrom. The foregoing provisions shall not be deemed a waiver
of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of Barron Chase Securities, Inc.,
7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk, by
wire transfer to the account of the Underwriter or by a certified or official
bank check in current New York Clearing House funds, payable to the order of
Barron Chase Securities, Inc., as Underwriter, against delivery of certificates
for the Securities so purchased. If such payment is not made at such time, you
agree to pay us interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be
4
<PAGE>
deemed to have been duly given if telephoned, telefaxed, telegraphed or mailed
to you at the address to which this Agreement or accompanying Selected Dealer
Letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of law
or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of the Selected Dealer Letter enclosed
herewith, even though you may have previously advised us thereof by telephone,
letter or telegraph.
Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY: _____________________________
Authorized Officer
5
<PAGE>
SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for ___________ Shares and/or __________________
Warrants of Eagle Supply Group, Inc. in accordance with the terms and
conditions stated in the foregoing Selected Dealers Agreement and this
Selected Dealer letter. We hereby acknowledge receipt of the Prospectus
referred to in the Selected Dealers Agreement and Selected Dealer letter. We
further state that in purchasing said Shares and/or Warrants we have relied
upon said Prospectus and upon no other statement whatsoever, whether written
or oral. We confirm that we are a dealer actually engaged in the investment
banking or securities business and that we are either (i) a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"); or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As
a member of the NASD, we hereby agree to comply with all of the provisions of
NASD Conduct Rules. If we are a foreign Selected Dealer, we agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and if we are a
foreign dealer and not a member of the NASD, we agree to comply with the
NASD's interpretation with respect to free-riding and withholding, and agree
to comply, as though we were a member of the NASD, with provisions of Rules
2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the
NASD Conduct Rules as that Rule applies to non-member foreign dealers.
Firm: _________________________________
By: _________________________________
(Name and Position)
Address: _________________________________
_________________________________
Telephone No.: _________________________________
Dated: ______________, 1998
6
<PAGE>
EXHIBIT 3.1(a)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "EAGLE SUPPLY GROUP, INC.", FILED IN THIS OFFICE ON THE FIFTEENTH
DAY OF DECEMBER, A.D. 1997, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
[SEAL] ------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 9032383
DATE: 04-17-98
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
EAGLE SUPPLY GROUP, INC.
Eagle Supply Group, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the board of directors of the Corporation, pursuant to
a unanimous written action in lieu of a meeting pursuant to Section 141(f) of
the General Corporation Law of the State of Delaware, adopted a resolution
proposing and declaring advisable the following amendment to the
Corporation's Certificate of Incorporation:
RESOLVED, that the Certificate of Incorporation of Eagle Supply
Group, Inc. be amended by deleting Article "4." thereof in its entirety and
substituting, in lieu thereof, the following:
4. The total number of shares of stock which the
Corporation shall have authority to issue is twenty seven
million five hundred thousand (27,500,000), of which stock
twenty five million (25,000,000) shares of par value of One
Hundredth of One Cent ($.0001) each, amounting in the aggregate
to Two Thousand Five Hundred Dollars ($2,500), shall be Common
Stock and two million five hundred thousand (2,500,000) shares
of the par value of One Hundredth of One Cent ($.0001) each,
amounting in the aggregate to Two Hundred Fifty Dollars
($250), shall be Preferred Stock.
SECOND: That the Stockholders of the Corporation have approved such
amendment pursuant to a majority written action in lieu of a meeting pursuant
to Section 228 of the General Corpora tion Law of the State of Delaware.
THIRD: That such amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by Douglas P. Fields, its Chief Executive Officer and attested by
Frederick M. Friedman, its Secretary, this 12th day of December, 1997.
EAGLE SUPPLY GROUP, INC.
By: /s/ Douglas P. Fields
---------------------------
Douglas P. Fields
Chief Executive Officer
ATTEST:
By: /s/ Frederick M. Friedman
-------------------------
Frederick M. Friedman
Secretary
2
<PAGE>
Exhibit 4.1
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of , 1998, between EAGLE SUPPLY GROUP, INC.
(the "Company") and BARRON CHASE SECURITIES, INC. (the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Underwriter, to act as the Underwriter in connection with the
Company's proposed public offering of 2,000,000 shares of the Company's Common
Stock at $5.00 per share and 2,500,000 Warrants ("Public Warrants") at $.125 per
Public Warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Underwriter and/or
persons related to the Underwriter as those persons are defined in Rule 2710 of
the NASD Conduct Rules (the "Holder"), 200,000 warrants ("Common Stock
Underwriter Warrants") to purchase 200,000 shares of the Company's Common Stock
(the "Shares") and 250,000 warrants ("Warrant Underwriter Warrants") to purchase
250,000 Common Stock Purchase Warrants ("Underlying Warrants") exercisable to
purchase 250,000 shares of the Company's Common Stock. The "Common Stock
Underwriter Warrants" and the "Warrant Underwriter Warrants" are collectively
referred to as the "Warrants". The "Shares" and the "Underlying Warrants" are
collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Grant and Period.
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form S-1 (File No. 333-09951) and
declared effective by the Securities and Exchange Commission (the "SEC" or
"Commission") on , 1998 (the "Effective Date"). This Agreement, relating to the
purchase of the Warrants, is entered into pursuant to the Underwriting Agreement
between the Company and the Underwriter in connection with the Public Offering.
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<PAGE>
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 200,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $8.25 per share (165% of the public offering
price) and/or 250,000 non-redeemable Underlying Warrants at an initial exercise
price of $.20625 per warrant (165% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $8.25 per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Underwriter's Warrant Agreement. In the event of any extension or change of the
expiration date or reduction or change of the exercise price of the Public
Warrants, the same expiration date and percentage price change to the Underlying
Warrants shall be simultaneously effected, except that the Underlying Warrants
shall expire no later than five (5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common
Stock Underwriter Warrants and/or the Warrant Underwriter Warrants
and/or the Underlying Warrants by surrendering the Warrant Certificate,
together with a Subscription in the form of Exhibit "A" attached
thereto, duly
2
<PAGE>
executed by such Holder to the Company, at any time prior to the
Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the
order of the Company in the amount of the aggregate purchase price
(the "Aggregate Price"), subject to any adjustments provided for in
this Agreement. The aggregate price hereunder for each Holder shall be
equal to the exercise price as set forth in Section six (6) hereof
multiplied by the number of Warrants, Underlying Warrants or Shares
that are the subject of each Holder's Warrant (as adjusted as
hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Underwriter Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly executed
by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each
Holder hereof shall be determined by dividing: (i) the number obtained
by multiplying the number of Shares that are the subject of each
Holder's Warrant Certificate by the amount, if any, by which the then
Market Value (as hereinafter defined) exceeds the Purchase Price; by
(ii) the per share purchase price. In no event shall the Company be
obligated to issue any fractional securities and, at the time it causes
a certificate or certificates to be issued, it shall pay the Holder in
lieu of any fractional securities or shares to which such Holder would
otherwise be entitled, by the Company check, in an amount equal to such
fraction multiplied by the Market Value. The Market Value shall be
determined on a per Share basis as of the close of the business day
preceding the exercise, which determination shall be made as follows:
(a) if the Common Stock is listed for trading on a national or regional
stock exchange or is included on the NASDAQ National Market or
Small-Cap Market, the average closing sale price quoted on such
exchange or the NASDAQ National Market or Small-Cap Market which is
published in The Wall Street Journal for the ten (10) trading days
immediately preceding the date of exercise, or if no trade of the
Common Stock shall have been reported during such period, the last sale
price so quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (b) if the Common Stock is not so
listed, admitted to trading or included, the average of the closing
highest reported bid and lowest reported ask price as quoted on the
National Association of Securities Dealer's OTC Bulletin Board or in
the "pink sheets" published by the National Daily Quotation Bureau for
the first day immediately preceding the date of exercise on which the
Common Stock is traded.
3.2 Partial Exercise. The securities referred to in
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paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price payable
shall be equal to the number of securities being purchased hereunder multiplied
by the per security Purchase Price, subject to any adjustments provided for in
this Agreement. Upon any such partial exercise, the Company, at its expense,
will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants
of like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
such certificates shall (subject to the provisions of Sections 5 and 7 hereof)
be issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or Chief Executive Officer or the
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the
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Underwriter or to officers and partners of the Selected Dealers participating in
the Public Offering; (b) by will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Underwrce of each
Warrant Underwriter Warrant shall be $.20625 per Underlying Warrant (165% of the
public offering price). The initial exercise price of each Underlying Warrant
shall be $8.25 per share. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof. The
Warrant Underwriter Warrants and the Underlying Warrants are exercisable during
the five (5) year period commencing on the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
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7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the Underwriter
and to all other Holders of the Registrable Securities of its intention to do
so. If the Underwriter and/or other Holders of the Registrable Securities notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respec(or such longer
period of time as permitted by the Act) by such Holders and any other Holders of
any of the Registrable Securities who notify the Company within twenty (20) days
after being given notice from the Company of such request. A Demand Registration
shall not be counted as a Demand Registration hereunder until such Demand
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Registration has been declared effective by the SEC and maintained continuously
effective for a period of at least nine months or such shorter period when all
Registrable Securities included therein have been sold in accordance with such
Demand Registration, provided that a Demand Registration shall be counted as a
Demand Registration hereunder if the Company ceases its efforts in respect of
such Demand Registration at the request of the majority Holders making the
demand for a reason other than a material and adverse change in the business,
assets, prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within twenty
(20) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions such registration request and registration and all costs incident
thereto shall be at the expense of the Holder or Holders participating in the
offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
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(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company (except transfer taxes, if any, fees and expenses of Holder(s) counsel,
and the Holder's pro-rata portion of any selling discounts or commissions).
Registrations effected pursuant to this Section 7.3(e) shall not be counted as
registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with the filing of any Registration Document by the
Company, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
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7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages (as such terms are defined under existing federal law) sustained by the
Holder(s) requesting registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration under the securities or
blue sky laws of such states as reasonably are required by the Holder(s),
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction. The Company shall use its good
faith reasonable efforts to cause such Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter as contained in the Underwriting
Agreement.
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(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of the
Holder(s) of the Registrable Securities to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from written information furnished by such Holder, or their successors or
assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in the
Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company, except that the maximum amount which may be recovered
from each Holder pursuant to this paragraph or otherwise shall be limited to
the amount of net proceeds received by the Holder from the sale of the
Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, ofstration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
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(i) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriter (except to the extent that correspondence and memoranda may
contain material non-public information) copies of all correspondence between
the Commission and the Company, its counsel or auditors and all non- privileged
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders, and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3
of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have
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<PAGE>
issued a no-action position, in form and substance reasonably satisfactory to
counsel for the Holder(s) requesting registration of such Registrable
Securities, to the effect that the entire number of Registrable Securities
proposed to be sold by such Holder(s) may be sold by it, in the manner proposed
by such Holder(s), without registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
(m) Upon the sale of any of the Registrable Securities, the Holder(s)
shall promptly advise the Company of the amount of the Registrable Securities
sold and the date of such sale(s).
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case
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of a subdivision, combination or reclassification. If, as a result of an
adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant Agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant Agreement shall the
adjustments provided in Section 8 and such registration rights and other rights
as provided in this Agreement. The Company shall not effect any such
consolidation, merger, or similar transaction as contemplated by this paragraph,
unless prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing, receiving, or leasing such assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Holders, the obligation to deliver to the Holders, such
shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase, and to perform the other
obligations of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or successively
whenever any event listed above shall occur.
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8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the
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Company) to compute such adjustment or readjustment in accordance herewith and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to any Holder(s) of the
Warrants and/or Underlying Warrants at the Holder(s) address as shown on the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including, but not limited to, a statement of (i) the
Exercise Price at the time in effect, and (ii) the number of additional or fewer
securities and the type and amount, if any, of other property which at the time
would be receivable upon exercise of the Warrants and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlyig such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional
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interests, it being the intent of the parties that all fractional interests may
be eliminated, at the Company's option, by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights, or in lieu thereof paying cash equal to such fractional interest
multiplied by the current value of a share of Common Stock.
11. Reservation, Validity and Listing.
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants and the Underlying Warrants, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
under this Warrant Certificate. The Company covenants and agrees that, upon
exercise of the Warrants and/or the Underlying Warrants, and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly authorized, validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants and/or Underlying Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants to be listed and quoted (subject to official notice of issuance) on all
securities exchanges and systems on which the Common Stock and/or the Public
Warrants may then be listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right
16
<PAGE>
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $8.25 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the
17
<PAGE>
Warrant Agreement. Upon exercise of the Underlying Warrants, the Company shall
forthwith issue to the registered Holder of any such Underlying Warrant in his
name or in such name as may be directed by him, certificates for the number of
shares of Common Stock so purchased. Except as otherwise provided herein and in
this Agreement, the Underlying Warrants shall be governed in all respects by the
terms of the Warrant Agreement. The Underlying Warrants shall be transferrable
in the manner provided in the Warrant Agreement, and upon any such transfer, a
new Underlying Warrant certificate shall be issued promptly to the transferee.
The Company covenants to send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Warrant
Agreement to be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent by
facsimile and delivered personally or by overnight courier, or mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the
Registrable Securities, to the address of such Holder as shown
on the books of the Company; or
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the
Holders.
Douglas P. Fields, Chief Executive Officer
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
With a copy to: Robert Perez, Esq.
Gusrae, Kaplan & Bruno
120 Wall Street
New York, New York 10005
and
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the
18
<PAGE>
subject matter hereof, and the terms and provisions of this Agreement may not be
modified, waived or amended except in a writing executed by the Company and the
Holders of at least a majority of Registrable Securities (based on underlying
numbers of shares of Common Stock). Notice of any modification, waiver or
amendment shall be promptly provided to any Holder(s) not consenting to such
modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate upon the earlier of the public sale of
all of the Registrable Securities or at the close of business on , 2005.
Notstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall
be deemed to be a contract made under the laws of the State of Florida and
for all purposes shall be construed in accordance with the laws of said State
without giving effect to the rules of said State governing the conflicts of
laws. The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim arising out of, or relating in any way to, this
Agreement shall be brought and enforced in a federal or state court of
competent jurisdiction with venue only in the Fifteenth Judicial Circuit
Court in and for Palm Beach County, Florida or the United States District
Court for the Southern District of Florida, West Palm Beach Division, and
irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. A
party to this Agreement named as a Defendant in any action brought in
connection with this Agreement in any court outside of the above named
designated county or district shall have the right to have the venue of said
action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in
an appropriate court in the above designated county or federal district.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
19
<PAGE>
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Warrant Certificates or Registrable Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
EAGLE SUPPLY GROUP, INC.
BY:
----------------------------------
Douglas P. Fields
Chief Executive Officer
Attest:
- --------------------------------
Frederick M. Friedman, Secretary
BARRON CHASE SECURITIES, INC.
By:
----------------------------------
Robert Kirk, President
20
<PAGE>
EAGLE SUPPLY GROUP, INC.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON __________, 2003
NO. W-_______
____________ Common Stock __________ Warrant
Underwriter Underwriter
Warrants Warrants
or
__________ Underlying
Warrants
This Warrant Certificate certifies that ______________, or registered
assigns, is the registered holder of _____________ Common Stock Underwriter
Warrants and/or ___________ Warrant Underwriter Warrants and/or ____________
Underlying Warrants of EAGLE SUPPLY GROUP, INC. (the "Company"). Each Common
Stock Underwriter Warrant permits the Holder hereof to purchase initially, at
any time from ______________, 1998 ("Purchase Date") until 5:30 p.m. Eastern
Time on _____________, 2003 ("Expiration Date"), one (1) share of the Company's
Common Stock at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $8.25 per share (165% of the public offering
price). Each Warrant Underwriter Warrant permits the Holder hereof to purchase
initially, at any time from the Purchase Date until five (5) years from the
Purchase Date, one (1) Underlying Warrant at the Exercise Price of $.20625 per
Underlying Warrant. Each Underlying Warrant permits the Holder thereof to
purchase, at any time from the Purchase Date until five (5) years from the
Purchase Date, one (1) share of the Company's Common Stock at the Exercise Price
of $8.25 per share.
21
<PAGE>
Any exercise of Common Stock Underwriter Warrants and/or Warrant
Underwriter Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Underwriter's Warrant Agreement dated as of ______________, 1998,
between the Company and Barron Chase Securities, Inc. (the "Underwriter's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified
check or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Underwriter's Warrant Agreement. The Common Stock
Underwriter Warrants, the Warrant Underwriter Warrants, and the Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Underwriter's
Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the
22
<PAGE>
holder hereof a new Warrant Certificate representing such number of
unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ______________, 1998
EAGLE SUPPLY GROUP,INC.
BY:
------------------------------------------
Douglas P. Fields
Chief Executive Officer
Attest:
- ---------------------------------
Frederick M. Friedman, Secretary
23
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Douglas P. Fields, Chief Executive Officer
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
The undersigned, the Holder of Warrant Certificate number __________
(the "Warrant"), representing ______________ Common Stock Underwriter Warrants
and/or ________ Warrant Underwriter Warrants and/or ________Underlying Warrants
of EAGLE SUPPLY GROUP, INC. (the "Company"), which Warrant Certificate is being
delivered herewith, hereby irrevocably elects to exercise the purchase right
provided by the Warrant Certificate for, and to purchase thereunder, _________
Shares and/or ________ Underlying Warrants of the Company, and herewith makes
payment of $___________ therefor, and requests that the certificates for such
securities be issued in the name of, and delivered to,_________________________
___, whose address is _________________________________________________________
_______________________________________________________________________________
_______, all in accordance with the Underwriter's Warrant Agreement and the
Warrant Certificate.
Dated:____________________
-----------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------------
-----------------------------
(Address)
-----------------------------
(Social Security Number of
Tax Identification Number)
24
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Douglas P. Fields, Chief Executive Officer
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
The undersigned, the Holder of Warrant Certificate number (the
"Warrant"), representing ______________ Common Stock Underwriter Warrants
and/or ____________ Underlying Warrants of EAGLE SUPPLY GROUP, INC. (the
"Company"), which Warrant is being delivered herewith, hereby irrevocably
elects the cashless exercise of the purchase right provided by the Underwriter's
Warrant Agreement and the Warrant Certificate for, and to purchase thereunder,
Shares of the Company in accordance with the formula provided at Section three
(3) of the Underwriter's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to,_______
_______________________________________________________________________ , whose
address is,____________________________________________________________________
______________________________________________________________________ , all in
accordance with the Warrant Certificate.
Dated:________________________
------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------------
-----------------------------
(Address)
-----------------------------
(Social Security Number of
Tax Identification Number)
25
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________ Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, and full power of substitution.
Dated: Signature:
- --------------------------- ------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
------------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
26
<PAGE>
Exhibit 4.2
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the __ day of _________,
1998, between Eagle Supply Group, Inc. (the "Company") and Barron Chase
Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing
financial and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. PURPOSE. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
However, the advisory will only be rendered if specifically requested in writing
by the CEO of the Company.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The
Financial Advisor represents and warrants to the Company that (i) it is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and that it is engaged in the securities brokerage business; (ii) in
addition to its securities brokerage business, the Financial Advisor provides
consulting advisory services; and (iii) it is free to enter into this Agreement
and the services to be provided pursuant to this Agreement are not in conflict
with any other contractual or other obligation to which the Financial Advisor is
bound. The Company acknowledges that the Financial Advisor is in the business of
providing financial services and consulting advice (of the type contemplated by
this Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
1
<PAGE>
3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this
Agreement, the Financial Advisor will provide the Company with consulting
advice as specified below at the request of the Company, provided that the
Financial Advisor shall not be required to undertake duties not reasonably
within the scope of the consulting advisory service in which the Financial
Advisor is engaged generally. In performance of these duties, the Financial
Advisor shall provide the Company with the benefits of its best judgment and
efforts. It is understood and acknowledged by the parties that the value of
the Financial Advisor's advice is not measurable in any quantitative manner,
and that the amount of time spent rendering such consulting advice shall be
determined according to the Financial Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily
be limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations
and investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of
the Company or any subsidiary.
4. TERM. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. FEE. The Company shall pay the Financial Advisor a fee of $108,000
for the financial services to be rendered pursuant to this Agreement, all of
which shall be payable at the Closing Date of the Company's proposed public
offering.
6. EXPENSES. In addition to the fees payable hereunder, the Company
shall reimburse the Financial Advisor, within five (5) business days of its
request, for any and all reasonable out-of-pocket expenses incurred in
connection with the services performed by the Financial Advisor and its counsel
pursuant to this Agreement, including (i) reasonable hotel, food and associated
expenses; (ii) reasonable charges for travel; (iii) reasonable long-distance
telephone calls; and (iv) other reasonable expenses spent or incurred on the
Company's behalf. All such expenses in excess of $500 shall be pre-approved by
the Company.
7. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S
SECURITIES. The Company acknowledges that all opinions
2
<PAGE>
and advice (written or oral) given by the Financial Advisor to the Company in
connection with the engagement of the Financial Advisor are intended solely for
the benefit and use of the Company in considering the transaction to which they
relate, and the Company agrees that no person or entity other than the Company
shall be entitled to make use of or rely upon the advice of the Financial
Advisor to be given hereunder, and no such opinion or advice shall be used for
any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, nor may the Company make any public
references to the Financial Advisor, or use the Financial Advisor's name in any
annual reports or any other reports or releases of the Company without the prior
written consent of the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
personnel of the Financial Advisor.
8. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
9. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits
3
<PAGE>
(including costs, expenses, awards and/or judgments) arise out of or are in
connection with the services rendered by the Financial Advisor or any
transactions in connection with this Agreement, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of willful
misconduct or willful omissions of the Financial Advisor. In addition, the
Company shall also indemnify and hold harmless the Financial Advisor against any
and all reasonable costs and expenses, including reasonable counsel fees,
incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
10. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
4
<PAGE>
11. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or sent
by facsimile and postage prepaid by certified or registered mail, return receipt
requested, to the respective parties as set forth below, or to such other
address as either party may notify the other in writing:
If to the Company: Douglas P. Fields, Chairman
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
Copy to: Robert Perez, Esq.
Gusrae, Kaplan & Bruno
120 Wall Street
New York, New York 10005
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in
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the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or
the United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
EAGLE SUPPLY GROUP, INC.
BY:
-------------------------------
Douglas P. Fields
Chief Executive Officer
BARRON CHASE SECURITIES, INC.
BY:
-------------------------------
Robert T. Kirk, President
6
<PAGE>
Exhibit 4.3
, 1998
Douglas P. Fields, Chief Executive Officer
Eagle Supply Group, Inc.
122 East 42nd Street, Suite 1116
New York, New York 10168
RE: MERGER AND ACQUISITION AGREEMENT
Dear Mr. Fields:
You have agreed that Barron Chase Securities, Inc. (the "Finder"), may
act as a non-exclusive finder or financial consultant for you in various
transactions in which Eagle Supply Group, Inc. (the "Company") may be involved,
including but not limited to, mergers, acquisitions, business combinations,
joint ventures, debt or equity placements or other on-balance sheet or
off-balance sheet corporate transactions. The Company hereby agrees that in the
event that the Finder shall first introduce to the Company another party or
entity, and that as a result of such introduction, a transaction between such
entity and the Company is consummated ("Consummated Transaction"), then the
Company shall pay to the Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the
consideration paid in such transaction;
b. Four percent (4%) of the consideration in excess of
$1,000,000 and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of
$2,000,000 and up to $3,000,000;
d. Two percent (2%) of the consideration in excess of
$3,000,000 and up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the finders fee to be paid by the Company to the Finder at closing
shall be $150,000.
However, both parties agree that it is the purpose of the Company to
use the proceeds of the offering in the acquisition, merger, purchase of shares
or any other kind of association with
<PAGE>
foreign companies as described in the prospectus. To the extent that the Company
has any prior relationships with such foreign companies these foreign companies
are specifically excluded from this Agreement.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduc of
said five year period, the Company shall also pay the Finder the fee determined
above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
---------------------------------
Robert T. Kirk, President
Agreed to and Accepted:
EAGLE SUPPLY GROUP, INC.
BY:
--------------------------------------
Douglas P. Fields
Chief Executive Officer
<PAGE>
Exhibit 10.11
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made on the 8th day
of July, 1997, by and among JEH ACQUISITION CORP., a Delaware corporation
("Buyer"), JEH COMPANY, a Texas corporation ("Seller"), and JAMES E. HELZER, the
sole shareholder of Seller ("Shareholder"). MARILYN HELZER, spouse of
Shareholder ("Mrs. Helzer") has joined in this Agreement for the purposes set
forth below. JEH ENTERPRISES, INC., a Colorado corporation ("Enterprises"), has
joined in this Agreement for the purposes set forth below.
RECITALS
A. Seller is a wholesale distributor of roofing materials and supplies
and building products and supplies for commercial and residential applications,
with operations in Texas, Colorado, Indiana, Iowa and Virginia (the "Business").
B. Buyer intends to buy, and Seller intends to sell and assign to
Buyer, the Business and all of Seller's operating assets (the "Acquired
Business"), upon the terms and conditions of this Agreement.
C. Shareholder owns all of the issued and outstanding shares of stock
of Seller and will benefit substantially from the transactions under this
Agreement. In return for such benefits, Shareholder is willing to enter into
this Agreement for the purposes set forth below.
D. Mrs. Helzer acknowledges that she will receive a substantial
financial benefit from the transactions under this Agreement. Accordingly, she
is willing to, and does hereby, enter into this Agreement for the purposes of
joining in any and all representations, warranties, covenants and agreements of
Shareholder under this Agreement.
OPERATIVE TERMS
In consideration of the mutual promises, Buyer, Seller, Shareholder and
Mrs. Helzer agree as follows:
1. Purchased Assets; Excluded Assets; Assumed Liabilities.
1.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined in Section 4.1), Seller will sell and
assign to Buyer, and Buyer will purchase from Seller, the Business, all of
Seller's operating assets and all other assets used or useful in connection with
the Business, including, without limitation:
<PAGE>
(a) the equipment, vehicles, rolling stock, racks, furniture,
fixtures, fixed assets and leasehold improvements including, without
limitation, those items described in Exhibit 1.1(a);
(b) inventories of roofing materials and supplies and building
products and supplies with respect to the Business which are held for
resale (the "Inventory");
(c) accounts and notes receivable held by Seller and notes,
bonds and other evidence of indebtedness of and rights to receive
payments from any person held by or owed to Seller (the "Accounts
Receivable"), including, without limitation, those described in Exhibit
1.1(c), and all of Seller's rights in collateral that secures any or
all of the Accounts Receivable;
(d) prepaid expenses and security deposits described in
Exhibit 1.1(d), manufacturers' rebates receivable as of June 30, 1997,
and other current assets related to or required in the Business;
(e) all of Seller's rights under the real property leases
described in Exhibit 1.1(e) (the "Third Party Leases");
(f) all of Seller's rights under the equipment leases and
contracts described in Exhibit 1.1(f) (the "Leases and Contracts");
(g) telephone numbers;
(h) goodwill, customer lists, assumed names, intellectual
property including, without limitation, the trade names, trademarks and
service marks described in Exhibit 1.1(h);
(i) computer hardware and software, and all of Seller's
rights under software licenses;
(j) cash and cash equivalents;
(k) assignable licenses and permits;
(l) business insurance policies including, without limitation,
all proceeds and rights to proceeds with respect thereto (the "Business
Insurance Policies");
(m) a term life insurance policy insuring Shareholder's life
and having a face amount of Two Million Dollars ($2,000,000) (the
"Assigned Life Insurance Policy");
(n) choses in action, claims, demands and rights in favor of
Seller other than Seller's rights under this Agreement;
(o) books and records; and
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(p) all other tangible and intangible assets related to the
Business.
Such assets, other than the Excluded Assets, as defined in Section 1.2, are
collectively called the "Purchased Assets." The Purchased Assets will be sold
free and clear of all security interests, liens, claims, encumbrances,
restrictions, reservations, charges or matters of a like kind (the
"Encumbrances"), except for the items described in Exhibit 1.1 (the "Permitted
Encumbrances").
1.2 Excluded Assets. The sale and purchase under this Agreement shall
not include the following assets (the "Excluded Assets"):
(a) the notes receivable dated December 29, 1995, from two
relatives of Shareholder in favor of Seller in the aggregate principal
amount of $268,758.00;
(b) the life insurance policies on the life of Shareholder
having a cash surrender value of $725,647.00 at December 31, 1996 on
Seller's balance sheet at the same date, which policies are listed in
Exhibit 1.2(b) (the "Excluded Life Insurance Policies");
(c) Seller's corporate minute books and tax returns (copies of
which shall be made available to Buyer upon request); and
(d) the other excluded assets listed on Exhibit 1.2(d) (the
"Other Excluded Assets").
1.3 Assumed Liabilities. At the Closing, Buyer shall assume:
(a) The accounts payable and accrued expenses of Seller, as of
the Effective Time, as defined in Section 4.1, that are both (i)
accrued by Seller in the ordinary course of the Business, consistent
with generally accepted accounting principles ("GAAP"), including trade
payables and all accrued expenses related to the operation and conduct
of the Business (provided, however, with respect to Seller's employees,
only accrued expenses with respect to vacation, sick leave, bonuses and
commissions), and (ii) expressly and finally set forth in the Closing
Balance Sheet, as defined in Section 2.3; and
(b) the obligations of Seller that accrue after June 30, 1997,
under the Third Party Leases and the Leases and Contracts, but not as
the result of any breach thereof by Seller or act or omission of Seller
that with notice, the passage of time, or both, would constitute a
breach thereof by Seller;
(collectively, the "Assumed Liabilities"). Except for the Assumed Liabilities,
Buyer will not assume any contracts, leases, debts, obligations or liabilities
of Seller, or arising out of the ownership or operation of the Business, whether
express or implied, contingent or otherwise, or resulting from any violation of
law, rule or regulation, or arising out of any act, omission or transaction of
Seller, Enterprises, Shareholder or Mrs. Helzer.
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<PAGE>
1.4 Real Property Leases. At the Closing, as defined in Section 4.1,
Shareholder (or Shareholder and Mrs. Helzer, in each case in which Shareholder
and Mrs. Helzer are co-owners or own the property as community property), as
landlord, and Buyer, as tenant, shall enter into real estate leases with respect
to the following facilities:
(a) Corporate Offices
2500, 2550, and 2552 US Highway 287
Mansfield, Texas;
(b) Warehouse
603 Wisteria Street
Mansfield, Texas;
(c) Frisco Branch
4400 Preston Road
Frisco, Texas;
(d) Colleyville Branch
1800 Tarrant Lane
Colleyville, Texas;
(e) Mesquite Branch
901 Dalworth Drive
Mesquite, Texas;
(f) Colorado Springs Branch
5565 East Bijou Street
Colorado Springs, Colorado; and
(g) Henderson Branch
8221 East 96th Avenue
Henderson, Colorado.
The leases with respect to such facilities (the "Shareholder Leases")
shall be in the form of, and shall contain the terms set forth in, Exhibits
1.4(a), 1.4(b), 1.4(c), 1.4(d), 1.4(e), 1.4(f), and 1.4(g). The premises leased
under the Third Party Leases and the Shareholder Leases are individually and
collectively called the "Leased Premises."
1.5 Employment Agreements. At the Closing, Buyer, as employer, and
Shareholder, as employee, shall enter into an employment agreement, under which
Shareholder shall be employed as president or other senior officer of Buyer and
chief executive officer of the Acquired Business division of Buyer (which may be
called the JEH division), which employment agreement shall be in the form of,
and contain the terms set forth in, Exhibit 1.5(a) (the "J.E. Helzer Employment
Agreement"). At the Closing, Buyer will offer employment to E.G. Helzer,
Shareholder's brother,
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<PAGE>
pursuant to an employment agreement which shall be in the form of, and contain
the terms set forth in, Exhibit 1.5(b) (the "E.G. Helzer Employment Agreement").
1.6 Initial Public Offering. If (a) within five (5) years after June
30, 1997, a company controlled by TDA Industries, Inc. files a Registration
Statement that is declared effective by the SEC which registers the common stock
of its roofing supply business (the "Roofing Company") for sale in connection
with an underwritten initial public offering of at least 10% of the Roofing
Company's then-outstanding common stock "(IPO"), and such stock is in fact sold
in such IPO, (b) the operations of the Acquired Business are part of the Roofing
Company's operations at the time of the effective date of such filing, (c) the
Acquired Business' earnings before interest, federal income taxes, depreciation
and amortization ("EBITDA") from July 1, 1997 to the effective date of such
filing are:
(i) not less than Three Million Eight Hundred
Thousand Dollars ($3,800,000.00) per year
(the "First Alternative"); or
(ii) less than Three Million Eight Hundred
Thousand Dollars ($3,800,000.00) per year
but not less than Three Million Six Hundred
Thousand Dollars ($3,600,000.00) per year
(the "Second Alternative");
(or, in the case of the First Alternative or Second Alternative, not less than a
seasonally adjusted portion of such amount for any partial fiscal year), and (d)
following the IPO, the Roofing Company's common stock is traded on a national
securities exchange or on NASDAQ, then Seller or its designee shall receive One
Million Three Hundred Fifty Thousand Dollars ($1,350,000.00), if the First
Alternative is met, or One Million Dollars ($1,000,000.00), if the Second
Alternative is met, payable, at the option of the Roofing Company, either in
cash, or in common stock of the Roofing Company valued at the price at which
such common stock is sold in the IPO. Such common stock delivered to Seller or
its designee pursuant to this Section 1.6 shall be issued subject to all normal
and customary agreements among the underwriters, the Roofing Company, and its
principal shareholders entered into in connection with the IPO, and to a lock-up
limited to no more than 24 months from the effective date of the IPO at the
discretion of the underwriters of such IPO, or any greater period of time that
may be required by any regulatory agency, share exchange, or NASDAQ. In the
event that Seller or its designee provides the Roofing Company notice, at least
30 days prior to the anticipated effective date of the IPO, that it would prefer
to receive the Roofing Company common stock, rather than cash, Buyer shall use
reasonable efforts to have such stock issued to Seller or its designee (subject
to the approval of the underwriters of such IPO). Buyer shall use reasonable
efforts to have Shareholder be given the opportunity, upon the consummation of
the IPO, to become a senior officer (other than chief executive officer) and a
director of the IPO company, in addition to such position(s) as he would
maintain with Buyer and the Acquired Business.
5
<PAGE>
For purposes of this Section, "Registration Statement" means a
registration statement filed by the Roofing Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, in connection
with a public offering of the Roofing Company's common stock (other than a
registration statement filed on Form S-4 or Form S-8, or any form substituting
therefor).
1.7 Exclusive Distributorship Agreement. At the Closing, JEH Exports,
Inc., a Texas corporation ("Exports"), the stock of which is owned solely by
Shareholder, and Buyer shall enter into, and Shareholder shall cause Exports to
enter into, the Exclusive Distributorship Agreement in the form of, and
containing the terms set forth in, Exhibit 1.7 (the "Distributorship Agreement")
pursuant to which Buyer shall be the sole distributor of Exports of roofing
materials in the territories described therein.
1.8 Enterprises. Seller, Enterprises, Shareholder and Mrs. Helzer,
jointly and severally, represent and warrant to Buyer, as of the Closing Date,
and covenant with Buyer, as follows:
(a) Enterprises is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado.
Enterprises has full power to own its assets and to conduct its business as
presently conducted. Enterprises is not required to be authorized, qualified or
licensed to do business in any other state.
(b) Enterprises has all requisite power and authority to
execute and enter into this Agreement and all other agreements and instruments
contemplated hereby to be executed and delivered by Enterprises at the Closing
(the "Enterprises Document") and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by Enterprises of this
Agreement and the Enterprises Documents have been duly authorized by all
necessary action, corporate or otherwise, by Enterprises and its stockholders.
This Agreement has been duly executed and delivered by Enterprises and its sole
shareholder, James E. Helzer, and is the legal, valid and binding agreement of
Enterprises, enforceable against Enterprises in accordance with its terms. The
Enterprises Documents will be, when executed and delivered by Enterprises, the
legal, valid and binding agreements of Enterprises enforceable against
Enterprises in accordance with their respective terms.
(c) Except as set forth in Exhibit 1.8, Enterprises has no
assets of any nature.
(d) Enterprises has no debts, obligations or other
liabilities, whether express or implied, contingent or otherwise, or resulting
from any violation of law, rule or regulation, or arising out of any act,
omission or transaction of Enterprises.
(e) At the Closing, Enterprises shall sell, transfer and
assign to Buyer, for One Hundred Dollars ($100.00), and other good and valuable
consideration, all of the assets of Enterprises (including, without limitation,
its interest in any of the Third Party Leases and claims and choses in action),
under such documents of assignment and transfer as are acceptable to Buyer, in
its sole discretion, free and clear of all Encumbrances; provided, however, that
Buyer shall not
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<PAGE>
assume any contracts, leases (except as may be assumed expressly by Buyer in
writing), debts, obligations or liabilities of Enterprises, or arising out of
the ownership or operation of any of Enterprises' assets, whether express or
implied, contingent or otherwise, or resulting from any violation of law, rule
or regulation, or arising out of any act, or omission or transaction of
Enterprises, and Seller, Enterprises, Shareholder and Mrs. Helzer, jointly and
severally, shall indemnify and hold Buyer harmless with respect thereto.
1.9 Manufacturers' Rebates. On or before March 1, 1998, Seller and
Buyer shall prorate, in accordance with the terms of this Section 1.9, the
volume rebates provided exclusively on an annual basis (for example, end of year
volume rebates which have not been previously credited or accrued) for calendar
year 1997 by the manufacturers listed on Exhibit 1.9. Seller's portion of such
annual rebate from any such manufacturer for calendar year 1997 shall be that
proportion of the annual rebate from such manufacturer for calendar year 1997 as
the dollar volume of purchases by Seller from such manufacturer during the first
six calendar months of 1997 ("Seller's Purchases") bears to the sum of (a)
Seller's Purchases and (b) the dollar volume of purchases by Buyer from such
manufacturer with respect to the Acquired Business during the balance of
calendar year 1997. Seller's share of the rebates, as determined under this
Section 1.9, will be paid to Seller as follows:
(i) by wire transfer in immediately available
funds of an amount not exceeding the sum of
(A) the difference between Two Hundred Fifty
Thousand Dollars ($250,000.00) and the
amount, if any, of the Additional Cash
Payment under Section 23(b)(i), and (B) One
Hundred Thousand Dollars ($100,000.00); and
(ii) if Seller's share of such rebates exceeds
the amount determined under clause (i)
above, the Promissory Note described in
Section 2.1 shall be amended by adding such
excess to the principal balance under the
Promissory Note.
1.10 Employee Services Agreement. Contemporaneously with the execution
of this Agreement, Seller and Buyer have entered into an Employee Services
Agreement in the form of, and containing the terms set forth in, Exhibit 1.10.
2. Purchase Price and Payment; Allocation; and Sales and Transfer Taxes.
2.1 Purchase Price and Payment. The purchase price for the Purchased
Assets, subject to adjustment under the terms of this Agreement (the "Purchase
Price"), shall be Fourteen Million Five Hundred Thousand Dollars
($14,500,000.00) (the "Tentative Purchase Price") plus the Adjustment Amount, as
defined in Section 2.2, if the Adjustment Amount is a positive number, or minus
the Adjustment Amount, if the Adjustment Amount is a negative number. At the
Closing, the Tentative Purchase Price, after applying the prorations, credits
and adjustments provided for in this Agreement (the "Adjusted Tentative Purchase
Price"), shall be payable as follows: (a) Buyer shall pay to Seller, by wire
transfer in immediately available United States funds, the sum of
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<PAGE>
Thirteen Million Five Hundred Thousand Dollars ($13,500,000.00) (the "Closing
Cash Amount"); and (b) Buyer shall issue to Seller, Buyer's Secured
Non-Negotiable Promissory Note, in the form of, and containing the terms set
forth in, Exhibit 2.1(b)(1) to this Agreement for the balance of the Adjusted
Tentative Purchase Price (the "Promissory Note"). The Promissory Note shall be
secured by a Security Agreement in the form of, and containing the terms set
forth in, Exhibit 2.1(b)(2) (the "Security Agreement").
In addition to the foregoing, Buyer shall pay at the Closing the first
Three Hundred Fifty Thousand Dollars ($350,000.00) of the fees of Geneva
Corporate Finance, Inc. ("Geneva"), Seller's broker, with respect to the
transactions under this Agreement (the "Broker Contribution"); provided,
however, that Geneva shall not be deemed to be the agent or broker of Buyer as a
result of such payment or otherwise.
2.2 Adjustment Amount. The Adjustment Amount (which may be a positive
or negative number) will be equal to the difference between (a) the amount of
the Acquired Net Assets, as defined in this Section below, and (b) Fourteen
Million Two Hundred Twenty Six Thousand Dollars ($14,226,000.00). For purposes
of this Agreement, the "Acquired Net Assets" means the difference between (i)
the net book value of the Purchased Assets (other than the accrued portion of
the annual manufacturers' rebates receivable that are subject to proration under
Section 1.9), as finally determined on the Closing Balance Sheet, as defined in
Section 2.3(a), but excluding any Special Reserves, as defined in Section
2.4(c), up to One Million Nine Hundred Thousand Dollars ($1,900,000.00), and
(ii) the Assumed Liabilities, as finally determined on the Closing Balance
Sheet.
2.3 Adjustment Procedure.
(a) Seller will prepare and shall cause Waters & Murray
("W&M"), Seller's independent certified public accountants, to audit the
financial statements (the "Closing Financial Statements") of Seller as of June
30, 1997, which Closing Financial Statements shall contain an audited balance
sheet (the "Closing Balance Sheet") at June 30, 1997, audited statements of
income and retained earnings, and cash flows for the period from the date of the
Balance Sheet, as defined in Section 5.7, through June 30, 1997, all prepared in
accordance with generally accepted accounting principles, and a separate
computation of the Acquired Net Assets. Buyer's independent certified public
accountants, Deloitte & Touche LLP ("D&T") and representatives of Buyer shall
review the audit conducted by W&M. Seller and Shareholder will arrange for D&T's
and Buyer's representatives to have full access to the W&M audit workpapers and
files. Seller and Shareholder also agree that representatives of D&T and Buyer
will be present to observe the physical inventory count taken by Seller and W&M
prior to June 30, 1997. Seller shall deliver the Closing Financial Statements to
Buyer and D&T within sixty (60) days after the Closing Date. If, within thirty
(30) days following delivery to Buyer and D&T of the Closing Financial
Statements, Buyer has not given Seller notice of its objection to the Closing
Financial Statements (such notice, if given, must contain a statement of the
basis of Buyer's objection), then the Closing Financial Statements, including,
without limitation, the computation of the Acquired Net Assets, shall be deemed
to have been finally determined for purposes of this Agreement, and the Acquired
Net Assets as so determined will be
8
<PAGE>
used in computing the Adjustment Amount. If Buyer gives such notice of an
objection, then the matters as to which Buyer has objected will be submitted to
D&T and W&M (the "Accountants") for resolution, and the Accountants shall
determine the Acquired Net Assets. If the Accountants are unable to agree as to
the resolution of such matters and the Acquired Net Assets within thirty (30)
days after such matters are submitted to the Accountants, the Accountants shall
select another "Big Six" accounting firm (New York City or Dallas office) (the
"Other Accountants") which will resolve such matters and determine the Acquired
Net Assets. Each party will furnish to the Accountants (and, if applicable, the
Other Accountants) such workpapers and other documents and information relating
to the disputed matters as the Accountants or the Other Accountants may request
and are available to that party (or its independent public accountants), and
each party will be afforded the opportunity to present to the Accountants and
the Other Accountants any material relating to such disputed issues and to
discuss such issues with the Accountants and the Other Accountants. The
resolution of such issues under this Section 2.3 (a) by the Accountants or Other
Accountants, as the case may be, as set forth in a notice delivered to both
parties by the Accountants or Other Accountants shall be deemed to be a final
determination thereof for purposes of this Agreement, shall be binding and
conclusive on the parties, and the Acquired Net Assets, as finally determined by
the Accountants or Other Accountants, will be used in computing the Adjustment
Amount. Buyer and Seller shall each bear one-half of the fees of the Other
Accountants in connection with the resolution or attempted resolution of the
disputed matters.
(b) On the tenth business day following the final
determination of the Acquired Net Assets, under Section 2.3(a), and the
Adjustment Amount:
(i) if the Purchase Price is greater than the
sum of the Closing Cash Amount and the
principal amount of the Promissory Note,
Buyer shall pay the difference to Seller (up
to Two Hundred Fifty Thousand Dollars
($250,000.00)) by wire transfer in
immediately available funds (the "Additional
Cash Payment"), together with simple
interest, from July 1, 1997, to the date of
payment, at the annual rate of six percent
(6%), and if such difference exceeds Two
Hundred Fifty Thousand Dollars
($250,000.00), the Promissory Note shall be
amended by Seller and Buyer by adding such
excess to the principal balance under
the Promissory Note; or
(ii) if the Purchase Price is less than the sum
of the Closing Cash Amount and the principal
amount of the Promissory Note, Seller shall
pay (and Shareholder shall cause Seller to
pay) (A) the difference to Buyer (up to Two
Hundred Fifty Thousand Dollars
($250,000.00)) by wire transfer in
immediately available funds, together with
simple interest, from July 1, 1997, to the
date of payment, at the annual rate of six
percent (6%), and (B) if such difference
exceeds Two Hundred Fifty Thousand Dollars
($250,000.00), the
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Promissory Note shall be amended by Seller
and Buyer by reducing the principal balance
of the Promissory Note by the amount of such
excess (up to Two Hundred Fifty Thousand
Dollars ($250,000.00)), and (C) Seller shall
pay (and Shareholder shall cause Seller to
pay) the remainder of such excess, if any,
in the same manner as provided in
Subparagraph (A) of this Section 2.3(b)(ii)
above.
2.4 Contingent Payments.
(a) Based on Modified EBITDA. Buyer shall pay to Seller or its
designee, as additional consideration for the sale of the Purchased Assets, the
applicable percentage set forth below of the Modified EBITDA, as defined in this
Section 2.4(a), of the Acquired Business, on an annual non-cumulative basis, for
each of the fiscal years ending June 30, 1998 through June 30, 2002:
<TABLE>
<CAPTION>
MODIFIED EBITDA FOR PERCENTAGE OF MODIFIED
FISCAL YEAR EBITDA TO BE PAID TO SELLER
------------------- OR ITS DESIGNEE
-----------------------------
<S> <C>
Less than $3,000,00.00 0%
$3,000,000.00 - $4,000,000.00 35%
$4,000,001.00 - $5,000,000.00 40%
More than $5,000,000.00 50%
</TABLE>
For purposes of this Section, the Modified EBITDA of the Acquired
Business shall not be charged with any interest cost relating to the purchase of
the Acquired Business. The Modified EBITDA of the Acquired Business will be
conclusively determined annually by Buyer's independent certified public
accountants. For purposes of this Section 2.4(a), the "Modified EBITDA" means
the EBITDA of the Acquired Business for any fiscal year of Buyer minus the
capital expenditures during such fiscal year with respect to the Acquired
Business (which expenditures, for purposes of this Section 2.4(a), shall be
deemed not to exceed 50% of the depreciation expense of the Acquired Business
for such fiscal year), plus Fifty Thousand Dollars ($50,000.00) of the cash
compensation paid to Shareholder during such fiscal year under the J.E. Helzer
Employment Agreement.
(b) Based on EBITDA.
(i) For any fiscal year during the period
commencing on the Closing Date and extending
until and including June 30, 2002 (the
"Applicable Period") in which the EBITDA of
the Acquired Business (plus $50,000.00 of
the compensation paid to Shareholder under
the J.E. Helzer Employment Agreement)
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is not less than Four Million Four Hundred
Thousand Dollars ($4,400,000.00), Buyer
shall pay to Seller or its designee the sum
of One Million Dollars ($1,000,000.00);
provided, however, that Buyer shall not pay,
and Seller shall not be entitled to receive,
more than Two Million Dollars
($2,000,000.00) in the aggregate under this
Section 2.4(b)(1).
(ii) In the event that the aggregate EBITDA of
the Acquired Business during the Applicable
Period (plus $50,000.00 per fiscal year of
the annual compensation paid to Shareholder
under the J.E. Helzer Employment Agreement)
is not less than Twenty Million Dollars
($20,000,000.00), Buyer shall pay to Seller
or its designee the sum of (A) One Million
Three Hundred Fifty Thousand Dollars
($1,350,000.00), and (B) the difference, if
any, between Two Million Dollars
($2,000,000.00) and the amount Seller or its
designee is entitled to be paid under
Section 2.4 (b) (1).
All payments under this Section 2.4(b) shall bear simple interest at
the rate of 6% from July 1, 1997, to the date of payment.
(c) Based on Reduction of Accounts Receivable Reserves.
(i) Schedule 2.4(c)(i) contains a list, as of
June 30, 1997, of certain account debtors of
Seller (individually, together with its
affiliates and related parties, a "Special
Account Debtor" and collectively the
"Special Account Debtors"), and the
outstanding account balances of each Special
Account Debtor. Schedule 2.4(c)(i) also
contains, with respect to each Special
Account Debtor, (i) that portion of the
reserves carried on Seller's books and
records of not less than Six Hundred
Thousand Dollars ($600,000.00) (the "Regular
Reserves"), that has been allocated to each
Special Account Debtor, and (ii) that
portion of the special reserves, of not less
than One Million Seven Hundred Thousand
Dollars ($1,700,000.00) (the "Special
Reserves"), that has been allocated to each
Special Account Debtor. The sum of the
Regular Reserves and Special Reserves, on
the Closing Balance Sheet (the "Total A/R
Reserves"), will be not less than Two
Million Three Hundred Thousand Dollars
($2,300,000.00). The amounts of the Regular
Reserves and Special Reserves (i.e., the
Total A/R Reserves), and the allocations of
such Regular Reserves and Special Reserves to
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<PAGE>
any or all Special Account Debtors on the
Closing Balance Sheet, may vary from the
Regular Reserves and Special Reserves and
the allocations thereof contained in
Schedule 2.4(c)(i).
(ii) Subject to the terms of this Section 2.4(c),
if the portion of the Total A/R Reserves
allocated to Special Account Debtors, under
Section 2.4(c)(i), is reduced by Buyer as of
the end of any fiscal year during the
Applicable Period, in accordance with GAAP,
on Buyer's audited balance sheet, solely
because of collections by Buyer with respect
to such Special Account Debtors, then, the
following provisions shall apply:
(A) Seller or its designee shall
be paid 100% of such reductions until
the Total. A/R Reserves are not less
than Two Million Five Hundred
Thousand Dollars ($2,500,000.00)
(determined after taking into account
such reductions).
(B) Then, Buyer shall retain 100%
of such reductions until the Total
A/R Reserves are not less than Two
Million Three Hundred Thousand
Dollars ($2,300,000.00) (determined
after taking into account such
reductions).
(C) Seller or its designee and
Buyer shall share equally any such
reductions at any time that the Total
A/R Reserves are less than Two
Million Three Hundred Thousand
Dollars ($2,300,000.00).
(iii) Notwithstanding Section 2.4(c)(ii),
Seller or its designee shall not be
entitled to be paid, under Section
2.4(c)(ii), any portion of a
reduction in the Total A/R Reserves
allocated to any Special Account
Debtor under Section 2.4(c)(i) unless
and until:
(A) the total balance of the
Accounts Receivable of such Special
Account Debtor as of the end of such
fiscal year is less than the total
balance of the Accounts
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<PAGE>
Receivable of such Special Account
Debtor as of June 30, 1997; and
(B) the ratio of the
Overdue Balance of the Accounts
Receivable of such Special Account
Debtor to the total balance of the
Accounts Receivable of such Special
Account Debtor as of the end of such
fiscal year is less than the ratio of
the Overdue Balance of the Accounts
Receivable of such Special Account
Debtor to the total balance of the
Accounts Receivable of such Special
Account Debtor as of June 30, 1997.
For purposes of this Subparagraph
(B), "Overdue Balance" means any
balance not collected within 45 days
after the invoice date.
(iv) [INTENTIONALLY OMITTED]
(v) An example of the application of this
Section 2.4(c) is contained in Schedule
2.4(c)(v).
2.5 Allocations. The consideration for the Purchased Assets will be
allocated in accordance with the Allocation of Purchase Price Agreement in the
form of, and containing the terms set forth in, Exhibit 2.5. Such allocations
will be conclusive and binding on Seller and Buyer for federal income tax
purposes, and Seller and Buyer will report such allocations to the Internal
Revenue Service as required by Section 1060 of the Internal Revenue Code of
1986, as amended, and the regulations with respect to that Section.
2.6 Sales and Transfer Taxes. Seller shall pay (and Shareholder shall
cause Seller to pay) all sales and other transfer taxes and fees arising out of
the sale and assignment of the Purchased Assets to Buyer; provided, however,
that with respect to sales or other transfer taxes arising out of the sale or
transfer under this Agreement of motor vehicles under certificates of title,
Buyer shall pay such sales or other transfer taxes up to Fifty Thousand Dollars
($50,000.00) ("Buyer's Sales Tax Portion") and the balance, if any, of such
sales or other transfer taxes shall be shared by Seller and Buyer equally.
Seller shall pay (and Shareholder shall cause Seller to pay) all documentary and
other excise taxes with respect to the Promissory Note and any amendments
thereto.
3. Casualty and Condemnation.
3.1 Risk of Loss. Until the Closing, the risk of loss or damage to the
Purchased Assets shall be borne by Seller, and if the Purchased Assets or any
portion thereof are stolen or are damaged or destroyed by fire or other casualty
before the Closing and can be restored, repaired or replaced substantially in
the same condition as exists on the date of this Agreement, within ninety (90)
days
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<PAGE>
after such casualty, Seller shall so restore, and Shareholder shall cause
Seller to restore, such Purchased Assets, and the Closing Date shall be
extended accordingly; but if such uninsured portion of the cost of
restoration, repair or replacement exceeds One Hundred Thousand Dollars
($100,000.00) (and Seller refuses to restore, repair or replace such
Purchased Assets), or such restoration, repair or replacement cannot be
completed within such period, this Agreement, at the option of Buyer, shall
be deemed terminated.
If Buyer elects to purchase the Purchased Assets even though the
Purchased Assets are not restored, repaired or replaced, or the uninsured
portion of the cost of restoration, repair or replacement exceeds One Hundred
Thousand Dollars ($100,000.00), Buyer shall be entitled to the benefits of any
insurance on the Purchased Assets to the extent required for such restoration,
repair or replacement. Seller shall not be required to restore, repair or
replace the stolen, damaged or destroyed Purchased Assets if the uninsured
portion shall cost more than One Hundred Thousand Dollars ($100,000.00) or if it
will take longer than ninety (90) days to complete, but, if Buyer elects to go
forward with the purchase, Buyer will receive a credit against the Purchase
Price at the Closing for such uninsured portion of the loss and the restoration
and an assignment by Seller of all of its rights under insurance policies with
respect to the stolen, damaged or destroyed Purchased Assets and all other
rights and claims for damages with respect to such stolen property, damage or
destruction.
3.2 Condemnation. If at any time prior to the Closing, the real
property of which the Leased Premises are a part, or any portion thereof, is
taken by eminent domain or if any preliminary steps in any taking by eminent
domain of such real property or the Leased Premises, or any portion thereof,
occurs prior to the Closing, Buyer may, at its option, within ten (10) days
after receipt of notice or knowledge thereof, terminate this Agreement. Seller
shall give Buyer notice of any such taking and all steps preliminary thereto as
soon as Seller becomes aware of them. If Buyer does not elect to so terminate
this Agreement, this Agreement shall remain in full force and effect, and Seller
or Shareholder (or Shareholder and Mrs. Helzer), as the case may be, shall in
such event turn over or credit to Buyer at the Closing all monies received or to
be received by Seller or Shareholder (or Shareholder and Mrs. Helzer), as the
case may be, by reason of such taking, and Seller or Shareholder (or Shareholder
and Mrs. Helzer), as the case may be, shall assign to Buyer all of Seller's or
Shareholder's (or Shareholder's and Mrs. Helzer's) right, title and interest in
and to any awards (and rights or claims to any such awards) that may be made for
such taking and any additional money that may be payable thereunder.
4. Closing.
4.1 Closing; Closing Date; and Effective Time. Subject to the terms and
conditions of this Agreement, the closing of the transactions contemplated by
this Agreement (the "Closing") will occur at 9:00 a.m. local time at the offices
of Jackson & Walker, L.L.P., 901 Main Street, Suite 6000, Dallas, Texas, 75202,
on July 8, 1997 or on such other date as may be agreed upon in writing by Seller
and Buyer (the "Closing Date"). The sale and purchase under this Agreement
shall, contingent upon the completion of the Closing, be effective as of 12:01
a.m. on July 1, 1997 (the
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<PAGE>
"Effective Time"), and all transactions with respect to the Business after the
Effective Time shall be for Buyer's benefit.
4.2 Actions to be Taken at the Closing. At the Closing, the parties
will take all of the following actions and deliver all of the following
documents:
(a) Seller will deliver to Buyer the following documents, in
each case in a form acceptable to Buyer in its sole discretion:
(i) a Bill of Sale with respect to the tangible
Purchased Assets, transferring to Buyer good
and marketable title in and to such
Purchased Assets, free and clear of all
Encumbrances and other matters except for
the Permitted Encumbrances applicable
thereto;
(ii) an assignment of Accounts Receivable to
Buyer and all collateral securing any or all
of such Accounts Receivable;
(iii) assignments of all of Seller's rights under
the Third Party Leases;
(iv) assignments of all of Seller's rights under
the Leases and Contracts;
(v) assignments of all of the other Purchased
Assets;
(vi) estoppel certificates and consents to
assignment signed by each party (other than
Seller) with respect to each of the Third
Party Leases and the Leases and Contracts
that Buyer is taking by assignment under the
terms of this Agreement;
(vii) the closing statement signed by Seller;
(viii) certificates issued by the Comptroller of
Public Accounts of the State of Texas to the
effect that Seller is in good standing with
respect to the payment of franchise, sales
and use taxes in the State of Texas;
(ix) certificates that Seller is authorized to
transact business in the States of Colorado,
Indiana, Iowa and Virginia;
(x) certificates issued by the Department of
Revenue of the States of Colorado, Indiana,
Iowa and Virginia to the effect that
15
<PAGE>
Seller is in good standing with respect to
the payment of franchise, income, sales and
use taxes in the respective states;
(xi) Seller's "dba's" or fictitious names in the
States of Colorado, Indiana, Iowa and
Virginia;
(xii) certificates of title for each of the motor
vehicles included in the Purchased Assets
duly assigned to Buyer, together with
appropriate applications to transfer title
thereto to Buyer, duly executed by Seller
and accompanied by funds to pay the
applicable sales and transfer taxes and fees
(except for Buyer's Sales Tax Portion);
(xiii) such other instruments, documents and papers
to transfer and vest in Buyer good and
marketable title in and to the Purchased
Assets free and clear of all Encumbrances
except for the Permitted Encumbrances
applicable thereto.
(b) Seller will give Buyer exclusive possession
of the Purchased Assets.
(c) Buyer will pay the Closing Cash Amount and deliver to
Seller the Promissory Note and Security Agreement in accordance with
Section 2.1.
(d) Buyer will pay the Broker Contribution in accordance with
Section 2.1.
(e) Buyer will deliver to Seller the closing statement signed
by Buyer.
(f) Buyer and Shareholder shall enter into the J.E. Helzer
Employment Agreement.
(g) Shareholder (or Shareholder and Mrs. Helzer), as the case
may be, and Buyer shall enter into each of the Shareholder Leases.
(h) Seller, Shareholder, and Mrs. Helzer, on the one hand, and
Buyer, on the other hand, shall take such other actions and shall
execute and deliver such other instruments, documents and certificates
as are required by the terms of this Agreement or as may be reasonably
requested by the other party or parties in connection with the
consummation of the transactions contemplated by this Agreement.
4.3 Adjustments to Purchase Price. The Purchase Price shall be subject
to the following credits and adjustments, which shall be reflected in the
closing statements to be executed and delivered by Buyer and Seller as
hereinabove provided:
(a) Prorations as to Assumed Liabilities. Any rents and fees
with respect to the Assumed Liabilities will be prorated as of June 30,
1997. Seller will assign to Buyer all
16
<PAGE>
unused deposits with respect to the Assumed Liabilities and will
receive a credit in the amount thereof with respect to the Purchase
Price
(b) Prorations as to Insurance Policies. All premiums with
respect to the Business Insurance Policies and the Assigned Life
Insurance Policy will be prorated as of June 30, 1997.
(c) Ad Valorem Taxes. Ad valorem real and tangible personal
property taxes with respect to the Purchased Assets for the calendar
year in which the Closing occurs shall be prorated between Seller and
Buyer as of June 30, 1997 on the basis of no applicable discount. If
the amount of such taxes with respect to any of the Purchased Assets
for the calendar year in which the Closing occurs has not been
determined as of June 30, 1997, then the taxes with respect to such
Purchased Assets for the preceding calendar year, on the basis of no
applicable discount, shall be used to calculate such prorations, with
known changes in valuation or millage being applied. The prorated taxes
shall be an adjustment to the amount of cash due from Buyer at the
Closing. In the event the actual amount of any of such taxes should
vary by more than One Hundred Dollars ($100.00) from estimates used at
the Closing to prorate such taxes, then the parties shall re-prorate
such taxes within ten (10) days following request by either party based
on the actual amount of the relevant tax bill.
(d) Special Assessments. Seller shall, on its closing
statement, be charged an amount equal to the amount of all unpaid
certified, confirmed and ratified special assessment liens with respect
to each of the Leased Premises (if such assessments are the obligation
of the tenant under the applicable lease) as of June 30, 1997 and, in
the case of pending liens with respect to a parcel or the Leased
Premises (if such liens would be the obligation of the tenant under the
applicable lease), an amount equal to the last estimate by the public
body of the assessment.
5. Representations and Warranties of Seller and Shareholder. Seller, Shareholder
and Mrs. Helzer, jointly and severally, represent and warrant to Buyer, as of
the Closing Date, as follows:
5.1 Organization. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas. Seller has
full power to own its assets and to conduct its business as presently conducted.
Seller is duly authorized, qualified or licensed to do business and is in good
standing as a foreign corporation in the States of Colorado, Indiana, Iowa and
Virginia and in each other state or jurisdiction in which any of the Purchased
Assets are located or Seller conducts its business or operations.
5.2 Authority. Seller has all requisite power and authority to execute
and enter into this Agreement and all other agreements and instruments
contemplated hereby to be executed and delivered by Seller at the Closing (the
"Seller Documents") and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by Seller of this Agreement and the Seller
Documents have been duly authorized by all necessary action, corporate or
otherwise, by Seller and its stockholders. This Agreement has been duly executed
and delivered by Seller, Shareholder and
17
<PAGE>
Mrs. Helzer and is the legal, valid and binding agreement of Seller, Shareholder
and Mrs. Helzer, enforceable against Seller, Shareholder and Mrs. Helzer,
respectively, in accordance with its terms. The Seller Documents will be, when
executed and delivered by Seller, the legal, valid and binding agreements of
Seller enforceable against Seller in accordance with their respective terms.
5.3 Title and Condition.
(a) The Purchased Assets are owned solely by Seller, and
Seller has good, assignable and marketable title to the Purchased Assets.
Attached to this Agreement as Schedule 5.3(a) is a true, correct and complete
list of Seller's creditors including, without limitation, its secured
creditors and other creditors having liens on any of its assets. At the
Closing, Buyer shall receive from Seller good, assignable and marketable
title to the Purchased Assets, free and clear of any and all Encumbrances
other than the Permitted Encumbrances.
(b) Except as set forth in Schedule 5.3.(b) hereto, the
tangible Purchased Assets (excluding, for purposes of this Section 5.3, the
Inventory) are in good condition and repair, ordinary wear and tear excepted.
There are no patent or latent defects regarding the Purchased Assets or the
Leased Premises, or any portion thereof, including, without limitation,
burial grounds, archaeological deposits, sink holes, or other on-site
conditions which could reduce the fair market value thereof.
5.4 Purchased Assets. The Purchased Assets constitute all of the assets
and properties owned by Seller that are used or useful in connection with the
Business.
5.5 No Violation. Neither the execution or delivery of this Agreement
or any of the Seller Documents nor, subject to required consents and approvals
of third parties described in Schedule 5.5, the consummation of the transactions
contemplated hereby or thereby, including, without limitation, the transfer and
assignment of the Purchased Assets to Buyer, will conflict with or result in the
breach of any term or provision of, or constitute a default under, or result in
the creation of, any Encumbrances upon any of the Purchased Assets pursuant to,
or give any third party the right to accelerate any obligation under, any
article provision, bylaw, agreement, contract, lease, indenture, deed of trust,
instrument, order, law or regulation to which Seller is a party or by which
Seller or any of the Purchased Assets is in any way bound or obligated.
5.6 Government Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration of filing with, any
governmental authority is required on the part of Seller, Shareholder or Mrs.
Helzer in connection with the transactions contemplated by this Agreement.
5.7 Financial Statements and Condition. Seller has delivered to
Buyer:
(a) the audited balance sheets of Seller as at December 31 in
each of the years 1994 and 1995, and the related audited statements of
income and retained earnings, and cash flows for each of the years then
ended, including, without limitation, the notes thereto, together with
the report thereon of W&M (the "1994 and 1995 Financial Statements");
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<PAGE>
(b) an audited balance sheet of Seller as at December 31, 1996
(including the notes thereto, the "Balance Sheet"), and the related
audited statements of income and retained earnings, and cash flows. for
the year then ended, including, without limitation, the notes thereto,
together with the report thereon of W&M (the "1996 Financial
Statements"); and
(c) an unaudited balance sheet of Seller at May 31, 1997 (the
"Interim Balance Sheet") and the related unaudited statements of income
and retained earnings for the five months then ended (the "Interim
Financial Statements").
Each of the financial statements described in this Section, and the notes
thereto, fairly present the financial condition, the results of operations, and
the cash flows of Seller as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP, subject,
in the case of the Interim Financial Statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
material) and the absence of notes (that, if presented, would not differ
materially from those included in the Balance Sheet). The financial statements
referred to in this Section 5.7 reflect the consistent application of GAAP
throughout the periods involved, except as disclosed in the notes to such
financial statements. No financial statements of any entity other than Seller
are required by GAAP to be included in the financial statements of Seller.
Seller has Acquired Net Assets of not less than Thirteen Million Seven
Hundred Twenty-Six Thousand Dollars ($13,726,000.00), taking into account, for
such purposes, reserves against Accounts Receivable of Six Hundred Thousand
Dollars ($600,000.00).
5.8 Absence of Material Adverse Change. Except as set forth on Schedule
5.8 hereto, since December 31, 1996, there has not been:
(a) any material adverse change in the financial condition,
results of operations, business, business prospects, personnel, assets
or liabilities (contingent or otherwise) of Seller;
(b) any dividend declared or paid or distribution made on
Seller's capital stock, or any redemption or repurchase of Seller's
capital stock;
(c) any increase in salary or wages, or payment of any bonus,
commission or other compensation to any of the officers, directors,
employees or agents of Seller;
(d) any pending or threatened labor disputes or other labor
problems relating to any employees of Seller;
(e) any default (including, without limitation, any event
that, with the giving of notice or passage of time, or otherwise, would
cause a default), termination or threatened termination under or
amendment to any agreement, contract, lease, instrument or license to
which Seller is a party or that is applicable to any portion of the
Purchased Assets;
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(f) any casualty loss, theft, damage or destruction of any of
the Purchased Assets which has resulted, either singly or in the
aggregate, in a loss of Five Thousand Dollars ($5,000.00) or more,
whether or not covered by insurance;
(g) any condemnation or eminent domain proceeding and, to the
knowledge of Seller or Shareholder, there has been no threatened
condemnation or eminent domain proceeding affecting any of the
Purchased Assets or the Leased Premises;
(h) any sale, assignment or transfer of any assets of Seller,
except in the ordinary course of Seller's business and consistent with
its past practices;
(i) any waiver by Seller of any material rights related to
Seller or any of the Purchased Assets;
(j) any other transactions, agreements, contracts or
commitments entered into by Seller or Shareholder affecting Seller or
any of the Purchased Assets, except in the ordinary course of Seller's
business and consistent with its past practices; or
(k) any agreement or understanding to do or resulting in any
of the foregoing.
5.9 Litigation: Investigations. Schedule 5.9 hereto contains:
(a) a detailed description of all pending (or, to the
knowledge of Seller or Shareholder, threatened) lawsuits, claims,
administrative charges, complaints, proceedings or investigations by
any person or governmental authority against or relating to Seller or
any of the Purchased Assets or to which Seller or any of the Purchased
Assets is subject;
(b) any judgment, order, writ, injunction or decree to which
Seller is subject, or relating to any of the Purchased Assets or the
business or operations of Seller; and
(c) a detailed description of all lawsuits, claims,
administrative proceedings or investigations pending (or, to the
knowledge of Seller or Shareholder, threatened), within the preceding
four (4) years, against Seller, with respect to any of the Purchased
Assets or the businesses or operations of Seller.
5.10 Compliance with Laws and Other Requirements. Seller complies
with and has at all times complied with, and the Purchased Assets and Leased
Premises and the use, operation and maintenance thereof by Seller comply with
and have at all times complied with, and neither Seller nor any of the Purchased
Assets and Leased Premises nor the use, operation or maintenance thereof by
Seller is in violation or contravention of, any applicable (including, without
limitation, any tax, environmental, health, safety or employment) statute, law,
ordinance, decree, order, rule or regulation of any governmental or
administrative or quasi-governmental authority, agency or body.
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(a) Notices of Violation. Notices received by Seller during
the last four (4) years from any governmental agency or body claiming
any such violation or contravention are fully described in Schedule
5.10(a) to this Agreement. Except as set forth in Section 5.10(a),
there are no agreements with, or commitments to, any governmental,
administrative, or quasi-governmental authority, agency or body
affecting or binding on Seller, or with respect to the Purchased Assets
or Leased Premises, in any manner. Except as described in Schedule
5.10(a), there is no proposal pending or threatened for public
improvement, assessment, paving agreement, road expansion or
improvement agreement, utility moratorium, use moratorium, improvement
moratorium, or legal, administrative, or other proceeding or
governmental investigation or requirement, formal or informal, pending
or, to the knowledge of Seller or Shareholder, threatened which affects
or may affect the Purchased Assets or the Leased Premises, or which
adversely affects or may affect Seller's ability to perform hereunder,
or other charge or expense upon or related to the Purchased Assets or
the Leased Premises.
(b) Taxes/Assessments. Except as set forth in Schedule
5.10(b), there are no taxes, fees, or assessments of any kind or nature
whatsoever which are presently due or, to the knowledge of Seller or
Shareholder, which will or may become due with respect to the Purchased
Assets or Leased Premises except for ad valorem real property taxes for
the current calendar year which are not yet due and payable. None of
the Leased Premises, nor any portion thereof, is within a "special
assessment district" and, to the knowledge of Seller or Shareholder, no
application has been made or submitted by anyone for the creation
thereof or annexation thereby which affects or may affect any of the
Leased Premises.
(c) Zoning and Land Use Laws. Each of the Leased Premises has
the appropriate zoning and other land use classifications, licenses,
permits and authorizations for the current use being made thereof by
Seller. There are no laws, rules, regulations or ordinances or
modifications with respect to zoning or land use in effect or, to the
knowledge of Seller or Shareholder, proposed, which restrict or
prevent, or will restrict or prevent, the use of the Purchased Assets
or Leased Premises in substantially the same manner as such Purchased
Assets or Leased Premises, as the case may be, are currently being used
by Seller ("Buyer's Intended Use"); and, further, none of the parcels
comprising the Leased Premises constitutes any non-conforming use.
(d) Adverse Restrictions and Rights. There are no existing
easements, rights-of-way, or restrictions other than existing zoning
and government regulations affecting the Leased Premises which could
adversely affect or prohibit the use of any of the Leased Premises for
Buyer's Intended Use.
(e) Third-Party Rights/Encumbrances. No party other than Buyer
has any right or option to acquire the Purchased Assets or any portion
thereof.
(f) Environmental Compliance. Except as set forth in Schedule
5.10(f) hereto, (i) none of the real property owned, leased, managed,
operated or otherwise utilized by Seller
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is on any federal or state "Superfund" list or has ever been the site
of any activity or condition that would violate any federal, state,
local or other environmental statute, law, ordinance, decree, order,
rule or regulation, past or present, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. ss.ss. 9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq. ("RCRA"),
the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., the Clean Water Act
of 1977, 33 U.S.C. ss.ss. 1251 the Toxic Substances Control Act, 15
U.S.C. ss.ss. 2601 et seq., or any other federal, state, or local laws
relating to air pollution, water pollution, noise control, or the
handling, discharge, disposal, or recovery, either on-site or off-site
(collectively referred to as "Environmental Laws"), of any toxic or
hazardous materials, substances, wastes or other contaminants
(including, without limitation, biohazardous waste), petroleum products
or their derivatives (collectively referred to as "Pollutants"); (ii)
no Pollutants have been handled, stored, recycled, or disposed of or
leaked or spilled on, or have otherwise contaminated, any of the Leased
Premises, or any other real property currently or previously owned,
leased or used by Seller, or would give rise to a cleanup or
remediation obligation under or threatened violation of any such
Environmental Law; (iii) the improvements on the Leased Premises
contain no asbestos-containing materials; (iv) no electrical
transformers, fluorescent light fixtures with ballast or other
equipment containing PCB's are or were located in the Leased Premises
at any time during or prior to Seller's use thereof; (v) none of the
Leased Premises has been used as a landfill; (vi) there are no
incinerators, above or below ground storage tanks, septic tanks or
cesspools on any of the Leased Premises; and (vii) Seller has not
arranged for the disposal of any Pollutant off the Leased Premises
which would subject Seller or Buyer to liability under any
Environmental Laws.
(g) Waste Disposal. Seller has disposed of all toxic or
hazardous waste in compliance with the Environmental Laws.
(h) Licenses. There are no proceedings or investigations
pending or, to the knowledge of Seller or Shareholder, threatened, that
could result in a termination, revocation, suspension or probation with
respect to any of Seller's licenses, permits or authorizations.
5.11 Certain Contracts. The following Schedules to this Agreement
contain true, correct and complete copies of the following agreements,
contracts, leases, instruments, arrangements and commitments (and all
amendments, supplements and modifications thereto) (and, where indicated below,
detailed descriptions of the terms of unwritten agreements, contracts, leases,
instruments, arrangements, and commitments) relating to Seller or by which
Seller or any of the Purchased Assets is in any way bound or obligated:
(a) all supply agreements, contracts or arrangements
(Schedule 5.11(a)),
(b) all real estate leases relating to property owned,
occupied or utilized by Seller (the "Real Estate Leases") (Schedule
5.11(b));
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(c) all equipment leases relating to equipment utilized by
Seller (the "Equipment Leases") (Schedule 5.11(c));
(d) all agreements with any present director, officer,
employee, agent, representative or affiliate of Seller (Schedule
5.11(d)),
(e) all insurance policies relating to the Purchased Assets,
the Leased Premises, or the Business and the Assigned Life Insurance
Policy (all of which policies are in full force and effect) (Schedule
5.11(e).
(f) all profit-sharing, pension, stock option, severance,
retirement, bonus, deferred compensation, group life and health
insurance or other employee benefit plans, trusts, agreements and
arrangements, personnel policies, and employee handbooks, whether or
not legally binding, covering or provided to any employees of Seller
(Schedule 5.11(f));
(g) all other agreements, contracts, leases, instruments,
arrangements and commitments relating to or affecting Seller or the
Purchased Assets or any interest therein that are not otherwise
disclosed in the above-referenced Schedules (Schedule 5.11(g)); and
(h) detailed descriptions of the terms of any unwritten
agreements, contracts, leases, instruments, arrangements, or
commitments and a list of proposed agreements, contracts, leases,
instruments, arrangements, or commitments (Schedule 5.11(h)).
All of such agreements, contracts, leases, instruments, arrangements,
and commitments referred to above are valid, binding and in full force and
effect and enforceable in accordance with their respective terms and conditions.
Seller has performed all obligations to be performed by it under all such
agreements, contracts, leases, instruments, arrangements and commitments, and
there is no existing default or event of default or event that, with notice or
lapse of time or both, would constitute a default thereunder. There has been no
termination or threatened termination or notice of default under any such
agreement, contract, lease, instrument, arrangement or commitment.
5.12 Employees. Schedule 5.12 hereto contains a true, correct and
complete listing of all of the current employees of Seller, their current
respective positions or job classifications, and their current respective wage
scales or salaries, as the case may be, and other compensation and benefits.
Schedule 5.12 also contains Seller's unemployment tax rate.
5.13 Employee Benefit Plans. Buyer shall not be subject to any
liability with respect to, or resulting from the termination by Seller of any of
its employees from, any profit-sharing, 401 (k), pension, stock option, vacation
pay, sick pay, personal leave, severance pay, retirement, bonus, deferred
compensation, group life and health insurance or other employee benefit plan,
agreement or commitment of Seller ("Benefit Plan") (except to the extent
otherwise expressly provided in Section 1.3), whether or not legally binding, or
resulting from the employment by Buyer of any such employee, and Buyer shall not
be responsible for any liability whatsoever under any such Benefit
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Plan. Seller does not contribute or have an obligation to contribute to any
multi-employer plan within the meaning of Section 3(37) or 400(a)(3) of ERISA on
behalf of Seller's employees.
5.14 Labor Matters. Except as set forth in Schedule 5.14 hereto:
(a) Seller has no collective bargaining, union or labor
agreements, contracts or other arrangements with any group of
employees, labor union or employee representatives;
(b) Neither Seller nor Shareholder has any knowledge of any
organization effort currently being made or threatened by or on behalf
of any labor union with respect to employees of Seller;
(c) there are no labor controversies, strikes, work stoppages
or slowdowns pending or, to the knowledge of Seller or Shareholder,
threatened, against Seller;
(d) there is no written or oral contract with any of Seller's
employees that cannot be terminated without liability; and
(e) there are no pending or, to the knowledge of Seller or
Shareholder, threatened, lawsuits, proceedings or claims against Seller
by any employees or former employees of Seller with respect to
employment matters of any kind.
5.15 Intangible Rights. Schedule 5.15 contains a list and copy of all
intangible property relating to the Purchased Assets or Seller or owned by,
licensed by or licensed to Seller, or in which Seller otherwise claims a right,
including, without limitation, all trademarks, service marks, trade names,
assumed names, "dba's", fictitious names and registrations or applications
therefor, and trade secrets (collectively, the "Intangible Rights"). Any
registrations or applications for the trademarks, service marks, trade names,
brand names and copyrights set forth in Schedule 5.15 are in Seller's name only.
Seller owns and has the right to use all franchises, trademarks, service marks,
assumed names, "dba's", fictitious names, and trade names set forth on Schedule
5.15 in the geographic areas in which such marks and names are currently being
used. Neither any portion of the Intangible Rights nor Seller's ownership or use
thereof infringes on the property rights of any other person nor, to the
knowledge of Seller or Shareholder, do the rights of any other person infringe
on any of the Intangible Rights. No claim, demand or allegations of infringement
relating to the ownership or use of any of the Intangible Rights set forth in
Schedule 5.15 has been received by Seller or Shareholder or, to the knowledge of
Seller or Shareholder, made by any person. Seller has no assumed names in the
State of Texas or any of its counties.
5.16 Insurance.
(a) Except as disclosed in Schedule 5.16, there are no pending
claims under any of the policies required to be described in Schedule
5.11(e), and no events have occurred which would give rise to a right
to pursue a claim under any such policy or arrangement.
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(b) There are no outstanding requirements or recommendations
which have been communicated to Seller by any current insurer or
underwriter with respect to Seller's assets or the Business or
otherwise which requires or recommends changes in the conduct of the
Business or requires or recommends any changes, repairs or other work
to be done with respect to the Business or any of Seller's assets.
(c) Seller has not received (i) any refusal of insurance
coverage or any notice that a defense will be afforded under a
reservation of rights, or (ii) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or
effect or will not be renewed or that the issuer of any policy is not
willing or able to perform its obligations thereunder.
(d) Seller has paid all premiums due, and has otherwise
performed all of its obligations, under (i) each Business Insurance
Policy to which Seller is a party or that provides coverage to Seller,
and (ii) the Assigned Life Insurance Policy.
(e) To Seller's and Shareholder's knowledge, Seller has given
notice to the insurer of all claims that may be insured thereby.
(f) Seller has no self-insurance plans or arrangements in
effect.
5.17 Shareholder: and Interests in Competitors. Shareholder owns all of
the issued and outstanding shares of stock of Seller and no other person or
entity has any rights in or option to acquire any shares of stock, warrants or
other equity interests in Seller or to exercise voting or other rights as to any
of Seller's shares of stock. Except for beneficial ownership of not more than 5%
of the outstanding equity securities of publicly-held companies, and except as
set forth in Schedule 5.17 hereto, neither Seller nor Shareholder, nor Mrs.
Helzer, nor any member of the immediate family of Shareholder or Mrs. Helzer,
nor any officer or director of Seller, nor any person or entity controlling,
controlled by or under common control with Seller or Shareholder owns, directly
or indirectly, an interest in any person or entity that is a competitor,
customer, supplier or landlord of Seller or that otherwise has business dealings
with Seller.
5.18 Taxes. Seller has: (a) filed, when due, with all applicable
governmental agencies, all tax returns, estimates, reports and statements
required to be filed by it, all of which are true and correct; and (b) paid all
taxes required to be paid by it as reflected on such returns, estimates, reports
or statements, or otherwise required to be paid by Seller, including, without
limitation, all income, sales, use, property and transfer taxes, levies, duties,
licenses, registration fees and charges of any nature whatsoever and worker's
compensation and unemployment taxes, and including, without limitation, all
additions or additional amounts thereto, and interest and penalties thereon.
Seller has withheld all taxes required to be withheld under applicable tax laws
and regulations, and such withholdings have either been paid, when due, to the
respective governmental agencies or have been properly set aside in accounts for
such purposes and will be paid, when due, to the applicable governmental
agencies.
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5.19 No Other Agreements. Neither Seller, Shareholder nor Mrs. Helzer
has entered into any agreement, commitment or understanding with any other
person with respect to the sale, transfer, lease or other disposition of all or
any portion of the Purchased Assets (except for sales, transfers or leases in
the ordinary course of Seller's business and consistent with its past practices)
or with respect to a sale, encumbrance or transfer of any stock of Seller.
5.20 Accounts Receivable.
(a) All Accounts Receivable of Seller that are reflected on
the Balance Sheet or the Interim Balance Sheet (except to the extent of
collections thereof) represent, and all Accounts Receivable that will
be reflected on the accounting records of Seller as of June 30, 1997,
will represent, valid obligations in favor of Seller arising from sales
actually made by the Seller in the ordinary course of the Business.
Unless paid prior to the Closing Date, the Accounts Receivable (other
than those of the Special Account Debtors, as to which no
representation or warranty as to collectibility is given) (the "Other
Accounts Receivables") will be as of the Closing Date collectible net
of the reserves with respect to the Other Accounts Receivables shown on
the Closing Balance Sheet. Subject to such reserves, each of the Other
Accounts Receivable will be collected in full, without any set-off, in
the ordinary course. Except as provided in Schedule 5.20(a), there is
no contest, claim, or right of set-off, or, to the best of Seller's and
Shareholder's knowledge, any threatened contest, claim or right of
set-off, or circumstances that with notice, the lapse of time or both,
could result in such a contest, claim or right of set-off (other than
with respect to returns of merchandise in the ordinary course of the
Business), with respect to any Account Receivable or under any contract
with any obligor of an Account Receivable.
(b) Schedule 5.20(b) contains a complete and accurate list of
all Accounts Receivable of Seller as of June 30, 1997, which list sets
forth the aging of such Accounts Receivable and describes any
collateral that secures payment of any Accounts Receivable.
(c) Except as provided in Schedule 5.20(c), no account debtor
has withheld payment or threatened to withhold payment of any Account
Receivable and, to the best of Seller's and Shareholder's knowledge,
none of Seller's account debtors is insolvent or has filed or had filed
against it a petition in bankruptcy or similar petition and, to the
best of Seller's and Shareholder's knowledge, there are no
circumstances that could lead to such insolvency or bankruptcy filing
or similar petition.
5.21 Inventory. All Inventory of Seller, whether or not reflected in
the Balance Sheet or the Interim Balance Sheet consists of a quality and
quantity usable and salable in the ordinary course of the Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheet, the
Interim Balance Sheet and on the accounting records of Seller as of June 30,
1997, as the case may be. All Inventory not written off has been valued on
Seller's books and records at Seller's net cost, which does not exceed net
realizable value on a first in, first out basis. The quantities of each item of
the Inventory are reasonable with respect to the needs of the Business.
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5.22 No Undisclosed Liabilities. Except for the Assumed Liabilities,
Seller has no liabilities or obligations of any nature (whether known or unknown
and whether absolute, accrued, contingent, or otherwise) for which Buyer will or
could be liable.
5.23 Solvency. Seller is not now insolvent, and will not be rendered
insolvent by any of the transactions contemplated by this Agreement. In
addition, immediately after giving effect to the consummation of the
transactions contemplated by this Agreement (a) Seller will be able to pay its
debts as they become due, (b) the property of Seller does not and will not
constitute unreasonably small capital, and Seller will not have unreasonably
small capital and will not have insufficient capital with which to conduct its
present or proposed business, and (c) taking into account all pending and
threatened litigation, final judgments against Seller in actions for money
damages are not reasonably anticipated to be rendered at a time when, or in
amounts such that, Seller will be unable to satisfy any such judgments promptly
in accordance with their terms (taking into account the maximum probable amount
of such judgments in any such actions and the earliest reasonable time at which
such judgments might be rendered) as well as all other obligations of Seller.
The cash available to Seller, after taking into account all other anticipated
uses of the cash of Seller, will be sufficient to pay all such judgments
promptly in accordance with their terms. For purposes of this Section,
"insolvent" means that the sum of the present fair saleable value of Seller's
assets does not and will not exceed its debts and other probable liabilities,
and the term "debts" includes any legal liability of Seller, whether matured or
unmatured, liquid or unliquidated, absolute, fixed or contingent, disputed or
undisputed or secured or unsecured.
5.24 No Misrepresentations. The representations, warranties and
statements made by Seller, Shareholder and Mrs. Helzer in or pursuant to this
Agreement and the Exhibits and Schedules hereto are true, complete and correct
in all respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make any such representation,
warranty or statement, under the circumstances in which it was made, not
misleading. Seller and Shareholder have disclosed to Buyer all material events,
conditions or facts known to either or both of them that affect the condition
(financial or otherwise), business or prospects of Seller. None of the
information supplied or to be supplied by Seller or Shareholder for inclusion in
any registration statement (or any amendments thereto) to be filed with the
Securities and Exchange Commission (the "SEC") by Buyer or any of its affiliates
under the Securities Act of 1933 (the "Securities Act") or the Securities
Exchange Act of 1934 (the "Exchange Act") in connection with Seller,
Shareholder, the Acquired Business or the transactions contemplated by this
Agreement (for purposes of this Section and Section 8.11, the "Registration
Statement"), or any other document to be filed with any regulatory authority in
connection with Seller, Shareholder, the Acquired Business or the transactions
contemplated hereby will, when any such Registration Statement becomes effective
or any such other document is filed, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading.
6. Representations and Warranties of Buyer. Buyer represents and warrants to
Seller, as of the Closing Date, as follows:
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6.1 Organization. Buyer is a corporation duly organized, validly
existing and with active status under the laws of the State of Delaware. Buyer
has full power to own its properties and to conduct its business as presently
conducted.
6.2 Authority. Buyer has all requisite corporate power and authority to
execute and enter into this Agreement and all other agreements and instruments
contemplated hereby to be executed and delivered by Buyer (the "Buyer
Documents") and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by Buyer of this Agreement and the Buyer
Documents have been duly authorized by all necessary action, corporate or
otherwise, by Buyer, and this Agreement has been duly executed and delivered and
is, and the Buyer Documents will be, when executed and delivered by Buyer, the
legal, valid and binding agreements of Buyer, enforceable against Buyer in
accordance with their respective terms, except to the extent that the same may
be limited by insolvency, bankruptcy, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
6.3 No Violation. Neither the execution or delivery of this Agreement
or any of the Buyer Documents nor the consummation of the transactions
contemplated hereby or thereby conflict with or result in the breach of any term
or provision of, or constitute a default under, or give any third party the
right to accelerate any obligation under, any charter provision, bylaw,
agreement, contract, lease, indenture, deed of trust, instrument, order, law, or
regulation to which Buyer is a party or by which Buyer or any of its assets or
properties is in any way bound or obligated.
7. Seller's Covenants. Seller covenants and agrees as follows, and Shareholder
covenants to cause Seller to perform such covenants and agreements (all of which
covenants and agreements by Seller and Shareholder shall be conditions to
Buyer's obligations hereunder):
7.1 Conduct of Business. Prior to the Closing, Seller shall (and
Shareholder shall cause Seller to):
(a) operate in the ordinary course of its business and
consistent with its current methods of transacting business and past
practices;
(b) use its best efforts to preserve its goodwill and the
goodwill of its customers, franchisors, lessors, suppliers, employees,
tenants, governmental authorities and others having dealings with
Seller;
(c) maintain its books of account and records in the usual,
regular and ordinary manner and consistent with its past practices, and
furnish Buyer with a copy of each of Seller's monthly unaudited
financial statements within ten (10) business days after the end of the
calendar month to which such financial statements relate;
(d) maintain all licenses, permits, authorizations,
certificates, qualifications, registrations and other governmental
approvals that are required for Seller to carry on its business in good
standing;
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(e) make capital expenditures and other expenditures necessary
for the maintenance of the Purchased Assets and the Business;
(f) maintain all existing insurance policies and surety bonds,
letters of credit, guaranties and similar instruments and commitments
now in place for the benefit of Seller, the Business or the Purchased
Assets;
(g) not assume or incur any liabilities or obligations not in
the ordinary course of its business; and
(h) not, other than in the ordinary course of Seller's
business and consistent with its prior practices, increase the salary,
wages, bonus, commission or other compensation of any officer,
director, employee, agent or representative of Seller or enter into or
amend in any material respect any profit-sharing, pension, stock
option, vacation pay, sick pay, personal leave, severance, retirement,
bonus, deferred compensation, group life and health insurance or other
employee benefit or employee benefit plan, trust agreement or
arrangement affecting any such person, or any compensation, separation
or consultation agreement with any such person.
7.2 Fulfillment of Conditions. Seller shall take (and Shareholder shall
cause Seller to take) all reasonable steps (including, without limitation, the
payment of reasonable fees and expenses related thereto) that are within its
power to cause to be fulfilled the conditions precedent to Buyer's, Seller's or
Shareholder's obligations to consummate the transactions contemplated hereby.
Neither Seller nor Shareholder shall take any action that would cause the
conditions to the obligations of the parties to effect the transactions
contemplated hereby not to be fulfilled including, without limitation, taking or
causing to be taken any action that would cause the representations and
warranties made by Seller, Shareholder and Mrs. Helzer herein not to be true,
correct and accurate in all material respects as of the Closing.
7.3 Access and Information. Seller shall permit Buyer and its
authorized representatives to have reasonable access, during normal business
hours, to:
(a) Seller's assets and all its books, records and documents
of or relating to Seller and its assets, liabilities and obligations,
and Seller shall furnish to Buyer such information, financial records
and other documents with respect to Seller's assets, liabilities and
obligations and Seller's operations and business as Buyer shall
reasonably request; and
(b) Seller's officers, directors, employees, agents,
accountants, auditors, franchisors, lessors, customers and suppliers,
for consultation or verification of any information obtained by Buyer,
and Seller shall use reasonable efforts to cause such persons or
entities to cooperate with Buyer in such consultation and in verifying
such information.
Notwithstanding the foregoing, Buyer shall be entitled to rely on the
representations and warranties of Seller, Shareholder and Mrs. Helzer as if no
investigation had been made.
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7.4 Legal or Governmental Actions. If Seller is notified of any legal
or governmental or administrative act or proceeding instituted against or with
respect to Seller, the Purchased Assets, the Leased Premises, or any portion
thereof prior to the Closing, Seller shall promptly give notice thereof to
Buyer.
7.5 Update of Representations and Warranties. Between the date of this
Agreement and the Closing Date' Seller shall give notice to Buyer promptly upon
Seller's or Shareholders becoming aware of (a) any inaccuracy of a
representation or warranty set forth in Section 5 or in any Schedule hereto, or
(b) any event or state of facts that, if it had occurred or existed on or prior
to the date of this Agreement, would have caused any such representation or
warranty to be inaccurate, and any such notice shall describe such inaccuracy,
event or state of facts in detail.
7.6 COBRA and HIPAA Compliance. Sellers shall comply fully with the
provisions of the Consolidated Omnibus Budget Reconciliation Act ("COBRA") and
the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") with
respect to Seller's employees whose employment with Seller will terminate in
connection with the transactions under this Agreement.
7.7 Payment of Liabilities. Seller shall pay or otherwise satisfy in
the ordinary course all of Seller's trade payables and shall fully pay or
otherwise satisfy all other claims or liabilities relating to the assets of the
Business incurred through June 30, 1997, other than the Assumed Liabilities.
7.8 Change of Seller's Name. Immediately following the Closing, Seller
shall change its name to a name which does not include "JEH " and is otherwise
not confusingly similar to Buyer's current name or "JEH/Eagle Supply, Inc."
8. Conditions to Obligations of Buyer. The obligations of Buyer under this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions, but compliance with any of such conditions may be waived
by Buyer in writing:
8.1 Representations and Warranties True; and Conditions Satisfied. All
representations and warranties of Seller and Shareholder contained in this
Agreement (including, without limitation, the Schedules hereto) (without giving
effect to any updating or corrective information furnished pursuant to Section
7.5 of this Agreement or otherwise), shall be true and correct in all material
respects at and as of the Closing with the same effect as though such
representations and warranties were made at and as of the Closing; Seller and
Shareholder shall have performed and complied with all of the covenants and
agreements and satisfied all of the conditions required by this Agreement to be
performed, complied with or satisfied by either or both of them at or prior to
the Closing; and Buyer shall have received certificates to the foregoing effect
from the President of Seller and from Shareholder.
8.2 Litigation. There shall be no pending or threatened litigation in
any court or any proceeding before or by any administrative or governmental
authority to restrain or prohibit or obtain damages or other relief with respect
to this Agreement or the consummation of the transactions
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contemplated hereby or as a result of which Buyer could be deprived of any of
the material benefits of the transactions contemplated hereby.
8.3 Closing Documents. Seller shall have executed and delivered the
documents and items required of Seller in Section 4.2;
8.4 Miscellaneous Consents. Seller shall have secured all contractual
and other third-party consents required in connection with the transactions
contemplated by this Agreement in form and substance satisfactory to Buyer.
8.5 Employees. Buyer shall have hired such of Seller's employees as
Buyer may desire, in its sole discretion, to hire.
8.6 Exclusive Possession. Seller shall have delivered to Buyer
exclusive possession of the Purchased Assets, the Leased Premises and the
equipment described in the Leases and Contracts.
8.7 Licenses and Consents. Buyer shall have secured all necessary
governmental certificates, approvals, consents and authorizations to purchase
the Purchased Assets and to operate the Purchased Assets and the Leased Premises
for Buyer's Intended Use.
8.8 Acquisition Review. The results of Buyer's investigation of Seller,
the Business, the Purchased Assets, the Leased Premises, Seller's operations and
financial condition shall be acceptable to Buyer in its sole discretion.
8.9 Minimum Acquired Net Assets. Seller and Shareholder shall have
delivered to Buyer a certificate stating that as of the Closing Date, Seller has
Acquired Net Assets of not less than Thirteen Million Seven Hundred Twenty-Six
Thousand Dollars ($13,726,000.00), taking into account, for such purposes,
reserves against Accounts Receivable of Six Hundred Thousand Dollars
($600,000.00).
8.10 Opinion of Counsel. Buyer shall have received an opinion letter
from counsel to Seller and Shareholder in the form attached as Exhibit 8.10.
8.11 Consent Letters. Buyer shall have received, in the form of, and
containing the terms set forth in, Exhibit 8.11, letters from Seller and W&M,
respectively, agreeing to consent to the inclusion, in any Registration
Statement, of the 1994 and 1995 Financial Statements, the 1996 Financial
Statements, the Closing Financial Statements, and the opinions of W&M with
respect thereto.
8.12 Employment Agreements. Buyer and Shareholder and E.G. Helzer shall
have entered into the J.E. Helzer Employment Agreement and the E.G. Helzer
Employment Agreement, respectively.
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9. Conditions to Obligations of Seller and Shareholder. The obligations of
Seller and Shareholder under this Agreement are subject to the satisfaction at
or prior to the Closing of the following conditions, but compliance with any of
such conditions may be waived by Seller in writing:
9.1 Representations and Warranties True; Conditions Satisfied. All
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing with the same
effect as though such representations and warranties were made at and as of the
Closing; Buyer shall have performed and complied with all the covenants and
agreements and satisfied all the conditions required by this Agreement to be
performed, complied with or satisfied by it at or prior to the Closing; and
Seller shall have received a certificate to the foregoing effect from the
President or a Vice President of Buyer.
9.2 Litigation. There shall be no pending or threatened litigation in
any court or any proceeding before or by any administrative or governmental
authority to restrain or prohibit or obtain damages or other relief with respect
to this Agreement or the consummation of the transactions contemplated hereby or
as a result of which Seller could be deprived of any of the material benefits of
the transactions contemplated hereby.
9.3 Opinion of Counsel. Seller shall have received an opinion letter
from Buyer's counsel in the form attached as Exhibit 9.3.
10. Joinder of Mrs. Helzer. Whether or not elsewhere explicitly provided in this
Agreement, each representation, warranty, covenant and agreement of Shareholder
in this Agreement shall be deemed to have been made by Shareholder and Mrs.
Helzer jointly and severally.
11. Covenant Not to Compete. Seller and Shareholder hereby, jointly and
severally, agree as follows:
11.1 Noncompetition. For a period of five (5) years following the
Effective Time, neither Seller nor Shareholder, nor any person or entity
directly or indirectly owning, owned by, controlling, controlled by or under
common ownership or control with ("Affiliates") Seller or Shareholder, shall,
directly or indirectly, on its, his or their own behalf or on behalf of any
competitor of Buyer: (a) engage (whether as owner, partner, stockholder, joint
venturer, manager, employee, investor or otherwise) in the sale, at wholesale or
retail, of any roofing materials or supplies and/or building products or
supplies (the "Restricted Business") in the counties of the State of Texas, the
States of Colorado, Indiana, Iowa and Virginia and in all other areas in which
Buyer is transacting business at June 30, 1997 or has transacted business in the
past two years (collectively, the "Market"); (b) affiliate with, or own or have
a proprietary interest of any kind in, any business or firm that owns, manages
or operates a business that sells at wholesale or retail any roofing materials
or supplies and/or building products or supplies anywhere within the Market; or
(c) alone or acting with others, employ or attempt to employ or solicit for any
employment competitive with Buyer, any of Buyer's employees who worked for
Seller prior to the Closing, or alone or acting with others, influence or seek
to influence any employee to leave Buyer's employment. Seller and Shareholder
also covenant,
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jointly and severally, that at no time shall any or either of them disparage
Buyer, any of its affiliated entities, or any of the directors or officers of
Buyer or any of its affiliated entities.
The parties acknowledge that Shareholder's son is in the roofing
contracting business in Texas, Indiana and Virginia, and that Shareholder's
providing of advice to his son with respect to such business will not be deemed
to be a breach of this Section provided that in providing such advice,
Shareholder is not directly or indirectly engaging in the Restricted Business
anywhere within the Market during the five year period described above.
11.2 Payment for Covenants. As additional consideration to Shareholder
for his covenants under Section 11.1. Buyer shall pay at the Closing One Hundred
Dollars ($100.00) to Shareholder.
11.3 Remedies: Curtailment. Seller and Shareholder each agrees that a
breach or violation of the covenants in Section 11.1 by Seller or Shareholder
shall entitle Buyer, as a matter of right, to an injunction issued by any court
of competent jurisdiction, restraining any further or continued breach or
violation of such covenants. Such right to an injunction shall be cumulative and
in addition to, and not in lieu of, any other remedies to which Buyer may be
entitled. Further, during any period in which Seller or Shareholder is in breach
of any of such covenants, the time period of such covenant shall be extended for
an amount of time that Seller or Shareholder is in breach hereof In the event of
a breach by Seller or Shareholder of the covenants under Section 11.1, without
limiting Buyer's remedies with respect to such breach, including, without
limitation, equitable remedies, Buyer shall not be required to make, and Seller
or its designee shall have no right to receive, any further payments under
Section 2.4(a), (h) or (c).
The covenants contained in Section 11.1 will be construed as ancillary
to and independent of any other provision of this Agreement, and the existence
of any claim or cause of action of Seller or Shareholder against the Buyer or
any officer, director, or shareholder of Buyer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Buyer of the covenants contained in Section 11.1.
The parties to this Agreement agree that the limitations contained in
Section 11.1 with respect to geographic area, duration and scope of activity are
reasonable. However, if any court shall determine that the geographic area,
duration or scope of activity of any restriction contained in Section 11.1 is
unenforceable, it is the intention of the parties that such restrictive covenant
set forth herein shall not thereby be terminated but shall be deemed amended to
the extent required to render it valid and enforceable.
12. INDEMNIFICATION.
12.1 BUYER'S RIGHT TO INDEMNIFICATION. SELLER SHAREHOLDER AND MRS.
HELZER, JOINTLY AND SEVERALLY, SHALL INDEMNIFY AND HOLD BUYER AND ITS OFFICERS,
DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS AND REPRESENTATIVES (THE "INDEMNIFIED
PARTIES") HARMLESS FROM ANY
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AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, CONTINGENCIES, DAMAGES, JUDGMENTS,
FINES, PENALTIES, AMOUNTS PAID IN SETTLEMENT, COSTS AND EXPENSES (INCLUDING,
WITHOUT LIMITATION, ALL COURT COSTS AND REASONABLE ATTORNEYS' FEES AND
DISBURSEMENTS), AND WHETHER AS A RESULT OF DIRECT CLAIMS OR THIRD PARTY CLAIMS
("LOSSES"), THAT THE INDEMNIFIED PARTIES OR ANY OF THEM MAY SUFFER OR INCUR AS A
RESULT OF OR RELATING TO: (a) THE BREACH OR INACCURACY, OR ANY ALLEGED BREACH OR
INACCURACY, OF ANY OF THE REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS
MADE BY SELLER, SHAREHOLDER OR MRS. HELZER HEREIN (WITHOUT GIVING EFFECT TO ANY
UPDATING OR CORRECTIVE INFORMATION FURNISHED PURSUANT TO SECTION 7.5 OF THIS
AGREEMENT OR OTHERWISE) OR IN ANY ASSIGNMENT, BILL OF SALE, LEASE OR OTHER
INSTRUMENT, DOCUMENT OR PAPER DELIVERED PURSUANT TO THIS AGREEMENT; (b) ANY
LAWSUIT, CLAIM OR PROCEEDING OF ANY NATURE ARISING OUT OF ANY ACT OR TRANSACTION
OCCURRING PRIOR TO THE CLOSING OR ARISING OUT OF FACTS OR CIRCUMSTANCES THAT
EXISTED AT OR PRIOR TO THE CLOSING; (c) ANY INCOME, FRANCHISE, SALES, USE,
TRANSFER, EXCISE OR OTHER TAX ARISING UPON THE CONSUMMATION OF THE PURCHASE AND
SALE OF THE PURCHASED ASSETS HEREUNDER (EXCEPT FOR BUYER'S SALES TAX PORTION),
OR ARISING OUT OF OR RESULTING FROM THE OPERATIONS OF SELLER, ANY TRANSACTION OR
ACTIVITY OF SELLER, OR ANY INCOME DERIVED BY SELLER (OTHER THAN THE ASSUMED
LIABILITIES); (d) ANY WAGES, SALARIES, VACATION PAY, SICK PAY, OR PERSONAL
LEAVE, OR ACCRUALS WITH RESPECT THERETO (OTHER THAN THE ASSUMED LIABILITIES), OR
OTHER COMPENSATION, LIABILITIES, OBLIGATIONS, CLAIMS OR CONTINGENCIES OF ANY
NATURE DUE OR PAYABLE AT ANY TIME WHATSOEVER TO ANY CURRENT OR FORMER DIRECTOR,
OFFICER, EMPLOYEE, AGENT OR REPRESENTATIVE OF SELLER, INCLUDING, WITHOUT
LIMITATION, ANY CLAIMS UNDER ANY BENEFIT PLAN; (e) ANY CONTAMINATION ON OR UNDER
THE LEASED PREMISES OR IN ANY OF THE PURCHASED ASSETS CAUSED BY ANYONE (OTHER
THAN BUYER OR ITS AGENTS OR EMPLOYEES) ON OR PRIOR TO THE CLOSING DATE, OR ANY
LIABILITY OR OBLIGATION FOR REMEDIATION OR CLEAN-UP OF ENVIRONMENTAL CONDITIONS
AS A RESULT OF SELLERS OPERATIONS, WHETHER ON OR UNDER THE LEASED PREMISES OR
ELSEWHERE, OR THE ACTIVITIES OF ANY PERSON (OTHER THAN BUYER) ON OR UNDER THE
LEASED PREMISES; (f) THE CONDUCT OF SELLER'S BUSINESS AND OPERATIONS (OTHER THAN
THE ASSUMED LIABILITIES); (g) ANY FAILURE OF SELLER TO COMPLY WITH ANY FEDERAL,
STATE OR LOCAL LAW, REGULATION, RULING OR ORDINANCE, OR ANY OTHER LEGAL
REQUIREMENT, INCLUDING, WITHOUT LIMITATION, SELLERS FAILURE TO COMPLY WITH
COBRA, HIPAA OR THE WORKER ADJUSTMENT AND RETRAINING NOTIFICATION ACT; (h)
NONCOMPLIANCE BY BUYER OR SELLER WITH THE BULK TRANSFER PROVISIONS OF THE
UNIFORM COMMERCIAL CODE (OR ANY SIMILAR LAW) OF ANY STATE IN CONNECTION WITH THE
SALE AND TRANSFER OF THE
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PURCHASED ASSETS TO BUYER OTHER THAN WITH RESPECT TO THE ASSUMED LIABILITIES;
AND i) ANY LIABILITIES OR OBLIGATIONS OF SELLER NOT BEING EXPRESSLY ASSUMED BY
BUYER PURSUANT TO THIS AGREEMENT.
SELLER, SHAREHOLDER AND MRS. HELZER, JOINTLY AND SEVERALLY, SHALL BE
RESPONSIBLE HEREUNDER FOR, AND SHALL INDEMNIFY THE INDEMNIFIED PARTIES FROM AND
AGAINST, ANY AND ALL SUCH LOSSES WHETHER OR NOT IT IS ALLEGED OR PROVEN THAT THE
LOSSES AROSE OUT OF OR RESULTED FROM THE SOLE OR CONCURRENT NEGLIGENCE OR GROSS
NEGLIGENCE OF ANY INDEMNIFIED PARTY, OR THE SOLE OR CONCURRENT STRICT LIABILITY
IMPOSED ON ANY INDEMNIFIED PARTY, OR THE SOLE OR CONCURRENT LIABILITY IMPOSED
VICARIOUSLY ON ANY INDEMNIFIED PARTY, UNDER ANY FEDERAL OR STATE STATUTES OR
REGULATIONS, AT COMMON LAW OR OTHERWISE; PROVIDED, HOWEVER, THAT SELLER,
SHAREHOLDER AND MRS. HELZER SHALL NOT BE RESPONSIBLE HEREUNDER FOR ANY LOSSES TO
THE EXTENT THEY ARE FINALLY ADJUDICATED BY A COURT OF COMPETENT JURISDICTION TO
HAVE RESULTED SOLELY FROM THE INDEMNIFIED PARTY'S INTENTIONAL MISCONDUCT.
SELLER, SHAREHOLDER AND MRS. HELZER, JOINTLY AND SEVERALLY, SHALL
INDEMNIFY, DEFEND, AND HOLD HARMLESS THE INDEMNIFIED PARTIES AGAINST ALL LOSSES
IN CONNECTION WITH ANY CLAIM, ACTION, SUIT, PROCEEDING, OR INVESTIGATION,
WHETHER CIVIL OR CRIMINAL, ADMINISTRATIVE, OR INVESTIGATIVE ARISING OUT OF OR
UNDER THE FEDERAL SECURITIES LAWS OR ANY STATE BLUE SKY OR SECURITIES LAWS BASED
IN WHOLE OR IN PART ON (i) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A
MATERIAL FACT CONTAINED IN THE REGISTRATION STATEMENTS AND OTHER DOCUMENTS
DESCRIBED IN SECTION 5.24 (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENT OR
SUPPLEMENT TO SUCH REGISTRATION STATEMENTS OR DOCUMENTS), (ii) ANY OMISSION OR
ALLEGED OMISSION TO STATE IN SUCH REGISTRATION STATEMENTS OR DOCUMENTS A
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING, OR (iii) ANY VIOLATION BY SELLER OR SHAREHOLDER OF THE
FEDERAL SECURITIES LAWS OR ANY STATE BLUE SKY OR SECURITIES LAWS IN CONNECTION
WITH SUCH REGISTRATION STATEMENTS OR DOCUMENTS.
IN THE EVENT THAT SELLER, SHAREHOLDER OR MRS. HELZER IS IN BREACH OF
ANY OF ITS, HIS OR HER REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS
UNDER THIS AGREEMENT, BUYER SHALL HAVE THE RIGHT, WITHOUT LIMITING ANY OF ITS
OTHER REMEDIES, WHETHER UNDER THIS AGREEMENT OR OTHERWISE, TO SET OFF, AGAINST
ANY PAYMENTS DUE FROM BUYER TO SELLER OR SHAREHOLDER, WHETHER UNDER
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THE PROMISSORY NOTE OR OTHERWISE, THE AMOUNT OF ANY CLAIMS BY OR LOSSES OF BUYER
WITH RESPECT TO SUCH BREACH.
12.2 SELLER'S RIGHT TO INDEMNIFICATION. BUYER SHALL INDEMNIFY AND HOLD
SELLER AND ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES HARMLESS FROM ANY AND ALL LOSSES THAT THEY OR ANY OF THEM MAY
SUFFER OR INCUR AS A RESULT OF OR RELATING TO THE BREACH OR INACCURACY, OR ANY
ALLEGED BREACH OR INACCURACY, OF ANY OF THE REPRESENTATIONS, WARRANTIES,
COVENANTS OR AGREEMENTS MADE BY BUYER HEREIN.
12.3 NOTICE OF THIRD PARTY CLAIMS. THE PARTY SEEKING INDEMNIFICATION
HEREUNDER (INDIVIDUALLY, THE "INDEMNITEE" AND COLLECTIVELY, "INDEMNITEES") WITH
RESPECT TO ANY THIRD PARTY CLAIM SHALL PROMPTLY, AND IN ANY EVENT WITHIN 30 DAYS
AFTER NOTICE TO IT (NOTICE TO INDEMNITEE BEING THE SERVICE OF PROCESS UPON
INDEMNITEE OF ANY LEGAL ACTION, RECEIPT OF ANY CLAIM IN WRITING OR OTHER FORM OR
MANNER OF ACTUAL NOTICE) OF ANY CLAIM AS TO WHICH IT ASSERTS A RIGHT TO
INDEMNIFICATION, NOTIFY THE PARTY FROM WHOM INDEMNIFICATION IS SOUGHT
(INDIVIDUALLY, "INDEMNITOR" AND COLLECTIVELY, "INDEMNITORS") OF SUCH CLAIM.
12.4 Survival of Representations and Warranties. Except as expressly
provided elsewhere in this Agreement or as provided in this Section 12.4, all
representations and warranties made under this Agreement by Seller, Shareholder
and Mrs. Helzer, or Buyer, as the case may be, will survive until the end of the
twenty eighth (28th) calendar month after June 30, 1997; provided, however, that
(a) each of the representations and warranties of Seller, Shareholder and Mrs.
Helzer in Sections 5.10 and 5.18 will survive until 30 days after expiration of
the applicable statute of limitation, and (b) the representations and warranties
of Seller, Shareholder and Mrs. Helzer in Sections 5.1. 5.2 and 5.3(a) will
survive forever. No claim for breach of a representation or warranty may be
brought by any person unless written notice of such claim is given to Seller and
Shareholder, or Buyer, as the case may be, on or prior to the last day of the
applicable survival period in this Section 12.4 (in which event each
representation and warranty with respect to any asserted claim will survive
until such claim is finally resolved and all obligations with respect thereto
are fully satisfied under the terms of this Agreement).
12.5 Limitations. Notwithstanding anything to the contrary contained in
this Agreement, in no event shall the aggregate amount of liability of Seller,
Shareholder and Mrs. Helzer for breaches of representation or warranty under
this Agreement exceed the sum of Six Million Dollars ($6,000,000.00).
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12.6 Floor for Indemnification. Notwithstanding anything to the
contrary in this Agreement, except for the obligations under Section 12.1 with
respect to breaches of the representations and warranties of Seller, Shareholder
and Mrs. Helzer contained in Sections 5.1. 5.2. 5.3(a), 5.10 and 5.18 (the
"Exempt Indemnification Obligations"), Seller, Shareholder and Mrs. Helzer, as
the Indemnitors, will not have any obligation until the aggregate of all Losses
payable by the Indemnitors to the Indemnitees exceeds One Hundred Forty Thousand
Dollars ($140,000.00) (the "Floor"). Upon the aggregate of all Losses payable by
the Indemnitors (except the Exempt Indemnification Obligations) exceeding the
Floor, Seller, Shareholder and Mrs. Helzer, jointly and severally, will be
liable to the Indemnitees, on a dollar-for-dollar basis, for the amount above
the Floor.
With respect to Losses payable in connection with Exempt
Indemnification Obligations, Seller, Shareholder and Mrs. Helzer, jointly and
severally, will be liable for all of such Losses from the first dollar in any
event.
An Adjustment Amount will not constitute a claim under the
indemnification provisions of this Agreement, and will not be subject to the
Floor.
13. Termination.
13.1 Events of Termination. This Agreement and the transactions
contemplated hereby may be terminated and abandoned:
(a) at any time prior to the Closing by mutual written
consent of Buyer and Seller;
(b) subject to Section 13.2 below, by either Seller or Buyer
if a condition to its performance hereunder shall not be satisfied or
waived in writing at or prior to the Closing;
(c) by Buyer if a final, non-appealable judgment has been
entered against it or its affiliates restraining, prohibiting,
declaring illegal or awarding substantial damages in connection with
the transactions contemplated hereby;
(d) by Seller if a final, non-appealable judgment has been
entered against it restraining, prohibiting, declaring illegal or
awarding substantial damages in connection with the transactions
contemplated hereby;
(e) by Seller or Buyer, if the Closing does not occur on
or before July 10, 1997; or
(f) by Buyer pursuant to other Sections of this Agreement
permitting Buyer to terminate this Agreement.
13.2 Limitation on Right to Terminate. A party shall not be permitted
to exercise any right of termination pursuant to Section 13.1(b) above if the
event giving rise to the termination right shall be due to the material and
willful failure of the party seeking to terminate this Agreement to perform
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or observe any of the covenants or agreements set forth herein to be performed
or observed by such party.
13.3 Rights Upon Termination. If this Agreement is terminated as
permitted under this Section 13, such termination shall be without liability of
or to any party to this Agreement (except pursuant to this Section 13 and to
Sections 14.3. 14.4. 14.5 and 14.6, which shall survive such termination). In
any such event, except as otherwise expressly provided in this Agreement, all
parties hereto shall thereupon be relieved of all further obligations to each
other hereunder.
If Seller or Shareholder, on the one hand, or Buyer, on the other hand,
fails to perform any of its or his obligations under this Agreement, then the
other party or parties may elect (a) to terminate this Agreement whereupon all
parties hereto shall be released from any further obligations hereunder, (b) to
seek specific performance of the other party's or parties' obligations
hereunder, or (c) to pursue any and all other remedies available at law or in
equity.
14. Miscellaneous.
14.1 Notices. All notices that are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and delivered personally or by a recognized courier
service or by registered or certified mail, postage prepaid, to the parties at
the following addresses (or to the attention of such other person or to such
other address as any party shall provide to the other parties by notice in
accordance with this Section):
If to Buyer: JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 East 42nd Street, Suite 1116
New York, NY 10168
Attention: Douglas P. Fields, Chief
Executive Officer
With copy to: Carlton, Fields, Ward,
Emmanuel, Smith & Cutler, P.A.
P.O. Box 3239
Tampa, Florida 33601
(if by mail)
or
One Harbour Place, 5th Floor
Tampa, Florida 33602
(if by hand delivery)
Attention: Nathaniel L. Doliner,
Attorney at Law
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If to Seller: JEH Company
2500 Hwy 287
P.O. Box 463
Mansfield, Texas 76063
(prior to the Closing Date)
or
8110 Russell Curry Road
Arlington, Texas 76017
(on or after the Closing Date)
Attention: Mr. James E. Helzer,
Chief Executive Officer
With copy to: Raymond Meeks, Attorney at Law
1000 N. Walnut Creek Drive, Suite C
Mansfield, Texas 76063
If to Shareholder or 8110 Russell Curry Road
Mrs. Helzer: Arlington, Texas 76017
With copy to: Raymond Meeks, Attorney at Law
1000 N. Walnut Creek Drive, Suite C
Mansfield, Texas 76063
Any such notice under this Section shall be deemed to have been given
and received on the day it is personally delivered or delivered by a recognized
courier service or, if mailed, on the fifth day after it is mailed.
14.2 Further Assurances. Each party hereto agrees to execute, without
unreasonable delay, any and all documents and to perform such other acts as may
be reasonably necessary or expedient to further the purposes of this Agreement
and the transactions contemplated hereby. In connection with taking such
actions, each party will provide the other with the same assurances regarding
authority, validity and the other matters to which reference is made in Section
5 and Section 6 hereof.
14.3 Publicity. Neither Seller nor Shareholder shall issue or make, or
cause to be issued or made, any press release or public announcement or
disclosure concerning the transactions contemplated hereby without the advance
approval in writing of the form and substance thereof by Buyer, unless such
announcement is required by applicable legal requirements.
14.4 Attorneys' Fees. In the event of a dispute between or among the
parties with respect to this Agreement, the prevailing party or parties shall be
entitled to recover the prevailing party's (or parties') reasonable attorneys'
fees and costs, whether incurred during trial, on appeal or in bankruptcy
proceedings.
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14.5 Expenses. Except as otherwise stated herein, each of the parties
hereto shall, whether or not the transactions contemplated hereby are
consummated, bear its own attorneys', accountants', auditors' or other fees,
costs and expenses incurred in connection with the negotiation, execution and
performance of this Agreement or any of the transactions contemplated hereunder.
14.6 Brokers. Seller and Shareholder, jointly and severally (a)
represent to Buyer that neither Seller nor Shareholder has incurred nor will
incur any liability for brokerage fees, finder's fees or agent's commissions,
except with respect to Geneva in connection with this Agreement or the
transactions contemplated hereby, and (b) agree that they will indemnify and
hold harmless Buyer against all claims for fees, commissions and costs of any
broker, finder or agent (including, without limitation, Geneva) engaged by or
for either or both of them in connection with the negotiation, execution or
consummation of this Agreement or the transactions contemplated by this
Agreement; provided, however, upon the Closing, Buyer shall pay the Broker
Contribution to Geneva.
Buyer represents to Seller and Shareholder that Buyer has not incurred
and will not incur any liability for brokerage fees, finders' fees or agent's
commissions in connection with this Agreement or the transactions contemplated
hereby, and Buyer agrees that it will indemnify and hold harmless Seller and
Shareholder against any claims for fees, commissions and costs of any broker,
finder or agent engaged by Buyer in connection with the negotiation, execution
or consummation of this Agreement or the transactions contemplated by this
Agreement.
14.7 Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
shall constitute one and the same instrument.
14.8 Assignment; and No Third Party Beneficiaries. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned or delegated by any of Seller, Shareholder or Buyer without
the prior written consent of the other party or parties; provided, however, that
notwithstanding the foregoing, Buyer may assign this Agreement to any related or
affiliated entity of Buyer or any lender to Buyer. Any assignment or delegation
made in violation of this Agreement shall be null and void. This Agreement is
not intended to confer upon any person (including, without limitation,
employees, customers or suppliers of Seller or Buyer) other than the parties
hereto and any permitted assignee, any rights or remedies hereunder. Nothing in
this Agreement shall be construed to imply any admission of liability or
obligation to any person except the parties to this Agreement.
14.9 Entire Agreement. This Agreement and the documents attached as
Exhibits and Schedules hereto or expressly contemplated hereby contain the
entire understanding of the parties relating to the subject matter contained
herein and supersede all prior written or oral and all contemporaneous oral
agreements and understandings relating to the subject matter hereof. This
Agreement cannot be modified or amended except in writing signed by the party
against whom enforcement is sought.
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14.10 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement are incorporated herein by reference and made a part hereof.
14.11 Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the substantive laws of the State of New
York without giving effect to any conflict-of-laws rule or principle that might
result in the application of the laws of another jurisdiction.
14.12 Jurisdiction and Venue. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the State of New
York, or, if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, or the Middle District of Florida,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue therein. If neither the United States District Court for the
Southern District of New York nor the United States District Court for the
Middle District of Florida has or can acquire jurisdiction, then any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement, shall be resolved by binding arbitration before a panel
of three neutral arbitrators in Atlanta, Georgia, or such other mutually agreed
venue under the rules of the American Arbitration Association.
14.13 Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements made by
the parties hereto in this Agreement or in any certificate or other document
delivered pursuant hereto shall survive the execution of this Agreement and the
Closing.
14.14 Headings. The descriptive headings of the Sections and
Subsections hereof are inserted for convenience only and do not constitute a
substantive portion of this Agreement.
14.15 Invalidity. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity or enforceability of any other provision of this
Agreement.
14.16 Waiver. The waiver by any party hereto of any breach, default,
misrepresentation or breach of warranty or covenant hereunder must be in writing
and shall not be deemed to extend to any prior or subsequent breach, default,
misrepresentation or breach of warranty or covenant hereunder and shall not
affect in any way any rights arising by virtue of any such prior or subsequent
occurrence.
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14.17 Certain Consents. In the event any of the Leases and Contracts
(individually, a "Lease" or a "Contract") requires consent to its assignment and
such consent is not obtained prior to the Closing, and Buyer agrees in writing
to proceed with the Closing despite the absence of such consent, then until such
consent has been obtained or the applicable Lease or Contract terminates, the
Lease or Contract shall not be deemed assigned to Buyer but instead Buyer shall
be deemed to be Seller's subcontractor or the parties shall make such other
arrangements as necessary to assure Buyer the benefits of the Lease or Contract.
In that event, Buyer shall perform all obligations of Seller under the
applicable Lease or Contract (except any obligations arising out of a default
prior to the Closing Date or event prior to the Closing Date which with notice,
lapse of time or both would constitute such a default), and Buyer shall be
entitled to all benefits from such Lease or Contract. Seller, Shareholder, and
Mrs. Helzer, jointly and severally, shall indemnify Buyer with respect to all
Losses of Buyer resulting from or arising out of the failure of Seller to obtain
such consent.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first above written.
WITNESSES:
JEH ACQUISITION CORP.,
/s/ J. Michael Waters a Delaware corporation ("Buyer")
- -----------------------------
/s/ John C. Knight By: /s/ Douglas P. Fields
- ------------------------------ -----------------------------
Name: Douglas P. Fields
Title: Chief Executive Officer
JEH COMPANY,
/s/ J. Michael Waters a Texas corporation ("Seller")
- -----------------------------
/s/ John C. Knight By: /s/ James E. Helzer
- ------------------------------ -----------------------------
Name: James E. Helzer
Title: Chief Executive Officer
/s/ J. Michael Waters
- -----------------------------
/s/ John C. Knight /s/ James E. Helzer
- ------------------------------ --------------------------------
JAMES E. HELZER, individually
("Shareholder")
/s/ J. Michael Waters
- -----------------------------
/s/ John C. Knight /s/ Marilyn Helzer
- ------------------------------ -------------------------------
MARILYN HELZER, individually
("Mrs. Helzer")
JEH ENTERPRISES, INC.
/s/ J. Michael Waters a Colorado corporation ("Enterprises")
- -----------------------------
/s/ John C. Knight By: /s/ J.E. Helzer
- ------------------------------ ----------------------------
Name: J.E. Helzer
--------------------------
Title: President
-------------------------
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Exhibit 10.12
JEH ACQUISITION CORP., AS BORROWER
LOAN AND SECURITY AGREEMENT
Dated as of July 8, 1997
$20,000,000
FLEET CAPITAL CORPORATION, AS LENDER
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TABLE OF CONTENTS
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SECTION 1. CREDIT FACILITY..............................................................................1
1.1 Revolving Credit Loans.................................................................1
1.2 Term Loan..............................................................................2
1.3 Equipment Loan.........................................................................2
SECTION 2. INTEREST, FEES AND CHARGES...................................................................3
2.1 Interest...............................................................................3
2.2 Documentation Fee......................................................................5
2.3 Collateral Monitoring Fee..............................................................5
2.4 Unused Availability Fee................................................................5
2.5 Audit and Appraisal Fees...............................................................6
2.6 Capital Adequacy Change................................................................6
2.7 Reimbursement of Expenses..............................................................8
2.8 Bank Charges...........................................................................8
2.9 Collection Charges.....................................................................9
SECTION 3. LOAN ADMINISTRATION...........................................................................9
3.1 Manner of Borrowing Revolving Credit Loans.............................................9
3.2 Payments..............................................................................14
3.3 Prepayments...........................................................................15
3.4 Application of Payments and Collections...............................................16
3.5 All Loans to Constitute One Obligation................................................16
3.6 Loan Account..........................................................................16
3.7 Statements of Account.................................................................16
SECTION 4. TERM AND TERMINATION........................................................................17
4.1 Term of Agreement.....................................................................17
4.2 Termination...........................................................................17
SECTION 5. SECURITY INTERESTS..........................................................................19
5.1 Security Interest in Collateral.......................................................19
5.2 Lien Perfection; Further Assurances...................................................20
SECTION 6. COLLATERAL ADMINISTRATION...................................................................20
6.1 Location of Collateral................................................................20
6.2 Insurance of Collateral...............................................................20
6.3 Protection of Collateral..............................................................21
6.4 Administration of Accounts............................................................21
6.5 Administration of Inventory...........................................................24
6.6 Records and Schedules of Equipment....................................................24
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6.7 Payment of Charges....................................................................24
SECTION 7. REPRESENTATIONS AND WARRANTIES..............................................................24
7.1 General Representations and Warranties................................................24
7.2 Continuous Nature of Representations and Warranties...................................32
7.3 Survival of Representations and Warranties............................................33
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS.........................................................33
8.1 Affirmative Covenants.................................................................33
8.2 Negative Covenants....................................................................36
8.3 Specific Financial Covenants..........................................................41
SECTION 9. CONDITIONS PRECEDENT........................................................................42
9.1 Documentation.........................................................................42
9.2 No Default............................................................................44
9.3 Other Loan Documents..................................................................44
9.4 Adjusted Availability.................................................................44
9.5 No Litigation.........................................................................45
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.....................................45
10.1 Events of Default.....................................................................45
10.2 Acceleration of the Obligations.......................................................49
10.3 Other Remedies........................................................................49
10.4 Remedies Cumulative; No Waiver........................................................51
SECTION 11. MISCELLANEOUS..............................................................................51
11.1 Power of Attorney.....................................................................51
11.2 Indemnity.............................................................................53
11.3 Modification of Agreement; Sale of Interest...........................................53
11.4 Severability..........................................................................54
11.5 Successors and Assigns................................................................54
11.6 Cumulative Effect, Conflict of Terms..................................................54
11.7 Execution in Counterparts.............................................................54
11.8 Notice................................................................................54
11.9 Lender's Consent......................................................................56
11.10 Credit Inquiries......................................................................56
11.12 Entire Agreement......................................................................56
11.13 Interpretation........................................................................56
11.14 GOVERNING LAW; CONSENT TO FORUM.......................................................56
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11.15 WAIVERS BY BORROWER.....................................................................57
11.16 Parties to Act in a Commercially Reasonable Manner......................................59
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made as of this 8th day of July,
1997, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation with an office at 200 Glastonbury Blvd., Glastonbury, Connecticut
06033, and JEH ACQUISITION CORP. ("Borrower"), a Delaware corporation with its
executive office and principal place of business at 122 East 42nd Street, Suite
1116, New York, NY 10168. Capitalized terms used in this Agreement have the
meanings assigned to them in Appendix A, General Definitions. Accounting terms
not otherwise specifically defined herein shall be construed in accordance with
GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to Twenty Million
Dollars ($20,000,000) available upon Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long as no
Default or Event of Default exists, to make Revolving Credit Loans to
Borrower from time to time, as requested by Borrower in the manner set forth
in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time less reserves, if any.
Lender shall have the right to establish reserves in such amounts, and with
respect to such matters, as Lender shall deem necessary or appropriate,
against the amount of Revolving Credit Loans which Borrower may otherwise
request under this subsection 1.1.1, including, without limitation, with
respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the
ordinary course of Borrower's business; (ii) shrinkage, spoilage and
obsolescence of Inventory; (iii) slow moving Inventory, (iv) other sums
chargeable against Borrower's Loan Account as Revolving Credit Loans under
any section of this Agreement; (v) amounts owing by Borrower to any Person to
the extent secured by a Lien (other than a Permitted Lien) on, or trust over,
any Collateral of Borrower; and (vi) such other matters, events, conditions
or contingencies as to which Lender, in
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its sole credit judgment, determines reserves should be established from time to
time hereunder.
1.1.2 Overadvances. Lender may in its sole discretion make
Revolving Credit Loans to Borrower as requested by Borrower in accordance
with the terms of subsection 3.1.1 hereof at a time when the unpaid balance
of Revolving Credit Loans exceeds, or would exceed with the making of any
such Revolving Credit Loan, the Borrowing Base (any such loan being herein
referred to individually as an "Overadvance" and collectively as
"Overadvances"). All Overadvances shall be repaid on demand, shall be secured
by all of the Collateral and shall bear interest as provided in this
Agreement for Revolving Credit Base Rate Loans.
1.1.3 Use of Proceeds. The Revolving Credit Loans shall be used
for Borrower's general working capital needs in a manner consistent with the
provisions of this Agreement and applicable law, as well as initially to fund
the acquisition of certain assets from JEH Company in accordance with the
terms of the Asset Purchase Agreement.
1.2 Term Loan. Lender agrees to make a Term Loan to Borrower on the
Closing Date in the principal amount of $3,000,000, which shall be repaid in
successive monthly installments in accordance with the terms of the Term
Note. The monthly payments under the Term Loan shall be based on a four-year
amortization schedule with each installment due and payable on the first day
of each month, commencing on September 1, 1997, followed by a final
installment which shall be due and payable on the earlier to occur of August
1, 2001, or the termination of this Agreement. The Term Loan shall be secured
by all of the Collateral.
1.3 Equipment Loan. Lender agrees to make an Equipment Loan to
Borrower on the Closing Date in the principal amount of $1,725,000, which
shall be repaid in successive monthly installments in accordance with the
terms of the Equipment Note. The monthly payments under the Equipment Loan
will be based on a seven-year amortization schedule, with each installment
due and payable on the first day of each month, commencing on September 1,
1997. The Equipment Loan shall be repaid in full upon the earlier to occur of
the end of the seven-year term, the end of the Original
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Term or any Renewal Term, or the termination of this Agreement. The Equipment
Loan shall be secured by all of the Collateral.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Revolving Credit Interest:
(a) Rate Options. At the time of each Revolving Credit Loan
under the Revolving Credit Facility, and thereafter from time to time, Borrower
shall have the right, subject to the terms and conditions of this Agreement and
provided no Default or Event of Default has occurred, to designate to Lender in
writing that all, or a portion of the Revolving Credit Loans shall bear interest
at either the (i) Revolving Credit LIBOR Rate or (ii) Revolving Credit Base
Rate. Interest on each portion thereof shall accrue and be paid at the time and
rate applicable to the respective option selected by Borrower or otherwise
governing under the terms of this Agreement. If for any reason the Revolving
Credit LIBOR Rate option is unavailable, or Borrower does not designate that the
Revolving Credit LIBOR Rate should apply, the Revolving Credit Base Rate shall
apply. The rate of interest on Revolving Credit Base Rate Loans shall increase
or decrease by an amount equal to any increase or decrease in the Base Rate
effective as of the opening of business on the day that any such change in the
Base Rate occurs.
(b) Revolving Credit LIBOR Rate Option. Provided no Default
or Event of Default has occurred, and subject to the provisions of Section 2.1.1
(a)(i) if Borrower desires to have the Revolving Credit LIBOR Rate apply to all
or a portion of the Revolving Credit Loans, Borrower shall give Lender a written
irrevocable request no later than 11:00 A.M. Eastern time on the third (3rd)
Business Day prior to the requested borrowing date specifying (i) the date the
Revolving Credit LIBOR Rate shall apply (which shall be a Business Day), (ii)
the Interest Period, and (iii) the amount to be subject to the Revolving Credit
LIBOR Rate provided that such amount shall be an integral multiple of Five
Hundred Thousand Dollars ($500,000.00).
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2.1.2 Term Interest:
(a) Rate Options. On the Closing Date, and thereafter from
time to time, Borrower shall have the right, subject to the terms and conditions
of this Agreement, and provided no Default or Event of Default has occurred, to
designate to Lender in writing that all, or a portion of the outstanding
principal balance of the Term Loan or the Equipment Loan (as so designated to
Lender in writing) shall bear interest at either the (i) Term LIBOR Rate or the
Equipment LIBOR Rate, as applicable, or (ii) Term Base Rate or Equipment Base
Rate, as applicable. Interest on each portion thereof shall accrue and be paid
at the time and rate applicable to the respective option selected by Borrower or
otherwise governing under the terms of this Agreement. If for any reason an
option is unavailable, Borrower may designate another option. If Borrower does
not elect any such option or, if, for any reason the Term LIBOR Rate or the
Equipment LIBOR Rate are not available, the Term Loan and Equipment Loan shall
bear interest at the Term Base Rate and/or the Equipment Base Rate, as
applicable. The rate of interest on the Term Base Rate Loans and Equipment Base
Rate Loans shall increase or decrease by an amount equal to any increase or
decrease in the Base Rate, effective as of the opening of business on the date
that any such change in the Base Rate occurs.
(b) Term LIBOR Rate Option. Provided no Default or Event
of Default has occurred, and subject to the provisions of Section 2.1.2(a)(i) if
Borrower desires to have the Term LIBOR Rate apply to all or a portion of the
Term Loan or the Equipment LIBOR Rate apply to all or a portion of the Equipment
Loan (as so designated to Lender in writing), Borrower shall give Lender a
written irrevocable request no later than 11:00 A.M. Eastern Time on the third
(3rd) Business Day prior to the requested borrowing date specifying (i) the date
the Term LIBOR Rate or Equipment LIBOR Rate, as applicable, shall apply (which
shall be a Business Day), (ii) the Interest Period, and (iii) the amount of the
Loan to be subject to the Term LIBOR Rate and/or the Equipment LIBOR Rate;
provided that such amount shall be an integral multiple of Five Hundred Thousand
($500,000.00).
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2.1.3 Default Rate of Interest. Upon and after the occurrence of
an Event o Default, and during the continuation thereof, the principal amount
of the Loans shall bear interest at a rate per annum equal to two percent
(2%) above the rate applicable with respect to Base Rate Loans.
2.1.4 Computation of Interest and Fees. Interest, fees and
collection charges hereunder shall be calculated daily and shall be computed
on the actual number of days elapsed over a year consisting of three hundred
and sixty (360) days.
2.1.5 Maximum Interest. In no event whatsoever shall the
aggregate of all amounts deemed interest hereunder and charged or collected
pursuant to the terms of this Agreement exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. If any provisions of this Agreement
are in contravention of any such law, such provisions shall be deemed amended
to conform thereto.
2.2 Documentation Fee. Borrower shall pay to Lender a documentation
fee of $100,000, which shall be fully earned and nonrefundable on the Closing
Date and shall be paid concurrently with the initial Loans hereunder.
2.3 Collateral Monitoring Fee. Borrower shall pay to Lender each
month, in arrears, on the first day of the following month, a collateral
monitoring fee of $1,000, which fee shall be pro-rated for any month during
which this Agreement is in effect for less than a full month.
2.4 Unused Availability Fee. Borrower shall pay to Lender an unused
availability fee, which shall be payable in arrears on the last day of each
calendar month hereafter. The unused availability fee shall equal one-quarter
of one percent (1/4%) per annum on the average daily amount during each month
by which the Total Credit Facility exceeds the aggregate amount of the Loans
outstanding as of the close of business on such day. Such fee shall be
pro-rated for any month during which this Agreement is in effect for less
than a full month.
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2.5 Audit and Appraisal Fees. Borrower shall pay to Lender audit and
appraisal fees from time to time in connection with Lender's periodic audits
and appraisals of Borrower's books and records and such other matters as
Lender shall deem appropriate, plus all out-of--pocket expenses incurred by
Lender in connection with such audits and appraisals. Such audit and
appraisal fees shall be calculated at the rate of $500 for each member of
Lender's field examination staff engaged in any such audit and appraisal for
each day during which such examination is being conducted and, absent the
occurrence and continuance of an Event of Default, such audits and appraisals
shall be conducted not more than three (3) times during each twelve (12)
month period, commencing as of the Closing Date. Audit fees shall be payable
on the first day of the month following the date of issuance by Lender of a
request for payment thereof to Borrower. Upon Borrower's request, Lender
shall provide to Borrower in reasonable detail the back-up and support of any
out-of-pocket expenses referred to herein.
2.6 Capital Adequacy Change. If Lender shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or
any change therein or in the interpretation or application thereof, or
compliance by Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any central bank or
governmental authority (each such law, rule, regulation, request
or--directive a "Capital Adequacy Rule"), does or shall have the effect of
reducing the rate of return on Lender's capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into consideration
Lender's policies with respect to capital adequacy) by a material amount,
then from time to time, after submission by Lender to Borrower of a written
demand therefor (a "Capital Adequacy Demand"), the Borrower shall pay to
Lender such additional amount or amounts (each a "Capital Adequacy Amount",
it being understood that Capital Adequacy Amount may include an increase in
the Applicable Interest Rate Margin) as will compensate Lender for such
reduction. A certificate of Lender claiming entitlement to payment as set
forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
reduction, the additional Capital Adequacy Amount or Amounts to be paid to
Lender, and the method by
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which such Capital Adequacy Amounts were determined. In determining such Capital
Adequacy Amount, Lender may use any reasonable averaging and attribution method.
2.6.1 Termination of Agreement following Capital Adequacy
Demand. At its option, Borrower may elect to terminate this Agreement
following its receipt of a Capital Adequacy Demand, provided Borrower gives
Lender notice of such election not more than thirty (30) days following its
receipt of such Capital Adequacy Demand, and provided, further, that so long
ast and satisfaction in full of all Obligations occurs within one hundred and
eighty (180) days from the date of such notice, Borrower shall not be
obligated to pay any of the charges described in subsection 4.2.3, it being
understood, however, that until such effective date of termination and the
payment and satisfaction in full of all Obligations, Borrower shall continue
to be obligated to pay Lender for each Capital Adequacy Amount theretofore
requested by Lender pursuant to a Capital Adequacy Demand.
2.6.2 Subsequent Change in Capital Adequacy Rules. In the event
that any Capital Adequacy Rule, the adoption or change in or compliance by
Lender with which shall have resulted in a Capital Adequacy Demand, shall be
revised subsequent to the date of such Capital Adequacy Demand, such that, in
Lender's determination, its rate of return on capital shall be improved to a
level more favorable than the rate of return which, as a result of the
initial change in such Capital Adequacy Rule, precipitated such Capital
Adequacy Demand, then, in such event, effective promptly following such
determination, provided Borrower shall not have theretofore given to Lender a
notice of election to terminate in accordance with subsection 2.6.1: (i) in
the case of a Capital Adequacy Demand to increase the Applicable Interest
Rate Margin, Lender shall reduce the Applicable Interest Rate Margin by a
percentage; and (ii) in the case of a Capital Adequacy Demand for payment of
a fee or other charge, Lender shall rebate to Borrower a portion of such
payment, in each case which Lender shall determine to be reasonably
commensurate with the improvement in Lender's rate of return on capital
caused by the subsequent revision to the Capital Adequacy Rule.
Notwithstanding anything hereinabove to the contrary, Lender shall have no
obligation whatsoever to make any such adjustment to
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the Applicable Interest Rate Margin, or to otherwise rebate any Capital Adequacy
Amount to Borrower, at any time of an Event of Default; (ii) the date of
Borrower's notice of election to terminate in accordance with subsection 2.6.1;
or (iii) the effective date of termination of this Agreement.
2.7 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender or any Participating
Lender incurs reasonable legal or reasonable accounting expenses or any other
reasonable costs or reasonable out-of-pocket expenses in connection with (i) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (iii)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower's affairs; (iv)
any attempt to enforce any rights of Lender or any Participating Lender against
Borrower or any other Person which may be obligated to Lender by virtue of this
Agreement or any of the other Loan Documents, including, without limitation, the
Account Debtors; or (v) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such reasonable legal and reasonable accounting expenses
and other reasonable costs and reasonable out of pocket expenses of Lender shall
be charged to Borrower. All amounts chargeable to Borrower under this Section
2.7 shall be Obligations secured by all of the Collateral, shall be payable on
demand to Lender or to such Participating Lender, as the case may be, and shall
bear interest from the date such demand is made until paid in full at the rate
applicable to Base Rate Loans from time to time. Borrower shall also reimburse
Lender for reasonable expenses incurred by the Lender in its administration of
the Collateral to the extent and in the manner provided in Section 6 hereof.
2.8 Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender or any
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Participating Lender pays to a bank or other similar institution (including,
without limitation, any fees paid by the Lender to any Participating Lender)
arising out of or in connection with (i) the forwarding to Borrower or any other
Person on behalf of Borrower, by Lender or any Participating Lender, proceeds of
Loans and (ii) the depositing for collection, by Lender or any Participating
Lender, of any check or item of payment received or delivered to Lender or any
Participating Lender on account of the Obligations.
2.9 Collection Charges. If items of payment are received by Lender at a
time when there are no Loans outstanding, such items of payment shall be subject
to a collection charge equal to two (2) days' interest on the amount thereof at
the rate then applicable to Revolving Credit Base Rate Loans, which collection
charges shall be payable on the first Business Day of each month.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
Credit Facility established pursuant to Section 1 hereof shall be as follows:
3.1.1 Revolving Credit Loan Requests. A request for a Revolving
Credit Loan shall be made, or shall be deemed to be made, in the following
manner: (i) Borrower shall give Lender same day notice, no later than 11:00
A.M. (Eastern time) of such day, of its intention to borrow a Revolving
Credit Base Rate Loan, and at least three (3) Business Days prior notice of
its intention to borrow a Revolving Credit LIBOR Rate Loan, in which notice
Borrower shall specify the amount of the proposed borrowing and the proposed
borrowing date; provided, however, that no such request may be made at a time
when there exists a Default or an Event of Default and (ii) the becoming due
of any amount required to be paid under this Agreement, whether as interest
or for any other Obligation, shall be deemed irrevocably to be a request for
a Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephone requests for Revolving Credit Loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender
by Borrower. Unless Borrower specifically directs Lender
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in writing not to accept or act upon telephonic or electronic communications
from Borrower, Lender shall have no liability to Borrower for any loss or damage
suffered by Borrower as a result of Lender's honoring any requests, executions
of any instructions, authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and purporting to have been
sent to Lender by Borrower, and Lender shall have no duty to verify the origin
of any such communication or the authority of the person sending it. Each notice
of borrowing shall be irrevocable by and binding on Borrower, and if such notice
requests the borrowing of a LIBOR Rate Loan, such notice shall state the Inits
option, may choose Base Rate Loans or LIBOR Rate Loans, provided that any LIBOR
Rate Loan shall be in a minimum amount of $500,000, and provided, further, that
the right of Borrower to choose any LIBOR Rate Loan is subject to the provisions
of subsection 3.1.4.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes
Lender to disburse the proceeds of each Revolving Credit Loan requested, or
deemed to be requested, pursuant to this subsection 3.1.2. as follows: (i)
the proceeds of each Revolving Credit Loan requested under subsection
3.1.1(i) shall be disbursed by Lender via wire transfer, in the case of the
initial borrowing, in accordance with the terms of the written disbursement
letter from Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrower and Lender
from time to time or elsewhere if pursuant to a written direction from
Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under
subsection 3.1.1(ii) shall be disbursed by Lender by way of direct payment of
the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes
Lender, in Lender's sole discretion, to advance to Borrower, and to charge to
Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum
sufficient to pay all interest accrued on the Obligations during the
immediately preceding month and to pay all costs, fees and expenses at any
time owed by Borrower to Lender hereunder.
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3.1.4 Notice of Continuation and Notice of Conversion.
(a) Subject to the provisions of subsection 3.1.4(c),
Borrower may elect to maintain any borrowing consisting of LIBOR Rate Loans,
or any portion thereof, as a LIBOR Rate Loan by selecting a new Interest
Period for such borrowing, which new Interest Period shall commence on the
last day of the then existing Interest Period. Each selection of a new
Interest Period (a "Continuation") shall be made on three (3) Business Days'
prior notice, given by Borrower to Lender not later than 11:00 A.M. (Eastern
time) on the third (3rd) Business Day preceding the date of any proposed
Continuation. If the Borrower elects to maintain more than one borrowing
consisting of LIBOR Rate Loans by combining such borrowings into one
borrowing and selecting a new Interest Period pursuant to this subsection,
each of the borrowings so combined shall consist of Loans having Interest
Periods ending on the same date provided that Borrower may not combine
Revolving Credit LIBOR Rate Loans, Term LIBOR Loans and Equipment LIBOR Rate
Loans with each other. If the Borrower shall fail to select a new Interest
Period for any borrowing consisting of LIBOR Rate Loans in accordance with
this subsection, such LIBOR Rate Loans will automatically convert into
corresponding Base Rate Loans.
(b) Subject to the provisions of subsection 3.1.4 (c),
Borrower may, on three (3) Business Days' prior notice given to Lender,
convert the entire amount of or a portion of all Loans of the same Type into
Loans of another Type (a "Conversion"), provided, that no Default or Event of
Default shall have occurred and be continuing, and provided, further, that
any Conversion of any LIBOR Rate Loans into Base Rate Loans may only be made
on the last day of the Interest Period for such LIBOR Rate Loans, and upon
Conversion of any Base Rate Loans into LIBOR Rate Loans, Borrower shall pay
accruch such notice shall be given not later than 11:00 A.M. (Eastern time)
on the third (3rd) Business Day preceding the date of any proposed
Conversion. Each Conversion shall be in an aggregate amount of not less than
$500,000. Borrower may elect to convert the entire amount of or a portion of
all Loans of the same Type comprising more than one borrowing into Loans of
another Type by
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combining such borrowings into one borrowing consisting of Loans of such other
Type; provided, however, that if the borrowings so combined consist of LIBOR
Rate Loans, such LIBOR Rate Loans shall have Interest Periods ending on the same
date and provided further that Borrower may not combine Revolving Credit Loans,
all or a portion of the Term Loans and all or a portion of the Equipment Loans,
with each other.
(c) Notwithstanding anything contained in clauses (a) and
(b) above to the contrary:
(i) In the event that Borrower shall have requested a
LIBOR Rate Loan(s) in accordance with the terms hereof and Lender shall have
reasonably determined that Eurodollar deposits equal to the amount of the
principal of the requested LIBOR Rate Loan and for the Interest Period
specified are unavailable, impractical or unlawful, or that the rate based on
the LIBOR Rate will not adequately and fairly reflect the cost of funds of
the LIBOR Rate Loan applicable to the specified Interest Period, of making or
maintaining the principal amount of the requested LIBOR Rate Loan specified
by Borrower during the Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable means do
not exist for ascertaining the rate based on the LIBOR Rate applicable to the
specified Interest Period, Lender shall promptly give notice of such
determination to Borrower that the rate based on the LIBOR Rate is not
available. A reasonable determination by Lender hereunder shall be conclusive
evidence of the correctness of tsuch a determination, (A) the right of
Borrower to select, continue or convert to, or maintain a LIBOR Rate Loan at
the rate based on the LIBOR Rate shall be suspended until Lender shall have
notified Borrower that such conditions shall have ceased to exist, and (B)
the requested LIBOR Rate Loans shall accrue interest as if such Loans were
Base Rate Loans.
(ii) The LIBOR Rate may be automatically adjusted by
Lender on a prospective basis to take into account the additional or
increased cost of maintaining any necessary reserves for Eurodollar deposits
or increased costs due to changes in applicable law or regulation or the
interpretation thereof by
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Lender based on the Federal Reserve Board's or any other applicable agency's or
governing body's directive, mandate or interpretation, occurring subsequent to
the commencement of the then applicable Interest Period, including but not
limited to changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any successor or other
applicable governing body), excluding the Reserve Percentage and any Reserve
which has resulted in a payment pursuant to Section 2.6 below, that increase the
cost to Lender of funding the LIBOR Rate Loans. Lender shall promptly give
Borrower notice of such a determination and adjustment, which determination
shall be conclusive absent manifest error.
(iii) there shall not be outstanding at any one time
more than an aggregate of six (6) LIBOR Rate Loans.
(d) Each notice of Continuation or Conversion shall be
irrevocable and binding on Borrower. In the case of (i) any borrowing of a
Loan, Continuation or Conversion that the related notice of borrowing, notice
of Continuation or notice of Conversion specifies is to be comprised of LIBOR
Rate Loans, or (ii) any payment of principauch Loan as a result of a payment,
prepayment, Conversion or Continuation of such Loan or acceleration of the
maturity of any of the Obligations pursuant to Section 10 hereof, or for any
other reason, then in any such case, upon Lender's demand, Borrower shall pay
to Lender and indemnify Lender from and against (i) any loss, cost or expense
incurred by Lender as a result of any failure to fulfill, on or before the
date for such borrowing, Continuation or Conversion, the applicable
conditions set forth in Section 9 hereof, and (ii) any additional losses,
costs or expenses which Lender may reasonably incur as a result of such
payment, including, without limitation in each such case, any loss (excluding
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or redeployment of deposits or other funds acquired by Lender to
fund the LIBOR Rate Loans to be made as part of such borrowing, Continuation
or Conversion.
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3.1.5 Borrowing Base Certificates. Borrower shall give Lender a
Borrowing Base Certificate on a monthly basis; provided that if Borrower's
Availability is, at any time, less than $750,000, Borrower shall give Lender a
Borrowing Base Certificate on such more frequent basis as Lender may request.
3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligations shall be payable as follows:
3.2.1 Principal.
(a) Principal payable on account of Revolving Credit Loans
shall be payable by Borrower to Lender immediately upon the earliest of (i)
the receipt by Lender or Borrower of any proceeds of any of the Collateral
other than Equipment, to the extent of said proceeds, (ii) the occurrence of
an Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations, or (iii) termination of this
Agreement pursuant to Section 4 hereof; provided, however, that if an
Overadvance shall exist at any time, Borrower shall, on demand, repay the
Overadvance.
(b) Principal payable on account of the Term Loan and the
Equipment Loan shall be payable by Borrower as set forth in Sections 1.2 and
1.3, respectively and the corresponding Term Note and Equipment Note.
3.2.2 Interest. Interest accrued on all Loans shall be due on the
earliest of (i) the first calendar day of each month (for the immediately
preceding month), computed through the last calendar day of the preceding month,
(ii) the occurrence of an Event of Default in consequence of which Lender elects
to accelerate the maturity and payment of the Obligations, or (iii) termination
of this Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by
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Borrower as and when provided in Section 2 hereof, to Lender or to any other
Person designated by Lender in writing.
3.2.4 Other Obligations. The balance of the Obligations
requiring the payment of money, if any, shall be payable by Borrower to
Lender as and when provided in this Agreement, the Other Agreements or the
Security Documents, or on demand, whichever is later.
3.3 Prepayments.
3.3.1 Except for dispositions of Inventory permitted by Section
8.2.7, if Borrower sells any of the Collateral or if any of the Collateral is
lost or destroyed or taken by condemnation, Borrower shall pay to Lender, unless
otherwise agreed to by Lender, or as otherwise expressly authorized by this
Agreement, as and when received by Borrower and as a mandatory prepayment of the
outstanding Loans, until paid and satisfied in full, a sum equal to the proceeds
(including insurance proceeds) received by Borrower from such sale, loss or
destruction. Any such prepayment shall be applied first to the Term Loan or
Equipment Loan, as determined by Lender in its sole discretion, in the inverse
order of maturity and then to the Revolving Credit Loans; provided that if such
Loan is accruing interest at the LIBOR Based Rate, such prepayment shall be
delivered to Lender as and when received by Borrower but applied at the end of
the applicable Interest Period.
3.3.2 LIBOR Rate Loans. No portion of the LIBOR Rate Loans may be
prepaid during an Interest Period unless Borrower first satisfies in full its
obligations under Section 3.1.4(d) above arising from such prepayment.
3.3.3 Excess Cash Flow Recapture. Borrower shall, on an annual
basis, within ten (10) Business Days of delivery to Lender of Borrower's annual
consolidated financial statement, pursuant to Section 8.1.2(i), prepay the Term
Loan in an amount equal to fifty percent (50%) of Borrower's Cash Flow ("Cash
Flow Payments"). All Cash Flow Payments shall be applied to the Term Loan as
determined by Lender in the inverse order of maturity.
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3.4 Application of Payments and Collections. All items of payment
received by Lender by 12:00 noon, New York City time, on any Business Day shall
be deemed received on that Business Day. All items of payment received after
12:00 noon, New York City time, on any Business Day shall be deemed received on
the following Business Day. For the purpose of computing interest hereunder, all
items of payment received by Lender shall be deemed applied by Lender on account
of the Obligations (subject to final payment of such items) on the second
Business Day after receipt by Lender of good funds in Lender's account located
in Chicago, Illinois, or such other account as to which Lender may advise
Borrower in writing. Borrower irrevocably waives the right to direct the
application of any and all payments and collections at any time or times
hereafter received by Lender from or on behalf of Borrower, and Borrower does
hereby irrevocably agree that Lender shall have the continuing exclusive right
to apply and reapply any and all such payments and collections received at any
time or times hereafter by Lender or its agent against the Obligations, in such
manner as Lender may deem advisable, notwithstanding any entry by Borrower upon
any of its books and records. If as the result of collections of Accounts as
authorized by subsection 6.4.6 hereof a credit balance exists in the Loan
Account, such credit balance shall not accrue interest in favor of Borrower, but
shall be available to Borrower at any time or times for so long as no Default or
Event of Default exists.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute
one general Obligation of Borrower, and shall be secured by Lender's Lien upon
all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are paid to Lender, and
may record therein, in accordance with customary accounting practice, other
debits and credits, including interest and all charges and expenses properly
chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly with
a statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender
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shall be deemed final, binding and conclusive upon Borrower unless Lender is
notified by Borrower in writing to the contrary within thirty (30) days of the
date such accounting is mailed to Borrower. Such notice shall only be deemed an
objection to those items specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans
to Borrower upon or after the occurrence of any Default or Event of Default,
this Agreement shall be in effect for a period of five (5) years from the date
hereof, through and including July 8, 2002 (the "Original Term"), and this
Agreement shall automatically renew itself for one (1) year periods thereafter
(the "Renewal Terms"), unless (a) the party which elects not to renew this
Agreement gives at least one hundred and eighty (180) days written notice
thereof to the other party prior to the expiration of the Original Term (or the
then current Renewal Term, as the case may be) or (b) this Agreement shall be
sooner terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Lender may terminate this Agreement
without notice at any time on or after the occurrence of an Event of Default.
4.2.2 Termination by Borrower. Upon at least ninety (90) days
prior written notice to Lender, Borrower may, at its option, terminate this
Agreement; provided, however, no such termination shall be effective until
Borrower has paid all of the Obligations in immediately available funds. Any
notice of termination given by Borrower shall be irrevocable unless Lender
otherwise agrees in writing, and Lender shall have no obligation to make any
Loans on or after the termination date stated in such notice. Borrower may elect
to terminate this Agreement in its entirety only. No section of this Agreement
or Type of Loan available hereunder may be terminated singly.
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4.2.3 Termination Charges. At the effective date of any
termination of this Agreement by Borrower pursuant to subsection 4.2.2 hereof,
Borrower shall pay to Lender (in addition to the then outstanding principal,
accrued interest and other charges owing under the terms of this Agreement and
any of the other Loan Documents) as liquidated damages for the loss of the
bargain and not as a penalty, an amount equal to two percent (2%) of the Total
Credit Facility if termination occurs during the period from the Closing Date
through and including July 7, 1998, one percent (1%) of the Total Credit
Facility if termination occurs during the period from July 8, 1998 through and
including July 7, 1999, and one-half of one percent (1/2%) of the Total Credit
Facility if termination occurs during the period from July 8, 1999 through and
including July 7, 2000. Notwithstanding anything hereinabove to the contrary, no
termination charge shall be payable under any of the following circumstances:
(a) if termination of this Agreement occurs pursuant to and in accordance with
the terms of subsection 2.6.1; or (b) if termination of this Agreement occurs
after July 7, 2000, but on or before the last day of the Original Term or on the
last day of any Renewal Term.
4.2.4 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination, and Lender shall retain its Liens in the
Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrower has paid the Obligations to
Lender, in full, in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests in
the Collateral unless, with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, Lender shall, at
its option, (i) have received a written agreement executed by Borrower and by
any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying Lender from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on
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the Collateral for such period of time as Lender, in its reasonable discretion,
may deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of the following Property and interests in such
Property of Borrower, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Deposit Accounts, Investment Property, money market
accounts and security entitlements, of every nature wherever located;
(vi) All monies, checks, notes and instruments of any kind,
now or at any time or times hereafter, in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(vii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (vi) above;
and
(viii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through (vii)
above, including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral;
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5.2 Lien Perfection; Further Assurances. Borrower shall execute such
UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 Location of Collateral. All Collateral, other than Inventory in
transit, will at all times be kept by Borrower at one or more of the business
locations set forth in Exhibit 6.1 hereto and shall not, without the prior
written approval of Lender, be moved therefrom except, prior to an Event of
Default and Lender's acceleration of the Obligations in consequence thereof, for
sales of Inventory in the ordinary course of business.
6.2 Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability, flood and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrower shall deliver the originals or copies of such
policies to Lender with lender's loss payable endorsements, in form satisfactory
to Lender, naming Lender as sole loss payee, assignee or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than (30) days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever and
a clause specifying that the interest of Lender shall not be impaired
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or invalidated by any act or neglect of Borrower or the owner of the Property or
by the occupation of the premises for purposes more hazardous than are permitted
by said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at its option, but shall not be required to, procure the same and charge
the Borrower therefor. Borrower agrees to deliver to Lender, promptly as
rendered, true copies of all reports made in any reporting forms to insurance
companies.
6.3 Protection of Collateral. All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping the Collateral, any
and all excise, property, sales, and use taxes imposed by any state, federal or
local authority on any of the Collateral or in respect of the sale thereof shall
be borne and paid by Borrower. If Borrower fails to promptly pay any portion
thereof when due, Lender may, at its option, but shall not be required to, pay
the same and charge Borrower therefor. Lender shall not be liable or responsible
in any way for the safekeeping of any of the Collateral or for any loss or
damage thereto (except for reasonable care in the custody thereof while any
Collateral is in Lender's actual possession) or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier, forwarding
agency or other person whomsoever, but the same shall be at Borrower's sole
risk.
6.4 Administration of Accounts.
6.4.1 Records, Schedules and Assignments of Accounts. Borrower
shall keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as
Lender shall request a sales and collections report for the preceding period,
in form satisfactory to Lender. On or before the fifteenth day of each month
from and after the date hereof, Borrower shall deliver to Lender, in form
acceptable to Lender, a detailed aged trial balance of all Accounts existing
as of the last day of the preceding month, specifying the names, addresses,
face value, dates of invoices and due dates for each Account Debtor obligated
on an Account so listed ("Schedule of Accounts"), and, upon Lender's request
therefor, copies of proof of delivery and the original copy of all documents,
including, without limitation, repayment histories and present status reports
relating
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to the Accounts so scheduled and such other matters and information relating to
the status of then existing Accounts as Lender shall reasonably request. In
addition, if at any time following the Closing Date, Accounts in an aggregate
face amount in excess of Five Hundred Thousand Dollars ($500,000) become
ineligible because they fall within one of the specified categories of
ineligibility set forth in the definition of Eligible Accounts or otherwise
established by Lender, Borrower shall notify Lender of such occurrence on the
first Business Day following such occurrence and the Borrowing Base shall
thereupon be adjusted to reflect such occurrence. If requested by Lender,
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts weekly or daily, which shall include all Accounts that have been
created since the date of the last assignment, together with copies of invoices
or invoice registers related thereto.
6.4.2 Discounts, Allowances, Disputes. If Borrower grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrowercredits, as the case may be, to Lender as part
of the next required Schedule of Accounts. If any amounts due and owing in
excess of One Hundred Thousand Dollars ($100,000) are in dispute between
Borrower and any Account Debtor, Borrower shall provide Lender with written
notice thereof at the time of submission of the next Schedule of Accounts,
explaining in detail the reason for the dispute, all claims related thereto and
the amount in controversy. Upon and after the occurrence of an Event of Default
which continues without cure for a period of fifteen (15) days, Lender shall
have the right to settle or adjust all disputes and claims directly with the
Account Debtor and to compromise the amount or extend the time for payment of
the Accounts upon such terms and conditions as Lender may deem advisable, and to
charge the deficiencies, costs and expenses thereof, including attorneys' fees,
to Borrower.
6.4.3 Taxes. If an Account includes a charge for any tax payable
to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing Authority for the
account of Borrower and to charge Borrower therefor; provided, however, that
Lender shall not
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be liable for any taxes to any governmental taxing authority that may be due by
Borrower.
6.4.4 Account Verification. Whether or not a Default or an Event
of Default has occurred, any of Lender's officers, employees or agents shall
have the right, at any time or times hereafter, in the name of Lender, any
designee of Lender or Borrower, to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone, telegraph or otherwise.
Borrower shall cooperate fully with Lender in an effort to facilitate and
promptly conclude any such verification process.
6.4.5 Maintenance of Dominion Account. Borrower shall maintain a
Dominion Account pursuant to a tripartite arrangement a arrangement shall
include such terms and conditions as are acceptable to Lender. All funds
deposited in the Dominion Account shall immediately become the property of
Lender, and Borrower shall obtain the agreement by such banks in favor of
Lender to waive any offset rights against the funds so deposited. Lender
assumes no responsibility for such arrangement, including, without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder.
6.4.6 Collection of Accounts; Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Accounts for Lender. All remittances received by Borrower
on account of Accounts, together with the proceeds of any other Collateral,
shall be held as Lender's property by Borrower as trustee of an express trust
for Lender's benefit, and Borrower shall immediately deposit same in kind in
the Dominion Account, except as otherwise permitted in this Agreement. Lender
retains the right at all times after the occurrence of a Default or an Event
of Default to notify Account Debtors that Accounts have been assigned to
Lender and to collect Accounts directly in its own name and to charge the
collection costs and expenses, including reasonable attorneys' fees to
Borrower. Lender has no duty to protect, insure, collect or realize upon the
Accounts or preserve rights therein.
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6.5 Administration of Inventory.
6.5.1 Records and Reports of Inventory. Borrower shall keep
accurate and complete records of its Inventory. Borrower shall furnish to
Lender Inventory reports in form and detail satisfactory to Lender at such
times as Lender may request, but at least once each month, not later than the
twentieth day of such month. Borrower shall conduct a physical inventory no
less frequently than annually and shall provide to Lender a report based on
each such physical inventory promptly thereafter, together with such
supporting information as Lender shall request.
6.5.2 Returns of Inventory. If at any time or times hereafter
any Account Debtor returns any Inventory to Borrower, the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
Fifty Thousand Dollars ($50,000), Borrower shall immediately notify Lender of
the same, specifying the reason for such return and the location, condition
and intended disposition of the returned Inventory.
6.6 Records and Schedules of Equipment. Borrower shall keep accurate
records, itemizing and describing the kind, type, quality, quantity and value of
its Equipment, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Immediately on request therefor by Lender, Borrower shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment.
6.7 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Base Rate Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:
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7.1.1 Organization and Qualification. Each of Borrower and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of
Borrower and its Subsidiaries is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in each state or jurisdiction
listed on Exhibit 7.1.1 hereto and in all other states and jurisdictions where
the character of its business or the nature of its activities make such
qualification necessary.
7.1.2 Corporate Power and Authority. Each of Borrower and its
Subsidiaries is duly authorized and empowered to enter into, execute, deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
and do not and will not (i) require any consent or approval of the shareholders
of Borrower or any of its Subsidiaries; (ii) contravene Borrower's or any of its
Subsidiaries' charter, articles or certificate of incorporation or bylaws; (iii)
violate, or cause Borrower or any of its Subsidiaries to be in default under,
any provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award in effect having applicability to Borrower or any
of its Subsidiaries; (iv) result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower or any of its Subsidiaries is a party or by which
it or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by Borrower or
any of its Subsidiaries.
7.1.3 Legally Enforceable Agreement. This agreement is, and each
of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of each of Borrower and its Subsidiaries
enforceable against it in accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i) the
correct name of each of the Subsidiaries of Borrower, its jurisdiction of
incorporation and the percentage of its Voting
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Stock owned by Borrower, (ii) the name of each of Borrower's corporate or joint
venture Affiliates and the nature of the affiliation, (iii) the number, nature
and holder of all outstanding Securities of Borrower and each Subsidiary of
Borrower and (iv) the number of authorized, issued and treasury shares of
Borrower and each Subsidiary of Borrower. Borrower has good title to all of the
shares it purports to own of the stock of each of its Subsidiaries, free and
clear in each case of any Lien other than Permitted Liens. All such shares have
been duly issued and are fully paid and non-assessable. There are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower or any of its Subsidiaries. There are no outstanding
agreements or instruments binding upon any of Borrower's shareholders relating
to the ownership of its shares of capital stock.
7.1.5 Corporate Names. Neither Borrower nor any of its
Subsidiaries has been known as or used any corporate, fictitious or trade names
except those listed on Exhibit 7.1.5 hereto. Except as set forth on Exhibit
7.1.5, neither Borrower nor any of its Subsidiaries has been the surviving
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person.
7.1.6 Business Locations, Agent for Process. Each of Borrower's
and its Subsidiaries' executive offices and other places of business are as
listed on Exhibit 6.1 hereto. During the preceding one (1) year period, neither
Borrower nor any of its Subsidiaries has had an office, place of business or
agent for service of process other am as listed on Exhibit 6.1. Except as shown
on Exhibit 6.1, no Inventory is stored with a bailee, warehouseman or similar
party, nor is any Inventory consigned to any Person.
7.1.7 Title to Properties, Priority of Liens. Each of Borrower and
its Subsidiaries has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral and all of its other Property,
in each case,
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free and clear of all Liens except Permitted Liens. Borrower has paid or
discharged all lawful claims which, if unpaid, might become a Lien against any
of Borrower's Properties that is not a Permitted Lien. Exceically and expressly
provide otherwise, the Liens granted to Lender under Section 5 hereof are first
priority perfected Liens.
7.1.8 Accounts. Lender may rely, in determining which Accounts are
Eligible Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary course of
its business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of the
contract between Borrower and the Account Debtor;
(iii) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission of the Borrower) be in the
future, subject to any offset, Lien, deduction, defense, dispute, counterclaim
or any other adverse condition known to Borrower (or with respect to which
Borrower should reasonably have had such knowledge), except for a dispute
resulting in returned goods where such dispute is deemed by Lender to be
immaterial, and each such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason;
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(v) Borrower has made no agreement with any Account Debtor
thereunder for any extension, compromise, settlement or modification of any such
Account or any deduction therefrom, except discounts or allowances which are
granted by Borrower in the ordinary course of its business for prompt payment
and which are reflected in the calculation of the net amount of each respective
invoice related thereto and are reflected in the Schedules of Accounts submitted
to Lender pursuant to Section 6.4 hereof;
(vi) There are no facts, events or occurrences which in any
way impair the validity or enforceability of any Accounts or tend to reduce the
amount payable thereunder from the face amount of the invoice and statements
delivered to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
Solvent; and
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Account
Debtor thereunder which might result in any material adverse change in such
Account Debtor's financial condition or the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear excepted.
7.1.10 Financial Statements, Fiscal Year. Borrower has caused
to be furnished year end audited financial statements for JEH Company as of
December 31, 1994, December 31, 1995 and December 31, 1996. Borrower shall
deliver to Lender a Closing Balance Sheet (as defined in the Asset Purchase
Agreement), within 120 days following the Closing Date. The fiscal year of
Borrower and each of its Subsidiaries ends on June 30 of each year.
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7.1.11 Full Disclosure. The financial statements referred to
in subsection 7.1.10 hereof do not (to the best of Borrower's knowledge), nor
does this Agreement or any other written statement of Borrower to Lender,
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading.
There is no fact which Borrower has failed to disclose to Lender in writing
which materially affects adversely or, so far as Borrower can now foresee, will
materially affect adversely the Property, business, prospects, profits or
condition (financial or otherwise) of Borrower or any of its Subsidiaries or the
ability of Borrower or its Subsidiaries to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Each of Borrower and its
Subsidiaries is now, and, after giving effect to the Loans to be made, at all
times will be, Solvent.
7.1.13 Surety Obligations. Neither Borrower nor any of its
Subsidiaries is obligated as surety or indemnitor under any surety or similar
bond or other contract nor has Borrower or any of its Subsidiaries issued or
entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any other Person.
7.1.14 Taxes. Borrower's federal tax identification number is
58-2324924. The federal tax identification number of each of Borrower's
Subsidiaries is shown on Exhibit 7.1.14 hereto. Borrower and each of its
Subsidiaries has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid, or made provision for the
payment of, all taxes, assessments, fees, levies and other governmental charges
upon it, its income and property as and when such taxes, assessments, fees,
levies and charges are due and payable, unless and to the extent any thereof are
being actively contested in good faith and by appropriate proceedings, and
Borrower maintains reasonable reserves on its books therefor. The provision for
taxes on the books of Borrower and its Subsidiaries is adequate for all years
not closed by applicable statutes, and for its current fiscal year.
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7.1.15 Brokers. There are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement, other than the $350,000 fee to be paid by
Borrower to Geneva Corporate Finance, Inc. in connection with the acquisition
contemplated by the Asset Purchase Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses. Each of
Borrower and its Subsidiaries owns or possesses all the patents, trademarks,
service marks, trade names, copyrights and licenses necessary for the present
and planned future conduct of its business without any known conflict with the
rights of others. All such patents, trademarks, service marks, tradenames,
copyrights, licenses and other similar rights are listed on Exhibit 7.1.16
hereto.
7.1.17 Governmental Consents. Each of Borrower and its
Subsidiaries has, and is in good standing with respect to, all governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises necessary to continue to conduct its business as
heretofore or proposed to be conducted by it and to own or lease and operate
its Property as now owned or leased and operated by it.
7.1.18 Compliance with Laws. Each of Borrower and its
Subsidiaries has duly complied with, and its Property, business operations
and leaseholds are in compliance in all material respects with, the
provisions of all federal, state and local laws, rules and regulations
applicable to Borrower or such Subsidiary, as applicable, its Property or the
conduct of its business, and there have been no citations, notices or orders
of noncompliance issued to Borrower or any of its Subsidiaries under any such
law, rule or regulation. Each of Borrower and its Subsidiaries has
established and maintains an adequate monitoring system to insure that it
remains in compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of
the Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended.
7.1.19 Restrictions. Neither Borrower nor any of its
Subsidiaries is a party or subject to any contract, agreement or
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charter or other corporate restriction which materially and adversely af a
party or subject to any contract or agreement which restricts its right or
ability to incur Indebtedness, other than as set forth on Exhibit 7.1.19
hereto, none of which prohibit the execution of or compliance with this
Agreement or the other Loan Documents by Borrower or any of its Subsidiaries,
as applicable.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20
hereto, there are no actions, suits, proceedings or investigations pending, or,
to the knowledge of Borrower, threatened, against or affecting Borrower or any
of its Subsidiaries, or the business, operations, Property, prospects, profits
or condition of Borrower or any of its Subsidiaries. Neither Borrower nor any of
its Subsidiaries is in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition
exists which would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an Event of
Default. Neither Borrower nor any of its Subsidiaries is in default, and no
event has occurred and no condition exists which constitutes, or which with the
passage of time or the giving of notice or both would constitute, a default in
the payment of any Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete listing
of all capitalized leases of Borrower and its Subsidiaries, and Exhibit
7.1.22(b) hereto is a complete listing of all operating leases of Borrower and
its Subsidiaries. Each of Borrower and its Subsidiaries is in full compliance
with all of the terms of each of its respective capitalized and operating
leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23
hereto, neither Borrower nor any of its Subsidiaries has any Plan. Borrower and
each of its Subsidiaries is in full compliance with the requirements of ERISA
and the regulations promulgated thereunder with respect to each Plan. No fact or
situation that
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could result in a material adverse change in the financial condition of Borrower
or any of its Subsidiaries exists in connection with any Plan. Neither Borrower
nor any of its Subsidiaries has any withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower or any of its Subsidiaries and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower or any of its Subsidiaries,
or with any material supplier, and there exists no present condition or state of
facts or circumstances which would materially affect adversely Borrower or any
of its Subsidiaries or prevent Borrower or any of its Subsidiaries from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
7.1.25 Labor Relations. Except as described on Exhibit 7.1.25
hereto, neither Borrower nor any of its Subsidiaries is a party to any
collective bargaining agreement. There are no material grievances, disputes or
controversies with any union or any other organization of Borrower's or any of
its Subsidiaries' employees, or threats of strikes, work stoppages or any
asserted pending demands for collective bargaining by any union or organization.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and in the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's or its Subsidiaries' business or operations
that would render the information in any exhibit attached hereto either
inaccurate, incomplete or misleading, so long as Lender has consented to such
changes or such changes are expressly permitted by this Agreement.
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7.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Property of Borrower and each of
its Subsidiaries, inspect, audit and make extracts from its books and records,
and discuss with its officers, its employees and its independent accountants,
Borrower's and each of its Subsidiaries' business, assets, liabilities,
financial condition, business prospects and results of operations.
8.1.2 Financial Statements. Keep, and cause each Subsidiary to
keep, adequate records and books of account with respect to its business
activities in which proper entries are made in accordance with sound financial
and business practices, in a manner consistent with the information previously
provided to Lender, reflecting all its financial transactions, and cause to be
prepared and furnished to Lender the following:
(i) not later than one hundred and twenty (120) days after the
close of each fiscal year of Borrower, unqualified audited financial statements
of Borrower and its Subsidiaries as of the end of such year, on a Consolidated
and consolidating basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrower but acceptable to Lender
(except for a qualification with respect to (A) the reasonableness
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of fees, charges or credits between or among Borrower, Parent or any Affiliates
or (B) changes in accounting principles with which the accountants concur);
(ii) not later than forty-five (45) days after the end of each
fiscal month hereafter (other than the first and last fiscal month of each
fiscal year, as to which Borrower shall have no obligation to deliver to Lender
financial statements as at and for the end of such fiscal months), unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
Consolidated and consolidating basis, certified by the chief financial officer
of Borrower as fairly presenting the Consolidated financial position and results
of operations of Borrower and its Subsidiaries for such month and period subject
only to changes from audit and year-end adjustments and except that such
statements need not contain notes;
(iii) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its Public shareholders and copies of any
regular, periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan;
(v) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral or Borrower's and each of its Subsidiaries' financial condition
or results of operations.
Concurrently with the delivery of the financial statements described in
clause (i) of this subsection 8.1.2, Borrower shall forward to Lender a copy of
the accountants' letter, if any, to Borrower's management that is prepared in
connection with such financial statements and also shall cause to be prepared
and shall
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furnish to Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the financial
statements of Borrower and its Subsidiaries performed in connection with their
examination of said financial statements, they are not aware of any Default or
Event of Default, or, if they are aware of such Default or Event of Default,
specifying the nature thereof, and acknowledging, in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial statements
in making its decisions with respect to the Loans. Concurrently with the
delivery of the financial statements described in clauses (i) and (ii) of this
subsection 8.1.2, or mpliance certificate in the form of Exhibit 8.1.2 hereto
executed by the chief financial officer of Borrower.
8.1.3 Landlord and Storage Agreements. Provide Lender with
copies of all agreements between Borrower or any of its Subsidiaries and any
landlord or warehouseman which owns any premises at which any Inventory may,
from time to time, be kept.
8.1.4 Subordinations. Provide Lender with a debt subordination
agreement or other instrument, in form and substance satisfactory to Lender,
executed by Borrower and in the case of such agreement executed by any Person
who is an officer, director or Affiliate of the Person to whom Borrower is or
hereafter becomes indebted for Subordinated Debt, subordinating in right of
payment and claim all of such Subordinated Debt, and any future advances thereon
to the full and final payment and performance of the Obligations.
8.1.5 Guarantor Financial Statements. Deliver or cause to be
delivered to Lender financial statements for each Guarantor in form and
substance satisfactory to Lender at such intervals and covering such time
periods as Lender may request. Without limiting the generality of the foregoing,
Borrower shall deliver to Lender, or cause the Parent to deliver to Lender:
(i) no later than one hundred and twenty (120) days after the
close of each fiscal year of the Parent, unqualified audited financial statement
of the Parent and its Subsidiaries as
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<PAGE>
of the end of such year, on a Consolidated and consolidating basis; and
(ii) not later than forty-five (45) days after the end of
each fiscal quarter hereafter, unaudited interim financial statements of the
Parent and its Subsidiaries as of the end of such quarter and of the portion of
the Parent's fiscal year then elapsed, on a Consolidated and consolidating
basis, certified by the chief financial officer of the Parent as fairly
presenting the Consolidated financial position and results of operations of the
Parent and its Subsidiaries for such quarter and period subject only to changes
from audit and year-end adjustments and except that such statements need not
contain notes;
8.1.6 Projections. No later than ten (10) days prior to the
end of each fiscal year of Borrower, deliver to Lender Projections of the
financial conditions and results of operation of Borrower for the next
succeeding fiscal year, such Projections to be prepared on a month-to-month
basis.
8.1.7 Notices. Promptly notify Lender in writing of the
occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or in any of the other Loan
Documents inaccurate, incomplete or misleading.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers, Consolidations, Acquisitions. Merge or onsolidate,
or permit any Subsidiary of Borrower to merge or consolidate, with any Person;
nor acquire, nor permit any of its Subsidiaries to acquire, all or any
substantial part of the Property of any Person, without Lender's prior written
consent.
8.2.2 Loans. Make, or permit any Subsidiary of Borrower to
make, any loans or other advances of money (other than for salary, travel
advances, advances against commissions and other similar advances in the
ordinary course of business) to (i) Persons other than Parent or an Affiliate,
in excess of $250,000, in the
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aggregate outstanding at any one time during any fiscal year of the Borrower,
and (ii) Parent and/or any Affiliate in excess of $500,000, in the aggregate
outstanding at any one time during any fiscal year of the Borrower.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary of Borrower to create, incur or suffer to exist,
any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Indebtedness of any Subsidiary of Borrower to Borrower;
(iii) accounts payable to trade creditors and obligations and
accruals for current operating expenses (other than for Money Borrowed) which
are not aged more than one hundred twenty (120) days from billing date or more
than thirty (30) days from due date, in each case incurred in the ordinary
course of business and paid within such time period, unless the same are being
actively contested in good faith and by appropriate and lawful proceedings; and
Borrower or such Subsidiary shall have set aside such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by Borrower or
such Subsidiary and its independent accountants;
(iv) Obligations to pay Rentals permitted by subsection 8.2.9;
(v) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of (A) guarantees
permitted under subsection 8.2.6 or as otherwise permitted in this Agreement,
(B) endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business and (C) payments under lease
agreements, employment agreements and other agreements entered into in the
ordinary course of business upon fair and reasonable terms;
(vii) Indebtedness owing by Borrower or any Subsidiary of
Borrower to the Parent or to any other Affiliate in
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respect of intercompany advances or charges, provided such advances or charges
are made and incurred in the ordinary course of business pursuant to and
consistent with prior practices of the Parent or any Affiliate of the Parent;
(viii) Indebtedness which is secured exclusively by real
Property;
(ix) Subordinated Debt;
(x) Indebtedness of Borrower under the Asset Purchase
Agreement; and
(xi) Indebtedness not included in paragraphs (i) through (x)
above, or not otherwise specifically permitted under this Agreement, which does
not exceed at any time, in the aggregate, the sum of One Million Five Hundred
Thousand Dollars ($1,500,000).
8.2.4 Affiliate Transactions. Enter into, or be a party to, or
permit any Subsidiary of Borrower to enter into or be a party to, any
transaction with any Affiliate of Borrower, except: (i) in the ordinary course
of Borrower's or such Subsidiary's business and on terms no less favorable to
Borrower or such Subsidiary than Borrower or such Subsidiary could obtain in a
comparable arm's length transaction with a Person not an Affiliate of Borrower
or such Subsidiary; (ii) as otherwise specifically permitted in this Agreement,
in the other Loan Documents or in any waiver of the terms of this covenant
agreed to in writing by Lender (which waiver will not be unreasothe first year
of the Agreement and up to $1,200,000 per each year of the Agreement thereafter
(exclusive of amounts paid by Borrower to Parent for federal income tax
obligations of Borrower), rent, interest and other intercompany transactions by
and between Borrower or any Subsidiary of Borrower, on the one hand, and an
Affiliate of or Parent of Borrower, on the other hand, in fact or in substance
not inconsistent with past practices of Parent and its Affiliates.
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8.2.5 Limitation on Liens. Create or suffer to exist, or permit
any Subsidiary of Borrower to create or suffer to exist, any Lien upon any of
its Property (exclusive of real Property) income or profits, whether now owned
or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant to
any of the Provisions of ERISA) not yet due, or being contested in the manner
described in subsection 7.1.14 hereto, but only if in Lender's judgment such
Lien does not adversely affect Lender's rights or the priority of Lender's Lien
in the Collateral;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in respect of
any such Lien is not at the time required and such Liens do not, in the
aggregate, materially detract from the value of the Property (exclusive of real
Property) of Borrower or materially impair the use thereof in the operation of
Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(v) Liens securing Indebtedness of one of Borrower's
Subsidiaries to Borrower or to another such Subsidiary;
(vi) such other Liens as appear on Exhibit 8.2.5 hereto; and
(vii) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Guarantees. Guaranty, indemnify, or otherwise agree to
become liable for the payment or performance by any other Person of any
Indebtedness or other liabilities or obligations of such Person, except:
(i) as otherwise described under subsection 8.2.3 (vi)(B) and
8.2.3(x); and
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(ii) for the guaranty by Borrower of an Affiliate's payment or
performance obligations arising under any instrument or agreement in respect of
Indebtedness for which such Affiliate is liable and which Indebtedness is
secured by a mortgage or deed of trust in favor of the holder of such
Indebtedness against real Property the title to or ownership of which is in such
Affiliate, provided, that, (A) Borrower is the tenant-in-possession of such real
Property and (B) the maximum liability of Borrower under all such guarantees
does not exceed $1,500,000 in the aggregate at any one time outstanding.
8.2.7 Disposition of Assets. Sell or otherwise dispose of any of,
or permit any Subsidiary of Borrower to sell or otherwise dispose of any of,
its Property (exclusive of real Property), including any disposition of Property
(exclusive of real Property) as part of a sale and leaseback transaction, to or
in favor of any Person, except, in each case, for so long as no Event of Default
exists hereunder: (i) sales of Inventory and sales of other Property which does
not constitute Collateral, in each case in the ordinary course of business; (ii)
a transfer of Property to Borrower by a Subsidiary of Borrower; (iii) transfers
of Property (other than Collateral) by Borrower to (A) any Affiliate, including
the Parent, in satisfaction of indebtedness and (B) the Parent as a dividend, so
long as, in each case, such transfer is made in the ordinary course of business
or pursuant to and consistent with prior practices of any Affiliate, including
Parent, so long as such dividends are otherwise permitted by this Agreement, or
(iv) other dispositions expressly authorized by this Agreement.
8.2.8 Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
8.2.9 Leases. Become, or permit any of its Subsidiaries to
become, a lessee under any operating lease (other than a lease under which
Borrower or any of its Subsidiaries is lessor) of Property if the aggregate
Rentals payable during any current or future period of twelve (12) consecutive
months under the lease in question and all other leases under which Borrower or
any of its Subsidiaries is then lessee would exceed One Million
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Five Hundred Thousand Dollars ($1,500,000); provided, however, that not more
than an additional aggregate sum of Seven Hundred Fifty Thousand Dollars
($750,000) may be payable during any current or future period of twelve (12)
consecutive months for Rentals payable (a) under operating leases and (b)
pursuant to Capitalized Lease Obligations, in each case entered into or
incurred, as the case may be, on or after the Closing Date with respect to
Property consisting of Equipment. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease, exclusive of occupancy costs.
8.2.10 Capital Expenditures. Make Capital Expenditures (other
than payments on Capitalized Lease Obligations) which, as to Borrower and/or any
of its Subsidiaries exceed $600,000, in the aggregate, during any fiscal year of
Borrower or be obligated for Capitalized Lease Obligations in excess of $750,000
during any fiscal year of Borrower or any of its Subsidiaries.
8.2.11 Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions.
8.2.12 Stock of Borrower and/or Subsidiaries. Issue, or permit
any of its Subsidiaries to issue, any additional shares of its capital stock
except director's qualifying shares and except in respect to stock options to
Borrower's directors or management, or in conjunction with an initial public
offering.
8.2.13 Restricted Investment. Make or have, or permit any
Subsidiary of Borrower to make or have, any Restricted Investment.
8.2.14 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than Parent or a Subsidiary
of Borrower.
8.3 Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender, Borrower
covenants and agrees that unless otherwise consented to by Lender in writing, it
shall:
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8.3.1 Minimum Adjusted Tangible Net Worth. Maintain at all times
an Adjusted Tangible Net Worth of not less than the amount of the actual Net
Worth as shown on Closing Balance Sheet less $500,000.
8.3.2 Cash Flow. Achieve Cash Flow of not less than the amount
shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Amount
-------- ------
<S> <C>
3 month period ending September 30, 1997 $(150,000)
6 month period ending December 31, 1997 $(150,000)
9 month period ending March 31, 1998 $(150,000)
12 month period ending June 30, 1998,
September 30, 1998 and December 31, 1998 $(150,000)
12 month period ending March 31, 1999, and
for each fiscal quarter thereafter on a
rolling 4-quarter basis $ 0.00
</TABLE>
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, Lender shall not be required to make
any Loan under this Agreement unless and until each of the following conditions
has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments, opinions and certificates as Lender and its counsel shall require
in connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel, including without limitation, the
following:
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(A) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of Lender Loss
Payee naming Lender as lender loss payee, and certified copies of Borrower's
liability insurance policies, together with endorsements naming Lender as
additional insured;
(B) Certified copies of (i) resolutions of Borrower's and
Parent's respective board of directors authorizing the execution and delivery of
this Agreement and the Loan Documents (as applicable) and the performance of all
transactions contemplated hereby and thereby, (ii) Borrower's and Parent's
by-laws, and (iii) an incumbency certificate of Borrower and Parent;
(C) A copy of the Articles or Certificate of Incorporation of
Borrower and Parent, and all amendments thereto, certified by the Secretary of
State or other appropriate official of its respective jurisdiction of
incorporation;
(D) Good standing certificates for Borrower and Parent, issued
by the Secretary of State or other appropriate official of Borrower's and
Parent's jurisdiction of incorporation and each jurisdiction where the conduct
of Borrower's business activities or the ownership of its Properties
necessitates qualification;
(E) A closing certificate signed by the Chief Executive Officer of
Borrower dated as of the date hereof, stating that (i) the representations and
warranties set forth in Section 7 hereof are true and correct on and as of such
date, (ii) Borrower is, on such date, in compliance with all the terms and
provisions set forth in this Agreement and (iii) on such date no Default or
Event of Default has occurred or is continuing;
(F) The Security Documents duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;
(G) The Other Agreements duly executed and delivered by Borrower;
(H) The favorable, written opinion of Carlton, Fields, Ward,
Emmanuel, Smith & Cutter, P.A., counsel to Borrower, as to
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the transactions contemplated by this Agreement and any of the other Loan
Documents;
(I) Written instruction from Borrower directing the application of
proceeds of the initial Loans made pursuant to this Agreement, and an initial
Borrowing Base Certificate from Borrower;
(J) Duly executed agreement establishing the Dominion Account
with a financial institution acceptable to Lender for the collection or
servicing of the Accounts;
(K) Payment of all fees and expenses owing hereunder;
(L) Landlord Waivers for each of Borrower's locations as listed
on Exhibit 6.1 hereto;
(M) Surety Agreement from Parent;
(N) UCC-1 Financing Statements;
(O) Duly executed subordination agreements with respect to the
Subordinated Debt;
(P) Evidence that the transactions contemplated by the Asset
Purchase Agreement have been consummated.
(Q) Such other documents, instruments and agreements as Lender
shall reasonably request in connection with the foregoing matters.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents, shall have been satisfied or waived by Lender in
writing.
9.4 Adjusted Availability. Lender shall have determined that
immediately after giving effect to (i) the making of the initial Loans requested
to be made on the Closing Date and (ii) the payment or reimbursement by Borrower
to Lender for all fees and costs incurred or payable in connection with the
transactions
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contemplated hereby and due on the Closing Date, Adjusted Availability shall not
be less than One Million Five Hundred Thousand Dollars ($1,500,000), where
Adjusted Availability shall mean the excess, if any, of Availability over that
portion, if any, of Borrower's trade accounts payable outstanding on the Closing
Date which remains unpaid beyond the due date of the relevant account payable.
9.5 No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of, this
Agreement or the consummation of the transactions contemplated hereby.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
10.1.1 Payment of Obligations. Borrower shall: (i) fail to make
any payment of interest, fees, expenses or principal under the Term Loan or
the Equipment Loan, or other Obligations (except those described in clause (ii)
hereof) payable under this Agreement on the due date thereof and such failure
shall continue without cure for three (3) days, provided that such three (3) day
cure period shall not be applicable if such payments are due and payable due to
maturity, or on demand or acceleration following an Event of Default; or (ii)
fail to make any payment of principal under the Revolving Credit Loans on the
due date thereof (whether due at stated maturity, on demand, upon acceleration
or otherwise).
10.1.2 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of Borrower, any
Subsidiary of Borrower or Guarantor in this Agreement, any of the other Loan
Documents or any instrument, certificate or financial statement furnished in
compliance with or in reference thereto proves to have been false or misleading
in any material respect when made or furnished or when reaffirmed pursuant to
Section 7.2 hereof.
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10.1.3 Breach of Specific Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.2, 6.1,
6.4, 8.1.1, 8.1.2, 8.2 (other than subsection 8.2.5, but only to the extent set
forth in subsection 10.1.4) or 8.3 hereof, on the date that Borrower is required
to perform, keep or observe such covenant.
10.1.4 Breach of Other Covenants. Borrower shall fail or neglect
to keep or observe (i) any covenant contained in subsection 8.2.5 (ii) or (iii),
to the extent any Lien referred to therein and which Borrower has suffered to
exist has been created or arises without Borrower's knowledge or consent or (ii)
any other covenant contained in this Agreement (other than a covenant which is
dealt with specifically elsewhere in Section 10.1 hereof) and in either case the
breach of such covenant is not cured to Lender's satisfaction within twenty (20)
days after the sooner to occur of Borrower's receipt of notice of such breach
from Lender or the date on which such failure or neglect first becomes known to
any officer of Borrower.
10.1.5 Default Under Security Documents/Other Agreements. Any
event of default shall occur under, or Borrower shall default in the performance
or observance of any covenant, condition or agreement contained in, any of the
Security Documents or the Other Agreements and such default shall continue
beyond any applicable grace period.
10.1.6 Other Defaults. There shall occur any default or event of
default on the part of Borrower under any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) if the
payment or maturity of such Indebtedness is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made.
10.1.7 Uninsured Losses. Any loss, theft, damage or destruction
of any of the Collateral not fully covered (subject to such deductibles as
Lender shall have permitted) by insurance shall have occurred, and such loss,
theft, damage or destruction shall
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have a material adverse effect on Borrower's financial condition, Property or
business prospects.
10.1.8 Adverse Changes. There shall occur any material adverse
change in the financial condition, Property or business prospects of Borrower.
10.1.9 Insolvency and Related Proceedings. Borrower or any
Guarantor shall cease to be Solvent or shall suffer the appointment of a
receiver, trustee, custodian or similar fiduciary, or shall make an assignment
for the benefit of creditors, or any petition for an order for relief shall be
filed by or against Borrower, any Subsidiary of Borrower or any Guarantor under
the Bankruptcy Code (if against Borrower, any Subsidiary of Borrower or any
Guarantor, the continuation of such proceeding for more than sixty (60) days),
or Borrower or any Guarantor shall make any offer of settlement, extension or
composition to their respective unsecured creditors generally.
10.1.10 Business Disruption. There shall occur a cessation of
a substantial part of the business of Borrower or any Subsidiary of Borrower for
a period which significantly affects Borrower's or such Subsidiary's capacity to
continue its business, on a profitable basis; or Borrower or any Subsidiary of
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower or such Subsidiary which is necessary to the
continued or lawful operation of its business; or Borrower or any Subsidiary
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs.
10.1.11 Change of Ownership; etc. The Parent or the shareholders
of Parent as of the Closing Date shall cease to own or control, beneficially and
of record, all of the issued and outstanding capssued and outstanding capital
stock of the Parent or Borrower, or Frederick M. Friedman shall cease to own or
control beneficially, at least fifteen percent (15%) of the issued and
outstanding capital stock of the Parent or Borrower, or both Douglas P. Fields
and Frederick M. Friedman shall cease to be
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actively engaged in the senior management of Borrower's business affairs or upon
any sale or transfer permitted hereunder by the Parent of the issued and
outstanding capital stock of Borrower, the Parent shall fail to then deliver to
Lender a writing executed by the Parent confirming the continuing effectiveness
of the Guaranty Agreement executed by it in favor of the Lender, which writing
shall contain a reaffirmation by the Parent of its continuing liability under
the Surety Agreement in accordance with its terms.
10.1.12 ERISA. A Reportable Event shall occur which Lender, in
its sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if Borrower, any Subsidiary of Borrower or any Guarantor is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan resulting from Borrower's, such Subsidiary's or such
Guarantor's complete or partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. Borrower, any Subsidiary of
Borrower or any Guarantor, or any Affiliate of any of them, shall challenge or
contest in any action, suit or proceeding the validity or enforceability of this
Agreement, or any of the other Loan Documents, the legality or enforceability of
any of the Obligations or the perfection or priority of any Lien granted to
Lender.
10.1.14 Repudiation of or Default Under Surety Agreement. Any
Guarantor shall revoke or attempt to revoke the Surety Agreement signed by
such Guarantor, or shall repudiate such Guarantor's liability thereunder or
shall be in default under the terms thereof.
10.1.15 Criminal Forfeiture. Borrower, any Subsidiary of
Borrower or any Guarantor shall be criminally indicted or convicted under any
law that could lead to a forfeiture of any Property of Borrower, any Subsidiary
of Borrower or any Guarantor.
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10.1.16 Judgments. Any money judgment, writ of attachment or
similar process, singly, or in the aggregate, in each case in excess of
$250,000, is filed against Borrower, any Subsidiary of Borrower or any
Guarantor, or any of their respective Property and such judgment, writ of
attachment or similar process is not satisfied, bonded to the satisfaction of
Lender or stayed, in each case within 45 days of such filing.
10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations
payable on demand in accordance with Section 3.2 hereof, upon or at any time
after the occurrence of an Event of Default, all or any portion of the
Obligations shall, at the option of Lender and without presentment, demand
protest or further notice by Lender, become at once due and payable, and
Borrower shall forthwith pay to Lender the full amount of such Obligations,
provided, that upon the occurrence of an Event of Default specified in
subsection 10. 1.9 hereof, all of the Obligations shall become automatically
due and payable without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable rights
to which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of
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Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that ten (10) days
written notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
law, private sale and, in lieu of actual payment of such purchase price, may set
off the amount of such price against the Obligations. The proceeds realized from
the sale of any Collateral may be applied, after allowing two (2) Business Days
for collection, first to the costs, expenses and attorneys' fees incurred by
Lender in collecting the Obligations, in enforcing the rights of Lender under
the Loan Documents and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling and delivering any Collateral;
second to the interest due upon any of the Obligations; and third, to the
principal of the Obligations. If any deficiency shall arise, Borrower shall
remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral, and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
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10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary
hereto or in any schedule or in any Surety Agreement given to Lender or
contained in any other agreement between Lender and Borrower, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and
not in derogation or substitution of any of the terms, covenants, conditions,
or agreements of Borrower herein contained. The failure or delay of Lender to
require strict performance by Borrower of any provision of this Agreement or
to exercise or enforce any rights, Liens, powers, or remedies hereunder or
under any of the aforesaid agreements or other documents or security or
Collateral shall not operate as a waiver of such performance, Liens, rights,
powers and remedies, but all such requirements, Liens, rights, powers, and
remedies shall continue in full force and effect until all Loans and all
other Obligations owing or to become owing from Borrower to Lender shall have
been fully satisfied. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any
of the other Loan Documents and no Event of Default by Borrower under this
Agreement or any other Loan Documents shall be deemed to have been suspended
or waived by Lender, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and is signed by a duly
authorized representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact), solely for the purposes
set forth below, and Lender, or Lender's agent, may, without notice to Borrower
and in either Borrower's or Lender's name, but at the cost and expense of
Borrower:
11.1.1 At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or said
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agent, in its sole discretion, may determine, endorse Borrower's name on any
checks, notes, acceptances, drafts, money orders or any other evidence of
payment or proceeds of the Collateral which come into the possession of Lender
or under Lender's control.
11.1.2 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(i) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors, (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, and any
other Collateral; (xi) make and adjust claims under policies of insurance, and
(xii) do all other acts and thin Lender's determination, to fulfill Borrower's
obligations under this Agreement.
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11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure, or alleged
failure, to observe, perform or discharge Borrower's duties hereunder. In
addition, Borrower shall defend Lender against and save it harmless from all
claims of any Person with respect to the Collateral. Without limiting the
generality of the foregoing, these indemnities shall extend to any claims
asserted against Lender by any Person under any Environmental Laws or similar
laws by reason of Borrower's or any other Person's failure to comply with laws
applicable to solid or hazardous waste materials or other toxic substances.
Notwithstanding any contrary provision in this Agreement, the obligation of
Borrower under this Section 11.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may
not be modified, altered or amended except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder, and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit
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information regarding Borrower and its Subsidiaries to any potential participant
or assignee.
11.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements and
the Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect, Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made coextensive with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered
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against receipt, five (5) days after deposit in the mail, postage prepaid, or
one (1) Business Day after deposit with an overnight courier or in the case of
facsimile notice, when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: The Northeast Loan
Administration Manager
Facsimile No.: 860-657-7759
With a copy to: Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Harvey I. Forman, Esquire
Facsimile No.: 215-569-5555
If to Borrower: JEH Acquisition Corp.
122 East 42nd Street, Suite 1116
New York, NY 10168
Attention: Frederick M. Friedman,
Executive Vice President
Facsimile No.: 212-972-0326
With a copy to: TDA Industries, Inc.
122 East 42nd Street
New York, NY 10168
Attention: Mr. Frederick M. Friedman
Facsimile No.: 212-972-0326
With a copy to: Carlton Fields
One Harbour Place
777 South Harbour Island Drive
Tampa, Florida 33602
Attention: Nathaniel L. Doliner, Esquire
Facsimile No.: 813-229-4133
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8, provided,
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however, that any notice, request or demand to or upon Lender pursuant to
subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by
Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction condition or event,
Lender shall be authorized to give or withhold such sole and absolute discretion
and to condition its consent upon the giving of additional collateral security
for the Obligations, the payment of money or any other matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender
to respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
DALLAS, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK, THE LAWS
OF SUCH
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JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF THE STATE OF NEW
YORK, SITTING IN NEW YORK COUNTY, OR, AT LENDER'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND
LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER
HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY, SUCH
COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL
RECEIPT THEREOF OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE
RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR
TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY
OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
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COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL
PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY
BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS
REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR
ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
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11.16 Parties to Act in a Commercially Reasonable Manner. Each party
hereto agrees to act at all times in its dealings with the other party hereto in
a commercially reasonable manner.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.
Attest: JEH ACQUISITION CORP.
("Borrower")
[Illegible] [Illegible]
By: --------------------------- By:-------------------------------
Secretary
CEO
[Corporate Seal] Title: ----------------------------
Accepted in -----------------------
FLEET CAPITAL CORPORATION
("Lender")
[Illegible]
By: -------------------------------
VP
Title:-----------------------------
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of July 8, 1997, by
and between Fleet Capital Corporation and JEH Acquisition Corp., the
following terms shall have the following meanings (terms defined in the
singular to have the same meaning when used in the plural and
vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by any Borrower
or in which any Borrower or in which any Borrower now has or hereafter
acquires any interest.
Adjusted Availability - as defined in Section 9.4 of the Agreement.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes for
such fiscal period of Borrower, as reflected on the financial statement of
Borrower supplied to Lender pursuant to subsection 8.1.2 of the Agreement,
but excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of Borrower accrued prior to the
date it became a Subsidiary;
(iv) earnings of any corporation, substantially all the assets of
which have been acquired in any manner by Borrower, realized by such
corporation prior to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary
of Borrower) in which Borrower has an ownership interest unless such net
earnings shall have actually been received by Borrower in the form of
cash distributions;
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(vi) any portion of the net earnings of any Subsidiary of Borrower
which for any reason is unavailable for payment of dividends to Borrower;
(vii) the earnings of any Person to which any assets of Borrower
shall have been sold, transferred or disposed of, or into which Borrower
shall have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transaction;
(viii) any gain arising from the acquisition of any Securities of
Borrower; and
(ix) any gain arising from extraordinary or nonrecurring items.
Adjusted Tangible Assets - all assets except each of the following that
are acquired, created or arise subsequent to the date of the Closing Balance
Sheet: (i) any surplus resulting from any write-up of assets subsequent to
July 1, 1997; (ii) deferred assets, other than prepaid insurance and prepaid
taxes; (iii) patents, copyrights, trademarks, trade names, non-compete
agreements, franchises and other similar intangibles; (iv) goodwill,
including any amounts, however designated on a Consolidated balance sheet of a
Person or its Subsidiaries, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on the books of such
Person; (v) Restricted Investments; (vi) unamortized debt discount and
expense; (vii) assets located and notes and receivables due from obligors
outside of the United States of America; and (viii) Accounts, notes and other
receivables due from Affiliates or employees.
Adjusted Tangible Net Worth - at any date means an amount equal to:
(i) the net book value (after deducting related depreciation,
obolescence, amortization, valuation, and other proper reserves) at which
the Adjusted Tangible Assets of a Person would be shown on a balance
sheet at such date in accordance with GAAP, minus
(ii) the amount at which such Person's liabilities (other than
capital stock and surplus and Subordinated
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Debt) and including as liabilities all reserves for contingencies and
other potential liabilities, all as would be shown on such balance sheet in
accordance with GAAP.
Affiliate - a Person (other than a Subsidiary or JEH Company, James E.
Halzer, his wife, and any of their affiliated Persons): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, a Person; or (ii) which beneficially owns or
holds 5% or more of any class of the Voting Stock of a Person; or (iii) 5% or
more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is beneficially
owned or held by a Person or a Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
sentence of this Appendix A, all Exhibits thereto and this Appendix A.
Applicable Inventory Sublimit - an amount equal to $10,000,000.
Asset Purchase Agreement - that certain Asset Purchase Agreement dated as
of July 8, 1997 between JEH Company, as seller, and Borrower, as purchaser.
Availability - the amount of money which Borrower is entitled to borrow
from time to time as Revolving Credit Loans, such amount being the difference
derived when the sum of the principal amount of Revolving Credit Loans then
outstanding (including any amounts which Lender may have paid for the account
of Borrower pursuant to any of the Loan Documents and which have not been
reimbursed by Borrower) and any established reserves, is subtracted from the
Borrowing Base. If the amount outstanding is equal to or greater than the
Borrowing Base, Availability is 0.
Bank - Fleet Bank, N.A.
Base Rate - the rate of interest announced or quoted by Bank from time to
time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if such
prime rate for
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commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Base Rate Loans - that portion of the Revolving Credit Loans, the Term
Loan and the Equipment Loan which bear interest based on the Base Rate.
Borrowing Base - as at any date of determination thereof, an equal amount
to the lesser of:
(i) Twenty Million Dollars ($20,000,000) minus the aggregate
outstanding balance under the Equipment Loan and the Term Loan; or
(ii) an amount equal to:
(a) up to eighty percent (80%) of the net amount of Eligible
Accounts outstanding at such date;
PLUS
(b) (without duplication) up to seventy percent (70%) of the net
amount of the Drury Brothers Accounts and the North Star Construction
Accounts, so long as the value of the Accounts with respect to such entities
which are unpaid for more than sixty (60) days after the due date ("Delinquent
Accounts") does not increase by more than 20% from the value of the Delinquent
Accounts corresponding to such entity as of the Closing Date:
PLUS
(c) an amount equal to the lesser of (1) the Applicable Inventory
Sublimit or (2) up to sixty percent (60%) of the Eligible Inventory
calculated on the basis of the lower of cost or market with cost of Eligible
Inventory calculated on a first-in, first-out basis.
MINUS
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(d) the amount of any reserves and any amounts which Lender shall
have paid pursuant to any of the Loan Documents for the account of Borrower
and which have not been reimbursed by Borrower.
For purposes hereof, the net amount of Eligible Accounts at any time shall
be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in
connection with such Accounts at such time.
Borrowing Base Certificate - that certificate signed by the chief financial
officer of Borrower showing the status of Borrower's Accounts and Inventory,
outstanding Revolving Credit Loans and other information, in the form of
Exhibit A-1 to the Agreement.
Business Day - any day exluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are closed.
Capital Adequacy Amount, Capital Adequacy Demand and Capital Adequacy
Rules - each as defined in Section 2.6 of the Agreement.
Capital Expenditures - cash expenditures made for the acquisition of any
fixed assets or improvements, replacements, substitutions or additions thereto
which have a useful life of more than one year, including the total principal
portion of Capitalized Lease Obligations excluding expenditures for the
replacement of any assets leased under a Capitalized Lease Obligation in
connection with a casualty or loss thereof.
Capitalized Lease Obligation - any Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Flow - with respect to any fiscal year, an amount equal to income (or
loss) after federal income tax provision
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(or benefit), inclusive of intercompany charges (or credits) between Borrower
and Parent or any Affiliate, as shown on the financial statements of Borrower
required to be delivered pursuant to subsection 8.1.2(i) of the Agreement,
plus (i) depreciation and amortization expenses which were deducted in
determining such income (or loss) for such fiscal year and (ii) loss arising
from the sale of Property which was deducted in determining such income (or
loss) for such fiscal year, minus (a) gain arising from the sale of Property
which was included in determining such income (or loss) for such fiscal year,
(b) capital expenditures (net of Indebtedness incurred to finance such
expenditures) for such fiscal year, (c) dividends paid in cash during such
fiscal year, (d) scheduled principal payments made during such fiscal year in
respect of Indebtedness and (e) without duplication, payments made or to be
made by Borrower with respect to the fiscal year(s) being measured to JEH
Company pursuant to the Asset Purchase Agreement, all as determined in
accordance with GAAP.
Closing Balance Sheet - the audited balance sheet of JEH Company prepared
by Waters & Murray dated as of June 30, 1997, and delivered pursuant to
Section 2.3 of the Asset Purchase Agreement.
Closing Date - the date on which all of the conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made under
the Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State of
New York, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the accounts
or other items as to which such term applies.
Continuation - as defined in subsection 3.1.4 of the Agreement.
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Conversion - as defined in subsection 3.1.4 of the Agreement.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP.
Default - an event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, beome an Event of
Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Deposit Accounts - all now existing or hereafter acquired or arising
deposit accounts, investment accounts, commercial paper, and
certificates of deposit of every nature, wherever located and all
documents and records associated therewith.
Distributions - in respect of any corporation means and includes (i)
the payment of any dividends or other distributions on capital stock of
the corporation (except distributions in such stock) and (ii) the
redemption or acquisition of Securities unless made contemporaneously
from the net proceeds of the sale of such Securities.
Dominion Account - a special blocked account owned and established
by Borrower pursuant to the Agreement at a bank selected by Borrower,
but acceptable to Lender in its reasonable discretion, and over which
Lender shall have sole and exclusive access and control for withdrawal
purposes.
Drury Brothers Accounts - those Accounts owed by Drury Brothers to
Borrower which would otherwise be Eligible Accounts but for item (iii)
of the definition of "Eligible Accounts".
Eligible Account - an Account arising in the ordinary course of any
Borrower's business from the sale of goods or rendition of services
which Lender, in its sole credit judgment, deems to be an Eligible
Account. Without limiting the generality of the foregoing, no Account
shall be an Eligible Account if:
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(i) it arises out of a sale made by Borrower to a Subsidiary or
an Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; or
(ii) it is unpaid for more than sixty (60) days after the original
due date calculated pursuant to the payment terms reflected on the
invoice; or
(iii) fifty percent (50%) or more of the Accounts from the Account
Debtor are not deemed Eligible Accounts hereunder; or
(iv) the total unpaid Accounts of the Account Debtor exceed twelve
and one-half percent (12 1/2%) of the net amount of all Eligible
Accounts, to the extent of such excess; or
(v) any covenant, representation or warranty contained in the
Agreement with respect to such Account has been breached; or
(vi) the Account Debtor is also Borrower's creditor or supplier,
or the Account Debtor has disputed liability with respect to such
Account, or the Account Debtor has made any claim with respect to any
other Account due from such Account Debtor to Borrower, or the Account
otherwise is or may become subject to any right of setoff by the Account
Debtor; or
(vii) the Account Debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made
an assignment for the benefit of creditors, or a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect of the Account Debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
petition or other application for relief under the federal bankruptcy
laws has been filed against the Account Debtor, or if the Account Debtor
has failed, suspended business, ceased to be Solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; or
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(viii) it arises from a sale to an Account Debtor outside the United
States, unless the sale is on letter of credit, guaranty or acceptance
terms, in each case acceptable to Lender in its sole discretion; or
(ix) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(x) Lender believes, in its reasonable judgment, that collection
of such Account is insecure or that payment thereof is doubtful or will be
delayed by reason of the Account Debtor's financial condition; or
(xi) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless the Borrower
assigns its right to payment of such Account to Lender, in a manner
satisfactory to Lender, so as to comply with the Assignment of Claims Act
of 1940 (31 U.S.C. Section 203 et seq., as amended); or
(xii) the Account is not at all times subject to Lender's duly
perfected, first priority security interest or if it is subject to a Lien
other than a Permitted Lien; or
(xiii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by the Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a final
sale; or
(xiv) the total unpaid Accounts of the Account Debtor exceed a
credit limit determined by Lender, in its reasonable discretion, to the
extent such Account exceeds such limit; or
(xv) the Account is evidenced by chattel paper or an instrument of
any kind, or has been reduced to judgment; or
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(xvi) Borrower has made any agreement with the Account Debtor for
any deduction therefrom, except for discounts or allowances which are
made in the ordinary course of business for prompt payment and which
discounts or allowances are reflected in the calculation of the face
value of each invoice related to such Account; or
(xvii) Borrower has made an agreement with the Account Debtor to
extend the time of payment thereof; or
(xviii) such Account includes finance charges, late charges or
similar type charges or fees, to the extent of such charges and fees.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to
be Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it does not consist of finished goods that are, in Lender's
opinion, readily marketable in their current form; or
(ii) it is not in good, new and saleable condition; or
(iii) it is obsolete or unmerchantable or remains unsold and on
Borrower's books and records for more than one year; or
(iv) it does not meet all standards imposed by any governmental
agency or authority; or
(v) it does not conform in all respects to the warranties and
representations set forth in the Agreement,
(vi) it is not at all times subject to Lender's duly perfected,
first priority Lien and no other Lien except a Permitted Lien; or
(vii) it is not situated at a location in compliance with the
Agreement or is in transit.
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Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description owned or used in Borrower's
operations in which such Borrower has an interest, whether now owned or
hereafter acquired by Borrower and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor.
Equipment Base Rate - the per annum rate equal to the sum of the Base
Rate plus 50 basis points.
Equipment Base Rate Loans - that portion of the Equipment Loan that bears
interest at the Equipment Base Rate.
Equipment LIBOR Rate - the per annum rate equal to the sum of the LIBOR
Rate plus 250 basis points.
Equipment LIBOR Rate Loan - that portion of the Equipment Loan (as
designated by Borrower) that bears interest on which interest accrues at the
Equipment LIBOR Rate.
Equipment Loan - the Loans to be made by Lender to Borrowers pursuant to
subsection 1.3 of the Agreement.
Equipment Note - the secured promissory note to be executed by Borrower
in favor of Lender to evidence Borrower's obligations to repay the Equipment
Loan as provided in Section 1.3 of the Agreement, which shall be in the form
of Exhibit A-2 to the Agreement.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
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GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
General Intangibles - collectively, all personal Property of Borrower
other than goods, Accounts, chattel paper, documents, instruments and money,
whether now owned or hereafter created or acquired by any Borrower, including
without limitation, all of Borrower's existing and future rights (including
indemnification rights), claims, privileges and benefits in, to and under the
Asset Purchase Agreement.
Guarantor - Parent and any other Person who may hereafter guarantee
payment or performance of the whole or any part of the Obligations pursuant
to a Surety Agreement.
Indebtedness - as applied to a Person means, without duplication
(i) all items, which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including, without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such
Person, and
(iv) in the case of Borrower (without duplication), the Obligations
and Borrower's obligations under and pursuant to the Asset Purchase
Agreement.
Interest Period - for any LIBOR Rate Loan the period commencing on the
date of the borrowing thereof and ending on the last day of the period
selected by Borrower pursuant to the provisions contained herein. The
duration of each such Interest Period shall be for 30, 60 or 90 days, in each
case as Borrower may select, pursuant to an appropriate notice of borrowing,
notice of Continuation or notice of Conversion; provided, however, that
Borrower may not select any Interest
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Period that ends after the last day of the Original Term, or if the Agreement
is renewed in accordance with the terms of Section 4.1, the last day of the
Renewal Term then in effect. Whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended so as to occur on the next succeeding
Business Day; provided, however, if such extension would cause the last day
of such Interest Period to occur during the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day.
Inventory - all of Borrower's Inventory, whether now owned or hereafter
acquired, including, without limitation, all goods intended for sale or lease
by Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description
used or which might be used in connection with the manufacture, printing,
packing, shipping, advertising, selling, leasing or furnishing of such goods
or otherwise used or consumed in any Borrower's business; and all Documents
evidencing and General Intangibles relating to any of the foregoing, whether
now owned or hereafter acquired by Borrower.
Investment Property - as defined in the Code.
LIBOR Rate - shall mean, with respect to the Interest Period applicable
to the borrowing of a LIBOR Rate Loan, the rate obtained (rounded upwards to
the nearest 1/100 of 1%) by dividing (i) the rate of interest per annum
offered to the Bank in the London interbank foreign currency deposits market
as of approximately 9:00 A.M. (Eastern time) two (2) Business Days prior to
the commencement of such Interest Period for U.S. dollar deposits of amounts
in immediately available funds comparable to the principal amount of the LIBOR
Rate Loan for which the LIBOR rate is being determined with maturities
comparable to the Interest Period for which such LIBOR Rate will apply, by
(ii) a percentage equal to 1 minus the stated Reserve (expressed as a
decimal), if any, required to be maintained against "Eurocurrency
Liabilities" as specified in Regulation D of the Board of Governors of the
Federal Reserve System as from time to time shall be in effect (or against
any other category of liabilities, which includes deposits, by
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reference to which the interest rate on LIBOR Rate Loans is determined or any
category of extension of credit on other assets, which includes loans by a
non-U.S. office of Bank or Lender to U.S. residents). In the absence of
manifest error, each determination by Lender of the applicable LIBOR Rate
shall be deemed conclusive.
LIBOR Rate Loans - that portion of the Revolving Credit Loans, the Term
Loan and the Equipment Loan which bear interest based on the LIBOR Rate.
Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purpose(s) of the Agreement,
Borrower shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - collectively, the Revolving Credit Loans, the Term Loan, the
Equipment Loan and all other loans and advances of any kind made by Lender
pursuant to the Agreement.
London Business Day - Any Business Day on which banks in London, England
are open for business.
Money Borrowed - means (i) Indebtedness arising from the lending of money
by any Person to Borrower; (ii) Indebtedness, whether or not in any such case
arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures,
notes or similar instruments, or (C) upon which
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interest charges are customarily paid (other than accounts payable) or that
was issued or assumed as full or partial payment for Property; (iii)
reimbursement obligations with respect to letters of credit or guaranties of
letters of credit and (iv) Indebtedness of Borrower under any guaranty of
obligations that would constitute Indebtedness for Money Borrowed under
clauses (i) through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.
Net Worth - Assets minus liabilities, as shown on the Closing Balance
Sheet.
North Star Construction Accounts - those Accounts owed by North Star
Construction to Borrower which would otherwise be Eligible Accounts but for
item (iii) of the definition of "Eligible Accounts".
Notes - collectively, the Revolving Credit Note, the Term Note and the
Equipment Note.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees, costs,
expenses and other charges thereon, owing, arising, due or payable from
Borrower to Lender of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether arising under
the Agreement or any of the other Loan Documents or otherwise whether direct
or indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however acquired. The term includes without limitation, all interest
charges, fees, expenses, attorneys' fees, and any other sums chargeable to
Borrowers under any of the Loan Documents.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed or delivered
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by Borrower, any Subsidiary of Borrower or any other third party and
delivered to Lender in respect of the transactions contemplated by the
Agreement, as each may be amended, modified, renewed, extended, replaced,
restated or substituted from time to time.
Overadvance - the amount, if any, by which the aggregate outstanding
principal amount the Loans exceeds the Borrowing Base.
Parent - TDA Industries, Inc., a New York corporation and the owner,
beneficially and of record, of one hundred percent (100%) of the issued and
outstanding shares of capital stock of Borrower.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the
Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed $1,000,000.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for employees
of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted Consolidated and consolidating (a)
balance sheets, (b) profit and loss statements, (c) cash flow statements, and
(d) capitalization statements, all prepared on a consistent basis with
Borrower's
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historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any real Property or Equipment, (ii) any Indebtedness
(other than the Obligations) incurred at the time of or within ten (10)
days prior to or after the acquisition of any real Property or Equipment
for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but
not any increases in the principal amounts thereof outstanding at the
time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien.
Regulation D - Regulation D of the Board of Governors of the Federal
Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, any any successor thereto.
Rentals - as defined in subsection 8.2.9 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Reserve - For any day, that reserve (expressed as a decimal) which is
in effect (whether or not actually incurred) with respect to Bank on
such day, as prescribed by the Board of Governors of the Federal Reserve
System (or any successor or any other banking authority to which Bank
is subject including any board or governmental or administrative agency
of the United States or any other jurisdiction to which Bank
17
<PAGE>
is subject), for determining the maximum reserve requirement (including
without limitation any basic, supplemental, marginal or emergency reserves)
for Eurocurrency liabilities as defined in Regulation D.
Reserve Percentage - For Bank on any day, that percentage (expressed as a
decimal) which is in effect on such day, prescribed by the Board of
Governors of the Federal Reserve System (or any successor or any other
banking authority to which Lender is subject, including any board or
governmental or administrative agency of the United States or any other
jurisdiction to which Bank is subject) for determining the maximum reserve
requirement (including without limitation any basic supplemental, marginal or
emergency reserves) for (i) deposits of United States Dollars or (ii)
Eurocurrency liabilities as defined in Regulation D, in each case used to
fund a LIBOR Rate Loan subject to an LIBOR Rate. The LIBOR Rate shall be
adjusted automatically on and as of the effective day of any change in the
Reserve Percentage.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) investments otherwise permitted by this Agreement or investments
in one or more Subsidiaries of Borrower to the extent existing on the
Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one year
from the date of acquisition thereof;
18
<PAGE>
(v) investments in certificates of deposit maturing within one
year from the date of acquisiton issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least
$100,000,000; and
(vi) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from
the date of creation thereof.
Revolving Credit Base Rate - a per annum rate equal to the Base Rate plus
50 basis points.
Revolving Credit Base Rate Loan - that portion of the Revolving Credit
Loans that bears interest at the Revolving Credit Base Rate.
Revolving Credit Facility - the credit facility established for Borrower
by Lender under and pursuant to the terms of this Agreement under which
Revolving Credit Loans may be made from time to time.
Revolving Credit LIBOR Rate - a per annum rate equal to the sum of the
LIBOR Rate plus 250 basis points.
Revolving Credit LIBOR Rate Loan - that portion of the Revolving Credit
Loans on which interest accrues at the Revolving Credit LIBOR Rate.
Revolving Credit Loan - a Loan made by Lender as provided in Section 1.1
of the Agreement.
Revolving Credit Note - the secured promissory note to the executed by
Borrower on the Closing Date in favor of Lender to evidence Borrower's
obligation to repay the Revolving Credit Loans, which shall be in the form of
Exhibit A-4 to the Agreement.
Schedule of Accounts - as defined in subsection 6.4.1 of the Agreement.
19
<PAGE>
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - each Guaranty Agreement and all other instruments and
agreements now or at any time hereafter securing the whole or any part of the
Obligations, as each may be amended, modified, renewed, extended, replaced,
restated or substituted from time to time.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such
Person's Indebtedness (including contingent debts), (ii) is able to pay all
of its Indebtedness as such Indebtedness matures and (iii) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
Subordinated Debt - Indebtedness of Borrower which by its terms, or by the
terms of the agreement pursuant to which such Indebtedness is issued, is
subordinated to the Obligations in a manner satisfactory to Lender, including
without limitation, the Indebtedness of Borrower to JEH Company which is
subordinated to the Obligations pursuant to that certain Subordination
Agreement of even date herewith from JEH Company to Lender.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Surety Agreement - a Surety Agreement executed by a Guarantor in form and
substance satisfactory to Lender.
Term Base Rate - a per annum rate equal to the sum of the Base Rate plus
150 basis points.
Term Base Rate Loan - that portion of the Term Loan that bears interest of
the Term Base Rate.
Term LIBOR Rate - a per annum rate equal to the sum of the LIBOR Rate plus
325 basis points.
20
<PAGE>
Term LIBOR Rate Loan - that portion of the Term Loan (as designated by
Borrower) on which interest accrues at the Term LIBOR Rate.
Term Loan - the Loan described in subsection 1.2 of the Agreement.
Term Note - the secured promissory note to be executed by Borrowers on or
about the Closing Date in favor of Lender to evidence Borrowers' obligation
to repay the Term Loan, which shall be in the form of Exhibit A-5 to the
Agreement.
Total Credit Facility - $20,000,000.
Treasury Rate - with respect to the Term Loan, the average coupon
equivalent yield, in secondary market, that Lender could obtain by purchasing
United States Treasury Securities in an amount approximately equal to the
Term Loan, maturing on the schedule maturity date of the Term Loan.
Type - respect to any Loan, whether such Loan, or portion thereof, is a
Base Rate Loan or a LIBOR Rate Loan.
Voting Stock - Securities of class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Other Terms - All other terms contained in the Agreement shall have, when
the context so indicates, the meanings provided for by the Code to the extent
the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a
whole and not to any particular section, paragraph or subdivision. Any
pronoun used shall be deemed to cover all genders. The section titles, table
of contents and list of exhibits appear as a matter of convenience only and
shall not affect the interpretation of the Agreement. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to any of
21
<PAGE>
the Loan Documents shall include any and all modifications thereto and any
and all extensions or renewals thereof.
22
<PAGE>
OFFICER'S CERTIFICATE
Fleet Capital Corporation
200 Glastonbury Blvd.
Glastonbury, CT 06033
Attn: Kim Bushey, Vice President
Ladies and Gentlemen:
This Certificate is executed and delivered by the undersigned pursuant to
Paragraph 9.1 of that certain Loan and Security Agreement ("Agreement")
between JEH Acquisition Corp. ("Borrower") and Fleet Capital Corporation
bearing even date herewith. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Agreement.
The undersigned hereby certifies to Fleet Capital Corporation as follows:
1. All warranties and representations set forth in the Agreement and
all related instruments, agreements and documents are true and correct as of
the date hereof;
2. No Default or Event of Default has occurred;
3. All of the conditions specified in Section 9 of the Agreement have
been fulfilled;
4. The undersigned is the _______________________ of Borrower.
Very truly yours,
____________________________ (SEAL)
(Print name and title)
<PAGE>
TERM NOTE
$3,000,000.00 July 8, 1997
FOR VALUE RECEIVED, and intending to be legally bound, JEH Acquisition
Corp. ("Borrower") hereby promises to pay to the order of Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), in such coin or currency
of the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, the maximum principal sum
of Three Million Dollars ($3,000,000), or such lesser sum which represents
the aggregate unpaid principal balance hereunder, together with interest
from and after the date hereof on the unpaid principal balance outstanding at
the rates per annum set forth in the Loan Agreement (as defined below).
Interest shall be computed in the manner provided in Section 2 of the Loan
Agreement.
This Term Note (the "Note") is the Term Note referred to in, and is
issued pursuant to, that certain Loan and Security Agreement between Borrower
and Lender dated the date hereof (hereinafter, as amended from time to time,
the "Loan Agreement"), and is entitled to all of the benefits and security of
the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and
are deemed incorporated herein in full. All capitalized terms used herein,
unless otherwise specifically defined in this Note, shall have the meanings
ascribed to them in the Loan Agreement.
The principal amount and accrued interest of this Note shall be due and
payable on the dates and in the manner hereinafter set forth:
(i) Interest on the outstanding principal balance shall be due and
payable monthly, in arrears on the first day of each month, commencing on
August 1, 1997, and continuing until such time as the full principal
balance, tother with all other amounts owing hereunder, shall have been
paid in full.
(ii) The principal amount hereunder shall be due and payable in 48
consecutive monthly installments of principal, on the first day of each
calendar month commencing on September 1, 1997, comprised of 47 equal
consecutive monthly payments of $62,500 each and a final (48th)
installment in an amount equal to the entire remaining principal amount
then outstanding under this Note, together with any and all other amounts
due hereunder.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and
<PAGE>
payable immediately upon acceleration of the Obligations following an Event
of Default under the Loan Agreement or termination of the Loan Agreement
pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment (and prepayment
premium, if applicable) in accordance with the provisions Sections 3.2 and 3.3
of the Loan Agreement. Borrower may also terminate the Loan Agreement and, in
connection with such termination, prepay this Note in the manner and subject
to the conditions provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence under this Note. To the fullest extent permitted
by applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by Lender of any right or remedy preclude any other right or remedy.
Lender, at its option, may enforce its rights against any Collateral securing
this Note without enforcing its rights against Borrower or any other property
or indebtedness due or to become due to Borrower. Borrower agrees that,
without releasing or impairing Borrower's liability hereunder, Lender may at
any time release, surrender, substitute or exchange any Collateral securing
this Note and may at any time release any party primarily or secondarily
liable for the indebtedness evidenced by this Note.
IN ANY LITIGATION ARISING OUT OF OR RELATING TO ANY OF THE MATTERS
CONTAINED IN THIS NOTE OR ANY OF THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH IN WHICH THE LENDER AND BORROWER ARE ADVERSE PARTIES. THE LENDER AND
BORROWER WAIVE TRIAL BY JURY.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered on the date first above written.
ATTEST: JEH ACQUISITION CORP.
[Illegible] By: [Illegible]
- ----------------------------------- ----------------------------------
Title: CEO
-------------------------[SEAL]
3
<PAGE>
REVOLVING CREDIT NOTE
$20,000,000.00 July 8, 1997
FOR VALUE RECEIVED, and intending to be legally bound, JEH Acquisition
Corp. ("Borrower") hereby promises to pay to the order of Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), in such coin or currency
of the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, the maximum principal sum
of Twenty Million ($20,000,000) Dollars or such lesser sum which then
represents the aggregate unpaid principal balance of Revolving Credit Loans,
together with interest from and after the date hereof on the unpaid principal
balance outstanding at the rates per annum set forth in the Loan Agreement
(as defined below). Interest shall be computed in the manner provided in
Section 2 of the Loan Agreement.
This Revolving Credit Note (the "Note") is the Revolving Credit Note
referred to in, and is issued pursuant to, that certain Loan and Security
Agreement between Borrower and Lender, dated the date hereof (as amended from
time to time, the "Loan Agreement"), and is entitled to all of the benefits
and security of the Loan Agreement. All of the terms, covenants and
conditions of the Loan Agreement and the Security Documents are hereby made a
part of this Note and are deemed incorporated herein in full. All capitalized
terms used herein, unless otherwise specifically defined in this Note, shall
have the meanings ascribed to them in the Loan Agreement.
The principal amount and accrued interest of this Note shall be due and
payable on the dates and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in arrears, on the
first day of each month, commencing on August 1, 1997, and continuing until
such time as the full principal balance, together with all other amounts
owing hereunder, shall have been paid in full.
<PAGE>
(b) Principal shall be payable in accordance with the Loan Agreement
and all outstanding principal, together with any and all other amounts
due hereunder, shall be due and payable on the last day of the Original
Term or any Renewal Term of the Loan Agreement.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon
acceleration of the Obligations following an Event of Default under the Loan
Agreement or termination of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to prepayment (and prepayment premium, if
applicable) in accordance with the provisions of Sections 3.2 and 3.3 of the
Loan Agreement. Borrowers may also terminate the Loan Agreement and, in
connection with such termination, prepay this Note in the manner and
subject to the conditions provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence under this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by Lender of any right or remedy preclude any other right or remedy.
Lender, at its option, may enforce its rights against any Collateral
2
<PAGE>
securing this Note without enforcing its rights against Borrower or any other
property or indebtedness due or to become due to Borrower. Borrower agrees
that, without releasing or impairing Borrower's liability hereunder, Lender
may at any time release, surrender, substitute or exchange any Collateral
securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
IN ANY LITIGATION ARISING OUT OF OR RELATING TO ANY OF THE MATTERS
CONTAINED IN THIS NOTE OR ANY OF THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH IN WHICH THE LENDER AND BORROWER ARE ADVERSE PARTIES, THE LENDER AND
BORROWER WAIVE TRIAL BY JURY.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered on the date first above written.
ATTEST: JEH ACQUISITION CORP.
[Illegible] By: [Illegible]
- ------------------------ -------------------------------
Title: CEO (SEAL)
----------------------------
3
<PAGE>
EQUIPMENT NOTE
$1,725,000.00 July 8, 1997
FOR VALUE RECEIVED, and intending to be legally bound, JEH Acquisition
Corp. ("Borrower") hereby promises to pay to the order of Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), in such coin or
currency of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of paymennt, the maximum
principal sum of One Million, Seven Hundred and Twenty-Five Thousand Dollars
($1,725,000.00), or such lesser sum which represents the aggregate unpaid
principal balance hereunder, together with interest from and after the date
hereof on the unpaid principal balance outstanding at the rates per annum set
forth in the Loan Agreement (as defined below). Interest shall be computed in
the manner provided in Section 2 of the Loan Agreement.
This Equipment Note (the "Note") is the Equipment Note referred to in, and
is issued pursuant to, that certain Loan and Security Agreement between
Borrower and Lender dated the date hereof (hereinafter, as amended from time
to time, the "Loan Agreement"), and is entitled to all of the benefits and
security of the Loan Agreement. All of the terms, covenants and conditions
of the Loan Agreement and the Security Documents are hereby made a part of
this Note and are deemed incorporated herein in full. All capitalized terms
used herein, unless otherwise specifically defined in this Note, shall have
the meanings ascribed to them in the Loan Agreement.
The principal amount and accrued interest of this Note shall be due and
payable on the dates and in the manner hereinafter set forth:
(i) Interest on the outstanding principal balance shall be due and
payable monthly, in arrears, on the first day of each month, commencing
on August 1, 1997, and continuing until such time as the full principal
balance, together with all other amounts owing hereunder, shall have
been paid in full.
(ii) The principal amount hereunder shall be due and payable in equal
consecutive monthly installments of principal based on an 84 month
amortization
<PAGE>
schedule, on the first day of each calendar month commencing on
September 1, 1997.
(iii) The entire remaining principal amount then outstanding under
this Note, together with any and all other amounts due hereunder, shall
be due and payable upon the earlier to occur of August 1, 2004 or the
end of the Original Term or any Renewal Term of the Loan Agreement.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon
acceleration of the Obligations following an Event of Default under the Loan
Agreement or termination of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment (and prepayment
premium, if applicable) in accordance with the provisions of Sections 3.2
and 3.3 of the Loan Agreement. Borrower may also terminate the Loan Agreement
and, in connection with such termination, prepay this Note in the manner and
subject to the conditions provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence under this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall
2
<PAGE>
operate as a waiver thereof, nor as an acquiescence in any default, nor shall
any single or partial exercise by Lender of any right or remedy preclude any
other right or remedy. Lender, at its option, may enforce its rights against
any Collateral securing this Note without enforcing its rights against
Borrower or any other property or indebtedness due or to become due to
Borrower. Borrower agrees that, without releasing or impairing Borrower's
liability hereunder, Lender may at any time release, surrender, substitute or
exchange any Collateral securing this Note and may at any time release any
party primarily or secondarily liable for the indebtedness evidenced by this
Note.
IN ANY LITIGATION ARISING OUT OF OR RELATING TO ANY OF THE MATTERS
CONTAINED IN THIS NOTE OR ANY OF THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH IN WHICH THE LENDER AND BORROWER ARE ADVERSE PARTIES, THE LENDER AND
BORROWER WAIVE TRIAL BY JURY.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered on the date first above written.
ATTEST JEH ACQUISITION CORP.
[Illegible] By: /s/ Douglas P. Fields
- ----------------------------------- -----------------------------------
Title: CEO
---------------------------[SEAL]
3
<PAGE>
REVOLVING CREDIT NOTE
$20,000,000.00 July 8, 1997
FOR VALUE RECEIVED, and intending to be legally bound, JEH Acquisition
Corp. ("Borrower") hereby promises to pay to the order of Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), in such coin or currency
of the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, the maximum principal sum
of Twenty Million ($20,000,000) Dollars or such lesser sum which then
represents the aggregate unpaid principal balance of Revolving Credit Loans,
together with interest from and after the date hereof on the unpaid principal
balance outstanding at the rates per annum set forth in the Loan Agreement
(as defined below). Interest shall be computed in the manner provided in
Section 2 of the Loan Agreement.
This Revolving Credit Note (the "Note") is the Revolving Credit Note
referred to in, and is issued pursuant to, that certain Loan and Security
Agreement between Borrower and Lender, dated the date hereof (as amended from
time to time, the "Loan Agreement"), and is entitled to all of the benefits
and security of the Loan Agreement. All of the terms, covenants and
conditions of the Loan Agreement and the Security Documents are hereby made a
part of this Note and are deemed incorporated herein in full. All capitalized
terms used herein, unless otherwise specifically defined in this Note, shall
have the meanings ascribed to them in the Loan Agreement.
The principal amount and accrued interest of this Note shall be due and
payable on the dates and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in arrears, on the
first day of each month, commencing on August 1, 1997, and continuing until
such time as the full principal balance, together with all other amounts
owing hereunder, shall have been paid in full.
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
DOUGLAS P. FIELDS
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 1,
1997, by JEH ACQUISITION CORP., a Delaware Corporation (the "Company"), and
DOUGLAS P. FIELDS, an individual resident in Greenwich, Connecticut (the
"Executive").
WHEREAS, the Company is engaged principally in the business of the
distribution of roofing supplies and related products; and
WHEREAS, the Company intends to seek acquisition candidates engaged
in the wholesale distribution of roofing supplies and related products and
vendors or suppliers to such distribution businesses and businesses related
thereto; and
WHEREAS, the Company is acquiring, pursuant to that certain Asset
Purchase Agreement by and among the Company as "Buyer", JEH Company, a Texas
corporation, as "Seller", and James E. Helzer as "Shareholder" of Seller,
dated July 8, 1997 (the "Asset Purchase Agreement"), substantially all of the
assets of Seller, including Seller's business operations in Texas, Colorado
and Indiana (the "Acquisition"); and
WHEREAS, the Company desires to employ the Executive as its Chairman
of the Board of Directors and Chief Executive Officer; and
WHEREAS, Company acknowledges that Executive is a party to an
employment agreement with TDA Industries, Inc. ("TDA") which has been assumed
by Pemberton Services Corp. ("PSC"); and
WHEREAS, Executive is willing to accept such employment by the
Company, all in accordance with the conditions and other provisions
hereinafter set forth and the acknowledgment, approval and consent of TDA and
PSC as indicated by their acknowledgment, approval and consent as set forth
at the foot of this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual
representations, covenants, and agreements set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree, effective upon the
consummation of the Acquisition, as follows:
1. TERM. Subject to and conditioned upon TDA's and PSC's
acknowledgment, approval and consent to Executive's entering into this
Agreement and TDA's and PSC's acknowledgement that this Agreement shall not
be deemed to be a violation of any of the terms
<PAGE>
and conditions of Executive's agreements with TDA and PSC, the term of this
Agreement shall be for a period of five (5) years commencing on the
consummation of the Acquisition and terminating on the fifth anniversary date
of the consummation of the Acquisition, subject to earlier termination as
provided herein or unless extended by mutual consent of the parties.
2. EMPLOYMENT.
(A) Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company hereby agrees to employ
Executive for and during the term of this Agreement. Executive is hereby
employed by the Company as the Chairman of the Board of Directors and Chief
Executive Officer of the Company. The Executive's powers and duties shall be
those of an executive nature which are appropriate for a Chairman of the
Board of Directors and Chief Executive Officer in accordance with the
Company's bylaws; and Executive does hereby accept such employment or greater
employment as may be mutually agreed upon by the parties hereto and agrees to
devote as much time to the affairs of the Company as Executive deems
necessary to discharge his duties to Company during the term of this
Agreement. Executive shall report to the Board of Directors of the Company.
The Company shall not require Executive to be employed in any location other
than in proximity to his residence unless he consents in writing to such
location.
(B) During the term of this Agreement, Executive shall be
furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
prerequisites customarily associated with the position of Chairman of the
Board of Directors and Chief Executive Officer of the Company.
(C) During the term of this Agreement, the Company shall be
responsible (i) to pay to Executive the compensation set forth in Section 3;
(ii) reimburse Executive for expenses as provided in Section 4; and (iii)
provide Executive with the benefits and vacation set forth in Section 5.
(D) Executive agrees to submit to any medical
examination(s) and provide any information and documents reasonably necessary
for the Company to obtain any insurance required by this Agreement and "Key
Man" life insurance on the Executive's life.
3. COMPENSATION.
(A) SALARY. During the term of this Agreement, the Company
agrees to pay Executive, and Executive agrees to accept, an annual salary of
not less than Sixty Thousand Dollars ($60,000) per year, payable $5,000 per
month in accordance with the Company's policies, for services rendered by
Executive hereunder.
(B) BONUS. As additional compensation, the Company may pay
Executive a periodic bonus as determined by the Board of Directors.
-2-
<PAGE>
(C) INCREASES. The annual salary is subject to periodic
increases at the discretion of the Board of Directors with such increases to
take effect no later than on each anniversary date of this Agreement.
4. EXPENSES. The Company shall reimburse Executive for all
reasonable and actual business expenses incurred by him in connection with
his service to the Company, upon submission by him or appropriate vouchers
and expense account reports.
5. BENEFITS.
(A) INSURANCE. In addition to the salary and bonus to be
paid to Executive hereunder, the Company shall maintain family medical and
dental insurance, life insurance in the amount of not less than Fifty
Thousand Dollars ($50,000) on the life of Executive and for which Executive
shall designate the beneficiary(ies), and long term disability insurance
providing monthly disability benefits to Executive of not less than Five
Thousand Dollars ($5,000). Executive and his dependents shall be entitled to
participate in such other benefits as are extended to active executive
employees of the Company and their dependents including but not limited to
pension, retirement, profit-sharing, 401(k), stock option, bonus and
incentive plans, group insurance, hospitalization, medical or other benefits
made available by the Company to its employees generally.
(B) VACATION. Executive shall be entitled to take up to
four (4) weeks of paid vacation annually at a time mutually convenient to the
Company and Executive.
6. RESTRICTIVE COVENANTS.
(A) Except in the ordinary course of his duties as Chairman
of the Board of Directors and Chief Executive Officer, or in the furtherance
of the business of the Company, during the period from the date of this
Agreement until sixty (60) days following the date on which his employment
with the Company is lawfully and properly terminated, Executive will not,
directly or indirectly:
(i) persuade or attempt to persuade any person or entity which
is or was a customer, client or supplier of the Company on the
date on which Executive's employment with the Company is
terminated to cease doing business with the Company, or to
reduce the amount of business it does with the Company;
(ii) solicit for himself or any other person or entity other
than the Company the business of any person or entity which is
a customer or client of the Company, or was a customer or
client within six (6) months prior to the termination of his
employment by the Company, with respect to the distribution of
roofing supplies and related products; or
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<PAGE>
(iii) persuade or attempt to persuade any employee of the
Company, or any individual who was an employee of the Company
during the six (6) month period prior to the lawful and proper
termination of this Agreement, to leave the Company's employ,
or to become employed by any person or entity other than the
Company.
(B) Executive acknowledges that the restrictive covenants
(the "Restrictive Covenants") contained in this Section 6 are a condition of
his employment and are reasonable and valid in geographical and temporal
scope and in all other respects. If any court determines that any of the
Restrictive Covenants, or any part of any of the Restrictive Covenants is
invalid or unenforceable, the remainder of the Restrictive Covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court
shall have the power to reduce the geographic or temporal scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
(C) If Executive breaches, or threatens to breach, any of
the Restrictive Covenants, the Company, in addition to and not in lieu of any
other rights and remedies it may have at law or in equity, shall have the
right to injunctive relief; it being acknowledged and agreed to by Executive
that any such breach or threatened breach would cause irreparable and
continuing injury to the Company and that money damages would not provide an
adequate remedy to the Company.
7. TERMINATION.
(A) DEATH. In the event of Executive's death ("Death")
during the term of his employment, Executive's designated beneficiary(ies),
or in the absence of such beneficiary designation, his estate shall be
entitled to payment of Executive's salary from date of Death to the
expiration of one (1) year thereafter. In addition, Executive's
beneficiary(ies) and/or dependents shall be entitled, for the same one year
period, to continuation, at the Company's expense, of such benefits as are
then being provided to them under Section 5(A) hereof, and any additional
benefits as may be provided to dependents of the Company's executive officers
in accordance with the terms of the Company's policies and practices. In
addition, any options granted to Executive which have not, by the terms of
the options, vested shall be deemed to have vested as of the date of his
Death and shall thereafter be exercisable by Executive's beneficiary(ies) or
estate for the maximum period of time allowed for exercise thereof under the
terms of such options.
(B) DISABILITY.
(i) In the event Executive, by reason of physical or mental
incapacity, shall be disabled ("Disability") for a period of at least one (1)
year, the Company shall have the option at any time thereafter to terminate
Executive's employment hereunder for Disability. Such
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<PAGE>
termination will be effective thirty (30) days after the Board of Directors
of Company gives written notice of such termination to Executive, unless
Executive shall have returned to the performance of his duties prior to the
effective date of the notice. All obligations of the Company hereunder shall
cease upon the effectiveness of such termination, provided that such
termination shall not affect or impair any rights Executive may have under
any policy of long term disability insurance or benefits then maintained on
his behalf by the Company. In addition, for a period of one (1) year
following termination of Executive's employment for Disability, Executive and
his dependents, as the case may be, shall continue to receive the benefits
set forth under Section 3(A) and 5(A) hereof, as well as such benefits as are
extended to the Company's active executive employees and their dependents
during such period. Any options granted to the Executive which have not, by
the terms of the options, vested shall be deemed to have vested at the
termination and shall thereafter be exercisable by the Executive, his
beneficiary(ies), conservator or estate, as applicable, for the maximum
period of time allowed for exercise thereof under the terms of such options.
(ii) "Incapacity" as used herein shall mean the inability
of the Executive due to physical or mental illness, injury or disease to
perform his normal duties as Chairman of the Board of Directors and Chief
Executive Officer. Executive's salary as provided for hereunder shall
continue to be paid during any period of incapacity prior to and including
the date on which Executive's employment is terminated for Disability and for
one (1) year following termination for Disability in accordance with Section
7(B)(i).
(C) BY THE COMPANY FOR CAUSE.
(i) The Company shall have the right, before the expiration
of the term of this Agreement, to terminate this Agreement and to discharge
Executive for cause (hereinafter "Cause"), and all compensation to Executive
shall cease to accrue upon discharge of Executive for Cause. For the purposes
of this Agreement, the term "Cause" shall mean (i) Executive's conviction,
after the date hereof, of a felony; (ii) the alcoholism or drug addition of
Executive; (iii) gross negligence or willful misconduct of Executive in
connection with his duties hereunder; or (iv) the determination by any
regulatory or judicial authority (including any securities self-regulatory
organization) that Executive knowingly and directly violated during the
period beginning ten (10) years before or after the date hereof, any federal
or state securities law, or any rule or regulation adopted thereunder.
(ii) If the Company elects to terminate Executive's
employment for Cause under Section 7(C)(i) above, such termination shall be
effective fifteen (15) days after the Company gives written notice of such
termination to Executive. In the event of a termination of Executive's
employment for Cause in accordance with the provisions of Section 7(C)(i),
the Company shall have no further obligation to the Executive, except for the
payment of all compensation and other vested benefits which have accrued
through the date of such termination and not been paid and any other benefits
to which he or his dependents may be entitled by law.
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<PAGE>
(D) BY EXECUTIVE FOR REASON. Executive shall have the right
to terminate his employment at any time for reason (herein designated and
referred to as "Reason"). The term Reason shall mean (i) the failure to elect
or appoint, or re-elect or re-appoint, Executive to, or removal or improperly
attempted removal of Executive from, his positions as Chairman of the Board
of Directors or Chief Executive Officer with the Company, except in
connection with the proper termination of Executive's employment by reason of
Cause, Death or Disability; (ii) a reduction in Executive's overall
compensation other than his discretionary bonus under Section 3(B) above or
an adverse change in the nature or scope of the authorities, powers,
functions or duties normally attached to the Executive's position with the
Company; (iii) the Company's failure or refusal to perform any obligation
required to be performed in accordance with this Agreement after a reasonable
notice and an opportunity to cure same; or (iv) a Change in Control of the
Company, as defined herein.
(E) SEVERANCE.
(i) In the event Executive's employment hereunder shall be
terminated by the Executive for Reason or by the Company for other than
Cause, Death or Disability: (a) the Executive shall thereupon receive as
severance pay in a lump sum the amount of salary and bonuses which the
Executive would have received for the remaining term of this Agreement had
there been no termination, provided however, that in no event shall such lump
sum payment be less than two years' salary and bonus; and (b) the Executive's
(and his dependents') participation in any and all life, disability, medical
and dental insurance plans shall be continued, or equivalent benefits
provided to him or them by the Company, at no cost to him or them, for a
period of two years from such termination; and (c) any options granted to
Executive which have not, by the terms of the options, vested shall be deemed
to have vested at the termination and shall thereafter be exercisable for the
maximum period of time allowed for exercise thereof under the terms of such
options;
(ii) An election by Executive to terminate his employment
under the provisions of this Section 7 shall not be deemed a voluntary
termination of employment of Executive for the purpose of interpreting the
provisions of any of the Company's employment benefit plans, programs or
policies.
(F) RESIGNATION. In the even Executive resigns without
Reason prior to the expiration hereof, he shall receive any unpaid fixed
salary through such resignation date and such benefits to which he is entitle
by law.
(G) EXTENSION OF BENEFITS. Any extension of benefits
following the termination of employment provided for herein shall be deemed
to be in addition to, and not in lieu of, any period for the continuation of
benefits provided for by law, either at the Company's, Executive's, or his
dependents' expense.
(H) CHANGE IN CONTROL. For purposes hereof, a Change in
Control shall be deemed to have occurred (i) if there has occurred a "change
in control" as such term is used in
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Item 1(a) of Form 8-K promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or (ii) if there has occurred a change in
control as the term "control" is defined in Rule 12b-2 promulgated under the
Exchange Act.
8. INDEMNIFICATION. The Company hereby indemnifies and holds Executive
harmless to the extent of any and all claims, suits, proceedings, damages,
losses or liabilities incurred by Executive and arising out of any acts or
decisions done or made in the authorized scope of his employment hereunder.
The Company hereby agrees to pay all expenses, including reasonable
attorney's fees, actually incurred by Executive in connection with the
investigation of any such matter, the defense of any such action, suit or
proceeding and in connection with any appeal thereon including the costs of
settlements. Nothing contained herein shall entitle Executive to
indemnification by the Company in excess of that permitted under applicable
law.
9. WAIVER. No delay or omission to exercise any right, power or
remedy accruing to any party hereto shall impair any such right, power or
remedy or shall be construed to be a waiver of or an acquiescence to any
breach hereof. No waiver of any breach hereof shall be deemed to be a waiver
of any other breach hereof theretofore or thereafter occurring. Any waiver of
any provision hereof shall be effective only to the extent specifically set
forth in an applicable writing. All remedies afforded to any party under this
Agreement, by law or otherwise, shall be cumulative and not alternative and
shall not preclude assertion by such party of any other rights or the seeking
of any other rights or remedies against any other party.
10. GOVERNING LAW. The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without regard to the
principles of conflicts of law and the actual domiciles of the parties hereto.
11. NOTICES. All notices, demands or other communications required
or permitted to be given in connection with this Agreement shall be given in
writing, shall be transmitted to the appropriate party by hand delivery, by
certified mail, return receipt requested, postage prepaid, or by overnight
courier and shall be addressed to a party at the address given below. A party
may designate by written notice given to the other party a new address to
which any notice, demand or other communication hereunder shall thereafter be
given. Each notice, demand or other communication transmitted in the manner
described in this Section 11 shall be deemed to have been given and received
for all purposes at the time it shall have been (i) delivered to the
addresses as indicated by the return receipt (if transmitted by mail) or the
affidavit of the messenger (if transmitted by hand delivery or overnight
courier), or (ii) presented for delivery during normal business hours, if
such delivery shall not have been accepted for any reason.
If to Executive: Douglas P. Fields
100 Midwood Road
Greenwich, Connecticut 06830
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<PAGE>
If to Company: JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 East 42nd Street, Suite 1116
New York, NY 10168
12. ASSIGNMENTS. This Agreement shall be binding upon and inure to
the benefit of the parties and each of their respective successors, assigns,
heirs and legal representatives; provided, however, that Executive may not
assign or delegate his obligations, responsibilities and duties hereunder
except as permitted by the Company's bylaws, custom, practice, policies or
the Board of Directors. The Company may not assign this Agreement without the
prior written consent of the Executive.
13. MISCELLANEOUS. This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written
agreements or understandings between them with respect to the subject matter
hereof. No modification or addition hereto or waiver or cancellation of any
provision shall be valid except by a writing signed by the party to be
charged therewith.
14. OBLIGATIONS OF A CONTINUING NATURE. It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed upon Executive and the Company hereunder, which are stated to exist
or continue after termination of Executive's employment with the Company,
shall exist and continue irrespective of the method or circumstances of such
termination for the respective periods of time set forth herein.
15. SEVERABILITY. The parties agree that if any of the covenants,
agreements or restrictions contained herein are held to be invalid by any
court of competent jurisdiction, the remainder of the other covenants,
agreements, restrictions and parts thereof herein contained shall be
severable so as not to invalidate any others, and such other covenants,
agreements, restrictions and parts thereof shall be given full effect without
regard to the invalid covenant, agreement, restriction or part thereof.
16. VENUE AND JURISDICTION. The Company and the Executive hereby
agree that any action, proceeding or claim against any of them arising out of
or relating in any way to this Agreement shall be brought and enforced in any
of the courts of the State of New York in New York County, New York, or the
United States District Court for the Southern District of New York, and
irrevocably submit to such jurisdiction. The Company and the Executive hereby
waive any objection to such jurisdiction and that such courts represent an
inconvenient forum. The Company and the Executive hereby waive the right to a
trial by jury in any action, proceeding or claim against either of them
arising out of or relating in any way to this Agreement. Any process or
summons to be served upon the Company or the Executive may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to its or his respective address set
forth in Section 11 of this Agreement or such other address as a party may so
notify the other party hereto in the manner
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<PAGE>
provided by Section 11 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the Company and the Executive in any
action, proceedings or claim.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
JEH ACQUISITION CORP.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
/s/ Douglas P. Fields
--------------------------
Douglas P. Fields, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED
TDA INDUSTRIES, INC.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
PEMBERTON SERVICES CORP.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
DOUGLAS P. FIELDS
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "First
Amendment") is made effective as of the 30th day of April, 1998, by
JEH/EAGLE SUPPLY, INC., a Delaware Corporation, formerly known as JEH
Acquisition Corp. (the "Company"), and DOUGLAS P. FIELDS, an individual
resident in Greenwich, Connecticut (the "Executive"), amending that certain
Employment Agreement between the parties dated as of July 1, 1997 (the
"Agreement").
1. Section 3 (A) of the Agreement is amended in its entirety to read
as follows:
(A) SALARY. Commencing upon the closing of the proposed
initial public offering of securities of Eagle Supply Group, Inc., a
Delaware Corporation ("ESG"), and the consummation of the sale and
transfer of the Company to ESG, and during the remaining term of the
Agreement, the Company shall pay Executive, and Executive agrees to
accept, an annual salary of not less than Sixty Thousand Dollars
($60,000) per year, payable Five Thousand Dollars ($5,000) per month in
accordance with the Company's policies, for services rendered by
Executive hereunder.
2. Except for this First Amendment, the Agreement remains unchanged,
and is in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
as of the day and year first above written.
JEH/EAGLE SUPPLY, INC.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
/s/ Douglas P. Fields
--------------------------
Douglas P. Fields, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED
TDA INDUSTRIES, INC.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
PEMBERTON SERVICES CORP.
By: /s/ Frederick M. Friedman
--------------------------
Frederick M. Friedman,
Executive Vice President
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
FREDERICK M. FRIEDMAN
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 1,
1997, by JEH ACQUISITION CORP., a Delaware Corporation (the "Company"), and
FREDERICK M. FRIEDMAN, an individual resident in New York, New York (the
"Executive").
WHEREAS, the Company is engaged principally in the business of the
distribution of roofing supplies and related products; and
WHEREAS, the Company intends to seek acquisition candidates engaged
in the wholesale distribution of roofing supplies and related products and
vendors or suppliers to such distribution businesses and businesses related
thereto; and
WHEREAS, the Company is acquiring, pursuant to that certain Asset
Purchase Agreement by and among the Company as "Buyer", JEH Company, a Texas
corporation, as "Seller", and James E. Helzer as "Shareholder" of Seller,
dated July 8, 1997 (the "Asset Purchase Agreement"), substantially all of the
assets of Seller, including Seller's business operations in Texas, Colorado
and Indiana (the "Acquisition"); and
WHEREAS, the Company desires to employ the Executive as its
Executive Vice President, Chief Financial Officer, Secretary and Treasurer;
and
WHEREAS, Company acknowledges that Executive is a party to an
employment agreement with TDA Industries, Inc. ("TDA") which has been assumed
by Pemberton Services Corp. ("PSC"); and
WHEREAS, Executive is willing to accept such employment by the
Company, all in accordance with the conditions and other provisions
hereinafter set forth and the acknowledgment, approval and consent of TDA and
PSC as indicated by their acknowledgment, approval and consent as set forth
at the foot of this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual
representations, covenants, and agreements set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree, effective upon the
consummation of the Acquisition, as follows:
1. TERM. Subject to and conditioned upon TDA's and PSC's
acknowledgment, approval and consent to Executive's entering into this
Agreement and TDA's and PSC's acknowledgement that this Agreement shall not
be deemed to be a violation of any of the terms and conditions of Executive's
agreements with TDA and PSC, the term of this Agreement shall
<PAGE>
be for a period of five (5) years commencing on the consummation of the
Acquisition and terminating on the fifth anniversary date of the consummation of
the Acquisition, subject to earlier termination as provided herein or unless
extended by mutual consent of the parties.
2. EMPLOYMENT.
(A) Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company hereby agrees to employ
Executive for and during the term of this Agreement. Executive is hereby
employed by the Company as Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company. The Executive's powers and duties
shall be those of an executive nature which are appropriate for an Executive
Vice President, Chief Financial Officer, Secretary and Treasurer in
accordance with the Company's bylaws; and Executive does hereby accept such
employment or greater employment as may be mutually agreed upon by the
parties hereto and agrees to devote as much time to the affairs of the
Company as Executive deems necessary to discharge his duties to Company
during the term of this Agreement. Executive shall report to the Board of
Directors of the Company. The Company shall not require Executive to be
employed in any location other than in proximity to his residence unless he
consents in writing to such location.
(B) During the term of this Agreement, Executive shall be
furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
prerequisites customarily associated with the position of Executive Vice
President and Chief Financial Officer of the Company.
(C) During the term of this Agreement, the Company shall be
responsible (i) to pay to Executive the compensation set forth in Section 3;
(ii) reimburse Executive for expenses as provided in Section 4; and (iii)
provide Executive with the benefits and vacation set forth in Section 5.
(D) Executive agrees to submit to any medical examination(s)
and provide any information and documents reasonably necessary for the
Company to obtain any insurance required by this Agreement and "Key Man" life
insurance on the Executive's life.
3. COMPENSATION.
(A) SALARY. During the term of this Agreement, the Company
agrees to pay Executive, and Executive agrees to accept, an annual salary of
not less than Sixty Thousand Dollars ($60,000) per year, payable $5,000 per
month in accordance with the Company's policies, for services rendered by
Executive hereunder.
(B) BONUS. As additional compensation, the Company may pay
Executive a periodic bonus as determined by the Board of Directors.
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(C) INCREASES. The annual salary is subject to periodic
increases at the discretion of the Board of Directors with such increases to
take effect no later than on each anniversary date of this Agreement.
4. EXPENSES. The Company shall reimburse Executive for all
reasonable and actual business expenses incurred by him in connection with
his service to the Company, upon submission by him or appropriate vouchers
and expense account reports.
5. BENEFITS.
(A) INSURANCE. In addition to the salary and bonus to be paid
to Executive hereunder, the Company shall maintain family medical and dental
insurance, life insurance in the amount of not less than Fifty Thousand
Dollars ($50,000) on the life of Executive and for which Executive shall
designate the beneficiary(ies), and long term disability insurance providing
monthly disability benefits to Executive of not less than Five Thousand
Dollars ($5,000). Executive and his dependents shall be entitled to
participate in such other benefits as are extended to active executive
employees of the Company and their dependents including but not limited to
pension, retirement, profit-sharing, 401(k), stock option, bonus and
incentive plans, group insurance, hospitalization, medical or other benefits
made available by the Company to its employees generally.
(B) VACATION. Executive shall be entitled to take up to four
(4) weeks of paid vacation annually at a time mutually convenient to the
Company and Executive.
6. RESTRICTIVE COVENANTS.
(A) Except in the ordinary course of his duties as Executive
Vice President, Chief Financial Officer, Secretary or Treasurer, or in the
furtherance of the business of the Company, during the period from the date
of this Agreement until sixty (60) days following the date on which his
employment with the Company is lawfully and properly terminated, Executive
will not, directly or indirectly:
(i) persuade or attempt to persuade any person or entity
which is or was a customer, client or supplier of the Company on
the date on which Executive's employment with the Company is
terminated to cease doing business with the Company, or to
reduce the amount of business it does with the Company;
(ii) solicit for himself or any other person or entity other
than the Company the business of any person or entity which is a
customer or client of the Company, or was a customer or client
within six (6) months prior to the termination of his employment
by the Company, with respect to the distribution of roofing
supplies and related products; or
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<PAGE>
(iii) persuade or attempt to persuade any employee of the
Company, or any individual who was an employee of the Company
during the six (6) month period prior to the lawful and proper
termination of this Agreement, to leave the Company's employ, or
to become employed by any person or entity other than the
Company.
(B) Executive acknowledges that the restrictive covenants (the
"Restrictive Covenants") contained in this Section 6 are a condition of his
employment and are reasonable and valid in geographical and temporal scope
and in all other respects. If any court determines that any of the
Restrictive Covenants, or any part of any of the Restrictive Covenants is
invalid or unenforceable, the remainder of the Restrictive Covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court
shall have the power to reduce the geographic or temporal scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
(C) If Executive breaches, or threatens to breach, any of the
Restrictive Covenants, the Company, in addition to and not in lieu of any
other rights and remedies it may have at law or in equity, shall have the
right to injunctive relief; it being acknowledged and agreed to by Executive
that any such breach or threatened breach would cause irreparable and
continuing injury to the Company and that money damages would not provide an
adequate remedy to the Company.
7. TERMINATION.
(A) DEATH. In the event of Executive's death ("Death") during
the term of his employment, Executive's designated beneficiary(ies), or in
the absence of such beneficiary designation, his estate shall be entitled to
payment of Executive's salary from date of Death to the expiration of one (1)
year thereafter. In addition, Executive's beneficiary(ies) and/or dependents
shall be entitled, for the same one year period, to continuation, at the
Company's expense, of such benefits as are then being provided to them under
Section 5(A) hereof, and any additional benefits as may be provided to
dependents of the Company's executive officers in accordance with the terms
of the Company's policies and practices. In addition, any options granted to
Executive which have not, by the terms of the options, vested shall be deemed
to have vested as of the date of his Death and shall thereafter be
exercisable by Executive's beneficiary(ies) or estate for the maximum period
of time allowed for exercise thereof under the terms of such options.
(B) DISABILITY.
(i) In the event Executive, by reason of physical or mental
incapacity, shall be disabled ("Disability") for a period of at least one (1)
year, the Company shall have the option at any time thereafter to terminate
Executive's employment hereunder for Disability. Such
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<PAGE>
termination will be effective thirty (30) days after the Board of Directors
of Company gives written notice of such termination to Executive, unless
Executive shall have returned to the performance of his duties prior to the
effective date of the notice. All obligations of the Company hereunder shall
cease upon the effectiveness of such termination, provided that such
termination shall not affect or impair any rights Executive may have under
any policy of long term disability insurance or benefits then maintained on
his behalf by the Company. In addition, for a period of one (1) year
following termination of Executive's employment for Disability, Executive and
his dependents, as the case may be, shall continue to receive the benefits
set forth under Section 3(A) and 5(A) hereof, as well as such benefits as are
extended to the Company's active executive employees and their dependents
during such period. Any options granted to the Executive which have not, by
the terms of the options, vested shall be deemed to have vested at the
termination and shall thereafter be exercisable by the Executive, his
beneficiary(ies), conservator or estate, as applicable, for the maximum
period of time allowed for exercise thereof under the terms of such options.
(ii) "Incapacity" as used herein shall mean the inability of
the Executive due to physical or mental illness, injury or disease to perform
the essential functions of Executive's duties under this Agreement.
Executive's salary as provided for hereunder shall continue to be paid during
any period of incapacity prior to and including the date on which Executive's
employment is terminated for Disability and for one (1) year following
termination for Disability in accordance with Section 7(B)(i).
(C) BY THE COMPANY FOR CAUSE.
(i) The Company shall have the right, before the expiration
of the term of this Agreement, to terminate this Agreement and to discharge
Executive for cause (hereinafter "Cause"), and all compensation to Executive
shall cease to accrue upon discharge of Executive for Cause. For the purposes
of this Agreement, the term "Cause" shall mean (i) Executive's conviction,
after the date hereof, of a felony; (ii) the alcoholism or drug addition of
Executive; (iii) gross negligence or willful misconduct of Executive in
connection with his duties hereunder; or (iv) the determination by any
regulatory or judicial authority (including any securities self-regulatory
organization) that Executive knowingly and directly violated during the
period beginning ten (10) years before or after the date hereof, any federal
or state securities law, or any rule or regulation adopted thereunder.
(ii) If the Company elects to terminate Executive's employment
for Cause under Section 7(C)(i) above, such termination shall be effective
fifteen (15) days after the Company gives written notice of such termination
to Executive. In the event of a termination of Executive's employment for
Cause in accordance with the provisions of Section 7(C)(i), the Company shall
have no further obligation to the Executive, except for the payment of all
compensation and other vested benefits which have accrued through the date of
such termination and not been paid and any other benefits to which he or his
dependents may be entitled by law.
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(D) BY EXECUTIVE FOR REASON. Executive shall have the right to
terminate his employment at any time for reason (herein designated and
referred to as "Reason"). The term Reason shall mean (i) the failure to elect
or appoint, or re-elect or re-appoint, Executive to, or removal or improperly
attempted removal of Executive from, his positions as Executive Vice
President, Chief Financial Officer, Secretary or Treasurer with the Company,
except in connection with the proper termination of Executive's employment by
reason of Cause, Death or Disability; (ii) a reduction in Executive's overall
compensation other than his discretionary bonus under Section 3(B) above or
an adverse change in the nature or scope of the authorities, powers,
functions or duties normally attached to the Executive's position with the
Company; (iii) the Company's failure or refusal to perform any obligation
required to be performed in accordance with this Agreement after a reasonable
notice and an opportunity to cure same; or (iv) a Change in Control of the
Company, as defined herein.
(E) SEVERANCE.
(i) In the event Executive's employment hereunder shall be
terminated by the Executive for Reason or by the Company for other than
Cause, Death or Disability: (a) the Executive shall thereupon receive as
severance pay in a lump sum the amount of salary and bonuses which the
Executive would have received for the remaining term of this Agreement had
there been no termination, provided however, that in no event shall such lump
sum payment be less than two years' salary and bonus; and (b) the Executive's
(and his dependents') participation in any and all life, disability, medical
and dental insurance plans shall be continued, or equivalent benefits
provided to him or them by the Company, at no cost to him or them, for a
period of two years from such termination; and (c) any options granted to
Executive which have not, by the terms of the options, vested shall be deemed
to have vested at the termination and shall thereafter be exercisable for the
maximum period of time allowed for exercise thereof under the terms of such
options;
(ii) An election by Executive to terminate his employment
under the provisions of this Section 7 shall not be deemed a voluntary
termination of employment of Executive for the purpose of interpreting the
provisions of any of the Company's employment benefit plans, programs or
policies.
(F) RESIGNATION. In the even Executive resigns without Reason
prior to the expiration hereof, he shall receive any unpaid fixed salary
through such resignation date and such benefits to which he is entitle by law.
(G) EXTENSION OF BENEFITS. Any extension of benefits following
the termination of employment provided for herein shall be deemed to be in
addition to, and not in lieu of, any period for the continuation of benefits
provided for by law, either at the Company's, Executive's, or his dependents'
expense.
(H) CHANGE IN CONTROL. For purposes hereof, a Change in
Control shall be deemed to have occurred (i) if there has occurred a "change
in control" as such term is used in
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<PAGE>
Item 1(a) of Form 8-K promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or (ii) if there has occurred a change in
control as the term "control" is defined in Rule 12b-2 promulgated under the
Exchange Act.
8. INDEMNIFICATION. The Company hereby indemnifies and holds
Executive harmless to the extent of any and all claims, suits, proceedings,
damages, losses or liabilities incurred by Executive and arising out of any
acts or decisions done or made in the authorized scope of his employment
hereunder. The Company hereby agrees to pay all expenses, including
reasonable attorney's fees, actually incurred by Executive in connection with
the investigation of any such matter, the defense of any such action, suit or
proceeding and in connection with any appeal thereon including the costs of
settlements. Nothing contained herein shall entitle Executive to
indemnification by the Company in excess of that permitted under applicable
law.
9. WAIVER. No delay or omission to exercise any right, power or
remedy accruing to any party hereto shall impair any such right, power or
remedy or shall be construed to be a waiver of or an acquiescence to any
breach hereof. No waiver of any breach hereof shall be deemed to be a waiver
of any other breach hereof theretofore or thereafter occurring. Any waiver of
any provision hereof shall be effective only to the extent specifically set
forth in an applicable writing. All remedies afforded to any party under this
Agreement, by law or otherwise, shall be cumulative and not alternative and
shall not preclude assertion by such party of any other rights or the seeking
of any other rights or remedies against any other party.
10. GOVERNING LAW. The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without regard to the
principles of conflicts of law and the actual domiciles of the parties hereto.
11. NOTICES. All notices, demands or other communications required
or permitted to be given in connection with this Agreement shall be given in
writing, shall be transmitted to the appropriate party by hand delivery, by
certified mail, return receipt requested, postage prepaid, or by overnight
courier and shall be addressed to a party at the address given below. A party
may designate by written notice given to the other party a new address to
which any notice, demand or other communication hereunder shall thereafter be
given. Each notice, demand or other communication transmitted in the manner
described in this Section 11 shall be deemed to have been given and received
for all purposes at the time it shall have been (i) delivered to the
addresses as indicated by the return receipt (if transmitted by mail) or the
affidavit of the messenger (if transmitted by hand delivery or overnight
courier), or (ii) presented for delivery during normal business hours, if
such delivery shall not have been accepted for any reason.
If to Executive: Frederick M. Friedman
122 East 42nd Street, Suite 1116
New York, New York 10168
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<PAGE>
If to Company: JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 East 42nd Street, Suite 1116
New York, NY 10168
12. ASSIGNMENTS. This Agreement shall be binding upon and inure to
the benefit of the parties and each of their respective successors, assigns,
heirs and legal representatives; provided, however, that Executive may not
assign or delegate his obligations, responsibilities and duties hereunder
except as permitted by the Company's bylaws, custom, practice, policies or
the Board of Directors. The Company may not assign this Agreement without the
prior written consent of the Executive.
13. MISCELLANEOUS. This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written
agreements or understandings between them with respect to the subject matter
hereof. No modification or addition hereto or waiver or cancellation of any
provision shall be valid except by a writing signed by the party to be
charged therewith.
14. OBLIGATIONS OF A CONTINUING NATURE. It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed upon Executive and the Company hereunder, which are stated to exist
or continue after termination of Executive's employment with the Company,
shall exist and continue irrespective of the method or circumstances of such
termination for the respective periods of time set forth herein.
15. SEVERABILITY. The parties agree that if any of the covenants,
agreements or restrictions contained herein are held to be invalid by any
court of competent jurisdiction, the remainder of the other covenants,
agreements, restrictions and parts thereof herein contained shall be
severable so as not to invalidate any others, and such other covenants,
agreements, restrictions and parts thereof shall be given full effect without
regard to the invalid covenant, agreement, restriction or part thereof.
16. VENUE AND JURISDICTION. The Company and the Executive hereby
agree that any action, proceeding or claim against any of them arising out of
or relating in any way to this Agreement shall be brought and enforced in any
of the courts of the State of New York in New York County, New York, or the
United States District Court for the Southern District of New York, and
irrevocably submit to such jurisdiction. The Company and the Executive hereby
waive any objection to such jurisdiction and that such courts represent an
inconvenient forum. The Company and the Executive hereby waive the right to a
trial by jury in any action, proceeding or claim against either of them
arising out of or relating in any way to this Agreement. Any process or
summons to be served upon the Company or the Executive may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to its or his respective address set
forth in Section 11 of this Agreement or such other address as a party may so
notify the other party hereto in the manner
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<PAGE>
provided by Section 11 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the Company and the Executive in any
action, proceedings or claim.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
JEH ACQUISITION CORP.
By: /s/ Douglas P. Fields
-------------------------------------
Douglas P. Fields,
Chief Executive Officer
/s/ Frederick M. Friedman
-------------------------------------
Frederick M. Friedman, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED
TDA INDUSTRIES, INC.
By: /s/ Douglas P. Fields
-------------------------------------
Douglas P. Fields,
President
PEMBERTON SERVICES CORP.
By: /s/ Douglas P. Fields
-------------------------------------
Douglas P. Fields,
President
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<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FREDERICK M. FRIEDMAN
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "First
Amendment") is made effective as of the 30th day of April, 1998, by
JEH/EAGLE SUPPLY, INC., a Delaware Corporation, formerly known as JEH
Acquisition Corp. (the "Company"), and FREDERICK M. FRIEDMAN, an individual
resident in New York, New York (the "Executive"), amending that certain
Employment Agreement between the parties dated as of July 1, 1997 (the
"Agreement").
1. Section 3 (A) of the Agreement is amended in its entirety to
read as follows:
(A) SALARY. Commencing upon the closing of the proposed
initial public offering of securities of Eagle Supply Group, Inc., a
Delaware Corporation ("ESG"), and the consummation of the sale and
transfer of the Company to ESG, and during the remaining term of the
Agreement, the Company shall pay Executive, and Executive agrees to
accept, an annual salary of not less than Sixty Thousand Dollars
($60,000) per year, payable Five Thousand Dollars ($5,000) per month
in accordance with the Company's policies, for services rendered by
Executive hereunder.
2. Except for this First Amendment, the Agreement remains
unchanged, and is in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this First
Amendment as of the day and year first above written.
JEH/EAGLE SUPPLY, INC.
By: /s/ Douglas P. Fields, CEO
-------------------------------------
Douglas P. Fields,
Chief Executive Officer
/s/ Frederick M. Friedman
-------------------------------------
Frederick M. Friedman, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED
TDA INDUSTRIES, INC.
By: /s/ Douglas P. Fields, President
-------------------------------------
Douglas P. Fields,
President
PEMBERTON SERVICES CORP.
By: /s/ Douglas P. Fields, President
-------------------------------------
Douglas P. Fields,
President
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<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 1,
1997, by JEH ACQUISITION CORP., a Delaware corporation (the "Employer" or the
"Buyer"), and JAMES E. HELZER, an individual resident in Arlington, Texas (the
"Executive").
RECITALS
I. Concurrently with the execution and delivery of this Agreement, the
Employer is acquiring, pursuant to that certain Asset Purchase Agreement by and
among the Employer as "Buyer", JEH Company, a Texas corporation, as "Seller",
and James E. Helzer as "Shareholder" of Seller, dated July 8, 1997 (the
"Asset Purchase Agreement"), substantially all of the assets of the Seller,
including the Seller's business operations in Texas, Colorado and Indiana (the
"Acquired Business").
A. The Executive is the sole shareholder of the Seller and is currently
the Seller's President and Chief Executive Officer. The Executive will benefit
substantially from the transaction set forth in the Asset Purchase Agreement.
B. The Employer wishes to obtain the Executive's continued experience
and expertise with the Acquired Business and wishes to employ the Executive as
President and Chief Operating Officer of JEH Acquisition Corp.
C. The Executive wishes to accept such employment upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, including any Exhibits hereto, as
amended from time to time.
"Compensation"--Salary and Benefits.
"Benefits"--as defined in Section 3(B).
"Board of Directors"--the board of directors of the Employer.
<PAGE>
"Confidential Information"--any and all:
(a) trade secrets concerning the business and affairs of the Employer,
product specifications, data, know-how, compositions, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current, and planned research and development, current and
planned distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies,
business plans, and any other information, however documented, that is
a trade secret under New York law; and
(b) information concerning the business and affairs of the Employer and
the Acquired Business (which includes historical financial statements,
financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials), however
documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing.
"disability"--as defined in Section 6.2.
"Effective Date"--the date stated in the first paragraph of the Agreement.
"Employee Invention"--any idea, invention, technique, modification, process, or
improvement (whether patentable or not), any industrial design (whether
registerable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"Employment Period"--the term of the Executive's employment under this
Agreement, as more fully described in Section 2.2.
"for cause"--as defined in Section 6.3.
"for good reason"--as defined in Section 6.4.
"person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"Post-Employment Period"--as defined in Section 8.2.
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"Proprietary Items"--as defined in Section 7.2(a)(iv).
"Salary"--as defined in Section 3(A).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the term of the Executive's
employment under this Agreement will be five years, beginning on the Effective
Date and ending on the fifth anniversary of the Effective Date.
2.3 DUTIES
The Executive will serve as a senior executive officer of the Employer
and have such duties and title(s) as are assigned or delegated to the Executive
by the Board of Directors or Chief Executive Officer, and will initially serve
as President and Chief Operating Officer of the Employer. The Executive will
also be designated Chief Executive Officer of the JEH Company, a Division of JEH
Acquisition Corp. The Executive will devote at least three (3) days per week to
the business of the Employer, will use his best efforts to promote the success
of the Employer's business, and will cooperate fully with the Board of Directors
and Chief Executive Officer in the advancement of the best interests of the
Employer. If the Executive is elected as a director of the Employer or as a
director or officer of any of its affiliates, the Executive will agree to serve
as such and will fulfill his duties as director or officer without additional
compensation.
3. COMPENSATION
(A) Salary. The Executive will be paid an annual salary of $250,000.00,
subject to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be reviewed by
the Board of Directors not less frequently than annually and may be adjusted
upward or downward in the sole discretion of the Board of Directors, but in no
event will the Salary be less than $250,000.00 per year.
(B) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the Employer
that may be in effect from time to time, to the extent the Executive is eligible
under the terms of those plans (collectively, the "Benefits").
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<PAGE>
The Executive agrees to submit to any medical examination(s) and
provide any information and documents reasonably necessary for the Employer to
obtain any insurance required by this Agreement and "Key Man" life insurance on
the Executive's life.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive with office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation in accordance with the
vacation policies of the Employer in effect for its executive officers as may be
changed from time to time by the Employer. Vacation must be taken by the
Executive at a time mutually convenient to the Employer and the Executive. The
Executive will also be entitled to the paid holidays and other paid leave set
forth in the Employer's policies.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), at the option of the
Employer, immediately upon notice from the Employer to the Executive, or at such
later time as such notice may specify; or
(d) for good reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
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<PAGE>
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties under this Agreement
for 120 consecutive days, or 180 days during any twelve month period, as
determined in accordance with this Section 6.2. The disability of the Executive
will be determined by a medical doctor selected by written agreement of the
Employer and the Executive upon the request of either party by notice to the
other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
Executive has a disability. The determination of the medical doctor selected
under this Section 6.2 will be binding on both parties. The Executive must
submit to a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement which breach continues for more
than thirty (30) days after notice thereof has been received by the Executive;
(b) the Executive's failure to adhere to any written Employer policy if the
Executive has been given a reasonable opportunity to comply with such policy or
cure his failure to comply (which reasonable opportunity shall not exceed thirty
(30) days); (c) the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including attempting to secure or securing
any personal profit in connection with any transaction entered into on behalf of
the Employer; (d) the misappropriation (or attempted misappropriation) of any of
the Employer's funds or property; or (e) the conviction of, the indictment for
(or its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment for more than six (6) months is a possible
punishment.
The Executive and the Employer acknowledge that the purchase price for
the Acquired Business, as set forth in the Asset Purchase Agreement, was based
in part on the Executive's commitment to continue to serve as Chief Executive
Officer of the Acquired Business. Accordingly, if the Executive commits an act
described in Sections 6.3 (a), (b), (c), (d) or (e) and the Employer elects to
terminate the Executive's employment, Buyer shall be relieved of its obligation
to make any of the contingent payments required by Sections 2.4 (a), (b) or (c)
of the Asset Purchase Agreement subsequent to the date of such termination.
6.4 DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "for good reason" means any of
the following: (a) The Employer's material breach of this Agreement which breach
continues for more than thirty (30) days after notice has been received by the
Employer; (b) the assignment of the
5
<PAGE>
Executive without his consent to a position, responsibilities, or duties of a
materially lesser status or degree of responsibility than a senior officer of
the Employer; or (c) The Employer's material breach of the Asset Purchase
Agreement which breach continues for more than thirty (30) days after notice has
been received by the Employer.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 6.5 and in lieu of all other amounts and in settlement and complete
release of all claims the Executive may have against the Employer. For purposes
of this Section 6.5, the Executive's designated beneficiary will be such
individual beneficiary or trust, located at such address, as the Executive may
designate by notice to the Employer from time to time or, if the Executive fails
to give notice to the Employer of such a beneficiary, the Executive's estate.
Notwithstanding the preceding sentence, the Employer will have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(A) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the Executive
the Executive's Salary for the remainder, if any, of the calendar month in which
such termination is effective.
(B) Termination by the Employer for Cause. If the Employer terminates
this Agreement for cause, the Executive will be entitled to receive his Salary
only through the date such termination is effective.
(C) Termination upon Disability. If this Agreement is terminated by
either party as a result of the Executive's disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is effective.
(D) Termination upon Death. If this Agreement is terminated because of
the Executive's death, the Executive will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(E) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the termination
of this Agreement, and the Executive will be entitled to accrued Benefits
pursuant to such plans only as provided in such plans; provided, however, that
upon the expiration of the term of the Executive's employment, and provided that
the Executive is in compliance with all Post-Employment Period obligations, the
Employer shall endeavor to continue the Executive's participation in the
Employer's health insurance plan until such time as the Executive reaches age
65. The Employer shall not be
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<PAGE>
required to pay any premiums on behalf of the Executive in excess of those paid
during the Executive's last year of employment with the Employer.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as
a part of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) because the Executive
possesses substantial technical expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of each
Employee Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each Employee
Invention; (d) the Buyer has required that the Executive make the covenants in
this Section 7 as a condition to its purchase of the Acquired Business; and (e)
the provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) Confidentiality.
(i) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will not
disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by
the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to all
of the protections and benefits under New York and any other applicable
law. If any information that the Employer deems to be a trade secret is
found by a court of competent jurisdiction not to be a trade secret for
purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer submit proof
of the economic value of any trade secret or post a bond or other
security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than
as a result of a disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while traveling, or
except as otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or computer
software or
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code, whether embodied in a disk or in any other form (collectively,
the "Proprietary Items"). The Executive recognizes that, as between the
Employer and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party, or upon
the request of the Employer during the Employment Period, the Executive
will return to the Employer all of the Proprietary Items in the
Executive's possession or subject to the Executive's control, and the
Executive shall not retain any copies, abstracts, sketches, or other
physical embodiment of any of the Proprietary Items.
(B) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writing, works of authorship, specially commissioned works, and
other Employee Inventions are works made for hire and the property of the
Employer, including any copyrights, patents, or other intellectual property
rights pertaining thereto. If it is determined that any such works are not works
made for hire, the Executive hereby assigns to the Employer all of the
Executive's right, title, and interest, including all rights of copyright,
patent, and other intellectual property rights, to or in such Employee
Inventions. The Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order
to apply for and obtain patents or other registrations with respect to
any Employee Invention in the United States and any foreign
jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance in support
of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
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8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is currently regional in
scope but may become national in scope and its products are currently marketed
in five or more regions but may in the future be marketed throughout the United
States; (c) the Employer competes with other businesses that are or could be
located in any part of the United States; (d) the Buyer has required that the
Executive make the covenants set forth in this Section 8 as a condition to the
Buyer's purchase of the Acquired Business; and (e) the provisions of this
Section 8 are reasonable and necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any similar
name to, lend Executive's credit to or render services or advice to, any
business whose products or activities compete in whole or in part with the
products or activities of the Employer; provided, however, that the Executive
may purchase or otherwise acquire up to (but not more than) one percent of any
class of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or for the account of any
other person, at any time during the Employment Period and the Post-Employment
Period, solicit business of the same or similar type being carried on by the
Employer, from any person known by the Executive to be a customer of the
Employer, whether or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any other
person (i) at any time during the Employment Period or the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the Employer
at any time during the Employment Period or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) at any time during the Employment Period or the Post
Employment Period, interfere with the Employer's relationship with any person,
including any person who at any
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time during the Employment Period was an employee, contractor, supplier, or
customer of the Employer; or
(d) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this Agreement
(including any provision of Sections 7 and 8) would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. Without limiting the Employer's rights under
this Section 9 or any other remedies of the Employer, if the Executive breaches
any of the provisions of Section 7 or 8, the Employer will have the right to
cease making any payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement and the Asset Purchase Agreement, and without the
Executive's agreement to comply with such covenants, the Buyer would not have
purchased the Acquired Business under the Asset Purchase Agreement and the
Employer would not have entered into this Agreement or employed the Executive.
The Employer and the Executive have independently consulted their respective
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counsel and have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the business
conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8.
9.4 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
9.5 OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to
pay the compensation provided for herein, are contingent upon the Executive's
substantial performance of the Executive's obligations hereunder.
9.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law: (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
9.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs, and
legal representatives, including any entity
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with which the Employer may merge or consolidate or to which all or
substantially all of its assets may be transferred. The duties and covenants of
the Executive under this Agreement, being personal, may not be delegated.
9.8 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
certified mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
If to Employer: JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 East 42nd Street, Suite 1116
New York, NY 10168
Attention: Douglas P. Fields,
Chief Executive Officer
With a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
P.O. Box 3239
Tampa, Florida 33601
(if by mail)
or
One Harbour Place, 5th Floor
Tampa, Florida 33602
(if by hand delivery)
Attention: Nathaniel L. Doliner,
Attorney at Law
If to the Executive: James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
With a copy to: Raymond Meeks, Attorney at Law
1000 N. Walnut Creek Drive
Suite C
Mansfield, Texas 76063
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9.9 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Asset Purchase Agreement, and the documents
executed in connection with the Asset Purchase Agreement, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of New York
without regard to conflicts of laws principles.
9.11 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of New York in New York County, New York, or,
if it has or can acquire jurisdiction, in the United States District Court for
the Southern District of New York, or the Middle District of Florida, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. The parties agree to accept service of process
by certified mail, or such other means as permitted for the giving of notices
hereunder. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
9.12 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.13 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable in
any jurisdiction by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect in such jurisdiction. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
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9.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
WITNESSES: EXECUTIVE:
[Illegible] /s/ James E. Helzer
- ------------------------------- ---------------------------------
JAMES E. HELZER
EMPLOYER:
JEH ACQUISITION CORP., a Delaware
corporation
[Illegible] By: /s/ Douglas P. Fields
- ------------------------------- ---------------------------------
Name: Douglas P. Fields
Title: Chief Executive Officer
[Illegible]
- -------------------------------
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Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 1,
1997, by and between JEH ACQUISITION CORP., a Delaware corporation (the
"Employer" or the "Buyer"), and E. G. HELZER, an individual resident of the
State of Colorado (the "Executive").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, the
Employer is acquiring, pursuant to that certain Asset Purchase Agreement by and
among the Employer as "Buyer", JEH Company, a Texas corporation, as "Seller",
and James E. Helzer as "Shareholder" of Seller, dated July 8, 1997 (the "Asset
Purchase Agreement"), substantially all of the assets of the Seller, including
the Seller's business operations in Texas, Colorado, Indiana, Iowa and Virginia
(the "Acquired Business").
B. The Executive is currently employed by Seller and is familiar with
the operations of the Acquired Business.
C. The Employer wishes to obtain the Executive's continued experience
and expertise with the Acquired Business and wishes to employ the Executive as
Vice President of JEH Acquisition Corp.
D. The Executive wishes to accept such employment upon the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound, the parties hereto agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1.
"Agreement"--this Employment Agreement, including any Exhibits hereto, as
amended from time to time.
"Compensation"--Salary and Benefits.
"Benefits"--as defined in Section 3(B) hereof.
"Board of Directors"--the board of directors of the Employer.
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"Confidential Information"--any and all:
(a) trade secrets concerning the business and affairs of the Employer,
product specifications, data, know-how, compositions, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current, and planned research and development, current and
planned distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies,
business plans, and any other information, however documented, that is
a trade secret under New York law; and
(b) information concerning the business and affairs of the Employer and
the Acquired Business (which includes historical financial statements,
financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials), however
documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing.
"disability"--as defined in Section 6.2 hereof.
"Effective Date"--July 1, 1997.
"Employee Invention"--any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to, or is useful in any manner in, the business then being
conducted or proposed to be conducted by the Employer, and any such item created
by the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is based upon
or uses Confidential Information.
"Employment Period"--the term of the Executive's employment under this
Agreement, as more fully described in Section 2.2 hereof.
"for cause"--as defined in Section 6.3 hereof.
"for good reason"--as defined in Section 6.4 hereof.
"person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"Post-Employment Period"--as defined in Section 8.2 hereof.
"Proprietary Items"--as defined in Section 7.2(a)(iv) hereof.
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"Salary"--as defined in Section 3(A) hereof.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 6 hereof, the initial term of the
Executive's employment under this Agreement will be five (5) years, beginning on
the Effective Date and ending on the fifth anniversary of the Effective Date. At
the expiration date of the initial term, this Agreement shall be renewed for
regular periods of one (1) year each, provided neither party submits a notice of
intent not to renew at least sixty (60) days prior to the expiration of any such
period.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors or Chief Executive Officer, and will
initially serve as Vice President of the Employer. The Executive will initially
be responsible for managing the Colorado and Iowa operations of the Acquired
Business, and will perform such other, broader or different duties as assigned.
The Executive will devote his entire business time, attention, skill, and energy
to the business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperate fully with the Board of
Directors and the Chief Executive Officer in the advancement of the best
interests of the Employer. If the Executive is elected as a director of the
Employer or as a director or officer of any of its affiliates, the Executive
will agree to serve as such and will be entitled to the same compensation paid
to other directors of the Employer or any such affiliate for their services as
directors in addition to the Compensation to be paid pursuant to this Agreement.
3. COMPENSATION
(A) Salary. The Executive will be paid an annual salary of $125,000.00,
subject to adjustment as provided below (the "Salary"), which will be payable in
equal periodic installments according to the Employer's customary payroll
practices, but no less frequently than monthly. The Salary will be reviewed by
the Board of Directors not less frequently than annually and may be adjusted
upward or downward in the sole discretion of the Board of Directors, but in no
event will the Salary be less than $125,000.00 per year.
(B) Benefits. The Executive will, during the Employment Period, be
permitted to participate in such pension, profit sharing, bonus, stock option,
life insurance, hospitalization, major medical, and other employee benefit plans
of the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
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The Executive agrees to submit to any medical examination(s) and
provide any information and documents reasonably necessary for the Employer to
obtain any insurance required by this Agreement and "Key Man" life insurance on
the Executive's life.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive with office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay on behalf of the Executive (or reimburse
the Executive for) reasonable expenses incurred by the Executive at the request
of, or on behalf of, the Employer in the performance of the Executive's duties
pursuant to this Agreement and in accordance with the Employer's employment
policies, including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation in accordance with the
vacation policies of the Employer in effect for its executive officers as may be
changed from time to time by the Employer. Vacation must be taken by the
Executive at a time mutually convenient to the Employer and the Executive. The
Executive will also be entitled to the paid holidays and other paid leave set
forth in the Employer's policies.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Compensation, and any and all
other rights of the Executive under this Agreement or otherwise as an employee
of the Employer will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2
hereof) immediately upon written notice from either party to the other;
(c) for cause (as defined in Section 6.3 hereof), at the option of the
Employer, immediately upon written notice from the Employer to the Executive, or
at such later time as such notice may specify;
(d) for good reason (as defined in Section 6.4 hereof) upon not less
than thirty (30) days' prior written notice from the Executive to the Employer;
(e) in spite of anything in this Agreement to the contrary, in the
event that the Employer shall discontinue the operation of its business, then
this Agreement shall terminate as of the last
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day of the month in which the Employer ceases operations with the same force and
effect as if such day were originally set as the termination date of this
Agreement; or
(f) at the Executive's option after a period of thirty-six (36) months
from the Effective Date, upon not less than sixty (60) days' prior written
notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1 hereof, the Executive will be deemed to
have a "disability" if, for physical or mental reasons, the Executive is unable
to perform the essential functions of the Executive's duties under this
Agreement for 120 consecutive days, or 180 days during any twelve month period,
as determined in accordance with this Section 6.2. The disability of the
Executive will be determined by a medical doctor selected by written agreement
of the Employer and the Executive upon the request of either party by written
notice to the other. If the Employer and the Executive cannot agree on the
selection of a medical doctor, each of them will select a medical doctor and the
two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination of
disability and all supporting medical records. If the Executive is not legally
competent, the Executive's legal guardian or duly authorized attorney-in-fact
will act in the Executive's stead, under this Section 6.2, for the purposes of
selecting the medical doctor to make the determination of disability, submitting
the Executive to the examinations, and providing the authorization of
disclosure, required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1 hereof, the phrase "for cause" means: (a)
the Executive's material breach of this Agreement; (b) the Executive's failure
to adhere to any written Employer policy if the Executive has been given a
reasonable opportunity to comply with such policy or cure his failure to comply
(the time for said reasonable opportunity shall be agreed upon between the
parties depending upon the circumstances, but in no event shall be less than ten
(10) business days prior to a termination of this Agreement by the Employer "for
cause"; (c) the appropriation (or attempted appropriation) by the Executive of a
material business opportunity of the Employer, including attempting to secure or
securing any personal profit in connection with any transaction entered into or
on behalf of the Employer with a third party; (d) the misappropriation (or
attempted misappropriation) by the Executive of any of the Employer's funds or
property; or (e) the conviction of, or the entering of a guilty plea or plea of
no contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment for more than six (6) months is a possible
punishment.
6.4 DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1 hereof, the phrase "for good reason" means
any of the following: (a) The Employer's material breach of this Agreement; (b)
the assignment of the
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Executive without his consent to a position, responsibilities, or duties of a
materially lesser status or degree of responsibility than a vice-president of
the Employer; (c) the reduction of the Salary of the Executive pursuant to
Section 3(A) hereof; or (d) the Employer becomes insolvent, files a petition in
bankruptcy, or enters into receivership, voluntarily or involuntarily.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 6.5 and in lieu of all other amounts and in settlement and complete
release of all claims the Executive may have against the Employer. For purposes
of this Section 6.5, the Executive's designated beneficiary will be such
individual beneficiary or trust, located at such address, as the Executive may
designate by written notice to the Employer from time to time or, if the
Executive fails to give notice to the Employer of such a beneficiary, the
Executive's estate. Notwithstanding the preceding sentence, the Employer will
have no duty, in any circumstances, to attempt to open an estate on behalf of
the Executive, to determine whether any beneficiary designated by the Executive
is alive or to ascertain the address of any such beneficiary, to determine the
existence of any trust, to determine whether any person or entity purporting to
act as the Executive's personal representative (or the trustee of a trust
established by the Executive) is duly authorized to act in that capacity, or to
locate or attempt to locate any beneficiary, personal representative, or
trustee.
(A) Termination by the Executive for Good Reason. If the Executive
terminates this Agreement for good reason, the Employer will pay the Executive
the Executive's Salary for the remainder, if any, of the calendar month in which
such termination is effective.
(B) Termination by the Employer for Cause. If the Employer terminates
this Agreement for cause, the Employer will pay to the Executive the Executive's
Salary only through the date such termination is effective.
(C) Termination upon Disability. If this Agreement is terminated by
either party as a result of the Executive's disability, as determined under
Section 6.2 hereof, the Employer will pay the Executive his Salary through the
calendar month during which such termination is effective.
(D) Termination upon Death. If this Agreement is terminated because of
the Executive's death, the Employer will pay to the Executive the Executive's
Salary through the end of the calendar month in which his death occurs.
(E) Benefits. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the termination
of this Agreement, and the Executive will be entitled to accrued Benefits
pursuant to such plans only as provided in each such plan.
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7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the Employment Period and as
a part of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) because the Executive
possesses substantial expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Employee Invention; (d) the
Buyer has required that the Executive make the covenants in this Section 7 as a
condition to its purchase of the Acquired Business; and (e) the provisions of
this Section 7 are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE
In partial consideration of the compensation and benefits to be paid or
provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) Confidentiality.
(i) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will not
disclose it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly permitted by
the terms of this Agreement or except as ordered to be disclosed by the
Executive by a court of competent jurisdiction.
(ii) Any trade secrets of the Employer will be entitled to all
of the protections and benefits under New York and any other applicable
law. If any information that the Employer deems to be a trade secret is
found by a court of competent jurisdiction not to be a trade secret for
purposes of this Agreement, such information will, nevertheless, be
considered Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer submit proof
of the economic value of any trade secret or post a bond or other
security in regard to any Confidential Information.
(iii) None of the foregoing obligations and restrictions shall
apply to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public other than
as a result of disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of the
performance of the Executive's duties at home, or in conducting
business on behalf of the Employer at a location other than at the
Employer's premises, or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record,
notebook, plan, model, component, device, or
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computer software or code, whether embodied in a disk or in any other
form (collectively, the "Proprietary Items"). The Executive recognizes
that, as between the Employer and the Executive, all of the Proprietary
Items, whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment
Period, the Executive will return to the Employer all of the
Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the
Proprietary Items.
(B) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writing, works of authorship, specially commissioned works, and
other Employee Inventions are works made for hire and the property of the
Employer, including any copyrights or other intellectual property rights
pertaining thereto. If it is determined that any such works are not works made
for hire, the Executive hereby assigns to the Employer all of the Executive's
right, title, and interest, including all rights of copyright and other
intellectual property rights, to or in such Employee Inventions. The Executive
covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee Invention
for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order
to apply for and obtain copyrights or other registrations with respect
to any Employee Invention in the United States and any foreign
jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) give testimony and render any other assistance in support
of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to any court,
arbitration panel or person, or medication panel or person, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy when allowed by such
adjudication and will be available for inspection by the Employer, the
Executive, and their respective attorneys and experts, who will agree, in
advance and in writing, to receive and maintain all such information in secrecy,
except as may be limited by them in writing, by rule of the adjudication, or
pursuant to an order of a court of competent jurisdiction, arbitration panel or
person, mediation panel or person, or other third party conducting such
adjudication.
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8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is currently regional in
scope but may become national in scope and its products are currently marketed
in five or more regions but may in the future be marketed throughout the United
States; (c) the Employer competes with other businesses that are or could be
located in any part of the United States; (d) the Buyer has required that the
Executive make the covenants set forth in this Section 8 as a condition to the
Buyer's purchase of the Acquired Business; and (e) the provisions of this
Section 8 are reasonable and necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In partial consideration of the acknowledgments by the Executive in
this Section 8, and in consideration of the compensation and benefits to be paid
or provided to the Executive by the Employer, the Executive covenants that he
will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any similar
name to, lend Executive's credit to or render services or advice to, any
business whose products or activities compete in whole or in part with the
products or activities of the Employer; provided, however, that the Executive
may purchase or otherwise acquire up to (but not more than) one percent of any
class of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934;
(b) whether for the Executive's own account or for the account of any
other person, at any time during the Employment Period or the Post-Employment
Period, solicit business of the same or similar type being carried on by the
Employer, from any person known by the Executive to be a customer of the
Employer, whether or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any other
person (i) at any time during the Employment Period or the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any person who is or was an employee of the Employer
at any time during the Employment Period or in any manner induce or attempt to
induce any employee of the Employer to terminate his employment with the
Employer; or (ii) at any time during the Employment Period or the Post
Employment Period, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
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<PAGE>
(d) at any time during or after the Employment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the one (1) year period beginning on the date of termination of the
Executive's employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Employer may notify
such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this Agreement
(including any provision of Sections 7 and 8 hereof) would be irreparable and
that an award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. Without limiting the Employer's rights under
this Section 9 or any other remedies of the Employer, if the Executive breaches
any of the provisions of Section 7 or 8 hereof, the Employer will have the right
to cease making any payments otherwise due to the Executive under this
Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The covenants by the Executive in Sections 7 and 8 hereof are essential
elements of this Agreement and the Asset Purchase Agreement, and without the
Executive's agreement to comply with such covenants, the Buyer would not have
purchased the Acquired Business under the Asset Purchase Agreement and the
Employer would not have entered into this Agreement or employed the Executive.
The Employer and the Executive have independently consulted their respective
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counsel and have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the business
conducted by the Employer.
The Executive's covenants in Sections 7 and 8 hereof are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8 hereof.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8
hereof.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
9.4 REPRESENTATIONS AND WARRANTIES BY THE EMPLOYER
The Employer represents and warrants to the Executive (a) that, at the
time of execution and delivery by the Employer of this Agreement, it is a
corporation duly formed and in good standing under the laws of the State of
Delaware; (b) that this Agreement and the employment of the Executive by the
Employer has been approved by the Board of Directors, and that the Employer's
officers or representatives executing this Agreement have full power and
authority to enter into this Agreement on behalf of the Employer; and (c) that
the execution and delivery, by the Employer of this Agreement do not, and the
performance by the Employer of the Employer's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both (i) violate
any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Employer, or (ii) conflict with, result in
the breach of any provisions of, or the termination of, or constitute a default
under, any agreement to which the Employer is a party or by which the Employer
is or may be bound.
9.5 OBLIGATIONS CONTINGENT UPON PERFORMANCE
A. The obligations of the Employer hereunder, including its obligation
to pay and provide the Compensation to the Executive provided for herein, are
contingent upon the Executive's performance of the Executive's obligations
hereunder.
B. The obligations of the Executive hereunder are contingent upon
performance of the Employer's obligations hereunder, including its obligation to
pay and provide the Compensation to Executive provided for herein.
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9.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law: (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
9.7 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs, and
legal representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated to any third party.
9.8 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
certified mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
If to Employer: JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 East 42nd Street, Suite 1116
New York, NY 10168
Attention: Douglas P. Fields,
Chief Executive Officer
With a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
P.O. Box 3239
Tampa, Florida 33601
(if by mail)
or
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One Harbour Place, 5th Floor
Tampa, Florida 33602
(if by hand delivery)
Attention: Nathaniel L. Doliner,
Attorney at Law
If to the Executive: E. G. Helzer
3669 Weld County Road 45
Hudson, Colorado 80642
With a copy to: Michael L. Blake, Attorney at Law
9378 Meredith Court
Littleton, Colorado 80124
9.9 ENTIRE AGREEMENT; AMENDMENTS
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
9.10 GOVERNING LAW
This Agreement will be governed by the laws of the State of New York
without regard to conflicts of laws principles.
9.11 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of New York in New York County, New York, or
a District Court in any county of appropriate venue in the State of Colorado, if
it has or can acquire jurisdiction, in the United States District Court for the
Southern District of New York, or the Middle District of Florida, or the
District of Colorado and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. The parties agree to
accept service of process by certified mail, or such other means as permitted
for the giving of notices hereunder. Process in any action or proceeding
referred to in the preceding sentence may be served on either party anywhere in
the world.
9.12 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used
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<PAGE>
in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
9.13 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable in
any jurisdiction by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect in such jurisdiction. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
9.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
WITNESSES: EXECUTIVE:
/s/ E. G. Helzer
- ---------------------------------- ------------------------------------
E. G. HELZER
- ----------------------------------
EMPLOYER:
JEH ACQUISITION CORP., a Delaware
corporation
By: /s/ Douglas P. Fields
- ---------------------------------- ------------------------------------
Name: Douglas P. Fields
Title: Chief Executive Officer
- ----------------------------------
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EXHIBIT 10.17
STRATEGIC SERVICES AGREEMENT
STRATEGIC SERVICES AGREEMENT, dated as of July 1, 1997, by and
between JEH ACQUISITION CORP., a Delaware corporation (the "Corporation"),
and TDA INDUSTRIES, INC., a New York corporation (the "Manager").
WITNESSETH:
WHEREAS, the Corporation, contemporaneously herewith, is acquiring,
pursuant to that certain Asset Purchase Agreement by and among the
Corporation as "Buyer", JEH Company, a Texas corporation, as "Seller", and
James E. Helzer as "Shareholder" of Seller, dated July 8, 1997 (the "Asset
Purchase Agreement"), substantially all of the assets of Seller, including
Seller's business operations in Texas, Colorado, Indiana and other states
(the "Acquired Business"); and
WHEREAS, the Manager advises other companies in the same or similar
business as the Acquired Business, including, without limitation, its own
business, Eagle Supply, Inc., a Florida corporation, which is in the
identical business as the Acquired Business; and
WHEREAS, the Corporation desires to engage the Manager to perform
certain management, strategic planning, and other advisory services for the
Corporation in connection with the Acquired Business under the terms and
subject to the conditions hereinafter set forth, and the Manager desires to
be so engaged.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. ENGAGEMENT AND DUTIES. (a) The Corporation hereby engages the
Manager to provide to the Corporation management and strategic planning and
direction services, banking negotiation services, investor relation services,
and advisory services regarding acquisitions, which such services may
include, without limitation, (i) identifying and evaluating business entities
and enterprises which may present appropriate investment or acquisition
opportunities for the Corporation, (ii) negotiating the terms and conditions
of, and arranging financing for, acquisitions ("Acquisitions"), and (iii)
generally advising and assisting the Corporation's management with respect to
the foregoing and the business and affairs of the Corporation.
(b) With respect to the performance of its duties
hereunder, the Manager shall at all times be subject to the direction and
control of the Corporation's Board of Directors, and observe and comply with
such rules, regulations, policies and practices as the Corporation's Board of
Directors may from time to time establish. In particular, without the
<PAGE>
prior approval of the Corporation's Board of Directors, the Manager shall not
have authority (i) to commit the Corporation to make any Acquisition, (ii) to
sell, exchange or otherwise dispose of any asset acquired through an
Acquisition, (iii) to waive any right or take or consent to any action that
would materially and adversely affect the rights of the Corporation in
respect of any actual or proposed Acquisition, or (iv) incur reimbursable
expenses on behalf of the Corporation.
(c) From time to time, the Manager shall consult with the
Board of Directors of the Corporation with respect to the administration of
the business of the Corporation, and shall prepare and furnish to the Board
of Directors such summary reports as may be reasonably requested by the
Corporation. The Corporation's management shall cooperate with the Manager
and shall furnish to it any documents or information necessary or appropriate
for the performance of its duties hereunder.
(d) Neither the Manager nor any employee or agent thereof
shall be required to devote any minimum amount of time to the performance of
its duties hereunder, or report on or perform its duties hereunder on a fixed
or periodic basis. The Manager or any employee or agent thereof may engage or
participate in such other activities incidental to any other employment,
occupation or business venture or enterprise which do not materially
interfere with its ability to perform its duties hereunder.
(e) The Manager hereby accepts such engagement and agrees
that throughout the period of its engagement it shall perform the duties
incidental to its engagement hereunder.
2. TERM. The engagement of the Manager hereunder shall commence on
the Closing Date (as defined in the Asset Purchase Agreement) and continue
until the fifth anniversary of the date thereof; PROVIDED, HOWEVER, that the
Corporation may terminate this Agreement for cause. For purposes hereof,
cause for removal of the Manager shall mean (a) any action by the Manager
which has been found by a final judicial determination of a court of
competent jurisdiction, not subject to further appeal, to constitute fraud
against the Corporation, (b) the conviction of the Manager or any affiliate
thereof in connection with his, her or its services with respect to
Corporation matters of a felony, or (c) any willful or reckless material
violation by the Manager of its obligations to the Corporation pursuant to
this Agreement, as found by a final judicial determination of a court of
competent jurisdiction, not subject to further appeal. Five (5) business days
prior written notice of termination of this Agreement for cause, specifically
setting forth the cause for removal, shall be given to the Manager.
3. MANAGEMENT FEE. In consideration for the Manager's services
hereunder, the Corporation shall pay to the Manager a monthly fee during the
term of this Agreement. Such fee shall be $15,000 per month during the period
commencing on the date hereof and continuing until December 31, 1999.
Commencing on January 1, 2000, the monthly fee shall increase to $20,000.
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4. EXPENSES. The Manager shall pay all of its ordinary day-to-day
out-of-pocket expenses incurred in providing services to the Corporation. The
Manager may provide for and receive reimbursement from any third party of any
such expenses.
5. EXCULPATION; INDEMNIFICATION. (a) Neither the Manager nor any of
its respective affiliates, nor any of their respective officers, directors,
partners, employees or agents, shall be liable, in damages or otherwise, to
the Corporation for any act or omission performed or omitted by any such
person pursuant to authority granted by this Agreement, except if such act or
omission results from gross negligence, willful misconduct or bad faith, or a
knowing and material violation of the provisions of this Agreement. The
Manager shall be entitled to rely in good faith on the advice of counsel to
the Corporation, the Corporation's accountants or other independent experts
retained by the Corporation experienced in the matter at issue, and any act
or omission of the Manager in reasonable reliance on such advice shall in no
event subject the Manager to liability to the Corporation.
(b) The Corporation, to the fullest extent permitted by
law, shall indemnify and hold harmless the Manager, its affiliates, and their
respective officers, directors, partners, employees and agents (collectively,
the "Indemnified Persons") from and against any and all claims or liabilities
of any nature whatsoever, including legal fees and other expenses reasonably
incurred, arising out of, or in connection with any action taken or omitted
by any such Indemnified Person by or on behalf of the Corporation pursuant to
authority granted by this Agreement, except where found by a court of
competent jurisdiction to be attributable to the gross negligence, willful
misconduct or bad faith of any such person, or a knowing and material
violation by such person of the provisions of this Agreement.
(c) Any Indemnified Person entitled to indemnification from
the Corporation hereunder shall obtain the written consent of the Board of
Directors of the Corporation prior to entering into any compromise or
settlement which would result in an obligation of the Corporation to
indemnify such Indemnified Person. If such Indemnified Person shall actually
recover any amounts under any applicable insurance policies, it shall offset
the net proceeds so received against any amounts owed by the Corporation by
reason of the indemnification provided hereunder or, if all such amounts
shall have been paid by the Corporation in full prior to the actual receipt
of such net insurance proceeds, it shall pay over such proceeds (up to the
amount of indemnification paid by the Corporation to such Indemnified Person)
to the Corporation.
(d) The satisfaction of any indemnification pursuant to
this Section 5 shall be from and limited to Corporation assets.
6. NATURE OF ENGAGEMENT. The Manager is engaged as, and shall be
deemed for all purposes to be, an independent contractor with respect to the
Corporation. In particular, the Corporation shall not withhold, deduct or
otherwise be obligated to pay, or be accountable for, any federal, state or
local taxes or FICA contributions due from or on behalf of the Manager or any
of its employees or agents. Except as expressly provided
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<PAGE>
herein, no provision hereof is intended, or shall be deemed, to create any
corporation, joint venture or association among the parties hereto, or to
authorize or empower any party hereto to act on behalf of, obligate, or bind
any other party hereto.
7. PERMITTED ACTIVITIES OF MANAGER. The Corporation acknowledges
that the Manager, certain affiliates of the Manager, and certain personnel of
the Manager are currently providing and will continue to provide services
similar to those being provided to Corporation hereunder to other entities
which may be deemed to be in competition with the Corporation, including,
without limitation, Eagle Supply, Inc. Nothing in this Agreement shall limit
the Manager, its affiliates, or its personnel from continuing or expanding
such services to any other businesses, whether or not in the same industry as
the Corporation.
8. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned, in
whole or in part, by any party hereto, without the prior written consent of
the other parties hereto, and any purported assignment without such consent
shall be void and without effect; provided, however, that the Corporation's
consent shall not be required if the Manager assigns this Agreement to any of
its subsidiaries, including, without limitation, Eagle Supply, Inc. (a
Florida corporation), Eagle Supply Group, Inc. (a Delaware corporation), or
Pemberton Services Corp. (a Florida corporation). This Agreement shall be
binding upon and inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns. This Agreement
is not intended, and shall not be deemed, to create or confer any right or
interest for the benefit of any person not a party hereto.
9. NOTICES. Any notice or demand required or permitted to be given
or made to or upon any party hereto pursuant to any of the provisions of this
Agreement shall be deemed to have been duly given or made for all purposes if
(i) in writing and delivered by hand against receipt, or sent by certified or
registered mail, postage prepaid, return receipt requested, or (ii) sent by
telegram, telecopy, telex or other electronic means and followed by a copy
delivered or sent in the manner provided in clause (i) above, as follows:
To the Corporation, at: JEH Acquisition Corp.
c/o TDA Industries
122 East 42nd Street
Suite 1116
New York, New York 10168
Attn: Frederick M. Friedman
To the Manager, at: TDA Industries, Inc.
122 East 42nd Street
Suite 1116
New York, New York 10168
Attn: Douglas P. Fields
-4-
<PAGE>
with a copy to: Nathaniel L. Doliner
Carlton, Fields, Ward,
Emmanuel, Smith & Cutler, P.A.
One Harbour Place
P.O. Box 3239
Tampa, Florida 33601-3239
or to such other address as any party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this
Section. The date of giving or making of any such notice or demand shall be
the earlier of the date of actual receipt, or five business days after such
notice or demand is sent, or, if sent in accordance with clause (ii), the
business day next following the day such notice or demand is actually
transmitted.
10. AMENDMENT. Except as otherwise provided herein, no amendment
of this Agreement shall be valid or effective, unless in writing and signed
by or on behalf of the parties hereto.
11. WAIVER. No course of dealing or omission or delay on the part of
any party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any
provision hereof shall be effective unless in writing and signed by or on
behalf of the party to be charged therewith. No waiver shall be deemed a
continuing waiver or waiver in respect of any other or subsequent breach or
default, unless expressly so stated in writing.
12. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New
York, without giving effect to the provisions thereof relating to choice or
conflict of laws.
13. JURISDICTION; SERVICE OF PROCESS. Each party hereto hereby
irrevocably (a) consents to the exclusive jurisdiction of the courts of the
County of New York, State of New York, and of any federal court located
therein in connection with any suit, action or other proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby, (b)
waives any objection to venue in the County of New York, State of New York,
and (c) agrees that service of process in connection with any such proceeding
may be effected by mailing same in the manner provided in Section 9 hereof.
14. SEVERABILITY. The parties hereto intend that each provision
hereof constitutes a separate agreement among them. Accordingly, the
provisions hereof are severable and in the event that any provision of this
Agreement shall be deemed invalid or unenforceable in any respect by a court
of competent jurisdiction, the remaining provisions hereof shall not be
affected, but shall, subject to the discretion of such court, remain in full
force and effect, and any invalid or unenforceable provision shall be deemed,
without further action on the part of
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the parties hereto, amended and limited to the extent necessary to render the
same valid and enforceable.
15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
of the parties hereto with respect to the subject matter hereof and
supersedes any prior agreement, commitment or arrangement relating thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
JEH ACQUISITION CORP.
By: /s/ Frederick M. Friedman
--------------------------
Name: Frederick M. Friedman
Title: Executive Vice President
TDA INDUSTRIES, INC.
By: /s/ Douglas P. Fields
--------------------------
Name: Douglas P. Fields
Title: Chief Executive Officer
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FIRST AMENDMENT TO STRATEGIC SERVICES AGREEMENT
THIS FIRST AMENDMENT TO STRATEGIC SERVICES AGREEMENT (this "First
Amendment") is made effective as of the 30th day of April, 1998, by
JEH/EAGLE SUPPLY, INC., a Delaware Corporation, formerly known as JEH
Acquisition Corp. (the "Company"), and TDA INDUSTRIES, INC., a New York
Corporation (the "Manager") amending that certain Strategic Services Agreement
between the parties dated as of July 1, 1997 (the "Agreement").
1. Section 3 (A) of the Agreement is amended in its entirety to read as
follows:
(A) MANAGEMENT FEE. In consideration for the
Manager's services hereunder, commencing upon the closing
of the proposed initial public offering of securities of
Eagle Supply Group, Inc., a Delaware Corporation ("ESG"),
and the consummation of the sale and transfer of the
Company to ESG, and until December 31, 1999, the Company
shall pay to the Manager a monthly fee of Three Thousand
Dollars ($3,000). Commencing on January 1, 2000, and
during the remaining term of this Agreement, the Company
shall pay to the Manager a monthly fee of Fifteen Thousand
Dollars ($15,000).
2. Except for this First Amendment, the Agreement remains unchanged,
and is in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment as of the date first above written.
JEH/EAGLE SUPPLY, INC.
By: /s/ Douglas P. Fields, CEO
--------------------------
Douglas P. Fields,
Chief Executive Officer
TDA INDUSTRIES, INC.
By: /s/ Douglas P. Fields, President
--------------------------------
Douglas P. Fields
President
<PAGE>
Exhibit 10.18(a)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the first floor of the building located
thereon (the "Building") containing approximately 10,000 square feet of office
space and 100,000 square feet of warehouse space and having an address of 8221
E. 96th Avenue, Henderson, Colorado (the land and the first floor of the
Building are collectively referred to herein as the "Premises"). Landlord
reserves all the right, title and interest in the second floor of the Building,
along with thirty (30) parking spaces located on the land which shall be in a
location mutually agreed upon by Landlord and Tenant. Tenant shall provide
Landlord with access to the first floor of the Building in order for Landlord to
have ingress and egress to the second floor of the Building, provided that
Landlord's access does not interfere with Tenant's use of the first floor of the
Building.
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of One Hundred Eight Thousand and 00/100 Dollars
($108,000.00), payable in monthly installments of Nine Thousand and 00/100
Dollars ($9,000.00) per month, payable on the first day of each month, up to and
including June 1, 2000. For the Lease Year commencing on July 1, 2000, the
annual Fixed Rent shall increase by five percent (5%) and the Fixed Rent, as so
increased, shall be annual Fixed Rent until the Lease Termination Date. If
Tenant exercises its option(s) to renew the term of this Lease pursuant to
Section 4 of this Lease, the annual Fixed Rent for the first Lease Year of
the Renewal Term shall be equal to the annual Fixed Rent for
<PAGE>
the last Lease Year of the initial Term and thereafter the annual Fixed Rent
shall increase by five percent (5%) on the commencement of the second, fifth,
and eighth Lease Year of the Renewal Term(s).
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; (iii)
maintain the interior of the second floor of the Building and maintain and
repair all electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment serving the second floor of the Building; and (iv)
any items required to be maintained by Tenant pursuant to Section 6.B. which
were damaged by the negligence or
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more culpable conduct of Landlord or its agents or employees. In addition,
Landlord, at its expense, shall replace any electrical, plumbing, heating, air
conditioning or other mechanical installation if, in Tenant's reasonable
opinion, such electrical, plumbing, heating, air conditioning or other
mechanical installation can no longer be maintained in good condition through
routine repairs and maintenance by Tenant pursuant to Section 6.B. of this
Lease.
B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Premises in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment serving the Premises; (iii) keep the lawn and
landscaping in an attractive condition; (iv) maintain the parking lot, with the
exception of the 30 parking spaces reserved to Landlord pursuant to Section 1
which shall be maintained by Landlord; and (v) as may be necessary, maintain,
repair and/or replace any items to be maintained by Landlord pursuant to Section
6.A. of this Lease if damage to such items is caused by the negligence or more
culpable conduct of Tenant or its agents or employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
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<PAGE>
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity, water and other utilities servicing the Premises.
In addition, Tenant, at Tenant's expense, shall provide for its own garbage
collection and janitorial services for the Premises.
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
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<PAGE>
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in proportion to the reduction in the then rental
value of the Premises after the taking in comparison with the rental value prior
to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Colorado law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless
5
<PAGE>
the cure thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then Tenant may, at Tenant's option, perform any such
term, provision or condition and any payments made by Tenant in connection
therewith shall be immediately due and owing by Landlord to Tenant, and Tenant
shall have the right to deduct the amount thereof, together with the interest at
the maximum legal rate thereon, from the Fixed Rents then due or thereafter
coming due under this Lease. In addition, Tenant shall have a right to terminate
this Lease or exercise any other remedies available to it under Colorado law.
SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the land described on Schedule "A" and the Building
(the "Entire Property") in accordance with the terms of this Section 16.
Landlord shall notify Tenant no later than three (3) business days after
Landlord receives an offer to purchase the Entire Property from a third party,
and Tenant shall thereafter have the right to purchase the Entire Property from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Entire Property from the Landlord. Tenant shall have
twenty (20) days after receipt of Landlord's notice of such offer in which to
notify Landlord in writing whether or not it elects to purchase the Entire
Property. If Tenant elects to purchase the Entire Property, Landlord and Tenant
shall execute a contract providing for the purchase of the Entire Property by
Tenant according to the terms set forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture,
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produce, store, release, discharge, or dispose of, on, under or about the
Premises or land surrounding the Premises (collectively, the "Property") any
Hazardous Materials. Tenant shall, at its sole cost and expense, engage in any
assessment or remediation work required by any federal, state or local laws,
rules, regulations, codes or ordinances in connection with any Hazardous
Materials introduced to the Property by Tenant or Tenant's employees or agents.
To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out of court, at trial,
on appeal or in any bankruptcy or administrative proceeding) incurred by
Landlord as the result of the introduction to the Property by Tenant or Tenant's
agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
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D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will constitute a short form of this Lease, setting forth
the description of the Premises, the terms of this Lease, and any other portions
thereof, excepting the rental provisions, as either party may request. The cost
of preparing and recording this short form of this Lease shall be borne by the
party requesting the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
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requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Colorado and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
A PORTION OF BLOCK 1, GARDNER-DENVER, RECORDED IN FILE 13, MAP 43, ALSO BEING
LOCATED IN THE SOUTH ONE-HALF OF SECTION 16, TOWNSHIP 2 SOUTH, RANGE 67 WEST
OF THE SIXTH PRINCIPAL MERIDIAN, COUNTY OF ADAMS, STATE OF COLORADO.
BASIC OF BEARINGS: THE SOUTHERLY LINE OF THE SOUTHEAST ONE-QUARTER OF
SECTION 16, BEING MONUMENTED AT THE SOUTHEAST CORNER
AND THE SOUTH ONE-QUARTER CORNER BY A 3 1/4" ALUMINUM
CAP, LS 17488 IN A RANGE BOX WITH A LINE BETWEEN
BEARING S89-53'00"W PER THE RECORDED PLAT OF
GARDNER-DENVER.
COMMENCING AT THE SOUTH ONE-QUARTER CORNER OF SAID SECTION 16; THENCE
N80-54'47"E DISTANCE OF 854.31 FEET TO A POINT ON THE EASTERLY LINE OF SAID
BLOCK 1, SAID POINT BEING THE POINT OF BEGINNING; THENCE N59-60'58"W A
DISTANCE OF 810.27 FEET; THENCE N30-56'19"E ALONG A LINE PARALLEL WITH AND
43.83 FEET EASTERLY OF THE WESTERLY LINE OF SAID BLOCK 1 A DISTANCE 331.81
FEET; THENCE S59-04'40"E A DISTANCE OF 580.65 FEET; THENCE N30-55'20"E A
DISTANCE OF 71.06 FEET; THENCE S59-04'40"E A DISTANCE OF 229.64 FEET TO A
POINT IB THE EASTERLY LINE OF SAID BLOCK 1; THENCE S30-56'19"W ALONG SAID
EASTERLY LINE A DISTANCE OF 402.33 FEET TO THE POINT OF BEGINNING.
CONTAINS 284,955 SQUARE FEET OR 6.542 ACRES.
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Exhibit 10.18(b)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the building located thereon (the "Building")
containing approximately 3,000 square feet of office and warehouse space and
having an address of 5565 E. Bijou Street, Colorado Springs, Colorado (the land
and Building are collectively referred to herein as the "Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of Twelve Thousand and 00/100 Dollars ($12,000.00), payable
in monthly installments of One Thousand and 00/100 Dollars ($1,000.00) per
month, payable on the first day of each month, up to and including June 1, 2000.
For the Lease Year commencing on July 1, 2000, the annual Fixed Rent shall
increase by five percent (5%) and the Fixed Rent, as so increased, shall be
annual Fixed Rent until the Lease Termination Date. If Tenant exercises its
option(s) to renew the term of this Lease pursuant to Section 4 of this Lease,
the annual Fixed Rent for the first Lease Year of the Renewal Term shall be
equal to the annual Fixed Rent for the last Lease Year of the initial Term and
thereafter the annual Fixed Rent shall increase by five percent (5%) on the
commencement of the second, fifth, and eighth Lease Year of the Renewal Term(s).
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
<PAGE>
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Building in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive
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condition; (iv) maintain the parking lot; and (v) as may be necessary, maintain,
repair and/or replace any items to be maintained by Landlord pursuant to Section
6.A. of this Lease if damage to such items is caused by the negligence or more
culpable conduct of Tenant or its agents or employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity, water and other utilities servicing the Premises.
In addition, Tenant, at Tenant's expense, shall provide for its own garbage
collection and janitorial services for the Premises.
3
<PAGE>
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in
4
<PAGE>
proportion to the reduction in the then rental value of the Premises after the
taking in comparison with the rental value prior to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Colorado law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter coming due under this Lease. In addition, Tenant shall have a right
to terminate this Lease or exercise any other remedies available to it under
Colorado law.
5
<PAGE>
SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out
6
<PAGE>
of court, at trial, on appeal or in any bankruptcy or administrative proceeding)
incurred by Landlord as the result of the introduction to the Property by Tenant
or Tenant's agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will constitute a short form of this Lease, setting forth
the description of the Premises, the terms of this Lease, and any other portions
thereof, excepting the rental provisions, as either party may
7
<PAGE>
request. The cost of preparing and recording this short form of this Lease shall
be borne by the party requesting the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
8
<PAGE>
requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel, Smith
& Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Colorado and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
10
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
11
<PAGE>
SCHEDULE A
Legal Description
Being approximately three acres as shown on the drawing below out of the
following described property:
The West half of the Southwest quarter of the Northeast quarter of Section
13, Township 14 South, Range 66 West of the 6th P.M., except the Southerly,
Northerly and Easterly 35 feet thereof,
County of El Paso
State of Colorado.
[MAP]
<PAGE>
[JEH/EAGLE SUPPLY, INC. LETTERHEAD]
November 14, 1997
Mr. Jim E. Helzer
JEH/EAGLE SUPPLY, INC.
2500 U.S. 287
Mansfield, Texas 76063
Re: Lease for Colorado Springs, Colorado, Facility
Dear Jim:
Reference is made to your Memo to me dated November 12, 1997 in which you
request an increase in the fixed rent for the Colorado Springs facility from
$1,000 per month to $1,600 per monthh beginning November 1, 1997. Please
accept this letter as our formal approval of this increase in fixed rent.
I am attaching a copy of this letter and your Memo to me dated November 12,
1997 to the Lease between us for the Colorado Springs facility.
Doug and I are looking forward to seeing you in Tampa on Monday.
Regards.
Sincerely yours,
JEH/EAGLE SUPPLY, INC.
/s/ Fred
------------------------
Frederick M. Friedman
Vice President
<PAGE>
[JEH COMPANY LETTERHEAD]
November 12, 1997
TO: Fred Friedman
FROM: J.E. Helzer
RE: Colorado Springs Rent
I am in the process of expanding the facility in Colorado Springs to
encompass a new building, concrete slab, water, sewer and perimeter security
fence.
I spent $85,000 in October for the new slab (33,000+ SF), and will spend
$11,000 and $13,000 this month for the new fence and water line, respectively.
The new building and sewer line are pending a revised plat that is currently
in process, but will not be approved by the City of Colorado Springs until
sometime this winter.
Based on those sums already expended, I am requesting an increase in rent
from $1,000 per month to $1,600 per month starting November 1, 1997.
Your approval and/or comment is requested.
<PAGE>
Exhibit 10.18(c)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the three (3) buildings located thereon (the
"Buildings") containing approximately 8,000 square feet of office space and
19,500 square feet of warehouse space and having addresses of 2500 U.S. Highway
287, 2550 U.S. Highway 287, and 2552 U.S. Highway 287, Mansfield, Texas (the
land and Buildings are collectively referred to herein as the "Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of One Hundred Fifty-Three Thousand Two Hundred Twenty-Eight
and 00/100 Dollars ($153,228.00), payable in monthly installments of Twelve
Thousand Seven Hundred Sixty-Nine and 00/100 Dollars ($12,769.00) per month,
payable on the first day of each month, up to and including June 1, 2000. For
the Lease Year commencing on July 1, 2000, the annual Fixed Rent shall increase
by five percent (5%) and the Fixed Rent, as so increased, shall be annual Fixed
Rent until the Lease Termination Date. If Tenant exercises its option(s) to
renew the term of this Lease pursuant to Section 4 of this Lease, the annual
Fixed Rent for the first Lease Year of the Renewal Term shall be equal to the
annual Fixed Rent for the last Lease Year of the initial Term and thereafter the
annual Fixed Rent shall increase by five percent (5%) on the commencement of the
second, fifth, and eighth Lease Year of the Renewal Term(s).
<PAGE>
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Buildings, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Buildings; (ii) insure watertightness of the Buildings (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
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B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Buildings in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive condition; (iv) maintain the parking lot; and (v) as may be
necessary, maintain, repair and/or replace any items to be maintained by
Landlord pursuant to Section 6.A. of this Lease if damage to such items is
caused by the negligence or more culpable conduct of Tenant or its agents or
employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Buildings, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity,
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water and other utilities servicing the Premises. In addition, Tenant, at
Tenant's expense, shall provide for its own garbage collection and janitorial
services for the Premises.
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Buildings shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Buildings shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Buildings to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate
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part of the Fixed Rent payable hereunder shall be abated from the date of such
taking until ten (10) days after Landlord has restored the Premises and
thereafter the Fixed Rent shall be reduced in proportion to the reduction in the
then rental value of the Premises after the taking in comparison with the rental
value prior to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Texas law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter
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coming due under this Lease. In addition, Tenant shall have a right to terminate
this Lease or exercise any other remedies available to it under Texas law.
SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
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To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out of court, at trial,
on appeal or in any bankruptcy or administrative proceeding) incurred by
Landlord as the result of the introduction to the Property by Tenant or Tenant's
agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will
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constitute a short form of this Lease, setting forth the description of the
Premises, the terms of this Lease, and any other portions thereof, excepting the
rental provisions, as either party may request. The cost of preparing and
recording this short form of this Lease shall be borne by the party requesting
the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
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requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Texas and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
Lots 1, 2, 3 and 4, Block 1, HELZER ADDITION, an addition to the City of
Mansfield, Tarrant County, Texas, according to the plat thereof filed of
record in the plat records of Tarrant County, Texas; SAVE AND EXCEPT, that
portion of Lot 1 which is cross-hatched on the drawing below.
[SURVEY MAP OF LAND]
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Exhibit 10.18(c)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the building located thereon (the "Building")
containing approximately 30,000 square feet of warehouse space and having an
address of 603 Wisteria, Mansfield, Texas (the land and Building are
collectively referred to herein as the "Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of Sixty Thousand and No/100 Dollars ($60,000.00), payable in
monthly installments of Five Thousand and No/100 Dollars ($5,000.00) per month,
payable on the first day of each month, up to and including June 1, 2000. For
the Lease Year commencing on July 1, 2000, the annual Fixed Rent shall increase
by five percent (5%) and the Fixed Rent, as so increased, shall be annual Fixed
Rent until the Lease Termination Date. If Tenant exercises its option(s) to
renew the term of this Lease pursuant to Section 4 of this Lease, the annual
Fixed Rent for the first Lease Year of the Renewal Term shall be equal to the
annual Fixed Rent for the last Lease Year of the initial Term and thereafter the
annual Fixed Rent shall increase by five percent (5%) on the commencement of the
second, fifth, and eighth Lease Year of the Renewal Term(s).
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
<PAGE>
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Building in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive
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condition; (iv) maintain the parking lot; and (v) as may be necessary, maintain,
repair and/or replace any items to be maintained by Landlord pursuant to Section
6.A. of this Lease if damage to such items is caused by the negligence or more
culpable conduct of Tenant or its agents or employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity, water and other utilities servicing the Premises.
In addition, Tenant, at Tenant's expense, shall provide for its own garbage
collection and janitorial services for the Premises.
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SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in
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proportion to the reduction in the then rental value of the Premises after the
taking in comparison with the rental value prior to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Texas law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter coming due under this Lease. In addition, Tenant shall have a right
to terminate this Lease or exercise any other remedies available to it under
Texas law.
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SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out
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of court, at trial, on appeal or in any bankruptcy or administrative proceeding)
incurred by Landlord as the result of the introduction to the Property by Tenant
or Tenant's agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will constitute a short form of this Lease, setting forth
the description of the Premises, the terms of this Lease, and any other portions
thereof, excepting the rental provisions, as either party may
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request. The cost of preparing and recording this short form of this Lease shall
be borne by the party requesting the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
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requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Texas and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
Lot 5R, Block 50, HILLCREST ADDITION, an addition to the City of
Mansfield, Tarrant County, Texas, according to the plat thereof filed of
record in the plat records of Tarrant County, Texas.
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Exhibit 10.18(d)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the building located thereon (the "Building")
containing approximately 1,500 square feet of office space and 5,000 square feet
of warehouse space and having an address of 1800 Tarrant Lane, Colleyville,
Texas (the land and Building are collectively referred to herein as the
"Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of Forty-Two Thousand and 00/100 Dollars ($42,000.00),
payable in monthly installments of Three Thousand Five Hundred and 00/1000
Dollars ($3,500.00) per month, payable on the first day of each month, up to and
including June 1, 2000. For the Lease Year commencing on July 1, 2000, the
annual Fixed Rent shall increase by five percent (5%) and the Fixed Rent, as so
increased, shall be annual Fixed Rent until the Lease Termination Date. If
Tenant exercises its option(s) to renew the term of this Lease pursuant to
Section 4 of this Lease, the annual Fixed Rent for the first Lease Year of the
Renewal Term shall be equal to the annual Fixed Rent for the last Lease Year of
the initial Term and thereafter the annual Fixed Rent shall increase by five
percent (5%) on the commencement of the second, fifth, and eighth Lease Year of
the Renewal Term(s).
<PAGE>
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
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B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Building in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive condition; (iv) maintain the parking lot; and (v) as may be
necessary, maintain, repair and/or replace any items to be maintained by
Landlord pursuant to Section 6.A. of this Lease if damage to such items is
caused by the negligence or more culpable conduct of Tenant or its agents or
employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity,
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water and other utilities servicing the Premises. In addition, Tenant, at
Tenant's expense, shall provide for its own garbage collection and janitorial
services for the Premises.
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
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the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in proportion to the reduction in the then rental
value of the Premises after the taking in comparison with the rental value prior
to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Texas law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter
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coming due under this Lease. In addition, Tenant shall have a right to terminate
this Lease or exercise any other remedies available to it under Texas law.
SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
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To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out of court, at trial,
on appeal or in any bankruptcy or administrative proceeding) incurred by
Landlord as the result of the introduction to the Property by Tenant or Tenant's
agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will
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constitute a short form of this Lease, setting forth the description of the
Premises, the terms of this Lease, and any other portions thereof, excepting the
rental provisions, as either party may request. The cost of preparing and
recording this short form of this Lease shall be borne by the party requesting
the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
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requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Texas and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered
in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
Lot 1R, Block 2, PONCE ADDITION, an addition to the City of Colleyville,
Tarant County, Texas, according to the plat thereof filed of record in the
plat records of Tarrant County, Texas.
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Exhibit 10.18(e)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the building located thereon (the "Building")
containing approximately 5,000 square feet of office space and 12,000 square
feet of warehouse space and having an address of 4400 Preston Road, Frisco,
Texas (the land and Building are collectively referred to herein as the
"Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of Sixty Thousand and No/100 Dollars ($60,000.00), payable in
monthly installments of Five Thousand and No/100 Dollars ($5,000.00) per month,
payable on the first day of each month, up to and including June 1, 2000. For
the Lease Year commencing on July 1, 2000, the annual Fixed Rent shall increase
by five percent (5%) and the Fixed Rent, as so increased, shall be annual Fixed
Rent until the Lease Termination Date. If Tenant exercises its option(s) to
renew the term of this Lease pursuant to Section 4 of this Lease, the annual
Fixed Rent for the first Lease Year of the Renewal Term shall be equal to the
annual Fixed Rent for the last Lease Year of the initial Term and thereafter the
annual Fixed Rent shall increase by five percent (5%) on the commencement of the
second, fifth, and eighth Lease Year of the Renewal Term(s).
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
<PAGE>
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. [Intentionally Omitted]
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Building in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive condition; (iv) maintain the parking lot; and (v) as may be
necessary, maintain, repair and/or replace any items to be maintained by
Landlord pursuant to Section 6.A. of this Lease if damage to such items is
caused by the negligence or more culpable conduct of Tenant or its agents or
employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises.
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Such policy shall be written by an insurance company which is authorized to do
business in the State in which the Premises is located and shall be in the
amount of not less than a combined single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity, water and other utilities servicing the Premises.
In addition, Tenant, at Tenant's expense, shall provide for its own garbage
collection and janitorial services for the Premises.
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business
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operations on the Premises); provided, however, if the damage to the Premises
(i) cannot be repaired or restored within one hundred twenty (120) days
following the occurrence of the fire or other casualty, or (ii) the damage to
the Premises can be repaired or restored within that period, but such damage is
not repaired or restored during that period, then Tenant may terminate this
Lease, effective as of the date of the occurrence of the fire or other casualty
by giving written notice to Landlord. If Tenant elects to terminate this Lease,
this Lease shall be deemed to have been terminated as of the date of the fire or
other casualty, and any advance payments on account of Fixed Rent received by
Landlord from Tenant for periods after the fire or other casualty shall be
refunded to Tenant. Insurance proceeds with respect to the fire or other
casualty shall be payable to Landlord and Tenant as their respective interests
may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in proportion to the reduction in the then rental
value of the Premises after the taking in comparison with the rental value prior
to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
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SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Texas law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter coming due under this Lease. In addition, Tenant shall have a right
to terminate this Lease or exercise any other remedies available to it under
Texas law.
SECTION 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the
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Premises are a part. All materialmen, contractors, artisans, mechanics and
laborers and other persons contracting with Tenant with respect to the Premises
or any part thereof, or any such party who may avail himself of any lien against
the realty (whether same shall proceed in law or in equity) are hereby charged
with notice that they shall look solely to Tenant to secure payment of any
amounts due for work done or material furnished to Tenant at the Premises.
Tenant shall advise all persons furnishing designs, labor, materials or services
to the Premises in connection with Tenant's improvement(s) thereof of the
provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out of court, at trial,
on appeal or in any bankruptcy or administrative proceeding) incurred by
Landlord as the result of the introduction to the Property by Tenant or Tenant's
agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
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To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will constitute a short form of this Lease, setting forth
the description of the Premises, the terms of this Lease, and any other portions
thereof, excepting the rental provisions, as either party may request. The cost
of preparing and recording this short form of this Lease shall be borne by the
party requesting the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
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SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt requested, or by express or courier service, at
the foregoing address until Tenant is notified otherwise in writing. All notices
given to Tenant hereunder shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
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SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Texas and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered
in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
Lot 1, Block A, HELZER ADDITION, an addition to the City of Frisco, Collin
County, Texas, according to the plat thereof filed of record in the plat
records of Collin County, Texas.
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Exhibit 10.18(f)
LEASE
THIS LEASE (the "Lease") is made effective as of the 1st day of July,
1997, between JAMES E. HELZER ("Landlord"), having an address of 8110 Russell
Curry Road, Arlington, Texas 76017, and JEH ACQUISITION CORP., a Delaware
corporation, having an address of c/o TDA Industries, Inc., 122 East 42nd
Street, Suite 1116, New York, New York 10168 ("Tenant").
W I T N E S E T H:
SECTION 1. PREMISES. In consideration of the rent agreed to be paid by
Tenant to Landlord, and in consideration of the covenants of the respective
parties set forth in this Lease, Landlord leases and lets unto Tenant, and
Tenant leases from Landlord, the land legally described on Schedule "A" attached
hereto and made a part hereof, and the building located thereon (the "Building")
containing approximately 10,000 square feet of office and warehouse space and
having an address of 901 Dalworth Drive, Mesquite, Texas (the land and Building
are collectively referred to herein as the "Premises").
SECTION 2. TERM OF LEASE. The term of this Lease shall be for a term of
five (5) years commencing on July 1, 1997 (the "Lease Commencement Date") and
ending on June 30, 2002 (the "Lease Termination Date"). The term "Lease Year" as
used herein shall mean the twelve consecutive month period commencing on the
Lease Commencement Date and each twelve consecutive month period thereafter
during the Lease term.
SECTION 3. RENTAL. Tenant covenants and agrees that it will pay to
Landlord for the use of the Premises the following rental:
A. Fixed Rent. For the period commencing on the Lease Commencement Date
until June 30, 2000, Tenant shall pay fixed rent ("Fixed Rent") for the Premises
at the annual rate of Forty Thousand Eight Hundred and 00/100 Dollars
($40,800.00), payable in monthly installments of Three Thousand Four Hundred and
00/100 Dollars ($3,400.00) per month, payable on the first day of each month, up
to and including June 1, 2000. For the Lease Year commencing on July 1, 2000,
the annual Fixed Rent shall increase by five percent (5%) and the Fixed Rent, as
so increased, shall be annual Fixed Rent until the Lease Termination Date. If
Tenant exercises its option(s) to renew the term of this Lease pursuant to
Section 4 of this Lease, the annual Fixed Rent for the first Lease Year of the
Renewal Term shall be equal to the annual Fixed Rent for the last Lease Year of
the initial Term and thereafter the annual Fixed Rent shall increase by five
percent (5%) on the commencement of the second, fifth, and eighth Lease Year of
the Renewal Term(s).
<PAGE>
B. Sales, Use and Excise Taxes. Tenant shall also pay with all Fixed
Rent due under this Lease an amount equal to any tax on all amounts classified
as rent which may be now or hereafter imposed by any lawful authority or agency.
C. Representation by Landlord. Landlord represents to Tenant that the
Fixed Rent does not exceed the fair rental value of the Premises as of the date
hereof.
D. Due Date of Fixed Rent Payments. Except as otherwise expressly
stated herein, all Fixed Rent due from Tenant shall be payable on the first day
of each month during the term of this Lease, in advance, at the same address
designated for the giving of notices to Landlord under this Lease.
SECTION 4. EXTENSIONS. Tenant has two (2) options to extend the term of
this Lease for two (2) additional periods of five (5) years each (individually
an "Extension Term" and collectively the "Extension Terms") to commence
immediately upon the expiration of the initial term or immediately preceding
Extension Term, as the case may be, upon the same terms and conditions as
contained in this Lease. In order to exercise the renewal options granted
herein, Tenant shall notify Landlord in writing not less than thirty (30) days
prior to the expiration of the initial term or the Extension Term, as the case
may be, that it is exercising its option to renew the term. Fixed Rent during
each Extension Term shall be determined in accordance with the procedures set
forth in Section 3A. of this Lease.
SECTION 5. USE OF PREMISES. The Premises shall be used for any purpose
permitted by applicable laws, including a warehouse and showroom for roofing
materials and supplies and other building supplies and materials. At all times
during the term of this Lease, Tenant shall maintain and keep in effect all
permits and licenses necessary for the operation of Tenant's business on the
Premises and conduct its business in a lawful manner.
SECTION 6. MAINTENANCE AND CARE OF PREMISES.
A. Landlord shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner make all maintenance, repairs and
replacements to (i) the structural components of the Building, including,
without limitation, the roof, roofing system, exterior walls, bearing walls,
support beams, foundations, columns, exterior doors, and windows and lateral
support to the Building; (ii) insure watertightness of the Building (including
caulking of the flashings) and repairs to the roof, roofing system, curtain
walls, windows and skylights if required to insure watertightness; and (iii) any
items required to be maintained by Tenant pursuant to Section 6.B. which were
damaged by the negligence or more culpable conduct of Landlord or its agents or
employees. In addition, Landlord, at its expense, shall replace any electrical,
plumbing, heating, air conditioning or other mechanical installation if, in
Tenant's reasonable opinion, such electrical, plumbing, heating, air
conditioning or other mechanical installation can no longer be maintained in
good condition through routine repairs and maintenance by Tenant pursuant to
Section 6.B. of this Lease.
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B. Tenant shall, at its own cost and expense, diligently,
promptly and in a good workmanlike manner: (i) maintain the interior of the
Building in a clean and attractive condition; (ii) maintain and repair all
electrical, plumbing, heating, air conditioning or other mechanical
installations and equipment; (iii) keep the lawn and landscaping in an
attractive condition; (iv) maintain the parking lot; and (v) as may be
necessary, maintain, repair and/or replace any items to be maintained by
Landlord pursuant to Section 6.A. of this Lease if damage to such items is
caused by the negligence or more culpable conduct of Tenant or its agents or
employees.
SECTION 7. INSURANCE. Tenant, at its sole expense, shall procure and
maintain during the term of this Lease a general commercial liability policy of
insurance insuring and naming Landlord and Tenant against liability occasioned
by accident on or about the Premises. Such policy shall be written by an
insurance company which is authorized to do business in the State in which the
Premises is located and shall be in the amount of not less than a combined
single limit of not less than $1,000,000.00.
Landlord shall, at Landlord's sole expense, procure and maintain during
the term of this Lease fire and extended coverage, vandalism and malicious
mischief insurance with an "All Risks" endorsement, naming both Landlord and
Tenant as insured parties and loss payees (as their interests may appear)
against loss by fire, flood, windstorm and all other insurable casualties in an
amount no less than eighty percent (80%) the full replacement value of the
Building, or such other amount as may be agreed upon by Landlord and Tenant.
SECTION 8. ASSIGNMENT OR SUBLETTING. Tenant shall not assign this Lease
or any estate or interest therein, or sublet the Premises or any part thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything else to the contrary
contained in this Lease, Tenant shall have the right, without the consent of
Landlord, to assign this Lease or sublet all or part of the Premises to a
Related Corporation of Tenant (as hereinafter defined) or to a Successor
Corporation of Tenant (as hereinafter defined). The term "Related Corporation"
shall mean a corporation, partnership or other business entity, which, directly
or indirectly, controls, is controlled by, or is under common control with
another corporation, partnership or other business entity of Tenant. If more
than fifty percent (50%) of the voting stock of the corporation shall be owned
by another corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled by the
corporation, partnership or business entity owning such stock. The term
"Successor Corporation" shall mean a corporation or other business entity into
or with which another corporation or business entity shall be merged or
consolidated or to which all or substantially all of the assets of such other
corporation or other business entity shall be transferred.
SECTION 9. TAXES, ASSESSMENTS AND UTILITIES. Landlord covenants and
agrees to pay promptly before delinquency all charges for real estate taxes and
assessments; and Tenant covenants and agrees to pay promptly before delinquency
all charges for electricity,
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water and other utilities servicing the Premises. In addition, Tenant, at
Tenant's expense, shall provide for its own garbage collection and janitorial
services for the Premises.
SECTION 10. CASUALTY.
If during the term of this Lease the Premises are damaged or destroyed
by fire or other casualty, Landlord agrees, at its sole expense, promptly to
repair and restore the Premises in the same condition they were in immediately
prior to the damage or destruction. During such period of repair and
restoration, the Fixed Rent shall abate or be reduced to the extent that Tenant
is deprived of the full use of the Premises (the amount of such abatement shall
be based on both the physical extent of the damage or destruction and the extent
to which the damage or destruction causes interference with or impairment of the
operation of the business of Tenant, having regard to the extent to which Tenant
may be required to discontinue or alter its business operations on the
Premises); provided, however, if the damage to the Premises (i) cannot be
repaired or restored within one hundred twenty (120) days following the
occurrence of the fire or other casualty, or (ii) the damage to the Premises can
be repaired or restored within that period, but such damage is not repaired or
restored during that period, then Tenant may terminate this Lease, effective as
of the date of the occurrence of the fire or other casualty by giving written
notice to Landlord. If Tenant elects to terminate this Lease, this Lease shall
be deemed to have been terminated as of the date of the fire or other casualty,
and any advance payments on account of Fixed Rent received by Landlord from
Tenant for periods after the fire or other casualty shall be refunded to Tenant.
Insurance proceeds with respect to the fire or other casualty shall be payable
to Landlord and Tenant as their respective interests may appear.
SECTION 11. EMINENT DOMAIN.
A. In the event that: (i) the whole or any part of the Building shall
be taken during the term of this Lease or any extension or renewal thereof for
any public or quasi-public use under any governmental law, ordinance, regulation
or by right of eminent domain, (ii) all or any portion of the parking area for
the Building shall be taken for any public or quasi-public use so as to, in
Tenant's reasonable judgment, render the parking inadequate for Tenant's
business; or (iii) if access to the adjacent roadways from the existing curb
cuts shall be denied as a result of a taking for any public or quasi-public use
(any of such events being hereinafter referred to as a "taking"), Tenant shall
have the option of terminating this Lease as of a date no later than the date
possession is required by the condemning authority, such termination date to be
specified in a notice of termination to be given by Tenant to Landlord. Fixed
Rent shall be prorated as of the termination date and any advance payments on
account of Fixed Rent received by Landlord from Tenant for periods after the
taking shall be refunded to Tenant.
B. In the event of any taking which does not give rise to an option to
terminate or in the event of a taking which does give rise to an option to
terminate and Tenant elects not to terminate, Landlord shall promptly restore or
repair the Building to the same condition as existed immediately prior to such
taking insofar as is reasonably possible. The award and any excess shall be held
in trust by Landlord and used for such purpose. A just and proportionate part of
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the Fixed Rent payable hereunder shall be abated from the date of such taking
until ten (10) days after Landlord has restored the Premises and thereafter the
Fixed Rent shall be reduced in proportion to the reduction in the then rental
value of the Premises after the taking in comparison with the rental value prior
to the taking.
C. Landlord shall not agree to any condemnation award without the prior
written consent of Tenant, which will not be unreasonably withheld or delayed.
D. In the event of any taking Tenant shall have the right to recover
from the condemning authority: (i) Tenant's moving expenses; (ii) depreciation
to and cost of removing Tenant's trade fixtures; (iii) Tenant's loss of
business; and (iv) the value of the loss of the leasehold estate.
SECTION 12. TENANT DEFAULT. If Tenant shall fail to pay the Fixed Rent
or other charges required to be paid by Tenant hereunder or to observe any of
the covenants or obligations on Tenant's part to be performed hereunder or to
comply with any of the other provisions of this Lease, such act or omission
shall constitute a default by Tenant under this Lease. In the event of a default
by Tenant, Landlord may give written notice to Tenant and if Tenant thereafter
fails to cure any such default involving the payment of money within ten (10)
days after the date on which such notice was given, or if the default involves
some act or omission other than the payment of money and shall not be cured
within thirty (30) days after the date on which such notice was given (provided,
however, if the default involves some act or omission other than the payment of
money which cannot be cured within thirty (30) days after the date on which such
notice was given, Landlord shall not exercise any remedies unless the cure
thereof is not undertaken promptly within such period and thereafter
expeditiously completed), then in any such event the Landlord shall have the
right to terminate this Lease or exercise any other remedies available to it
under Texas law.
SECTION 13. LANDLORD DEFAULT. If Landlord shall fail to pay when due
any amounts required to be paid by Landlord under this Lease or to observe any
of the covenants or obligations on Landlord's part to be performed under this
Lease or to comply with any other provisions of this Lease, such act or omission
shall constitute a default by Landlord under this Lease. In the event of a
default by Landlord, Tenant may give written notice to Landlord and if Landlord
thereafter fails to cure any such default involving the payment of money within
ten (10) days after the date on which such notice was given, or if the default
involves some act or omission other than the payment of money and shall not be
cured within thirty (30) days after the date on which such notice was given
(provided, however, if the default involves some act or omission other than the
payment of money which cannot be cured within thirty (30) days after the date on
which such notice was given, Tenant shall not exercise any of its remedies
unless the cure thereof is not undertaken promptly within such period and
thereafter expeditiously completed), then Tenant may, at Tenant's option,
perform any such term, provision or condition and any payments made by Tenant in
connection therewith shall be immediately due and owing by Landlord to Tenant,
and Tenant shall have the right to deduct the amount thereof, together with the
interest at the maximum legal rate thereon, from the Fixed Rents then due or
thereafter
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coming due under this Lease. In addition, Tenant shall have a right to terminate
this Lease or exercise any other remedies available to it under Texas law.
Section 14. ATTORNEY'S FEES In the event of any litigation arising out
of this Lease between Landlord and Tenant, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all costs
and expenses incurred in connection with such litigation, including reasonable
attorneys' fees and paralegals' fees, whether incurred prior to trial, at trial,
on appeal or in any bankruptcy or administrative proceeding.
SECTION 15. COVENANT AGAINST LIENS. Landlord's interest in the Premises
shall not be subject to liens for improvements made by Tenant and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
Tenant's leasehold or to the estate, reversion or other estate of Landlord in
the Premises or on the improvements of which the Premises are a part. All
materialmen, contractors, artisans, mechanics and laborers and other persons
contracting with Tenant with respect to the Premises or any part thereof, or any
such party who may avail himself of any lien against the realty (whether same
shall proceed in law or in equity) are hereby charged with notice that they
shall look solely to Tenant to secure payment of any amounts due for work done
or material furnished to Tenant at the Premises. Tenant shall advise all persons
furnishing designs, labor, materials or services to the Premises in connection
with Tenant's improvement(s) thereof of the provisions of this Section.
SECTION 16. RIGHT OF FIRST REFUSAL. Landlord grants Tenant the right of
first refusal to purchase the Premises in accordance with the terms of this
Section 16. Landlord shall notify Tenant no later than three (3) business days
after Landlord receives an offer to purchase the Premises from a third party,
and Tenant shall thereafter have the right to purchase the Premises from
Landlord on the same terms and conditions as stated in the offer made by the
third party to purchase the Premises from the Landlord. Tenant shall have twenty
(20) days after receipt of Landlord's notice of such offer in which to notify
Landlord in writing whether or not it elects to purchase the Premises. If Tenant
elects to purchase the Premises, Landlord and Tenant shall execute a contract
providing for the purchase of the Premises by Tenant according to the terms set
forth in the third party's offer.
SECTION 17. [INTENTIONALLY OMITTED]
SECTION 18. HAZARDOUS WASTE.
A. Except for Hazardous Materials (as defined in Section 18.C. of this
Lease) as may typically be found in building material businesses, Tenant shall
not use, generate, manufacture, produce, store, release, discharge, or dispose
of, on, under or about the Premises or land surrounding the Premises
(collectively, the "Property") any Hazardous Materials. Tenant shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials introduced to the Property by Tenant or
Tenant's employees or agents.
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To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord from and against any and
all claims, liabilities, losses, actions, costs and expenses (including
attorneys' fees and costs of defense, whether incurred out of court, at trial,
on appeal or in any bankruptcy or administrative proceeding) incurred by
Landlord as the result of the introduction to the Property by Tenant or Tenant's
agents or employees of any Hazardous Materials.
B. Landlord represents and warrants to Tenant that there are no
Hazardous Materials located in, on or under the Property. Landlord shall, at its
sole cost and expense, engage in any assessment or remediation work required by
any federal, state or local laws, rules, regulations, codes or ordinances in
connection with any Hazardous Materials used existing, stored, released or
disposed of on or about the Property, except for any Hazardous Materials
introduced to the Property by Tenant or Tenant's agents or employees.
To the extent provided by then applicable law, Landlord shall protect,
indemnify, defend and hold harmless Tenant from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees and
costs of defense, whether incurred out of court, at trial, on appeal or in any
bankruptcy or administrative proceeding) incurred by Tenant as a result of (i) a
breach of any of Landlord's representations and warranties set forth in Section
18.B. of this Lease; or (ii) any use, generation, manufacture, production,
storage, introduction, release, discharge or disposal of on, under or about the
Property of any Hazardous Material, except for those Hazardous Materials
introduced to the Property by Tenant.
C. "Hazardous Materials" shall include, without limitation, (i)
those substances included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" under all present
and future federal, state and local laws (whether under common law, statute,
rule, regulation or otherwise) relating to the protection of human health or
the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., all
as heretofore and hereafter amended, or in any regulations promulgated
pursuant to said laws; (ii) such other substances, materials and wastes which
are or become regulated under applicable local, state or federal law or by
the United States government or which are or become classified as hazardous
or toxic under federal, state or local laws or regulations; and (ii) any
material, waste or substance which contains petroleum, asbestos or
polychlorinated biphenyls, is designated as a "hazardous substance" pursuant
to Section 311 of the Clean Water Act of 1977, 33 U.S.C. Sections 1251, et
seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean
Water Act of 1977 (33 U.S.C. Section 1317) or contains any flammable,
explosive or radioactive material.
D. The terms and provisions of this Section 18 shall survive the
termination of this Lease.
SECTION 19. SHORT-FORM LEASE. The parties agree, at the request of
either party, to promptly execute two (2) originals of an instrument, in
recordable form, which will
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constitute a short form of this Lease, setting forth the description of the
Premises, the terms of this Lease, and any other portions thereof, excepting the
rental provisions, as either party may request. The cost of preparing and
recording this short form of this Lease shall be borne by the party requesting
the execution and recording of the same.
SECTION 20. FORCE MAJEURE. Anything in this Lease to the contrary
notwithstanding, neither Landlord nor Tenant shall be deemed in default with
respect to the performance of any of the terms, covenants and conditions of this
Lease and the other party shall not be entitled to exercise any remedies stated
herein or available at law or in equity if a failure to perform shall be due to
any strike, lockout, civil commotion, war-like operation, invasion, rebellion,
hostilities, military or usurped power, sabotage, governmental regulations or
controls, inability to obtain any material, service or financing, Acts of God or
other cause beyond the control of Landlord or Tenant, as the case may be.
SECTION 21. SURRENDER OF DEMISED PREMISES. Tenant shall deliver and
surrender to Landlord possession of the Premises upon expiration of this Lease,
and Tenant shall remove all of Tenant's personal property, trade fixtures and
equipment from the Premises upon expiration of this Lease.
SECTION 22. QUIET ENJOYMENT. Landlord represents that it has title to
the land described on Schedule "A" and full right and authority to lease the
Premises, and Tenant shall peacefully and quietly hold and enjoy the Premises
for the full term hereof so long as it does not default in the performance of
any of the provisions hereof beyond applicable grace periods.
SECTION 23. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any lien
it may have, statutory or otherwise, on any of Tenant's property, furniture,
fixtures and equipment on the Premises during the entire term of this Lease, and
Landlord agrees to execute any written instrument confirming such waiver as may
be requested by Tenant or Tenant's lender.
SECTION 24. NOTICES. The Fixed Rent accruing hereunder shall be paid
to Landlord at the following address:
Mr. James E. Helzer
8110 Russell Curry Road
Arlington, Texas 76017
until Tenant is notified otherwise in writing and all notices given to Landlord
hereunder shall be forwarded to Landlord postage prepaid, by registered or
certified mail, return receipt
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requested, or by express or courier service, at the foregoing address until
Tenant is notified otherwise in writing. All notices given to Tenant hereunder
shall be forwarded to Tenant at:
Mr. Fred Friedman
JEH Acquisition Corp.
c/o TDA Industries, Inc.
122 E. 42nd Street, Suite 1116
New York, New York 10168
with a copy to: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602-5799
Attn: Nathaniel L. Doliner, Esquire
by registered or certified mail, return receipt requested, postage prepaid, or
by personal delivery or express or courier service, until Landlord is notified
otherwise in writing. Any notice or demand required to be given or that may be
given hereunder shall be deemed complete upon the date of receipt thereof, or if
delivery is refused, on the date of attempted delivery thereof. Either party
hereto may change its address to any other address in the United States of
America by notice in writing given to the other party in the manner herein
provided.
SECTION 25. TITLE OF SECTIONS. The titles of the sections throughout
this Lease are for convenience and reference only and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
SECTION 26. BINDING EFFECT. Except as herein otherwise expressly
provided, the terms and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and assigns
of Landlord and the permitted assigns of Tenant.
SECTION 27. INVALIDITY OF PARTICULAR PROVISION. If any term or
provision of this Lease or the application hereof to any person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this Lease or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
SECTION 28. CONSTRUCTION. This Lease has been executed in the State
of Texas and shall be construed in accordance with the laws thereof.
SECTION 29. ENTIRE AGREEMENT. This Lease and the Schedule attached
hereto and by reference made a part hereof constitute the entire agreement
between the parties hereto and no portion thereof may be altered, modified or
amended in any manner whatsoever unless same shall be in writing and signed by
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease
effective as of the date first above written.
Signed, sealed and delivered in the presence of:
[Illegible] /s/ JAMES E. HELZER
- --------------------------------- -----------------------------------
Name: [Illegible] JAMES E. HELZER
[Illegible]
- ---------------------------------
Name: [Illegible] LANDLORD
Witnesses as To Landlord
[Illegible]
- --------------------------------- JEH ACQUISITION CORP., a Delaware
Name: [Illegible] corporation
[Illegible] By: [Illegible]
- --------------------------------- ----------------------------
Name: [Illegible] Name:
----------------------------
Its:
----------------------------
Witnesses as to Tenant
TENANT
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SCHEDULE "A"
LEGAL DESCRIPTION OF LAND
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SCHEDULE A
Legal Description
Lot 3, Block A, DALWORTH INDUSTRIAL DISTRICT, an addition to the
City of Mesquite, Dallas County, Texas, according to the plat thereof filed
of record in Volume 165, Page 2087, Map Records of Dallas County, Texas.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Eagle Supply Group,
Inc. on Form S-1 of our report dated September 12, 1997 (November 13, 1997 as
to the second paragraph and February 9, 1998 as to the third paragraph of
Note 6 and December 12, 1997 as to the first paragraph of Note 4), appearing
in the Prospectus, which is part of this Registration Statement and to the
reference to us under the heading "Experts" in such prospectus.
We also consent to the use in this Registration Statement of Eagle Supply
Group, Inc. on Form S-1 of our report dated September 3, 1997 (November 13,
1997 as to the second paragraph of Note 8), on the examination of the balance
sheets of Eagle Supply, Inc. as of June 30, 1997 and 1996 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1997, appearing in the Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
April 28, 1998
New York, New York
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Eagle Supply
Group, Inc. on Form S-1 of our reports dated August 20, 1997, appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
WATERS, MURRAY & ASSOCIATES
/s/ WATERS, MURRAY & ASSOCIATES
- -------------------------------
April 30, 1998
<PAGE>
EXHIBIT 23.7
To: The Board of Directors
Eagle Supply Group, Inc.
I hereby consent to serve as a director and vice chairman of the board of
directors of Eagle Supply Group, Inc. (the "Company") after the effective
date of the Company's Registration Statement on Form S-1 (File No. 333-9951)
and to the use of my name in such Registration Statement.
Dated: April 20, 1998
/s/ James E. Helzer
-------------------------------
James E. Helzer
