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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
MEGAWORLD, INC.
(Name of Small Business Issuer in its charter)
Delaware 11-3118271
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6250 North Rosslyn Road, Houston, Texas 77091-3410
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713)462-6906
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered Each class is to be registered
none
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $0.0001 par value
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(Title of Class)
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains statements relating to future
results of the Company (including certain projections and business trends) that
are "forward-looking statements" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended. All statements, other than statements of historical fact,
included in this Registration Statement regarding the Company's financial
position, future net revenues, net income, potential evaluations, business
strategy and plans and objectives for future operations are "forward-looking
statements." Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurance
that such assumptions will prove to be correct. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including, but not limited to, changes in political and economic conditions,
regulatory conditions, and competitive pricing pressures. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed elsewhere in this Registration
Statement. All forward-looking statements in this Registration Statement are
expressly qualified by the Cautionary Statements and by reference to the
underlying assumptions that may prove to be incorrect.
These forward-looking statements are commonly identified by the use of
such terms and phrases as "intends," "estimates," "expects," "projects,"
"anticipates," "foreseeable future," "seeks," "believes" and "scheduled" and, in
many cases, are followed by a cross-reference to "Risk Factors." Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW AND BUSINESS DEVELOPMENT
MegaWorld, Inc.'s (the "Company" or "MegaWorld") principal revenue
generating activities have been associated with its construction and fabrication
of modular structures, primarily for the energy, transportation and
telecommunications industries. The Company is developing its international
telecommunications services business, which, if successful, will enable the
Company to provide voice, fax, data and other communications service, through
and over the Internet.
The Company was incorporated in February 1989 as Nassau Ventures, Inc.
("Nassau"), a Delaware corporation. On February 3, 1997, Nassau acquired all the
issued and outstanding shares of MegaWorld and in March 1997, Nassau changed its
name to MegaWorld. In November 1998, MegaWorld acquired Total Building Systems,
Inc. ("Old TBS") through a merger with Texas TBS, Inc., a wholly-owned
subsidiary of MegaWorld ("Texas TBS") (the "Merger"). In consideration for the
Merger, stockholders of Old TBS, including Charles D. McPhail, Old TBS's
founder, President and Chief Executive Officer, and his designees received, in
the aggregate, 21,939,780 shares of Common Stock $.0001 par value per share of
the Company (the "Common Stock") and Mr. McPhail received a promissory note in
the amount of $8,000,000 issued by the Company. See "Certain Relationships and
Related Transactions." Texas TBS currently operates under the name Total
Building Systems, Inc. ("TBS"). TBS designs and constructs modular buildings for
the offshore oil and gas, transportation and telecommunications industries.
MegaWorld's plans to conduct its telecommunications business through
MegaWorld's Communications Division and through ITS Telephony, Inc. ("ITS"), a
wholly-owned subsidiary organized March 3, 1998 to take advantage of
deregulation in the telecommunications industry (collectively the
"Communications Division"). The business objectives of the Communications
Division include providing Voice over Internet Protocol ("VoIP")
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transportation of voice, data and multimedia services from the United States to
select global destinations, many of which are initially planned to be in the
Caribbean, Central and South America. To date, the Communications Division has
not incurred any significant revenues or expenses.
In April 1998, the Company acquired 40-year leasehold rights to
Castello Torre Ratti, a 1,000-year-old castle near Milan, Italy (the "Castle")
with the intention of developing weekly timeshare units in the Castle. The
initial plans included the purchase and development of additional buildings, a
golf course, tennis courts and a spa. The Company acquired its leasehold
interest in the Castle from Michael Giamalvo, a director of the Company, for
1,000,000 shares of common stock and a $622,500 promissory note payable to Mr.
Giamalvo. The Company formed a wholly-owned subsidiary, MegaWorld Leisure, Inc.
("MLI"), to develop the Castle. Pending receipt of sufficient funding to develop
the Castle, the leasehold rights are being held for sale. See "Certain
Relationships and Related Transactions."
BUSINESS OF THE ISSUER
The Company currently derives substantially all of its revenue from
TBS. TBS is a provider of modular structures manufactured for the energy,
communications and transportation industries. Management believes that a
substantial downturn in oil and gas development activities during the past 18
months has resulted in an oversupply of modular structure manufacturing
capacity. As a result, management has decided to downsize its manufacturing
capacity and consolidate all TBS operations into its single-lift facility in
East Houston, Texas. Management is consolidating and de-emphasizing its
manufacturing business in order to focus its resources on higher margin
business, especially international telecommunications. Management believes that
the Company will be able to take advantage of existing market dynamics to become
a provider of VoIP and Internet telephony services to expanding markets,
including the Caribbean and the countries of Central and South America.
A. TOTAL BUILDING SYSTEMS, INC.
The Business
TBS is a five-year-old company with two manufacturing facilities in
Houston, Texas, which primarily serves the oil and gas industry. The modular
manufacturing facility, located at the Company's headquarters in Northwest
Houston, is dedicated to products that can be shipped over land, primarily by
tractor-trailer. The second facility, located on the Houston ship channel in
East Houston, specializes in large products that must be shipped by marine
transport. Both facilities have ready access to interstate highways.
During 1999, TBS earned revenue primarily from customers in the energy
industry and related service industries (approximately 85%) and from customers
in the communications industry (approximately 10%). The remainder of TBS's
business, approximately 5%, is derived from transportation and other economic
sectors. TBS's principal products include steel fabricated modular structures
and aluminum sandwich panel modular structures (primarily offshore crew quarters
for drilling and production platforms), and manufactured concrete structures for
the communications industry. All buildings are built to customer specifications
and many are engineered and designed by TBS.
Although TBS has relied on the energy industry and related service
industries for the majority of its revenue, during its five years of operations
it has not been dependent upon any single customer or group of related
customers. TBS recognizes the cyclical nature of the oil and gas industry and is
attempting to develop product lines that are not oil and gas dependent. See
"Risk Factors -- Cyclical Industry; Potential Volatility in TBS's Revenue
Stream." TBS has provided its lightweight aluminum panels and substructures for
recreational products and the military.
Steel, concrete, fiberglass, lightweight aluminum and prefabricated
composite panels are the primary raw materials used for the Company's
manufacturing process. TBS maintains a diversified base of suppliers through
which it obtains its materials and components for its manufacturing process. The
Company relies on a wide range of distributors and other suppliers, none of
which represent more than 10% of TBS's yearly expenditures. Historically, the
Company has found these sources to be stable and reliable. The Company has
historically been able to secure adequate quantities of material of sufficient
quality to support its operations.
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Competition
The modular structure manufacturing industry is characterized by
relatively low barriers to entry and is highly competitive. Many of the
Company's competitors are larger and better capitalized than the Company. Major
competitors in the energy sector include Delta Engineering, Inc., Consafe
Engineering (UK) Limited, Gulf Island Fabrication, Inc., Powell Electrical
Manufacturing Company, Brown and Root Energy Services (a Division of Halliburton
Company), and J. Ray McDermott, S.A. (a subsidiary of McDermott, Inc.). Major
competitors in the communications sector include Matt Lavail, Inc., Dalworth
Concrete Products, Inc. and Rohn Industries, Inc. Although the major area of
competition is price, customers often require high performance products, precise
specifications or rapid fabrication.
TBS believes that its design and engineering capabilities enable it to
compete in the energy sector where large contractors would otherwise award
contracts to an engineering firm, rather than a manufacturer such as TBS. TBS
believes that because of its relatively low overhead, it is often able to
provide engineering services at a lower price than that of many engineering
firms. However, oil and gas development activities during the past 18 months
have decreased substantially. This lower activity level has resulted in
substantial unused manufacturing capacity at TBS and throughout the industry.
Because of these conditions, TBS is in the process of downsizing its
manufacturing capability by consolidating all of its operations into one
facility, its single-lift facility in East Houston.
B. MEGAWORLD COMMUNICATIONS DIVISION
The Business
The primary objective of the MegaWorld Communications Division is to
provide telecom, Internet and data network communications from the United States
to international destinations. The Company also intends to offer certain
services domestically but it has made development of its international business
a priority. The Company's communications services are based on various methods
of transmitting data through telephone lines ("circuit-switched") and by
dividing the information into small "packets" that are individually routed
primarily through Internet connectors ("packet-switched"). The Company
integrates circuit-switched data transmissions with packet-switched technologies
and markets its products and services to domestic and international wholesale
communication providers, Internet service providers and telephone companies. To
date, the Communications Division has incurred no significant revenues or
expenses.
In late 1999, the Company signed contracts for the provision of
messaging services and local and long distance message transmission services
with Sequel Communications, Inc. and WeCU, Inc. The Company has recently begun
operations under both contracts.
The Company has designed a core network of operations to accommodate
not only circuit-switched telecommunications but also "real-time" (i.e., the
operation of virtually simultaneous input and response) Internet communications
and other packet-switched communications, through which the Company is able to
provide the following services:
o International Private Line Services: The Company offers
private line services which provide customers dedicated data
network access and Internet services to international
locations. These services can be configured with standard
telephone lines, private data circuits, or broadband ATM
(Asynchronous Transfer Mode) connections. An ATM connection is
a method of delivering multiple multimedia programs over a
single communications channel in which the information is
divided into small packets which are transmitted
simultaneously to their destination via high-speed networks.
o Messaging Services: The Company offers messaging services
which allow customers to deliver voice mail, fax mail and
e-mail messages to an e-mail address where messages can be
displayed or played as an e-mail attachment. In addition,
customers can retrieve the messages, including e-mail, by
telephone and redirect them to any fax machine. These
messaging services are available to service providers on a
wholesale, private label basis.
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o International Long Distance: The Company offers
circuit-switched international long distance services to
foreign communication service providers and telecommunication
companies. The Company's circuit switches will connect the
foreign third-party systems to the Company's international
network to deliver long distance telephone services in foreign
countries.
o Telecommunication Site Design and Construction: The Company
offers full telecommunication site planning and development
services for international and domestic customers, including
site location, construction, wiring plans, network design, and
installation.
o Internet Access: The Company intends to offer digital Internet
access services to independent Internet service providers
("ISPs"), at an estimated cost savings of approximately 30-50%
over their current providers. The Company's Internet access
servers can be used for packet-switched voice over the
Internet ("VoIP") and real-time multimedia transmission.
o Web Site Services: The Company plans to offer dedicated and
shared web hosting services, with full e-commerce support
services available, including service support, hardware,
software and Internet access.
o On-line Data Storage: The Company plans to offer on-line data
storage systems for real-time data back up or long term data
archiving on tape and optical disk systems, which are located
in secure data sites within the United States.
In designing its core network, the Company incorporated the most
advanced data network technology available, including ATM core network packet
switches that can support up to 2.5 gigabytes of data transfer per second, IP
(Internet Protocol Routers), fiber optic cables, and satellite communication
networks. The Company currently purchases its network servers from Sun
Microsystems, its system software from Oracle and its data network provider
services from Level 3 Communications, Inc. ("Level 3"). The Company maintains
its network servers and much of its other network equipment under co-location
agreements with Level 3, which provides worldwide telecommunications access for
the Company.
Most telecommunications providers and all wireless communications
providers operate under Signaling System number 7 software ("SS7"), which
controls the dialing and routing of connections. The Company's network also uses
servers with SS7 technology, which enables the Company to effectively
communicate with both traditional cable and wireless network systems. This
allows the Company's network to integrate with the communications networks of
other telecommunications providers and to take advantage of the same network
efficiencies as the large network providers, thus reducing access time and
costs.
The Company's network operation site and main facility are located in
Hackensack, New Jersey, where the Company leases approximately 5,000 square feet
for computer and network operations. In addition, the Company maintains its main
data center for servers and will provide data services at this location. The
Company selected this location because many VoIP, data network and
communications service providers are located in the Northern New Jersey area.
The Market
Recent expansion of the Internet has increased the demand for
international and domestic communication services and networks. The
Communications Division currently focuses its business development efforts on
the Caribbean and Central and South America, and is currently providing its
services within Costa Rica and the U.S.
Each of the Company's target markets is undergoing significant
expansion driven by expanding markets. "Trends in the U.S. International
Telecommunications Industry," Federal Communications Commission, August 1998
("1998 FCC Report"). The Company believes that the demand for new communication
services is very high and supports capital investment in each of the markets.
Further, the Company believes that these markets are undergoing
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a fundamental shift in communication usage, driven by the Internet, data
networks and cost efficiencies of new technologies.
The Federal Communication Commission ("FCC") has estimated the demand
for telephone services in the Company's target market to be in excess of $4.9
billion annually. See The 1997 Annual Report of the FCC on Section 43.61
International Traffic Data ("The 1977 FCC International Traffic Report"). The
FCC estimated that the demand for international private line telephone
communication services between the United States and international destinations
within the Company's target market, driven primarily by increased data
networking and Internet usage, was $137 million. See The 1997 FCC International
Traffic Report. In addition, International Data Corporation ("IDC"), a leading
technology research firm, estimates that the domestic and international demand
for Internet access, and digital service connections that are VoIP-enabled, will
grow at a compounded average growth rate of 81% through the year 2003, obtaining
a projected market value of $7.7 billion. See "Remote Access and VoIP-enabled
RAS Market Review and Forecast, 1996-2003", IDC Report #177747, December 1998.
New services in telecommunications, the Internet and data
communications require a high degree of technology expertise, which is very
expensive to maintain on a company-by-company basis. The Company plans to market
its products and services through shared resource and wholesale distribution
channels which will allow private labeling of services by the Company's
customers. The Company expects its customers will establish and maintain brand
names for their products and services which are unique to their companies. The
Company believes that in many cases, its customers would rather purchase these
services from the Company than build the products and perform the services
themselves.
Competition
The international telecommunications business is highly competitive.
According to The 1997 FCC International Traffic Report, the major competitors
include (i) American Telephone and Telegraph Company ("AT&T") (ii) MCI WorldCom,
Inc. ("MCI"), and (iii) Sprint, Inc., which collectively account for over 90% of
the international "Message Telephone Service" revenues within the Company's
target market. Numerous smaller telecommunications companies also compete with
the Communications Division. Competition in this area generally focuses on
price, service, warranty and product performance. The remaining market share
contains many smaller carriers with no significant individual market share. In
the Caribbean, for example, 12% of the telecommunications traffic (measured by
connection minutes) is carried by all other communication companies. In South
America, that number is 6%. As demand for telecommunications services grows in
this region, the Company believes it has an opportunity to capture significant
business.
GOVERNMENTAL REGULATIONS, ENVIRONMENT, HEALTH AND SAFETY
A. TOTAL BUILDING SYSTEMS, INC.
Many aspects of TBS's operations are subject to governmental
regulation, including regulation by the U.S. Coast Guard, the Department of
Transportation and the Occupational Safety and Health Administration as well as
by private industry organizations. The Coast Guard and the Department of
Transportation set safety standards for the design and operation of offshore
platforms. In addition, the Company currently depends on the demand for its
products and services from the oil and gas industry and therefore, the Company's
business is affected by the laws and regulations, as well as the changing taxes
and governmental policies relating to the oil and gas industry generally.
The Company must comply with state building code regulations applicable
to factory-built buildings which vary from state to state. Many states have
adopted codes that apply to the design and manufacture of factory-built
buildings, such as those manufactured by the Company, even if the units are
manufactured outside the state and delivered to a site within that state's
boundaries. Generally, obtaining state approvals is the responsibility of the
manufacturer. Some states require certain customers to be licensed in order to
sell or lease factory-built buildings. Additionally, certain states require a
contractor's license from customers for the construction of the foundation,
building installation, and other on-site work when this work is completed by the
customer. The Company believes it has obtained all permits, licenses and
certificates necessary to the conduct of its business.
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The Company's operations with respect to TBS are subject to a variety
of federal and state environmental regulations relating to the use, generation,
storage, treatment, emission and disposal of hazardous materials and wastes and
noise pollution. For example, the Company is subject to air quality and
emissions regulations with respect to certain types of paint used in its
manufacturing process. Although the Company believes that its manufacturing
operations involve relatively little hazardous materials and that the Company is
currently in material compliance with applicable environmental regulations, the
failure of the Company to comply with present or future regulations could result
in fines being imposed on the Company, potential civil and criminal liability,
suspension of production or operations, alterations to the manufacturing
process, or costly cleanup or capital expenditures. To date, the Company has not
incurred any material costs in complying with such laws and regulations and
although it does not anticipate that costs of compliance with such regulations
will have a material affect on its future expenditures, earnings or competitive
position, it us unable to predict the ultimate cost of compliance with
environmental laws and enforcement policies.
The Company's operations are also governed by laws and regulations
relating to workplace and worker health, primarily the Occupational Safety and
Health Act and the regulations promulgated thereunder. The Company is required
by various governmental and quasi-governmental agencies to obtain certain
permits, licenses and certificates with respect to its operations. In addition
to government regulation, various private industry organizations such as the
American Welding Society and the American Petroleum Institute, promulgate
technical standards that must be adhered to during the course of the Company's
fabrication operations.
B. COMMUNICATIONS DIVISION
FCC Regulation of Telecommunications
The Communications Division is subject to varying degrees of federal,
state, local and international regulation. The Communications Division is
subject to regulation by the Federal Communications Commission ("FCC"). The FCC
requires the Company to obtain authority under Section 214 of the Communications
Act of 1934, as amended (the "Communications Act") and imposes certain other
obligations on carriers providing international telecommunication services.
These include the obligation to file at the FCC and to maintain tariffs
containing the rates, terms and conditions applicable to their services; to file
certain reports regarding international traffic and facilities; to file certain
contracts with correspondent carriers; to disclose affiliations with foreign
carries and significant foreign ownership interests; to pay certain regulatory
fees based, among other things, upon the carrier's revenues and ownership of
international transmission capacity.
The Company has obtained a global Section 214 authority from the FCC to
use, on a facilities and resale basis, various transmission media for the
provision of international switched and private line services. The FCC reserves
the right to condition, modify or revoke Section 214 authorizations and impose
fines for violations of the Communications Act or the FCC's regulations, rules
or policies promulgated thereunder, or for violations of the clear and explicit
telecommunications laws of other countries that are unable to enforce their laws
against call reorigination.
In addition to the general common carrier principles, the Company is
also required to conduct its facilities-based international business in
compliance with the FCC's International Settlements Policy (the "IS Policy"), or
an FCC approved alternative settlement arrangement. The IS Policy requires U.S.
telecommunications carriers to pay nondiscriminatory rates for the termination
of international traffic in foreign countries. It was developed to prevent
foreign monopoly carriers from playing U.S. carriers against each other to the
disadvantage of U.S. carriers and U.S. ratepayers in the form of higher rates
for the completion of international calls originating in the U.S. The IS Policy
governs the permissible arrangements between U.S. carriers and their foreign
correspondents to settle the cost of terminating traffic over each other's
networks, the rates for such settlement and permissible deviations from these
policies. As a consequence of the increasingly competitive global
telecommunications market, the FCC has adopted a number of policies that permit
carriers to deviate from the IS Policy under certain circumstances that promote
competition.
In May 1999, the FCC issued an order exempting competitive carriers and
specified competitive routes from the IS Policy. Specifically, the FCC's May
1999 Order eliminated the IS Policy for arrangements with non-dominant foreign
carriers (i.e., those that lack market power) and for arrangements with any
carrier, dominant or non-dominant,
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on routes deemed "competitive" by the FCC. However, the FCC has not qualified
any countries within the Company's target market for relief from the FCC's IS
Policy and associated filing requirements.
In December 1996, the FCC adopted a policy that made it easier for
international carriers based in the United States to obtain authority to route
international public switched voice traffic to and from the United States
outside of the traditional settlement rate and proportionate return regimes. In
August 1998, the FCC proposed to modify its rules to make it easier for
U.S.-based international carriers to engage in alternative traffic routing.
World Trade Organization Agreement
In February 1997, the United States entered into a World Trade
Organization Agreement (the "WTO Agreement") that is designed to have the effect
of liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next several
years, including many countries located in the Company's target market. The WTO
Agreement became effective in February 1998. In light of the United States
commitments to the WTO Agreement, the FCC implemented new rules in February 1998
that liberalize existing policies regarding (1) the services that may be
provided by foreign-affiliated U.S.-based international common carriers,
including carriers controlled or more than 25 percent owned by foreign carriers
that have market power in their home markets, and (2) the provision of
alternative traffic routing. The new rules also make it much easier for
foreign-affiliated carries to enter the United States market for the provision
of international services.
In August 1997, the FCC adopted mandatory settlement rate benchmarks
intended to reduce the rates that United States carriers pay foreign carriers to
terminate traffic in their home countries. The FCC also prohibits a United
States carrier affiliated with a foreign carrier from providing facilities-based
service to the foreign carrier's home market until and unless the foreign
carrier has implemented a settlement rate at or below the benchmark. The FCC
also adopted new rules that will allow switched services over private lines to
WTO member countries on routes where 50% or more of the traffic billed to U.S.
customers is being terminated in the foreign country at or below the applicable
settlement rate benchmark, or where the foreign country's rules concerning
provision of international switched services over private lines are deemed
equivalent to United States rules. In 1999, the FCC's benchmark rules were
upheld in their entirety by the U.S. Court of Appeals for the D.C. Circuit.
The Company is unable to predict the full effect on the international
telecommunications market resulting from the WTO Agreement or the rules enacted
to implement its provisions or the establishment of mandatory settlement rate
benchmarks. These changes are expected to increase competition in the
telecommunications market. These changes may result in lower settlement payments
by the Company to terminate international traffic, however, there is a risk that
the payment that the Company will receive from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO Agreement may
also make it easier for foreign carriers with market power in their home markets
to offer United States and foreign customers end-to-end services to the
disadvantage of the Company. The Company, meanwhile, may continue to face
substantial obstacles in obtaining from foreign governments and foreign carriers
the authority and facilities to provide such end-to-end services. There can be
no assurance that these events would not have a material adverse effect on the
Company's business, financial condition or results of operations.
Under the terms of the WTO Agreement, each of the signatories has
committed to opening its telecommunications market to competition, foreign
ownership and to adopt measures to protect against anticompetitive behavior,
effective January 1, 1998. Although the Company plans to obtain authority to
provide service under current and future laws of those countries in its target
market that are parties to the WTO Agreement, or, where permitted, provide
service without government authorization, there can be no assurance that foreign
laws will be adopted and implemented which will provide the Company with
effective practical opportunities to compete in these countries. Moreover, there
can be no assurance of the nature and pace of liberalization in any of these
markets. The Company's inability to take advantage of such liberalization could
have a material adverse affect on the Company's ability to expand its services
as planned.
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Internet Telephony
The use of the Internet to provide telephone service is a relatively
recent development. If the FCC were to determine that certain services are
subject to FCC regulations as telecommunications services, the FCC noted that it
may find it reasonable to require Internet service providers to make universal
service contributions, pay access charges or to be subject to traditional common
carrier regulation.
To the Company's knowledge, there are currently no domestic laws or
regulations that prohibit voice communications over the Internet. Several
efforts have been made to enact federal legislation that would either regulate
or exempt from regulation services provided over the Internet. State public
utility commissions may also retain jurisdiction to regulate the provision of
intrastate Internet telephony services, and could initiate proceedings to do so.
A number of countries that currently prohibit competition in the provision of
voice telephony have also prohibited Internet telephony. Other countries permit
but regulate Internet telephony. If Congress, the FCC, state regulatory
agencies, foreign governments or supranational bodies begin to regulate Internet
telephony, there can be no assurances that any such regulation will not
materially adversely affect the Company's business, financial condition or
results of operations.
EMPLOYEES
As of February 29, 2000, the Company and its subsidiaries had a total
of 32 full-time employees and no part-time employees. The employees of the
Company are not subject to collective bargaining agreements and the Company
believes relations with employees are good.
RISK FACTORS
In addition to the other information contained herein, the following
factors should be considered carefully by any person considering an investment
in the Company.
Recent Losses; Need for Additional Capital. The Company incurred losses
of $2,413,831 for the nine months ending September 30, 1999 and $601,589 for the
year ended December 31, 1998 and negative cash flows of $343,443 and $1,970,922
from operating activities for the same periods, and had a working capital
deficit of $8,858,941 and stockholders' deficit of $3,880,072 at September 30,
1999. As a result of these losses the Company's working capital position and
ability to generate sufficient cash flows from operations to meet its operating
and capital requirements has deteriorated. These matters raise substantial doubt
about the Company's ability to continue operations without a significant
infusion of working capital from outside sources. The Company has relied upon
its majority stockholder to fund its cash requirements in the past, however,
this stockholder has no obligation to continue to fund the necessary cash
requirements in the future. See "Management's Discussion and Analysis or Plan of
Operation."
Cyclical Industry; Potential Volatility in TBS's Revenue Stream. TBS's
market is currently focused on the oil and gas industry. Although TBS intends to
reduce its reliance on the offshore oil and gas industry, over 80% of its
revenue in the year ended December 31, 1999, was received from customers in that
industry. The oil and gas industry has traditionally been cyclical and is
characterized by severe and unpredictable price changes which can lead to even
more volatile changes in capital spending programs of oil and gas producers. Oil
and gas prices and the level of capital spending have varied substantially
recently, resulting in significant fluctuations in demand for the Company's
products and services. For example, during the last quarter of 1998, the price
for a barrel of West Texas Intermediate ("WTI") hit an historic low of $10.42
per barrel. During the first two quarters of 1999, prices remained low. Prices
at such levels dissuade companies involved in the exploration and production of
crude oil from further investment in such activities. Severe reduction in
capital spending programs materially and adversely affect TBS because
prospective orders for engineering and fabrication services performed by TBS may
be postponed or discarded as a direct result. In some cases, existing orders are
canceled. While the price per barrel for WTI has rebounded in the second half of
1999, surpassing $30 per barrel on February 29, 2000, and while the general
forecast is favorable due to production curtailments among OPEC and other oil
producing nations, there can be no assurance that market conditions dissimilar
to the final quarter of 1998 and the first two quarters of 1999 will continue.
See "Total Building Systems, Inc. -- The Business" and "Management's Discussion
and Analysis or Plan of Operation."
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Volatility of Stock Price . The Common Stock will be subject to
significant fluctuation in response to variations in operating results of the
Company, investor perceptions of the Company, supply and demand, interest rates,
general economic conditions and those specific to the industry, developments
with regard to the Company's activities, future financial condition and
management. In recent years, the Company's Common Stock has been listed on the
NASD Over-the-Counter Bulletin Board ("OTCBB") under the symbol MEGW. On
February 9, 2000, the Company's Common Stock was removed from listing on the
OTCBB until such time as this registration statement both becomes effective and
is amended in response to SEC comments. Trading in the Company's Common Stock
will be reported in the National Quotation Bureau's Pink Sheets until its Common
Stock is again listed on the OTCBB. There can be no assurance that the market
will provide significant liquidity for the Company's Common Stock. As a result,
an investment in the Company's Common Stock may be highly illiquid. Investors
may not be able to sell their shares readily or at all when the investor needs
or desires to sell. Furthermore, under current provisions of Regulation T
adopted by the Board of Governors of the Federal Reserve System, so long as the
market price of MegaWorld Common Stock is less than $5.00 per share and the
Common Stock is traded in the over-the-counter market, the Common Stock is not
marginable and it is unlikely that a lending institution would accept the
Company's Common Stock as collateral for a loan.
Applicability of Low-Priced Stock Risk Disclosure Requirements . The
shares of the Common Stock will be considered low-priced securities in the
United States under rules promulgated under the Exchange Act. Under these rules,
broker-dealers participating in transactions in low-priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealer's duties, the customer's rights and remedies, and
certain market and other information, and make a suitability determination
approving the customer for low-priced stock transactions based on the customer's
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer and obtain specific
written consent of the customer, and provide monthly account statements to the
customer. The likely effect of these restrictions will be a decrease in the
willingness of broker-dealers to make a market in the Common Stock, decreased
liquidity of the Securities and increased transaction costs for sales and
purchases of the Common Stock as compared to other securities.
Significant Leverage and Debt Service Requirements. To provide
necessary working capital, the Company may incur additional outstanding
indebtedness. The level of the Company's indebtedness could have several
important effects on the Company's future operations, including among others,
(i) its ability to obtain additional financing for working capital,
acquisitions, capital expenditures, general corporate and other purposes may be
limited, (ii) a portion of the Company's cash flow from operations may be
dedicated to the payment of interest on its indebtedness, thereby reducing funds
available for other purposes and (iii) the Company's leverage could make it more
vulnerable to economic downturns. The Company's ability to meet its debt service
obligations and reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to the success of its
business strategy, general economic conditions, industry cycles, interest rates,
and financial business and other factors affecting the operations of the
Company, many of which are beyond its control. There can be no assurance that
the Company's business will generate sufficient cash flow from operations to
meet its debt service requirements and the payment of principal when due, and if
the Company is unable to do so, it may be required to sell assets, to refinance
all or a portion of its indebtedness, or to obtain additional financing. There
can be no assurance that any such refinancing would be possible or that any
additional financing could be obtained.
Limited Operating History; Investment Barriers to Market Entry . The
Company currently derives most of its revenue through its TBS subsidiary, which
has an operating history of approximately five years. MegaWorld's Communications
Division, however, has conducted operations for only a few months although the
Company has been developing its international telecommunications business since
March 1998. In order for the Communications Division to succeed, the Company
will need to invest significant additional resources, including time and money,
in the construction of the Communications Division's facilities-based network in
the Caribbean and in Central and South America. Construction of this
infrastructure is expected to cost from $1.8 to $2 million per year over
approximately a two year period. In addition, because of the pace of
deregulation in these markets, the Communications Division must act quickly to
ensure it is not overtaken by existing competitors and new market entrants.
There can be no assurance that (i) the Company will be able to fund investment
costs, (ii) the Communications Division will successfully implement any of its
plans in a timely and effective manner or (iii) that the Communications Division
will be able to generate significant revenues or operate profitably.
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<PAGE> 11
Competition. The Company is aware of a number of competitors that will
compete directly with the Company's products and marketing concepts and those of
its subsidiaries. There can be no assurance that the Company will be able to
overcome the competitive disadvantages it will face with the limited capital
available. If the Company cannot compete effectively it will not succeed. See
"Total Business Systems, Inc. - Competition" and "MegaWorld Communications
Division - Competition".
Governmental Regulations The Company is unable to predict the full
effect on the international telecommunications market resulting from current and
proposed regulations of the United States, the WTO Agreement and the countries
in which the Company intends to do business. The Company may face substantial
obstacles in obtaining authority and facilities to provide its services and
conduct its business from foreign governments and foreign carriers. See
"Governmental Regulations, Environment, Health and Safety - Communications
Division."
Contract Terms and Renewals. TBS has derived a substantial majority of
its revenues from contracts to provide engineering and fabrication services for
clients in the oil and gas industry. These contracts have varying terms, and
most are turn-key contracts for one-of-a-kind projects which, upon completion,
will not be renewed. The continued success of the Company is subject to the
ability of TBS to extend (if and where applicable) and win new contracts for
engineering and fabrication services. In addition, the Communications Division
currently has only a few significant contracts to provide communication services
over its proposed facilities-based data network, most of which have one or two
year terms, with renewal options. The Communications Division faces risks of
expiration and/or non-renewal of these contracts. The Communications Division's
continued success will also depend on its ability to win contracts and to renew
and extend (if and where applicable) such contracts.
Potential Issuance of Additional Common Stock and Class A Common Stock.
The Company is authorized to issue up to 98,808,259 shares of Common Stock, each
carrying one-twentieth (1/20) of one vote, of which 40,200,706 shares are
currently outstanding. The Company is also authorized to issue up to 1,191,741
shares of Class A Common Stock $0.0001 par value (the "Class A Stock"), each
carrying one vote. No shares of Class A Stock are currently issued and
outstanding. To the extent it is authorized, the Board of Directors of the
Company will have the ability, without seeking stockholder approval, to issue
additional shares of Common Stock and Class A Stock in the future for such
consideration as the Board of Directors may consider sufficient. The issuance of
additional Common Stock and Class A Stock in the future will reduce the
proportionate ownership and voting power of the Common Stock. The Company is
currently not authorized to issue any preferred stock.
Dependence on Key Employees and Senior Management. The Company's
ability to achieve its growth strategy is dependent in large part upon the
efforts of its senior management, particularly Charles D. McPhail, the Company's
President and Chief Executive Officer. The loss of the services of Mr. McPhail
could have a material adverse effect on the Company. Certain of the Company's
officers and directors, in addition to Mr. McPhail, have significant experience
in the communications and modular building industries which will be important to
the Company's success. As the Company continues to expand, its business strategy
will become increasingly dependent upon its ability to recruit and retain
qualified personnel and senior management, competition for which is expected to
be fierce. There can be no assurance that the Company will continue to recruit
and retain a sufficient number of qualified personnel and senior management. The
inability to successfully recruit and retain such persons could materially and
adversely affect the Company's ability to staff its facilities and to
successfully implement its growth strategy.
Control by Existing Management and Stockholders. The existing officers
and directors beneficially own 23,448,780 shares of Common Stock and control in
the aggregate 58.3% of the votes of all shares of Common Stock and, if acting in
concert, may be able to exercise control over the Company's affairs, elect the
entire Board of Directors and control the outcome of any matter submitted to a
vote of the Company's stockholders. See "Security Ownership of Certain
Beneficial Owners and Management."
Insurance. The Company carries general liability, comprehensive
property damage, workers' compensation and other insurance coverages that
management considers adequate for the protection of the Company's existing
assets and current operations. There can be no assurance, however, that the
coverage limits in such policies will be adequate as the Company expands its
operations. A successful claim against the Company in excess of its insurance
coverage could have a material adverse effect on the Company.
-11-
<PAGE> 12
Limited Liability of Officers and Directors . The Company has adopted
provisions to its Certificate of Incorporation and Bylaws which limit the
liability of its officers and directors and provides for indemnification by the
Company of its officers and directors to the full extent permitted by the
Delaware General Corporation Law ("DGCL"). The Company's Certificate of
Incorporation generally provides that its officers and directors shall have no
personal liability to the Company or its stockholders for monetary damages for
breaches of their fiduciary duties as directors, except for breaches of their
duties of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, acts involving unlawful
payment of dividends or unlawful stock purchases or redemptions, acts specified
in the DGCL, or any transaction from which a director derives an improper
personal benefit. Such provisions substantially limit the stockholders' ability
to hold officers and directors liable for breaches of fiduciary duty, and may
require the Company to indemnify its officers and directors.
Cumulative Voting and Pre-emptive Rights . There are no pre-emptive
rights in connection with the Company's Common Stock or Class A Stock.
Cumulative voting in the election of directors is not permitted. Accordingly,
the holders of a majority of the shares of Common Stock and Class A Stock (if
and when issued), present in person or by proxy, will be able to elect all of
the Company's Board of Directors. See "Description of Securities."
Dividends . The Company does not currently intend to pay cash dividends
on its Common Stock and does not anticipate paying such dividends at any time in
the foreseeable future. The Company will follow a policy of retaining all of its
earnings, if any, to finance development and expansion of its business.
REPORTS TO SECURITY HOLDERS
Prior to the filing of this Registration Statement, the Company had not
been subject to the reporting requirements of the Securities Exchange Act of
1934 and had not filed any reports with the SEC. The public may read and copy
any materials the Company files in the future with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the Company intends to file all required
reports with the SEC electronically. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. This site is available
at http:/www.sec.gov. If the Company is not required to deliver an annual report
to security holders, the Company intends to voluntarily send an annual report to
its security holders, which report will include audited financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This management discussion contains certain forward-looking statements
as identified by the use of words like "expects", "believes", and "anticipates"
and other similar phrases. Such statements reflect management's current view of
future financial performance based on certain assumptions, risks and
uncertainties. If any assumptions, risk or uncertainty factors change, such
changes may have a material impact on actual financial results. The Company is
under no obligation to revise any forward-looking statements contained herein,
which are as of the date hereof. Readers are cautioned to not place undue
reliance on any forward-looking statements contained in this discussion, which
speak only as the date hereof.
OVERVIEW
The Company currently derives substantially all of its revenue from
TBS. The Company intends to provide integrated communications services to
international and domestic customers through the Communications Division, which
has not incurred any significant revenues or expenses to date.
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<PAGE> 13
MegaWorld has experienced net losses during the last two years of
operations and expect those losses to continue into the first half of year 2000,
and possibly thereafter.
The Company's primary business efforts in year 2000 will focus on the
development of its Communication Division. The Communications Division has begun
to secure contracts with customers and suppliers. The contracts generated
revenue during the fourth quarter of 1999. Management expects to report profits
from the Communications Division by the second half of 2000.
The Company's business was organized and began operations in January,
1995 as Old TBS. Effective November 11, 1998, Old TBS merged with and into Texas
TBS, a wholly-owned subsidiary of MegaWorld , with Texas TBS as the surviving
corporation. Texas TBS changed its name to Total Building Systems, Inc. ("TBS")
immediately following the merger. Pursuant to Staff Accounting Bulletins issued
by the SEC relating to business combinations, this transaction was accounted for
as a reverse merger acquisition with Old TBS as the acquiring entity for
financial accounting purposes. The transaction was accounted for as a purchase
under GAAP with the losses of MegaWorld included since the date of the
Merger and the TBS equity recapitalized with MegaWorld shares to reflect the
reverse merger acquisition. Therefore, the financial statements of the Company
for periods prior to November 11, 1998 are the financial statements of Old TBS,
not MegaWorld. In addition, in 1999, the Company changed its fiscal year end
from December 31 to September 30.
The Company currently derives most of its revenue from TBS. TBS
revenues were $7.6 million for the 9 months ended September 30, 1999 and $17.4
million in 1998. Currently, less than 15% of all revenue is from non-energy
related industries. TBS dependence on the oil and gas industry has subjected it
to market fluctuations which have been and may continue to be volatile. See
"Total Building Systems, Inc - Business." TBS's business objective is to
continue to diversify with a goal to generate more than 50% of its revenues from
outside the energy sector by the year 2002. The Company's business plan also
includes significant revenues generated in future periods from the development
of the Communications Division.
Developing the business of the Communications Division has required
significant capital resources and time. The Company has been unable to meet much
of these capital requirements. As a result, Mr. McPhail has loaned significant
money to the Company to support its operations and the development of the
Communication Division's VoIP business. See "Liquidity and Capital Resources"
and "Certain Transactions."
OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999
The Company incurred losses of $2,413,831 for the nine months ending
September 30, 1999 and $601,589 for the year ended December 31, 1998 and
negative cash flows of $343,443 and $1,970,922 from operating activities for the
same periods, and had a working capital deficit of $8,858,941 and stockholders'
deficit of $3,880,072 at September 30, 1999. As a result of these losses the
Company's working capital position and ability to generate sufficient cash flows
from operations to meet its operating and capital requirements has deteriorated.
These matters raise substantial doubt about the Company's ability to continue
operations without a significant infusion of working capital from outside
sources. The Company has relied upon its majority stockholder to fund its cash
requirements in the past, however, this stockholder has no obligation to
continue to fund the necessary cash requirements in the future.
The Company has been recently involved in discussions with several
entities as potential sources for the necessary working capital and a possible
investment in, or purchase of TBS. As of September 30, 1999, $513,000 of such
funds had been raised. There can be no assurance that these discussions will
result in the sale of TBS or that additional funds will be generated by this
process. Management believes a total of $10 million will be needed to support
proposed operations reflected in the current business plan.
The Company's gross profit from operations, contract revenues less cost
of contract revenues, was $1,980,234 and $4,089,757 for the nine months ending
September 30, 1999 and the year ending December 31, 1998, respectively.
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<PAGE> 14
This is a gross profit percentage of 26.02% and 23.50% for the respective
periods. The increase in gross profit margins in 1999 is attributable to cost
cutting efforts by the Company. General and administrative expenses were 46.75%
and 24.59% respectively. The increase in the percentage of general and
administrative expenses for 1999 is a reflection of the lower revenue reported
for 1999. The average monthly general and administrative expense for 1999 was
approximately $395,000 compared to $356,000 for the 12 months of 1998, a 9.75%
increase. Average monthly contract revenues were approximately $845,000 for 1999
compared to $1,450,000 for 1998, a 41.71% decrease.
At December 31, 1998, as a result of the reverse merger, the Company
had a note payable to the Chairman of the Board and majority stockholder in the
principal amount of $8,000,000 bearing interest at the London Interbank Offered
Rate ("LIBOR") plus 2% (8.035% at December 31, 1998) (the "Acquisition Note").
This note was converted into capital in September, 1999. This amount has been
reflected as an increase in capital of the Company. Interest expense increased
$425,630 in 1999 over the 1998 period, primarily due to the accrual of interest
on the Acquisition Note. The interest expense related to the Acquisition Note
for the nine months of 1999 was $482,102 and for the two months of 1998 was
$94,982.
Net loss and loss per share were $2,413,831 and $0.08, respectively,
for 1999 compared to $601,589 and $0.03, respectively, for 1998. The loss
increased $1,812,242 or 301.2% primarily as a result of lower contract revenues
brought on by the decline in oil and gas exploration and production spending in
the last 18 months.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
The Company incurred losses of $294,583 for the three months ended
December 31, 1999 and $67,883 for the three months ended December 31, 1998. The
Company, however, had positive cash flows from operating activities of $116,109
and $1,105,657 in the respective three month periods. The positive cash flows in
the interim periods are primarily attributed to timing of performance and
completion of certain large construction contracts.
Revenues were $1,437,848 for the three months ended December 31, 1999
and were $4,619,844 for the three months ended December 31, 1998. The decline in
revenues is directly attributable to the decline in the market the Company
serves. The gross profit for the respective three month periods was 39.67% and
33.25%, respectively. These profit percentages are higher than the fiscal year
results due to timing of more profitable jobs in these two interim periods. The
higher margin for the three months ended December 31, 1999 is primarily
attributable to cost cutting measures employed by the Company late in 1999
necessitated by the aforementioned market decline.
General and administrative expenses have been reduced significantly
late in 1999 as is evidenced by the approximate 43% reduction is from $1,305,331
in the three months ended December 31, 1998 to $738,182 in the three months
ended December 31, 1999. The Company has consolidated numerous functions and
incurred staff reductions and is consolidating operating locations, which
translates to lower general and administrative expenses. The Company does not
anticipate any significant restructuring charges in connection with this
consolidation.
Interest expense has decreased from $298,545 in the three months ended
December 31, 1998 to $126,799 in the three months ended December 31, 1999
primarily due to the conversion of the $8,000,000 note payable to a principal
stockholder that was outstanding approximately two months in 1998, which was
converted to equity in September 1999, and was, therefore, not outstanding in
the three months ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements to date have been to fund
working capital and to service its debts. Because revenue from operations has
been inadequate to completely fund these requirements, the Company has
supplemented its revenue from operations with proceeds from its private
offerings of securities, loans from the Chairman and extensions of credit from
vendors in order to meet its working capital requirements. The Company
anticipates that as revenue from the Building Division and the Communications
Division increases, the Company will be able to satisfy all of its funding
requirements for operations from such revenue.
Accounts receivable are primarily derived from payments due to the
Company by customers. As revenues increase, the Company expects working capital
requirements to increase. Standard billing cycles for TBS's customers
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<PAGE> 15
are as follows: 30% due upon placement of order; 20% due when buildings are
erected; 20% due when electrical and plumbing are installed; and 30% due upon
completion. The Company expects to experience similar billing cycles for future
business.
The Company has entered into a revolving loan in an amount not to
exceed $1,000,000 with Compass Bank (the "Revolving Loan"), with Charles D.
McPhail as guarantor. The Revolving Loan was due on August 31, 1999. The Company
and Compass Bank are discussing extension terms. Pursuant to the Revolving Loan
Agreement, the Company must maintain a tangible net worth of at least
$1,500,000, which the Company has failed to do. The Revolving Loan provides for
an interest rate of prime rate plus one-half percent (0.5%) per annum and is
collateralized by the Company's Accounts, General Intangibles, Inventory and all
proceeds, products, additions to substitutions for and accessions thereof. In
connection with the Revolving Loan, the Company and Charles D. McPhail agreed to
subordinate a $397,610 note held by Charles D. McPhail as lender to the Company.
See "Certain Relationships and Related Transactions. As of December 31, 1999,
the Company had borrowed $1,000,000 under the Revolving Loan.
The Company has entered into revolving loans with Mr. McPhail, JoyVer
Investments, LLC, and Mr. Giamalvo up to the maximum amounts of $600,000,
$600,000 and $200,000, respectively. As of December 31, 1999, the outstanding
balance on each loan was $40,250, $594,738 and $185,003, respectively. In
addition, TBS has entered into a revolving loan with Mr. McPhail up to the
maximum amount of $600,000 with an outstanding balance of $297,419 as of
December 31, 1999. Each of these loans is payable on demand and carries an
interest rate of 6%. See "Certain Relationships and Related Transactions".
ITEM 3. DESCRIPTION OF PROPERTY
The Company maintains offices in Houston, Texas and Hackensack, New
Jersey. TBS operates from two locations in Houston, Texas, however, management
has decided to consolidate all of TBS's operations into a single facility, in
East Houston, in an effort to downsize its manufacturing capacity. The
Communications Division operates from Hackensack, New Jersey. In addition, the
Company's MLI subsidiary owns leasehold rights to Castello Torre Ratti near
Milan, Italy.
The Company's heavy fabrication/single-lift facility of TBS is located
in East Houston, with deep water access to Houston's ship channel. The facility
is comprised of approximately 9,000 square feet of office space, 20,000 square
feet of covered fabrication area, 10,000 square feet of protected receiving dock
area and 72,000 square feet of covered raw storage area. The property is subject
to a lease at $23,160 per month, terminating on January 31, 2003, with five (5)
one-year renewal options thereafter. The location has significant stabilized
acreage and can accommodate virtually any size heavy fabrication project or up
to nine individual projects simultaneously. The fabrication area is equipped
with two overhead cranes and the necessary machinery and equipment required to
compete in the heavy steel fabrication business.
The modular manufacturing facility of TBS is located in Northwest
Houston and has approximately 5,000 square feet of office space and 130,000
square feet of covered fabrication area. The property is subject to a mortgage
in the principal amount of $3,765,000. The covered fabrication area is equipped
and serviced by 10 overhead cranes. In addition to the cranes, the facility has
the necessary equipment to support significant steel, aluminum and concrete
fabrication. In order to provide turn-key modular fabrication solutions, the
location is equipped with paint facilities, carpentry and mill shop and
facilities for tradesman in crafts such as welding, electrical and plumbing. The
work produced by the specialized trades enables TBS to produce custom products
and achieve delivery without delay from subcontractors. The Company is
considering the sale of this facility and has consolidated all plant operations
previously conducted at the facility into its East Houston single-lift facility.
The Communications Division currently leases office space in
Hackensack, New Jersey. The monthly rent is $2,750 per month until July 31,
2000; $3,000 per month thereafter until July 31, 2001; and $3,250 per month
after July 31, 2001, until termination on July 31, 2002. In addition, the
Communications Division must reimburse the landlord for real estate taxes which
are approximately $10,000 per year. The Communications Division has the option
of extending the lease for one year at a rental rate of $3,750 per month.
Hackensack is a key location for the
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<PAGE> 16
Communications Division because of the concentration of VoIP, data network, and
telecommunications service provider companies located in the Northern New Jersey
area.
In April 1998, MegaWorld purchased all of the outstanding capital stock
of Castello Ratti Enterprises Srl ("CRE"), an Italian corporation which holds a
leasehold interest in Castello Torre Ratti, a 1,000-year-old castle near Milan,
Italy. The lease provides for an annual rental of US$47,923, subject to increase
based on increases in the U.S. consumer price index, to be paid in monthly
installments. The initial term of the lease is for 25 years, renewable by the
tenant for another 25 year term, with a rent adjustment for inflation. The lease
has a remaining term, including extensions, of approximately 40 years.
The Company acquired the 40-year leasehold interest to develop weekly
timeshare units in the Castle. In connection with the timeshare development, the
Company may purchase and develop additional buildings, a golf course, tennis
courts and a spa. To date, the Company has sold no units. The Castle currently
has several renovated rooms, a kitchen and a dining hall. The Castle is
currently rented to a management team that uses the facilities for children's
camps, including a riding stable, and hosting of dinners and various social
events. Pending receipt of sufficient funding to develop the Castle, the Castle
is being held for sale. Because the Castle is a unique property, there is no
readily ascertainable competition for the Company's proposed timeshare plans or
for the current use of the property. See "Certain Relationships and Related
Transactions."
The Company believes that its properties are adequately insured and the
Company has no present intention of making further investments in real estate,
real estate mortgages or persons involved in real estate activities, except as
described above; however, the Company may change this policy at any time without
a vote of stockholders.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of February 29, 2000 as to
(i) each person known by the Company to own beneficially more than 5% of the
presently outstanding Common Stock; (ii) each director of the Company; and (iii)
all directors and officers of the Company as a group.
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<PAGE> 17
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------
NAME AND ADDRESS OF NUMBER OF
BENEFICIAL OWNER SHARES
---------------- OWNED(1) PERCENT
------- -------
<S> <C> <C>
Charles D. McPhail(2) 19,400,780 48.3%
15411 Fawn Villa
Houston, TX 77068
JoyVer Investments, LLC(3) 13,975,000 34.8%
15411 Fawn Villa
Houston, TX 77068
Michael Giamalvo(4) 4,048,000 10.1%
119 Northgate Circle
Melville, NY 11747
Lynn R. McPhail(5) 5,035,000 12.5%
15411 Fawn Villa
Houston, TX 77068
Lori Lynn McPhail 2,945,000 7.3%
15411 Fawn Villa
Houston, TX 77068
Lisa Marie McPhail 2,945,000 7.3%
3313 Marcedonia Dr.
Plano, TX 75025
All officers and directors as a 23,448,780 58.3%
group ( 2 persons)
</TABLE>
- -------------
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if such person has or
shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership within 60 days.
Accordingly, more than one person may be deemed to be a beneficial
owner of the same securities. Unless otherwise indicated by footnote,
the named entities or individuals have sole voting and investment power
with respect to the shares of Common Stock beneficially owned.
(2) Includes 2,235,000 shares of Common Stock owned by Mr. McPhail jointly
with Lynn R. McPhail, 13,975,000 shares owned by JoyVer Investments,
LLC, and 2,800,000 shares owned by Lynn R. McPhail; does not include
2,945,000 shares owned by Lori Lynn McPhail, and 2,945,000 shares owned
by Lisa Marie McPhail, the adult daughters of Charles D. McPhail, as to
which Mr. McPhail disclaims beneficial ownership.
(3) CLM Partners, Ltd., a family partnership for the Charles D. McPhail
family, owns JoyVer Investments, LLC. Charles D. McPhail is the general
partner of CLM Partners, Ltd.
(4) Includes 500,000 shares of Common Stock owned by Mr. Giamalvo's spouse,
for which Mr. Giamalvo is the beneficial owner.
(5) Includes 2,235,000 shares of Common Stock owned by Lynn R. McPhail
jointly with Charles D. McPhail. Lynn R. McPhail is the wife of Charles
D. McPhail.
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<PAGE> 18
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information concerning the
Company's executive officers and directors. The number of directors consists of
such number as may from time to time be fixed by the Board of Directors.
Presently, there are two directors. Directors are elected at the annual meeting
of the stockholders, and hold office until the earlier to occur of (i) the
election of a successor at the next meeting of the stockholders, (ii) the
director's resignation, and (iii) the director's removal. See "Description of
Securities - Common Stock." All officers of the Company are elected annually by,
and serve at the discretion of, the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles D. McPhail....... 56 Chairman of the Board, President, Chief Executive
Officer and Secretary
George S. Dinsdale....... 45 President and Chief Operating Officer,
Communications Division
Michael Giamalvo......... 59 President, MegaWorld Leisure, Inc. and Director
</TABLE>
Charles D. McPhail has held his current position with the Company since
November 11, 1998 when the Company acquired Old TBS. Prior to November 11, 1998,
Mr. McPhail served as President and Chief Executive Officer of Old TBS, which he
founded in 1995. Mr. McPhail has held the position of Chairman and Chief
Executive Officer of Texas Steel Conversion, Inc. ("Texas Steel") since 1990;
prior to that date and beginning in October 1984, Mr. McPhail served as Texas
Steel's President and Chief Executive Officer. Prior to joining the management
team at Texas Steel, Mr. McPhail held various management positions at Triangle
Industries, Inc. and General Cable Corporation.
George S. Dinsdale has over 16 years of telecommunications and computer
telephony experience, much of it in management positions. Mr. Dinsdale has
served as President and Chief Operating Officer of MegaWorld's Communications
Division since April, 1999. From December, 1992 until March, 1999, Mr. Dinsdale
served as Vice President of Linkon Corporation. From January, 1991 to November,
1992, Mr. Dinsdale served as Director of Sales for RMC Research; from 1989 to
1991, Mr. Dinsdale served as National Accounts Manager for Centigram
Corporation; and from 1987 to 1989, Mr. Dinsdale served as Eastern Regional
Manager of Voice Automation Products for New York Octel Communications. From
1982 to 1987, Mr. Dinsdale served as Branch Manager (New York and New Jersey)
for US Sprint Communications, Inc. Mr. Dinsdale holds a Bachelor of Science
degree in Business Administration and Economics from Loyola College/Concordia
University in Montreal, Quebec, Canada.
Michael Giamalvo is an entrepreneur, financial consultant, and real
estate developer. He has served as a director of the Company since 1988 and has
served as Chief Executive Officer of MLI since 1998. Prior to joining the
Company, Mr. Giamalvo was the owner of CRE, the tenant and operator of the
leasehold interest in the Castle since 1990. See "Certain Relationships and
Related Transactions." From 1980 to 1992, Mr. Giamalvo owned and operated
various restaurants and sports entertainment centers. From 1968 until 1988, he
served as General Agent Manager and Keyman at Monarch Life Insurance Company.
Mr. Giamalvo studied accounting and brokerage procedures at St. Johns University
and the National School of Business Institute of N.Y.
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<PAGE> 19
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth information with respect to all forms of
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's Chief Executive Officer and each of the most highly compensated
executive officers and directors of the Company for the periods indicated below.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($)
--------------------------- ------- ----------
<S> <C> <C>
Charles D. McPhail - President 1999 146,154
and Chief Executive Officer 1998 167,307
1997 89,423
Charles F. Hicks - Vice 1999 91,346
President, Chief Financial 1998 -
Officer and Treasurer(2) 1997 -
George S. Dinsdale - President 1999 73,269(3)
and Chief Operating Officer 1998 -
(Communications Division) 1997 -
</TABLE>
- --------------------
(1) Represents fiscal years ended December 31, 1997, December 31, 1998 and
the nine months ended September 30, 1999.
(2) Mr. Hicks resigned from each of these positions in December 1999.
(3) Includes $4,800 annual car allowance.
EMPLOYMENT AGREEMENTS
Old TBS entered into an employment agreement with Charles D. McPhail on
September 1, 1996, which was assumed by the Company pursuant to the terms of the
Merger Agreement between Texas TBS and Old TBS (for purposes of this paragraph,
the "Employment Agreement"). The Employment Agreement is for an initial term of
five years (renewing automatically thereafter for additional five year periods
until canceled) and provides for an annual base salary of $200,000, payable in
equal semi-monthly installments of $8,333.33. In addition, Mr. McPhail is
entitled to an unspecified commission on quarterly net profits. The Company may
not terminate the Employment Agreement, except for cause, on less than five
years prior written notice to Mr. McPhail. Mr. McPhail may cancel the Employment
Agreement on 30 days' prior written notice to the Company. See "Certain
Transactions."
Effective March 1, 1998, the Company and Michael Giamalvo, a director
of the Company, entered into an employment agreement pursuant to which Mr.
Giamalvo is to develop and coordinate the marketing of the timeshare units in
the Castle (for purposes of this paragraph, the "Consulting Agreement"). The
Consulting Agreement provides for a base salary of $50,000 per year plus a
performance-based bonus based on the increase in assets, profits and other
criteria determined by the Board of Directors. Additional consideration was paid
to Mr. Giamalvo upon execution of the Consulting Agreement in the amount of
400,000 restricted shares of the Company's Common Stock. The Company is also
obligated to pay Mr. Giamalvo a 10% commission on the sale of each timeshare
interest in the Castle. The initial term of the Consulting Agreement is two
years, and shall continue thereafter, renewing daily. Termination following the
initial two year term is effective upon three months' written notice by either
party. See "Certain Transactions."
Effective June 22, 1998, MLI entered into an employment agreement with
Kenneth Miller pursuant to which Mr. Miller serves as President of MLI. The
employment agreement is for an initial term of three years, expiring July 31,
2001 and renewing automatically for additional one-year terms unless canceled in
writing by the Company or by MLI. Compensation under the employment agreement is
$96,000 per annum, paid semi-monthly, with an additional $2,000 per month (to be
paid retroactively beginning on the effective date) upon the sale of the first
100 timeshare units in the Castle. In addition, Mr. Miller is to be paid two and
one-half percent of gross sales from timeshare units in the
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<PAGE> 20
Castle. Furthermore, Mr. Miller received an option to purchase 400,000 shares of
Common Stock at an exercise price of $3.50 (adjusted downward as sales increase
until, at 100% achievement of the sales target for timeshare units in the
Castle, the exercise price per share of Common Stock will be equal to $.01). The
employment agreement contains other terms and conditions usual and customary for
employees in like positions. See "Certain Relationships and Related
Transactions."
Effective April 1, 1999, the Company entered into an employment
agreement with George S. Dinsdale pursuant to which Mr. Dinsdale shall serve as
President of the Communications Division of the Company. The employment
agreement is for an initial term of three (3) years with an option to renew for
one (1) years. The Employment Agreement provides that Mr. Dinsdale shall receive
a base salary of $150,000 per year plus an incentive bonus of $50,000, or 1/2%
of the pre-tax profits of the Communications Division during the calendar year
1999, whichever is greater, and during each of the next three (3) years, 1/2% of
the pre-tax profits for each respective calendar year. The Employment Agreement
also provides for the grant of options to acquire 100,000 shares of common stock
for each of the four (4) years from 1999 through 2002 and of 200,000 shares for
year 2003, all of which shall have a three (3) year exercise period from the
date of grant. The option price for the years 1999, 2000, 2001 and 2002 and
beyond is the market price on April 1, 1999, $2.00, $1.00 and $.0001,
respectively. In addition, Mr. Dinsdale is entitled to an additional stock
option at the end of each calendar year based on the pre-tax performance of the
Communications Division, the amount of which will be determined by dividing the
December average stock price into the reported pre-tax profit and the price of
which will be the average price of the last trade each day for the month of
December. The employment agreement also grants to Mr. Dinsdale an $800 per month
car allowance plus expenses for tolls, parking and other business expenses
related to normal business activity. The employment agreement contains a 12
month non-competition provision. See "Certain Transactions."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following agreements, with values exceeding $60,000, exist between
or among the Company and either (i) any executive officer, director or director
nominee of the Company, TBS or the Communications Division, (ii) any holder of
5% or more of the voting stock of the Company, or (iii) any member of the
immediate family of any director or officer as outlined above:
Lease Assignment and Castle Funding Agreement. Effective April 21,
1998, Michael Giamalvo, a director of the Company, transferred his 100% interest
in CRE, which held that certain Tenancy Agreement in respect of the Castle (with
a remaining leasehold term of approximately 42 years), to be held in escrow for
the Company in exchange for 1,000,000 shares of the Company's Common Stock and
$622,500 ($50,000 of which was paid by the Company within 30 days of closing,
the remaining $572,500 of which was evidenced by a promissory note (the "Castle
Note") executed by the Company, as maker, and Mr. Giamalvo, as payee). The
shares of CRE were delivered to an escrow agent to be released to the Company
upon payment of the Castle Note which was due in full on July 31, 1998, but was
extended until August 31, 1998, in consideration for the issuance of 1,200,000
shares on August 20, 1998. On November 11, 1998, the Castle Note was extended
until June 30, 1999 in consideration for the Company's execution, effective
November 11, 1998, of a Castle Funding Agreement. The issuance to Mr. Giamalvo
of an additional 1,200,000 shares of the Company's Common Stock and the
Company's agreement that upon fulfilling the funding requirements for the first
two pairs of equipment for the ITS Jamaican operation, the Company would devote
50% of all its revenue from ITS and CRE to repay the Castle Note. As of March 1,
2000, the balance due on this Note was $472,500. The Company is currently in
default on this note and the CRE shares remain in escrow.
ITS Joint Venture Agreement and Settlement. In late 1997 and 1998,
prior to the Merger, the Company entered into various joint venture agreements
with Nathan Berkowitz, Fred Simon and Kent Terpe (the "Berkowitz Group") both
individually and through various entities controlled by the Berkowitz Group (the
"ITS Joint Venture Agreements"). In 1998, Berkowitz served as a director and
Chief Financial Officer of the Company. Pursuant to the ITS Joint Venture
Agreements, each member of the Berkowitz Group, or his respective assignees,
received 550,000 shares of Common Stock. Mr. Terpe also received other
compensation and expense reimbursement (Messrs. Berkowitz and Simon received
none). In November, 1999, the Company entered into a settlement agreement with
the Berkowitz Group pursuant to which the ITS Joint Venture Agreements were
canceled and terminated and all parties thereto were released from their
obligations thereunder. In consideration of such cancellation and release, the
Berkowitz Group retained their respective shares of
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<PAGE> 21
Common Stock, subject to a Lockup Agreement which prohibits for a period of 24
months any offer to sell, assign, pledge, issue, distribute, contract to sell,
grant any options or otherwise dispose of their respective shares of Common
Stock. The Lockup Agreement provides that beginning six (6) months after the
Settlement Agreement, the Company shall, upon written request of any one of the
Berkowitz Group, release from their respective Lockup Agreement for sale by such
shareholder up to 15,000 shares per fiscal quarter. In addition, beginning with
the execution of the Settlement Agreement, Terpe is permitted to sell 15,000
shares per month (45,000 Shares per quarter) for six (6) months for a total of
90,000 Shares and Berkowitz is permitted to sell 5,000 Shares per month (15,000
per quarter) for six (6) months for a total of 30,000 Shares. For each quarter,
Terpe and Berkowitz can accumulate the shares and may pledge or assign them
should they not sell them. As additional consideration for the Settlement
Agreement, Terpe received 40,000 shares as compensation for all delinquent
salary and expenses owed to him by the Company. Any and all remaining shares
subject to the Lockup Agreements shall be released for sale two (2) years after
the date of the Settlement Agreement.
Acquisition/Merger Agreement. Effective November 11, 1998, Old TBS
merged with and into Texas TBS. Following the merger Texas TBS became a
wholly-owned subsidiary of the Company. The Company acquired Old TBS as a result
of the merger of Old TBS with and into Texas TBS pursuant to an
Acquisition/Merger Agreement among the Company, Old TBS and Charles D. McPhail
(the "Acquisition/Merger Agreement"). In August 1998, Mr. McPhail and his
designees received 1,050,000 shares of common stock in consideration for
entering into of a letter of intent with respect to the merger. As consideration
for the merger, former stockholders of Old TBS received 1,020 shares of
MegaWorld Common Stock for each share of Old TBS Common Stock held at the time
of the merger, as follows: (i) Charles D. McPhail and Lynn R. McPhail (900,000
shares), (ii) Lisa Marie McPhail (1,400,000 shares), (iii) Lori Lynn McPhail
(1,400,000 shares), (iv) Lynn R. McPhail (1,400,000 shares) and (v) JoyVer
Investments, L.L.C. (a Texas limited liability company owned and controlled by
Charles D. McPhail and his wife, Lynn R. McPhail) (5,100,000 shares). As further
consideration for entering into the Acquisition/Merger Agreement, the Company
agreed (i) to execute and deliver a promissory note in the principal amount of
$8,000,000 payable over a term of five years in semi-annual installments
together with interest at the London Inter-bank Offered Rate ("LIBOR") plus two
percent; (ii) for a term of fifteen (15) years and for so long thereafter as
Charles D. McPhail and Lynn R. McPhail, or either of them, shall survive, to pay
to Mr. and Mrs. McPhail one percent (1%) of the annual gross revenue of the
Company, in either cash or Common Stock, at the Company's option and (iii) to
pay Charles D. McPhail an additional 400,000 shares of MegaWorld Common Stock in
consideration for Mr. McPhail's services as president of MegaWorld following the
merger. In the event the revenue payment described above shall be paid in common
stock, such stock shall be valued at sixty percent (60%) of the quarterly
average market price of such shares. The Acquisition/Merger Agreement also
granted to Mr. McPhail the option to purchase up to one-half the number of
shares issued incidental to the merger shares of Common Stock at no cost to Mr.
McPhail and pursuant to the terms of the Acquisition/Merger Agreement. Mr.
McPhail exercised this option in June 1999. Mr. McPhail also received 600,000
shares of common stock for extension of a note dated August 27, 1998 between Mr.
McPhail and the Company in the amount of $309,000.
TBS Promissory Notes. Effective November 11, 1998, the Company, as
maker, executed a Promissory Note in the principal amount of $8,000,000 payable
to Charles D. McPhail and Lynn McPhail (30%), Lisa Marie McPhail (10%), Lori
Lynn McPhail (10%), and JoyVer Investments, LLC (50%) (the "$8,000,000 Note").
Annual interest on unpaid principal from November 11, 1998 accrues at LIBOR plus
two percent (2%) and interest on matured, unpaid amounts at accrues 18% per
annum. The first interest payment was due on May 13, 1999. The Note was
converted to capital in September 1999.
On November 11, 1998, MegaWorld acquired a note between TBS and Charles
D. McPhail in the principal amount of $397,610 (the "McPhail Note"). The McPhail
Note bears interest at a rate of six percent (6%) per annum and is payable on
demand. In connection with a $1,000,000 Revolving Loan between Old TBS and
Compass Bank, the Company agreed to subordinate the McPhail Note. See
"Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources."
Deed of Trust. Effective November 11, 1998, Texas TBS granted Charles
D. McPhail a deed of trust covering the real property at 6250 North Houston
Rosslyn Road, Houston, Harris County, Texas. The deed of trust was given to Mr.
McPhail to secure the obligations of Texas TBS and Old TBS under the Merger
Agreement. The Deed of Trust was terminated when the $8,000,000 Note was
converted to capital.
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<PAGE> 22
Security Agreement and Financing Statement. Effective November 11,
1998, Texas TBS (as debtor) and Charles D. McPhail (as secured party) entered
into the Security Agreement and Financing Statement pursuant to which Texas TBS
pledged to Mr. McPhail all personal property owned by Texas TBS, including all
accounts receivable, all contract rights, chattel paper, notes, drafts,
instruments, deposits, money, inventory, etc., and proceeds thereof all as
security for payment of debts owed by Texas TBS to Mr. McPhail under (i) the
Merger/Acquisition Agreement, (ii) the McPhail Employment Agreement, (iii) the
Texas TBS Continuing and Unconditional Guaranty Agreement, (iv) every document
executed by Texas TBS in connection with the Acquisition/Merger Agreement and
(v) any other document executed by Texas TBS in connection with any other
obligation to Mr. McPhail.
MegaWorld Continuing and Unconditional Guaranty Agreement. Effective
November 11, 1998, the Company (as guarantor), Texas TBS (as obligor) and
Charles D. McPhail (as obligee) entered into an agreement pursuant to which the
Company guaranteed the full and punctual performance of (i) the
Acquisition/Merger Agreement, (ii) the McPhail Employment Agreement, (iii) the
Security Agreement and Financing Statement, (iv) every document executed by
Texas TBS in connection with the Acquisition/Merger Agreement, (v) any other
document executed by Texas TBS in connection with any other obligation to Mr.
McPhail and (vi) the performance of the "Required Shareholders" as defined in
the Acquisition/Merger Agreement, as an inducement for Charles D. McPhail and
Old TBS to enter into the Acquisition/Merger Agreement.
Texas TBS Continuing and Unconditional Guaranty Agreement. Effective
November 11, 1998, Texas TBS (as guarantor), the Company (as obligor) and
Charles D. McPhail (as obligee) entered into an agreement pursuant to which
Texas TBS guaranteed the full and punctual performance of (i) the
Acquisition/Merger Agreement, (ii) the Security Agreement and Financing
Statement, as an inducement for Charles D. McPhail and Old TBS to enter into the
Acquisition/Merger Agreement, (iii) every document executed by the Company in
connection with the Acquisition/Merger Agreement and (iv) any other document
executed by the Company in connection with any other obligation to Mr. McPhail.
Indemnification Agreement. Effective November 11, 1998, Texas TBS and
Charles D. McPhail entered into an Indemnification Agreement pursuant to which
Texas TBS agreed to indemnify, defend and hold harmless Mr. McPhail from and
against all loss, cost, risk, expense, claims, demands, causes of action and
liabilities arising from or in any way related to (i) any obligation of Old TBS,
including all obligations of TBS for which Mr. McPhail has given personal
guarantees or acted as co-signer or co-obligor, (ii) any and all actions taken
by Mr. McPhail as a director or officer of Old TBS and (iii) the ownership or
operation of assets of Old TBS by Texas TBS and the Company.
McPhail Promissory Notes. The Company also has a note dated as of
December 15, 1998, payable to Mr. McPhail, which totaled $40,450 as of September
30, 1999 and had a balance of $40,450 as of December 31, 1999.
TBS has a note dated as of December 15, 1998, payable to Mr. McPhail, which
totaled $297,419 and $468,134 as of December 31, 1999 and December 31, 1998,
respectively. These notes bear interest at a rate of 6% per annum and are
payable upon demand.
JoyVer Promissory Note. The Company has a note dated as of December 15,
1998, payable to JoyVer Investments, LLC ("JoyVer") in the amount of $594,738
and $427,244 as of December 31, 1999 and December 31, 1998, respectively. This
note bears interest at a rate of 6% per annum and is payable on demand. The note
arose from advances made by JoyVer to the Company.
Giamalvo Promissory Note. The Company has a note dated as of December
15, 1998, payable to Mr. Giamalvo in the amount of $185,003 and $53,000 as of
December 31, 1999 and December 31, 1998, respectively. This note bears interest
at a rate of 6% per annum and is payable upon demand. The note arose from
advances made by Mr. Giamalvo to the Company.
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<PAGE> 23
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 100,000,000
shares, $.0001 par value, of which 98,808,259 are shares of Common Stock. As of
February 29, 2000, 40,200,706 shares of Common Stock were issued and
outstanding. The holders of Common Stock are entitled to one-twentieth (1/20) of
a vote per share on the election of directors and on all other matters submitted
to a vote of stockholders. Shares of Common Stock do not have preemptive rights
or cumulative voting rights.
The holders of Common Stock are entitled to receive dividends ratably
when, as and if declared by the Board of Directors, and upon liquidation are
entitled to share ratably in the Company's net assets. The decision to pay
dividends is subject to such other financial considerations as the Board of
Directors of the Company may deem relevant. The Company has never paid any cash
dividends on its stock and anticipates that for the foreseeable future it will
retain earnings, if any, for use in the operation of its business. In addition,
the terms of the Company's Revolving Loan with Compass Bank prohibit the Company
from declaring or paying any dividends. Payment of cash dividends in the future
will depend upon the Company's earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements and
other factors believed relevant by the Company's Board of Directors.
CLASS A COMMON STOCK
The Certificate of Incorporation of the Company authorizes the issuance
of up to 1,191,741 shares of Class A Common Stock, $.0001 par value (the "Class
A Stock"), of which none have been issued or reserved for issuance. The holders
of Class A Stock are entitled to one vote per share on the election of directors
and on all other matters submitted to a vote of stockholders. Shares of Class A
Stock do not have preemptive rights or cumulative voting rights.
DEFENSES AGAINST HOSTILE TAKEOVERS
Introduction. While the following discussion summarizes the reasons
for, and the operation and effects of, certain provisions of the Company's
Certificate of Incorporation which management has identified as potentially
having an anti-takeover effect, it is not intended to be a complete description
of all potential anti-takeover effects, and it is qualified in its entirety by
reference to the Company's Certificate of Incorporation and By-Laws, copies of
which are available from the Company, which should be reviewed for more detailed
information.
In general, the anti-takeover provisions in Delaware law and the
Company's Certificate of Incorporation are designed to minimize the Company's
susceptibility to sudden acquisitions of control which have not been negotiated
with and approved by the Company's Board of Directors. As a result, these
provisions may tend to make it more difficult to remove the incumbent members of
the Board of Directors. The provisions would not prohibit an acquisition of
control of the Company or a tender offer for all of the Company's capital stock.
The provisions are designed to discourage any tender offer or other attempt to
gain control of the Company in a transaction that is not approved by the Board
of Directors, by making it more difficult for a person or group to obtain
control of the Company in a short time and then impose its will on the remaining
stockholders. However, to the extent these provisions successfully discourage
the acquisition of control of the Company or tender offers for all or part of
the Company's capital stock without approval of the Board of Directors, they may
have the effect of preventing an acquisition or tender offer which might be
viewed by stockholders to be in their best interests.
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price of a Company's stock.
In addition, acquisitions of stock by persons attempting to acquire control
through market purchases may cause the market price of the stock to reach levels
which are higher than would otherwise be the case. Anti-takeover provisions may
discourage such purchases, particularly those of less than all of the Company's
stock, and may thereby deprive stockholders of an opportunity to sell their
stock at a temporarily higher price. These provisions may therefore decrease the
likelihood that a tender offer will be made, and, if made, will be successful.
As a result, the provisions may adversely affect those stockholders who would
desire to participate in a tender offer. These provisions may also serve to
insulate incumbent management from change and to discourage not only sudden or
hostile takeover attempts, but any attempts to acquire control which are not
approved by the Board of Directors, whether or not stockholders deem such
transactions to be in their best interests.
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<PAGE> 24
Authorized Shares of Capital Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 1,191,741 shares of Class A
Stock. Shares of the Company's Class A Common Stock with different voting
strength could be issued and would then represent an additional class of stock
required to approve any proposed acquisition. Since one share of Class A Common
Stock carries twenty times the voting power of one share of Common Stock, the
issuance of Class A Common Stock could be used to prevent or inhibit the
acquisition. In addition, this Class A Common Stock, together with authorized
but unissued Shares of Common Stock (the Certificate of Incorporation authorizes
the issuance of up to 98,808,259 shares), could represent additional capital
stock required to be purchased by an acquiror. Issuance of such additional
shares may dilute the voting interest of the Company's stockholders.
Stockholder Meetings. Delaware law provides that the annual
stockholder meeting may be called by a corporation's board of directors or by
such person or persons as may be authorized by a corporation's certificate of
incorporation or by-laws. The Company's Certificate of Incorporation provides
that annual stockholder meetings may be called only by the Company's Board of
Directors. Although the Company believes that this provision may discourage
stockholder attempts to disrupt the business of the Company between annual
meetings, its effect may be to deter hostile takeovers by making it more
difficult for a person or entity to obtain immediate control of the Company
between annual meetings as a forum to address certain other matters and
discourage takeovers which are desired by the stockholders. The Company's
Certificate of Incorporation also provides, however, that stockholder action may
be taken at a special meeting of the shareholders and by written consent. The
ability of stockholders to act at special meetings and by written consent
significantly undermines any anti-takeover effect which might attend the general
requirement for holding annual meetings.
Restriction of Maximum Number of Directors and Filling Vacancies on the
Board of Directors. Delaware law requires that the board of directors of a
corporation consist of one or more members and that the number of directors
shall be set out in the Company's By-Laws, unless it is set out in the Company's
Certificate of Incorporation. The power to determine the number of directors
within these numerical limitations and the power to fill vacancies, whether
occurring by reason of an increase in the number of directors or by resignation,
is vested in the Company's Board of Directors. The overall effect of such
provisions may be to prevent a person or entity from quickly acquiring control
of the Company through an increase in the number of the Company's directors and
election of nominees to fill the newly created vacancies and thus allow existing
management to continue in office.
Stockholder Vote Required to Approve Business Combinations with Related
Persons. To approve business combinations involving a related person, the
Company's Certificate of Incorporation requires (i) the approval of the holders
of 75% of the Company's outstanding voting stock (and any class or series
entitled to vote separately) and (ii) a majority of the outstanding stock not
beneficially owned by the related person. The exception to the foregoing is
where the business combination has been approved in advance by two-thirds of
those members of the Company's Board of Directors who were directors prior to
the time the related person became a related person. As defined in the
Certificate of Incorporation, related person generally includes any person who
owns 10% or more of the Company's outstanding voting stock.
Section 203 of the DGCL prohibits, with certain exceptions, a Delaware
corporation from engaging in any of a broad range of business combinations with
an interested stockholder for a period of three years following the date such
stockholder became an interested stockholder. An interested stockholder is
defined in Section 203 as any person that is (i) the owner of 15% or more of the
outstanding voting stock of a corporation or (ii) an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder. However, Section 203 does not apply to a corporation
unless its voting stock is either (A) listed on a national securities exchange,
(B) authorized for quotation on the NASDAQ Stock Market or (C) held of record by
more than 2,000 stockholders. The Company does not currently satisfy any of
these conditions and, therefore, is not currently subject to Section 203. Unless
the Company amends its certificate of incorporation to elect not to be governed
by section 203, the Company will be subject to Section 203 upon satisfaction
upon the satisfactory of any of the foregoing conditions (A), (B), or (C).
The exceptions in Section 203 under which a corporation may engage in a
business combination with an interested stockholder are: (i) approval of the
acquisition by the board of directors prior to the date the stockholder
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<PAGE> 25
became an interested stockholder, (ii) the interested stockholder acquiring at
least 85% of the outstanding voting stock (excluding shares owned by directors,
officers and certain employee stock plans) as a result of the transaction in
which it became an interested stockholder or (iii) approval of the transaction
by the board of directors and the affirmative vote at an appropriate meeting
(and not by written consent) of two-thirds of the outstanding voting stock not
owned by the interested stockholder on or after the date on which the interest
stockholder became and interested stockholder.
Under Delaware law, business combinations resulting in the sale of
substantially all of the assets of the Company or merger of the Company with
another business organization must be approved by vote of the majority of the
Company's outstanding voting stock entitled to vote at a duly called meeting.
The supermajority provisions in the Certificate of Incorporation and Section 203
of the DGCL, if applicable, may have the effect of foreclosing mergers and other
business combinations which the holders of a majority of the Company's stock
deem desirable and place the power to prevent such a transaction in the hands of
a minority of the Company's stockholders.
Under Delaware law, there is no cumulative voting by stockholders for
the election of directors unless authorized in the corporations certificate of
incorporation. MegaWorlds Certificate of Incorporation does not authorize
cumulative voting. The absence of cumulative voting rights effectively means
that the holders of a majority of the stock voted at a stockholder meeting may,
if they so choose, elect all directors of the Company, thus precluding
representation of minority stockholders on the Company's Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALES
Currently the Company has 98,808,259 shares of Common Stock and
1,191,741 shares of Class A Common Stock authorized by its Certificate of
Incorporation, with 40,200,706 shares of Common Stock and no Class A Common
Stock outstanding. Under Delaware law and the Company's Certificate of
Incorporation, the Board of Directors is authorized to issue all of the
remaining authorized but unissued shares of Common Stock and class A Common
Stock from time to time without approval of the stockholders (except as required
by the rules of a national securities exchange, if applicable) for such value
(not less than par value) as they determine.
Of the Common Stock currently outstanding, 38,018,907 shares are
"restricted securities," as that term is defined, under Rule 144 promulgated
under the Securities Act in that such shares were issued and sold by the Company
without registration, in private transactions not involving a public offering,
and/or are securities held be affiliates. All such shares may be resold publicly
only following their effective registration under the Securities Act or pursuant
to an exemption from the registration requirements of the act, such as Rule 144
thereunder. Although such restricted securities are not presently tradeable in
any public market which may develop for the Common Stock, such securities may in
the future be publicly sold in to any such market in accordance with the
provisions of Rule 144.
In general, Rule 144 was adopted by Securities and Exchange Commission
under the Securities Act to provide an exemption for public resales of
restricted securities through brokers' transaction effected without purchaser
solicitation. Securities sold in compliance with Rule 144 lose their status as
restricted securities in the hands of the purchaser and thereafter trade free of
restrictions in the same manner as securities sold by the issuer in a
transaction registered under the Securities Act. Restricted securities may be
resold pursuant to Rule 144 only if (i) the securities are held for at least one
year from the date of acquisition, provided that (A) the shares are sold in
ordinary brokers' transactions or transactions directly with a market maker
without public solicitation, (B) adequate current information about the Company
is publicly available and (C) the amount of securities sold by or for the
account of the holder during any three-month period does not exceed the greater
of 1% of the issuer's outstanding shares or the average weekly trading volume
for the four-week period prior to the notice required by Rule 144(h), or (ii)
the securities are held for at least two years from the date of acquisition.
Future sales by current shareholders, especially of substantial amounts, could
depress the market price of the Common Stock in any market that may develop.
REGISTRAR TRANSFER AGENT AND WARRANT AGENT
The stock transfer agent and registrar for the Company is
Intercontinental Registrar & Transfer Agency, P.O. Box 62405, Boulder City, NV
89006, telephone number 702-293-6717.
-25-
<PAGE> 26
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
In recent years, the Company's Common Stock has been listed on the NASD
Over-the-Counter Bulletin Board ("OTCBB") under the symbol MEGW. On February 9,
2000, the Company's Common Stock was removed from listing on the OTCBB until
such time as this registration statement both becomes effective and is amended
in response to SEC comments. Trading in the Company's Common Stock will be
reported in the National Quotation Bureau's Pink Sheets until its Common Stock
is again listed on the OTCBB.
A public trading market having the characteristics of depth, liquidity
and orderliness depends upon the existence of market makers as well as the
presence of willing buyers and sellers, which are circumstances over which the
Company does not have control. There can be no assurance that the market will
provide significant liquidity for the Company's Common Stock. As a result, an
investment in the Company's Common Stock may be highly illiquid. Investors may
not be able to sell their shares readily or at all when the investor needs or
desires to sell.
The following table sets forth the high and low sale prices for the
Common Stock for the periods indicated during the previous two fiscal years and
the period January 1, 1999 through December 31, 1999.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997:
First Quarter -- --
Second Quarter 4.000 1.500
Third Quarter 3.750 1.875
Fourth Quarter 2.750 0.250
1998:
First Quarter 3.000 0.125
Second Quarter 8.625 1.062
Third Quarter 5.125 2.125
Fourth Quarter 2.625 1.000
1999:
First Quarter 2.625 1.406
Second Quarter 2.625 1.000
Third Quarter 1.437 0.630
Fourth Quarter 4.125 0.625
</TABLE>
As of February 29, 2000, there were 100,000 outstanding options and no
outstanding warrants. As of February 29, 2000, there were 182 holders of record
of the Common Stock, as shown on the records of the Transfer Agent and Registrar
of the Common Stock. Since many shares may be held by investors in nominee
names, such as the name of
-26-
<PAGE> 27
their broker or their broker's nominee, the number of record holders often bears
little relationship to the number of beneficial owners of the Common Stock.
The Company has never paid any cash dividends on its stock and
anticipates that for the foreseeable future it will retain earnings, if any, for
use in the operation of its business. In addition, the terms of the Company's
Revolving Loan with Compass Bank prohibit the Company from declaring or paying
any dividends. Payment of cash dividends in the future will depend upon the
Company's earnings, financial condition, any contractual restrictions,
restrictions imposed by applicable law, capital requirements and other factors
believed relevant by the Company's Board of Directors.
ITEM 2. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is involved in any
legal proceedings which the Company believes could have a material adverse
effect on the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of
securities by Old TBS, the Company and its subsidiaries within the past three
years that were not registered under the Securities Act. The number of shares
reported with respect to each transaction has been adjusted, as required, to
give effect to the Company's 12 for 1 reverse split of its Common Stock which
occurred in March, 1998.
Under terms of separate consulting and advisory agreements executed by
the Company during the period from May 1997 to October 1997, the Company issued
an aggregate of 106,043 shares pursuant to Rule 701 of the Securities Act to the
following consultants and advisors: Tomasa Rodriguez, Ouziel Aryeh, Hector Cruz,
Thomas Ford, Steve Page, Rabbinical Assembly College, Menachem Scheiner, Mike
King, Princeton Research Inc., and Aurelia Rosner.
On June 26, 1997 and August 22, 1997, the Company issued 8,333 and
11,250 shares, respectively, to ITV, Inc. and its designees, and on October 24,
1997, the Company issued 4,167 shares to Igor Litovksy in consideration for
consulting and advisory services rendered in connection with the Company's
financing efforts. No funds were raised as a result of this arrangement.
In January 1998, the Company hired Avtar Sandhu as its Chief Executive
Officer and on February 12, 1998, the Company issued 208,333 shares to Mr.
Sandhu in consideration for his assuming the position of Chief Executive
Officer.
On February 24, 1998, the Company issued 833 shares to Valtek
Consultants, Inc., pursuant to Rule 701 of the Securities Act in consideration
for consulting services rendered to the Company with respect to the appraisal of
the Castle.
In April 1998, pursuant to Rule 504 of Regulation D, the Company issued
and sold 1,250,000 shares of Common Stock to 32 investors for an aggregate
consideration of $614,701.
On April 23, 1998, the Company issued 35,417 shares to Alfred Hymson
Associates in consideration for consulting and advisory services rendered in
connection with the Company's financing efforts. No funds were raised as a
result of this arrangement.
On May 14, 1998, the Company issued to Mr. Michael Giamalvo 400,000
shares in consideration of his execution of an Employment Agreement with the
Company and 1,000,000 shares of common stock as partial consideration for the
acquisition of certain leasehold rights to Castello Torre Ratti (the "Castle
Acquisition"). The
-27-
<PAGE> 28
Company issued 1,200,000 shares on August 20, 1998 and an aggregate of 1,600,000
shares on November 11, 1998 and November 20, 1998 to Mr. Giamalvo and his
designees, as consideration for extensions of the maturity date of the
promissory note executed in connection with the Castle Acquisition. In
connection with the Castle Acquisition the Company also issued 42,135 shares to
three individuals on May 29, 1998.
On May 14, 1998, the Company issued 200,000 shares to Joanne Pello,
pursuant to Rule 701 of the Securities Act, as an employee bonus.
On May 18, 1998, the Company issued 15,000 shares to Paramjit Lal
Gaddu, pursuant to Rule 701 of the Securities Act, for consulting services
rendered to the Company.
On May 27, 1998, the Company issued 400,000 shares each to Berkowitz,
Simon and Terpe, or their respective designees, as compensation pursuant to a
joint venture agreement pursuant to which Berkowitz, Simon and Terpe and the
Company would pursue opportunities in the telephony business through the
Company's ITS subsidiary. On April 9, 1998 and November 20, 1998, the Company
issued 33,333 and 150,000 shares, respectively, to Simon's designees in
connection with the joint venture agreement. Also in connection with this
transaction, on October 22, 1998, the Company issued 75,000 shares to Azriee
Nagar. On November 20, 1998, the Company issued an additional 150,000 shares
each to Berkowitz, Simon and Terpe, and their designees, as additional
consideration under the joint venture agreement.
On July 20, 1998, the Company issued 504,101 shares to David Mahy,
Chief Operating Officer of MegaWorld prior to the merger of Old TBS into Texas
TBS (the "Merger") as an employee bonus.
On August 10, 1998, the Company issued 400,000 shares to Ken Miller for
consideration of his execution of an Employment Agreement with the Company.
On August 28, 1998, the Company issued 1,050,000 shares of stock to
Charles McPhail and his designees as consideration for entering into a letter of
intent with respect to the Merger.
On August 28, 1998, the Company issued 3,000,000 shares to MegaWorld,
Inc. to secure certain funding. The funding transaction was never consummated
and these shares were canceled on September 16, 1998.
On September 11, 1998, the Company issued 5,000,000 shares to Barclay's
Private Bank & Trust Company Limited pursuant to a Regulation S offering. The
offering was terminated and these shares were canceled on December 31, 1998,
prior to issuance to any individual investors.
On October 5, 1998, the Company issued an aggregate of 42,000 shares,
pursuant to Rule 701 of the Securities Act, for services rendered to the Company
to the following consultants and advisors: Malcolm Feinstein, Jeffrey Stern,
Jeffrey Clark and Frank Bauco.
On October 8, 1998, the Company issued 2,000,000 shares to Eric Aronson
as compensation for services to be rendered by Mr. Aronson. The Company
rescinded this sale on November 18, 1999, because Mr. Aronson failed to perform.
In October 1998, the Company adopted a program whereby every
free-trading share of Common Stock could be exchanged for two (2) shares of
restricted common stock. Under to this program, the Company issued an aggregate
of 465,886 shares, pursuant to Section 3(a)(9) of the Securities Act, to 28
individuals from October 26, 1998 through June 11, 1999.
In connection with the Merger, the Company issued an aggregate of
10,200,000 shares of Common Stock to Charles D. McPhail, Lisa Marie McPhail,
Lori Lynn McPhail, Lynn R. McPhail and JoyVer Investments, L.L.C. (a Texas
limited liability company owned and controlled by Charles D. McPhail and his
wife, Lynn R. McPhail) and other designees of Mr. McPhail (collectively, the
"McPhail Investors"). In addition, the Company issued 600,000 shares to Mr.
McPhail in consideration for his agreement to extend the terms of certain loans
Mr. McPhail had made to the
-28-
<PAGE> 29
Company, issued 400,000 shares as consideration for the assumption by the
Company of Mr. McPhail's Employment Agreement, and granted anti-dilution rights
to the McPhail Investors with respect to any share issuances from November 11,
1998 through November 11, 1999, pursuant to which the McPhail Investors received
2,376,520 shares. On September 1, 1999, the Company issued to Mr. McPhail and
his designees, 7,313,260 shares of Common Stock pursuant to Mr. McPhail's
exercise of stock options at no cost to Mr. McPhail and pursuant to the terms of
the Acquisition/Merger Agreement.
On November 11, 1998, the Company issued an aggregate of 4,000 shares
to seven (7) employees as an end of the year performance bonus award.
On February 1, 1999, the Company issued 100,000 shares, pursuant to
Rule 701 of the Securities Act, to Mayer Amsel and Rhonda Toppston for services
rendered to the Company.
On December 15, 1999, the Company issued 20,000 shares to Kent Terpe, a
former employee of the Company, in consideration for certain unpaid salary and
expenses owed to him by the Company.
Except as otherwise indicated, the Company believes that the
transactions described above were exempt from registration under the Securities
Act pursuant to Section 4(2) thereof as transactions not involving any public
offering because such securities were sold to a limited group of persons, each
of which was believed to have been a sophisticated investor or had a
pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. The Company took steps to ensure that the purchaser was acquiring
securities for purposes of investment and not with a view to distribution,
including the use of a restrictive legend on certificates representing such
shares and delivery of instructions to the Company's transfer agent to stop
resales of shares represented by such certificates except transfers supported by
an opinion of counsel to the effect that such resale qualifies for an exemption
from the registration requirements of the Securities Act. Except as otherwise
indicated, all sales of the Company's securities were made by officers of the
Company who received no commission or other remuneration for the solicitation of
any person in connection with the respective sales of securities described
above.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and By-laws provide, in
effect, that, to the fullest extent and under the circumstances permitted by
Section 145 of the Delaware General Corporation Law (the "DGCL"), the Company
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is a director, officer, incorporator, employee, or agent of the
Company or is or was serving at the Company's request as a director, officer,
incorporator, employee, partner, trustee or agent of another corporation or
enterprise. The Certificate of Incorporation also relieves directors of the
Company from monetary damages to the Corporation or its stockholders for breach
of such director's fiduciary duty as a director to the fullest extent permitted
by the DGCL. Under Section 102(b)(7) of the DGCL, a corporation may relieve its
directors from personal liability to such corporation or its stockholders for
monetary damages for any breach of their fiduciary duty as directors except (i)
for a breach of the duty of loyalty, (ii) for failure to act in good faith,
(iii) for intentional misconduct or knowing violation of law, (iv) for willful
or negligent violation of specific provisions in the DGCL imposing requirements
with respect to stock repurchases, redemption and dividends, or (v) for any
transactions from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person
-29-
<PAGE> 30
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to which an officer, employee or
agent has been adjudged to be liable to the corporation unless that person is
determined to be fairly and reasonably entitled to indemnity for proper expenses
by the court in which such action or suit is brought. Indemnification is
mandatory in the case of a director, officer, employee, or agent who is
successful on the merits in defense of a suit against such person.
-30-
<PAGE> 31
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report.............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998, September 30, 1999
and December 31, 1999 (unaudited)................................................................ F-3
Consolidated Statements of Operations for the Year Ended December 31, 1998,
the Nine Months Ended September 30, 1999 and the Three Months Ended
December 31, 1998 and 1999 (unaudited)........................................................... F-4
Consolidated Statements of Changes in Stockholders' Deficit for the Year Ended
December 31, 1998, the Nine Months Ended September 30, 1999 and the
Three Months Ended December 31, 1999 (unaudited)................................................. F-5
Consolidated Statements of Cash Flows for the Year Ended December 31, 1998,
the Nine Months Ended September 30, 1999 and the Three Months Ended
December 31, 1998 and 1999 (unaudited)........................................................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MegaWorld, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of MegaWorld, Inc.
as of September 30, 1999 and December 31, 1998, and the related consolidated
statements of operations, changes in stockholders' deficit and cash flows for
the year ended December 31, 1998 and the nine months ended September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MegaWorld, Inc. as of September 30, 1999 and December 31, 1998, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1998 and the nine months ended September 30, 1999, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that MegaWorld, Inc. will continue as a going concern. As more fully discussed
in Note 1 to the financial statements, the Company incurred losses of $2,413,831
and $601,589 for the nine months ended September 30, 1999 and the year ended
December 31, 1998, respectively. As a result of these losses, the Company's
working capital position and ability to generate sufficient cash flows from
operations to meet its operating and capital requirements have deteriorated.
These matters raise substantial doubt about the Company's ability to continue as
a going concern without new sources of working capital. Management's plans in
regard to these matters are also described in Note 1 to the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Houston, Texas
November 11, 1999
F-2
<PAGE> 33
MEGAWORLD, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1998 1999 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 243,675 $ 83,230 $ 23,948
Receivables:
Trade, no allowance for doubtful accounts ............................. 1,604,222 1,652,970 591,837
Receivable from related party ......................................... 186,729 244,914 239,914
Other ................................................................. 83,725 28,500 28,500
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................................. 845,317 30,646 --
Inventory ................................................................ 170,243 169,417 152,231
------------ ------------ ------------
Total current assets ............................................... 3,133,911 2,209,677 1,036,430
PROPERTY AND EQUIPMENT, net ................................................. 4,607,488 4,433,207 4,358,943
ASSET HELD FOR SALE ......................................................... 622,500 622,500 622,500
OTHER ASSETS ................................................................ 244,409 273,886 269,108
------------ ------------ ------------
Total assets ....................................................... $ 8,608,308 $ 7,539,270 $ 6,286,981
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt ........................................ $ 421,500 $ 3,553,154 $ 3,486,396
Line of credit ........................................................... 1,000,000 1,000,000 841,234
Advances from investors .................................................. -- 513,000 579,030
Current portion of capital lease obligation .............................. 51,304 49,677 48,042
Notes and other payables to stockholders ................................. 9,581,878 1,746,076 1,751,075
Trade accounts payable ................................................... 1,592,810 1,951,496 2,118,393
Accrued expenses ......................................................... 442,117 876,350 756,048
Billings in excess of costs and estimated earnings on uncompleted
contracts ............................................................. 1,067,259 1,378,865 533,355
------------ ------------ ------------
Total current liabilities .......................................... 14,156,868 11,068,618 10,089,468
LONG-TERM DEBT, net of current portion ...................................... 3,769,163 236,976 230,000
CAPITAL LEASE OBLIGATION, net of current portion ............................ 142,357 107,587 95,300
DEFERRED INCOME TAXES ....................................................... 6,161 6,161 6,161
------------ ------------ ------------
Total liabilities .................................................. 18,074,549 11,419,342 10,445,036
COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)
STOCKHOLDERS' DEFICIT:
Common stock, $0.0001 par value; 98,808,259 shares authorized;
24,315,926, 40,180,706 and 40,220,706 shares issued and outstanding
at December 31, 1998, September 30, 1999, and December 31, 1999
(unaudited), respectively ............................................. 3,378 4,018 4,022
Class A common stock, $0.0001 par value; 1,191,741
shares authorized; none issued ........................................ -- -- --
Additional paid-in capital ............................................... -- 7,999,360 8,015,956
Accumulated deficit ...................................................... (9,469,619) (11,883,450) (12,178,033)
------------ ------------ ------------
Total stockholders' deficit ........................................ (9,466,241) (3,880,072) (4,158,055)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................................. $ 8,608,308 $ 7,539,270 $ 6,286,981
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 34
MEGAWORLD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE THREE
NINE MONTHS MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
CONTRACT REVENUES $ 17,402,412 $ 7,608,478 $ 4,619,844 $ 1,437,848
COST OF CONTRACT REVENUES 13,312,655 5,628,244 3,083,851 867,450
------------ ------------ ------------ ------------
GROSS PROFIT 4,089,757 1,980,234 1,535,993 570,398
GENERAL AND ADMINISTRATIVE EXPENSES 4,279,614 3,556,703 1,305,331 738,182
INTEREST EXPENSE, NET 411,732 837,362 298,545 126,799
------------ ------------ ------------ ------------
NET LOSS $ (601,589) $ (2,413,831) $ (67,883) $ (294,583)
============ ============ ============ ============
EARNINGS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.08) $ - $ (0.01)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 21,391,298 29,804,881 16,538,227 40,203,829
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 35
MEGAWORLD, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1998, NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THREE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 (restated) 5,100,000 $ 510 $ 476,490 $ (1,119,874) $ (642,874)
Common stock issued for contribution of
net liability from affiliated entity
(restated) 5,100,000 510 (219,828) - (219,318)
Conversion of capital to MegaWorld for
reverse merger 23,580,706 2,358 (4,818) - (2,460)
Distribution to stockholder - - (251,844) (7,748,156) (8,000,000)
Net loss - - - (601,589) (601,589)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1998 33,780,706 3,378 - (9,469,619) (9,466,241)
Conversion of stockholder note payable to
common stock 6,400,000 640 7,999,360 - 8,000,000
Net loss - - - (2,413,831) (2,413,831)
------------ ------------ ------------ ------------ ------------
BALANCES, September 30, 1999 40,180,706 4,018 7,999,360 (11,883,450) (3,880,072)
Issuance of common stock for services
rendered (unaudited) 40,000 4 16,596 - 16,600
Net loss (unaudited) - - - (294,583) (294,583)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1999 (unaudited) 40,220,706 $ 4,022 $ 8,015,956 $(12,178,033) $ (4,158,055)
============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 36
MEGAWORLD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE THREE
YEAR NINE MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1998 1999
------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (601,589) $ (2,413,831) $ (67,883) $ (294,583)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 183,844 231,550 123,651 74,264
Common stock issued for consulting services - - - 16,600
Changes in assets and liabilities:
Accounts receivable (845,618) (51,708) 170,862 1,066,133
Costs and estimated earning in excess of billings
on uncompleted contracts (662,756) 814,671 (257,349) 30,646
Inventory (131,092) 826 (93,342) 17,186
Other assets (172,170) (29,474) (70,312) 4,778
Trade accounts payable (124,068) 358,686 468,231 166,897
Accrued expenses 318,180 434,230 155,075 (120,302)
Billings in excess of costs and estimated
earnings on uncompleted contracts 64,347 311,606 676,724 (845,510)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities (1,970,922) (343,444) 1,105,657 116,109
CASH FLOWS FROM INVESTING ACTIVITIES - purchases of property
and equipment (444,172) (57,269) (150,888) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (repayments) on notes payable from stockholders 1,581,878 164,198 (37,652) 4,999
Advances on notes payable 2,048,800 512,476 - 66,030
Repayments of notes payable (1,145,904) (400,009) (869,140) (258,563)
Change in capital lease obligations (42,594) (36,397) (44,472) 12,143
------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities 2,442,180 240,268 (951,264) (175,391)
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 27,086 (160,445) 3,505 (59,282)
CASH AND CASH EQUIVALENTS, at beginning of period 216,589 243,675 240,170 83,230
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of period $ 243,675 $ 83,230 $ 243,675 $ 23,948
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 223,229 $ 315,886 $ 59,972 $ 18,387
============ ============ ============ ============
Equipment acquired under capital leases $ 92,297 $ - $ - $ -
============ ============ ============ ============
Issuance of common stock for conversion of note payable to
the majority stockholder $ - $ 8,000,000 $ - $ -
============ ============ ============ ============
Contribution of net liabilities from a related entity $ 219,318 $ - $ 219,318 $ -
============ ============ ============ ============
Note payable issued to stockholders in merger $ 8,000,000 $ - $ 8,000,000 $ -
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 37
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization - MegaWorld, Inc. ("MegaWorld" or the "Company") was
incorporated under the laws of the state of Delaware on February 15,
1989. On November 11, 1998, Texas TBS, Inc. ("Texas TBS") acquired the
majority of the outstanding common stock of MegaWorld. Texas TBS, a
privately held corporation, was incorporated under the laws of the
state of Texas on September 18, 1998 to be the surviving corporation of
a merger with Total Building Systems, Inc. (the "Merger") on November
11, 1998, which was accounted for similar to a pooling of interest
method of accounting due to common ownership of the entities. Total
Building Systems, Inc. ("TBS"), a privately held corporation, was
incorporated under the laws of the state of Texas on January 27, 1995.
TBS manufactures modular living quarters for offshore drilling
platforms and modular buildings for private use. The Company is
currently located in Houston, Texas. See Note 2 "Reverse Acquisition By
Texas TBS."
For accounting purposes, the acquisition of Texas TBS by MegaWorld (the
"Reverse Acquisition") has been treated as a reverse acquisition of
MegaWorld by Texas TBS due to change in control of MegaWorld ownership.
Accordingly, the historical financial statements prior to November 11,
1998 are those of Texas TBS and TBS. All transaction costs were
expensed during fiscal 1998.
The Company also owns 100% of ITS Telephony, Inc. ("ITS"). ITS is a
start-up company in the telecommunications industry. There were no
revenues from ITS operations prior to September 30, 1999.
Continuing Operations - The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As shown in the accompanying financial statements, the
Company incurred losses of $2,413,831 and $601,589 from operations and
negative cash flows of $343,444 and $1,970,922 from operating
activities for the nine months ended September 30, 1999 and the year
ended December 31, 1998, respectively, and had a working capital
deficit of $8,858,941 and stockholders' deficit of $3,880,072 as of
September 30, 1999. As a result of these losses, the Company's working
capital position and ability to generate sufficient cash flows from
operations to meet its operating and capital requirements has
deteriorated. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a reasonable
period of time.
F-7
<PAGE> 38
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management is currently in discussions with several groups to provide
additional working capital to support operations until internal cash
flows are sufficient to support operations. The Company has relied on
its majority stockholder to fund its cash requirements in the past. The
Company does not expect the majority stockholder will continue to fund
its cash requirements in the near term.
The Company will seek to find a permanent financing source to replace
the majority stockholder. In the event that a financing source is not
found, portions of the Company's future operations would be curtailed.
The Company believes that it will be successful in removing the threat
concerning its ability to continue as a going concern by raising
additional capital from the issuance of stock or other notes. The
Company is pursuing other sources of financing, but there is no
assurance any source of financing will be available.
Change in Year End - The Company has changed its year end from December
31 to September 30 in 1999.
Revenue and Cost Recognition - Profits and losses on construction and
fabrication contracts are recorded on the percentage-of-completion
method of accounting, measured by the percentage-of-contract costs
incurred to date to estimated total contract costs for each contract.
Contract costs include raw materials, direct labor, amounts paid to
subcontractors, equipment rented and an allocation of overhead
expenses. Anticipated losses on uncompleted construction contracts are
charged to operations as soon as such losses can be estimated. Changes
in job performance, job conditions, estimated profitability and final
contract settlements may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of
amounts billed. The liability, "billings in excess of costs and
estimated earnings on uncompleted contracts," represents billings in
excess of revenues recognized.
Property and Equipment - Property and equipment is stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets ranging from 3 to 10 years. Leasehold improvements are amortized
using the straight-line method over the term of the lease. Buildings
are depreciated over 40 years using the straight-line method. Major
improvements are capitalized; minor replacements, maintenance and
repairs are charged to current operations.
F-8
<PAGE> 39
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
Income Taxes - The Company accounts for income taxes on the liability
method under which the amount of deferred income taxes is based upon
the tax effects of the differences between the financial and income tax
basis of the Company's assets and liabilities and operating loss
carryforwards at the balance sheet date based upon existing laws.
Deferred tax assets are recognized if it is more likely than not that
the future income tax benefit will be realized.
Long-lived Assets - The Company reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. The Company has not
identified any such impairment losses.
Use of Estimates - The preparation of the Company's financial
statements, in conformity with generally accepted accounting
principles, requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from
those estimates.
The Company's estimate of the value of the asset held for sale (as
described in Note 11) is expected to change as future information
becomes available. Such changes in the value of the asset held for sale
will be reflected as a purchase price adjustment in the period in which
such amounts are determinable.
Fair Value of Financial Instruments - The carrying value of cash and
cash equivalents, accounts receivable and accounts payable approximated
fair values due to the short-term debt is stated at market rates. All
other debt is approximate at fair value due to its current maturity.
Cash Equivalents - For purposes of reporting cash flows, cash
equivalents include highly liquid investments purchased with maturity
of three months or less at the date of purchase.
Concentration of Credit Risk - Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily
of accounts receivable. Management does not believe a significant
credit risk existed at September 30, 1999. The Company maintains
deposits in banks which exceed, at times, the federal deposit insurance
available. Management periodically assesses the financial condition of
the institutions and believes that any possible deposit loss is
minimal.
F-9
<PAGE> 40
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
Comprehensive Income (Loss) - Comprehensive income is defined as all
changes in stockholder equity, exclusive of transactions with owners,
such as capital investments. Comprehensive income includes net income
or loss, changes in certain assets and liabilities that are reported
directly in equity such as translation adjustments on investments in
foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive income (loss) was equal to its
net loss for the nine months ended September 30, 1999 and the year
ended December 31, 1998.
Unlimited Interim Information - The accompanying financial information
as of December 31, 1999 and for the three-month periods ended December
31, 1998 and 1999 has been prepared by MegaWorld, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect all adjustments,
consisting of normal recurring accruals, which are, in the opinion of
management, necessary to fairly present such information in accordance
with generally accepted accounting principles.
2. REVERSE ACQUISITION BY TEXAS TBS:
On November 11, 1998, the stockholders of Texas TBS approved a Reverse
Acquisition transaction with MegaWorld through an acquisition/merger
agreement (the "Agreement"). Pursuant to the Agreement, each
outstanding share of common stock of Texas TBS, par value $.01 per
share, was converted to the right to receive 1020 shares of MegaWorld,
par value $.0001 per share. For financial statement purposes, Texas TBS
is considered the acquiring company, and this transaction has been
treated as a purchase by Texas TBS of MegaWorld. For legal purposes,
however, MegaWorld remained the surviving entity. Therefore, the
combined entity retained MegaWorld's capital structure, and the common
stock transactions prior to the merger have been restated based upon
the 1020 exchange ratio (see Note 7 for further discussion of capital
stock activity). Additionally, the majority stockholder of Texas TBS
was given a note payable from MegaWorld of $8,000,000 in conjunction
with the Merger (see Note 8 for further discussion of terms of this
note.) Proforma amounts are not shown for the operations of MegaWorld
from January 1, 1998 to the reverse merger date as such information is
considered immaterial to the Texas TBS financial statements.
F-10
<PAGE> 41
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
3. CONSTRUCTION ACCOUNTS:
Costs, estimated earnings and billings on uncompleted contracts
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- ----------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 5,903,700 $ 1,055,866
Estimated earnings on uncompleted contracts 1,851,802 338,014
--------------- ---------------
7,755,502 1,393,880
Less billings to date (7,977,444) (2,742,099)
--------------- ---------------
$ (221,942) $ (1,348,219)
=============== ===============
</TABLE>
These amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- ----------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 845,317 $ 30,646
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,067,259) (1,378,865)
--------------- ---------------
$ (221,942) $ (1,348,219)
=============== ===============
</TABLE>
The following summarizes the results of construction contracts:
<TABLE>
<CAPTION>
NINE MONTHS ENDED REVENUE GROSS PROFIT
SEPTEMBER 30, 1999 EARNED COST INCURRED RECOGNIZED
----------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Completed contracts $ 6,214,598 $ 4,572,378 $ 1,642,220
Uncompleted contracts 1,393,880 1,055,866 338,014
--------------- --------------- ---------------
$ 7,608,478 $ 5,628,244 $ 1,980,234
=============== =============== ===============
<CAPTION>
YEAR ENDED REVENUE GROSS PROFIT
DECEMBER 31, 1998 EARNED COST INCURRED RECOGNIZED
----------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Completed contracts $ 9,646,910 $ 7,408,955 $ 2,237,955
Uncompleted contracts 7,755,502 5,903,700 1,851,802
--------------- --------------- ---------------
$ 17,402,412 $ 13,312,655 $ 4,089,757
=============== =============== ===============
</TABLE>
F-11
<PAGE> 42
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
4. CONTRACTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- ----------------
<S> <C> <C>
Completed contracts $ 513,521 $ 786,662
Uncompleted contracts 1,090,701 866,308
--------------- ---------------
$ 1,604,222 $ 1,652,970
=============== ===============
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------------- ---------------
<S> <C> <C>
Land $ 518,437 $ 518,437
Building and improvements 1,716,434 1,738,419
Furniture and fixtures 359,225 318,334
Machinery and equipment 1,942,688 2,004,839
Vehicles 38,325 38,325
Leasehold improvements 453,395 453,395
-------------- --------------
5,028,504 5,071,749
Accumulated depreciation and amortization (421,016) (638,542)
-------------- --------------
$ 4,607,488 $ 4,433,207
============== ==============
</TABLE>
F-12
<PAGE> 43
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
6. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
----------------- ----------------
<S> <C> <C>
Note payable to a bank, due in monthly installments of $20,917
with interest of 9%; due August 2003, and collateralized by
land. This note is guaranteed by a significant stockholder of
the Company. This note is currently in
default. $ 3,681,333 $ 3,492,559
Note payable to a bank, due in monthly installments of $1,555
with interest of 9%; due June 2001, and collateralized by
furniture and equipment. This note is guaranteed by a
significant stockholder of the Company. This note is
currently in default. 41,563 30,071
Note payable to a vendor, due in monthly installments of
$10,416, with interest ranging from 2% to 8%, and
collateralized by aluminum equipment. 177,767 -
Note payable to an individual, due in monthly installments of
$2,500 with interest at Prime + 3.5% (11.75% as of
September 30,1999) and due in June 2003. 290,000 267,500
-------------- --------------
4,190,663 3,790,130
Less current portion (421,500) (3,553,154)
-------------- --------------
Total long-term debt $ 3,769,163 $ 236,976
============== ==============
</TABLE>
Following are scheduled maturities of long-term debt at September 30,
1999:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
--------------------- -----------------
<S> <C>
2000 $ 297,071
2001 294,476
2002 281,000
2003 2,917,583
--------------
$ 3,790,130
</TABLE>
The Company has a line of credit with a financial institution under
which $1,000,000 was outstanding at September 30, 1999 and December 31,
1998. The line has an interest rate of 8.25% and is guaranteed by a
significant stockholder of the Company. This line was due August 31,
1999, and the Company is in negotiations with the financial institution
for extended terms.
F-13
<PAGE> 44
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
6. LONG-TERM DEBT: (continued)
The Company has received advances from certain individuals totaling
$513,000 at September 30, 1999. The Company is in discussions with
these individuals to negotiate payment terms.
Under the terms of the agreements with the notes due to financial
institutions, the Company must meet certain covenant requirements. The
most restrictive covenants include the maintenance of tangible net
worth of at least $1,500,000. In addition, the Company is to maintain a
debt to tangible net worth ratio of at least 3-to-1 and a current ratio
of at least 1-to-1. The Company was in non-compliance of the
aforementioned covenants at September 30, 1999.
The financing company may demand repayment of the loan and seek other
remedies provided in the agreement. No such demand has been made. The
Company believes the financing company will continue to meet its
financing needs as they relate to the properties collateralizing the
related debt and does not anticipate the financing company, under the
present circumstances, taking any actions that would have a material
impact upon its operating activities. The entire balance due to the
financial institution has been classified as current in the
accompanying balance sheet.
7. STOCKHOLDERS' EQUITY:
Common Stock - The Company's capital stock is comprised of two classes
of Common Stock with different voting rights. Each share of Common
Stock is entitled to one-twentieth (1/20) of one vote, while each share
of Class A Common Stock is entitled to one vote. As of September 30,
1999, no shares of Class A Common Stock have been issued.
Stock Issuances and Capital Contributions - The Company issued
5,100,000 shares (restated) of common stock to an existing stockholder
in exchange for the contribution of net liabilities totaling $219,318,
including cash of $1,000,000; land and buildings with a cost basis to
the stockholder totaling $2,545,682; and related mortgage debt owed on
the property totaling $3,765,000. The net liabilities of MegaWorld,
which totaled approximately $2,460 as of the Reverse Acquisition date,
and the 11,840,926 common shares of MegaWorld outstanding prior to the
merger, have been recorded as an increase in common stock and decrease
to the accumulated deficit. On the Reverse Acquisition date, a majority
stockholder of Texas TBS was given an $8,000,000 note from the Company,
which is shown as a reduction of capital in the accompanying financial
statements (see Note 8 for further discussions of terms of this note).
In September 1999, the majority stockholder converted the $8,000,000
note payable to 6,400,000 shares of the Company's common stock.
F-14
<PAGE> 45
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
8. RELATED PARTY TRANSACTIONS:
The Company has a receivable due from a related entity owned by the
Chairman of the Board and stockholder, which totaled $244,914 and
$186,729, as of September 30, 1999 and December 31, 1998, respectively.
These receivables related to vendor payments made by the Company on
behalf of the related entity.
The Company has a note payable due to a stockholder and director, which
totaled $472,500 and as of September 30, 1999 and December 31, 1998,
respectively. This note was an obligation of MegaWorld prior to the
Reverse Acquisition transaction and is to be repaid out of the revenue
generated by the ITS, if any, in the future. Additional balances
totaling $186,000 and $53,000 were due to the same stockholder at
September 30, 1999 and December 31, 1998, respectively, which arose
from advances to fund operations and a balance due in connection with
an employment agreement. (See Notes 10 and 11.)
The Company has a note payable due to stockholder, which totaled
$161,000 as of September 30, 1999 and December 31, 1998. This note was
for advances made to the Company. This note is currently due.
The Company had a note payable to the Chairman of the Board and
majority stockholder for $8,000,000 as of December 31, 1998, which was
additional consideration due to Texas TBS in the MegaWorld reverse
merger. This amount has been reflected as a distribution to stockholder
in the accompanying statement of changes in stockholders' deficit. The
note accrues interest at LIBOR + 2% (8.035% at December 31, 1998), and
the first interest payment was due on May 3,1999. This note was
converted to capital in September 1999. The Company has an additional
note payable to the Chairman of the Board and stockholder for $297,419
and $468,134 as of September 30, 1999 and December 31, 1998,
respectively. This note accrues interest at 6% and is currently due.
Interest expense on this note totaled $482,100 and $94,963 for the nine
months ended September 30, 1999 and the year ended December 31, 1998,
respectively. As of September 30, 1999, no amounts had been paid on the
accrued interest.
The Company has a payable due to a related entity owned by the Chairman
of the Board and stockholder, which totaled $588,707 and $427,244, as
of September 30, 1999 and December 31, 1998, respectively. These
payables related to advances owed by the Company to the related party.
The Company has a payable to a stockholder totaling $40,450 at
September 30, 1999. This payable arose for advances made by the
stockholder.
F-15
<PAGE> 46
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
9. INCOME TAXES:
There were no material deferred tax assets and liabilities as of
September 30, 1999, with the exception of the Company's net operating
loss carryforwards ("NOLs"). The Company has provided a valuation
allowance in the full amount of its net deferred tax asset totaling
approximately $774,000.
There are several limitations on this NOL. The maximum amount of
liability that may be realized to the Company is $2,091,173. Future
utilization of the NOLs may be limited by changes in the ownership of
the Company.
10. COMMITMENTS AND CONTINGENCIES:
Lease Commitments - The Company is obligated under capital leases for
equipment which expire in 2001 and 2003. The carrying value of the
leased equipment and related accumulated amortization included in
equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- ----------------
<S> <C> <C>
Construction and transportation equipment $ 256,241 $ 256,241
Less accumulated amortization (53,072) (97,179)
-------------- --------------
$ 203,169 $ 159,062
============== ==============
</TABLE>
The Company leases office space and certain equipment under operating
leases which expire on various dates through June 2003. Rent expense
was approximately $230,000 and $330,000 for the nine months ended
September 30, 1999 and the year ended December 31, 1998.
Future minimum lease payments under noncancellable leases with terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING SEPTEMBER 30, LEASES LEASES
------------------------------------ ---------------- ----------------
<S> <C> <C>
2000 $ 65,773 $ 401,445
2001 54,450 344,783
2002 51,155 277,920
2003 18,430 92,640
-------------- --------------
Total minimum lease payments 189,808 $ 1,116,788
==============
Less amount representing interest (32,544)
--------------
Present value of net minimum lease payments 157,264
Less current portion of capitalized lease obligation (49,677)
--------------
Capitalized lease obligation, net of current portion $ 107,587
==============
</TABLE>
F-16
<PAGE> 47
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
10. COMMITMENTS AND CONTINGENCIES: (continued)
Legal Claims - The Company is involved in legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial condition or results of operations.
Board of Directors - Management is in discussions with a stockholder
and director of the Company to resolve claims based upon an employment
agreement and certain other expenses. The Company has recorded in the
accompanying balance sheet amounts due to this stockholder and director
totaling $658,500 as of September 30, 1999, which is management's best
estimate of the liability. (See Note 8 for further discussions of the
term of this note.) There is an additional claim of $272,000 asserted
by the stockholder and director related to certain other expenses and a
two-year employment agreement dated March 1, 1998 that was assumed in
the Merger. In the opinion of management, the ultimate disposition of
the additional claim will not have a material adverse effect on the
Company's financial condition.
Employment Agreements - The Company has employment agreements with
several Company officers. Under these agreements, which expire in 2001,
the Company is to pay a combined fixed salary of $350,000 per year
during that time, and certain additional amounts could become due under
incentives within these agreements. The significant obligation calls
for an officer of the Company, or his surviving spouse, to receive one
percent (1%) of gross revenues of the Company for a term of fifteen
(15) years.
11. ASSET HELD FOR SALE:
MegaWorld held a leasehold interest in a castle located in northern
Italy prior to the closing of the Reverse Acquisition transaction. The
MegaWorld management prior to the Reverse Acquisition had intended to
develop the property into a timeshare development. The new MegaWorld
management subsequent to the Reverse Acquisition currently intends to
focus on the Company's business activity in the United States and sell
the leasehold interest in the castle, pending receipt of sufficient
funding to develop the castle. The leasehold interest was originally
acquired in April 1998 from an individual, who was named as a director
of the Company prior to the transaction. The consideration given to
purchase the leasehold interest was a note payable of $622,500, and
MegaWorld common stock totaling 1,000,000 shares. The note payable was
refinanced in July and August of 1998 for the issuance of 2,400,000
additional shares of MegaWorld common stock. As of September 30, 1999,
the balance owed on this note was $472,500 (see Note 8 for discussion
of this note). In the purchase price allocation as of the Reverse
Acquisition date, management allocated $622,500 to this leasehold
interest. Any excess sales price over carrying value will be reflected
as a purchase price adjustment. Any deficiency between the sales price
and the carrying value of this asset will be reflected in the Company's
statement of operations.
F-17
<PAGE> 48
MEGAWORLD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to September 30, 1999 is unaudited)
11. ASSET HELD FOR SALE: (continued)
The castle has been generating operating losses since it was acquired.
Management believes the Company has recorded the value of this asset at
its net realizable value at September 30, 1999 and has captured all of
the obligations associated with maintaining and operating this
leasehold interest and included such in the accompanying financial
statements.
12. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) plan (the "Plan") which covers
substantially all of its employees meeting minimum age and service
requirements. The Plan provides for the employees to defer a portion of
their compensation into the Plan. The Company has made no matching
contribution to the Plan.
F-18
<PAGE> 49
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.1 Certificate of Incorporation of MegaWorld
2.2 By-laws of MegaWorld
3.1 Specimen of Common Stock Certificate
6.1 Loan Agreement, dated March 12, 1998, between TBS and Compass Bank.
6.2 First Amendment to Loan Agreement between TBS and Compass Bank.
6.3 Second Amendment to Loan Agreement between TBS and Compass Bank.
6.4 Revolving Promissory Note, dated March 12, 1998, for $1,000,000 between TBS and
Compass Bank.
6.5 Term Promissory Note, dated August 10, 1998, for $3,765,000 between Charles D. McPhail and JoyVer
Investments, LLC and Compass Bank.
6.6 Lease Agreement, dated February 10, 1998, between Stolthaven Houston, Inc. and TBS.
6.7 Mutual Release, Waiver and Settlement Agreement, dated November 27, 1999, between the
Company and Fairway Beech Corporation, ITM Group, Inc., 1-900 USA, Inc., ITS
Telephony, Inc., Fred Simon, Nathan Berkowitz and Kent Terpe
6.8 Employment Agreement, dated January 1, 1996, between Old TBS and Charles D. McPhail.
6.9 Employment Agreement, dated March 30, 1999, between the Company and George Dinsdale.
6.10 Employment Agreement, dated March 1, 1998, between the Company and Michael Giamalvo.
6.11 Employment Agreement, dated June 22, 1998, between the Company and Kenneth Miller.
6.12 Lease Agreement, dated April 21, 1998, between the Company and Michael Giamalvo.
6.13 Tenancy Agreement, dated January 11, 1990, between Robert Caffese, Michael Giamalvo,
Vicinio Parodi, Valerio Parodi and Fallabeni Renzina.
6.14 Customer Agreement contract, dated November 1, 1999, between the Company and Sequel Communications, Inc.
6.15 Customer Agreement contract, dated November 1, 1999, between the Company and WeCU, Inc.
6.16 Revolving Credit Note, dated as of December 15, 1998, between the Company and Charles D. McPhail.
6.17 Revolving Credit Note, dated as of December 15, 1998, between the Company and JoyVer Investments, LLC.
6.18 Revolving Credit Note, dated as of December 15, 1998, between the Company and Michael Giamalvo.
6.19 Revolving Credit Note, dated as of December 15, 1998, between TBS and Charles D. McPhail.
8.1 Acquisition/Merger Agreement dated November 11, 1998, between MegaWorld, Old TBS and
Charles D. McPhail.
8.2 Plan of Merger, dated November 11, 1998, between Old TBS and Texas TBS.
8.3 Deed of Trust, dated November 11, 1998, between Texas TBS and Charles D. McPhail.
8.4 Promissory Note, dated November 11, 1998, between MegaWorld and TBS.
8.5 Security Agreement and Financing Statement, dated November 11, 1998, between Texas TBS
and Charles D. McPhail.
8.6 Security Agreement and Financing Statement, dated November 11, 1998 between MegaWorld
and Charles D. McPhail.
8.7 Continuing and Unconditional Guaranty Agreement, dated November 11, 1998, between
Texas TBS and Charles D. McPhail.
8.8 Continuing and Unconditional Guaranty Agreement, dated November 11, 1998, between
MegaWorld and Charles D. McPhail.
8.9 Indemnification Agreement, dated November 11, 1998, between Texas TBS and Charles D. McPhail.
8.10 Assumption Agreement, dated November 11, 1998, between Old TBS and Texas TBS.
</TABLE>
<PAGE> 50
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEGAWORLD, INC.
Date: March 3, 2000 By: /s/ CHARLES D. MCPHAIL
-------------------- ---------------------------------
Charles D. McPhail
President
<PAGE> 1
EXHIBIT 2.1
CERTIFICATE OF INCORPORATION
of
NASSAU VENTURES, INC.
FIRST. The name of this corporation is NASSAU VENTURES, INC..
SECOND. Its registered office in the State of Delaware is to
be located at 725 Market Street in the city of Wilmington, County of New Castle
The registered agent in charge thereof is The Company Corporation at
THIRD. The nature of the business and, the objects and
purposes proposed to be transacted, promoted and carried on. are to do any or
all the things herein mentioned, as fully and to the same extent as natural
persons might or could do, and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware."
FOURTH. The amount of the total authorized capital stock of
this corporation is 50,000,000 share of $.0001 Par Value.
I
FIFTH. The name and mailing address of the incorporator is as
follows:
NAME: ADDRESS:
Danica L. Grace, 725 Market Street, Wilmington, Delaware 19801
SIXTH. The powers of the incorporator are to terminate upon riling
of the certificate of incorporation, and the name(s) and mailing address(es) of
persons who are to serve as director(s) until the first annual meeting of
stockholders or until their successors are elected and qualify are as follows:
Name and address of director(s)
Chris De Prima, 3905 Voorhis Lane, Seaford, NY 11783
Fill in name(s)
and addresses(cs)
SEVENTH. The Directors shall have power to make and to alter
or amend the By-Laws; to fix the amount to be reserved as working capital. and
to authorize and cause to be executed, mortgages and liens without limit as to
the amount, upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a-vote of the
holders of a majority of the capital stock issued and outstanding, the Directors
shall have the authority to dispose. in any manner, of the whole property of
this corporation.
The By-Laws shall determine whether and to what extent the
accounts and books of this corporation, or any of them shall be open to the
inspection of the stockholders: and no stockholder shall have any right of
inspecting any account, or book or document of this Corporation, except as
conferred by the law or the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their
meetings and keep the books, documents and papers of the Corporation outside of
the State of Delaware, at such places as maybe from time to time designated by
the By-Laws or by resolution of the stockholders or directors, except as
otherwise required by the laws of Delaware.
It is the intention that the objects, purposes and powers
specified in the Third paragraph hereof shall, except where otherwise specified
in said paragraph, be nowise limited or restricted by reference to or inference
from the terms of any other clause or paragraph in this certificate of
incorporation. but that the objects, purposes
<PAGE> 2
and powers specified in the Third paragraph and in each of the clauses or
paragraphs of this charter shall be regarded as independent objects. purposes
and powers.
EIGHTH. Directors of the corporation shall not be liable to
either the corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a director's duty of loyalty to
the corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchases or
redemption by the corporation, or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED. for the purpose of forming a Corporation
under the laws of the State of Delaware, do make, file and record this
Certificate and do certify that the facts herein are true, and I have
accordingly hereunto set my hand.
DATED AT: 2/15/89
State of
County of
/s/ Danica L. Grace
-------------------
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 21:50 AM 0312411997
971094487 - 2187549
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Nassau Ventures, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a Meeting of the Board of Directors of Nassau
Ventures, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof
numbered "First" so that, as amended said Article shall be and
read as follows: The name of this corporation is MegaWorld,
Inc.
SECOND: That thereafter, pursuant to Resolution of its Board of
Directors, a Special Meeting of Stockholders of said Corporation was duly
called and held, upon Notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which Meeting the necessary
number of shares as required by Statute were voted in favor of the
Amendment.
THIRD: That said Amendment as duly adopted is in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
FOURTH: That the capital of said Corporation shall not be reduced
by reason of said Amendment.
IN WITNESS WHEREOF, said Nassau Ventures, Inc., has caused this
Certificate to be signed by George Levy, its Chairman and CEO, and Kenneth
Hom, its Secretary, this 7th Day of March, 1997.
/s/ Kenneth Hom /s/ George Levy
- --------------- ---------------
Secretary Chairman
Kenneth Hom George Levy
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MEGAWORLD, INC.
The undersigned, being the President and Secretary of MegaWorld, Inc.,
a Delaware corporation (the "Corporation"), pursuant to Section 242 of the
General Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: That the Certificate of Incorporation of the
Corporation has been amended by deleting Article FOURTH in its entirety, and
substituting the following Article FOURTH in lieu thereof:
"FOURTH.: (a) The total number of shares which this
corporation shall have the authority to issue is One Hundred
Million (100,000,000), par value $0.0001 per share, One
Million One Hundred Ninety-One Thousand Seven Hundred
Forty-One (1,191,741) of which shall be "Class A Common Stock"
and Ninety Eight Million Eight Hundred Eight Thousand Two
Hundred Fifty-Nine (98,808,259) of which shall be "Common
Stock." With the exception of the voting powers set forth in
paragraph (b) below and the restrictions on transferability
set forth in paragraph (c) below, and except as otherwise set
forth in this Certificate of Incorporation, neither the
holders of Class A Common Stock nor the holders of Common
Stock shall have any relative preferences, privileges,
designations or other special rights, nor shall any
qualifications, limitations or restrictions be imposed upon
the shares of Class A Common Stock or Common Stock.
(b) The holder of each share of Class A Common Stock shall be
entitled to one (1) vote per share of Class A Common Stock,
and the holder of each share of Common Stock shall be entitled
to one-twentieth (1/20) of a vote per share of Common Stock.
With the exception of the foregoing, the holders of Class A
Common Stock and the holders of Common Stock shall have equal
voting rights and powers.
(c) No holder of any shares of Class A Common Stock shall,
directly or indirectly, sell, donate, pledge, hypothecate,
encumber or otherwise transfer any interest in any or all of
the shares of Class A Common Stock now or hereafter owned by
such holder, other than to a person who controls such holder
or to the immediate family members of such person or to a
trust established for the benefit of such person or immediate
family members of such person; provided, however, that each
such holder shall be permitted to exchange the shares of Class
A Common Stock owned by such holder for an equal number of
shares of Common Stock, at any time, upon notice to the Board
of Directors of the corporation. Any sale, donation, pledge,
hypothecation, encumbrance or other transfer which is not in
compliance with the provisions of this paragraph (c) shall be
<PAGE> 5
null and void, and shall not be recognized by the corporation
or the shareholders of the corporation, and the transferee
shall not be entitled to vote any of the shares of Class A
Common Stock of the corporation, nor receive any dividends,
profits or other distributions, nor shall the transferee have
any other rights as a shareholder of the corporation."
SECOND: That such amendment was duly adopted and authorized by
the unanimous written consent of the Board of Directors of the Corporation in
accordance with the provisions of Section 141(f) of the General Corporation Law
of the State of Delaware, and thereafter duly adopted and approved by written
consent of the shareholders of the Corporation in accordance with the provisions
of Section 228 of the General Corporation Law of the State of Delaware, such
shareholders having not less than the minimum number of votes that would be
necessary to adopt and approve such amendment at a meeting at which all shares
entitled to vote thereon were present and voted.
THIRD: That such amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undesigned have executed this
Certificate this 6th day of March, 1998.
/s/ Irwin Roll
- --------------
Irwin C. Roll, President
Attest:
/s/ George H. Levy
- ------------------
George H. Levy, Esq., Secretary
<PAGE> 1
EXHIBIT 2.2
BY-LAWS
OF
MEGAWORLD, INC.
ARTICLE I
Offices
SECTION 1.
The registered office of MegaWorld, Inc. (hereinafter the
"Corporation") in the State of Delaware shall be located at 1313 N. Market
Street, City of Wilmington, County of New Castle, State of Delaware 19801-1151.
SECTION 2.
The Corporation may also have one or more other offices at such place
or places within or without the State of Delaware as the Board of Directors
(hereinafter the "Board") may from time to time determine.
ARTICLE II
Meetings of Stockholders
SECTION 1.
Place. Stockholders' meetings shall be held in such place within or
without the State of Delaware as the Board may determine.
SECTION 2.
Annual Meetings. The annual meeting of the stockholders of the
Corporation shall be held at such place as is designated by the Board, on the
date and at the time fixed, from time to time, by the Board, provided, that the
first annual meeting shall be held on a date within thirteen months after the
organization of the Corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting, for the purpose of electing Directors
<PAGE> 2
and for the transaction of such other business as may properly come before the
meeting.
SECTION 3.
Special Meetings. Special meetings of the stockholders for any purpose
or purposes may be called at any time by the Chairman of the Board, by a
Co-Chairman, by the Vice-Chairman, if one is elected, by the President, or by
the Board. The President shall also call a special meeting of stockholders at
the written request of a majority of the number of Directors then in office.
SECTION 4.
Notice. Written notice of the time and place of holding each meeting,
annual or special, of the stockholders shall be served either personally or by
mail upon each stockholder of record of the Corporation entitled to vote at
such meeting, not less than ten (10) nor more than sixty (60) days before the
date fixed for such meeting. If mailed, it shall be deposited in the United
States mail, postage prepaid, and directed, unless otherwise provided by law, to
each stockholder at his post office address as the same appears on the stock
books of the Corpora. Written notice shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called.
SECTION 5.
Proxies. Except as otherwise provided in the Certificate of
Incorporation, at every meeting of the stockholders, annual or special, every
holder of Common Stock shall be entitled to one vote for each share of capital
stock held by such stock holder, and may exercise such vote in person or by
proxy.
SECTION 6.
Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, at all meetings of stockholders, annual or special, in order to
constitute a quorum, there shall be present, either in person or by proxy,
holders of a majority of the issued and outstanding shares of Common Stock of
the Corporation entitled to vote, and all questions shall be deter mined by a
majority vote of the stockholders entitled to vote present in person or by
proxy. Where a matter requires a vote, by class or by series, of the
stockholders of the Corporation, the presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of each class or
series of stock, as the case may be, shall be necessary to constitute a quorum.
2
<PAGE> 3
SECTION 7.
Stockholder Consent. Any action required by the Certificate of
Incorporation or the Delaware General Corporation Law to be taken at the annual
or special meeting of the stockholders of the Corporation, or any action which
may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of the meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the earliest dated
consent, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation in the manner and to one or more of the
locations set forth herein. Prompt notice of the taking of a corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
Board of Directors
SECTION 1.
General Powers, Qualification and Number. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The property, affairs and business of the Corporation shall be managed
by its Board of Directors, consisting of such number of directors as may from
time to time be fixed by the Board of Directors.
SECTION 2.
Election and Term of Office. The Directors shall be elected at the
annual meeting of stockholders. Each Director
3
<PAGE> 4
shall hold office until the next annual meeting of the stockholders or until
his successor shall have been duly elected and shall have qualified or until
their earlier resignation or removal.
SECTION 3.
Vacancies. Vacancies in the Board resulting from death, resignation,
removal, or other causes, and newly created Directorships resulting from an
increase in the number of Directors, may be filled by a majority vote of the
Directors at that time in office, though less than a quorum, and the Directors
so chosen shall hold office until their successors are duly elected and
qualified.
SECTION 4.
Maintenance of Books and Conduct of Business. The Directors may hold
meetings, have an office, and keep the books of the Corporation at such place or
places as the Board may from time to time determine. At all meetings of the
Board, business may be transacted in such order as the Board may determine.
SECTION 5.
Meetings.
A. Annual Meetings. The Board shall meet for their annual
meeting immediately after the adjournment of the annual meeting of stockholders
for the purpose of electing officers and for the transaction of any other
business that shall come before the meeting.
B. Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman of the Board, by a Co-Chairman or the
Vice-Chairman or by the President or a majority of the number of Directors then
in office. The Secretary shall give notice to each Director of each special
meeting by mail, by telephone, by telegraph, telex or other electronic means
(including facsimile transmission), or personally. Such notice shall be given at
the address of such Director as it appears on the books of the Corporation. If
given by mail, such notice shall be given at least ten (10) days before the
meeting. If given by telephone, by telegraph, telex or other electronic means,
or personally, such notice shall be given at least two (2) days before the
meeting. Notice by mail shall be deemed to be given when the same is deposited
in the United States mail, postage prepaid. The notice need not state the
purpose of the meeting unless otherwise required to do so by statute or by the
Certificate of Incorporation.
4
<PAGE> 5
SECTION 6.
Quorum. A majority of the Directors at the time in office shall
constitute a quorum for the transaction of business and the affirmative vote of
A majority of the directors present at any meeting at which A quorum is present
shall be necessary for the transaction of business, except as may otherwise be
required by statute, or by the Certificate of Incorporation or by some other
provision of these By-Laws. A majority of those present at any annual or special
meeting, although less than a quorum, may adjourn the same from time to time,
without notice, until a quorum be had.
SECTION 7.
Election and Removal of Officers. The Directors shall elect and may
remove at pleasure the officers of the Corporation and shall appoint or employ
such agents and employees as they deem advisable and remove the same at
pleasure. The Directors shall from time to time fix the salaries and rates of
compensation of all officers of the Corporation.
SECTION 8.
Removal of Directors. Any one or more of the Directors, or the entire
Board, may be removed, either with or without cause, at any time by vote of the
stockholders holding a majority of the issued and outstanding stock then
entitled to vote at any special meeting called for that purpose.
SECTION 9.
Action Without Meeting. Any action which may be authorized or taken at
a meeting of the Directors or a committee may be authorized or taken without a
meeting if all the Directors or members of the committee, as the case may be,
consent thereto in a writing or writings, which writing or writings shall be
filed with or entered upon the records of the Corporation.
SECTION 10.
Meetings by Conference Telephone. Members of the Board or any committee
designated by the Board may participate in a meeting of such Board or committee
by means of conference telephone or similar communication equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this section shall constitute presence
in person at such meeting.
5
<PAGE> 6
SECTION 11.
Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board may from time to
time by resolution determine or as shall be designated in the respective notices
or waivers of notice thereof.
SECTION 12.
Compensation. Each Director, in consideration of his serving as such,
shall be entitled to receive from the Corporation such amount per annum or such
fees for attendance at meetings of the Board or of any committee, or both, as
the Board shall from time to time, in its discretion, determine, provided that,
nothing herein shall require the Board to pay any such amounts or fees. The
Board may also, in its discretion, provide that the Corporation shall reimburse
each Director or member of a committee for any expenses incurred by him on
account of his attendance at any such meeting. Nothing contained in this section
shall be construed to preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
Committees
The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation. The Board may designate one or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
6
<PAGE> 7
ARTICLE V
Officers
SECTION 1.
Number. The officers of the Corporation, each of whom shall be elected
by the Board, shall be a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board may also elect a Co-Chairman of the Board, a Vice-Chairman
of the Board, one or more Vice Presidents, and such other officers and assistant
officers as the Board shall from time to time determine, all of whom shall be
elected by the Board. Except as may be otherwise provided by law, any of the
aforesaid offices may be held by the same person. No officer shall be ineligible
to receive a regular salary, commission, or compensation by reason of being a
Director of the Corporation.
SECTION 2.
Vacancies, Removal and Resignations. A vacancy in any office may be
filled for the unexpired portion of the term in the same manner as provided for
election or appointment to such office. Notice of the resignation shall be given
to the President or the Secretary of the Corporation, and such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, it shall take effect when
accepted by action of the Board. Except as aforesaid, the acceptance of such
resignation shall not be necessary to make it effective.
ARTICLE VI
Powers and Duties of Officers
SECTION 1.
The Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the stockholders and of the Board and perform such other duties
as the Board may assign to him. The Board may elect Co-Chairmen, in which event
the Board shall designate one of such Co-Chairmen as the Chief Executive officer
of the Corporation. The Chief Executive Officer may sign and execute all
authorized bonds, contracts, and other obligations in the name of the
Corporation and perform all duties as from time to time may be assigned to him
by the Board.
7
<PAGE> 8
SECTION 2.
The Vice-Chairman of the Board. The Vice-Chairman of the Board, if one
is elected, shall, in the absence of the Chairman or Co-Chairmen of the Board,
preside at all meetings of the stockholders and of the Board and perform such
other duties as the Board may assign to him, including the position of Chief
Operating Officer.
SECTION 3.
President. In the absence of the Chairman or Co-Chairmen of the Board
or Vice-Chairman, the President shall preside at all meetings of the
stockholders and of the Board. He shall present at each annual meeting a report
of the business of the Corporation.
SECTION 4.
Vice President. Each Vice President, if elected, shall perform such
duties as may from time to time be delegated to him by the Board, the Chairman
or Co-Chairmen or the President.
SECTION 5.
Secretary. The Secretary shall be ex-officio clerk of the Board and of
any standing committee. The Secretary shall keep minutes of all meetings of the
Board, the stockholders, and any standing committee, in books provided for that
purpose. He shall attend to the giving and serving of all notices of meetings of
stockholders and of Directors of the Corporation. He shall have charge of and
affix the corporate seal to all instruments requiring such seal. He shall have
charge of such books, records, and papers as the Board may direct, although
such books, records and papers need not be kept in his custody. He shall perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board. In the absence of the
Secretary, any officer or Director may affix the seal of the Corporation to any
instrument requiring such seal.
SECTION 6.
Treasurer. The Treasurer shall be the chief financial officer of the
Corporation and have supervision over the funds, securities, receipts, and
disbursements of the Corporation. He shall cause all moneys and other valuables
to be deposited in the name and to the credit of the Corporation in such
depositories as may be directed by the Board. He shall disburse the funds of the
Corporation and shall take proper vouchers for such disbursements. He shall
render to the Chairman or Co-Chairmen, the
8
<PAGE> 9
President, and to the Board, whenever requested, an account of the financial
condition of the Corporation and of his transactions as Treasurer; and as soon
as may be practicable after the close of each fiscal year, he shall make and
submit to he Board a like report for each fiscal year. He shall perform all
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board.
ARTICLE VII
Capital Stock
SECTION 1.
Stock Certificates. The certificates representing shares of the Stock
issued or to be issued by the Corporation shall be in such form as shall be
approved by the Board. The stock of the Corporation shall be represented by
certificates signed by the Chairman of the Board, a Co-Chairman of the Board or
Vice-Chairman of the Board, if one is elected, or the President or any Vice
President, and countersigned by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, and sealed with the seal of the
Corporation. Whenever any such certificate is countersigned by a transfer agent,
the signature of any such officer may be a facsimile signature and the seal of
the Corporation may be a facsimile thereof. The Corporation shall keep a stock
book containing the names, alphabetically arranged, of all persons who are
stockholders of the Corporation, showing their places of residence, the
respective number of shares of stock held by them, the respective times when
they become the owners thereof, and the respective amount paid therefor.
SECTION 2.
Lost Certificates. Any person claiming a certificate of stock to be
lost or destroyed shall make an affidavit or other proof of that fact
satisfactory to the Board and may be required by the Board to give the
Corporation a good and sufficient bond or indemnity in such form and amount as
is satisfactory to the Board, whereupon a new certificate shall be issued in its
place.
SECTION 3.
Transfer of Stock. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation and subject to such
regulations as may be made by the Board. No transfer shall affect the right of
the Corporation to pay any dividend or make any distribution upon such stock or
to treat the
9
<PAGE> 10
holder of record as the lawful owner thereof until such transfer is recorded on
the books of the Corporation and a new certificate is issued to the person to
whom it has been so transferred. The Corporation shall be entitled to treat the
holder of record of any share or shares as the lawful owner and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any person other than such holder of record. Any
restrictions on the transfer or registration of transfer of any shares of stock
of any class or series shall be noted conspicuously on the certificate
representing such shares.
ARTICLE VIII
Limitation of Liability; Indemnification
SECTION 1.
Limitation of Liability. The directors of the Corporation shall have no
liability to the stockholders for monetary damages for breach of fiduciary duty
as a director provided that this provision shall not eliminate liability of the
directors (i) for any breach of the directors' duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corpora-Law of the State of Delaware (liability for
unlawful payment of dividends or unlawful purchase or redemption of the Corpora-
tion's Stock), or (iv) for any transaction from which the director derived an
improper benefit.
SECTION 2.
Indemnification. The Corporation shall indemnify any person who was or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the fullest extent and under the circumstances permitted by the
General Corporation Law of the State of Delaware. Such indemnification (unless
ordered by a court) shall be made as authorized in a specific case upon a
determination that indemnification of the Director, officer, employee or agent
is proper in the circumstances
10
<PAGE> 11
because he has met the applicable standards of conduct set forth in the General
Corporation Law of the State of Delaware. Such determination shall be made (1)
by the Board through a majority vote of a quorum consisting of the Directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable, or even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any By-Law, agreement vote of stockholders or disinterested
Directors or otherwise, and shall continue as to a person who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
ARTICLE X
Dividends
The Board in its discretion from time to time may declare dividends out
of the surplus of the Corporation, and, subject to the provisions of the
Certificate of Incorporation and these By-Laws, may fix dates for the
declaration and payment thereof.
ARTICLE XI
Waiver of Notice
Whenever any notice is required to be given under provisions of the
statutes or of the Certificate of Incorporation, or of these By-Laws, a written
waiver thereof, signed by the person or persons entitled to notice, whether
before or after the time stated therein, shall be deemed the equivalent of
notice.
11
<PAGE> 12
ARTICLE XII
Amendments
SECTION 1.
Alteration by Stockholders. These By-Laws may be altered, amended,
added to, or repealed at any annual meeting of stockholders, or at any special
meeting of the stockholders called for that purpose, by the affirmative vote of
a majority of all of the issued and outstanding shares of Common Stock of the
Corporation entitled to vote.
SECTION 2.
Alteration by Directors. These By-Laws may be altered, amended, added
to, or repealed by action of the Board at any meeting thereof. Any such
alteration, amendment, addition or repeal so authorized by the Board, however,
may be altered or replaced by the stockholders entitled to vote at any
subsequent meeting.
12
<PAGE> 1
EXHIBIT 3.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CUSIP 584976 30 2
MEGAWORLD, INC.
COMMON STOCK
THIS IS TO CERTIFY THAT ____________________ is the owner of
The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule
144 under the Act. The shares may not be offered for sale,
sold or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an
exemption from registration under the act, the availability of
which is to be established to the satisfaction of the
Corporation.
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.0001
PAR VALUE OF
MEGAWORLD, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and By-Laws of the Corporation and the amendments
from time to time made thereto, copies of which are or will be on file at the
principal office of the Corporation, to all of which the holder by acceptance
hereof assents. This Certificate is not valid unless countersigned by the
Transfer Agency and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
-------------
SECRETARY PRESIDENT
Countersigned: Intercontinental Registrar & Transfer Agency, Inc.
P.O. Box 62405, Boulder City, NV 89006
By:
Transfer Agent & Registrar
<PAGE> 2
TRANSFER FEE $15.00 PER CERTIFICATE ISSUED
NOTICE Signature must be guaranteed by a firm which is a member of a
registered national stock exchange; or by a bank or trust
company. The following abbreviations, when used in the
inscription on the face of this certificate, shall be
construed as though they were written out in full according to
applicable law or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common.
UNIF GIFT MIN ACT - Custodian
---------------------- ------------------------
(Cust) (Minor)
Under Uniform Gifts to Minors Act
--------------------------
(State)
Additional abbreviations may also be used though not in above list.
For Value Received, _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------- Shares of the capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ____________________ Attorney to transfer the said stock
on the books of the within named Corporation with full power of substitution in
the premises.
Dated
----------------------------
-------------------------------------------
NOTICE: The signature in this assignment
must correspond with the name as written
upon the face of the Certificate in every
particular without alteration or enlargement
or any change whatever. The signature(s)
must be medallion guaranteed by an eligible
guarantor institution with membership in an
approved signature guarantee medallion
program pursuant to S.E.C. Rule 17AD-19.
<PAGE> 1
EXHIBIT 6.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT ") is made and entered
into as of the 12 day of March, 1998, by and between TOTAL BUILDING SYSTEMS,
INC., A TEXAS CORPORATION (THE "BORROWER"), and COMPASS BANK, a Texas state
banking association ("Lender").
WITNESSETH:
In consideration of the mutual covenants and agreements herein
contained, Lender and Borrower agree as follows:
SECTION I
DEFINITIONS
1.1 Definitions. In addition to the defined terms set forth
elsewhere herein, the following terms shall have the meanings set forth below:
"ACCOUNTS", "FIXTURES", "GENERAL INTANGIBLES", "INSTRUMENTS", AND
"INVENTORY" shall have the same respective meanings as are assigned
these terms under the Uniform Commercial Code, as adopted in Texas.
"ACCOUNT DEBTOR " shall mean the party who is obligated on or under any
Account,
"AFFILIATE" shall mean (a) a corporation the majority of whose
outstanding shares are owned (individually or collectively) by (i)
Borrower, (ii) any Person identified in this paragraph, (iii) any
Subsidiary of Borrower or any Person identified in this paragraph, or
(iv) any Subsidiary of Borrower's parent corporation, (b) any joint
venture in which Borrower or any Person identified in this paragraph is
a joint venturer, (c) any general or limited partnership in which
Borrower or any Person identified in this paragraph is a general
partner, (d) any shareholder who owns more than ten percent (10%) of
the outstanding common stock of Borrower or any other Person identified
in this Paragraph, (e) any employee, officer or director of Borrower or
any other Person identified in this Paragraph, and (f) any blood
relation of any living Person identified in this Paragraph.
"BORROWER" AND "LENDER" shall mean the parties identified above.
"BORROWING BASE " shall mean an amount equal to 80% of the sum of the
Eligible Accounts.
"BORROWING BASE AND COMPLIANCE CERTIFICATE" shall mean that certain
report in the form of Exhibit "A" attached hereto and made a part
hereof for all purposes.
<PAGE> 2
"BUSINESS DAY" shall mean a day (other than Saturday or Sunday) when
Lender is open for conducting all of its customary commercial banking
activities.
"CAPITAL EXPENDITURES" shall mean the aggregate amount of expenditures,
determined without duplication of amounts, made by Borrower during the
12 month period preceding the date of calculation for the acquisition
of any fixed assets or any replacements thereof, substitutions therefor
or additions thereto, which have a useful life of more than 12 months,
including assets acquired by Borrower during such period with respect
to Capitalized Lease Obligations; provided, however, that there may be
deducted in determining Capital Expenditures for purposes of this
Agreement: (a) the aggregate cash proceeds, net of sales expense,
received by Borrower during such period in connection with the sale by
Borrower of any fixed assets that are contemporaneously or within 120
days after such sale replaced with fixed assets serving a similar
function; and (b) in case of any damage or casualty to any fixed assets
of Borrower, insurance proceeds received by Borrower during such period
which are used to finance or refinance the cost of repairing or
replacing those fixed assets.
"CAPITALIZED LEASE OBLIGATIONS" shall mean any indebtedness represented
by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP, and the amount of
such indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"CHAPTER ID" means Chapter ID of Title 79, Texas Rev. Civ. Stats. 1925,
as amended.
"COMMITMENT FEE" means a fee in the amount of one-half of one percent
(0.5%) of the face amount of the Revolving Note payable by the Borrower
to the Lender at the time of execution of this Agreement in
consideration of Lender's commitment to make advances under the
Revolving Note.
"CURRENT RATIO" shall mean the current assets (less prepaid expenses)
of Borrower divided by current liabilities of Borrower, all as
determined in accordance with GAAP.
"DEBT" shall mean (a) all items of indebtedness or liability (other
than capital, surplus, deferred credits and reserves, as such) which in
accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet as of the date as of
which indebtedness is to be determined, (b) indebtedness or other
liabilities secured by any mortgage, security agreement, pledge, or
lien existing on or encumbering property owned by Borrower, whether or
not the indebtedness or other liabilities secured thereby shall have
been assumed by Borrower, and (c) all indebtedness of any Person (i)
which Borrower has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business), discounted with recourse, agreed (contingently
<PAGE> 3
or otherwise) to purchase or repurchase or otherwise acquire, (ii) in
respect of which Borrower has agreed to supply or advance funds
(whether by way of loan, purchase of securities or capital
contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of
such services or otherwise), or (iii) in respect of which Borrower has
otherwise become directly or indirectly liable, contingently or
otherwise, whether now existing or hereafter arising.
"DEBT COVERAGE RATIO" shall mean Borrower's Net Income plus Interest
Expense plus depreciation and amortization expense, determined in
accordance with GAAP, divided by Borrower's current maturities of long
term Debt, determined in accordance with GAAP, plus Interest Expense,
all for the twelve (12) month period ending with such month.
"DEBT SERVICE" shall mean the sum of (a) all principal payments of
Borrower scheduled to become due and owing during the 12-month period
beginning on the date of determination, plus (b) interest expense
calculated on a pro forma basis for the 12-month period beginning on
the date of determination assuming, for purposes of such calculation,
that (i) all principal payments of Borrower scheduled to become due and
owing during such 12-month period shall be paid in full on the
respective due dates thereof, (ii) the principal amount outstanding on
the date of determination will remain constant during such 12-month
period (except for the effect of scheduled principal payments), and
(iii) the applicable interest rate for such calculation with regard to
such indebtedness shall remain constant throughout such 12-month period
(except for the effect of scheduled changes in interest rates) and be
equal to the weighted average interest rate on all outstanding
indebtedness as of the date of determination, plus (c) all regularly
scheduled rental and lease payments to become due and owing during the
12-month period beginning on the date of determination.
"DEBT TO TANGIBLE NET WORTH RATIO" shall mean the total Debt of
Borrower as determined in accordance with GAAP divided by Borrower's
Tangible Net Worth,
"EBITDA" shall mean for any period, on a consolidated basis, the sum
of (i) the income (or deficit) of Borrower and its Subsidiaries before
provision for income taxes for such period, plus (ii) Interest Expense
for such period, plus (iii) all amounts in respect of depreciation and
amortization of the Borrower for such period, all as determined in
accordance with GAAP.
"ELIGIBLE ACCOUNTS" shall mean an Account which meets each of the
following requirements:
(a) it arises in the ordinary course of Borrower's
business from the sale or lease of goods or from services
rendered, such goods have been shipped or delivered to the
Account Debtor under such Account and such services have
been fully performed and have been accepted by the Account
Debtor, and
3
<PAGE> 4
Borrower's full right to payment for all sums due from
such Account Debtor with respect to such Account shall
have been earned and then be due and payable;
(b) it is a valid and legally enforceable obligation of
the Account hereunder according to its express terms, and
no offset, counterclaim, cross claim, or other defense
denying liability thereunder in whole or in part has been
asserted or alleged by such Account Debtor or is otherwise
available to such Account Debtor;
(c) it is not subject to any mortgage, lien, security
interest, or similar adverse rights or interests
whatsoever other than the security interest in favor of
Lender hereunder;
(d) it is evidenced by an invoice, dated not later than
the date of performance, requiring payment not later than
thirty (30) days from the invoice date, rendered to such
Account Debtor, and is not evidenced by an instrument or
chattel paper;
(e) it is not owing by an Account Debtor whose obligations
Lender shall have notified Borrower are not deemed by
Lender based upon a credit or other business decision by
Lender, to constitute an Eligible Account for purposes of
this Agreement;
(f) it is not due from an Affiliate or any individual or
entity affiliated or related to any Affiliate, whether by
blood, marriage, or otherwise;
(g) it does not constitute progress billings, retainages,
or deferred payments under a contract not fully performed;
(h) it does not constitute, in whole or in part, interest
or finance charges on outstanding balances;
(i) except for returns to Borrower in the ordinary course
of Borrower's business, it is an Account with respect to
which no return, repossession, rejection, cancellation, or
repudiation shall have occurred or have been threatened;
(j) it is an Account with respect to which Borrower
continues to be in full conformity with the
representations, warranties, and covenants of Borrower
made with respect thereto;
4
<PAGE> 5
(k) it is not subject to any trial terms, sales-or-return
terms, consignment terms, guaranteed sales performance or
minimum sales warranties or representations, C.O.D. terms,
cash terms, or similar terms or conditions;
(l) it is owed by an Account Debtor whose principal place
of business is not in the United States of America, unless
(x) the sale is insured, on letter of credit, guaranty, or
acceptance terms, in each case acceptable to Lender, or
(y) the sale is otherwise approved by Lender in writing;
(m) it is not an Account subject, in whole or in part, to
any "bill and hold" or similar arrangement pursuant to
which the invoice is delivered prior to the actual
delivery of the sold or leased goods or the performance of
the services;
(n) It is not an Account with respect to which ninety (90)
days or more shall have passed since the relevant invoice
date;
(o) it is not owed by any Account Debtor who or which has
at any time account balances with Borrower equaling or
exceeding ten percent (10%) of such Account Debtor's total
accounts receivable due to Borrower at such time un paid
after ninety (90) days from invoice date;
(p) it is not an Account in which the Account Debtor is
the United States of America or any department, agency, or
instrumentality thereof, unless Borrower, assigns its
right to payment of such Account to Lender, in form and
substance satisfactory to Lender, and so as to comply with
all applicable requirements of law;
(q) it is not an Account arising in connection with
reimbursement from medicaid or medicare;
(r) it is not an Account of which Borrower has made any
agreement with the Account Debtor for any deduction
therefrom, to the extent of the deduction;
(s) it is not an Account which Borrower has made an
agreement with the Account Debtor to extend the time of
payment of such specific Account;
(t) it is not an Account as to which all consents,
licenses, approvals, or authorizations of, or
registrations or declarations
5
<PAGE> 6
with, any governmental authority required to be obtained,
effected, or given in connection with the execution,
delivery, and performance thereof by each party obligated
thereunder have not been duly obtained, effected, or
given, are not in full force and effect, or subject the
scope of such Accounts to any materially adverse
limitation, either specific or general in nature; and
(u) it is not an Account as to which Borrower or any other
party to such Account is in default or is likely to become
in default in the performance or observance of any of the
terms thereof
(v) it is not an Account which Lender has otherwise
determined to be unsatisfactory
"ENVIRONMENTAL COMPLAINT" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any
other Person with respect to (a) air emissions, (b) spills, releases,
or discharges to soils, any improvements located thereon, surface
water, groundwater, or the sewer, septic, waste treatment, storage, or
disposal systems servicing any Property of Borrower, (c) solid or
liquid waste disposal, (d) the use, generation, storage,
transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health, or safety matters affecting any Property of
Borrower or the business conducted thereon.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EVENT OF DEFAULT" shall mean any of the events specified in Section 7
of this Agreement.
"FINANCIAL STATEMENTS" shall mean the financial statements of Borrower,
which have been delivered to Lender in connection with Borrower's
application to Lender for the loan to be made by Lender pursuant to
this Agreement.
"FIXED CHARGE COVERAGE RATIO" shall mean the sum of (i) EBITDA plus
(ii) current maturities of long term Debt of the Borrower, plus (iii)
current maturities of Capitalized Lease Obligations divided by the sum
of (i) current maturities of long Term Debt of the Borrower, plus (ii)
current maturities of Capitalized Lease Obligations of the Borrower,
plus (Iii) Interest Expense, all as determined in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles established
by the Financial Accounting Standards Board or the American Institute
of Certified Public
6
<PAGE> 7
Accountants and in effect in the United States from time to time,
applied on a basis consistent with that of the preceding fiscal year of
Borrower, reflecting only such changes in accounting principles or
practice with which the independent public accountants of Borrower
concur.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, agency, or
other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government, including, without limitation, any state
agencies and Persons responsible in whole or in part for environmental
matters in the states in which Borrower is located or otherwise
conducting its business activities and the United States Environmental
Protection Agency.
"GUARANTY" shall mean the Guaranty Agreement executed on even date
herewith by the Guarantor.
"GUARANTOR" shall mean Charles D. McPhail.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives, radon,
radioactive materials, hazardous wastes, asbestos, urea formaldehyde
foam insulation, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum,
petroleum products, methane, associated oil or natural gas exploration,
production, and development wastes, or any "hazardous substances,"
"hazardous materials", "hazardous wastes," "toxic substances," or
related materials, as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended,
or any other law or regulation now or hereafter enacted or promulgated
by any Governmental Authority.
"INDEX RATE" shall mean a fluctuating interest rate per annum, computed
on the basis of a year of 360 days, for the actual number of days
elapsed, which rate per annum. shall at all times be equal to the
"prime rate" published in the "Money Rates" table in The Wall Street
Journal from time to time, and if multiple prime rates are published,
the highest such rate; provided, however, that in the event The Wall
Street Journal is no longer published or no longer publishes the prime
rate in its "Money Rates" table, Bank shall choose a substitute Index
Rate that is based upon comparable information. Such rate is only one
of the reference rates or indexes used by Bank from time to time.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and
processes.
7
<PAGE> 8
"INTEREST EXPENSE" shall mean, for any period, on a consolidated basis,
the interest charges paid or accrued during such period by the Borrower
(including without limitation imputed interest on Capitalized Lease
Obligations) on the Obligations for such period, determined in
accordance with GAAP.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Instruments, the Guaranty and such other instruments, documents, and
agreements evidencing, securing, or pertaining to the loans which have
heretofore been or hereafter are from time to time executed and
delivered to Lender by Borrower or any other Person pursuant to this
Agreement.
"MATERIAL ADVERSE CHANGE" shall mean any act, circumstance, or event
(including, without limitation, any announcement of action) which (a)
causes a Default or Event of Default, (b) otherwise could reasonably be
expected to be material and adverse to the financial condition or
operations of Borrower, or (c) in any manner could reasonably be
expected to materially and adversely affect the validity or
enforceability of any Loan Document.
"MAXIMUM RATE" means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or
Texas laws permits the higher interest rate, stated as a rate per
annum. On each day, if any, that Chapter 1D establishes the Maximum
Rate, the Maximum Rate shall be the "weekly rate ceiling" (as defined
in Section 303 of the Texas Finance Code) for that day. Lender may from
time to time, as to current and future balances, implement any other
ceiling under Texas Finance Code or Chapter 1D by notice to Borrower,
if and to the extent permitted by Texas Finance Code or Chapter 1D.
Without notice to Borrower or any other person or entity, the Maximum
Rate shall automatically fluctuate upward and downward as and in the
amount by which such maximum nonusurious rate of interest permitted by
applicable law fluctuates.
"NET INCOME" shall mean gross revenues and other proper income credits,
less all proper income charges (including taxes), all determined in
accordance with GAAP; provided, that there shall not be included in
such revenues (1) any income representing the excess of equity in any
Subsidiary at the date of acquisition over the investment in such
Subsidiary, (ii) any interests in the undistributed earnings of any
Person which is not a Subsidiary, (iii) any earnings of any Affiliate
for any period prior to the date such Subsidiary was acquired, (iv) any
gains resulting from the write-up of assets, (v) any proceeds of any
life insurance policy, or (vi) any gain, which is classified as
"extraordinary" in accordance with GAAP; and provided further, that
capital gains may be included in revenues only to the extent of capital
losses.
"NET WORTH" shall mean (a) total assets, as would be reflected on a
combined and consolidated balance sheet of Borrower, prepared in
accordance with GAAP, minus
8
<PAGE> 9
(b) total liabilities, as would be reflected on a combined and
consolidated balance sheet of Borrower, prepared in accordance with
GAAP.
"OBLIGATIONS" shall mean all indebtedness, obligations, and liabilities
of Borrower to Lender of every nature and description, now or hereafter
existing or arising, whether such indebtedness is direct or indirect,
primary or secondary, fixed or contingent or arises out of or is
evidenced by a promissory note, deed of trust, security agreement, open
account, overdraft, endorsement, surety agreement, guaranties, or
otherwise, including, without limitation, all such obligations,
liabilities, and indebtedness of Borrower to Lender under or in
connection with the Loan Documents. Obligations shall include all
renewals, extensions and rearrangements of any of the above described
obligations and indebtedness.
"OSHA" shall mean the Occupational Safety and Health Act and all rules
and regulations from time to time promulgated thereunder and all
amendments thereof and thereto.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision
thereof, or any other form of entity.
"PLAN" shall mean an employee benefit plan of the Borrower or any
subsidiary subject to ERISA.
"PROPERTY" shall mean all Eligible Accounts and Inventory of Borrower.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, leak, disposal, or discharge, except in accordance with a
valid permit, license, certificate, or approval of the relevant
Governmental Authority, of any Hazardous Substance into or upon (a) the
air, (b) soils or any improvements located thereon, (c) surface water
or groundwater, or (d) the sewer or septic system, or the waste
treatment, storage, or disposal system servicing any Property of
Borrower.
"REPORTABLE EVENT" shall mean a reportable event as defined by ERISA.
"REVOLVING NOTE" shall mean that certain promissory note of Borrower
dated of even date herewith, in the maximum principal sum of
$1,000,000.00, payable to the order of Lender, and any and all
renewals, replacements, restatements, modifications, extensions,
increases, and rearrangements thereof.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate or
articles of incorporation or association and by-laws or other
organizational or governing documents of such Person, and any
applicable law, treaty, ordinance, order, judgment, rule, decree,
regulation, or determination of an arbitrator, court, or other
Governmental Authority, including, without limitation, rules, decrees,
judgments, regulations, orders, and requirements for permits, licenses,
registrations, approvals,
9
<PAGE> 10
or authorizations (and any authoritative interpretation of any of the
foregoing), in each case as such now exist or may be hereafter amended
and are applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"SECURITY AGREEMENT" shall mean the Security Agreement of even date
herewith, by and between Borrower and Lender, covering and granting a
security interest in, among other things, Borrower's Inventory, General
Intangibles, and Accounts.
"SECURITY INSTRUMENTS" shall mean the Security Agreement and any and
all other heretofore and hereafter existing security and other
agreements which create or grant a lien or security interest as
security for the Revolving Note or other Obligations.
"SUBSCRIPTION RECEIVABLE" shall mean a commitment from an investor to
purchase capital stock of the Borrower.
"SUBSIDIARY" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such
corporation are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person,
"SUBORDINATED INDEBTEDNESS" shall mean any Debt of Borrower expressly
contained in the instruments evidencing such Debt or in other
instruments or agreements related thereto such, subordination
provisions being substantially to the effect that the holder of such
debt agrees that the Debt evidenced by such instrument or such other
agreements shall at all times and in all respects be subordinate and
junior in right of payment to indebtedness referred to therein.
"TANGIBLE NET WORTH" shall mean Borrower's Net Worth less (a) all
intangible assets including receivables due from officers, affiliates,
subsidiaries and related entities determined in accordance with GAAP,
less (b) the Subscription Receivable.
"TERMINATION DATE" shall mean the earlier to occur of (a) May 1, 1999,
or (b) the date on which an Event of Default shall occur.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with such
principles. In the event that changes in GAAP shall be mandated by the Financial
Accounting Standards Board and/or the American Institute of Certified Public
Accountants or any similar accounting body of comparable standing, or shall be
recommended by Borrower's certified public accountants, to the extent that such
changes would modify such accounting terms or the interpretation or computation
thereof as contemplated by this Agreement at the time of execution hereof, then
in such event, such changes shall be followed in defining such accounting terms
only after Lender and Borrower amend this
10
<PAGE> 11
Agreement to reflect the original intent of such terms in light of such changes,
and such terms shall continue to be applied and interpreted without such change
until such agreement.
1.3 Other Terms. All other terms contained in this Agreement
shall have, when the context so indicates, the meanings provided for in the
Texas Uniform Commercial Code to the extent the same are used or defined
therein.
1.4 References. References in this Agreement to Section or
Exhibit numbers shall be to Sections and Exhibits of this Agreement, unless
expressly stated to the contrary. References in this Agreement to "hereby,"
"herein," "hereinabove," "hereinafter," "hereinbelow ..... hereof," and
"hereunder" shall be to this Agreement in its entirety and not only to the
particular Section or Exhibit in which such reference appears.
1.5 Sections. This Agreement, for convenience only, has been
divided into Sections; and it is understood that the rights and other legal
relations of the parties hereto shall be determined from this instrument as an
entirety and without regard to the aforesaid division into Sections and without
regard to headings prefixed to such Sections.
1.6 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
1.8 Certain Other Matters of Construction. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to any instruments or
agreements, including, without limitation, references to any of the Loan
Documents, shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
SECTION 2
THE COMMITMENT
2.1 Revolving Loan. Subject to the full, complete, and timely
satisfaction by Borrower of each of the conditions precedent described in
Section 6.1 and 6.2, and relying on the representations and warranties of
Borrower hereinafter set forth, Lender agrees to make revolving loans to
Borrower pursuant to which Borrower may borrow, repay, and reborrow under the
terms of this Agreement on or after the date hereof and prior to the Termination
Date, amounts not exceeding the lesser of (i) the Borrowing Base or (ii)
$1,000,000.00, which revolving loans shall be evidenced by the issuance,
execution, and delivery of the Revolving Note.
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2.2 Additional Payments. Without limiting any other terms or
requirement of this Agreement, if, at any time, for any reason, the outstanding
principal balance under the Revolving Note exceeds the Borrowing Base, Borrower
shall, on demand by Lender, pay the amount of such excess for application
towards reduction of the outstanding balance of the Revolving Note plus the
amount of interest accrued on such excess to the date of payment.
2.3 Payments. All payments made by Borrower under this
Agreement, the Revolving Note, or the other Loan Documents shall be in-federal
or other immediately available funds, not later than 2:00 p.m., Houston time, on
the date that such payment is required to be made, at the banking quarters of
Lender located at 24 Greenway Plaza, P.O. Box 4444, Houston, Texas 77210-4444.
If the date for any payment due under the Loan Documents falls on a day which is
not a Business Day, such payment date shall be deemed to have fallen on the next
following Business Day.
2.4 Purpose. The proceeds of this Revolving Note shall be used
by the Borrower only for working capital support.
2.5 Borrowing Base. The Borrowing Base shall be determined
monthly on the basis of information supplied by Borrower in the Borrowing Base
and Compliance Certificate in accordance with the terms of Section 5.1 (c)(ii)
of this Agreement. In the event that, at any time after receiving the Borrowing
Base and Compliance Certificate, Lender determines from the Borrowing Base and
Compliance Certificate and such other information available to Lender, that the
actual Borrowing Base is different from the Borrowing Base shown by Borrower on
the Borrowing Base and Compliance Certificate, Lender shall notify Borrower of
its determination and the Borrowing Base so communicated to Borrower shall
become effective upon such notification and shall remain in effect until the
next subsequent determination of the Borrowing Base. Unless and until such a
notification is communicated by Lender to Borrower, the Borrowing Base
determined by Borrower in the Borrowing Base and Compliance Certificate shall be
the effective Borrowing Base.
2.6 Borrowing Procedure for Revolving Note. Subject to the
terms and provisions of Sections 2.1 and 2.2 of this Agreement, Borrower shall
give Lender notice, in a form acceptable to Lender, of each request for an
advance under the Revolving Note. Each such notice shall specify the proposed
date of the advance (which shall be on a Business Day). Lender, at its option,
may accept telephonic requests for advances, provided that such acceptance shall
not constitute a waiver of the Lender's right to delivery of a written notice in
connection with subsequent advances. On the date specified for each advance
hereunder, subject to the terms and conditions of this Agreement (including,
without limitation, that no Event of Default has occurred and is then existing
and that no representation or warranty set forth in this Agreement is then false
or untrue), Lender will make such advances available to Borrower by depositing
the same, in immediately available funds, in an account of Borrower (designated
by the Borrower) maintained with Lender at the principal office of Lender in
Houston, Texas, or by such other means as is acceptable to Lender and Borrower.
2.7 Assignment of Accounts. As additional security for the
payment
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and/or performance of the Obligations, Borrower hereby transfers, assigns and
pledges to Lender and/or grants to Lender a security interest in all funds of
Borrower now or hereafter or from time to time on deposit with Lender, with such
interest of Lender to be retransferred, reassigned, and/or released by Lender,
as the case may be, at the expense of Borrower upon payment in full and/or
complete performance by Borrower of all Obligations. All remedies as secured
party or assignee of such funds shall be exercisable by Lender upon the
occurrence and during the continuance of any Event of Default, regardless of
whether the exercise of any such remedy would result in any penalty or loss of
interest or profit with respect to any withdrawal of funds deposited in a time
deposit account prior to the maturity thereof. Furthermore, Borrower hereby
grants to Lender the right, exercisable at such time as any Obligation shall
mature, whether by acceleration of maturity or otherwise, of offset of banker's
lien against all funds of Borrower now or hereafter or from time to time on
deposit with Lender, regardless of whether the exercise of any such remedy would
result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof. Unless an Event of Default shall have occurred and shall be continuing,
Borrower shall have the unfettered right to use any of such funds as Borrower
deems appropriate in the operation of Borrower's business.
2.8 Monitoring. Lender reserves the right to institute an
asset based monitoring program at any time prior to the Termination Date.
Borrower acknowledges that Lender has prior to the date hereof disclosed to
Borrower the manner in which such an asset based monitoring program shall
operate, and Borrower agrees to fully cooperate with Lender in the event such a
program is implemented.
2.9 Prepayment. Except as otherwise provided for in the
Revolving Note, the Revolving Note may be prepaid in whole or in part, without
premium or penalty.
SECTION 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties. Borrower represents and
warrants to Lender (which representations and warranties are made in addition to
the warranties and representations made in the Security Instruments and will
survive the delivery of the Revolving Note) that:
(a) Borrower is a Texas corporation, duly organized, validly
existing and in good standing under the laws of the State of Texas, and
has full power and authority to consummate the transactions
contemplated in this Agreement. Borrower has the power to own its
properties and carry on its business as it is now being conducted, and
is duly authorized to do business and is in good standing in the State
of Texas and in every other jurisdiction where qualification is
necessary. Borrower is duly authorized and empowered to create, issue,
execute, and deliver the Loan Documents, and all action on its part
requisite for the due creation, issuance, and delivery of the Loan
Documents has been duly and effective taken. The Loan Documents do not
violate any provision of Borrower's corporate charter or bylaws,
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or any contract, agreement, law or regulation to which Borrower is
subject, and do not require the consent or approval of any Government
Authority. Borrower has obtained all permits, license, and consents
required for each entity to conduct their respective businesses;
(b) Borrower is not in default in the performance,
observance, or fulfillment of any of the obligations, covenants, or
conditions contained in any agreement or instrument to which it is a
party, or in default under or in violation of any law, order,
regulation or demand of any Governmental Authority, which default or
violation might have consequences which would materially and adversely
affect the business or properties of Borrower;
(c) The Financial Statements are complete and correct, have
been prepared in accordance with GAAP, and fully and accurately reflect
the financial condition and results of the operations of Borrower as of
the date and for the period stated. No material adverse change has
occurred in the condition, financial or otherwise, of Borrower since
the date of the Financial Statements;
(d) Borrower has not made investments in, advances to, or
guaranties of the obligations of any Person, except as disclosed by the
Financial Statements;
(e) Except for liabilities as previously disclosed to Lender
in the Financial Statements and other liabilities incurred since that
date in the normal course of business, Borrower does not have any
liabilities, direct or contingent. There is no litigation,
administrative proceeding, investigation, or other action of any nature
pending or, to the knowledge of Borrower, threatened against Borrower
before any court or administrative agency which involves the
possibility of any judgment or liability which may materially and
adversely affect the business or the assets of Borrower or the right of
Borrower to carry on business as now conducted. No unusual or unduly
burdensome restriction, restraint or hazard exists by contract, law,
governmental regulation or otherwise relative to the business or assets
of Borrower;
(f) Borrower has good and indefeasible title to its assets
pledged by it pursuant to the Security Instruments, free and clear of
all security interests, liens and encumbrances, except for (i) liens or
security interests on such assets previously disclosed to and approved
by Lender in writing; and (ii) restrictions, rights, easements, and
minor irregularities in title which do not materially (x) interfere
with the occupation of Borrower and the use and enjoyment by Borrower
of such assets in the normal course of Borrower's business as presently
conducted or (y) impair the value thereof for such business;
(g) Borrower has filed all tax returns required to be filed
and has paid all taxes shown thereon to be due, including interest and
penalties, or due pursuant to any assessment received by Borrower,
except such taxes, if any, under contest in good faith and for which
adequate reserves have been provided. The charges,
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accruals and reserves on the books of Borrower for any taxes or other
governmental charges are, in the opinion of Borrower, adequate.
Borrower has paid all franchise and other taxes which are now due;
(h) No Reportable Event has occurred with respect to any Plan.
Borrower has not incurred any material accumulated unfunded deficiency
within the meaning of ERISA, nor has Borrower incurred any material
liability to the Pension Benefit Guaranty Corporation established under
ERISA (or any successor thereto under ERISA) in connection with any
Plan;
(i) The principal place of business and chief executive office
of Borrower and the place where Borrower keeps its books and records is
located at the address of Borrower set forth in Section 9.7 of this
Agreement;
(j) Borrower is not engaged principally, or as one of its
important activities, in the business of extending or obtaining credit
for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, U, or X of the Board of Governors of the
Federal Reserve System). No part of the proceeds of any extension of
credit under this Agreement will be used to purchase or carry any such
margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System,
including, without limitation, Regulations G, T, U, or X;
(k) Borrower and its business operations, and leaseholds are
in compliance in all material respects with, the provisions of all
Governmental Authority, including, without limitation, OSHA, laws
relating to Hazardous Substances, the Securities Act of 1933, the
Securities Exchange Act of 1934, the Fair Labor Standards Act, laws
relating to income, unemployment, payroll or social security taxes and
Plans under ERISA, the Flood Disaster Protection Act of 1973, the
Consumer Credit Protection Act, the Federal Trade Commission Act, the
Social Security Act (including, without limitation, requirements
relating to illegal Medicare or Medicaid remuneration, and laws of the
State of Texas pertaining to the same subject matter), statutes
creating and governing the Bureau of Alcohol, Tobacco and Firearms, and
any and all state statutes or pronouncements addressing, or related to,
subjects the same as or comparable to those covered by such enumerated
federal statutes, and there have been no citations, notices, or orders
of noncompliance issued to Borrower or any of its Subsidiaries under
any such law, rule, regulation, or other Requirement of Law. Borrower
possesses, and is in good standing with respect thereto, all
governmental consents, licenses, approvals, certificates, inspections,
registrations, permits, and other authorizations necessary to enable
them to carry on its business in all material respects as now
conducted; all such governmental consents, licenses, approvals,
certificates, inspections, registrations, permits, and other
authorizations are in full force and effect; and Borrower has no reason
to believe that it will be unable to obtain the renewal of any such
governmental consents, licenses, approvals, certificates, inspections,
registrations, permits, and other authorizations;
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(l) No information, exhibit, or report prepared by or at the
direction or with the supervision of Borrower and furnished to Lender
in connection with the negotiation and preparation of this Agreement or
any Loan Document contains any material misstatements of fact or omits
a material fact necessary to make the statements contained therein not
misleading as of the date made or deemed made. 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 business, prospects, profits, or
condition (financial or otherwise) of Borrower or the ability of
Borrower to perform this Agreement;
(m) Borrower has no Subsidiaries, and except as otherwise
disclosed to Lender in writing prior to the date hereof, Borrower is
not a partner or participant in any partnership or joint venture;
(n) Borrower is now and, after giving effect to initial
advances to be made hereunder, at all times will be, solvent and will
be adequately capitalized to pay its debts as they become due;
(o) Borrower is not a party to any collective bargaining
agreement, and to the best of Borrower's knowledge and belief, there
are no material grievances, disputes, or controversies among Borrower
with any union or any other organization of any of their employees, or
threats of strikes, work stoppages, or any asserted pending demands for
collective bargaining by any union or organization;
(p) Borrower owns or is licensed to use all Intellectual
Property necessary to conduct all business material to its condition
(financial or otherwise), business, or operations as such business is
currently conducted. Except as disclosed to Lender or its counsel in
writing, to the best of Borrower's knowledge and belief, no claim has
been asserted or is pending by any Person with the respect to the use
of any such Intellectual Property or challenging or questioning the
validity or effectiveness of any such Intellectual Property; and
Borrower knows of no valid basis for any such claim. To the best of
Borrower's knowledge nd belief, the use of such Intellectual Property
by Borrower does not infringe on the rights of any Person. Except as
disclosed by Borrower to Lender in writing, no Intellectual Property or
other property of Borrower has been registered (or is otherwise
patented, copyrighted, licensed, or trademarked), or is subject to any
patent, copyright, license, or trademark, under and with respect to any
federal laws or any other Government Authority;
(q) As of the date hereof, no event has occurred and no
condition exists which would, upon the execution and delivery of this
Agreement or Borrower's or any other Person's performance hereunder,
constitute a Default or an Event of Default;
(r) There exists no actual or, to Borrower's knowledge,
threatened termination, cancellation, or limitation of, or any
modification or change in, the
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business relationship between Borrower with any customer or any group
of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier,
and, to the knowledge of Borrower, there exists no present condition or
state of facts or circumstances which would materially affect adversely
Borrower or prevent Borrower 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;
(s) Except in compliance with the laws of all applicable
Governmental Authority, no Hazardous Substances have been generated,
transported, and/or disposed of by Borrower, at a site which was, at
the time of such generation, transportation and/or disposal, or has
since become, a Superfund Site. For purposes of this subsection,
"SUPERFUND SITE" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial
action or any comparable state registries or list in any state of the
United States;
(t) Except in accordance with the laws of all Governmental
Authority or the terms of a valid permit, license, certificate, or
approval of the Governmental Authority, no Release of Hazardous
Substances has been made by Borrower, from, affecting, or related to
any Plower of Borrower, any Plower leased by Borrower, or any property
on which Borrower is conducting any of its business operations;
(u) No Environmental Complaint has been received by Borrower;
and
(v) Each request for an advance under the Revolving Note by
Borrower to Lender pursuant to this Agreement or any of the other Loan
Documents constitutes (i) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Default or Event
of Default and (ii) a reaffirmation as of the date of said request that
all of the representations and warranties of Borrower contained in this
Agreement and the other Loan Documents are true in all material
respects except for any changes in the nature of Borrower's business or
operations that would render the information contained in any exhibit
attached hereto either inaccurate or incomplete, so long as Lender has
consented to such changes in writing or such changes are expressly
permitted by this Agreement.
SECTION 4
AFFIRMATIVE COVENANTS
4.1 Covenants of Borrower. In addition to the covenants
agreements of Borrower made elsewhere in this Agreement, Borrower
covenants and agrees, unless Lender shall otherwise consent in writing,
that Borrower shall:
(a) Do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights, and franchises;
continue to conduct, operate, and manage its business substantially as
its business has been conducted, managed and
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operated in the past; and at all times maintain, preserve and protect
its assets used or useful in the conduct of its business, keep the same
in good repair, working order and condition, and make, or cause to be
made, all needful or proper repairs, replacements and improvements
thereto so that Borrower's business may be properly and advantageously
conducted at all times;
(b) (i) Comply with all applicable statutes and government
regulations, (ii) remain licensed with all applicable state and federal
regulatory and other agencies; (iii) pay and discharge promptly all
taxes, assessments and governmental charges or levies imposed on it,
the collateral described in any Security Instrument or any part
thereof, its income and profits, and any of its property, real,
personal or mixed, or any part thereof, before the same shall be in
default; and (iv) pay all lawful claims for labor, materials, supplies,
or other claims, which, if unpaid, might become a lien or charge upon
such property or any part thereof,
(c) Promptly furnish to Lender such information regarding the
business affairs, financial condition, assets, liabilities, operations,
and transactions of Borrower as Lender may reasonably request, and,
without limiting the foregoing, furnish to Lender the following:
(i) As soon as available, and in any event within 30
days from the end of each calendar month, an
unaudited company prepared financial statement
showing the financial condition of Borrower at
the end of such month and the results of
operations during such month, which financial
statement shall include, but shall not be
limited to, a balance sheet, income statement,
and such other matters as Lender may reasonably
request;
(ii) as soon as available, and in any event within 30
days from the end of each calendar month, a
Borrowing Base and Compliance Certificate for
such month, together with a schedule of all
related calculations and a summary of income
information (each in form satisfactory to
Lender) signed and certified by a duly
authorized officer of Borrower;
(iii) Within 30 days from the end of each calendar
month a listing and aging, signed and certified
by a duly authorized officer of Borrower, of the
Accounts and accounts receivable of Borrower
through the preceding month and such other
information as Lender may reasonably request;
(iv) Within 30 days from the end of each fiscal
quarter
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of the Borrower, a listing and aging, signed and
certified by a duly authorized officer of
Borrower, of the accounts payable of Borrower
through the end of the preceding month and such
other information as Lender may reasonably
request;
(v) As soon as available, and in any event within
120 days from the end of Borrower's fiscal year
beginning with the December 31, 1998 statement,
an annual audited financial statement prepared
and reviewed by an independent certified public
accounting firm acceptable to Lender showing the
financial condition of Borrower at the close of
its fiscal year and the results of operation
during such fiscal year, which financial
statement shall be materially complete and
correct and shall include, but shall not be
limited to, an operating statement, a balance
sheet, a reconciliation of equity amounts, a
source and application of funds report, and such
other matters as Lender may request;
(vi) As soon as available, and in any event within 30
days of the date filed, a copy of the federal
income tax return of Total Building Systems,
Inc., certified by a duly authorized officer as
being true and correct;
(vii) As soon as available, and in any event within 30
days of the date filed, a copy of the federal
income tax return of Charles D. McPhail.
(vii) On or before January 31st of each year, a
financial statement form Charles D. McPhail
including therein a statement of cash flow and
balance sheet.
(6) Prior to the time any Property described in or covered by
any Security Instrument is copyrighted, licensed, patented, or
trademarked by Borrower or any Affiliate, pursuant to any duly filed
registration or otherwise, or is subjected to any registered copyright,
license, patent, or trademark by Borrower or other Affiliate, notify
Lender thereof and take (or cause to be taken) all actions necessary to
preserve the perfection and first priority of Lender's security
interest in and to such Property;
(e) Promptly inform Lender of any litigation filed against
Borrower, or of any other actual or potential liability;
(f) At the written request of Lender, promptly deliver to
Lender, in form and
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substance satisfactory to Lender, UCC-1 financing statements, for
filing, at Borrower's sole cost and expense with the Texas Secretary of
State, or any other location required by Lender covering any specific
Inventory purchased with advances under the Revolving Note;
(g) Promptly cure any defects in the execution and delivery of
the Loan Documents and immediately execute and deliver to Lender all
such other and further instruments as may be required by Lender from
time to time in order to satisfy or comply with the covenants and
agreements of Borrower made in this Agreement;
(h) Pay the Revolving Note and other Obligations according to
the readug tenor and effect thereof, as may be renewed or modified from
time to time, and do and perform every act and discharge all of the
obligations provided to be performed and discharged under the Loan
Documents at the time or times and in the manner therein and herein
specified;
(i) Promptly reimburse Lender upon request for all reasonable
amounts expended, advanced, or incurred by Lender (i) to satisfy any
obligation of Borrower under this Agreement, (ii) to protect the assets
or business of Borrower, (iii) to collect the Revolving Note, or any
other amounts advanced under this Agreement or otherwise, or (iv) to
enforce the rights of Lender under the Loan Documents, which amounts
will include, without limitation, all court costs, reasonable
attorneys' fees, and fees of auditors, accountants, and investigators
incurred by Lender in connection with any such matters, together with
interest at the Maximum Rate on each such amount from the date of
notification to Borrower that the same was expended, advanced or
incurred by Lender until the date it is repaid to Lender;
(j) Continue to maintain insurance with respect to its assets
and business against such liabilities, casualties, risks, and
contingencies (including, without limitation, insurance for worker's
compensation and fire) in such types and amounts as is normal and
customary for carrying on Borrower's business and as is satisfactory to
Lender and allow no material change which would decrease coverage to be
made in the foregoing without the prior approval of Lender. On the date
hereof, at the close of Borrower's fiscal year, and at any other time
Lender may request, Borrower will furnish Lender a summary of such
insurance and, if requested, will furnish Lender copies of the
applicable policies. The proceeds of any such policies insuring
physical loss or damage shall be used either to repair the damaged
property, replace lost property, or prepay the outstanding balances of
the Revolving Note as directed by Lender;
(k) Lender may apply the proceeds advanced on the Revolving
Note to the satisfaction of any of the Obligations, and the proceeds so
applied shall be part of the Obligations;
(l) Qualify as a foreign corporation in all other
Jurisdictions wherein the property now
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or hereafter owned by Borrower or the business now or hereafter
transacted by Borrower makes such qualifications necessary; and
(m) Furnish to Lender (i) as soon as possible, and in any
event within 30 days after Borrower or a duly appointed administrator
of a Plan knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, a statement of the chief financial
officer of Borrower setting forth details as to such Reportable Event
and the action which Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event given to
the Pension Benefit Guaranty Corporation or a statement that said
notice will be filed with the annual report to the United States
Department of Labor with respect to such Plan, if such filing has been
authorized, and (ii) promptly after receipt thereof, a copy of any
notice Borrower may receive from the United States Department of Labor,
the Internal Revenue Service or the Pension Benefit Guaranty to any
Reportable Event.
(n) In addition to, and without in any way limiting, the other
requirements in this Agreement to provide certain notices to Lender,
deliver to Lender, promptly upon any officer of Borrower having
knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by the
chief financial officer of Borrower, or other authorized representative
of Borrower designated from time to time pursuant to written
designation by Borrower delivered to Lender, advising Lender of the
occurrence of such event or circumstance and the steps, if any, being
taken by Borrower with respect thereto:
(i) any Default or Event of Default;
(ii) any litigation or proceeding involving Borrower as a
defendant or in which any property of Borrower is subject,
directly or indirectly, to a claim and in which the amount
involved is $50,000.00 or more and which is not covered by
insurance;
(iii) portable Event or imminently expected Reportable Event
with respect to any Plan;
(iv) any labor dispute to which Borrower may become a party,
any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which
any of them is a party or by which they are bound, in each
case where the same could reasonably be expected to cause a
Material Adverse Change.
(v) any change in the number, nature, and holder of
outstanding stock of Borrower; and
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(vi) any other event or occasion which could reasonably be
expected to have a Material Adverse Change;
(o) INDEMNIFY AND HOLD LENDER AND ALL OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS, ATTORNEYS-IN-FACT AND AFFILIATES OF
LENDER (EACH SUCH PERSON AN "INDEMNITEE") HARMLESS FROM ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGEMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES AND DISBURSEMENTS) INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN ANY WAY CONNECTED WITH, OR AS A RESULT OF
(i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, (ii) THE PERFORMANCE BY THE PARTIES TO THE LOAN DOCUMENTS OF
THEIR RESPECTIVE OBLIGATIONS THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, OR (iii) THE ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION,
ANY MATTER ARISING BY REASON OF ANY DEFENSE, SET-OFF, COUNTERCLAIM,
RECOUPMENT OR REDUCTION OF LIABILITY WHATSOEVER OF THE OBLIGOR UNDER
ANY CONTRACT, AGREEMENT, INTEREST OR OBLIGATION WHICH GIVES RISE TO ANY
ACCOUNT CONSTITUTING PART OF THE COLLATERAL FOR THE OBLIGATIONS, AS THE
RESULT OF A BREACH BY BORROWER OF ANY OBLIGATION THEREUNDER OR OF ANY
OTHER AGREEMENT, INDEBTEDNESS OR LIABILITY AT ANY TIME OWING TO OR IN
FAVOR OF ANY SUCH OBLIGOR FROM BORROWER, SUCH OBLIGATIONS OF BORROWER
BEING ENFORCEABLE AGAINST AND ONLY AGAINST BORROWER AND NOT AGAINST
LENDER (ALL THE FOREGOING IN THIS SECTION, COLLECTIVELY, THE
"INDEMNIFIED LIABILITIES"), INCLUDING, WITHOUT LIMITATION, INDEMNIFIED
LIABILITIES ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF
ANY INDEMNITEE; PROVIDED THAT BORROWER SHALL HAVE NO OBLIGATION UNDER
THIS SECTION TO ANY INDEMNITEE WITH RESPECT TO INDEMNIFIED LIABILITIES
THAT ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND
NON-APPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR FROM THE BREACH BY SUCH
INDEMNITEE OF ITS
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OBLIGATIONS UNDER ANY LOAN DOCUMENT. THE OBLIGATIONS OF BORROWER UNDER
THIS SECTION SHALL SURVIVE THE SATISFACTION OF ALL OBLIGATIONS, THE
TERMINATION OF THIS AGREEMENT, AND THE NONASSUMPTION OF THIS AGREEMENT
IN A CASE COMMENCED UNDER TITLE II OF THE UNITED STATES CODE OR OTHER
SIMILAR LAW OF THE UNITED STATES, THE STATE OF TEXAS OR ANY OTHER
JURISDICTION AND BE BINDING UPON BORROWER AND ANY TRUSTEE, RECEIVER OR
LIQUIDATOR OF BORROWER APPOINTED IN ANY SUCH CASE.
SECTION 5
NEGATIVE COVENANTS
5.1 Negative Covenants. Borrower covenants and agrees, unless
Lender shall otherwise consent in writing, that Borrower will not, either
directly or indirectly:
(a) Incur, create, assume, or permit to exist any Debt except:
(i) the Obligations;
(ii) all existing loans and borrowings by Borrower as
reflected in the Financial Statements;
(iii) liabilities, direct or contingent, of Borrower to
the extent that such liabilities existed on the date of
this Agreement and continue to exist and are reflected in
the Financial Statements or have been disclosed to and
approved by Lender in writing prior to the date of this
Agreement;
(iv) endorsements of negotiable instruments for collection
or deposit in the ordinary course of business;
(v) obligations from time to time incurred in the ordinary
course of business, other than for borrowed money; and
(vi) taxes, assessments, or other government charges which
are not yet due or which are being contested in good faith
by appropriate action promptly initiated and diligently
conducted if a reserve shall have been made therefor as
required by GAAP.
(b) Declare or pay, in the aggregate, any dividends, payments,
transfers, advances, loans, or other distributions to its stockholders;
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(c) Make or permit to remain outstanding any loans or advances
to or investments in any Person, including, without limitation, to any
Affiliate, except that the foregoing restrictions shall not apply to the
following:
(i) loans, advances, or investments the material details
of which have been set forth in the Financial
Statements, or which have been otherwise disclosed
to and approved by Lender in writing prior to the
date of this Agreement;
(ii) certificates of deposit of banks or savings and loan
associations insured by an agency of the United
States; and
(iii) securities issued and/or guaranteed by the United
States of America, the State of Texas, any other
state of the United States, or any agency, unit,
instrumentality or subdivision thereof,
(d) (i) Consolidate with or merge into any other corporation,
(ii) permit any other corporation to merge into Borrower, or (iii)
acquire all or any substantial part of the assets of any other
corporation;
(e) (i) Create, incur, assume, or permit to exist any mortgage,
pledge, security interest, lien, or encumbrance on any of its assets
(now owned or hereafter acquired), except as specifically disclosed in
the Financial Statements, (ii) acquire or agree to acquire assets under
any conditional sale agreement or title retention contract, or (iii)
sell and leaseback any assets, except that the foregoing restrictions
shall not apply to:
(1) liens for taxes, assessments and other governmental
charges not yet due;
(2) liens of vendors, carriers, warehousemen, landlords,
mechanics, laborers, and materialmen arising by law in
the ordinary course of business for sums not yet due or
being contested in good faith if reserve shall have been
made therefor as required by GAAP;
(3) pledges or deposits in connection with or to secure
worker's compensation, unemployment insurance, pensions
or other employee benefits;
(4) mortgages, pledges, security interests, liens,
encumbrances, or title retention contracts existing as of
the date of this
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agreement and disclosed to and approved by Lender in
writing before the date hereof-, and
(5) liens and/or security interests required by this
Agreement;
(f) Make any material change in the ownership of Borrower;
(g) Make any change in the senior management of Borrower;
(h) Sell, lease, transfer, convey, or otherwise dispose (except
in the ordinary course of business) of all or any material part of its
assets;
(i) Sell, discount, or otherwise transfer or dispose of any
Accounts, accounts receivable, or other obligations owing to Borrower,
with or without recourse, except for the purpose of collection in the
ordinary course of business;
(j) Engage in any business to any extent other than the
business which Borrower is presently engaged, without the prior written
approval of Lender;
(k) Materially change accounting practices, methods, or
standards or the reporting format for any information furnished Lender
under the terms and provisions of this Agreement without the prior
written consent of Lender, which accounting practices shall conform with
GAAP throughout the term of this Agreement;
(l) Permit Borrower's Tangible Net Worth to be less than (i)
$1,000,000.00 prior to any advance hereunder and at any time thereafter,
and (ii) $1,500,000.00 at each fiscal year ending at December 31, 1998
and thereafter;
(m) Permit at any time the Debt to Tangible Net Worth Ratio of
Borrower to be more than the ratio of 3 to 1;
(n) Permit at any time the Current Ratio of Borrower to be less
than the ratio of 1 to 1;
(o) Permit the proceeds of the Revolving Note to be used for
any purpose other than the purpose set forth in Section 2.4 of this
Agreement;
(p) Permit Borrower's Fixed Charge Coverage Ratio, as of the
end of each fiscal quarter of Borrower, based upon the immediately
preceding four fiscal quarters, to be less than 1.25 to 1;
(q) Enter into any transaction with an Affiliate, including,
without limitation, the purchase, sale, or exchange of property of
Borrower or the rendering of any service, unless the transaction is in
the ordinary course of and
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<PAGE> 26
pursuant to the reasonable requirements of Borrower's business and upon
fair and reasonable terms no less favorable to Borrower than would be
obtained in a comparable arm's length transaction with a Person not an
Affiliate;
(r) Enter into any transaction which materially and adversely
affects or may materially and adversely affect any of the collateral
securing the Obligations or Borrower's ability to repay the Obligations
or permit or agree to any material extension, compromise, or settlement
or make any material change or modification of any kind or nature with
respect to any Account, including any of the terms relating thereto,
other than discounts and allowances in the ordinary course of business;
SECTION 6
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Advance. The obligation of
Lender to make its initial advance hereunder is subject to the full and complete
satisfaction of each of the following conditions precedent:
(a) Lender shall have received, and have approved, each of the
following:
(i) each of the Loan Documents, in properly
executed form;
(ii) any certificates of incorporation, articles
of incorporation, and bylaws or partner's
agreement, articles of organization of
Borrower, together with any and all
modifications thereof as of the date hereof,
(iii) all Certificates of Authority, Certificates
of Good Standing (or any such other evidence
that Borrower is in good standing in the
State of Texas and in all other states in
which Borrower is currently doing business),
Certificates of Existence, borrowing
resolutions (with secretary's certificate),
Secretary's Certificates of Incumbency, and
all other documents required by Lender to
evidence Borrower and its representatives
are empowered and duly authorized to enter
into the agreements evidenced by the Loan
Documents;
(iv) if required by Lender, Borrowing Base and
compliance Certificate dated as of the date
of this Agreement;
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<PAGE> 27
(v) if and to the extent required by Lender,
landlord's waivers for all locations leased
by Borrower at which Borrower's Inventory is
located;
(vi) if required by Lender, an opinion of counsel
for Borrower, which provides, among other
things, that (1) the Loan Documents have
been duly authorized and executed, (2) the
Loan Documents are enforceable in accordance
with their terms, and (3) Borrower has all
permits, licenses, and consents required for
it to conduct its business;
(vii) copies of all insurance policies required by
this Agreement; and
(vii) the execution of the Guaranty Agreement by
the Guarantor
(ix) results of a search of the UCC records of
the Texas Secretary of State and such other
states as are required by Lender, from a
source acceptable to Lender, reflecting no
security interests and liens against any
collateral covered by the Security
Instruments as to which perfection is
accomplished by the filing of a financing
statement in favor of Lender;
(b) No Material Adverse Change shall have occurred;
(c) The representations and warranties contained in Section 5
shall, except as affected by the transactions contemplated by this
Agreement, be true and unbreached;
(d) No Event of Default shall have occurred;
(e) All other applicable requirements of this Agreement and
the other Loan Documents shall have been fully and completely
satisfied; and
(f) As security for the payment of the Revolving Note and the
payment and performance of the Obligations, Lender shall have received,
in addition to the items set forth elsewhere in this Section, all other
instruments reasonably required by Lender to give Lender a first and
prior perfected security interest and lien in and to the collateral
covered by the Security Instruments.
(g) Borrower shall have paid the Commitment Fee to the Lender.
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<PAGE> 28
6.2 Conditions Precedent to Future Advances. The obligations of
the Lender under this Agreement to make any advances after the date of this
Agreement under Section 2.1, in accordance with the terms and provisions of
Section 2 of this Agreement, are subject to the full and complete satisfaction
of each of the following conditions precedent as of the date of such advance or
payment:
(a) Each of the conditions set forth in Section 6.1 shall be
fully and completely satisfied as of the date of such advance
(including, without limitation, any such condition which has been
waived, in whole or in part, in connection with any prior advance);
(b) The representations and warranties set forth in Section 5
of this Agreement shall be true and correct as of the date of the
making of such advance or payment with the effect as though the
representation or warranty had been made as of the date of such
advance;
(c) No Event of Default shall have occurred and be
continuing, or will result from the making of such advance; and
(d) All requirements for making such advances or payments as
provided hereunder in accordance with the terms and provisions of
Section 3 of this Agreement, shall have been fully and completely
satisfied.
SECTION 7
EVENTS OF DEFAULT
7.1 Events of Default. Each of the following shall constitute
an Event of Default under this Agreement:
(a) The failure to pay when due any fee or payment under this
Agreement, the Revolving Note, any of the other Obligations, or any of
the other Loan Documents;
(b) A default by Borrower or any other party in the due
observance or performance of any of their respective covenants and
other obligations under this Agreement and the other Loan Documents;
(c) Any representation or warranty made by Borrower or its
representatives in any of the Loan Documents proves to have been untrue
in any material respect or any representation, statement (including
Financial Statements), certificate or data furnished or made to the
Lender as an inducement for Lender agreeing to enter in to this
Agreement, or in accordance with the terms of this Agreement, proves to
have been untrue in any material respect as of the date the facts
therein set forth were stated or certified;
(d) A default by Borrower (as principal or guarantor or other
surety) in the payment or performance of any bond, debenture, note or
other evidence of
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<PAGE> 29
indebtedness, or under any credit agreement, loan agreement, indenture,
promissory note, or similar agreement or instrument executed in
connection with any of the foregoing, which is not fully cured within
any applicable notice or grace period;
(e) Borrower shall (1) apply for or consent to the appointment
of a receiver, trustee or liquidator of it or him or all or a
substantial part of its or his assets, (11) file a voluntary petition
commencing a bankruptcy or other insolvency proceeding, (iii) make a
general assignment for the benefit of creditors, (iv) be unable, or
admit in writing its inability, to pay its debts generally as they
become due, or (v) file an answer admitting the material allegations of
a petition filed against it in a bankruptcy or other insolvency
proceeding;
(f) An order, judgment, or decree shall be entered against
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of )a creditor or otherwise,
granting relief in a bankruptcy or other insolvency proceeding or
approving a petition seeking reorganization or an arrangement of its
debts or appointing a receiver, trustee conservator, custodian or
liquidator of it or all or any substantial part of its assets and such
order, judgment or decree shall not be dismissed or stayed within 90
days-,
(g) The levy against any significant portion of the property
of Borrower or any execution, garnishment, attachment, sequestration,
or other writ or similar proceeding which is not permanently dismissed
or discharged within 90 days after the levy;
(h) A final and non-appealable order, judgment or decree shall
be entered against Borrower for money damages and such order, judgment,
or decree shall not be dismissed or stayed within 90 days;
(i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code) involving any Plan; any "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan for which an excise tax is due or would
be due in the absence of a waiver; a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lender,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA; any Single Employer Plan shall terminate for purposes of
Title TV of ERISA; the Borrower or any Affiliate shall incur, or in the
reasonable opinion of the Lender, be likely to incur any liability in
connection with a withdrawal from, or the insolvency or reorganization
of, a multiemployer plan; or any other event or condition shall occur
or exist with respect to a Plan and the result of such events or
conditions referred to in this subsection 0) could subject the Borrower
or any Affiliate to any
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tax (other than an excise tax under Section 4980 of the Internal
Revenue Code), penalty or other liabilities which taken in the
aggregate would have an adverse effect on Borrower and any such
circumstance shall exist for in excess of 90 days;
(j) Cessation of a substantial part of the business of
Borrower for a period which causes a Material Adverse Change; or
Borrower shall suffer the loss or revocation of any license or permit
now held or hereafter acquired by Borrower which is necessary to the
continued lawful operation of its particular business; or Borrower
shall be enjoined, restrained, or in any way prevented by court,
governmental, or administrative order from conducting all or any
material part of its respective business affairs;
(k) Borrower or any Affiliate 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 or security interests granted to Lender;
(l) Any charges are filed or any other action or proceeding is
instituted by any governmental authority against Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
Section 1961 -et seq.) or any other federal, state, or other law, the
result of which could be the forfeiture or transfer of any property of
Borrower which is subject to a lien granted in the Security Instruments
in favor of the Lender, without (i) satisfaction or provision for
satisfaction of such lien, or (ii) such forfeiture or transfer of such
property being expressly made subject to such lien;
(m) Borrower shall have (i) concealed, removed or diverted, or
permitted to be concealed, removed or diverted, any part of their
respective property, with intent to hinder, delay or defraud their
respective creditors or any of them; (ii) made or suffered a transfer
of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; (iii) made any transfer of its
property to or for the benefit of a creditor at a time when other
creditors similarly situated have not been paid; or (iv) shall have
suffered or permitted, while insolvent, any creditor to obtain a lien
upon any of their respective property through legal proceedings or
otherwise which is not vacated within 90 days from the date thereof
(n) The liens and/or security interests granted in any
Security Instrument shall not constitute a first and prior lien and/or
security interest upon the collateral described therein, except as
otherwise disclosed to and agreed by Lender in writing; or
(o) The Guarantor suffers or permits to exist any of the
events or conditions referred to in Subsections 7.1 (e), (f), (g), (h),
(i), 0), (k), (l), or (m) hereof, or if any provision of any Guaranty
Agreement related thereto shall for any
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reason cease to be valid and binding on such Guarantor, or if such
Guarantor shall so state in writing.
SECTION 8
RIGHTS AND REMEDIES OF LENDER
8.1 Acceleration. Upon the occurrence of any Event of Default,
Lender, at its option and without any notice of intent to accelerate, notice of
acceleration, or other notice or demand, may declare the entire principal amount
of the Revolving Note then outstanding and the interest accrued thereon
immediately due and payable, and the said entire principal, interest and all
other amounts owing thereunder shall thereupon become immediately due and
payable without presentment, demand, protest, notice of protest or other notice
of default or dishonor of any kind, all of which are hereby expressly waived by
Borrower.
8.2 Additional Rights. Upon the occurrence of any Event of
Default, Lender shall have, in addition to the rights and remedies given it in
the Loan Documents, all of the rights and remedies allowed by applicable
ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees
of any governmental or political subdivision or agency thereof, or any court or
similar entity established by any such subdivision or agency.
8.3 Termination of Obligations. Upon the occurrence of any
Default, any obligation of Lender under this Agreement (including, without
limitation, the obligation to make advances under Section 2.1 and Section 2.7)
shall immediately and automatically cease and terminate unless and until Lender
shall reinstate the same in writing.
SECTION 9
MISCELLANEOUS
9.1 Other Advances. Borrower and Lender acknowledge and agree
that in the future, Borrower may apply for and Lender may agree to fund
additional loans to Borrow ' er. Borrower and Lender agree that all existing and
hereafter created loans and other advances from Lender, or any of its
predecessors or successors in interest, to Borrower, whether or not such loans
are particularly described in this Agreement, as may be amended from time to
time, shall constitute Obligations for purposes of this Agreement and shall be
subject to the terms, provisions, covenants, and agreements set forth in this
Agreement.
9.2 No Duty or Special Relationship . Borrower acknowledges
that Lender has no duty of good faith to Borrower, and acknowledges that no
fiduciary, trust or other special relationship exists between Lender and
Borrower.
9.3 Other Remedies Not Required. Borrower may be required to
pay the Revolving Note in full without the assistance of any other party, or any
collateral or security for the Revolving Note. Lender shall not be required to
mitigate damages, file suit, or take any action to foreclose, proceed against or
exhaust any collateral or security in order to enforce payment of the Revolving
Note.
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9.4 LENDER NOT IN CONTROL. BORROWER AGREES AND ACKNOWLEDGES
THAT ALL OF THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN
THIS AGREEMENT AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF EXTENSIVE AND
ARMS-LENGTH NEGOTIATIONS BETWEEN BORROWER AND LENDER. LENDER'S RIGHTS AND
REMEDIES PROVIDED FOR IN THIS AGREEMENT AND IN THE OTHER LOAN DOCUMENTS ARE
INTENDED TO PROVIDE LENDER WITH A RIGHT TO OVERSEE BORROWER'S ACTIVITIES AS THEY
RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT, WHICH RIGHT IS
BASED ON LENDER'S VESTED INTEREST IN BORROWER'S ABILITY TO PAY THE REVOLVING
NOTE AND THE OTHER NOTES AND PERFORM THE OTHER OBLIGATIONS. NONE OF THE
COVENANTS OR OTHER PROVISIONS CONTAINED IN THIS AGREEMENT SHALL, OR SHALL BE
DEEMED TO, GIVE LENDER THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE
IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER; PROVIDED
THAT IF LENDER BECOMES THE OWNER OF ANY STOCK OF ANY ENTITY, WHICH ENTITY OWNS
AN INTEREST IN BORROWER, WHETHER THROUGH FORECLOSURE OR OTHERWISE, LENDER
THEREAFTER SHALL BE ENTITLED TO EXERCISE SUCH LEGAL RIGHTS AS IT MAY HAVE BY
BEING A SHAREHOLDER OF SUCH ENTITY.
9.5 No Partnership. Nothing herein is intended, nor shall it be
deemed or construed as, to create a partnership, joint venture, or common
interest in profits or income between Borrower and Lender, or to make Lender in
any way responsible for the debts or losses of Borrower or with respect to any
of the property described in the Security Instruments. Borrower and Lender
disclaim any sharing of liabilities, losses, costs or expenses.
9.6 Representations and Warranties. All representations and
warranties of Borrower herein, and all covenants and agreements made by Borrower
herein before the effective date of this Agreement, shall survive such date.
9.7 Notice . All notices, demands, requests, and communications
permitted or required under this Agreement shall be in writing, may be
personally served or sent by telex (confirmed by telephone), telecopier
(confirmed by telephone), U.S. mail or any express mail service, and shall be
effective upon receipt, such receipt being deemed to occur 48 hours after its
deposit in the U.S. mail, postage prepaid or 24 hours after its transmission by
telex, telecopier or express mail service, as the case may be, addressed to the
individuals and addresses indicated below:
(a) If to Borrower:
TOTAL BUILDING SYSTEMS, INC.
6250 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77091-3410
(b) If to Lender:
Compass Bank
P.O. Box 4444
Houston, Texas 77210-4444
Attention: Robert C. Ittner
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<PAGE> 33
Any party may, by proper written notice to the other party, change the
individuals or addresses to which such notices shall thereafter be sent.
9.8 Binding Effect. All covenants and agreements of Borrower
under this Agreement shall bind the successors and assigns of Borrower and shall
inure to the benefit of Lender and its successors and assigns. The rights of
Borrower under this Agreement are not assignable.
9.9 Renewal of Indebtedness. All provisions of this Agreement
relating to the Revolving Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension or rearrangement of any part of the indebtedness originally
represented by the Revolving Note, or either of them, provided that nothing
herein shall constitute a commitment or offer by Lender to such a renewal,
extension or rearrangement.
9.10 No Waiver. No course of dealing on the part of Lender, its
officers or employees, nor any failure or delay by Lender with respect to
exercising any of its rights, remedies, powers or privileges under the Loan
Documents shall operate as a waiver thereof. No indulgence by Lender, or waiver
of compliance with any of the terms, covenants or provisions of the Loan
Documents, shall be construed as a waiver of Lender's right to subsequently
require strict performance by Borrower of the Loan Documents. The rights and
remedies of Lender under the Loan Documents shall be cumulative and the exercise
or partial exercise of any such rights or remedies shall not preclude the
exercise of any other rights or remedies.
9.11 APPLICABLE LAW. EXCEPT AS OTHERWISE PROVIDED IN THE LOAN
DOCUMENTS, THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY, THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA APPLICABLE TO TRANSACTIONS
WITHIN THE STATE OF TEXAS.
9.12 Amendment. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
9.13 Future Advances. No advance under the Revolving Note shall
constitute a waiver of any of the conditions of Lender's obligation to make
further advances nor, in the event Borrower is unable to satisfy any such
condition, shall any such waiver have the effect of precluding Lender from
thereafter declaring such inability to be a Default.
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9.14 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY
OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT
THEREOF.
9.15 Arbitration.
(a) Any controversy or claim arising out of or relating to the
Agreement or any agreements or instruments relating hereto or
delivered in connection herewith, including but limited to a
claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration in
accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including
the plaintiff, to submit the controversy or claim to
arbitration if any other party contest such action for
judicial relief,
(b) Demand for arbitration shall be filed in writing with the
other party to the Agreement and with the American Arbitration
Association. A demand for arbitration shall be made within a
reasonable time after the claim, dispute, or other matter in
question has arisen. In no event shall the demand for
arbitration be made after the date when institution of legal
or equitable proceedings based on such claim, dispute, or
other matter in question would be barred by the applicable
statute of limitations;
(c) Unless the, parties agree otherwise, the discovery rights
and procedures provided by the Federal Rule of Civil Procedure
shall be available and enforceable within the arbitration
proceeding;
(d) In any claim, dispute, or other matter in question
submitted to arbitration as provided herein, the locale of the
arbitration shall be Harris County, Texas; and
(e) This agreement to arbitrate shall be specifically
enforceable by either party under the prevailing arbitration
law. Any award rendered by arbitrator shall be final and
enforceable by any party to the arbitration, and judgment may
be rendered upon it and in accordance with applicable law in
any court having jurisdiction thereof.
9.16 Severability. In the event any provision contained in any
of the Loan Documents shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such provision shall be severed from the
applicable Loan Document, and such invalidity, illegality or unenforceability
shall not affect any other provision of the applicable Loan Document.
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9.17 Lender's Discretion. All matters hereunder that require
Lender's discretion, (including, without limitation, whether Borrower has
satisfied any condition precedent), Lender shall use its sole and reasonable
discretion, except as otherwise provided for herein. Further, Lender may in its
sole and reasonable discretion waive any of its rights with respect to a
particular Event of Default. All documents, agreements, instruments,
certificates, statements, and other items delivered to Lender pursuant to this
Agreement and the other Loan Documents shall be in form and substance
satisfactory to Lender in its sole discretion.
9.18 Entire Agreement. This Agreement and the documents
referred to herein embody the entire agreement with respect to the respective
rights, obligations, and liabilities of the Parties and supersedes all prior
agreements and understandings, if any, relating to the subject matter hereof.
Any conflicts or inconsistencies between the terms and provisions of this
Agreement and the terms and provisions of any of the other Loan Documents shall
be governed and controlled by this Agreement. This Agreement may be amended only
by an instrument in writing executed by the party to be bound thereby, and may
be supplemented only by documents delivered in accordance with the express terms
hereof. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
PARTIES.
9.19 Captions. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
9.20 Counterparts. This Agreement may be executed in two or
more counterparts, and it shall not be necessary that any one counterparts be
executed by all of the parties hereto. Each fully or partially executed
counterpart shall be deemed an original, but all such counterparts taken
together shall constitute but one and the same instrument.
9.21 Controlling Agreement. Borrower and Lender intend to
conform strictly to the applicable usury laws. All agreements between Lender and
Borrower (or any other party liable with respect to any indebtedness under this
Agreement and the other Loan Documents) are hereby limited by the provisions of
this section which shall override and control all such agreements, whether now
existing or hereafter arising and whether written or oral. In no way, nor in any
event or contingency (including but not limited to prepayment, default, demand
for payment, or acceleration of the maturity of any obligation), shall the
interest contracted for, charged, or received under the Revolving Note or
otherwise exceed the Maximum Rate. If, from any possible construction of any
document, interest would otherwise be payable to Lender in excess of the Maximum
Rate, any such construction shall be subject to the provisions of this section
and such document shall be automatically reformed and the interest payable to
Lender shall be automatically
35
<PAGE> 36
reduced to the Maximum Rate, without the necessity of execution of any amendment
or new document. If Lender shall ever receive anything of value which is
characterized as interest under applicable law and which would apart from this
provision be in excess of the Maximum Rate, an amount equal to the amount which
would have been excessive interest shall at the option of Lender, be refunded to
Borrower or applied to the reduction of the principal amount owing hereunder in
the inverse order of its maturity and not to the payment of interest. The right
to accelerate maturity of the Revolving Note or any other indebtedness does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration and Lender does not intend to charge or receive
any unearned interest in the event of acceleration. All interest paid or agreed
to be paid to Lender shall, to the extend permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full stated term
(including any renewal or extension) of such indebtedness so that the amount of
interest on account of such indebtedness does not exceed the Maximum Rate.
9.22 Business Loans. Borrower warrants and represents to
Lender, and to all other holders of any debt evidenced by the Notes, that the
loan, whether one or more, evidenced by the Notes is and shall be for business,
commercial, investment or other similar purpose and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
the Texas Credit Code.
[Execution Page to Follow]
36
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
TOTAL BUILDING SYSTEMS, INC., a
Texas corporation
By: /s/ Charles D. McPhail
Charles D. McPhail
President
COMPASS BANK
By: /s/ Robert C. Ittner
Robert C. Ittner,
Senior Vice President
<PAGE> 1
EXHIBIT 6.2
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (hereinafter called this "First
Amendment") is by and between TOTAL BUILDING SYSTEMS, INC., a Texas corporation
(hereinafter called the "Borrower") and COMPASS BANK, a Texas banking
association (hereinafter called the "Lender") whose address is 24 Greenway
Plaza, P.O. Box 4444, Houston, Texas 77210-4444.
WITNESSETH:
WHEREAS, on March 12, 1998, the Borrower and the Lender entered into a
Loan Agreement (hereinafter called the "Agreement") whereby, upon the terms and
conditions therein stated, the Lender agreed to make loans to the Borrower up to
the aggregate amount of $1,000,000.00 to be used by the Borrower for the
purposes set forth in Section 2.4 of the Agreement; and
WHEREAS, Charles D. McPhail and JoyVer Investments, L.L.C. have
requested that certain loan in the aggregate amount of $3,765,000.00 from
Lender, and Lender agrees to lend such additional monies subject to the terms
and conditions of the loan documents evidencing such loan and the terms and
conditions of this First Amendment; and
WHEREAS, the Borrower and the Lender mutually desire to amend certain
aspects of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this First
Amendment, except as may otherwise be provided in Section 1.2 hereof, all
capitalized terms which are defined in the Agreement shall have the same meaning
herein as therein, all of such terms and their definitions being incorporated
herein by reference.
Section 1.2 New Terms. The following terms are hereby amended or added
to Section 1.1 of the Loan Agreement:
1
<PAGE> 2
"BORROWING BASE AND COMPLIANCE CERTIFICATE" shall mean that
certain report in the form of Exhibit "A" attached and made a part of the First
Amendment to Loan Agreement.
"DEED OF TRUST" shall mean that certain Deed of Trust with
Security Agreement and Assignment of Rents and Leases of even date herewith
executed by JoyVer Investments, L.L.C. and Charles D. McPhail to Ben Riggs as
Trustee for Compass Bank.
"FIRST AMENDMENT TO SECURITY AGREEMENT" shall mean the First
Amendment to Security Agreement of even date with the First Amendment, by and
between the Borrower and the Lender.
"NOTES" shall mean the Revolving Note, the Term Note, and any
other note heretofore or hereafter executed and delivered by Borrower, Charles
D. McPhail, or JoyVer Investments, L.L.C. together with all renewals, increases,
replacements, extensions, and rearrangements of any of the foregoing, as may be
entered into from time to time by Borrower and Lender.
"OBLIGATIONS" shall mean all indebtedness, obligations, and
liabilities of Borrower, Charles D. McPhail ("MCPHAIL"), or JoyVer Investments,
L.L.C. ("JoyVer") to Lender of every nature and description, now or hereafter
existing or arising, whether such indebtedness is direct or indirect, primary or
secondary, fixed or contingent or arises out of or is evidenced by a promissory
note, deed of trust, security agreement, open account, overdraft, endorsement,
surety agreement, guaranties, or otherwise, including, without limitation, all
such obligations, liabilities, and indebtedness of Borrower, McPhail, or JoyVer
to Lender under or in connection with the Loan Documents. Obligations shall
include all renewals, extensions and rearrangements of any of the above
described obligations and indebtedness.
"SECURITY INSTRUMENTS" shall mean the Security Agreement, the
Deed of Trust, and any and all other heretofore and hereafter existing security
and other agreements which create or grant a lien or security interest as
security for the Revolving Note, Term Note, or other Obligations.
"TERM NOTE" shall mean a promissory note of even date with the
First Amendment, in the original principal amount of $3,765,000.00, executed by
JoyVer and McPhail to the order of Lender, as the same may be amended, restated,
replaced, substituted, modified, increased, and rearranged from time to time.
"TERM NOTE COMMITMENT FEE" shall mean a fee in the amount of
one-half of one percent (0.5%) of the difference between the amount of the Term
Note and the amount of the Term Note used to refinance the property described in
Exhibit "A."
2
<PAGE> 3
Section 1.3 Confirmation and Extent of Changes. All terms which are
defined in Section 1.1 of the Agreement shall remain unchanged except as
specifically provided in Section 1.2 of this First Amendment.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.1 Term Loan. A new Section 2.10 is hereby added to the
Agreement as follows:
2.10 "Term Loan. Subject to the full, complete, and timely
satisfaction by JoyVer and McPhail of each of the conditions
precedent described in Sections 6.1 and 6.2, and relying on the
representations and warranties of Borrower set forth herein,
Lender agrees to make a single advance term loan to JoyVer and
McPhail in the amount of $3,765,000.00, which loan shall be
evidenced by the execution and delivery by JoyVer and McPhail of
the Term Note."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations Repeated. The representations and
warranties of the Borrower contained in the Agreement, the Loan Documents and
the other Security Instruments and otherwise made in writing by or on behalf of
the Borrower pursuant to the Agreement, the Loan Documents and the other
Security Instruments were true and correct when made, and are true and correct
in all material respects at and as of the time of delivery of this First
Amendment, except for such changes in the facts represented and warranted as are
not in violation of the Agreement, this First Amendment or the other Security
Instruments.
Section 3.2 Security Instruments. All Loan Documents to which the
Borrower is a party shall secure the Notes and all of the Obligations of the
Borrower to the Lender as such Obligations are increased and modified by this
First Amendment, whether or not such Loan Documents shall be expressly amended
or supplemented in connection herewith.
Section 3.3 Compliance with Obligations. The Borrower has performed
and complied with all agreements and conditions contained in the Agreement and
the Loan Documents required to be performed or complied with by the Borrower
prior to or at the time of delivery of this First Amendment.
Section 3.4 Defaults. There exists, and after giving effect to this
First Amendment will exist, no Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under the Agreement or any loan agreement, note agreement, or trust
indenture to which the Borrower is a party.
3
<PAGE> 4
Section 3.5 No Amendments. Nothing in Article 3 of this First
Amendment is intended to amend any of the representations or warranties
contained in the Agreement.
ARTICLE 4
AFFIRMATIVE COVENANTS
Section 4.1 Affirmative Covenants of Borrower. A new Section
4.1(c)(ix) is hereby added to the Agreement as follows:
4.1(c) "(ix) On or before January 31st of each year, a financial
statement from JoyVer Investments, L.L.C. including
therein a statement of cash flow and balance sheet and a
tax return upon the filing thereof."
ARTICLE 5
NEGATIVE COVENANTS
Section 5.1 Negative Covenants of Borrower. Sections 5.1(l) through
5.1(n) of the Agreement are hereby amended to read in their entirety as follows:
5.1(1) "Permit Borrower's Tangible Net Worth to be less than
$2,300,000.00;"
5.1(m) "Permit at any time the Debt to Tangible Net Worth
Ratio of Borrower to be more than the ratio of 1.5 to 1;"
5.1(n) "Permit at any time the Current Ratio of Borrower to
be less than the ratio of 1.5 to 1;"
Section 5.2 Consecutive Losses. A new Section 5.1(s) is hereby added
to read in its entirety as follows:
5.1(s) "Incur a loss for two consecutive quarters;"
4
<PAGE> 5
ARTICLE 6
CONDITIONS
The Lender has relied upon the representations and warranties
contained in this First Amendment in agreeing to the amendments and supplements
to the Agreement set forth herein and the amendments and supplements to the
Agreement set forth herein are conditioned upon and subject to the accuracy of
each and every representation and warranty of the Borrower made or referred to
herein, to the performance by the Borrower of its obligations to be performed
under the Agreement and the Security Instruments on or before the date of this
First Amendment and to the following further conditions:
Section 6.1 The Term Note. JoyVer and McPhail shall have duly and
validly issued, executed and delivered to the Lender the Term Note.
Section 6.2 First Amendment to Security Agreement. The Borrower shall
have duly and validly executed and delivered to the Lender this First Amendment
and the First Amendment to Security Agreement.
Section 6.3 Ratification of Guaranty. The Guarantor shall have duly
and validly issued, executed and delivered to the Lender a ratification of the
Guaranty in form satisfactory to Lender.
Section 6.4 Secretary's Certificate. The Lender shall have received
certificates of the Secretary or Assistant Secretary of the Borrower setting
forth (i) resolutions of its board of directors in form and substance
satisfactory to the Lender with respect to the Term Note, this First Amendment,
the First Amendment to Security Agreement, and any other Security Instruments
provided herein and the officers of the Borrower authorized to sign such
instruments, and (ii) specimen signatures of the officers so authorized.
Section 6.5 Term Note Commitment Fee. JoyVer and McPhail shall have
paid the Term Note Commitment Fee to Lender.
Section 6.6 Events of Default. Section 7.1(a) of the Agreement is
hereby amended to read in its entirety as follows:
"7.1(a) The failure to pay when due any fee or payment under
this agreement, the Revolving Note, the Term Note, any of the
other Obligations, or any other obligations arising under or
in connection with any of the Loan Documents;"
Section 6.7 Satisfaction of Conditions of the Agreement. All
conditions referred to in Section 6 of the Agreement shall have been satisfied.
5
<PAGE> 6
ARTICLE 7
MISCELLANEOUS
Section 7.1 Extent of Amendments. Except as otherwise expressly
provided herein, the Agreement, the Security Instruments, the Notes and the
other instruments and agreements referred to therein are not amended, modified
or affected by this First Amendment. Except as expressly set forth herein, all
of the terms, conditions, covenants, representations, warranties and all other
provisions of the Agreement are herein ratified and confirmed and shall remain
in full force and effect.
Section 7.2 References. On and after the date on which this First
Amendment becomes effective, the terms, "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this First Amendment.
Section 7.3 Counterparts. This First Amendment may be executed in two
or more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the 10th day of August, 1998.
BORROWER: TOTAL BUILDING SYSTEMS,
a Texas corporation
By: /s/ Charles D. McPhail
Charles D. McPhail
President and Chief Executive
Officer
LENDER:
COMPASS BANK,
a Texas banking association
By: /s/ Robert Ittner
Robert C. Ittner
Senior Vice President
6
<PAGE> 7
EXHIBIT "A"
FORM OF BORROWING BASE AND COMPLIANCE CERTIFICATE
This certificate dated as of _______1998, is prepared pursuant to
Section 4.1(c)(ii) of certain Loan Agreement dated as of March 12, 1998 (the
"Loan Agreement"), between Total Building Systems, Inc. ("Company"), and Compass
Bank ("Bank"). Unless otherwise defined in this certificate, capitalized terms
shall have the meaning given to them in the Loan Agreement.
The Company hereby certifies (a) that no Event of Default has
occurred or is continuing, (b) all of the representations and warranties made by
the Company in the Loan Agreement are true and correct in all material respects
on the date of this certificate as if made on this date, (c) no payments owing
by the Company to an operator of a facility at which Inventory of Borrower is
located are past due by more than 30 days, and (d) that as of ___________, 199_,
the following amounts and calculations were true and correct:
I. BORROWING BASE:
(A)
1 . Total Accounts $
minus
2. Total Ineligible Accounts $
Accounts
equals
3. Eligible Accounts
$
x 80%
equals Borrowing Base $
(Not to exceed
$1,000,000.00)
Plus
(B) The aggregate outstanding
unpaid advances under $
Revolving Note
equals
(C) Excess (Deficit) $
<PAGE> 8
11. FINANCIAL COVENANTS (calculated in accordance with Loan Agreement):
(A) Tangible Net Worth $
($2,300,000)
(B) Debt to Tangible Net Worth Ratio:
1. Debt
2. Tangible Net Worth
3. Ratio of B. I. to B.2
(not more than
1.5 to 1)
(C) Current Ratio
1. Total Current Assets $
2. Total Current Liabilities $
3. Ratio of C.1 to C.2 $
(not less than
1.5 to 1)
(D) Fixed Charge Coverage Ratio
1. (i) EBITDA plus (ii) Current
maturities of Capitalized Lease
Obligations
2. (i) Current maturities of long
term Debt plus (ii) current
maturities of Capitalized Lease
Obligations plus (iii) Interest Expense $
3. Ratio of (D.1) to (D.2)
(not less than 1.25 to 1)
(E) The Company has / has not incurred a loss in the two (2) calendar quarters
immediately preceding the date of this Compliance Certificate.
A-ii
<PAGE> 9
I HEREBY CERTIFY THAT THE FOREGOING REPRESENTATIONS AND
STATEMENTS ARE TRUE AND CORRECT AS OF THE DATE HEREOF.
TOTAL BUILDING SYSTEMS, INC.
a Texas corporation
By:
Charles D. McPhail, President
A-iii
<PAGE> 1
EXHIBIT 6.3
SECOND AMENDMENT
TO LOAN AGREEMENT
This is the Second Amendment (the "Amendment"), dated as of May 1,
1999, to the Loan Agreement dated as of May 12, 1998 (the "Agreement") by and
between, TOTAL BUILDING SYSTEMS INC., a Texas corporation (the "Company"), and
COMPASS BANK, a bank organized and existing under the laws of the State of
Alabama (the "Bank").
RECITALS
Recitals. The Company has requested that the Bank waive certain
defaults, modify certain provisions contained in the Agreement and extend the
maturity of the Revolving Note until August 1, 1999 and subject to the terms and
conditions hereinafter stated, the Bank is willing to do so. Therefore, the
Company and the Bank hereby agree as follows, intending to be legally bound:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Section 1.1 "DEFINED TERMS" of the
Agreement is hereby amended by deleting in its entirety the definition for
"Termination Date" and substitute therefor the following:
"Termination Date" shall mean the earlier to occur of (a)
August 1, 1999, or (b) the date on which an Event of Default shall
occur.
ARTICLE II
WAIVERS
Section 2.1 Waivers of Financial Covenant Defaults. The parties hereto
agree that the
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 1
<PAGE> 2
Borrower is currently not in compliance with the following financial covenants:
(a) Section 5.1 (11) - Minimum Net Worth Test;
(b) Section 5.1 (m) - Debt to Tangible Net Worth Ratio;
(c) Section 5.1 (n) - Current Ratio Test; and
(d) Section 5.1 (p) - Fixed Charge Coverage Test.
The Bank hereby waives the defaults on the above-referenced sections of
the Agreement through and as of the date hereof, only.
Section 2.2 Waiver of Financial Statement Defaults. The parties hereto
agree that as of the execution hereof the Borrower is currently not in
compliance with the following financial reporting requirements:
(a) Section 4.1(c)(i) - Unaudited Monthly Statement for the
month of April, 1999;
(b) Section 4.1 (c)(ii) - Monthly Borrowing Base and
Compliance Certificate for the month of April, 1999;
(c) Section 4.1 (c)(iii) - Monthly Aging of Accounts
Receivable for the month of April, 1999;
(d) Section 4.1 (c)(iv) - Quarterly Certificate of Accounts
Payable for the quarter ending March 31, 1999;
(e) Section 4.1 (c)(v) - Annual Audit of Financial Statement
for the 1998 fiscal year; and
(f) Section 4.1 (c)(viii) - Annual Financial Statement of
Charles D. McPhail for the 1998 calendar year;
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 2
<PAGE> 3
The Bank hereby waives the defaults on the above referenced section of
the Agreement through and as of the date hereof, only.
The Borrower hereby covenants and agrees to deliver, within TEN (10)
days of the date hereof, current copies of each of the foregoing, with the
exception of the Annual Audited Financial Statement.
Any prior failure by the Bank to require timely compliance with the
financial covenant ratios and the financial reporting requirements described
above, is not a waiver by the Bank of the Borrower's obligation to hereafter
timely comply with these provisions of the Agreement.
ARTICLE III
AMENDMENT
Section 3.1 Amendment to Agreement. In addition to extending the
maturity of the Revolving Note, (which is accomplished by redefining the
Termination Date to mean August 1, 1999), the Bank hereby amends Section 4.1
(c)(v) of the Agreement, (which requires the Borrower to provide an audited
financial statement for the Borrower's fiscal year-end December 31, 1998 by May
1, 1999) to require the audited financial statement be delivered on or before
August 1, 1999.
ARTICLE IV
VERIFICATION OF AMOUNT OWING
Section 4.1 Balance Due on the Revolving Note. The parties hereto agree
that as of the date hereof, there was an outstanding principal balance due and
owing on the Revolving Note of $1,000,000.00.
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 3
<PAGE> 4
ARTICLE V
CONSENT OF GUARANTORS AND PLEDGOR
Section 5.1 Guarantor's and Pledgor's Consent and Ratification.
Repayment of the Revolving Note is guaranteed by Charles D. McPhail (the
"Guarantor") pursuant to the terms of that certain Guaranty Agreement executed
on or about March 12, 1998 (the "Guaranty"). The repayment of the Revolving Note
is also secured by certain Deed of Trust with Security Agreement and Assignment
of Rents (the "Deed of Trust") executed by Joyver Investments, LLC (the
"Pledgor") in favor of a trustee for the benefit of the Bank and filed for
record under Harris County Clerk's File No. T263282 and covering that 12.6637
acre tract of land, more or less, out of the A. C. Holland Survey. The Guarantor
and Pledgor join herein to (i) acknowledge and consent to each of the terms and
provisions of this Agreement; (ii) ratify and confirm the Guaranty and Deed of
Trust previously executed in favor of the Bank; (iii) agree that the Guaranty
and Deed of Trust are in full force and effect and that the terms and provisions
of those Guaranty and Deed of Trust cover and pertain to the Revolving Note and
the documents executed in connection therewith; (iv) acknowledge that there are
no claims or offsets against, or defenses or counterclaims to, the terms and
provisions of the Guaranty or Deed of Trust or the obligations evidenced
thereby; (v) certify that their representations and warranties contained in the
Guaranty and Deed of Trust remain true and correct as of the date hereof; and
(vi) acknowledge that the Bank has satisfied and performed its covenants and
obligations under the Guaranty and Deed of Trust and under the other loan
documents executed in connection therewith and that no prior action or failure
to act by or on behalf of the Bank has, or will, give rise to any cause of
action or a claim against the Bank for breach of the Guaranty or Deed of Trust
or other documents executed in connection therewith.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent, unless specifically
waived by Bank:
a. Bank shall have received from the Company duly executed
copies of this Amendment;
b. The representations and warranties contained herein, in the
Agreement, as amended hereby, and/or in each other document, instrument
and agreement executed in
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 4
<PAGE> 5
connection with or relating to the Agreement or this Amendment (hereinafter
individually referred to as a "Loan Document" and collectively referred to as
the "Loan Documents") shall be true and correct as of the date hereof, as if
made on the date hereof,
c. No Event of Default shall have occurred and be continuing
and no Default shall exist; and
d. All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto, shall be
satisfactory to Bank.
ARTICLE VII
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
Section 7.1 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. The Company and Bank agree that the Agreement, as amended hereby, and
the other Loan Documents shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
Section 7.2 Representations and Warranties. The Company hereby
represents and warrants to the Bank that (i) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been authorized by all requisite
corporate action on the part of the Company and will not violate the Articles of
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 5
<PAGE> 6
Incorporation or Bylaws of the Company, (ii) the representations and warranties
contained in the Agreement, as amended hereby, and any other Loan Document are
true and correct on and as of the date hereof as though made on and as of the
date hereof, except to the extent such representations and warranties relate to
an earlier date, (iii) the Company is in full compliance with all covenants and
agreements contained in the Agreement, as amended hereby, and (iv) the Company
has not amended its Articles of Incorporation or Bylaws since the date of
execution of the Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival of Representations and Warranties. All
representations and warranties made in the Agreement or any other document or
documents relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution and
delivery of this Amendment and the other Loan Documents, and no investigation by
Bank or any closing shall affect the representations and warranties or the right
of Bank to rely upon them.
Section 8.2 Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement, as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement, as amended hereby.
Section 8.3 Expenses of Bank. As provided in the Agreement, the Company
agrees to pay
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 6
<PAGE> 7
on demand all reasonable costs and expenses incurred by Bank in connection with
the preparation, negotiation and execution of this Amendment and the other Loan
Documents executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the reasonable costs and
fees of Bank's legal counsel, and all reasonable costs and expenses incurred by
Bank in connection with the enforcement or preservation of any rights under the
Agreement, as amended hereby, or any other Loan Document, including, without
limitation, the reasonable costs and fees of Bank's legal counsel.
Section 8.4 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 8.5 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN HOUSTON, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
Section 8.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Bank and the Company and their respective
successors and assigns, except the Company may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of Bank.
Section 8.7 Counterparts. This Amendment may be executed in one or more
counterparts,
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 7
<PAGE> 8
each of which when so executed shall be deemed to be an original, but all of
which when taken together shall constitute one and the same instrument.
Section 8.8 Effect of Waiver. No consent or waiver, express or implied,
by Bank to or for any breach of or deviation from any covenant or condition of
the Agreement shall be deemed a consent or waiver to or of any other breach of
the same or any other covenant, condition or duty.
Section 8.9 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 8.10 FINAL AGREEMENT. THE AGREEMENT, AS AMENDED HEREBY AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Section 8.11 WAIVER OF JURY TRIAL/ARBITRATION. THE PARTIES HERETO
EXPRESSLY ACKNOWLEDGE THAT THE PROVISIONS OF SECTION 9.14 (WAIVER OF TRIAL BY
JURY) AND SECTION 9.15 (ARBITRATION) CONTINUE TO APPLY TO THE AGREEMENT AND TO
THE PROVISIONS OF THIS SECOND AMENDMENT
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
effective as of the date first written above and executed this 30th day of June,
1999.
THE COMPANY:
TOTAL BUILDING SYSTEMS, INC., a Texas
corporation
By: /s/ Charles D. McPhail
-------------------------------
Name: Charles D. McPhail
Title: Chairman
THE GUARANTOR:
/s/ Charles D. McPhail
-----------------------------------
CHARLES D. McPHAIL
THE PLEDGOR:
JOYVER INVESTMENTS, L.L.C.
a Texas limited liability company
By: /s/ Charles D. McPhail
------------------------------
Name: Charles D. McPhail
Title: Member
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 9
<PAGE> 10
THE BANK:
COMPASS BANK,
a bank organized and existing under the laws of
the State of Alabama
By: /s/ Brian Duncan
---------------------------------
Name: Brian Duncan
Title: Vice President
SECOND AMENDMENT TO LOAN AGREEMENT PAGE 10
<PAGE> 1
EXHIBIT 6.4
REVOLVING PROMISSORY NOTE
(Floating Rate)
$1,000,000.00 Houston, Texas March 12, 1998
FOR VALUE RECEIVED, the undersigned, Total Building Systems,
Inc., a Texas corporation ("Borrower"), hereby promises to pay to the order of
COMPASS BANK a Texas state chartered banking institution ("Bank" and any
subsequent holder hereof being hereinafter referred to as "Holder ") without
grace at its office at 24 Greenway Plaza, P.O. Box 4444, Houston, Texas
77210-4444, or such other place as Holder may direct, in lawful money of the
United States of America, with interest, the principal amount of One Million and
No/100 Dollars ($ 1,000,000.00) or, if less than such principal amount. the
aggregate principal amount (the "Advances ") advanced by the Holder from time to
time to Borrower pursuant to the Loan Agreement (as defined below), said
Advances not to exceed the aggregate principal amount of One Million and No/100
Dollars ($ 1,000.000.00) at any time outstanding, together with interest
accruing thereon in accordance with the terms hereof. Payment of principal and
interest shall be in accordance with the following provisions:
1. Payments. Borrower promises to pay accrued interest
monthly, on or before the first (1st) day of each calendar month, on the
principal amount outstanding hereunder from time to time, computed daily,
according to the formula, set forth below. with the first such monthly interest
payment to be due and payable on April 1, 1998. The unpaid principal of and
accrued but unpaid interest on this Revolving Promissory Note (the "Promissory
Note") and all other charges hereunder shall be fully and finally due and
payable on May 1, 1999. Should any payment become due and payable on any day
other than a Business Day (as such term is hereafter defined), the date of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest or any installment of either
thereof, interest shall accrue and be payable thereon for the period of such
extension at the applicable rate or rates specified herein. "Business Day" shall
mean a day (other than Saturday or Sunday) when Bank is open for conducting all
of its customary commercial banking activities.
2. Revolving Note. It is contemplated that the principal sum
of money provided to be paid under this Promissory Note will be advanced to
Borrower from time to time in a series of advances not to exceed at any time the
principal amount of this Promissory Note. Subject to the foregoing limitation
and the terms and provisions of a Loan Agreement of even date herewith between
Borrower and Bank (the "Loan Agreement"), Borrower may borrow, repay, and
reborrow hereunder. Any such advance shall be due and payable on or before the
maturity date hereof.
3. Interest. Except for purposes of computing the Maximum Rate
(as defined below), interest shall be calculated on the basis of a 360-day year
applied to the actual number of
1
<PAGE> 2
days upon which principal is outstanding by multiplying the. principal amount
outstanding hereunder by the applicable per annum rate, multiplying the product
thereof by the actual number of days elapsed, and dividing the product so
obtained by three hundred sixty (360). Borrower shall pay interest on the
outstanding principal amount of the Advances from time to time at a per annum
interest rate equal to the lesser of (i) Index Rate (as defined below) plus
one-half percent (.5%) and (ii) the Maximum Rate. The term "Index Rate" shall
mean a fluctuating interest rate per annum, computed on the basis of a year of
360 days, for the actual number of days elapsed, which rate per annum shall at
all times be equal to the "prime rate" published in the "Money Rates" table in
The Wall Street Journal from time to time, and if multiple prime rates are
published, the highest such rates; provided, however, that in the event The Wall
Street Journal is no longer published or no longer publishes the prime rate in
its "Money Rates" table, Bank shall choose a substitute Index Rate that is based
upon comparable information. Such rate is only one of the reference rates or
indexes used by Bank from time to time, Bank may lend to others at rates,
greater, or less than the Index Rate. Following the occurrence and during the
continuance of an Event of Default (as hereinafter defined), or after maturity.
all amounts outstanding hereunder, to the extent permitted by applicable law,
shall, at the option of Bank,, bear interest at the Default Rate. The term
"Default Rate"shall mean a per annum rate equal to the Index Rate plus five
percent (5%), but in no event to exceed the Maximum Rate.
4. Security Instruments. The indebtedness evidenced hereby is
secured by, among other things, the liens and security interests granted in the
Security Instruments (as defined in the Loan Agreement, the "Security
Instruments"). This Promissory Note is included in the indebtedness referred to
in the Security Instruments and is entitled to the benefits of those documents,
but neither this reference to those documents nor any provisions thereof shall
affect or impair the absolute and unconditional obligation of Borrower to pay
the principal of and interest on this Promissory Note when due. This Promissory
Note is the Revolving Note under and as defined in the Loan Agreement.
5. Events of Default. In case of the happening of any one or
more of the following events (each an "Event of Default"):
(a) The failure to pay the principal of or interest on this
Promissory Note, as and when due and payable;
(b) Failure by Borrower to pay any other loan obligation to
Holder;
(c) Failure by Borrower or Guarantor to observe any covenant
or obligation contained in the Security Instruments or in any other
instrument executed in connection with or securing this Promissory
Note; or
(d) The occurrence of any other Event of Default under and as
defined in the Loan Agreement or of any other event of default
specified in any of the other
2
<PAGE> 3
Security Instruments or in any other document, agreement or instrument
now or hereafter executed by Borrower or Guarantor in connection with
or securing this Promissory Note,
then or at any time thereafter during the continuance of any such event, Bank,
at its option and without any notice of intent to accelerate, notice of
acceleration, or other notice or demand, may declare the entire principal amount
of this Promissory Note then outstanding and the interest accrued thereon
immediately due and payable, and the said entire principal, interest and all
other amounts owing thereunder shall thereupon become immediately due and
payable without presentment. demand, protest, notice of protest or other notice
of default or dishonor of any kind, all of which are hereby expressly waived by
Borrower. Reference is made to the Loan Agreement for a statement of the terms
and conditions under which the term loan represented by this Promissory Note is
being made available to Borrower and of additional terms and conditions under
which this Promissory Note may be accelerated.
6. Waiver. Borrower and each guarantor, accommodation party,
surety. endorser or other person or entity liable for the payment or collection
of this Promissory Note expressly waive demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of
intent to accelerate, notice of acceleration, all other notices, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
or enforcing any security or guaranty, and agree to any substitution, exchange
or release or any security, with or without consideration, now or hereafter
given for this Promissory Note or the release of any party primarily or
secondarily liable hereon. Borrower and each guarantor, accommodation party,
surety, endorser or any other person or entity liable for the payment or
collection of this Promissory Note further agree that it will not be necessary
for the owner or Holder hereof, in order to enforce payment of this Promissory
Note, to first institute or exhaust its remedies against any maker or other
party liable herefor or to enforce its rights against any security or guaranty
for this Promissory Note, and hereby consent to the renewal and extension from
time to time of this Promissory Note, and any other indulgence with respect
hereto without notice of any such renewal, extension or indulgence.
7. Attorneys' Fees and Costs. Borrower agrees to pay
reasonable attorneys' fees and costs incurred by Holder in collecting or
attempting to collect this Promissory Note, whether by suit or otherwise.
8. Limitations on Interest. (a) It is the intention of Bank
and Borrower to conform strictly to any applicable usury laws. Accordingly, if
the transactions contemplated hereby would be usurious under any applicable law,
then, in that event, notwithstanding anything to the contrary in this Promissory
Note, the Loan Agreement, the Security Instruments or any other agreement
entered into in connection with or as security for or guaranteeing the Loan
Agreement or this Promissory Note, it is agreed as follows; (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by Bank under this
Promissory Note, the Loan Agreement, the Security Instruments or under any other
3
<PAGE> 4
agreement entered into in connection with or as security for or guaranteeing the
Loan Agreement or this Promissory Note shall under no circumstances exceed the
Maximum Rate, and any excess shall be canceled automatically and, if theretofore
paid, shall, at the option of Bank, be credited by Bank on the principal amount
of any indebtedness owed to Bank by Borrower or refunded by Bank to Borrower,
and (ii) in the event that the maturity or this Promissory Note is accelerated
or in the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to Bank may never include more
than the Maximum Rate and excess interest, if any, provided for in this
Promissory Note, the Loan Agreement or otherwise shall be canceled automatically
as of the date of such acceleration or prepayment and, if theretofore paid,
shall, at the option of Bank, be credited by Bank on the principal amount of any
indebtedness, owed to Bank by Borrower or refunded by Bank to Borrower.
(b) Notwithstanding anything herein to the contrary, in no
event will interest payable to Bank exceed the maximum amount permitted by the
law applicable to Bank (after taking into account all charges payable to Bank
which constitute interest under such applicable law), but if any amount referred
to in this Promissory Note which would be payable to Bank but for the
applicability of usury or other laws limiting the consideration payable to Bank
is not paid to Bank as a result of the applicability of such laws, then interest
on the outstanding principal balance of this Promissory Note payable to Bank
shall, to the extent permitted by the law, accrue at the maximum rate of
interest permitted by applicable law (after taking into account all charges
payable to Bank which constitute interest under applicable law) until the total
amount received by Bank equals the amount it would have received had no such
laws been applicable.
(c) As used herein, "Maximum Rate" means, on any day, the
maximum nonusurious rate of interest permitted for that day by whichever of
applicable federal or Texas laws permits the higher interest rate, stated as a
rate per annum. On each day, if any, that Chapter ID of Title 79, Texas Rev.
Civ. Stats. 192, as amended ("Chapter ID") establishes the Maximum Rate, the
Maximum Rate shall be the "weekly rate ceiling" (as defined in Section 303 of
the Texas Finance Code for that day. Bank may from time to time, as to current
and future balances, implement any other ceiling under Texas Finance Code or
Chapter ID by notice to Borrower, if and to the extent permitted by Texas
Finance Code or Chapter ID. Without notice to Borrower or any other person or
entity, the Maximum Rate shall automatically -fluctuate upward and downward as
and in the amount by which such maximum nonusurious rate of interest permitted
by applicable law fluctuates.
9. Applicable Law; Assigns. This Note shall be governed by,
and construed in accordance with, the laws of the State of Texas (except that
Tex. Rev. Civ. Stat. Ann. art. 5069, Ch. 15, as amended. which regulates certain
revolving credit loan accounts and revolving triparty accounts, shall not apply
to this Promissory Note or any transaction contemplated hereby), subject,
however, to the effect of applicable federal law. As used herein, the terms
"Borrower", "Bank" and "Holder", shall be deemed to include their respective
successors, legal representatives, and assigns, whether by voluntary action of
the parties or by operation of law.
10. Right to Prepay. Borrower shall have the right to prepay,
without penalty, at any time and from time to time prior to maturity, all or any
part of the unpaid principal balance of this Promissory Note and/or all or any
part of the unpaid interest accrued to the date of such prepayment, provided
that any such principal thus paid is accompanied by accrued interest an such
principal.
4
<PAGE> 5
IN WITNESS WHEREOF, Borrower has caused this Promissory Note
to be duly executed and delivered as of the date first above written.
TOTAL BUILDING SYSTEMS, INC.,
a Texas corporation
By: /s/ Charles D. McPhail
-----------------------------
Charles D. McPhail, President
5
<PAGE> 1
EXHIBIT 6.5
TERM PROMISSORY NOTE
(FIXED RATE)
$3,765,000.00 Houston, Texas August 10, 1998
FOR VALUE RECEIVED, the undersigned, CHARLES D. McPHAIL, individually
and JOYVER INVESTMENTS, L.L.C., a Texas limited liability company ("Borrowers"),
hereby promise to pay to the order of COMPASS BANK, a Texas state chartered
banking association ("Bank"; Bank and any subsequent holder hereof being
hereinafter referred to as "Holder"), without grace at its office at 24 Greenway
Plaza, P.O. Box 4444, Houston, Texas 77210-4444, or such other place as Holder
may direct, in lawful money of the United States of America, with interest, the
principal amount of THREE MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND AND NO/100
DOLLARS ($3,765,000.00), together with interest accruing thereon in accordance
with the terms hereof. Payment of principal and interest shall be in accordance
with the following provisions:
1. Payments. Borrowers promise to pay this Term Promissory Note (this
"Term Note") in one hundred eighty (180) installments, the first one hundred
seventy-nine (179) of which being in the amount of Twenty Thousand Nine Hundred
Sixteen and 67/100 Dollars ($20,916.67), plus accrued interest each, and the one
hundred eightieth (180th) and final installment being in the amount of the
balance of principal and accrued interest then due hereon. The first such
installment is due and payable September 10, 1998, and the remaining
installments are due and payable in consecutive order on the same day of each
and every succeeding calendar month thereafter until August 10, 2013.
Notwithstanding the foregoing terms and provisions of this Term Note,
Borrowers agree that Bank shall have the right, at its option, to be exercised
from time to time in its sole and absolute discretion at any time after the five
(5) year anniversary date of this Term Note, to either (i) demand and require
payment in full of the then unpaid principal balance of this Term Note together
with all accrued unpaid interest thereon, or (i) modify and alter the terms and
provisions of this Term Note, including, but not limited to increasing the
Applicable Rate, modifying the prepayment penalty hereunder or otherwise
modifying the terms of payment of this Term Note, all as Bank shall in exercise
of its sole and absolute discretion, deem to be proper or necessary; provided
however, in no event shall the Applicable Rate be increased to such a rate as
would cause interest payment hereunder together with any and all other amounts
paid by Bank under the terms hereof of any documents relating hereto which
constitute interest, to exceed the Maximum Rate of interest allowed by
applicable law. In the event Bank elects to exercise its rights under (i) or
(ii) above, then it shall so notify Borrowers in writing at least thirty (30)
days prior to the effect date of the final maturity hereof or of any such
changes or modifications to the terms and provisions hereof
Should any payment become due and payable on any day other than a
Business Day (as such term is hereinafter defined), the date of such payment
shall be extended to the next succeeding Business
<PAGE> 2
Day, and, in the case of a payment of principal or past due interest or any
installment of either thereof, interest shall accrue and be payable thereon for
the period of such extension at the applicable rate or rates specified herein.
The term "BUSINESS DAY" shall mean a day (other than Saturday or Sunday) when
Bank is open for conducting all of its customary commercial banking activities.
2. Interest. Except for purposes of computing the Maximum Rate (as.
defined below), interest shall be calculated on the basis of a 360-day year
applied to the actual number of days upon which principal is outstanding by
multiplying the principal amount outstanding hereunder by the applicable per
annum rate, multiplying the product thereof by the actual number of days
elapsed, and dividing the product so obtained by three hundred sixty (360).
Except as hereinabove expressly provided, Borrowers shall pay interest on the
principal amount outstanding from time to time at a per annum interest rate
equal to the lesser of (i) eight and one-half percent (8.5%) and (ii) the
Maximum Rate (the "APPLICABLE RATE"). Following the occurrence and during the
continuance of an Event of Default (as hereinafter defined), or after maturity,
all amounts outstanding hereunder, to the extent permitted by applicable law,
shall, at the option of Bank, bear interest at the Default Rate. The term
"DEFAULT RATE" shall mean a per annum rate equal to the Applicable Rate plus 5%
but in no event to exceed the Maximum Rate.
3. Security Instruments. The indebtedness evidenced hereby is secured
by, among other things, the Deed of Trust with Security Agreement and Assignment
of Rents and Leases executed and delivered to the Lender by Borrower on even
date herewith and the liens and security interests granted thereby and in the
Security Instruments (the "SECURITY INSTRUMENTS") (as defined in the Loan
Agreement dated March ___, 1998, as amended by that certain First Amendment to
Loan Agreement of even date herewith, between Total Building Systems, Inc. and
Bank (the "LOAN AGREEMENT"). This Term Note is included in the indebtedness
referred to in the Security Instruments and is entitled to the benefits of those
documents, but neither this reference to those documents nor any provisions
thereof shall affect or impair the absolute and unconditional obligation of
Borrowers to pay the principal of and interest on this Term Note when due.
4. Events of Default. In case of the happening of any one or more of
the following events (each an "EVENT OF DEFAULT"):
(a) The failure to pay the principal of or interest on this Term
Note or the Revolving Note or on any of the Obligations as such terms are
defined in the Loan Agreement, as and when due and payable;
(b) Failure by Borrowers to pay any other loan obligation to Holder;
(c) Failure by Borrowers to observe any covenant or obligation
contained in the Security Instruments or in any other instrument executed
in connection with or securing this Term Note or the Revolving Note or on
any of the Obligations as such terms are defined in the Loan Agreement, as
and when due and payable; or
-2-
<PAGE> 3
(d) The occurrence of an Event of Default under and as
defined in the Loan Agreement or of any other event of default
specified in any of the other Security Instruments or in any other
document, agreement or instrument now or hereafter executed by
Borrowers or in connection with or securing this Term Note or the
Revolving Note or on any of the Obligations as such terms are defined
in the Loan Agreement, as and when due and payable,
then or at any time thereafter during the continuance of any such event, Bank,
at its option and without any notice of intent to accelerate, notice of
acceleration, or other notice or demand, may declare the entire principal amount
of this Term Note then outstanding and the interest accrued thereon immediately
due and payable, and the said entire principal, interest and all other amounts
owing thereunder shall thereupon become immediately due and payable without
presentment, demand, protest, notice of protest or other notice of default or
dishonor of any kind, all of which are hereby expressly waived by Borrowers.
Reference is made to the Loan Agreement for a statement of the terms and
conditions under which the term loan represented by this Term Note is being made
available to Borrowers and of additional terms and conditions under which this
Term Note may be accelerated.
5. Waivers. Borrowers and each guarantor, accommodation party, surety,
endorser or other person or entity liable for the payment or collection of this
Term Note expressly waive demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, notice of intent to
accelerate, notice of acceleration, all other notices, bringing of suit and
diligence in taking any action to collect amounts called for hereunder or
enforcing any security or guaranty, and agree to any substitution, exchange or
release of any security, with or without consideration, now or hereafter given
for this Term Note or the release of any party primarily or secondarily liable
hereon. Borrowers and each guarantor, accommodation party, surety, endorser or
any other person or entity liable for the payment or collection of this Term
Note further agree that it will not be necessary for the owner or Holder hereof,
in order to enforce payment of this Term Note, to first institute or exhaust its
remedies against any maker or other party liable herefor or to enforce its
rights against any security or guaranty for this Term Note, and hereby consent
to the renewal and extension from time to time of this Term Note, and any other
indulgence with respect hereto without notice of any such renewal, extension or
indulgence.
6. Attorneys' Fees and Costs. Borrowers agree to pay reasonable
attorneys' fees and costs incurred by Holder in collecting or attempting to
collect this Term Note, whether by suit or otherwise.
7. Limitations on Interest (a) It is the intention of Bank and
Borrowers to conform strictly to any applicable usury laws. Accordingly, if the
transactions contemplated hereby would be usurious under any applicable law,
then, in that event, notwithstanding anything to the contrary in this Term Note,
the Loan Agreement, the Security Instruments or any other agreement entered into
in connection with or as security for or guaranteeing the Loan Agreement or this
-3-
<PAGE> 4
Term Note, it is agreed as follows: (i) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, taken,
reserved, charged or received by Bank under this Term Note, the Loan Agreement,
the Security Instruments or under any other agreement entered into in connection
with or as security for or guaranteeing the Loan Agreement or this Term Note
shall under no circumstances exceed the Maximum Rate, and any excess shall be
canceled automatically and, if theretofore paid, shall, at the option of Bank,
be credited by Bank on the principal amount of any indebtedness owed to Bank by
Borrowers or refunded by Bank to Borrowers, and (ii) in the event that the
maturity of this Term Note is accelerated or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to Bank may never include more than the Maximum Rate and excess
interest, if any, provided for in this Term Note, the Loan Agreement or
otherwise shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall, at the option of Bank, be credited
by Bank on the principal amount of any indebtedness owed to Bank by Borrowers or
refunded by Bank to Borrowers.
(b) Notwithstanding anything herein to the contrary, in no event will
interest payable to Bank exceed the maximum amount permitted by the law
applicable to Bank (after taking into account all charges payable to Bank which
constitute interest under such applicable law.), but if any amount referred to
in this Term Note which would be payable to Bank but for the applicability of
usury or other laws limiting the consideration payable to Bank is not paid to
Bank as a result of the applicability of such laws, then interest on the
outstanding principal balance of this Term Note payable to Bank shall, to the
extent permitted by the law, accrue at the maximum rate of interest permitted by
applicable law (after taking into account all charges payable to Bank which
constitute interest under applicable law) until the total amount received by
Bank equals the amount it would have received had no such laws been applicable.
(c) As used herein, "MAXIMUM RATE" means mean the maximum nonusurious
rate of interest per annum permitted by whichever of applicable United States
federal law or Texas law permits the higher interest rate, including to the
extent permitted by applicable law, any amendments thereof hereafter or any new
law hereafter coming into effect to the extent a higher Maximum Lawful Rate is
permitted thereby. For purposes of determining the Maximum Lawful Rate under the
applicable Laws of the State of Texas, the applicable rate ceiling shall be the
"weekly ceiling" as defined in and computed in accordance with Chapter 1 D of
Subtitle 1 of Title 79 of the Texas Revised Civil Statutes, as hereafter amended
or supplemented. The Maximum Lawful Rate shall be applied by taking into account
all amounts characterized by applicable law as interest on the debt evidenced by
the Note, so that the aggregate of all interest does not exceed the maximum
nonusurious amount permitted by applicable law.
8. Applicable Law; Assigns. This Note shall be governed by, and
construed in accordance with, the laws of the State of Texas (except that
Chapter 15 of Subtitle 3, Title 79 of the Texas Revised Civil Statutes, as
amended, which regulates certain revolving credit loan accounts and revolving
triparty accounts, shall not apply to this Term Note or any transaction
contemplated hereby), subject, however, to the effect of applicable federal law.
Unless changed in
-4-
<PAGE> 5
accordance with law, the applicable rate under Texas law shall be the indicated
(weekly) rate ceiling from time to time in effect as provided in Chapter 1D of
Subtitle 1 of Title 79 of the Texas Revised Civil Statutes, as amended. As used
herein, the terms "Borrowers", "Bank" and "Holder" shall be deemed to include
their respective successors, legal representatives, and assigns, whether by
voluntary action of the parties or by operation of law.
9. Right to Prepay. Subject to a prepayment penalty of one percent (1%)
of the then outstanding principal and accrued interest if prepaid within three
(3) years after the date hereof, Borrowers shall have the right to prepay, at
any time and from time to time prior to maturity all or any part of the unpaid
principal balance of this Term Note and/or all or any part of the unpaid
interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal.
IN WITNESS WHEREOF, Borrowers have caused this Term Note to be duly
executed and delivered as of the date first above written.
By:
-------------------------------------
Charles D. McPhail
Individually
JOYVER INVESTMENTS, L.L.C.,
A Texas limited liability company
By: Charles D. McPhail
Member
-5-
<PAGE> 1
EXHIBIT 6.6
LEASE AGREEMENT
This Lease made as of this 10th day of February, 1998, between Stolthaven
Houston Inc., a Connecticut Corporation, hereinafter referred to as "Landlord"
and Total Building Systems, Inc., a Texas Corporation, hereinafter referred to
as "Tenant."
1. Premises The premises shall consist of approximately 45,494 square feet
located at 15630 Jacintoport Blvd., Houston, Texas including 9,000 S.F. office,
19,560 S.F. warehouse/shop, 9,734 S.F. covered dock, and 7,200 S.F. shed on
approximately 5 acres, as more particularly described on Exhibit "A" attached
hereto (the "Premises").
II. Term The term of this Lease shall be for a period of 59 months and 19
days commencing on the 10th day of February, 1998, and terminating on the 31st
day of January, 2003. Rights of cancellation and/or renewal and extension of
this Lease, if any are applicable, shall be as defined in the Special Conditions
Section XXX, Item 2.
III. Rental Tenant agrees to pay and Landlord agrees to accept as monthly
rental for the Premises the following sum to be paid monthly in advance on or
before the 1st day of each month for and during the term hereof the first full
monthly rental payment to be due on or before February 1, 1998:
2/10/98 - 2/28/98 $9,160/Month (prorated rent)
3/l/98 - 8/23/98 $13,500/Month
8/24/98 - 1/31/99 $22,260/Month (including Evans space - see Section XXX(6)
2/l/99 - 1/31/01 $23,160/Month
2/1/01 - 1/31/02 $23,160/Month
2/l/02 - 1/31/03 $23,160/Month + CPI Adjustment*
Option I -2/l/03 - 1/31/04 Previous Year Lease Rate + CPI Adjustment*
Option 2 - 2/1/04 -1/31/05 Previous Year Lease Rate + CPI Adjustment*
Option 3 - 2/1/05 - 1/31/06 Previous Year Lease Rate + CPI Adjustment*
Option 4 - 2/1/06 - 1/31/07 Previous Year Lease Rate + CPI Adjustment*
Option 5 - 2/l/07 - 1/31/08 Previous Year Lease Rate + CPI Adjustment*
Should Tenant remain on the Premises without Landlord's approval and fail to
vacate the Premises upon termination of the Lease, the Lease shall be on a
month-to-month tenancy and the rental shall increase to three times the monthly
rental paid during the primary term.
* The annual increase calculated as the "CPI Adjustment" shall be defined
on the attached Exhibit B.
IV. Deposit Upon execution of this Lease, Tenant shall deposit with
Landlord $13,500 as a Security Deposit as security for the full performance by
Tenant of all its obligations under this Lease. If at any time during the Term,
or an extension thereof, Tenant shall be in default or otherwise fail to perform
all of its obligations hereunder, then, without notice, Landlord may appropriate
all or a part of the Security Deposit to defray any and all reasonably necessary
expenses incurred by Landlord in curing such default or completing such
obligations, and not as liquidated damages. If Tenant is not in default at the,
termination of this Lease, Landlord shall return the Security Deposit to Tenant
less any sums so expended by Landlord. Landlord's obligation respecting the
Security Deposit is that of a debtor, not a trustee.
V. Uses The Tenant shall use the Premises for the construction and/or
assembly of buildings and for no other purpose without the written consent of
the Landlord (which consent shall not be unreasonably withheld), and will not do
or permit anything to be done on the Premises which shall increase Landlord's
insurance premium or result in cancellation thereof, or which shall in any way
conflict with any laws, statutes, ordinances and governmental rules relating to
Tenant's use of the Premises. Tenant shall be solely responsible for obtaining
any permits or approvals, governmental or otherwise, necessary to conduct
activities contemplated by this Lease and shall not conduct unlawful activities
on the leased premises or discharge pollutants of any type into the sanitary
sewer or other drains and/or sewer lines or into the ambient air, surface
waters, groundwater or the Premises or adjacent property in violation of any
law, regulation or governmental order. Any bulk storage of flammable fluids must
be maintained in flashproof metal tanks and/or protected by a dike or firewall.
Tenant shall strictly comply with the federal and state immigration laws and
laws governing imports and exports of goods to and from foreign countries.
VI. Services Except as may be provided in Section XXX, Paragraph 10 A-D,
hereto, Tenant shall be responsible for all utilities for the Premises,
including the cost of water and electricity required by Tenant to operate within
the Premises. Tenant shall be responsible for janitorial and trash removal,
including the cost of installing trash receptacle suitable for Tenant's needs.
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VIII. Maintenance and Repair
A. Tenant has inspected the Premises and accepts the Premises (including
all cranes, equipment and machinery situated in or on the land and/or building
included in the term "Premises") "as is, where is," "with all faults" in their
present condition.
B. Tenant shall keep the Premises in the same state of repair as when the
premises were received, at its own expense, excepting for ordinary wear and
tear, obsolescence and damage by fire, act of God or the elements and such
repairs as under this Lease, if any, that Landlord is required to make. On the
last day of the term hereof, Tenant will surrender the Premises to the Landlord
swept broom-clean, in the same state of repair as when the Premises were
received, reasonable wear and tear, obsolescence and damage by fire, acts of God
or the elements or damage which the Landlord is required to repair hereunder
excepted.
C. The Landlord, at its own expense, will maintain in good order and
repair all structural portions of the Premises, including the roof and exterior
walls unless such structures are damaged by Tenant, its officers, employees,
invitees or sub-contractors in which latter event such repairs will be made by
Landlord at Tenant's cost. Tenant agrees to promptly pay within ten (10) days of
receipt of billing by Landlord for all repairs so made for Tenant's account.
IX Altercations, Fixtures and Personal Property
A. Tenant may, from time to time at its own expense, make such alteration,
improvements, repairs and additions to and upon the Premises and install thereon
such fixtures, equipment, furniture and property as it may consider advisable
for the conduct of its business. Tenant will not, without the prior written
consent of the Landlord, make or suffer to be made any alteration, improvement
or addition which will affect the structural portions of the Premises. Landlord
agrees that it will not unreasonably withhold consent to the making of such
alterations, improvements or additions. Tenant shall not cause any liens to be
placed upon the Premises and shall immediately take steps to secure release of
any lien which may arise as a result of Tenant's use.
B. All fixtures, equipment, furniture and personal property installed by
or at the expense of the Tenant which may be removed without material damage to
the Premises shall remain the property of the Tenant and may be removed by
Tenant at any time during or at the expiration of the term hereof or earlier
termination of this Lease as long as Tenant is not then in default in
performance of this Lease.
X. Assignment and Subleasing While the Tenant shall not mortgage, pledge
or encumber this lease, Tenant shall have the right to sublease to Tenants which
are approved by the Landlord. Such approval by Landlord shall not be
unreasonably withheld or delayed more than five business days. If a sublease is
approved by Landlord, the Tenant will remain fully liable for the performance of
the Tenant's obligations under the Lease, and the sublease would be expressly
subject to the terms and conditions of the lease between Landlord and Tenant.
Copies of all approved, fully executed subleases, shall be furnished to the
Landlord.
XI. Right of Entry The Landlord shall have the right to enter the
Premises, provided that such entry shall not interfere with the business of the
Tenant. .Landlord shall have the right to exhibit the Premises to prospective
purchasers and tenants. All such rights of entry shall be subject to the
security regulations of the Tenant.
XII. Quiet Enjoyment The Landlord shall put Tenant in possession of the
Premises and the appurtenances thereof at the beginning of the Term hereof, and
the Tenant, upon paying the rent and observing the other covenants and
conditions herein, shall peaceably and quietly hold and enjoy the Premises
during the Term or any extension thereof. The Landlord shall warrant and defend
the Tenant in the enjoyment and peaceful- possession of the Premises during the
term of this Lease and any extension period.
XIII Holding Over If the Tenant remains in the Premises with Landlord's
approval beyond the expiration of this Lease, or as it may be renewed or
extended, such holding over in itself shall not constitute a renewal or
extension of this Lease, but in such event, a tenancy from month-to-month on all
the terms and conditions set forth in this Lease at a monthly rental equal to
125% of the monthly rental in effect on the date of expiration shall arise
subject to termination by Landlord or Tenant by not less than ten (10) days
prior written Notice of Termination, such termination to be effective as of the
date specified in the Notice.
XIV. Sale by Landlord In the event of a sale or conveyance by the Landlord
of the Premises, the same shall operate to release the Landlord of any liability
upon any of the covenants and conditions, express or implied, herein contained
in favor of the Tenant arising after such sale or conveyance-, and in such
event, Tenant agrees to look solely to the successor in interest of the Landlord
in
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and to this Lease. In the event that the Landlord elects to partition the
subject property of which the premises is a part (approx. 77,000 S.F. on 10
acres) and sell only the Premises to a "disinterested third party" (not a
subsidiary or partner of the Landlord), then the Tenant will have the first
right of refusal to purchase the Premises under the same terms as the third
party offer. This right of first refusal shall not apply to a proposed sale of
the entire 99.7144-acre tract of which the Premises is a part or any portion
thereof including more land in addition to the Premises. Tenant must respond in
writing to the Landlords notification of such third party offer within five
calendar days. If Tenant fails to respond, or responds by stating that Tenant
does not desire to purchase the Premises then this right of first refusal shall
terminate. If the sale to such third party is not consummated in substantial
compliance with the terms as presented to Tenant for acceptance, the right of
first refusal shall remain in force and effect.
XV. Successors This Lease shall inure to the benefit of and be binding
upon the parties hereto, their respective representatives, successors and
assigns.
XVI. Notices Any notice required or desired to be given under this Lease
shall be in writing with copies directed as indicated herein and shall be
personally served or given by mail. Any notice given by mail shall be deemed to
have been given when forty-eight (48) hours have elapsed from the time when such
notice was deposited in the United States mails, certified and postage prepaid,
addressed to the party to be served with a copy as indicated herein at the last
address given by that party to the other party under the provisions of this
part. For purposes of mailing notices, at the date of the execution of this
Lease the addresses for such notification are:
Landlord: Stolthaven Houston Inc.
15602 Jacintoport Blvd.
P.O. Box 96438
Houston, Texas 77213-6438
Contact: Mr. Steve Turchi
Telephone No.: (281) 457-8875
Facsimile No.: (281) 457-5957
Tenant: Total Building Systems, Inc.
6250 North Houston Rosslyn Road
Houston, TX 77091-3410
Contact: Charles D. McPhail
Telephone: (713) 462-6333
Fax: (713) 462-0080
XVII. Tenant's Default The Landlord shall have the right to terminate this
Lease or to terminate Tenant's right of possession without terminating this
Lease in the event that:
A. Any monthly rent is not paid within ten (10) days after the due date
thereof, or any other charge due hereunder is not paid when due, and such rent
payment or other charge continues to remain unpaid for a period of ten (10) days
after written notice of such nonpayment is given by the Landlord to Tenant.
B. Tenant fails to correct or cure its breach of any covenant or
agreement of the Tenant contained in this Lease, except with respect to
nonpayment of rent and other charges due hereunder, within thirty (30) days
after Landlord has notified Tenant in writing of any such breach thereof.
C. A proceeding is commenced to declare Tenant bankrupt or insolvent or
any assignment of Tenant's property is made for the benefit of creditors, or a
receiver or trustee is appointed for Tenant or Tenant's property or business,
and, such proceeding is not dismissed or such a receiver/trustee not removed
within a period of sixty (60) days thereafter.
XVIII Eminent Domain - Condemnation
A. If the whole or any part of the Premises or the building in which the
Premises are located shall be taken by any public domain or condemnation and
this Lease remains in full force and effect, on the date of the taking the
monthly rent shall be reduced by an amount that is in the same ratio to the
monthly rent as the value of the area of the portion of the Premises taken bears
to the total value of the Premises immediately before the date of taking,
B. Rent shall be abated or reduced during the period from the date of the
taking until the completion of the restoration, if any, but all other
obligations of the Tenant under this Lease shall remain in full force and
effect. The abatement or reduction of rent shall be based on the extent to which
the restoration interferes with the Tenant's use of the Premises. Should the
premises or building taken be such that Landlord considers restoration to be
impossible or inappropriate, Landlord shall so notify Tenant and this Lease
shall be terminated as of the date of such notice.
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C. All damages awarded for such taking shall accrue to the account of the
Landlord, except any award provided to or on behalf of the Tenant in connection
with the loss of its leasehold interest or for removal and reinstallation of
fixtures, loss of business or moving expenses shall accrue tot he account of the
Tenant.
XIX. Taxes
A. Tenant shall pay before delinquency all taxes, assessments, license
fees and other charges ("Taxes") that are levied and assessed against the
Tenant's personal property installed or located in or on the Premises, and that
become payable during the Term of the Lease.
B. Landlord shall pay all real property taxes and general and special
assessments ("Real Property Taxes") on the Premises; provided, however, Tenant
shall pay all increases in Real Property Taxes over and above those Real
Property Taxes levied and assessed against the Premises for the base year which
is the tax fiscal year 1998. Landlord shall notify tenant of Tenant's share of
the Real Property Taxes and together with such notice shall furnish Tenant with
a copy of the tax statement, including the tax statement for the base year, and
an explanation of the basis of the charge to the Tenant. Tenant shall reimburse
Landlord for Tenant's share of the increases in the Real Property Taxes not
later than ten (10) days before the taxing authorities' delinquent date or ten
(10) days after receipt of the tax statement., whichever is later, except that
Tenant shall have the right, at its election and expense, to contest, in the
name of the Landlord, any tax, levy or assessment for which Tenant may be
required to reimburse Landlord in whole or in part so long as the contesting
thereof is not prejudicial to the Landlord, and landlord covenants and agrees to
execute any documents necessary to perfect Tenant's rights of contest herein
contained. Tenant shall have the right to allow any assessment or any other
charge Tenant is required to pay hereunder to go to bond or to otherwise defer
payment thereon for the maximum lawful period.
C. Tenant agrees to pay to Landlord all sales and use taxes due on the
lease of tangible personal property by the Tenant and taxable services provided
by the Lessor, (such as repairs and maintenance made to real or personal
property, utility services, rail switching services, etc.) If any, or provide
the Landlord with a valid sales and use tax Resale Certificate, Exemption
Certificate or a direct pay permit number. These sales and use taxes shall be in
addition to the rental amount provided by Paragraph III above.
XX. Damage or Destruction
A. If during the Term, the Premises totally or partially destroyed from
any cause, rendering the Premises totally or partially inaccessible or unusable,
Landlord, at its election, can either terminate this Lease or restore the
Premises and, if restored, this Lease shall continue in full force and effect.
If the existing laws do not permit the restoration, either party can terminate
this Lease immediately by giving written notice to the other party.
B. In case of damage or destruction, there shall be an abatement or
reduction of rent from the date of destruction to date of substantial completion
of restoration, based on the extent to which the destruction interferes with
Tenant's use of the Premises. Should such damage occur, Landlord, at its
election , may give Tenant written notice of termination of this Lease or
Landlord may restore the Premises.
XXI Insurance During the term of this Lease, Tenant shall maintain at its
sole and expense:
A. Workers' Compensation Insurance which shall comply with all
requirements of the workers' compensation laws of the State of Texas and shall
include coverage for U.S. Longshoremen's and Harbor Worker's benefits where
employees shall be subject to these provisions. In addition, Tenant shall
maintain Employer's Liability Insurance in an amount not less than $100,000 per
person.
B. Liability Insurance - Comprehensive General Liability and Automobile
Liability coverage in amounts not less than $1,000,000.combined single limits.
Landlord shall be endorsed to the policy(ies) as an additional insured. The
policy(ies) shall not contain any Intra-Insured exclusions as between Insured
persons or organizations, but shall include coverage for insured liability
assumed under this Lease as an "Insured Contract" for the performance of
Tenant's indemnity obligations under this Lease.
C. Personal Property Insurance - covering Tenant's personal property and
Tenant Owned Alterations in, on or about the Premises in amounts not less than
80% of the actual cash value of the personal property and Owned Alterations.
D. In addition to meeting the required limits of insurance in this
Lease, Tenant shall deliver to the Landlord certificate or certificates of
insurance evidencing the existence and amounts of, the Insurance
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required under Sections XXI.A., B. and C. The certificate or certificates must
evidence that the following terms are applicable to such insurance, such
evidence being CLEARLY STATED ON CERTIFICATE SUBMITTED TO THE LANDLORD.
1. Showing Stotlhaven Houston, Inc. as an additional insured under the
General Liability and Automobile Liability policies with respect to any
insured liability arising out of this Lease. A copy of the policy
endorsements naming Stolthaven Houston Inc. as additional insured must be
submitted to the Landlord.
2. In the event of material change in, or cancellation of, this
insurance, the company will notify Stolthaven Houston Inc. at least thirty
(30) days prior to the effective date of such change or cancellation. All
policies maintained under this provision shall be endorsed to provide
thirty (30) days prior written notice of cancellation to Landlord;
provided, however, that if cancellation is due to non-payment of premium,
only ten (10) days prior written notice shall be required.
3. Tenant and Landlord each hereby releases the other and their
respective employees, agents, and every person claiming by, through or
under either of them, from any and all liability and responsibility for any
loss or damage to any property (real or personal) caused by fire or any
other insured peril covered by insurance policies for the benefit of either
party, even if such loss or damage shall have been caused by the fault or
negligence of the other party, their employees or agents. All policies of
insurance maintained under this Section XXI shall include waiver of
subrogation endorsement in favor of Landlord.
INSURANCE CERTIFICATES EVIDENCING SUCH POLICIES SHALL BE DELIVERED TO LANDLORD
UPON OCCUPANCY OF THE PREMISES, it being expressly understood that failure to
maintain insurance is a material breach of contract and time being of the
essence. In the event that any insurance as required herein is provided on a
"claim-made" basis, such insurance shall provide for a retroactive date not
later than the commencement of such Lease. If the purchase of an "optional
extension period," "optional claims reporting period" or other similarly titled
clause is necessary to maintain coverage as required hereunder, such clause
shall provide insurance for all occurrences as required herein. The limits of
said Insurance required by this Lease or as carried by Tenant shall not,
however, limit the liability of Tenant nor relieve Tenant of any obligation
hereunder. All insurance to be carried by Tenant shall be primary to and not
contributory with any similar insurance carried by the Landlord, whose Insurance
will be considered excess insurance only.
XXII. Indemnification Tenant agrees to indemnify and save harmless Landlord
from any claims, costs and expenses (including attorney's fees) for personal
injury or property damage which may be made against the Landlord which arises
out of use of the Premises by Tenant or any agent, employee, contractor or guest
of Tenant, unless such claim is due to the sole negligence of Landlord.
XXIII. Remedies
A. Upon the occurrence of any of such events of default described in
Article XVII hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord
may, without prejudice to any other remedy which it may have for possession
or arrearage in rent, enter upon and take possession of the Premises and
expel or remove Tenant and any other person who may be occupying such
Premises or any part thereof, by force if necessary, without being liable
for prosecution or any claim of damages therefor.
(2) Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be. occupying such Premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefor, and relet the Premises and receive the rent
therefor.
(3) Enter upon the Premises, by force if necessary, without being
liable for prosecution or any claim for damages therefor, and do whatever
Tenant is obligated to do under the terms of -this Lease; and, Tenant
agrees to reimburse Landlord on demand for any expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under this
Lease, and Tenant further agrees that Landlord shall not be liable for any
damages resulting to the Tenant from such action, whether caused by the
negligence of Landlord or otherwise.
(4) Alter all locks and other security devices at the Premises without
terminating this Lease.
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(5) Terminate deliveries of water, gas or electricity which Landlord
may be providing hereunder, without terminating the Lease.
(6) Deny rail or road access to Tenant and its representatives and
prohibit the removal of Tenant's personal property on which Landlord has or
may perfect a statutory or Landlord's lien arising from such default
without terminating the Lease.
In the event Landlord may elect to regain possession of the Premises by a
forcible detainer proceeding, Tenant hereby specifically waives any statutory
notice which may be required prior to any such proceeding, and agrees that
Landlord's execution of this Lease is, in part, consideration for this waiver.
In the event Tenant fails to pay any installment of rent hereunder as and when
such installment is due, to help defray the additional cost to Landlord for
processing such late payments Tenant shall pay to Landlord on demand a late
charge in an amount equal to five percent (5%) of such installment; and the
failure to pay such amount within ten (10) days after demand therefor shall be
an event of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
B. Exercise by Landlord or any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance by Landlord of
surrender of the Premises by Tenant, whether by agreement or by operation of
law, it being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. No such alteration of locks or other security
devices and no removal or other exercise of dominion by Landlord over the
property of Tenant or others at the Premises shall be deemed unauthorized or
constitute a conversion, Tenant hereby consenting, after any event of default,
to the aforesaid exercise of dominion over Tenant's property within the
Premises. All claims for damages by reason of such re-entry and/or repossession
and/or alteration of locks or other security devices are hereby waived, as are
all claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Tenant agrees
that any reentry by Landlord may be pursuant to judgement obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
C. In the event Landlord elects to terminate the Lease by reason of any
event of default, then notwithstanding such termination, Tenant shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of all rental and other indebtedness accrued to date of such
termination, plus, as damages, an amount equal to the difference between (i) the
total rental hereunder for the remaining portion of the lease term (had such
term not been terminated by Landlord prior to the date of expiration stated in
Article 11) and (ii) the then present value of the then fair rental values of
the premises for such period.
D. In the event that Landlord elects to repossess the Premises without
terminating the Lease, then Tenant shall be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the lease term
until the date of expiration of the term as stated in Article II diminished by
any net sums (if any) thereafter received by Landlord through reletting the
Premises during said period (after deducting expenses incurred by Landlord as
provided in subparagraph E of Article XXIII hereof). In no event shall Tenant be
entitled to any excess of any rental, obtained by reletting over and above the
rental herein reserved. Actions to collect amounts due from Tenant to Landlord
under this subparagraph may be brought from time to time, on one or more
occasions, without the necessity of Landlord's waiting until expiration of the
lease term.
E. In case of any event of default or breach by Tenant, or threatened or
anticipatory breach or default, Tenant shall also be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, in addition to
any sum provided to be paid above, brokers' fees incurred by Landlord in
connection with reletting the whole or any part of the premises; the costs of
removing and storing Tenant's or other occupants property; the costs of
repairing, altering, remodeling or otherwise putting the Premises into condition
acceptable to a new tenant or tenants; and all reasonable expenses incurred by
Landlord in enforcing or defending Landlord's rights and/or remedies including
reasonable attorney's fees which shall be not less than fifteen percent (15%) of
all sums then owing by Tenant to Landlord whether suit is actually filed or not.
F. In the event of termination or repossession of the Premises for an
event of default, Landlord shall not have any obligation to relet or to attempt
to relet the Premises, or any portion thereof, or to collect rental after
reletting; and in the event of reletting, Landlord may relet the whole or any
portion of the Premises for any period to any tenant and for any use and
purpose.
G. If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such
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default, may make such payment and/or remedy such other default for the account
of Tenant (and enter the Premises for such purpose), and thereupon Tenant shall
be obligated to, and hereby agrees, to pay Landlord upon demand, all costs,
expenses and disbursements ~including reasonable attorney's fees) incurred by
Landlord in taking such remedial action.
H. In the event of any default by Landlord, Tenant's exclusive remedy
shall be an action for damages (Tenant hereby waiving the benefit of any laws
granting it a lien upon the property of Landlord and/or upon rent due Landlord),
but prior to any such action Tenant will give Landlord written notice specifying
such default with particularity, and Landlord shall thereupon have thirty days
in which to cure any such default. Unless and until Landlord fails to so cure
any default after such notice, Tenant shall not have any remedy or cause of
action by reason thereof. All obligations of Landlord hereunder will be
construed as covenants, not conditions; and all such obligations will be binding
upon Landlord only during the period of its possession of the Premises and not
thereafter. The term "Landlord" shall mean only the owner, for the time being of
the interest in the Premises, and in the event of the transfer by such owner of
its interest in the Premises, such owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding during the lease
term upon each new owner for the duration of such owner's ownership.
Notwithstanding any other provision hereof, Landlord shall not have any personal
liability hereunder. In the event of any breach or default by Landlord in any
term or provision of this Lease, Tenant agrees to look solely to the equity or
interest then owned by Landlord in the Premises; however, in no event shall any
deficiency judgement or any money judgement of any kind be sought or obtained
against any part Landlord.
1. In the event that Landlord shall have taken possession of the Premises
pursuant to the authority herein granted, then Landlord shall have the right to
keep in place and use all of the furniture, fixtures and equipment at the
Premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
lessor thereof or third party having a lien thereon. Landlord shall also have
the right to remove from the Premises (without the necessity of obtaining a
distress warrant, writ of sequestration or other legal process) all or any
portion of such furniture, fixtures, equipment and other property located hereon
and to place same in storage at any Premises within the County in which the
Premises is located; and in such event, Tenant shall be liable to Landlord for
costs incurred by Landlord in connection with such removal and storage. Landlord
shall also have the right to relinquish possession of all or any portion of such
furniture, fixtures, equipment and other property to any person ("Claimant")
claiming to be entitled to possession thereof who presents to Landlord a copy of
any instrument represented to Landlord by Claimant to have been executed by
Tenant (or any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other
property, without the necessity on the part of Landlord to inquire into the
authenticity of said instrument's copy of Tenant's or Tenant's predecessor's
signature thereon and without the necessity of Landlord making any nature of
investigation or inquiry as to the validity of the factual or legal basis upon
which Claimant purports to act; and Tenant agrees to indemnify and hold Landlord
harmless from all cost, expense, loss, damage and liability incident to
Landlord's relinquishment of possession of all or any portion of such furniture,
fixtures, equipment or other property to Claimant. The rights of Landlord herein
stated shall be in addition to any and all other rights which Landlord has or
may hereafter have at law or in equity; and Tenant stipulates and agrees that
the rights herein granted Landlord are commercially reasonable.
XXIV Landlord's Lien N/A
XXV. Consequential Damages In no event will Landlord be liable for any
special, indirect or consequential damages, including without limitation, loss
of revenue or profit, loss of production, loss of market or loss of sales by
Tenant due to any interruption in or reduction of any service or utility
provided to Tenant by Landlord, regardless of whether such service or utility
was either expressly provided for or implied under this Lease.
XXVI. Severability In case any one or more of the provisions contained in
this Lease shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision thereof and this Lease shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
XXVII. Commission Landlord agrees to pay Colliers Appelt Womack, Inc. as
defined under a separate agreement as compensation for negotiating this Lease.
XXVIII. Rules and Regulations N/A
XXIX. Cranes The existing overhead cranes constitute a portion of the
Premises and Tenant shall have the exclusive use of the cranes. Tenant
acknowledges that the cranes have been checked by Tenant, are satisfactory to
Tenant and are adequate for the lifts required for Tenant's operations.~Tenant
agrees to make any repairs necessary to keep the cranes operational and in a
safe condition during the term of the Lease at Tenant's sole cost and expense to
return the cranes to the Landlord in good working order. LANDLORD DOES NOT
WARRANT THE CONDITION OR USE OF THE CRANES FOR
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TENANT'S PURPOSES SINCE LANDLORD HAS NO CONTROL OVER SUCH UTILIZATION AND
LANDLORD EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO
THE CRANES. Tenant agrees to hold Landlord harmless from and against any claims,
demands or causes or action which may be asserted by any agent, employee,
contractor or guest of
Tenant in the event of financial loss or personal injuries resulting from or
attributable to the use of the crane.
XXX. Special Conditions
1. Premises are provided in their as-is, where-is condition.
2. Provided that Tenant is not in default under this Lease, Tenant shall have
the right to extend the term of this lease for five (5) consecutive
one-year periods. Tenant shall give Landlord written notice of its intent
to exercise any such one-year extension, such notice to be received by
Landlord at least ninety (90) days prior to the expiration of the initial
term of this Lease or any extension term. If Tenant fails to timely
exercise any such extension, this Lease shall expire in accordance with the
terms hereof at the end of the initial term or the extension term then in
effect.
Anytime during the (5) 1-year option periods, the Landlord may terminate
the lease upon six (6) months written notice. However, it is agreed that
the Landlord shall not terminate the option period of the lease simply for
an increase in the rental rate over the rates defined in Section III.
Furthermore, provided that Tenant is not then in default under this Lease,
Tenant shall have a one-time option to terminate this Lease after the first
thirty-six (36) months of this Lease and at least ninety (90) days prior to
the proposed termination date, and must pay to Landlord, as a condition to
such termination, the sum of Fifty Thousand Dollars ($50,000.00) prior to
such termination date, which sum shall be in addition to monthly rental and
other sums due under this Lease until the termination date.
3. Tenant may use the gravel road on the east edge of the property on a
non-exclusive basis where Tenant will be solely responsible for the
maintenance of the road and securing the gate. It is expressly understood
and agreed by Tenant that Landlord has no right to use that portion of the
gravel road not located on Landlord's property, and that Tenant shall be
responsible for obtaining any consents or agreements necessary for Tenant
to use any extension of the gravel road not located on Landlord's property.
4. Tenant acknowledges that pursuant to a Lease Agreement (the "Evans Lease")
dated August 14, 1997, between Landlord and Evans Cooperage of Houston,
Inc. ("Evans"), Evans has a non-exclusive easement to use a portion of the
Premises which is the subject of this Lease. The portion of the Premises
encumbered by such non-exclusive easement is shown on Exhibit A. Landlord
agrees that it shall use its reasonable efforts to have Evans release
this-non-exclusive easement right-, provided, however, that the premises
shall be subject to such non-exclusive easement and the right of Evans to
use same until a release is obtained from Evans.
5. Tenant, at Tenant's sole cost and expense, may erect fencing to partition
the Premises from the premises currently leased to Evans (the "Evans
Premises"). The Evans Premises are shown on Exhibit B attached hereto and
made a part hereof. It is understood and agreed, however, that until Evans
releases any rights that it may have to use "Gate 3" as an entrance to the
Evans Premises, Tenant must provide Evans with access to the Evans Premises
through any fence erected by Tenant. Landlord agrees to use reasonable
efforts to have Evans release its rights to use Gate 3.
6. Upon the expiration or termination of the Evans Lease, Tenant must lease
that portion of the Evans Premises consisting of 31,344 square feet of the
warehouse and 1,000 square feet of office space at a rental rate of $8,760
per month. Such space shall become part of the Premises and shall be
governed by the terms and provisions of this Lease. Landlord and Tenant
agree that they shall enter into an Amendment to this Lease evidencing that
such square footage is part of the Premises and setting forth the new
monthly rental payments to be made by Tenant within ten (10) days after the
expiration or termination of the Evans Lease.
7. It is understood and agreed by Tenant that the use of "Gate 3" to the
Premises, being the main access gate, is non-exclusive and that Landlord
and its other tenants (whether current
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<PAGE> 9
02/10/98
or future tenants), and the servants, agents, employees, contractors, and
invitees of Landlord and such other tenants, shall have the right to use "Gate
3" on a non-exclusive basis with Tenant.
Tenant acknowledges and agrees that a portion of the Premises consists of
property currently leased by Landlord to Shipside Crating Company pursuant to a
Lease Agreement dated June 19, 1997 (the "Shipside Lease"). Landlord agrees that
it shall terminate the Shipside Lease and that Tenant will be delivered
possession of the premises covered by the Shipside Lease within sixty (60) days
after the commencement of the term of this Lease. Until Tenant is delivered
possession of the premises covered by the Shipside Lease, the full monthly
rental payment due Landlord under the terms of this Lease shall be reduced by
the amount of $2,900.00 each month (to be prorated for any partial month). Upon
delivery to
Tenant of possession of the premises covered by the Shipside Lease, the
full monthly rental payments set forth in Section III of this Lease shall
be applicable.
9. Landlord hereby reserves unto itself, its successors and assigns, the right
to install pipelines, utility apparatus, and other equipment within a ten
foot (10') wide strip of land running adjacent to the fence located along
the westerly property line of the Premises, together with the right to
enter upon the Premises, to the extent necessary, for the purpose of
repairing, replacing, removing, and maintaining such pipelines, utility
apparatus, and other equipment.
10. Tenant shall be responsible for the following utilities:
A. Electricity - Currently, electrical service is in the name of
Landlord, with Landlord collecting from Evans the amount of the
electric bill. Tenant shall have the electrical service for the
Premises put in its name. Tenant acknowledges that the Premises and
the premises occupied by Evans are not separately metered. Landlord
shall obtain an agreement from Evans wherein Evans shall pay its share
of the electric bill, such share to be an amount equal to the average
amount paid by Evans over the five months preceding receipt of the
current electric bill.
B. Water and sanitary sewer - Water for domestic use within the
Premises is supplied by waterwell and will be provided at no charge.
This water supply is nonpotable., Tenant may', if it so desires and at
Tenant's sole cost and expense, install lines that will connect with
the potable water lines of Landlord. Upon any such installation and
connection, Tenant shall pay a monthly fee for the use of Landlord's
potable water facilities in the amount of $2.50 for each 1,000 gallons
(or portion thereof) of metered water used by Tenant during such
month. Tenant shall be obligated to construct and install at ,Tenant's
sole cost and expense lines that will contleci with Landlord's
sanitary sewer facilities. The location of such lines shall be
determined by the mutual agreement of Landlord and Tenant. Upon
connection with Landlord's sanitary sewer facilities, Tenant shall pay
a monthly fee for the use of the Landlord's sewage facilities in the
amount of $.50 for each 1,000 gallons (or portion thereon of metered
water used by Tenant during such month.
C. Natural gas - Currently, natural gas service is in the name of
Landlord, with Landlord collecting from Evans the amount of the
natural gas bill. Tenant shall have the natural gas service for the
Premises put in its own name. Tenant acknowledges that the Premises
and the premises occupied by Evans are not separately metered.
Landlord shall obtain an agreement with Evans whereby Evans agrees to
pay an amount equal to one-tenth of the monthly bill.
D. Telephone - To be obtained by Tenant.
11. Tenant has the right (but not the obligation) to incur expenses up to
$15,000 to install new water and sewer lines (according to Landlord
specifications), repair the existing overhead cranes and repair-overhead
doors where such repairs shall be completed within 90 days of the
commencement of this lease. If such expenses exceed $15,000, the
Landlord-will agree to split the additional expenses 50/50 where the
Landlord's share of the expenses shall not exceed $2,500. Landlord agrees
to make payment to Tenant for Landlord's share of such costs within thirty
(30) days after receipt of invoices evidencing the costs incurred by
Tenant.
Notwithstanding the above, the Tenants obligations to make repairs shall be
as defined in Section VIII of this lease.
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<PAGE> 10
02/10/98
XXXI. Entire Agreement. This Agreement (including the Special Conditions,
if any, provided in Article XXX next above) constitutes the entire agreement of
Landlord and Tenant with respect to the matters covered hereby and those
provisions of all prior agreements between the parties or entities owned or
controlled in whole or in part by any party hereto are, to the extent such prior
agreements relate to matters covered hereby, merged into this Agreement, and the
terms of this Agreement shall in all respects be controlling over such portions
of any such prior agreements.
In the event that this document is not executed and returned to Landlord within
fife business days from the date of delivery to the Tenant this contract offer
shall become null and void.
IN WITNESS WHEREOF, the parties have hereunto set their hands.
STOLTHAVEN HOUSTON INC. TOTAL BUILDING SYSTEMS, INC.
BY: /s/ Stephen E. Rurchi By: /s/ Douglas D. Smith
-------------------------- ---------------------------
ITS: Terminal Manager ITS: General Counsel
-------------------------- ---------------------------
-LANDLORD- -TENANT-
<PAGE> 11
Exhibit A
[diagram of building]
10
<PAGE> 1
EXHIBIT 6.7
PRIVILEGED AND CONFIDENTIAL
MUTUAL RELEASE, WAIVER AND SETTLEMENT AGREEMENT
THIS Mutual Release, Waiver and Settlement Agreement (the "Agreement")
is entered into by and between MegaWorld, Inc., a Delaware corporation
("MegaWorld"), Fairway Beech Corporation, a New Jersey Corporation ("Fairway"),
ITM Group, Inc., a New Jersey Corporation ("ITM"), 1-900 USA, Inc., a __________
corporation ("1-900 USA"), ITS Telephony, Inc., a Nevada corporation ("ITS"),
Fred Simon, an individual residing in New Jersey, ("Simon") Nathan Berkowitz, an
individual residing in New Jersey, ("Berkowitz"), and Kent Terpe, an individual
residing in New Jersey, ("Terpe") (collectively, the "Parties"), who together
make the following recitations and agreements:
R E C I T A L S
WHEREAS, 1-900 USA and Fairway entered into a Joint Venture Agreement
dated December 18, 1997, as amended (this Joint Venture Agreement and all
amendments thereto shall be referred to herein collectively as the "1-900
Agreement") pursuant to which Fairway would assist 1-900 USA in developing
"Direct Dial-One Plus" and telephony via the use of the Internet and other
telephony services; and
WHEREAS, MegaWorld, Terpe, Berkowitz and Simon entered into an
Agreement on June 4, 1998, together with any amendments related thereto, if any
(the "Revenue Agreement") establishing revenue targets for the 1-900 Agreement;
and
WHEREAS, MegaWorld, Fairway and ITM entered into a Joint Venture
Agreement dated July 10, 1998, as amended (this Joint Venture Agreement and all
amendments thereto shall be referred to herein collectively as the "Joint
Venture Agreement") pursuant to which Fairway and ITM would assist MegaWorld in
developing the "Direct Dial-One Plus" and telephony via the use of the Internet
and other telephony services; and
WHEREAS, ITS was the corporation through which the activities of the
Joint Venture Agreement would be conducted; and
WHEREAS, in connection with the Joint Venture Agreement, the Revenue
Agreement and the 1-900 Agreement (collectively, together with any and all
related agreements or amendments thereto, whether written or verbal, the "ITS
Agreements"), Terpe, Berkowitz and Simon each received 550,000 shares of Common
Stock of MegaWorld (the "Shares") in addition to which Terpe received other
compensation and expense reimbursement (Simon and Berkowitz received none); and
1
<PAGE> 2
WHEREAS, the Parties desire to cancel and terminate the ITS Agreements
and release all Parties from their obligations under the ITS Agreements and any
and all agreements, whether written or verbal, related thereto.
NOW, THEREFORE, in consideration of the premises, representations,
promises and covenants set forth herein, the sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. All obligations of the Parties, if any, arising under the ITS
Agreements are hereby satisfied, discharged, canceled and terminated in all
respects.
2. Terpe, Berkowitz and Simon shall retain their respective Shares;
provided, that in consideration of this Agreement, each of Terpe, Berkowitz, and
Simon (collectively, the "Terpe Shareholder Group") agree (the "Lockup
Agreements") that they shall not for a period of 24 months after execution of
this Agreement, directly or indirectly, offer to sell, assign, pledge, issue,
distribute, sell, contract to sell, grant any option or enter into any contract
for the sale of, or otherwise voluntarily transfer or dispose of, or announce
any offer, sale, grant of any option to purchase or other transfer or
disposition or, any of their respective Shares; except when a person(s) or
entity (entities) with whom the Terpe, Berkowitz and Simon wishes to assign,
pledge, issue and or distribute stock to signs an Agreement, acceptable to
MegaWorld agreeing to abide by the terms of this "Lockup Agreement". This
agreement must be approved by MegaWorld prior to consummation of the
transaction, and provided further, that beginning six (6) months after the date
of this Agreement, MegaWorld shall, upon written request of any one of the Terpe
Shareholder Group, release from their respective Lockup Agreement for sale by
such shareholder up to 15,000 Shares per fiscal quarter. In addition beginning
with the execution of this Agreement, Terpe shall be permitted to sell 15,000
shares per month (45000 shares per quarter) for six months for a total of 90,000
shares and Berkowitz shall be permitted to sell 5000 shares per month (15000 per
quarter) for six months for a total of 30000 shares. For each quarter, Terpe
and/or Berkowitz can accumulate the shares and may pledge or assign them should
they not to sell them. Further, Terpe will immediately receive upon executing
this Agreement, an additional 40,000 shares as compensation for all delinquent
salary and expenses owed to him by MegaWorld, Inc. Any and all remaining Shares
subject to the respective Lockup Agreements shall be released for sale by the
Terpe Shareholder Group two (2) years after the date of this Agreement. Each of
the Terpe Shareholder Group understand and acknowledge that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered or sold unless they are registered under the
Securities Act and any applicable state securities laws or an exemption from
such registration is available and that nothing herein constitutes a
representation that the Shares may be eligible for an exemption, under Rule 144
of the Securities Act or otherwise, from such registration at any time.
3. MegaWorld and ITS shall retain and Terpe, Berkowitz and Simon hereby
waive and relinquish any and all claims to (i) any and all rights to the name
"ITS Telephony, Inc." and any and
2
<PAGE> 3
all derivations thereof and names deceptively similar thereto; (ii) any and all
technology developed, acquired, modified or otherwise utilized by any of the
Parties in connection with the ITS Agreements; (iii) any and all patents,
trademarks, trade names, trade secrets, methods of doing business, know-how and
other proprietary technology or information and other intellectual or intangible
property associated with the Joint Venture formed pursuant to the Joint Venture
Agreement; and (iv) any and all real and personal property held by ITS.
4. Each of the Terpe Shareholder Group together with their respective
heirs, executors, administrators, officers, directors, successors and assigns
and ITM and Fairway, together with their present and former officers, directors,
shareholders, agents, employees, representatives, insurers and affiliates (the
"Group"), voluntarily and knowingly do hereby RELEASE, DISCHARGE and ACQUIT
MegaWorld and ITS together with their present and former officers, directors,
shareholders, agents, employees, representatives, insurers and affiliates (the
"MegaWorld Parties") from:
i. all cash or non-cash payments, all compensation and
all reimbursements currently due or to be due in the
future, whether pursuant to the ITS Agreements or any
other agreement, whether written or verbal;
ii. all claims, demands and causes of action, known or
unknown, of any kind or character, joint or several,
either liquidated, unliquidated, or contingent,
howsoever arising, whether founded in tort, contract
or otherwise for any and all inquiries, harm,
damages, penalties, costs, losses, expenses,
attorneys' fees, liability and other detriments, if
any, which the Group had or presently has as of the
date of this Agreement; and
iii. all claims, demands and causes of action arising from
the relationship between the Group, on the one hand,
and the MegaWorld Parties, on the other hand, which
the Group presently has or which may hereinafter
arise against the MegaWorld Parties as a result of
the acts or omissions of any person or entity prior
to the date hereof, including but not limited to
claims and causes of action relating to liability
which may arise as a result of any determination or
allegation that the business of the Parties prior to
the date hereof was conducted through an association,
partnership, agency or other relationship of the
parties which may result in the actions of one party
incurring derivative liability on another.
5. The Group hereby relinquishes, renounces and otherwise waives any
interest in or claim to and agrees that none of them, or any person,
organization or entity which they control or which is under common control with
them, or any of them, will conduct any business under the name of "ITS
Telephony, Inc." or any name deceptively similar thereto. The Parties agree that
the name "ITM Group, Inc." is not deceptively similar to the name "ITS
Telephony, Inc."
3
<PAGE> 4
6. In consideration of the covenants and agreements herein contained
the MegaWorld Parties RELEASE, DISCHARGE and ACQUIT the Group from:
i. all claims, demands and causes of action, known or
unknown, of any kind or character, either liquidated,
unliquidated, or contingent, howsoever arising,
whether founded in tort, contract or otherwise for
any and all inquiries, harm, damages, penalties,
costs, losses, expenses, attorneys' fees, liability
and other detriments, if any, which the MegaWorld
Parties had or presently have as of the date of this
Agreement; and
ii. all claims and causes of action arising from the
relationship between the MegaWorld Parties on the one
hand, and the Group, on the other hand, which any of
the MegaWorld Parties has or which may hereinafter
arise against any of the Group as a result of the
acts or omissions of any person or entity prior to
the date hereof, including but not limited to claims
and causes of action relating to liability which may
arise as a result of any determination or allegation
that the business of the parties prior to the date
hereof was conducted through an association,
partnership, agency or other relationship of the
parties which may result in the actions of one party
incurring derivative liability on another.
7. The parties hereto covenant and agree not to disclose, or authorize
their agents or attorneys to disclose, orally or in writing, to anyone any facts
or opinions referring or relating to the events culminating in this Agreement,
or the terms and conditions of this Agreement, except that such facts and
opinions may be disclosed only to (a) the professional tax or legal advisers of
the parties hereto where such disclosure is necessary to obtain tax or legal
advice, (b) in response to requirements of any state or federal regulatory
authority or agency or self-regulatory authority or agency operating pursuant to
state or federal authority, and (c) when compelled by order of a court of the
United States of America or any State thereof. Notwithstanding the above
restrictions on disclosure as stated above, any party hereto may disclose upon
inquiry by a third party the following:
"A dispute arose between MegaWorld and Terpe, Berkowitz and Simon and
other parties affiliated therewith regarding their business interests
and objectives therein and the parties amicably settled their disputes
and exchanged mutual releases;" or words of similar import.
8. The parties hereto agree that the purpose of this Agreement is to
settle disputed claims. Nothing in this Agreement shall be construed as an
admission of liability of any kind; all such liability being expressly denied.
9. The parties hereto further declare and represent that no promise,
inducement or agreement not expressed herein has been made to any of them and
that this Agreement contains the
4
<PAGE> 5
entire agreement between the parties hereto, and that the terms of this
Agreement are contractual and not mere recitals.
10. By execution of this Agreement, the parties hereto acknowledge that
each has read it, that each understands it, and that each has freely entered
into it for the purposes and consideration herein expressed.
IN WITNESS WHEREOF, the foregoing Mutual Release, Waiver and Settlement
Agreement has been executed on this 27th day of November, 1999.
MEGAWORLD, INC. ITS TELEPHONY, INC.
/s/ Charles D. McPhail /s/ Charles D. McPhail
- --------------------------------- -------------------------------------
By: Charles D. McPhail By: Charles D. McPhail
------------------------------ ----------------------------------
Its: President Its:
----------------------------- ---------------------------------
FAIRWAY BEECH CORPORATION
/s/ Fred L. Simon
-------------------------------------
By: Fred L. Simon
----------------------------------
Its: President
---------------------------------
ITM GROUP, INC.
/s/ Kent Terpe
-------------------------------------
By: Kent Terpe
----------------------------------
Its: President
---------------------------------
/s/ Kent Terpe
-------------------------------------
KENT TERPE
/s/ Nathan Berkowitz
-------------------------------------
NATHAN BERKOWITZ
/s/ Fred Simon
-------------------------------------
FRED SIMON
5
<PAGE> 1
EXHIBIT 6.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement" herein), made and entered into
effective the 1st day of January, 1996, by and between TOTAL BUILDING SYSTEMS,
INC. ("Employer" herein), a Texas corporation with its principal place of
business at 6250 North Houston Rosslyn Road Houston, Texas 77091-3410, and
CHARLES D. McPHAIL ("Employee" herein), whose address for purposes of this
instrument is 15411 Fawn Villa, Houston, Texas 77068; witnesseth that:
RECITALS
Whereas, Employer is engaged in the business of manufacturing and
marketing certain goods and services, and other related and unrelated
enterprises;
Whereas, Employee has been engaged and has had a great deal of
experience in the above-designated business;
Whereas, Employee is willing to be employed by Employer, and Employer
is willing to employ Employee, on the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises, and of the
mutual covenants and promises of the parties hereto, and of the mutual benefits
to the parties herefrom, the receipt and adequacy of which are hereby
acknowledged, Employer and Employee do hereby covenant and agree as follows:
I. EMPLOYMENT
1.1 Employer hereby employs, engages, and hires Employee as President
of Total Business Systems, Inc. to oversee the day to day operations of the
business, and Employee hereby accepts and agrees to such hiring, engagement, and
employment, subject to the general supervision and pursuant to the orders,
advice, and direction of the Board of Directors of Employer. There are no
formal, fixed hours of employment; rather, Employee is expected to work at such
times as the effective, efficient, and conscientious discharge of his duties
hereunder require.
1.2 Employee shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as that engaged in by Employer, and shall also additionally render
such other and unrelated services and duties as may be assigned to Employee from
time to time by the Board of Directors of Employer; provided, however, that any
such duties shall be reasonable and appropriate for someone in the position of
Employee hereunder, in both nature and burden.
II. BEST EFFORTS OF EMPLOYEE
2.1 Employee agrees that he will at all times faithfully, industrially,
and to the best of his ability, experience, and talents, perform all of the
duties that my be required of and from him pursuant to the express and implicit
terms hereof. Such duties shall be rendered in Houston, Harris County, Texas,
and at such other place or places as Employer shall in good faith require or as
the interest, needs, business, or opportunity of Employer shall require or make
advisable.
III. TERMS OF EMPLOYMENT
3.1 The term of this agreement shall be for a period of five (5) years,
commencing on the effective date hereof, and shall be automatically and
continually renewed thereafter until notice of cancellation, and Employer may
not cancel this agreement on less than five (5) years written notice to
Employee.
3.2 Notwithstanding anything herein to the contrary, Employee may
terminate this agreement at any time upon thirty (30) days notice.
<PAGE> 2
IV. COMPENSATION OF EMPLOYEE
4.1 Employer shall pay Employee, and Employee shall accept from
Employer, in payment for Employee's services hereunder, an annual base salary, a
commission on quarterly net profits, and annual stock options.
4.1.1 The annual base salary due Employee hereunder shall be
$200,000 (or such higher rate as the Board of Directors or the Employer's
Remuneration Committee, if any, shall from time to time, in its discretion,
decide), payable in semi-monthly payments, due on or before the beginning of the
semi-monthly period for which it covers.
4.2 Employer shall reimburse Employee for any and all necessary and
customary expenses incurred by Employee while performing his duties.
4.3 Employer shall also provide to Employee, at no cost to Employee,
the standard insurance coverage: provided to other salaried employees of
Employer, including without limitation, if offered to such other employees, (i)
health insurance coverage, (ii) long term disability coverage, and (iii) life
insurance.
4.4 From time to time, but at least annually, the total compensation
provided for in this Article IV shall be reviewed, and shall be increased as
Employee and Employer deem appropriate.
V. OTHER EMPLOYMENT
5.1 Employee shall devote a substantial part of his time, attention,
knowledge, and skill solely to the business and interest of Employer, and
Employer shall be entitled to all of the benefits, emoluments, profits, or other
issues arising from or incident to any and all work, services, and advice of
Employee performed or given for the benefit of Employer, but not otherwise, and
Employee expressly agrees that during the term, and any extensions thereof, of
this Agreement, he will not be interested, directly or indirectly, in any
manner, as partner, officer, director, shareholder, advisor, employee, or in any
other capacity, in any other business directly competing with Employer's
business; provided, however, that nothing contained herein shall be deemed to
prevent or to limit the right of Employee to invest any of his funds in the
capital stock or other securities of any corporation whose stock or securities
are publicly owned or are regularly traded on any public exchange, whether or
not such corporation competes with Employer, nor shall anything contained herein
be deemed to prevent Employee from investing or limit Employee's right to invest
his surplus funds in real estate.
5.2 Employer hereby expressly acknowledges that Employee may on
occasion, and from time to time, at Employee's discretion, engage in employment
for the benefit and profit of business ventures other than Employer, provided
(i) such other business ventures do not directly compete with Employer, and (ii)
such other employment does not prevent Employee from providing the time and
attention reasonably necessary to carry out the obligations to Employer
contemplated herein.
5.3 It is contemplated that if closing occurs under that certain
Acquisition / Merger Agreement, Employee will be spending a substantial amount
of time engaged in employment by MegaWorld, Inc.
<PAGE> 3
VI. VACATION
6.1 The salary provided for in Section 4.1.1 above is annual, without
regard to days of vacation or leave, which shall be discretional with employee.
VII. DISCONTINUANCE OF BUSINESS
7.1 Notwithstanding anything herein to the contrary, but subject to
Section 3.1 hereof, in the event that Employer shall discontinue operating its
business in the State of Texas, then this Agreement shall terminate as the last
day of the month in which Employer ceases operations at such location with the
same force and effect as if such last day of the month were originally set as
the termination date of this Agreement.
VIII. TERMINATION
8.1 Termination Without Cause. In accordance with Section 3.1, this
Agreement may be terminated, without cause, by Employer upon not less than five
(5) years notice of termination, and in accordance with Section 3.2, Employee
may terminate this Agreement upon thirty (30) days notice.
8.2 Termination For Cause. Notwithstanding anything herein to the
contrary, Employer may terminate this Agreement for cause by written notice
taking effect on the date of service thereof, in which case Employee shall not
be entitled to any further compensation from Employer except such sums as shall
accrued through such date, in the event:
8.2.1 Employee shall be found guilty, by a court of competent
jurisdiction, of a felony involving moral turpitude; or
8.2.2 Employee shall be adjudicated, by a court of competent
jurisdiction, an "incapacitated person," as defined in the Texas
Probate Code.
IX. MISCELLANEOUS
9.1 Complete Agreement. This Agreement contains the complete agreement
concerning the employment arrangement between the parties hereto and shall, as
of the effective date hereof, supersede all other agreements between the
parties. The parties hereto stipulate that neither of them has made any
representations with respect to the subject matter hereof or any representations
including the execution and delivery of this Agreement except such
representations as are specifically set forth herein and each of the parties
acknowledges that he or it has relied on its own judgement in entering into this
Agreement. The parties further acknowledge that any payments or representations
that may have been made by either of them to the other prior to the date of
executing this Agreement are of no effect and that neither of them has relied
thereon in connection with his or its dealings with the other.
9.2 Modification. Any modification of this Agreement or additional
obligation assumed by either party hereto in connection with this agreement
shall be binding only if evidenced in writing signed by each party or an
authorized representative of each party.
9.3 Additional Remedies. It is further agreed that any breech or
evasion of any terms or conditions of this Agreement by either party will result
in immediate and irreparable injury to the other party and will authorize
recourse to injunction and or specific performance, as well as to all legal or
equitable remedies to which such injured party may be entitled under this
Agreement.
9.4 Assignment. This Agreement shall not be assignable by either party
hereto; provided that upon any sale of this business, or a substantial amount of
the assets thereof, by Employer, Employer may assign this Agreement to its
successor, or Employee may terminate same.
<PAGE> 4
9.5 Severability. The invalidity of any portion of this Agreement will
not and shall not be deemed to affect the validity of any other provision. In
the event that any provision of this Agreement is held to be invalid, the
parties agree that the remaining provisions shall be deemed to be in full force
and effect as if they had been executed by both parties subsequent to the
expungement of the invalid provision.
9.6 Governing Law; Venue. This Agreement has been executed in and shall
be governed by the laws of the State of Texas. This Agreement is executed in
Harris County, Texas, and all obligations of the parties created under this
Agreement are performable in Harris County, Texas. Venue for any action
initiated to enforce or construe the terms of this Agreement shall be proper in
Harris County, Texas.
9.7 Waiver. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions hereof, or the waiver of
any breach of any of the terms and conditions of this Agreement, shall not be
construed as thereafter waiving any such terms and conditions hereof, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.8 Representation By Counsel. The parties hereto acknowledge that each
has been advised to retain separate counsel to provide advice with respect to
this Agreement and each party hereto warrants and represents to the other that
the respective warranting party has acted upon such advice to said party's own
satisfaction.
9.9 Attorneys' Fees. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all sums that party may be called on to answer
in damages, a reasonable sum for the successful party's attorney's fee.
9.10 Construction. The titles to the paragraphs of this Agreement are
solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
agreement.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on the date first above written.
EMPLOYER: EMPLOYEE:
TOTAL BUILDING SYSTEMS, INC.
/s/ Charles D. McPhail /s/ Charles D. McPhail
- ---------------------- ----------------------
Name: Charles D. McPhail CHARLES D. McPHAIL
Title: President
[w7 tbs]tbsemplagr
<PAGE> 1
EXHIBIT 6.9
MARCH 30, 1999
GEORGE S. DINSDALE
354 LYNN STREET
HARRINGTON PARK, NJ 07640
DEAR GEORGE:
This letter sets out MegaWorld's employment offer to you effective April 1, 1999
as per our general discussions on Saturday February 20, 1999.
POSITION:
* President of the Communications Division of MegaWorld, Inc.
TERM:
* Three year initial term with an option to renew for one year.
SALARY:
* Base $150,000 per year
INCENTIVE BONUS:
* An incentive bonus of $50,000, or 1/2% of the pre-tax profits of the
Communications Division for the calendar year of 1999, whichever is greater,
will be paid on or before April 1, 2000.
* During each of the following years, (years 2, 3 & 4 or 2000 through
2002) an incentive bonus of 1/2 percent of pre-tax profits will be paid for each
calendar year on or before April 1 of the following year.
STOCK OPTIONS:
* FIXED: Stock options will be granted on April 1, of each year for four
(4) years, 1999 through 2002. Options for years one (1) through three (3) will
be granted at 100,000 shares for each year and year four (4) the grant will be
200,000 shares. The option period will be three years from the date of the
grant, for all options granted.
<PAGE> 2
* OPTION PRICE: The option price for first year of the 1999 options is
the market price (price of the last trade) on your first day of employment,
April 1, 1999. The option price for the second and third year of the 1999
options granted and the option prices for all other options granted is as listed
herein
<TABLE>
<CAPTION>
* Year 1 Year 2 Year 3
<S> <C> <C> <C>
$2.00 $1.00 $.0001
</TABLE>
* VARIABLE OPTIONS BASED ON COMPANY PRE-TAX PROFIT: At the end of each
calendar year additional stock options will be granted based upon the pre-tax
performance of the Communications Division of MegaWorld. The average price of
the last trade each day for the month of December will determine the price of
the stock. The amount of option each year will be determined by dividing the
December average price into the reported pre-tax profits. This calculation, to
determine the amount of the variable option, will be made prior to April 1, and
the option will be granted on April 1 of each year. The option price will be as
listed above.
* OPTION TERMINATION: In the event this contract is terminated, prior to
the term of the contract by MegaWorld, except for cause a herein defined as
illegal activity or activity clearly detrimental to the company's interest, a 12
month severance package will be granted. In the event of a resignation prior to
the term of the contract, accrued options must be a exercised with in 90 days
from the date of termination.
CAR ALLOWANCE:
* $800.00 per month. A flat sum will be paid to you each month as a car
transportation allowance. You will be responsible for insurance, maintenance and
fuel. Tolls, parking, and other business expenses related to normal business
activity are expense items to be submitted monthly for reimbursement.
OTHER EXPENSES:
* MegaWorld, Inc. will be responsible for all reasonable approved
expenses normally required with the performance of normal duties of your office.
FRINGE BENEFITS:
* MegaWorld currently offers its employees a medical benefits plan, a
dental plan, and a 401-K program. In this regard MegaWorld agrees to cover your
medical insurance premiums for HOM coverage for you and your family. MegaWorld
currently does not offer vision coverage or life insurance, but arrangements are
being made to offer these benefits by January 1, 2000. Your paid vacation will
be four (4) weeks annually.
<PAGE> 3
NON-COMPETE:
* You agree that you shall neither compete with MegaWorld nor disclose
any information you may have obtained by working for or with MegaWorld for a
period equal to the severance period agreed to and not to exceed 12 months. In
the event the non-compete agreement interferes with "Right to Work Laws" than
the non-compete is null and void.
Pre-tax profit is defined as the earnings reported for tax purposes on the
Profit & Loss statements for the Communications Division.
Sincerely,
/s/ Charles D. McPhail
Charles D. McPhail
Chairman, President and Chief Executive Officer
Agreed and Accepted this 31 day of March, 1999
/s/ George Dinsdale
George Dinsdale
<PAGE> 1
EXHIBIT 6.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made the 1st day of March, 1998.
BETWEEN:
1. MegaWorld, Inc., Delaware Corporation, having its principal registered
offices located at, 2nd Floor, 430 Park Avenue, New York, New York
10022, U.S.A. ("The Company").
AND
2. Michael Giamalvo, whose permanent residence is 119 Northgate Circle,
Melville New York 11747, U.S.A., ("The Executive").
IT IS AGREED AS FOLLOWS:
1. Definitions and Interpretations.
1.1 In this Agreement, the following words and expressions shall
have the following meanings:
"the Board" means the Board of Directors of the Company
and includes any committee(s) of the Board
duly convened by it including, but not
limited to, the Executive Committee.
"The Commencement Date" means the first day of employment
(March 1, 1998).
"Group Company" means any Company which, for the current
time, is (a) a holding company of the
Company or (b) a subsidiary undertaking of
the Company or (c) a subsidiary undertaking
of any such holding company.
"the Employment" means the employment established by this
Agreement.
"the Termination Date" means the termination date of the Employment
under this Agreement howsoever terminated.
"Intellectual Property" means (a) every invention, discovery, design
or improvement, and/or (b) every work in
which copyright, trademark, etc. is, may or
should be relevant.
Any reference in this Agreement to any Statutory Provision includes any
statutory modification or re-enactment of it or the provision referred
to.
2. Employment
The Company shall employ the Executive and the Executive agrees to act
as an employee of the Company on and within the terms set out by this
Agreement.
3. Freedom to take up the appointment
<PAGE> 2
The Executive warrants that, by virtue of entering into this Agreement,
he will not be in breach of any expressed or implied terms of any
previous contract or obligation binding upon him.
4. Period
The Executive's employment shall start with effect from the
Commencement Date and shall (subject as hereinafter provided) be for an
initial minimum term of 2 (two) years ending on March 1, 2000 and
"Evergreen" thereafter, renewable each day. This employment shall
continue until terminated by either party giving to the other not less
than 3 (three) months written notice including the expiry date for the
initial fixed term.
5. Duties of the appointment
5.1 The principal duty of the Executive will be to develop and
coordinate the marketing of the timeshare sales relating to
Castello Torre Ratti in Borghetti, Borbera, Italy (the
"Castle"). The Executive will also faithfully and diligently
perform those duties and responsibilities of his appointment
and exercise such powers consistent with them, which are, from
time to time, assigned to or vested in the Executive. He shall
use his best endeavoursmote the interests of the Company and
any Group Company for which the Executive is performing
duties.
5.2 The Executive shall (without any further remuneration), if and
for so long as he is so required by the Company:
(I) carry out the duties of his appointment on behalf of
any Group Company.
(II) Act as an officer or director or hold another
appointment or office as nominee or representative of
the Company or the Group Company.
(III) carry out such duties and attendant duties of any
such appointment as if they were duties to be
performed by the Executive on behalf of the Company.
6. Compliance and Reporting
The Executive shall obey all lawful and reasonable directions of the
Board and, at all times, keep the Board promptly and fully informed (in
writing if so requested) of his conduct of the business and/or affairs
of the Company and any Group Company and provide such explanations as
the Board may require.
7. Devotion to duties
The Executive shall, during the term of his employment, devote to the
business and affairs of the Company such time as is necessary to carry
out his duties and responsibilities under this Agreement. The Executive
will not accept any engagement or public office except with the prior
consent, in writing, of the Company. However the Executive may,
nevertheless, be or become a minority holder of any securities or
investment opportunities that are quoted on a recognized investment
exchange.
8. Compliance / dealings in "securities"
The Executive shall, during his employment, and for 24 months after the
termination of employment, comply (and shall procure that his spouse
and minor children shall comply) with all applicable rules
<PAGE> 3
of law and any recognized investment exchange rules and regulations,
and any other Company policy issued in relation to dealings in shares,
debentures or other financial instruments of the Company and/or any
Group Company or subsidiary. This includes any unpublished,
price-sensitive information affecting the securities of the Company
and/or Group Company or any other company.
9. Place of Work
9.1 The Executive shall initially work at the offices of the
Company at the New York City corporate address. However, the
Executive shall, if required, work in such place or places as
the Board may reasonably require for the proper performance of
his duties hereunder.
9.2 The Executive shall not be required (except for business
travel on behalf of the Company and/or any Group Company) to
reside outside of the New York, New York, Metropolitan Area.
10. Hours of Work
There are no formal, fixed hours for the Employment. The Executive is
expected to work at such times as the effective, efficient and
conscientious discharge of his duties hereunder requires.
11. Remuneration
11.1 During the Employment, the Executive shall receive, as
remuneration, a basic salary at the rate of U.S. $50,000.00
per annum (or such higher rate as the Board or the Company's
Remuneration Committee shall from time to time, in its
absolute discretion, decide). This remuneration will be paid
to the Executive in equal monthly installments on the last day
of each calendar month. Should the "pay-day" fall on the
weekend, or a national /state / bank holiday, the payment to
the Executive will take place on the immediately preceding
business day. Any increase in remuneration shall be notified
in writing to the Executive and the details thereof will be
initialled by an official of the Company.
11.2 The Executive's remuneration shall, except as set forth in
this Section 11 or unless otherwise agreed in writing by the
Company, be inclusive of any fees or other remuneration, which
the Executive would otherwise be entitled to receive from the
Company. This includes any Group Company in connection with
the performance of the duties delegated to him under this
Agreement
11.3 The Executive will be eligible to receive an annual
Performance-related Bonus based on the increase in assets,
profits and other criteria as determined by the Board.
11.4 Not later than 30 (thirty) days after the Executive commences
employment pursuant to this Agreement, the Company shall issue
to the Executive, as additional consideration for the
Executive's employment hereunder, 400,000 (Four Hundred
Thousand) shares of the Common Stock, par value $.0001 per
share, of the Company. The shares of Common Stock so issued
will not have been registered under the Securities Act of
1933, as amended, or any state securities law, and will not be
able to be resold by the Executive unless registered or unless
an exemption from registration is available. A legend to such
effect will be placed on the shares when they are issued. The
Company has not agreed to register these shares for the
Executive.
11.5 In addition to the compensation provided above, the Executive
shall receive a commission of 10% (ten percent) of the sales
price received by the Company on each sale of a timeshare
interest in the Castle. In the event that the Company disposes
of its interests in the Castle by a securitization of the
timeshares being sold or other similar transaction, the
Executive shall receive, in lieu of the commission herein
provided, a lump sum payment at the time of
<PAGE> 4
such disposition equal to the present value of the aggregate
commissions the Executive would have received had all
timeshare sales been completed, which lump sum payment shall
be discounted by 10 % (ten percent) a year over a 4 (four)
year period.
12. Expenses
In addition to the basic salary hereunder, the Executive will be
reimbursed the full amount of all reasonable travel, hotel,
entertainment and other expenses properly and necessarily incurred and
defrayed by the Executive in the discharge of his duties hereunder. The
Executive shall produce to the Company, at the Company's request,
supporting vouchers and/or receipts for amounts above $20.00 individual
expenditures, in respect of such expenses. Individual business expenses
of $20.00 and below will be accepted as detailed in a personal record
submitted by the Executive. The Executive may take an advance from the
Company in relation to anticipated travel expenses so long as the
aforementioned receipts are duly submitted upon the Executive's return.
13. Pension and other benefits
During the Employment the Executive shall be entitled:
(i) to become a member of MegaWorld, Inc. Pension Plan (or its
antecedent) subject to the Company Pension Scheme Trust Deed
and Rules of the Scheme in force from time to time. Such
pension plans, in the country of the Executive's residence and
workplace, will be applicable in place of the above.;
(ii) assuming the Executive is generally insurable, to be provided
with cover under a life assurance policy, such that the
benefits payable to the Executive in the event of his death
during the Employment will be equal to three times his basic
salary payable under clause 11.1. Further insurance coverage
will be made available to the Executive at a preferential,
reduced rate, at the Executive's cost;
(iii) to become a member of the Company's private medical expenses
scheme (or such other plan or scheme as the Board may maintain
for its Directors and employees); and
(iv) to participate in the Company's total disability / long-term
sickness benefit scheme subject always to the rules of the
scheme.
14. Holidays
14.1 The Executive will be entitled (in addition to normal bank and
other public holidays) to 21 days paid holiday in each
calendar year at such times that they may be convenient to
both the Executive and the Company and such holidays that the
Board may approve.
14.2 The Executive shall not be entitled to carry forward any
unused holiday entitlements from one "holiday year" to the
next without the written consent of the Company.
15. Sickness or Injury
15.1 The Executive agrees that at any time during the course of the
Employment he shall, at the request of the Company, submit
himself
<PAGE> 5
to a medical examination by a registered Medical Practitioner.
The purpose of such medical examination shall be to determine
whether there are any matters that might impair the
Executive's ability to perform his duties under this
Agreement. A doctor's report to the effect that the Executive
has "no physical matters that will or would impair the
Executive's ability to perform his normal duties" will
suffice, in all respects, as to the requirements of this
clause. All expenses associated with the doctor's diagnosis
and report will be borne by the Company.
15.2 In the event that the Executive is unable to perform his
duties under this Agreement by reason of sickness or injury
for a period of seven days or more, the Executive shall, if
required to do so by the Company, provide to the Company a
Medical Certificate in respect of the whole period of the
absence. Immediately following his return from any period of
absence in excess of seven workdays, the Executive will
complete a self-certification detailing the reason for the
absence.
15.3 Subject to the Executive complying with the certification and
notification requirements of clause 15.2, the Executive is
entitled to be paid during any period of absence from work due
to sickness or injury, subject however to the provisions of
Section 23, and also subject to the right of the Company to
deduct from the remuneration paid to the Executive any
statutory sick pay or other social security benefits which he
is entitled to claim in consequence of sickness or accident or
payable to him under any scheme for the time being in force of
which by virtue of his employment by the Company he is a
non-contributory member.
15.4 In the event that the Executive is incapable of performing his
duties by reason of injury sustained partially or wholly as a
result of actionable negligence, nuisance or breach of any
statutory duty on the part of any third party, all payments
made to the Executive by the Company by way of remuneration
shall, to the extent that compensation is recoverable from
that third party, constitute loans by the Company to the
Executive (not withstanding that, as an interim measure,
income tax has been deducted from payments as if they were
emoluments of employment) and shall be repaid when, and to the
extent that, the Executive recovers compensation for loss of
earnings from that third party by action or otherwise.
<PAGE> 6
16. Confidentiality
The Executive shall not, either during the Employment or
otherwise than in the proper course of duties or thereafter,
without the consent in writing of the Company being first
obtained, divulge to any person, firm or company and shall,
during the continuance of the Employment, use his best
endeavours to prevent the publication or disclosure of any
confidential information of the Company and/or any Group
Company or any of its or their secrets, dealings or
transactions whatsoever which may have come or may come to his
knowledge during his employment, previous or otherwise, and
which include, but are not limited to, the following matters
(i) The working of any manufacturing process or invention
or any other methods, formulae, technical data and
know-how used by or which relate to the business of
the Company.
(ii) Lists of customers and potential customers of, or
suppliers and potential suppliers to, the Company and
any Group Company and any other information collected
by the Company and any Group Company in relation to
those customers and/or suppliers.
(iii) The dealings, transactions or other business affairs
of the Company, or any Group Company, and its or
their finances or management accounts.
This restriction will cease to apply to information
or knowledge which may be (otherwise than by reason
of the default of the Executive) available to the
public generally without requiring a significant
expenditure of labor skill or money.
17. Intellectual Property
17.1 The Executive shall forthwith communicate to the
Company in confidence all Intellectual Property and
the Executive may make or originate either solely or
jointly with another or others during the Employment.
17.2 In the case of such Intellectual Property as is made
or originated hereunder, wholly or substantially, in
the course of his normal duties or in the course of
duties specifically assigned to him and which relate
<PAGE> 7
to the affairs of the Company, or any Group Company, the
following clauses of this Section 17 shall apply.
17.3 Such Intellectual Property (or in the case of Intellectual
Property made or organized by the Executive jointly with
another or others to the full extent of the Executive's
interest therein so far as the law allows) shall be and become
the exclusive property of the Company and shall not be
disclosed to any other person, firm or company without the
consent of the Company being previously obtained which, if
given, may be subject to conditions. The provisions of this
clause shall not entitle the Executive to any compensation
beyond that hereinafter mentioned except that in the case of
any invention on which a Patent has been granted or assigned
to the Company, and the Company has derived outstanding
benefit from such a Patent the Executive may be entitled to
appropriate compensation therefore.
17.4 The Executive shall, if and when required by the Company and
at the expense of the Company, do and/or combine with others
in doing all acts and sign and execute all applications and
other documents (including the Powers of Attorney in favor of
nominees of the Company) necessary or incidental to obtaining,
maintaining or extending patent or other forms of protection
for such Intellectual Property in the USA and in any other
part of the world or for transferring to or vesting in the
Company or its nominees, the Executives entire right, title
and interest to and in such Intellectual Property or to and in
any application, patent or the form of protection or
copyright, as the case may be, including the right to file
applications in the name of the Company or its nominees for
patent or other forms of protection or for registration of
copyright in any country claiming priority form the date of
filing of any application or other date from which priority
may run in any other country.
17.5 The provisions of this Section 17 shall remain in full force
and effect notwithstanding that after the Executive has made
or originated any such Intellectual Property, the Employment
may have ceased or been determined, for any reason whatsoever
with the intention, that the same shall bind the heirs of
and/or assigns of the Executive.
18. Copyright
<PAGE> 8
The Executive shall promptly disclose to the Company all works in which
copyright or design rights may exist which the Executive may make or
originate, either solely or jointly with others, during the Employment.
Any such copyright works or designs created by him in the normal course
of his employment which relate to the affairs of the Company shall be
the property of the Company, whether or not the work was made by the
direction of the Company, or was intended for the Company and the
copyright in it and the rights of any design shall belong to the
Company, and to the extent that such copyright or design rights are not
otherwise vested in the Company, the Executive hereby assigns the same
to the Company.
19. Post-termination obligations
19.1 The Executive shall not, during the period of 12 (twelve)
months after termination of the Employment, solicit or
endeavour to entice away from or discourage from being
employed by the Company or any Group Company any person
currently employed by the Company or any Group Company and to
his knowledge was an employee thereof at the date of such
termination or whom, to his knowledge, has at that date agreed
to be engaged to be an employee of the Company or any Group
Company and with whom the Executive has dealt or had contact
with in the normal course of his duties.
19.2 The Executive shall not, for a period of 12 (twelve) months
after the termination of the employment (without the previous
consent, in writing, of the Company) and whether on his own
account or for any other person, firm or company directly or
indirectly in connection with any business similar to or in
competition with the business of the Company, solicit or
endeavour to entice, away from the Company any person, firm or
company (a) who or which in the 12 (twelve) month period prior
to the end of the Employment shall have been a customer of or
in the habit of dealing with the Company and (b) with whom or
which the Executive had personal dealings in the course of his
employment in the 12 (twelve) month period prior to the end of
his employment.
19.3 The Executive shall not, for a period of 12 (twelve) months
after the termination of his employment (without the previous
consent, in writing, of the Company) and whether on his own
account or for any other person, firm or company, directly or
indirectly, in connection
<PAGE> 9
with any business similar to or in competition with the
business of the Company do any business with, accept orders
from, or have any business dealings any person, firm or
company (a) who or which in the 12 (twelve) month period prior
to the end of his employment was a customer of the Company and
(b) with whom or which the Executive had personal dealings in
the course of his employment in the 12 (twelve) month period
prior to the end of his employment.
19.4 The Executive shall not, for a period of 12 (twelve) months
after the termination of his employment and with regard to any
area of the Company's endeavours (without the previous
consent, in writing, of the Company) directly or indirectly be
engaged, concerned or interested (whether as principal,
servant, agent, consultant or otherwise) in any trade or
business being carried by the Company at the end of the
Executive's Employment (or for a period of 12 (twelve) months
prior to the end of the employment).
19.5 The Executive shall not, at any time after the Termination
Date, represent himself as being employed by or connected with
the Company or any other Group Company
19.6 The Executive acknowledges:
(i) that each of the foregoing clauses of this Section 19
constitutes an entirely separate and independent
restriction on him; and
(ii) while at the date of this Agreement the duration,
extent and application of each of the restrictions
are considered by the parties no greater than is
necessary for the protection of the interests of the
Company and any Group Company, and reasonable in all
the circumstances, it is acknowledged that
restrictions of such nature may become invalid
because of changing circumstances and accordingly if
any of the restrictions shall be adjudged to be void
or ineffective for whatever reason, but would be
adjudged to be valid and effective if part of the
wording thereof were deleted, or the periods thereof
reduced, or the area thereof were reduced in scope,
they shall apply with such modifications as may be
necessary to make them valid and effective.
(iii) The Executive shall, at the request and cost of the
Company, enter into a direct agreement or undertaking
with any Group
<PAGE> 10
Company to which the Executive provides services
whereby he will accept restrictions corresponding to
the restrictions in this Section 19 (or such of them
as may be appropriate in the circumstances) as the
Company may reasonably require in the circumstances.
20. Delivery of documents and property
The Executive shall upon the request, at any time and in any event upon
the termination of the Executive's employment, immediately deliver up
to the Company or its authorised representative all keys, security
passes, credit cards, plans, statistics, documents, records, papers,
magnetic discs, tapes or other software, storage media and all property
of whatsoever nature which may be in his possession or control or
relate in any way to the business affairs of the Company and any Group
Company and the Executive shall not, without the written consent of the
Company, retain any copies thereof.
21. Summary termination
In any of the following cases the Company may terminate the Executive's
Employment by written notice taking effect on the date of its service
in which case the Executive shall not be entitled to any further
payment from the Company except such sums as shall have accrued due:
(i) if the Executive shall be guilty of any gross misconduct
(after any warning of any breach) or any related breach of any
of the terms of this Agreement;
(ii) if the Executive shall be convicted of a criminal offence
(except for a road traffic offense not involving a custodial
sentence);
(iii) If the Executive be adjudged bankrupt or makes any composition
or enters in any deed of arrangement with his creditors;
(iv) If the Executive is being prohibited by law from being or
acting as a Director;
(v) If the Executive shall become of unsound mind (as determined
by competent Medical Authorities).
<PAGE> 11
(vi) If the Executive resigns as a Director of the Company
otherwise than at the request of the Company.
22. No right to work
The Company shall be under no obligation to provide any work for the
Executive during any period of notice either given by the Company or
the Executive to terminate the Executive's employment under this
Agreement. The Company may, at any time during the said period, suspend
the Executive from his employment or exclude him from any premises of
the Company, provided that during such period the Executive shall
continue to receive salary and all other contractual benefits provided
by this Agreement.
23. Short notice
If the Executive shall at any time become or be unable to properly
perform his duties hereunder by reason of ill health, accident or
otherwise for a period or periods aggregating at least 180 days in any
period of 12 (twelve) consecutive calendar months, the Company may, by
not less than 3 (three) months' notice in writing, determine this
Agreement.
24. Resignation of office
Upon the termination of the Employment, howsoever arising, the
Executive shall at any time or from time to time thereafter upon the
request of the Company, resign without claim for compensation from all
offices held by him in the Company and any Group Company and should he
fail to do so, the Company is hereby inevocably authorised to appoint
some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
25. Retirement
The Employment shall automatically terminate on the Executive reaching
his 100th birthday.
26. Prior rights
<PAGE> 12
The termination of the Employment shall be without prejudice to any
right that the Company may have in respect of any breach by the
Executive of any of the provisions of this Agreement, which may have
occurred prior to such termination.
27. Notices
Any notice given under this Agreement shall be deemed to have been duly
given if dispatched by either party hereto by registered post addressed
to the other party, in the case of the Company to its registered office
for the time being and in the case of the Executive to his last-known
address, and such notice shall be deemed to have been given on the day
on which the ordinary post it would be delivered.
28. Prior agreements
This Agreement is in substitution for all previous contracts of
employment, expressed or implied, between the Company or any Group
Company and the Executive which shall be deemed to have been terminated
by mutual consent as from the Commencement Date.
29 Fixed term
The Executive hereby agrees that no rights shall arise in relation to
this Agreement if the term of the Executive's Employment under it
expires without being renewed.
30 Disciplinary and grievance procedure
There are no fixed rules for the resolution of grievance or
disciplinary problems. In the event of the Executive being dissatisfied
with any decision taken against him, or have any grievance relating to
the Employment, he should apply in the first instance to the Chairman
who will either propose a solution or refer the matter to the Board for
a final decision.
31. The Company's staff handbook
The term of the Company's standard terms and conditions and employment
policies and procedures which are set out in the Company's staff
handbook
<PAGE> 13
shall be the terms of the Executive's employment save to the extent
that they are inconsistent with this Agreement.
32. Reconstruction or amalgamation
If before the termination of this Agreement, the Employment shall be
determined by reason of the liquidation of the Company for the purpose
of reconstruction or amalgamation and the Executive shall be offered
employment with any concern or undertaking resulting from such
reconstruction or amalgamation on terms and conditions no less
favourable than the terms of this Agreement, then the Executive shall
have no claim against the Company in respect of the termination on the
Employment.
IN WITNESS WHEREOF, whereof the parties hereto have executed and delivered this
Agreement under seal as if done first above written.
Accepted:
/s/ Michael Giamalvo
- --------------------
MICHAEL GIAMALVO
Signed by and for and on behalf of MegaWorld, Inc.
- --------------------------------------------------
(CORPORATE SEAL)
/s/ David W. Mahy
- -----------------
DAVID W MAHY
Director
MEGAWORLD, INC.
/s/ Irwin C. Roll
- -----------------
IRWIN C. ROLL
President & Treasurer MEGAWORLD, INC.
<PAGE> 1
EXHIBIT 6.11
AGREEMENT AND CONTRACT
AGREEMENT made as of this 22nd day of June, 1998, between
MegaWorld Leisure, Inc., 430 Park Avenue, New York, N.Y. 10022 (the
Company)
and
Mr. Kenneth Miller, d/b/a Global Marketing Group, Ltd. (GMG), 119 West
57th Street, Suite 1620, New York, N.Y. 10019 (the 'Employee')
WITNESSETH
WHEREAS, the Company desires to employ Mr. Miller of (GMG) as an
executive officer with the title of President; and
WHEREAS, Mr. Miller is prepared to accept such employment and to
perform services on behalf of the Company, and to execute this Agreement, upon
terms and conditions contained herein.
In consideration of the conditions contained and for good and valuable,
consideration, the parties agree as follows:
1. The Company, MegaWorld Leisure, Inc., is a wholly owned subsidiary of
MegaWorld, Inc. (MEGW), and will be headed by Michael Giamalvo as Chairman. Mr.
Ken Miller will be offered a seat on the Board of Directors of MegaWorld
Leisure, Inc. The role of MegaWorld Leisure, Inc. will be to develop and manage
time-share properties in a profitable and growth orientated manner.
2. This enterprise will own, lease, franchise, operate and market time-share
units and those properties (castles, chateau's, resorts and hotels) which the
Company currently owns and/or will subsequently acquire.
3. MegaWorld Inc., will properly fund its subsidiary MegaWorld Leisure, Inc. and
this funding will include certain costs for site improvements including but not
limited to; public areas, property upgrade unit decoration, model units, the
Welcome Center, etc. The Company will also fund the required marketing materials
and lead generation as standard procedure within the timeshare industry for a
project of this type.
1
<PAGE> 2
4. The first property-to be developed will be the Castello Torre Ratti located
in northern Italy, Mr. Miller and his group will initiate development, marketing
and sales on the existing units. MegaWorld Leisure, Inc. will expand the
property to additional 100 units (or more) which will generate sales of 5,000
memberships priced at US $17,500 to US $35,000 gross per time-share unit. Miller
will initiate the sales as soon as possible, and will start with Charter Member
prices of US $15,000. Mr. Miller will also create a Class 'B' membership that
can accommodate up to an additional 10,000 Castello Club Members.
Mr. Miller's responsibilities under this contract will include but not be
limited to the following;
(a) Defining the "Mission Statement" of MegaWorld Leisure.
(b) Preparing the relevant Marketing Concepts and Plans for each
property.
(c) Executing and managing these plans.
(d) Recruiting and managing various Project Directors.
(e) Identifying new projects and properties for the Company.
(f) Conceiving, defining and producing all necessary marketing and
promotional materials, starting with the Castello Torre Ratti
project.
5. The Board of MegaWorld, Inc. will be guided by Mr. Miller's recommendations,
however the final decision will be only taken and approved by The Board of
MegaWorld, Inc.
6. Subject to the terms and conditions of this Agreement, the Company enters
into a three (3) year contract with Mr. Miller whereby Mr. Miller and (GMG) will
act as consultants and advisers to MegaWorld Leisure, Inc. to develop the
marketing and sales of time-share units for properties currently owned and/or to
be acquired by MegaWorld Leisure, Inc. or the parent company MegaWorld, Inc.
7. The Company employs Mr. Miller (GMG) and Mr. Miller and (GMG) agree to serve
the Company, during the term and subject to the supervision of the Company's
elected Board of Directors, as the President of the Company, to perform the
duties listed plus other duties assigned to Miller by the Board of Directors
provided these duties are consistent with the position of a senior executive
officer.
<PAGE> 3
8. Subject to supervision of the Board of Directors Mr. Miller shall, during the
term perform duties and services for the Company, as are normally performed, by
a senior executive officer in charge of marketing and sales of a timeshare
company. During the term Mr. Miller shall devote his time to the business and
affairs of the Company. Miller shall, during each year be entitled, without loss
of pay, to 4 weeks paid vacation at such time as shall be mutually acceptable
to the Company and Mr. Miller.
9. Mr. Miller shall perform his services at the Company's New York office, or at
other locations as the Company shall designate and at Global Marketing Group's
office at 119 West 57th Street, New York, New York.
10. The term of this Agreement is for three years and then renewable annually.
The term of this Agreement shall be for the period commencing on the date hereof
and ending on July 31, 2001. At the expiration of this term, this Agreement,
shall be automatically renewed and extended for successive one year periods
(hereinafter "Renewal Periods") unless canceled, in writing to Mr. Miller, by
the Board of MegaWorld Leisure Inc, or the Board of MegaWorld, Inc.
11. In consideration for services rendered by Mr. Miller (GMG) for the benefit
of the Company the Company shall compensate Mr. Miller as follows;
(a) The Company shall pay Mr. Miller the sum of US $10,000 payable per
month ("Base Compensation") for each month commencing July 1, 1998.
This amount to be paid US $4,000 on the first day of each month, and
US $4,000 on the 15th day of each month (or closest date if 1st and
15th falls on a weekend or holiday. The additional sum of US $2,000
per month will be paid retroactively after MegaWorld Leisure; Inc. has
completed sales of 100 time-share units.
(b) The Company shall pay to Mr. Miller, a commission equal to two and one
half percent (2-1/2%) on Gross Sales received by the Company. Payment
of this amount will be due and payable 90 days in arrears. For
purposes of this Agreement the term "Gross Sales" shall mean the sum
of; cash payments, cash down payments and money's received by the
Company from sales either factored or financed by the Company.
(c) A stock option of 400,000 Shares of MegaWorld 144 Legend Stock will be
offered to Mr. Miller upon his signing of this Agreement, at a
notional price of US $3.50. This notional price will reduce by a
percentage basis to reflect the achievement of the minimum sales
revenue achieved within three years (3) years of the date of this
contract. If the minimum sales target (US $15,000,000) is achieved
then the actual price for each share of MegaWorld 1,44 Legend Stock
will be US $0.01. If fifty percent (50%) of the sales target us
achieved, the purchase price of this 144 Legend Stock will be US $1.75
(details in final
<PAGE> 4
contract to be more specific).
(d) Additional income/stock to be derived as Mr. Miller develops new
profit centers for, the Company. The amount and type of this
additional compensation will be decided by the Board of MegaWorld,
Inc. and may be along the lines of Mr. Miller's compensation in this
Agreement.
(e) Should Mr. Miller and his group fail to achieve a level of US
$7,500,000 in time-share sales in the course of 3 years, the Board of
MegaWorld Leisure, Inc., at its sole discretion, will decide the price
and amount of the stock, which may be offered to Mr. Miller.
(f) If during the term Mr. Miller shall be the procuring cause of an
investor providing the Company an equity investment in any transaction
in which the Company has an interest, the Company will pay to Mr.
Miller, a bonus ("Equity Compensation") in an amount TBD.
(g) If during the term Mr. Miller shall be the procuring cause of an
investor of a financial institution providing the Company with the
proceeds of debt in any transaction in which the Company has an
interest, the Company shall pay to Mr. Miller a bonus in an amount to
be determined by the Company.
(h) If during the term Mr. Miller shall be the procuring cause for the
Company to enter into a transaction in which the Company has an
interest, the Company and Mr. Miller shall, prior to the acquisition
of any such interest by the Company, agree upon the compensation to be
paid to Mr. Miller.
12. The Company shall reimburse Mr. Miller for all ordinary and necessary
expenses including and without limiting the generality of the following;
entertainment, travel, office items, delivery services, phone, fax and like
expenses which Miller may incur in connection with performance of his duties for
the Company (in accordance with the guidelines of the Internal Revenue Service
for the deductibility of business expenses). These expenses shall be reimbursed
to Mr. Miller within 10 days upon his presenting receipts and statements for
expenditures above US $25 in accordance with procedures of the Company.
13. During period of illness or other incapacity or disability preventing Miller
from performing his duties, Mr. Miller shall be entitled to receive full
compensation, provided Mr. Miller is prevented from performing the duties
required by him for a continuous period of 120 days, then the compensation to
which Mr. Miller shall be entitled shall be one-half that specified in paragraph
11(a) and, if Mr. Miller shall be prevented from performing his duties for a
continuous period of 240 days, then the Company shall have the option, on sixty
(60) days written notice given to Miller after 240 days, to terminate
<PAGE> 5
this Agreement If the Company elects to exercise said option and terminate this
Agreement it shall be obligated to pay Mr. Miller his commissions due for the
time employed including the 240 day extension. This provision continuous to
the end of the term (June 30, 2001).
14. Mr. Miller may continue to engage in business activities, which are
non-competitive with MegaWorld, Inc. or any of its present or future
subsidiaries.
15. In addition to the above, Mr. Miller shall be entitled to all rights and
benefits for which any salaried executive of the Company shall be eligible
including any profit sharing, pension plans, stock option or stock purchase plan
and medical benefits of other plan for the payment of benefits to employees of
the Company. Mr. Miller has option to utilize his own Major Medical Plan and the
Company shall compensate Mr. Miller $850 per month for medical coverage if Mr.
Miller elects to use his own Major Medical Plan during the term of this
Agreement.
16. Any notices given by either party to the other shall be in writing and be
hand delivered or mailed, first class mail, postage prepaid, certified, return
receipt requested, to the respective party at the address indicated on the first
page of this Agreement.
17. Any disputes, claims or controversies arising from this Agreement shall be
submitted to and settled by binding arbitration to be held in the City of New
York, State of New York in accordance with the rules and regulations of the
American Arbitration Association, and the award of the arbitrators shall be
enforceable. Any such arbitration shall be held before three arbitrators, one
designated by Mr. Miller, one designated by the MegaWorld, Inc., and one
designated by the other two arbitrators. The prevailing party in any such
arbitration shall be entitled to reimbursement for all costs and expenses
incurred in connection with such arbitration including, reasonable Attorney's
fees.
18. This Agreement sets forth the entire Agreement between the parties and shall
be governed in accordance with the laws of New York, and cannot be altered,
amended, modified, terminated or rescinded (except as noted in 10 above) except
in writing executed by both of the parties, and shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors,
transferees, heirs, assigns and beneficiaries.
<PAGE> 6
IN WITNESS THEREOF, the parties hereto have executed this Agreement as of this
22nd day of June 1998.
/s/ Ken Miller
- -----------------------------
MR. KEN MILLER
President
GLOBAL MARKETING GROUP, INC.
/s/ Michael Giamalvo
- -----------------------------
MICHAEL GIAMALVO
Chairman
MEGAWORLD LEISURE, INC.
/s/ David Mahy
- -----------------------------
DAVID W. MAHY
Chief Operating Officer
MEGAWORLD, INC.
<PAGE> 1
EXHIBIT 6.12
AGREEMENT
THIS AGREEMENT made this 21st day of April, 1998 by and between
MEGAWORLD, INC., a corporation organized and existing under the laws of the
STATE OF DELAWARE, having offices at 430 Park Avenue, New York, New York 10022
("MegaWorld"), and MICHAEL GIAMALVO, an individual residing at 119 Northgate
Circle, Melville, New York 11747 ("Giamalvo").
WITNESSETH:
WHEREAS, MegaWorld is involved in the business, among others, of
developing properties for timeshare sales;
WHEREAS, Castello Ratti Enterprises Srl ("CRE") is a party to a certain
Tenancy Agreement, dated January 11, 1990 (the "Tenancy Agreement"), granting
CRE the right to use the Castello Torre Ratti, a castle resort located in
Borghetti, Borbera, Italy (the "Property"), for a remaining term of
approximately forty-two (42) years, as a hotel-restaurant;
WHEREAS, Giamalvo is the controlling stockholder of CRE;
WHEREAS, Giamalvo has agreed to sell, assign and transfer to MegaWorld
all of his right, title and interest in CRE, consisting of twenty thousand
(20,000) quote (shares) of CRE capital stock (the "CRE Stock"), which CRE Stock
constitutes all of the outstanding quote (shares) of CRE, in return for certain
consideration hereafter set forth;
WHEREAS, MegaWorld, in the furtherance of MegaWorld's business, desires
to acquire all right, title, and interest in and to all of the outstanding quote
(shares) of CRE;
WHEREAS, Giamalvo, on one hand, and MegaWorld, on the other hand, are
desirous of entering into this Agreement to effectuate the foregoing upon the
terms and conditions set forth hereinafter;
NOW, THEREFORE, in consideration of the foregoing premises and the
consideration and mutual covenants contained herein, the sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, Giamalvo, on one
hand, and MegaWorld, on the other hand, hereby mutually promise and agree as
follows:
1. Transfer of the CRE Stock. Subject to compliance with all of the terms and
conditions of this Agreement and in reliance on the representations and
warranties set forth in this Agreement, Giamalvo, hereby sells, assigns and
transfers all right, title and interest in and to the CRE Stock to MegaWorld,
free and clear of any and all liens, charges or encumbrances.
2. Representations.
(a) Giamalvo warrants and represents that (i) CRE is a corporation duly
incorporated, validly existing and in good standing under the laws of Italy and
has the requisite corporate power
<PAGE> 2
to own its property and to carry on its business as presently conducted, and
(ii) the outstanding capital stock of CRE consists of twenty thousand (20,000)
quote (shares) of capital stock, all of the same class, and Giamalvo owns all
of such capital stock.
(b) Giamalvo warrants and represents that this Agreement has been duly
and validly executed and delivered by him, and the Tenancy Agreement has been
duly and validly executed and delivered by CRE, and each constitutes the valid
and binding agreement of Giamalvo or CRE, as the case may be, enforceable
against him or CRE, as the case may be, in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium,
receivership or other similar laws relating to or affecting creditors' rights
generally.
(c) Giamalvo warrants and represents that neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
constitute a violation of, or be in conflict with, or constitute or create a
default under any agreement or arrangement binding upon CRE or Giamalvo,
including without limitation the Tenancy Agreement.
(d) Giamalvo warrants and represents that no statutory or regulatory
rule or order of a court or a governmental body applicable to Giamalvo or CRE,
and no agreement between Giamalvo or CRE, and any such governmental body is in
effect which restrains or prohibits the sale and assignment by Giamalvo, of the
CRE Stock as contemplated by this Agreement, nor the consummation of any of the
other actions contemplated hereby, nor is there pending or (to the best of
Giamalvo's knowledge, information and belief) threatened any action, suit,
proceeding or investigation by any person, entity or governmental body which
questions or might jeopardize the validity of this Agreement or challenges any
of the transactions contemplated hereby.
(e) Giamalvo warrants and represents that except as set forth in this
Agreement, no consent, approval, or authorization of or registration,
designation, declaration or filing with any governmental authority on the part
of Giamalvo or CRE is required in connection with the sale, assignment and
transfer of the CRE Stock pursuant to this Agreement or the consummation of any
other transaction contemplated hereby, including, without limitation, the
ability of the controlling stockholder of CRE to cause CRE to sell timeshare
interests in the Property to third parties and to operate the Property as a
hotel-restaurant.
(f) Giamalvo warrants and represents that no finder's fee or brokerage
fee is payable to any person by Giamalvo or CRE as a result of any action by
Giamalvo in connection with the transactions contemplated by this Agreement.
(g) Giamalvo warrants and represents that Giamalvo has the full right
to convey the entire right, title, and interest in the CRE Stock herein sold,
assigned and transferred, has not encumbered any right, title, and interest in
and to the CRE Stock, has not executed, and will not execute, any agreements in
conflict herewith nor do (or omit to be done) any act, matter, or thing whereby
any of the CRE Stock or any of Giamalvo's rights thereto may be invalidated, and
that the CRE Stock, when conveyed and sold hereunder to MegaWorld, will be free
from any lien, charge or other encumbrance whatsoever.
(h) Giamalvo warrants and represents that he has received from
MegaWorld all information with respect to the operations, business affairs and
financial condition of MegaWorld (the "Information") which Giamalvo considers
necessary to inform him of the investment value of
<PAGE> 3
the shares of Common Stock, $.0001 par value, of MegaWorld to be issued to
Giamalvo pursuant to this Agreement (the "MegaWorld Shares").
(i) Giamalvo warrants and represents that he has received no
representations, warranties or written communications with respect to the
offering of the MegaWorld Shares other than those contained in the Information
and this Agreement, and Giamalvo is not relying upon any information other than
that (i) contained in the Information or this Agreement, or (ii) resulting from
Giamalvo's own investigation of MegaWorld.
(j) Giamalvo warrants and represents that he is not relying on
MegaWorld for investment advice. Giamalvo warrants and represents that he has
carefully considered and has, to the extent Giamalvo believes such discussion
necessary, discussed with his professional legal, tax, accounting and financial
advisers the suitability of an investment in the MegaWorld Shares for his
particular tax and financial situation.
(k) Giamalvo warrants and represents that he has had an opportunity to
request and obtain any additional information he deemed necessary to verify the
information contained in the Information.
(l) Giamalvo warrants and represents that he is acquiring the MegaWorld
Shares for the investment and not with a view to the distribution or sale
thereof
(m) Giamalvo warrants and represents that he understands that the
MegaWorld Shares have not been registered under the Securities Act of 1933, as
amended (the "Act"), nor under the securities laws of any state or other
jurisdiction. Giamalvo warrants and represents that he understands that: (i) the
offering and sale of the MegaWorld Shares is intended to be exempt from
registration under the Act and applicable state securities laws, and (ii) the
MegaWorld Shares have not been approved or disapproved by the United States
Securities and Exchange Commission (the "Commission") or by any other federal or
state agency, and no such agency has passed on the accuracy or adequacy of the
Information, nor made any finding or determination as to the fairness or
suitability of an investment in the MegaWorld Shares.
(n) Giamalvo warrants and represents that he understands that there
are restrictions on the transferability of the MegaWorld Shares as stated in
this Agreement which restrict Giamalvo's ability to liquidate his investment in
any of the MegaWorld Shares. Giamalvo warrants and represents that all
subsequent offers and sales of the MegaWorld Shares shall be made pursuant to
registration of the MegaWorld Shares under the Act or pursuant to an available
exemption from the registration requirements of the Act and that MegaWorld has
not obligated itself to register the MegaWorld Shares under the Act.
(o) Giamalvo warrants and represents that he understands and
acknowledges that MegaWorld is relying upon the representations and warranties
contained in this Agreement in determining whether the offering is eligible for
exemption from the registration requirements contained in the Act and applicable
state securities law.
(p) Giamalvo warrants and represents that he agrees that the
representations, warranties, acknowledgments and agreements made by him in this
Agreement shall survive the Closing (hereafter defined).
<PAGE> 4
(q) Giamalvo warrants and represents that
(i) the Tenancy Agreement has a remaining term of approximately
forty two (42) years;
(ii) the Tenancy Agreement permits CRE to sell, assign and transfer
all of its rights under the Tenancy Agreement without requiring the
consent of the other party thereto;
(iii) the Tenancy Agreement is current, all payments required
thereunder have been made, and no default exists and no condition
exists which, with the passage of time or the giving of notice,
would be a default under the Tenancy Agreement; and
(iv) the Tenancy Agreement permits CRE or its assigns to undertake
structural repairs or modifications to the Property, although the
Property is presently in good condition and repair.
(r) MegaWorld warrants and represents that
(i) MegaWorld is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, and
has the corporate power to own its property and to carry on its
business as presently conducted;
(ii) the execution, delivery and performance of this Agreement by
MegaWorld, including the issuance to Giamalvo of the MegaWorld
Shares, has been duly and validly authorized by the Board of
Directors of MegaWorld, and this Agreement has been duly and
validly executed and delivered by MegaWorld and constitutes the
valid and binding agreement of MegaWorld, enforceable in accordance
with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar
laws relating to or affecting creditors' rights generally;
(iii) MegaWorld has all requisite corporate power and authority to
execute, deliver and perform. this Agreement and to carry out the
transactions contemplated hereby;
(iv) neither the execution of this Agreement by MegaWorld nor the
consummation by MegaWorld of the transactions contemplated hereby
will constitute a violation of, or be in conflict with or
constitute or create a default under any agreement or arrangement
binding upon MegaWorld, or result in the creation of any mortgage,
lien, pledge, charge, security interest or any encumbrance of any
nature whatsoever on any asset of MegaWorld, or conflict with or
violate any provision of the Certificate of Incorporation or
By-laws of MegaWorld;
<PAGE> 5
(v) no statutory or regulatory rule or order of a court or a
governmental body applicable to MegaWorld, and no agreement between
MegaWorld and any such governmental body is in effect which
restrains or prohibits the acquisition by MegaWorld of the CRE
Stock as reflected in this Agreement nor the consummation of any of
the other transactions contemplated hereby nor is there pending or
(to the best of MegaWorld's knowledge, information and belief)
threatened any action, suit, proceeding or investigation by any
person, entity or governmental body which questions or might
jeopardize the validity of this Agreement or challenges any of the
transactions contemplated hereby;
(vi) except as set forth in this Agreement, no consent, approval,
or authorization of or registration, designation, declaration or
filing with any governmental authority on the part of MegaWorld is
required in connection with the acquisition of the CRE Stock
pursuant to this Agreement or the consummation of any other
transaction contemplated hereby;
(vii) no finder's fee or brokerage fee is payable to any person by
MegaWorld as a result of any action by MegaWorld in connection with
the transactions contemplated by this Agreement;
(viii) the MegaWorld Shares, when issued in accordance with the
terms of this Agreement, will have been duly and validly authorized
and issued, will be fully paid and non assessable and will not have
been issued in violation of the preemptive rights of any person;
and
(ix) it is MegaWorld's intention to become a reporting company
pursuant to the Securities Exchange Act of 1934, as amended, within
a reasonable time after the Closing (hereafter defined).
(s) MegaWorld warrants and represents that the representations,
warranties, acknowledgments and agreements made by MegaWorld in this Agreement
shall survive the Closing.
3. Payments; Closings.
(a) Subject to compliance with all of the terms and conditions of this
Agreement and in reliance on the representations and warranties set forth in
this Agreement, in partial consideration for the sale, assignment and transfer
to MegaWorld of the CRE Stock, MegaWorld shall issue to Giamalvo, not later than
thirty (30) days after the Initial Closing referred to below, One Million
(1,000,000) MegaWorld Shares.
(b) In partial consideration for the sale, assignment and transfer to
MegaWorld of the CRE Stock, MegaWorld shall pay to Giamalvo Six Hundred
Twenty-Two Thousand Five Hundred Dollars (US$622,500) as follows: (i) on or
before the ninth (9) business day after the execution of this Agreement by
MegaWorld (the "Initial Closing"), MegaWorld shall transfer to Giamalvo Fifty
Thousand Dollars (US$50,000) in immediately available funds, and (ii) on or
<PAGE> 6
before August 1, 1998, MegaWorld shall transfer to Giamalvo the balance of such
payment in immediately available funds. It is the intent of MegaWorld to raise
the balance of the funds of Five Hundred Seventy-Two Thousand Five Hundred
Dollars (US$572,500) through the sale of MegaWorld Shares to investors pursuant
to an exemption from the registration requirements of the Act. Exhibit A to this
Agreement sets forth wire transfer information for payments required by this
Section 3(b). The initial payment and the deposit of the CRE Stock in escrow
pursuant to Section 3(d) shall occur simultaneously, with the obligation to make
the payment being conditioned on the deposit in escrow of the CRE Stock and the
deposit of the CRE Stock being conditioned on the making of the initial payment.
(c) The closing of the sale, assignment and transfer by Giamalvo to
MegaWorld of the CRE Stock shall take place on the date (the "Closing") of
delivery of the final US$5723,500 payment by MegaWorld to Giamalvo, I provided,
Giamalvo shall have previously received the MegaWorld Shares. The Closing shall
take place at the offices of Gilbert, Segall and Young LLP, in New York, New
York or at such place as the parties hereto shall agree. At the Closing, the CRE
Stock shall be delivered to MegaWorld by Giamalvo and the US$572,5.00 final
payment shall be delivered to Giamalvo by MegaWorld.
(d) The parties agree that the CRE Stock will be transferred presently
to MegaWorld and registered in its name with, however, the necessary paperwork
to transfer the CRE Stock back to Giamalvo as hereinafter provided. The CRE
Stock will be placed by Giamalvo in escrow, not later than the ninth (9)
business day after the execution of this Agreement by MegaWorld, pursuant to the
Escrow Agreement attached as Exhibit B to this Agreement. The Escrow Agreement
shall authorize the Escrow Agent named therein to release the CRE Stock to
MegaWorld upon payment by MegaWorld to Giamalvo of all amounts due him under
this Agreement, including the issuance to him of the MegaWorld Shares.
(e) Should MegaWorld default in making any payment due to Giamalvo
under this Agreement, or fail to issue to him the MegaWorld Shares as provided
herein, then Giamalvo shall be entitled to retain any payments previously
received by him and/or MegaWorld Shares issued to him, as the case may -be, as
liquidated damages, shall be under no obligation to deliver. the CRE Stock to
MegaWorld as a result of any such default, and shall be entitled to a return
from the escrow of the CRE Stock which shall be transferred back to him by
MegaWorld.
(f) In addition, MegaWorld and Giamalvo shall enter into an Employment
Agreement substantially in the form of the Employment Agreement attached as
Exhibit C to this Agreement.
4. Governing Law; Arbitration and Venue.
(a) This Agreement shall be governed by, interpreted, construed and
enforced in accordance with the laws of the State of New York.
(b) Any controversy or claim arising out of or relating to this
Agreement shall be settled by decision of a panel of three (3) neutral
arbitrators to be selected pursuant to the Commercial Arbitration Rules of the,
American Arbitration Association. The venue of any such arbitration shall be in
New York, New York, U.S.A., and the arbitration shall in conducted pursuant to
the rules of said Association.
<PAGE> 7
5. Captions and Exhibits. Captions in this Agreement are solely for purposes of
identification and shall not in any manner alter or vary the interpretation or
construction of this Agreement. All Exhibits which are, or may be, attached to
this Agreement are to be considered to be incorporated herein by reference as if
set forth at length.
6. Integration. It is the desire and intent of the parties to provide certainty
as to their future rights and undertakings herein. The parties to this Agreement
have incorporated all representations, warranties, covenants, commitments and
understandings on which they have relied in entering into this Agreement, and
neither party makes any covenant or other commitment to the other concerning its
future action. Accordingly, this Agreement (i) constitutes the entire Agreement
and understanding between the parties and there are no promises,
representations, conditions, provisions or terms related thereto other than
those set forth in this Agreement, and (ii) supersedes all previous
undertakings, agreements and representations between the parties, written or
oral, with respect to the subject matter hereof. No modification of, addition
to, or waiver of any provisions of this Agreement shall be binding upon either
party hereto unless the same shall be in writing duly executed by a duly
authorized representative of the parties hereto.
7. 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 to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
8. Waiver. No express or implied waiver by any party of any right or remedy with
respect to a default by any other party under any provision of this Agreement
shall be deernedl interpreted or construed as a waiver of any right or remedy
with respect to any other default under the same or any other provision hereof.
9. Successors and Assigns. All the terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
heirs, personal representatives, transferees, successors and assigns.
10. Resale Restrictions: Registration Rights-
(a) Giamalvo acknowledges and agrees that: (i) the MegaWorld Shares may
not be sold, assigned or otherwise transferred by him unless a registration
statement is in effect with respect to such resale or an exemption for such
resale under applicable securities law registration requirements exists with
respect to such sale (as evidenced by an opinion of counsel delivered and
addressed to MegaWorld, which opinion must be reasonably acceptable to
MegaWorld); (ii) MegaWorld is under no obligation to prepare or file a
registration statement for the MegaWorld Shares at any time; (iii) the
certificates evidencing the MegaWorld Shares will bear the following legend in
substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or under any
state securities laws, and thus may not be sold, assigned or otherwise
transferred unless so registered or unless an exemption from
registration is available, which exemption shall be established by an
opinion of
<PAGE> 8
counsel, reasonably satisfactory in form and substance to the issuer
and delivered and addressed to the issuer by counsel for the registered
owner of the shares evidenced hereby."
; and (iv) MegaWorld will issue instructions to its transfer agent to the effect
that subsequent transfer of the MegaWorld Shares may not be effected unless the
transfer agent has received evidence satisfactory to it that such transfer may
be made without violating applicable series laws.
(b) MegaWorld agrees that Giamalvo shall be entitled to one (1) demand
registration of the MegaWorld Shares, such demand registration to be exercisable
at any time after the first anniversary of the Closing by written notice from
Giamalvo to MegaWorld specifying the number of MegaWorld Shares to be registered
for resale by Giamalvo.
11. Counterparts. This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and all of which taken together constitute
one and the same agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement under seal as if done so on the date first above written.
SIGNED IN AGREEMENT:
(CORPORATE SEAL)
/s/ DAVID MAHY /s/ MICHAEL GIAMALVO
- --------------------------- --------------------------
DAVID W. MAHY MICHAEL GIAMALVO
DIRECTOR
MEGAWORLD, INC.
/s/ IRWIN ROLL
- -----------------------------
IRWIN C. ROLL
PRESIDENT & TREASURER
MEGAWORLD, INC.
<PAGE> 10
EXHIBIT A
TO
AGREEMENT
WIRE TRANSFER INSTRUCTIONS:
BANK ACCOUNT: CITIBANK N.A.
666 5TH AVENUE
NEW YORK, NY 10013
ACCOUNT NAME: MICHAEL GIAMALVO
ACCOUNT NUMBER: 94246609
ROUTING NUMBER: 021000089
<PAGE> 1
EXHIBIT 6.13
TENANCY AGREEMENT
Art. 1 - Messrs. Parodi Vinicio with a share equal to 50%; Signora Falabeni
Renzina with a share equal to 28%, Parodi Valerio with a share equal to 22% rent
to Castello Ratti Enterprises domiciled in New York with the right to assign to
another corporation Italian or otherwise the property located at Borghetti
Borbera frazione torre dei Ratti, colored in red in the map enclosed (Att. 10)
signed by both parties.
Art. 2 - The tenants will use the property object of the present contract as a
hotel-restaurant, catering, night club, dance club, health club, sport club,
disco.
The tenants will obtain all the authorizations (from the Municipality, from the
police from the firemen, etc.) Necessary for opening and managing the
hotel-restaurant.
Art. 3 - The tenants are not allowed to use the immovable unit differently from
what provided for in preceding Art. 2; they are not allowed either to sublet or
give over the tenancy, even partially, without a written authorization from the
lessors. The lessors will have the possibility of refusing such an authorization
only in case there should exist reasonable reasons.
Art. 4 - The tenancy agreement will last 25 (twenty-five) years, starting on the
release of the permission for construction.
Art. 5 - The annual rent amounts to US $47,923 corresponding, according to
today's exchange, Italian Lira / US $ (average U.I.C., Italian Official
Exchange), to 60 (sixty) million Italian Liras.
The rent will be paid every month in advance and will be deposited in the
current accounts of the following lessors bank and in the proportions indicated
as follows:
- - Parodi Vinicio a share equal to 50% of the rent - Banca Poplare di Novara -
Novi Ligure branch account no. 3614.
- - Fallabeni Renzina a share equal to 28% of the rent - Banca Popolare di Novara
- - Novi Ligure branch - account no. 2362.
- - Parodi Valerio a share equal to 22% of the rent - Banca Popolare di Novare -
Novi Ligure branch account no. 3612.
Starting from the sixth year, the rent will be subject to indexation. The
increase of the rent due to the indexation will be calculated at the end of each
year starting from the sixth one. The index will be calculated on the basis of
the cost of living for workers and employees in the U.S.A. (cost of leaving
Index or consumer price index) as resulting from official publications.
The increase of the rent calculated as indicated above will not exceed 3% for
each year of reference.
<PAGE> 2
Art. 6 - The tenants state that they have received the property in good
condition and commit themselves to give it back likewise in good condition,
without any right to compensations for any possible repairs, improvements or
additions.
The improvements and/or additions mush anyway be authorized in writing by the
lessors in advance.
As from now, the lessors authorize the works necessary to turn the property into
a hotel-restaurant, plus catering, night club, dance club, health club, sport
club, disco. Such works are indicated in the map and in the terms of contract,
signed by the two parties, that are enclosed to the present contract sub. No.
2,3.
At the end of the tenancy, the lessors will have a right to keep, without any
compensation to the tenants all the furnishings of the hotel-restaurant.
All the expenses for the ordinary and extraordinary maintenance works for the
property object of the present contract will be borne by the tenants.
Art. 7 - With reference to the object of the present tenancy agreement, as
appears in the map enclosed, the tenants commit themselves to grant a right of
way, passable by vehicles, to the lessors, so that the latter may reach the part
of the immovable unit (colored in green on the map enclosed) which the lessors
have kept a right to, and that is therefore excluded from the present contract.
Art. 8 - Should the tenants fail to pay two consecutive installments of the
rent, and should they fail to comply with one or more of the obligations
mentioned in Articles 3-6-7, the lessors will have a right to ask for the
automatic cancellation of the present contract, in conformity with Article 1456
of the Civil Code, besides the compensation for damages.
Another cause for the automatic cancellation of the present contract will be the
close (except for ordinary business reasons) of all the activities listed in
art. 2 above and/or the insolvency of the Company concerned.
Art. 9 - To guarantee they payment of the rent and the other obligations
undertaken under the present contract, the tenants will constitute for the first
three years a security equal to one annual rent in favor of the lessors.
The kind and the terms of the security will be agreed upon by the lessors and by
the tenants by mutual consent.
Art. 10 - The tenants commit themselves to insure the property object of the
present contract against fire, damages and theft with a major Insurance Company,
for a maximum sum no less than 3,000 million Liras. The text of the insurance
contract and the choice of the Insurance Company will have to be authorized by
the lessors in advance.
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<PAGE> 3
Art. 11 - At the consignment of property, both parties will draw up, with on
accord, an inventory of the furnishing and of the statues that will be enjoyed
by the tenants.
Art. 12 - The tenants have an option for a new tenancy agreement that will have
effect at the end of the present contract. The terms of the new 25 years
contract will be the same of the present agreement, with the exception of the
rent, which will be equal to the present rent plus an increase equal to the
inflation percentage which will have been recorded in the U.S. starting from the
sixth year (included) and till the 255h year of the duration of the present
contract. The inflation rate will be calculated in conformity with what provided
for in preceding Art. 6, but without the limit of 3%.
To calculate the increase of the rent, at the end of each year (starting from
the sixth year included) the inflation rate of the year of reference will be
added to the rent of the current year.
Art. 13 - The present contract is subject to the suspersive condition of the
obtaining from the Municipality of Borghetti Borbera (Alessandria) and from
Piemont's Fine Arts and Service of all the permissions necessary for the works
that are indicated in the map and in the terms of contract (enclosures No. 2,3).
Art. 14 - Any possible issue that should arise about the interpretation, the
validity and/or the execution of the present contract will be submitted to the
judgment of three arbitrators appointed amicably one by each party and the third
one by a mutual consent by the arbitrators appointed. Should the two arbitrators
fail to appoint the third arbitrator within twenty days from the appointment of
the second arbitrator, or should the second arbitrator not be appointed within
twenty days from the appointment of the first arbitrator, the missing
arbitrator's will be appointed by the chairman of the Bar Association of
Alessandria.
The court of Arbitration will be dispensed from the observance of any procedure
regulation, will judge in conformity with the law and their award will be final.
11 January 1990
/s/ Robert Caffese
/s/ Michael Giamalvo
/s/ Vinicio Parodi
/s/ Valerio Parodi
/s/ Fallabeni Renzina
3
<PAGE> 1
EXHIBIT 6.14
GENERAL TERMS AND CONDITIONS FOR CUSTOMER AGREEMENTS
This agreement is made as of November 1st, 1999, by and between MEGAWORLD, INC.
("MEGW"), a Delaware corporation with offices at 6250 N. Houston Rosslyn Rd.,
Houston, TX 77091, USA, and SEQUEL COMMUNICATIONS , a New Jersey corporation
with offices at 3001 Hadley Road, South Palinfield, NJ 07080-1109 ("Customer").
I. SERVICE: "MEGW" agrees to provide Enhanced Messaging Services, local and long
distance message transmission services [more fully described on Schedule A
attached hereto and made a part hereof,] within the territory (the "Territory")
set forth on Schedule A attached hereto and made a part hereof ("Schedule A")
including transmission, switching and messaging facilities necessary to transmit
and terminate Customer's enhanced messaging services, local, toll, and long
distance message traffic to all points within the Territory. Customer shall pay
for and accept such services on a nonexclusive basis in accordance with the
further terms of this Agreement.
II. TERM: This Agreement shall commence on the date set forth above [or such
earlier date as Customer shall begin receiving the services contemplated under
this Agreement in the ordinary course of its business. Subject to Section III,
the initial term of this Agreement shall expire one (1) year from the date
hereof (the "Initial Term"). Upon expiration of the Initial Term, this Agreement
shall automatically be renewed for successive one (1) month periods, unless
either party shall notify the other in writing at least five (5) days in advance
that it does not wish this Agreement to be renewed.
III. TERMINATION: "MEGW" or Customer may terminate this Agreement, and/or
terminate or suspend any service provided to Customer under it, at any time
without liability upon ten (10) days prior written notice. Without limiting the
foregoing, "MEGW" may terminate this Agreement without liability on five (5)
days prior written notice to Customer for any material breach of this Agreement
including, but not limited to, a failure by Customer to pay in a timely manner
any undisputed charges for services rendered. In addition, "MEGW" may terminate
this Agreement and/or terminate or suspend any service to Customer under it
immediately and without notice or liability in the event that "MEGW" in its
reasonable judgement deems such action necessary in order to protect or preserve
its network.
IV. CONNECTIONS: Connection by Customer to a network designated by "MEGW"
("Network") shall be made at the point(s) of presence ("POP") set forth on
Schedule A. Customer shall be responsible for the coordination of service, and
the payment of all charges and costs reasonably necessary, to effect such
connection.
V. CHARGES AND PAYMENTS:
A. CHARGES: Customer shall pay the undisputed charges for the services
rendered to it by "MEGW" in accordance with Schedule A. Customer
understands and agrees that such charges may be adjusted prospectively to
the extent mandated by any regulatory authority to which "MEGW" is subject.
Additionally, "MEGW" may adjust the rates reflected on Schedule A at any
time on thirty (30) days written notice to the Customer.
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<PAGE> 2
B. LENGTH: Unless otherwise stated on Schedule A, all call lengths shall be
rounded up to the next tenth of a minute. International calls shall be
billed in 60 second minimums, domestic outbound at 60 second increments.
"MEGW" shall have the right to adjust the call lengths applicable to
Customer hereunder in a corresponding manner upon written notice to the
Customer.
C. PAYMENT TERMS: "MEGW" shall provide invoices to Customer for services
provided hereunder every (5) days, or at such longer intervals as "MEGW"
may elect. Unless otherwise agreed, payment of all undisputed invoiced
amounts to Customer shall be made within five (5) business days after
receipt of invoice without right of setoff or adjustment except to the
extent Customer and "MEGW" have entered into a bi-directional relationship
in which event the parties shall set off and credit competing invoices and
only then resulting net amount shall be subject to the further terms
hereof. All payments shall be made in U.S. dollars. "MEGW" will be under no
obligation to negotiate any disputes while any balance remains overdue.
Late charges in the amount of eighteen (18%) percent per annum of the
outstanding amount of Customer's account shall be payable monthly on any
past due amounts and shall continue to accrue and remain due and payable
until all undisputed amounts due have been paid in full. In the event that
"MEGW" shall retain an agency or attorney for the purpose of collecting
amounts owed by Customer, Customer shall be obligated to pay all such
amounts, any accumulated late payment charge, and "MEGW's" expenses of
collection, including but not limited to reasonable attorneys; fees which
attorney fees may be based on a percentage of the amount due not to exceed
thirty-three (33%) percent thereof. If Customer in good faith disputes in
writing the amount or appropriateness of a charge including an invoice from
"MEGW", Customer shall notify "MEGW" of the disputed charge and provide
documentation reasonably requested by "MEGW" to resolve the dispute. Such
payments, excluding the disputed amount shall be paid by the due date set
forth in this Agreement. Customer and "MEGW" shall exercise reasonable,
good faith effort to resolve the disputed charges. Failure to contest a
charge within forty-five (45) days of the date of the invoice shall create
an irrefutable presumption of correctness of the charge, absent manifest
error.
D. ESTIMATED PAYMENTS: If the Order Information section of this Agreement
indicates that estimated payments are required, "MEGW" will notify the
Customer on the last day of the "Estimated Usage Period", as defined in the
Order Information Section of charges incurred by the Customer during such
period. The Customer will pay "MEGW" such estimated amount ("Estimated
Payment") no later than the Payment Due Date [as defined in the Order
Information Section]. "MEGW" will provide an invoice for the usage charges
actually incurred that Month less that Month's Estimated Payment; provided,
however, that if a minimum Monthly payment obligation applies for that
Month and such minimum has not been met, then the invoice amount will be
that Month's minimum payment obligation less that Month's Estimated
Payment. The Customer will pay the invoiced amount within the Payment
Period.
2
<PAGE> 3
VI. CUSTOMER'S RESPONSIBILITIES: In furtherance of this Agreement, Customer
shall:
A. Be Responsible for and pay any and all local, state, or federal taxes or
charges in the nature of taxes imposed by any governmental authority or
regulatory agency in addition to the charges required by "MEGW" pursuant to
this Agreement;
B. Obtain at its own expense any governmental or regulatory licenses,
consents or approvals with respect to the utilization of "MEGW's" Services
and any Network as contemplated by this Agreement;
C. Examine and review all technical aspects of "MEGW's" system and the
system of any Network in order to assure itself that its transmitting,
receiving, and switching equipment is compatible with all "MEGW's" and such
Network's equipment and systems prior to any linkup with "MEGW's" and such
Network's system;
D. Upon "MEGW's" request, promptly furnish any technical information or
specifications relating to its system as may be reasonably required by
"MEGW" or the Network.
E. Not permit or suffer the use of "MEGW's system or facilities for any use
or purpose not permitted by law;
F. Be responsible for all charges, materials, equipment, and labor to
connect Customer's network with "MEGW's" system and/or the Network at the
designated POP, subject to "MEGW" and the Network's prior review of any
such plans or arrangements.
G. Be responsible for billing and collection of all accounts, customers or
end users to whom or which Customer or any of Customer's customers provide
services.
H. Be responsible and pay all costs, claims, and damages, if any, arising
from fraudulent calls of any nature which may be made by any customer or
end user of Customer or any customer or end users of Customer's customers
or end users using services provided by "MEGW".
I. Not use or permit the use of any tradename, trademark, service mark,
brand name, logo or other intellectual property right of "MEGW" without
"MEGW's" prior written consent.
VII. FINANCIAL REPORTS: If the Order Information section of this Agreement
indicates that financial reports are required, within forty five (45) days after
the end of each calendar quarter, the Customer will provide "MEGW" with a
written report updating the Customer's financial status ("Quarterly Report"),
and within ninety (90) days after the end of each calendar year, the Customer
will provide an updated consolidated unaudited balance sheet and income
statement for Customer for such quarter. The Customer represents and warrants
that each Quarterly Report will be true and correct in all material respects and
will not contain any material misstatement of omission and that the quarterly
and annual financial statements will be prepared in accordance with generally
accepted accounting principles consistently applied and will present fairly in
all material respects the financial condition of Customer as of such dates and
for the periods then ended.
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<PAGE> 4
VIII. SECURITY DEPOSITS: If the Order Information section of this Agreement
indicates that security deposits are required, each required security deposit
will either be in cash (paid by certified check or via wire transfer of
immediately available funds) or an irrevocable stand-by Letter of Credit in a
form and from a financial institution reasonable acceptable to "MEGW". The
"Initial Security Deposit" amount will be provided prior to the initiation of
service. Thereafter, if requested in writing by "MEGW" the Customer will add
additional amounts to the Initial Security Deposit such that the total amount of
security deposit being held by "MEGW" at all times is at least equal to the
"Continuing Security Deposit". The Customer provide any such required additional
amounts within twenty-four (24) business hours after receiving "MEGW's" written
request. "MEGW" will refund or release, as applicable, any security deposit it
is holding (plus, if the security deposit is in the form of cash, accrued
interest at the applicable rate set by regulation, of the state in which "MEGW"
invoices the Customer, or if interest at the applicable rate set by regulation,
"MEGW's" then-prevailing interest rate for security deposit refunds) if the
following conditions are met by the Customer: (i) for the entire "Deposit
Release Period", the Customer pays "MEGW" in full when each payment is due; (ii)
"MEGW" has determined that the Customer's Quarterly Reports covering the Deposit
Release Period indicate that there has been no material adverse change in
Customer's financial condition and (iii) Customer is not otherwise in breach or
default of any of its obligations under this Agreement. If "MEGW" does not
refund or release the security deposit during the Term as set forth above, the
security deposit will be refunded or released, as applicable, at the later of
the Term as set forth above, the security deposit will be refunded or released,
as applicable, at the later of the end of the Term and when all of Customer's
obligations to "MEGW" have been paid in full. If, at any time during the term of
the Agreement, "MEGW" determines that there has been a materially adverse change
in Customer's financial condition "MEGW" may require Customer to provide a
security deposit or an additional security deposit in an amount to be determined
by "MEGW" The Customer shall provide any such required amounts within five (5)
business days after receiving "MEGW's" written request therefore. "MEGW" may
offset against any Security Deposit provided hereunder any amounts that are not
paid when due, without prior notice to Customer, and upon notice from "MEGW",
Customer shall within twenty-four (24) business hours deliver to "MEGW" an
additional security deposit in an amount determined by "MEGW".
IX. WARRANTY: "MEGW" warrants to Customer that it will provide the same quality
of service it provides to other wholesale Customers, which services shall at a
minimum meet minimum standards required by applicable law or regulation.
EXCEPT FOR ANY EXPRESS WARRANTIES STATED IN THIS AGREEMENT, "MEGW" DISCLAIMS ALL
WARRANTIES INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTIBILITY AND FITNESS AND OF FITNESS FOR A PARTICULAR PURPOSE WHETHER SUCH
WARRANTIES ARE MADE BEFORE OR AFTER THE EXECUTION HEREOF. THE STATED WARRANTIES
HEREIN ARE IN LIEU OF ALL OBLIGATIONS OR LIABILITIES ON THE PART OF "MEGW" FOR
DAMAGES INCLUDING, BUT NOT LIMITED TO, SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF "MEGW"
SERVICE. IN NO EVENT SHALL "MEGW" BE LIABLE TO CUSTOMER FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF MEGAWORLD'S PERFORMANCE UNDER
THIS AGREEMENT. IT IS EXPRESSLY UNDERSTOOD THAT THE SOLE REMEDY OF CUSTOMER FOR
BREACH OF THIS AGREEMENT BY "MEGW" OR FOR ANY DAMAGE TO CUSTOMER OR OTHER PERSON
CLAIMED TO HAVE RESULTED FROM CUSTOMER'S RESALE OF "MEGW" SERVICE HEREUNDER OR
FROM THE USE OF "MEGW'S" SERVICE IS CREDITS FOR
4
<PAGE> 5
SERVICE OUTAGE OR INTERRUPTION AS SET FORTH IN THIS AGREEMENT AND THE SERVICE
SUPPLEMENTS.
X. FORCE MAJEURE: "MEGW" shall not be liable for any default or breach of
obligation or failure, interruption, or diminution of service in the event that
such default, breach, failure, interruption or diminution is the result of an
act of God, natural disaster, fire civil or military authority, insurrection,
riot, war, national emergency, strike or other labor dispute, vandalism, power
failure, cut cable, failure of other Customers or exchanges, change in "MEGW'
underlying Customer contract or rate structure, flood, explosion, change of law,
order, regulation of any governmental authority or other cause out of "MEGW's"
reasonable control.
XI. LIMITATION OF LIABILITY: Without limiting the provisions of Sections X or XI
hereof, "MEGW" shall not be responsible or liable for any interruption,
diminution, or failure of service, in whole or in part, and, in no event, shall
"MEGW" be responsible or liable for any special, indirect incidental or
consequential damages incurred by Customer or any user of Customer's service. In
addition, "MEGW" shall not be responsible or liable for any interruption,
diminution, or failure of service caused by any third party, including, but not
limited to, any other Customer of Customer or "MEGW's" message traffic
XIII. CONFIDENTIALITY: The terms of this Agreement and any confidential
information relating to "MEGW", Customer, or their respective Customers which
are furnished or revealed pursuant to, or in connection with, this Agreement are
deemed to be confidential with the exception of (i) confidential information
previously known to a party; (ii) is the public domain other than through
wrongful disclosure of a party. Neither party shall at any time use any such
information except in connection with performance of its obligations under this
Agreement, or disclose any of the terms of this Agreement nor any such
previously described confidential information to any other third party except
(i) to the professional advisors of either party who require such information in
connection with the performance of such party's performance of its obligations
hereunder, and who have executed written agreements pursuant to which they agree
to be bound by the provisions of this Section XIII as may be required by
applicable law; and (ii) as may be required by applicable law; provided, that
the disclosing party shall give the other party reasonable notice prior to such
disclosure to permit the other party to seek an appropriate protective order,
stay or other exemption.
The parties agree that a breach or threatened breach of the terms of this
article may result in irreparable injury to the non-breaching party for which a
remedy in damages would be inadequate. The parties agree that in the event of
breach or threatened breach, the non breaching party shall be entitled to seek
an injunction to prevent the breach or threatened breach, and the breaching
party hereby waives any defense that an adequate remedy in law exists and
acknowledges that such a breach or threatened breach would result in irreparable
injury to the non-beaching party.
XIII. INDEMNIFICATION: Customer and "MEGW" will mutually indemnify each other
and its affiliates and their respective directory, officers, employees, agents
and representatives ("Indemnified Parties"), and save them harmless from and
against any and all claims, actions, damages, liabilities, and expenses (whether
from an action brought by the Indemnified Party of a third party) (collectively,
"Losses") occasioned by any act or omission of Customer or any of its customers
or end users or any of their respective directors, officers employees or agents
relating to the use of the Service provided hereunder. If any Indemnified Party
shall, without fault on its part be made a party to any litigation commenced by
or against such Indemnified party or respective party, then the other party
shall protect and hold such Indemnified Party harmless, and shall pay all costs,
expenses, losses, damages, settlement
5
<PAGE> 6
payments (including reasonable attorney's fees, costs and expenses incurred or
paid by such Indemnified Party in connection with said litigation.
XIV. ARBITRATION: Any controversy, claim or dispute arising out of or relating
to the Agreement, or any breach termination or invalidity thereof, shall be
settled by binding arbitration before a single arbitration in accordance with
the Rules of The American Arbitration Association under its Commercial
Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes
("Rules"), and judgment upon any award rendered may be entered into any court
having proper jurisdiction in the County City and State of New York.
XV. MISCELLANEOUS:
A. APPLICABLE LAWS: This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
B. WAIVER: A waiver by either party of a breach of any provision of the
Agreement and these General Terms shall not operate as, nor be construed
as, a waiver of any subsequent breach.
C. ENTIRE AGREEMENT: This Agreement (including the Agreement, General Terms
and conditions, and all Exhibits, Schedules and Order Information)
represents the entire agreement between the parties with respect to the
subject hereof and may be modified only by a subsequent written document
signed by the parties. This Agreement may be executed in one or more
duplicate originals, all of which shall constitute but one agreement
between the parties hereto.
D. PARTIAL INVALIDITY: The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof,
and this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
E. HEADINGS: All headings contained herein are inserted for convenience
only and do not constitute a part of the Agreement and these General Terms.
F. ASSIGNMENT: This Agreement and any rights or obligations arising under
it may not be assigned by Customer without :"MEGW's" prior written approval
which shall not be unreasonably withheld.
G. BENEFIT: This Agreement shall be binding upon and inure to the benefit
of "MEGW", Customer, and their respective successors and assigns to the
extent permitted herein.
H. NOTICE: Any notice to be given under the Agreement of these General
Terms, shall be in writing, shall be deemed given when mailed by registered
or certified mail, return receipt requested, postage prepaid to the party
to be notified at the address set forth above in this Agreement, or at such
other address as such party may designate in writing to the other party.
I. SERVICE LEVEL: "Megw" will make best efforts to maintain and operate the
services and network equal to the standards set by the public switched
telephone network and the Internet.
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<PAGE> 7
J. ADDITIONAL TERMS: This is a Customer-to Customer Agreement subject to
Section 211 of the Communications Act of 1934, as amended. The Customer is
responsible for and shall comply with any and all legal and regulatory
requirements with respect to the Customer's use and resale of the Services,
including those of the Federal Communications Commission and state public
utility commissions. The Services are governed by this Agreement and all
Customer obligations and "MEGW" rights set forth in the "General Rules and
Regulations" section of "MEGW's" interstate tariff, if any, as may be
amended by "MEGW" in accordance with applicable laws and regulations.
SEQUEL COMMUNICATIONS INC.
Signature: /s/ Emanuel Ablaza
-------------------------------------------
Printed Name/Title: Emanuel Ablaza, VP of Operations
----------------------------------
Date: 11-8-99
------------------------------------------------
MEGAWORLD, INC.
COMMUNICATIONS DIVISION
Signature: /s/ George S. Dinsdale
-------------------------------------------
Printed Name/Title: George S. Dinsdale, President
----------------------------------
Date: 11-8-99
------------------------------------------------
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<PAGE> 8
SCHEDULE A
SERVICE DESCRIPTION:
Messaging Services including Fax to Email, Email to Fax, and voice messaging to
email. All standard services included on Web page www.fax2me.com will be made
available to Sequel Communications.
RATES:
Facsimile send or receipt:
XII. TOLL NUMBER: 2 CENTS PER PAGE
Toll-Free Number: 10 cents per page
Voice send or receipt:
Toll Number: 2 cents per minute
Toll-Free Number: 10 cents per minute
All rates are US domestic delivery. International may be higher.
COMMISSION RATES ON ABOVE LISTED SERVICES:
A 20% commission or discount will be extended to Sequel Communications
SPECIAL SERVICE REQUEST:
The www.fax2me.com service includes free toll or toll free number assignment as
long as the service is being used on a monthly basis. If a number is to be used
on a casual basis and the number is to be maintained on the system, a charge of
$1.00 per month per number will be charged.
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<PAGE> 1
EXHIBIT 6.15
MegaWorld Inc.
GENERAL TERMS AND CONDITIONS FOR CUSTOMER AGREEMENTS
This agreement is made as of October 19th, 1999, by and between MEGAWORLD, INC.
("MEGW"), a Delaware corporation with offices at 6250 N. Houston Rosslyn Rd.,
Houston, TX 77091, USA, and WECU, INC, a West Indies corporation with offices at
Suite 110, Heritage Plaza, Nevis, West Indies. ("Customer").
I. SERVICE: "MEGW" agrees to provide Enhanced Messaging Services, local and long
distance message transmission services [more fully described on Schedule A
attached hereto and made a part hereof,] within the territory (the "Territory")
set forth on Schedule A attached hereto and made a part hereof ("Schedule A")
including transmission, switching and messaging facilities necessary to transmit
and terminate Customer's enhanced messaging services, local, toll, and long
distance message traffic to specific points within the Territory. Customer shall
pay for and accept such services on a nonexclusive basis in accordance with the
further terms of this Agreement.
II. TERM: This Agreement shall commence on the date set forth above [or such
earlier date as Customer shall begin receiving the services contemplated under
this Agreement in the ordinary course of its business. Subject to Section III,
the initial term of this Agreement shall expire one (1) year from the date
hereof (the "Initial Term"). Upon expiration of the Initial Term, this Agreement
shall automatically be renewed for successive one (1) month periods, unless
either party shall notify the other in writing at least five (5) days in advance
that it does not wish this Agreement to be renewed.
III. TERMINATION: "MEGW" or Customer may terminate this Agreement, and/or
terminate or suspend any service provided to Customer under it, at any time
without liability upon ten (10) days prior written notice. Without limiting the
foregoing, "MEGW" may terminate this Agreement without liability on five (5)
days prior written notice to Customer for any material breach of this Agreement
including, but not limited to, a failure by Customer to pay in a timely manner
any undisputed charges for services rendered. In addition, "MEGW" may terminate
this Agreement and/or terminate or suspend any service to Customer immediately
and without notice or liability in the event that "MEGW" in its reasonable
judgement deems such action necessary in order to protect or preserve its
network. The Agreement will terminate immediately without liability in the event
that "MEGW" determines that its network or services are being utilized for
illegal activities defined by United Sates Federal Law or violates any Federal
Communication Commission laws directly related to the rules and regulations of
Section 214, Section 63.18(e)(1), and Section 63.18(e)(2)
IV. CONNECTIONS: Connection by Customer to a network designated by "MEGW"
("Network") shall be made at the point(s) of presence ("POP") set forth on
Schedule A. Customer shall be responsible for the coordination of service, and
the payment of all charges and costs reasonably necessary, to effect such
connection.
V. CHARGES AND PAYMENTS:
A. CHARGES: Customer shall pay the undisputed charges for the services
rendered to it by "MEGW" in accordance with Schedule A. Customer understands
and agrees that such charges may be adjusted prospectively to the extent
mandated by any regulatory authority to which "MEGW" is subject.
Additionally, "MEGW" may adjust the rates reflected on Schedule A at any time
on five (5) days written notice to the Customer.
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MegaWorld Inc.
B. LENGTH: Unless otherwise stated on Schedule A, all call lengths shall be
rounded up to the next tenth of a minute. International calls shall be billed
in 60 second minimums, domestic outbound at 60 second increments. "MEGW"
shall have the right to adjust the call lengths applicable to Customer
hereunder in a corresponding manner upon written notice to the Customer.
C. PAYMENT TERMS: "MEGW" shall provide invoices to Customer for services
provided hereunder every (5) days, or at such longer intervals as "MEGW" may
elect. Unless otherwise agreed, payment of all undisputed invoiced amounts to
Customer shall be made within five (5) business days after receipt of invoice
without right of setoff or adjustment except to the extent Customer and
"MEGW" have entered into a bi-directional relationship in which event the
parties shall set off and credit competing invoices and only then resulting
net amount shall be subject to the further terms hereof. All payments shall
be made in U.S. dollars. "MEGW" will be under no obligation to negotiate any
disputes while any balance remains overdue. Late charges in the amount of
eighteen (18%) percent per annum of the outstanding amount of Customer's
account shall be payable monthly on any past due amounts and shall continue
to accrue and remain due and payable until all undisputed amounts due have
been paid in full. In the event that "MEGW" shall retain an agency or
attorney for the purpose of collecting amounts owed by Customer, Customer
shall be obligated to pay all such amounts, any accumulated late payment
charge, and "MEGW's" expenses of collection, including but not limited to
reasonable attorneys; fees which attorney fees may be based on a percentage
of the amount due not to exceed thirty-three (33%) percent thereof. If
Customer in good faith disputes in writing the amount or appropriateness of a
charge including an invoice from "MEGW", Customer shall notify "MEGW" of the
disputed charge and provide documentation reasonably requested by "MEGW" to
resolve the dispute. Such payments, excluding the disputed amount shall be
paid by the due date set forth in this Agreement. Customer and "MEGW" shall
exercise reasonable, good faith effort to resolve the disputed charges.
Failure to contest a charge within forty-five (45) days of the date of the
invoice shall create an irrefutable presumption of correctness of the charge,
absent manifest error.
D. ESTIMATED PAYMENTS: If the Order Information section of this Agreement
indicates that estimated payments are required, "MEGW" will notify the
Customer on the last day of the "Estimated Usage Period", as defined in the
Order Information Section of charges incurred by the Customer during such
period. The Customer will pay "MEGW" such estimated amount ("Estimated
Payment") no later than the Payment Due Date [as defined in the Order
Information Section]. "MEGW" will provide an invoice for the usage charges
actually incurred that Month less that Month's Estimated Payment; provided,
however, that if a minimum Monthly payment obligation applies for that Month
and such minimum has not been met, then the invoice amount will be that
Month's minimum payment obligation less that Month's Estimated Payment. The
Customer will pay the invoiced amount within the Payment Period.
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MegaWorld Inc.
VI. CUSTOMER'S RESPONSIBILITIES: In furtherance of this Agreement, Customer
shall:
A. Be Responsible for and pay any and all local, state, or federal taxes or
charges in the nature of taxes imposed by any governmental authority or
regulatory agency in addition to the charges required by "MEGW" pursuant to
this Agreement;
B. Obtain at its own expense any governmental or regulatory licenses,
consents or approvals with respect to the utilization of "MEGW's" Services
and any Network as contemplated by this Agreement;
C. Examine and review all technical aspects of "MEGW's" system and the
system of any Network in order to assure itself that its transmitting,
receiving, and switching equipment is compatible with all "MEGW's" and such
Network's equipment and systems prior to any linkup with "MEGW's" and such
Network's system;
D. Upon "MEGW's" request, promptly furnish any technical information or
specifications relating to its system as may be reasonably required by
"MEGW" or the Network.
E. Not permit or suffer the use of "MEGW's system or facilities for any use
or purpose not permitted by law;
F. Be responsible for all charges, materials, equipment, and labor to
connect Customer's network with "MEGW's" system and/or the Network at the
designated POP, subject to "MEGW" and the Network's prior review of any
such plans or arrangements.
G. Be responsible for billing and collection of all accounts, customers or
end users to whom or which Customer or any of Customer's customers provide
services.
H. Be responsible and pay all costs, claims, and damages, if any, arising
from fraudulent calls of any nature which may be made by any customer or
end user of Customer or any customer or end users of Customer's customers
or end users using services provided by "MEGW".
I. Not use or permit the use of any tradename, trademark, service mark,
brand name, logo or other intellectual property right of "MEGW" without
"MEGW's" prior written consent.
VII. FINANCIAL REPORTS: If the Order Information section of this Agreement
indicates that financial reports are required, within forty five (45) days after
the end of each calendar quarter, the Customer will provide "MEGW" with a
written report updating the Customer's financial status ("Quarterly Report"),
and within ninety (90) days after the end of each calendar year, the Customer
will provide an updated consolidated unaudited balance sheet and income
statement for Customer for such quarter. The Customer represents and warrants
that each Quarterly Report will be true and correct in all material respects and
will not contain any material misstatement of omission and that the quarterly
and annual financial statements will be prepared in accordance with generally
accepted accounting principles consistently applied and will present fairly in
all material respects the financial condition of Customer as of such dates and
for the periods then ended.
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MegaWorld Inc.
VIII. SECURITY DEPOSITS: If the Order Information section of this Agreement
indicates that security deposits are required, each required security deposit
will either be in cash (paid by certified check or via wire transfer of
immediately available funds) or an irrevocable stand-by Letter of Credit in a
form and from a financial institution reasonable acceptable to "MEGW". The
"Initial Security Deposit" amount will be provided prior to the initiation of
service. Thereafter, if requested in writing by "MEGW" the Customer will add
additional amounts to the Initial Security Deposit such that the total amount of
security deposit being held by "MEGW" at all times is at least equal to the
"Continuing Security Deposit". The Customer provide any such required additional
amounts within twenty-four (24) business hours after receiving "MEGW's" written
request. "MEGW" will refund or release, as applicable, any security deposit it
is holding (plus, if the security deposit is in the form of cash, accrued
interest at the applicable rate set by regulation, of the state in which "MEGW"
invoices the Customer, or if interest at the applicable rate set by regulation,
"MEGW's" then-prevailing interest rate for security deposit refunds) if the
following conditions are met by the Customer: (i) for the entire "Deposit
Release Period", the Customer pays "MEGW" in full when each payment is due; (ii)
"MEGW" has determined that the Customer's Quarterly Reports covering the Deposit
Release Period indicate that there has been no material adverse change in
Customer's financial condition and (iii) Customer is not otherwise in breach or
default of any of its obligations under this Agreement. If "MEGW" does not
refund or release the security deposit during the Term as set forth above, the
security deposit will be refunded or released, as applicable, at the later of
the Term as set forth above, the security deposit will be refunded or released,
as applicable, at the later of the end of the Term and when all of Customer's
obligations to "MEGW" have been paid in full. If, at any time during the term of
the Agreement, "MEGW" determines that there has been a materially adverse change
in Customer's financial condition "MEGW" may require Customer to provide a
security deposit or an additional security deposit in an amount to be determined
by "MEGW" The Customer shall provide any such required amounts within five (5)
business days after receiving "MEGW's" written request therefore. "MEGW" may
offset against any Security Deposit provided hereunder any amounts that are not
paid when due, without prior notice to Customer, and upon notice from "MEGW",
Customer shall within twenty-four (24) business hours deliver to "MEGW" an
additional security deposit in an amount determined by "MEGW".
IX. WARRANTY: "MEGW" warrants to Customer that it will provide the same quality
of service it provides to other wholesale Customers, which services shall at a
minimum meet minimum standards required by applicable law or regulation.
EXCEPT FOR ANY EXPRESS WARRANTIES STATED IN THIS AGREEMENT, "MEGW" DISCLAIMS ALL
WARRANTIES INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTIBILITY AND FITNESS AND OF FITNESS FOR A PARTICULAR PURPOSE WHETHER SUCH
WARRANTIES ARE MADE BEFORE OR AFTER THE EXECUTION HEREOF. THE STATED WARRANTIES
HEREIN ARE IN LIEU OF ALL OBLIGATIONS OR LIABILITIES ON THE PART OF "MEGW" FOR
DAMAGES INCLUDING, BUT NOT LIMITED TO, SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF "MEGW"
SERVICE. IN NO EVENT SHALL "MEGW" BE LIABLE TO CUSTOMER FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF MEGAWORLD'S PERFORMANCE UNDER
THIS AGREEMENT. IT IS EXPRESSLY UNDERSTOOD THAT THE SOLE REMEDY OF CUSTOMER FOR
BREACH OF THIS AGREEMENT BY "MEGW" OR FOR ANY DAMAGE TO CUSTOMER OR OTHER PERSON
CLAIMED TO HAVE RESULTED FROM CUSTOMER'S RESALE OF "MEGW" SERVICE HEREUNDER OR
FROM THE USE OF "MEGW'S" SERVICE IS CREDITS FOR SERVICE OUTAGE OR INTERRUPTION
AS SET FORTH IN THIS AGREEMENT AND THE SERVICE SUPPLEMENTS.
Confidential Page 4
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MegaWorld Inc.
X. FORCE MAJEURE: "MEGW" shall not be liable for any default or breach of
obligation or failure, interruption, or diminution of service in the event that
such default, breach, failure, interruption or diminution is the result of an
act of God, natural disaster, fire civil or military authority, insurrection,
riot, war, national emergency, strike or other labor dispute, vandalism, power
failure, cut cable, failure of other Customers or exchanges, change in "MEGW'
underlying Customer contract or rate structure, flood, explosion, change of law,
order, regulation of any governmental authority or other cause out of "MEGW's"
reasonable control.
XI. LIMITATION OF LIABILITY: Without limiting the provisions of Sections X or XI
hereof, "MEGW" shall not be responsible or liable for any interruption,
diminution, or failure of service, in whole or in part, and, in no event, shall
"MEGW" be responsible or liable for any special, indirect incidental or
consequential damages incurred by Customer or any user of Customer's service. In
addition, "MEGW" shall not be responsible or liable for any interruption,
enhanced services content, information provided, services provided, diminution,
or failure of service caused by any third party, including, but not limited to,
any other Customer of Customer or "MEGW's" message traffic
XII. CONFIDENTIALITY: The terms of this Agreement and any confidential
information relating to "MEGW", Customer, or their respective Customers which
are furnished or revealed pursuant to, or in connection with, this Agreement are
deemed to be confidential with the exception of (i) confidential information
previously known to a party; (ii) is the public domain other than through
wrongful disclosure of a party. Neither party shall at any time use any such
information except in connection with performance of its obligations under this
Agreement, or disclose any of the terms of this Agreement nor any such
previously described confidential information to any other third party except
(i) to the professional advisors of either party who require such information in
connection with the performance of such party's performance of its obligations
hereunder, and who have executed written agreements pursuant to which they agree
to be bound by the provisions of this Section XIII as may be required by
applicable law; and (ii) as may be required by applicable law; provided, that
the disclosing party shall give the other party reasonable notice prior to such
disclosure to permit the other party to seek an appropriate protective order,
stay or other exemption.
The parties agree that a breach or threatened breach of the terms of this
article may result in irreparable injury to the non-breaching party for which a
remedy in damages would be inadequate. The parties agree that in the event of
breach or threatened breach, the non breaching party shall be entitled to seek
an injunction to prevent the breach or threatened breach, and the breaching
party hereby waives any defense that an adequate remedy in law exists and
acknowledges that such a breach or threatened breach would result in irreparable
injury to the non-beaching party.
XIII. INDEMNIFICATION: Customer will indemnify "MEGW" and its affiliates and
their respective directory, officers, employees, agents and representatives
("Indemnified Parties"), and save them harmless from and against any and all
claims, actions, damages, liabilities, and expenses (whether from an action
brought by the Indemnified Party of a third party) (collectively, "Losses")
occasioned by any act or omission of Customer or any of its customers or end
users or any of their respective directors, officers employees or agents
relating to the use of the Service provided hereunder. If any Indemnified Party
shall, without fault on its part be made a party to any litigation commenced by
or against such Indemnified party or respective party, then the other party
shall protect and hold such Indemnified Party harmless, and shall pay all costs,
expenses, losses, damages, settlement payments (including reasonable attorney's
fees, costs and expenses incurred or paid by such Indemnified Party in
connection with said litigation.
Confidential Page 5
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MegaWorld Inc.
XIV. ARBITRATION: Any controversy, claim or dispute arising out of or relating
to the Agreement, or any breach termination or invalidity thereof, shall be
settled by binding arbitration before a single arbitration in accordance with
the Rules of The American Arbitration Association under its Commercial
Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes
("Rules"), and judgment upon any award rendered may be entered into any court
having proper jurisdiction in the County City and State of New York.
XV. MISCELLANEOUS:
A. APPLICABLE LAWS: This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
B. WAIVER: A waiver by either party of a breach of any provision of the
Agreement and these General Terms shall not operate as, nor be construed as,
a waiver of any subsequent breach.
C. ENTIRE AGREEMENT: This Agreement (including the Agreement, General Terms
and conditions, and all Exhibits, Schedules and Order Information)
represents the entire agreement between the parties with respect to the
subject hereof and may be modified only by a subsequent written document
signed by the parties. This Agreement may be executed in one or more
duplicate originals, all of which shall constitute but one agreement between
the parties hereto.
D. PARTIAL INVALIDITY: The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof,
and this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
E. HEADINGS: All headings contained herein are inserted for convenience only
and do not constitute a part of the Agreement and these General Terms.
F. ASSIGNMENT: This Agreement and any rights or obligations arising under it
may not be assigned by Customer without :"MEGW's" prior written approval
which shall not be unreasonably withheld.
G. BENEFIT: This Agreement shall be binding upon and inure to the benefit of
"MEGW", Customer, and their respective successors and assigns to the extent
permitted herein.
H. NOTICE: Any notice to be given under the Agreement of these General
Terms, shall be in writing, shall be deemed given when mailed by registered
or certified mail, return receipt requested, postage prepaid to the party to
be notified at the address set forth above in this Agreement, or at such
other address as such party may designate in writing to the other party.
Confidential Page 6
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MegaWorld Inc.
I. ADDITIONAL TERMS: This is a Customer-to Customer Agreement subject to
Section 211 of the Communications Act of 1934, as amended. The Customer is
responsible for and shall comply with any and all legal and regulatory
requirements with respect to the Customer's use and resale of the Services,
including those of the Federal Communications Commission and state public
utility commissions. The Services are governed by this Agreement and all
Customer obligations and "MEGW" rights set forth in the "General Rules and
Regulations" section of "MEGW's" interstate tariff, if any, as may be
amended by "MEGW" in accordance with applicable laws and regulations.
WECU, INC.
Signature: /s/ Shawn Okun
----------------------------------------
Printed Name: Shawn Okun Title: President
--------------------------------
Date: 24 October 1999
---------------------------------------------
MEGAWORLD, INC.
COMMUNICATIONS DIVISION
Signature: /s/ George S. Dinsdale
----------------------------------------
Printed Name/Title: George S. Dinsdale - President
-------------------------------
Date: 11/16/99
------------------------------------------
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MegaWorld Inc.
SCHEDULE A
APPLICATION SERVICE DESCRIPTION:
Calls are originated in the USA and terminated in a call center located in Costa
Rica. The transmission of the long distance portion is to be supported by
Satellite. (Satellite services provided by T-Ray). The application will also
include a limited number channels for calls to be originated in Costa Rica and
terminated in the USA.
SERVICE EQUIPMENT AND TECHNOLOGY DESCRIPTION:
The voice and VoIP compression equipment are Sun Microsystems servers with
Lucent DSP based communication peripherals and network interface cards. Each
system is a full computer telephony platform capable of supporting a full range
of audio text information services and auto attendant features. Utilizing Sun
equipment also enables us to remotely manage the systems and integrate real-time
network monitoring. In Costa Rica the systems will also include analog telephone
interfaces supporting up to 24 telephones.
SERVICE EQUIPMENT TITLE AND OWNERSHIP:
The service equipment installed and operated to deliver the service will remain
the property of MegaWorld, Inc. The services and associated equipment are to be
considered a rental or provided as part of the service and at no time is to be
considered to being purchased by the customer.
SERVICE INSTALLATION:
The equipment and associated systems will be fully tested and configured before
they are shipped to Costa Rica. This includes pre programming of all routing
information insuring a smooth installation and immediate service availability.
SERVICE CAPACITY UPGRADE:
The equipment and associated systems can be upgraded to support an additional 24
telephone channels with the addition of voice/VoIP peripherals, increased
Satellite communications and telephones.
SERVICE PRICES:
Total service capacity is 24 simultaneous telephone calls - Total Monthly Fixed
Cost $2,900
Communication Equipment - Sun Microsystems & Lucent DSP Communication $2,000 per
month
<TABLE>
<S> <C>
Communication Port Charges @ $300 per 24 channels $ 600 per month
In Bound 800 charges per minute $ 0.06 per minute
In Bound Toll Direct Inward Dialing charges per minute $0.045 per minute
In Bound 800 Line charge per T-1 $ 300 per month
Out Bound Terminating Traffic USA $ 0.07 per minute
Out Bound Line charge per T-1 $ 300 per month
</TABLE>
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MegaWorld Inc.
<TABLE>
<S> <C>
Installation Charges systems and lines $1,500
Monthly Billing Reports included
Network Management included
USA 24 hour, 7 day a week on-site support included
Costa Rica 24 hour x 7-day week telephone and remote maintenance
included
</TABLE>
Note: Not included in installation - Travel and Hotel billed at actual costs.
Confidential Page 9
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MegaWorld Inc.
SCHEDULE A
SERVICE CAPACITY UPGRADE PRICE TO 48 CHANNELS:
Total capacity 48 simultaneous telephone calls - Total Monthly Fixed Cost $4,800
Communication Equipment - Sun Microsystems & Lucent DSP Communication $1,000 per
month
Communication Port Charges @ $300 per 24 channels $600 per month
In Bound 800 Line charge per T-1 $300 per month
Installation Charges systems and lines $1,500
Note: Not included in installation - Travel and Hotel billed at actual costs.
<TABLE>
<CAPTION>
PAYMENT TERMS:
<S> <C> <C>
Deposit Required 2 months $ 5,800
Co-Location Charges 1 month $ 2,900
800 Number deposit 2 month estimate @ 100,000 minutes per month $12,000
Total due at contract acceptance $20,700
</TABLE>
All invoices due upon receipt and will be issued on the first of every month
CONTRACT TERM:
One-year contract with a one-year renewal options with 30 day written notice.
BANKING & WIRE TRANSFER INFORMATION:
Bank of Tanglewood
500 Chimney Rock
Houston, TX
ABA# 113017883
FAO Megaworld, Inc. #009209
Tel: # 713-266-2900 and fax 713-266-1110.
MEGAWORLD CONTACT INFORMATION:
Corporate: George S. Dinsdale
354 Lynn Street
Harrington Park, NJ 07640
Confidential Page 10
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Megaworld Inc.
Tel: 201-768-4397
Fax: 561-828-0833
Email: [email protected]
Technical: Jon Unglert
220 Gracie St.
Hackensack, NJ 07601
201-788-3103
email [email protected]
XII. WECU, INC CONTACT INFORMATION
Confidential Page 11
<PAGE> 1
EXHIBIT 6.16
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
REVOLVING CREDIT NOTE
$600,000.00 Houston, Texas as of December 15, 1998
MEGAWORLD, INC., a Delaware corporation ("Borrower"), For Value Received,
promises to pay unto the order of Charles D. McPhail ("Lender"), in lawful money
of the United States of America, on or before the earlier of (i) upon demand
made by Lender, or (ii) December 31, 2000, such sums as the holder hereof may
loan or advance to or for the benefit of Borrower on or after the date hereof in
accordance with the terms hereof, together with interest on the unpaid principal
balance outstanding from time to time hereon computed from the date of each
advance until maturity at the rate of Six Percent (6%) per annum. Interest shall
be calculated on a per annum basis of 360 days unless such calculation would
result in a usurious rate, in which event, interest shall be calculated on a
full calendar year basis.
This note renews, extends, modifies, restates, and replaces, but does not
extinguish any prior indebtedness, whether written or oral, providing for
advances from time to time, between Borrower and Lender. THE UNPAID principal
balance hereof shall at no time exceed the sum of SIX HUNDRED THOUSAND and
NO/100 Dollars ($600,000.00).
PAYMENT of this note before maturity may be made at any time or from time
to time, in whole or in part, without penalty or premium. Any such payment shall
be applied first to accrued interest and secondly to principal.
THE UNPAID PRINCIPAL BALANCE of this note at any time shall be the total
amounts lent or advanced hereunder by the holder hereof, less the amount of
payments or prepayments of principal made hereon by or for the account of
Borrower. Borrower may borrow, repay and reborrow funds under this revolving
promissory note and there is no limit on the number of advances against this
note so long as the total unpaid principal at any time outstanding does not
exceed the face amount of the note. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent thereto. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be endorsed
by the holder hereof on the
Page 1 of 5 Page Promissory Note
<PAGE> 2
Schedule attached hereto and made a part hereof for all purposes. Additional
Schedule pages may be attached hereto from time to time by the holder hereof if
more space is necessary. The amounts of the advances and payments recorded by
Lender on the reverse hereof or on such schedule shall be binding upon Borrower
as to the amount owed by Borrower. This note may be paid in full from time to
time, but shall nevertheless remain in full force and effect to evidence any
advances made under such revolving line of credit after any such payment in
full. Borrower hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Borrower
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
any endorsement shall not limit or otherwise affect the obligations of Borrower
under this note.
ADVANCES hereunder may be made by Lender, in Lender's sole and absolute
discretion, at the oral or written request of any of the undersigned or of any
officer or agent of Borrower designated by or acting under the authority of
resolutions of the Board of Directors of Borrower, a duly certified or executed
copy of which shall be furnished to the holder hereof, until written notice of
the revocation of such authority is received by the Holder hereof. Borrower
covenants and agrees to furnish to Lender hereof written confirmation of any
such oral request within five (5) days of the resulting loan or advance, but any
such loan or advance made by the Holder hereof shall be deemed to be made under
and entitled to the benefits of this note irrespective of any failure by
Borrower to furnish such written confirmation.
IF ANY installment of principal and/or interest on this note is not paid
when due; or if Borrower or any drawer, acceptor, endorser, guarantor, surety,
accommodation party or other person liable upon or for payment of this note
(each hereinafter called an "other liable party"), shall die, or become
insolvent (however such insolvency may be evidenced); or if Borrower or any
co-partnership of which Borrower is a member shall suspend the transaction of
his, its or their usual business, or be expelled from or suspended by any stock
or securities exchange or other exchange; or if any proceeding, procedure or
remedy supplementary to or in enforcement of judgment shall be resorted to or
commenced against, or with respect to any property of, Borrower or any such
co-partnership or other liable party; or if a petition in Bankruptcy or for any
relief under any law relating to the relief of debtors, re-adjustment of
indebtedness, re-organization, composition or arrangement shall be filed, or any
proceedings shall be instituted under any such law, by or against Borrower or
any such co-partnership or other liable party; or if any governmental authority
or any court at the instance thereof shall take possession of any substantial
part of the property of, or assume control over the affairs or operations of, or
a receiver shall be appointed of the property of, or a writ or order of
attachment or garnishment shall be issued or made against any of the property
of, Borrower or any such co-partnership or other liable party; or if any
indebtedness of Borrower or of any such co-partnership or of other liable party
for borrowed money shall become due and payable by acceleration of maturity
thereof; or if Borrower or any such co-partnership or other liable party ceases
to generally pay his or its debts as they become due; or if Borrower (if a
corporation) shall be dissolved or be a party to any merger or consolidation
without the written consent of Lender; or if Borrower or other liable party
fails to furnish financial information reasonably requested by Lender; or if a
default occurs under any instrument now or hereafter
Page 2 of 5 Page Promissory Note
<PAGE> 3
executed in connection with or as security for this note; thereupon, at the
option of Lender, this note and any and all other indebtedness of Borrower to
Lender shall become and be due and payable forthwith without demand, notice of
nonpayment, presentment, protest or notice of dishonor, all of which are hereby
expressly waived by Borrower and each other liable party.
IF THIS NOTE is not paid at maturity whether by acceleration or otherwise
and is placed in the hands of an attorney for collection, or suit is filed
hereon, or proceedings are had in probate, bankruptcy, receivership,
re-organization, arrangement or other legal proceedings for collection hereof,
Borrower and each other liable party agree to pay Lender a reasonable amount as
attorney's fees which is agreed to be an additional amount equal to ten percent
of the unpaid principal and interest hereof. Borrower and each other liable
party are and shall be directly and primarily, jointly and severally, liable for
the payment of all sums called for hereunder, and Borrower and each other liable
party hereby expressly waive demand, notice of nonpayment, presentment, protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect any sums owing hereon and in the handling of any security, and Borrower
and each other liable party hereby agree to any and all renewals, extensions for
any period, rearrangements and/or partial prepayments hereon and to any release
or substitution of security, in whole or in part, with or without notice, before
or after maturity. Borrower and each other liable party also waive, to the full
extent permitted by law, all right to plead any statute of limitation as a
defense to any action hereunder.
IT IS the intention of Borrower and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with or as security for this note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this note or
under any of the other aforesaid agreements or otherwise in connection with this
note shall under no circumstances exceed the maximum amount of interest allowed
by applicable law, and any excess shall be credited on the note by the holder
hereof (or, if this note shall have been paid in full, refunded to the
Borrower); and (ii) in the event that maturity of this note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount allowed by applicable law, and excess interest, if any, provided for in
this note or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore prepaid, shall be credited on
this note (or if this note shall have been paid in full, refunded to the
Borrower).
IN AN EVENT OF DEFAULT, if one or more of the following events of default
shall occur, all outstanding principal plus unpaid interest of the Loan and any
other indebtedness of Borrower to Lender shall, at the option of Lender, be due
and payable immediately and Lender shall have no further obligation to fund
under this Agreement or the Note:
Page 3 of 5 Page Promissory Note
<PAGE> 4
A. Default shall be made in the payment of any installment of principal
or interest upon the Note or any other obligation of Borrower to
Lender when due and payable, whether at maturity or otherwise; or
B. Default shall be made in the performance of any term, covenant or
agreement contained herein or in any deed of trust, security
agreement, mortgage, assignment, guaranty or other contract or
agreement evidencing, executed in connection with or securing payment
or any indebtedness of Borrower to Lender; or
C. Any representation or warranty herein contained or in any financial
statement, certificate, report or opinion submitted to Lender in
connection with the Loan or pursuant to the requirements of this
Agreement shall prove to have been incorrect or misleading in any
material respect when made; or
D. Any judgment against Borrower or any attachment or other levy against
the property of Borrower with respect to a claim remains unpaid on
appeal, undischarged, not bonded or not dismissed for a period of 30
days; or
E. Borrower makes an assignment for the benefit of creditors, admits in
writing its inability to pay its debts generally as they become due,
files a petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions or applies to any tribunal for any receiver or any trustee
of Borrower or any substantial part of its property, commences any
action relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statue of any
jurisdiction, whether now or hereafter in effect, or if there is
commenced against Borrower any such action, or Borrower by any act
indicates its consent to or approval of any trustee for Borrower of
any substantial part of its property, or suffers any such receivership
or trustee to continue undischarged;
then upon the happening of any of the foregoing events of default which shall be
continuing, the Note shall become and be immediately due and payable upon
declaration to that effect by Lender.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America except that V.T.C.A. Finance Code Section 346, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts) shall not apply to the revolving loan account created pursuant hereto.
Unless changed in accordance with law, the applicable rate ceiling under Texas
law shall be the indicated (weekly) rate ceiling as provided in V.T.C.A. Finance
Code Section 303, as amended.
Page 4 of 5 Page Promissory Note
<PAGE> 5
EXECUTED, by its duly authorized representative, effective as of December
15, 1998.
MEGAWORLD, INC.
By: /s/ CHARLES D. MCPHAIL
-----------------------------------------
Name: Charles D. McPhail
---------------------------------------
Title: President
--------------------------------------
Page 5 of 5 Page Promissory Note
<PAGE> 6
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
OUTSTANDING
PRINCIPAL
BALANCE OF
AMOUNT OF AMOUNT OF LOAN
AMOUNT OF PRINCIPAL INTEREST FOLLOWING NOTATION
DATE ADVANCE PAID PAID PAYMENT MADE BY
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
5/21/99 18,000 18,000
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
6/11/99 5,000 23,000
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
7/30/99 32,000 55,000
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
8/4/99 32,000 23,000
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
8/6/99 8,250 31,250
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
8/20/99 9,000 40,250
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
- ------------------- ----------------- ---------------- ----------------- ----------------- ----------------
</TABLE>
<PAGE> 1
EXHIBIT 6.17
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
REVOLVING CREDIT NOTE
$600,000.00 Houston, Texas as of December 15, 1998
MEGAWORLD, INC., a Delaware corporation ("Borrower"), For Value
Received, promises to pay unto the order of JoyVer Investments, LLC ("Lender"),
at its main business office in Houston, Texas, in lawful money of the United
States of America, on or before the earlier of (i) upon demand made by Lender,
or (ii) December 31, 2000, such sums as the holder hereof may loan or advance to
or for the benefit of Borrower on or after the date hereof in accordance with
the terms hereof, together with interest on the unpaid principal balance
outstanding from time to time hereon computed from the date of each advance
until maturity at the rate of Six Percent (6%) per annum. Interest shall be
calculated on a per annum basis of 360 days unless such calculation would result
in a usurious rate, in which event, interest shall be calculated on a full
calendar year basis.
This note renews, extends, modifies, restates, and replaces, but does
not extinguish any prior indebtedness, whether written or oral, providing for
advances from time to time, between Borrower and Lender. THE UNPAID principal
balance hereof shall at no time exceed the sum of SIX HUNDRED THOUSAND and
NO/100 Dollars ($600,000.00).
PAYMENT of this note before maturity may be made at any time or from
time to time, in whole or in part, without penalty or premium. Any such payment
shall be applied first to accrued interest and secondly to principal.
THE UNPAID PRINCIPAL BALANCE of this note at any time shall be the
total amounts lent or advanced hereunder by the holder hereof, less the amount
of payments or prepayments of principal made hereon by or for the account of
Borrower. Borrower may borrow, repay and reborrow funds under this revolving
promissory note and there is no limit on the number of advances against this
note so long as the total unpaid principal at any time outstanding does not
exceed the face amount of the note. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent thereto. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be endorsed
by the holder hereof on the
Page 1 of 5 Page Promissory Note
<PAGE> 2
Schedule attached hereto and made a part hereof for all purposes. Additional
Schedule pages may be attached hereto from time to time by the holder hereof if
more space is necessary. The amounts of the advances and payments recorded by
Lender on the reverse hereof or on such schedule shall be binding upon Borrower
as to the amount owed by Borrower. This note may be paid in full from time to
time, but shall nevertheless remain in full force and effect to evidence any
advances made under such revolving line of credit after any such payment in
full. Borrower hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Borrower
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
any endorsement shall not limit or otherwise affect the obligations of Borrower
under this note.
ADVANCES hereunder may be made by Lender, in Lender's sole and absolute
discretion, at the oral or written request of any of the undersigned or of any
officer or agent of Borrower designated by or acting under the authority of
resolutions of the Board of Directors of Borrower, a duly certified or executed
copy of which shall be furnished to the holder hereof, until written notice of
the revocation of such authority is received by the Holder hereof. Borrower
covenants and agrees to furnish to Lender hereof written confirmation of any
such oral request within five (5) days of the resulting loan or advance, but any
such loan or advance made by the Holder hereof shall be deemed to be made under
and entitled to the benefits of this note irrespective of any failure by
Borrower to furnish such written confirmation.
IF ANY installment of principal and/or interest on this note is not
paid when due; or if Borrower or any drawer, acceptor, endorser, guarantor,
surety, accommodation party or other person liable upon or for payment of this
note (each hereinafter called an "other liable party"), shall die, or become
insolvent (however such insolvency may be evidenced); or if Borrower or any co-
partnership of which Borrower is a member shall suspend the transaction of his,
its or their usual business, or be expelled from or suspended by any stock or
securities exchange or other exchange; or if any proceeding, procedure or remedy
supplementary to or in enforcement of judgment shall be resorted to or commenced
against, or with respect to any property of, Borrower or any such co-
partnership or other liable party; or if a petition in Bankruptcy or for any
relief under any law relating to the relief of debtors, re-adjustment of
indebtedness, re-organization, composition or arrangement shall be filed, or any
proceedings shall be instituted under any such law, by or against Borrower or
any such co-partnership or other liable party; or if any governmental authority
or any court at the instance thereof shall take possession of any substantial
part of the property of, or assume control over the affairs or operations of, or
a receiver shall be appointed of the property of, or a writ or order of
attachment or garnishment shall be issued or made against any of the property
of, Borrower or any such co-partnership or other liable party; or if any
indebtedness of Borrower or of any such co-partnership or of other liable party
for borrowed money shall become due and payable by acceleration of maturity
thereof; or if Borrower or any such co-partnership or other liable party ceases
to generally pay his or its debts as they become due; or if Borrower (if a
corporation) shall be dissolved or be a party to any merger or consolidation
without the written consent of Lender; or if Borrower or other liable party
fails to furnish financial information reasonably requested by Lender; or if a
default occurs under any instrument now or hereafter
Page 2 of 5 Page Promissory Note
<PAGE> 3
executed in connection with or as security for this note; thereupon, at the
option of Lender, this note and any and all other indebtedness of Borrower to
Lender shall become and be due and payable forthwith without demand, notice of
nonpayment, presentment, protest or notice of dishonor, all of which are hereby
expressly waived by Borrower and each other liable party.
IF THIS NOTE is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
re-organization, arrangement or other legal proceedings for collection hereof,
Borrower and each other liable party agree to pay Lender a reasonable amount as
attorney's fees which is agreed to be an additional amount equal to ten percent
of the unpaid principal and interest hereof. Borrower and each other liable
party are and shall be directly and primarily, jointly and severally, liable for
the payment of all sums called for hereunder, and Borrower and each other liable
party hereby expressly waive demand, notice of nonpayment, presentment, protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect any sums owing hereon and in the handling of any security, and Borrower
and each other liable party hereby agree to any and all renewals, extensions for
any period, rearrangements and/or partial prepayments hereon and to any release
or substitution of security, in whole or in part, with or without notice, before
or after maturity. Borrower and each other liable party also waive, to the full
extent permitted by law, all right to plead any statute of limitation as a
defense to any action hereunder.
IT IS the intention of Borrower and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with or as security for this note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this note or
under any of the other aforesaid agreements or otherwise in connection with this
note shall under no circumstances exceed the maximum amount of interest allowed
by applicable law, and any excess shall be credited on the note by the holder
hereof (or, if this note shall have been paid in full, refunded to the
Borrower); and (ii) in the event that maturity of this note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount allowed by applicable law, and excess interest, if any, provided for in
this note or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore prepaid, shall be credited on
this note (or if this note shall have been paid in full, refunded to the
Borrower).
IN AN EVENT OF DEFAULT, if one or more of the following events of
default shall occur, all outstanding principal plus unpaid interest of the Loan
and any other indebtedness of Borrower to Lender shall, at the option of Lender,
be due and payable immediately and Lender shall have no further obligation to
fund under this Agreement or the Note:
Page 3 of 5 Page Promissory Note
<PAGE> 4
A. Default shall be made in the payment of any installment of
principal or interest upon the Note or any other obligation of
Borrower to Lender when due and payable, whether at maturity
or otherwise; or
B. Default shall be made in the performance of any term, covenant
or agreement contained herein or in any deed of trust,
security agreement, mortgage, assignment, guaranty or other
contract or agreement evidencing, executed in connection with
or securing payment or any indebtedness of Borrower to Lender;
or
C. Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted
to Lender in connection with the Loan or pursuant to the
requirements of this Agreement shall prove to have been
incorrect or misleading in any material respect when made; or
D. Any judgment against Borrower or any attachment or other levy
against the property of Borrower with respect to a claim
remains unpaid on appeal, undischarged, not bonded or not
dismissed for a period of 30 days; or
E. Borrower makes an assignment for the benefit of creditors,
admits in writing its inability to pay its debts generally as
they become due, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any
tribunal for any receiver or any trustee of Borrower or any
substantial part of its property, commences any action
relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statue
of any jurisdiction, whether now or hereafter in effect, or if
there is commenced against Borrower any such action, or
Borrower by any act indicates its consent to or approval of
any trustee for Borrower of any substantial part of its
property, or suffers any such receivership or trustee to
continue undischarged;
then upon the happening of any of the foregoing events of default which shall be
continuing, the Note shall become and be immediately due and payable upon
declaration to that effect by Lender.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America except that V.T.C.A. Finance Code Section 346, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts) shall not apply to the revolving loan account created pursuant hereto.
Unless changed in accordance with law, the applicable rate ceiling under Texas
law shall be the indicated (weekly) rate ceiling as provided in V.T.C.A. Finance
Code Section 303, as amended.
Page 4 of 5 Page Promissory Note
<PAGE> 5
EXECUTED, by its duly authorized representative, effective as of
December 15, 1998.
MEGAWORLD, INC.
By: /s/ CHARLES D. McPHAIL
-------------------------------
Name: Charles D. McPhail
-----------------------------
Title: President
----------------------------
Page 5 of 5 Page Promissory Note
<PAGE> 6
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL
BALANCE OF
AMOUNT OF AMOUNT OF LOAN
AMOUNT OF PRINCIPAL INTEREST FOLLOWING NOTATION
DATE ADVANCE PAID PAID PAYMENT MADE BY
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
8/31/98 285,000.00 285,000.00
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
11/19/98 31,996.06 316,996.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
11/20/98 50,000.00 366,996.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
11/30/98 28,644.00 395,640.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
12/07/98 8,000.00 403,640.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
12/17/98 50,000.00 453,640.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
12/17/98 10,000.00 463,640.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
1/08/99 5,350.00 468,990.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
1/20/99 9,942.80 478,932.86
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
1/29/99 100.00 479,032.86
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
1/29/99 10,538.54 489,571.40
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
2/05/99 37,000.00 526,571.40
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
2/28/99 1,500.00 528,071.46
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
2/28/99 5,833.33 533,904.73
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
2/28/99 50,000.00 583,904.73
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
3/09/99 5,833.33 589,738.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
12/24/99 5,000 594,738.06
- ------------------ ----------------- ----------------- ----------------- ------------------ -----------------
</TABLE>
<PAGE> 1
EXHIBIT 6.18
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
REVOLVING CREDIT NOTE
$200,000.00 Houston, Texas as of December 15, 1998
MEGAWORLD, INC., a Delaware corporation ("Borrower"), For Value
Received, promises to pay unto the order of Michael Giamalvo ("Lender"), in
lawful money of the United States of America, on or before the earlier of (i)
upon demand made by Lender, or (ii) December 31, 2000, such sums as the holder
hereof may loan or advance to or for the benefit of Borrower on or after the
date hereof in accordance with the terms hereof, together with interest on the
unpaid principal balance outstanding from time to time hereon computed from the
date of each advance until maturity at the rate of Six Percent (6%) per annum.
Interest shall be calculated on a per annum basis of 360 days unless such
calculation would result in a usurious rate, in which event, interest shall be
calculated on a full calendar year basis.
This note renews, extends, modifies, restates, and replaces, but does
not extinguish any prior indebtedness, whether written or oral, providing for
advances from time to time, between Borrower and Lender. THE UNPAID principal
balance hereof shall at no time exceed the sum of TWO HUNDRED THOUSAND and
NO/100 Dollars ($200,000.00).
PAYMENT of this note before maturity may be made at any time or from
time to time, in whole or in part, without penalty or premium. Any such payment
shall be applied first to accrued interest and secondly to principal.
THE UNPAID PRINCIPAL BALANCE of this note at any time shall be the
total amounts lent or advanced hereunder by the holder hereof, less the amount
of payments or prepayments of principal made hereon by or for the account of
Borrower. Borrower may borrow, repay and reborrow funds under this revolving
promissory note and there is no limit on the number of advances against this
note so long as the total unpaid principal at any time outstanding does not
exceed the face amount of the note. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent thereto. All loans or advances and all payments
or prepayments made hereunder on account of principal or interest may be
endorsed by the holder hereof on the
Page 1 of 5 Page Promissory Note
<PAGE> 2
Schedule attached hereto and made a part hereof for all purposes. Additional
Schedule pages may be attached hereto from time to time by the holder hereof if
more space is necessary. The amounts of the advances and payments recorded by
Lender on the reverse hereof or on such schedule shall be binding upon Borrower
as to the amount owed by Borrower. This note may be paid in full from time to
time, but shall nevertheless remain in full force and effect to evidence any
advances made under such revolving line of credit after any such payment in
full. Borrower hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to
Borrower hereunder and all payments made on account of the principal thereof,
which endorsements shall be prima facie evidence as to the outstanding
principal amount of this note; provided, however, any failure by the holder
hereof to make any endorsement shall not limit or otherwise affect the
obligations of Borrower under this note.
ADVANCES hereunder may be made by Lender, in Lender's sole and
absolute discretion, at the oral or written request of any of the undersigned
or of any officer or agent of Borrower designated by or acting under the
authority of resolutions of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to the holder hereof,
until written notice of the revocation of such authority is received by the
Holder hereof. Borrower covenants and agrees to furnish to Lender hereof
written confirmation of any such oral request within five (5) days of the
resulting loan or advance, but any such loan or advance made by the Holder
hereof shall be deemed to be made under and entitled to the benefits of this
note irrespective of any failure by Borrower to furnish such written
confirmation.
IF ANY installment of principal and/or interest on this note is not
paid when due; or if Borrower or any drawer, acceptor, endorser, guarantor,
surety, accommodation party or other person liable upon or for payment of this
note (each hereinafter called an "other liable party"), shall die, or become
insolvent (however such insolvency may be evidenced); or if Borrower or any
co-partnership of which Borrower is a member shall suspend the transaction of
his, its or their usual business, or be expelled from or suspended by any stock
or securities exchange or other exchange; or if any proceeding, procedure or
remedy supplementary to or in enforcement of judgment shall be resorted to or
commenced against, or with respect to any property of, Borrower or any such
co-partnership or other liable party; or if a petition in Bankruptcy or for any
relief under any law relating to the relief of debtors, re-adjustment of
indebtedness, re-organization, composition or arrangement shall be filed, or
any proceedings shall be instituted under any such law, by or against Borrower
or any such co-partnership or other liable party; or if any governmental
authority or any court at the instance thereof shall take possession of any
substantial part of the property of, or assume control over the affairs or
operations of, or a receiver shall be appointed of the property of, or a writ
or order of attachment or garnishment shall be issued or made against any of
the property of, Borrower or any such co-partnership or other liable party; or
if any indebtedness of Borrower or of any such co-partnership or of other
liable party for borrowed money shall become due and payable by acceleration of
maturity thereof; or if Borrower or any such co-partnership or other liable
party ceases to generally pay his or its debts as they become due; or if
Borrower (if a corporation) shall be dissolved or be a party to any merger or
consolidation without the written consent of Lender; or if Borrower or other
liable party fails to furnish financial information reasonably requested by
Lender; or if a default occurs under any instrument now or hereafter
Page 2 of 5 Page Promissory Note
<PAGE> 3
executed in connection with or as security for this note; thereupon, at the
option of Lender, this note and any and all other indebtedness of Borrower to
Lender shall become and be due and payable forthwith without demand, notice of
nonpayment, presentment, protest or notice of dishonor, all of which are hereby
expressly waived by Borrower and each other liable party.
IF THIS NOTE is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
re-organization, arrangement or other legal proceedings for collection hereof,
Borrower and each other liable party agree to pay Lender a reasonable amount as
attorney's fees which is agreed to be an additional amount equal to ten percent
of the unpaid principal and interest hereof. Borrower and each other liable
party are and shall be directly and primarily, jointly and severally, liable
for the payment of all sums called for hereunder, and Borrower and each other
liable party hereby expressly waive demand, notice of nonpayment, presentment,
protest, notice of dishonor, bringing of suit and diligence in taking any
action to collect any sums owing hereon and in the handling of any security,
and Borrower and each other liable party hereby agree to any and all renewals,
extensions for any period, rearrangements and/or partial prepayments hereon and
to any release or substitution of security, in whole or in part, with or
without notice, before or after maturity. Borrower and each other liable party
also waive, to the full extent permitted by law, all right to plead any statute
of limitation as a defense to any action hereunder.
IT IS the intention of Borrower and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of
Texas and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with or as security for this note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this note or
under any of the other aforesaid agreements or otherwise in connection with
this note shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on the note by the
holder hereof (or, if this note shall have been paid in full, refunded to the
Borrower); and (ii) in the event that maturity of this note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
or otherwise, or in the event of any required or permitted prepayment, then
such consideration that constitutes interest may never include more than the
maximum amount allowed by applicable law, and excess interest, if any, provided
for in this note or otherwise shall be canceled automatically as of the date of
such acceleration or prepayment and, if theretofore prepaid, shall be credited
on this note (or if this note shall have been paid in full, refunded to the
Borrower).
IN AN EVENT OF DEFAULT, if one or more of the following events of
default shall occur, all outstanding principal plus unpaid interest of the Loan
and any other indebtedness of Borrower to Lender shall, at the option of
Lender, be due and payable immediately and Lender shall have no further
obligation to fund under this Agreement or the Note:
Page 3 of 5 Page Promissory Note
<PAGE> 4
A. Default shall be made in the payment of any installment of
principal or interest upon the Note or any other obligation
of Borrower to Lender when due and payable, whether at
maturity or otherwise; or
B. Default shall be made in the performance of any term,
covenant or agreement contained herein or in any deed of
trust, security agreement, mortgage, assignment, guaranty or
other contract or agreement evidencing, executed in
connection with or securing payment or any indebtedness of
Borrower to Lender; or
C. Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted
to Lender in connection with the Loan or pursuant to the
requirements of this Agreement shall prove to have been
incorrect or misleading in any material respect when made; or
D. Any judgment against Borrower or any attachment or other levy
against the property of Borrower with respect to a claim
remains unpaid on appeal, undischarged, not bonded or not
dismissed for a period of 30 days; or
E. Borrower makes an assignment for the benefit of creditors,
admits in writing its inability to pay its debts generally as
they become due, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to
any tribunal for any receiver or any trustee of Borrower or
any substantial part of its property, commences any action
relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or
statue of any jurisdiction, whether now or hereafter in
effect, or if there is commenced against Borrower any such
action, or Borrower by any act indicates its consent to or
approval of any trustee for Borrower of any substantial part
of its property, or suffers any such receivership or trustee
to continue undischarged;
then upon the happening of any of the foregoing events of default which shall
be continuing, the Note shall become and be immediately due and payable upon
declaration to that effect by Lender.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America except that V.T.C.A. Finance Code Section 346, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts) shall not apply to the revolving loan account created pursuant hereto.
Unless changed in accordance with law, the applicable rate ceiling under Texas
law shall be the indicated (weekly) rate ceiling as provided in V.T.C.A. Finance
Code Section 303, as amended.
Page 4 of 5 Page Promissory Note
<PAGE> 5
EXECUTED, by its duly authorized representative, effective as of
December 15, 1998.
MEGAWORLD, INC.
By: /s/ CHARLES D. McPHAIL
----------------------------------------
Name: Charles D. McPhail
--------------------------------------
Title: President
-------------------------------------
Page 5 of 5 Page Promissory Note
<PAGE> 6
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL
BALANCE OF
DATE AMOUNT OF AMOUNT OF AMOUNT OF LOAN
ADVANCE PRINCIPAL INTEREST FOLLOWING NOTATION
PAID PAID PAYMENT MADE BY
- -------- --------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
09/30/98 25,000 25,000
- -------- --------- --------- --------- ----------- --------
10/31/98 8,000 17,000
- -------- --------- --------- --------- ----------- --------
10/31/98 7,500 9,500
- -------- --------- --------- --------- ----------- --------
12/31/98 57,000 66,500
- -------- --------- --------- --------- ----------- --------
12/31/98 14,497.50 52,002.50
- -------- --------- --------- --------- ----------- --------
09/30/99 133,000 185,002.50
- -------- --------- --------- --------- ----------- --------
</TABLE>
<PAGE> 1
EXHIBIT 6.19
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS (COLLECTIVELY, THE "ACTS"), AND NO SUCH REGISTRATION IS CONTEMPLATED. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN THE ABSENCE OF ANY EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACTS, THIS PROMISSORY NOTE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACTS.
REVOLVING CREDIT NOTE
$600,000.00 Houston, Texas as of December 15, 1998
TOTAL BUILDING SYSTEMS, INC., a subsidiary of MegaWorld, Inc., a
Delaware corporation ("Borrower"), For Value Received, promises to pay unto the
order of Charles D. McPhail ("Lender"), in lawful money of the United States of
America, on or before the earlier of (i) upon demand made by Lender, or (ii)
December 31, 2000, such sums as the holder hereof may loan or advance to or for
the benefit of Borrower on or after the date hereof in accordance with the terms
hereof, together with interest on the unpaid principal balance outstanding from
time to time hereon computed from the date of each advance until maturity at the
rate of Six Percent (6%) per annum. Interest shall be calculated on a per annum
basis of 360 days unless such calculation would result in a usurious rate, in
which event, interest shall be calculated on a full calendar year basis.
This note renews, extends, modifies, restates, and replaces, but does
not extinguish any prior indebtedness, whether written or oral, providing for
advances from time to time, between Borrower and Lender. THE UNPAID principal
balance hereof shall at no time exceed the sum of SIX HUNDRED THOUSAND and
NO/100 Dollars ($600,000.00).
PAYMENT of this note before maturity may be made at any time or from
time to time, in whole or in part, without penalty or premium. Any such payment
shall be applied first to accrued interest and secondly to principal.
THE UNPAID PRINCIPAL BALANCE of this note at any time shall be the
total amounts lent or advanced hereunder by the holder hereof, less the amount
of payments or prepayments of principal made hereon by or for the account of
Borrower. Borrower may borrow, repay and reborrow funds under this revolving
promissory note and there is no limit on the number of advances against this
note so long as the total unpaid principal at any time outstanding does not
exceed the face amount of the note. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made pursuant to and under the
terms of this note subsequent thereto. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be endorsed
by the holder hereof on the
Page 1 of 5 Page Promissory Note
<PAGE> 2
Schedule attached hereto and made a part hereof for all purposes. Additional
Schedule pages may be attached hereto from time to time by the holder hereof if
more space is necessary. The amounts of the advances and payments recorded by
Lender on the reverse hereof or on such schedule shall be binding upon Borrower
as to the amount owed by Borrower. This note may be paid in full from time to
time, but shall nevertheless remain in full force and effect to evidence any
advances made under such revolving line of credit after any such payment in
full. Borrower hereby authorizes the holder hereof to endorse on the Schedule
attached to this note or any continuation thereof, all advances made to Borrower
hereunder and all payments made on account of the principal thereof, which
endorsements shall be prima facie evidence as to the outstanding principal
amount of this note; provided, however, any failure by the holder hereof to make
any endorsement shall not limit or otherwise affect the obligations of Borrower
under this note.
ADVANCES hereunder may be made by Lender, in Lender's sole and absolute
discretion, at the oral or written request of any of the undersigned or of any
officer or agent of Borrower designated by or acting under the authority of
resolutions of the Board of Directors of Borrower, a duly certified or executed
copy of which shall be furnished to the holder hereof, until written notice of
the revocation of such authority is received by the Holder hereof. Borrower
covenants and agrees to furnish to Lender hereof written confirmation of any
such oral request within five (5) days of the resulting loan or advance, but any
such loan or advance made by the Holder hereof shall be deemed to be made under
and entitled to the benefits of this note irrespective of any failure by
Borrower to furnish such written confirmation.
IF ANY installment of principal and/or interest on this note is not
paid when due; or if Borrower or any drawer, acceptor, endorser, guarantor,
surety, accommodation party or other person liable upon or for payment of this
note (each hereinafter called an "other liable party"), shall die, or become
insolvent (however such insolvency may be evidenced); or if Borrower or any
co-partnership of which Borrower is a member shall suspend the transaction of
his, its or their usual business, or be expelled from or suspended by any stock
or securities exchange or other exchange; or if any proceeding, procedure or
remedy supplementary to or in enforcement of judgment shall be resorted to or
commenced against, or with respect to any property of, Borrower or any such
co-partnership or other liable party; or if a petition in Bankruptcy or for any
relief under any law relating to the relief of debtors, re-adjustment of
indebtedness, re-organization, composition or arrangement shall be filed, or any
proceedings shall be instituted under any such law, by or against Borrower or
any such co-partnership or other liable party; or if any governmental authority
or any court at the instance thereof shall take possession of any substantial
part of the property of, or assume control over the affairs or operations of, or
a receiver shall be appointed of the property of, or a writ or order of
attachment or garnishment shall be issued or made against any of the property
of, Borrower or any such co-partnership or other liable party; or if any
indebtedness of Borrower or of any such co-partnership or of other liable party
for borrowed money shall become due and payable by acceleration of maturity
thereof; or if Borrower or any such co-partnership or other liable party ceases
to generally pay his or its debts as they become due; or if Borrower (if a
corporation) shall be dissolved or be a party to any merger or consolidation
without the written consent of Lender; or if Borrower or other liable party
fails to furnish financial information reasonably requested by Lender; or if a
default occurs under any instrument now or hereafter
Page 2 of 5 Page Promissory Note
<PAGE> 3
executed in connection with or as security for this note; thereupon, at the
option of Lender, this note and any and all other indebtedness of Borrower to
Lender shall become and be due and payable forthwith without demand, notice of
nonpayment, presentment, protest or notice of dishonor, all of which are hereby
expressly waived by Borrower and each other liable party.
IF THIS NOTE is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
re-organization, arrangement or other legal proceedings for collection hereof,
Borrower and each other liable party agree to pay Lender a reasonable amount as
attorney's fees which is agreed to be an additional amount equal to ten percent
of the unpaid principal and interest hereof. Borrower and each other liable
party are and shall be directly and primarily, jointly and severally, liable for
the payment of all sums called for hereunder, and Borrower and each other liable
party hereby expressly waive demand, notice of nonpayment, presentment, protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect any sums owing hereon and in the handling of any security, and Borrower
and each other liable party hereby agree to any and all renewals, extensions for
any period, rearrangements and/or partial prepayments hereon and to any release
or substitution of security, in whole or in part, with or without notice, before
or after maturity. Borrower and each other liable party also waive, to the full
extent permitted by law, all right to plead any statute of limitation as a
defense to any action hereunder.
IT IS the intention of Borrower and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement entered into in
connection with or as security for this note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this note or
under any of the other aforesaid agreements or otherwise in connection with this
note shall under no circumstances exceed the maximum amount of interest allowed
by applicable law, and any excess shall be credited on the note by the holder
hereof (or, if this note shall have been paid in full, refunded to the
Borrower); and (ii) in the event that maturity of this note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount allowed by applicable law, and excess interest, if any, provided for in
this note or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore prepaid, shall be credited on
this note (or if this note shall have been paid in full, refunded to the
Borrower).
IN AN EVENT OF DEFAULT, if one or more of the following events of
default shall occur, all outstanding principal plus unpaid interest of the Loan
and any other indebtedness of Borrower to Lender shall, at the option of Lender,
be due and payable immediately and Lender shall have no further obligation to
fund under this Agreement or the Note:
Page 3 of 5 Page Promissory Note
<PAGE> 4
A. Default shall be made in the payment of any installment of
principal or interest upon the Note or any other obligation of
Borrower to Lender when due and payable, whether at maturity or
otherwise; or
B. Default shall be made in the performance of any term, covenant or
agreement contained herein or in any deed of trust, security
agreement, mortgage, assignment, guaranty or other contract or
agreement evidencing, executed in connection with or securing
payment or any indebtedness of Borrower to Lender; or
C. Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted to
Lender in connection with the Loan or pursuant to the
requirements of this Agreement shall prove to have been incorrect
or misleading in any material respect when made; or
D. Any judgment against Borrower or any attachment or other levy
against the property of Borrower with respect to a claim remains
unpaid on appeal, undischarged, not bonded or not dismissed for a
period of 30 days; or
E. Borrower makes an assignment for the benefit of creditors, admits
in writing its inability to pay its debts generally as they
become due, files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for
any receiver or any trustee of Borrower or any substantial part
of its property, commences any action relating to Borrower under
any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statue of any jurisdiction,
whether now or hereafter in effect, or if there is commenced
against Borrower any such action, or Borrower by any act
indicates its consent to or approval of any trustee for Borrower
of any substantial part of its property, or suffers any such
receivership or trustee to continue undischarged;
then upon the happening of any of the foregoing events of default which shall be
continuing, the Note shall become and be immediately due and payable upon
declaration to that effect by Lender.
THIS NOTE has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America except that V.T.C.A. Finance Code Section 346, as amended
(which regulates certain revolving credit loan accounts and revolving triparty
accounts) shall not apply to the revolving loan account created pursuant hereto.
Unless changed in accordance with law, the applicable rate ceiling under Texas
law shall be the indicated (weekly) rate ceiling as provided in V.T.C.A. Finance
Code Section 303, as amended.
Page 4 of 5 Page Promissory Note
<PAGE> 5
EXECUTED, by its duly authorized representative, effective as of
December 15, 1998.
TOTAL BUILDING SYSTEMS, INC.
By: /s/ CHARLES D. McPHAIL
-------------------------------------
Name: Charles D. McPhail
-------------------------------------
Title: President
-------------------------------------
Page 5 of 5 Page Promissory Note
<PAGE> 6
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL
BALANCE OF LOAN
AMOUNT OF AMOUNT OF AMOUNT OF FOLLOWING NOTATION
DATE ADVANCE PRINCIPAL PAID INTEREST PAID PAYMENT MADE BY
- -------- ---------- -------------- ------------- --------------- --------
<S> <C> <C> <C> <C> <C>
12/15/98 336,530
(balance
forward)
- -------- ---------- -------------- ------------- --------------- --------
12/31/98 150,000 17,565 468,966
- -------- ---------- -------------- ------------- --------------- --------
1/8/99 150,000 318,966
- -------- ---------- -------------- ------------- --------------- --------
1/29/99 140,000 458,966
- -------- ---------- -------------- ------------- --------------- --------
2/1/99 50,000 408,966
- -------- ---------- -------------- ------------- --------------- --------
2/4/99 90,000 318,966
- -------- ---------- -------------- ------------- --------------- --------
6/30/99 157 318,809
- -------- ---------- -------------- ------------- --------------- --------
8/31/99 10,000 328,809
- -------- ---------- -------------- ------------- --------------- --------
9/30/99 31,389 297,420
- -------- ---------- -------------- ------------- --------------- --------
</TABLE>
<PAGE> 1
EXHIBIT 8.1
ACQUISITION / MERGER AGREEMENT
THIS AGREEMENT, made and entered into as of the 11th day of November,
1998, by and between MEGAWORLD, INC. ("MegaWorld" herein), a Delaware
corporation whose address for purposes of this Agreement is 430 Park Avenue, New
York, New York 10022; TOTAL BUILDING SYSTEMS, INC. ("TBS" herein), a Texas
corporation whose address for purposes of this Agreement is 6250 North Houston
Rosslyn Road Houston, Texas 77091-3410; and CHARLES D. McPHAIL ("CDMP" herein),
whose address for purposes of this Agreement is 15411 Fawn Villa, Houston, Texas
77068 (collectively, the "Parties" and individually, each a "Party" herein);
W I T N E S S E T H:
WHEREAS, TBS is successfully involved in the business of constructing
buildings and crew quarters of various materials in its two facilities for
commercial and industrial usage; and
WHEREAS, CDMP is the major shareholder of TBS and its chief executive
officer and is responsible in large part for the growth and success of TBS; and
WHEREAS, in order to increase the net tangible assets of MegaWorld and
thereby enable MegaWorld to obtain a national market system listing for the
trading of its stock and enhance its ability to raise capital, the board of
directors of MegaWorld deems it desirable and in the best interest of the
corporation and its shareholders that MegaWorld acquire TBS, and that the
services and expertise of CDMP be secured by MegaWorld for the corporate
advancement of MegaWorld and to act as an officer and director thereof, all in
the manner herein provided; and
WHEREAS, in order to gain access to the public capital markets
available to MegaWorld and thereby enable TBS to continue to grow and prosper,
the board of directors of TBS deems it desirable that TBS be acquired by
MegaWorld; and
WHEREAS, the boards of directors of MegaWorld and TBS deem it desirable
and in the best interest of the corporations and their shareholders that a new
subsidiary ("TBS Texas" herein) of MegaWorld be formed, and that the acquisition
of TBS by MegaWorld be effected by merging TBS into TBS Texas in a forward
triangular merger; and
WHEREAS, the boards of directors of MegaWorld and TBS intend this
Agreement to set out the terms and conditions of their agreement in order to
effectuate the foregoing upon the terms and conditions hereinafter set forth;
and
NOW, THEREFORE, for and in consideration of the premises, and in
consideration of the mutual covenants and promises of the parties hereto, and of
the mutual benefit therefrom, the adequacy of which is hereby acknowledged by
each of the Parties, the Parties do hereby agree, pursuant to Part Five of the
Texas Business Corporation Act ("TBCA" herein), that TBS Texas be formed and
that TBS be merged into TBS Texas, with TBS Texas to survive as a single
corporation, and that CDMP be employed as a Director and Chief Executive Officer
of each of MegaWorld and of TBS Texas, subject to the following terms and
conditions:
Page 1 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 2
ARTICLE I
MERGER
SEC. 1.1 THE COMPANIES.
1.1.1 TBS. Total Building Systems, Inc. is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. The total number of shares of stock which TBS is authorized to issue is
100,000 shares of a single class of common stock, with $1.00 value, of which
10,000 shares will be outstanding at Closing, all such outstanding shares of TBS
to be duly authorized and validly issued and nonassessable and fully paid. As of
August 31, 1998, the shareholders of TBS are (i) CDMP and Lynn R. McPhail, (ii)
Lisa Marie McPhail, (iii) Lori Lynn McPhail, and (iv) JoyVer Investments, L.L.C.
(collectively "M&J" herein).
1.1.2 MEGAWORLD. MegaWorld, Inc. is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. The total number of shares of stock which MegaWorld is authorized to
issue is as follows:
(a) PREFERRED STOCK. No shares of Preferred Stock are
authorized or issued.
(b) COMMON STOCK. The following numbers of shares of the
following classes of Common Stock ("MegaWorld Common Stock" herein) are
authorized and the following number of shares of each are issued, to
wit:
(i) There are 1,191,741 shares authorized of
Class A Common Stock, with no shares issued.
(ii) There are 98,808,259 shares authorized of
Common Stock other than the aforesaid Class
A, with 10,554,405 shares issued.
All of the outstanding shares of MegaWorld Common Stock are duly
authorized and validly issued, and nonassessable and fully paid. All
shares of MegaWorld Common Stock have $0.0001 par value.
For purposes of this Agreement, an "affiliate" of MegaWorld shall be (i) any
entity, other than a subsidiary, in which MegaWorld owns an interest or
exercises control, (ii) any entity, other than CDMP, which owns an interest in,
or exercises control over MegaWorld, and (iii) any entity under common ownership
or control with MegaWorld of at least ten percent (10%). ITS Telephony, Inc.,ITM
Group, Inc. and MegaWorld Liesure, Inc. are subsidiaries or affiliates of
MegaWorld.
1.1.3 TBS TEXAS. MegaWorld shall, prior to Closing, as
provided herein, create, organize, and fund a corporation ("TBS Texas" herein)
under the laws of the State of Texas, with one class of common stock and
authorized to issue 10,001 shares of such common stock. TBS Texas shall be
organized with Articles of Incorporation and Bylaws in form acceptable to
MegaWorld and CDMP. The Articles of Incorporation and Bylaws of TBS Texas are
Closing Documents, the forms of which shall be negotiated in accordance with
Section 9.3 hereof.
Page 2 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 3
SEC. 1.2 THE MERGER. The Parties agree that TBS Texas and TBS shall
merge (the "Merger" herein), as herein provided, with TBS Texas as the surviving
corporation. On or before Closing, the Parties agree to enter into a Plan of
Merger sufficient under Part Five of the TBCA, in strict accordance herewith,
which Plan of Merger shall be authorized by the shareholders of both TBS and TBS
Texas, and pursuant to which Articles of Merger shall be executed and filed. The
Articles of Merger and the Plan of Merger are Closing Documents, the forms of
which shall be negotiated in accordance with Section 9.3 hereof.
SEC. 1.3 RECRUITING OF TBS MANAGEMENT. The Parties agree that each of
TBS Texas and MegaWorld shall employ CDMP. TBS Texas shall employ CDMP as its
sole Director and its Chief Executive Officer and President by assuming the
Employment Agreement ("TBS Employment Agreement" herein) by and between TBS and
CDMP, which is a Closing Document and a copy of which shall be furnished to
MegaWorld no later than fourteen (14) days prior to Closing in accordance with
Section 9.3 hereof. MegaWorld shall employ CDMP as a Director and its Chief
Executive Officer under the Employment Agreement ("MegaWorld Employment
Agreement" herein), which is a Closing Document, the form of which shall be
negotiated in accordance with Section 9.3 hereof.
SEC. 1.4 EFFECTIVE TIME. This Agreement shall be effective as of 5:00
p.m. EDT on the date of execution by MegaWorld ("Effective Time" herein),
regardless of when it is executed by the other parties.
ARTICLE II
CONSIDERATION
SEC. 2.1 PURCHASE PRICE. Subject to compliance with all the terms and
conditions set forth herein, and in reliance on the representations and
warranties set forth herein, in partial consideration for the merger of TBS and
TBS Texas, the parties hereto agree to the following:
2.1.2 At Closing, MegaWorld shall issue to TBS Texas and cause
to be registered in the registry of shareholders in the corporate records of
MegaWorld 10,200,000 shares ("Closing Shares" herein) of MegaWorld Common Stock,
with suitable legend, distributed to TBS Texas, to fund that corporation and in
partial consideration of, and in exchange for, the issuance to MegaWorld of
10,000 shares of the authorized stock of TBS Texas. At Closing, TBS Texas shall
transfer the 10,200,000 shares of MegaWorld Common Stock, with suitable legend,
in partial consideration of, and in exchange for, their shares of TBS stock, to
be distributed to the following shareholders of TBS in the following amounts
stated below. For one year from the date of this Agreement, MegaWorld shall
issue to those listed below, in the same percentages, an amount of stock equal
(in addition to these amounts stated herein) to the same number of shares that
are issued to all others for whatever purposes except for acquisitions. all
shares listed below shall be diluted or increased in the same percentage amount
as all other present shareholders.
(a) CDMP and Lynn R. McPhail 900,000 shares
(b) Lisa Marie McPhail 1,400,000 shares
(c) Lori Lynn McPhail 1,400,000 shares
(d) JoyVer Investments, L.L.C. 5,100,000 shares
(e) Lynn R. McPhail 1,400,000 shares
Page 3 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 4
2.1.3 At Closing, further to fund TBS Texas, and in further
consideration for the issuance to MegaWorld of the said 10,000 shares of stock
in TBS Texas, MegaWorld shall execute and deliver a Promissory Note ("MegaWorld
Promissory Note" herein), which is a Closing Document, the form of which shall
be negotiated in accordance with Section 9.3 hereof, payable to TBS Texas in the
principal amount of Eight Million and 00/100 Dollars ($8,000,000.00), with a
term of five (5) years, bearing interest at the London Inter-Bank Offered Rate
("LIBOR" herein) plus two percent (2%) during the term thereof, payable in
semi-annual installments of principal and interest as provided herein.
Year 1 - Beginning November 13, 1998 - two payments
of accrued interest only payable on May 13, 1999 and
November 13, 1999.
Year 2 - Two semi-annual payments of principal based
on a twenty (20) year amortization plus accrued
interest payable on May 13, 2000 and November 13,
2000.
Year 3 - Same payment schedule as year 2 but due on
May 13, 2001 and November 13, 2001.
Year 4 - Same payment schedule as year 2 but due on
May 13, 2002 and November 13, 2002.
Year 5 - One semi-annual payment of principal based
on a twenty year amortization plus accrued interest
payable on May 13, 2003 and the remainder of the
principal plus the interest at the rate stipulated
above due on November 13,2003.
If at any time prior to November 13, 2003 that management deems that they
have available funds to be used to pay down this note, they are allowed to do so
with no prepayment penalty.
The MegaWorld Promissory Note and MegaWorld's performance thereunder
shall be unconditionally and absolutely guaranteed in all respects by TBS Texas,
which at Closing shall execute the MegaWorld Promissory Note as a Guarantor, and
shall execute and deliver to CDMP the TBS Texas Guaranty Agreement described in
Section 2.3.5 hereof. At Closing, and in further consideration for their shares
of stock in TBS, TBS Texas shall properly endorse the MegaWorld Promissory Note
and assign the MegaWorld Promissory Note to the following persons in the
following proportions:
(a) CDMP & Lynn R. McPhail 30%
(b) Lisa Marie McPhail 10%
(c) Lori Lynn McPhail 10%
(d) JoyVer Investments, L.L.C. 50%
2.1.4 At Closing, TBS Texas shall issue and cause to be
registered in the registry of shareholders in the corporate records of TBS Texas
the 10,001 shares of stock to be distributed hereunder as follows:
(a) CDMP 1 share
(b) MegaWorld 10,000 shares
TBS Texas shall reserve and grant to MegaWorld the option on the share of stock
to be issued to CDMP, such that at the end of a period of five years after
Closing, if MegaWorld has been in strict compliance with this Agreement at all
times after execution hereof, MegaWorld may purchase the said share of stock
from CDMP for the quarterly average market price, calculated as provided in
Section 2.2 hereof; but on the condition that in the event of a default by
MegaWorld, subject to any applicable cure period as provided in Article
Page 4 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 5
V hereof, in the performance of any obligation of MegaWorld under any of the
Closing Documents, including without limitation this Agreement, the option shall
automatically expire. At Closing, and in consideration of this Agreement, CDMP
and MegaWorld, as the Shareholders of TBS Texas, shall execute, together with
TBS Texas, the TBS Texas Shareholders' Agreement provided for in Section 2.3.1
hereof.
2.1.5 At Closing, the shareholders of TBS shall exchange the
following shares of TBS stock:
(a) CDMP and Lynn R. McPhail 3,000 shares
(b) Lisa Marie McPhail 1,000 shares
(c) Lori Lynn McPhail 1,000 shares
(d) JoyVer Investments, L.L.C. 5,000 shares
for the partial consideration of the transfer to them of the shares of MegaWorld
stock and assignment to them of the MegaWorld Promissory Note, as provided in
Sections 2.1.2 and 2.1.3 above.
2.1.6 MegaWorld and CDMP have agreed that rather than enter
into the MegaWorld Employment Contract contemplated in Section 1.3 hereof, that
CDMP shall use the TBS Employment Contract as the Agreement by which he shall
work for MegaWorld. Nevertheless, both parties agree that the 400,000 shares
("Employment Shares" herein) of MegaWorld Common Stock, with suitable legend,
shall be issued to CDMP at Closing.
2.1.7 Prior to Closing, MegaWorld shall take all action
necessary and appropriate to fulfill its obligations under this Article II,
including without limitation amending its Certificate of Incorporation and its
Bylaws, as necessary, (i) to obtain authorization of the shares of stock to be
issued hereunder and authorization of the issuance thereof in compliance
herewith, and (ii) to eliminate authorization for the issuance of Class A
shares.
2.1.8 From and after Closing, in further consideration for
entering into this Agreement, MegaWorld adopts and accepts CDMP's Total Building
Systems, Inc Employment Contract in its entirety, as if it were an employment
agreement given to CDMP by MegaWorld. For a term of fifteen (15) years from and
after the Date of Closing, and for so long thereafter as CDMP and Lynn R.
McPhail, or either of them, shall survive (that is, for a term of the lives of
Charles D. McPhail and Lynn R. McPhail, and the survivor of them, but in no
event less than fifteen (15) years), MegaWorld shall pay to CDMP and Lynn R.
McPhail, their heirs, successors, and assigns, in cash or MegaWorld, Inc. stock,
at the option of MegaWorld, one percent (1%) of the gross revenue of MegaWorld,
Inc., as reported on the Profit and Loss Statement of MegaWorld's consolidated,
audited, quarterly financial statements, or if MegaWorld, Inc. files financial
statements with the Securities and Exchange Commission, as reported on
MegaWorld's Form 10Q. In the event the payment to be made under this Section is
made in MegaWorld, Inc. stock, the shares to be conveyed shall be Common Stock
and shall be valued at sixty percent (60%) of the quarterly average market price
(based on a weighted average of publicly traded shares sold during the relevant
calendar quarter) of such shares rounded up to the nearest whole number of
shares, to reflect the share commitment calculation. The formula for such
calculation is: the inverse of sixty percent (60%) times the amount due in cash
divided by the quarterly average market price; for example, if the cash amount
due is $1,000, and the quarterly average market price of a share is $2.00, the
number of shares to be conveyed is calculated as follows:
1.6667 x 1,000.00 / $2.00 = 834
Page 5 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 6
If the stock price decreases by fifty percent (50%) or more during any one
calendar quarter, the payment of this obligation shall be in the form of cash,
unless CDMP consents in writing to accept stock. Any payment, whether in cash or
in stock, due hereunder shall be paid or delivered on or before the fifteenth
(15th) of the month following the quarter during or for which it accrued. In the
event that such financial statement is not available, such payment shall be made
on the best estimate of Scott Gildea, or his successor as the primary CPA for
MegaWorld, to be adjusted when such financial statement becomes available.
2.1.9 MegaWorld shall assume the obligations ("CDMP
Obligations" herein) of CDMP, as defined below, and shall, as of and after
Closing, indemnify and save and hold CDMP harmless from and against any and all
loss, cost, risk, and expense arising, directly or indirectly, in relation to
the CDMP Obligations. By June 1, 1999, MegaWorld shall use its best efforts to
cause CDMP to be formally and completely released by the respective obligees
from all of the CDMP Obligations and any further responsibility thereunder. For
purposes of this Agreement, the term "CDMP Obligations" shall mean all debts and
obligations of CDMP incurred as a shareholder, director, or officer of TBS,
including without limitation any and all guarantees of TBS debts and
obligations, and further including without limitation the specific guaranteed
debts and specific obligations of TBS for which CDMP is an obligor or
co-obligor, rather than a guarantor. Excluded from this provision are any debts
or obligations personal in nature and not related to TBS.
2.1.10 MegaWorld from the time of closing until June 30, 1999
grants to CDMP an option on behalf of the shareholders listed in 2.1.2 to obtain
more stock under this agreement should the price contemplated for the stock not
meet expectations. Based on 8,000,000 shares, CDMP has the one time option to
increase his shares by 10% at no cost to himself should the closing price on
December 31, 1998 be less than $3.00 per share. Should CDMP not chose to
exercise his option on December 31,1998 he will have an option on March 31,1999
to increase his 8,000,000 by 25% at no cost to himself should the price of a
share be less than $3.00 on that date. Finally, should CDMP still retain his
option on June 30, 1999,as a result of not exercising it on December 31,1998 or
March 31,1999 and the price of a share be less than $3.00 at closing then he
will have the option of increasing his 8,000,000 shares by 50%. Any exercise of
an option shall be accomplished by notification in writing to MegaWorld within
10 days of one of the three election dates. The distribution of the additional
shares under this provision shall be in accordance with the percentages in the
schedule set up in 2.1.2.
SEC. 2.2 SHARE PRICE ADJUSTMENTS. Wherever in this Agreement provision
is made for calculations based on the price of publicly traded shares of stock
of MegaWorld, there shall be excluded from the sales considered in such
calculations (i) sales of MegaWorld shares not sold through a public exchange or
the NASDAQ bulletin board, (ii) sales of MegaWorld shares to or by any officer
or director, or to or by any beneficial owner (holder of 10 percent or more) of
MegaWorld stock, including without limitation any beneficial owner disclosed as
such in any SEC Form 4 or 5 filed or required to be filed by such owner, (iii)
trades of lots in excess of 100,000 shares which lowers the price of shares, and
(iv) trades of odd lots of less than 100 shares.
SEC. 2.3 SECURITY AGREEMENTS, INTERESTS, AND GUARANTEES; TBS TEXAS
SHAREHOLDER AGREEMENT; MEGAWORLD SHAREHOLDER VOTING AGREEMENT.
Page 6 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 7
2.3.1 MegaWorld and CDMP shall, as shareholders of TBS Texas'
shares, enter into a Shareholders' Agreement ("TBS Texas Shareholders'
Agreement" herein). The TBS Texas Shareholders' Agreement shall provide for, but
in no way be limited to, the following matters: (i) the term of the
Shareholders' Agreement, (ii) that MegaWorld shall elect and continue to elect
CDMP, or CDMP's nominee, as the sole director of TBS Texas, and no other
directors, (iii) that CDMP, or his nominee, shall be Chief Executive Officer and
President of TBS Texas, and (iv) that TBS Texas shall, under the TBS
Shareholders' Agreement, distribute the Closing Shares as set forth in Section
2.1.2 hereof. TBS Texas shall join in the TBS Texas Shareholders' Agreement as a
party thereto. The TBS Texas Shareholders' Agreement is a Closing Document, the
form of which shall be negotiated in accordance with Section 9.3 hereof.
2.3.2 MegaWorld shall guarantee all performance by TBS Texas
hereunder; which guarantee is to be expressed in writing in the Guaranty
Agreement ("MegaWorld Guaranty Agreement" herein), and which MegaWorld Guaranty
is a Closing Document, the form of which shall be negotiated in accordance with
Section 9.3 hereof.
2.3.3 Omitted
2.3.4 MegaWorld shall pledge to CDMP all of its TBS Texas
shares as security for performance hereunder by TBS Texas and MegaWorld. At
Closing, MegaWorld shall execute and deliver to CDMP the following documents:
(a) MegaWorld Guaranty Agreement in form required under
Section 2.3.2 above, guaranteeing the performance of all of the
obligations of TBS Texas to CDMP hereunder;
(b) Security Agreement ("MegaWorld Security Agreement"
herein), which is a Closing Document, the form of which shall be
negotiated in accordance with Section 9.3 hereof, securing the
performance of all obligations of MegaWorld to CDMP hereunder,
including without limitation performance under the MegaWorld Employment
Agreement and the MegaWorld Guaranty Agreement, providing for, among
other things, the security interest in all of its shares of TBS Texas;
and
(c) Pledge Agreement ("MegaWorld Pledge Agreement" herein), is
a Closing Document, the form of which shall be negotiated in accordance
with Section 9.3, pledging to CDMP all of MegaWorld's shares of stock
in TBS Texas, allowing thereby enforcement of the security interest
therein under the MegaWorld Security Interest.
2.3.5 TBS Texas shall guarantee all performance by MegaWorld
hereunder and all performance by the Required Shareholders under the MegaWorld
Shareholder Voting Agreement, which guarantee is to be expressed in writing in
the Guaranty Agreement ("TBS Texas Guaranty Agreement" herein), and which TBS
Texas Guaranty Agreement is a Closing Document, the form of which shall be
negotiated in accordance with Section 9.3 hereof.
2.3.6 TBS Texas shall assume all obligations of TBS, and shall
indemnify and hold CDMP harmless from and against all loss, cost, risk, and
expense arising from, or in any manner related to, any obligation of TBS,
including without limitation all obligations of TBS for which CDMP has given a
personal guarantee to any extent, and particularly including without limitation
any and all debt and other obligations of TBS to Compass Bank and all
obligations of CDMP under any guarantee of any part thereof. The assumption of
TBS's obligations by TBS Texas shall be unconditional and absolute, and TBS
Texas shall execute an Assumption
Page 7 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 8
Agreement ("TBS Texas Assumption Agreement" herein), is a Closing Document, the
form of which shall be negotiated in accordance with Section 9.3 hereof, and
such assumption shall be further evidenced, from time to time, by execution by
TBS Texas of similar assumption agreements for particular obligations to
particular obligees, and by delivery of same to such obligees in lieu of copies
of the TBS Texas Assumption Agreement. The indemnification of CDMP by TBS Texas
provided for in this Section shall be unconditional and absolute, and TBS Texas
shall execute an Indemnification Agreement ("TBS Texas Indemnification
Agreement" herein), which is a Closing Document, the form of which shall be
negotiated in accordance with Section 9.3 hereof.
2.3.7 TBS Texas shall enter into the TBS Texas Shareholders'
Agreement provided for in Section 2.3.1 above.
2.3.8 TBS Texas shall grant to CDMP a security interest in all
of its assets, including without limitation the assets of TBS acquired in the
merger with TBS as security for TBS Texas' performance of all of its obligations
to CDMP, including without limitation its obligations under the TBS Texas
Guaranty Agreement and the TBS Texas Shareholders' Agreement. At Closing, TBS
Texas shall execute and deliver to CDMP the following documents:
(a) TBS Texas Assumption Agreement in form required under
Section 2.3.6 above, assuming all obligations of TBS;
(b) TBS Texas Indemnification Agreement in form required under
Section 2.3.6 above, indemnifying CDMP against all loss, cost, risk,
and expense arising from, or in any manner related to, any obligation
of TBS; and
(c) TBS Texas Guaranty Agreement in form required under
Section 2.3.5 above, guaranteeing the performance of all of the
obligations of TBS Texas to CDMP hereunder;
(d) Security Agreement ("TBS Texas Security Agreement"
herein), which is a Closing Document, the form of which shall be
negotiated in accordance with Section 9.3 hereof, securing the
performance of all obligations of TBS Texas and all obligations of TBS
to CDMP hereunder, including without limitation performance under the
TBS Employment Agreement and the TBS Texas Guaranty Agreement,
providing for, among other things, the security interest in all of the
assets of TBS Texas, including without limitation all assets acquired
in the merger with TBS hereunder; and
(e) Deed of Trust ("TBS Texas Deed of Trust" herein), which is
a Closing Document, the form of which shall be negotiated in accordance
with Section 9.3 hereof, securing the performance of all obligations of
TBS Texas and all obligations of TBS to CDMP hereunder, including
without limitation performance under the TBS Employment Agreement and
the TBS Texas Guaranty Agreement, providing for, among other things, a
lien against the real property and real property rights of TBS.
Page 8 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SEC. 3.1 REPRESENTATIONS AND WARRANTIES OF TBS. TBS hereby represents
and warrants to MegaWorld and TBS Texas that, except as and to the extent set
forth in a Disclosure Schedule (the "TBS Disclosure Schedule") delivered to
MegaWorld in accordance with Section 9.3 hereof, setting forth additional
exceptions specified therein to the representations and warranties contained in
this Article III, which TBS Disclosure Schedule shall identify exceptions by
specific Section references:
3.1.1 CORPORATE ORGANIZATION. TBS is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas and has all requisite corporate power and authority and all necessary
governmental approvals to own or lease and operate its properties and assets and
to carry on its business as it is now being conducted, and is duly qualified or
licensed as a foreign corporation to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it makes such
qualification or licensing necessary, except where the failure to be so
organized, existing, in good standing, qualified, or licensed would not have a
Material Adverse Effect on TBS. As used herein the term "Material Adverse
Effect" means any change or effect that, individually or in the aggregate, is or
is reasonably likely to be materially adverse to the business, operations,
properties, prospects, condition (financial or otherwise), assets, or
liabilities (including without limitation contingent liabilities) of the subject
entity.
3.1.2 CAPITALIZATION The authorized capital stock of TBS
consists of the following:
(a) PREFERRED STOCK. No shares of Preferred Stock are
authorized or issued.
(b) COMMON STOCK. 100,000 shares of Common Stock, par value
$1.00 (the "TBS Common Stock"), 10,000 shares of which will at Closing
be outstanding and duly authorized and validly issued and nonassessable
and fully paid.
(c) There are no voting trusts or other agreements or
understandings to which TBS is a party with respect to the voting of
the TBS Common Stock.
(d) All securities sold or issued by TBS have been sold or
issued in full and complete compliance with the requirements of the
federal securities law, order, rule, or regulation, and any applicable
state securities or "blue sky" laws, or under applicable exemptions and
exclusions therefrom.
3.1.3 SUBSIDIARIES. TBS does not own, directly or indirectly,
any equity or similar interest in, or any interest convertible into or
exchangeable for, any equity or similar interest in any corporation,
partnership, joint venture, or other business association or entity.
3.1.4 AUTHORITY. TBS has the full corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the
Page 9 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 10
consummation of the transactions contemplated hereby have been duly approved by
the Board of Directors of TBS and no other corporate proceedings on the part of
TBS are necessary to authorize this Agreement or to consummate the transactions
so contemplated (other than, with respect to the Merger, the approval of the
Merger and adoption of this Agreement by the shareholders of TBS, and such other
acts required by part five of TBCA). This Agreement has been duly executed and
delivered by, and, assuming the due authorization, execution, and delivery
thereof by MegaWorld and TBS Texas, constitutes a valid and binding obligation
of TBS, enforceable against TBS in accordance with its terms.
3.1.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by TBS nor the consummation by TBS of
the transactions contemplated hereby will (i) conflict with or result in any
breach or violation of any provision of the Articles of Incorporation or Bylaws
of TBS, or (ii) constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation contained in or to
the loss of a benefit under, or result in the creation of any lien or other
encumbrance upon any of the properties or assets of TBS under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation, permit, concession,
franchise, judgment, order, decree, statute, law, ordinance, rule, or regulation
applicable to TBS or to which it or any of its properties or assets may be
subject, except for such violations, conflicts, breaches, terminations,
accelerations, or creations of liens or other encumbrances, which will not have
a Material Adverse Effect on TBS, or (iii) require any consent, approval,
authorization, or permit of, or filing with, or notification to, any
governmental entity, including without limitation filings under the HSR Act,
except (A) filing articles of merger pursuant to the TBCA, or (B) consents,
approvals, authorizations, permits, filings, or notifications which if not
obtained or made will not have a Material Adverse Effect on TBS or prevent or
materially delay consummation of the Merger.
3.1.6 FINANCIAL INFORMATION. Schedule 3.1.6 in the TBS
Disclosure Schedule consists of the following financial statements of TBS:
Annual financial statements for the year ended December 31, 1997; and (ii)
unaudited internally prepared consolidated balance sheets, operating statements,
and related schedules as of, and for the periods ended March 31, 1998, the trade
date. The financial statements referred to in clause (i) of this Section 3.1.6
and the unaudited financial statements referred to in clause (ii) of this
Section 3.1.6, together with the footnotes and supporting schedules in respect
of such financial statements, are collectively referred to as the "TBS Financial
Statements."
(a) The TBS Financial Statements are true and correct with
respect to each material item shown or reflected thereon, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in
the notes thereto) and fairly present the financial position of TBS as
of the dates thereof and the results of operations and cash flows for
the periods then ended, subject to normal year end adjustments.
(b) The TBS Financial Statements set forth all the liabilities
of TBS (direct and indirect, contingent and accrued) of whatever nature
at the date thereof, whether arising out of contract, tort, statute, or
otherwise, except liabilities and obligations under contracts,
commitments, agreements, torts, statutes, or otherwise set forth on
Schedule 3.1.6(b) in the TBS Disclosure Schedule.
Page 10 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 11
(c) The TBS Financial Statements shall be updated at Closing
through August 31, 1998.
3.1.7 CONDUCT OF BUSINESS.
(a) The business of TBS, as presently conducted, is not being
conducted in default or violation of any term, condition, or provision
of (i) its charter or bylaws, or (ii) any note, bond, mortgage,
indenture, deed of trust, lease, agreement, or other instrument or
obligation of any kind to which TBS is a party or by which TBS or any
of its properties or assets may be bound, or (iii) any federal, state,
local, or foreign statue, law, ordinance, rule, regulation, judgment,
decree, order, concession, grant, franchise, permit, or license or
other governmental authorization or approval applicable to TBS,
excluding from the foregoing clauses (ii) and (iii) defaults or
violations that could not reasonably be expected to have a Material
Adverse Effect on TBS.
(b) TBS has all licenses, permits, orders, or approvals of,
and has made all required registrations with, all governmental entities
that are material to the conduct of the business of TBS (collectively
"TBS Permits" herein). To TBS's knowledge: (i) all TBS Permits are in
full force and effect; (ii) no material violations are or have been
recorded in respect of any TBS Permit; and (iii) no proceeding is
pending or threatened to revoke or limit any TBS Permit. Upon request,
TBS shall provide to MegaWorld copies of any or all of the TBS Permits.
(c) TBS has not received any written communication from a
governmental entity or any landlord or purchaser of assets that alleges
that TBS is not in compliance with any Environmental Law. TBS has no
knowledge of any environmental materials or information, including
on-site or off-site disposal or releases of Hazardous Materials, that
could reasonably be expected to have a Material Adverse Effect on TBS.
As used in this Agreement, the term "Environmental Laws" means any
applicable treaties, laws, regulations, enforceable requirements,
orders, decrees, or judgments issued, promulgated, or entered into by
any governmental entity, which relate to (A) pollution or protection of
the environment, or (B) the generation, storage, use, handling,
disposal, or transportation of or exposure to Hazardous Materials,
including the Comprehensive Environmental Response, Compensation and
Liability Act of 1930, as amended, 42 U.S.C Section 9601, et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 9601, et seq., the Federal Water Pollution Control Act,
as amended, 33 U.S.C. Section 1251, et seq., the Clean Air Act of 1970,
as amended, 42 U.S.C. Section 7401, et seq., the Toxic Substances
Control Act of 1976, 15 U.S.C. Section 2601, et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1301, et seq., any
other similar or implementing state or local law, and all amendments or
regulations promulgated thereunder; and the term "Hazardous Materials"
means all explosive or regulated radioactive materials or substances,
biological hazards, genotoxic or mutagenic hazards, hazardous or toxic
substances, medical wastes or other wastes or chemicals, petroleum or
petroleum distillates, asbestos or asbestos-containing materials, and
all other materials or chemicals regulated pursuant to any
Environmental Law, including materials listed in 49 C.F.R. Section
172.101, and materials defined as hazardous pursuant to Section 101(14)
of CERCLA.
(d) TBS has either multiple sources of supply or satisfactory
long term contractual arrangements with respect to the acquisition of
all essential parts and components used by it in the manufacture and
assembly of all products material to its business.
Page 11 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 12
3.1.8 LITIGATION. There is no suit, action, or proceeding
pending or, to the knowledge of TBS, threatened against TBS that, individually
or in the aggregate, could reasonably be expected to (i) have a Material Adverse
Effect on TBS, (ii) materially impair the ability of TBS to perform its
obligations under this Agreement, or (iii) prevent the consummation of any of
the transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule, or order of any governmental entity outstanding
against TBS having or that could reasonably be expected to have, any such
effect. The litigation , if any, to which TBS is a party is listed in Schedule
3.1.8 in the TBS Disclosure Schedule.
3.1.9 LABOR AGREEMENTS AND ACTIONS.
(a) TBS is not bound by or subject to (and none of its assets
or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment, or arrangement with any labor union,
and no labor union has requested or, to the knowledge of TBS, has
sought to represent any of the employees, representatives, or agents of
TBS. There is no strike or other labor dispute involving TBS pending,
or to the knowledge of TBS, threatened which could have a Material
Adverse Effect on TBS, nor is TBS aware of any labor organization
activity involving its employees.
(b) Except as provided in Schedule 3.1.9 in the TBS Disclosure
Schedule, (i) the employment of each officer and employee of TBS is
terminable at the will of TBS, and (ii) TBS has not entered into any
oral or written agreements with any of its officers or employees that
provide for severance or termination pay or acceleration of vesting of
stock options or restricted stock.
(c) TBS has complied in all material respects with all
applicable and effective state and federal equal employment opportunity
laws and with other laws related to employment.
(d) TBS is not aware that any officer or key employee, or that
any group of key employees, intends to terminate the employment of such
officer or employee(s) with TBS, nor does TBS have any present
intention to terminate the employment of any officer or key employee.
3.1.10 CERTAIN AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except
as provided in Schedule 3.1.10 or 3.1.15 in the TBS Disclosure Schedule:
(a) TBS is not a party to any written (i) employment,
severance, collective bargaining, or consulting agreement not
terminable on 90 days' or less notice, (ii) agreement with any
executive officer or other key employee of TBS (A) the benefits of
which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving TBS of the nature of any
of the transactions contemplated by this Agreement, (B) providing any
term of employment or compensation guarantee extending for a period
longer than one year, or (C) providing severance benefits or other
benefits after the termination of employment of such executive officer
or key employee regardless of the reason for such termination of
employment, (iii) agreement, plan, or arrangement under which any
person may receive payments subject to the tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), or (iv)
agreement or plan, including without
Page 12 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 13
limitation any stock option plan, stock appreciation right plan,
restricted stock plan, or stock purchase plan, the benefits of which
would be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. The 401(k) Plan of TBS is non-contributing on the part of
TBS.
(b) Schedule 3.l0(b) contains a true and complete Summary or
list of, or otherwise describes (i) all employee benefit plans (within
the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree,
medical, or life insurance, supplemental retirement, severance or other
benefit plans, programs, or arrangements, and all employment,
termination, severance, or other contracts or agreements to which TBS
is a party, with respect to which TBS has any obligations which are
material in amount and which are maintained, contributed to, or
sponsored by TBS for the benefit of any current or former employee,
officer, or director of TBS, and (ii) each employee benefit plan for
which TBS could incur liability under Section 4069 of ERISA, in the
event such plan were terminated, or under Section 4212(c) of ERISA, or
in respect of which TBS remains secondarily liable under Section 4204
of ERISA (collectively, the "TBS Material Plans"). Each TBS Material
Plan is in writing and TBS shall before Closing, at the request of
MegaWorld, provide to MegaWorld a true and complete copy of each TBS
Material Plan and a true and complete copy of each material document
prepared in connection with each such TBS Material Plan, including
without limitation: (i) a copy of each trust or other funding
arrangement, (ii) the most current summary plan description and summary
of material modifications, (iii) the most recently filed Internal
Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS
determination letter for each such TBS Material Plan, and (v) the most
recently prepared actuarial report and financial statement in
connection with each such TBS Material Plan. TBS has no express or
implied commitment (i) to create, incur liability with respect to or
cause to exist any other employee benefit plan, program, or
arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual, or (iii) to modify, change,
or terminate any TBS Material Plan, other than with respect to a
modification, change, or termination required by ERISA or the Code. To
the extent applicable, the TBS Material Plans comply with the material
requirements of ERISA and the Code, and any TBS Material Plan intended
to be qualified under Section 401(a) of the Code has been determined by
the IRS to be so qualified and has been so qualified during the period
from its adoption to date. No TBS Material Plan is covered by Title IV
of ERISA or Section 412 of the Code. Neither TBS nor, to TBS's
knowledge, any officer or director of TBS has incurred any liability or
penalty under Sections 4975 through 4980 of the Code or Title I of
ERISA. To the knowledge of TBS, each TBS Material Plan has been
maintained and administered in all material respects in compliance with
its terms and with the requirements prescribed by any and all statutes,
orders, rules, and regulations, including but not limited to ERISA and
the Code, which are applicable to such TBS Material Plans. There are no
pending or, to TBS's knowledge, anticipated claims against or otherwise
involving any of the TBS Material Plans and no suit, action, or other
litigation (excluding claims for benefits incurred in the ordinary
course of TBS Material Plan activities) has been brought or, to the
knowledge of TBS, is threatened, against or with respect to any such
TBS Material Plan. All material contributions, reserves, or premium
payments required to be made or accrued as of the date hereof to the
TBS Material Plans have been made or accrued.
(c) The only shareholders of TBS, as of August 31,1998, will
be as shown in Section 2.1.5 hereof, and there will be no outstanding
Stock Options representing rights to acquire shares of stock in TBS.
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3.1.11 TAXES. TBS has duly and timely filed all returns,
reports, statements and other filings including, without limitation, any
schedule or attachment thereto or any amendment thereof (collectively, "TBS
Returns," true and complete copies of which have been furnished to MegaWorld)
required (by law, election, or otherwise) to be filed by it with respect to any
and all U.S. Federal, state (of the United States), or the District of Columbia,
or any of their respective political subdivisions, or any other applicable
United States or foreign income, franchise, capital, ad valorem, sales, use,
transfer, gains, employment, bulk transfer, severance, occupancy, value added or
other taxes, levies, license fees, assessments, or excises or other taxes of any
kind whatsoever, including any interest, penalty, charge, fee, or addition
thereto, whether disputed or not (collectively, the "Taxes") imposed by any
revenue or other law, rule, regulation, ordinance; or other official action of
or by any such jurisdiction or any board, commission, agency, or other
instrumentality thereof (collectively, "Taxing Authority") for all fiscal years
or other taxable periods (collectively "Tax Periods") ending on or prior to
Closing. Each TBS Return has included the assets, income, operations, and other
attributes of TBS, and each TBS Return was true, correct, and complete as filed.
TBS has duly and timely paid in full all Taxes shown or required to be shown as
due on each TBS Return. TBS has no deficiency or any other unsatisfied liability
with respect to any Taxes that are due and payable, whether or not assessed,
which is not fully disclosed and adequately provided for in the TBS Financial
Statements set forth in Schedule 3.1.11 of the TBS Disclosure Schedule. The
Returns of TBS have never been audited or examined by any governmental or taxing
authority, except for audits concluded with a "No Action" notice from the
auditing Taxing Authority, nor is any such audit in process, or to TBS's
knowledge, pending or threatened (either in writing or orally, formally or
informally). TBS has disclosed on its Returns all positions taken thereon that
could give rise to a penalty within the meaning of Section 6662 of the Code, or
any similar provision of law in any other taxing jurisdiction. There have been
no waivers of limitations periods or deadlines for assessments by TBS except as
set forth in Schedule 3.1.11. Schedule 3.1.11 sets forth elections that have
been made by, for, or with respect to TBS in respect of Taxes and a list of all
TBS Returns that will be due (without regard to extensions) by TBS within thirty
(30) days after Closing, together with an accurate and complete description of
TBS's basis in its assets, TBS's current and accumulated tax carry-overs, net
operating losses, or other tax attributes presently (including by reason of the
transaction contemplated hereby) subject to limitations under Code sections 382,
383, or 384, or any similar provision of law in any other taxing jurisdiction.
As of Closing, TBS will not be a party to or owe any money under any tax sharing
or similar agreement in respect of Taxes. TBS has never been a member of an
affiliated group filing consolidated returns.
3.1.12 ABSENCE OF CERTAIN CHANCES OR EVENTS. Except as
provided in Schedule 3.1.12 of the TBS Disclosure Schedule, since June 30, 1998,
except as contemplated by this Agreement, TBS has conducted its business only in
the ordinary course consistent with past practice, and there has not been (i)
any damage, destruction, or loss, whether covered by insurance or not, having or
which, insofar as reasonably can be foreseen, in the future would have a
Material Adverse Effect on TBS, (ii) any declaration, setting aside, or payment
of any dividend (whether in cash, stock, or property) with respect to Preferred
Stock or Common Stock, or any redemption, purchase, or other acquisition of any
of its securities, (iii) any change in the business, operations, properties,
prospects, condition (financial or otherwise), assets, or liabilities (including
without limitation contingent liabilities) of TBS having a Material Adverse
Effect on TBS, (iv) any labor dispute, other than routine matters, none of which
is material to TBS, (v) any entry into any material commitment or transaction
(including without limitation any borrowing or capital expenditure) other than
in the ordinary course of business consistent with past practice, (vi) any
material change by TBS in its accounting methods, principles, or practices,
(vii) any revaluation by TBS of any asset (including without limitation any
writing down of the value of inventory or writing off of notes or accounts
receivable), or (viii) other than the Sales Incentive Program adopted on or
about August 1, 1998, any increase in or establishment of any bonus, insurance
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation
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the granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase, or other employee benefit plan, or any
other increase in the compensation payable or to become payable to any officers
or key employees of TBS. The assumption by TBS Texas of the TBS Employment
Agreement between TBS and CDMP is a condition of the execution of this
Agreement.
3.1.13 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT.
(a) Subject to the liens shown on the TBS Disclosure Schedule,
TBS owns marketable and indefeasible title to all real property owned
by TBS. Schedule 3.1.13(a) of the TBS Disclosure Schedule sets forth a
complete and accurate list of all real property owned by TBS.
(b) Complete and accurate copies of all of the existing real
property leases to which TBS is a party have been or shall be delivered
to MegaWorld prior to Closing. Schedule 3.l3(b) sets forth a complete
and accurate list of all real property leased by TBS.
(c) TBS owns or has valid leasehold interests in all of its
tangible properties and assets (real, personal, and mixed) used in its
business, free and clear of any liens (other than liens for Taxes that
are not yet delinquent), charges, pledges, security interests, or other
encumbrances, except for such imperfections of title and encumbrances,
if any, that are not substantial in character, amount or extent, and
that do not and are not reasonably likely to materially detract from
the value, or interfere with the use of the property subject thereto or
affected thereby. TBS shall, prior to Closing, deliver to MegaWorld
correct and complete copies of each lease identified in Schedule
3.l3(b) and such leases are valid and enforceable by TBS in accordance
with their terms. TBS has received no notice that, and, to TBS's
knowledge, no circumstance exists which, with the passage of time or
the giving of notice, or both, could constitute a default under any
such leases, nor are there any unsatisfied obligations on the part of
TBS under any of the leases for real property to which TBS is a party.
(d) Each item of machinery and equipment owned or leased by
TBS is (i) adequate for the conduct of the business of TBS consistent
with its past practice, (ii) suitable for the uses to which it is
currently employed, (iii) in good operating condition, ordinary wear
and tear excepted, and (iv) regularly and properly maintained.
3.1.14 INTELLECTUAL PROPERTY.
(a) TBS either owns, or has a valid license with respect to,
all patents, copyrights, trademarks, trade secrets, and other
intellectual property used in, by, or necessary to, the operation or
conduct of its business as presently conducted (such intellectual
property and the rights thereto are collectively referred to herein as
the "TBS Intellectual Property Rights").
(b) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby (i) will
not constitute a material breach of any instrument or agreement to
which TBS is a party governing any patent, copyright, trademark, trade
secret, or other intellectual property rights licensed by, or to, TBS,
and (ii) will not cause
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the forfeiture or termination, or give rise to a right of forfeiture or
termination, of any TBS Intellectual Property Rights or materially
impair the right of TBS, TBS Texas, or MegaWorld in or to use, sell,
enforce, license, or otherwise exploit any TBS Intellectual Properly
Rights or portion thereof.
(c) Neither the operation of TBS's business, the exploitation
of the TBS Intellectual Property Rights, nor the manufacture,
marketing, license, sale, or intended use of any product, service, or
technology currently licensed, manufactured, created, distributed,
authored, used, sold, or under development by TBS (i) violates in any
material respect any license or agreement between TBS and any third
party, or (ii) infringes any patents, copyright, trademark, trade
secret, or other intellectual property right of any other party. There
is no pending or, to the knowledge of TBS, threatened claim or
litigation involving TBS contesting the validity, ownership, or right
to use, sell, enforce, license, or dispose of any TBS Intellectual
Property Rights, nor has TBS received any written notice asserting that
any TBS Intellectual Property Rights or the proposed use, sale,
license, or disposition thereof conflicts or will conflict with the
rights of any other party.
3.1.15 MATERIAL CONTRACTS. Except for stock option grants as
identified in Schedule 3.1.10 or 3.1.15 of the TBS Disclosure Schedule, there
are no agreements, understandings, or proposed transactions between TBS and any
of its officers, directors, affiliates, or any affiliate thereof. Except as
identified in Schedule 3.1.10 or 3.1.15, there are no agreements,
understandings, instruments, contracts, or proposed transactions to which TBS is
a party or by which it is bound that involve (i) obligations (contingent or
otherwise) of or payments to, TBS in excess of $250,000.00, other than purchase
orders in individual amounts of less than $500,000.00 received in the ordinary
course of business, (ii) the license of any patent, copyright, trade secret, or
other proprietary right to or from TBS, or (iii) the grant of rights to
manufacture, produce, assemble, license, market, or sell its products to any
other person or affect TBS's exclusive right to develop, manufacture, assemble,
distribute, market, or sell its products (the "TBS Material Contracts"). To the
knowledge of TBS: (i) each TBS Material Contract is in full force and effect
except as the same may have expired in accordance with its terms; (ii)TBS has
not received any written assertion of default under any TBS Material Contract;
and (iii) TBS has not received any notice related to any termination or material
change to, or proposal with respect to, any of the TBS Material Contracts as a
result of the transactions contemplated by this Agreement. TBS is not a party
to, nor has it any obligation under, any contract or agreement, written or oral,
which contains any covenants, currently or prospectively, limiting the freedom
of TBS to engage in its business as currently conducted anywhere in the world or
to compete in its business with any entity anywhere in the world.
3.1.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
Visitors to TBS, including without limitation consultants to or vendors of TBS
with access to confidential information of TBS, are parties to a written
agreement substantially in the form or forms attached to Schedule 3.1.16 under
which, among other things, each such visitor is obligated to maintain the
confidentiality of confidential information of TBS. TBS is not aware of any
violations thereof.
3.1.17 HART-SCOTT-RODINO. TBS's total assets and annual net
sales do not satisfy the "Size of the Parties Test" for an acquired person under
Section 7A(a)(2) of the HSR Act and the regulations promulgated thereunder.
3.1.18 NO CONFLICT OF INTEREST. Except as provided in Schedule
3.1.18 to the TBS Disclosure Schedule, TBS is not indebted, directly or
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever
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other than in connection with expenses or advances of expenses incurred in the
ordinary course of business or relocation expenses of employees. To TBS's
knowledge, none of TBS's officers or directors, or any members of their
immediate families, directly or indirectly, are indebted to TBS or have any
direct or indirect ownership interest in any firm or corporation with which TBS
is affiliated or with which TBS has a business relationship, or any firm or
corporation which competes with TBS, except that officers, directors and/or
stockholders of TBS may own stock in (but not exceeding two percent of the
outstanding capital stock of) any publicly traded company that may compete with
TBS. To TBS's knowledge, none of TBS's officers or directors or any member of
their immediate families, is interested, directly or indirectly, in any Material
Contract with TBS. TBS is not a guarantor or indemnitor of any indebtedness of
any other person, firm, or corporation.
3.1.19 TAKEOVER STATUTES INAPPLICABLE. No "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation (each a "Takeover Statute") is applicable to TBS, the Preferred
Stock, the Common Stock the Merger or any of the other transactions contemplated
by this Agreement.
3.1.20 BROKERS AND FINDERS. TBS has not employed any broker or
finder or incurred any liability for any fee or commission to any broker,
finder, or intermediary in connection with the transactions contemplated hereby.
3.1.21 NO MISSTATEMENTS. No representation or warranty made by
TBS in this Agreement, or in any Schedule to this Agreement, or certificate
delivered or deliverable pursuant to the terms hereof, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact or omits, or will omit, to state a material fact necessary in
order to make the statements made, in light of the circumstances under which it
was made, not misleading.
SEC. 3.2 REPRESENTATIONS AND WARRANTIES OF MEGAWORLD. MegaWorld hereby
represents and warrants to TBS, TBS Texas, and CDMP that, except as and to the
extent set forth in a Disclosure Schedule (the "MegaWorld Disclosure Schedule")
delivered to CDMP in accordance with Section 9.3 hereof, setting forth
additional exceptions specified therein to the representations and warranties
contained in this Article III, which MegaWorld Disclosure Schedule shall
identify exceptions by specific Section references:
3.2.1 CORPORATE ORGANIZATION.
(a) MegaWorld is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority and all necessary
governmental approvals to own or lease and operate its properties and
assets and to carry on its business as it is now being conducted, and
is duly qualified or licensed as a foreign corporation to do business
and in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties
owned or leased by it makes such qualification or licensing necessary,
except where the failure to be so organized, existing, in good
standing, qualified, or licensed would not have a Material Adverse
Effect on MegaWorld.
(b) MegaWorld has corporate authority to enter into and effect
the transactions contemplated by this Agreement.
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(c) The transactions contemplated by this Agreement, if
carried out as provided herein, are authorized by, and comply with all
applicable governmental laws, orders, rules, and regulations, including
without limitation the corporation laws of Delaware and federal
securities law, order, rule, or regulation; and MegaWorld makes this
representation and warranty on the advice from its legal counsel.
3.2.2 CAPITALIZATION The authorized corporate stock of
MegaWorld consists of the following:
(a) PREFERRED STOCK. No shares of Preferred Stock are
authorized or issued.
(b) COMMON STOCK. 100,000,000 shares of Common Stock,
authorized, with number issued and outstanding, and of par value and
class as set forth in Section 1.1.2 hereof.
(c) There are no voting trusts or other agreements or
understandings to which MegaWorld is a party with respect to the voting
of the MegaWorld Common Stock, except for those agreements and
understandings required hereby and those other agreements set forth in
Schedule 3.2.2 to the MegaWorld Disclosure Schedule.
(d) All securities sold or issued by MegaWorld have been sold
or issued in full and complete compliance with the requirements of the
federal securities law, order, rule, or regulation, and any applicable
state securities or "blue sky" laws, or under applicable exemptions and
exclusions therefrom.
3.2.3 SUBSIDIARIES. MegaWorld does not own, directly or
indirectly, any equity or similar interest in, or any interest convertible into
or exchangeable for, any equity or similar interest in any corporation,
partnership, joint venture, or other business association or entity, except as
set forth in Schedule 3.2.3 to the MegaWorld Disclosure Schedule. ITS Telephony
is either a subsidiary or an affiliate of MegaWorld, as described in Section
1.1.2, but must be a wholly owned corporate subsidiary by the time of Closing.
3.2.4 AUTHORITY. MegaWorld has the full corporate power and
authority to enter into this Agreement, to perform its obligations hereunder,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly approved by the Board of Directors of MegaWorld and no
other corporate proceedings on the part of MegaWorld are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than
with respect to the merger, the approval, filing, and recordation of the
appropriate merger documents as required by part Five of TBCA, and delivery of
certain notices pursuant to the DGCL and/or MegaWorld's charter documents). This
Agreement has been duly executed and delivered by, and, upon the execution and
delivery thereof by MegaWorld and TBS Texas, constitutes a valid and binding
obligation of MegaWorld, enforceable against MegaWorld in accordance with its
terms.
3.2.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by MegaWorld nor the consummation by
MegaWorld of the transactions contemplated hereby will (i) conflict with or
result in any breach or violation of any provision of the Amended and Restated
Certificate of Incorporation or Bylaws of MegaWorld, or (ii) constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or give rise to a right of termination,
cancellation,
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or acceleration of any obligation contained in or to the loss of a benefit
under, or result in the creation of any lien or other encumbrance upon any of
the properties or assets of MegaWorld under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement, or other instrument or obligation, permit, concession,
franchise, judgment, order, decree, statute, law, ordinance, rule, or regulation
applicable to MegaWorld or to which it or any of its properties or assets may be
subject, except for such violations, conflicts, breaches, terminations,
accelerations, or creations of liens or other encumbrances, which will not have
a Material Adverse Effect on MegaWorld, its subsidiaries, divisions, and
affiliates, or (iii) require any consent, approval, authorization, or permit of,
or filing with, or notification to, any governmental entity, including without
limitation filings under the HSR Act, except consents, approvals,
authorizations, permits, filings, or notifications which if not obtained or made
will not have a Material Adverse Effect on MegaWorld, its subsidiaries,
divisions, and affiliates or prevent or materially delay consummation of the
Merger.
3.2.6 FINANCIAL INFORMATION. Schedule 3.2.6 in the MegaWorld
Disclosure Schedule consists of the following financial statements of MegaWorld:
(i) Annual financial statements and Auditor's Report for the year ended December
31, 1997; and (ii) unaudited internally prepared consolidated balance sheets,
operating statements, and related schedules as of, and for the periods ended
March 31, 1998 (three months), May 31, 1998 (five months), and August 31, 1998
(eight months). The audited financial statements referred to in clause (i) of
this Section 3.2.6 and the unaudited financial statements referred to in clause
(ii) of this Section 3.2.6, together with the footnotes and supporting schedules
in respect of such financial statements, are collectively referred to as the
"MegaWorld Financial Statements."
(a) The MegaWorld Financial Statements are true and correct
with respect to each material item shown or reflected thereon, and have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial
position of MegaWorld, its subsidiaries, divisions, and affiliates as
of the dates thereof and the results of operations and cash flows for
the periods then ended, subject to normal year end adjustments.
(b) The MegaWorld Financial Statements set forth all the
liabilities of MegaWorld, its subsidiaries, divisions, and affiliates
(direct and indirect, contingent and accrued) of whatever nature at the
date thereof, whether arising out of contract, tort, statute, or
otherwise, except liabilities and obligations under contracts,
commitments, agreements, torts, statutes, or otherwise set forth on
Schedule 3.1.6(b) in the MegaWorld Disclosure Schedule.
3.2.7 CONDUCT OF BUSINESS. Except as shown in Schedule 3.2.7
to the MegaWorld Disclosure Schedule,
(a) The business of MegaWorld, its subsidiaries, divisions,
and affiliates, as presently conducted, is not being conducted in
default or violation of any term, condition, or provision of (i) its
charter or bylaws, as amended, or (ii) any note, bond, mortgage,
indenture, deed of trust, lease, agreement, or other instrument or
obligation of any kind to which any of MegaWorld, its subsidiaries,
divisions, and affiliates is a party or by which any of MegaWorld, its
subsidiaries, divisions, and affiliates or any of its or their
properties or assets may be bound, or (iii) any federal, state, local,
or foreign statute, law, ordinance, rule, regulation, judgment, decree,
order, concession, grant, franchise, permit, or license, or other
governmental authorization or approval applicable to MegaWorld, its
subsidiaries, divisions, and affiliates, excluding from the foregoing
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clauses (ii) and (iii) defaults or violations that could not reasonably
be expected to have a Material Adverse Effect on MegaWorld, its
subsidiaries, divisions, and affiliates.
(b) Each of MegaWorld, its subsidiaries, divisions, and
affiliates has or shall apply for all licenses, permits, orders, or
approvals of, and has made all required registrations with, all
governmental entities that are material to the conduct of the business
of each of MegaWorld, its subsidiaries, divisions, and affiliates
(collectively, "MegaWorld Permits"). To the knowledge of each of
MegaWorld, its subsidiaries, divisions, and affiliates: (i) all
MegaWorld Permits are in full force and effect; (ii) no material
violations are or have been recorded in respect of any MegaWorld
Permit; and (iii) no proceeding is pending or threatened to revoke or
limit any MegaWorld Permit.
(c) None of MegaWorld, its subsidiaries, divisions, and
affiliates has received any written communication from a governmental
entity or any landlord (particularly including without limitation any
landlord of Castello Ratti Enterprises Srl) or purchaser of assets that
alleges that any of MegaWorld, its subsidiaries, divisions, and
affiliates is not in compliance with any Environmental Law, as defined
in Section 3.1.7(c) hereof. Each of MegaWorld, its subsidiaries,
divisions, and affiliates has no knowledge of any environmental
materials or information, including on-site or off-site disposal or
releases of Hazardous Materials, as defined in Section 3.1.7(c) hereof,
that could reasonably be expected to have a Material Adverse Effect on
MegaWorld, its subsidiaries, divisions, and affiliates.
(d) Each of MegaWorld, its subsidiaries, divisions, and
affiliates has either multiple sources of supply or satisfactory long
term contractual arrangements with respect to the acquisition of all
essential parts and components used by it in the manufacture and
assembly of all products material to its business.
3.2.8 LITIGATION. Except as disclosed in Schedule 3.2.8 to the
MegaWorld Disclosure Schedule, there is no suit, action, or proceeding pending
or, to the knowledge of any of MegaWorld, its subsidiaries, divisions, and
affiliates, threatened against any of MegaWorld, its subsidiaries, divisions,
and affiliates that, individually or in the aggregate, could reasonably be
expected to (i) have a Material Adverse Effect on MegaWorld, its subsidiaries,
divisions, and affiliates, (ii) materially impair the ability of MegaWorld to
perform its obligations under this Agreement, or (iii) prevent the consummation
of any of the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule, or order of any governmental entity
outstanding against any of MegaWorld, its subsidiaries, divisions, and
affiliates having, or that could reasonably be expected to have, any such
effect. The litigation, if any, to which each of MegaWorld, its subsidiaries,
divisions, and affiliates is a party is listed in Schedule 3.2.8 in the
MegaWorld Disclosure Schedule.
3.2.9 LABOR AGREEMENTS AND ACTIONS.
(a) None of MegaWorld, its subsidiaries, divisions, and
affiliates is bound by or subject to (and none of its or their assets
or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment, or arrangement with any labor union,
and no labor union has requested, or to the knowledge of any of
MegaWorld, its subsidiaries, divisions, and affiliates, has sought to
represent any of the employees, representatives, or agents of any of
MegaWorld, its subsidiaries, divisions, and affiliates. There is no
strike or other labor dispute involving any of MegaWorld, its
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subsidiaries, divisions, and affiliates pending, or to the knowledge of
any of MegaWorld, its subsidiaries, divisions, and affiliates,
threatened which could have a Material Adverse Effect on MegaWorld, its
subsidiaries, divisions, and affiliates, nor is any of MegaWorld, its
subsidiaries, divisions, and affiliates aware of any labor organization
activity involving its or their employees.
(b) Except as provided in Schedule 3.2.9 in the MegaWorld
Disclosure Schedule, (i) the employment of each officer and employee of
each of MegaWorld, its subsidiaries, divisions, and affiliates is
terminable at the will of MegaWorld, and (ii) none of MegaWorld, its
subsidiaries, divisions, and affiliates has entered into any oral or
written agreements with any of its officers or employees that provide
for severance or termination pay or acceleration of vesting of stock
options or restricted stock.
(c) Each of MegaWorld, its subsidiaries, divisions, and
affiliates has complied in all material respects with all applicable
and effective state and federal equal employment opportunity laws and
with other laws related to employment.
(d) None of MegaWorld, its subsidiaries, divisions, and
affiliates is aware that any officer or key employee, or that any group
of key employees, intends to terminate the employment of such officer
or employee(s) with any of MegaWorld, its subsidiaries, divisions, and
affiliates, nor does any of MegaWorld, its subsidiaries, divisions, and
affiliates have any present intention to terminate the employment of
any officer or key employee. Except as provided in Schedule 3.2.9(d) to
the MegaWorld Disclosure Schedule, each officer and key employee of
each of MegaWorld, its subsidiaries, divisions, and affiliates is
currently devoting 100 percent of his or her business time attending to
the affairs of MegaWorld, its subsidiaries, divisions, and affiliates.
3.2.10 CERTAIN AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except
as provided in Schedule 3.2.10 to the MegaWorld Disclosure Schedule,
(a) Each of MegaWorld, its subsidiaries, divisions, and
affiliates is not a party to any written (i) employment, severance,
collective bargaining, or consulting agreement not terminable on 90
days' or less notice, (ii) agreement with any executive officer or
other key employee of any of MegaWorld, its subsidiaries, divisions,
and affiliates (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction
involving any of MegaWorld, its subsidiaries, divisions, and affiliates
of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation
guarantee extending for a period longer than one year, or (C) providing
severance benefits or other benefits after the termination of
employment of such executive officer or key employee regardless of the
reason for such termination of employment, (iii) agreement, plan, or
arrangement under which any person may receive payments subject to the
tax imposed by Section 4999 of the Code, or (iv) agreement or plan,
including without limitation any stock option plan, stock appreciation
right plan, restricted stock plan, or stock purchase plan, the benefits
of which would be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement, or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Page 21 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 22
(b) Schedule 3.l0(b) contains a true and complete Summary or
list of, or otherwise describes (i) all employee benefit plans (within
the meaning of Section 3(3) of ERISA), and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation,
retiree, medical, or life insurance, supplemental retirement,
severance, or other benefit plans, programs, or arrangements, and all
employment, termination, severance, or other contracts or agreements to
which any of MegaWorld, its subsidiaries, divisions, and affiliates is
a party, with respect to which any of MegaWorld, its subsidiaries,
divisions, and affiliates has any obligations which are material in
amount and which are maintained, contributed to, or sponsored by any of
MegaWorld, its subsidiaries, divisions, and affiliates for the benefit
of any current or former employee, officer, or director of any of
MegaWorld, its subsidiaries, divisions, and affiliates, and (ii) each
employee benefit plan for which any of MegaWorld, its subsidiaries,
divisions, and affiliates could incur liability under Section 4069 of
ERISA, in the event such plan were terminated, or under Section 4212(c)
of ERISA, or in respect of which any of MegaWorld, its subsidiaries,
divisions, and affiliates remains secondarily liable under Section 4204
of ERISA (collectively, the "MegaWorld Material Plans"). Each MegaWorld
Material Plan is in writing, and MegaWorld shall before Closing provide
to CDMP and TBS a true and complete copy or each MegaWorld Material
Plan and a true and complete copy of each material document prepared in
connection with each such MegaWorld Material Plan, including without
limitation: (i) a copy of each trust or other funding arrangement, (ii)
the most current summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the
most recently received IRS determination letter for each such MegaWorld
Material Plan, and (v) the most recently prepared actuarial report and
financial statement in connection with each such MegaWorld Material
Plan. Each of MegaWorld, its subsidiaries, divisions, and affiliates
has no express or implied commitment (i) to create, incur liability
with respect to, or cause to exist any other employee benefit plan,
program, or arrangement, (ii) to enter into any contract or agreement
to provide compensation or benefits to any individual, or (iii) to
modify, change, or terminate any MegaWorld Material Plan, other than
with respect to a modification, change, or termination required by
ERISA or the Code. To the extent applicable, the MegaWorld Material
Plans comply with the material requirements of ERISA and the Code, and
any MegaWorld Material Plan intended to be qualified under Section
401(a) of the Code has been determined by the IRS to be so qualified
and has been so qualified during the period from its adoption to date.
No MegaWorld Material Plan is covered by Title IV of ERISA or Section
412 of the Code. None of MegaWorld, its subsidiaries, divisions, and
affiliates, nor, to the knowledge of any of MegaWorld, its
subsidiaries, divisions, and affiliates, any officer or director of any
of MegaWorld, its subsidiaries, divisions, and affiliates has incurred
any liability or penalty under Sections 4975 through 4980 of the Code
or Title I of ERISA. To the knowledge of any of MegaWorld, its
subsidiaries, divisions, and affiliates, each MegaWorld Material Plan
has been maintained and administered in all material respects in
compliance with its terms and with the requirements prescribed by any
and all statutes, orders, rules, and regulations, including but not
limited to ERISA and the Code, which are applicable to such MegaWorld
Material Plans. There are no pending or, to the knowledge of any of
MegaWorld, its subsidiaries, divisions, and affiliates, anticipated
claims against or otherwise involving any of the MegaWorld Material
Plans and no suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of MegaWorld Material Plan
activities) has been brought, or, to the knowledge of any of MegaWorld,
its subsidiaries, divisions, and affiliates, is threatened, against or
with respect to any such MegaWorld Material Plan. All material
contributions, reserves, or premium payments required to be made or
accrued as of the date hereof to the MegaWorld Material Plans have been
made or accrued.
Page 22 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 23
(c) Schedule 3.2.10(c) in the MegaWorld Disclosure Schedule
contains a true and correct list of each person who holds any Stock
Option as of the date hereof, together with (i) the number of shares of
Common Stock subject to such Stock Option, (i) the date of grant of
such Stock Option, (iii) the extent to which such Stock Option is
currently vested or scheduled to vest by August 31,1998, (iv) the
exercise price of such Stock Option, (v) whether such Stock Option is
intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code (an "ISO"), and (vi) the expiration date of
such Stock Option. Schedule 3.1.10(c) also sets forth the aggregate
number of ISO's and nonqualified Stock Options outstanding as of the
date hereof.
3.2.11 TAXES. Each of MegaWorld, its subsidiaries, divisions,
and affiliates has duly and timely filed all returns, reports, statements, and
other filings, including without limitation any schedule or attachment thereto
or any amendment thereof (collectively, "MegaWorld Returns," true and complete
copies of which have been furnished or shall be furnished to TBS and CDMP)
required (by law, election, or otherwise) to be filed by it with respect to any
and all Taxes, as defined in Section 3.1.11 hereof, imposed by any Taxing
Authority, as defined in Section 3.1.11 hereof, for all Tax Periods, as defined
in Section 3.1.11 hereof, ending on or prior to Closing. Each MegaWorld Return
has included the assets, income, operations, and other attributes of each of
MegaWorld, its subsidiaries, divisions, and affiliates, insofar as relevant to
each such entity, and each MegaWorld Return was true, correct, and complete as
filed. Each of MegaWorld, its subsidiaries, divisions, and affiliates has duly
and timely paid in full all Taxes shown or required to be shown as due on each
MegaWorld Return. Each of MegaWorld, its subsidiaries, divisions, and affiliates
has no deficiency or any other unsatisfied liability with respect to any Taxes
that are due and payable, whether or not assessed, which is not fully disclosed
and adequately provided for in the MegaWorld Financial Statements set forth in
Schedule 3.2.11 of the Megaworld Statement. The Returns of each of MegaWorld,
its subsidiaries, divisions, and affiliates have never been audited or examined
by any governmental or taxing authority, nor is any such audit in process, or,
to the knowledge of any of MegaWorld, its subsidiaries, divisions, and
affiliates, pending or threatened (either in writing or orally, formally or
informally). Each of MegaWorld, its subsidiaries, divisions, and affiliates has
disclosed on their Returns all positions taken thereon that could give rise to a
penalty within the meaning of Section 6662 of the Code, or any similar provision
of law in any other taxing jurisdiction. There have been no waivers of
limitations periods or deadlines for assessments by any of MegaWorld, its
subsidiaries, divisions, and affiliates except as set forth in Schedule 3.2.11.
Schedule 3.2.11 sets forth elections that have been made by, for or with respect
to any of MegaWorld, its subsidiaries, divisions, and affiliates in respect of
Taxes and a list of all MegaWorld Returns that will be due (without regard to
extensions) by any of MegaWorld, its subsidiaries, divisions, and affiliates
within thirty (30) days after Closing, together with an accurate and complete
description of the basis of each of MegaWorld, its subsidiaries, divisions, and
affiliates in its assets, the tax carryovers, net operating losses, or other tax
attributes presently (including by reason of the transaction contemplated
hereby) subject to limitations under Code sections 382, 383, or 384, or any
similar provision of law in any other taxing jurisdiction. As of Closing, each
of MegaWorld, its subsidiaries, divisions, and affiliates will not be a party to
or owe any money under any tax sharing or similar agreement in respect of Taxes.
3.2.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as shown
in Schedule 3.1.12 to the MegaWorld Disclosure Schedule, since June 30, 1998,
except as contemplated by this Agreement, each of MegaWorld, its subsidiaries,
divisions, and affiliates has conducted its business only in the ordinary course
consistent with past practice, and there has not been (i) any damage,
destruction, or loss, whether covered by insurance or not, having or which,
insofar as reasonably can be foreseen, in the future would have a Material
Adverse Effect on MegaWorld, its subsidiaries, divisions, and affiliates, (ii)
any declaration, setting aside, or payment of any dividend (whether in cash,
stock, or property) with respect to Preferred Stock or Common Stock, or any
redemption, purchase, or other acquisition
Page 23 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 24
of any of its securities, (iii) any change in the business, operations,
properties, prospects, condition (financial or otherwise), assets, or
liabilities (including without limitation contingent liabilities) of MegaWorld,
its subsidiaries, divisions, and affiliates having a Material Adverse Effect on
any of MegaWorld, its subsidiaries, divisions, and affiliates, (iv) any labor
dispute, other than routine matters, none of which is material to any of
MegaWorld, its subsidiaries, divisions, and affiliates, (v) any entry into any
material commitment or transaction (including without limitation any borrowing
or capital expenditure) other than in the ordinary course of business consistent
with past practice, (vi) any material change by any of MegaWorld, its
subsidiaries, divisions, and affiliates in its accounting methods, principles,
or practices, (vii) any revaluation by any of MegaWorld, its subsidiaries,
divisions, and affiliates of any asset (including without limitation any writing
down of the value of inventory or writing off of notes or accounts receivable),
or (viii) any increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including without limitation the granting of stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase, or
other employee benefit plan, or any other increase in the compensation payable
or to become payable to any officers or key employees of any of MegaWorld, its
subsidiaries, divisions, and affiliates. The MegaWorld Employment Agreement
between MegaWorld and CDMP is a condition of the execution of this Agreement and
is described in the MegaWorld Disclosure Schedule.
3.2.13 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT.
(a) Each of MegaWorld, its subsidiaries, divisions, and
affiliates owns marketable and indefeasible title to all real property
owned by it. Schedule 3.2.13(a) of the MegaWorld Disclosure Schedule
sets forth a complete and accurate list of all real property owned by
any of MegaWorld, its subsidiaries, divisions, and affiliates.
(b) Complete and accurate copies of all of the existing real
property leases to which each of MegaWorld, its subsidiaries,
divisions, and affiliates is a party have been or shall be delivered to
TBS and CDMP prior to Closing. Schedule 3.l3(b) sets forth a complete
and accurate list of all real property leased by any of MegaWorld, its
subsidiaries, divisions, and affiliates.
(c) Each of MegaWorld, its subsidiaries, divisions, and affiliates owns
or has valid leasehold interests in all of its tangible properties and assets
(real, personal, and mixed) used in its business, free and clear of any liens
(other than liens for Taxes that are not yet delinquent), charges, pledges,
security interests, or other encumbrances, except for such imperfections of
title and encumbrances, if any, that are not substantial in character, amount,
or extent, and that do not and are not reasonably likely to materially detract
from the value, or interfere with the use of the property subject thereto or
affected thereby. MegaWorld has delivered or shall deliver to TBS prior to
Closing correct and complete copies of each lease identified in Schedule
3.2.l3(b). Such leases are valid and enforceable by the lessees named therein in
accordance with their terms. Each of MegaWorld, its subsidiaries, divisions, and
affiliates has received no notice that, and, to the knowledge of each of
MegaWorld, its subsidiaries, divisions, and affiliates, no circumstance exists
which, with the passage of time, or the giving of notice, or both, could
constitute a default under any such leases, nor are there any unsatisfied
obligations on the part of any of MegaWorld, its subsidiaries, divisions, and
affiliates under any of the leases for real property to which any of MegaWorld,
its subsidiaries, divisions, and affiliates is a party.
Page 24 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 25
(d) Each item of machinery and equipment owned or leased by each of
MegaWorld, its subsidiaries, divisions, and affiliates is (i) adequate for the
conduct of the business of that entity consistent with its past practice, (ii)
suitable for the uses to which it is currently employed, (iii) in good operating
condition, ordinary wear and tear excepted, and (iv) regularly and properly
maintained.
3.2.14 REPRESENTATIONS AND EXPECTATIONS OF CERTAIN
DEVELOPMENTS WITHIN MEGAWORLD AND ITS SUBSIDIARIES. MegaWorld has represented
that certain developments and milestones would occur within MegaWorld and its
subsidiaries, divisions, and affiliates, including without limitation
specifically Telephony JV, as defined herein, ITS Telephony, Inc., and MegaWorld
Leisure, Inc.; and TBS and CDMP have executed this Agreement based on the
reliance of each on the representations of MegaWorld and its Directors that
these developments and milestones would indeed occur. Therefore, it is
understood and agreed by all parties hereto that should any of MegaWorld, its
subsidiaries, divisions, and affiliates fail to achieve the following events
prior to the payment of the $8,000,000 to the holders of the TBS Texas note as
provided in Section 2.1.3, MegaWorld will be in default of this Agreement:
(a) After funding and the obtaining of the requisite permits,
MegaWorld on behalf of itself, its subsidiaries, divisions, and
affiliates, commits, represents, warrants and covenants that it will
sell or lease enough time share units in Castello Torre Ratti to
generate $3,000,000.00 per year gross. Such year shall begin on the
date which MegaWorld affirms that the requisite funding and permits
have been acquired.
(b) Commencing January 1, 1999, MegaWorld, on behalf of
itself, its subsidiaries, divisions, and affiliates, commits,
represents, warrants, and covenants to cause ITS Telephony, Inc. to
generate $3,000,000.00 per year gross, before commissions and other
overhead charges.
(c) Default, due to failure by MegaWorld to fund, as
stipulated in the ITS Telephony Joint Venture option to purchase
agreement dated October 28, 1998, shall be limited to the amount
approved by MegaWorld for the purchase of capital equipment and normal
expenses for the next installation. This default provision shall
automatically expire February 28, 2002. This default provision
supercedes and makes null and void all other default provisions
associated with said Joint Venture agreement.
3.2.15 INTELLECTUAL PROPERTY.
(a) Each of MegaWorld, its subsidiaries, divisions, and
affiliates either owns, or has a valid license with respect to, all
patents, copyrights, trademarks, trade secrets, and other intellectual
property used in, by, or necessary to, the operation or conduct of its
business as presently conducted (such intellectual property and the
rights thereto are collectively referred to herein as the "MegaWorld
Intellectual Property Rights").
(b) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby (i) will
not constitute a material breach of any instrument or agreement to
which any of MegaWorld, its subsidiaries, divisions, and affiliates is
a party governing any patent, copyright, trademark, trade secret, or
other intellectual property rights licensed by, or to, any of
MegaWorld, its subsidiaries, divisions, and affiliates, and (ii) will
not cause the forfeiture or termination, or give rise to a right of
forfeiture or termination, of any MegaWorld Intellectual Property
Rights or materially impair the right of TBS, TBS Texas, or MegaWorld
in or to use, sell, enforce, license, or otherwise exploit any
MegaWorld Intellectual Properly Rights or portion thereof.
Page 25 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 26
(c) Neither the operation of the business of any of MegaWorld,
its subsidiaries, divisions, and affiliates, the exploitation of
MegaWorld Intellectual Property Rights, nor the manufacture, marketing,
license, sale, or intended use of any product, service, or technology
currently licensed, manufactured, created, distributed, authored, used,
sold, or under development by any of MegaWorld, its subsidiaries,
divisions, and affiliates (i) violates in any material respect any
license or agreement between any of MegaWorld, its subsidiaries,
divisions, and affiliates and any third party, or (ii) infringes any
patents, copyright, trademark, trade secret, or other intellectual
property right of any other party. There is no pending or, to the
knowledge of any of MegaWorld, its subsidiaries, divisions, and
affiliates, threatened claim or litigation involving any of MegaWorld,
its subsidiaries, divisions, and affiliates contesting the validity,
ownership, or right to use, sell, enforce, license, or dispose of any
MegaWorld Intellectual Property Rights, nor has any of MegaWorld, its
subsidiaries, divisions, and affiliates received any written notice
asserting that any MegaWorld Intellectual Property Rights or the
proposed use, sale, license, or disposition thereof conflicts or will
conflict with the rights of any other party.
3.2.16 MATERIAL CONTRACTS. Except for stock option grants as
identified in Schedule 3.2.15 to the MegaWorld Disclosure Schedule, there are no
agreements, understandings, or proposed transactions between any of MegaWorld,
its subsidiaries, divisions, and affiliates and any of its officers, directors,
affiliates, or any affiliate thereof. Except as identified in Schedule 3.2.15,
there are no agreements, understandings, instruments, contracts, or proposed
transactions to which any of MegaWorld, its subsidiaries, divisions, and
affiliates is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of or payments to any of MegaWorld, its subsidiaries,
divisions, and affiliates in excess of Twenty-five Thousand and No/100 Dollars
($25,000.00), other than purchase orders in individual amounts of less than One
Hundred Thousand and No/100 Dollars ($100,000.00) received in the ordinary
course of business, (ii) the license of any patent, copyright, trade secret, or
other proprietary right to or from any of MegaWorld, its subsidiaries,
divisions, and affiliates, or (iii) the grant of rights to manufacture, produce,
assemble, license, market, or sell its products to any other person or affect
the exclusive right of any of MegaWorld, its subsidiaries, divisions, and
affiliates to develop, manufacture, assemble, distribute, market, or sell its
products (the "MegaWorld Material Contracts"). To the knowledge of each of
MegaWorld, its subsidiaries, divisions, and affiliates: (i) each MegaWorld
Material Contract is in full force and effect except as the same may have
expired in accordance with its terms; (ii) each of MegaWorld, its subsidiaries,
divisions, and affiliates has not received any written assertion of default
under any MegaWorld Material Contract; and (iii) each of MegaWorld, its
subsidiaries, divisions, and affiliates has not received any notice related to
any termination or material change to, or proposal with respect to, any of the
MegaWorld Material Contracts as a result of the transactions contemplated by
this Agreement. Each of MegaWorld, its subsidiaries, divisions, and affiliates
is not a party to, nor has it any obligation under, any contract or agreement,
written or oral, which contains any covenants, currently or prospectively,
limiting the freedom of any of MegaWorld, its subsidiaries, divisions, and
affiliates to engage in its business as currently conducted anywhere in the
world or to compete in its business with any entity anywhere in the world.
3.2.17 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
current and former employee and consultant of each of MegaWorld, its
subsidiaries, divisions, and affiliates has executed an agreement with it
regarding confidentiality and proprietary information substantially in the form
or forms attached to Schedule 3.2.16 to the MegaWorld Disclosure Schedule. Each
of MegaWorld, its subsidiaries, divisions, and affiliates is not aware that any
of its employees or consultants is in violation thereof. All consultants to or
vendors of each of MegaWorld, its subsidiaries, divisions, and affiliates with
access to confidential information of any of MegaWorld, its subsidiaries,
divisions, and affiliates are parties to a written agreement substantially in
the form or forms attached to Schedule 3.2.16
Page 26 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 27
under which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of confidential information of any of MegaWorld,
its subsidiaries, divisions, and affiliates. Each of MegaWorld, its
subsidiaries, divisions, and affiliates is not aware that any of its consultants
or vendors are in violation thereof.
3.2.18 HART-SCOTT-RODINO. The assets and annual net sales of
MegaWorld, its subsidiaries, divisions, and affiliates, individually and in the
aggregate, do not satisfy the "Size of the Parties Test" for an acquired person
under Section 7A(a)(2) of the HSR Act and the regulations promulgated
thereunder.
3.2.19 NO CONFLICT OF INTEREST. Each of MegaWorld, its
subsidiaries, divisions, and affiliates is not indebted, directly or indirectly,
to any of its officers or directors, or to their respective spouses or children,
in any amount whatsoever other than in connection with expenses or advances of
expenses incurred in the ordinary course of business or relocation expenses of
employees. To the knowledge of each of MegaWorld, its subsidiaries, divisions,
and affiliates, none of the officers or directors of any of MegaWorld, its
subsidiaries, divisions, and affiliates, or any members of their immediate
families, directly or indirectly, are indebted to any of MegaWorld, its
subsidiaries, divisions, and affiliates or have any direct or indirect ownership
interest in any firm or corporation with which any of MegaWorld, its
subsidiaries, divisions, and affiliates is affiliated or with which any of
MegaWorld, its subsidiaries, divisions, and affiliates has a business
relationship, or any firm or corporation which competes with any of MegaWorld,
its subsidiaries, divisions, and affiliates, except that officers, directors,
and/or stockholders of any of MegaWorld, its subsidiaries, divisions, and
affiliates may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with any of
MegaWorld, its subsidiaries, divisions, and affiliates. To the knowledge of each
of MegaWorld, its subsidiaries, divisions, and affiliates, none of the officers
or directors of any of MegaWorld, its subsidiaries, divisions, and affiliates,
or any member of their immediate families, is interested, directly or
indirectly, in any MegaWorld Material Contract with any of MegaWorld, its
subsidiaries, divisions, and affiliates. Each of MegaWorld, its subsidiaries,
divisions, and affiliates is not a guarantor or indemnitor of any indebtedness
of any other person, firm, or corporation. The above is, however, exclusive of
the contract between MegaWorld, Inc and Michael Giamalvo concerning the Castello
Torre Ratti.
3.2.20 TAKEOVER STATUTES INAPPLICABLE. No Takeover Statute, as
defined in Section 3.1.19 hereof, is applicable to any of MegaWorld, its
subsidiaries, divisions, and affiliates, the Common Stock, the Merger, or any of
the other transactions contemplated by this Agreement.
3.2.21 BROKERS AND FINDERS. Each of MegaWorld, its
subsidiaries, divisions, and affiliates has not employed any broker or finder or
incurred any liability for any fee or commission to any broker, finder, or
intermediary in connection with the transactions contemplated hereby.
3.2.22 REGISTRATION AND LISTING AND OTHER SECURITIES MATTERS.
MegaWorld has the ability to become a reporting company, with the filing of its
Form 10Q Report, pursuant to the federal Securities Exchange Act of 1934, as
amended, and to become a nationally listed NASDAQ company. MegaWorld intends to
make such a filing as soon as it qualifies and asserts that it is not currently
in violation of any state or federal securities law, order, rule, or regulation,
and has not been in such violation for at least the last twenty four (24)
months.
Page 27 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 28
3.2.23 LIMITED RELIANCE. MegaWorld represents, warrants,
acknowledges, and confirms that, except for representations and warranties of
TBS and CDMP expressly contained herein or in the TBS Disclosure Schedule,
MegaWorld has relied on no representations or warranties by either of TBS or
CDMP, whether oral or written, express or implied, in any decision related to
this Agreement, including without limitation the execution of this Agreement.
Further, MegaWorld represents, warrants, acknowledges, and confirms that certain
Directors of MegaWorld have been privy to certain confidential information
regarding certain technology and associated product(s) ("Blast Guard Technology"
herein) sometimes referred to as "Blast Guard," whose patent rights are owned by
JoyVer, Inc., an entity owned and controlled by CDMP. While acknowledging this
disclosure, it is acknowledged by all parties hereto that CDMP has made
presentations to MegaWorld proposing MegaWorld's funding of a separate entity to
exploit the Blast Guard Technology. However, this proposal was declined and not
funded by MegaWorld, and all parties hereto agree that the Blast Guard
Technology does not comprise any part of the consideration for this Merger; and
MegaWorld, on behalf of itself, its subsidiaries, divisions, and affiliates,
expressly acknowledges (i) that the Blast Guard Technology is not in any way a
part of the transactions contemplated herein, (ii) that TBS owns no rights of
any nature in the Blast Guard Technology, and (iii) that any such arrangement
concerning the Blast Guard Technology would be the subject of a completely
separate and distinct agreement, to be negotiated, by and between JoyVer, Inc.
and MegaWorld.
3.2.24 INSURANCE. Each of MegaWorld, its subsidiaries,
divisions, and affiliates maintains adequate property and casualty insurance,
general public liability insurance, and such other insurance as would be
maintained by a reasonable and prudent business owner in the same or similar
circumstances covering all substantial risks to which the subject entity and its
assets are exposed with reasonable foreseeability.
3.2.25 NO MISSTATEMENTS. No representation or warranty made by
any of MegaWorld, its subsidiaries, divisions, and affiliates in this Agreement,
or in any Schedule to this Agreement, or certificate delivered or deliverable
pursuant to the terms hereof, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits, or will omit, to state a material fact necessary in order to make
the statements made, in light of the circumstances under which it was made, not
misleading.
3.2.26 ACKNOWLEDGMENT OF UNDERSTANDING. The Board of Directors
of MegaWorld has made an independent determination of the value to MegaWorld of
the Merger and the consideration therefor, and the arrangements herein provided
securing all performance hereunder, as provided for in Articles II and III
hereof; and after consultation with such legal, financial, and tax advisers as
deemed necessary and prudent by the Board of Directors of MegaWorld, chosen and
retained by MegaWorld in its sole discretion, with respect thereto, and after
review and discussion of independently commissioned opinions regarding the
value, legal obligations, and remedies hereunder, has determined it is in the
best interest of MegaWorld to enter into the transactions contemplated
hereunder, and does so knowingly and with full understanding and disclosure of
the potential ramifications to the continued financial security of MegaWorld
should MegaWorld or TBS Texas default on any obligations hereunder or under any
of the other Closing Documents.
3.2.27 SURVIVAL. The representations, warranties,
acknowledgments, and agreements made by MegaWorld in this Agreement shall
survive Closing.
Page 28 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 29
ARTICLE IV
COVENANTS
SEC. 4.1 COVENANTS OF TBS. TBS covenants and agrees with MegaWorld as
follows:
4.1.1 TBS shall make a good-faith effort to give MegaWorld and
MegaWorld's representatives at any and all reasonable times before Closing,
access to (i) the facilities and real property of TBS, including without
limitation its leasehold facilities, for the purpose of inspecting and
evaluating them, including without limitation evaluating the environmental
condition thereof; and (ii) all business records, contracts, purchasing records,
sales, processing, and transportation agreements, ad valorem and severance tax
records, customer billings, permitting files, environmental records, process
reports, and production records, to the extent such data and records are in
TBS's possession or under TBS's control and relate to the assets or business of
TBS; provided, however, TBS shall have no obligation to provide MegaWorld such
access to any data or information which TBS is contractually or legally
prohibited from providing, including without limitation personnel records
protected by rights of privacy and confidential customer information. Except as
provided in Article III hereof, TBS makes no warranty or representation as to
the correctness or completeness of any such files, data, or information
furnished by TBS, and shall have no liability therefor. MegaWorld agrees to
maintain the confidentiality of such materials, and if Closing does not occur,
promptly to return to TBS any materials furnished by TBS hereunder.
4.1.2 TBS shall, after the execution hereof, promptly notify
MegaWorld of any suit, action, or other proceeding before any court, arbitrator,
or governmental agency not previously disclosed and (i) to which TBS is made a
party, or (ii) of which TBS receives actual notice that it is likely to be made
a party, or (iii) to which any officer, director, division, subsidiary, or
affiliate is made a party, or (iv) of which TBS receives actual notice that any
officer, director, division, subsidiary, or affiliate is likely to be made a
party; and any proceeding or procedure, whether judicial, administrative, or
private, including without limitation arbitration, foreclosure, and any in rem
action, which relates to the assets of TBS or which might result in impairment
or loss of TBS's interest in any portion of or the value thereof, or which might
hinder or impede TBS's operation, development, or marketing activities.
4.1.3 After execution of this Agreement and until Closing, TBS
shall do the following:
(a) Other than such activities done in the ordinary course of
business, refrain from taking any action, without the prior written
consent of MegaWorld, to sell, dispose of, distribute, or encumber any
of the assets of TBS or to enter into any transaction, the effect of
which would be to cause a Material Adverse Effect on TBS; and
(b) Act in prudent manner from the date hereof until the
Closing Date so as to avoid, without the prior written consent of
MegaWorld, waiving any material rights under any agreements to which it
is a party which affects the business of TBS; and
(c) Maintain insurance now in force with respect to the
business and assets of TBS.
4.1.4 The TBS Financial Statements shall, prior to Closing,
but not later than September 10, 1998, be updated through August 31, 1998.
Page 29 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 30
SEC. 4.2 COVENANTS OF MEGAWORLD. MegaWorld, on behalf of itself, its
subsidiaries, divisions, affiliates, and each of them, covenants and agrees with
TBS as follows:
4.2.1 MegaWorld, its subsidiaries, divisions, and affiliates
shall form TBS Texas as a validly existing corporation duly organized and in
good standing under the laws of the State of Texas, with the power and authority
to take part in the Closing as herein provided.
4.2.2 MegaWorld, its subsidiaries, divisions, and affiliates
shall make a good-faith effort to give TBS, CDMP, their representatives, and any
of them, at any and all reasonable times before Closing, access to (i) the
facilities and real property of MegaWorld, its subsidiaries, divisions, and
affiliates, including without limitation their leasehold facilities, for the
purpose of inspecting and evaluating them, including without limitation
evaluating the environmental condition thereof; and (ii) all business records,
contracts, purchasing records, sales, processing, and transportation agreements,
ad valorem and severance tax records, customer billings, permitting files,
environmental records, process reports, and production records, to the extent
such data and records are in the possession or under the control of any of
MegaWorld, its subsidiaries, divisions, and affiliates and relate to the assets
or business of any of MegaWorld, its subsidiaries, divisions, and affiliates;
provided, however, MegaWorld, its subsidiaries, divisions, and affiliates shall
have no obligation to provide TBS, CDMP, their representatives, and any of them,
such access to any data or information which MegaWorld, its subsidiaries,
divisions, and affiliates are contractually or legally prohibited from
providing, including without limitation personnel records protected by rights of
privacy and confidential customer information. Except as provided in Article III
hereof, MegaWorld, its subsidiaries, divisions, and affiliates make no warranty
or representation as to the correctness or completeness of any such files, data,
or information furnished by MegaWorld, its subsidiaries, divisions, and
affiliates, and shall have no liability therefor. TBS, CDMP, their
representatives and each of them, agree to maintain the confidentiality of such
materials, and if Closing does not occur, promptly to return to MegaWorld, its
subsidiaries, divisions, and affiliates any materials furnished by MegaWorld,
its subsidiaries, divisions, and affiliates hereunder.
4.2.3 MegaWorld, its subsidiaries, divisions, and affiliates
shall, promptly notify TBS of any suit, action, or other proceeding before any
court, arbitrator, or governmental agency not previously disclosed and (i) to
which any of MegaWorld, its subsidiaries, divisions, and affiliates is made a
party, or (ii) of which any of MegaWorld, its subsidiaries, divisions, and
affiliates receives actual notice that it is likely to be made a party, or (iii)
to which any officer, director, division, subsidiary, or affiliate is made a
party, or (iv) of which any of MegaWorld, its subsidiaries, divisions, and
affiliates receives actual notice that any officer, director, division,
subsidiary, or affiliate is likely to be made a party; and any proceeding or
procedure, whether judicial, administrative, or private, including without
limitation arbitration, foreclosure, and any in rem action, which relates to the
assets of any of MegaWorld, its subsidiaries, divisions, and affiliates or which
might result in impairment or loss of any of MegaWorld's, its subsidiaries',
divisions', and affiliates' interest in any portion of or the value thereof, or
which might hinder or impede MegaWorld's, its subsidiaries', divisions', and
affiliates' operation, development, or marketing activities.
4.2.4 MegaWorld shall, prior to Closing, commission
independent legal, financial, and/or tax advisors to investigate, as provided in
Section 3.2.26 hereof.
Page 30 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 31
4.2.5 After execution of this Agreement and until Closing,
MegaWorld, its subsidiaries, divisions, and affiliates shall do the following:
(a) Other than such activities done in the ordinary course of
business, refrain from taking any action, without the prior written
consent of CDMP, to sell, dispose of, distribute, or encumber any of
the assets of MegaWorld, its subsidiaries, divisions, and affiliates,
or enter into any transaction, the effect of which would be to cause a
Material Adverse Effect, as defined in Section 3.1.1, on any of
MegaWorld, its subsidiaries, divisions, and affiliates; and
(b) Act in prudent manner from the date hereof until the
Closing Date so as to avoid, without the prior written consent of TBS,
waiving any material rights under any agreements to which it is a party
affecting the business of MegaWorld, its subsidiaries, divisions, and
affiliates; and
(c) Maintain insurance now in force with respect to the
business and assets of MegaWorld, its subsidiaries, divisions, and
affiliates; and
(d) Continue diligently with the preparation of all documents
necessary for filing for national listing with NASDAQ, and continue
diligently to take all actions necessary for qualification as a
nationally listed NASDAQ company.
4.2.6 MegaWorld shall file as soon as it qualifies for its
Form 10Q in compliance with federal securities regulations.
4.2.7 MegaWorld, on behalf of itself, its subsidiaries,
divisions, and affiliates, shall use best-efforts to achieve those certain
expectations and milestones described in Section 3.2.14 hereof.
4.2.8 SURVIVAL. The covenants of this Section 4.2 shall
survive Closing.
ARTICLE V
DEFAULT AND REMEDIES
SEC. 5.1 EVENTS OF DEFAULT HEREUNDER.
5.1.1 DEFAULT BY MEGAWORLD. The following events shall each be
an "event of default of MegaWorld" for purposes of this instrument:
(a) Failure in the performance by MegaWorld of any obligation
hereunder or the violation by MegaWorld of any provision
hereof.
Page 31 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 32
(b) The occurrence of an event of default of any one or more of
MegaWorld, TBS Texas, and the subsidiaries, divisions, and
affiliates of either of them, under the terms and conditions
of any of the Closing Documents, beyond the applicable period
of grace, if any.
(c) If any representation or warranty made by or on behalf of
MegaWorld, or by or on behalf of any division, subsidiary, or
affiliate of MegaWorld, in, under, or pursuant to this
Agreement or any of the Closing Documents, or in any other
document or documents executed in connection therewith, or in
any documents made at any time available before Closing by or
for MegaWorld, its divisions, subsidiaries, or affiliates, to
CDMP or TBS under Section 3.2 or Section 4.2 or otherwise
reviewed by CDMP in the course of investigating the financial,
business, or regulatory status of MegaWorld, its divisions,
subsidiaries, and affiliates.
(d) The occurrence, prior to Closing, of any act or omission by,
for, or regarding any of MegaWorld, its divisions,
subsidiaries, or affiliates, which constitutes a material
violation of the securities law, order, rule, or regulation of
any state or of the United States, whether or not such act or
omission be the act or omission of any issuer, broker or
dealer, insider, officer, director, or shareholder, or any
other interested party.
(e) A material portion of the assets of any one or more of
MegaWorld, TBS Texas, and the subsidiaries, divisions, and
affiliates of either of them, shall be seized or taken by any
governmental or similar authority, or any order of attachment,
garnishment, or any other writ shall be issued, or any other
lawful creditor's remedy shall be exercised or attempted to be
exercised, with respect thereto.
(f) If any of MegaWorld, its divisions, subsidiaries, or
affiliates, or any Required Shareholder, or any surety or
guarantor for any of them shall (a) be adjudicated a bankrupt
or insolvent, (b) seek, consent to, or not contest the
appointment of a receiver or trustee for itself or for all or
any part of its property, (c) file a petition seeking relief
under the bankruptcy, arrangement, reorganization, or other
debtor relief laws of the United States or any state or any
other competent jurisdiction, (d) make a general assignment
for the benefit of its creditors, or (e) admit in writing its
inability to pay its debts as they mature.
(g) If either (a) any creditor or obligee files a petition putting
any of MegaWorld, its divisions, subsidiaries, or affiliates,
or any Required Shareholder, or any surety or guarantor for
any of them in involuntary bankruptcy, or (b) a court of
competent jurisdiction enters an order, judgment, or decree
appointing a receiver or trustee for any of them, or for all
or any part of its property, and (c) such petition, order,
judgment, or decree shall not be and remain dismissed or
stayed within a period of fifteen (15) days after its entry.
(h) The title of a material portion of the assets of any one or
more of MegaWorld, TBS Texas, and the subsidiaries, divisions,
and affiliates of either of them, or any substantial part
thereof shall become the subject matter of litigation which
would or might, in CDMP's opinion, upon final determination
result in substantial impairment or loss of the security CDMP
may have for the obligations owed CDMP hereunder, or under any
of the Closing Documents, which are secured under any of the
Closing Documents, and upon notice by CDMP to the obligor
hereunder or under any of the Closing Documents such
litigation is not dismissed within thirty (30) days of such
notice,
Page 32 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 33
(i) Omitted
(j) Omitted
(k) Omitted.
In the event that an event of default has occurred and is not cured within the
cure period, if any provided therefor hereunder, then MegaWorld shall be in
default for all purposes hereunder, and CDMP may exercise any remedy hereunder.
5.1.2 DEFAULT BY TBS. The following events shall each be an
"event of default of TBS for purposes of this instrument:
(a) Failure in the performance by TBS of any obligation hereunder
or the violation by TBS of any provision hereof.
(b) The occurrence of an event of default of TBS or CDMP under the
terms and conditions of any of the Closing Documents, beyond
the applicable period of grace, if any.
(c) If any representation or warranty made by or on behalf of TBS
pursuant to this Agreement or any of the Closing Documents, or
in any other document or documents executed in connection
therewith, to MegaWorld under Section 3.1 or Section 4.1.
5.1.3 NO DEFAULT OF CDMP. No act or omission related to this
Agreement or any transaction contemplated hereby shall be a default of CDMP,
except for an act or omission which constitutes a default of CDMP under the
MegaWorld Employment Agreement. It is understood and agreed that all acts and
omissions of CDMP related to this Agreement are the acts and omissions of TBS,
for purposes of this Section 5.1.3.
SEC. 5.2 NOTICE OF DEFAULT. In the event any Party considers that
another Party is not at any time in compliance with the terms and conditions of
this agreement (other than an obligation to pay money), the complaining Party
shall endeavor to notify the other Party of the facts relied upon as
constituting a breach hereof; provided, however, that failure to notify of a
possible default shall not be a default, nor shall such failure interfere with,
hinder, impede, or prevent the exercise of any right or remedy hereunder.
SEC. 5.3 CURE PERIODS. Unless provided for in this Section 5.3, there
shall be a 30 day period for cure of default by MegaWorld, as defined in Section
5.1.1, and for cure of default by TBS, as defined in Section 5.1.2, unless the
nature of the default is such that it would be impossible to cure in any length
of time.
Page 33 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 34
SEC. 5.4 REMEDIES FOR DEFAULT.
5.4.1 Each Party shall have all of the rights and remedies
provided for in this agreement and in any other agreements between Party and
each other Party including without limitation the Closing Documents, and all
rights and remedies available at law and in equity, all of which shall be
cumulative, including, in the case of CDMP, without limitation the right to take
possession of the collateral under the MegaWorld Security Agreement, the
MegaWorld Pledge Agreement, the TBS Texas Security Agreement, the TBS Texas Deed
of Trust, and any other Closing Document, or any of the same, with or without
process of law, and, in this connection, to enter any premises, without breach
of the peace, where the collateral is located to remove the same, to render it
unusable, or to dispose of the same on said premises and, in this connection, to
notify any one or more account debtors on the accounts constituting a part of
the collateral and to require any of such account debtors to make payment
directly to CDMP on such terms and conditions as CDMP, in his sole discretion,
deems appropriate, or to require, at CDMP's discretion, any such account debtors
to direct payments into a bank lockbox for handling by CDMP. Any public sale of
any of the collateral after repossession shall be held only after public notice
of no less than five (5) days, and shall be held in a commercially reasonable
manner. MegaWorld hereby waives any requirement for public notice of more than
five (5) days for any such sale and hereby agrees that five (5) days is a
reasonable period for notice.
5.4.2 Delay by a Party in invoking a remedy hereunder shall
not waive the remedy or the right to invoke the same, but shall merely
constitute a temporary forbearance. The failure of a Party to enforce any term
or condition or to exercise any rights hereunder shall not constitute a waiver
of the right in the future to enforce all of the terms and conditions hereof and
to exercise any rights hereunder, whether similar or dissimilar to any rights
previously waived or not previously enforced. It is understood by MegaWorld that
CDMP shall have the right, but not the obligation, from time to time temporarily
to forbear from invoking any remedy or remedies provided for herein, and
MegaWorld wishes to encourage such forbearance; therefore, MegaWorld covenants
that no such forbearance shall be interpreted as a waiver of any remedy, and
MegaWorld expressly agrees that after any such forbearance, for no matter how
long, CDMP may invoke any remedy or remedies provided for herein.
SEC. 5.5 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by decision of a panel of three (3)
neutral arbitrators to be selected pursuant to the Commercial Arbitration Rules
of the American Arbitration Association. The venue of any such arbitration shall
be in Houston, Harris County, Texas, U.S.A., and the arbitration shall be
conducted pursuant to the rules of said Association.
ARTICLE VI
INDEMNIFICATIONS
SEC. 6.1 Notwithstanding anything herein to the contrary, each of TBS
Texas and MegaWorld agrees to assume from and after Closing any and all
obligations and responsibility which TBS and CDMP, or either of them, may have
under applicable agreements or governmental laws, orders, rules, and regulations
concerning the operation and business of TBS, including without limitation all
obligations to Compass Bank, and each of TBS Texas and MegaWorld agrees to
defend, indemnify, and hold harmless TBS and CDMP and their respective officers,
directors, agents, employees, affiliated companies, heirs, successors, and
assigns from and against any and all loss, cost, risk, and expense arising
directly or indirectly, whether before or after Closing, from the failure, or
alleged failure, by TBS Texas and MegaWorld, or either of them, to comply with
any applicable governmental laws, orders, rules, and regulations, or failure to
comply with any obligations, terms, or conditions of any contract, obligation,
or agreement of TBS.
Page 34 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 35
SEC. 6.2 In addition to Section 6.1 above, MegaWorld agrees to defend,
indemnify, and hold harmless CDMP, his agents, personal representatives, heirs,
successors, and assigns from and against all losses, costs, claims, demands,
suits, liability, and expense with respect to TBS which arise out of or relate
to the ownership or operation of the assets of TBS by TBS Texas and MegaWorld,
or either of them, or which in any manner relate to the condition of the
premises and equipment for any event which may occur or condition which may
arise from and after the Closing.
SEC. 6.3 Each below-signing Director of MegaWorld, together with each
of MegaWorld, its subsidiaries, divisions, and affiliates agrees to defend,
indemnify, and hold harmless CDMP, his agents, personal representatives, heirs,
successors, and assigns from and against all losses, costs, claims, demands,
suits, liability, and expense, whatsoever, known or unknown, which arise out of
or relate to, directly or indirectly, the governance or operation of, or the
raising of capital for or by any of MegaWorld, its subsidiaries, divisions, and
affiliates, whether through the use of market makers or otherwise, for any event
which may occur or condition which may arise from and prior to Closing,
including without limitation any liability or responsibility from or for any
misrepresentation or omission of a material fact in the sale or transfer of any
security, such as, but not limited to shares of stock of MegaWorld.
SEC. 6.4 The indemnifications contained in this Article VI shall
survive Closing, and shall continue in full force and effect for a period of
four (4) years after the latest to occur of either (i) final payment in full of
all indebtedness incurred by TBS to Compass Bank and unpaid at Closing, or (ii)
the latest date on which a payment is due on such indebtedness under the loan
documents, subject to any extensions, modifications, renewals, and
rearrangements.
ARTICLE VII
RISK OF LOSS
SEC. 7.1 CALAMITOUS EVENTS. If prior to Closing, any of the following
events ("Calamitous Events") occur, TBS and CDMP, or either of them, may elect
to terminate this Agreement. The Calamitous Events are as follows:
(a) Omitted
(b) Should any default occur under the Agreement dated April
21, 1998, by and between MegaWorld, Inc., and Michael Giamalvo.
SEC. 7.2 CASUALTY LOSS. If, prior to Closing, any assets of TBS having
aggregate value equal to or in excess of $1,000,000.00 shall be destroyed by
fire or other casualty ("Casualty Loss"), regardless of whether covered by
insurance, MegaWorld may elect to terminate this Agreement. If this Agreement is
not so terminated, the Consideration shall be adjusted downward in an amount
equal to the loss resulting from Casualty Loss. TBS and CDMP shall be entitled
to any insurance proceeds paid or payable as a result of such pre-Closing
Casualty Loss. The risk of loss of the assets of TBS shall pass from TBS to TBS
Texas at Closing.
Page 35 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 36
ARTICLE VIII
CONDITIONS TO CLOSING
SEC. 8.1 TBS CONDITIONS. The obligations of TBS at the Closing are
subject, at the option of TBS, to the satisfaction at or prior to Closing of the
following conditions:
8.1.1 All representations and warranties of MegaWorld
contained in this Agreement shall be true in all material respects at and as of
Closing as if such representations and warranties were made at and as of the
Closing Date, and MegaWorld shall have preformed and satisfied all material
agreements in all material respects required by this Agreement to be performed
and satisfied by MegaWorld at or prior to Closing.
8.1.2 No suit, action, or other proceeding brought by a party
other than TBS or MegaWorld shall be pending or threatened, and no order shall
have been entered by any court or governmental agency having jurisdiction over
the parties or the subject matter of this contract that restrains or prohibits
the Merger contemplated by this Agreement and which remains in effect at the
Closing Date.
8.1.3 MegaWorld shall have taken all action necessary and
appropriate to amend its Certificate of Incorporation and its Bylaws, as
necessary, to (i) obtain authorization of the shares of stock to be issued
hereunder and authorization of the issuance thereof in compliance herewith, and
(ii) terminate the authority to issue Class A shares of MegaWorld Common Stock.
8.1.4 MegaWorld shall commission independent legal, financial,
and/or tax advisors to investigate, as provided in Section 3.2.26 hereof.
8.1.5 MegaWorld shall have executed, acknowledged, and
delivered, as appropriate, to TBS all Closing Documents described in Section 9.3
hereof.
8.1.6 Omitted.
8.1.7 Omitted
8.1.8 Omitted
SEC. 8.2 MEGAWORLD CONDITIONS. The obligations of MegaWorld at the
Closing are subject, at the option of MegaWorld, to the satisfaction at or prior
to Closing of the following conditions:
8.2.1 All representations of TBS contained in this Agreement
shall be true in all material respects at and as of Closing as if such
representations were made at and as of the Closing Date, and TBS shall have
preformed and satisfied all material agreements in all material respects
required by this Agreement to be performed and satisfied by TBS at or prior to
Closing.
8.2.3 All necessary third-party consents and assignments, or
similar agreements which affect the obligations of TBS, shall have been
obtained.
Page 36 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 37
8.2.4 There shall have occurred no adverse material change to
the financial position, as reflected in the unaudited financial statements of
Total Business Systems, Inc., dated March 31, 1998.
8.2.5 TBS shall have executed, acknowledged, and delivered, as
appropriate, to MegaWorld all Closing Documents described in Section 9.3 hereof.
ARTICLE IX
CLOSING
SEC. 9.1 CLOSING DATE. Unless the parties hereto mutually agree
otherwise in writing, and subject to the conditions stated in this Agreement,
the consummation of the Merger and related transactions contemplated hereby
(herein called the "Closing") shall be held on or before November 15, 1998. The
date Closing actually occurs is herein called the "Closing Date".
SEC. 9.2 PLACE OF CLOSING. Closing shall be held in the offices of TBS
in Houston, Harris County, Texas, or at such other place as TBS and MegaWorld
may agree in writing.
SEC. 9.3 CLOSING DOCUMENTS.
9.3.1 The Closing Documents are listed in Exhibit A hereto.
9.3.2 Those Closing Documents listed in Schedule A-1 of
Exhibit A shall be presented, in initial draft form, by TBS to MegaWorld no
later than fourteen (14) days before Closing; and on or before seven (7) days
before Closing, MegaWorld shall deliver to TBS in writing its objections, if
any, to the initial drafts of such Closing Documents.
9.3.3 Those Closing Documents listed in Schedule A-2 of
Exhibit A shall be presented, in initial draft form, by TBS to MegaWorld no
later than seven (7) days before Closing; and on or before four (4) days before
Closing, MegaWorld shall deliver to TBS in writing its objections, if any, to
the initial drafts of such Closing Documents.
9.3.4 Those Closing Documents listed in Schedule A-3 of
Exhibit A shall be presented, in initial draft form, by TBS to MegaWorld no
later than seven (7) days before the filing of the Articles of Incorporation of
TBS Texas with the Texas Secretary of State; and within three (3) days
thereafter, MegaWorld shall deliver to TBS in writing its objections, if any, to
the initial drafts of such Closing Documents.
9.3.5 Those Closing Documents listed in Schedule A-4 of
Exhibit A shall be fully executed and presented by TBS to MegaWorld no later
than fourteen (14) days before Closing; and within five (5) days thereafter,
MegaWorld shall deliver to TBS in writing its objections, if any, to such
Closing Documents.
Page 37 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 38
9.3.6 As to each Closing Document to which objections are not
timely delivered to TBS by MegaWorld, as required in this Article IX, MegaWorld
shall be deemed, for all purposes hereunder, to have accepted the initial draft
of that Closing Document. In the event that MegaWorld makes timely and proper
objection to a Closing Document, the Parties shall negotiate diligently and in
good faith to reach agreement on the final form of that Closing Document so that
the final form is agreed upon prior to or at Closing (or in the case of the
Closing Documents listed in Schedule A-3 of Exhibit A, the final form of each is
agreed upon within seven (7) days after the initial draft is delivered to
MegaWorld, in the case of Closing Documents listed in Schedule A-4, the final
form of each is agreed upon and a revised Closing Document executed in the
agreed form before Closing), failing which either Party may cancel the Closing.
SEC. 9.4 CLOSING OBLIGATIONS. At Closing, the following events shall
occur, each being a condition precedent to the other, and each being deemed to
have occurred simultaneously with the others.
9.4.1 TBS shall accomplish the following:
(i) Execute and cause its shareholders to execute the Plan of
Merger and deliver the same to MegaWorld.
(ii) Execute and deliver to MegaWorld the Articles of Merger.
(iii) Acknowledge the TBS Disclosure Schedule as true and
correct through the Closing Date.
(iv) Executing and delivering any other Closing Documents
required hereunder to be signed by TBS at Closing.
9.4.2 MegaWorld shall:
(i) Issue and deliver to TBS Texas the Closing Shares.
(ii) Execute and deliver to TBS Texas the MegaWorld Promissary
Note.
(iii) Execute the Plan of Merger and deliver the same to TBS.
(iv) Execute and deliver to TBS the Articles of Merger.
(v) Execute and deliver to CDMP the Employment Agreement.
(vi) Issue and deliver to CDMP the Employment Shares.
(vii) Execute and deliver to TBS Texas the MegaWorld
Promissory Note.
(viii) Execute and deliver to CDMP the MegaWorld Security
Agreement.
Page 38 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 39
(ix) Execute and deliver to CDMP the MegaWorld Guaranty
Agreement.
(x) Execute and deliver to CDMP the MegaWorld Pledge
Agreement.
(xi) Execute and deliver to CDMP the TBS Texas Shareholders'
Agreement.
(xii) Acknowledge the MegaWorld Disclosure Schedule as true
and correct through the Closing Date.
9.4.3 TBS Texas shall:
(i) Endorse, assign, and deliver to M&J the MegaWorld
Promissary Note.
(ii) Endorse, assign, and deliver to M&J the Execution Shares.
(iii) Assume and acknowledge the TBS Employment Agreement.
(iv) Execute the Plan of Merger and deliver the same to TBS.
(v) Execute and deliver to TBS the Articles of Merger.
(vi) Execute and deliver to CDMP the TBS Texas Security
Agreement.
(vii) Execute and deliver to CDMP the TBS Texas Guaranty
Agreement.
(viii) Execute and deliver to CDMP the TBS Texas Deed of
Trust.
(ix) Execute and deliver to CDMP the TBS Texas Shareholders'
Agreement.
(x) Execute and deliver to CDMP the TBS Texas Assumption
Agreement.
(xi) Execute and deliver to CDMP the TBS Texas Indemnification
Agreement.
9.4.3 CDMP shall:
(i) As a shareholder of TBS, execute and deliver to TBS Texas
the Plan of Merger.
(ii) As a shareholder of TBS, execute and deliver to TBS Texas
the Articles of Merger.
Page 39 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 40
(iii) Execute and deliver to MegaWorld the MegaWorld
Employment Agreement
(iv) Execute and deliver to TBS Texas the TBS Texas
Shareholders' Agreement.
(v) Omitted
9.4.4 Required Shareholders shall:
(i) Execute and deliver to MegaWorld the MegaWorld Shareholder
Voting Agreement.
9.5 In the event of any conflict between the terms of this
Acquisition/Merger Agreement and any of the closing documents then the terms of
this Acquisition/Merger Agreement shall prevail.
ARTICLE X
OBLIGATIONS AFTER CLOSING
SEC. 10.1 FEES AND EXPENSES. MegaWorld shall pay all sales taxes, if
any, occasioned by the merger of the corporations. MegaWorld shall pay all
documentary, filing, and recording fees required in connection with the
formation, creation, and registration of TBS Texas; filing of registration
statements, if any, required under the Securities Act; and filing of the
Articles of Merger. Ad valorem or other property taxes for 1998, not delinquent
at the time of Closing, and attributable to any property of TBS, if any, shall
be paid by TBS Texas.
SEC. 10.2 FURTHER ASSURANCES. After Closing, MegaWorld and TBS shall
execute, acknowledge, and deliver or cause to be executed, acknowledged, and
delivered, such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
document, certificate, or other instruments delivered pursuant hereto.
SEC. 10.3 FINANCIAL DISCLOSURES; ACCOUNTING. Within forty-five (45)
days after the end of each calender quarter, MegaWorld and TBS Texas shall
deliver to CDMP an accurate, itemized statement reflecting the current financial
position of the respective businesses.
SEC. 10.4 AUDIT.
10.4.1 CDMP, upon notice in writing to TBS Texas, shall have
the right to audit TBS Texas' accounts and records for any calender year within
the twenty-four (24) month period following the end of such calender year. TBS
Texas shall bear no portion of the CDMP's audit cost incurred under this Section
10.4 unless agreed to by TBS Texas. The audits shall not be conducted more than
once each year without prior approval of TBS Texas and shall be made at the
expense of CDMP.
10.4.2 TBS Texas shall reply in writing to an audit report
within forty-five (45) days after receipt of such report.
Page 40 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 41
SEC. 10.5 RELEASE OF SECURITY INTERESTS. In the event of no default by
MegaWorld and TBS Texas hereunder, CDMP shall release MegaWorld and TBS Texas,
respectively, from the MegaWorld Security Agreement TBS Texas Security Agreement
(as provided in Sections 2.3.4(b) and 2.3.8(d) hereof), MegaWorld Pledge
Agreement (2.3.4(c) hereof), and TBS Texas Deed of Trust (2.3.8(e) hereof), but
shall not release the MegaWorld Guaranty Agreement and TBS Texas Guaranty
Agreement (as provided in Sections 2.3.2 and 2.3.5 hereof), at the earlier of
(i) timely payment in full by MegaWorld of the $8,000,000.00 under Section 2.1.3
hereof, or (ii) one year after delivery of all shares due in lieu of the
$8,000,000.00, or any unpaid portion thereof, under Section 2.1.3 hereof.
SEC. 10.6 NATIONAL LISTING AND OTHER SECURITIES MATTERS. MegaWorld
shall use its best efforts to file its Form 10Q in compliance with federal
securities regulations.
SEC. 10.7 DILIGENT PURSUIT OF MILESTONES. Section 3.2.14 hereof sets
out certain measurements of progress and success, or lack thereof, for sale of
timeshare units in Castello Torre Ratti and for sale of minutes of long distance
time by ITS Telephony, Inc. MegaWorld shall continue diligently and without
delay to pursue those goals, failure to reach which shall be a default
hereunder.
SEC. 10.8 WARRANTY AGAINST CERTAIN OCCURRENCES. Omitted
SEC. 10.9 RESTRICTIONS. Other than restrictions imposed by SEC Rule
145, all shares of MegaWorld stock issued hereunder shall be without restriction
against resale, and MegaWorld shall not oppose or object to removal of such
restrictions after the statutory one-year holding period expires.
SEC. 10.10 SURVIVAL. The obligations in this Article X shall survive
the Closing.
ARTICLE XI
TERMINATION OF AGREEMENT
SEC. 11.1 ALLOWED TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated by Party under any provision hereof
allowing that Party to terminate if the conditions precedent required by such
provision are met, including without limitation failure of a condition of
Closing required by that Party under Article VII hereof.
SEC. 11.2 TERMINATION FOR CERTAIN EVENTS.
11.2.1 Should any legal action be initiated or taken by any
current officer or Director or shareholder of MegaWorld, as of July 20, 1998, or
by any future officer or Director or shareholder of MegaWorld, contesting any of
the actions contained or contemplated by this Agreement.
Page 41 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 42
ARTICLE XII
MISCELLANEOUS
SEC. 12.1 EXHIBITS. All Exhibits which are, or may be, attached to this
Agreement are to be considered to be incorporated herein by reference as if
fully set forth at length.
SEC. 12.2 NOTICES. Any notice under or by reason of this agreement
shall be in writing and shall be effective upon delivery to the party to whom it
is intended or upon either (a) the mailing thereof, by depositing the same in a
depository for the U.S. Postal Service, or successor thereof, enclosed in a
proper mailing wrapper addressed to the party for whom it is intended, via
certified or registered mail, postage prepaid, to the address for that party
stated above or such subsequent address for that party established by notice
hereunder, or (b) the depositing thereof with a commercial delivery service, so
wrapped and addressed, with the charges arranged to be paid by shipper, or (c)
the transmission thereof by telecopier or facsimile machine, so long as a
confirmation copy is mailed to the addressee within three (3) days of completion
of the transmission. The addresses of the parties for purposes of notice shall
be the addresses set out herein for the respective parties, subject to notice,
as herein provided, of change of such address.
SEC. 12.3 AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by all parties hereto.
SEC. 12.4 ASSIGNMENT. Neither TBS nor MegaWorld may assign their
respective rights or obligations hereunder prior to Closing with the prior
written consent of the other party. Subject to the foregoing, this Agreement
shall be binding upon the parties hereto and their respective successors and
assigns; and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights, or
remedies.
SEC. 12.5 ANNOUNCEMENTS. TBS and MegaWorld shall consult with each
other with regard to all press releases and other announcements issued at or
prior to Closing concerning this Agreement or the transactions contemplated
hereby and, except as may be required by applicable laws or the applicable rules
and regulations of any governmental agency or stock exchange, neither TBS nor
MegaWorld shall issue any such press release or other publicity without the
prior written consent of the other party.
SEC. 12.6 COUNTERPARTS; EXECUTION BY FACSIMILE. This Agreement may be
executed in separate counterparts, each of which is deemed to be an original and
all of which taken together constitute one and the same agreement. This
agreement and related documents may be executed and delivered by facsimile
transmission, and shall be binding upon the parties when so executed and
delivered by all parties, and the original documents will be exchanged by the
parties promptly thereafter. It is contemplated by the Parties that execution
hereof, in duplicate originals, shall be accomplished by exchange of executed
signature pages by facsimile transmission on the date of execution by MegaWorld,
with at least five (5) duplicate originals, fully executed by MegaWorld and the
Required Shareholders, to be delivered to TBS by overnight delivery within
twenty-four (24) hours of the exchange of signature pages by facsimile
transmission, and with all but two (2) of such duplicate originals executed by
TBS and the remaining Parties and returned to MegaWorld on or before Wednesday,
August 26, 1998, and if such exchange of signature pages so occurs on August 20,
1998, then notwithstanding anything herein to the contrary, this Agreement shall
be effective from and as of such exchange of signature pages, with the exchange
of executed originals to be purely ministerial.
Page 42 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 43
SEC. 12.7 GOVERNING LAW AND VENUE. This Agreement shall be governed by,
and interpreted, construed, and enforced in accordance with, the laws of the
State of Texas. This Agreement is entered into and executed in Houston, Harris
County, Texas, and each party hereto hereby submits to the jurisdiction,
personal or otherwise, and venue of the federal and state courts sitting in
Houston, Harris County, Texas.
SEC. 12.8 ENTIRE AGREEMENT. It is the desire and intent of the parties
to provide certainty as to their future rights and undertakings herein. The
parties to this Agreement have incorporated all representations, warranties,
covenants, commitments, and understandings on which they have relied in entering
into this Agreement, and neither party makes any additional covenants or other
commitments, not expressly set forth herein, to the other concerning its future
action. Accordingly, this Agreement (i) constitutes the entire Agreement and
understanding between the parties and there are no promises, representations,
conditions, or terms related thereto other than those expressly set forth
herein, and (ii) supersedes all previous undertakings, agreements, and
representations between the parties, whether written or oral, with respect to
the subject matter hereof. No modification of, addition to, or waiver of any
provisions of this Agreement shall be binding upon either party hereto unless
the same shall be in writing duly executed by a duly authorized representative
of the parties hereto.
SEC. 12.9 WAIVER. No express or implied waiver by any party of any
right or remedy with respect to a default by any other party under any provision
of this Agreement shall be deemed, interpreted, or construed as a waiver of any
right or remedy with respect to any other default under the same or any other
provision hereof. Delay in the exercise of any right hereunder shall not be
construed as waiver of such right or remedy.
SEC. 12.10 CONSTRUCTION. Whenever the context requires, the singular
shall include the plural, the plural shall include the singular, the whole shall
include any part thereof, and any gender shall include both genders. "Person" as
used herein shall include any individual, corporation, limited liability
company, limited or general partnership, professional corporation, or other
entity recognized under the laws of the State of Texas. The paragraph headings,
captions, and titles contained in this Agreement are solely for purposes of
reference only and shall not limit, expand, or otherwise affect the construction
or interpretation of this Agreement or any provision hereof.
SEC. 12.11 COSTS. Except as expressly provided otherwise herein, each
party shall pay its own costs, including without limitation fees and expenses of
its own counsel and accountants, in connection with the performance hereunder.
SEC. 12.12 SURVIVAL. The provisions of this Merger Agreement shall
survive the Closing, with respect to obligations hereunder which, by their
terms, are to be performed after Closing or as expressly provided herein;
provided that in the event of conflict between this Agreement and any of the
Closing Documents, this Agreement shall control.
SEC. 12.13 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such a 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 to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Page 43 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 44
SEC. 12.14 SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, personal representatives, transferees,
successors, and assigns.
SEC. 12.15 JOINDER BY SPOUSE OF CDMP. Lynn R. McPhail is the spouse of
CDMP, and joins in the execution of this Agreement for the purpose of (i)
acknowledging that CDMP's rights and privileges as a Shareholder of TBS, and his
shares of stock in TBS are and always have been subject to the sole management,
control, and disposition of CDMP, and (ii) authorizing the transfer hereunder of
any community claim she may have in the TBS Stock and other property, rights,
and privileges described herein, and (iii) ratifying this agreement.
SEC. 12.16 JOINDER BY DIRECTORS AND REQUIRED SHAREHOLDERS OF MEGAWORLD.
The below-signing Directors of MegaWorld and Required Shareholders of MegaWorld,
join in the execution of this Agreement, as Directors of MegaWorld and as
Required Shareholders, for the purposes of (i) Section 6.3 hereof, (ii)
acknowledging the binding effect of this Agreement upon MegaWorld and upon the
Required Shareholders, and (iii) ratifying this agreement.
SEC. 12.17 JOINDER BY JOYVER INVESTMENTS, L.L.C. JoyVer Investments,
L.L.C. joins in the execution of this Agreement for the purposes of (i)
acknowledging the binding effect of this Agreement upon MegaWorld, and (ii)
ratifying this agreement.
Page 44 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement under seal as if done so on the date first above written.
MEGAWORLD, INC.
(CORPORATE SEAL)
By: /s/ Irwin C. Roll
--------------------------------
Print Name: Irwin C. Roll
Authorized Officer: President
MEGAWORLD, INC., MEGAWORLD, INC.
By: /s/ Nathan Berkowitz By: /s/ Irwin C. Roll
----------------------------- --------------------------------
NATHAN BERKOWITZ IRWIN C. ROLL
Director and Required Shareholder Director and Required Shareholder
MEGAWORLD, INC., MEGAWORLD, INC.
By: /s/ Michael Giamalvo By: /s/ David W. Mahy
----------------------------- --------------------------------
MICHAEL GIAMALVO DAVID W. MAHY
Director and Required Shareholder Director and Required Shareholder
MEGAWORLD, INC.,
By: /s/ George Levy
- ---------------------------------
GEORGE LEVY
Director
Page 45 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 46
TOTAL BUILDING SYSTEMS, INC.
(CORPORATE SEAL)
By: /s/ Charles D. McPhail
--------------------------------
Print Name:
Authorized Officer
/s/ Charles D. McPhail /s/ Charles D. McPhail agent
- --------------------------------- --------------------------------
CHARLES D. McPHAIL LYNN R. McPHAIL
/s/ Charles D. McPhail agent /s/ Charles D. McPhail agent
- --------------------------------- --------------------------------
LISA MARIE McPHAIL LORI LYNN McPHAIL
JOYVER INVESTMENTS, L.L.C. JOYVER INVESTMENTS, L.L.C.
By: /s/ Charles D. McPhail By: /s/ Charles D. McPhail, agent
----------------------------- --------------------------------
CHARLES D. McPHAIL, Member LYNN R. McPHAIL, Member
[w7 tbs]mw merger agmnt (rlm) 8-20-98
Page 46 MegaWorld's Initial: /s/ ICR
MERGER AGREEMENT
By and between MegaWorld, Inc.,
and Total Building Systems, Inc. CDMP's Initial: /s/ CDM
<PAGE> 47
EXHIBIT A
<TABLE>
<CAPTION>
Sched. Closing Document References in Agreement
- ------ ---------------- -----------------------
<S> <C> <C>
SCHEDULE A-1
A-1 Plan of Merger 1.2
A-1 Articles of Merger 1.2
A-1 MegaWorld Promissory Note 2.1.3, 2.1.5
A-1 MegaWorld Security Agreement 2.3.4(b), 5.4.1, 10.5
A-1 MegaWorld Pledge Agreement 2.3.4(c), 5.4.1, 10.5
A-1 TBS Texas Guaranty Agreement 2.3.5, 2.1.3, 2.3.8, 2.8.3(c), (d), and (e)
A-1 TBS Texas Assumption Agreement 2.3.6, 2.3.8(a)
A-1 TBS Texas Indemnification Agreement 2.3.6, 2.3.8(b)
A-1 TBS Texas Security Agreement 2.3.8(d), 5.4.1, 10.5
A-1 TBS Texas Deed of Trust 2.3.8(e), 5.4.1, 10.5
SCHEDULE A-2
A-2 TBS Texas Shareholders' Agreement 2.3.1, 2.1.4, 2.3.7, 2.3.8
A-2 MegaWorld Guaranty Agreement 2.3.2, 2.3.4(a), 2.3.4(b), 10.5
A-2 Omitted
A-2 Omitted
A-2 Castello Ratti funding Agreement
SCHEDULE A-3
A-3 Articles of Incorporation of TBS Texas 1.1.3, 3.1.5, 9.3.4
A-3 Bylaws of TBS Texas 1.1.3, 3.1.5
SCHEDULE A-4
A-4 TBS Employment Agreement 1.3, 2.3.8(d), 2.3.8(e), 3.1.12
SCHEDULE A-5
A-5 List of MegaWorld Shareholders as of 11/10/98
</TABLE>
<PAGE> 1
EXHIBIT 8.2
PLAN OF MERGER
THIS PLAN OF MERGER, entered into by the undersigned corporations, and
adopted and ratified by the respective shareholders thereof, as of the 11th day
of November, 1998, by and between TOTAL BUILDING SYSTEMS, INC. ("TBS" herein), a
Texas corporation whose address for purposes of this Agreement is 6250 North
Houston Rosslyn Road Houston, Texas 77091-3410; and TEXAS TBS, INC. ("TBS Texas"
herein), a Texas corporation whose address for purposes of this Agreement is
6250 North Houston Rosslyn Road Houston, Texas 77091-3410 (collectively, the
"Parties" and individually, each a "Party" herein); WITNESSETH that:
Whereas, Total Building Systems, Inc. is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Texas. The
total number of shares of stock which TBS is authorized to issue is 100,000
shares of a single class of common stock, with $1.00 par value, of which 10,000
shares are outstanding, and all such outstanding shares of TBS are authorized
and validly issued and nonassessable and fully paid. The shareholders of TBS are
(i) Charles D. and Lynn R. McPhail, (ii) Lisa Marie McPhail, (iii) Lori Lynn
McPhail, and (iv) JoyVer Investments, L.L.C.;
Whereas, TBS Texas, Inc. is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Texas. The total number of
shares of stock which TBS Texas is authorized to issue is 10,001 shares of a
single class of common stock, with $0.01 par value, of which 10,000 shares are
outstanding and issued to MegaWorld, Inc., and one (1) share is outstanding and
issued to Charles D. McPhail, and all such outstanding shares of TBS Texas are
duly authorized and validly issued and nonassessable and fully paid.
Whereas, the Parties agree that TBS Texas and TBS shall merge (the "Merger"
herein), as herein provided, with TBS Texas as the sole surviving corporation.
NOW, THEREFORE, FOR AND IN CONSIDERATION OF THE PREMISES AND OTHER VALUABLE
CONSIDERATION, the receipt and adequacy of which are hereby acknowledged, and
subject to compliance with the terms and conditions set forth in that certain
Acquisition/Merger Agreement dated November 11, 1998, by and between MegaWorld,
Inc. ("MegaWorld" herein), Charles D. McPhail, and TBS, made a part hereof by
reference, the parties hereto agree to the following:
In partial consideration for the transfer of all authorized and outstanding
shares of TBS, TBS Texas shall transfer to the shareholders of TBS 14,000,000
shares of Common Stock of MegaWorld, with suitable legend, in partial
consideration of, and in exchange for, their shares of TBS stock, to be
distributed to the following shareholders of TBS in the following amounts:
(a) Charles D. and Lynn R. McPhail 900,000 shares
(b) Lisa Marie McPhail 1,400,000 shares
(c) Lori Lynn McPhail 1,400,000 shares
(d) JoyVer Investments, L.L.C. 5,100,000 shares
(e) Lynn R. McPhail 1,400,000 shares
In further consideration for the transfer of the TBS shares, TBS Texas
shall endorse and deliver to the shareholders of TBS a Promissory Note
("MegaWorld Promissory Note" herein) executed by MegaWorld, as Maker therein,
payable to TBS Texas, as the original Payee therein, in the original principal
amount of Eight Million and 00/100 Dollars ($8,000,000.00), with a term of two
(2) years, bearing interest at the London Inter-Bank Offered Rate ("LIBOR"
herein) plus two percent (2%) during the term thereof, payable in quarterly
installments of principal and interest as therein provided. The MegaWorld
Promissory Note and MegaWorld's performance thereunder shall be unconditionally
and absolutely guaranteed in all respects by TBS Texas, as provided in the
Acquisition/Merger Agreement. TBS Texas shall properly endorse the MegaWorld
Promissory Note and assign the MegaWorld Promissory Note to the following
persons in the following proportions:
(a) Charles D. & Lynn R. McPhail 30%
(b) Lisa Marie McPhail 10%
(c) Lori Lynn McPhail 10%
(d) JoyVer Investments, L.L.C. 50%
At Closing, in partial consideration for his participation in the
transactions provided for in the Acquisition / Merger Agreement, and in
particular for remaining employed under the TBS Employment Agreement and his
execution of the MegaWorld Employment, as described in the said Acquisition /
Merger Agreement, TBS Texas shall also issue and cause to be registered in the
registry of shareholders in the corporate records of TBS Texas one (1) share of
common stock in the name of Charles D. McPhail, with an option granted to
MegaWorld, Inc., to purchase said share in accordance with the terms and
conditions of the Acquisition / Merger Agreement.
The Acquisition/Merger Agreement provides for other and additional
consideration, as well as representations, warranties, covenants, security
arrangements, and other matters, all as more particularly described therein.
By execution hereof by Charles D. McPhail, individually and as and as Agent
and Attorney-in-Fact for Lynn R. McPhail, Lisa Marie McPhail, Lori Lynn McPhail,
and JoyVer Investments, L.L.C., a Texas limited liability company, acknowledges
that all of the shareholders of TBS and all of the shareholders of TBS Texas
have approved this Plan of Merger, and by executing below they do hereby adopt,
ratify, and confirm this Plan of Merger.
Page 1
Plan of Merger
Texas TBS, Inc. and Total Business Systems, Inc.
<PAGE> 2
All parties hereto, including without limitation the shareholders named
herein, have been provided copies of the Acquisition/Merger Agreement.
The parties hereto, including without limitation the shareholders named
herein, expressly acknowledge, warrant, and represent that each has been advised
to retain separate counsel to provide advice with respect to this Agreement; and
each party hereto warrants and represents to the other that the respective
warranting party has acted upon such advice to said party's own satisfaction and
have executed this instrument and adopted the Plan of Merger freely and of that
party's own accord.
Under Article 5.06 of the Texas Business Corporation Act, all rights,
title, and interests to all real estate and other property owned by Total
Business Systems, Inc. shall, upon the filing of the Articles of Merger, be
allocated to and vested in Texas TBS, Inc., without reversion or impairment,
without further act or deed, and without any transfer or assignment having
occurred, but subject to any existing liens or other encumbrances thereon.
Under Article 5.06 of the Texas Business Corporation Act, all liabilities
and obligations of Total Business Systems, Inc. shall, upon the filing of the
Articles of Merger, be allocated to Texas TBS, Inc., and Texas TBS, Inc. shall
be the primary obligor therefor to the extent that Total Business Systems, Inc.
was the primary obligor before the filing of these articles.
IN WITNESS WHEREOF, this Plan of Merger has been executed on the 11th day
of November, 1998, by the undersigned.
TEXAS TBS, INC.:
By: /s/ Charles D. McPhail
--------------------------------
Charles D. McPhail, President
TOTAL BUILDING SYSTEMS, INC.:
By: /s/ Charles D. McPhail
--------------------------------
Charles D. McPhail, President
AGREED, CONFIRMED, RATIFIED, AND ADOPTED
/s/ Charles D. McPhail
- ----------------------
CHARLES D. McPHAIL, Individually and as
Agent and Attorney-in-Fact for Lynn R. McPhail,
Lisa Marie McPhail, Lori Lynn McPhail, and
JoyVer Investments, L.L.C.
[w7 tbs]tbsmergeplan
Page 2
Plan of Merger
Texas TBS, Inc. and Total Business Systems, Inc.
<PAGE> 1
EXHIBIT 8.3
DEED OF TRUST
Date: November 11, 1998
Grantor (whether one or more): TEXAS TBS, INC.
Grantor's Mailing Address: 6250 North Houston Rosslyn Road
Houston, Texas 77091-3410
In Harris County, Texas
Trustee: Ronald L. Moore
Trustee's Mailing Address: 5832 Fairdale, Suite A
Houston, Texas 77057
In Harris County, Texas
Beneficiary: CHARLES D. McPHAIL
Beneficiary's Mailing Address: 15411 Fawn Villa
Houston, Texas 77068
In Harris County, Texas
Secured Obligations:
Thus secures the performance of all obligations of TEXAS TBS, INC.
("TBS Texas" herein) and all obligations of TOTAL BUSINESS SYSTEMS,
INC. ("TBS herein) to Beneficiary under that certain Acquisition /
Merger Agreement dated November 11, 1998, by and among MEGAWORLD, INC.
("MegaWorld" herein), a Delaware corporation whose address for purposes
of this Agreement is 430 Park Avenue, New York, New York 10022; TOTAL
BUILDING SYSTEMS, INC. ("TBS" herein), a Texas corporation whose
address for purposes of this Agreement is 6250 North Houston Rosslyn
Road Houston, Texas 77091-3410; and CHARLES D. McPHAIL, including
without limitation performance under the TBS Employment Agreement and
the TBS Texas Guaranty Agreement, as defined in the said Acquisition /
Merger Agreement.
Property (including any improvements):
The Property is located in Harris County and is described in Exhibit A
attached hereto and made a part hereof for all purposes.
Prior Lien(s) (including recording information):
The liens and encumbrances described in Exhibit A hereto
Other Exceptions to Conveyance and Warranty:
This conveyance is subject to all easements, rights-of-way, and
prescriptive rights of record; all presently recorded restrictions,
reservations, covenants, conditions, oil and gas leases, mineral
severances, and other instruments, other than liens and conveyances,
that affect the property; rights of adjoining owners in any walls and
fences situated on a common boundary; all rights, obligations, and
other matters emanating from and existing by reason of the creation,
establishment, maintenance, and operation of any municipal utility
district; and ad valorem taxes for 1998, the payment of which Grantee
assumes.
For value received and to secure payment of the Secured Obligations,
Grantor conveys the Property to Trustee in trust. Grantor warrants and agrees to
defend the title to the Property unto the Grantee against every person
whomsoever lawfully claiming or to claim the same, or any part thereof. In the
event of no default by MegaWorld and TBS Texas under the said Acquisition /
Merger Agreement, Beneficiary shall release this deed of trust, and the lien
created hereby, at the earlier of (i) timely payment in full by MegaWorld of the
$8,000,000.00 under Section 2.1.3 of the Acquisition / Merger Agreement, or (ii)
one year after delivery of all shares due in lieu of the $8,000,000.00, or any
unpaid portion thereof, under Section 2.1.3 of the Acquisition / Merger
Agreement; but this deed of trust shall otherwise continue in full force and
effect until all of the Secured Obligations are performed, paid, and satisfied
in full, at which time, if at all, this deed of trust shall have no further
effect, and Beneficiary shall release it at Grantor's expense.
GRANTOR'S OBLIGATIONS
Grantor agrees to:
1. keep the Property in good repair and condition;
2. pay all taxes and assessments on the Property when due;
3. preserve the lien's priority as it is established in this deed of
trust;
4. maintain, in a form acceptable to Beneficiary, an insurance policy
that:
a. covers all improvements for their full insurable
value as determined when the policy is issued and
renewed, unless Beneficiary approves a smaller amount
in writing;
b. contains an 80% coinsurance clause;
c. provides fire and extended coverage, including
windstorm coverage;
d. protects Beneficiary with a standard mortgage clause;
Page 1
Deed of Trust
Texas TBS, Inc. to Trustee for McPhail
<PAGE> 2
e. provides flood insurance at any time the Property is
in a flood hazard area; and
f. contains such other coverage as Beneficiary may
reasonably require;
5. comply at all times with the requirements of the 80% coinsurance
clause;
6. deliver the insurance policy to Beneficiary and deliver renewals to
Beneficiary at least ten days before expiration, or in lieu of delivering such
policy and renewals Grantor may deliver or cause to be delivered to Beneficiary
certificates of insurance evidencing such policy and renewals in form acceptable
to Beneficiary, in its sole discretion;
7. keep any buildings occupied as required by the insurance policy; and
8. if this is not a first lien, pay all prior lien notes that Grantor
is personally liable to pay, whether as maker thereof, guarantor thereof, or
otherwise, and abide by all prior lien instruments.
BENEFICIARY'S RIGHTS
1. Beneficiary may appoint in writing a substitute or successor
trustee, succeeding to all rights and responsibilities of Trustee.
2. If the proceeds of the note are used to pay any debt secured by
prior liens, Beneficiary is subrogated to all of the rights and liens of the
holders of any debt so paid.
3. Beneficiary may apply any proceeds received under the insurance
policy either to reduce the Secured Obligations or to repair or replace damaged
or destroyed improvements covered by the policy.
4. If Grantor fails to perform any of Grantor's obligations,
Beneficiary may perform those obligations and be reimbursed by Grantor on demand
at Grantor's address for purposes of this instrument for any sums so paid, or
the cash equivalent of any loss, cost, risk, and expense incurred by Beneficiary
in performing such obligations, including attorney's fees, plus interest on
those sums from the dates of payment at the rate of eighteen per cent (18%) per
annum. The sum to be reimbursed shall be secured by this deed of trust.
5. If Grantor defaults in the performance of any of the Secured
Obligations or fails to perform any of Grantor's obligations or if default
occurs on a prior lien note or other instrument, and the default continues after
Beneficiary gives Grantor such notice of the default and the time within which
it must be cured, as may be required by law or by written agreement, then
Beneficiary may:
a. declare any and all obligations secured hereby and earned
interest thereon immediately due;
b. request Trustee to foreclose this lien, in which case
Beneficiary or Beneficiary's agent shall give notice of the
foreclosure sale as provided by the Texas Property Code as
then amended; and
c. purchase the Property at any foreclosure sale by offering the
highest bid and then have the bid credited on the note.
TRUSTEE'S DUTIES
If requested by Beneficiary to foreclose this lien, Trustee shall:
1. either personally or by agent give notice of the foreclosure sale as
required by the Texas Property Code as then amended;
2. sell and convey all or part of the Property to the highest bidder
for cash with a general warranty binding Grantor, subject to prior liens and to
other exceptions to conveyance and warranty; and
3. from the proceeds of the sale, pay, in this order:
a. expenses of foreclosure, including a commission to Trustee of
5% of the bid;
b. to Beneficiary, the full amount of principal, interest,
attorney's fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to
Grantor; and
d. to Grantor, any balance.
GENERAL PROVISIONS
1. If any of the Property is sold under this deed of trust, Grantor
shall immediately surrender possession to the purchaser. If Grantor fails to do
so, Grantor shall become a tenant at sufferance of the purchaser, subject to an
action for forcible detainer.
2. Recitals in any Trustee's deed conveying the Property will be
presumed to be true.
3. Proceeding under this deed of trust, filing suit for foreclosure, or
pursuing any other remedy will not constitute an election of remedies.
4. This lien shall remain superior to liens later created even if the
time of performance of any of the Secured Obligations is extended or if any of
the requirements of performance thereof are amended, modified, rearranged, or
extended in any manner, or if part of the Property is released.
5. If any portion of the Secured Obligations cannot be lawfully secured
by this deed of trust, payments shall be applied first to discharge that
portion.
6. Grantor assigns to Beneficiary all sums payable to or received by
Grantor from condemnation of all or part of
Page 2
Deed of Trust
Texas TBS, Inc. to Trustee for McPhail
<PAGE> 3
the Property, from private sale in lieu of condemnation, and from damages caused
by public works or construction on or near the Property. After deducting any
expenses incurred, including attorney's fees, Beneficiary may release any
remaining sums to Grantor or apply such sums to reduce the Secured Obligations
in any order deemed appropriate to Beneficiary, in Beneficiary's sole
discretion. Beneficiary shall not be liable for failure to collect or to
exercise diligence in collecting any such sums.
7. Grantor assigns to Beneficiary absolutely, not only as collateral,
all present and future rent and other income and receipts from the Property.
Leases are not assigned. Grantor warrants the validity and enforceability of the
assignment. Grantor may as Beneficiary's licensee collect rent and other income
and receipts as long as Grantor is not in default under the Secured Obligations
or this deed of trust. Except with the written consent of Beneficiary to do
otherwise, Grantor will apply all rent and other income and receipts to payment
of the Secured Obligations and performance of this deed of trust, but if the
rent and other income and receipts exceed the cash equivalent amount due under
the Secured Obligations and deed of trust, Grantor may retain the excess. If
Grantor defaults in performance of the Secured Obligations or performance of
this deed of trust, Beneficiary may terminate Grantor's license to collect and
then as Grantor's agent may rent the Property if it is vacant and may collect
all rent and other income and receipts. Beneficiary neither has nor assumes any
obligations as lessor or landlord with respect to any occupant of the Property.
Beneficiary may exercise Beneficiary's rights and remedies under this paragraph
without taking possession of the Property. Beneficiary shall apply all rent and
other income and receipts collected under this paragraph first to expenses
incurred in exercising Beneficiary's rights and remedies and then to Grantor's
obligations under Secured Obligations and this deed of trust in the order
determined by the Beneficiary. Beneficiary is not required to act under this
paragraph, and acting under this paragraph does not waive any of Beneficiary's
other rights or remedies. If Grantor becomes a voluntary or involuntary
bankrupt, Beneficiary's filing a proof of claim in bankruptcy will be tantamount
to the appointment of a receiver under Texas law.
8. It is the intention of the parties hereto to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for the obligations created or secured hereby, it is agreed as follows:
(a) the aggregate of all consideration which constitutes interest under
applicable law that is taken, reserved, contracted for, charged, or received
under this instrument or under any other instrument related to the Secured
Obligations, including without limitation the said Acquisition / Merger
Agreement or any instrument identified in Exhibit A thereto, or otherwise
connected in any manner with the Secured Obligations, shall under no
circumstances exceed the maximum amount of interest allowed by applicable law,
and any excess shall be credited on the Secured Obligations by Beneficiary or
any other obligee (or, if the Secured Obligations and all obligations hereunder
shall have been satisfied or paid in full, refunded to the undersigned); and (b)
in the event that maturity of any sum which is secured hereunder is accelerated
by reason of an election by Beneficiary resulting from any default hereunder or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount allowed by applicable law, and excess interest, if any, provided for in
the any instrument related to such Secured Obligation or obligation hereunder or
otherwise shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore prepaid, shall be credited on the said Secured
Obligations and obligations hereunder (or if the said Secured Obligations and
obligations hereunder shall have been paid in full, refunded to the Grantor). It
is further agreed that without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged, or received under any of the
Secured Obligations and obligations hereunder which are made for the purposes of
determining whether such rate exceeds the Highest Lawful Rate, as herein
defined, shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating, and spreading and averaging during the period
of the full stated term of the Secured Obligations, all interest at any time
contracted for, charged, or received from the Grantor or otherwise by
Beneficiary in connection with any of the Secured Obligations or obligations
hereunder. The term "Highest Lawful Rate" shall be the highest non-usurious
contract rate of interest which Beneficiary may charge, collect from, or
contract for with the undersigned Grantor under applicable law and in regard to
which the undersigned Grantor could not successfully assert a claim or defense
of usury.
9. When the context requires, singular nouns and pronouns include the
plural.
10. This deed of trust secures all sums due under the Secured
Obligations.
11. This deed of trust shall bind, inure to the benefit of, and be
exercised by successors in interest of all parties.
12. Grantor represents that this deed of trust is given for the purpose
of securing the Secured Obligations, assumed by Grantor in partial consideration
of the execution of the said Acquisition / Merger Agreement and the related
documents.
IN WITNESS WHEREOF, this instrument is executed as of the date first
above written.
GRANTOR:
TEXAS TBS, INC.
By: /s/ Charles D. McPhail
----------------------
Name:
Office:
ACKNOWLEDGMENT
STATE OF TEXAS New York )
COUNTY OF HARRIS New York )
This instrument was acknowledged before me on November 11, 1998, by
Charles McPhail, as President of TEXAS TBS, INC.
My commission expires: /s/ Ann Sierra
May 8, 1999. Print name: Ann Sierra
Notary Public in and for
the State of New York.
[w7 tbs]tbstxdt
Page 3
Deed of Trust
Texas TBS, Inc. to Trustee for McPhail
<PAGE> 4
EXHIBIT A
Attached to and made a part of that certain Deed of Trust dated
November 11, 1998, from TEXAS TBS, INC. to CHARLES D. McPHAIL
The lands defined as the Property in the Deed of Trust to which this Exhibit A
is attached is described as follows:
SIGNED FOR IDENTIFICATION:
/s/ Charles D. McPhail
----------------------
Name:
<PAGE> 1
EXHIBIT 8.4
THE STATE OF TEXAS )
COUNTY OF HARRIS )
<TABLE>
<S> <C>
PROMISSORY NOTE
DATE: November 11, 1998
MAKER: MEGAWORLD, INC., a Delaware corporation
MAKER'S ADDRESS: 430 Park Avenue
New York, New York 10022
In New York County, New York
PAYEE: TEXAS TBS, INC., a Texas corporation
PLACE OF PAYMENT: 6250 North Houston Rosslyn Road
Houston, Texas 77091-3410
In Harris County, Texas
PRINCIPAL AMOUNT: $8,000,000.00
ANNUAL INTEREST RATE ON UNPAID
PRINCIPAL FROM DATE: London Inter-Bank Offered Rate ("LIBOR" herein) plus two per cent (2%)
ANNUAL INTEREST RATE ON
MATURED, UNPAID AMOUNTS: 18%
TERMS OF PAYMENT: Principal and interest are payable in ten (10) consecutive semi-annual
installments, as follows:
Year 1: Semi-annual payments of accrued interest only shall be
due on or before May 13, 1999, and November 13, 1999,
respectively;
Year 2: Semi-annual payments of $200,000 each, plus accrued
interest to the due date, shall be due on or before May 13,
2000, and November 13, 2000, respectively;
Year 3: Semi-annual payments of $200,000 each, plus accrued
interest to the due date, shall be due on or before May 13,
2001, and November 13, 2001, respectively;
Year 4: Semi-annual payments of $200,000 each, plus accrued
interest to the due date, shall be due on or before May 13,
2002, and November 13, 2002, respectively; and
Year 5: A payment of $200,000 each, plus accrued interest to the
due date, shall be due on or before May 13, 2003, and the
remaining balance owing, including without limitation all
unpaid principal and interest shall be due November 13,
2003.
SECURITY FOR PAYMENT: This Note is secured, among other methods, by (i) that certain Security
Agreement and Financing Statement of even date herewith from Maker,
as Debtor therein, to CDMP and the therein described Other
Shareholders, as Secured Party therein, covering the property therein
described, including without limitation all personal property of Debtor,
tangible and intangible, whether now owned or hereafter acquired, and
wheresoever located, including all general intangibles of Debtor, and
particularly including all of Maker's shares of stock in Texas TBS, Inc.,
(ii) that certain Pledge Agreement of even date herewith from Maker, as
Pledgor, pledging Maker's shares of stock in Texas TBS, Inc., and (iii)
that certain Continuing and Unconditional Guaranty Agreement of even
date herewith by and between Texas TBS, Inc., as Guarantor, and
Payee, as Obligee, guaranteeing performance of Maker, among other
things.
</TABLE>
FOR VALUE RECEIVED, the undersigned, MEGAWORLD, INC. ("Maker" herein),
a Delaware corporation, promises to pay, without grace, to the order of TEXAS
TBS, INC. ("Payee" herein which term shall include in every instance of use
herein any owner or holder of this Note, or any interest herein), a Texas
corporation, the sum of EIGHT MILLION and NO/100 DOLLARS ($8,000,000.00),
together with interest on the principal hereof from time to time outstanding
from the date of this note until maturity, at the per annum rate above stated,
said principal and interest being payable in lawful money of the United States
of America at the place of payment specified above or such other place of
payment as Payee may designate in writing hereafter.
All past due principal and interest of this Note, whether due as the
result of acceleration of maturity or otherwise, shall bear interest at the rate
specified above as the rate on matured, unpaid amounts.
This Note is given for the purpose of funding the merger of Payee with
TOTAL BUILDING SYSTEMS, INC. ("TBS" herein), a Texas corporation, under that
certain Acquisition / Merger Agreement dated November ____, 1998, by and between
Maker, TBS, and Charles D. McPhail ("CDMP" herein); and Maker acknowledges and
directs that this Note be endorsed over by Payee to the shareholders of TBS,
being CDMP and the said Other Shareholders, to be held by CDMP and said Other
Shareholders, their successors, and assigns as successor Payees hereunder, in
accordance with said Acquisition / Merger
Page 1 Maker's Initials:/s/ICR
Promissory Note by
MegaWorld, Inc., as Maker Payee's Initials:/s/CDM
<PAGE> 2
Agreement. Reference is hereby expressly made to said Acquisition / Merger
Agreement, said Security Agreement, all of the documents listed in Exhibit A to
the said Acquisition / Merger Agreement, and any other related documents
(together with Note, the "Obligation Documents" herein), which Obligation
Documents are more particularly described in the Security Agreement; and the
rights, privileges, terms, and conditions of the Obligation Documents are
incorporated herein by reference regarding the security, rights in collateral,
and other matters provided for therein.
In accordance with Section 2.1.3 of the Acquisition / Merger Agreement,
as and when each installment becomes due hereunder, if MegaWorld is not then in
default of any of its obligations hereunder, under the Acquisition / Merger
Agreement, or under any of the other Obligation Documents, including any funding
agreement under which CDMP has advanced funds to Maker, the installment then due
hereunder, at the option of Maker, may be paid in common stock of Maker, at one
share of common stock for each dollar of principal and interest due in such
installment and not paid in cash; provided, however, that in the event that,
within ninety (90) days before any installment becomes due hereunder, cash
payments are made in the course of other acquisitions, whether ongoing,
existing, or future transactions or arrangements, including without limitation
acquisition of ITS Telephony or any affiliate thereof or performance under that
certain Agreement dated April 21, 1998, by and between Maker and Michael
Giamalvo ("Giamalvo Agreement" herein), then the payment of principal and
interest hereunder for that quarterly installment must be made in cash; and
similarly, in the event that any quarterly installment of principal and interest
due hereunder is paid, in whole or any part, in the stock of Maker, then no cash
payments may be made in the course of such other acquisitions until the end of
ninety (90) days after issuance of all stock comprising any part of that
installment hereunder; and further providing that in the event that the price at
which the stock of Maker is traded should during any calendar quarter during the
term of this Note fall below two dollars ($2.00), then for each installment
hereunder thereafter accruing, if MegaWorld exercises its option, if any then in
effect, to pay all or any part of such installment in stock instead of cash,
instead of one (1) share per dollar the number of shares per dollar of principal
and interest and any other charges so paid so paid shall be calculated under the
formula established in Section 2.1.8 of the said Acquisition / Merger Agreement
for payments in stock of Maker thereunder. For purposes of this Note and of said
Section 2.1.3 of the said Acquisition / Merger Agreement, the term "acquisition"
shall refer to any merger, acquisition, share exchange, or similar agreement
under which Maker acquires, directly or indirectly, any interest, whether legal
or beneficial, in any other entity, including without limitation the
above-referenced Giamalvo Agreement. The obligations of MegaWorld under this
Note, including without limitation the requirements and limitations related with
payments by MegaWorld to others in the course of such acquisitions, shall be
covenants coupled with the acquisition of TBS under the Acquisition / Merger
Agreement, breach of any of which shall be a default.
Maker may prepay this Note in whole or in part at any time without
being required to pay any penalty or premium for such privilege. All prepayments
hereunder, whether designated as payments of principal or interest, shall be
applied to the principal or interest of this Note or to expenses provided for
herein, or any combination of the foregoing, as directed by Payee at its option,
and if applied to principal, shall be applied to payments in the reverse order
to the order in which they are due so as not to delay or excuse any payment due
until the Note shall be paid in full.
If at any time (i) Maker shall fail to pay this Note or any installment
hereof, whether principal or interest, when due, or otherwise default hereunder,
or (ii) Maker shall default or otherwise fail to discharge its obligations under
any of the Obligation Documents, or (iii) Maker shall file a voluntary petition
in bankruptcy, or be adjudicated a bankrupt or insolvent, or file any petition
or answer seeking for Maker any arrangement, composition, readjustment, or
similar relief under any present or future statute, law, or regulation, or file
any answer admitting the material allegations of a petition filed against Maker
in any such proceeding, or seek or consent to or acquiesce in the appointment of
any trustee or receiver, on all or any substantial part of the assets of Maker,
or (iv) Payee shall have any doubt about, or be insecure in its expectation of,
the ability of Maker, any surety, or guarantor to perform any duty or obligation
under any of the Obligation Documents, as provided in the Security Agreement,
then Payee shall have the option, to the extent permitted by applicable law, to
declare this Note due and payable, whereupon the entire unpaid principal balance
of this Note and all accrued unpaid interest thereon shall thereupon at once
mature and become due and payable without presentment, demand, protest, or
notice.
It is understood and acknowledged by Maker that this Note and the other
Obligation Documents, including without limitation the Acquisition / Merger
Agreement are of merely speculative value to Payee, that the execution of any of
the Obligation Documents by CDMP and the Other Shareholders is induced and
obtained by, and in reasonable reliance upon, the representations of Maker, its
subsidiaries, affiliates, officers, and directors contained in the Obligation
Documents and the other communications by the same with CDMP. The indebtedness
created or evidenced and the obligations undertaken by Maker Payee and the
rights of Payee hereunder are subject to the terms and conditions of the said
Acquisition / Merger Agreement; provided, however, that in the event of conflict
between this Note and the said Acquisition / Merger Agreement, the terms and
conditions hereof shall prevail. This agreement is not intended to be a
third-party beneficiary contract.
Delay by Payee in invoking a remedy hereunder shall not waive the
remedy or the right to invoke the same, but shall merely constitute a temporary
forbearance. The failure of Payee to enforce any term or condition or to
exercise any rights hereunder shall not constitute a waiver of the right in the
future to enforce all of the terms and conditions hereof and to exercise any
rights hereunder, whether similar or dissimilar to any rights previously waived
or not previously enforced. It is understood by Maker that Payee shall have the
right, but not the obligation, from time to time temporarily to forbear from
invoking any remedy or remedies provided for herein, and Maker wishes to
encourage such forbearance; therefore, Maker covenants that no such forbearance
shall be interpreted as a waiver of any remedy, and Maker expressly agrees that
after any such forbearance, for no matter how long, Payee may invoke any remedy
or remedies provided for herein.
Any notice under or by reason of this note shall be in writing and,
except as herein provided, shall be effective upon delivery to the party to whom
it is intended or upon either (a) the mailing thereof enclosed in a proper
mailing wrapper addressed to the party for whom it is intended, via certified or
registered mail, postage prepaid, to the address for that party stated above or
such subsequent address for that party hereunder, or (b) the depositing thereof
with, or delivery into the possession of, a commercial delivery service, so
wrapped and addressed, with the charges arranged to be paid by shipper, or (c)
the transmission thereof by telecopier or facsimile machine, so long as a
confirmation copy is thereafter mailed to the party for whom it is intended
within three (3) days of completion of the transmission. The addresses of the
parties for purposes of notice shall be the addresses set out herein for the
respective parties, subject to notice of change of address as herein provided,
except that in the case of notice of change of Maker's address, the notice may
not be effective until fifteen (15) days after the same shall have been received
by Payee, at the option of Payee.
Maker and any and all sureties, guarantors, and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive demand for
payment or performance, presentation for payment, presentment, grace, dishonor,
protest, notice of any kind (including, but not limited to, notice of dishonor,
notice of nonpayment, notice of protest, notice of intention to accelerate and
notice of acceleration), and diligence in collecting and diligence in bringing
suit against any party hereto, or against any one or more sureties, guarantors,
or endorsers, and agree (i) to all extensions, partial payments, renewals,
modifications, and rearrangements of the debt, the Obligation Documents, or any
obligation thereunder, with or without notice,
Page 2 Maker's Initials:/s/ICR
Promissory Note by
MegaWorld, Inc., as Maker Payee's Initials:/s/CDM
<PAGE> 3
before or after maturity, (ii) to any substitution, exchange, or release of any
security now or hereafter given for this Note, (iii) that no judgment taken
against any party shall terminate any lien, security interest, or other interest
of Payee in any collateral securing the payment of this Note, (iv) to the
release of any party primarily or secondarily liable hereon, and (v) that it
will not be necessary for Payee, in order to enforce payment of this Note, to
first institute or exhaust Payee's remedies against Maker or against any other
party liable therefor or against any security for this Note.
If there is a default hereunder or under any of the instruments
securing payment hereof or under any of the Obligation Documents, and this Note
is placed in the hands of an attorney for collection (whether or not suit is
filed), or if this Note is collected by suit or legal proceedings or through the
probate court or bankruptcy proceedings, Maker agrees to pay an additional
amount as reasonable attorney's fees and expenses of collection.
It is the intention of the parties hereto to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for the obligations created or secured hereby, it is agreed as follows:
(a) the aggregate of all consideration which constitutes interest under
applicable law that is taken, reserved, contracted for, charged, or received
under this Note or under any of the Obligations Documents or otherwise in
connection with this Note shall under no circumstances exceed the maximum amount
of interest allowed by applicable law, and any excess shall be credited on this
Note by Payee (or, if this Note shall have been paid in full, refunded to the
Maker); and (b) in the event that maturity of this Note is accelerated by reason
of an election by Payee resulting from any default hereunder or otherwise, or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest may never include more than the maximum amount allowed by
applicable law, and excess interest, if any, provided for in this Note or
otherwise shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore prepaid, shall be credited on this Note (or if
this Note shall have been paid in full, refunded to the undersigned Maker). It
is further agreed that without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged, or received under this Note or
under such other documents which are made for the purposes of determining
whether such rate exceeds the Highest Lawful Rate, as herein defined, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating, and spreading and averaging during the period of the full stated
term of the loan evidenced by this Note, all interest at any time contracted
for, charged, or received from the undersigned Maker or otherwise by Payee in
connection with such loan. The term "Highest Lawful Rate" shall be the highest
non-usurious contract rate of interest which Payee may charge, collect from, or
contract for with the undersigned Maker under applicable law and in regard to
which the undersigned Maker could not successfully assert a claim or defense of
usury.
Maker hereby acknowledges and agrees that Payee shall have the right,
at any time, without the consent of or notice to Maker, to grant participations
in all or part of the obligations of Maker evidenced by this Note, together with
any liens or collateral securing the payment hereof.
Any check, draft, money order, or other instrument given in payment of
all or any portion hereof may be accepted by Payee and handled in collection in
the customary manner, but the same shall not constitute payment hereunder or
diminish any rights of Payee except to the extent that actual cash proceeds or
shares of stock under such instrument are unconditionally received by Payee.
The payment of this Note is secured as above provided.
This Note is the subject of that certain Continuing and Unconditional
Guaranty Agreement of even date herewith by Texas TBS, Inc., as Guarantor; and
Texas TBS, Inc. joins in the execution hereof, as Guarantor.
The laws of the State of Texas shall govern the validity, construction,
enforcement, and interpretation hereof and the obligations, liabilities, rights,
remedies, powers, and privileges of the parties hereto under this Note. Each
party submits itself to the personal jurisdiction of the state and federal
courts sitting in Houston, Harris County, Texas. Performance by Maker of all of
its obligations hereunder is due in Houston, Harris, County, Texas; and venue
may lie for all disputes arising hereunder in the federal and state courts
sitting in Houston, Harris County, Texas.
THIS NOTE AND ALL DOCUMENTS WHICH SECURE OR RELATE TO THIS NOTE
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN, ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
IN WITNESS WHEREOF, this instrument is executed as of the date first
above written.
MAKER:
ATTEST: MEGAWORLD, INC.
By: /s/ Nathan Berkowitz By: /s/ Irwin C. Roll
------------------------ ---------------------
Name: Nathan Berkowitz Name: Irwin C. Roll
Office: Office: President
UNCONDITIONALLY GUARANTEED
TEXAS TBS, INC., GUARANTOR
By: /s/ Charles D. McPhail
-------------------------
Name:
Office:
Page 3 Maker's Initials:/s/ICR
Promissory Note by
MegaWorld, Inc., as Maker Payee's Initials:/s/CDM
<PAGE> 4
ACKNOWLEDGMENT
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November 11, 1998, by
Irwin C. Roll, as President of MEGAWORLD, INC.
My commission expires: /s/ Ann Sierra
May 8, 1999 ----------------------------
- ----------- Notary Public in and for the
State of New York.
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November 11, 1998, by
Charles McPhail, as President of TBS TEXAS, INC.
My commission expires: /s/ Ann Sierra
May 8, 1999 ----------------------------
Notary Public in and for the
State of New York.
SPECIAL, UNQUALIFIED INDORSEMENT
For value received, the receipt and adequacy of which are hereby
acknowledged, TBS TEXAS, INC. ("Transferor" herein) does hereby unconditionally
transfer, with full recourse against Transferor and without restriction,
qualification, or limitation, unto the following persons ("Transferees" herein)
in the following proportions:
<TABLE>
<S> <C> <C>
(a) CDMP & Lynn R. McPhail 30%
(b) Lisa Marie McPhail 10%
(c) Lori Lynn McPhail 10%
(d) JoyVer Investments, L.L.C. 50%
</TABLE>
the above and foregoing Promissory Note dated September 30, 1998, by MegaWorld,
Inc., as Maker. Transferor hereby warrants unto Transferee, their respective
heirs, successors, and assigns (i) the completeness, genuineness, and validity
of all previous indorsements, (ii) title to the said Promissory Note against any
person claiming or to claim title to the same or any part thereof, and (iii)
freedom of the said Promissory Note from encumbrance.
ATTEST: TBS TEXAS, INC.
By: /s/ Nathan Berkowitz By: /s/ Charles D. McPhail
-------------------- ----------------------
Name: Name:
Office: Office:
[w7 tbs]mwprnot
Page 4 Maker's Initials:/s/ICR
Promissory Note by
MegaWorld, Inc., as Maker Payee's Initials:/s/CDM
<PAGE> 1
EXHIBIT 8.5
SECURITY AGREEMENT AND FINANCING STATEMENT
(Debtor: Texas TBS, Inc.)
THIS AGREEMENT, made and entered into effective the 11th day of
November, 1998, by and between TEXAS TBS, INC. ("Debtor" herein), a Delaware
corporation, whose address for purposes of this instrument is 6250 North Houston
Rosslyn Road Houston, Texas 77091-3410, in Harris County, Texas, on the one
hand; and CHARLES D. McPHAIL ("CDMP" herein), individually and as Agent and
Attorney-in-Fact for Lynn R. McPhail, Lisa Marie McPhail, Lori Lynn McPhail, and
JoyVer Investments, L.L.C., a Texas limited liability company (together "Other
Shareholders" herein), whose address for purposes of this instrument is 15411
Fawn Villa, Houston, Texas 77068, in Harris County, Texas, on the other hand;
WITNESSETH, THAT:
WHEREAS, Debtor owes obligations to Secured Party under the Obligation
Documents herein defined; and
WHEREAS, Debtor has agreed to the terms and conditions herein set forth
in order to induce Secured Party to proceed with the Closing described in that
certain Acquisition / Merger Agreement dated November 11, 1998, by and between
Debtor, Total Building Systems, Inc., and CDMP; and
WHEREAS, Secured Party, or any of them, at his sole discretion, may
extend to Debtor further credit or future advances, or any combination of the
same; and
WHEREAS, this Security Agreement and Financing Statement is intended to
and does secure the payment of all indebtedness, whether current or future, of
Debtor to Secured Party, and specifically including future advances and
extensions of credit, if any, to Debtor by Secured Party, or any of them, and is
further intended to secure the performance of any and all obligations of Debtor
under any of the Obligation Documents, including without limitation the TBS
Texas Employment Agreement, TBS Texas Guaranty Agreement, TBS Texas
Indemnification Agreement, and TBS Assumption Agreement, as described in the
said Acquisition / Merger Agreement;
NOW THEREFORE, for value received, the receipt and adequacy of which
are hereby acknowledged, Debtor does hereby GRANT and ASSIGN unto Secured Party
a security interest, as hereinafter set forth, in the Collateral, as herein
defined, and does hereby agree with Secured Party as follows:
A. OBLIGATIONS SECURED. The security interest granted hereby is to
secure payment of all indebtedness, whether current or future, of Debtor to
Secured Party under the Obligation Documents, and specifically including future
advances and extensions of credit, if any, to Debtor by Secured Party, or any of
them, and is further intended to secure the full and punctual performance when
due (whether by acceleration or otherwise) of all obligations of Debtor (when
and as any of such obligations shall be or become due and/or owing by Debtor)
evidenced by and/or existing or to become existing under and by reason of any of
the following instruments, agreements and documents and any extensions,
modifications, renewals, and rearrangements thereof, amendments and
modifications thereto, and substitutions therefor (together "Obligation
Documents" herein):
(i) The said Acquisition / Merger Agreement, including without
limitation any and all obligations under the said Acquisition / Merger
Agreement, all instruments referenced in Exhibit A thereto, and all
other instruments related to the transaction therein described, and
(ii) That certain Employment Agreement ("TBS Texas Employment
Agreement" herein) dated January 1, 1996, 1998, by and between Debtor,
as Employer therein, and CDMP, as Employee therein; and
(iii) That certain Continuing and Unconditional Guaranty Agreement
("TBS Texas Guaranty Agreement" herein) of even date herewith, by and
between Debtor, as Guarantor therein, and CDMP and the Other
Shareholders, as Obligees therein; and
(iv) Each and every instrument, agreement, or document executed by
Debtor in connection with, or to grant security for, obligations
evidenced by the above described Acquisition / Merger Agreement and
Security Agreement, including without limitation all instruments listed
in Exhibit A to the said Acquisition / Merger Agreement; and
(v) Any other instrument, agreement, or document executed by Debtor,
whether or not described herein as an Obligation Document, in
connection with any other obligation to Secured Party, specifically
including without limitation future loans and advances, and funding
agreements, and further including without limitation any instruments,
agreements, or documents effecting any extensions, renewals, and
rearrangements of any Obligation Document, amendments and modifications
thereto, and substitutions therefor;
And is further intended to secure payment or performance, when and as due, of
any other debt or other obligation of Debtor to Secured Party, specifically
including future advances and extensions of credit; all of the foregoing
effective until the same have been paid and satisfied in full.
B. PRIORITIES. The security interests granted by Debtor to Secured
Party and the rights of Secured Party in the Collateral are subject to the terms
and conditions of the said Acquisition / Merger Agreement; provided, however,
that in the event of conflict between this agreement and the said Acquisition /
Merger Agreement, the terms and conditions hereof shall prevail. This agreement
is not intended to be a third-party beneficiary contract. This agreement is
intended for the express benefit of CDMP and the Other Shareholders, and in
addition to executing this agreement individually, CDMP executed this agreement
for and on behalf of the Other Shareholders, as the Agent and Attorney-in-Fact
for each of the Other Shareholders, as an accommodation to Debtor in order to
facilitate the execution of the Obligation Documents.
C. DESCRIPTION OF COLLATERAL. The security interest hereby granted to
Secured Party shall be a security interest in all of the following (the
"Property" and the "Collateral" herein):
All personal property of Debtor, tangible and intangible, whether now
owned or hereafter acquired, and wheresoever located, including all
general intangibles of Debtor, and further including without limitation
all of the following assets: accounts (including without limitation
accounts receivable); contract rights; chattel paper; documents; notes;
drafts; instruments; reserves; reserve accounts; general intangibles;
money; deposit accounts; security agreements and debts secured thereby;
inventory and other personal property in all stages of manufacture,
processing, or production; equipment; machinery; furniture;
furnishings; fixtures; tools; supplies; motor vehicles of every kind
and description; patents, copyrights, trademarks; trade names; trade
styles; display materials; negotiable and
Page 1 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 2
non-negotiable documents of title now owned or hereafter acquired;
books and records (including, but not limited to computer tapes, disks,
programs, and other things upon which or in which such books or records
are stored or maintained) together with all equipment, machinery, and
inventory containing, or used in connection with the use, preparation,
or maintenance of such books and records; all substitutions,
replacements, additions, accessions, proceeds, and products of any of
the foregoing, whether or not due to voluntary or involuntary
disposition or dissolution, including without limitation money, deposit
accounts, goods, tax refunds, other tangible and intangible property,
and insurance and the proceeds thereof covering or relating to any of
the foregoing.
As used in this agreement, and subject to Paragraph B above, the terms
"Collateral" and "Property" shall mean and include, and the security interest
hereunder shall cover and extend to, all of the aforementioned Property, as well
as any accessions, additions, and attachments thereto and the proceeds and
products thereof, including without limitation all cash, general intangibles,
accounts, inventory, equipment, fixtures, notes, drafts, acceptances,
securities, instruments, chattel paper, insurance proceeds payable because of
loss or damage, or other property, benefits, or rights arising therefrom or
traceable thereto, and in and to all returned or repossessed goods arising from
or relating in any way to any of the property described herein, or other
proceeds of any sale or other disposition of such property.
D. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF DEBTOR. Debtor hereby
represents, warrants, and covenants as follows:
(1) Debtor is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
(2) Debtor has the power and authority to conduct all of its business
activities, to own and lease all of the properties owned and leased by
it, and to carry on its business as and in the places where such
properties are now owned or leased, or such businesses are now
conducted.
(3) Debtor has the authority to enter into this agreement, has properly
executed this agreement and all other Obligation Documents which Debtor
is obligated or agreed to execute under the Acquisition / Merger
Agreement, is not currently in default under any of the Obligation
Documents, and is able to perform all of its duties and obligations
thereunder.
(4) Debtor has executed all other documents which Debtor is obligated or
agreed to execute under any other agreements to date with CDMP, is not
currently in default under any of such other documents, and is able to
perform all of its duties and obligations thereunder.
(5) All documents related to the Property which have been furnished by
Debtor to Secured Party were originals or true and correct copies of
originals.
(6) Debtor shall notify Secured Party as and when any debts, accounts,
rents, royalties, and obligations constituting a part of the Property
accrue; and Debtor shall notify Secured Party, immediately upon notice
thereof, of any dispute of the debts, accounts, rents, royalties, and
obligations constituting a part of the Property and of any complaints
regarding the goods, services, or other matters which are the basis of
such debts, accounts, rents, royalties, and obligations.
(7) Debtor shall execute and deliver to Secured Party such other and
further documents as Secured Party, in its sole discretion, shall deem
necessary or convenient to effect the purposes of this instrument or of
any of the Obligation documents.
(8) (a) Neither Debtor, nor any surety or guarantor for Debtor, shall do
anything to hinder or delay the collection or enforcement of any debts,
accounts, rents, royalties, and obligations constituting a part of the
Property. Debtor shall take any steps requested by Secured Party to
collect or aid in the collection or enforcement of the debts, accounts,
rents, royalties, and obligations constituting the Property; and Debtor
shall make every diligent effort to collect or enforce the debts,
accounts, rents, royalties, and obligations constituting a part of the
Property, all for the benefit of Secured Party.
(b) Debtor shall not sell, convey, mortgage, pledge, or otherwise
dispose of or encumber the Property nor any portion thereof, nor any
of the Debtor's right, title, or interest therein, without first
securing the written consent of the Secured Party.
(9) Debtor shall notify Secured Party promptly upon notice of any material
change in the status of any one or more of Debtor, any subsidiary or
affiliate of Debtor (including without limitation MegaWorld, Inc., ITS
Telephony, Castello Torre Ratti, Castello Ratti Enterprises Srl,
Fairway Beech Corporation, and ITM Group, Inc.), any secured creditor
of Debtor (other than Secured Party), any surety or guarantor for
Debtor, or any of the debts, accounts, rents, royalties, and
obligations constituting a part of the Property.
(10) Neither this instrument nor any of the other Obligation Documents
conflict in any manner with any agreement of Debtor with, or obligation
of Debtor to, any third party, including without limitation with or to
any subsidiary, affiliate, or any creditor of Debtor.
(11) While this agreement remains in force, Debtor shall make its books,
debts, accounts, and records available to tax advisors, legal counsel,
and auditors of Secured Party, in the offices of Debtor or in the
offices of Secured Party in Harris County, Texas, at the election of
Secured Party, during normal business hours, at any time and from time
to time, upon notice of at least three (3) business days by Secured
Party. In order to assure itself of compliance hereunder by Debtor,
upon such notice, Secured Party shall have the right to audit the
books, debts, accounts, and records of Debtor, at the expense of
Debtor, which expense shall be considered an advance hereunder by
Secured Party subject to immediate reimbursement by Debtor upon invoice
to Debtor. Debtor shall make any responses to any such audit within 15
business days after receipt of the audit report from Secured Party.
(12) While this agreement remains in force, Debtor shall notify Secured
Party of all agreements between Debtor and any creditor or creditors of
Debtor; and upon the request of Secured Party, Debtor shall furnish to
Secured Party's legal counsel and/or auditors, as directed by Secured
Party, true and correct copies of all agreements between Debtor and any
creditor or creditors of Debtor.
(13) While this agreement remains in force, Debtor shall deliver to Secured
Party true and correct copies of all reports, statements, and other
financial documents furnished to any other creditor or creditors of
Debtor, as and when the same are furnished to the other creditor or
creditors.
Page 2 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 3
(14) While this agreement remains in force, Debtor shall deliver to Secured
Party notice of such default, within three (3) days of the occurrence
of any default hereunder by Debtor, and of any default under any of the
other Obligation Documents by Debtor, or by any other obligor owing any
duty or obligation to any of CDMP or the Other Shareholders.
E. EVENTS OF DEFAULT. Debtor shall be in default under this agreement
upon the occurrence of any one or more of the following events or conditions:
(1) The occurrence of any default under the terms and conditions of any of
the Obligation Documents, including without limitation this agreement,
or any extensions, renewals, modifications, and rearrangements thereof;
(2) Failure by Debtor to perform any duty or obligation hereunder or under
any of the other Obligation Documents;
(3) Failure by surety or guarantor of Debtor to perform any duty or
obligation hereunder or under any of the Obligation Documents;
(4) (a) Levy upon or seizure of, or attempted levy upon or seizure of, any
of the Collateral to satisfy a claim of any third party;
(b) The transfer by Debtor of any asset of substantial value for less
than fair market value;
(5) The attachment hereafter to the Collateral, or any part or parts
thereof, of any lien or security interest other than the following
encumbrances ("Permitted Encumbrances" herein): (a) the lien or liens
securing the Secured Obligations, (b) the statutory lien for ad valorem
taxes for the current year and not yet delinquent, (c) any lien or
security interest already attached to the Collateral and properly
perfected as of the date of this agreement, and (d) any lien for state
sales tax obligation which is satisfied within one hundred twenty (120)
days of the inception of such lien.
(6) If any material representation or warranty made by Debtor regarding
Debtor, in, under, or pursuant to the Obligation Documents, or any of
them, or any other document or documents executed in connection
therewith shall be false, erroneous, or misleading in any material
respect, or if there shall be by any of the same an omission of or
failure to disclose a material fact in relation to the Secured
Obligations, or any of them, including without limitation audits and
reports thereunder and responses thereto, regarding the Secured
Obligations, or any of the same, or any of the Property;
(7) If Debtor or any surety or guarantor for Debtor shall (a) be
adjudicated a bankrupt or insolvent, (b) seek, consent to, or not
contest the appointment of a receiver or trustee for itself or for all
or any part of its property, (c) file a petition seeking relief under
the bankruptcy, arrangement, reorganization, or other debtor relief
laws of the United States or any state or any other competent
jurisdiction, (d) make a general assignment for the benefit of its
creditors, or (e) admit in writing its inability to pay its debts as
they mature;
(8) If either (a) any creditor or obligee files a petition putting Debtor
or any surety or guarantor for Debtor in involuntary bankruptcy, or (b)
a court of competent jurisdiction enters an order, judgment, or decree
appointing, without the consent of Secured Party, a receiver or trustee
for Debtor or any guarantor, or for all or any part of its Collateral,
and (c) such petition, order, judgment, or decree shall not be and
remain dismissed or stayed within a period of fifteen (15) days after
its entry;
(9) Death, incapacity, dissolution, business failure, merger, or similar
event affecting the Debtor, any subsidiary, or affiliate of Debtor, or
any surety or guarantor for Debtor, any subsidiary, or affiliate of
Debtor, or any of the Required Shareholders, as defined in the
Acquisition / Merger Agreement, or any other surety, endorser, or
guarantor of the Secured Obligations, or any of them;
(10) If either (a) title of the Debtor to any or all of the Collateral or
(b) the status of this Security Agreement as a first and prior lien and
security interest on the Collateral, except as to the Permitted
Encumbrances, shall be challenged or endangered by any party
whomsoever, in any manner whatsoever, and Debtor shall fail to cure the
same immediately upon the earlier of (i) notice to Debtor of such
challenge or endangerment, or (ii) demand for cure by Secured Party;
(11) The occurrence of any default or event of default, as defined or
described in any of the other Obligation Documents, or under any other
document or documents under which Debtor is obligated in any manner
whatsoever to Secured Party, regardless of whether such obligation
relates in any manner to the Obligation Documents or obligations
thereunder;
(12) The occurrence of any default or event of default under any other
agreement with CDMP, including without limitation agreements under
which any funds have been, or will in the future be, advanced to Debtor
by TBS, CDMP, or any of the Other Shareholders; or
(13) The occurrence hereafter of any event, act, or omission whatsoever
which leads or causes Secured Party to have any doubt about, or to be
insecure in its expectation of, the ability of Debtor, or of any surety
or guarantor for Debtor, or of Texas TBS, Inc., to perform any duty or
obligation under any of the Obligation Documents, which doubt and
insecurity shall each be at Secured Party's sole discretion, whether or
not such discretion is exercised in a reasonable manner.
F. REMEDIES. Upon the occurrence of an event of default, Secured Party,
at its option, shall have and be entitled to exercise any one or more of the
following remedies:
(1) Secured Party shall have all of the rights and remedies provided for in
this agreement and in any other agreements between Secured Party and
Debtor including without limitation the Obligation Documents, the
rights and remedies under the Texas Business and Commerce Code, and all
rights and remedies available at law and in equity, all of which shall
be cumulative, including without limitation the right to take
possession of the Collateral, or any of the same, with or without
process of law, and, in this connection, to enter any premises, without
breach of the peace, where the Collateral is located to remove the
same, to render it unusable, or to dispose of the same on said premises
and, in this connection, to notify any one or more account debtors on
the accounts constituting a part of the Property and to require any of
such account debtors to make payment directly to Secured Party on such
terms and conditions as Secured Party, in its sole discretion, deems
appropriate, or to require, at Secured Party's discretion, any such
account debtors
Page 3 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 4
to direct payments into a bank lockbox for handling by Secured Party.
Any public sale of the Collateral after repossession shall be held only
after public notice of no less than five (5) days, and shall be held in
a commercially reasonable manner. Debtor hereby waives any requirement
for public notice of more than five (5) days for any such sale and
hereby agrees that five (5) days is a reasonable period for notice.
(2) Debtor shall be liable for and agrees to indemnify Secured Party from
and against, and to pay promptly, all loss, cost, risk, and expense,
even if caused by Secured Party's own sole or concurrent negligence,
incurred by Secured Party in enforcing its rights and remedies
hereunder, including without limitation all expenses incurred in
retaking, holding, testing, repairing, improving, selling, leasing, or
disposing of the Collateral, and all expenses of notifying the said
account debtors and collecting therefrom, and including without
limitation reasonable attorney's fees and legal expenses incurred by
Secured Party, all of which expenses, together with interest thereon at
the rate of eighteen per cent (18%) per annum until paid, shall
constitute additional obligations of Debtor under Paragraph A above and
shall be secured by this agreement and the security interest created
hereby.
(3) Proceeds received by Secured Party from disposition of the Collateral
shall be applied toward Secured Party's expenses, including without
limitation reasonable attorney's fees, and other Secured Obligations of
Debtor in such order or manner as Secured Party may elect. Debtor shall
be entitled to any surplus, if one results after lawful application of
the proceeds; and Debtor shall remain liable for any deficiency.
(4) The rights and remedies of Secured Party hereunder shall be cumulative,
and the exercise of any one or more of the same shall not be deemed an
election of rights or remedies or a waiver of any other right or
remedy. Delay by Secured Party in invoking any remedy shall not be a
waiver of such remedy, but shall merely be a temporary forbearance.
Failure by Secured Party to invoke any available remedy in the event of
a particular breach shall not constitute a waiver of that or any other
remedy for that or any other breach, whether similar or dissimilar. It
is understood by Debtor that Secured Party shall have the right, but
not the obligation, from time to time temporarily to forbear from
invoking any remedy or remedies provided for herein, and Debtor wishes
to encourage such forbearance; therefore, Debtor covenants that no such
forbearance shall be interpreted as a waiver of any remedy, and Debtor
expressly agrees that after any such forbearance, for no matter how
long, Secured Party may invoke any remedy or remedies provided for
herein.
G. MISCELLANEOUS. In addition to the foregoing terms and conditions,
the parties hereto agree as follows:
(1) Debtor and each maker, surety, guarantor, endorser, and other party
liable in any capacity respecting the Secured Obligations, severally
waive demand for payment or performance, presentation for payment,
presentment, grace, dishonor, protest, notice of any kind (including,
but not limited to, notice of dishonor, notice of nonpayment, notice of
protest, notice of intention to accelerate and notice of acceleration),
and diligence in collecting and diligence in bringing suit against any
party hereto, or against any one or more sureties, guarantors, or
endorsers, and agree (i) to all extensions, partial payments, renewals,
modifications, and rearrangements of the Secured Obligations, the
Obligation Documents, or any obligation thereunder, with or without
notice, before or after maturity, (ii) to any substitution, exchange,
or release of any security now or hereafter given for any of the
Secured Obligations, (iii) that no judgment taken against any party
shall terminate any lien, security interest, or other interest of
Secured Party in any collateral securing any of the Secured
Obligations, (iv) to the release of any party primarily or secondarily
liable on any of the Secured Obligations, and (v) that it will not be
necessary for Secured Party, in order to enforce any of the Secured
Obligations, to first institute or exhaust Secured Party's remedies
against Debtor or against any other party liable therefor or against
any security for any of the Secured Obligations.
(2) Debtor and each maker, surety, guarantor, endorser, and other party
liable in any capacity respecting the Secured Obligations, severally
release Secured Party, its officers, directors, employees, and third
parties acting as agents for Debtor, and agree to hold them, and each
of them, harmless from and against, any loss, cost, risk, expense, and
liability arising from any acts under this agreement or in furtherance
of any rights and privileges granted or created hereunder or under any
of the Obligation Documents, whether as agent or attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon
any error of judgment or mistake of law or fact, except for willful
misconduct.
(3) This agreement shall constitute a financing statement, and any carbon,
photographic, or other reproduction hereof or of any other financing
statement signed by Debtor or by Debtor's agent hereunder is sufficient
as a financing statement for all purposes, including without limitation
the filing for record in any state where permitted by the laws of such
state.
(4) POWER OF ATTORNEY. DEBTOR HEREBY APPOINTS SECURED PARTY AS THE AGENT
AND ATTORNEY-IN-FACT OF DEBTOR for the purpose of executing in the
name, place, and stead of Debtor, and on behalf of Debtor, any
financing statement (other than financing statements perfecting
purchase money security interests, which shall be executed by Debtor),
necessary or useful, in the opinion of Secured Party, in giving
evidence or notice of, or in perfecting, any security interest provided
for herein or in any of the other Obligation Documents. At any time and
from time to time, Secured Party may delegate in writing the authority
under the power of attorney under this subparagraph to any one or more
third parties to act as agent and attorney-in-fact for Debtor
hereunder. When acting as agent hereunder, neither Secured Party nor
any third party so acting shall be a fiduciary to Debtor or have any
fiduciary duty to Debtor by reason thereof, and the same shall have no
liability to Debtor for any act or omission by any of the same in the
capacity of agent except for the agent's liability for the agent's own
willful misconduct.
(5) The security interest hereby granted and all of the terms and
conditions of this agreement shall constitute a continuing agreement;
and they shall continue in full force and effect and remain effective
between the parties hereto until the earliest of either (a) the
expiration of four (4) years after payment in full and complete
satisfaction of all obligations of Debtor described herein, or (b) the
payment in full and complete satisfaction of all such obligations and
the giving by Debtor of ten (10) days written notice of the revocation
of this agreement, or (c) the release in writing by Secured Party of
this agreement and the obligations hereunder.
(6) This security agreement and the liens and security interests provided
for herein shall extend to and secure the payment of any and all future
advances and future extensions of credit made by Secured Party to or
for Debtor.
(7) Debtor covenants that for so long as the debt and other obligations
secured hereby shall remain unpaid or unsatisfied in any part, Debtor
shall incur no debt or other obligations, except in the ordinary course
of business, other than the
Page 4 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 5
Permitted Encumbrances, without the express written consent of Secured
Party, which consent may be withheld or delayed in any manner,
reasonable or unreasonable.
(8) Debtor shall pay, in full before the same shall become delinquent, all
ad valorem taxes assessed against the Collateral. Secured Party shall
have the right, but not the obligation, to pay any tax or debt for
which Debtor is obligated and to be subrogated to all of the rights
against Debtor of the assessing authority or creditor, including
without limitation any liens and security interests securing the same,
and any such payment by Secured Party shall also be a future advance to
Debtor for purposes of this agreement.
(9) It is the intention of the parties hereto to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated
hereby or under any of the Obligation Documents would be usurious under
applicable law, then, in that event, notwithstanding anything to the
contrary in any agreement entered into in connection with or as
security for the obligations created or secured hereby, it is agreed as
follows: (a) the aggregate of all consideration which constitutes
interest under applicable law that is taken, reserved, contracted for,
charged, or received under this agreement or under any of the
Obligations Documents or otherwise in connection with this agreement
shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on the
Secured Obligations by Secured Party (or, if all of the Secured
Obligations shall have been paid and satisfied in full, refunded to the
Debtor); and (b) in the event that maturity of any of the Secured
Obligations is accelerated by reason of an election by Secured Party
resulting from any default hereunder, under the MegaWorld Promissory
note, under any of the other Obligation Documents, or otherwise, or in
the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the
maximum amount allowed by applicable law, and excess interest, if any,
provided for in this agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on the Secured Obligations (or
if the Secured Obligations shall have been paid and satisfied in full,
refunded to the Debtor). It is further agreed that without limitation
of the foregoing, all calculations of the rate of interest contracted
for, charged, or received under this agreement, under the MegaWorld
Promissory Note, under any of the other Obligation Documents, or under
such other documents which are made for the purposes of determining
whether such rate exceeds the Highest Lawful Rate, as herein defined,
shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating, and spreading and averaging during
the period of the full stated term of the debts and obligations
evidenced by this agreement, the MegaWorld Promissory Note, any of the
other Obligation Documents, or otherwise, all interest at any time
contracted for, charged, or received from the Debtor or otherwise by
Secured Party in connection with such debt or obligation. The term
"Highest Lawful Rate" shall be the highest non-usurious contract rate
of interest which Secured Party may charge, collect from, or contract
for with Debtor under applicable law and in regard to which Debtor
could not successfully assert a claim or defense of usury.
(10) Notices. Any notice under or by reason of this agreement shall be in
writing and, except as herein provided, shall be effective upon
delivery to the party to whom it is intended or upon either (a) the
mailing thereof enclosed in a proper mailing wrapper addressed to the
party for whom it is intended, via certified or registered mail,
postage prepaid, to the address for that party stated above or such
subsequent address for that party hereunder, or (b) the depositing
thereof with, or delivery into the possession of, a commercial delivery
service, so wrapped and addressed, with the charges arranged to be paid
by shipper, or (c) the transmission thereof by telecopier or facsimile
machine, so long as a confirmation copy is thereafter mailed to the
party for whom it is intended within three (3) days of completion of
the transmission. The addresses of the parties for purposes of notice
shall be the addresses set out herein for the respective parties,
subject to notice of change of address as herein provided, except that
in the case of notice of change of Debtor's address, the notice may not
be effective until fifteen (15) days after the same shall have been
received by Secured Party, at the option of Secured Party.
(11) Governing Law; Jurisdiction and Venue. The laws of the State of Texas
shall govern the validity, construction, enforcement, and
interpretation hereof and the obligations, liabilities, rights,
remedies, powers, and privileges of the parties hereto under this
agreement. Each party submits itself to the personal jurisdiction of
the state and federal courts sitting in Houston, Harris County, Texas.
This agreement is executed by the parties in Harris County, Texas;
performance by Debtor is due in Houston, Harris County, Texas; and
venue may lie for all disputes arising hereunder in the federal and
state courts sitting in Houston, Harris County, Texas.
(12) Entire Agreement; Joint Preparation. This agreement represents the
entire agreement between the parties hereto concerning the subject
matter hereof and supersedes all prior agreements as they relate to the
subject matter hereof. This agreement is the result of extended
negotiations between the parties, and has been jointly prepared. Each
party acknowledges being separately represented by counsel, or having
the opportunity for such representation and waiving the same, in all
matters regarding this agreement.
(13) Amendment. This agreement may be modified or amended only by written
instrument executed by the parties hereto.
(14) Binding Effect; Assignment. This agreement shall inure to the benefit
of and be binding upon the parties hereto, their respective heirs,
successors, and assigns. DEBTOR SHALL NOT SELL, TRANSFER, OR OTHERWISE
DISPOSE OF THE COLLATERAL EXCEPT IN THE ORDINARY COURSE OF BUSINESS
WITHOUT THE EXPRESS WRITTEN CONSENT OF SECURED PARTY, which consent may
be withheld without cause and at the sole discretion of Secured Party,
whether reasonably or unreasonably. The rights of Secured Party shall
be freely assignable, in whole or in part, and at any time and from
time to time, including without limitation in order to extend to and
protect any obligees under any of the Secured Obligations.
(15) Nothing herein shall be deemed as requiring Debtor to purchase
products, goods, or services from Secured Party or as controlling the
charges that Debtor may make to its customers.
IN WITNESS WHEREOF, this instrument is executed effective the date
first above written.
Page 5 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 6
DEBTOR:
ATTEST: MEGAWORLD, INC.
By: /s/ Nathan Berkowitz By: /s/ Irwin C. Roll
----------------------- ---------------------------------------------
Name: Name: Irwin C. Roll
Office: Office: President
SECURED PARTY:
/s/ Charles D. McPhail
------------------------------------------------
CHARLES D. McPHAIL, Individually and as
Agent and Attorney-in-Fact for Lynn R. McPhail,
Lisa Marie McPhail, Lori Lynn McPhail, and
JoyVer Investments, L.L.C.
ACKNOWLEDGMENTS
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November 11, 1998, by
Irwin C. Roll, as President (title of officer) of MEGAWORLD, INC., a Delaware
corporation, on behalf of said corporation.
My commission expires: /s/ Ann Sierra
May 8, 1999. ------------------------------------------------
Notary Public in and for the State of New York.
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November 11, 1998, by
CHARLES D. McPHAIL, individually and as attorney-in-fact on behalf of Lynn R.
McPhail, Lisa Marie McPhail, Lori Lynn McPhail, and JoyVer Investments, L.L.C.
My commission expires: /s/ Ann Sierra
May 8, 1999. ------------------------------------------------
Notary Public in and for the State of New York.
[w7 tbs]tbstxsecag
Page 6 Debtor's Initials:/s/CDM
Security Agreement and Financing Statement
By Texas TBS, Inc., as Debtor Secured Party's Initials:/s/CDM
<PAGE> 1
EXHIBIT 8.6
SECURITY AGREEMENT AND FINANCING STATEMENT
(Debtor: MegaWorld, Inc.)
THIS AGREEMENT, made and entered into effective the 11th day of
November, 1998, by and between MEGAWORLD, INC. ("Debtor" herein), a Delaware
corporation, whose address for purposes of this instrument is 430 Park Avenue,
New York, New York 10022, in New York County, New York, on the one hand; and
CHARLES D. McPHAIL ("CDMP" herein), individually and as Agent and
Attorney-in-Fact for Lynn R. McPhail, Lisa Marie McPhail, Lori Lynn McPhail, and
JoyVer Investments, L.L.C., a Texas limited liability company (together "Other
Shareholders" herein), whose address for purposes of this instrument is 15411
Fawn Villa, Houston, Texas 77068, in Harris County, Texas, on the other hand;
WITNESSETH, THAT:
WHEREAS, Debtor owes indebtedness and other obligations to Secured
Party under the Obligation Documents herein defined; and
WHEREAS, Debtor has agreed to the terms and conditions herein set forth
in order to induce Secured Party to enter into that certain Acquisition / Merger
Agreement dated November 11, 1998, by and between Debtor, Total Building
Systems, Inc., and CDMP and to proceed with the Closing therein described; and
WHEREAS, Secured Party, or any of them, at his sole discretion, may
extend to Debtor further credit or future advances, or any combination of the
same; and
WHEREAS, this Security Agreement and Financing Statement is intended to
and does secure the payment of all indebtedness, whether current or future, of
Debtor to Secured Party, and specifically including future advances and
extensions of credit, if any, to Debtor by Secured Party, or any of them, and is
further intended to secure the performance of any and all obligations of Debtor
under any of the Obligation Documents, including without limitation the
MegaWorld Promissory Note, MegaWorld Guaranty Agreement, and MegaWorld
Employment Agreement, as described in the said Acquisition / Merger Agreement;
NOW THEREFORE, for value received, the receipt and adequacy of which
are hereby acknowledged, Debtor does hereby GRANT and ASSIGN unto Secured Party
a security interest, as hereinafter set forth, in the Collateral, as herein
defined, and does hereby agree with Secured Party as follows:
A. OBLIGATIONS SECURED. The security interest granted hereby is to
secure payment of all indebtedness, whether current or future, of Debtor to
Secured Party under the Obligation Documents, and specifically including future
advances and extensions of credit, if any, to Debtor by Secured Party, or any of
them, and is further intended to secure the full and punctual performance when
due (whether by acceleration or otherwise) of all obligations of Debtor (when
and as any of such obligations shall be or become due and/or owing by Debtor)
evidenced by and/or existing or to become existing under and by reason of any of
the following instruments, agreements and documents and any extensions,
modifications, renewals, and rearrangements thereof, amendments and
modifications thereto, and substitutions therefor (together "Obligation
Documents" herein):
(i) The said Acquisition / Merger Agreement, including without
limitation any and all obligations under the said Acquisition / Merger
Agreement, all instruments referenced in Exhibit A thereto, and all
other instruments related to the transaction therein described, and
(ii) That certain Promissory Note ("MegaWorld Promissory Note" herein)
of even date herewith from Debtor, as Maker therein, to Texas TBS,
Inc., as the original Payee therein, and endorsed over to CDMP and the
Other Shareholders; and
(iii) Each and every instrument, agreement, or document executed by
Debtor in connection with, or to grant security for, obligations
evidenced by the above described Acquisition / Merger Agreement and
Security Agreement, including without limitation all instruments listed
in Exhibit A to the said Acquisition / Merger Agreement; and
(iv) Any other instrument, agreement, or document executed by Debtor,
whether or not described herein as an Obligation Document, in
connection with any other obligation to Secured Party, specifically
including without limitation future loans and advances, and funding
agreements, and further including without limitation any instruments,
agreements, or documents effecting any extensions, renewals, and
rearrangements of any Obligation Document, amendments and modifications
thereto, and substitutions therefor;
And is further intended to secure payment or performance, when and as due, of
any other debt or other obligation of Debtor to Secured Party, specifically
including future advances and extensions of credit; all of the foregoing
effective until the same have been paid and satisfied in full.
B. PRIORITIES. The security interests granted by Debtor to Secured
Party and the rights of Secured Party in the Collateral are subject to the terms
and conditions of the said Acquisition / Merger Agreement; provided, however,
that in the event of conflict between this agreement and the said Acquisition /
Merger Agreement, the terms and conditions hereof shall prevail. This agreement
is not intended to be a third-party beneficiary contract. This agreement is
intended for the express benefit of CDMP and the Other Shareholders, and in
addition to executing this agreement individually, CDMP executes this agreement
for and on behalf of the Other Shareholders, as the Agent and Attorney-in-Fact
for each of the Other Shareholders, as an accommodation to Debtor in order to
facilitate the execution of the Obligation Documents.
C. DESCRIPTION OF COLLATERAL. The security interest hereby granted to
Secured Party shall be a security interest in all of the following (the
"Property" and the "Collateral" herein):
All personal property of Debtor, tangible and intangible, whether now
owned or hereafter acquired, and wheresoever located, including all
general intangibles of Debtor, and further including without limitation
all of the following assets: accounts (including without limitation
accounts receivable); contract rights; chattel paper; documents; notes;
drafts; instruments; reserves; reserve accounts; general intangibles;
money; deposit accounts; security agreements and debts secured thereby;
inventory and other personal property in all stages of manufacture,
processing, or production; equipment; machinery; furniture;
furnishings; fixtures; tools; supplies; motor vehicles of every kind
and description; patents, copyrights, trademarks; trade names; trade
styles; display materials; negotiable and non-negotiable documents of
title now owned or hereafter acquired; books and records (including,
but not limited to computer tapes, disks, programs, and other things
upon which or in which such books or records are stored or maintained)
together with all equipment,
Page 1 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 2
machinery, and inventory containing, or used in connection with the
use, preparation, or maintenance of such books and records; all
substitutions, replacements, additions, accessions, proceeds, and
products of any of the foregoing, whether or not due to voluntary or
involuntary disposition or dissolution, including without limitation
money, deposit accounts, goods, tax refunds, other tangible and
intangible property, and insurance and the proceeds thereof covering or
relating to any of the foregoing.
As used in this agreement, and subject to Paragraph B above, the terms
"Collateral" and "Property" shall mean and include, and the security interest
hereunder shall cover and extend to, all of the aforementioned Property, as well
as any accessions, additions, and attachments thereto and the proceeds and
products thereof, including without limitation all cash, general intangibles,
accounts, inventory, equipment, fixtures, notes, drafts, acceptances,
securities, instruments, chattel paper, insurance proceeds payable because of
loss or damage, or other property, benefits, or rights arising therefrom or
traceable thereto, and in and to all returned or repossessed goods arising from
or relating in any way to any of the property described herein, or other
proceeds of any sale or other disposition of such property.
D. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF DEBTOR. Debtor hereby
represents, warrants, and covenants as follows:
(1) Debtor is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
(2) Debtor has the power and authority to conduct all of its business
activities, to own and lease all of the properties owned and leased by
it, and to carry on its business as and in the places where such
properties are now owned or leased, or such businesses are now
conducted.
(3) Debtor has the authority to enter into this agreement, has properly
executed this agreement and all other Obligation Documents which Debtor
is obligated or agreed to execute under the Acquisition / Merger
Agreement, is not currently in default under any of the Obligation
Documents, and is able to perform all of its duties and obligations
thereunder.
(4) Debtor has executed all other documents which Debtor is obligated or
agreed to execute under any other agreements to date with CDMP, is not
currently in default under any of such other documents, and is able to
perform all of its duties and obligations thereunder.
(5) All documents related to the Property which have been furnished by
Debtor to Secured Party were originals or true and correct copies of
originals.
(6) Debtor shall notify Secured Party as and when any debts, accounts,
rents, royalties, and obligations constituting a part of the Property
accrue; and Debtor shall notify Secured Party, immediately upon notice
thereof, of any dispute of the debts, accounts, rents, royalties, and
obligations constituting a part of the Property and of any complaints
regarding the goods, services, or other matters which are the basis of
such debts, accounts, rents, royalties, and obligations.
(7) Debtor shall execute and deliver to Secured Party such other and
further documents as Secured Party, in its sole discretion, shall deem
necessary or convenient to effect the purposes of this instrument or of
any of the Obligation Documents.
(8) (a) Neither Debtor, nor any surety or guarantor for Debtor, shall do
anything to hinder or delay the collection or enforcement of any debts,
accounts, rents, royalties, and obligations constituting a part of the
Property. Debtor shall take any steps requested by Secured Party to
collect or aid in the collection or enforcement of the debts, accounts,
rents, royalties, and obligations constituting the Property; and Debtor
shall make every diligent effort to collect or enforce the debts,
accounts, rents, royalties, and obligations constituting a part of the
Property, all for the benefit of Secured Party.
(b) Debtor shall not sell, convey, mortgage, pledge, or otherwise
dispose of or encumber the Property nor any portion thereof, nor any of
the Debtor's right, title, or interest therein, without first securing
the written consent of the Secured Party.
(9) Debtor shall notify Secured Party promptly upon notice of any material
change in the status of any one or more of Debtor, any subsidiary or
affiliate of Debtor (including without limitation ITS Telephony,
Castello Torre Ratti, Castello Ratti Enterprises Srl, Fairway Beech
Corporation, and ITM Group, Inc.), any secured creditor of Debtor
(other than Secured Party), any surety or guarantor for Debtor, or any
of the debts, accounts, rents, royalties, and obligations constituting
a part of the Property.
(10) Neither this instrument nor any of the other Obligation Documents
conflict in any manner with any agreement of Debtor with, or obligation
of Debtor to, any third party, including without limitation with or to
any subsidiary, affiliate, or any creditor of Debtor.
(11) While this agreement remains in force, Debtor shall make its books,
accounts, and records available to tax advisors, legal counsel, and
auditors of Secured Party, in the offices of Debtor or in the offices
of Secured Party in Harris County, Texas, at the election of Secured
Party, during normal business hours, at any time and from time to time,
upon notice of at least three (3) business days by Secured Party. In
order to assure itself of compliance hereunder by Debtor, upon such
notice, Secured Party shall have the right to audit the books,
accounts, and records of Debtor, at the expense of Debtor, which
expense shall be considered an advance hereunder by Secured Party
subject to immediate reimbursement by Debtor upon invoice to Debtor.
Debtor shall make any responses to any such audit within 15 business
days after receipt of the audit report from Secured Party.
(12) While this agreement remains in force, Debtor shall notify Secured
Party of all agreements between Debtor and any creditor or creditors of
Debtor; and upon the request of Secured Party, Debtor shall furnish to
Secured Party's legal counsel and/or auditors, as directed by Secured
Party, true and correct copies of all agreements between Debtor and any
creditor or creditors of Debtor.
(13) While this agreement remains in force, Debtor shall deliver to Secured
Party true and correct copies of all reports, statements, and other
financial documents furnished to any other creditor or creditors of
Debtor, as and when the same are furnished to the other creditor or
creditors.
Page 2 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 3
(14) While this agreement remains in force, Debtor shall deliver to Secured
Party notice of such default, within three (3) days of the occurrence
of any default hereunder by Debtor, and of any default under any of the
other Obligation Documents by Debtor, or by any other obligor owing any
duty or obligation to any of CDMP or the Other Shareholders.
E. EVENTS OF DEFAULT. Debtor shall be in default under this agreement
upon the occurrence of any one or more of the following events or conditions:
(1) The occurrence of any default under the terms and conditions of any of
the Obligation Documents, including without limitation this agreement,
or any extensions, renewals, modifications, and rearrangements thereof;
(2) Failure by Debtor to perform any duty or obligation hereunder or under
any of the other Obligation Documents;
(3) Failure by surety or guarantor of Debtor to perform any duty or
obligation hereunder or under any of the Obligation Documents;
(4) (a) Levy upon or seizure of, or attempted levy upon or seizure of, any
of the Collateral to satisfy a claim of any third party;
(b) The transfer by Debtor of any asset of substantial value for less
than fair market value;
(5) The attachment hereafter to the Collateral, or any part or parts
thereof, of any lien or security interest other than the following
encumbrances ("Permitted Encumbrances" herein): (a) the lien or liens
securing the Secured Obligations, (b) the statutory lien for ad valorem
taxes for the current year and not yet delinquent, (c) any lien or
security interest already attached to the Collateral and properly
perfected as of the date of this agreement, and (d) any lien for state
sales tax obligation which is satisfied within one hundred twenty (120)
days of the inception of such lien.
(6) If any material representation or warranty made by Debtor regarding
Debtor, in, under, or pursuant to the Obligation Documents, or any of
them, or any other document or documents executed in connection
therewith shall be false, erroneous, or misleading in any material
respect, or if there shall be by any of the same an omission of or
failure to disclose a material fact in relation to the Secured
Obligations, or any of them, including without limitation audits and
reports thereunder and responses thereto, regarding the Secured
Obligations, or any of the same, or any of the Property;
(7) If Debtor or any surety or guarantor for Debtor shall (a) be
adjudicated a bankrupt or insolvent, (b) seek, consent to, or not
contest the appointment of a receiver or trustee for itself or for all
or any part of its property, (c) file a petition seeking relief under
the bankruptcy, arrangement, reorganization, or other debtor relief
laws of the United States or any state or any other competent
jurisdiction, (d) make a general assignment for the benefit of its
creditors, or (e) admit in writing its inability to pay its debts as
they mature;
(8) If either (a) any creditor or obligee files a petition putting Debtor
or any surety or guarantor for Debtor in involuntary bankruptcy, or (b)
a court of competent jurisdiction enters an order, judgment, or decree
appointing, without the consent of Secured Party, a receiver or trustee
for Debtor or any guarantor, or for all or any part of its Collateral,
and (c) such petition, order, judgment, or decree shall not be and
remain dismissed or stayed within a period of fifteen (15) days after
its entry;
(9) Death, incapacity, dissolution, business failure, merger, or similar
event affecting the Debtor, any subsidiary, or affiliate of Debtor, or
any surety or guarantor for Debtor, any subsidiary, or affiliate of
Debtor, or any of the Required Shareholders, as defined in the
Acquisition / Merger Agreement, or any other surety, endorser, or
guarantor of the Secured Obligations, or any of them;
(10) If either (a) title of the Debtor to any or all of the Collateral or
(b) the status of this Security Agreement as a first and prior lien and
security interest on the Collateral, except as to the Permitted
Encumbrances, shall be challenged or endangered by any party
whomsoever, in any manner whatsoever, and Debtor shall fail to cure the
same immediately upon the earlier of (i) notice to Debtor of such
challenge or endangerment, or (ii) demand for cure by Secured Party;
(11) The occurrence of any default or event of default, as defined or
described in any of the other Obligation Documents, or under any other
document or documents under which Debtor is obligated in any manner
whatsoever to Secured Party, regardless of whether such obligation
relates in any manner to the Obligation Documents or obligations
thereunder;
(12) The occurrence of any default or event of default under any other
agreement with CDMP, including without limitation agreements under
which any funds have been, or will in the future be, advanced to Debtor
by TBS, CDMP, or any of the Other Shareholders; or
(13) The occurrence hereafter of any event, act, or omission whatsoever
which leads or causes Secured Party to have any doubt about, or to be
insecure in its expectation of, the ability of Debtor, or of any surety
or guarantor for Debtor, or of Texas TBS, Inc., to perform any duty or
obligation under any of the Obligation Documents, which doubt and
insecurity shall each be at Secured Party's sole discretion, whether or
not such discretion is exercised in a reasonable manner.
F. REMEDIES. Upon the occurrence of an event of default, Secured Party,
at its option, shall have and be entitled to exercise any one or more of the
following remedies:
(1) Secured Party shall have all of the rights and remedies provided for in
this agreement and in any other agreements between Secured Party and
Debtor including without limitation the Obligation Documents, the
rights and remedies under the Texas Business and Commerce Code, and all
rights and remedies available at law and in equity, all of which shall
be cumulative, including without limitation the right to take
possession of the Collateral, or any of the same, with or without
process of law, and, in this connection, to enter any premises, without
breach of the peace, where the Collateral is located to remove the
same, to render it unusable, or to dispose of the same on said premises
and, in this connection, to notify any one or more account debtors on
the accounts constituting a part of the Property and to require any of
such account debtors to make payment directly to Secured Party on such
terms and conditions as Secured Party, in its sole discretion, deems
appropriate, or to require, at Secured Party's discretion, any such
account debtors
Page 3 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 4
to direct payments into a bank lockbox for handling by Secured Party.
Any public sale of the Collateral after repossession shall be held only
after public notice of no less than five (5) days, and shall be held in
a commercially reasonable manner. Debtor hereby waives any requirement
for public notice of more than five (5) days for any such sale and
hereby agrees that five (5) days is a reasonable period for notice.
(2) Debtor shall be liable for and agrees to indemnify Secured Party from
and against, and to pay promptly, all loss, cost, risk, and expense,
even if caused by Secured Party's own sole or concurrent negligence,
incurred by Secured Party in enforcing its rights and remedies
hereunder, including without limitation all expenses incurred in
retaking, holding, testing, repairing, improving, selling, leasing, or
disposing of the Collateral, and all expenses of notifying the said
account debtors and collecting therefrom, and including without
limitation reasonable attorney's fees and legal expenses incurred by
Secured Party, all of which expenses, together with interest thereon at
the rate of eighteen per cent (18%) per annum until paid, shall
constitute additional obligations of Debtor under Paragraph A above and
shall be secured by this agreement and the security interest created
hereby.
(3) Proceeds received by Secured Party from disposition of the Collateral
shall be applied toward Secured Party's expenses, including without
limitation reasonable attorney's fees, and other Secured Obligations of
Debtor in such order or manner as Secured Party may elect. Debtor shall
be entitled to any surplus, if one results after lawful application of
the proceeds; and Debtor shall remain liable for any deficiency.
(4) The rights and remedies of Secured Party hereunder shall be cumulative,
and the exercise of any one or more of the same shall not be deemed an
election of rights or remedies or a waiver of any other right or
remedy. Delay by Secured Party in invoking any remedy shall not be a
waiver of such remedy, but shall merely be a temporary forbearance.
Failure by Secured Party to invoke any available remedy in the event of
a particular breach shall not constitute a waiver of that or any other
remedy for that or any other breach, whether similar or dissimilar. It
is understood by Debtor that Secured Party shall have the right, but
not the obligation, from time to time temporarily to forbear from
invoking any remedy or remedies provided for herein, and Debtor wishes
to encourage such forbearance; therefore, Debtor covenants that no such
forbearance shall be interpreted as a waiver of any remedy, and Debtor
expressly agrees that after any such forbearance, for no matter how
long, Secured Party may invoke any remedy or remedies provided for
herein.
G. MISCELLANEOUS. In addition to the foregoing terms and conditions,
the parties hereto agree as follows:
(1) Debtor and each maker, surety, guarantor, endorser, and other party
liable in any capacity respecting the Secured Obligations, severally
waive demand for payment or performance, presentation for payment,
presentment, grace, dishonor, protest, notice of any kind (including,
but not limited to, notice of dishonor, notice of nonpayment, notice of
protest, notice of intention to accelerate and notice of acceleration),
and diligence in collecting and diligence in bringing suit against any
party hereto, or against any one or more sureties, guarantors, or
endorsers, and agree (i) to all extensions, partial payments, renewals,
modifications, and rearrangements of the Secured Obligations, the
Obligation Documents, or any obligation thereunder, with or without
notice, before or after maturity, (ii) to any substitution, exchange,
or release of any security now or hereafter given for any of the
Secured Obligations, (iii) that no judgment taken against any party
shall terminate any lien, security interest, or other interest of
Secured Party in any collateral securing any of the Secured
Obligations, (iv) to the release of any party primarily or secondarily
liable on any of the Secured Obligations, and (v) that it will not be
necessary for Secured Party, in order to enforce any of the Secured
Obligations, to first institute or exhaust Secured Party's remedies
against Debtor or against any other party liable therefor or against
any security for any of the Secured Obligations.
(2) Debtor and each maker, surety, guarantor, endorser, and other party
liable in any capacity respecting the Secured Obligations, severally
release Secured Party, its officers, directors, employees, and third
parties acting as agents for Debtor, and agree to hold them, and each
of them, harmless from and against, any loss, cost, risk, expense, and
liability arising from any acts under this agreement or in furtherance
of any rights and privileges granted or created hereunder or under any
of the Obligation Documents, whether as agent or attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon
any error of judgment or mistake of law or fact, except for willful
misconduct.
(3) This agreement shall constitute a financing statement, and any carbon,
photographic, or other reproduction hereof or of any other financing
statement signed by Debtor or by Debtor's agent hereunder is sufficient
as a financing statement for all purposes, including without limitation
the filing for record in any state where permitted by the laws of such
state.
(4) POWER OF ATTORNEY. DEBTOR HEREBY APPOINTS SECURED PARTY AS THE AGENT
AND ATTORNEY-IN- FACT OF DEBTOR for the purpose of executing in the
name, place, and stead of Debtor, and on behalf of Debtor, any
financing statement (other than financing statements perfecting
purchase money security interests, which shall be executed by Debtor),
necessary or useful, in the opinion of Secured Party, in giving
evidence or notice of, or in perfecting, any security interest provided
for herein or in any of the other Obligation Documents. At any time and
from time to time, Secured Party may delegate in writing the authority
under the power of attorney under this subparagraph to any one or more
third parties to act as agent and attorney-in-fact for Debtor
hereunder. When acting as agent hereunder, neither Secured Party nor
any third party so acting shall be a fiduciary to Debtor or have any
fiduciary duty to Debtor by reason thereof, and the same shall have no
liability to Debtor for any act or omission by any of the same in the
capacity of agent except for the agent's liability for the agent's own
willful misconduct.
(5) The security interest hereby granted and all of the terms and
conditions of this agreement shall constitute a continuing agreement;
and they shall continue in full force and effect and remain effective
between the parties hereto until the earliest of either (a) the
expiration of four (4) years after payment in full and complete
satisfaction of all obligations of Debtor described herein, or (b) the
payment in full and complete satisfaction of all such obligations and
the giving by Debtor of ten (10) days written notice of the revocation
of this agreement, or (c) the release in writing by Secured Party of
this agreement and the obligations hereunder.
(6) This security agreement and the liens and security interests provided
for herein shall extend to and secure the payment of any and all future
advances and future extensions of credit made by Secured Party to or
for Debtor.
(7) Debtor covenants that for so long as the debt and other obligations
secured hereby shall remain unpaid or unsatisfied in any part, Debtor
shall incur no debt or other obligations, except in the ordinary course
of business, other than the
Page 4 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 5
Permitted Encumbrances, without the express written consent of Secured
Party, which consent may be withheld or delayed in any manner,
reasonable or unreasonable.
(8) Debtor shall pay, in full before the same shall become delinquent, all
ad valorem taxes assessed against the Collateral. Secured Party shall
have the right, but not the obligation, to pay any tax or debt for
which Debtor is obligated and to be subrogated to all of the rights
against Debtor of the assessing authority or creditor, including
without limitation any liens and security interests securing the same,
and any such payment by Secured Party shall also be a future advance to
Debtor for purposes of this agreement.
(9) It is the intention of the parties hereto to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated
hereby or under any of the Obligation Documents would be usurious under
applicable law, then, in that event, notwithstanding anything to the
contrary in any agreement entered into in connection with or as
security for the obligations created or secured hereby, it is agreed as
follows: (a) the aggregate of all consideration which constitutes
interest under applicable law that is taken, reserved, contracted for,
charged, or received under this agreement or under any of the
Obligations Documents or otherwise in connection with this agreement
shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on the
Secured Obligations by Secured Party (or, if all of the Secured
Obligations shall have been paid and satisfied in full, refunded to the
Debtor); and (b) in the event that maturity of any of the Secured
Obligations is accelerated by reason of an election by Secured Party
resulting from any default hereunder, under the MegaWorld Promissory
note, under any of the other Obligation Documents, or otherwise, or in
the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the
maximum amount allowed by applicable law, and excess interest, if any,
provided for in this agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on the Secured Obligations (or
if the Secured Obligations shall have been paid and satisfied in full,
refunded to the Debtor). It is further agreed that without limitation
of the foregoing, all calculations of the rate of interest contracted
for, charged, or received under this agreement, under the MegaWorld
Promissory Note, under any of the other Obligation Documents, or under
such other documents which are made for the purposes of determining
whether such rate exceeds the Highest Lawful Rate, as herein defined,
shall be made, to the extent permitted by applicable law, by
amortizing, prorating, allocating, and spreading and averaging during
the period of the full stated term of the debts and obligations
evidenced by this agreement, the MegaWorld Promissory Note, any of the
other Obligation Documents, or otherwise, all interest at any time
contracted for, charged, or received from the Debtor or otherwise by
Secured Party in connection with such debt or obligation. The term
"Highest Lawful Rate" shall be the highest non-usurious contract rate
of interest which Secured Party may charge, collect from, or contract
for with Debtor under applicable law and in regard to which Debtor
could not successfully assert a claim or defense of usury.
(10) Notices. Any notice under or by reason of this agreement shall be in
writing and, except as herein provided, shall be effective upon
delivery to the party to whom it is intended or upon either (a) the
mailing thereof enclosed in a proper mailing wrapper addressed to the
party for whom it is intended, via certified or registered mail,
postage prepaid, to the address for that party stated above or such
subsequent address for that party hereunder, or (b) the depositing
thereof with, or delivery into the possession of, a commercial delivery
service, so wrapped and addressed, with the charges arranged to be paid
by shipper, or (c) the transmission thereof by telecopier or facsimile
machine, so long as a confirmation copy is thereafter mailed to the
party for whom it is intended within three (3) days of completion of
the transmission. The addresses of the parties for purposes of notice
shall be the addresses set out herein for the respective parties,
subject to notice of change of address as herein provided, except that
in the case of notice of change of Debtor's address, the notice may not
be effective until fifteen (15) days after the same shall have been
received by Secured Party, at the option of Secured Party.
(11) Governing Law; Jurisdiction and Venue. The laws of the State of Texas
shall govern the validity, construction, enforcement, and
interpretation hereof and the obligations, liabilities, rights,
remedies, powers, and privileges of the parties hereto under this
agreement. Each party submits itself to the personal jurisdiction of
the state and federal courts sitting in Houston, Harris County, Texas.
This agreement is executed by the parties in Harris County, Texas;
performance by Debtor is due in Houston, Harris County, Texas; and
venue may lie for all disputes arising hereunder in the federal and
state courts sitting in Houston, Harris County, Texas.
(12) Entire Agreement; Joint Preparation. This agreement represents the
entire agreement between the parties hereto concerning the subject
matter hereof and supersedes all prior agreements as they relate to the
subject matter hereof. This agreement is the result of extended
negotiations between the parties, and has been jointly prepared. Each
party acknowledges being separately represented by counsel, or having
the opportunity for such representation and waiving the same, in all
matters regarding this agreement.
(13) Amendment. This agreement may be modified or amended only by written
instrument executed by the parties hereto.
(14) Binding Effect; Assignment. This agreement shall inure to the benefit
of and be binding upon the parties hereto, their respective heirs,
successors, and assigns. DEBTOR SHALL NOT SELL, TRANSFER, OR OTHERWISE
DISPOSE OF THE COLLATERAL EXCEPT IN THE ORDINARY COURSE OF BUSINESS
WITHOUT THE EXPRESS WRITTEN CONSENT OF SECURED PARTY, which consent may
be withheld without cause and at the sole discretion of Secured Party,
whether reasonably or unreasonably. The rights of Secured Party shall
be freely assignable, in whole or in part, and at any time and from
time to time, including without limitation in order to extend to and
protect any obligees under any of the Secured Obligations.
(15) Nothing herein shall be deemed as requiring Debtor to purchase
products, goods, or services from Secured Party or as controlling the
charges that Debtor may make to its customers.
IN WITNESS WHEREOF, this instrument is executed effective the date
first above written.
Page 5 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 6
DEBTOR:
ATTEST: MEGAWORLD, INC.
By: /s/ Nathan Berkowitz By: /s/ Irwin C. Roll
-------------------- -----------------
Name: Name: Irwin C. Roll
Office: Office: President
SECURED PARTY:
/s/ Charles D. McPhail
----------------------
CHARLES D. McPHAIL, Individually and as
Agent and Attorney-in-Fact for Lynn R. McPhail,
Lisa Marie McPhail, Lori Lynn McPhail, and
JoyVer Investments, L.L.C.
ACKNOWLEDGMENTS
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November 11, 1998, by
Irwin C. Roll, as President (title of officer) of MEGAWORLD, INC., a Delaware
corporation, on behalf of said corporation.
My commission expires: /s/ Ann Sierra
May 8,1999. --------------
Notary Public in and for the State of New York.
STATE OF New York )
COUNTY OF New York )
This instrument was acknowledged before me on November11, 1998, by
CHARLES D. McPHAIL, individually and as attorney-in-fact on behalf of Lynn R.
McPhail, Lisa Marie McPhail, Lori Lynn McPhail, and JoyVer Investments, L.L.C.
My commission expires: /s/ Ann Sierra
May 8, 1999. --------------
Notary Public in and for the State of New York.
[w7 tbs]mwsecag
Page 6 Debtor's Initials: /s/ICR
Security Agreement and Financing Statement
By MegaWorld, Inc., as Debtor Secured Party's Initials: /s/CDM
<PAGE> 1
EXHIBIT 8.7
CONTINUING AND UNCONDITIONAL GUARANTY AGREEMENT
(GUARANTOR: TEXAS TBS, INC.)
THIS AGREEMENT, made and entered into effective the 11th day of
November, 1998, by and between TEXAS TBS, INC. (together "Guarantor" herein),
whose address is 6250 North Houston Rosslyn Road Houston, Texas 77091-3410, and
CHARLES D. McPHAIL ("Obligee" herein), individually and as Agent for the Other
Shareholders, whose address for purposes of this agreement is 15411 Fawn Villa,
Houston, Texas 77068, in Harris County, Texas, regarding certain performance of
MEGAWORLD, INC. ("Obligor" herein); WITNESSETH THAT the parties hereto have
agreed as follows:
1. Guaranty. For value received, and as an inducement to the execution
by Obligee and TBS of that certain Acquisition / Merger Agreement dated November
11, 1998, by and between Obligor, TOTAL BUILDING SYSTEMS, INC. ("TBS" herein)
and Obligee, Guarantor unconditionally guarantees, without any limitation
whatsoever, to Obligee, its successors or assigns:
A. The full and punctual performance when due (whether by
acceleration or otherwise) of all obligations of Obligor (when and as
any of such obligations shall be or become due and/or owing by Obligor)
evidenced by and/or existing or to become existing under and by reason
of any of the following instruments, agreements and documents and any
extensions, modifications, renewals, and rearrangements thereof,
amendments and modifications thereto, and substitutions therefor
(together "Obligation Documents" herein):
(i) The said Acquisition / Merger Agreement,
including without limitation any and all obligations under the
said Acquisition / Merger Agreement, all instruments
referenced in Exhibit A thereto, and all other instruments
related to the transaction therein described, and
(ii) That certain Security Agreement and Financing
Statement ("Security Agreement" herein) of even date herewith
by and between Obligor, as Debtor therein, and Obligee, as
Secured Party therein; and
(iii) Each and every instrument, agreement, or
document executed by Obligor in connection with, or to grant
security for, obligations evidenced by the above described
Acquisition / Merger Agreement and Security Agreement,
including without limitation all instruments listed in Exhibit
A to the said Acquisition / Merger Agreement; and
(iv) Any other instrument, agreement, or document
executed by Obligor, whether or not described herein as an
Obligation Document, in connection with any other obligation
to Obligee, specifically including without limitation future
loans and advances, and funding agreements, and further
including without limitation any instruments, agreements, or
documents effecting any extensions, renewals, and
rearrangements of any Obligation Document, amendments and
modifications thereto, and substitutions therefor;
effective until the same have been performed, paid, and satisfied in
full. It is expressly agreed and confirmed that the guarantees by
Guarantor hereunder shall survive beyond payment of money and delivery
of shares by Obligor to Obligee under 2.1.3 of the said Acquisition /
Merger Agreement, and until all obligations of Obligor under any of the
Obligation Documents have been fully performed, paid, and satisfied.
The obligations of Obligor guaranteed hereunder include without
limitation all acts and omissions of all affiliates of Obligor which
Obligor is obligated to influence under any of the Obligation
Documents, such that should any affiliate fail to perform or forbear
from performing any act, or to effect or refrain from effecting any
result, which Obligor is obligated under any of the Obligation
Documents to influence, then such failure by such affiliate shall be
deemed a failure of the herein guaranteed performance by Obligor.
B. The prompt and complete performance in accordance with
their terms of any and all of the obligations of Obligor under each of
the Obligation Documents; and of all warranties, representations, and
covenants made by or imposed upon Obligor thereunder, and Guarantor
agrees that upon failure, refusal, or neglect of Obligor to fulfill any
obligation or covenant or maintain in effect any condition or fact as
warranted or covenanted, Guarantor will immediately do so.
As used herein the term "Guaranteed Obligations" means all obligations and
indebtedness of Obligor described in this Paragraph 1 as guaranteed by
Guarantor, including without limitation the acts and omissions of affiliates of
Obligor, as described in subparagraph 1.A above. This Guaranty Agreement shall
be in favor of each of Charles D. McPhail, and each of the Other Shareholders,
as defined in the said Security Agreement.
2. Term. The obligations of Guarantor as to the Guaranteed Obligations
shall continue in full force and effect against Guarantor for the unpaid balance
and the unperformed obligations guaranteed hereby until same are paid in full
and/or fully performed. This Guaranty covers any and all of the Guaranteed
Obligations, whether presently outstanding or arising subsequent to the date
hereof, including all amounts advanced by Obligee in stages or installments, and
all future loans and advances from Obligee to Obligor. This Guaranty is binding
upon and enforceable against Guarantor and the heirs, legal representatives,
personal representatives, executors, administrators, assigns, and successors of
Guarantor.
3. Waiver of Rights. Guarantor hereby waives (a) notice of acceptance
hereof (which acceptance is conclusively presumed by delivery of an executed
copy hereof to Obligee); (b) grace, demand, presentment, and protest with
respect to each and any of the Guaranteed Obligations or to any instrument,
agreement, or document evidencing or creating same; (c) notice of or as to
grace, demand, presentment, and protest; (d) notice of non-payment or other
defaults, of intention to accelerate, and of acceleration; (e) notice of and/or
any right to consent or object to the assignment of any interest in the
Guaranteed Obligations, the creation, advancement, accrual, renewal, increase,
extension, or rearrangement of the Guaranteed Obligations and the amendment
and/or modification of any of the instruments, agreements, and documents
executed in connection with the Guaranteed Obligations; (f) filing of suit and
diligence by Obligee in collection or enforcement of the Guaranteed Obligations;
(g) any obligation on the part of Obligee or any other party to proceed first
against Obligor in the enforcement of any Guaranteed Obligation; and (h) any
other notice regarding the Guaranteed Obligations.
4. Release of Collateral, Parties Liable, etc. Guarantor agrees that
Obligee may at any time, and from time to time, at Obligee's discretion and with
or without notice or consideration to or consent from any party: (a) allow
substitution
Page 1 Initials of Guarantor:/s/CDM
Continuing and Unconditional Guaranty Agreement
TBS Texas, Inc., Guarantor Initials of Obligee:/s/CDM
<PAGE> 2
or withdrawal of any collateral or other security for the Guaranteed
Obligations; (b) release, sell, or otherwise realize upon any collateral or
other security for the Guaranteed Obligations; (c) release any party liable on
the Guaranteed Obligations, including Obligor or any other guarantor; (d)
extend, renew, or rearrange all or any part of the Guaranteed Obligations at any
time and from time to time, whether or not for a term or terms in excess of the
original term thereof; and (e) modify or amend any of the instruments,
agreements, and documents executed in connection with the Guaranteed
Obligations. Any of such actions may be taken without impairing or diminishing
the obligations of Guarantor hereunder. The liability of Guarantor shall not be
impaired or reduced by Obligee's failure, refusal, or neglect to collect the
Guaranteed Obligations, or by loss or subordination of any other collateral or
guaranty, or by the existence of any indebtedness of Obligor to Obligee other
than the Guaranteed Obligations. In addition, the liability of Guarantor shall
not be impaired or reduced by the taking of any other security or guaranty for
the Guaranteed Obligations in addition to the security or guaranties presently
existing.
5. Primary Liability of Guarantor. This is a guaranty of payment and
performance, and Guarantor agrees that Obligee is not required, as a condition
to establishing Guarantor's liability hereunder, to proceed against any person
(including Obligor), or against any security or collateral to which Obligee is
entitled to look for payment and performance of the Guaranteed Obligations, and
further agrees not to assert any defense (other than payment or accord and
satisfaction) available to Obligor against Obligee with regard to the Guaranteed
Obligations, any defense based upon an election of remedies of any type, any
defense based on any duty of Obligee to disclose information of any type to
Guarantor regarding Obligor or the Guaranteed Obligations, and any claim that
Guarantor may have against Obligee by virtue of Obligee's failure to exercise
any rights against Obligor, however arising. Guarantor waives any right or claim
to force Obligee to proceed first against Obligor or any other guarantor as to
any of the Guaranteed Obligations or other obligations of Obligor. Obligor
agrees that no delay or refusal of Obligee to exercise any right or privilege
Obligee has or may have against Obligor (whether arising from any documents
executed by Obligor, or from any law, order, rule, or regulation, or otherwise)
shall operate to impair the liability of Guarantor hereunder. Guarantor agrees
that neither insanity, minority, other disability, bankruptcy, insolvency,
cessation of existence, or dissolution of Obligor, or of any party acting for or
on behalf of Obligor, or of any of the affiliates of Obligor, or of any other
guarantor now or hereafter existing in connection with the Guaranteed
Obligations, nor any allegation of fraud, usury, failure of consideration,
forgery, or other defense, whether or not known to Obligee (even though
rendering all or any part of the Guaranteed Obligations void or unenforceable or
uncollectible as against Obligor or any other guarantor) shall in any manner
impair, affect, or release the liability of Guarantor hereunder, and Guarantor
shall be and remain fully liable hereunder.
6. Subordination and Waiver of Subrogation. Guarantor hereby fully
subordinates the payment of all indebtedness and performance of all obligations
owing to Guarantor by Obligor (including principal and interest) to the prior
payment of all indebtedness and performance of all obligations of Obligor to
Obligee (including principal and interest, including interest accruing after any
insolvency or reorganization proceeding as to Obligor), and agrees not to accept
any payment on, or performance of, the same until payment in full of the
Guaranteed Obligations, at the option of Obligee, and not to attempt to set off
or reduce any obligations hereunder because of such indebtedness. Guarantor
further subordinates any lien or security interest that Guarantor may have on or
in any collateral or security now or hereafter securing payment of the
Guaranteed Obligations, to the liens on and security interests, if any, in such
collateral and security in favor of Obligee. Until all of the Guaranteed
Obligations shall have been paid or performed in full, Guarantor shall have no
right of subrogation or any other right to enforce any remedy which Obligee now
has or may hereafter have against Obligor, and Guarantor waives any benefit of,
or right to participate in, any security now or hereafter held by Obligee,
whether or not Guarantor has paid to or performed for Obligee any part less than
all of the Guaranteed Obligations.
7. Place of Performance: Attorneys' Fees. All payments to be made and
obligations to be performed hereunder shall be payable or performable at the
address of Obligee in the county and state specified herein, or as changed by
notice as hereinafter provided. If it becomes necessary for Obligee to enforce
this Guaranty by legal action, Guarantor hereby waives the right to be sued in
the county or state of Guarantor's residence and agrees to submit to the
jurisdiction and venue of the appropriate federal, state, or other governmental
court in such county and state of Obligee's address hereunder. Guarantor
unconditionally agrees to pay Obligee's collection expenses including court
costs and reasonable attorneys' fees if enforcement hereof is placed in the
hands of an attorney, including, but expressly not limited to, enforcement by
suit or through probate, bankruptcy, or any judicial proceedings.
8. Additional Liability of Guarantor. If Guarantor is or becomes liable
for any indebtedness of Obligor to Obligee other than the Guaranteed Obligations
by endorsement or otherwise than under this Guaranty, such liability shall not
be in any manner impaired or reduced hereby but shall have all and the same
force and effect it would have had if this Guaranty had not existed, and
Guarantor's liability hereunder shall not be in any manner impaired or reduced
thereby.
9. Cumulative Rights. All rights of Obligee hereunder or otherwise
arising under any documents executed in connection with or as security for the
Guaranteed Obligations are separate and cumulative and may be pursued
separately, successively, or concurrently, or not pursued, without affecting or
limiting any other right of Obligee and without affecting or impairing the
liability of Guarantor.
10. Governing Law; Jurisdiction and Venue. The laws of the State of
Texas shall govern the validity, construction, enforcement, and interpretation
hereof and the obligations, liabilities, rights, remedies, powers, and
privileges of the parties hereto under this agreement. Each party submits to the
personal jurisdiction of the state and federal courts sitting in Houston, Harris
County, Texas. This agreement is executed by the parties in Harris County,
Texas; performance by Debtor is due in Houston, Harris County, Texas; and venue
is permissive for all disputes arising hereunder in the federal and state courts
sitting in Houston, Harris County, Texas.
11. Usury. Notwithstanding any other provisions herein contained, no
provision of this Guaranty shall require or permit the collection from Guarantor
of interest in excess of the maximum rate or amount that Guarantor may be
required or permitted to pay to Obligee pursuant to applicable law and as to
which Guarantor could not successfully assert the claim or defense of usury. The
parties hereto make a part hereof, as if set out herein, Paragraph 8 of the Deed
of Trust of even date herewith from Guarantor, as Grantor therein, to Obligee,
as Beneficiary therein.
12. Indebtedness Not Guaranteed. If, at any time, Obligor is indebted
to Obligee on obligations not guaranteed hereby ("Other Indebtedness"), (i)
Obligee may apply all sums received by Obligee from any source (other than from
realization on security provided under any document which expressly secures all
or any part of the Guaranteed Obligations, but does not secure Other
Indebtedness) to the Other Indebtedness before applying any of the same to the
Guaranteed Obligations; and (ii) Obligee without in any manner impairing its
rights hereunder may, at Obligee's option, exercise any right of offset first
against the Other Indebtedness.
Page 2 Initials of Guarantor:/s/CDM
Continuing and Unconditional Guaranty Agreement
TBS Texas, Inc., Guarantor Initials of Obligee:/s/CDM
<PAGE> 3
13. Obligee's Assigns. This Guaranty is intended for and shall inure to
the benefit of Obligee and each and every person who shall from time to time be
or become the owner or holder or party entitled to receive or benefit from of
all or any part of the Guaranteed Obligations, and each and every reference
herein to "Obligee" shall include and refer to each and every successor or
assignee of Obligee at any time holding or owning or entitled to any part of or
any interest in any part of the Guaranteed Obligations. This Guaranty shall be
transferable and negotiable with the same force and effect, and to the same
extent, that the Guaranteed Obligations are transferable and negotiable, it
being understood and stipulated that upon assignment or transfer by Obligee of
any of the Guaranteed Obligations the legal holder or owner of said Guaranteed
Obligations (or a part thereof or interest therein thus transferred or assigned)
shall (except as otherwise stipulated by Obligee in its assignment or other
transfer) have and may exercise all of the rights granted to Obligee under this
Guaranty to the extent of that part of or interest in the Guaranteed Obligations
thus assigned or transferred.
14. Notices. Any notice under or by reason of this agreement shall be
in writing and shall be effective upon delivery to the party to whom it is
intended or upon either (a) the mailing thereof enclosed in a proper mailing
wrapper addressed to the party for whom it is intended, via certified or
registered mail, postage prepaid, to the address for that party stated above or
such subsequent address for that party hereunder, or (b) the depositing thereof
with a commercial delivery service, so wrapped and addressed, with the charges
arranged to be paid by shipper, or (c) the transmission thereof by telecopier or
facsimile machine, so long as a confirmation copy is thereafter mailed to the
addressee within three (3) days of completion of the transmission. The addresses
of the parties for purposes of notice shall be the addresses set out herein for
the respective parties, subject to notice of change of address as herein
provided.
15. Payments; Cash Equivalent. Obligee may apply any payments received
from any source against that portion of the Guaranteed Obligations (principal,
interest, court costs, attorneys' fees or other) in such priority and fashion as
Obligee may deem appropriate, in Obligee's sole and absolute discretion. Upon
invocation of any right of recovery by Obligee hereunder, each of the Secured
Obligations as to which Obligee's rights hereunder are invoked may be given, by
Obligee in Obligee's reasonable discretion, a cash value, as the cash equivalent
thereof, and that cash equivalent shall be the value to be satisfied by
Guarantor in lieu of other method of performance of the Secured Obligation or
Obligations not properly satisfied by Obligor, and interest shall accrue on the
cash equivalent of each such Secured Obligation from the date of breach by
Obligor until payment of the appropriate cash equivalent by Guarantor.
16. Limitation on Guaranty. This Guaranty is limited only in accordance
with the terms and conditions of Paragraph 1 above, if at all.
17. Multiple Guarantors. If there are more than one Guarantor named
above, the duties and obligations of Guarantor hereunder shall be joint and
several. This agreement shall apply to each Guarantor separately, just as if
that Guarantor had executed a separate agreement containing all of the terms and
conditions hereof. At any time and from time to time, Obligee may assert any
right or privilege hereunder, or pursue any remedy or remedies hereunder,
against any one or more Guarantors named herein without asserting or waiving any
one or more of those rights and privileges against any other of the Guarantors.
18. Multiple Counterparts. This Guaranty may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute but one instrument.
IN WITNESS WHEREOF, this instrument is executed as of the date first
above written.
GUARANTOR:
TEXAS TBS, INC.
By:/s/ Charles D. McPhail
-----------------------
Name:
Office:
OBLIGEE:
/s/ Charles D. McPhail
--------------------------
CHARLES D. McPHAIL, in the
capacities above-referenced
[w7 tbs]tbstxguar
Page 3 Initials of Guarantor:/s/CDM
Continuing and Unconditional Guaranty Agreement
TBS Texas, Inc., Guarantor Initials of Obligee:/s/CDM
<PAGE> 1
EXHIBIT 8.8
CONTINUING AND UNCONDITIONAL GUARANTY AGREEMENT
(GUARANTOR: MEGAWORLD, INC.)
THIS AGREEMENT, made and entered into effective the 11th day of
November, 1998, by and between MEGAWORLD, INC. (together "Guarantor" herein),
whose address is 430 Park Avenue, New York, New York 10022, and CHARLES D.
McPHAIL ("Obligee" herein), individually and as Agent for the Other
Shareholders, whose address for purposes of this agreement is 15411 Fawn Villa,
Houston, Texas 77068, in Harris County, Texas, regarding certain performance of
TEXAS TBS, INC. ("Obligor" herein); WITNESSETH THAT the parties hereto have
agreed as follows:
1. Guaranty. For value received, and as an inducement to the execution
by Obligee and TBS of that certain Acquisition / Merger Agreement dated November
11, 1998, by and between Guarantor, TOTAL BUILDING SYSTEMS, INC. ("TBS" herein)
and Obligee, Guarantor unconditionally guarantees, without any limitation
whatsoever, to Obligee, its successors or assigns:
A. The full and punctual performance when due (whether by
acceleration or otherwise) of all obligations of Obligor (when and as
any of such obligations shall be or become due and/or owing by Obligor)
evidenced by and/or existing or to become existing under or by reason of
any of the following instruments, agreements and documents and any
extensions, modifications, renewals, and rearrangements thereof,
amendments and modifications thereto, and substitutions therefor
(together "Obligation Documents" herein):
(i) The said Acquisition / Merger Agreement, including
without limitation any and all obligations under the said
Acquisition / Merger Agreement, all instruments referenced in
Exhibit A thereto, and all other instruments related to the
transaction therein described, and
(ii) That certain Employment Agreement dated January 1,
1996, by and between TBS and Obligee, as assumed by Obligor under
that certain Assumption Agreement of even date herewith. as
required by the said Acquisition / Merger Agreement, and
providing for the employment of Obligee by Obligor, as successor
to TBS; and
(iii) That certain Security Agreement and Financing
Statement ("Security Agreement" herein) of even date herewith by
and between Obligor, as Debtor therein, and Obligee, as Secured
Party therein; and
(iv) Each and every instrument, agreement, or document
executed by Obligor in connection with, or to grant security for,
obligations evidenced by the above described Acquisition / Merger
Agreement and Security Agreement, including without limitation
all instruments listed in Exhibit A to the said Acquisition /
Merger Agreement; and
(v) Any other instrument, agreement, or document executed
by Obligor, whether or not described herein as an Obligation
Document, in connection with any other obligation to Obligee,
specifically including without limitation future loans and
advances, and funding agreements, and further including without
limitation any instruments, agreements, or documents effecting
any extensions, renewals, and rearrangements of any Obligation
Document, amendments and modifications thereto, and substitutions
therefor; and
(vi) As a part of the foregoing, Guarantor hereby
guarantees the performance of the Required Shareholders, as
identified in the said Acquisition / Merger Agreement, in the
performance by each of said Required Shareholders of each
obligation of such Required Shareholder under the said
Acquisition / Merger Agreement, including without limitation any
obligation to cause Guarantor or Obligor to perform any act
required to cause performance of obligations thereunder by
Guarantor or Obligor.
effective until the same have been performed, paid, and satisfied in
full. It is expressly agreed and confirmed that the guarantees by
Guarantor hereunder shall survive beyond payment of money, endorsement
over of the note, and delivery of the share of stock by Obligor to
Obligee under 2.1.3 and 2.1.4 of the said Acquisition / Merger
Agreement, and until all obligations of Obligor under any of the
Obligation Documents have been fully performed, paid, and satisfied. The
obligations of Obligor guaranteed hereunder include without limitation
all acts and omissions of all affiliates of Obligor which Obligor is
obligated to influence under any of the Obligation Documents, such that
should any affiliate fail to perform or forbear from performing any act,
or to effect or refrain from effecting any result, which Obligor is
obligated under any of the Obligation Documents to influence, then such
failure by such affiliate shall be deemed a failure of the herein
guaranteed performance by Obligor.
B. The prompt and complete performance in accordance with their
terms of any and all of the obligations of Obligor under each of the
Obligation Documents; and of all warranties, representations, and
covenants made by or imposed upon Obligor thereunder, and Guarantor
agrees that upon failure, refusal, or neglect of Obligor to fulfill any
obligation or covenant or maintain in effect any condition or fact as
warranted or covenanted, Guarantor will immediately do so.
As used herein the term "Guaranteed Obligations" means all obligations and
indebtedness of Obligor described in this Paragraph 1 as guaranteed by
Guarantor, including without limitation the acts and omissions of affiliates of
Obligor, as described in subparagraph 1.A above. This Guaranty Agreement shall
be in favor of each of Charles D. McPhail, and each of the Other Shareholders,
as defined in the said Security Agreement.
2. Term. The obligations of Guarantor as to the Guaranteed Obligations
shall continue in full force and effect against Guarantor for the unpaid balance
and the unperformed obligations guaranteed hereby until same are paid in full
and/or fully performed. This Guaranty covers any and all of the Guaranteed
Obligations, whether presently outstanding or arising subsequent to the date
hereof, including all amounts advanced by Obligee in stages or installments, and
all future loans and advances from Obligee to Obligor. This Guaranty is binding
upon and enforceable against Guarantor and the heirs, legal representatives,
personal representatives, executors, administrators, assigns, and successors of
Guarantor.
3. Waiver of Rights. Guarantor hereby waives (a) notice of acceptance
hereof (which acceptance is conclusively presumed by delivery of an executed
copy hereof to Obligee); (b) grace, demand, presentment, and protest with
respect to each and any of the Guaranteed Obligations or to any instrument,
agreement, or document evidencing or creating same; (c) notice of or as to
grace, demand, presentment, and protest; (d) notice of non-payment or other
defaults, of intention to accelerate, and of acceleration; (e) notice of and/or
any right to consent or object to the assignment of any interest in the
Guaranteed
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<PAGE> 2
Obligations, the creation, advancement, accrual, renewal, increase, extension,
or rearrangement of the Guaranteed Obligations and the amendment and/or
modification of any of the instruments, agreements, and documents executed in
connection with the Guaranteed Obligations; (f) filing of suit and diligence by
Obligee in collection or enforcement of the Guaranteed Obligations; (g) any
obligation on the part of Obligee or any other party to proceed first against
Obligor in the enforcement of any Guaranteed Obligation; and (h) any other
notice regarding the Guaranteed Obligations.
4. Release of Collateral, Parties Liable, etc. Guarantor agrees that
Obligee may at any time, and from time to time, at Obligee's discretion and with
or without notice or consideration to or consent from any party: (a) allow
substitution or withdrawal of any collateral or other security for the
Guaranteed Obligations; (b) release, sell, or otherwise realize upon any
collateral or other security for the Guaranteed Obligations; (c) release any
party liable on the Guaranteed Obligations, including Obligor or any other
guarantor; (d) extend, renew, or rearrange all or any part of the Guaranteed
Obligations at any time and from time to time, whether or not for a term or
terms in excess of the original term thereof; and (e) modify or amend any of the
instruments, agreements, and documents executed in connection with the
Guaranteed Obligations. Any of such actions may be taken without impairing or
diminishing the obligations of Guarantor hereunder. The liability of Guarantor
shall not be impaired or reduced by Obligee's failure, refusal, or neglect to
collect the Guaranteed Obligations, or by loss or subordination of any other
collateral or guaranty, or by the existence of any indebtedness of Obligor to
Obligee other than the Guaranteed Obligations. In addition, the liability of
Guarantor shall not be impaired or reduced by the taking of any other security
or guaranty for the Guaranteed Obligations in addition to the security or
guaranties presently existing.
5. Primary Liability of Guarantor. This is a guaranty of payment and
performance, and Guarantor agrees that Obligee is not required, as a condition
to establishing Guarantor's liability hereunder, to proceed against any person
(including Obligor), or against any security or collateral to which Obligee is
entitled to look for payment and performance of the Guaranteed Obligations, and
further agrees not to assert any defense (other than payment or accord and
satisfaction) available to Obligor against Obligee with regard to the Guaranteed
Obligations, any defense based upon an election of remedies of any type, any
defense based on any duty of Obligee to disclose information of any type to
Guarantor regarding Obligor or the Guaranteed Obligations, and any claim that
Guarantor may have against Obligee by virtue of Obligee's failure to exercise
any rights against Obligor, however arising. Guarantor waives any right or claim
to force Obligee to proceed first against Obligor or any other guarantor as to
any of the Guaranteed Obligations or other obligations of Obligor. Obligor
agrees that no delay or refusal of Obligee to exercise any right or privilege
Obligee has or may have against Obligor (whether arising from any documents
executed by Obligor, or from any law, order, rule, or regulation, or otherwise)
shall operate to impair the liability of Guarantor hereunder. Guarantor agrees
that neither insanity, minority, other disability, bankruptcy, insolvency,
cessation of existence, or dissolution of Obligor, or of any party acting for or
on behalf of Obligor, or of any of the affiliates of Obligor, or of any other
guarantor now or hereafter existing in connection with the Guaranteed
Obligations, nor any allegation of fraud, usury, failure of consideration,
forgery, or other defense, whether or not known to Obligee (even though
rendering all or any part of the Guaranteed Obligations void or unenforceable or
uncollectible as against Obligor or any other guarantor) shall in any manner
impair, affect, or release the liability of Guarantor hereunder, and Guarantor
shall be and remain fully liable hereunder.
6. Subordination and Waiver of Subrogation. Guarantor hereby fully
subordinates the payment of all indebtedness and performance of all obligations
owing to Guarantor by Obligor (including principal and interest) to the prior
payment of all indebtedness and performance of all obligations of Obligor to
Obligee (including principal and interest, including interest accruing after any
insolvency or reorganization proceeding as to Obligor), and agrees not to accept
any payment on, or performance of, the same until payment in full of the
Guaranteed Obligations, at the option of Obligee, and not to attempt to set off
or reduce any obligations hereunder because of such indebtedness. Guarantor
further subordinates any lien or security interest that Guarantor may have on or
in any collateral or security now or hereafter securing payment of the
Guaranteed Obligations, to the liens on and security interests, if any, in such
collateral and security in favor of Obligee. Until all of the Guaranteed
Obligations shall have been paid or performed in full, Guarantor shall have no
right of subrogation or any other right to enforce any remedy which Obligee now
has or may hereafter have against Obligor, and Guarantor waives any benefit of,
or right to participate in, any security now or hereafter held by Obligee,
whether or not Guarantor has paid to or performed for Obligee any part less than
all of the Guaranteed Obligations.
7. Place of Performance: Attorneys' Fees. All payments to be made and
obligations to be performed hereunder shall be payable or performable at the
address of Obligee in the county and state specified herein, or as changed by
notice as hereinafter provided. If it becomes necessary for Obligee to enforce
this Guaranty by legal action, Guarantor hereby waives the right to be sued in
the county or state of Guarantor's residence and agrees to submit to the
jurisdiction and venue of the appropriate federal, state, or other governmental
court in such county and state of Obligee's address hereunder. Guarantor
unconditionally agrees to pay Obligee's collection expenses including court
costs and reasonable attorneys' fees if enforcement hereof is placed in the
hands of an attorney, including, but expressly not limited to, enforcement by
suit or through probate, bankruptcy, or any judicial proceedings.
8. Additional Liability of Guarantor. If Guarantor is or becomes liable
for any indebtedness of Obligor to Obligee other than the Guaranteed Obligations
by endorsement or otherwise than under this Guaranty, such liability shall not
be in any manner impaired or reduced hereby but shall have all and the same
force and effect it would have had if this Guaranty had not existed, and
Guarantor's liability hereunder shall not be in any manner impaired or reduced
thereby.
9. Cumulative Rights. All rights of Obligee hereunder or otherwise
arising under any documents executed in connection with or as security for the
Guaranteed Obligations are separate and cumulative and may be pursued
separately, successively, or concurrently, or not pursued, without affecting or
limiting any other right of Obligee and without affecting or impairing the
liability of Guarantor.
10. Governing Law; Jurisdiction and Venue. The laws of the State of
Texas shall govern the validity, construction, enforcement, and interpretation
hereof and the obligations, liabilities, rights, remedies, powers, and
privileges of the parties hereto under this agreement. Each party submits to the
personal jurisdiction of the state and federal courts sitting in Houston, Harris
County, Texas. This agreement is executed by the parties in Harris County,
Texas; performance by Debtor is due in Houston, Harris County, Texas; and venue
is permissive for all disputes arising hereunder in the federal and state courts
sitting in Houston, Harris County, Texas.
11. Usury. Notwithstanding any other provisions herein contained, no
provision of this Guaranty shall require or permit the collection from Guarantor
of interest in excess of the maximum rate or amount that Guarantor may be
required or permitted to pay to Obligee pursuant to applicable law and as to
which Guarantor could not successfully assert the claim or defense of usury. The
parties hereto make a part hereof, as if set out herein, Paragraph G(9) of the
Security Agreement of even date herewith from Guarantor, as Debtor therein, to
Obligee, as Secured Party therein.
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<PAGE> 3
12. Indebtedness Not Guaranteed. If, at any time, Obligor is indebted to
Obligee on obligations not guaranteed hereby ("Other Indebtedness"), (i) Obligee
may apply all sums received by Obligee from any source (other than from
realization on security provided under any document which expressly secures all
or any part of the Guaranteed Obligations, but does not secure Other
Indebtedness) to the Other Indebtedness before applying any of the same to the
Guaranteed Obligations; and (ii) Obligee without in any manner impairing its
rights hereunder may, at Obligee's option, exercise any right of offset first
against the Other Indebtedness.
13. Obligee's Assigns. This Guaranty is intended for and shall inure to
the benefit of Obligee and each and every person who shall from time to time be
or become the owner or holder or party entitled to receive or benefit from of
all or any part of the Guaranteed Obligations, and each and every reference
herein to "Obligee" shall include and refer to each and every successor or
assignee of Obligee at any time holding or owning or entitled to any part of or
any interest in any part of the Guaranteed Obligations. This Guaranty shall be
transferable and negotiable with the same force and effect, and to the same
extent, that the Guaranteed Obligations are transferable and negotiable, it
being understood and stipulated that upon assignment or transfer by Obligee of
any of the Guaranteed Obligations the legal holder or owner of said Guaranteed
Obligations (or a part thereof or interest therein thus transferred or assigned)
shall (except as otherwise stipulated by Obligee in its assignment or other
transfer) have and may exercise all of the rights granted to Obligee under this
Guaranty to the extent of that part of or interest in the Guaranteed Obligations
thus assigned or transferred.
14. Notices. Any notice under or by reason of this agreement shall be in
writing and shall be effective upon delivery to the party to whom it is intended
or upon either (a) the mailing thereof enclosed in a proper mailing wrapper
addressed to the party for whom it is intended, via certified or registered
mail, postage prepaid, to the address for that party stated above or such
subsequent address for that party hereunder, or (b) the depositing thereof with
a commercial delivery service, so wrapped and addressed, with the charges
arranged to be paid by shipper, or (c) the transmission thereof by telecopier or
facsimile machine, so long as a confirmation copy is thereafter mailed to the
addressee within three (3) days of completion of the transmission. The addresses
of the parties for purposes of notice shall be the addresses set out herein for
the respective parties, subject to notice of change of address as herein
provided.
15. Payments; Cash Equivalent. Obligee may apply any payments received
from any source against that portion of the Guaranteed Obligations (principal,
interest, court costs, attorneys' fees or other) in such priority and fashion as
Obligee may deem appropriate, in Obligee's sole and absolute discretion. Upon
invocation of any right of recovery by Obligee hereunder, each of the Secured
Obligations as to which Obligee's rights hereunder are invoked may be given, by
Obligee in Obligee's reasonable discretion, a cash value, as the cash equivalent
thereof, and that cash equivalent shall be the value to be satisfied by
Guarantor in lieu of other method of performance of the Secured Obligation or
Obligations not properly satisfied by Obligor, and interest shall accrue on the
cash equivalent of each such Secured Obligation from the date of breach by
Obligor until payment of the appropriate cash equivalent by Guarantor.
16. Limitation on Guaranty. This Guaranty is limited only in accordance
with the terms and conditions of Paragraph 1 above, if at all.
17. Multiple Guarantors. If there are more than one Guarantor named
above, the duties and obligations of Guarantor hereunder shall be joint and
several. This agreement shall apply to each Guarantor separately, just as if
that Guarantor had executed a separate agreement containing all of the terms and
conditions hereof. At any time and from time to time, Obligee may assert any
right or privilege hereunder, or pursue any remedy or remedies hereunder,
against any one or more Guarantors named herein without asserting or waiving any
one or more of those rights and privileges against any other of the Guarantors.
18. Multiple Counterparts. This Guaranty may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute but one instrument.
IN WITNESS WHEREOF, this instrument is executed as of the date first
above written.
GUARANTOR:
MEGAWORLD, INC.
By: /s/ Irwin C. Roll
-----------------
Name: Irwin C. Roll
Office: President
OBLIGEE:
/s/ Charles D. McPhail
----------------------
CHARLES D. McPHAIL, in the
capacities above-referenced
[w7 tbs]mwguar
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Continuing and Unconditional Guaranty Agreement
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<PAGE> 1
EXHIBIT 8.9
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 11th day of November,
1998, by and between TEXAS TBS, INC., a Texas corporation whose address for
purposes of this Agreement is 6250 North Houston Rosslyn Road Houston, Texas
77091-3410, as indemnitor; and CHARLES D. McPHAIL ("CDMP" herein), whose address
for purposes of this Agreement is 15411 Fawn Villa, Houston, Texas 77068, as
indemnitee; WITNESSETH THAT:
WHEREAS, TOTAL BUILDING SYSTEMS, INC. is merging with TEXAS TBS, INC.,
and TEXAS TBS, INC. will be the survivor of that merger, as provided in that
certain Plan of Merger of even date herewith by and between the parties hereto;
and
WHEREAS, TOTAL BUILDING SYSTEMS, INC. is an active business entity and
a going concern with debts and obligations to third parties, incurred in the
ordinary course of business and otherwise; and
WHEREAS, under Article 5.06 of the Texas Business Corporation Act, upon
the merger the existence of TOTAL BUILDING SYSTEMS, INC. will cease, and the
ownership of property and allocation of liabilities and obligations of TOTAL
BUILDING SYSTEMS, INC. will vest in and be allocated to TEXAS TBS, INC.; and
WHEREAS, under that certain Acquisition / Merger Agreement dated
November 11, 1998, by and between MEGAWORLD, INC., TOTAL BUILDING SYSTEMS, INC.,
and CDMP, both MEGAWORLD and TEXAS TBS, INC. must each indemnify CDMP from and
against certain risks and liabilities; and
WHEREAS, CDMP, individually and as a shareholder of TOTAL BUSINESS
SYSTEMS, INC., entered into the said Acquisition / Merger Agreement and is
participating in the above-described merger in reliance upon compliance by
MEGAWORLD, INC. and TEXAS TBS, INC. with the terms and conditions of the
Acquisition / Merger Agreement, including without limitation execution of, and
compliance with, this agreement by TEXAS TBS, INC.;
NOW, THEREFORE, for and in consideration of the premises, TEXAS TBS,
INC. does hereby agree to defend, indemnify, and hold harmless CDMP, his agents,
personal representatives, heirs, successors, and assigns from and against all
loss, cost, risk, and expense arising from, or in any manner related to, any
obligation of TOTAL BUSINESS SYSTEMS, INC. ("TBS" herein), including without
limitation the following:
1. All obligations of TBS for which CDMP has given a personal guarantee
(or acted as co-signer or co-obligor) to any extent, and particularly
including without limitation any and all debt and other obligations of
TBS to Compass Bank and all obligations of CDMP under any guarantee of
any part thereof; and
2. Any and all loss, cost, risk, expense, claims, demands, causes of
action, and liabilities arising out of, or in any manner related to,
CDMP's capacity heretofore as an officer or director, or both, of TBS,
including without limitation any and all acts and omissions in either
capacity, and even including the negligence of CDMP, to the maximum
extent that TBS could have so indemnified CDMP under the Texas Business
Corporation Act, except for acts and omissions by CDMP which have been
found by final judgment of a court of competent jurisdiction to have
been gross negligence, violation of fiduciary duty, or crime of moral
turpitude; and the indemnity hereunder shall extend to all expenses
actually and necessarily incurred by CDMP in connection with the
defense of any action, suit, or proceeding in which CDMP is made a
party by reason of being or having been such director or officer,
including without limitation costs of investigation, expert witness
fees, travel expenses, and attorney's fees and
Page 1
Indemnification Agreement Initials of Texas TBS: /s/CDM
Indemnitor: Texas TBS, Inc.
Indemnitee: Charles D. McPhail Initials of CDMP: /s/CDM
<PAGE> 2
3. All losses, costs, claims, demands, suits, liability, and expense with
respect to TBS which arise out of or relate to the ownership or
operation of the assets of TBS by TEXAS TBS, INC. and MegaWorld, or
either of them, or which in any manner relate to the condition of the
premises and equipment for any event which may occur or condition which
may arise from and after the Closing under the Acquisition / Merger
Agreement.
TEXAS TBS, INC. does further agree to defend, indemnify, and hold
harmless TBS and CDMP and their respective officers, directors, agents,
servants, employees, affiliated companies, heirs, successors, assigns, and
personal representatives from and against any and all loss, cost, risk, and
expense arising directly or indirectly, whether before or after Closing under
the Acquisition / Merger Agreement, from the failure, or alleged failure, by
TEXAS TBS, INC. and MegaWorld, or either of them, to comply with any applicable
governmental laws, orders, rules, and regulations, or failure to comply with any
obligations, terms, or conditions of any contract, obligation, or agreement of
TBS.
TEXAS TBS, INC. further does hereby release, forever discharge, and
acquit CDMP, his successors, assigns, agents, servants, and personal
representatives, of and from any and all claims, demands, damages, actions,
causes of action, and liabilities of whatsoever kind or nature, whether
heretofore or hereafter accruing, or whether now known or unknown by the
parties, for or on account of any matter or thing done, omitted, or suffered to
be done by CDMP in his capacity as an officer or director or both of TBS.
The shareholders of TEXAS TBS, INC. join in execution of this
instrument it evidence their consent hereto and to adopt, ratify, and confirm
this agreement. MegaWorld, Inc. and CDMP are all of the shareholders of TEXAS
TBS, INC.
The indemnification and releases provided for herein shall be given the
broadest interpretation so as to provide the maximum protection for CDMP, his
agents, personal representatives, heirs, successors, and assigns.
INDEMNITOR: INDEMNITEE:
TEXAS TBS, INC.
/s/ Charles D. McPhail
----------------------
By: /s/ Charles D. McPhail CHARLES D. McPHAIL
----------------------
Charles D. McPhail, President
SHAREHOLDERS OF INDEMNITOR:
MEGAWORLD, INC.
/s/ Charles D. McPhail
----------------------
By: /s/ Irwin C. Roll CHARLES D. McPHAIL
-----------------
Name: Irwin C. Roll
Office: President
[w7 tbs]tbstxindemn
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Indemnification Agreement Initials of Texas TBS: /s/CDM
Indemnitor: Texas TBS, Inc.
Indemnitee: Charles D. McPhail Initials of CDMP: /s/CDM
<PAGE> 1
EXHIBIT 8.10
ASSUMPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the 11th day of November,
1998, by and between TEXAS TBS, INC., a Texas corporation whose address for
purposes of this Agreement is 6250 North Houston Rosslyn Road Houston, Texas
77091-3410; and TOTAL BUILDING SYSTEMS, INC. ("TBS" herein), a Texas corporation
whose address for purposes of this Agreement is 6250 North Houston Rosslyn Road
Houston, Texas 77091-3410; WITNESSETH THAT:
WHEREAS, TOTAL BUILDING SYSTEMS, INC. is merging with TEXAS TBS, INC.,
and TEXAS TBS, INC. will be the survivor of that merger, as provided in that
certain Plan of Merger of even date herewith by and between the parties hereto;
and
WHEREAS, TOTAL BUILDING SYSTEMS, INC. is an active business entity and
a going concern with debts and obligations to third parties, incurred in the
ordinary course of business and otherwise; and
WHEREAS, under Article 5.06 of the Texas Business Corporation Act, upon
the merger the existence of TOTAL BUILDING SYSTEMS, INC. will cease, and the
ownership of property and allocation of liabilities and obligations of TOTAL
BUILDING SYSTEMS, INC. will vest in and be allocated to TEXAS TBS, INC.;
NOW, THEREFORE, for and in consideration of the premises, and in
compliance with statutory authority, TEXAS TBS, INC. does hereby agree that upon
the filing of the Articles of Merger effecting the merger of TEXAS TBS, INC. and
TOTAL BUILDING SYSTEMS, INC.:
1. All rights, title, and interests to all real estate and other property
owned by Total Business Systems, Inc. shall, upon the filing of the
Articles of Merger, be allocated to and vested in Texas TBS, Inc.,
without reversion or impairment, without further act or deed, and
without any transfer or assignment having occurred, but subject to any
existing liens or other encumbrances thereon.
2. All liabilities and obligations of Total Business Systems, Inc. shall,
upon the filing of the Articles of Merger, be allocated to Texas TBS,
Inc., and Texas TBS, Inc. shall be the primary obligor therefor to the
extent that Total Business Systems, Inc. was the primary obligor before
the filing of these articles, including without limitation the
following:
a. The mortgage debt secured by deed of trust covering the real
property described in Exhibit A attached hereto and made a
part hereof for all purposes; and
b. All debt of Total Business Systems, Inc. for which Charles D.
McPhail may have contingent liability as a cosigner,
guarantor, or otherwise, including the mortgage debt described
in section 2.a above; and
c. That certain Employment Agreement dated effective January 1,
1996, by and between Total Business Systems, Inc., as
Employer, and Charles D. McPhail, as Employee; and
d. That certain lease agreement dated January 8, 1998, by and
between Stolhaven Houston Inc., as Landlord, and Total
Business Systems, Inc., as Tenant, covering the real property
located at 15630 Jacintoport Blvd., Houston, Texas
e. All subleases to which Total Business Systems, Inc. is a
sublessor covering any part of the real property covered by
the lease agreement identified in section 2.d above.
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Assumption Agreement
Texas TBS, Inc.
<PAGE> 2
3. This Agreement is also intended to be a third-party beneficiary
contract for the benefit of Charles D. McPhail, and Texas TBS, Inc.
agrees to indemnify Charles D. McPhail from and against any and all
loss, cost, risk, and expense heretofore incurred as an officer,
director, shareholder, guarantor, surety, co-signer, or co-obligor of
Total Business Systems, Inc., which indemnification is more fully set
out in that certain Indemnification Agreement of even date herewith by
and between Texas TBS, Inc. and Charles D. McPhail.
4. Texas TBS, Inc. agrees, confirms, and acknowledges that this Agreement
is a requirement of the said Plan of Merger, and is entered into by
Texas TBS, Inc. as an inducement for Total Business Systems, Inc. and
Charles D. McPhail to participate in the merger under said Plan of
Merger.
5. This Agreement may be recorded in the real property records of each or
any county in which Total Business Systems, Inc. owns any interest in
real property, or has any leasehold or other right of possession of
real property, and is acknowledged by the parties for that purpose.
IN WITNESS WHEREOF, this instrument is executed as of the date first
above written.
TEXAS TBS, INC. TOTAL BUSINESS SYSTEMS, INC.
By: /s/ Charles D. McPhail By: /s/ Charles D. McPhail
----------------------------- -----------------------------
Charles D. McPhail, President Charles D. McPhail, President
STATE OF NEW YORK
COUNTY OF NEW YORK
This instrument was acknowledged before me on November 11,
1998, by CHARLES D. McPHAIL, as President of TEXAS TBS, INC.
My commission expires: /s/ Ann Sierra
May 8, 1999 Notary Public in and for the
State of New York.
STATE OF NEW YORK
COUNTY OF NEW YORK
This instrument was acknowledged before me on November 11,
1998, by CHARLES D. McPHAIL, as President of TOTAL BUSINESS SYSTEMS, INC.
My commission expires: /s/ Ann Sierra
May 8, 1999 Notary Public in and for the
State of New York.
Page 2
Assumption Agreement
Texas TBS, Inc.
